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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 2001
REGISTRATION STATEMENT NO. 333-67408
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BROWN & BROWN, INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 6411 59-0864469
------- ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
220 SOUTH RIDGEWOOD AVENUE
DAYTONA BEACH, FLORIDA 32114
(386) 252-9601
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
LAUREL L. GRAMMIG, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
401 EAST JACKSON STREET, SUITE 1700
TAMPA, FLORIDA 33602
(813) 222-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
CHESTER E. BACHELLER, ESQ.
HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602
PHONE: (813) 227-6431
FAX: (813) 229-0134
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective time of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ____________
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Proposed
Proposed Maximum Maximum
Amount to be Offering Price Aggregate Amount of
Title of Each Class of Securities Registered per Share Offering Price Registration
to be Registered (1) (1)(2)(3) (3) Fee(4)
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Common Stock, par value $.10 per share.......... 686,059 $ 9.16 $ 6,288,169 $ 1,573
=====================================================================================================================
(1) Represents the estimated maximum number of shares of the common stock of the
Registrant that may be issued to the holders of shares of common stock of
Raleigh, Schwarz & Powell, Inc. pursuant to an Agreement and Plan of
Reorganization, dated as of July 25, 2001, as amended. To the extent a greater
number of shares of common stock are required to be issued pursuant to the terms
of the Agreement and Plan of Reorganization due to a decrease in stock price,
then such greater number of shares shall be deemed to be registered by this
Registration Statement.
(2) Calculated by dividing the proposed maximum aggregate offering price by the
estimated number of shares of the Registrant common stock being registered on
this Registration Statement.
(3) Calculated pursuant to Rule 457(f) of the Securities Act of 1933, as
amended, on the basis of the book value, as of December 31, 2000, of the shares
of Raleigh, Schwarz & Powell to be acquired by the Registrant in the merger.
(4) The registration fee was previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THE SECURITIES OFFERED BY THIS PROSPECTUS UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
SUBJECT TO COMPLETION, DATED OCTOBER 2, 2001
(RALEIGH, SCHWARZ & POWELL LOGO) (BROWN & BROWN LOGO)
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Brown & Brown, Inc. and Raleigh, Schwarz &
Powell, Inc. have agreed to the merger of Raleigh, Schwarz & Powell and a
wholly-owned subsidiary of Brown & Brown. Your vote, as a shareholder of
Raleigh, Schwarz & Powell or as a participant in its Employee Stock Ownership
Plan ("ESOP"), is now needed to approve the merger.
In the merger, Brown & Brown will issue shares of Brown & Brown common
stock in exchange for all outstanding shares of Raleigh, Schwarz & Powell common
stock. Brown & Brown common stock is traded on The New York Stock Exchange under
the symbol "BRO." After the merger, Raleigh, Schwarz & Powell will be a
wholly-owned subsidiary of Brown & Brown and will change its name to "Brown &
Brown of Washington, Inc."
The Raleigh, Schwarz & Powell board has unanimously approved the merger and
recommends that you approve it. The Raleigh, Schwarz & Powell board has
scheduled a special meeting for Raleigh, Schwarz & Powell's shareholders to
approve the merger. The special meeting will be held:
Thursday, October 25, 2001
8:30 a.m., Pacific Time
1201 Pacific Avenue, Ninth Floor
Education Center
Tacoma, Washington 98402
If you are a direct shareholder, please take the time to vote by completing
and returning the enclosed proxy card in the enclosed postage-paid envelope.
Even if you plan to attend the special meeting, please complete and return the
enclosed proxy card. ESOP participants should complete the enclosed ESOP
direction letter and return it in the enclosed postage-paid envelope. The ESOP
direction letter will direct the ESOP fiduciary, Consulting Fiduciaries, Inc.,
how to vote the shares of Raleigh, Schwarz & Powell common stock allocated to
your ESOP account at the special meeting. If you are both a direct shareholder
and an ESOP participant, you should complete and return both a proxy card and an
ESOP direction letter.
If you are a direct shareholder, please also execute, as applicable, the
enclosed indemnification agreement, contribution agreement, escrow agreement,
non-competition agreement, release and spousal consent. Each of these agreements
is attached as an annex to the accompanying proxy statement/prospectus and is
more fully described in the accompanying proxy statement/prospectus under the
heading "Other Agreements."
This document serves as a prospectus of Brown & Brown relating to the
issuance of shares of Brown & Brown common stock in connection with the proposed
merger and a proxy statement of Raleigh, Schwarz & Powell in connection with the
special meeting of shareholders of Raleigh, Schwarz & Powell to approve the
merger. We encourage you to read this entire document carefully. Please see
"Where You Can Find More Information" on page 83 for additional information
about Brown & Brown on file with the Securities and Exchange Commission.
The accompanying notice of meeting and proxy statement/prospectus explain
the proposed merger and provide specific information concerning the special
meeting. Please read these materials carefully.
YOU SHOULD ALSO CAREFULLY CONSIDER THE RISK FACTORS IN THE MERGER DESCRIBED
BEGINNING ON PAGE 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the shares of Brown & Brown common stock
to be issued in connection with the merger, or determined if this proxy
statement/prospectus is truthful or complete. Any representation to the contrary
is a criminal offense. This proxy statement/prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction where an offer or solicitation would be illegal.
This proxy statement/prospectus is dated October , 2001 and is expected
to be first sent or given to shareholders and ESOP participants on October ,
2001.
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RALEIGH, SCHWARZ & POWELL, INC.
1201 PACIFIC AVENUE, SUITE 1000
TACOMA, WASHINGTON 98402
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On October 25, 2001
To the Shareholders of Raleigh, Schwarz & Powell, Inc.:
Notice is hereby given that a special meeting of shareholders of
Raleigh, Schwarz & Powell, Inc. will be held on Thursday, October 25, 2001, at
8:30 a.m., Pacific Time, at 1201 Pacific Avenue, Ninth Floor, Education Center,
Tacoma, Washington 98402.
You are cordially invited to attend the special meeting. The purpose of
the special meeting is to consider and vote on a proposal to approve and adopt
the Agreement and Plan of Reorganization, dated as of July 25, 2001, as amended,
among Brown & Brown, Inc., Brown & Brown of Washington, Inc., Raleigh, Schwarz &
Powell, Inc. and the Raleigh, Schwarz & Powell, Inc. Employee Stock Ownership
Plan ("ESOP"). Pursuant to the merger agreement, Raleigh, Schwarz & Powell will
become a wholly-owned subsidiary of Brown & Brown through the merger of Brown &
Brown of Washington, Inc., with and into Raleigh, Schwarz & Powell. Upon
completion of the merger, each share of Raleigh, Schwarz & Powell common stock
outstanding immediately prior to the merger will be cancelled and converted into
the right to receive shares of Brown & Brown common stock, and the Raleigh,
Schwarz & Powell shareholders will receive, based on their respective ownership
interests in Raleigh, Schwarz & Powell, a number of shares of Brown & Brown
common stock equal to:
- the difference of $32,896,490 minus 82.24% of the amount by which the
consolidated total net worth (as defined in the merger agreement) of
Raleigh, Schwarz & Powell and its affiliate, Golden Gate Holdings,
Inc., is less than $13,000,000 at the effective time of the merger,
divided by
- the average closing price of Brown & Brown common stock as reported on
The New York Stock Exchange for the 20 consecutive trading day period
ending at the close of business on the third business day before the
merger becomes effective.
This proposal is more fully described later in the proxy
statement/prospectus attached to this notice.
Only shareholders of record at the close of business on September 28,
2001 are entitled to notice of and to vote at the special meeting and any
adjournments or postponements of the special meeting. Participants in the ESOP
who have shares allocated to their accounts at the close of business on
September 28, 2001, are eligible to instruct the ESOP fiduciary, Consulting
Fiduciaries, Inc., on the voting of those shares by completing, signing and
timely returning the enclosed ESOP direction letter.
Your vote is important. Even if you plan to attend the special meeting,
please vote now. To vote as a shareholder, please complete, date and sign the
enclosed proxy card and promptly return it in the envelope provided. To vote as
an ESOP participant, please complete, date and sign the enclosed ESOP direction
letter and promptly return it in the envelope provided.
By order of the Board of Directors,
Secretary
TACOMA, WASHINGTON
OCTOBER __, 2001
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TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................................................... 1
SUMMARY.......................................................................................................... 5
RISK FACTORS..................................................................................................... 12
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS....................................................... 18
THE RALEIGH, SCHWARZ & POWELL SPECIAL MEETING.................................................................... 19
General.................................................................................................... 19
Record Date; Quorum........................................................................................ 19
Required Vote.............................................................................................. 19
Voting and Revocation of Proxies and ESOP Direction Letters................................................ 20
Solicitation of Proxies and ESOP Direction Letters......................................................... 20
Surrender of Certificates.................................................................................. 21
Dissenters' Rights......................................................................................... 21
THE MERGER....................................................................................................... 22
Background of the Merger................................................................................... 22
Brown & Brown Reasons for the Merger....................................................................... 24
Raleigh, Schwarz & Powell Reasons for the Merger........................................................... 24
Recommendation of Raleigh, Schwarz & Powell Board of Directors............................................. 25
Opinion of the ESOP Fiduciary's Financial Advisor.......................................................... 25
Interests of Executive Officers of Raleigh, Schwarz & Powell............................................... 30
Completion and Effectiveness of the Merger................................................................. 30
Treatment of Raleigh, Schwarz & Powell Common Stock........................................................ 30
Exchange of Raleigh, Schwarz & Powell Stock Certificates for Brown & Brown Stock Certificates.............. 30
Accounting Treatment....................................................................................... 31
Regulatory Approvals....................................................................................... 31
Impact on the ESOP......................................................................................... 31
Material Federal Income Tax Considerations................................................................. 31
Dissenters' Rights......................................................................................... 33
Restrictions on Sales of Shares by Affiliates.............................................................. 33
Operations Following the Merger............................................................................ 33
THE MERGER AGREEMENT............................................................................................. 34
General.................................................................................................... 34
Exchange of Shares......................................................................................... 34
Dissenters' Rights......................................................................................... 34
Representations and Warranties............................................................................. 34
Charter Documents of the Surviving Corporation............................................................. 36
Fees and Expenses of the Merger............................................................................ 36
Conditions to Completion of the Merger..................................................................... 36
Termination................................................................................................ 37
Extension and Waiver....................................................................................... 38
OTHER AGREEMENTS................................................................................................. 38
Escrow Agreements.......................................................................................... 38
Indemnification Agreement between Shareholders and Brown & Brown........................................... 38
Release.................................................................................................... 39
Spousal Consent............................................................................................ 39
Employment Agreements...................................................................................... 39
Non-competition Agreements................................................................................. 39
Contribution Agreement..................................................................................... 40
DIRECTORS AND MANAGEMENT OF BROWN & BROWN FOLLOWING THE MERGER................................................... 41
Directors and Executive Officers........................................................................... 41
Executive Compensation..................................................................................... 44
Option Grants in 2000...................................................................................... 45
Aggregate Option Exercises in 2000......................................................................... 45
Long-Term Incentive Plans - Awards in Last Fiscal Year..................................................... 46
Employment and Deferred Compensation Agreements............................................................ 46
Compensation Committee Interlocks and Insider Participation................................................ 47
Board Compensation Committee Report on Executive Compensation.............................................. 47
Transactions with Management and Others.................................................................... 49
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INFORMATION FOR ESOP PARTICIPANTS................................................................................ 50
ESOP Participants Eligible to Instruct the ESOP............................................................ 50
Effect of ESOP Participants' Instructions.................................................................. 50
How to Instruct the ESOP Fiduciary......................................................................... 50
Failure to Sign, Complete or Return an ESOP Direction Letter............................................... 51
Confidentiality............................................................................................ 51
MARKET PRICE AND DIVIDEND INFORMATION............................................................................ 52
Brown & Brown.............................................................................................. 52
Raleigh, Schwarz & Powell.................................................................................. 52
DESCRIPTION OF BROWN & BROWN..................................................................................... 53
General.................................................................................................... 53
Divisions.................................................................................................. 54
Employees.................................................................................................. 57
Competition................................................................................................ 57
Regulation, Licensing and Agency Contracts................................................................. 58
Properties................................................................................................. 58
Legal Proceedings.......................................................................................... 60
DESCRIPTION OF RALEIGH, SCHWARZ & POWELL......................................................................... 61
BROWN & BROWN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 62
General.................................................................................................... 62
Results of Operations for the Six Months Ended June 30, 2001 and Six Months Ended June 30, 2000............ 63
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998................................. 64
Liquidity and Capital Resources............................................................................ 65
Quantitative And Qualitative Disclosures About Market Risk................................................. 66
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF RALEIGH, SCHWARZ & POWELL.................... 67
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BROWN & BROWN................................ 68
DESCRIPTION OF BROWN & BROWN CAPITAL STOCK....................................................................... 70
Common Stock............................................................................................... 70
Rights Plan................................................................................................ 70
Certain Provisions of the Brown & Brown Articles of Incorporation and Bylaws............................... 72
Certain Provisions of Florida Law.......................................................................... 73
COMPARISON OF SHAREHOLDER RIGHTS................................................................................. 74
LEGAL MATTERS.................................................................................................... 82
EXPERTS.......................................................................................................... 82
WHERE YOU CAN FIND MORE INFORMATION.............................................................................. 83
INDEX TO FINANCIAL STATEMENTS.................................................................................... F-1
ANNEX A - AGREEMENT AND PLAN OF REORGANIZATION.................................................... ANNEX A-1
ANNEX B - FORM OF INDEMNIFICATION AGREEMENT BETWEEN
SHAREHOLDERS AND BROWN & BROWN....................................................... ANNEX B-1
ANNEX C - FORM OF CONTRIBUTION AGREEMENT.......................................................... ANNEX C-1
ANNEX D - FORM OF ESCROW AGREEMENT BETWEEN SHAREHOLDERS
(OTHER THAN THE ESOP) AND BROWN & BROWN.............................................. ANNEX D-1
ANNEX E - FORM OF ESCROW AGREEMENT BETWEEN ESOP AND
BROWN & BROWN........................................................................ ANNEX E-1
ANNEX F - FORM OF RELEASE......................................................................... ANNEX F-1
ANNEX G - FORM OF SPOUSAL CONSENT................................................................. ANNEX G-1
ANNEX H - FORM OF NON-COMPETITION AGREEMENT....................................................... ANNEX H-1
ANNEX I - OPINION OF THE ESOP FIDUCIARY'S FINANCIAL ADVISOR....................................... ANNEX I-1
ANNEX J - TITLE 23B OF THE WASHINGTON BUSINESS CORPORATION
ACT CHAPTER 23B.13 DISSENTERS' RIGHTS................................................ ANNEX J-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly
some commonly asked questions regarding the merger. These questions and answers
may not address all questions that may be important to you as a Raleigh, Schwarz
& Powell shareholder. Please refer to the more detailed information contained
elsewhere in this proxy statement/prospectus and the annexes attached to this
proxy statement/prospectus.
Q: WHAT IS THE MERGER?
A: In the merger, a wholly-owned subsidiary of Brown & Brown, named Brown
& Brown of Washington, Inc., will be merged with and into Raleigh,
Schwarz & Powell. Raleigh, Schwarz & Powell will survive the merger as
a wholly-owned subsidiary of Brown & Brown and will change its name to
"Brown & Brown of Washington, Inc." The filing of articles of merger in
the office of the Secretary of State of the State of Washington is
referred to in this proxy statement/prospectus as the effective time of
the merger.
For a more complete description of the merger, see the section entitled
"The Merger" on page 22.
Q: WHAT WILL THE SHAREHOLDERS OF RALEIGH, SCHWARZ & POWELL RECEIVE IN THE
MERGER?
A: Upon completion of the merger, each share of Raleigh, Schwarz & Powell
common stock then outstanding will be cancelled and converted into the
right to receive shares of Brown & Brown common stock, and the Raleigh,
Schwarz & Powell shareholders will receive, based on their respective
ownership interests in Raleigh, Schwarz & Powell, shares of Brown &
Brown common stock equal to:
- $32,896,490 minus 82.24% of the amount by which the total
consolidated net worth (as defined in the merger agreement) of
Raleigh, Schwarz & Powell and its affiliate, Golden Gate
Holdings, Inc., is less than $13,000,000 at the effective time
of the merger, divided by
- the average of the closing prices of Brown & Brown common
stock as reported on The New York Stock Exchange for the 20
consecutive trading day period ending at the close of business
on the third business day immediately before the merger
becomes effective.
The following table provides hypothetical calculations of the number of
shares of Brown & Brown common stock to be issued to Raleigh, Schwarz
and Powell shareholders as if the merger had become effective on July
25, 2001, the date on which the merger agreement was signed, and on
September 28, 2001, the record date. These calculations are provided as
examples only, as the actual number of shares of Brown & Brown common
stock to be issued to Raleigh, Schwarz & Powell shareholders cannot be
determined until the completion of the merger.
Solely for the purpose of illustrating the calculation of the number of
shares of Brown & Brown common stock to be issued in the merger, the
following hypothetical calculations assume that: (1) 183,115(1) shares
of Raleigh, Schwarz & Powell common stock are issued and outstanding;
and (2) the consolidated total net worth of Raleigh, Schwarz & Powell
and its affiliate, Golden Gate Holdings, Inc., is $13,000,000, at the
effective time of the merger.
Average Closing Number of Shares of
Price of Brown & Brown Common Equivalent Price of
Brown & Brown Stock to be Issued Per Share Raleigh, Schwarz &
Date Common Stock of Raleigh, Schwarz & Powell Powell Common Stock
---- --------------- ---------------------------- --------------------
July 25, 2001 $ 43.9735 4.0854 $ 179.65
September 28, 2001 $ 44.5990 4.0281 $ 179.65
(1) This number excludes 1,543 shares registered in the names of
two former employees and held in escrow under pledge
agreements to secure Raleigh, Schwarz & Powell's payment for
those shares in annual payments through 2003. With Brown &
Brown's consent, Raleigh, Schwarz & Powell may pre-pay the
amounts owed, and obtain possession of the pledged shares,
prior to the closing of the merger. Upon termination of the
pledge, the shares shall become authorized but unissued shares
of Raleigh, Schwarz & Powell.
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Q: WILL A PORTION OF THE SHARES ISSUED IN THE MERGER BE PLACED IN ESCROW?
A: Yes. As a condition of the merger, 10% of the shares of Brown & Brown
common stock otherwise deliverable upon the merger to each holder of
Raleigh, Schwarz & Powell common stock will be deposited in escrow.
Accordingly, Raleigh, Schwarz & Powell shareholders will not receive
10% of the initial merger consideration to which they would otherwise
be entitled at the effective time of the merger. Escrowed shares that
are not needed to satisfy Brown & Brown's indemnification claims made
within one year after the effective time of the merger will be
distributed to the former Raleigh, Schwarz & Powell shareholders, and
the Raleigh, Schwarz & Powell Employee Stock ownership Plan ("ESOP") or
its participants, pro rata. Subject to certain restrictions set forth
in the indemnification agreement or the merger agreement, the escrow
agent may sell any or all of the escrowed shares in brokers'
transactions on any national securities exchange upon which such
securities are traded, provided the proceeds of any such sale or
transfer remain in escrow until one year after the effective time of
the merger. For a more complete description of the indemnification and
escrow arrangements, see the section entitled "Other
Agreements--Indemnification Agreement between Shareholders and Brown &
Brown" on page 38 and "--Escrow Agreements" on page 38.
Q: WHAT ARE THE RALEIGH, SCHWARZ & POWELL SHAREHOLDERS AND THE ESOP
PARTICIPANTS BEING ASKED TO APPROVE?
A: The Raleigh, Schwarz & Powell shareholders and the ESOP participants
are being asked to approve the merger agreement, the merger and the
related transactions, which are collectively sometimes referred to in
this proxy statement/prospectus as the proposal.
Q: DOES THE BOARD OF DIRECTORS OF RALEIGH, SCHWARZ & POWELL RECOMMEND
VOTING IN FAVOR OF THE PROPOSAL?
A: Yes. After careful consideration, Raleigh, Schwarz & Powell's board of
directors recommends that its shareholders vote FOR the proposal.
For a more complete description of the recommendation of Raleigh,
Schwarz & Powell's board of directors, see the section entitled "The
Merger--Recommendation of Raleigh, Schwarz & Powell Board of Directors"
on page 25.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: Yes. We have set out under the heading "Risk Factors" beginning on page
12 of this proxy statement/prospectus a number of risk factors that you
should carefully consider before voting.
Q: HOW DO DIRECT SHAREHOLDERS VOTE?
A: If you are a direct shareholder, you may choose one of the following
ways to cast your vote:
- by completing the enclosed proxy card and returning it in the
enclosed postage-paid envelope; or
- by appearing and voting in person at the special meeting.
If you return your signed proxy card but fail to mark whether you are
voting FOR or against the proposal, your shares will be voted for
approval of the proposal.
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Q: HOW DO ESOP PARTICIPANTS VOTE?
A: A separate ESOP direction letter for ESOP participants is included with
this proxy statement/prospectus. Please complete and mail your signed
ESOP direction letter in the enclosed return envelope as soon as
possible, so that it is received no later than October 23, 2001. The
Board of Trustees of the ESOP (the "ESOP trustee") has appointed an
independent fiduciary, Consulting Fiduciaries, Inc. (the "ESOP
fiduciary"), to act as an "investment manager" within the meaning of
Section 3(38) of ERISA. Participants may direct the ESOP fiduciary as
to how to vote the shares in each participant's account. The ESOP
fiduciary will tabulate the votes received from the ESOP participants
and will provide instructions to the ESOP trustee as to the voting of
such shares as directed by the ESOP participants. The ESOP trustee will
vote all unallocated ESOP shares and any ESOP shares not directed by a
participant, in the manner directed by the ESOP fiduciary, subject to
the ESOP trustee's fiduciary obligations under ERISA.
Q: WHAT DO I NEED TO DO NOW?
A: Direct Raleigh, Schwarz & Powell shareholders should mail their
completed and signed proxy card in the enclosed postage-paid envelope
addressed to Vandeberg Johnson & Gandara as soon as possible. Such
direct shareholders should also execute each of the enclosed ancillary
agreements and mail each of the signed documents, along with your
Raleigh, Schwarz & Powell stock certificates, in the enclosed
postage-paid envelope.
ESOP participants should mail their completed and signed direction
letter in the enclosed, postage-paid envelope addressed to the ESOP
fiduciary, Consulting Fiduciaries, Inc. If you are both a direct
shareholder and an ESOP participant, you should complete and return
both the proxy card to Vandeberg Johnson & Gandara and the ESOP
direction letter to Consulting Fiduciaries, Inc.
You are urged to read this proxy statement/prospectus carefully,
including all of the annexes, and to consider how the merger will
affect you as a shareholder and/or an ESOP participant.
Q: MAY I CHANGE MY VOTE?
A: If you are a shareholder, you may withdraw your proxy or change your
vote by:
- sending written revocation of your proxy;
- submitting a new properly completed and signed proxy by mail;
or
- voting in person at the Raleigh, Schwarz & Powell special
meeting.
If you are an ESOP participant, you are not entitled to revoke or
change your ESOP direction letter.
Q: SHOULD I SEND IN RALEIGH, SCHWARZ & POWELL STOCK CERTIFICATES NOW?
A: Yes. If you are a direct Raleigh, Schwarz & Powell shareholder, please
return your Raleigh, Schwarz & Powell stock certificates in the
envelope provided. Upon completion of the merger and receipt of your
Raleigh, Schwarz & Powell stock certificates and any other required
documents, your Raleigh, Schwarz & Powell stock certificates will be
canceled and you will receive Brown & Brown stock certificates
representing the number of whole shares of Brown & Brown common stock
to which you are entitled under the merger agreement.
If you are an ESOP participant, the ESOP trustee, as record holder of
the shares of Raleigh, Schwarz & Powell common stock allocated to your
ESOP account, will surrender the stock certificates representing such
shares.
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9
Q: WHEN WILL I BE ABLE TO SELL MY SHARES?
A: Upon completion of the merger, subject to restrictions relating to
pooling-of-interests accounting, all shares of Brown & Brown common
stock received by Raleigh, Schwarz & Powell shareholders in connection
with the merger will be tradeable on The New York Stock Exchange. If a
shareholder is considered an affiliate of Raleigh, Schwarz & Powell or
Brown & Brown under the Securities Act of 1933, as amended (the
"Securities Act"), in order to sell shares of Brown & Brown common
stock, that shareholder must comply with the resale provisions of Rule
145(d) under the Securities Act or sell the shares as otherwise
permitted under the Securities Act.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Brown & Brown and Raleigh, Schwarz & Powell are working toward
completing the merger as soon as practicable after the Raleigh, Schwarz
& Powell shareholders approve the proposal. However, the merger is
subject to a number of conditions, including, but not limited to, Brown
& Brown's satisfaction, in its sole discretion, with the results of its
due diligence investigation of Raleigh, Schwarz & Powell. We hope to
complete the merger by the end of October 2001.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: Brown & Brown and Raleigh, Schwarz & Powell expect that if the merger
is completed, you will not recognize gain or loss for federal income
tax purposes. You are urged to consult your own tax advisor to
determine your particular tax consequences.
For a more complete description of the tax consequences of the merger,
see the section entitled "The Merger--Material Federal Income Tax
Considerations" on page 31.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: If the merger occurs, Raleigh, Schwarz & Powell shareholders who do not
vote their Raleigh, Schwarz & Powell shares in favor of the merger may
be entitled to dissenters' rights under Washington law. ESOP
participants are not entitled to dissenters' rights.
For a more complete description of dissenters' rights, see the section
entitled "The Raleigh, Schwarz & Powell Special Meeting--Dissenters'
Rights" on page 21.
Q: WHOM SHOULD I CONTACT WITH QUESTIONS?
A: If you have more questions about the merger, you should contact:
Raleigh, Schwarz & Powell, Inc.
1201 Pacific Avenue, Suite 1000
Tacoma, Washington 98402
Attn: John P. Folsom
Phone: (253) 396-5500
If you are an ESOP participant, you can also contact:
Consulting Fiduciaries, Inc.
400 Skokie Boulevard
Suite 260
Northbrook, Illinois 60062
Attn: Sy Zilberstein
Phone: (847) 559-9837
You may also obtain additional information about Brown & Brown from
documents filed with the Securities and Exchange Commission by
following the instructions in the section entitled "Where You Can Find
More Information" on page 83.
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SUMMARY
This summary, together with the preceding Questions and Answers
section, highlights selected information from this proxy statement/prospectus
and may not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the terms of
the merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
83. We have included page references parenthetically to direct you to a more
complete description of the topics in this summary.
THE COMPANIES (PAGES 53 TO 61)
Brown & Brown, Inc.
401 East Jackson Street, Suite 1700
Tampa, Florida 33602
Phone: (813) 222-4100
Brown & Brown is a diversified insurance brokerage and agency that
markets and sells primarily property and casualty insurance products and
services to its clients. Because Brown & Brown does not engage in underwriting
activities, it does not assume underwriting risks. Instead, Brown & Brown acts
in an agency capacity to provide its clients with targeted, customized risk
management products.
Raleigh, Schwarz & Powell, Inc.
1201 Pacific Avenue, Suite 1000
Tacoma, Washington 98402
Phone: (253) 396-5500
Raleigh, Schwarz & Powell is a property/casualty and employee benefits
insurance consulting and brokerage firm providing services to both commercial
and individual customers throughout the Pacific Northwest. Although its target
geographic market runs along the "I-5 corridor" from Northern California into
Canada, Raleigh, Schwarz & Powell services clients located as far south as San
Diego and Los Angeles and as far north as Alaska from three main offices:
Seattle, Washington, San Rafael, California, and its headquarters in Tacoma,
Washington.
THE MERGER (PAGE 22)
In the merger, a wholly-owned subsidiary of Brown & Brown will merge
with and into Raleigh, Schwarz & Powell, and as a result, Raleigh, Schwarz &
Powell will be the surviving corporation of the merger and will change its name
to "Brown & Brown of Washington, Inc." If the merger becomes effective, each
share of Raleigh, Schwarz & Powell common stock then outstanding will be
cancelled and converted into the right to receive shares of Brown & Brown common
stock, and the Raleigh, Schwarz & Powell shareholders will receive, based on
their respective ownership interests in Raleigh, Schwarz & Powell, shares of
Brown & Brown common stock equal to:
- $32,896,490 minus 82.24% of the amount by which the total
consolidated net worth (as defined in the merger agreement) of
Raleigh, Schwarz & Powell and its affiliate, Golden Gate
Holdings, Inc., is less than $13,000,000 at the effective time
of the merger, divided by
- the average of the closing prices of Brown & Brown common
stock as reported on The New York Stock Exchange for the 20
consecutive trading day period ending at the close of business
on the third business day immediately before the merger
becomes effective.
The Agreement and Plan of Reorganization, or merger agreement, is
attached to this proxy statement/prospectus as Annex A. Brown & Brown and
Raleigh, Schwarz & Powell encourage you to read the merger agreement carefully.
REASONS FOR THE MERGER (PAGES 24 TO 25)
Following are the principal reasons why the Raleigh, Schwarz & Powell
board of directors approved the merger:
- For over twelve years Raleigh, Schwarz & Powell has used the
federal income tax benefits available through its ESOP to
provide the liquidity to repurchase the shares of retiring
shareholders and ESOP
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participants. Raleigh, Schwarz & Powell projects that the
volume of retirement purchases in the next two to ten years
will outstrip the ESOP's capacity to acquire shares on a
tax-beneficial basis.
- Acquiring shares of retiring shareholders and ESOP
participants with after-tax cash flow will inhibit Raleigh,
Schwarz & Powell's ability to remain competitive by limiting
the cash and other resources available to continue the
expansion necessary to effectively compete, given the
consolidation activity in the insurance brokerage industry.
- Raleigh, Schwarz & Powell faces increased competition from
larger brokers with new local offices. To remain competitive
and achieve greater revenue mass, Raleigh, Schwarz & Powell
needs to continue to acquire smaller regional brokers. Without
a liquid stock to use as consideration in acquisitions,
further expansion is expected to become more difficult.
- Exchanging Raleigh, Schwarz & Powell common stock for publicly
traded Brown & Brown common stock is expected to increase
shareholders' liquidity.
- Raleigh, Schwarz & Powell will no longer be required to
purchase for cash the shares of Raleigh, Schwarz & Powell
stock distributed by the ESOP to participants who retire or
leave the company.
- The merger provides Raleigh, Schwarz & Powell's shareholders
with the opportunity to participate in a combined entity with
greater financial stability and the potential for increased
economic growth and diversification.
- The merger may result in cost savings.
In short, the Raleigh, Schwarz & Powell board of directors believes
that the merger offers Raleigh, Schwarz & Powell's shareholders, customers and
employees a unique opportunity to realize the benefits created by combining the
two companies.
The Brown & Brown board of directors believes that the merger presents
Brown & Brown with an opportunity to expand its geographical presence consistent
with its overall business strategy. The Brown & Brown board of directors also
believes that there are opportunities to increase the efficiency of the combined
companies.
The Raleigh, Schwarz & Powell board of directors believes that the
terms of the merger are fair to, and in the best interests of, Raleigh, Schwarz
& Powell and its shareholders. The board of directors has unanimously approved
the merger agreement and the merger, and recommends that you vote FOR the
proposal to approve the merger agreement and the merger.
The potential benefits of the merger may not be achieved. See the
sections entitled "Risk Factors--Risks Related to the Merger" on page 12, "The
Merger-- Brown & Brown Reasons for the Merger" on page 24 and "The
Merger--Raleigh, Schwarz & Powell Reasons for the Merger" on pages 24 to 25.
OPINION OF THE ESOP FIDUCIARY'S FINANCIAL ADVISOR (PAGE 25)
Duff & Phelps LLC was retained by the ESOP fiduciary and ESOP trustee
to advise it as to the fairness of the terms and conditions of the merger, on
account of the shares of Raleigh, Schwarz & Powell common stock held by the
ESOP. On July 25, 2001, Duff & Phelps delivered to the ESOP fiduciary and ESOP
trustee its written opinion that, as of such date and based upon and subject to
the matters set forth therein, the terms and conditions of the merger, including
the aggregate consideration to be received in the merger by the shareholders of
Raleigh, Schwarz & Powell and its affiliate, Golden Gate Holdings, Inc., are
fair and reasonable to the ESOP from a financial point of view. A copy of the
written opinion of Duff & Phelps is attached to this proxy statement/prospectus
as Annex I.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 36)
The completion of the merger is subject to the prior satisfaction of a
number of conditions, including the following:
- approval of the merger, the merger agreement and the related
transactions by the holders of at least two-thirds of the
outstanding shares of common stock of Raleigh, Schwarz &
Powell;
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- Brown & Brown and Raleigh, Schwarz & Powell will have timely
obtained all governmental approvals, and no law or order
preventing the completion of the merger will have been
enacted;
- execution of employment agreements with Brown & Brown by those
employees of Raleigh, Schwarz & Powell specified in a schedule
to the merger agreement to be delivered prior to completion of
the merger;
- execution of non-competition agreements by those Raleigh,
Schwarz & Powell shareholders specified in a schedule to the
merger agreement to be delivered prior to completion of the
merger;
- the truth and correctness, in all material respects, of the
representations and warranties of Brown & Brown, Raleigh,
Schwarz & Powell and Brown & Brown of Washington, Inc. in the
merger agreement as of the effective time of the merger;
- Brown & Brown's and Brown & Brown of Washington, Inc.'s
satisfaction, in their sole discretion, with the results of
Brown & Brown's due diligence investigation of Raleigh,
Schwarz & Powell;
- the Securities and Exchange Commission declaring effective the
registration statement on Form S-4, of which this proxy
statement/prospectus is a part, registering the issuance of
Brown & Brown common stock in the merger;
- Brown & Brown and Raleigh, Schwarz & Powell will have
performed in all material respects all obligations required to
be performed by them under the merger agreement;
- Raleigh, Schwarz & Powell's receipt of a legal opinion from
the Assistant General Counsel of Brown & Brown;
- Brown & Brown's and Brown & Brown of Washington, Inc.'s
receipt of a legal opinion from counsel to Raleigh, Schwarz &
Powell;
- Brown & Brown's and Brown & Brown of Washington, Inc.'s
confirmation of its belief when it signed the letter of intent
that the merger and the issuance of Brown & Brown common stock
will qualify for treatment for accounting purposes as a
pooling-of-interests transaction, and the exercise by holders
of no more than 10% of the outstanding shares of Raleigh,
Schwarz & Powell common stock of dissenters' rights;
- delivery by Raleigh, Schwarz & Powell of those schedules
required under the merger agreement, in form and substance
satisfactory to Brown & Brown and Brown & Brown of Washington,
Inc.;
- execution of an escrow agreement by Brown & Brown and each of
the Raleigh, Schwarz & Powell shareholders (excluding the
ESOP), in the form attached to this proxy statement/prospectus
as Annex D;
- execution of an escrow agreement by Brown & Brown and the ESOP
in the form attached to this proxy statement/prospectus as
Annex E;
- execution of a release by each of the Raleigh, Schwarz &
Powell shareholders in the form attached to this proxy
statement/prospectus as Annex F;
- execution of an indemnification agreement by Brown & Brown and
each of the Raleigh, Schwarz & Powell shareholders (excluding
the ESOP), in the form attached to this proxy
statement/prospectus as Annex B; and
- delivery by each of the Raleigh, Schwarz & Powell shareholders
of his or her Raleigh, Schwarz & Powell stock certificates.
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RECORD DATE; VOTE REQUIRED FOR APPROVAL (PAGE 19)
You may vote for approval of the merger if you owned Raleigh, Schwarz &
Powell common stock at the close of business on September 28, 2001. If you had
shares of Raleigh, Schwarz & Powell common stock allocated to your ESOP account
at the close of business on September 28, 2001, you are eligible to direct the
ESOP fiduciary on the voting of those shares by completing, signing and timely
returning the enclosed ESOP direction letter to the ESOP fiduciary.
Under applicable law and under Raleigh, Schwarz & Powell's charter
documents, the affirmative vote of holders of at least two-thirds of the shares
of Raleigh, Schwarz & Powell common stock outstanding on the record date is
required to approve the merger.
As of the record date, Raleigh, Schwarz & Powell had 183,115 shares of
common stock outstanding, which number excludes 1,543 shares registered in the
names of two former employees and held in escrow under pledge agreements to
secure Raleigh, Schwarz & Powell's payment for those shares in annual payments
through 2003. With Brown & Brown's consent, Raleigh, Schwarz & Powell may
pre-pay the amounts owed, and obtain possession of the pledged shares, prior to
the closing of the merger. Upon termination of the pledge, the shares shall
become authorized but unissued shares of Raleigh, Schwarz & Powell. Each share
of Raleigh, Schwarz & Powell common stock outstanding on the record date
entitles its holder to one vote. As of the record date, the directors, executive
officers of Raleigh, Schwarz & Powell and their affiliates beneficially owned
common stock representing approximately 18.56% of all the outstanding shares of
Raleigh, Schwarz & Powell common stock. As of the record date, the ESOP held
116,340 shares of Raleigh, Schwarz & Powell common stock (including shares held
by former employees who have not received final payment for their account, which
shares the ESOP shall vote according to the direction letters executed by such
former employees).
ESCROW AGREEMENTS (PAGE 38)
As a condition of the merger, each Raleigh, Schwarz & Powell
shareholder must execute and deliver an escrow agreement, under which 10% of the
total number of shares of Brown & Brown common stock otherwise deliverable upon
the effective time of the merger to each holder of Raleigh, Schwarz & Powell
common stock will be deposited in escrow to secure the indemnification
obligations of such shareholders. Accordingly, Raleigh, Schwarz & Powell
shareholders will not receive 10% of the initial merger consideration to which
they would otherwise be entitled at the effective time of the merger. The
escrowed shares will remain available to compensate Brown & Brown for one year
from the effective time of the merger. If a claim is asserted prior to the
one-year anniversary of the closing and the claim has not been resolved by the
one-year anniversary, shares will remain in escrow in an amount sufficient to
satisfy the claim until the claim has been resolved, even if the one-year period
has elapsed. Escrowed shares that are not needed to satisfy indemnification
claims made within one year after the effective time of the merger will be
distributed to the former Raleigh, Schwarz & Powell shareholders, and the ESOP
or its participants, pro rata.
INDEMNIFICATION AGREEMENT BETWEEN THE SHAREHOLDERS AND BROWN & BROWN (PAGE 38)
As a condition of the merger, other than the ESOP, each Raleigh,
Schwarz & Powell shareholder must execute and deliver an indemnification
agreement that provides that such Raleigh, Schwarz & Powell shareholder will
jointly and severally indemnify Brown & Brown for certain damages. Raleigh,
Schwarz & Powell shareholders will not be required to indemnify Brown & Brown
unless the aggregate claims for such damages exceed $25,000, and only to the
extent such claims exceed such initial $25,000. The maximum indemnification
obligation of the shareholders as a whole is limited to the aggregate value, as
of the effective time of the merger, of the Brown & Brown shares of common stock
received in the merger; provided, however, that the maximum liability of each
shareholder who owns less than 2,000 shares of Raleigh, Schwarz & Powell common
stock prior to July 25, 2001, and certain shareholders named in the
indemnification agreement shall be limited to the aggregate value, as of the
effective time of the merger, of the merger consideration received by such
shareholder.
TERMINATION OF THE MERGER AGREEMENT (PAGE 37)
Before completion of the merger, the merger agreement may be terminated
by the parties' mutual consent. In addition, subject to qualifications, the
merger agreement may be terminated by either of the parties under any of the
following circumstances:
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- if the merger is not completed by August 31, 2001, provided
that if delays in the registration of the Brown & Brown common
stock prevent the merger from occurring by that date, then the
parties shall agree to extend the termination date to November
30, 2001;
- if any permanent injunction or other order of a court or other
competent authority preventing consummation of the merger
shall have become final and non-appealable; or
- if there shall have been a material breach of any
representation, warranty, covenant or agreement by the
non-terminating party which breach shall not have been cured
prior to the consummation of the merger.
On August 31, 2001, the parties agreed to extend the termination date
of the merger agreement to November 30, 2001.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 31)
Brown & Brown intends to account for the merger as a
pooling-of-interests for financial reporting and accounting purposes under
generally accepted accounting principles.
INTERESTS OF EXECUTIVE OFFICERS OF RALEIGH, SCHWARZ & POWELL (PAGE 30)
In considering the recommendation of the Raleigh, Schwarz & Powell
board of directors, you should be aware that John P. Folsom, President of
Raleigh, Schwarz & Powell, has interests in the merger that are different from,
or in addition to, those of Raleigh, Schwarz & Powell shareholders generally. As
a condition of the merger, Mr. Folsom is required to enter into an employment
agreement, generally upon the same terms and conditions as all other employees
of Raleigh, Schwarz & Powell, that provides for his continued employment with
the surviving corporation of the merger. As a result of these interests, Mr.
Folsom could be more likely to vote in favor of the proposal than shareholders
without these interests.
DISSENTERS' RIGHTS (PAGE 21)
Raleigh, Schwarz & Powell shareholders may dissent by voting against
the merger. A dissenting holder who complies with the requirements of the
Washington Business Corporation Act will have the right to demand payment for,
and appraisal of, the value of his shares. In the event that a holder exercises
such dissenters' rights, the aggregate consideration to be received by Raleigh,
Schwarz & Powell shareholders will be reduced by the number of shares of Brown &
Brown common stock that such dissenting shareholder would have received in the
merger. Under applicable law, no dissenting shareholder has any right to contest
the validity of the merger or to have the merger set aside or rescinded, except
in an action to test whether the number of shares or other interests required to
approve the merger have been legally voted in favor of the merger or unless the
merger is fraudulent with respect to the shareholder or the corporation. ESOP
participants do not have dissenters' rights.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS (PAGE 31)
We have attempted to structure the merger so that, in general, Brown &
Brown, Brown & Brown's shareholders, Raleigh, Schwarz & Powell and Raleigh,
Schwarz & Powell's shareholders will not recognize gain or loss for federal
income tax purposes in connection with the merger.
Tax matters are very complicated, and the tax consequences of the
merger to you will depend on the facts of your own situation. You should consult
your tax advisor for a full understanding of the tax consequences of the merger
to you.
COMPARISON OF SHAREHOLDER RIGHTS (PAGE 74)
The rights of shareholders of Raleigh, Schwarz & Powell as shareholders
of Brown & Brown after the merger will be governed by Brown & Brown's existing
amended and restated articles of incorporation and its existing amended and
restated bylaws. Those rights significantly differ from the current rights of
Raleigh, Schwarz & Powell shareholders under Raleigh, Schwarz & Powell's
articles of incorporation and bylaws.
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MARKET PRICE INFORMATION (PAGE 52)
Shares of Brown & Brown common stock are listed on The New York Stock
Exchange. On June 28, 2001, the last full trading day prior to the public
announcement of the proposed merger, Brown & Brown's common stock closed at
$42.10 per share. On October 1, 2001, the latest practicable date before the
printing of this proxy statement/prospectus, Brown & Brown's common stock closed
at $53.25 per share. The common stock of Raleigh, Schwarz & Powell is not traded
on an established public trading market. The companies urge you to obtain
current market quotations for the Brown & Brown common stock.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS
INCLUDED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER. IN PARTICULAR, YOU SHOULD READ THE DOCUMENTS
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE MERGER AGREEMENT,
WHICH IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX A.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF BROWN & BROWN
The following table sets forth Brown & Brown's selected consolidated
financial data for each of the five years ended December 31, 2000 and the
six-month periods ended June 30, 2001 and 2000, respectively. Such information
has been prepared from the audited consolidated financial statements and the
unaudited consolidated financial statements of Brown & Brown. You should read
this information together with the audited consolidated financial statements and
other financial information contained elsewhere in this proxy
statement/prospectus.
Six Months Ended
June 30,(1) Year ended December 31,(2)
--------------------- ------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
INCOME STATEMENT DATA:
Commissions and fees(3) ............ $157,615 $112,195 $204,862 $183,681 $167,532 $149,819 $139,390
Total revenues ..................... 160,735 114,703 209,706 188,391 171,485 156,200 145,200
Total expenses ..................... 120,202 87,843 155,728 144,382 132,882 124,655 116,460
Income before taxes ................ 40,533 26,860 53,978 44,009 38,603 31,545 28,740
Net income ......................... 24,733 16,494 33,186 26,789 23,562 19,188 17,685
PER SHARE DATA:
Net income per share ............... 0.82 0.56 1.16 0.94 0.83 0.68 0.63
Weighted average number of
shares outstanding:
Basic ........................... 29,766 29,353 28,660 28,437 28,378 28,233 28,063
Diluted ......................... 30,090 29,379 28,663 28,445 28,380 28,251 28,125
Dividends declared per share ....... 0.1500 0.1300 0.2700 0.2300 0.2050 0.1767 0.1633
Six Months Ended
June 30, Year ended December 31,
--------------------- ------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
BALANCE SHEET DATA:
Total assets ....................... 444,678 269,223 276,719 244,423 241,196 217,604 201,044
Long-term debt ..................... 82,832 5,995 2,736 5,086 18,922 7,905 7,214
Shareholders' equity(4) ............ 139,910 109,736 121,911 103,005 84,117 77,006 68,255
(1) All share and per-share information has been restated to give effect to
the two-for-one common stock split, which became effective August 23,
2000. The stock split was effected as a stock dividend. Prior year
results have been restated to reflect, among other acquisitions, the
stock acquisitions of The Flagship Group, WMH and Huffman & Associates,
and Mangus Insurance & Bonding in 2000; The Huval Companies, Spencer &
Associates and SAN of East Central Florida in the first quarter of
2001; and The Young Agency, Inc. in the second quarter of 2001.
(2) All share and per-share information has been restated to give effect to
the three-for-two common stock split, which became effective February
27, 1998 and the two-for-one common stock split, which became effective
August 23, 2000. Each stock split was effected as a stock dividend.
Prior years' results have been restated to reflect, among other
acquisitions, the stock acquisitions of Daniel-James in 1998;
Ampher-Ross and Signature Insurance Group in 1999; Bowers, Schumann &
Welch, the Flagship Group, WMH and Huffman & Associates, and Mangus
Insurance & Bonding in 2000. This information is consistent with the
Company's Annual Report on Form 10-K for the year ended December 31,
2000.
(3) See Notes 2 and 3 to consolidated financial statements for information
regarding business purchase transactions which impacts the
comparability of this information.
(4) Shareholders' equity as of December 31, 2000, 1999, 1998, 1997 and 1996
included net increases of $2,495,000, $4,922,000, $5,540,000,
$6,744,000 and $6,511,000, respectively, as a result of the company's
application of SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities."
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RISK FACTORS
You should carefully consider the following matters in deciding whether
to vote in favor of the merger. These matters have been grouped under two
separate headings: "Risks Related to the Merger," which discusses the risks of
combining our companies, risks under the merger agreement and potential
conflicts of interest, and "Industry and Business Risks," which discusses the
risks of the industry and our business. Unless the context otherwise requires,
the terms "we," "us," "our" and "Brown & Brown" refer to Brown & Brown, Inc. See
"Cautionary Statement Concerning Forward-Looking Statements."
RISKS RELATED TO THE MERGER
BROWN & BROWN AND RALEIGH, SCHWARZ & POWELL MAY NOT ACHIEVE THE
BENEFITS THEY EXPECT FROM THE MERGER.
Brown & Brown and Raleigh, Schwarz & Powell will need to successfully
execute a number of post-merger tasks in order to realize any benefits or
synergies from the merger. Key tasks include:
- retaining and assimilating the key personnel of Raleigh,
Schwarz & Powell;
- successfully marketing the existing products and services of
each company to the other company's users and customers;
- developing new services that utilize the assets of both
companies;
- maintaining existing relationships with partners and
establishing new partner relationships; and
- maintaining uniform standards, controls, procedures and
policies.
The successful execution of these post-merger tasks will involve
considerable risk and may not be successful. These risks include:
- the potential disruption of each company's ongoing business
and distraction of its management;
- the difficulty of incorporating acquired technology and rights
in the combined company's products and services;
- unanticipated expenses relating to technology integration;
- the impairment of relationships with customers, users and
employees as a result of any problems with the integration of
services and personnel; and
- potential unknown liabilities associated with the acquired
business.
If the combined company does not succeed in addressing these risks or
any other problems encountered in connection with the merger, it may not achieve
the benefits it expects from the merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY AFFECT THE OPERATING
RESULTS OF BROWN & BROWN AND RALEIGH, SCHWARZ & POWELL.
If the merger is not completed for any reason, Brown & Brown and
Raleigh, Schwarz & Powell may experience a number of adverse consequences,
including the following:
- the price of Brown & Brown common stock may decline to the
extent that the current market price of Brown & Brown common
stock reflects a market assumption that the merger will be
completed;
- an adverse reaction for investors and potential investors of
both companies, reducing the value of their stock and their
future financing opportunities; and
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- the parties' costs related to the merger, including legal and
accounting fees, will be paid even if the merger is not
completed.
THE MERGER COULD HARM KEY THIRD PARTY RELATIONSHIPS.
The proposed merger may harm the present and potential relationships of
Brown & Brown and Raleigh, Schwarz & Powell with customers and other third
parties with whom they have relationships. Uncertainties following the merger
may cause these parties to delay decisions regarding these relationships. Any
changes in these relationships could harm the surviving company's business.
Raleigh, Schwarz & Powell could experience a decrease in expected revenue as a
consequence of uncertainties associated with the merger.
THE ANNOUNCEMENT OF THE MERGER AGREEMENT COULD RESULT IN LOSS OF
EMPLOYEES BEFORE COMPLETION OF THE MERGER.
Employees of a company are often uncertain as to their future
employment during the period between the time the company enters into a merger
agreement and the time the merger is completed. It is possible that employees
will seek employment elsewhere. Whether or not the merger occurs, Raleigh,
Schwarz & Powell may not be able to retain some of its key employees. If any of
Raleigh, Schwarz & Powell's key employees leave, its business, results of
operations and financial condition could suffer.
THE EXECUTIVE OFFICERS OF RALEIGH, SCHWARZ & POWELL HAVE DIFFERENT
INTERESTS FROM YOURS THAT MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The executive officers of Raleigh, Schwarz & Powell have interests that
are different from, or are in addition to, those of Raleigh, Schwarz & Powell
shareholders generally. Specifically, the executive officers of Raleigh, Schwarz
& Powell will become employees of the surviving corporation, and each of the
executive officers will enter into employment agreements with the surviving
corporation. As a result, these executive officers could be more likely to vote
to approve the proposal than Raleigh, Schwarz & Powell shareholders who do not
have these interests.
ISSUANCE OF ADDITIONAL SHARES OF BROWN & BROWN MAY REDUCE BROWN &
BROWN'S SHARE PRICE.
In connection with the merger, Brown & Brown will issue new shares of
its common stock to current Raleigh, Schwarz & Powell shareholders. The total
number of shares of Brown & Brown common stock to be issued to Raleigh, Schwarz
& Powell shareholders will not be determined until the effective time of the
merger, and will depend upon the price of Brown & Brown common stock, which may
fluctuate significantly. The issuance of additional shares of Brown & Brown
common stock in the merger will dilute Brown & Brown's results of operations on
a per-share basis. This dilution could reduce the market price of Brown & Brown
common stock unless and until the combined company achieves revenue growth or
cost savings and other business economies sufficient to offset the effect of the
issuance of additional shares. There can be no assurance that Brown & Brown will
achieve revenue growth, cost savings or other business economies from the
merger.
A PORTION OF YOUR SHARES WILL BE HELD IN ESCROW FOR A PERIOD OF AT
LEAST ONE YEAR.
Upon completion of the merger, 10% of the shares of Brown & Brown
common stock issued at the closing of the merger to the Raleigh, Schwarz &
Powell shareholders will be delivered to an escrow agent to secure the
indemnification obligations of Raleigh, Schwarz & Powell shareholders. The
escrowed shares, or any proceeds thereof, are to remain in escrow until one year
after the closing of the merger. If Brown & Brown successfully asserts a claim
while the escrowed shares remain in escrow, you may not receive all or part of
the escrowed shares.
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INDUSTRY AND BUSINESS RISKS
WE CANNOT ACCURATELY FORECAST OUR COMMISSION REVENUES BECAUSE OUR
COMMISSIONS DEPEND ON PREMIUM RATES CHARGED BY INSURANCE COMPANIES, WHICH
HISTORICALLY HAVE VARIED AND, AS A RESULT, HAVE BEEN DIFFICULT TO PREDICT.
We are primarily engaged in insurance agency and brokerage activities,
and derive revenues from commissions paid by insurance companies and fees for
administration and benefit consulting services. We do not determine insurance
premiums. Historically, property and casualty premiums have been cyclical in
nature and have varied widely based on market conditions. Since the mid-1980s,
general premium levels have been depressed as a result of the expanded
underwriting capacity of insurance companies and increased competition. In many
cases, insurance companies have lowered commission rates and increased volume
requirements. Significant reductions in premium rates occurred during the years
1986 through 1998 and continued, although to a lesser degree, through 1999. As a
result of increasing "loss ratios" (the comparison of incurred losses plus loss
adjustment expense against earned premiums) of insurance carriers through 1999,
there was a general increase in premium rates beginning in the first quarter of
2000 and continuing through the second quarter of 2001. Although the premium
increases varied by line of business, geographical region, insurance carrier and
specific underwriting factors, it was the first time since 1986 that we operated
in an environment of increased premiums for four consecutive quarters. Premium
rates are determined by insurers based on a fluctuating market. Because we do
not determine the timing and extent of premium pricing changes, we cannot
accurately forecast our commission revenues, including whether they will
significantly decline. As a result, our budgets for future acquisitions, capital
expenditures, dividend payments, loan repayments and other expenditures may have
to be adjusted to account for unexpected changes in revenues.
WE DERIVE A SUBSTANTIAL PORTION OF OUR COMMISSION REVENUES FROM ONE
INSURANCE COMPANY, THE LOSS OF WHICH COULD RESULT IN ADDITIONAL EXPENSE AND LOSS
OF MARKET SHARE.
The programs offered by our National Programs Division are primarily
underwritten by the CNA Insurance Companies (CNA). For the year ended December
31, 2000, approximately $7.5 million, or 37.3%, of our National Programs
Division's commissions and fees were generated from policies underwritten by
CNA. During the same period, our National Programs Division represented 9.8% of
our total commission and fee revenues. In addition, for the same period,
approximately $7.4 million, or 5.1%, of our Retail Division's total commissions
and fees were generated from policies underwritten by CNA. Accordingly, revenues
attributable to CNA represent approximately 7.2% of our total commissions and
fees. These dollar amounts and percentages represent a decline in recent years
of revenues generated by policies underwritten by CNA. This decline results from
certain of our programs and program accounts moving from CNA to other carriers
such as, for example, our Lawyer's Protector Plan(R) moving from CNA to
Clarendon National Insurance Company in November of 1999.
We have an agreement with CNA relating to each program underwritten by
it and each such agreement provides for either six months' or one year's advance
notice of termination. In addition, we have an existing credit agreement with
CNA under which $2 million was outstanding as of September 18, 2001. Upon the
occurrence of an event of default by us under this credit agreement, including
our termination of any insurance program agreement with CNA, CNA may, at its
option, declare any unpaid balance due and payable on demand. If our
relationship with CNA were terminated, we believe that other insurance companies
would be available to underwrite the business, although some additional expense
and loss of market share would result.
BECAUSE OUR BUSINESS IS HIGHLY CONCENTRATED IN ARIZONA, FLORIDA AND NEW
YORK, ADVERSE ECONOMIC CONDITIONS OR REGULATORY CHANGES IN THESE STATES COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION.
For the year ended December 31, 2000, our Retail Division derived $14.9
million, or 10.4%, and $83.0 million, or 57.7%, of its commissions and fees from
its Arizona and Florida operations, respectively, constituting 7.3% and 40.5%,
respectively, of our total commissions and fees. We believe that these revenues
are attributable predominately to clients in Arizona and Florida. Additionally,
as a result of the Riedman Insurance acquisition in January 2001, we now have
four additional Florida offices and have folded other Riedman insurance business
into our existing Florida offices. For the year ended December 31, 2000, Riedman
derived $9.9 million, or 18.2% of its commissions and fees, from its Florida
operations. Additionally, as a result of this acquisition, we now have 19
offices in New York, where $15.1 million, or 27.8%, of Riedman's insurance
business was concentrated as of December 31, 2000. We believe the regulatory
environment for insurance agencies in Arizona, Florida and New York currently is
no more restrictive than in other states. The insurance business is a
state-regulated industry, and therefore, state legislatures may enact laws that
adversely affect the insurance industry. Because our business is concentrated in
a few states, we face greater exposure to unfavorable changes in regulatory
conditions in those states
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than insurance agencies whose operations are more diversified through a greater
number of states. In addition, the occurrence of adverse economic conditions,
natural disasters, or other circumstances specific to Arizona, Florida and/or
New York could adversely affect our financial condition and results of
operations.
LOSS OF THE SERVICES OF J. HYATT BROWN, OUR CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
FUTURE OPERATING RESULTS.
Although we operate with a decentralized management system, the loss of
the services of J. Hyatt Brown, our Chairman, President and Chief Executive
Officer, who beneficially owns approximately 17.7% of our outstanding common
stock as of September 18, 2001, could adversely affect our financial condition
and future operating results. We maintain a $5 million "key man" life insurance
policy with respect to Mr. Brown. We also maintain a $20 million insurance
policy on the lives of Mr. Brown and his wife. Under the terms of an agreement
with Mr. and Mrs. Brown, at the option of the Brown estate, we will purchase,
upon the death of the later to die of Mr. Brown or his wife, shares of our
common stock owned by Mr. and Mrs. Brown up to the maximum number that would
exhaust the proceeds of the policy.
OUR GROWTH STRATEGY DEPENDS IN PART ON THE ACQUISITION OF INSURANCE
AGENCIES, WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS IN THE FUTURE AND
WHICH, IF CONSUMMATED, MAY NOT BE ADVANTAGEOUS TO US.
Our growth strategy includes the acquisition of insurance agencies. Our
ability to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into our operations, and expand into
new markets, will require us to continue to implement and improve our
operations, financial, and management information systems. For example, most of
our offices manage their clients' information using The Application Manager For
Windows (WinTAM) computer program by Applied Systems. Part of the added time and
expense related to newly acquired agencies includes the integration of an
acquired agency's existing computer system into ours. Further, integrated,
acquired entities may not achieve levels of revenue, profitability, or
productivity comparable to our existing locations, or otherwise perform as
expected. In addition, we compete for acquisition and expansion opportunities
with entities that have substantially greater resources. Acquisitions also
involve a number of special risks, such as: diversion of management's attention;
difficulties in the integration of acquired operations and retention of
personnel; entry into unfamiliar markets; unanticipated problems or legal
liabilities; and tax and accounting issues, some or all of which could have a
material adverse effect on the results of our operations and our financial
condition.
OUR CURRENT MARKET SHARE MAY DECREASE AS A RESULT OF INCREASED
COMPETITION FROM INSURANCE COMPANIES AND THE FINANCIAL SERVICES INDUSTRY.
The insurance agency business is highly competitive and we actively
compete with numerous firms for clients and insurance carriers, many of which
have relationships with insurance companies or have a significant presence in
niche insurance markets, that may give them an advantage over us. Because
relationships between insurance agencies and insurance carriers or clients are
often local or regional in nature, this potential competitive disadvantage is
particularly pronounced outside of Florida.
A number of insurance companies are engaged in the direct sale of
insurance, primarily to individuals, and do not pay commissions to agents and
brokers. However, to date, such direct writing has had relatively little effect
on our operations, primarily because our Retail Division is commercially
oriented.
In addition, to the extent that the Gramm-Leach-Bliley Financial
Services Modernization Act of 1999 and regulations newly enacted thereunder
permit banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation, and we
therefore may experience increased competition from insurance companies and the
financial services industry, as a growing number of larger financial
institutions increasingly, and aggressively, offer a wider variety of financial
services, including insurance, than we currently offer.
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PROPOSED TORT REFORM LEGISLATION, IF ENACTED, COULD DECREASE DEMAND FOR
LIABILITY INSURANCE, THEREBY REDUCING OUR COMMISSION REVENUES.
Legislation concerning tort reform is currently being considered in the
United States Congress and in several states. Among the provisions being
considered for inclusion in such legislation are limitations on damage awards,
including punitive damages, and various restrictions applicable to class action
lawsuits, including lawsuits asserting professional liability of the kind for
which insurance is offered under policies sold by our National Programs
Division, particularly our Physicians' Protector Plan(R) and Professional
Protector Plan(R) for Dentists. Enactment of these or similar provisions by
Congress, or by states in which we sell insurance, could result in a reduction
in the demand for liability insurance policies or a decrease in policy limits of
such policies sold, thereby reducing our commission revenues.
WE COMPETE IN A HIGHLY REGULATED INDUSTRY, WHICH MAY RESULT IN
INCREASED EXPENSES OR RESTRICTIONS ON OUR OPERATIONS.
We conduct business in a number of states and are subject to
comprehensive regulation and supervision by government agencies in many of the
states in which we do business. The primary purpose of such regulation and
supervision is to provide safeguards for policyholders rather than to protect
the interests of stockholders. The laws of the various state jurisdictions
establish supervisory agencies with broad administrative powers with respect to,
among other things, licensing to transact business, licensing of agents,
admittance of assets, regulating premium rates, approving policy forms,
regulating unfair trade and claims practices, establishing reserve requirements
and solvency standards, requiring participation in guarantee funds and shared
market mechanisms, and restricting payment of dividends.
Also, in response to perceived excessive cost or inadequacy of
available insurance, states have from time to time created state insurance funds
and assigned risk pools, which compete directly, on a subsidized basis, with
private insurance providers. We act as agents and brokers for state insurance
funds such as these in California, Nevada, and certain other states. These state
funds could choose to reduce the sales or brokerage commissions we receive. Any
such event, in a state in which we have substantial operations, such as Florida,
Arizona or New York, could substantially affect the profitability of our
operations in such state, or cause us to change our marketing focus. Further,
state insurance regulators and the National Association of Insurance
Commissioners continually re-examine existing laws and regulations, and such
re-examination may result in the enactment of insurance-related laws and
regulations, or the issuance of interpretations thereof, that adversely affect
our business.
CARRIER OVERRIDE AND CONTINGENT COMMISSIONS ARE LESS PREDICTABLE THAN
USUAL, WHICH IMPAIRS OUR ABILITY TO FORECAST THE AMOUNT OF SUCH COMMISSIONS THAT
WE WILL RECEIVE.
We derive a portion of our revenues from carrier override and
contingent commissions. The aggregate of these commissions generally accounts
for 3.1% to 5.3% of our total revenues. Contingent commissions are paid by
insurance companies and are based on the profit that the underwriter makes on
the overall volume of business that we place with that insurance company. We
generally receive these commissions in the first and second quarters of each
year. Override commissions are paid by insurance companies based on the volume
of business that we place with them and are generally paid over the course of
the year. Due to recent changes in our industry, including changes in
underwriting criteria due in part to the high loss ratios experienced by
insurance companies, we cannot predict the payment of these commissions as well
as we have been able to in the past. Further, we have no control over the
ability of insurance companies to estimate loss reserves, which affects our
ability to make profit-sharing calculations. Because these commissions affect
our revenues, any decrease in their payment to us could adversely effect our
operations.
WE HAVE NOT DETERMINED THE AMOUNT OF RESOURCES AND THE TIME THAT WILL
BE NECESSARY TO ADEQUATELY RESPOND TO RAPID TECHNOLOGICAL CHANGE IN OUR
INDUSTRY, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.
Frequent technological changes, new products and services and evolving
industry standards are all influencing the insurance business. The Internet, for
example, is increasingly used to transmit benefits and related information to
clients and to facilitate business-to-business information exchange and
transactions. We believe that the development and implementation of new
technologies will require additional investment of our capital resources in the
future. We have not determined, however, the amount of resources and the time
that this development and implementation may require, which may result in
short-term, unexpected interruptions to our business, or may result in a
competitive disadvantage in price and/or efficiency, as we endeavor to develop
or implement new technologies.
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QUARTERLY AND ANNUAL VARIATIONS IN OUR COMMISSIONS THAT RESULT FROM THE
TIMING OF POLICY RENEWALS AND THE NET EFFECT OF NEW AND LOST BUSINESS PRODUCTION
MAY HAVE UNEXPECTED EFFECTS ON OUR RESULTS OF OPERATIONS.
Our commission income (including contingent commissions but excluding
fees), which typically accounts for approximately 86% to 89% of our total annual
revenues, can vary quarterly or annually due to the timing of policy renewals
and the net effect of new and lost business production. The factors that cause
these variations are not within our control. Specifically, consumer demand for
insurance products can influence the timing of renewals, new business and lost
business, which includes generally policies that are not renewed, and
cancellations. In addition, as discussed, we rely on insurance companies for the
payment of certain commissions. Because these payments are processed internally
by these insurance companies, we may not receive a payment that is otherwise
expected from a particular insurance company in one of our quarters or years
until after the end of that period, which can adversely affect our ability to
budget for significant future expenditures.
Quarterly and annual fluctuations in revenues based on increases and
decreases associated with the timing of policy renewals have had an adverse
effect on our financial condition in the past, and we may experience such
effects in the future.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO RESELL YOUR
SHARES AT OR ABOVE THE PRICE OF BROWN & BROWN COMMON STOCK AT THE EFFECTIVE TIME
OF THE MERGER.
The market price of our common stock may be subject to significant
fluctuations in response to various factors, including:
- quarterly fluctuations in our operating results;
- changes in securities analysts' estimates of our future
earnings; and
- our loss of significant customers or significant business
developments relating to us or our competitors.
Our common stock's market price also may be affected by our ability to
meet analysts' expectations and any failure to meet such expectations, even if
minor, could cause the market price of our common stock to decline. In addition,
stock markets have generally experienced a high level of price and volume
volatility, and the market prices of equity securities of many companies have
experienced wide price fluctuations not necessarily related to the operating
performance of such companies. These broad market fluctuations may adversely
affect our common stock's market price. In the past, securities class action
lawsuits frequently have been instituted against companies following periods of
volatility in the market price of such companies' securities. If any such
litigation is instigated against us, it could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, results of operations and financial condition.
For a summary of recent fluctuations in the market price of our common
stock, please see the table under "Market Price and Dividend Information" on
page 52. In our current fiscal year (through October 1, 2001) the sales
prices of our shares have fluctuated from a high of $54.35 per share to a low of
$28.75 per share.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We believe this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties and are based on the beliefs
and assumptions of management of Brown & Brown and Raleigh, Schwarz & Powell,
based on information currently available to each company's management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "likely" or similar expressions, we are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of operations of Brown & Brown set
forth under "Summary," "Risk Factors," "The Merger--Background of the Merger,"
"The Merger--Brown & Brown Reasons for the Merger," "The Merger--Raleigh,
Schwarz & Powell Reasons for the Merger," "The Merger--Recommendation of
Raleigh, Schwarz & Powell Board of Directors," "Description of Brown & Brown"
and "Description of Raleigh, Schwarz & Powell."
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of Brown & Brown or Raleigh, Schwarz & Powell may differ materially from
those expressed in the forward-looking statements. Many of the factors that will
determine these results and values are beyond our ability to control or predict.
Shareholders are cautioned not to put undue reliance on any forward-looking
statements. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
For a discussion of some of the factors that may cause actual results
to differ materially from those suggested by the forward-looking statements,
please read carefully the information under "Risk Factors." In addition to the
risk factors and other important factors discussed elsewhere in this proxy
statement/prospectus, you should understand that the following important factors
could affect the future results of Brown & Brown and could cause results to
differ materially from those suggested by the forward-looking statements:
- material adverse changes in economic conditions in the markets
that Brown & Brown and Raleigh, Schwarz & Powell serve;
- increased competitive pressures, which may affect use of Brown
& Brown's and Raleigh, Schwarz & Powell's services and impede
Brown & Brown's ability to maintain its market share and
pricing goals;
- Brown & Brown's ability to integrate the operations of
Raleigh, Schwarz & Powell into its operations;
- changes in laws or regulations, third party relations and
approvals and decisions of courts, regulators and governmental
bodies which may adversely affect Brown & Brown's and Raleigh,
Schwarz & Powell's businesses or ability to compete; and
- other risks and uncertainties as may be detailed from time to
time in Brown & Brown's public announcements and Securities
and Exchange Commission filings.
----------------
YOU SHOULD READ THIS PROXY STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS
REFERRED TO IN THIS PROXY STATEMENT/PROSPECTUS COMPLETELY AND WITH THE
UNDERSTANDING THAT OUR ACTUAL FUTURE RESULTS MAY BE MATERIALLY DIFFERENT FROM
WHAT WE EXPECT. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US ARE EXPRESSLY
QUALIFIED BY THESE CAUTIONARY STATEMENTS.
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THE RALEIGH, SCHWARZ & POWELL SPECIAL MEETING
GENERAL
Raleigh, Schwarz & Powell will hold a special meeting of shareholders
(which may be adjourned, postponed or rescheduled) as follows:
Thursday, October 25, 2001
8:30 a.m., Pacific Time
1201 Pacific Avenue, Ninth Floor
Education Center
Tacoma, Washington 98402
At the special meeting, the Raleigh, Schwarz & Powell shareholders will
consider and vote upon the Agreement and Plan of Reorganization, dated as of
July 25, 2001, as amended, among Brown & Brown, Raleigh, Schwarz & Powell and
Brown & Brown of Washington, Inc., a wholly-owned subsidiary of Brown & Brown,
and the merger. Pursuant to the Agreement and Plan of Reorganization, or merger
agreement, Raleigh, Schwarz & Powell will become a wholly-owned subsidiary of
Brown & Brown through the merger of Brown & Brown of Washington, Inc., with and
into Raleigh, Schwarz & Powell.
RECORD DATE; QUORUM
Only direct holders of Raleigh, Schwarz & Powell common stock as of the
close of business on the record date, September 28, 2001, may vote at the
special meeting. If you are an ESOP participant, you may attend the meeting, but
you will not be able to vote. You may, however, direct the ESOP fiduciary how to
vote the shares allocated to your ESOP account, as described below.
On the record date, 183,115 shares of Raleigh, Schwarz & Powell common
stock were outstanding, which number excludes 1,543 shares registered in the
names of two former employees and held in escrow under pledge agreements to
secure Raleigh, Schwarz & Powell's payment for those shares in annual payments
through 2003. With Brown & Brown's consent, Raleigh, Schwarz & Powell may
pre-pay the amounts owed, and obtain possession of the pledged shares, prior to
the closing of the merger. Upon termination of the pledge, the shares shall
become authorized but unissued shares of Raleigh, Schwarz & Powell.
Of the 183,115 shares outstanding, 66,775, or 37% of the shares, were
held directly by 20 individual shareholders, and the remaining 116,340 shares,
or 63% of the shares, were held by the ESOP. Holders of at least 91,558 shares,
representing a majority of the Raleigh, Schwarz & Powell shares outstanding,
must be present, either in person or by proxy, at the special meeting in order
to take binding action on any matter. The ESOP trustee is expected to be present
at the special meeting. Therefore, all of the shares held by the ESOP will be
present and a quorum will be established.
REQUIRED VOTE
Each share of Raleigh, Schwarz & Powell common stock outstanding as of
the close of business on September 28, 2001, entitles the holder to one vote at
the special meeting. Completion of the merger requires the approval of the
merger agreement by the affirmative vote of the holders of at least two-thirds
of the voting power of the outstanding shares of Raleigh, Schwarz & Powell
common stock. Because the vote is based on the number of shares outstanding
rather than on the number of votes cast, failure to vote your shares is
effectively a vote against approval of the merger. In addition, abstentions will
have the same effect as votes against approval of the merger. You may vote your
shares in one of the following ways:
(1) by completing and returning the accompanying proxy card; or
(2) by appearing and voting in person at the special meeting.
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VOTING AND REVOCATION OF PROXIES AND ESOP DIRECTION LETTERS
VOTING AND REVOCATION OF PROXIES BY SHAREHOLDERS
If you are a direct Raleigh, Schwarz & Powell shareholder and vote your
shares of Raleigh, Schwarz & Powell common stock by signing a proxy, your shares
will be voted at the special meeting as you indicate on your proxy card. If no
instructions are indicated on your signed proxy card, your shares of Raleigh,
Schwarz & Powell common stock will be voted "FOR" the approval of the merger.
Please promptly return your completed and signed proxy card to Vandeberg Johnson
& Gandara, Suite 1900, 1201 Pacific Avenue, Tacoma, Washington 98402, Attn: Mark
R. Patterson, Esq.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. A proxy may be revoked prior to the vote at the special meeting
in any of the following ways:
- by submitting a written revocation to Vandeberg Johnson &
Gandara, Suite 1900, 1201 Pacific Avenue, Tacoma, Washington
98402, Attn: Mark R. Patterson, Esq.;
- by submitting a new proxy dated after the date of the proxy
that is being revoked; or
- by voting in person at the special meeting.
However, simply attending the special meeting will not revoke a proxy. If you do
not hold your shares of Raleigh, Schwarz & Powell common stock in your own name,
you may revoke a previously given proxy by following the revocation instructions
provided by the party who is the registered owner of the shares.
The Raleigh, Schwarz & Powell board of directors is not aware of any
other business to be brought before the special meeting. If, however, other
matters are properly brought before the special meeting or any adjournment or
postponement of the special meeting, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
Please include your Raleigh, Schwarz & Powell stock certificates when
returning the enclosed proxy card.
VOTING ESOP DIRECTION LETTERS BY ESOP PARTICIPANTS
ESOP participants who have shares allocated to their accounts in the
ESOP should complete the enclosed ESOP direction letter. Please promptly return
your signed ESOP direction letter in the enclosed envelope or mail it to
Consulting Fiduciaries, Inc., 400 Skokie Boulevard, Northbrook, Illinois 60062.
The ESOP direction letter, when executed, will direct the ESOP fiduciary how to
vote the shares allocated to your ESOP account. The ESOP fiduciary will direct
the ESOP trustee how to vote any shares that have not been allocated under the
ESOP and any allocated shares that were not voted by the ESOP participants. Once
you sign and return your ESOP direction letter you are not entitled to revoke
such ESOP direction letter.
SOLICITATION OF PROXIES AND ESOP DIRECTION LETTERS
Raleigh, Schwarz & Powell will bear the costs of soliciting proxies and ESOP
direction letters to vote on the merger agreement at the special meeting.
Raleigh, Schwarz & Powell and Brown & Brown will each bear its own expenses in
connection with the cost of filing, printing and distributing this proxy
statement/prospectus. Officers, directors and employees of Raleigh, Schwarz &
Powell may also solicit proxies and ESOP direction letters from shareholders and
ESOP participants by telephone, mail, the Internet or in person. However, they
will not be paid for soliciting proxies.
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SURRENDER OF CERTIFICATES
If you are a direct Raleigh, Schwarz & Powell shareholder, please
return your Raleigh, Schwarz & Powell stock certificates in the envelope
provided. Upon completion of the merger and receipt of your Raleigh, Schwarz &
Powell stock certificates and any other required documents, your Raleigh,
Schwarz & Powell stock certificates will be canceled and you will receive Brown
& Brown stock certificates representing the number of whole shares of Brown &
Brown common stock to which you are entitled under the merger agreement.
DISSENTERS' RIGHTS
The following is a summary of Title 23B of the Washington Business
Corporation Act Chapter 23B.13 Dissenters' Rights, which sets forth the
procedures that a dissenting Raleigh, Schwarz & Powell shareholder must follow
in order to perfect dissenters' rights under Washington law. Raleigh, Schwarz &
Powell shareholders should carefully review Washington law, which is attached to
this proxy statement/prospectus as Annex J, as well as the information discussed
below to determine their dissenters' rights.
If a Raleigh, Schwarz & Powell shareholder elects to exercise its
dissenters' rights, such shareholder must do ALL of the following:
(1) prior to the special meeting, deliver to Raleigh, Schwarz &
Powell a written notice demanding payment for its shares if
the merger is approved; and
(2) not vote in favor of the merger agreement. If a Raleigh,
Schwarz & Powell shareholder returns a signed proxy but does
not specify a vote against approval of the merger, then the
proxy will be voted for approval of the merger, which will
have the effect of waiving that shareholder's dissenters'
rights.
All written objections and demands for payment should be addressed to:
Raleigh, Schwarz & Powell, Inc., 1201 Pacific Avenue, Suite 1000, Tacoma,
Washington 98402, Attention: John P. Folsom.
Within 10 days of the effective time of the merger, Raleigh, Schwarz &
Powell will give written notice to each dissenting shareholder stating where the
demand for payment must be sent, informing holders of uncertificated shares to
what extent transfer of the shares will be restricted after the payment demand
is received, supplying a form for the demand of such payment and setting a date
by which Raleigh, Schwarz & Powell must receive the payment demand.
By the date set forth in Raleigh, Schwarz & Powell's notice, a
dissenting shareholder must demand payment, certify that it acquired beneficial
ownership of the shares before the date set forth in Raleigh, Schwarz & Powell's
notice and deposit with Raleigh, Schwarz & Powell the shareholder's
certificates. Raleigh, Schwarz & Powell will pay each dissenting shareholder who
timely complied with these requirements the amount Raleigh, Schwarz & Powell
estimates to be the fair value of the dissenting shareholder's shares, plus
accrued interest.
Under Washington law, a dissenting shareholder may notify Raleigh,
Schwarz & Powell in writing of its own estimate of the fair value of its shares
and amount of interest due if:
- it believes the amount paid is less than the fair value of its
shares, or the interest due was incorrectly calculated;
- Raleigh, Schwarz & Powell fails to make payment within 60 days
after the date set forth demanding payment; or
- Raleigh, Schwarz & Powell does not effect the proposed merger
and does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
60 days after the date set forth demanding payment.
If a demand for payment remains unsettled, within 60 days after
receiving the payment demand Raleigh, Schwarz & Powell must petition the
Washington court to determine the fair value of the shares plus accrued
interest. If Raleigh, Schwarz & Powell does not timely commence the proceeding,
it must pay each dissenting shareholder whose demand remains unsettled the
amount demanded.
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THE MERGER
This section of this proxy statement/prospectus describes some aspects
of the proposed merger. While Brown & Brown and Raleigh, Schwarz & Powell
believe that the description covers the material terms of the merger and the
related transactions, this summary may not contain all of the information that
is important to you. You should read this entire document and the other
documents referred to in this proxy statement/prospectus carefully for a more
complete understanding of the merger. In addition, important business and
financial information about Brown & Brown is contained elsewhere in this proxy
statement/prospectus.
BACKGROUND OF THE MERGER
On February 1, 2001, John P. Folsom, the President of Raleigh, Schwarz
& Powell, contacted Michael Paschke of Brown & Brown, to inquire if Brown &
Brown had an interest in a business association with Raleigh, Schwarz & Powell,
and its affiliated company Golden Gate Holdings. Raleigh, Schwarz & Powell and
its affiliates also contacted representatives of other companies to discuss
joint business opportunities and potential business combinations or strategic
partnerships between these companies and Raleigh, Schwarz & Powell.
On February 13, 2001, at a meeting of the board of directors of
Raleigh, Schwarz & Powell, the management of Raleigh, Schwarz & Powell and
members of the board discussed management's projections of the ESOP's potential
inability to continue to provide the liquidity to acquire the shares and ESOP
accounts of retiring employees on a pre-tax basis, and various financing
alternatives, including the possibility of being acquired to allow Raleigh,
Schwarz & Powell's business to grow and remain competitive.
On March 13, 2001, Mr. Folsom and Darrell Prater of Raleigh, Schwarz &
Powell and Mr. Paschke and Kenneth Kirk of Brown & Brown met at the offices of
Brown & Brown in Phoenix, Arizona. At this meeting, Raleigh, Schwarz & Powell
and Brown & Brown discussed Brown & Brown's strategies and the opportunities for
Raleigh, Schwarz & Powell to support Brown & Brown's strategies.
Effective as of March 23, 2001, Brown & Brown and Raleigh, Schwarz &
Powell entered into a confidentiality letter agreement.
On April 19, 2001, Mr. Folsom and Mr. Prater of Raleigh, Schwarz &
Powell met with Mr. Paschke and Mr. Kirk of Brown & Brown in Seattle and Tacoma,
and had discussions relating to a possible combination.
On May 7, 2001, Mr. Paschke and Mr. Kirk of Brown & Brown met with Mr.
Folsom and Mr. Prater of Raleigh, Schwarz & Powell in Phoenix. At that meeting,
the members of Raleigh, Schwarz & Powell management presented the
representatives of Brown & Brown with an overview of Raleigh, Schwarz & Powell's
services, business strategy and sales and marketing plans.
On May 8, 2001, Mr. Folsom and Mr. Prater met with Mr. Kirk and J.
Hyatt Brown, Chairman, Chief Executive Officer and President of Brown & Brown,
in Seattle, regarding the status of due diligence and potential benefits from a
combination of the two companies.
Between May 8, 2001 and May 20, 2001, Brown & Brown and its legal and
financial advisors conducted a preliminary due diligence review of Raleigh,
Schwarz & Powell. During this period, Mr. Folsom and Mr. Prater continued to
negotiate with executives of other companies regarding the terms, including the
consideration to Raleigh, Schwarz & Powell shareholders, of a potential business
combination transaction with these companies.
Between May 20, 2001 and June 27, 2001, the management teams of Brown &
Brown and Raleigh, Schwarz & Powell conducted extensive negotiation sessions
regarding the terms and conditions of an agreement relating to the possible
combination between the companies. During this period, Messrs. Folsom and Prater
requested that each of the leading potential acquirers of Raleigh, Schwarz &
Powell submit its "best offer" in order for the board to evaluate whether to
proceed with a transaction with the party, or any business combination
transaction.
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On May 24, 2001, the board of directors of Raleigh, Schwarz & Powell
met to discuss the status of discussions with Brown & Brown, as well as possible
alternative financing and strategic transactions with other companies. The board
authorized Messrs. Folsom and Prater to continue exploratory discussions with
multiple parties, including Brown & Brown, with whom discussions were then in
progress, in an effort to maximize the value to be received by Raleigh, Schwarz
& Powell shareholders in any transaction.
On June 5, 2001, the board of directors of Raleigh, Schwarz & Powell
met to discuss the progress of negotiations with Brown & Brown and the status of
the responses from other potential acquirors. The board of directors of Raleigh,
Schwarz & Powell authorized the management of Raleigh, Schwarz & Powell to
continue negotiating the terms of a possible combination. The board of directors
authorized the engagement of the services of several consultants to advise
Raleigh, Schwarz & Powell and the ESOP in the evaluation of the financial
alternatives it was considering.
On June 14, 2001, Brown & Brown's board of directors held a meeting and
discussed the terms and conditions of the proposed merger. At that meeting,
Brown & Brown's board of directors unanimously voted to approve the principal
terms of the proposed merger and authorized management to negotiate and execute
the merger agreement and related agreements.
On June 27, 2001, the board of directors of Raleigh, Schwarz & Powell,
together with the senior management of Raleigh, Schwarz & Powell and its
financial and legal advisors, held an extensive discussion evaluating the
relative merits of the potential combinations, including the financial and
valuation analyses of the proposed transaction (and the opinion prepared by Duff
& Phelps for the benefit of the ESOP fiduciary and ESOP trustee), and volatility
risks relating to each company's stock and the likely timing of, and risks to,
closing each transaction. The board of directors of Raleigh, Schwarz & Powell
agreed that the Brown & Brown proposal constituted a superior transaction, and
approved the execution of a letter of intent with Brown & Brown, including
exclusivity provisions that restricted Raleigh, Schwarz & Powell from soliciting
acquisition offers from third parties.
On June 27, 2001, Raleigh, Schwarz & Powell and Brown & Brown signed a
letter of intent setting forth the principal terms of the acquisition of
Raleigh, Schwarz & Powell by Brown & Brown. One of the principal terms was the
ratio of exchange of stock. The letter of intent also contained exclusivity
provisions in order to permit the parties to conduct further due diligence and
to negotiate a definitive merger agreement. Under the letter of intent, Raleigh,
Schwarz & Powell agreed not to solicit acquisition offers from third parties
before September 25, 2001. After they signed the letter of intent, Raleigh,
Schwarz & Powell and Brown & Brown began negotiating the definitive merger
agreement. The execution of the letter of intent was announced in a press
release that was issued on June 28, 2001.
On July 2, 2001, Brown & Brown delivered to Raleigh, Schwarz & Powell
and its outside legal counsel drafts of a merger agreement.
On July 16, 2001, the board of directors of Raleigh, Schwarz & Powell
met to discuss the terms and conditions of the proposed merger and the merger
agreement. At that meeting, the board of directors of Raleigh, Schwarz & Powell
voted to approve the proposed merger agreement and related agreements and
authorized management to finalize and execute the agreements.
On July 25, 2001, the merger agreement was executed. The terms of the
merger were announced in a joint press release that was issued before the
opening of the stock market on July 26, 2001.
On August 10, 2001, Raleigh, Schwarz & Powell and Brown & Brown
executed the amendment to the merger agreement to refine the terms of the
merger agreement consistent with the companies' original intent as set forth in
the letter of intent, dated June 27, 2001.
Pursuant to the terms of the merger agreement, either of the parties
could terminate the merger agreement if the merger was not completed by August
31, 2001, provided that if delays in the registration of the Brown & Brown
common stock prevented the merger from occurring prior to that date, then the
parties were required to agree to extend the termination date to November 30,
2001. On August 31, 2001, Brown & Brown and Raleigh, Schwarz & Powell agreed to
extend the date of termination of the merger agreement to November 30, 2001.
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BROWN & BROWN REASONS FOR THE MERGER
The board of directors of Brown & Brown carefully considered whether to
approve the merger and the merger agreement. In making its decision, the board
of directors identified several potential benefits of the merger that it
believes will contribute to the success of the combined company. These potential
benefits include, among other things:
- One of Brown & Brown's business strategies is to expand into
new geographic markets by making selective and complementary
acquisitions. Brown & Brown's board of directors believes that
the merger with Raleigh, Schwarz & Powell provides an
opportunity for Brown & Brown to expand into markets in which
Brown & Brown previously has not had a significant presence;
and
- through discussions with the management of Raleigh, Schwarz &
Powell and reviews of Raleigh, Schwarz & Powell's operations,
Brown & Brown's management determined that opportunities exist
to reduce costs of operations if the companies were combined.
Based on these and other strategic factors, the Brown & Brown board of
directors determined that approval of the merger agreement and the merger were
in the best interests of Brown & Brown and its shareholders. Accordingly, the
board of directors voted unanimously to approve the merger.
RALEIGH, SCHWARZ & POWELL REASONS FOR THE MERGER
The decision of the Raleigh, Schwarz & Powell board of directors to
enter into the merger agreement and to recommend that Raleigh, Schwarz & Powell
shareholders approve the merger agreement, the merger and related transactions
was the result of the Raleigh, Schwarz & Powell board of director's careful
consideration of a range of strategic alternatives, including potential business
combinations with companies other than Brown & Brown, and the pursuit of a
long-term independent business strategy for Raleigh, Schwarz & Powell that might
involve additional financing.
During the course of its deliberations, the board of directors of
Raleigh, Schwarz & Powell considered, with the assistance of management and
financial and legal counsel, a number of factors that the board of directors
believes make the merger attractive to Raleigh, Schwarz & Powell's shareholders
and could contribute to the success of the surviving corporation, including the
following:
- ESOP LIMITATIONS. For over twelve years Raleigh, Schwarz &
Powell has used the federal income tax benefits available
through its ESOP to provide the liquidity to repurchase the
shares of retiring shareholders and ESOP participants.
Raleigh, Schwarz & Powell projects that the volume of
retirement purchases in the next two to ten years will
outstrip the ESOP's capacity to acquire shares on a tax
beneficial basis. Acquiring shares of retiring shareholders
and ESOP participants with after-tax cash flow will inhibit
Raleigh, Schwarz & Powell's ability to remain competitive by
limiting the cash and other resources available to continue
the expansion necessary to effectively compete, given the
consolidation activity in the insurance brokerage industry.
- GREATER LIQUIDITY. To date, there has been no public market
for the shares of Raleigh, Schwarz & Powell's capital stock,
and all outstanding shares are subject to restrictions on
resale imposed by securities laws. By contrast, Brown &
Brown's common stock is publicly traded on The New York Stock
Exchange and, subject to restrictions relating to
pooling-of-interests, the shares of Brown & Brown common stock
to be issued to Raleigh, Schwarz & Powell's shareholders and
ESOP participants in the merger will be tradable on The New
York Stock Exchange. The merger may allow Raleigh, Schwarz &
Powell's shareholders and ESOP participants to achieve
liquidity of their investment sooner than they might otherwise
have been able.
- INCREASED COMPETITION. Raleigh, Schwarz & Powell faces
increasing competition from other insurance brokerage firms.
Raleigh, Schwarz & Powell believes that a combination with a
larger company with the resources of Brown & Brown may provide
a number of competitive advantages. By combining with Brown &
Brown, Raleigh, Schwarz & Powell may also reduce the risks
associated with seeking additional financing and pursuing its
revenue goals as an independent company.
- FAVORABLE PRICE. The board of directors of Raleigh, Schwarz &
Powell also believes that the price offered by Brown & Brown
compares favorably to the current market valuations of other
companies in Raleigh, Schwarz & Powell's industry. The board
of directors was made aware of the opinion delivered by Duff &
Phelps to the
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ESOP fiduciary and ESOP trustee to the effect that (1) the
consideration to be received by the ESOP for its shares of
Raleigh, Schwarz & Powell common stock pursuant to the
transactions contemplated by the merger agreement and (2) the
terms and conditions of the transactions contemplated by the
merger agreement, are fair and reasonable to the ESOP from a
financial point of view. See the section entitled "The Merger
- Opinion of the ESOP Fiduciary's Financial Advisor."
- ADDITIONAL COST-SAVINGS AND BENEFITS. Raleigh, Schwarz &
Powell believes that the merger will offer the shareholders of
the combined company the potential benefits described above
under the heading "The Merger--Brown & Brown Reasons for the
Merger." In addition, the merger would provide Raleigh,
Schwarz & Powell access to Brown & Brown's greater financial,
technological and human resources to continue to develop
Raleigh, Schwarz & Powell's services and greater sales and
marketing resources to help promote those services more
broadly.
In addition, Raleigh, Schwarz & Powell's board of directors considered
a number of potentially negative factors relating to the merger, including the
following:
- by becoming a part of a much larger company, Raleigh, Schwarz
& Powell will have less autonomy and independence in setting
its strategic goals;
- the fixed value of the consideration to be issued in the
merger to Raleigh, Schwarz & Powell's shareholders;
- the risk that the potential benefits of the merger may not be
realized;
- the provisions of the merger agreement requiring 10% of the
shares to be placed in escrow for one year to satisfy
potential indemnity claims;
- the provisions of the merger agreement preventing the
shareholders and the ESOP from trading the Brown & Brown
shares for a period of time, during which the shares may
decline in value;
- the provisions of the merger agreement preventing the ESOP
from distributing to participants all or part of their ESOP
accounts until the ESOP receives a determination letter from
the IRS (estimated to be 4 to 6 months), during which period
the Brown & Brown shares may decline in value;
- the risk that Raleigh, Schwarz & Powell may find it more
difficult to attract and retain skilled employees;
- the risk that the merger may divert management's attention
from Raleigh, Schwarz & Powell's business operations; and
- the other risks described in this proxy statement/prospectus
under "Risk Factors."
This discussion of factors considered by the Raleigh, Schwarz & Powell
board of directors is not intended to be exhaustive, but is intended to include
the material factors considered. The Raleigh, Schwarz & Powell board of
directors did not find it practical to and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors may
have given different weight to different factors.
RECOMMENDATION OF RALEIGH, SCHWARZ & POWELL BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative,
the board of directors of Raleigh, Schwarz & Powell has determined that the
merger is in the best interests of Raleigh, Schwarz & Powell and its
shareholders. The Raleigh, Schwarz & Powell board of directors recommends that
you vote FOR the approval of the merger agreement, the merger and related
transactions.
OPINION OF THE ESOP FIDUCIARY'S FINANCIAL ADVISOR
The Raleigh, Schwarz & Powell board of directors did not receive an
opinion from a financial advisor as to the fairness of the merger to the
Raleigh, Schwarz & Powell shareholders. However, the Raleigh, Schwarz & Powell
board of directors was aware of the opinion provided by Duff & Phelps to the
ESOP fiduciary in connection with the
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transactions contemplated by the merger agreement. The Raleigh, Schwarz & Powell
board of directors believes that, with respect to the value of the consideration
to be received for shares of Raleigh, Schwarz & Powell common stock pursuant to
the transactions contemplated by the merger agreement and the fairness, from a
financial point of view, of the terms and conditions of the transactions
contemplated by the merger agreement, the ESOP is not in any different of a
position than the other Raleigh, Schwarz & Powell shareholders.
INTRODUCTION TO OPINION OF THE ESOP FIDUCIARY'S FINANCIAL ADVISOR
Duff & Phelps, LLC has acted as independent financial advisor to the
ESOP fiduciary and the ESOP trustee in connection with the merger, and has
assisted the ESOP fiduciary and the ESOP trustee in their examination of the
fairness, from a financial point of view, of the merger to the ESOP. Duff &
Phelps is one of the nation's largest independent specialty investment banking
and financial advisory firms, possessing substantial experience in business
valuations, financial opinions, merger and acquisition advisory, and transaction
financing. The ESOP trustee selected Duff & Phelps as its financial advisor
based upon Duff & Phelps's experience and expertise with ESOPs, and its ability
and reputation for providing fairness opinions and other advisory services on a
wide variety of corporate transactions.
Duff & Phelps made a presentation to the ESOP fiduciary on June 20,
2001, in which Duff & Phelps reviewed the valuation of Raleigh, Schwarz &
Powell. Subsequently, on June 26, 2001, Duff & Phelps delivered a detailed
written presentation to the ESOP fiduciary and ESOP trustee regarding the
merger.
The full text of the written fairness opinion of Duff & Phelps, which
sets forth the assumptions made, procedures followed, matters considered,
limitations on and scope of review by Duff & Phelps in rendering its opinion, is
attached to this proxy statement/prospectus as Annex I and is incorporated
herein by reference. ESOP participants are urged to read the Duff & Phelps
opinion in its entirety. The following summary of Duff & Phelps's opinion is
qualified in its entirety by reference to the full text of the opinion. Duff &
Phelps's opinion is directed to the ESOP fiduciary and ESOP trustee and does not
constitute a recommendation to any ESOP participant as to how such ESOP
participant should vote with respect to the merger. Duff & Phelps's opinion
addresses the fairness of the consideration to the ESOP only from a financial
point of view and does not address the relative merits of the merger or any
alternatives to the merger, the underlying decision of the Raleigh Schwarz &
Powell board of directors to proceed with or effect the merger, or any other
aspect of the merger. The Duff & Phelps opinion was rendered without regard to
the necessity for, or level of, any restrictions, obligations or undertakings
which may be imposed or required in the course of obtaining regulatory approvals
for the merger.
SCOPE OF ANALYSIS
In arriving at its fairness opinion, Duff & Phelps reviewed, among
other items, a draft of the merger agreement, including the exhibits thereto.
Duff & Phelps's financial analysis was based on the audited consolidated
financial statements of Raleigh, Schwarz & Powell for the fiscal years ended on
or about December 31, 1996 to 2000, and unaudited internal statements for the
five months ended May 31, 2000, and May 31, 2001, which financials include
Golden Gate Holdings as a consolidated subsidiary. In addition, Duff & Phelps
was provided with other internal operating and financial data supplied by
management, including financial forecasts for 2001 through 2005. Duff & Phelps
also reviewed the RSM McGladrey Inc. Preliminary Cash Flow Comparison of C
versus S Corporation and ESOP dated June 2001. With respect to Brown & Brown,
Duff & Phelps reviewed filings on Form 10-K for the years ended on or about
December 31, 1996 to 2000, and on Form 10-Q for the three months ended March 31,
2000, and March 31, 2001, respectively. Duff & Phelps also reviewed Brown &
Brown's stock price and trading history.
In addition, Duff & Phelps held discussions with senior management of
Raleigh, Schwarz & Powell and Golden Gate Holdings regarding past, current, and
projected operations and regarding discussions and contacts with other potential
acquirers. Duff & Phelps also took into account its assessment of general
economic, market and financial conditions, as well as its experience in
securities and business valuation, in general, and with respect to similar
transactions, in particular. Duff & Phelps did not make any independent
appraisals of the assets or liabilities of Raleigh, Schwarz & Powell and Golden
Gate Holdings.
All industry information and data on public companies deemed comparable
to Raleigh, Schwarz & Powell, Golden Gate Holdings and Brown & Brown, in whole
or in part, and used in Duff & Phelps's analysis were obtained from regularly
published industry and investment sources. In performing its analysis and
rendering its opinion with respect to the merger, Duff & Phelps relied upon the
accuracy and completeness of all information provided to it, whether obtained
from public or private sources, including management of Raleigh, Schwarz &
Powell and Golden
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Gate Holdings, and did not attempt to independently verify any such information.
Duff & Phelps notes that nothing has come to its attention in the course of its
analysis to make Duff & Phelps believe that it is not reasonable to rely on the
information described above, including the projections and reports of the
management of Raleigh, Schwarz & Powell and Golden Gate Holdings. Duff &
Phelps's opinion further assumes that information supplied and representations
made by Raleigh, Schwarz & Powell and Golden Gate Holdings management are
substantially accurate regarding Raleigh, Schwarz & Powell and Golden Gate
Holdings and the background and terms of the merger. The opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of Duff & Phelps's opinion. Neither the ESOP
fiduciary nor the ESOP trustee placed any limitations upon Duff & Phelps with
respect to the procedures followed or factors considered by Duff & Phelps in
rendering its opinion.
SUMMARY OF ANALYSES
The summary of the opinion set forth below provides a description of
the main elements of Duff & Phelps's presentation to the ESOP fiduciary and ESOP
trustee delivered on June 26, 2001, regarding the merger. It does not purport to
be a complete description of the presentation of Duff & Phelps to the ESOP
fiduciary and ESOP trustee or the analyses performed by Duff & Phelps. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth below, without considering the analyses
as a whole, could create a misleading or an incomplete view of the process
underlying Duff & Phelps's fairness opinion. In addition, some of the summaries
of financial analyses performed by Duff & Phelps include information presented
in tabular format. In order to fully understand the financial analyses performed
by Duff & Phelps, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or an incomplete view of the financial analyses performed by Duff &
Phelps.
In arriving at its fairness opinion, Duff & Phelps considered the
results of all such analyses taken as a whole. Furthermore, in arriving at its
fairness opinion, Duff & Phelps did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. No company or
transaction used in the analyses as a comparison is identical to Golden Gate
Holdings and Raleigh, Schwarz & Powell or the merger. The analyses were prepared
solely for purposes of Duff & Phelps providing its opinion to the ESOP fiduciary
and ESOP trustee as to the fairness of the merger from a financial point of
view, and do not purport to be appraisals or to necessarily reflect the prices
at which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses are based upon numerous factors or events beyond
the control of Raleigh, Schwarz & Powell and Golden Gate Holdings, their
advisors or any other person, and are inherently uncertain. Actual future
results may be materially different from those forecasts.
Duff & Phelps performed a variety of financial and comparative analyses
regarding the valuation of Raleigh, Schwarz & Powell and Golden Gate Holdings,
including a discounted cash flow analysis of the projected free cash flows of
Raleigh, Schwarz & Powell; a comparison of financial performance and market
valuation ratios of publicly traded insurance brokerage companies Duff & Phelps
deemed relevant for purposes of its opinion; and a review of recent control
transactions involving companies that Duff & Phelps deemed similar to Raleigh,
Schwarz & Powell and Golden Gate Holdings for purposes of its opinion.
DISCOUNTED CASH FLOW ANALYSIS
Duff & Phelps performed a discounted cash flow analysis of the
projected free cash flows of Raleigh, Schwarz & Powell and Golden Gate Holdings.
Free cash flow is defined as cash that is available to either reinvest or to
distribute to shareholders. The projected free cash flows are discounted to the
present at a rate which reflects the relative risk associated with these flows
as well as the rates of return which shareholders could expect to realize on
alternative investment opportunities.
Management of Raleigh, Schwarz & Powell and Golden Gate Holdings
provided Duff & Phelps with a preliminary five-year plan from 2001-2005, and
Duff & Phelps informed the ESOP fiduciary and ESOP trustee that Duff & Phelps
considered such plan and consulted with Raleigh, Schwarz & Powell and Golden
Gate Holdings management in developing an independent estimate of the future
free cash flows for Raleigh, Schwarz & Powell and Golden Gate Holdings. Duff &
Phelps estimated the companies' future free cash flows based on projected
revenues,
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earnings before interest, taxes, depreciation and amortization (EBITDA),
earnings before interest and taxes (EBIT), taxes, working capital, and capital
expenditure requirements for the years ending December 30, 2001 to 2010, and
prepared such estimates from the perspective of a hypothetical buyer of a
controlling interest in consolidated Raleigh, Schwarz & Powell, including its
ownership of Golden Gate Holdings. The following table is a summary of the key
assumptions used within Duff & Phelps's discounted cash flow analysis for the
years ending December 31, 2001 to 2005.
Actual Projected
(in millions) 2000 2001 2002 2003 2004 2005
----- ----- ----- --------- ----- -----
Net Revenues $18.9 $20.5 $22.1 $23.4 $24.3 $25.3
EBITDA $ 3.0 $ 3.9 $ 4.9 $ 5.4 $ 5.6 $ 5.8
EBITDA Margin 15.7% 18.9% 22.0% 23.0% 23.0% 23.1%
EBIT $ 2.1 $ 3.0 $ 4.0 $ 4.5 $ 4.7 $ 4.9
EBIT Margin 11.0% 14.6% 18.1% 19.2% 19.3% 19.4%
Duff & Phelps discounted the resulting free cash flows at rates of
12.5% to 13.5%. The discount rate range reflects, among other things, industry
risks, the relatively small size of Raleigh, Schwarz & Powell and Golden Gate
Holdings, and current rates of return required by investors in equity
instruments in general. The discounted cash flow analysis resulted in a
reasonable estimate of the price that a fully informed buyer would pay for all
of the common stock of Raleigh, Schwarz & Powell and Golden Gate Holdings. The
discounted cash flow analysis yielded a per-share range of approximately $134.72
to $152.24 for the common stock of Raleigh, Schwarz & Powell on a consolidated
basis, including its interest in Golden Gate Holdings.
COMPARABLE COMPANY ANALYSIS
Duff & Phelps selected a set of publicly traded companies based on
comparability to Raleigh, Schwarz & Powell and Golden Gate Holdings. Although no
single company chosen is identical to Raleigh, Schwarz & Powell, these companies
share many of the same operating characteristics and are affected by many of the
same economic forces. A value estimate for Raleigh, Schwarz & Powell is derived
from the rate at which these companies are capitalized in the public market,
after adjusting for differences in operations and performance.
Using publicly available information, Duff & Phelps analyzed the
historical financial performance of the comparable companies for the latest
twelve months ("LTM") through March 31, 2001 as well as projected financial
performance using regularly published earnings estimates from securities
analysts. In addition, Duff & Phelps calculated enterprise values for the
comparable companies by taking total market capitalization (based on stock
prices as of June 15, 2001) and then adding debt and preferred stock. The table
below shows the comparable companies along with their respective LTM revenues
and enterprise values as of June 15, 2001.
LTM Enterprise
Revenues Value
Company (Ticker) (in millions) (in millions)
------------- -------------
Brown & Brown, Inc. (BRO) $ 298 $ 1,312
Arthur J. Gallagher (AJG) 770 2,237
Hilb Rogal & Hamilton Co. (HRH) 273 708
Duff & Phelps compared the financial performance of Raleigh, Schwarz &
Powell with the financial performance of the comparable companies and analyzed
the enterprise values for the comparable companies as multiples of various
financial performance measurements - including revenues and EBITDA - as well as
multiples of market capitalization - including earnings per share - available as
of June 15, 2001. The following table summarizes Duff & Phelps's analysis of the
comparable companies.
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Enterprise Value
LTM 3-Year 3-Year Avg. Cap. Value -------------------------
EBITDA Revenue Return On Projected LTM Projected
Company Margin Growth Assets E.P.S. Revenues EBITDA
------ ------- ----------- ---------- ----------- ----------
Brown & Brown, Inc. 29.1% 17.7% 12.2% 27.3x 4.7x 16.8x
Arthur J. Gallagher 18.9 15.1 8.6 20.7 2.9 12.3
Hilb Rogal & Hamilton Co. 25.0 14.7 8.9 23.6 2.6 14.5
Raleigh, Schwarz & Powell 15.7% 24.2% 4.5%
It is important to note that Raleigh, Schwarz & Powell and Golden Gate
Holdings combined are significantly smaller than the comparable companies.
Smaller companies tend to trade at lower valuation ratios than larger, more
diversified organizations to reflect the additional risks of their small size.
The comparable company analysis suggested that a reasonable valuation estimate
for Raleigh, Schwarz & Powell was 1.7 times to 1.9 times LTM revenues and 8.5
times to 9.5 times LTM EBITDA. These ranges imply a value range of approximately
$134.27 to $153.58 per share for Raleigh, Schwarz & Powell common stock,
including its interest in Golden Gate Holdings.
COMPARABLE TRANSACTIONS ANALYSIS
Duff & Phelps reviewed recent control transactions involving target
companies deemed similar to Raleigh, Schwarz & Powell and Golden Gate Holdings.
Duff & Phelps noted that the amount of available public information pertaining
to control transactions and the financial performance of the acquired companies
is limited. Therefore, Duff & Phelps analyzed ten transactions, with available
terms of the transaction and financial information of the target, that had been
announced or completed from December 1996 to the present. The table below
summarizes Duff & Phelps's comparable transactions analysis and compares those
results to the multiples implied by the terms of the merger.
Enterprise Value
Target LTM Target LTM ---------------------
Revenue EBITDA LTM LTM
Target Acquirer (in millions) Margin Revenue EBITDA
------ -------- ------------- ---------- ------- --------
Alexander & Alexander Services Aon Corporation $ 1,282 14.5% 0.9x 6.1x
Johnson & Higgins Marsh & McLennan 1,163 15.2% 1.5x 9.6x
Accordia, Inc. Anthem, Inc. 661 15.6% 1.6x 10.3x
Willis Corroon PLC Kohlberg Kravis Roberts & Co. 696 15.1% 1.3x 8.3x
Sedgwick Group PLC Marsh & McLennan 983 11.2% 1.4x 12.5x
National Information Group First American Financial 79 26.7% 1.5x 5.7x
Standard Funding Corp. Atlantic Bank of New York 7 56.1% 2.1x 3.8x
Phoenix Home Life Hilb, Rogal and Hamilton Co. 13 18.6% 2.2x 11.7x
Riedman Corporation Brown & Brown, Inc. 57 15.8% 1.6x 10.2x
E.W. Blanch Holdings, Inc. Benfeild Greig, PLC 199 10.9% 1.2x 11.4x
Median 15.4% 1.5x 9.9x
---------- ---- --- -----
Raleigh, Schwarz & Powell Brown & Brown $ 19.8 18.4% 2.2x 12.0x
---------- ---- --- -----
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OTHER CONSIDERATIONS
Duff & Phelps analyzed the stock price, trading liquidity and valuation
ratios accorded to Brown & Brown common stock to assess that it was reasonably
valued by investors in the public stock markets. Duff & Phelps reviewed the
merits of Raleigh, Schwarz & Powell and Golden Gate Holdings remaining
independent companies and increasing the ESOP's ownership of Raleigh, Schwarz &
Powell through the use of additional financing.
FEE AND OTHER INFORMATION
Duff & Phelps was retained by the ESOP fiduciary and ESOP trustee under
an engagement letter dated June 1, 2001. As compensation for its services as
financial advisor to the ESOP fiduciary and ESOP trustee in connection with the
merger, Raleigh, Schwarz & Powell agreed to pay Duff & Phelps a fixed fee upon
rendering its opinion. No portion of the fee paid to Duff & Phelps is contingent
upon the conclusion reached in its opinion. In addition, Raleigh, Schwarz &
Powell has agreed to reimburse Duff & Phelps for its reasonable out-of-pocket
expenses, and to indemnify Duff & Phelps against certain liabilities, arising
out of or in connection with its engagement.
INTERESTS OF EXECUTIVE OFFICERS OF RALEIGH, SCHWARZ & POWELL
In considering the recommendation of the Raleigh, Schwarz & Powell
board of directors with respect to the approval of the proposal, Raleigh,
Schwarz & Powell shareholders should be aware of the interests that John P.
Folsom, President of Raleigh, Schwarz & Powell, has in the merger. The board of
directors of Raleigh, Schwarz & Powell was aware of these interests and
considered them when approving the merger. These interests may be different
from, and in addition to, your interests as shareholders. As a condition of the
merger, Mr. Folsom is required to enter into an employment agreement, upon the
same terms and conditions as all other employees of Raleigh, Schwarz & Powell,
that provides for his continued employment with the surviving corporation of the
merger. See "Other Agreements--Employment Agreements."
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion
of the merger are satisfied or waived, including the approval of the merger by
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Raleigh, Schwarz & Powell common stock entitled to vote at the special
meeting. The merger will become effective upon the filing of articles of merger
in the office of the Secretary of State of the State of Washington.
TREATMENT OF RALEIGH, SCHWARZ & POWELL COMMON STOCK
With the exception of dissenting shares, if the merger becomes
effective, each share of Raleigh, Schwarz & Powell common stock then outstanding
will be cancelled and converted into shares of Brown & Brown common stock, and
the Raleigh, Schwarz & Powell shareholders will receive, based on their
respective ownership interests in Raleigh, Schwarz & Powell, shares of Brown &
Brown common stock equal to:
- $32,896,490 minus 82.24% of the amount by which the total
consolidated net worth (as defined in the merger agreement) of
Raleigh, Schwarz & Powell, and its affiliate, Golden Gate
Holdings, Inc., is less than $13,000,000 at the effective time
of the merger, divided by
- the average of the closing prices of Brown & Brown common
stock as reported on The New York Stock Exchange for the 20
consecutive trading day period ending at the close of business
on the third business day immediately before the merger
becomes effective.
The actual number of shares of Brown & Brown common stock to be issued
to Raleigh, Schwarz & Powell shareholders will not be determined until the
merger becomes effective. For hypothetical examples of the calculation of the
number of shares of Brown & Brown common stock to be issued to Raleigh, Schwarz
& Powell shareholders, see page 1.
EXCHANGE OF RALEIGH, SCHWARZ & POWELL STOCK CERTIFICATES FOR BROWN & BROWN STOCK
CERTIFICATES
If you are a direct Raleigh, Schwarz & Powell shareholder, please
return your Raleigh, Schwarz & Powell stock certificates in the envelope
provided. Upon completion of the merger and receipt of your Raleigh, Schwarz &
Powell stock certificates and any other required documents, your Raleigh,
Schwarz & Powell stock certificates will be canceled and you will receive stock
certificates representing the number of whole shares of Brown & Brown common
stock to which you are entitled under the merger agreement.
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If you are an ESOP participant, the ESOP trustee, as record holder of
the shares of Raleigh, Schwarz & Powell common Stock allocated to your ESOP
account, will surrender the stock certificates representing such shares.
ACCOUNTING TREATMENT
Brown & Brown and Raleigh, Schwarz & Powell intend to account for the
merger as a pooling-of-interests. Under this method of accounting, the
consolidated assets and liabilities of Raleigh, Schwarz & Powell will be carried
forward to the consolidated financial statements of Brown & Brown at their
recorded amounts and the consolidated results of operations of Raleigh, Schwarz
& Powell will be combined with the results of operations of Brown & Brown. In
order to qualify for the pooling-of-interests accounting method, the affiliates
of Raleigh, Schwarz & Powell must agree to certain restrictions on their ability
to transfer the shares of Brown & Brown common stock they receive in the merger.
REGULATORY APPROVALS
Neither Brown & Brown nor Raleigh, Schwarz & Powell is aware of any
other material governmental or regulatory approval required for completion of
the merger, other than the effectiveness of the registration statement of which
this proxy statement/prospectus is a part, compliance with applicable corporate
law of Florida and Washington, and compliance with applicable state "blue sky"
laws.
IMPACT ON THE ESOP
Immediately prior to, and contingent upon, effectiveness of the merger,
the board of directors of Raleigh, Schwarz & Powell will terminate the ESOP and
the ESOP participants will no longer accrue benefits under the ESOP. All
Raleigh, Schwarz & Powell shares held in an ESOP participant's account will be
cancelled and converted into the right to receive shares of Brown & Brown common
stock and cash, depending upon the actual assets held in the ESOP participant's
account at the time of distribution. The number of shares of Brown & Brown
common stock the ESOP trustee will receive will be determined as described under
"The Merger--Treatment of Raleigh, Schwarz & Powell Common Stock." As a
condition of the merger 10% of the shares of Brown & Brown common stock
otherwise deliverable upon the merger to the ESOP trustee will be deposited in
escrow. Upon termination of the escrow agreement, the ESOP shall receive its
proportion of any remaining shares.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences of the merger. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended, which is referred
to in this proxy statement/prospectus as the Internal Revenue Code, existing
Treasury regulations and current administrative rulings and court decisions, all
of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to Brown & Brown, Raleigh, Schwarz
& Powell or Raleigh, Schwarz & Powell shareholders.
Raleigh, Schwarz & Powell shareholders should be aware that this
discussion does not deal with all federal income tax considerations that may be
relevant to particular Raleigh, Schwarz & Powell shareholders that are subject
to special rules or that may be important in light of such shareholders'
individual circumstances, such as shareholders who:
- are dealers in securities or foreign currency;
- are subject to the alternative minimum tax provisions of the
Internal Revenue Code;
- are foreign persons or entities;
- are financial institutions or insurance companies;
- are tax-exempt organizations;
- do not hold their Raleigh, Schwarz & Powell shares as capital
assets;
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- acquired their shares in connection with any stock option or
stock purchase plans or in other compensatory transactions; or
- hold Raleigh, Schwarz & Powell common stock as part of an
integrated investment, including a "straddle" or "conversion"
transaction, pledge against currency risk, or constructive
sale, comprised of shares of Raleigh, Schwarz & Powell capital
stock and one or more other positions.
In addition, the following discussion does not address:
- tax consequences of the merger under foreign, state or local
tax laws; or
- tax consequences of transactions effectuated before, after or
concurrently with the merger (whether or not any such
transactions are undertaken in connection with the merger)
including any transaction in which Raleigh, Schwarz & Powell
shares are acquired or Brown & Brown shares are disposed of.
Raleigh, Schwarz & Powell shareholders are urged to consult their own
tax advisors as to the specific tax consequences of the merger, including the
applicable federal, state, local and foreign tax consequences of the merger.
The following material federal income tax consequences generally will
result from the merger constituting a reorganization within the meaning of the
Internal Revenue Code:
- Raleigh, Schwarz & Powell shareholders will not recognize any
gain or loss solely upon receipt in the merger of Brown &
Brown common stock in exchange for Raleigh, Schwarz & Powell
capital stock, except to the extent Raleigh, Schwarz & Powell
shareholders exercise their dissenters' rights.
- The aggregate tax basis of the Brown & Brown common stock
received by a Raleigh, Schwarz & Powell shareholder in the
merger, should be the same as the aggregate tax basis of the
surrendered Raleigh, Schwarz & Powell capital stock.
- The holding period for the Brown & Brown common stock received
by a Raleigh, Schwarz & Powell shareholder in the merger
should include the period for which the surrendered Raleigh,
Schwarz & Powell common stock was considered to be held,
provided that the Raleigh, Schwarz & Powell common stock so
surrendered is held as a capital asset at the time of the
merger.
- The return of any escrowed shares to Brown & Brown in
satisfaction of an indemnification claim is not expected to
result in the recognition of gain or loss but is instead
expected to be treated as an adjustment to the exchange terms
of the merger agreement. Accordingly, the basis of Brown &
Brown common stock received in the merger by holders of
escrowed shares would be adjusted.
- A Raleigh, Schwarz & Powell shareholder who exercises
dissenters' rights will generally recognize gain or loss for
federal income tax purposes, measured by the difference
between the amount of cash received and the holder's basis in
the Raleigh, Schwarz & Powell shares, provided that the
shareholder exercising dissenters' rights owns no shares of
Raleigh, Schwarz & Powell stock (either actually or
constructively within the meaning of Section 318 of the
Internal Revenue Code) immediately after the merger.
- Neither Brown & Brown, Brown & Brown of Washington, Inc. nor
Raleigh, Schwarz & Powell should recognize gain or loss solely
as a result of the merger.
Brown & Brown and Raleigh, Schwarz & Powell will not request a ruling
from the Internal Revenue Service in connection with the merger. The IRS is
therefore not precluded from asserting a contrary position. A successful IRS
challenge to the reorganization status of the merger as a result of a failure to
meet any of the requirements of a reorganization would result in Raleigh,
Schwarz & Powell shareholders recognizing taxable gain or loss with respect to
each share of Raleigh, Schwarz & Powell common stock surrendered equal to the
difference between their bases in such shares and the fair market value, as of
the date the merger is completed, of the Brown & Brown common stock received in
the merger. In such event, a shareholder's aggregate basis in the Brown & Brown
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common stock so received would equal its fair market value as of the date the
merger is completed and the shareholder's holding period for such stock would
begin the day after the merger.
A recipient of shares of Brown & Brown common stock could recognize
gain to the extent that those shares were considered to be received in exchange
for services or property other than solely Raleigh, Schwarz & Powell capital
stock. All or a portion of such gain may be taxable as ordinary income. A
Raleigh, Schwarz & Powell shareholder also could be required to recognize gain
to the extent such shareholder was treated as receiving, directly or indirectly,
consideration other than Brown & Brown common stock in exchange for Raleigh,
Schwarz & Powell stock.
DISSENTERS' RIGHTS
If the merger occurs, Raleigh, Schwarz & Powell shareholders who do not
vote their shares in favor of the merger may be entitled to dissenters' rights
under Washington law. ESOP participants are not entitled to dissenters' rights.
For a further discussion of Raleigh, Schwarz & Powell shareholders' possible
dissenters' rights including a summary of Washington law, see "The Raleigh,
Schwarz & Powell Special Meeting--Dissenters' Rights."
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
All shares of Brown & Brown common stock to be issued to Raleigh,
Schwarz & Powell shareholders in the merger will be registered under the
Securities Act. Subject to restrictions relating to pooling-of-interests
accounting, these shares will be tradeable on The New York Stock Exchange.
Shares of Brown & Brown common stock issued to any person who is an "affiliate"
of either Brown & Brown or Raleigh, Schwarz & Powell, as that term is defined
under the Securities Act, may be sold in transactions permitted by the resale
provisions of Rule 145(d) under the Securities Act or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control of either company and may include some of their officers and directors,
as well as their principal shareholders.
In addition, each person who is a shareholder of Raleigh, Schwarz &
Powell will be required, as a condition of the merger, to agree not to dispose
of any shares of Brown & Brown common stock until financial statements
reflecting 30 days of combined operations of Brown & Brown and Raleigh, Schwarz
& Powell are made publicly available.
OPERATIONS FOLLOWING THE MERGER
After completion of the merger, Raleigh, Schwarz & Powell will continue
its operations as a wholly-owned subsidiary of Brown & Brown under the name
"Brown & Brown of Washington, Inc." The shareholders of Raleigh, Schwarz &
Powell will become shareholders of Brown & Brown, and their rights as
shareholders will be governed by Brown & Brown's existing amended and restated
articles of incorporation, Brown & Brown's existing amended and restated bylaws
and the laws of the State of Florida. See "Comparison of Shareholder Rights."
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THE MERGER AGREEMENT
This section of this proxy statement/prospectus describes the merger
agreement. While Brown & Brown and Raleigh, Schwarz & Powell believe that the
description covers the material terms of the merger agreement, this summary may
not contain all of the information that is important to you. The merger
agreement is attached to this proxy statement/prospectus as Annex A and Brown &
Brown and Raleigh, Schwarz & Powell urge you to read it carefully.
GENERAL
If the Raleigh, Schwarz & Powell shareholders holding at least
two-thirds of the outstanding shares of Raleigh, Schwarz & Powell common stock
approve the merger, and the other conditions of the merger have been satisfied
or waived, Brown & Brown of Washington, Inc., a wholly-owned subsidiary of Brown
& Brown, will be merged with and into Raleigh, Schwarz & Powell. Raleigh,
Schwarz & Powell will be the surviving corporation in the merger and a
wholly-owned subsidiary of Brown & Brown. Following the merger, the company will
change its name to "Brown & Brown of Washington, Inc."
EXCHANGE OF SHARES
With the exception of dissenting shares, each issued and outstanding
share of Raleigh, Schwarz & Powell common stock, referred to in this proxy
statement/prospectus as Raleigh, Schwarz & Powell common stock, will be canceled
and converted into shares of Brown & Brown common stock. The number of shares of
Brown & Brown common stock you will receive will be determined as described
under "The Merger-Treatment of Raleigh, Schwarz & Powell Common Stock."
DISSENTERS' RIGHTS
If any Raleigh, Schwarz & Powell shareholder asserts dissenters' rights
under Washington law, Raleigh, Schwarz & Powell must promptly notify Brown &
Brown of the claim or demand. Brown & Brown will have the right to conduct
jointly with Raleigh, Schwarz & Powell all negotiations and proceedings with
respect to any claim or demand. Raleigh, Schwarz & Powell will not, except with
the prior written consent of Brown & Brown, make any payment with respect to, or
settle or offer to settle, any demand for payment.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by
Raleigh, Schwarz & Powell regarding, among other things:
- its capital structure;
- its authority to enter into the merger agreement;
- its financial statements and absence of undisclosed material
liabilities;
- absence of changes in its business since June 30, 2001;
- regulatory approvals required for completion of the merger;
- title to property it owns or leases;
- various aspects of its intellectual property;
- environmental matters;
- litigation or investigations pending or threatened against it
or to which it is a party;
- its taxes and tax obligations;
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- its employee benefit plans;
- compliance with applicable laws;
- its material contracts and compliance with the terms of such
contracts;
- material contractual restrictions on its business;
- its insurance;
- pooling of interests accounting matters;
- securities laws; and
- the accuracy of information it provided to be included in any
filings with a governmental entity having jurisdiction over
the merger or the transactions contemplated by the merger
agreement.
The merger agreement contains representations and warranties by the
ESOP regarding its authority to enter into the merger agreement and its
ownership of the shares of Raleigh, Schwarz & Powell common stock held by the
ESOP.
The merger agreement also contains representations and warranties by
Brown & Brown and/or Brown & Brown of Washington, Inc. regarding, among other
things, aspects of its organization, capital structure, financial statements,
authority to enter into the merger agreement, the absence of brokers and
financial advisors, the validity of the common stock to be issued in connection
with the merger and the accuracy and completeness of documents and reports filed
by Brown & Brown with the Securities and Exchange Commission.
The representations and warranties in the merger agreement are detailed
and not easily summarized. You are urged to carefully read the sections of the
merger agreement entitled "Representations and Warranties of the Sellers" and
"Representations and Warranties of Buyers."
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Raleigh, Schwarz & Powell has agreed that until the completion of the
merger or the termination of the merger agreement, it will carry on its business
in the ordinary course and use reasonable efforts to preserve intact its present
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers and others with which it
has business dealings. In particular, subject to some exceptions, Raleigh,
Schwarz & Powell will not, among other things:
- sell, lease, license, encumber or otherwise dispose of any of
its assets or agree to take any of the foregoing actions;
- other than in the ordinary course of business, acquire or
agree to acquire interests or assets in other entities;
- issue, or authorize the issuance of, additional equity
securities;
- other than in the ordinary course of business consistent with
past practice, incur or guarantee any indebtedness, issue or
sell any debt securities or guarantee any debt securities of
others; or
- enter into any material lease.
The agreements related to the conduct of Raleigh, Schwarz & Powell's
business in the merger agreement are complicated and not easily summarized. You
are urged to carefully read the section of the merger agreement entitled
"Covenants."
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CHARTER DOCUMENTS OF THE SURVIVING CORPORATION
The articles of incorporation and bylaws of Brown & Brown of
Washington, Inc. as in effect immediately before the effective time of the
merger will become the articles of incorporation of the surviving corporation.
FEES AND EXPENSES OF THE MERGER
Whether or not the merger is completed, all costs and expenses incurred
in connection with the merger agreement and the merger shall be paid by the
party incurring such expenses, except that Raleigh, Schwarz & Powell will be
responsible for the expenses relating to termination, winding down and
liquidation of the ESOP.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Brown & Brown and Raleigh, Schwarz & Powell to
complete the merger are subject to the satisfaction or waiver of each of the
following conditions:
- approval of the merger agreement, the merger and the related
transactions by the holders of at least two-thirds of the
outstanding shares of common stock of Raleigh, Schwarz &
Powell;
- Brown & Brown and Raleigh, Schwarz & Powell will have timely
obtained from the relevant governmental entities all
authorizations, consents, orders or approvals, if any,
necessary for completion of or in connection with the merger
and the transactions contemplated by the merger agreement,
except for such authorizations, consents, waivers or approvals
of which the failure to obtain would not have a material
adverse effect;
- the Securities and Exchange Commission declaring effective the
registration statement on Form S-4, of which this proxy
statements/prospectus is a part, registering the issuance of
Brown & Brown common stock in the merger;
- the absence of any temporary restraining order, preliminary or
permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition
preventing the merger;
- execution of an escrow agreement by Brown & Brown and Brown &
Brown of Washington, Inc. and each of the Raleigh, Schwarz &
Powell shareholders (excluding the ESOP), in the form attached
to this proxy statement/prospectus as Annex D;
- execution of an escrow agreement by Brown & Brown and the
ESOP, in the form attached to this proxy statement/prospectus
as Annex E;
- execution of an indemnification agreement by Brown & Brown and
each of the Raleigh, Schwarz & Powell shareholders (excluding
the ESOP), in the form attached to this proxy
statement/prospectus as Annex B; and
- execution of employment agreements by Brown & Brown and those
employees of Raleigh, Schwarz & Powell specified in a schedule
to the merger agreement to be delivered prior to completion of
the merger.
The obligations of Raleigh, Schwarz & Powell to complete the merger are
subject to the satisfaction or waiver by it of each of the following additional
conditions:
- the truth and correctness, in all material respects, of the
representations and warranties of Brown & Brown and Brown &
Brown of Washington, Inc. in the merger agreement as of the
effective time of the merger, and the companies' performance
in all material respects of all of their obligations under the
merger agreement required to be performed by them at or prior
to the effective time of the merger; and
- Raleigh, Schwarz & Powell's receipt of a legal opinion from
the Assistant General Counsel of Brown & Brown.
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Brown & Brown's and Brown & Brown of Washington, Inc.'s obligations to
complete the merger are subject to the satisfaction or waiver by it of each of
the following additional conditions:
- the truth and correctness, in all material respects, of the
representations and warranties of Raleigh, Schwarz & Powell in
the merger agreement as of the effective time of the merger,
and Raleigh, Schwarz & Powell's performance in all material
respects of all of its obligations under the merger agreement
required to be performed by Raleigh, Schwarz & Powell as of
the effective time of the merger;
- Brown & Brown's and Brown & Brown of Washington, Inc.'s
satisfaction, in its sole discretion, with the results of its
due diligence investigation of Raleigh, Schwarz & Powell;
- delivery by each of the Raleigh, Schwarz & Powell shareholders
of his or her Raleigh, Schwarz & Powell stock certificates;
- execution by each of the Raleigh, Schwarz & Powell
shareholders of a release, in the form attached to this proxy
statement/prospectus as Annex F;
- execution of a non-competition agreement, in the form attached
to this proxy statement/prospectus as Annex H, by each of the
Raleigh, Schwarz & Powell shareholders specified in a schedule
to the merger agreement to be delivered prior to completion of
the merger;
- delivery by Raleigh, Schwarz & Powell of those schedules
required under the merger agreement, in form and substance
satisfactory to Brown & Brown and Brown & Brown of Washington,
Inc.;
- Brown & Brown's confirmation of its belief when it signed the
letter of intent that the merger and the issuance of Brown &
Brown common stock will qualify for treatment for accounting
purposes as a pooling-of-interests transaction, and the
exercise by holders of no more than 10% of the outstanding
shares of Raleigh, Schwarz & Powell common stock of
dissenters' rights; and
- Brown & Brown's and Brown & Brown of Washington, Inc.'s
receipt of a legal opinion from counsel to Raleigh, Schwarz &
Powell.
TERMINATION
At any time before the effective time of the merger, the merger
agreement may be terminated by the mutual written consent of Brown & Brown and
Raleigh, Schwarz & Powell.
At any time before the effective time of the merger, the merger
agreement may also be terminated by either Brown & Brown or Raleigh, Schwarz &
Powell under any of the following circumstances:
- if the merger is not completed by August 31, 2001, provided
that if delays in the registration of the Brown & Brown common
stock prevent the closing from occurring by that date, then
the parties shall agree to extend the termination date to
November 30, 2001;
- if any permanent injunction or other order of a court or other
competent authority preventing consummation of the merger
shall become final and non-appealable; or
- if there is a material breach of any representation, warranty,
covenant or agreement by the non-terminating party which
breach is not cured prior to the consummation of the merger.
On August 31, 2001, the parties agreed to extend the termination date
of the merger agreement to November 30, 2001.
If either Brown & Brown or Raleigh, Schwarz & Powell terminates the
merger agreement as set forth above, the merger agreement will become void and
there shall be no liability or obligation on the part of any party, except to
the extent that such termination results from the breach by a party of any of
its representations, warranties, covenants or agreements set forth in the merger
agreement.
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EXTENSION AND WAIVER
Either of Brown & Brown or Raleigh, Schwarz & Powell may extend the
other's time for the performance of any of the obligations or other acts under
the merger agreement, waive any inaccuracies in the other's representations and
warranties and waive compliance by the other with any of the agreements or
conditions contained in the merger agreement.
OTHER AGREEMENTS
ESCROW AGREEMENTS
As a condition of the merger, each Raleigh, Schwarz & Powell
shareholder, other than the ESOP, must execute and deliver an escrow agreement,
the form of which is attached to this proxy statement/prospectus as Annex D and
referred to herein as the shareholder escrow agreement. Also as a condition of
the merger, the ESOP must execute and deliver a separate escrow agreement, the
form of which is attached to this proxy statement/prospectus as Annex E and
referred to herein as the ESOP escrow agreement. Under the terms of each of the
escrow agreements, 10% of the total number of shares of Brown & Brown common
stock otherwise deliverable upon the effective time of the merger to each holder
of Raleigh, Schwarz & Powell common stock will be deposited into escrow to
secure the indemnification obligations of such shareholders. The escrowed shares
will remain available to compensate Brown & Brown for one year from the
effective time of the merger. If a claim is asserted prior to the one-year
anniversary of the effective time of the merger and the claim has not been
resolved by the one-year anniversary, shares will remain in escrow in an amount
sufficient to satisfy the claim until the claim has been resolved, even if the
one-year period has elapsed. Escrowed shares that are not needed to satisfy
indemnification claims made within one year of the effective time of the merger
will be distributed to the former Raleigh, Schwarz & Powell shareholders, and
the ESOP or its participants, pro rata.
Subject to certain restrictions set forth in the indemnification
agreement or the merger agreement, the ESOP may direct the escrow agent to sell
any or all of the ESOP's escrowed shares and the escrow agent, in its sole
discretion and pursuant to certain guidelines set forth in a schedule to the
shareholder escrow agreement, may sell any or all of the shareholders' (other
than the ESOP) escrowed shares in brokers' transactions on any national
securities exchange upon which such securities are traded, provided the proceeds
of any such sale or transfer remain in escrow until after one year from the
effective time of the merger and that such proceeds shall be invested in any
deposit that is fully insured by the Federal Deposit Insurance Corporation,
commercial paper given the highest rating by Moody's Investors Service, Inc. and
Standard & Poor's Corporation at the time of investment, or money market funds
investing primarily in any of the foregoing.
Under the terms of each of the escrow agreements, if Brown & Brown
suffers any losses that are subject to indemnity, Brown & Brown can recover
these losses by taking back a certain number of escrowed shares and/or cash held
in escrow, at Brown & Brown's option. If Brown & Brown elects to have its claim
for indemnification satisfied by the release of the escrowed shares to it, the
dollar value of each escrowed share shall be the average closing price for a
share of Brown & Brown common stock, as reported on The New York Stock Exchange,
in the 20 day period ending at the close of business on the third business day
in advance of the effective time of the merger. If Brown & Brown elects to have
its claim for indemnification satisfied by the release of cash held in escrow
under the terms of the escrow agreements, the amount of cash to which Brown &
Brown shall be entitled shall be equal to the product of (1) the closing price
of a share of Brown & Brown common stock as reported on The New York Stock
Exchange on the date Brown & Brown makes a claim multiplied by (2) the number of
escrowed shares to which Brown & Brown would have been entitled if it had
elected to have its claim satisfied by the release of escrowed shares.
INDEMNIFICATION AGREEMENT BETWEEN SHAREHOLDERS AND BROWN & BROWN
As a condition of the merger, each Raleigh, Schwarz & Powell
shareholder, other than the ESOP, must execute and deliver an indemnification
agreement, the form of which is attached to this proxy statement/prospectus as
Annex B, which provides that the Raleigh, Schwarz & Powell shareholders will
jointly and severally indemnify Brown & Brown for damages Brown & Brown suffers
as a result of (1) any material breach of any of Raleigh, Schwarz & Powell's
representations, warranties, obligations or covenants contained in the merger
agreement, (2) any material breach of any of the Raleigh, Schwarz & Powell
shareholders' representations, warranties, obligations or covenants contained in
the indemnification agreement or any other certificate, agreement or other
document delivered by
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any shareholder pursuant to the merger agreement (other than the release
described below), (3) the operation of Raleigh, Schwarz & Powell's insurance
agency business or ownership of the shares of Raleigh, Schwarz & Powell common
stock by the shareholders on or prior to the effectiveness of the merger,
including, without limitation, any claims or lawsuits based on the conduct of
Raleigh, Schwarz & Powell or its shareholders occurring before the
effectiveness of the merger, except to the extent the damages were taken into
account by reserve or accrual in the determination of the consolidated total
net worth, (4) the exercise of any dissenters' rights by a Raleigh, Schwarz &
Powell shareholder, or (5) any deficiency in the accruals on Raleigh, Schwarz &
Powell's balance sheet at the effective time of the merger for (a) any
insurance company payables outstanding as of the effective time of the merger,
or (b) any accounts receivable aged over 59 days as of the effective time of
the merger not collected as of the expiration of the one year indemnification
period, that are in excess of the allowance for doubtful accounts on Raleigh,
Schwarz & Powell's balance sheet at the effective time of the merger. Each
shareholder also agrees to indemnify Brown & Brown for damages it suffers as a
result of the release described below.
Raleigh, Schwarz & Powell shareholders will not be required to
indemnify Brown & Brown unless the aggregate claim for damages exceeds $25,000,
and only to the extent such claims exceed such initial $25,000; The maximum
indemnification obligation of the shareholders as a whole is limited to the
aggregate value, as of the effective time of the merger, of the Brown & Brown
shares of common stock received in the merger; provided however, that the
maximum liability of each shareholder who owns less than 2,000 shares of
Raleigh, Schwarz & Powell common stock prior to July 25, 2001, and certain
shareholders named in the indemnification agreement, shall be limited to the
aggregate value, as of the effective time of the merger, of the merger
consideration received by such shareholder.
RELEASE
As a condition to the merger, each Raleigh, Schwarz & Powell
shareholder must execute and deliver a release, the form of which is attached to
this proxy statement/prospectus as Annex F, which releases and discharges Brown
& Brown, Brown & Brown of Washington, Inc., Raleigh, Schwarz & Powell and their
respective affiliates from any and all claims or demands such shareholder has or
may have in the future against Brown & Brown, Brown & Brown of Washington, Inc.,
Raleigh, Schwarz & Powell and their respective affiliates.
SPOUSAL CONSENT
As a condition of the merger, each spouse of a Raleigh, Schwarz &
Powell shareholder must execute and deliver a spousal consent, the form of which
is attached to this proxy statement/prospectus as Annex G, pursuant to which
such spouse (1) consents to the exchange of shares of Raleigh, Schwarz & Powell
common stock for shares of Brown & Brown common stock, (2) approves the merger
agreement, including the exhibits and schedules attached to the merger
agreement, (3) authorizes his or her spouse to take all actions required under
the merger agreement, (4) agrees that the Raleigh, Schwarz & Powell common stock
and such spouse's interest in such shares are subject to the provisions of the
merger agreement, and (5) agrees to take no action at any time to hinder the
operation of the merger agreement on such shares or such spouse's interest in
the shares.
EMPLOYMENT AGREEMENTS
As a condition of the merger, certain employees of Raleigh, Schwarz &
Powell, including Mr. Folsom, the President of Raleigh, Schwarz & Powell,
specified in a schedule to the merger agreement to be delivered prior to
completion of the merger, must enter into an employment agreement with Brown &
Brown. Under the terms of these employment agreements, each of these employees
will be an at-will employee.
NON-COMPETITION AGREEMENTS
As a condition of the merger, a non-competition agreement, in the form
attached to this proxy statement/prospectus as Annex H, that prohibits such
person from competing, as described below, for a period of
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three years from the effective time of the merger must be executed by each of
the Raleigh, Schwarz & Powell shareholders specified in a schedule to the merger
agreement to be delivered prior to completion of the merger. The non-competition
agreement requires each person to refrain from:
- directly or indirectly engaging in the insurance agency or
brokerage business within the following Washington counties:
Chelan, Classam, Douglas, Ferry, Grant, Jefferson, King,
Kitsap, Kittitas, Lincoln, Mason, Okanogan, Pierce, San Juan
Island, Skagit, Snohomish, Thurston, Whatcom, or Yakima;
- directly or indirectly soliciting, diverting or accepting
business from, or servicing, as insurance solicitor, insurance
agent, insurance broker or otherwise, any account that is part
of the Raleigh, Schwarz & Powell book of business or any
insurance account then serviced by Brown & Brown; and
- hiring away any employee or personnel of Brown & Brown or its
affiliates, or inducing or enticing any such person to leave
such employment or engagement without the prior written
consent of Brown & Brown.
The non-competition agreement further provides that for a period of
three years from the effective time of the merger, such person will not disclose
any confidential information, as defined in the non-competition agreement.
CONTRIBUTION AGREEMENT
As discussed above, as a condition of the merger, each Raleigh, Schwarz
& Powell shareholder, other than the ESOP, must execute and deliver an
indemnification agreement, pursuant to which the Raleigh, Schwarz & Powell
shareholders must agree to jointly and severally indemnify Brown & Brown for
certain damages. Although the obligations under the indemnification agreement
are joint and several, under the terms of the contribution agreement, the form
of which is attached as Annex C, as between the shareholders, each shareholder
shall be responsible for his or her share of the liability for damages asserted
under the indemnification agreement, as determined by his or her pro-rata share
of the consideration received by such shareholder in the merger. Under the terms
of the contribution agreement, each shareholder therefore agrees to indemnify
and hold each of the other shareholders harmless for that part of the liability
for damages asserted under the indemnification agreement exceeding that
shareholder's pro-rata share of the merger consideration. In addition, each
shareholder agrees to be responsible for the full amount, without limitation,
of any indemnification claim arising from the shareholder's own failure to
perform his or her post-closing obligations or breach of representation,
warranty or covenant relating to his or her ownership of Golden Gate Holdings
shares.
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DIRECTORS AND MANAGEMENT OF
BROWN & BROWN FOLLOWING THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS
At the time the merger is completed, the board of directors and
management of Brown & Brown will consist of the following current directors and
executive officers of Brown & Brown:
Year First
Became
Name Positions Age a Director
---- --------- --- ----------
J. Hyatt Brown Chairman of the Board, President and 64 1993
Chief Executive Officer
Jim W. Henderson Executive Vice President, 55 1993
Assistant Treasurer and Director
Samuel P. Bell, III Director 62 1993
Bradley Currey, Jr. Director 71 1995
Theodore J. Hoepner Director 60 1994
David H. Hughes Director 57 1997
Toni Jennings Director 52 1999
John R. Riedman Director 72 2001
Jan E. Smith Director 61 1997
Cory T. Walker Vice President, Chief Financial 44 --
Officer and Treasurer
Laurel L. Grammig Vice President, Secretary and 42 --
General Counsel
Thomas M. Donegan, Jr. Vice President, Assistant Secretary and 31 --
Assistant General Counsel
M. Catherine Wellman Vice President, Assistant Secretary and 27 --
Assistant General Counsel
J. HYATT BROWN. Mr. Brown has been the President and Chief Executive
Officer of Brown & Brown since 1993, and the Chairman of the board of directors
since 1994. Mr. Brown was President and Chief Executive Officer of Brown &
Brown's predecessor corporation from 1961 to 1993. He was a member of the
Florida House of Representatives from 1972 to 1980, and Speaker of the House
from 1978 to 1980. Mr. Brown serves on the board of directors of SunTrust Banks,
Inc., SunTrust Bank/East Central Florida, International Speedway Corporation,
The FPL Group, Inc., BellSouth Corporation, Rock-Tenn Company, and SCPIE
Holdings Inc. He also serves on the Board of Trustees of Stetson University, for
which he is a past Chairman, and serves as a member of the YMCA Advisory Board,
the March of Dimes board of directors, and the Salvation Army Advisory Council.
JIM W. HENDERSON. Mr. Henderson served as Senior Vice President of
Brown & Brown from 1993 to 1995, and was elected Executive Vice President in
1995. He served as Senior Vice President of Brown & Brown's predecessor
corporation from 1989 to 1993, and as Chief Financial Officer from 1985 to 1989.
SAMUEL P. BELL, III. Mr. Bell has been a shareholder of the law firm of
Pennington, Moore, Wilkinson, Bell & Dunbar, P.A. since January 1, 1998 and also
serves as Of Counsel to the law firm of Cobb Cole & Bell. Prior to that, he was
a shareholder and managing partner of Cobb Cole & Bell. He has served as counsel
to Brown
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& Brown and its predecessor corporation since 1964. Mr. Bell was a member of the
Florida House of Representatives from 1974 to 1988.
BRADLEY CURREY, JR. Mr. Currey served as Chief Executive Officer of
Rock-Tenn Company, a manufacturer of packaging and recycled paperboard products,
from 1989 to 1999 and as Chairman of the Board of Rock-Tenn from 1993 to January
31, 2000, when he retired. He also previously served as President (1978-1995)
and Chief Operating Officer (1978-1989) of Rock-Tenn. Mr. Currey is a member of
the board of directors of Rock-Tenn Company, Genuine Parts Company, and
Enzymatic Deinking Technologies, Inc., and is Trustee Emeritus and a past
Chairman of the Board of Trustees of Emory University. He is also a past
Chairman of the Federal Reserve Bank of Atlanta.
THEODORE J. HOEPNER. Mr. Hoepner has been Vice Chairman of SunTrust
Banks, Inc. since 2000. From 1995 to 2000, Mr. Hoepner served as Chairman of the
Board, President and Chief Executive Officer of SunTrust Banks of Florida, Inc.
From 1990 through 1995, he served as Chairman of the Board, President and Chief
Executive Officer of SunBank, N.A. From 1983 through 1990, he was the Chairman
of the Board and Chief Executive Officer of SunBank/Miami, N.A.
DAVID H. HUGHES. Mr. Hughes has been Chief Executive Officer of Hughes
Supply, Inc., a business-to-business distributor of construction and industrial
supplies, since 1974, and has been Chairman of the Board since 1986. Mr. Hughes
is a member of the board of directors of SunTrust Banks, Inc., SunTrust
Bank/Central Florida, Orlando Regional Healthcare Systems, Arnold Palmer
Children's Hospital, Florida Tax Watch, Accord Industries, and Lanier Worldwide,
Inc.
TONI JENNINGS. Ms. Jennings has been President of Jack Jennings & Sons,
a commercial construction firm based in Orlando, Florida, since 1982. Ms.
Jennings also serves as Secretary and Treasurer of Jennings & Jennings, Inc., an
architectural millwork firm based in Orlando, Florida. Ms. Jennings was a member
of the Florida Senate from 1980 to 2000, and President of the Florida Senate
from 1996 to 2000. She previously served in the Florida House of Representatives
from 1976 to 1980. She currently serves on the Salvation Army Advisory Board and
on the board of directors of SunTrust Bank/Central Florida.
JOHN R. RIEDMAN. Mr. Riedman was elected to Brown & Brown's board of
directors in January 2001. He has served as Chairman of Riedman Corporation,
based in Rochester, New York, since 1992. In January 2001, the insurance agency
operations of Riedman Corporation were acquired by Brown & Brown, at which time
Mr. Riedman joined Brown & Brown as an Executive Vice President and was elected
as Vice Chairman of Brown & Brown of New York, Inc., a subsidiary of Brown &
Brown. Mr. Riedman is a trustee and Finance Committee member of ViaHealth, a
Rochester-based healthcare services network, a trustee of WXXI Public
Broadcasting Corporation, and a member of the Executive Committee of the Greater
Rochester Chamber of Commerce. He serves as President of 657 East Avenue Corp.
(a subsidiary of Rochester Museum and Science Center) and of the Monroe County
Sheriff's Foundation, and as Chairman of the Greater Rochester Sports Authority.
He serves on the board of directors of High Falls Brewing Company, Sage, Rutty &
Company, Inc., a Rochester-based financial services firm, the New York State
Thruway Authority and the New York State Canal Corporation. Mr. Riedman also
served as a director and Chairman of the Audit Committee of Fleet Financial
Group from 1988 to 1999.
JAN E. SMITH. Mr. Smith has served as President of Jan Smith & Company,
a commercial real estate and business investment firm, since 1978. Mr. Smith is
also the managing general partner of Ramblers Rest Resort, Ltd., a recreational
vehicle park in Venice, Florida, and President of Travel Associates, Inc. Mr.
Smith serves on the board of directors of SunTrust Bank/Gulf Coast, and is a
member of the University of South Florida Foundation Board of Trustees. He also
serves as a member of the Florida Education Governance Reorganization Transition
Task Force and as a member of the Tampa Bay Business Hall of Fame. He is a past
member of the Advisory Council of the Federal Reserve Bank of Atlanta.
CORY T. WALKER. Mr. Walker was elected Vice President, Treasurer and
Chief Financial Officer of Brown & Brown in February 2000. Mr. Walker previously
served as Vice President and Chief Financial Officer of Brown & Brown from 1992
to 1994. Between 1995 and February 15, 2000, Mr. Walker served as profit center
manager for Brown & Brown's Oakland, California retail office. Before joining
Brown & Brown, he was a Senior Audit Manager for Ernst & Young LLP.
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LAUREL L. GRAMMIG. Ms. Grammig has been Vice President, Secretary and
General Counsel of Brown & Brown since 1994. Before joining Brown & Brown, she
was a partner of the law firm of Holland & Knight LLP in Tampa, Florida.
THOMAS M. DONEGAN, JR. Mr. Donegan was elected Vice President and
Assistant Secretary in April 2000 after joining Brown & Brown as Assistant
General Counsel that same month. Prior to that, Mr. Donegan was an associate
with the law firm of Smith, Gambrell & Russell LLP in Atlanta, Georgia, where
his practice focused on corporate law and business transactions.
M. CATHERINE WELLMAN. Ms. Wellman was elected Vice President and
Assistant Secretary in January 2001, after joining Brown & Brown as Assistant
General Counsel in November 2000. Prior to that, Ms. Wellman was an associate
with the law firm of Meier, Lengauer, Bonner, Muszynski & Doyle, P.A. in
Orlando, Florida, where her practice focused on litigation.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation received by Brown &
Brown's Chief Executive Officer and the four other highest paid executive
officers in 2000 (the "Named Executive Officers") for services rendered to Brown
& Brown for each of the three years in the period ended December 31, 2000.
Compensation information is also provided with respect to James L. Olivier, who
served as Vice President, Assistant Secretary and Assistant General Counsel of
Brown & Brown through April 21, 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------------------
AWARDS
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)(2)
--------------------------- ---- ---------- --------- ------------------ ------------
J. Hyatt Brown 2000 493,835 342,568 --- 6,800
Chairman of the Board, 1999 426,381 292,364 --- 6,400
President, 1998 415,990 253,973 --- 6,400
& Chief Executive Officer
Jim W. Henderson 2000 334,375 325,000 119,558(3) 6,800
Executive Vice President 1999 325,350 254,000 --- 6,400
1998 296,927 209,000 --- 6,400
Cory T. Walker(4) 2000 146,434 90,000 --- 6,800
Vice President,
Chief Financial Officer
& Treasurer
Laurel L. Grammig 2000 127,691 80,730 --- 6,800
Vice President, Secretary 1999 123,943 69,000 --- 6,400
& General Counsel 1998 125,432 60,000 --- 6,400
James L. Olivier(5) 2000 149,999 26,596 --- 6,800
Former Vice President, 1999 108,951 15,000 --- 4,887
Assistant Secretary 1998 91,533 13,230 --- 4,165
& Assistant General
Counsel
----------
(1) Amounts shown represent Brown & Brown's 401(k) plan profit sharing and
matching contributions.
(2) Certain of the Named Executive Officers have been granted shares of
performance stock under Brown & Brown's Stock Performance Plan. For a
description of the terms of such grants, the number of shares granted,
and the value of such shares, see "Directors and Management of Brown &
Brown following the Merger - Long-Term Incentive Plans - Awards in Last
Fiscal Year."
(3) Mr. Henderson was originally granted 59,779 options under Brown &
Brown's 2000 Incentive Stock Option Plan (the "Plan") effective April
21, 2000. On August 23, 2000, Brown & Brown implemented a 2-for-1 stock
split, effected as a stock dividend. Under the Plan, the number of
shares underlying granted options are automatically adjusted to reflect
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar event or change in the capital
structure of Brown & Brown. The exercise price per share for the
granted options is $19.3438, which represents the closing market price
of Brown & Brown's common stock on April 20, 2000 of $38.6875, after
adjustment by Brown & Brown's Compensation Committee for the 2-for-1
stock split effected August 23, 2000.
(4) Mr. Walker was elected as an executive officer in February 2000.
(5) Mr. Olivier resigned as an executive officer of Brown & Brown effective
April 21, 2000, in order to accept a position in the Lawyer's Protector
Plan(R), one of Brown & Brown's national programs.
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OPTION GRANTS IN 2000
Brown & Brown's shareholders approved the 2000 Incentive Stock Option
Plan at the 2000 Annual Shareholders' Meeting. Grants of Brown & Brown stock
options under the Plan are intended to provide an incentive for key employees to
achieve short- to medium-range performance goals of Brown & Brown. This is done
generally by tying the vesting of granted options to the grantee's region or
profit center achieving pre-tax earnings reflecting a compound annual growth in
excess of 15% over pre-tax earnings for 1999, the Plan's base year, for the
period ending December 31, 2002. The granted options will vest as these
performance standards are achieved or on the day prior to the ten-year
anniversary date of the grant, whichever is earlier. Vested stock options may be
exercised only pursuant to a schedule set forth in each grantee's agreement with
Brown & Brown. The grantee may not sell or transfer any granted stock options.
The table below sets forth the number of options granted to the Named Executive
Officers in 2000.
OPTION GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------- ------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
Name GRANTED (#) FISCAL YEAR ($/SH) (1) DATE(2) 5% ($) 10% ($)
---- ----------- ------------- ----------- ---------- --------- ---------
J. Hyatt Brown............. -- -- -- -- -- --
Jim W. Henderson........... 19,558(3) 1% $ 19.3438 4/20/2010 1,454,448 3,685,858
Cory T. Walker............. -- -- -- -- -- --
Laurel L. Grammig.......... -- -- -- -- -- --
James L. Olivier........... -- -- -- -- -- --
(1) Exercise price represents the closing market price of Brown & Brown's
common stock on April 20, 2000 of $38.6875, after adjustment by Brown &
Brown's Compensation Committee for a 2-for-1 stock split effected
August 23, 2000 (see note 3 below). No trading occurred on the grant
date, April 21, 2000, which was a trading holiday.
(2) No options granted under the Plan are exercisable upon the expiration
of ten (10) years after the effective date of grant of such option. The
effective date of Mr. Henderson's option grant was April 21, 2000.
(3) Mr. Henderson was originally granted 59,779 options effective April 21,
2000. On August 23, 2000, Brown & Brown implemented a 2-for-1 stock
split, effected as a stock dividend. Under the Plan, the number of
shares underlying granted options are automatically adjusted to reflect
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar event or change in the capital
structure of Brown & Brown.
AGGREGATE OPTION EXERCISES IN 2000
No stock options granted under Brown & Brown's 2000 Incentive Stock
Option Plan were exercisable during fiscal year 2000. The closing market price
of Brown & Brown's stock underlying the granted options was $35.00 per share as
of December 31, 2000. The resulting difference between the year-end market price
and the adjusted exercise price per share of $19.3438 is $15.66 per share.
Therefore, the value at fiscal year-end of unexercised in-the-money options
granted to Mr. Henderson, representing 119,558 shares, was $1,872,278.28.
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LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Grants of stock under Brown & Brown's Stock Performance Plan are
intended to provide an incentive for key employees to achieve long-range
performance goals of Brown & Brown, generally by providing incentives to remain
with Brown & Brown for a long period after the grant date and by tying the
vesting of the grant to appreciation of Brown & Brown's stock price. The table
below sets forth the number of shares of performance stock granted to the Named
Executive Officers in 2000 and the criteria for vesting.
PERFORMANCE OR OTHER PERIOD
NAME NUMBER OF SHARES(1)(2) UNTIL MATURATION OR PAYOUT(3)
---- ---------------------- -----------------------------
J. Hyatt Brown.................................. -- --
Jim W. Henderson................................ -- --
Cory T. Walker.................................. 2,940 5 years
Laurel L. Grammig............................... -- --
James L. Olivier................................ -- --
----------------
(1) None of the shares of performance stock granted to the Named Executive
Officers has vested as of the date of this Proxy Statement. In order for
the grants described above to fully vest, the grantee would have to remain
with Brown & Brown for a period of 15 years from the date of grant
(subject to the exceptions set forth in footnote (3) below) and Brown &
Brown's stock price would have to appreciate at a rate of 20% per year for
the five-year period beginning on the grant date in 2000. For each 20%
increase in Brown & Brown's stock price within such five-year period,
dividends will be payable to the grantee on 20% of the shares granted and
the grantee will have the power to vote such shares. The grantee will not
have any of the other indicia of ownership (e.g., the right to sell or
transfer the shares) until such shares are fully vested.
(2) The dollar value of the grant to Mr. Walker on the date of grant was
$50,000. This value represents the number of shares granted multiplied by
the closing market price of Brown & Brown's common stock on the New York
Stock Exchange on the date of grant. The aggregate number of shares of
performance stock granted to the Named Executive Officers as of December
31, 2000 were 47,650 for Mr. Henderson, 32,820 for Mr. Walker, 11,880 for
Ms. Grammig, and 9,670 for Mr. Olivier. The dollar values of all shares of
performance stock granted to the Named Executive Officers as of December
31, 2000 was $1,667,750 for Mr. Henderson, $1,148,700 for Mr. Walker,
$415,800 for Ms. Grammig, and $338,450 for Mr. Olivier.
(3) If the grantee's employment with Brown & Brown were to terminate before
the end of the 15-year vesting period, such grantee's interest in his or
her shares would be forfeited unless (i) the grantee has attained age 64,
(ii) the grantee's employment with Brown & Brown terminates as a result of
his or her death or disability, or (iii) the Compensation Committee, in
its sole and absolute discretion, waives the conditions of the grant of
performance stock.
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS
Effective July 29, 1999, J. Hyatt Brown entered into an Employment
Agreement that superseded Mr. Brown's prior agreement with Brown & Brown. The
agreement provides that Mr. Brown will serve as Chairman of the Board, President
and Chief Executive Officer. The agreement also provides that upon termination
of employment, Mr. Brown will not directly or indirectly solicit any of Brown &
Brown's customers for a period of three years.
The agreement requires Brown & Brown to make a payment to an escrow
account upon a Change of Control (as defined in the agreement) of Brown & Brown.
If, within three years after the date of such Change of Control, Mr. Brown is
terminated or he resigns as a result of certain Adverse Consequences (as defined
in the agreement), the amount in the escrow account will be released to Mr.
Brown. The amount of the payment will be equal to two times the following
amount: three times the sum of Mr. Brown's annual base salary and most recent
annual bonus, multiplied by a factor of one plus the percentage representing the
percentage increase, if any, in the price of the common stock of Brown & Brown
between the date of the agreement and the close of business on the first
business day following the date the public announcement of the Change of Control
is made. Mr. Brown will also be entitled to receive all benefits he enjoyed
prior to the Change of Control for a period of three years after the date of
termination of his employment.
A "Change of Control" includes the acquisition by certain parties of
30% or more of Brown & Brown's outstanding voting securities, certain changes in
the composition of the board of directors that are not approved by the incumbent
board, and the approval by Brown & Brown's shareholders of a plan of
liquidation, certain mergers or reorganizations, or the sale of substantially
all of Brown & Brown's assets. The "Adverse Consequences" described
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above generally involve a breach of the agreement by Brown & Brown, a change in
the terms of Mr. Brown's employment, a reduction in Brown & Brown's dividend
policy, or a diminution in Mr. Brown's role or responsibilities.
Brown & Brown entered into the agreement with Mr. Brown after
determining that it was in the best interests of Brown & Brown and its
shareholders to retain his services in the event of a threat or occurrence of a
Change of Control and thereafter, without alteration or diminution of his
continuing leadership role in determining and implementing the strategic
objectives of Brown & Brown. Brown & Brown also recognized that, unlike other
key personnel throughout Brown & Brown who participate in Brown & Brown's Stock
Performance Plan, Mr. Brown does not participate in that plan and would not
enjoy the benefit of the immediate vesting of stock interests granted pursuant
to that plan in the event of a Change of Control.
Jim W. Henderson, Cory T. Walker, Laurel L. Grammig, Thomas M. Donegan,
Jr., M. Catherine Wellman, and James L. Olivier have each entered into standard
employment agreements with Brown & Brown. These agreements may be terminated by
either party (in the case of Mr. Henderson, upon 30 days advance written
notice). Compensation under these agreements is at amounts agreed upon between
Brown & Brown and the employee from time to time. Additionally, for a period of
two years following the termination of employment (three years in the case of
Mr. Henderson), these agreements prohibit the employee from directly or
indirectly soliciting or servicing Brown & Brown's customers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of Brown & Brown's Compensation Committee during 2000 were
Samuel P. Bell, III (Chairman), Bradley Currey, Jr., Theodore J. Hoepner, David
H. Hughes, Toni Jennings and Jan E. Smith. J. Hyatt Brown, Brown & Brown's
Chairman, President and Chief Executive Officer, resigned as a member of the
Compensation Committee on April 20, 2000.
Samuel P. Bell, III is a partner in the law firm of Pennington, Moore,
Wilkinson, Bell & Dunbar, P.A. and serves as Of Counsel to the law firm of Cobb
Cole & Bell. Cobb Cole & Bell performed services for Brown & Brown in 2000 and
is expected to continue to perform legal services for Brown & Brown during 2001.
Theodore J. Hoepner is the Vice Chairman of SunTrust Banks, Inc. Brown
& Brown has a $50 million line of credit and a $90 million term loan with
SunTrust Banks, Inc. Brown & Brown expects to continue to use SunTrust Banks,
Inc. during 2001 for some of its cash management requirements. Mr. Brown and
David H. Hughes are each directors of SunTrust Banks, Inc. Mr. Hughes and Toni
Jennings are each directors of SunTrust Bank/East Central Florida. Jan E. Smith
is a director of SunTrust Bank/Gulf Coast. For other transactions involving
management and Brown & Brown, see "Directors and Management of Brown & Brown
following the Merger - Transactions with Management and Others."
Notwithstanding anything to the contrary set forth in any of Brown &
Brown's previous filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate future filings, including this proxy
statement/prospectus, in whole or in part, the following Board Compensation
Committee Report on Executive Compensation and the Performance Graph shall not
be incorporated by reference into any such filings.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Brown & Brown's overall compensation philosophy is as follows:
- Attract and retain high-quality people, which is crucial to
both the short-term and long-term success of Brown & Brown;
- Reinforce strategic performance objectives through the use of
incentive compensation programs; and
- Create a mutuality of interest between the executive officers
and shareholders through compensation structures that share
the rewards and risks of strategic decision-making.
Base Compensation. Salary levels for officers other than the Chief
Executive Officer are determined by the Chief Executive Officer each year during
the first quarter based upon the qualitative performance of each officer during
the previous year and guidelines approved by the Compensation Committee. If an
officer has had no change in duties, the percentage of annual salary increases
for such officer generally is expected to be approximately 3-5%
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of the officer's base salary. Exceptional performance or a change in the
officer's responsibilities may merit a larger increase.
Annual Bonuses. Bonuses for managers of Brown & Brown's Retail Division
profit centers are established by the profit center manager from a bonus pool
allocated to that manager's profit center through a pre-determined formula. For
2000, in each Retail Division profit center, the aggregate annual bonuses to be
allocated among the employees of that profit center ranged from 0% to 12% of
that profit center's operating profit before interest, amortization and profit
center bonus. The highest bonus percentage level is not met until the profit
center's operating profit percentage is equal to or greater than 28%. Other
divisions of Brown & Brown have similar objective measures of bonus potential
based on achievement of targeted operating or pre-tax goals. The annual bonus
for Mr. Henderson, who, in addition to other duties, served as the profit center
manager for the Daytona Beach retail operation, was established based on a
subjective allocation of the aggregate profit center bonus earned by the Daytona
Beach retail profit center.
The bonuses for the executive officers who are not profit center
managers are determined by the Chief Executive Officer based primarily on
objective criteria, such as a percentage of the officer's salary, the earnings
growth of Brown & Brown as a whole, and a subjective analysis of the officer's
duties and performance.
Long-Term Compensation. The Committee may also grant shares of
performance stock to officers and other key employees based upon salary levels,
sales production levels and performance evaluations. Grants of performance stock
were made in 2000 to certain of the Named Executive Officers, as well as to
other non-executive employees of Brown & Brown. See "Directors and Management of
Brown & Brown following the Merger - Long-Term Incentive Plans - Awards in Last
Fiscal Year."
CEO Compensation. With respect to the salary and bonus of J. Hyatt
Brown, the Chairman, President and Chief Executive Officer of Brown & Brown, the
Compensation Committee annually sets these amounts by reference to the general
operating performance of Brown & Brown. The performance criteria most closely
examined by the Committee are improvements in Brown & Brown's earnings per share
and net income, as well as the continuing growth of Brown & Brown's business.
The Committee also considers salary levels of chief executive officers in
companies similar to Brown & Brown and makes adjustments believed appropriate
based upon the differences in size of the peer companies as compared to Brown &
Brown. The Committee reports the salary and bonus amounts recommended for the
Chief Executive Officer to the full board of directors and responds to
questions, if any. At that time, the board may change salary levels or bonus
amounts.
The $342,568 bonus recommended by the Committee and approved by the
board of directors (excluding Mr. Brown) is 17.17% higher than Mr. Brown's 1999
bonus. This increase reflects the 17.17% increase in Brown & Brown's earnings
per share over 1999, as originally reported.
The financial performance of Brown & Brown during 2000 was at the
expected budgeted levels, and the Committee took this into consideration in
establishing compensation levels.
COMPENSATION COMMITTEE
Samuel P. Bell, III (Chairman)
Bradley Currey, Jr.
Theodore J. Hoepner
David H. Hughes
Toni Jennings
Jan E. Smith
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
On January 3, 2001, Brown & Brown completed its acquisition of all of
the insurance agency business-related assets of Riedman Corporation ("Riedman"),
based in Rochester, New York. Riedman's capital stock is owned by John R.
Riedman, James R. Riedman and a trust, the equal beneficiaries of which are John
R. Riedman's four children, James R. Riedman, David J. Riedman, Katherine R.
Griswold, and Susan R. Holliday. Simultaneously with this transaction, Brown &
Brown of Wyoming, Inc. ("Brown & Brown-Wyoming"), a wholly-owned subsidiary of
Brown & Brown, acquired all of the insurance agency business-related assets of
Riedman Insurance of Wyoming, Inc. ("Riedman-Wyoming"), a wholly-owned
subsidiary of Riedman based in Cheyenne, Wyoming. These acquisitions, recorded
using the purchase method of accounting, were made pursuant to an asset purchase
agreement among Brown & Brown, Riedman, and Riedman's shareholders, a purchase
agreement between Brown & Brown and Andrew Meloni, a key employee of Riedman,
and a general assignment and bill of sale from Riedman-Wyoming to Brown &
Brown-Wyoming. The aggregate consideration for these assets, which is payable in
cash in three installments by Brown & Brown and Brown & Brown-Wyoming, was equal
to approximately 1.55 times Riedman's revenues for the year 2000 less certain
Riedman debt related to its prior acquisitions, which was assumed by Brown &
Brown. Cory T. Walker, Vice President, Treasurer and Chief Financial Officer of
Brown & Brown, determined the purchase price of the assets acquired by Brown &
Brown, based upon the above-described formula. The cash consideration paid by
Brown & Brown and Brown & Brown-Wyoming at closing was approximately
$61,566,572. Certain of the assets acquired in these transactions were acquired
by Riedman within two years prior to the transactions, at an approximate
aggregate cost of $12,135,000.
Riedman Corporation is the landlord under a lease agreement with Brown
& Brown, as tenant, with respect to office space in Rochester, New York that was
entered into in connection with the transactions referenced in the preceding
paragraph. The lease provides for payment of annual rent of $300,000 by Brown &
Brown for a term of five years. Additionally, Brown & Brown assumed and took
assignment of a covenant not to compete owed to Riedman from John R. Riedman's
brother, Frank Riedman. The Company received a discounted credit toward the
asset purchase price for amounts payable to Frank Riedman pursuant to this
assumed obligation. The Company will pay Frank Riedman ten equal quarterly
installments of $82,500 beginning January 2001.
In January 2001, John R. Riedman, Chairman of Riedman, was elected as a
director of Brown & Brown, and also became an Executive Vice President of Brown
& Brown and Vice Chairman of Brown & Brown of New York, Inc., a subsidiary of
Brown & Brown. James R. Riedman, President of Riedman, is John R. Riedman's son
and was elected in January 2001 as an Executive Vice President of Brown & Brown
of New York, Inc. Effective April 30, 2001, James R. Riedman resigned that
position and left Brown & Brown's employ. John R. Riedman is paid an annual
salary of $150,000 pursuant to an employment agreement with Brown & Brown that
provides for a minimum term of one year; and continues thereafter until
terminated in accordance with its terms. John R. Riedman directly owns 25.5% of
Riedman's capital stock, James R. Riedman and an unrelated third party each
directly owns 1.8% of such stock and John R. Riedman's children beneficially own
the remainder of such stock through the aforementioned trust. In addition, Brown
& Brown received a credit toward the asset purchase price for amounts payable by
Brown & Brown for covenants not to compete with terms of five years entered into
with Mr. Riedman and each of his four children. At closing, Brown & Brown paid
an aggregate of $1,250,000 split equally among Mr. Riedman and his four children
for such covenants. Additionally, Mr. Riedman and James R. Riedman will each be
paid $250,000 annually for the next three years for their respective covenants.
J. Powell Brown, who is the son of J. Hyatt Brown, is employed by Brown
& Brown as the Profit Center Manager for the Orlando, Florida retail office, and
received compensation of $344,320 for services rendered to Brown & Brown in
2000.
For other transactions involving management and Brown & Brown, see "Directors
and Management of Brown & Brown Following the Merger - Compensation Committee
Interlocks and Insider Participation."
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INFORMATION FOR ESOP PARTICIPANTS
As of the record date, 116,340 shares (63.5%) of the outstanding
Raleigh, Schwarz & Powell common stock were owned by the ESOP. Eligible ESOP
participants are being offered the opportunity to instruct the ESOP fiduciary as
to whether to vote such participants' allocated shares of Raleigh, Schwarz &
Powell common stock in favor of or against the adoption of the merger agreement.
To instruct the ESOP fiduciary, an ESOP participant should complete the ESOP
direction letter that accompanies this proxy statement/prospectus and return it
to the ESOP fiduciary, all in accordance with the instructions set forth below.
Before completing and returning the enclosed ESOP direction letter to
the ESOP fiduciary, ESOP participants should read and consider carefully this
entire proxy statement/prospectus.
ESOP PARTICIPANTS ELIGIBLE TO INSTRUCT THE ESOP
Each ESOP participant to whose account shares of Raleigh, Schwarz &
Powell common stock have been allocated as of the record date (i.e., who is
employed by Raleigh, Schwarz & Powell as of September 28, 2001, and has shares
allocated to his or her ESOP account as of that date) is eligible to instruct
the ESOP fiduciary on the voting of those shares by completing, signing and
timely returning the enclosed ESOP direction letter.
EFFECT OF ESOP PARTICIPANTS' INSTRUCTIONS
ESOP participants may instruct the ESOP fiduciary to vote their
allocated shares of Raleigh, Schwarz & Powell common stock in favor of or
against the adoption of the merger agreement, the merger and related
transactions. Under the terms of the ESOP, the ESOP fiduciary will tabulate the
votes received from the ESOP participants and will provide instructions to the
ESOP trustee as to the voting of such shares as directed by the ESOP
participants. The ESOP and trust documents provide that the ESOP trustee will
vote unallocated shares of Raleigh, Schwarz & Powell common stock and shares of
Raleigh, Schwarz & Powell common stock for which no direction is received from
the ESOP participants in the manner determined by the ESOP fiduciary, subject to
the ESOP fiduciary's obligations under ERISA.
HOW TO INSTRUCT THE ESOP FIDUCIARY
An ESOP participant who wishes to vote his or her allocated shares of
Raleigh, Schwarz & Powell common stock must properly complete and timely return
the ESOP direction letter. To do so, after reading this proxy
statement/prospectus, an ESOP participant should:
1. Complete, date and sign the enclosed ESOP direction letter;
and
2. Mail the ESOP direction letter in the accompanying
postage-paid, pre-addressed envelope so that it will be
received by the ESOP fiduciary no later than 5:00 p.m. Central
Time, on October 23, 2001. ESOP direction letters also may be
sent to the ESOP fiduciary by overnight mail (at the ESOP
participant's expense) to the following address:
Consulting Fiduciaries, Inc.
400 Skokie Boulevard
Northbrook, Illinois 60062
Telephone: (847) 559-9837
In order to be effective, an ESOP direction letter must be received by the ESOP
fiduciary no later than 5:00 p.m. Central Time, on October 23, 2001.
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FAILURE TO SIGN, COMPLETE OR RETURN AN ESOP DIRECTION LETTER
If an ESOP participant fails to sign or timely return an ESOP direction
letter, or if an ESOP participant properly signs and timely returns an ESOP
direction letter but does not specifically mark a box on the ESOP direction
letter, the ESOP fiduciary will consider the shares of Raleigh, Schwarz & Powell
common stock represented by such ESOP direction letter to be shares with respect
to which no instruction has been submitted. Therefore, if an ESOP participant
does not want the ESOP fiduciary to consider his or her allocated shares as
shares with respect to which no instruction has been submitted, the ESOP
participant must specifically mark a box on the ESOP direction letter, sign the
ESOP direction letter, and return it to the ESOP fiduciary so that the ESOP
fiduciary receives it prior to 5:00 p.m. Central Time, on October 23, 2001. Once
an ESOP direction letter has been signed and returned, it may not be revoked.
CONFIDENTIALITY
Each ESOP direction letter received by the ESOP fiduciary will be held
in confidence by the ESOP fiduciary and will not be released or divulged to
representatives of Brown & Brown or Raleigh, Schwarz & Powell. However, although
no individual ESOP participant's vote will be disclosed, the ESOP fiduciary will
inform the ESOP trustee as to the total number of allocated and unallocated
shares of Raleigh, Schwarz & Powell common stock voted in favor of, and against
the adoption of the merger agreement, the merger and related transactions. Any
participant in the ESOP should contact the ESOP fiduciary if he or she has been
subject to pressure or coercion by any party or if he or she is concerned about
the confidentiality of instructions submitted by the ESOP fiduciary.
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MARKET PRICE AND DIVIDEND INFORMATION
BROWN & BROWN
Brown & Brown common stock is traded on The New York Stock Exchange
under the symbol "BRO." The table below sets forth the (1) high and low sales
prices of Brown & Brown Common stock on The New York Stock Exchange and (2)
cash dividends declared per share, for the periods indicated. The stock prices
and dividend rates reflect the three-for-two stock split effected by Brown &
Brown on February 27, 1998 and the two-for-one stock split effected by Brown &
Brown on August 23, 2000. Each such stock split was effected as a stock
dividend.
Brown & Brown
Common Stock Cash Dividends
------------------ --------------
High Low
------ -----
2001
First Quarter..................................... $39.92 $28.75 $0.075
Second Quarter.................................... 46.10 33.90 0.075
Third Quarter..................................... 52.60 41.00 --
2000
First Quarter..................................... $20.13 $15.63 $ .065
Second Quarter.................................... 26.22 19.00 .065
Third Quarter..................................... 32.00 23.72 .065
Fourth Quarter.................................... 35.88 29.75 .075
1999
First Quarter..................................... $19.22 $14.66 $ .055
Second Quarter.................................... 19.00 15.19 .055
Third Quarter..................................... 19.72 16.60 .055
Fourth Quarter.................................... 20.32 15.38 .065
On June 28, 2001, the last full trading day prior to the public
announcement of the proposed merger, the closing sales price of Brown & Brown
common stock on The New York Stock Exchange was $42.10 per share. On October 1,
2001, the last full trading day for which information was available prior to
the printing of this proxy statement/prospectus, the closing sales price of the
Brown & Brown common stock on The New York Stock Exchange was $53.25 per share,
and there was approximately 913 record holders of Brown & Brown common stock.
RALEIGH, SCHWARZ & POWELL SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE BROWN & BROWN COMMON STOCK.
Because the market price of Brown & Brown common stock may fluctuate,
the number of shares of Brown & Brown common stock that Raleigh, Schwarz &
Powell shareholders will receive upon the closing of the merger may increase or
decrease before the merger. We urge you to obtain current market quotations for
Brown & Brown common stock.
RALEIGH, SCHWARZ & POWELL
The common stock of Raleigh, Schwarz & Powell is not traded on an
established public trading market.
Raleigh, Schwarz & Powell has never declared or paid any cash dividends
on its capital stock and currently intends to retain any future earnings for use
in its business. Raleigh, Schwarz & Powell does not anticipate that any cash
dividends will be declared or paid in the foreseeable future.
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DESCRIPTION OF BROWN & BROWN
GENERAL
Brown & Brown is a general insurance agency headquartered in Daytona
Beach and Tampa, Florida that resulted from an April 28, 1993 business
combination involving Poe & Associates, Inc. ("Poe") and Brown & Brown. Poe was
incorporated in 1958 and Brown & Brown commenced business in 1939. The name of
the Company following the 1993 combination was Poe & Brown, Inc. and was changed
to Brown & Brown, Inc. in 1999.
Brown & Brown is a diversified insurance brokerage and agency that
markets and sells primarily property and casualty insurance products and
services to its clients. Because Brown & Brown does not engage in underwriting
activities, it does not assume underwriting risks. Instead, Brown & Brown acts
in an agency capacity to provide its clients with targeted, customized risk
management products.
Brown & Brown is compensated for its services primarily by commissions
paid by insurance companies and fees for administration and benefit consulting
services. The commission is usually a percentage of the premium paid by an
insured. Commission rates generally depend upon the type of insurance, the
particular insurance company, and the nature of the services provided by Brown &
Brown. In some cases, a commission is shared with other agents or brokers who
have acted jointly with Brown & Brown in a transaction. Brown & Brown may also
receive from an insurance company a contingent commission that is generally
based on the profitability and volume of business placed with it by Brown &
Brown over a given period of time. Fees are principally generated by Brown &
Brown's Service Division, which offers administration and benefit consulting
services primarily in the workers' compensation and employee benefit markets.
The amount of Brown & Brown's income from commissions and fees is a function of,
among other factors, continued new business production, retention of existing
customers, acquisitions, and fluctuations in insurance premium rates and
insurable exposure units.
Premium pricing within the property and casualty insurance underwriting
industry has been cyclical and has displayed a high degree of volatility based
on prevailing economic and competitive conditions. Since the mid-1980s, 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. Significant reductions in premium rates occurred during the years 1987
through 1989 and continued, although to a lesser degree, through 1999. The
effect of this softness in rates on Brown & Brown's revenues had been somewhat
offset by Brown & Brown's acquisitions and new business production. As a result
of increasing loss ratios of insurance carriers through 1999, there was a
general increase in premium rates beginning in the first quarter of 2000 and
continuing through the fourth quarter of 2000. Although the premium increases
varied by line of business, geographical region, insurance carrier and specific
underwriting factors, it was the first time since 1987 that Brown & Brown
operated in an environment of increased premiums for four consecutive quarters.
Brown & Brown cannot predict the timing or extent of premium pricing changes as
a result of market fluctuations or their effect on Brown & Brown's operations in
the future.
As of December 31, 2000, Brown & Brown's activities were conducted in
39 locations in 12 states; however, with the acquisitions consummated from
January 1, 2001 through September 18, 2001, it has 116 locations in 27 states.
Of the 116 locations, 31 are in Florida; 19 in New York; nine in Virginia;
eight in Minnesota; seven in Louisiana; five in Colorado; four in South
Carolina; three each in Arizona, Georgia, New Mexico, and North Dakota; two
each in California, Michigan, Nevada, New Jersey and Texas; and one each in
Connecticut, Indiana, Iowa, Missouri, Ohio, Oklahoma, Pennsylvania, Tennessee,
West Virginia, Wisconsin, and Wyoming.
Brown & Brown's business is divided into four divisions: (1) the Retail
Division; (2) the National Programs Division; (3) the Service Division; and (4)
the Brokerage Division. The Retail Division is composed of Brown & Brown
employees who market and sell a broad range of insurance products to insureds.
The National Programs Division works with underwriters to develop proprietary
insurance programs for specific niche markets. These programs are marketed and
sold primarily through independent agencies and agents across the United States.
Brown & Brown receives an override on the commissions generated by these
independent agencies. The Service Division provides insurance-related services
such as third-party administration and consultation for workers' compensation
and employee benefit markets. The Brokerage Division markets and sells excess
and surplus commercial insurance, as well as certain niche programs, primarily
through independent agents. For the fiscal year ended December 31, 2000 Brown &
Brown achieved commission and fee revenues of approximately $204.9 million.
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The following table sets forth a summary of (i) the commission and fee
revenues realized from each of Brown & Brown's operating divisions for each of
the three years in the period ended December 31, 2000 (in thousands of dollars),
and (ii) the percentage of Brown & Brown's total commission and fee revenues
represented by each division for each of such periods:
1998 % 1999 % 2000 %
---------- -------- ---------- -------- ---------- --------
Retail Division(1).............. $ 115,471 68.9% $ 132,518 72.1% $ 144,031 70.3%
Brokerage Division.............. 13,200 7.9 14,464 7.9 22,298 10.9
National Programs Division...... 25,043 14.9 21,983 12.0 20,052 9.8
Service Division................ 13,818 8.3 14,716 8.0 18,481 9.0
---------- -------- ---------- -------- ---------- --------
Total......... $ 167,532 100.0% $ 183,681 100.0% $ 204,862 100.0%
========== ======== ========== ======== ========== ========
(1) Numbers and percentages have been restated to give effect to Brown & Brown's
acquisition of the outstanding stock of the following agencies: Daniel-James
Insurance Agency and Becky-Lou Realty Limited in 1998; Ampher Insurance, Ross
Insurance of Florida, and Signature Insurance Group, as well as the outstanding
partnership interests of C,S&D Partnership in 1999; and Bowers, Schumann &
Welch, The Flagship Group, WMH and Huffman & Associates, and Mangus Insurance &
Bonding in 2000.
RECENT DEVELOPMENTS
From January 1, 2001 through September 18, 2001, we have acquired
insurance agencies based in Tampa, Florida; Rochester, New York; Lafayette,
Louisiana; Phoenix, Arizona (2); Thousand Oaks, California; Rome, New York;
Titusville, Florida; Manassas, Virginia; Tallahassee, Florida; Syracuse, New
York; St. Louis, Missouri; Roswell, New Mexico; Deerfield Beach, Florida; Las
Vegas, Nevada; Newington, Connecticut; Pryor, Oklahoma; Orlando, Florida; St.
Petersburg, Florida; Clearwater, Florida; Wheat Ridge, Colorado; and Salem,
Virginia. On January 3, 2001, we completed the acquisition of all of the
insurance agency business-related assets of Riedman Corporation, headquartered
in Rochester, New York with offices located in 13 states.
DIVISIONS
RETAIL DIVISION
As of September 18, 2001, Brown & Brown's Retail Division operates in
27 states and employs approximately 1,920 persons. Brown & Brown's retail
insurance agency business consists primarily of selling and marketing property
and casualty insurance coverages to commercial, professional and, to a limited
extent, individual customers. The categories of insurance principally sold by
Brown & Brown are: Casualty insurance relating to legal liabilities, workers'
compensation, commercial and private passenger automobile coverages, and
fidelity and surety insurance; and Property insurance against physical damage to
property and resultant interruption of business or extra expense caused by fire,
windstorm or other perils. Brown & Brown also sells and services all forms of
group and individual life, accident, health, hospitalization, medical and dental
insurance programs.
No material part of Brown & Brown's retail business depends upon a
single customer or a few customers. During 2000, fees and commissions received
from Brown & Brown's largest single Retail Division customer represented less
than one percent of the Retail Division's total commission and fee revenues.
In connection with the selling and marketing of insurance coverages,
Brown & Brown provides a broad range of related services to its customers, such
as risk management surveys and analysis, consultation in connection with placing
insurance coverages, and claims processing. Brown & Brown believes these
services are important factors in securing and retaining customers.
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NATIONAL PROGRAMS DIVISION
Brown & Brown's National Programs Division tailors insurance products
to the needs of a particular professional or trade group, negotiates policy
forms, coverages and commission rates with an insurance company and, in certain
cases, secures the formal or informal endorsement of the product by a
professional association or trade group. Programs are marketed and sold
primarily through a national network of independent agencies that solicit
customers through advertisements in association publications, direct mailings
and personal contact. Brown & Brown also markets a variety of these products
through certain of its retail offices. Under agency agreements with the
insurance companies that underwrite these programs, Brown & Brown often has
authority to bind coverages, subject to established guidelines, to bill and
collect premiums and, in some cases, to process claims.
Brown & Brown is committed to ongoing market research and development
of new proprietary programs. Brown & Brown employs a variety of methods,
including interviews with members of various professional and trade groups to
which Brown & Brown does not presently offer insurance products, to assess the
coverage needs of such professional associations and trade groups. If the
initial market research is positive, Brown & Brown studies the existing and
potential competition and locates potential carriers for the program. A proposal
is then submitted to and negotiated with a selected carrier and, in some
instances, a professional or trade association from which endorsement of the
program is sought. New programs are introduced through written communications,
personal visits with agents, placements of advertising in trade publications
and, where appropriate, participation in trade shows and conventions.
Professional Groups. The professional groups serviced by the National
Programs Division include dentists, lawyers, physicians, optometrists and
opticians. Set forth below is a brief description of the programs offered to
these major professional groups:
- Dentists: The largest program marketed by the National
Programs Division is a package insurance policy known as the
Professional Protector Plan(R), which provides comprehensive
coverage for dentists, including practice protection and
professional liability. This program, initiated in 1969, is
endorsed by a number of state and local dental societies, and
is offered nationally. Brown & Brown believes that this
program presently insures approximately 20% of the eligible
practicing dentists within Brown & Brown's marketing
territories.
- Lawyers: Brown & Brown began marketing lawyers' professional
liability insurance in 1973, and the national Lawyer's
Protector Plan(R) was introduced in 1983. The program is
presently offered in 46 states, the District of Columbia and
Puerto Rico.
- Physicians: Brown & Brown markets professional liability
insurance for physicians, surgeons, and other health care
providers through a program known as the Physicians Protector
Plan(R). The program, initiated in 1980, is currently offered
in 9 states.
- Optometrists and Opticians: The Optometric Protector Plan(R)
(OPP) and the Optical Services Protector Plan(R) (OSPP) were
created in 1973 and 1987, respectively, to provide
optometrists and opticians with a package of practice and
professional liability coverage. These programs insure
optometrists and opticians in all 50 states, the District of
Columbia and Puerto Rico. Brown & Brown believes that
presently, the OPP insures approximately 20% of the eligible
optometrists within Brown & Brown's marketing territories.
Commercial Groups. The commercial groups serviced by the National
Programs Division include a number of targeted commercial industries and trade
groups. Among the commercial programs are the following:
- Towing Operators Protector Plan.(R) Introduced in 1992, this
program provides specialized insurance products to towing and
recovery industry operators in 48 states.
- Automobile Dealers Protector Plan.(R) This program insures
independent automobile dealers and is currently offered in 49
states. It originated in Florida over 30 years ago through a
program still endorsed by the Florida Independent Auto Dealers
Association.
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- Manufacturers Protector Plan(R). Introduced in 1997, this
program provides specialized coverages for manufacturers, with
an emphasis on selected niche markets.
- Wholesalers & Distributors Preferred Program.(R) Introduced in
1997, this program provides property and casualty protection
for businesses principally engaged in the
wholesale-distribution industry. This program replaced Brown &
Brown's prior wholesaler-distributor program, which was
terminated in 1997 when Brown & Brown severed its relationship
with the National Association of Wholesaler-Distributors.
- Railroad Protector Plan.(R) Also introduced in 1997, this
program is designed for contractors, manufacturers and other
entities that service the needs of the railroad industry.
- Automobile Transporters Protector Plan.(R) Introduced in 1996,
this program is designed for automobile transporters engaged
in the transport of vehicles for automobile auctions,
automobile leasing concerns, and automobile and truck
dealerships. It is currently offered in 48 states.
- Environmental Protector Plan.(R) This program was introduced
in 1998 and is currently offered in 36 states. It provides a
variety of specialized environmental coverages, with an
emphasis on municipal Mosquito Control and Water Control
Districts.
- Food Processors Preferred Program.(SM) This program,
introduced in 1998, provides property and casualty insurance
protection for businesses involved in the handling and
processing of various foods.
- Automotive Aftermarket Protector Plan.(R) This program,
introduced in 1997, is designed for customers in the
automotive aftermarket parts manufacturing sector. This
includes clients who manufacture items such as motor vehicle
parts and accessories, truck trailers, pick-up covers and
toppers, transportation equipment and trailer hitches.
- High-Tech Target Program(SM). This program, introduced in
1999, provides comprehensive insurance coverage for technology
businesses ranging from semiconductor manufacturers to website
designers. The High-Tech Target Program(SM) responds to
exposures unique to the technology industry by offering a
broad range of coverage in all 50 states.
- Assisted Living Facilities Protector Plan.(R) This program,
introduced in 1999, is the first in a series of healthcare
programs being introduced that specializes in providing
insurance programs and specialty markets responding to the
critical needs of the healthcare delivery system. Programs and
market alternatives available for healthcare entities include:
Home Health Care/Hospice Care; Substance Abuse Rehabilitation
Facilities; Physical and Mental Rehabilitation Facilities;
Kidney Dialysis Treatment Facilities; Long-Term Care
Providers; and Senior/Retirement Housing. All lines of
commercial coverage are available through select markets
specializing in healthcare property and liability products.
SERVICE DIVISION
The Service Division consists of three separate units: (i) insurance
and related services as a third-party administrator ("TPA") and consultant for
employee health and welfare benefit plans; (ii) insurance and related services
providing comprehensive risk management and third-party administration to
insurance entities and self-funded or fully-insured workers' compensation and
liability plans; and (iii) certified managed care and utilization management
services for both insurance programs and self-funded plans. Services are offered
for both employee health and welfare plans, and workers' compensation programs.
In connection with its employee benefit plan administrative services,
the Service Division provides TPA services and consulting related to benefit
plan design and costing, arrangement for the placement of stop-loss insurance
and other employee benefit coverages, and settlement of claims. This Service
Division unit also provides utilization management services such as
pre-admission review, concurrent/retrospective review, pre-treatment review of
certain non-hospital treatment plans, and medical and psychiatric case
management. In addition to the administration of self-funded health care plans,
this unit offers administration of flexible benefit plans, including plan
design, employee communication, enrollment and reporting.
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The Service Division's workers' compensation and liability TPA services
include claim administration, access to major reinsurance markets, cost
containment consulting, services for secondary disability and subrogation
recoveries, and risk management services such as loss control. The Service
Division provides workers' compensation TPA services for approximately 3,500
employers representing more than $4.1 billion of employee payroll. Brown &
Brown's largest workers' compensation contract represents approximately 44% of
Brown & Brown's workers' compensation TPA revenues, or approximately 2.6% of
Brown & Brown's total commission and fee revenues. In addition, the Service
Division provides state-certified managed care services that include medical
networks, case management and utilization review services which are certified by
the American Accreditation Health Care Commission.
BROKERAGE DIVISION
The Brokerage Division markets excess and surplus lines and specialty
niche insurance products to Brown & Brown's Retail Division, as well as to other
retail agencies throughout Florida and the southeastern and southwestern United
States. The Brokerage Division represents various U.S. and U.K. surplus lines
companies and is also a Lloyd's of London correspondent. In addition to surplus
lines carriers, the Brokerage Division represents admitted carriers for smaller
agencies that do not have access to large insurance carrier representation.
Excess and surplus products include commercial automobile, garage, restaurant,
builder's risk and inland marine lines. Difficult-to-insure general liability
and products liability coverages are a specialty, as is excess workers'
compensation. Retail agency business is solicited through mailings and direct
contact with retail agency representatives.
Brown & Brown has a 75% ownership interest in Florida Intracoastal
Underwriters, Limited Company ("FIU") of Miami Lakes, Florida. FIU is a managing
general agency that specializes in providing insurance coverages for coastal and
inland high-value condominiums and apartments. FIU has developed a unique
reinsurance facility to support the underwriting activities associated with
these risks.
In 1999, Brown & Brown established Champion Underwriters, Inc., a
wholly-owned subsidiary based in Ft. Lauderdale, Florida, specializing in the
marketing and selling of excess and surplus commercial insurance. In January
2000, Brown & Brown formed, Peachtree Special Risk Brokers, LLC, headquartered
in Atlanta, Georgia, of which Brown & Brown owns 75%, and which specializes in
the marketing and selling of excess and surplus lines of property insurance.
Also in January 2000, Brown & Brown acquired the assets of Program Management
Services, a managing general agency offering on a national basis a host of
unique property and casualty insurance products, primarily for public entities.
EMPLOYEES
At December 31, 2000, Brown & Brown had 1,614 full-time equivalent
employees. After the acquisitions consummated as of September 18, 2001
(including Riedman), Brown & Brown had 2,672 full-time equivalent employees.
Brown & Brown has contracts with its sales employees that include provisions
restricting their right to solicit Brown & Brown's customers after termination
of employment with Brown & Brown. The enforceability of such contracts varies
from state to state depending upon state statutes, judicial decisions and
factual circumstances. The majority of these contracts are terminable by either
party; however, the agreements not to solicit Brown & Brown's customers
generally continue for a period of two or three years after employment
termination.
None of Brown & Brown's employees is represented by a labor union, and
Brown & Brown considers its relations with its employees to be satisfactory.
COMPETITION
The insurance agency business is highly competitive, and numerous firms
actively compete with Brown & Brown for customers and insurance carriers.
Although Brown & Brown is the largest insurance agency headquartered in Florida
and was ranked, prior to the Riedman acquisition, as the nation's ninth largest
insurance agency by Business Insurance magazine, a number of firms with
substantially greater resources and market presence compete with Brown & Brown
in Florida and elsewhere. This situation is particularly pronounced outside
Florida. Competition in the insurance business is largely based on innovation,
quality of service and price.
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A number of insurance companies are engaged in the direct sale of
insurance, primarily to individuals, and do not pay commissions to third-party
agents and brokers. In addition, the Internet has become a source for direct
placement of personal lines business. To date, such direct writing has had
relatively little effect on Brown & Brown's operations, primarily because Brown
& Brown's Retail Division is commercially oriented.
In addition, to the extent that the Gramm-Leach-Bliley Financial
Services Modernization Act of 1999 and regulations newly enacted thereunder
permit banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation, which in turn
could result in increased competition from diversified financial institutions.
REGULATION, LICENSING AND AGENCY CONTRACTS
Brown & Brown or its designated employees must be licensed to act as
agents by state regulatory authorities in the states in which Brown & Brown
conducts business. Regulations and licensing laws vary in individual states and
are often complex.
The applicable licensing laws and regulations in all states are subject
to amendment or reinterpretation by state regulatory authorities, and such
authorities are vested in most cases with relatively broad discretion as to the
granting, revocation, suspension and renewal of licenses. The possibility exists
that Brown & Brown could be excluded or temporarily suspended from carrying on
some or all of its activities in, or otherwise subjected to penalties by, a
particular state.
PROPERTIES
Brown & Brown leases its executive offices, which are located at 220
South Ridgewood Avenue, Daytona Beach, Florida 32114, and 401 East Jackson
Street, Suite 1700, Tampa, Florida 33602. Brown & Brown leases offices at every
location with the exception of the Ocala, Florida, Opelousas and Ruston,
Louisiana, Washington, New Jersey and Dansville, Geneva, Hornell and Penn Yan,
New York offices where Brown & Brown owns the buildings. There is an outstanding
mortgage on the Ocala building as of September 18, 2001 of $624,365. There are
no outstanding mortgages on the other owned buildings. Set forth below is
information relating to our office locations as of September 18, 2001,
summarized by business segment:
BROKERAGE DIVISION OFFICE LOCATIONS:
- Florida: Altamonte Springs, Davie, Daytona Beach, Ft.
Lauderdale, Miami Lakes, Orlando, St. Petersburg
- Georgia: Atlanta
- Texas: San Antonio
SERVICE DIVISION OFFICE LOCATIONS:
- Florida: Daytona Beach, Orlando
- Louisiana: Lafayette
NATIONAL PROGRAMS DIVISION OFFICE LOCATIONS:
- Professional Programs: Tampa, Florida
- Commercial Programs: Tampa, Florida
RETAIL DIVISION OFFICE LOCATIONS:
- Arizona: Phoenix, Prescott, Tuscon
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- California: Oakland, Thousand Oaks
- Colorado: Colorado Springs, Denver, Ft. Collins, Longmont,
Steamboat Springs
- Connecticut: Newington
- Florida: Altamonte Springs, Brooksville, Clearwater, Davie,
Daytona Beach, Ft. Lauderdale, Ft. Myers, Ft. Pierce,
Jacksonville, Leesburg, Melbourne, Miami, Monticello, Naples,
Ocala, Orlando, Panama City, Pensacola, Perry, Port Charlotte,
Sarasota, St. Petersburg, Tallahassee, Tampa, Titusville, West
Palm Beach, Winter Haven
- Georgia: Atlanta, Canton, Rome
- Indiana: Indianapolis
- Iowa: Des Moines
- Louisiana: Abbeville, Breaux Bridge, Eunice, Lafayette, New
Iberia, Opelousas, Ruston
- Michigan: Flint, Jackson
- Minnesota: Albert Lea, Austin, Duluth, East Grand Forks,
Fairmont, Mankato, New Ulm, St. Cloud
- Missouri: St. Louis
- Nevada: Las Vegas, Reno
- New Jersey: Clark, Washington
- New Mexico: Albuquerque, Roswell, Taos
- New York: Albany, Avon, Buffalo, Dansville, Endicott, Geneva,
Hornell, Ithaca, Jamestown, Lockport, Naples, Penn Yann,
Rochester, Rome, Sodus Point, Spencerport, Syracuse,
Wellsville, Wolcott
- North Dakota: Bismarck, Fargo, Minot
- Ohio: Toledo
- Oklahoma: Pryor
- Pennsylvania: Bethlehem
- South Carolina: Charleston, Greenville, Spartanburg, Union
- Tennessee: Kingsport
- Texas: Houston
- Virginia: Bristol, Manassas, Norfolk, Norton, Richlands,
Richmond, Salem, Virginia Beach, West Point
- West Virginia: Bluefield
- Wisconsin: LaCrosse
- Wyoming: Cheyenne
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Brown & Brown's operating leases expire on various dates. These leases
generally contain renewal options and escalation clauses based on increases in
the lessors' operating expenses and other charges. Brown & Brown expects that
most leases will be renewed or replaced upon expiration. From time to time,
Brown & Brown may have unused space and seek to sublet such space to third
parties, depending on the demand for office space in the locations involved. See
Note 12 of the "Notes to Consolidated Financial Statements," for additional
information on Brown & Brown's lease commitments.
LEGAL PROCEEDINGS
On January 19, 2000, a complaint was filed in the Superior Court of
Henry County, Georgia, captioned Gresham & Associates, Inc. vs. Anthony T.
Strianese, et al. The complaint names Brown & Brown and certain of its
subsidiaries and affiliates, and two of their employees, as defendants. The
complaint alleges, among other things, that Brown & Brown tortuously interfered
with the contractual relationship between the plaintiff and certain of its
employees. The plaintiff alleges that Brown & Brown hired such persons and
actively encouraged them to violate the restrictive covenants contained in their
employment agreements with plaintiff. The complaint seeks compensatory damages
from Brown & Brown with respect to each of the two employees in amounts "not
less than $750,000," and seeks punitive damages for alleged intentional
wrongdoing in an amount "not less than $10,000,000." The complaint also sought a
declaratory judgment regarding the enforceability of the restrictive covenants
in the employment agreements and an injunction prohibiting the violation of
those agreements. The plaintiff subsequently dismissed these claims, as well as
its claims of breach of contract against the two individual employees named as
defendants. Those individuals, and Peachtree Special Risk Brokers, LLC, an
affiliate of Brown & Brown named as a defendant in this action, have filed
counterclaims against the plaintiff, seeking damages, and seeking a declaratory
judgment holding that the restrictive covenants in the employment agreements are
not enforceable. Brown & Brown believes that it has meritorious defenses to each
of the claims remaining in this action, and intends to contest this action
vigorously.
Brown & Brown is involved in various other pending or threatened
proceedings by or against Brown & Brown or one or more of its subsidiaries that
involve routine litigation relating to insurance risks placed by Brown & Brown
and other contractual matters. Management of Brown & Brown does not believe that
any of such pending or threatened proceedings will have a materially adverse
effect on the consolidated financial position or future operations of Brown &
Brown.
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DESCRIPTION OF RALEIGH, SCHWARZ & POWELL
Raleigh, Schwarz & Powell is a property/casualty and employee benefits
insurance consulting and brokerage firm providing services to both commercial
and individual customers throughout the Pacific Northwest. Although its target
geographic market runs along the "I-5 corridor" from Northern California into
Canada, Raleigh, Schwarz & Powell services clients located as far south as San
Diego and Los Angeles and as far north as Alaska from three main offices:
Seattle, Washington, San Rafael, California, and its headquarters in Tacoma,
Washington.
The Tacoma office's two primary revenue sources are from sales of
commercial insurance and employee benefits (primarily medical and dental)
products. Renewal revenues for those product lines totaled approximately $5.0
million in 2000 and were divided approximately 50%/50% between the two business
lines. The Tacoma office is also home to Raleigh, Schwarz & Powell's Select
Branch, which has revenues of approximately $1,760,000 in 2000. Accounts that
are classified as Select Branch are those that generate fewer than $5,000 in
commissions annually; these are primarily individual (personal) accounts but
vary in the type of insurance product sold. Most of Raleigh, Schwarz & Powell's
training and education efforts for its employees and its clients are also
conducted out of the Tacoma office.
The Seattle office has grown in recent years, primarily as a result of
the acquisition of other brokerage firms. Total revenues in 2000 were
approximately $6.1 million, of which approximately $4.0 million was from the
business of agencies acquired by Raleigh, Schwarz & Powell since 1997. Sea-Pac
Insurance Managers was acquired in late 1997 and added a marine insurance book
of business to Raleigh, Schwarz & Powell's product portfolio. At about the same
time, the Stanley T. Scott agency was acquired, which added significant
construction and surety insurance product lines. In 2000, 36% of the revenue
stream of the Seattle office consisted of construction/surety business, while
marine insurance, employee benefits and commercial insurance products accounted
for approximately 30%, 15% and 19% of total revenues in 2000, respectively.
On October 1, 1999, Raleigh, Schwarz & Powell formed a new California
corporation, Golden Gate Holdings, Inc. (which operates as Raleigh, Schwarz &
Powell's San Rafael office), and contributed to the newly formed entity a
purchased book of business. In addition, five individuals contributed their
books of business to Golden Gate Holdings and received an equity interest in
Golden Gate Holdings. The formation documents for Golden Gate Holdings state
that at some future date, the Golden Gate Holdings shareholders will exchange
their shares for shares of Raleigh, Schwarz & Powell, Inc., with the exchange
ratio established as 1:1. Golden Gate Holdings added $3.7 million in revenues in
2000, and has increased Raleigh, Schwarz & Powell's property/casualty book of
business.
Raleigh, Schwarz & Powell maintains a diverse client base.
Approximately 16% of its total revenues are derived from its top ten clients.
Raleigh, Schwarz & Powell believes that such diversity benefits the company as
the loss of a single client relationship would be less likely to have a
significant impact on operating results.
With respect to its suppliers, Raleigh, Schwarz & Powell places
business with a wide variety of insurance carriers depending upon the type of
product sold.
Raleigh, Schwarz & Powell is 100% owned by its employees and retired
employees. The common equity ownership of the company is divided approximately
50%/50% between its ESOP and non-ESOP shareholders. No single shareholder
outside the ESOP owns more than 10% of the ESOP's total shares.
With respect to debt capitalization, Raleigh, Schwarz & Powell has
under $3.8 million in long-term debt. In addition to the use of debt within the
ESOP, Raleigh, Schwarz & Powell has used debt primarily in acquisitions.
Raleigh, Schwarz & Powell's debt to total capital ratio was about 24% in 2000 on
a book value basis, moderately below the 1999 level of 29%.
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BROWN & BROWN MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In April of 1993, Poe & Associates, Inc., headquartered in Tampa,
Florida, combined with Brown & Brown, Inc., headquartered in Daytona Beach,
Florida, forming Poe & Brown, Inc. In April of 1999, the shareholders voted to
change the name to Brown & Brown, Inc. Since that transaction, Brown & Brown's
operating results have steadily improved. Brown & Brown achieved pre-tax income
from operations of $53,978,000 in 2000, compared with $44,009,000 in 1999 and
$38,603,000 in 1998. Pre-tax income as a percentage of total revenues was 25.7%
in 2000, 23.4% in 1999 and 22.5% in 1998. This upward trend in 2000 is primarily
the result of a general increase in premium rates coupled with modest new
business growth and continued operating efficiencies.
Brown & Brown's revenues are comprised principally of commissions paid
by insurance companies, fees paid directly by clients and investment income.
Commission revenues generally represent a percentage of the premium paid by the
insured and are materially affected by fluctuations in both premium rate levels
charged by insurance underwriters and the insureds' underlying insurable
exposure units such as property values, sales and payroll levels. These premium
rates are established by insurance companies based upon many factors, none of
which is controlled by Brown & Brown. Beginning in 1986 and continuing through
1999, revenues have been adversely influenced by a consistent decline in premium
rates resulting from intense competition among property and casualty insurers
for expanding market share. Among other factors, this condition of prevailing
decline in premium rates, commonly referred to as a "soft market," has generally
resulted in flat to reduced commissions on renewal business. Although premium
rates vary by line of business and by geographical region, in general, there was
a gradual increase in premium rates during the year 2000, reversing the soft
market trend of recent years. It is anticipated that premium rates will continue
to increase through at least the first half of 2001.
The development of new and existing proprietary programs, fluctuations
in insurable exposure units and the volume of business from new and existing
clients, and changes in general economic and competitive conditions further
impact revenues. For example, stagnant rates of inflation in recent years have
generally limited the increases in insurable exposure units. Conversely, the
increasing trend in litigation settlements and awards has caused some clients to
seek higher levels of insurance coverage. Still, Brown & Brown's revenues
continue to grow through quality acquisitions, intense initiatives for new
business and development of new products, markets and services. Brown & Brown
anticipates that results of operations for 2001 will continue to be influenced
by these competitive and economic conditions.
During 2000, Brown & Brown acquired, through exchanges of shares, the
following four separate agency groups: June 2, 2000 - Bowers, Schumann & Welch;
November 21, 2000 - The Flagship Group, Ltd.; December 13, 2000 - WMH, Inc. and
Huffman & Associates, Inc.; and December 29, 2000 - Mangus Insurance & Bonding,
Inc. During 1999, Brown & Brown acquired, also through exchanges of shares, the
following two separate agency groups: July 20, 1999 - Ampher Insurance, Inc. and
Ross Insurance of Florida, Inc; and November 10, 1999 - Signature Insurance
Group, Inc. and C,S&D, a Florida general partnership. On April 14, 1998, Brown &
Brown acquired Daniel-James Insurance Agency, Inc. and Becky-Lou Realty Limited,
through an exchange of shares. Each of these transactions has been accounted for
as a pooling-of-interests and, accordingly, Brown & Brown's consolidated
financial statements have been restated for all periods prior to the
acquisitions to include the results of operations, financial positions and cash
flows of the acquired entities.
During 2000, Brown & Brown acquired the assets of five general
insurance agencies, several books of business and the outstanding shares of one
general insurance agency. Each of these transactions was accounted for as a
purchase. During 1999, Brown & Brown acquired the assets of six general
insurance agencies, several books of business (customer accounts) and the
outstanding shares of two general insurance agencies. Each of these transactions
was accounted for as a purchase. During 1998, Brown & Brown acquired the assets
of 19 general insurance agencies, several books of business and the outstanding
shares of one general insurance agency. Each of these transactions was accounted
for as a purchase.
Effective January 1, 2001, Brown & Brown acquired the insurance
agency-related operations and assets of Riedman Corporation ("Riedman") and
accounted for the transaction as a purchase. Riedman has more than 60 offices in
13 states (principally where Brown & Brown did not formerly have an office
location), and generated
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approximately $53.4 million of revenues in 2000. It is expected that the Riedman
offices could contribute up to $0.06 to Brown & Brown's 2001 net income per
share.
Contingent commissions may be paid to Brown & Brown by insurance
carriers based upon the volume, growth and/or profitability of the business
placed with such carriers by Brown & Brown and are primarily received in the
first quarter of each year. In the last three years, contingent commissions have
averaged approximately 4.6% of total revenues.
Fee revenues are generated principally by the Service Division of Brown
& Brown, which offers administration and benefit consulting services primarily
in the workers' compensation and employee benefit self-insurance markets. For
the past three years, fee revenues have generated an average of 8.9% of total
commissions and fees.
Investment income consists primarily of interest earnings on premiums
and advance premiums collected and not immediately remitted to insurance
carriers, with such funds being held in a fiduciary capacity. Brown & Brown's
policy is to invest its available funds in high-quality, short-term fixed income
investment securities. Investment income also includes gains and losses realized
from the sale of investments.
The following discussion and analysis regarding results of operations
and liquidity and capital resources should be considered in conjunction with the
accompanying consolidated financial statements and related notes.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND SIX MONTHS
ENDED JUNE 30, 2000
NET INCOME. Net income for the second quarter of 2001 was $12,256,000,
or $0.41 per share, compared with net income in the second quarter of 2000 of
$7,499,000, or $0.25 per share, a 64% increase on a per-share basis. Net income
for the six-months ended June 30, 2001 was $24,733,000, or $0.82 per share,
compared with 2000 same period net income of $16,494,000, or $0.56 per share, a
46% increase.
COMMISSIONS AND FEES. Commissions and fees for the second quarter of
2001 increased $23,728,000, or 43%, over the same period in 2000. Approximately
$17,729,000 of this increase represents revenues from the acquisition of Riedman
and other agencies, with the remainder due to new and renewal business
production. Commissions and fees for the six-months ended June 30, 2001
increased $45,420,000, or 40% over the same period in 2000. Approximately
$34,449,000 of this increase represents revenues from the acquisition of Riedman
and other agencies, with the remainder due to new and renewal business
production. Excluding the effects of acquisitions and divestitures, core
commissions and fees increased 13.5% and 12.0%, respectively, over the three and
six-month periods ended June 30, 2001, compared with the same periods in 2000.
INVESTMENT INCOME. Investment income for the second quarter and
six-month period ended June 30, 2001 increased $88,000 and $157,000,
respectively, from the same periods in 2000, primarily due to higher balances of
available cash to invest and the sale of some investments.
OTHER INCOME. Other income primarily includes gains and losses from the
sales of customer accounts and other assets. Other income for the second quarter
and six-months ended June 30, 2001 increased $729,000 and $455,000,
respectively, from the same periods in 2000. The increase is primarily due to
the gain on the sale of some automotive-related program business during the
second quarter of 2001.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits
increased 33% and 34%, respectively, during the three-month and six-month
periods ended June 30, 2001 over the same periods in 2000. These increases
primarily relate to the addition of new employees as a result of the Riedman
purchase and other acquisitions consummated in the prior year. Employee
compensation and benefits as a percentage of revenue decreased to 51% for the
second quarter of 2001 from 55% for the second quarter of 2000. For the
six-months ended June 30, 2001, employee compensation and benefits as a
percentage of revenue was 51% compared to 54% for the same period in 2000. The
declines are attributable to the restatement of 2000 results for pooled
entities. These entities, operating as private companies in 2000, had higher
compensation expense as a percentage of revenues than Brown & Brown.
OTHER OPERATING EXPENSES. Other operating expenses for the second
quarter of 2001 increased $3,138,000, or 33%, over the same period in 2000. For
the six-month period ended June 30, 2001, other operating expenses increased
$5,604,000, or 30%. These increases are primarily due to the acquisitions of
Riedman and other agencies.
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Other operating expenses as a percentage of total revenue for the second quarter
of 2001 decreased to 16%, compared with 17% for the same period in 2000. For the
six-months ended June 30, 2001, other operating expenses as a percentage of
revenue were 15%, compared with 17% for the same period in 2000.
DEPRECIATION. Depreciation for the three-month and six-month periods
ended June 30, 2001 increased $211,000 and $381,000, respectively, over the same
periods in 2000, primarily due to fixed assets acquired in connection with the
Riedman acquisition.
AMORTIZATION. Amortization for the three-month and six-month periods
ended June 30, 2001, increased $1,940,000 and $3,101,000, respectively, over the
same periods in 2000, primarily due to increased amortization from the Riedman
purchase and other acquisitions since the second quarter of 2000.
INTEREST. Interest for the three-month and six-month periods ended June
30, 2001, increased $1,095,000 and $2,517,000, respectively, over the same
periods in 2000, primarily due to debt incurred for the Riedman acquisition and
other cash acquisitions.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMISSIONS AND FEES
Commissions and fees increased 12% in 2000, 10% in 1999 and 12% in
1998. Excluding the effect of acquisitions, core commissions and fees increased
8% in 2000, 2% in 1999 and 2% in 1998. The 2000 results reflect an increase in
commissions for the Retail, Brokerage and Services divisions while the National
Programs division posted a decrease. The increases in commissions excluding the
effect of acquisitions for the Retail and Brokerage divisions were primarily due
to the general increase in premium rates during the year. The increase in the
Services division's 2000 commissions excluding the effects of acquisitions was
primarily due to new business sales. The National Programs division's
commissions decreased again in 2000 continuing the downward trend that began in
1998, although at a slower rate. This trend was primarily due to business lost
as a result of transferring certain program business to new insurance carriers.
During 1999 and 1998, property and casualty insurance premium prices declined
from the previous year, and this decline was primarily responsible for the
slower growth rate; however, certain segments and industries had some increases
in insurable units during the year.
INVESTMENT INCOME
Investment income increased to $3,890,000 in 2000, compared with
$2,810,000 in 1999 and $3,654,000 in 1998. The increase in 2000 is primarily due
to higher levels of invested cash. Investment income also includes gains of
approximately $109,000 in 2000, $138,000 in 1999 and $165,000 in 1998 realized
from the sale of investments in various equity securities and partnership
interests.
OTHER INCOME
Other income consists primarily of gains and losses from the sale and
disposition of assets. There were gains of $122,000 during 2000 for sold
customer accounts. During 1999, gains from the sale of customer accounts were
$1,162,000, compared with losses of $115,000 in 1998. The gain in 1999 was
primarily attributable to the disposition of certain accounts in the Lawyer's
Protector Plan(R) of Brown & Brown's National Programs Division.
EMPLOYEE COMPENSATION & BENEFITS
Employee compensation and benefits increased approximately 10% in 2000,
9% in 1999 and 8% in 1998. Employee compensation and benefits as a percentage of
total revenue was 52% in 2000 and 1999, and 53% in 1998. Brown & Brown had 1,614
full-time employees at December 31, 2000, compared with 1,487 at the beginning
of the year and 1,534 at December 31, 1998. The increase in personnel during
2000 is primarily attributable to acquisitions made during the year. The
decrease in personnel during 1999 is primarily attributable to the restructuring
of the National Programs division.
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OTHER OPERATING EXPENSES
Other operating expenses increased 2% in 2000 and 1999 and 4% in 1998.
Other operating expenses as a percentage of total revenues decreased to 16% in
2000 from 18% in 1999 and 19% in 1998. The continuing decline in operating
expenses, expressed as a percentage of total revenues, is attributable to the
effective cost containment measures brought about by Brown & Brown's "Project
28" initiative that is designed to identify areas of excess expense and to the
fact that certain significant other operating expenses such as office rent,
office supplies and telephone costs do not increase on the same incremental
basis as commission revenue in an increasing premium rate environment.
DEPRECIATION
Depreciation increased 3% in 2000, 15% in 1999, and 12% in 1998. The
increases in 1999 and 1998 were primarily due to the additions and upgrades of
computer equipment and software in preparation for the Year 2000.
AMORTIZATION AND INTEREST
Amortization expense increased $794,000, or 10%, in 2000, $1,836,000,
or 31%, in 1999, and $246,000, or 4%, in 1998. The increase each year is due to
the additional amortization of intangibles as a result of new acquisitions since
1998.
Interest expense decreased $238,000, or 29%, in 2000, and increased
$100,000, or 14%, in 1999. Interest expense decreased $438,000, or 38%, in 1998.
The decrease in 2000 and 1998 was the result of reduced outstanding debt. The
increase in 1999 is due to higher levels of debt during the first quarter of
1999 and the assumption of debt in certain pooling acquisitions.
INCOME TAXES
The effective tax rate on income from operations was 38.5% in 2000,
39.1% in 1999, and 39.0% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Brown & Brown's cash and cash equivalents of $35,281,000 at June 30,
2001 increased by $1,386,000, from $33,895,000 at December 31, 2000. For the
six-month period ended June 30, 2001, $44,951,000 of cash was provided from
operating activities. From the cash provided by operating activities along with
existing cash balances and new long-term debt, $103,217,000 was used to acquire
other agencies or books of business, $20,772,000 was used for payments on
long-term debt, $6,789,000 was used for additions to fixed assets, and
$4,413,000 was used for payments of dividends. The current ratio at June 30,
2001 was 0.86, compared with 0.97 at December 31, 2000.
In January 2001, Brown & Brown entered into a $90 million seven-year
term loan agreement with a national banking institution, bearing an interest
rate between the 90-day London Inter-Bank Offering Rate (LIBOR) plus 0.50% and
LIBOR plus 1.00%, depending upon Brown & Brown's quarterly ratio of Funded Debt
to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The
90-day LIBOR rate was 3.83% as of June 30, 2001. The loan was fully funded on
January 3, 2001 and a balance of $83,571,000 remained outstanding as of June 30,
2001. This loan is to be repaid in 28 equal quarterly installments that began in
April 2001. Brown & Brown also has a revolving credit facility with the
institution, which facility provides for available borrowings of up to $50
million, with a maturity date of October 2002. There were no borrowings against
this line of credit at December 31, 2000 or June 30, 2001.
Brown & Brown continues to maintain its credit agreement with a major
insurance company under which $3 million (the maximum amount available for
borrowings) was outstanding at both December 31, 2000 and June 30, 2001, at an
interest rate equal to the prime lending rate plus one percent (7.75% at June
30, 2001). In accordance with the amendment to the loan agreement dated August
1, 1998, the maximum amount available for borrowings will decrease by $1 million
each year in August until the facility expires in August 2003.
Brown & Brown believes that its existing cash, cash equivalents,
short-term investments portfolio, funds generated from operations, and available
credit facility borrowings are sufficient to satisfy its normal financial needs.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as interest, foreign currency exchange rates, and
equity prices. Brown & Brown is exposed to market risk related to changes in
interest rates. The impact of interest expense on earnings, and the value of
market-risk sensitive financial instruments (primarily marketable equity
securities and long-term debt) are subject to change as a result of movements in
market rates and prices.
Brown & Brown's investment portfolio was valued at $9,273,000 as of
June 30, 2001. This represents approximately 2.1% of total assets at that date.
The majority of the portfolio is comprised of various equity investments. The
market value changes are accounted for in Other Comprehensive Income in the
equity section of the balance sheet. Earnings on investments are not significant
to Brown & Brown's results of operations; therefore, any changes in interest
rates and dividends would have a minimal effect on future net income.
With respect to Brown & Brown's long-term debt, $86,571,000 was subject
to variable rates of interest at June 30, 2001. From the total amount of debt,
$83,571,000 was funded from a term loan in January 2001 and bears an interest
rate between 90-day LIBOR plus 0.50% and 1.00%. It is payable in twenty-eight
equal quarterly installments that began in April 2001. The remaining $3,000,000
of variable rate debt comes from a credit agreement with a major insurance
company and bears an interest rate of prime plus one percent. It is payable in
equal annual installments in August 2001-2003. The remaining $15,314,000 of
long-term debt is subject to fixed rates of interest. This fixed rate debt
matures in various increments from 2001-2011. These fixed rate liabilities have
been discounted at rates that approximate Brown & Brown's current borrowing
rates, and as a result, the fair value of these liabilities approximates their
carrying value at June 30, 2001. Based on a hypothetical 1% change in interest
rates, the potential change to future net income would be approximately
$866,000. Because of favorable current market conditions, Brown & Brown does not
use derivatives, such as swaps or caps, to alter the interest characteristics of
debt instruments.
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SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF RALEIGH, SCHWARZ & POWELL
The following table sets forth information, as of the record date,
September 28, 2001, known to Raleigh, Schwarz & Powell with respect to the
beneficial ownership of Raleigh, Schwarz & Powell common stock by:
- each shareholder known by Raleigh, Schwarz & Powell to be the
beneficial owner of more than 5% of Raleigh, Schwarz &
Powell's common stock;
- each director;
- the chief executive officer and the other four most highly
compensated executive officers whose salary and bonus exceeded
$100,000 for the year ended December 31, 2000; and
- all current directors and executive officers as a group.
Applicable percentage ownership in the following table is based on
183,115 shares of Raleigh, Schwarz & Powell common stock outstanding on the
record date, which number excludes 1,543 shares registered in the names of two
former employees and held in escrow under pledge agreements to secure Raleigh,
Schwarz & Powell's payment for those shares in annual payments through 2003.
With Brown & Brown's consent, Raleigh, Schwarz & Powell may pre-pay the amounts
owed, and obtain possession of the pledged shares, prior to the closing of the
merger. Upon termination of the pledge, the shares shall become authorized but
unissued shares of Raleigh, Schwarz & Powell. Unless otherwise indicated below,
the persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Unless otherwise indicated, the address of each
of the individuals listed in this table is c/o Raleigh, Schwarz & Powell, Inc.,
1201 Pacific Avenue, Suite 1000, Tacoma, Washington 98402.
NUMBER OF SHARES
OF COMMON STOCK
NAME OF BENEFICIAL OWNERS BENEFICIALLY OWNED(1) PERCENTAGE OF CLASS
------------------------- ------------------ -------------------
Raleigh, Schwarz & Powell, Inc. Employee Stock Ownership Plan 116,340 63.5%
John P. Folsom, President and Director........................... 16,003.5(2) 8.7%
Jerry Zander, Director........................................... 10,029.1(3) 5.5%
Robert Smith, Director........................................... 7,636 (4) 4.2%
Bruce Ricci, Director............................................ 309.5(5) *
All executive officers and directors
as a group (4 persons)........................................ 33,978.1 18.6%
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
(2) Includes 4,003.5 shares of Raleigh, Schwarz & Powell common stock
allocated to Mr. Folsom's ESOP account.
(3) Includes 4,952.1 shares of Raleigh, Schwarz & Powell common stock
allocated to Mr. Zander's ESOP account.
(4) Includes 1,168.0 shares of Raleigh, Schwarz & Powell common stock
allocated to Mr. Smith's ESOP account.
(5) 309.5 shares of Raleigh, Schwarz & Powell common stock allocated to Mr.
Ricci's ESOP account.
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SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF BROWN & BROWN
The following table sets forth, as of September 18, 2001, information
as to Brown & Brown's common stock beneficially owned by (i) each director of
Brown & Brown, (ii) each executive officer named in the Summary Compensation
Table, (iii) all directors and executive officers of Brown & Brown as a group,
and (iv) any person who is known by Brown & Brown to be the beneficial owner of
more than 5% of the outstanding shares of Brown & Brown's common stock.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1)(2) Percent
------------------------ -------------------- -------
J. Hyatt Brown(3) 5,446,612 17.7%
220 South Ridgewood Avenue
Daytona Beach, Florida 32114
Samuel P. Bell, III(4) 3,400 *
Bradley Currey, Jr. 75,000 *
Jim W. Henderson(5)(6) 397,840 1.3%
Theodore J. Hoepner 3,000 *
David H. Hughes 5,000 *
Toni Jennings 562 *
John R. Riedman 10,000 *
Jan E. Smith(7) 1,700 *
Cory T. Walker 53,998 *
Laurel L. Grammig 26,679 *
James L. Olivier(8) 13,647 *
T. Rowe Price Associates, Inc.(9) 3,407,600 11.1%
100 E. Pratt Street
Baltimore, MD 21202
All directors and executive
officers as a group (14 persons) 6,047,464 19.6%
----------------
*Less than 1%
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as
to which a person has or shares voting power and/or investment power.
Brown & Brown has been informed that all shares shown are held of
record with sole voting and investment power, except as otherwise
indicated.
(2) The number and percentage of shares owned by the following persons
include the indicated number of shares owned through Brown & Brown's
401(k) Plan as of December 31, 2000: Mr. Henderson - 126,030; Mr.
Walker - 7,118; Ms. Grammig - 7,392; Mr. Olivier - 1,162; all directors
and officers as a group - 141,702. The number and percentage of shares
owned by the following persons also include the indicated number of
shares which such persons have been granted under Brown & Brown's Stock
Performance Plan as of December 31, 2000 and which have satisfied the
first condition for vesting: Mr. Henderson - 46,120; Mr. Walker -
32,484; Ms. Grammig - 11,882; Mr. Olivier - 10,081; all officers and
directors as a group - 100,567. These Stock Performance Plan shares
have voting and dividend rights, but the holders thereof have no power
to sell or dispose of the shares, and the shares are subject to
forfeiture. See "Directors and Management of Brown & Brown following
the Merger - Long-Term Incentive Plans - Awards in Last Fiscal Year."
(3) All shares are beneficially owned jointly with Mr. Brown's spouse,
either directly or indirectly, and these shares have shared voting and
investment power.
(4) All shares are held in joint tenancy with Mr. Bell's spouse, and these
shares have shared voting and investment power.
(5) All of Mr. Henderson's shares not owned through Brown & Brown-sponsored
plans are owned jointly with Mr. Henderson's spouse, and these shares
have shared voting and investment power.
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(6) Also includes 119,558 shares that Mr. Henderson is deemed to
beneficially own under the Securities and Exchange Commission rules by
virtue of an option grant effective April 21, 2000 under Brown &
Brown's 2000 Incentive Stock Option Plan. These options were not
exercisable during fiscal year 2000; however, 5,170 options became
exercisable on April 21, 2001 but have not yet been exercised.
(7) Mr. Smith's ownership includes 700 shares owned by his spouse, as to
which he disclaims beneficial ownership.
(8) Mr. Olivier resigned as an executive officer of Brown & Brown effective
April 21, 2000, in order to accept a position in the Lawyer's Protector
Plan(R), one of Brown & Brown's national programs.
(9) Based upon information contained in a report filed by T. Rowe Price
Associates, Inc. ("Price Associates") with the Securities and Exchange
Commission, these securities are owned by various individuals and
institutional investors, including T. Rowe Price Small-Cap Value Fund
(which owns 1,580,000 shares, representing 5.4% of the shares
outstanding), for which Price Associates serves as investment adviser
with power to direct investments and/or sole power to vote the
securities. Under Securities and Exchange Commission rules, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates disclaims beneficial ownership of such
securities.
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DESCRIPTION OF BROWN & BROWN CAPITAL STOCK
COMMON STOCK
We are authorized to issue 140,000,000 shares of common stock, $0.10
par value per share. Each holder of our common stock is entitled to one vote for
each share held. Shareholders do not have the right to cumulate their votes in
elections of directors. Accordingly, directors are elected by a plurality of the
votes cast by the shares entitled to vote.
Brown & Brown shares of common stock are listed on The New York Stock
Exchange. Holders of our common stock will be entitled to dividends on a pro
rata basis upon declaration of dividends by our board of directors. Dividends
will be payable only out of unreserved and unrestricted surplus that is legally
available for the payment of dividends. Dividends that may be declared on our
common stock will be paid in an equal amount to the holder of each share. No
pre-emptive rights are conferred upon the holders of such stock and there are no
liquidation or conversion rights. There are no redemption or sinking fund
provisions and there is no liability to further calls or to assessments by Brown
& Brown. Any determination to declare or pay dividends in the future will be at
the discretion of our board of directors and will depend on our results of
operations, financial condition, contractual or legal restrictions and other
factors deemed relevant by our board of directors. Upon our liquidation, holders
of our common stock will be entitled to a pro rata distribution of our assets,
after payment of all amounts owed to our creditors.
RIGHTS PLAN
Effective July 29, 1999, our board of directors adopted a shareholder
rights plan. To implement the rights plan, our board of directors declared a
dividend distribution of one right for each outstanding share of common stock,
to shareholders of record at the close of business on August 11, 1999. When
exercisable, each right will entitle the registered holder to purchase from us
one share of common stock at a purchase price of $100.00, subject to adjustment.
The description and terms of the rights are set forth in a rights agreement
between us and First Union National Bank, a national banking institution, as
rights agent, dated as of July 30, 1999, a copy of which is attached as Exhibit
10.21 to the Registration Statement on Form S-4 of which this proxy
statement/prospectus is a part. This summary description does not purport to be
complete and is qualified in its entirety by reference to the rights agreement.
COMMON STOCK CERTIFICATES REPRESENTING RIGHT. Initially, the rights
will be evidenced by the Brown & Brown common stock certificates representing
shares then outstanding, and no separate certificates for the rights will be
distributed. The rights will be exercisable and transferable apart from the
shares of Brown & Brown common stock and a distribution date will occur upon the
earliest of (1) 10 days following the stock acquisition date, which is a public
announcement that a person or group of affiliated or associated persons (an
acquiring person) has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of Brown & Brown common
stock, (2) 10 business days following the commencement of a tender offer or
exchange offer that would result in the beneficial ownership by a person or
group of 20% or more of such outstanding shares of Brown & Brown common stock,
or (3) immediately after our board of directors declares any individual or
entity, owning at least 10% of our outstanding common stock, an adverse person
(as defined in the rights agreement) (the earlier of such dates is called the
distribution date).
Until the distribution date, (1) the rights will be evidenced by Brown
& Brown common stock certificates and will be transferred with and only with
such common stock certificates, (2) new common stock certificates issued after
August 11, 1999 will contain a notation incorporating the rights agreement by
reference, and (3) the surrender for transfer of any certificates for common
stock outstanding will also constitute the transfer of the rights associates
with the common stock represented by such certificate.
ISSUANCE OF RIGHTS CERTIFICATES. As soon as practicable following the
distribution date, separate certificates representing only rights shall be
mailed to the holders of record of shares of Brown & Brown common stock as of
the close of business on the distribution date, and such separate rights
certificates alone shall represent such rights from and after the distribution
date. Except as otherwise determined by our board of directors, only shares of
Brown & Brown common stock issued before the distribution date will be issued
with rights.
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EXPIRATION OF RIGHTS. The rights are not exercisable until the
distribution date and will expire at the close of business on July 30, 2009,
unless earlier redeemed by Brown & Brown as described below.
EXERCISE OF RIGHTS. If any person (other than an exempt person, as
defined in the rights agreement) becomes the beneficial owner of 20% or more of
the then outstanding shares of Brown & Brown common stock (except pursuant to an
offer for all outstanding shares of Brown & Brown common stock determined by our
board of directors to be fair to and otherwise in the best interests of Brown &
Brown and its shareholders) or our board of directors declares any individual or
entity (alone or together with its affiliates and associates as defined in Rule
12b-2 of the Securities and Exchange Act of 1934, as amended) owning at least
10% of the outstanding shares of Brown & Brown common stock to be an adverse
person (as defined in the rights agreement), each holder of a right will
thereafter have the right to receive, upon exercise thereof, the number of
shares of Brown & Brown common stock (or, in certain circumstances, cash,
property, or other securities of Brown & Brown or a reduction in the purchase
price) having a value equal to two times the exercise price of the right.
Notwithstanding any of the foregoing, following the occurrence of the event
described above, all rights that are, or (under certain circumstances specified
in the rights agreement) were, beneficially owned by any acquiring person will
be void. The rights are not, however, exercisable following the occurrence of
the event set forth above until such time as the rights are no longer redeemable
by Brown & Brown, as described below. Further, rights generally are exercisable
only after the effectiveness of a registration statement covering the underlying
shares of Brown & Brown common stock under the Securities Act of 1933, as
amended. J. Hyatt Brown, Chairman of the Board, President, and Chief Executive
Officer of Brown & Brown is classified as an exempt person in the rights
agreement.
For example, at an exercise price of $100, each right not owned by an
acquiring person or an adverse person (or by certain related parties) following
an event set forth in the preceding paragraph would entitle its holder to
purchase $200 worth of common stock (or other consideration, as noted above) for
$100. Assuming that the common stock had a per share market value of $50 at such
time, the holder of each valid right would be entitled to purchase four shares
of Brown & Brown common stock at $100.
If at any time following the stock acquisition date or the date on
which an individual or entity is declared an adverse person pursuant to the
rights agreement, (1) Brown & Brown is acquired in a merger or other business
combination transaction in which Brown & Brown is not the surviving corporation
(other than pursuant to a tender offer or exchange offer for all outstanding
shares of common stock determined by our board of directors to be fair to and
otherwise in the best interests of Brown & Brown and its shareholders), or (2)
more than 50% of Brown & Brown's assets or earning power is sold or transferred
(each of such events is referred to as a "Section 13 Event"), each holder of a
right (except rights that have been previously voided, as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
right. If the rights cannot be exercised for common stock of the acquiring
company as set forth above, rights holders will be entitled to put the rights to
the acquiring company for cash equal to the exercise price of the rights (i.e.,
at a 50% discount). The events described in this paragraph and in the second
preceding paragraph are referred to as the triggering events.
ADJUSTMENTS TO PREVENT DILUTION. The purchase price payable, and the
number of shares of common stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution (1) in the event of a stock dividend on, or a subdivision, combination,
or reclassification of, the common stock, (2) if holders of the common stock are
granted certain rights or warrants to subscribe for common stock or convertible
securities at less than the current market price of the common stock, or (3)
upon the distribution to holders of the common stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. No fractional share of common stock will be issued and, in lieu thereof,
an adjustment in cash will be made based on the market price of the common stock
on the last trading date before the date of exercise.
REDEMPTION OF RIGHTS. At any time until 10 days following the stock
acquisition date (or such later date as our board of directors may determine),
Brown & Brown may redeem the rights in whole, but not in part, at a price of
$.01 per right, payable in cash, or shares of common stock or other
consideration deemed appropriate by our board of directors. Thereafter, Brown &
Brown's right of redemption may be reinstated if the period has expired during
which holders of such rights may exercise their rights for common stock
following the stock acquisition date, no
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triggering event has occurred, and an acquiring person reduces his beneficial
ownership to 5% or less of the outstanding shares of Brown & Brown common stock
in a transaction or series of transactions not involving Brown & Brown and there
are no other acquiring persons. Immediately upon the action of our board of
directors ordering redemption of the rights, the rights will terminate and the
only right of the holders of rights will be to receive the $.01 redemption
price.
EXCHANGE. At any time after any person becomes an acquiring person and
before the acquisition by such person of 50% or more of the outstanding shares
of Brown & Brown common stock, our board of directors may exchange the rights
(other than rights owned by such person or group that will have become void), in
whole or in part, at an exchange ratio of one share of Brown & Brown common
stock per right (subject to adjustment).
THREE-YEAR INDEPENDENT DIRECTOR EVALUATION PROVISION. The rights
agreement includes a Three-year Independent Director Evaluation provision. Under
this provision, the Brown & Brown board of directors shareholder rights plan
committee composed of independent directors will review the rights plan
periodically (at least every three years). This committee will communicate its
conclusions to the full board of directors after each review, including any
recommendation of whether the rights agreement should be modified or the rights
should be redeemed.
NO SHAREHOLDER RIGHTS BEFORE EXERCISE. Until a right is exercised, the
holder thereof, as such, will have no rights as a shareholder of Brown & Brown,
including the right to vote or to receive dividends. While the distribution of
the rights will not be taxable to shareholders or to us, shareholders may,
depending upon the circumstances, recognize taxable income if the rights become
exercisable for common stock (or other consideration) or for common stock of an
acquiring company as set forth above.
AMENDMENT OF RIGHTS AGREEMENT. Any of the provisions of the rights
agreement may be amended by the Brown & Brown board of directors before the
distribution date. After the distribution date, the provisions of the rights
agreement may be amended by the board of directors to cure any ambiguity, to
make changes that do not adversely affect the interests of holders of rights
(excluding the interests of any acquiring person), or to shorten or lengthen any
time period under the rights agreement; however, no amendment to adjust the time
period governing redemption shall be made at such time as the rights are not
redeemable.
CERTAIN PROVISIONS OF THE BROWN & BROWN ARTICLES OF INCORPORATION AND BYLAWS
SPECIAL MEETINGS OF SHAREHOLDERS. Our amended and restated bylaws
provide that special meetings of the shareholders may be called by the president
or the board of directors whenever he or they deem it proper and shall be called
by the president or by the board of directors upon the written request of
shareholders holding a majority of the shares of Brown & Brown common stock
outstanding. Such meetings may be held either within or without the State of
Florida.
REMOVAL OF DIRECTORS. Our amended and restated articles of
incorporation provide that any one or more or all of the directors may be
removed, either with or without cause, at any time by the vote of the
shareholders holding a majority of the stock of Brown & Brown entitled to vote
at any special meeting, and thereupon the term of each director or directors who
shall have been removed shall terminate.
LIMITATION OF LIABILITIES AND INDEMNIFICATION. Florida law provides
that a corporation may indemnify any officer or director who is made a party to
any third party suit or proceeding on account of being a director, officer or
employee of the corporation against expenses, including attorney's fees,
judgments, fines and amounts paid in settlement reasonably incurred by him in
connection with the action, through, among other things, a majority vote of a
quorum consisting of directors who were not parties to the suit or proceeding,
if the officer or director:
(1) acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation; and
(2) in a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Our amended and restated articles of incorporation provide that the bylaws of
the company may provide for the indemnification of the officers and directors of
Brown & Brown for their actions and omissions up to the maximum extent permitted
by law. Our amended and restated bylaws provide that every person who is now or
hereafter may
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be a director or officer of Brown & Brown shall be indemnified by Brown & Brown
against all costs and amounts of liability therefor and expenses, including
counsel fees, reasonably incurred by or imposed upon him in connection with or
arising from any action, suit, proceeding or claim of whatever nature to which
he is or shall be made a party by reason of his being or having been a director
or officer of Brown & Brown, provided that such indemnification shall not apply
with respect to any matter as to which such director or officer shall be finally
adjudged in such action, suit, proceeding or claim to have been individually
guilty of gross negligence or willful malfeasance in the performance of his duty
as such director or officer and provided further that the indemnification
provided shall with respect to any settlement of any such suit, action,
proceeding or claim, include reimbursement for any amounts paid and expenses
reasonably incurred in settling such suit, action, proceeding or claim when, in
judgment of the board of directors, such settlement and reimbursement appeared
to be for the best interests of Brown & Brown.
CERTAIN PROVISIONS OF FLORIDA LAW
The Florida Business Corporation Act also contains a control share
provision that generally provides that shares acquired in a "control share
acquisition" will not possess any voting rights unless such voting rights are
approved by a majority of the corporation's disinterested shareholders. A
"control share acquisition" is an acquisition, directly or indirectly, by any
person of ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding "control shares" of a publicly held Florida
corporation. "Control shares" are shares, that except for the control share
provision, would have voting power that, when added to all other shares owned by
a person or in respect to which such person may exercise or direct the exercise
of voting power, would entitled such person, immediately after acquisition of
such shares, directly or indirectly, alone or as a part of a group, to exercise
or direct the exercise of voting power in the election of directors within any
of the following ranges: (a) at least 20 percent but less than 33 percent of all
voting power, (b) at least 33 percent but less than a majority of all voting
power, or (c) a majority or more of all voting power.
The provisions of our amended and restated articles of incorporation
and amended and restated bylaws and the Florida Business Corporation Act
summarized above may have certain anti-takeover effects. Such provisions,
individually or in combination, may discourage other persons, or make it more
difficult for other persons to make a tender offer or acquisition of substantial
amounts of the common stock or from launching other takeover attempts that a
shareholder may consider in such shareholder's best interest, including attempts
that might result in the payment of a premium over the market price for the
common stock held by such shareholder.
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COMPARISON OF SHAREHOLDER RIGHTS
This section of this proxy statement/prospectus describes some
differences between the rights of holders of Raleigh, Schwarz & Powell capital
stock and Brown & Brown capital stock. While Brown & Brown believes that the
description covers the material differences between the two, this summary may
not contain all of the information that is important to you. You should
carefully read this entire document and the other documents to which Brown &
Brown refers you for a more complete understanding of the differences between
being a shareholder of Raleigh, Schwarz & Powell and being a shareholder of
Brown & Brown.
After the merger, the shareholders of Raleigh, Schwarz & Powell will
become shareholders of Brown & Brown. Due to the fact that Brown & Brown is
organized under the laws of Florida, the Florida Business Corporation Act, or
the FBCA, will govern the rights of Raleigh, Schwarz & Powell shareholders.
The rights of Raleigh, Schwarz & Powell shareholders are also governed
by its articles of incorporation and its bylaws. Upon completion of the merger,
the rights of Raleigh, Schwarz & Powell shareholders who become Brown & Brown
shareholders will be governed by the amended and restated articles of
incorporation and amended and restated bylaws of Brown & Brown. The following
paragraphs summarize differences between the rights of Brown & Brown
shareholders and Raleigh, Schwarz & Powell shareholders under the charter
documents and bylaws of Brown & Brown and Raleigh, Schwarz & Powell, as well as
material differences between Washington and Florida law that may affect the
interests of Raleigh, Schwarz & Powell shareholders.
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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VOTING RIGHTS
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- Under Florida law, each shareholder is entitled - Under Washington law, each outstanding share
to one vote for each share of capital stock held by regardless of class, is entitled to one vote on
the shareholder, by person or proxy, on each matter each matter voted on at a shareholders' meeting,
submitted to a vote at a shareholders meeting unless unless the articles of incorporation provide
the articles of incorporation provide otherwise. otherwise. Raleigh, Schwarz & Powell's articles
Brown & Brown's amended and restated articles of of incorporation do not alter the voting rights of
incorporation do not alter the voting rights of Raleigh, Schwarz & Powell's common stock.
holders of Brown & Brown common stock.
- Raleigh, Schwarz & Powell's bylaws provide
- The Brown & Brown amended and restated bylaws that a majority of the shares entitled to vote,
provide that a majority in interest of all the common represented in person or by proxy, shall
stock issued and outstanding, represented by constitute a quorum at a meeting of shareholders.
shareholders of record in person or by proxy, shall
constitute a quorum for the transaction of business. - Under Washington law, unless otherwise
provided in the articles of incorporation,
shareholders have the right to cumulate their votes
- Under Florida law, articles of incorporation may for directors. The Raleigh, Schwarz & Powell articles
provide that in elections of directors, shareholders of incorporation do not provide otherwise.
are entitled to cumulate votes. The Brown & Brown
amended and restated articles of incorporation
do not provide for cumulative voting for the election
of directors; therefore, under Florida law, directors
are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a
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meeting at which a quorum is present.
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
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- Generally, under Florida law, unless the articles - Generally, under Washington law, unless the
of incorporation provide for the vote of a larger articles of incorporation provide for the vote of
portion of the stock, completion of a merger or a larger portion of the stock, completion of a
consolidation or sale of substantially all of a merger or consolidation or sale of substantially
corporation's assets or dissolution requires: all of a corporation's assets or dissolution
requires:
(1) the approval of the board of directors; and (1) the approval of the board of directors; and
(2) approvals by the vote of the holders of a (2) approvals by the vote of the holders of
majority of the outstanding stock. two-thirds of the outstanding stock.
Brown & Brown's amended and restated articles of The articles of incorporation may provide for a
incorporation do not provide for the vote of a larger lesser vote, so long as the vote provided for each
portion of the stock. voting group is not less than a majority of all the
votes entitled to be cast by such voting group.
Raleigh, Schwarz & Powell's articles of incorporation
do not provide for a lesser vote.
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ACTION BY WRITTEN CONSENT
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- Under Florida law, unless otherwise provided in - Under Washington law, shareholder action that
the articles of incorporation, shareholders may take may be taken at a shareholders' meeting may be
any action required or permitted to be taken at a taken without a meeting if written consents
shareholders' meeting without a meeting if the action describing the action are signed by all
is consented to in writing by shareholders entitled shareholders entitled to vote on the matter, or if
to cast the same number of votes that would be the action is taken by shareholders holding of
required to take that action at a meeting at which record or otherwise entitled to vote in the
all shareholders were present and voting in person. aggregate not less than the minimum number of
The amended and restated articles of incorporation of votes that would be necessary to authorize or take
Brown & Brown do not provide otherwise. such action at a meeting at which all shares
entitled to vote on the action were present and
voted, and at the time the action is taken the
corporation is not a public company and is
authorized to take such action by a general or
limited authorization contained in its articles of
incorporation. The Raleigh, Schwarz & Powell
articles of incorporation do not contain such an
authorization. The Raleigh, Schwarz & Powell
bylaws allow action to be taken without a meeting
if a consent in writing, setting forth the action
so taken, is signed by all of the shareholders
entitled to vote with
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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respect to the subject matter thereof.
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DIVIDENDS
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- Under Florida law, subject to any restriction in - Under the Washington law, a corporation may
the corporation's articles of incorporation, the make a distribution in cash or in property to its
board of directors may declare and pay dividends or shareholders upon the authorization of its board
other distributions to shareholders unless, after of directors unless, after giving effect to such
giving effect to the distribution: distribution:
(1) the corporation would not be able to pay its (1) the corporation would be unable to pay its
debts as they become due in the usual course of debts as they become due in the usual course
business; or of business; or
(2) the corporation's total assets would be less than (2) the corporation's total assets would be less
the sum of its total liabilities plus the amount than the sum of its total liabilities plus the
required to satisfy outstanding liquidation amount that would be needed, if the
rights superior to the liquidation rights of corporation were to be dissolved at the time
those receiving the distribution. of the distribution, to satisfy the
preferential rights of shareholders whose
Brown & Brown's amended and restated articles of preferential rights are superior to those
incorporation contain no provisions restricting receiving the distribution.
dividends on Brown & Brown's common stock.
Raleigh, Schwarz & Powell's articles of
incorporation contain no provision restricting
dividends on Raleigh's common stock.
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PROVISIONS RELATING TO SHARE ACQUISITIONS AND CERTAIN BUSINESS COMBINATIONS
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- Florida law contains a provision which restricts - Washington law prohibits a "target corporation"
many business combination transactions with an (as defined below), with certain exceptions,
interested shareholder for five years after the from engaging in certain "significant business
interested shareholder has acquired 10% of the voting transactions" (as defined below) with a person
power of a corporation. Under Florida law, if a or group of persons that beneficially owns 10% or
business combination, including a merger, a more of the voting securities of a target
disposition of substantially all assets, an issuance corporation (an "acquiring person") for a period
of securities and other similar transactions, occurs of five years after the acquiring person acquired
with a person who, together with its affiliates, owns its securities, unless the transaction or
10% or more of the outstanding capital stock of the acquisition of shares is approved by a majority of
subject corporation, then the combination must be the members of the target corporation's board of
approved by two-thirds of the outstanding capital directors before the date of the acquisition. A
stock entitled to vote for directors. However, the "significant business transaction" includes, among
combination may occur without such a vote if, among other transactions:
other exceptions:
(1) a merger or consolidation with the acquiring
person;
(1) a majority of disinterested directors approves
the transaction; (2) sales or other dispositions of assets, in one
or more transactions having an aggregate
(2) the corporation has not had more than 300 market value equal to five percent or more of
shareholders of record during the 3 years prior all assets or outstanding shares of the target
corporation
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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to the announcement of the proposed transaction; or representing five percent or more of the
or earning power or net income of the target
corporation to or with the acquiring person;
(3) the related person is the beneficial owner of at
least 90% of the outstanding voting shares of the (3) the issuance or redemption of stock to or from
corporation, exclusive of shares acquired the acquiring person;
directly from the corporation in a transaction
not approved by a majority of disinterested (4) termination of five percent or more of the
directors. employees of the target corporation employed
in Washington State as a result of the
The Brown & Brown amended and restated articles of acquiring person's acquisition of 10% or more
incorporation and amended and restated bylaws indicate of the shares of the target corporation over
that Brown & Brown has elected to opt out of this the five-year period following the share
provision of Florida law. acquisition by the acquiring person; or
(5) allowing the acquiring person to receive any
- Florida law also contains a control share benefit from the corporation, other than
provision. This provision generally provides that proportionately as a shareholder.
shares acquired in a "control share acquisition" will
not posses any voting rights unless such voting "Target corporations" include all domestic
rights are approved by a majority of the corporation's corporations with securities registered under the
disinterested shareholders. A "control share Securities and Exchange Act of 1934, as amended.
acquisition" is an acquisition, directly or
indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with
respect to, issued and outstanding "control shares" of
a publicly held Florida corporation. "Control shares"
are shares, that except for the control share
provision, would have voting power that, when added to
all other shares owned by a person or in respect to
which such person may exercise or direct the exercise
of voting power, would entitle such person, immediately
after acquisition of such shares, directly or
indirectly, alone or as a part of a group, to exercise
or direct the exercise of voting power in the election
of directions within any of the following ranges: (a) at
least 20 percent but less than 33 percent of all voting
power, (b) at least 33 percent but less than a majority
of all voting power, or (c) a majority or more of all
voting power.
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SPECIAL MEETINGS OF SHAREHOLDERS
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- Florida law provides that special meetings of - Under Washington law, a special meeting of
shareholders may be called only by: shareholders may be called by a corporation's
board of directors or other persons authorized by
(1) the board of directors; the
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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corporation's articles of incorporation or
bylaws, or, unless limited by the articles of
(2) any person or persons authorized by the incorporation, on written demand of holders of at
corporation's articles of incorporation or least 10% of all votes entitled to be cast on any
bylaws; or issue proposed to be considered at the proposed
special meeting. The Raleigh, Schwarz & Powell
(3) if 10% or more of all the votes entitled to be articles of incorporation do not address special
cast on an issue proposed to be considered at the meetings of shareholders. The Raleigh, Schwarz &
special meeting demand in writing that a special Powell bylaws provide that special meetings of the
meeting be held. shareholders may be called at any time by the
President, a majority of the Board, or any
- Florida law requires that a corporation give shareholder or shareholders holding in the
shareholders notice of each annual and special aggregate not less than one-fourth of all shares
shareholders' meeting at least 10 days and no more entitled to vote at the special meeting.
than 60 days before the meeting date. Shareholders may hold a meeting at any time and
place without notice or call, upon appropriate
The Brown & Brown amended and restated articles of waivers signed by all shareholders who are
incorporation do not address special meetings of entitled to vote at a shareholders' meeting.
shareholders. The Brown & Brown amended and restated
bylaws provide that special meetings of the shareholders - Washington law requires that a corporation
may be called by the President or the Board of Directors give shareholders notice of each annual and
whenever he or they deem it proper and shall be called by special shareholders' meeting at least 10 days and
the President or by the Board of Directors upon the no more than 60 days before the meeting date,
written request of shareholders holding a majority of except that notice of a shareholders' meeting to act
common stock outstanding. Such meetings may be held on an amendment to the articles of incorporation,
either within or without the State. a plan of merger or share exchange, a proposed sale
of assets, or the dissolution of the corporation
shall be given no fewer than twenty, not more than
sixty days before the meeting date.
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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DISSENTERS' RIGHTS
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- Under Florida law, shareholders of a corporation - Under Washington law, a shareholder is entitled
have the right to dissent from, and obtain payment of to dissent from and, upon perfection of the
the fair value of their shares in connection with, shareholder's appraisal right, to obtain the
certain corporate actions, including an amendment to fair value of his or her shares in the event of
the articles of incorporation which materially and certain corporate actions, including certain
adversely affects the rights or preferences of shares mergers, share exchanges, sales of substantially
held by the dissenting shareholders, a disposition of all of the assets of the corporation, and
all or substantially all of the corporation's amendments to the corporation's articles of
property and assets not in the usual course of incorporation that materially reduce the number of
business, a plan of merger in which the shareholders shares owned by a shareholder to a fraction of a
may vote, a plan of exchange involving the share which is to be acquired with cash.
acquisition of the corporation's shares if the
shareholders are entitled to vote on the plan, and
certain control share acquisitions. However,
appraisal rights are not available to holders of
shares:
(1) listed on a national securities exchange;
(2) designated as a national market system security
on an interdealer quotation system operated by
the National Association of Securities Dealers,
Inc.; or
(3) held of record by more than 2,000 shareholders.
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PREEMPTIVE RIGHTS
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- Under Florida law, a shareholder is not entitled - Under Washington law, unless the articles of
to preemptive rights to subscribe for additional incorporation provide otherwise, the shareholders
issuances of stock or any security convertible into of a corporation have preemptive rights.
stock unless they are specifically granted in the
articles of incorporation. Raleigh, Schwarz & Powell's articles of incorporation
provide that no shareholders shall have preemptive
Brown & Brown's amended and restated articles of rights.
incorporation provide that no shareholder shall have
preemptive rights.
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NUMBER AND VACANCY OF DIRECTORS
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- Florida law provides that a board of directors - Washington law provides that the board of
must consist of one or more individuals, with the directors of a Washington corporation shall
number specified in or fixed in accordance with the consist of one or more directors as fixed by the
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
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articles of incorporation or bylaws. The Brown & corporation's articles of incorporation or
Brown amended and restated bylaws provide that the bylaws. The Raleigh, Schwarz & Powell bylaws
board of directors shall consist of nine in number to provide for a board of directors comprised of nine
be elected annually at the meeting of the directors; provided, however, that the board of
shareholders by a plurality of the shares voted. The directors may from time to time increase or reduce
number may be increased or diminished from time to the number of directors to not less than three nor
time, by resolution of the board of directors, but more than eleven directors, one of whom shall be
shall never be less than three. When for any reason the president of the corporation. Each director
the office of a director shall become vacant, the shall hold office until the next annual
remaining directors shall by a majority vote elect a shareholders' meeting, or until his or her
success on who shall hold office until his successor successor shall have been elected, or until his or
is elected. her death, resignation, or removal. Any vacancy
occurring in the board of directors, unless caused
by the vote of the shareholders, shall be filled
by the affirmative vote of a majority of the
remaining directors, though less than a quorum
of the board.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
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- Florida law provides that a corporation may - Under Washington law, a corporation may
indemnify any officer or director who is made a party indemnify an individual made a party to a
to any third party suit or proceeding on account of proceeding because the individual is or was a
being a director, officer or employee of the director against liability incurred in the
corporation against expenses, including attorney's proceeding if the individual acted in good faith;
fees, judgments, fines and amounts paid in settlement and the individual reasonably believed that in the
reasonably incurred by him in connection with the case of conduct in the individual's official
action, through, among other things, a majority vote capacity with the company, that the individual's
of a quorum consisting of directors who were not conduct was in the company's best interests; and
parties to the suit or proceeding, if the officer or in all other cases, that the individual's conduct
director: was at least not opposed to the company's best
interests. Furthermore, in the case of any
(1) acted in good faith and in a manner he reasonably criminal proceeding, the individual must have had
believed to be in, or not opposed to, the best no reasonable cause to believe his conduct was
interests of the corporation; and unlawful. A corporation may not indemnify a
director under this section in connection with a
(2) in a criminal proceeding, had no reasonable cause proceeding by or in the right of the corporation
to believe his conduct was unlawful. in which the director was adjudged liable to the
corporation; or in connection with any other
Brown & Brown's amended and restated articles of proceeding charging improper personal benefit to
incorporation provide that the bylaws of the company the director, whether or not involving action in
may provide for the indemnification of the officers the director's official capacity, in which
and directors of the company for their actions and
omissions up to the maximum extent permitted by law.
Brown & Brown's bylaws provide that every person who
is now or hereafter may be a director or officer of
the company shall be
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
--------------------------------------------------------------------------------------------------------------------------------
indemnified by the company against all costs and the director was adjudged liable on the basis that
amounts of liability therefor and expenses, including personal benefit was improperly received by the
counsel fees, reasonably incurred by or imposed upon director. Indemnification permitted under this
him in connection with or arising from any action, section in connection with a proceeding by or in
suit, proceeding or claim of whatever nature to the right of the corporation is limited to
which he is or shall be made a party by reason of reasonable expenses incurred in connection with
his being or having been a director or officer of the proceeding.
the company, provided that such indemnification
shall not apply with respect to any matter as to - The Raleigh, Schwarz & Powell bylaws provide
which such director or officer shall be finally that each person who was or is threatened to be
to have been individually guilty of gross adjudged in such action, suit, proceeding or claim
negligence or willful malfeasance in the performance made a party to or is otherwise involved in any
of his duty as such director or officer and provided actual or threatened action, suit, or proceeding,
further that the indemnification provided shall with whether civil, criminal, administrative or
respect to any settlement of any such suit, action, investigative, and whether formal or informal, by
proceeding or claim, include reimbursement for any reason of the fact that he or she is or was a
amounts paid and expenses reasonably incurred in director or officer of the company, whether the
settling such suit, action, proceeding or claim when, basis of such proceeding is alleged action in an
in judgement of the board of directors, such official capacity while serving as a director,
settlement and reimbursement appeared to be for the trustee, officer, employee or agent, shall be
best interests of the company. indemnified and held harmless by Raleigh, Schwarz
& Powell to the full extent permitted by
applicable law as then in effect, against all
expense, liability and loss actually and
reasonably incurred by such indemnitee in
connection therewith, and such indemnification
shall continue as to an indemnitee who has ceased
to be a director, trustee officer, employee or
agent and shall inure to the benefit of the
indemnitee's heirs; provided that no indemnification
shall be provided to any indemnitee if Raleigh,
Schwarz & Powell is prohibited from doing so by
Washington or other applicable law.
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REMOVAL OF DIRECTORS
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- Florida law provides that, absent a provision in - Washington law provides that the shareholders
the articles of incorporation permitting removal of may remove one or more directors with or without
directors only for cause, the directors may be cause unless the articles of incorporation provide
removed with or without cause if the number of votes that directors may be removed only for cause,
cast to remove the director exceeds the number of provided that a director may be removed by the
votes cast not to remove him or her. meeting notice must state that the
Brown & Brown's amended and restated articles of
incorporation provide that any one or more or all of
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87
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO RALEIGH, SCHWARZ
SHAREHOLDERS & POWELL SHAREHOLDERS
--------------------------------------------------------------------------------------------------------------------------------
the directors may be removed either with or without purpose or one of the purposes of the meeting is
cause, at any time by the vote of the stockholders removal of the director.
holding a majority of the stock of Brown & Brown
entitled to vote, at any special meeting and Raleigh, Schwarz & Powell's bylaws provide that
thereupon the term of each director or directors who the entire board may be removed, with or without
shall have been removed shall terminate. cause, at a special meeting of shareholders, by a
vote of the holders of a majority of the shares
then entitled to vote at an election of directors.
Furthermore, any individual director may be removed
with or without cause, at a special meeting of
shareholders called expressly for that purpose,
by a vote of the holders of a majority of
the shares then entitled to vote at an election of
directors. Any vacancy caused by such removal shall
be filled by the shareholders at such meeting, and
any director elected to fill such a vacancy shall
serve only for the unexpired term of his or her
predecessor in office.
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LEGAL MATTERS
The validity of the shares of Brown & Brown common stock offered in
connection with the merger will be passed upon by Holland & Knight LLP. Holland
& Knight LLP will render an opinion that the description of the U.S. federal
income tax consequences described under the caption "The Merger--Material
Federal Income Tax Considerations" is true and correct in all material respects.
EXPERTS
The financial statements of Brown & Brown included elsewhere in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and have been so included herein in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The financial statements of Riedman Insurance (a division of Riedman
Corporation) included elsewhere in this prospectus and elsewhere in this
registration statement have been audited by KPMG LLP, independent certified
public accountants, as indicated in their report with respect thereto, and have
been so included herein in reliance upon the authority of said firm as experts
in accounting and auditing in giving said report.
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88
WHERE YOU CAN FIND MORE INFORMATION
Brown & Brown files reports, proxy statements and other information
with the Securities and Exchange Commission. Copies of these materials may be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission:
Judicial Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street Suite 1400
Washington, DC 20549 Chicago, IL 60661
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, NW, Washington, DC 20549 or by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains a web site that contains reports, proxy statements
and other information regarding Brown & Brown. The address of the Securities and
Exchange Commission web site is http://www.sec.gov. Copies of these materials
may also be inspected at the offices of The New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Brown & Brown has filed a registration statement under the Securities
Act with the Securities and Exchange Commission with respect to Brown & Brown's
common stock to be issued to Raleigh, Schwarz & Powell shareholders in the
merger. This proxy statement/prospectus constitutes the prospectus of Brown &
Brown filed as part of the registration statement. You may inspect and copy the
registration statement at any of the addresses listed above.
If you have any questions about the proposal, please call Raleigh,
Schwarz & Powell's President, John P. Folsom at (253) 396-5500.
You should rely only on information contained in this proxy
statement/prospectus or any supplement we provide to you. We have not authorized
any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not making an offer to sell the Brown & Brown common stock in any
jurisdiction where the offer or sale is not permitted.
You should not assume that the information appearing in this proxy
statement/prospectus or any supplement is accurate as of any date other than the
date on the front of the documents. Our business, financial condition, results
of operations and other information may have changed since that date.
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89
INDEX TO FINANCIAL STATEMENTS
BROWN & BROWN, INC.
Report of Independent Certified Public Accountants................................................ F-2
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2000.............................................................................. F-3
Consolidated Balance Sheets as of December 31, 2000 and 1999...................................... F-4
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 2000.............................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2000.............................................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-7
BROWN & BROWN, INC. (UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2001 AND
2000)
Condensed Consolidated Statements of Income for the three and six months ended
June 30, 2001 and 2000......................................................................... F-19
Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................... F-20
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000......................................................................... F-21
Notes to Condensed Consolidated Financial Statements (Unaudited).................................. F-22
RIEDMAN INSURANCE (A DIVISION OF RIEDMAN CORPORATION)
Independent Auditors' Report...................................................................... F-27
Balance sheet as of December 31, 2000............................................................. F-28
Statement of Income for the year ended December 31, 2000.......................................... F-29
Statement of Stockholders' Equity for the year ended December 31, 2000............................ F-30
Statement of Cash Flows for the year ended December 31, 2000...................................... F-31
Notes to Financial Statements..................................................................... F-32
F-1
90
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO BROWN & BROWN, INC.
We have audited the accompanying consolidated balance sheets of Brown &
Brown, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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 financial position of Brown & Brown, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/S/ ARTHUR ANDERSEN LLP
Orlando, Florida
January 19, 2001
F-2
91
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------------------
(in thousands, except per share data)
2000 1999 1998
---------- ---------- ----------
Revenues
Commissions and fees .............................. $ 204,862 $ 183,681 $ 167,532
Investment income ................................. 3,890 2,810 3,654
Other income ...................................... 954 1,900 299
Total revenues ............................... 209,706 188,391 171,485
Expenses
Employee compensation and benefits ................ 108,258 98,238 90,054
Other operating expenses .......................... 33,724 33,080 32,282
Depreciation ...................................... 4,637 4,511 3,929
Amortization ...................................... 8,519 7,725 5,889
Interest .......................................... 590 828 728
Total expenses ............................... 155,728 144,382 132,882
Income before income taxes ........................ 53,978 44,009 38,603
Income taxes ...................................... 20,792 17,220 15,041
Net income ........................................ $ 33,186 $ 26,789 $ 23,562
Basic and diluted net income per share ............ $ 1.16 $ 0.94 $ 0.83
Weighted average number of shares outstanding ..... 28,663 28,445 28,380
See notes to consolidated financial statements
F-3
92
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
--------------------------------
2000 1999
------------ ----------
(in thousands, except per share data)
ASSETS
Cash and cash equivalents................................................ $ 31,313 $ 23,957
Restricted cash.......................................................... 26,297 18,526
Short-term investments................................................... 373 809
Premiums, commissions and fees receivable................................ 83,199 69,054
Other current assets..................................................... 7,576 7,923
Total current assets................................................ 148,758 120,269
Fixed assets, net........................................................ 14,210 15,452
Intangibles, net......................................................... 101,901 91,891
Investments.............................................................. 5,752 9,608
Deferred income taxes.................................................... 649 -
Other assets............................................................. 5,449 7,203
Total assets........................................................ $ 276,719 $ 244,423
Liabilities
Premiums payable to insurance companies.................................. $ 109,417 $ 94,364
Premium deposits and credits due customers............................... 8,347 7,771
Accounts payable and accrued expenses.................................... 24,101 21,457
Current portion of long-term debt........................................ 2,611 3,714
Total current liabilities........................................... 144,476 127,306
Long-term debt........................................................... 2,736 5,086
Deferred income taxes.................................................... - 1,408
Other liabilities........................................................ 7,596 7,618
Total liabilities................................................... 154,808 141,418
Shareholders' equity
Common stock, par value $.10 per share; authorized 70,000 shares;
issued 28,699 shares at 2000 and 28,412 shares at 1999................ 2,870 2,841
Retained earnings........................................................ 116,546 95,242
Accumulated other comprehensive income, net of tax effect of
$1,595 at 2000 and $3,147 at 1999....................................... 2,95 4,922
Total shareholders' equity............................................... 121,911 103,005
Total liabilities and shareholders' equity............................... $ 276,719 $ 244,423
See notes to consolidated financial statements.
F-4
93
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
COMMON STOCK COMPRE-
------------------ RETAINED HENSIVE
SHARES AMOUNT EARNINGS INCOME TOTAL
------ ------ -------- ----------- --------
(in thousands, except per share data)
Balance, January 1, 1998 ........................................ 28,290 $2,829 $ 67,433 $ 6,744 $ 77,006
Net income ...................................................... 23,562 23,562
Net decrease in unrealized appreciation of
available-for-sale securities ................................... (1,204) (1,204)
--------
COMPREHENSIVE INCOME ............................................ 22,358
Common stock issued/(purchased) for employee stock benefit
plans and stock acquisitions, net ............................... 224 22 (8,399) (8,377)
Shareholder distributions from
Pooled entities ................................................. (1,376) (1,376)
Cash dividends paid ($.205 per share) ........................... (5,494) (5,494)
Balance, December 31, 1998 ...................................... 28,514 2,851 75,726 5,540 84,117
Net income ...................................................... 26,789 26,789
Net decrease in unrealized appreciation of available-for-sale
securities....................................................... (618) (618)
--------
COMPREHENSIVE INCOME ............................................ 26,171
Common stock (purchased)/issued for employee stock benefit
plans and stock acquisitions, net ............................... (102) (10) 100 90
Shareholder distributions from
Pooled entities ................................................. (1,136) (1,136)
Cash dividends paid ($.230 per share) ........................... (6,237) (6,237)
Balance, December 31, 1999 ...................................... 28,412 2,841 95,242 4,922 103,005
Net income ...................................................... 33,186 33,186
Net decrease in unrealized appreciation of available-for-sale
securities....................................................... (2,427) (2,427)
--------
COMPREHENSIVE INCOME ............................................ 30,759
Common stock issued/(purchased) for employee stock benefit
plans and stock acquisitions, net ............................... 287 29 (3,644) (3,615)
Shareholder distributions from
Pooled entities ................................................. (713) (713)
Cash dividends paid ($.270 per share) ........................... (7,525) (7,525)
Balance, December 31, 2000 ...................................... 28,699 $2,870 $116,546 $ 2,495 $121,911
See notes to consolidated financial statements.
F-5
94
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Cash Flows from Operating Activities
Net income ............................................................. $ 33,186 $ 26,789 $ 23,562
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ...................................................... 4,637 4,511 3,929
Amortization ...................................................... 8,519 7,725 5,889
Compensation expense under performance stock plan ................. 483 1,263 732
Deferred income taxes ............................................. (505) (418) 231
Net (gains) losses on sales of investments, fixed assets and
customer accounts ............................................. (685) (452) 406
Restricted cash increase .......................................... (7,771) (1,227) (1,899)
Premiums, commissions and fees receivable (increase) decrease ..... (14,145) 3,110 (1,742)
Other assets decrease (increase) .................................. 2,101 (1,071) (1,683)
Premiums payable to insurance companies increase (decrease) ....... 15,053 (1,079) 4,776
Premium deposits and credits due customers increase (decrease) .... 576 (608) 1,344
Accounts payable and accrued expenses increase (decrease) ......... 2,644 3,021 (1,954)
Other liabilities (decrease) increase ............................. (22) (954) 1,211
Net cash provided by operating activities .............................. 44,071 40,610 34,802
Cash Flows from Investing Activities
Additions to fixed assets .............................................. (4,102) (5,070) (4,764)
Payments for businesses acquired, net of cash acquired ................. (18,226) (18,154) (29,608)
Proceeds from sales of fixed assets and customer accounts .............. 1,283 739 148
Purchases of investments ............................................... (73) (124) (1,457)
Proceeds from sales of investments ..................................... 494 916 1,030
Net cash used in investing activities .................................. (20,624) (21,693) (34,651)
Cash Flows from Financing Activities
Payments on long-term debt ............................................. (4,064) (17,583) (7,835)
Proceeds from long-term debt ........................................... -- 738 12,064
Exercise of stock options and issuances of stock ....................... 1,746 1,664 1,113
Purchases of stock ..................................................... (5,535) (1,152) (9,233)
Shareholder distributions from pooled entities ......................... (713) (1,136) (1,376)
Cash dividends paid .................................................... (7,525) (6,237) (5,494)
Net cash used in financing activities .................................. (16,091) (23,706) (10,761)
Net increase (decrease) in cash and cash equivalents ................... 7,356 (4,789) (10,610)
Cash and cash equivalents at beginning of year ......................... 23,957 28,746 39,356
Cash and cash equivalents at end of year ............................... $ 31,313 $ 23,957 $ 28,746
See notes to consolidated financial statements.
F-6
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Brown & Brown, Inc. and subsidiaries (the "Company") is a diversified
insurance brokerage and agency that markets and sells primarily property and
casualty insurance products and services to its clients. The Company's business
is divided into four divisions: the Retail Division, which markets and sells a
broad range of insurance products to commercial, professional and individual
clients; the National Programs Division, which develops and administers property
and casualty insurance programs for professional and commercial groups
nationwide; the Service Division, which provides insurance-related services such
as third-party administration and consultation for workers' compensation and
employee benefit self-insurance markets; and the Brokerage Division, which
markets and sells excess and surplus commercial insurance primarily through
non-affiliated independent agents and brokers.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Brown & Brown, Inc. and its subsidiaries. All significant intercompany
account balances and transactions have been eliminated in consolidation. As more
fully described in Note 2 - Pooling-of-Interest Acquisitions, the accompanying
consolidated financial statements for all periods presented have been restated
to show the effect of the acquisitions of Bowers, Schumann & Welch, The Flagship
Group, Ltd., WMH, Inc., Huffman & Associates, Inc., and Mangus Insurance &
Bonding, Inc., during 2000; Ampher Insurance, Inc., Ross Insurance of Florida,
Inc., Signature Insurance Group, Inc. and C,S&D, a Florida general partnership,
during 1999; and Daniel-James Insurance Agency, Inc. and Becky-Lou Realty
Limited during 1998.
Revenue Recognition
Commissions relating to the brokerage and agency activity, whereby the
Company has primary responsibility for the collection of premiums from insureds,
are generally recognized as of the latter of the effective date of the insurance
policy or the date billed to the customer. Commissions to be received directly
from insurance companies are generally recognized when the amounts are
determined. Subsequent commission adjustments, such as policy endorsements, are
recognized upon notification from the insurance companies. Commission revenues
are reported net of sub-broker commissions. Contingent commissions from
insurance companies are recognized when received. Fee income is recognized as
services are rendered.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits with
financial institutions and highly liquid investments having maturities of three
months or less when purchased.
Restricted Cash, Premiums, Commissions and Fees Receivable
In its capacity as an insurance broker or agent, the Company typically
collects premiums from insureds and, after deducting its authorized commission,
remits the premiums to the appropriate insurance companies. Unremitted insurance
premiums are held in a fiduciary capacity until disbursed by the Company. In
certain states where the Company operates, the use and investment alternatives
for these funds are regulated by various state agencies. Accordingly, the
Company invests these unremitted funds only in cash, money market accounts and
F-7
96
commercial paper, and reports such amounts as restricted cash in the
Consolidated Balance Sheets. The interest income earned on these unremitted
funds is reported as investment income in the Consolidated Statements of Income.
In other circumstances, the insurance companies collect the premiums
directly from the insureds and remit the applicable commissions to the Company.
Accordingly, as reported in the Consolidated Balance Sheets, "premiums" are
receivable from insureds and "commissions" are receivable from insurance
companies. "Fees" are receivable from customers of the Company's Service
Division.
Investments
The Company's marketable equity securities have been classified as
"available-for-sale" and are reported at estimated fair value, with the
accumulated other comprehensive income (unrealized gains and losses), net of
tax, reported as a separate component of shareholders' equity. Realized gains
and losses and declines in value below cost 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.
Nonmarketable equity securities and certificates of deposit having
maturities of more than three months when purchased are reported at cost, and
are adjusted for other-than-temporary market value declines.
Accumulated other comprehensive income reported in shareholders' equity
was $2,495,000 at December 31, 2000 and $4,922,000 at December 31, 1999, net of
deferred income taxes of $1,595,000 and $3,147,000, respectively. The Company
owned 559,970 shares of Rock-Tenn Company common stock at December 31, 2000 and
1999 which have been classified as non-current, available-for-sale securities.
The Company has no current plans to sell these shares.
Fixed Assets
Fixed assets are stated at cost. Expenditures for improvements are
capitalized, and expenditures for maintenance and repairs are charged to
operations as incurred. Upon sale or retirement, the cost and related
accumulated depreciation and amortization are removed from the accounts and the
resulting gain or loss, if any, is reflected in income. Depreciation has been
provided using principally the straight-line method over the estimated useful
lives of the related assets, which range from three to ten years. Leasehold
improvements are amortized on the straight-line method over the term of the
related lease.
Intangibles
Intangible assets are stated at cost less accumulated amortization and
principally represent purchased customer accounts, non-compete agreements,
acquisition costs, and the excess of costs over the fair value of identifiable
net assets acquired (goodwill). Purchased customer accounts, non-compete
agreements, and acquisition costs are being amortized on a straight-line basis
over the related estimated lives and contract periods, which range from five to
20 years. The excess of costs over the fair value of identifiable net assets
acquired is being amortized on a straight-line basis over 15 to 40 years.
Purchased customer accounts are records and files obtained from acquired
businesses that contain information on insurance policies and the related
insured parties that is essential to policy renewals.
The carrying value of intangibles, corresponding with each agency
division comprising the Company, is periodically reviewed by management to
determine if the facts and circumstances suggest that they may be impaired. In
the insurance brokerage and agency industry, it is common for agencies or
customer accounts to be acquired at a price determined as a multiple of the
corresponding revenues. Accordingly, the Company assesses the carrying value of
its intangibles by comparison with a reasonable multiple applied to
corresponding revenues, as well as considering the operating cash flow generated
by the corresponding agency division. Any impairment identified through this
assessment may require that the carrying value of related intangibles be
adjusted; however, no impairments have been recorded for the years ended
December 31, 2000, 1999 and 1998.
F-8
97
Income Taxes
The Company files a consolidated federal income tax return. Deferred
income taxes are provided for in the consolidated financial statements and
relate principally to expenses charged to income for financial reporting
purposes in one period and deducted for income tax purposes in other periods,
unrealized appreciation of available-for-sale securities and basis differences
of intangible assets.
Net Income Per Share
Basic net income per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Basic net income per share excludes dilution and diluted net
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted to common
stock.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 POOLING-OF-INTEREST ACQUISITIONS
On June 2, 2000, the Company issued 543,588 shares of its common stock
in exchange for all the outstanding stock of Bowers, Schumann & Welch ("BSW"), a
New Jersey corporation with offices in Washington, New Jersey and Bethlehem,
Pennsylvania.
On November 21, 2000, the Company issued 189,914 shares of its common
stock in exchange for all the outstanding stock of The Flagship Group, Ltd.
("Flagship"), a Virginia corporation with an office in Norfolk, Virginia.
On December 13, 2000, the Company issued 180,830 shares of its common
stock in exchange for all the outstanding stock of WMH, Inc. and Huffman &
Associates, Inc. (collectively referred to as "Huffman"), both Georgia
corporations with offices in Rome and Canton, Georgia.
On December 29, 2000, the Company issued 57,955 shares of its common
stock in exchange for all the outstanding stock of Mangus Insurance & Bonding,
Inc. ("Mangus"), a Florida corporation with an office in Jacksonville, Florida.
These transactions have been accounted for under the
pooling-of-interests method of accounting, and, accordingly, the Company's
consolidated financial statements and related notes have been restated for all
periods prior to the acquisitions to include the results of operations,
financial positions and cash flows of BSW, Flagship, Huffman and Mangus.
The following table reflects the 1999 and 1998 individual and combined
operating results of the Company, BSW, Flagship, Huffman and Mangus.
AS PREVIOUSLY
REPORTED BSW FLAGSHIP HUFFMAN MANGUS COMBINED
-------- ------ -------- ------- ------ ---------
(in thousands of dollars, except per share data)
1999
Revenues $ 176,413 $ 5,133 $ 3,850 $ 2,240 $ 755 $ 188,391
Net income 27,172 (506) 244 154 (275) 26,789
1998
Revenues $ 158,947 $ 5,337 $ 4,316 $ 2,167 $ 718 $ 171,485
Net income 23,349 (252) 314 157 (6) 23,562
F-9
98
1999 1998
---- ----
Net income per share
As previously reported............... $ 0.99 $ 0.85
As combined.......................... $ 0.94 $ 0.83
On July 20, 1999, the Company issued 334,656 shares of its common stock
in exchange for all of the outstanding stock of Ampher Insurance, Inc. and Ross
Insurance of Florida, Inc. (collectively referred to as "Ampher-Ross"), both
Florida corporations with an office in Ft. Lauderdale, Florida.
On November 10, 1999, the Company issued 210,770 shares of its common
stock in exchange for all of the outstanding stock of Signature Insurance Group,
Inc. ("Signature"), a Florida corporation with an office in Ocala, Florida, and
for all of the outstanding membership interests of C,S&D, a Florida general
partnership established in January 1999.
These transactions have been accounted for under the
pooling-of-interests method of accounting, and accordingly, the Company's
consolidated financial statements and related notes have been restated for all
periods prior to the acquisitions to include the results of operations,
financial positions and cash flows of Ampher-Ross, Signature and C,S&D.
The following table reflects the 1998 individual and combined operating
results of the Company, Ampher-Ross, Signature and C,S&D.
AS PREVIOUSLY AMPHER-
REPORTED ROSS SIGNATURE C,S&D COMBINED
-------- ---- --------- ----- --------
(in thousands of dollars, except per share data)
1998
Revenues................................... $ 153,791 $2,994 $ 2,162 $ -- $ 158,947
Net income................................. 23,053 86 210 -- 23,349
1998
----
NET INCOME PER SHARE
As previously reported..................... $ 0.86
As combined................................ $ 0.85
On April 14, 1998, the Company issued 557,530 shares of its common
stock in exchange for all of the outstanding stock of Daniel-James Insurance
Agency, Inc. ("Daniel-James"), an Ohio corporation with offices in Toledo, Ohio
and Indianapolis, Indiana, and for all of the outstanding membership interests
of Becky-Lou Realty Limited ("Becky-Lou"), an Ohio limited liability company.
This transaction has been accounted for as a pooling-of-interests and,
accordingly, the Company's consolidated financial statements and related notes
to the consolidated financial statements have been restated for all periods
prior to the acquisition to include the results of operations, financial
positions and cash flows of Daniel-James and Becky-Lou.
NOTE 3 ASSET ACQUISITIONS
During 2000, the Company acquired the assets of five general insurance
agencies, several books of business (customer accounts) and the outstanding
stock of one general insurance agency at an aggregate cost of $18,837,000,
including $18,226,000 of net cash payments and the issuance of notes payable in
the amount of $611,000. Each of these acquisitions was accounted for as a
purchase, and substantially the entire cost was assigned to purchased customer
accounts, non-compete agreements and goodwill.
During 1999, the Company acquired the assets of six general insurance
agencies, several books of business (customer accounts) and the outstanding
stock of two general insurance agencies at an aggregate cost of $19,612,000,
including $18,154,000 of net cash payments and the issuance of notes payable in
the amount of $1,458,000. Each of these acquisitions was accounted for as a
purchase, and substantially the entire cost was assigned to purchased customer
accounts, non-compete agreements and goodwill.
F-10
99
During 1998, the Company acquired the assets of 19 general insurance
agencies, several books of business and the outstanding shares of one general
insurance agency at an aggregate cost of $34,599,000, including $29,608,000 of
net cash payments and the issuance of notes payable in the aggregate amount of
$4,991,000. These acquisitions were accounted for as purchases and substantially
the entire cost was assigned to purchased customer accounts, non-compete
agreements and goodwill.
The results of operations for the asset acquisitions have been combined
with those of the Company since their respective acquisition dates. Since the
majority of the acquisitions in 2000 and 1999 occurred near the beginning of
each of the respective years, the pro forma effect of annualizing the revenues,
net income and net income per share of these acquisitions would not be
materially different from the amounts reported in the Consolidated Statements of
Income. However, if the acquisitions completed during 1998 had occurred at the
beginning of the year, the Company's 1998 results of operations would be as
shown in the following table:
(UNAUDITED)
YEAR ENDED DECEMBER 31,
1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
Revenues...................................................... $ 180,236
Net income.................................................... 24,063
Net income per share.......................................... $ 0.85
Additional or return consideration resulting from acquisition
contingency provisions is recorded as an adjustment to intangibles when the
contingency is settled. Payments of this nature totaling $1,220,000, $1,611,000
and $1,536,000 were made in 2000, 1999 and 1998 respectively. As of December 31,
2000, the maximum future contingency payments related to acquisitions totaled
$10,597,000.
NOTE 4 INVESTMENTS
2000 1999
CARRYING VALUE CARRYING VALUE
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ------------ ------- ------------
INVESTMENTS AT DECEMBER 31 CONSISTED OF THE FOLLOWING: (in thousands)
Available-for-sale marketable equity securities ................. $ 80 $4,165 $ 525 $8,260
Nonmarketable equity securities and certificates of deposit ..... 293 1,587 284 1,348
Total investments ............................................... $ 373 $5,752 $ 809 $9,608
The following summarizes available-for-sale securities at
December 31:
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ------------ ----------- ----------
(in thousands)
Marketable Equity Securities:
2000 ...................................................... $ 520 $3,738 $ (13) $4,245
1999 ...................................................... $ 880 $7,930 $ (25) $8,785
In 2000, proceeds from sales of available-for-sale securities totaled
$494,000, resulting in gross realized gains and losses of approximately $144,000
and ($35,000), respectively. Proceeds from sales of available-for-sale
securities totaled $916,000 in 1999, resulting in gross realized gains of
approximately $138,000. In 1998, proceeds from sales of available-for-sale
securities totaled $1,030,000, resulting in gross realized gains of
approximately $165,000.
Cash and cash equivalents, investments, premiums and commissions
receivable, premiums payable to insurance companies, premium deposits and
credits due customers, accounts payable and accrued expenses, and current and
long-term debt are considered financial instruments. The carrying amount for
each of these items at both December 31, 2000 and 1999 approximates its fair
value.
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100
NOTE 5 FIXED ASSETS
Fixed assets at December 31 consisted of the following:
2000 1999
--------- ----------
(in thousands)
Furniture, fixtures and equipment ...................... $ 37,508 $ 36,251
Land, buildings and improvements ....................... 1,918 3,014
Leasehold improvements ................................. 1,844 1,755
$ 41,270 $ 41,020
25,568
Less accumulated depreciation and amortization ......... 27,060
$ 14,210 $ 15,452
Depreciation expense amounted to $4,637,000 in 2000, $4,511,000 in 1999 and
$3,929,000 in 1998
NOTE 6 INTANGIBLES
Intangibles at December 31 consisted of the following:
2000 1999
--------- ----------
(in thousands)
Purchased customer accounts ............................ $ 106,018 $ 88,055
Non-compete agreements ................................. 22,143 21,653
Goodwill ............................................... 32,364 32,352
Acquisition costs ...................................... 1,913 1,705
162,438 143,765
Less accumulated amortization .......................... 60,537 51,874
$ 101,901 $ 91,891
Amortization expense amounted to $8,519,000 in 2000, $7,725,000 in 1999 and
$5,889,000 in 1998.
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
2000 1999
--------- ----------
(in thousands)
Long-term credit agreement ............................. $ 3,000 $ 4,000
Revolving credit facility .............................. -- --
Notes payable from treasury stock purchases ............ 138 395
Acquisition notes payable .............................. 1,115 2,352
Other notes payable .................................... 1,094 2,053
5,347 8,80
Less current portion ................................... 2,611 3,714
Long-term debt ......................................... $ 2,736 $ 5,086
In 1991, the Company entered into a long-term credit agreement with a
major insurance company that provided for borrowings at an interest rate equal
to the prime rate plus 1.00% (10.50% at December 31, 2000). At December 31,
2000, $3 million (the maximum amount currently available for borrowings) was
outstanding. In accordance with an August 1, 1998 amendment to the loan
agreement, the outstanding balance will be repaid in annual installments of $1
million each August through 2003. This credit agreement requires the Company to
maintain certain financial ratios and comply with certain other covenants.
The Company also has a revolving credit facility with a national
banking institution that provides for available borrowings of up to $50 million,
with a maturity date of October 2002. On borrowings of up to $8 million, the
outstanding balance is adjusted daily based upon cash flows from operations. The
interest rate on this portion of the facility is equal to the prime rate less
1.00% (8.50% at December 31, 2000). On borrowings in excess of $8
F-12
101
million, the interest rate on this portion of the facility is London Inter-Bank
Offering Rate ("LIBOR") plus 0.45% to 1.00%, depending on certain financial
ratios that are calculated on a quarterly basis. A commitment fee of 0.15% per
annum is assessed on the unused balance. There were no borrowings against the
facility at December 31, 2000 and December 31, 1999.
Treasury stock notes payable are due to various individuals for the
redemption of Brown & Brown, Inc. stock. These notes bear no interest and mature
in 2001. These notes have been discounted at an effective yield of 8.50% for
presentation in the consolidated financial statements.
Acquisition notes payable represent debt incurred to former owners of
certain agencies acquired in 2000, 1999 and 1998. These notes, including future
contingent payments, are payable in monthly and annual installments through
2002, including interest of 6.00%.
Maturities of long-term debt for succeeding years are $2,611,000 in
2001, $1,113,000 in 2002, $1,080,000 in 2003, $48,000 in 2004 and $495,000 in
2005 and beyond.
Related primarily to the Riedman acquisition, which is more fully
described in Note 15, Subsequent Events, the Company entered into a $90 million
seven-year term loan, bearing an interest rate between the LIBOR plus 0.50% and
LIBOR plus 1.00%, depending upon the Company's quarterly ratio of Funded Debt to
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The
loan was fully funded on January 3, 2001.
NOTE 8 INCOME TAXES
At December 31, 2000, the Company had a net operating loss carryforward
of $302,000 for income tax reporting purposes, portions of which expire in the
years 2011 through 2013. This carryforward was derived from an agency acquired
by the Company in 1998. For financial reporting purposes, a valuation allowance
of $38,000 has been recognized to offset the deferred tax asset related to this
carryforward.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the corresponding amounts used for income tax reporting
purposes. Significant components of the Company's deferred tax liabilities and
assets as of December 31 are as follows:
2000 1999
--------- ----------
(in thousands)
Deferred tax liabilities:
Fixed assets ........................................... $ 817 $ 1,087
Net unrealized appreciation of available-for-sale securities 1,595 3,147
Prepaid insurance and pension .......................... 542 721
Intangible assets ...................................... 363 237
Total deferred tax liabilities ......................... $ 3,317 $ 5,192
Deferred tax assets:
Deferred compensation .................................. $ 2,247 $ 2,433
Accruals and reserves .................................. 1,342 1,022
Net operating loss carryforwards ....................... 179 179
Other .................................................. 236 188
Valuation allowance for deferred tax assets ............ (38) (38)
Total deferred tax assets .............................. $ 3,966 $ 3,784
Net deferred tax (asset)/liability ..................... $ (649) $ 1,408
F-13
102
Significant components of the provision (benefit) for income taxes are as
follows:
2000 1999 1998
-------- -------- --------
(in thousands)
Current:
Federal $ 18,669 $ 15,172 $ 12,728
State 2,795 2,477 2,015
Total current provision $21, 464 $ 17,649 $ 14,743
Deferred:
Federal $ (603) $ (385) $ 267
State (69) (44) 31
Total deferred (benefit) provision $ (672) $ (429) $ 298
Total tax provision $ 20,792 $ 17,220 $ 15,041
A reconciliation of the differences between the effective tax rate and the
federal statutory tax rate is as follows:
2000 1999 1998
---- ---- ----
Federal statutory tax rate .................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit ......... 3.3 3.6 3.4
Interest exempt from taxation and dividend exclusion .......... (0.4) (0.3) (0.2)
Non-deductible goodwill amortization .......................... 0.3 0.4 0.4
Other, net .................................................... 0.3 0.4 0.4
Effective tax rate ............................................ 38.5% 39.1% 39.0%
Income taxes payable were $3,322,000 and $2,589,000 at December 31,
2000 and December 31, 1999, respectively, and are reported as a component of
accounts payable and accrued expenses.
NOTE 9 EMPLOYEE BENEFIT PLAN
The Company has an Employee Savings Plan (401(k)) under which
substantially all employees with more than 30 days of service are eligible to
participate. Under this plan, the Company makes matching contributions, subject
to a maximum of 2.5% of each participant's salary. Further, the Company provides
for a discretionary profit sharing contribution for all eligible employees. The
Company's contributions to the plan totaled $2,856,000 in 2000, $2,503,000 in
1999 and $2,289,000 in 1998.
NOTE 10 STOCK-BASED COMPENSATION AND INCENTIVE PLANS
Stock Performance Plan
The Company has adopted a stock performance plan, under which up to
1,800,000 shares of the Company's stock ("Performance Stock") may be granted to
key employees contingent on the employees' future years of service with the
Company and other criteria established by the Company's Compensation Committee.
Shares must be vested before participants take full title to Performance Stock.
Of the grants currently outstanding, specified portions will satisfy the first
condition for vesting based on increases in the market value of the Company's
common stock from the initial price specified by the Company. Awards satisfy the
second condition for vesting on the earlier of: (i) 15 years of continuous
employment with the Company from the date shares are granted to the participant;
(ii) attainment of age 64; or (iii) death or disability of the participant.
Dividends are paid on unvested shares of Performance Stock that have satisfied
the first vesting condition, and participants may exercise voting privileges on
such shares. At December 31, 2000, 1,140,979 shares had been granted under the
plan at initial stock prices ranging from $7.58 to $25.56. As of December 31,
2000, 1,009,824 shares had met the first condition for vesting; 23,952 shares
had satisfied both conditions for vesting and were subsequently distributed to
the participants.
The compensation element for Performance Stock is equal to the fair
market value of the shares at the date the first vesting condition is satisfied
and is expensed over the remaining vesting period. Compensation expense related
to this Plan totaled $483,000 in 2000, $1,263,000 in 1999 and $732,000 in 1998.
F-14
103
Employee Stock Purchase Plan
The Company has adopted an employee stock purchase plan ("the Stock
Purchase Plan"), which allows for substantially all employees to subscribe to
purchase shares of the Company's stock at 85% of the lesser of the market value
of such shares at the beginning or end of each annual subscription period. Of
the 1,500,000 shares authorized for issuance under the Stock Purchase Plan as of
December 31, 2000, 547,842 shares remained available and reserved for future
issuance.
Incentive Stock Option Plan
On April 21, 2000 the Company adopted an incentive stock option plan
that provides for the granting of stock options to certain key employees. The
objective of this plan is to provide additional performance incentives to grow
the Company's pre-tax earnings in excess of 15% annually. The Company is
authorized to grant options for up to 600,000 common shares, of which 576,000
were granted on April 21, 2000 at the most recent trading day's closing market
price of $19.34 per share. All of the outstanding options vest over a
one-to-10-year period, with a potential acceleration of the vesting period to
three to six years based on achievement of certain performance goals. All of the
options expire 10 years after the grant date. As of December 31, 2000, none of
the options were exercisable, and none were exercised or canceled during the
year.
The weighted average fair value of the incentive stock options granted
during 2000 estimated on the date of grant using the Black-Scholes
option-pricing model, was $9.47 per share. The fair value of these options
granted is estimated on the date of grant using the following assumptions:
dividend yield of 0.86%, expected volatility of 29.6%, risk-free interest rate
of 6.3%, and an expected life of 10 years.
Pro Forma Effect of Plans
The Company accounts for the Stock Purchase Plan and the Incentive
Stock Option Plan using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost is required. Had compensation expense for these
plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
----------------------------------------
(UNAUDITED)
(in thousands, except per share data)
2000 1999 1998
-------- -------- --------
Net income:
As reported ................ $ 33,186 $ 26,789 $ 23,562
Pro forma .................. 32,187 26,608 22,910
Net income per share:
As reported ................ $ 1.16 $ 0.94 $ 0.83
Pro forma .................. 1.13 0.93 0.81
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104
NOTE 11 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company's significant non-cash investing and financing activities
and cash payments for interest and income taxes are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Unrealized holding loss on available-for-sale securities net
of tax benefit of $1,552 for 2000, $395 for 1999, and
$770 for 1998 ......................................................... $ (2,427) $ (618) $ (1,204)
Notes payable issued for purchased customer accounts ..................... 611 1,458 4,991
Notes received on the sale of fixed assets and customer accounts ......... 448 1,305 1,249
Common stock issued/(cancelled) for stock acquisitions ................... (309) (1,685) (989)
Cash paid during the year for:
Interest ................................................................. 603 874 863
Income taxes ............................................................. 19,630 16,535 14,112
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain items of office equipment
under noncancelable operating lease arrangements expiring on various dates
through 2015. The facility leases generally contain renewal options and
escalation clauses based on increases in the lessors' operating expenses and
other charges. The Company anticipates that most of these leases will be renewed
or replaced upon expiration. At December 31, 2000, the aggregate future minimum
lease payments under all noncancelable lease agreements in excess of one year
were as follows:
YEAR ENDING DECEMBER 31,
------------------------
(in thousands)
2001................................................. $ 7,529
2002................................................. 7,260
2003................................................. 6,365
2004................................................. 5,229
2005................................................. 2,902
Thereafter........................................... 4,421
Total minimum future lease payments.................. $ 33,706
Rental expense in 2000, 1999 and 1998 for operating leases totaled
$8,217,000, $6,593,000 and $6,012,000, respectively.
The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the normal course of business. Management of the
Company does not believe that any such claims or lawsuits will have a material
effect on the Company's financial condition or results of operations.
NOTE 13 BUSINESS CONCENTRATIONS
Substantially all of the Company's premiums receivable from customers
and premiums payable to insurance companies arise from policies sold on behalf
of insurance companies. The Company, as broker and agent, typically collects
premiums, retains its commission and remits the balance to the insurance
companies. A significant portion of business written by the Company is for
customers located in Arizona, Florida and New York. Accordingly, the occurrence
of adverse economic conditions or an adverse regulatory climate in Arizona,
Florida and/or New York could have a material adverse effect on the Company's
business, although no such conditions have been encountered in the past.
For the years ended December 31, 2000, 1999 and 1998, approximately 7%,
14% and 17%, respectively, of the Company's revenues were from insurance
policies underwritten by one insurance company. Should this carrier seek to
terminate its arrangement with the Company, the Company believes other insurance
companies are available
F-16
105
to underwrite the business, although some additional expense and loss of market
share could possibly result. No other insurance company accounts for as much as
5% of the Company's revenues.
NOTE 14 SEGMENT INFORMATION
The Company's business is divided into four divisions: the Retail
Division, which markets and sells a broad range of insurance products to
commercial, professional and individual clients; the National Programs Division,
which develops and administers property and casualty insurance solutions for
both professional and commercial groups and trade associations nationwide; the
Service Division, which provides insurance-related services such as third-party
administration and consultation for workers' compensation and employee benefit
self-insurance markets; and the Brokerage Division, which markets and sells
excess and surplus commercial insurance primarily through non-affiliated
independent agents and brokers. The Company conducts all of its operations
within the United States of America.
The accounting policies of the reportable segments are the same as
those described in Note 1 of Notes to Consolidated Financial Statements. The
Company evaluates the performance of its segments based upon revenues and income
before income taxes. Intersegment revenues are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes
corporate-related items and, as it relates to segment profit, income and expense
not allocated to reportable segments.
YEAR ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------------------
RETAIL PROGRAMS SERVICE BROKERAGE OTHER TOTAL
--------- --------- --------- --------- --------- ---------
(in thousands)
Total revenues ........................ $ 146,647 $ 21,653 $ 18,825 $ 23,170 $ (589) $ 209,706
Investment income ..................... 2,353 1,471 277 782 (993) 3,890
Interest expense ...................... 1,943 24 -- 27 (1,404) 590
Depreciation .......................... 2,672 1,035 466 249 215 4,637
Amortization .......................... 7,022 188 4 1,273 32 8,519
Income (loss) before income taxes ..... 32,056 7,588 2,870 8,217 3,247 53,978
Total assets .......................... 189,136 54,539 5,970 57,025 (29,951) 276,719
Capital expenditures .................. 2,231 354 867 401 249 4,102
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------
Total revenues ........................ $ 135,505 $ 23,822 $ 14,936 $ 15,231 $ (1,103) $ 188,391
Investment income ..................... 2,106 1,187 221 355 (1,059) 2,810
Interest expense ...................... 1,280 -- -- -- (452) 828
Depreciation .......................... 2,559 1,172 384 181 215 4,511
Amortization .......................... 6,554 346 -- 785 40 7,725
Income (loss) before income taxes ..... 26,279 7,493 2,475 5,533 2,229 44,009
Total assets .......................... 160,486 56,908 6,172 32,362 (11,505) 244,423
Capital expenditures .................. 2,933 504 346 193 1,094 5,070
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
Total revenues ........................ $ 118,042 $ 26,737 $ 14,025 $ 13,611 $ (930) $ 171,485
Investment income ..................... 2,018 1,684 207 358 (613) 3,654
Interest expense ...................... 1,003 -- -- 12 (287) 728
Depreciation .......................... 2,131 1,165 319 139 175 3,929
Amortization .......................... 4,781 287 -- 786 35 5,889
Income (loss) before income taxes ..... 22,429 9,515 2,496 4,888 (725) 38,603
Total assets .......................... 136,599 59,686 5,421 29,850 9,640 241,196
Capital expenditures .................. 3,431 666 383 223 61 4,764
F-17
106
NOTE 15 SUBSEQUENT EVENTS (UNAUDITED)
Effective January 1, 2001, the Company acquired the insurance
agency-related operations and assets of Riedman Corporation ("Riedman") which
consists of more than 60 offices in 13 states, principally where the Company did
not formerly have an office location. The total purchase price, which is based
primarily on a multiple of Riedman's 2000 revenues, is expected to be
approximately $83 million and will be fully funded by a seven-year term loan
with a national banking institution. This acquisition will be accounted for
using the purchase method of accounting and includes a preliminary purchase
price allocation of $4 million allocated to fixed assets, $2.8 million allocated
to non-compete agreements and the remaining amounts allocated to purchased
customer accounts, acquisition costs and goodwill.
The following unaudited pro forma summary presents the consolidated
results of operations as if the Riedman acquisition had been made at the
beginning of the respective periods presented. These results do not purport to
be indicative of what would have occurred had the acquisition actually been made
as of such dates or of results which may occur in the future.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands of dollars, except per share data)
Revenues............................................ $ 263,976 $ 238,452 $ 215,662
Net Income.......................................... $ 31,815 $ 25,760 $ 21,931
Net Income Per Share................................ $ 1.11 $ 0.91 $ 0.77
On January 13, 2001, the Company issued 327,379 shares of its common
stock in exchange for all the outstanding stock of The Huval Companies, each a
Louisiana corporation, with seven offices in Louisiana. Additionally, on
February 15, 2001, the Company issued 95,588 shares of its common stock in
exchange for all the outstanding stock of Spencer & Associates, Inc. and a
related company, SAN of East Central Florida, Inc., both Florida corporations,
with offices in Melbourne and Titusville, Florida.
Had these acquisitions, which are accounted for under the
pooling-of-interest method of accounting, been consummated prior to year-end,
the Company's operating results would have been restated for all periods prior
to these acquisitions as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands of dollars, except per share data)
Revenues............................................. $ 219,738 $ 196,463 $ 178,480
Net Income........................................... $ 33,303 $ 27,246 $ 24,015
Net income per share................................. $ 1.14 $ 0.94 $ 0.83
F-18
107
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three months For the six months
ended June 30, ended June 30,
------------------------ -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
REVENUES
Commissions and fees........................................ $ 78,609 $ 54,881 $ 157,615 $ 112,195
Investment income........................................... 864 776 1,948 1,791
Other income................................................ 888 159 1,172 717
Total revenues......................................... 80,361 55,816 160,735 114,703
EXPENSES
Employee compensation and benefits.......................... 40,844 30,619 82,272 61,516
Other operating expenses.................................... 12,562 9,424 24,541 18,937
Depreciation................................................ 1,545 1,334 3,038 2,657
Amortization................................................ 4,081 2,141 7,410 4,309
Interest.................................................... 1,295 200 2,941 424
Total expenses......................................... 60,327 43,718 120,202 87,843
Income before income taxes.................................. 20,034 12,098 40,533 26,860
Income taxes................................................ 7,778 4,599 15,800 10,366
NET INCOME.................................................. $ 12,256 $ 7,499 $ 24,733 $ 16,494
Net Income Per Share
Basic.................................................... $ 0.41 $ 0.26 $ 0.83 $ 0.56
Diluted.................................................. $ 0.41 $ 0.25 $ 0.82 $ 0.56
Weighted Average Number of Shares Outstanding
Basic.................................... 29,786 29,383 29,766 29,353
Diluted.................................. 30,133 29,414 30,090 29,379
See notes to condensed consolidated financial statements.
F-19
108
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
June 30, December 31,
2001 2000
------------ ------------
ASSETS
Cash and cash equivalents........................................ $ 35,281 $ 33,895
Restricted cash.................................................. 40,332 26,297
Short-term investments........................................... 1,501 2,088
Premiums, commissions and fees receivable........................ 100,965 92,303
Other current assets............................................. 7,040 8,128
------------ ------------
Total current assets.......................................... 185,119 162,711
Fixed assets, net................................................ 22,275 15,628
Intangible assets, net........................................... 220,875 103,850
Investments...................................................... 7,772 5,809
Deferred income taxes............................................ 1,292 2,075
Other assets..................................................... 7,345 7,540
------------ ------------
Total assets.................................................. $ 444,678 $ 297,613
============ ============
LIABILITIES
Premiums payable to insurance companies.......................... $ 150,589 $ 126,059
Premium deposits and credits due customers....................... 9,501 8,347
Accounts payable and accrued expenses............................ 35,359 29,805
Current portion of long-term debt................................ 19,053 2,873
------------ ------------
Total current liabilities..................................... 214,502 167,084
Long-term debt...................................................... 82,832 5,665
Other liabilities................................................... 7,434 7,596
------------ ------------
Total liabilities............................................. 304,768 180,345
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share; authorized 140,000 shares;
issued 29,820 shares at 2001 and 29,693 shares at 2000........... 2,982 2,969
Retained earnings................................................... 133,183 111,804
Accumulated other comprehensive income.............................. 3,745 2,495
------------ ------------
Total shareholders' equity.................................... 139,910 117,268
------------ ------------
Total liabilities and shareholders' equity.................... $ 444,678 $ 297,613
============ ============
See notes to condensed consolidated financial statements.
F-20
109
BROWN & BROWN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
For the six months ended June 30,
----------------------------------
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................... $ 24,733 $ 16,494
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ................................................................ 3,038 2,657
Amortization ................................................................ 7,410 4,309
Compensation expense under performance stock plan ........................... 985 246
Deferred income taxes ....................................................... (17) (36)
Net gains on sales of investments, fixed assets and customer accounts ....... (860) (589)
Restricted cash, increase ................................................... (14,035) (2,235)
Premiums, commissions and fees receivable, increase ......................... (8,662) (678)
Other assets, decrease ...................................................... 1,283 2,178
Premiums payable to insurance companies increase ............................ 24,530 7,700
Premium deposits and credits due customers, increase (decrease) ............. 1,154 (1,801)
Accounts payable and accrued expenses, increase (decrease) .................. 5,554 (2,758)
Other liabilities, decrease ................................................. (162) (928)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................................... 44,951 24,559
--------- --------
CASH FLOWS FROM INVEST ACTIVITIES
Additions to fixed assets ....................................................... (6,789) (2,645)
Payments for businesses acquired, net of cash acquired .......................... (103,217) (15,103)
Proceeds from sales of fixed assets and customer accounts ....................... 857 1,058
Purchases of investments ........................................................ (1,005) (531)
Proceeds from sales of investments .............................................. 1,774 403
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................................... (108,380) (16,818)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt ...................................................... (20,772) (2,813)
Proceeds from long-term debt .................................................... 90,000 443
Cash dividends paid ............................................................. (4,413) (3,556)
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................. 64,815 (5,926)
--------- --------
Net increase in cash and cash equivalents ....................................... 1,386 1,815
Cash and cash equivalents at beginning of period ................................ 33,895 27,532
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................... $ 35,281 $ 29,347
========= ========
See notes to condensed consolidated financial statements.
F-21
110
BROWN & BROWN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These unaudited, condensed, and consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto set forth in the Company's Annual
Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A filed on March
27, 2001, for the year ended December 31, 2000.
The accompanying financial statements for all periods presented have
been restated to give effect to the following acquisitions: The Flagship Group,
Ltd., effective November 21, 2000; WMH, Inc. and Huffman & Associates, Inc.,
effective December 14, 2000; Mangus Insurance & Bonding, Inc., effective
December 29, 2000; Huval Insurance Agency, Inc. and its affiliated companies,
effective January 13, 2001; Spencer & Associates, Inc. and SAN of East Central
Florida, Inc., effective February 15, 2001; and The Young Agency, Inc.,
effective May 4, 2001.
The acquisitions referenced above have been accounted for under the
pooling-of-interests method of accounting, and accordingly, the Company's
condensed consolidated financial statements have been restated for all periods
prior to the acquisitions to include the results of operations, financial
positions and cash flows of those acquisitions.
Results of operations for the three- and six-month periods ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001.
NOTE 2 - BASIC AND DILUTED EARNINGS PER SHARE
All share and per-share information in the financial statements has
been adjusted to give effect to the 2-for-1 common stock split, effected as a
stock dividend, which became effective on August 23, 2000.
The following table sets forth the computation of basic net income per
common share and dilutive net income per common and common equivalent share (in
thousands, except per-share data):
For the three-month For the six-month period
period ended June 30, ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Income $ 12,256 $ 7,499 $ 24,733 $ 16,494
========== ========== ========== ==========
Weighted average number of common shares outstanding 29,786 29,383 29,766 29,353
Dilutive effect of stock options using the treasury stock method 347 31 324 26
---------- ---------- ---------- ----------
Weighted average number of common stock and common
Equivalent shares outstanding 30,133 29,414 30,090 29,379
========== ========== ========== ==========
Basic net income per share $ 0.41 $ 0.26 $ 0.83 $ 0.56
========== ========== ========== ==========
Dilutive net income per common and common equivalent share $ 0.41 $ 0.25 $ 0.82 $ 0.56
========== ========== ========== ==========
F-22
111
NOTE 3 - ACQUISITIONS
Purchases
During the second quarter of 2001, the Company acquired substantially
all of the assets of Parcel Insurance Plan, Inc., of St. Louis, Missouri and all
of the outstanding shares of The Harris Agency, Inc., of Manassas, Virginia, in
the second quarter of 2001. In addition, the Company acquired several books of
business.
Effective January 1, 2001, the Company acquired the insurance
agency-related operations and assets of Riedman Corporation ("Riedman"),
headquartered in Rochester, New York, which consist of more than 60 offices in
13 states, principally in locations in which the Company did not formerly have
an office. The total purchase price, including liabilities assumed, was
approximately $92 million and was fully funded by a seven-year term loan with a
national banking institution. This acquisition was accounted for using the
purchase method of accounting and includes a preliminary purchase price
allocation of $4 million allocated to fixed assets, $2.8 million allocated to
non-compete agreements and the remaining amounts allocated to purchased customer
accounts, acquisition costs and goodwill.
During the first quarter of 2001, the Company also acquired
substantially all of the assets of Ayers/Sierra Insurance Associates, LLP, with
offices in Tampa and St. Petersburg, Florida. In addition, the Company acquired
several books of business.
During the second quarter of 2000, the Company acquired substantially
all of the assets of Amerisys, Inc., of Oviedo, Florida. In addition, the
Company acquired several books of business.
During the first quarter of 2000, the Company acquired substantially
all of the assets of Risk Management Associates, Inc., of Fort Lauderdale,
Florida, and Program Management Services, Inc., of Altamonte Springs, Florida.
In addition, the Company acquired several books of business.
These acquisitions have been accounted for using the purchase method of
accounting. The results of operations for the acquired companies have been
combined with those of the Company since their respective acquisition dates.
Pooling-of-Interests
During the second quarter of 2001, the Company issued 571,429 shares of
its common stock for all of the outstanding stock of The Young Agency, Inc.,
headquartered in Syracuse, New York.
During the first quarter of 2001, the Company issued 327,379 shares of
its common stock in exchange for all of the outstanding stock of Huval Insurance
Agency, Inc. and its affiliated companies, headquartered in Lafayette,
Louisiana. Also during the first quarter of 2001, the Company issued 95,588
shares of its common stock in exchange for all of the outstanding stock of
Spencer & Associates, Inc. and SAN of East Central Florida, Inc., with offices
in Melbourne and Titusville, Florida.
During the second quarter of 2000, the Company issued 543,588 shares of
its common stock for all of the outstanding stock of Bowers, Schumann & Welch, a
New Jersey Corporation with offices in Washington, New Jersey and Bethlehem,
Pennsylvania.
These acquisitions have been recorded using the pooling-of-interests
method of accounting, and the Company's consolidated financial statements have
been restated for all prior periods presented.
NOTE 4 - LONG-TERM DEBT
In January 2001, the Company entered into a $90 million seven-year term
loan agreement with a national banking institution, bearing an interest rate
between the London Inter-Bank Offering Rate (LIBOR) plus 0.50% and LIBOR plus
1.00%, depending upon the Company's quarterly ratio of Funded Debt to Earnings
Before Interest,
F-23
112
Taxes, Depreciation and Amortization (EBITDA). The 90-day LIBOR rate was 3.83%
as of June 30, 2001. The loan was fully funded on January 3, 2001 and a balance
of $83,571,000 remained outstanding as of June 30, 2001. This loan is to be
repaid in twenty-eight equal quarterly installments that began in April 2001.
The Company also has a revolving credit facility with the institution, which
facility provides for available borrowings of up to $50 million, with a maturity
date of October, 2002. There were no borrowings against this line of credit at
December 31, 2000 or June 30, 2001.
The Company continues to maintain its credit agreement with a major
insurance company under which $3 million (the maximum amount available for
borrowings) was outstanding at both December 31, 2000 and June 30, 2001, at an
interest rate equal to the prime lending rate plus one percent (7.75% at June
30, 2001). In accordance with the amendment to the loan agreement dated August
1, 1998, the maximum amount available for borrowings will decrease by $1 million
each year in August until the facility expires in August 2003.
NOTE 5 - CONTINGENCIES
The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the normal course of business. Management of the
Company does not believe that any such claims or lawsuits will have a material
effect on the Company's financial condition or results of operations.
NOTE 6 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
FOR THE SIX-MONTH PERIOD
ENDED JUNE 30,
------------------------
(in thousands) 2001 2000
-------- --------
Cash paid during the period for:
Interest................................................ $ 2,999 $ 332
Income taxes............................................ 14,294 9,841
The Company's significant non-cash investing and financing activities are as
follows:
FOR THE SIX-MONTH PERIOD
ENDED JUNE 30,
------------------------
(in thousands) 2001 2000
-------- --------
Unrealized holding gain (loss) on available-for-sale
securities net of tax effect of $800 in 2001 and
tax benefit of $1,306 in 2000........................... $ 1,250 $ (2,042)
Debt issued or assumed for acquisition of
customer accounts....................................... 24,119 234
NOTE 7 - COMPREHENSIVE INCOME
The components of comprehensive income and accumulated other
comprehensive income are as follows (in thousands):
For the three-month For the six-month period
period ended June 30, ended June 30,
----------------------- ------------------------
2001 2000 2001 2000
---------- --------- ---------- ----------
Net Income $ 12,256 $ 7,499 $ 24,733 $ 16,494
Net change in unrealized holding gain (loss) on
available-for-sale securities 1,059 (255) 1,250 (2,042)
---------- --------- ---------- ---------
Comprehensive income $ 13,315 $ 7,244 $ 25,983 $ 14,452
========== ========= ========== =========
F-24
113
For the three-month For the six-month period
period ended June 30, ended June 30,
----------------------- ------------------------
2001 2000 2001 2000
---------- --------- ---------- ----------
Accumulated other comprehensive income at beginning of period $ 2,686 $ 3,135 $ 2,495 $ 4,922
Net change in unrealized holding gain (loss) on
available-for-sale securities, net of income taxes 1,059 (255) 1,250 (2,042)
---------- --------- ---------- ---------
Accumulated other comprehensive income at end of period $ 3,745 $ 2,880 $ 3,745 $ 2,880
========== ========= ========== =========
NOTE 8 - SEGMENT INFORMATION
The Company's business is divided into four divisions: the Retail
Division, which markets and sells a broad range of insurance products to
commercial, professional and individual clients; the National Programs Division,
which develops and administers property and casualty insurance and employee
benefits coverage solutions for professional and commercial groups and trade
associations nationwide; the Service Division, which provides insurance-related
services such as third-party administration and consultation for workers'
compensation and employee benefit self-insurance markets; and the Brokerage
Division, which markets and sells excess and surplus commercial insurance
primarily through non-affiliated independent agents and brokers. The Company
conducts all of its operations in the United States.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes
corporate-related items and income and expenses not allocated to reportable
segments.
(in thousands)
Six Months Ended June 30, 2001: Retail Programs Service Brokerage Other Total
-------- -------- ------- --------- ------- --------
TOTAL REVENUES $126,217 $8,815 $12,195 $15,031 $(1,523) $160,735
Investment income 1,962 676 179 364 (1,233) 1,948
Interest expense 5,483 14 126 5 (2,687) 2,941
Depreciation 2,070 330 250 138 250 3,038
Amortization 6,168 79 8 635 520 7,410
Income (loss) before income taxes 28,049 2,380 2,215 5,591 2,298 40,533
Total assets 371,613 51,313 7,856 64,650 (50,754) 444,678
Capital expenditures 2,406 165 211 296 3,711 6,789
Six Months Ended June 30, 2000: Retail Programs Service Brokerage Other Total
-------- -------- ------- --------- ------- --------
Total Revenues $83,479 $10,220 $10,471 $10,653 $ (120) $114,703
Investment income 1,201 654 131 346 (541) 1,791
Interest expense 947 8 -- -- (531) 424
Depreciation 1,658 511 236 114 138 2,657
Amortization 3,534 125 -- 636 14 4,309
Income (loss) before income taxes 17,310 3,072 1,469 3,475 1,534 26,860
Total assets 180,637 52,255 5,117 52,061 (20,847) 269,223
Capital expenditures 1,235 331 273 723 83 2,645
F-25
114
NOTE 9 - SUBSEQUENT EVENTS
The Company has signed a letter of intent to acquire Raleigh, Schwarz &
Powell, Inc., and Golden Gate Holdings, Inc., of Tacoma, Washington and San
Rafael, California, respectively. The transaction is anticipated to close by
August 31, 2001 and will be accounted for using the pooling-of-interests method
of accounting.
Effective July 18, 2001, the Company issued 83,733 shares of its common
stock in exchange for all of the outstanding stock of Finwall & Associates
Insurance, Inc., of Orlando, Florida. The acquisition was accounted for using
the pooling-of-interests method of accounting.
Effective ______, 2001, the Company issued 120,134 shares of its common
stock in exchange for all of the outstanding stock of Insurance Professionals,
Inc. and CompVantage, L.L.C., of Pryor, Oklahoma. The acquisition was accounted
for using the pooling-of-interests method of accounting.
The Company, effective July 3, 2001, issued 241,167 shares of its
common stock in exchange for all of the outstanding stock of Layne & Associates,
Ltd., of Las Vegas, Nevada. This transaction was accounted for using the
pooling-of-interests method of accounting.
Also, the Company purchased Abrahms Group Benefits, Inc. and Abrahms
Life Services, Inc. of Newington, Connecticut, effective July 1, 2001. This
acquisition was accounted for using the purchase method of accounting.
Additionally, the Company purchased the Meadowbrook Villari Agency of
Deerfield Beach, Florida, effective July 1, 2001. This acquisition was accounted
for using the purchase method of accounting.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as interest, foreign currency exchange rates, and
equity prices. The Company is exposed to market risk related to changes in
interest rates. The impact of interest expense on earnings, and the value of
market-risk sensitive financial instruments (primarily marketable equity
securities and long-term debt) are subject to change as a result of movements in
market rates and prices.
The Company's investment portfolio was valued at $9,273,000 as of June
30, 2001. This represents approximately 2.1% of total assets at that date. The
majority of the portfolio is comprised of various equity investments. The market
value changes are accounted for in Other Comprehensive Income in the equity
section of the balance sheet. Earnings on investments are not significant to the
Company's results of operations; therefore, any changes in interest rates and
dividends would have a minimal effect on future net income.
With respect to the Company's long-term debt, $86,571,000 was subject
to variable rates of interest at June 30, 2001. From the total amount of debt,
$83,571,000 was funded from a term loan in January 2001 and bears an interest
rate between LIBOR plus 0.50% and 1.00%. It is payable in twenty-eight equal
quarterly installments that began in April 2001. The remaining $3,000,000 of
variable rate debt comes from a credit agreement with a major insurance company
and bears an interest rate of prime plus one percent. It is payable in equal
annual installments in August 2001-2003. The remaining $15,314,000 of long-term
debt is subject to fixed rates of interest. This fixed rate debt matures in
various increments from 2001-2011. These fixed rate liabilities have been
discounted at rates that approximate the Company's current borrowing rates, and
as a result, the fair value of these liabilities approximates their carrying
value at June 30, 2001. Based on a hypothetical 1% change in interest rates, the
potential change to future net income would be approximately $866,000. Because
of favorable current market conditions, the Company does not use derivatives,
such as swaps or caps, to alter the interest characteristics of debt
instruments.
F-26
115
INDEPENDENT AUDITORS REPORT
The Stockholders and Board of Directors
Riedman Corporation:
We have audited the accompanying balance sheet of Riedman Insurance (a
division of Riedman Corporation) as of December 31, 2000 and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Riedman Insurance as
of December 31, 2000 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
/S/ KPMG LLP
Rochester, New York
February 23, 2001
F-27
116
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
Current assets:
Securities available for sale, at fair value (cost of $8,666,022) .............................. $ 43,053,795
Accounts receivable, less allowance for doubtful accounts of $250,000 .......................... 11,770,957
Prepaid expenses and other ..................................................................... 2,986,845
------------
Total current assets ........................................................................... 57,811,597
------------
Property, equipment and leasehold improvements:
Land ........................................................................................... 37,204
Buildings and improvements ..................................................................... 478,652
Leasehold improvements ......................................................................... 388,866
Furniture, fixtures and equipment .............................................................. 11,607,235
------------
12,511,957
Less accumulated depreciation and amortization ................................................. 9,339,419
------------
Net property, equipment and leasehold improvements ............................................. 3,172,538
------------
Other assets:
Investment in net assets of commercial real estate division .................................... 18,451,150
Notes receivable from non-consolidated subsidiary .............................................. 4,060,000
Investment in Daniel Green Company ............................................................. 1,356,900
Insurance expirations, at cost, less accumulated amortization of $6,960,079 .................... 10,071,740
Goodwill, at cost, less accumulated amortization of $487,504 ................................... 845,074
------------
Total other assets ................................................................................. 34,784,864
------------
$ 95,768,999
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable to banks .............................................................. $ 28,400,000
Current installments of long-term debt ......................................................... 43,723
Current installments of records and expirations debt ........................................... 837,576
Trade accounts payable ......................................................................... 13,034,680
Accrued expenses ............................................................................... 3,778,380
------------
Total current liabilities .......................................................................... 46,094,359
------------
Long-term debt, excluding current installments ................................................. 163,051
Long-term records and expirations debt, excluding current installments ......................... 2,645,684
------------
Total liabilities .................................................................................. 48,903,094
------------
Commitments and contingencies (notes 5, 9 and 12)
Stockholders' equity:
Voting common stock, $2 par value per share
Authorized: 10,000 shares; 9,310 shares issued and 9,065 shares outstanding ................ 18,620
Class A non-voting common stock, $2 par value per share
Authorized: 50,000 shares; 46,650 shares issued and 45,825 shares outstanding .............. 93,300
Additional paid-in capital ..................................................................... 1,154,052
Retained earnings .............................................................................. 11,359,048
Accumulated other comprehensive income - net unrealized gain on securities available for sale .. 34,387,773
------------
47,012,793
Less treasury stock of 245 voting common shares and
825 Class A non-voting common shares, at cost .................................................. (146,888)
------------
Total stockholders' equity ......................................................................... 46,865,905
------------
$ 95,768,999
============
See accompanying notes to financial statements
F-28
117
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
Commissions and fees ............................................................................... $ 54,070,340
Employee compensation and benefits ................................................................. (35,664,036)
Other operating expenses ........................................................................... (12,465,012)
Depreciation expense ............................................................................... (1,451,226)
Amortization expense ............................................................................... (1,649,649)
------------
Operating income ................................................................................... 2,840,417
------------
Other income (expense):
Investment income .............................................................................. 1,129,622
Gain on sale of securities ..................................................................... 1,286,632
Interest expense ............................................................................... (1,987,783)
Gain on lawsuit settlement ..................................................................... 637,500
Miscellaneous, net ............................................................................. 30,580
------------
1,096,551
------------
Income before income taxes ......................................................................... 3,936,968
Income tax expense ................................................................................. 130,358
------------
Net income ......................................................................................... $ 3,806,610
============
Pro forma data:
Income before income taxes ..................................................................... 3,936,968
Pro forma provision for income tax expense (unaudited) ......................................... 1,532,588
------------
Pro forma net income (unaudited) ................................................................... $ 2,404,380
============
See accompanying notes to financial statements
F-29
118
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000
CLASS A
VOTING NON-VOTING ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
---------- ---------- ---------- ----------
Balances at December 31, 1999 ............................................ $ 18,620 93,300 1,154,052 12,163,198
Comprehensive income:
Net income .......................................................... -- -- -- 3,806,610
Change in net unrealized gain on securities available for sale ...... -- -- -- --
Less: reclassification adjustment for gains included in net
income .............................................................. -- -- -- --
Total comprehensive income ...............................................
Distributions to stockholders, $84 per share ............................. -- -- -- (4,610,760)
Balances at December 31, 2000 ............................................ $ 18,620 93,300 1,154,052 11,359,048
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME -NET
UNREALIZED GAIN
ON SECURITIES TREASURY TOTAL
AVAILABLE STOCK, AT STOCKHOLDERS'
FOR SALE COST EQUITY
--------------- --------- -------------
Balances at December 31, 1999 ............................................ 28,946,854 (146,888) 42,229,136
Comprehensive income:
Net income .......................................................... -- -- 3,806,610
Change in net unrealized gain on securities available for sale ...... 6,727,551 -- 6,727,551
Less: reclassification adjustment for gains included in net
income .............................................................. (1,286,632) -- (1,286,632)
Total comprehensive income ............................................... 9,247,529
Distributions to stockholders, $84 per share ............................. -- -- (4,610,760)
Balances at December 31, 2000 ............................................ 34,387,773 (146,888) 46,865,905
See accompanying notes to financial statements
F-30
119
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
Cash flows from operating activities:
Net income .................................................................................... $ 3,806,610
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ............................................................. 3,100,875
Net realized gain on sale of securities ................................................... (1,286,632)
Changes in assets and liabilities:
Accounts receivable .................................................................. (5,802,248)
Prepaid expenses and other current assets ............................................ (997,727)
Trade accounts payable ............................................................... 4,383,540
Accrued expenses ..................................................................... 1,450,727
------------
Net cash provided by operating activities ........................................ 4,655,145
------------
Cash flows from investing activities:
Purchases of securities available for sale .................................................... (793)
Proceeds from sale of securities available for sale ........................................... 19,102,660
Decrease in investment in net assets of commercial real estate division ....................... 974,038
Collection on notes receivable ................................................................ 550,184
Issuance of notes receivable .................................................................. (710,000)
Capital expenditures .......................................................................... (199,387)
Purchase of insurance agencies ................................................................ (1,072,346)
Net cash provided by investing activities ........................................ 18,644,356
------------
Cash flows from financing activities:
Net decrease in short-term notes payable to banks ............................................. (18,600,000)
Repayment of long-term debt ................................................................... (1,230,580)
Distributions to stockholders ................................................................. (4,610,760)
Net cash used in financing activities ............................................ (24,441,340)
------------
Net decrease in cash and cash equivalents .......................................................... (1,141,839)
Cash and cash equivalents at beginning of year ..................................................... 1,141,839
------------
Cash and cash equivalents at end of year ........................................................... $ --
============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................................................. $ 1,900,438
Income taxes .............................................................................. $ 124,205
============
Supplemental disclosure of noncash investing and financing activities:
The Company purchased insurance agencies in 2000 for $940,000. The Company
partially funded these acquisitions through future long-term debt
obligations in the amount of $238,654.
See accompanying notes to financial statements.
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120
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(1) DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(A) DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
Riedman Corporation (the Company) is an insurance agency that
markets and sells primarily property and casualty and life and
health insurance with insurers on behalf of individual and
commercial clients in a variety of industries. The Company
operates a network of insurance agencies with offices in 13
states. The Company has its principal executive offices in
Rochester, New York and is engaged in the insurance agency
business in New York and throughout the United States. In
addition to its insurance division, the Company operates a
commercial real estate division and acts as a third party
administrator through a majority-owned subsidiary.
The shareholders of the Company signed an Asset Purchase
Agreement with Brown & Brown Inc. (Purchaser) dated September
11, 2000 to sell to the Purchaser substantially all of the
Company's insurance agency business-related assets, as
identified in the Agreement. The transaction was consummated
on January 3, 2001. The sale price will generally be
determined as a multiple of insurance revenue for a period
before and after the closing date.
These financial statements reflect the accounts of the
Company's insurance division (the Division) as reflected in
its books and records. The Division's financial statements do
not include the Company's commercial real estate business or
its investment in a third-party administrator subsidiary.
Neither of these excluded businesses has been sold to the
Purchaser. The Division's balance sheet at December 31, 2000
does include, however, certain assets which are not being
acquired by the Purchaser. Such assets include securities
available for sale, accounts receivable, investments and notes
receivable from non-consolidated subsidiary.
These financial statements have been prepared in conformity
with accounting principles generally accepted in the United
States of America. In preparing these financial statements,
management is required to make a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenditures and the disclosure of contingent
assets and liabilities. Actual results could differ from those
estimates.
(B) REVENUE RECOGNITION
Commissions earned on agency-billed accounts are recorded at
the later of the effective date of insurance coverage or the
billing date. Adjustments to commissions earned, including
policy cancellations, are recorded when effective. Commissions
earned on accounts billed directly by insurance companies, as
well as adjustments thereon, are recorded when received.
Contingent commissions are recorded when received.
(C) CASH AND CASH EQUIVALENTS
The Division considers all highly liquid investments with an
original maturity of three months or less to be cash
equivalents.
(D) SECURITIES
All of the Division's securities are classified as available
for sale and are recorded at fair value, with unrealized
holding gains and losses excluded from earnings and reported
as a separate component of stockholders' equity until
realized. Realized gains and losses from the sale of
securities are recognized on the trade date and determined
using the average cost method.
F-32
121
A decline in the fair value of any available for sale security
below cost that is deemed other than temporary results in a
charge to earnings and a new cost basis for the security.
Dividend and interest income are recognized when earned.
(E) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at
cost and are depreciated or amortized over the shorter of
their estimated useful lives or the lease term. Useful lives
range between 3 and 7 years.
(F) INVESTMENTS
The Company's 28% investment in the common stock of the Daniel
Green Company, a publicly-traded footwear company, is
accounted for under the equity method of accounting and is
considered a Division asset. The Division's investment balance
approximates its share of the investee's equity. The market
value of this investment at December 31, 2000 is $1,953,000.
The Division, from time to time, has advanced monies and other
assets to the Company's commercial real estate division. The
net impact of these intracompany transactions are reflected at
cost and reported as an investment in the net assets of the
real estate division.
(G) INSURANCE EXPIRATIONS, COVENANTS NOT TO COMPETE AND GOODWILL
The cost of purchased insurance expirations is being amortized
over the estimated ten-year period of benefit on a
straight-line basis.
Covenants not to compete are expensed over the terms of the
underlying agreements on a straight-line basis, which range
from five to ten years.
Goodwill represents the excess of the purchase price of
acquired insurance agencies over the fair value of the
acquired tangible and intangible assets less liabilities
assumed. Goodwill is amortized on a straight-line basis over
15 years.
The Division evaluates any possible impairment of these
intangible assets using estimates of undiscounted future cash
flows.
(H) INCOME TAXES
The Company has elected, under Internal Revenue Code Section
1362(a) and New York State Law Chapter 606, Laws of 1984
(Subchapter S), exemptions from Federal and state income taxes
at the corporate level. New York State and other states in
which the Company operates impose franchise taxes at the
corporate level in addition to the taxes imposed at the
shareholder level. Such taxes have been reflected in the
Division's financial statements as applicable.
(I) PRO FORMA DATA
The unaudited pro forma data presented in the statement of
income reflects the effects of income taxes as if the Division
had been a fully taxable entity for the period presented.
(J) ADVERTISING
Advertising costs are expensed as incurred and included within
selling, general and administrative expenses. Total
advertising expenses were $423,410 for the year ended December
31, 2000.
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(2) SECURITIES
The Division's available for sale securities portfolio is comprised of
readily marketable common stocks. The net unrealized gain of
$34,387,773 at December 31, 2000 includes gross unrealized gains and
losses of $36,149,064 and ($1,761,291), respectively.
On October 12, 1999, the Riedman Corporation entered into an agreement
with the Penobscot Shoe Company to acquire all of the issued and
outstanding stock of Penobscot for a total purchase price $16.3
million. The purchase of Penobscot by Riedman was of a temporary nature
as the original intent was to sell Penobscot to the Daniel Green
Company, an entity owned 28% by the Company.
On February 10, 2000, the Riedman Corporation entered into an agreement
with the Daniel Green Company to sell its entire interest in the
Penobscot Shoe Company for a total sales price of $17.8 million. The
sale was closed on March 31, 2000 with a realized gain on the sale of
the stock of $644,091 reported in gain on sale of securities for 2000.
As a result of the Company's 28% interest in Daniel Green, a
proportionate amount of the gain has been excluded from income in
preparation of the Division's financial statements.
(3) SHORT-TERM NOTES PAYABLE TO BANKS
The following is a summary of short-term notes payable to banks as of
December 31, 2000:
Demand note payable bearing interest at the lower of the
bank's prime rate less 2% or LIBOR plus 1% (7.5% at
December 31, 2000).................................................... $ 13,400,000
Revolving line of credit bearing interest at the lower of
prime rate less 2% or LIBOR plus 1%
(7.5% at December 31, 2000) and
maturing July 29, 2001................................................ 15,000,000
------------
$ 28,400,000
============
The collateral for the above secured revolving lines of credit consists
of marketable investment securities with a fair value of $26,709,318 at
December 31, 2000.
(4) LONG-TERM DEBT
The following is a summary of long-term debt as of December 31, 2000:
Unsecured noninterest-bearing note payable with
monthly principal payments of $2,960 due August 2005................. $ 165,763
Unsecured note payable with annual principal payments
of $8,202 plus interest at 8.5%, due September 2005.................. 41,011
Less current installments............................................... 206,774
Long-term debt, excluding current installments.......................... (43,723)
------------
$ 163,051
============
Maturities of long-term debt for each of the five years subsequent to
December 31, 2000 are as follows: 2001 through 2004, $43,723 and 2005,
$31,882.
(5) COVENANTS NOT TO COMPETE
At December 31, 2000, the Division is committed for payments under
covenants not to compete in connection with the acquisition of certain
assets of other insurance agencies as follows:
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123
2001....................................... $ 2,681,968
2002....................................... 2,166,522
2003....................................... 1,670,524
2004....................................... 1,249,022
2005....................................... 934,737
Thereafter................................. 893,750
-----------
$ 9,596,523
===========
Because future payments for covenants not to compete are contingent
upon the sellers fulfilling certain terms and conditions, these
intangible assets and corresponding obligations are not recorded by the
Division at the time of the acquisitions. Such payments amounted to
$2,180,881 in 2000.
At December 31, 2000, covenant payments in excess of the straight-line
recognition of covenant expenses of $2,843,100 were included in prepaid
expenses and other current assets. Covenant expenses in excess of cash
payments of $551,001 was included in accrued interest, commissions and
other expenses on the balance sheet.
(6) LONG-TERM RECORDS AND EXPIRATIONS DEBT
Periodically, the Division acquires certain insurance agencies for
their records and insurance expirations. The purchases are typically
funded through cash and debt payable to the sellers. The long-term
records and expirations debt at December 31, 2000 is $3,483,260 which
includes current installments of $837,576.
The payment terms are based upon the various agreements entered into by
the Division at the time of acquisition. The agreements have a stated
interest rate of 8.0%. Generally, the payments extend out 10 years,
which is the average useful life of the expiration lists.
At December 31, 2000, the Division is committed for principal payments
under these agreements as follows:
2001.................................. $ 837,576
2002.................................. 796,736
2003.................................. 735,027
2004.................................. 799,614
2005.................................. 169,383
Thereafter............................ 144,924
-----------
$ 3,483,260
===========
(7) PROFIT SHARING AND INCENTIVE SAVINGS PLAN
The Company has a defined contribution plan covering all full-time
employees who have met length of service requirements. Annual
contributions to the plan are at the discretion of the Board of
Directors. Division contributions were $1,347,020 in 2000.
The Company also sponsors a 401(k) plan covering all full-time
employees who have met length of service requirements. Participants are
permitted to make voluntary contributions to the plan up to 10% of
their compensation. The Division matches a portion of participant
contributions based upon a formula defined in the plan. Division
contributions to the plan amounted to $355,878 in 2000.
(8) INCOME TAXES
The Company is subject to state franchise tax as a Subchapter S
corporation. Tax expense amounted to $130,358 for 2000 has been
reflected in the Division's financial statements.
(9) OPERATING LEASES
The Division leases various office sites under lease agreements having
an original life of greater than one year. The future minimum lease
payments are as follows:
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2001........................................... $ 1,650,737
2002........................................... 941,864
2003........................................... 552,466
2004........................................... 180,009
2005 and thereafter............................ 31,591
------------
$ 3,356,667
============
Rental expense under these agreements amounted to $2,807,050 in 2000.
(10) ACQUISITIONS
The Division periodically acquires insurance agencies which includes
substantially all of the business assets of the entities acquired. The
acquisitions are accounted for under the purchase method of accounting,
and accordingly, the operating results have been included in the
Division's financial statements from the date of acquisition.
During 2000, the Division acquired the assets of five insurance
agencies for $940,000. The Division recorded fixed assets of $98,500,
insurance expirations of $799,000 and goodwill of $42,500 in connection
with these acquisitions. The Division is committed to make payments
under covenants not to compete associated with these acquisitions of
approximately $2,520,000.
In one of these insurance agency acquisitions, the asset purchase
agreement provides for contingent consideration based on a percentage
of the agency and direct bill commission generated by the business
acquired through April 30, 2001. Payments under this agreement of
$371,000 were made in 2000.
(11) RELATED PARTY TRANSACTIONS
During 2000 Riedman Insurance leased office space from the Company at a
cost of $253,200. The remaining lease term was assumed by the
Purchaser.
Notes receivable of $4,060,000 at December 31, 2000 are due from the
Company's non-consolidated subsidiary.
(12) RISKS AND UNCERTAINTIES
The Company is currently a defendant in two related claims regarding
the validity and timing of excess insurance coverage for a customer
that experienced loss due to a fire. In the first claim, the plaintiff
alleges that Riedman and the underwriter of an insurance policy owe
additional amounts from loss of business income and punitive damages.
In the second claim the underwriter is the plaintiff and claims that a
Riedman employee inappropriately documented the excess coverage.
Riedman vigorously denies the claim and the St. Paul Insurance Company
is providing the defense for Riedman. No determination has been made in
any of the claims. Management believes the outcome will not have a
material adverse effect on the financial statements.
F-36
125
ANNEX A
AGREEMENT AND
PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as
of July 25, 2001 (the "Agreement Date"), is made and entered into by and among
BROWN & BROWN, INC., a Florida corporation ("Brown & Brown"), BROWN & BROWN OF
WASHINGTON, INC., a Washington corporation and wholly-owned subsidiary of Brown
& Brown, the principal business address of which is 220 South Ridgewood Avenue,
Daytona Beach, Florida 32114 ("Merger Sub"; Merger Sub and Brown & Brown are
sometimes hereinafter referred to collectively as the "Buyers"); RALEIGH,
SCHWARZ & POWELL, INC., a Washington corporation, the principal business address
of which is 1201 Pacific Avenue, Suite 1000, Tacoma, Washington 98402 (together
with its wholly-owned subsidiaries, the "Target"); and the RALEIGH, SCHWARZ &
POWELL, INC. EMPLOYEE STOCK OWNERSHIP PLAN (the "ESOP") (Target, the ESOP and
the Other Shareholders (as defined below) are sometimes hereinafter referred to
collectively as the "Sellers").
BACKGROUND
The ESOP and the other shareholders listed in Schedule 3.3 hereto (the
"Other Shareholders" and, collectively with the ESOP, the "Shareholders") own
all of the shares of outstanding capital stock of Target (the "Target Shares").
Target is engaged primarily in the insurance agency business with its principal
office in the State of Washington. The respective Boards of Directors of Brown &
Brown, Merger Sub and Target have determined that it is advisable and in the
best interests of the companies and their respective stockholders, and the
trustees of the ESOP (the "Trustees") have determined that it is advisable and
in the best interests of the ESOP's participants (the "ESOP Participants"), that
Merger Sub merge with and into Target pursuant to this Agreement with Target
being the surviving corporation (the "Merger"). Brown & Brown, Merger Sub,
Target and the ESOP desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also prescribe
certain conditions to the Merger. It is the intent of the parties hereto that
the transactions contemplated in this Agreement be treated as a
pooling-of-interests transaction for accounting purposes and as a tax-free
reorganization as described in Section 368(a)(2)(E) of the Internal Revenue Code
of 1986, as amended (the "Code"). In addition, pursuant to an Agreement and Plan
of Reorganization of this date (the "Golden Gate Merger Agreement") among Brown
& Brown, Golden Gate Holdings, Inc., a California corporation and affiliate of
Target ("Golden Gate"), and certain other parties, a wholly-owned subsidiary of
Brown & Brown will merge with and into Golden Gate.
THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein, the parties agree as
follow:
ARTICLE 1
THE MERGER
Section 1.1 THE MERGER. At the Effective Time (as defined in
SECTION 1.2 hereof), upon the terms and subject to the conditions set forth in
this Agreement, Merger Sub shall be merged with and into Target in accordance
with the relevant provisions of the Washington Business Corporation Act, Title
23B R.C.W. (the "WBCA"). As a result of the Merger, the separate existence of
Merger Sub shall cease and Target shall continue as the surviving corporation of
the Merger (the "Surviving Corporation").
Section 1.2 CONSUMMATION OF MERGER. As promptly as practicable
after the satisfaction or, if permissible, waiver in writing of the conditions
set forth in ARTICLE 8 hereof, the parties hereto shall cause the Merger to be
consummated by filing with the Washington Secretary of State an Agreement and
Plan of Merger and Articles of Merger, substantially in the form of Exhibit 1.2
and Exhibit 1.3 (respectively, the "Plan of Merger" and the "Articles of
Merger", and collectively, the "Merger Documents"), which Merger Documents shall
be in such form as required by, and prepared, executed and acknowledged in
accordance with, the relevant provisions of the WBCA (the time of such filing
being herein referred to as the "Effective Time" and the date of such filing
being herein referred to as the "Merger Date").
Section 1.3 EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of the
WBCA. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, except as otherwise provided herein, the identity, all of
the property (whether real,
Annex A-1
126
personal or mixed), rights, privileges, powers, immunities, franchises, debts,
liabilities and duties of Merger Sub shall be merged with, fully vest in and
become the rights, privileges, powers, immunities, franchises, debts,
liabilities and duties of the Surviving Corporation and the separate existence
of Merger Sub shall cease.
Section 1.4 ARTICLES OF INCORPORATION; BYLAWS. At the Effective
Time, the Articles of Incorporation of Merger Sub shall be the Articles of
Incorporation of Surviving Corporation except that Article I of the Articles of
Incorporation shall be amended to read as follows: "The name of the corporation
is Brown & Brown of Washington, Inc." and the Bylaws of the Surviving
Corporation shall be the Bylaws of Merger Sub as in effect immediately prior to
the Effective Time (except as set forth in SECTION 1.6 hereof), in each case
until duly amended in accordance with applicable law.
Section 1.5 DIRECTORS AND OFFICERS.
(a) At the Effective Time, the directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, to hold office in accordance with the Articles of Incorporation
and Bylaws of the Surviving Corporation, until their successors are duly elected
or appointed and qualified. The directors of the Surviving Corporation
immediately prior to the Effective Time shall resign effective as of the
Effective Time.
(b) At the Effective Time, the officers of the Surviving
Corporation shall be the officers of Merger Sub immediately prior to the
Effective Time, in each case until their respective successors are duly elected
or appointed and qualified. The officers of the Surviving Corporation
immediately prior to the Effective Time shall resign effective as of the
Effective Time.
Section 1.6 NAME OF SURVIVING CORPORATION. As of the Effective
Time, the Articles of Incorporation of the Surviving Corporation shall provide
that the name of the Surviving Corporation shall be "Brown & Brown of
Washington, Inc.", a Washington corporation. The Buyers shall notify the
Washington Insurance Commissioner of any changes in the corporate name or
officers of Target promptly after the Merger Date. As of the Effective Time, the
Surviving Corporation shall file with the Department of Licensing of the State
of Washington a "Master Application" form registering the names listed in
Schedule 3.9(b) as tradenames for the conduct of the Surviving Corporation's
business.
Section 1.7 MERGER CONSIDERATION. (a) Subject to the satisfaction
of the terms and conditions of this Agreement, and by virtue of the Merger and
without any further action on the part of the Shareholders, all of the Target
Shares will be converted into the right to receive, and the Shareholders shall
receive, based upon their respective interests in Target as set forth on
Schedule 3.3 hereto, a number shares of the common stock of Brown & Brown
(collectively, the "Brown & Brown Shares") equal to:
(i) the difference of (A) $29,903,761 minus (B)
66.62% of the amount by which the Consolidated Total Net Worth (as defined
below) is less than Thirteen Million Dollars ($13,000,000.00), divided by
(ii) the average closing price for a share of
common stock of Brown & Brown, as reported on the New York Stock Exchange, in
the twenty (20) day period ending at the close of business on the third (3rd)
business day in advance of the Closing Date (as defined in SECTION 2.1 hereof)
(the "Average Price"), which shall be set forth on Schedule 1.7(a)(ii) delivered
by Buyers to Sellers at the Closing [FOR EXAMPLE, IF THE CLOSING OCCURS ON A
FRIDAY, THE TWENTY-DAY PERIOD SHALL END AT THE CLOSE OF BUSINESS ON THE
PRECEDING TUESDAY, PROVIDED IT IS A BUSINESS DAY] (such aggregate Brown & Brown
Shares are sometimes referred to herein as the "Merger Consideration").
(b) For purposes of this Agreement, the term
"Consolidated Total Net Worth" means, as of the Closing Date, the consolidated
total assets minus total liabilities of Target and Golden Gate, as determined by
Buyers in accordance with generally accepted accounting principles and Buyers'
standard methodology, and after taking into account appropriate reductions
including, but not limited to, (i) the purchase of the errors and omissions
(E&O), employment practices liability (EPL), employee dishonesty, directors' and
officers' liability (D&O) and fiduciary liability tail coverage policies
required under SECTION 7.9 hereof and the corresponding section of the Golden
Gate Merger Agreement, (ii) all accruals for any transaction-related fees and
expenses incurred or to be incurred by Target or Golden Gate (including, without
limitation, those expenses relating to the termination, winding down and
liquidation of the ESOP), and (iii) all distributions to the Shareholders or the
shareholders of
Annex A-2
127
Golden Gate (the term "distributions" shall not include contributions to the
ESOP through the Closing Date). The Consolidated Total Net Worth shall be
calculated not more than three days prior to the Closing Date and set forth on
Schedule 1.7(b) delivered by Buyers to Sellers at the Closing.
(c) Dissenters' Rights. Notwithstanding any provision of
this Agreement to the contrary, each outstanding Target Share, the Shareholder
of which has demanded and perfected such Shareholder's right to dissent from the
Merger and to be paid the fair value of such shares in accordance with Sections
23B.13.010 et seq. of the WBCA and, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights, shall not be converted
into or represent a right to receive the Merger Consideration, but the
Shareholder thereof shall be entitled only to such rights as are granted by the
WBCA. Target shall give Brown & Brown (i) prompt notice of any notice of intent
to demand fair value for any Target Shares, withdrawals of such notices, and any
other instruments served pursuant to the WBCA or any other provisions of
Washington law and received by the Target, and (ii) the opportunity to conduct
jointly all negotiations and proceedings with respect to demands for fair value
of shares under the WBCA. Target shall not, except with the prior written
consent of Brown & Brown, voluntarily make any payment with respect to any
demands for fair value of shares of the Target Shares or offer to settle or
settle such demands.
Section 1.8 DELIVERY OF BROWN & BROWN SHARES. (a) The Brown &
Brown Shares shall be issued as Merger Consideration to the Shareholders as
follows:
(i) ten percent (10%) of the Brown & Brown
Shares (including those to be issued to the ESOP) (the "Escrowed Shares"), shall
be delivered to a mutually agreeable escrow agent (the "Escrow Agent") as
partial security for the indemnification obligations of the Shareholders under
ARTICLE 9 hereof and the Indemnification Agreement (as defined below). These
Escrowed Shares, subject to any reduction in number as may be necessary to
satisfy the Shareholders' indemnification obligations, shall be delivered to the
Shareholders one (1) year after the Closing Date, in accordance with the terms
of the Escrow Agreements (as defined below). The Escrow Agreements shall permit
the Escrow Agent to sell or transfer the Escrowed Shares (subject to the
restrictions on resale or transfer described in SECTION 3.24(B) hereof or in
SECTION 1.12 hereof), provided that the proceeds of any such sale or transfer
shall continue to be held pursuant to the Escrow Agreements until one (1) year
after the Closing Date and that such proceeds shall be invested in any deposit
which is fully insured by the Federal Deposit Insurance Corporation, commercial
paper given the highest rating by Moody's Investors Service, Inc., and Standard
& Poor's Corporation at the time of investment or money market funds investing
primarily in the foregoing; and
(ii) the remainder of the Brown & Brown Shares,
shall be delivered to the Shareholders at the Closing (as defined in SECTION 2.1
hereof).
(b) The Brown & Brown Shares to be issued to the
Shareholders as Merger Consideration shall be issued in accordance with the
Shareholders' respective ownership percentages in Target as of the Closing Date,
as set forth in Schedule 3.3 hereto.
(c) The parties agree that the dollar value of each Brown
& Brown Share shall be the Average Price for all purposes in determining (i) the
number of Brown & Brown Shares to be issued under SECTIONS 1.7 and 1.8(A)(II)
hereof, (ii) the number of Brown & Brown Shares to be delivered to the Escrow
Agent under this SECTION 1.8(A)(I), or (iii) the number of Escrowed Shares that
Buyers may recover to satisfy an indemnifiable claim, notwithstanding the actual
market value of such shares (in each case with respect to clauses (I), (II) or
(III), as adjusted for any stock splits or stock dividends).
(c) No certificate representing fractional Brown & Brown
Shares will be issued in the Merger and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of Brown &
Brown. In lieu of any such fractional shares, the Shareholders will each be
entitled to receive from Brown & Brown (after aggregating all fractional shares
of Brown & Brown Shares issuable to such Shareholder) Brown & Brown Shares
rounded upward or downward to the nearest whole share with a factor of one-half
(1/2) or greater rounded up to the nearest whole share.
Section 1.9 EFFECT ON TARGET SHARES. From and after the Merger
Date, the Target Shares shall be canceled and terminated, shall represent solely
the right to receive the Merger Consideration in respect of the Target Shares,
and shall have no other rights. No interest shall accrue or be payable on any
portion of the Merger Consideration.
Annex A-3
128
Section 1.10 BROWN & BROWN SHARES. All Brown & Brown Shares
received by the Shareholders pursuant to this Agreement shall, except for
restrictions on resale or transfer described in SECTION 3.24(B) hereof or
in SECTION 1.12 hereof, have the same rights as all of the other shares of
outstanding Brown & Brown common stock by reason of the provisions of the
Articles of Incorporation of Brown & Brown or as otherwise provided by the
Florida Business Corporation Act. All voting rights of such Brown & Brown Shares
received by the Shareholders shall be fully exercisable by the Shareholders and
the Shareholders shall not be deprived nor restricted in exercising those
rights.
Section 1.11 ACCOUNTING AND TAX TREATMENT. The parties agree
(a) to structure this transaction as a tax-free exchange, and (b) as more fully
described in SECTION 7.6 of this Agreement, to treat this transaction for
accounting purposes as a pooling-of-interests transaction and to take all
actions necessary to characterize the transaction as such.
Section 1.12 REGISTRATION OF BROWN & BROWN SHARES; MEETING OF
TARGET SHAREHOLDERS.
(a) S-4 Registration Statement. Brown & Brown shall (with
Target's diligent cooperation) prepare and file with the Securities and Exchange
Commission (the "SEC"), as promptly as practicable, a registration statement on
Form S-4 (or such other or successor form as shall be appropriate) which
complies with applicable SEC requirements (the "Form S-4") to register under the
Securities Act (as defined below) the issuance of all Brown & Brown Shares to be
issued in or as a result of the Merger. Brown & Brown shall use its commercially
reasonable best efforts to cause the S-4 Registration Statement to become
effective as soon thereafter as practicable. Target shall furnish all
information concerning itself to Brown & Brown as Brown & Brown may reasonably
request in connection with the preparation of the Form S-4. Target will review
the Form S-4 and any amendments thereto so that each will not, to the Knowledge
(as defined SECTION 11.2 of this Agreement) of Target, at the time the Form S-or
any such amendment is filed with the SEC or at the time the Form S-4 is declared
effective, contain any untrue statement of a material fact relating to Target or
omit to state any material fact relating to Target required to be stated therein
or necessary in order to make the statements therein relating to Target, in
light of the circumstances under which they were made, not misleading. If at any
time any event or information is discovered by Target which Target should
reasonably expect would be required to be set forth in an amendment to the Form
S-4, Target will promptly inform Brown & Brown.
(b) Meeting of Target Shareholders. Target will take all
action necessary in accordance with Washington law and its articles of
incorporation and bylaws to convene a meeting of the Shareholders (the "Target
Shareholders Meeting") as promptly as practicable after the S-4 Registration
Statement has been declared effective to consider and vote upon the approval of
this Agreement and the Merger. Target will consult with Brown & Brown regarding
the date of the Target Shareholders Meeting and will use its reasonable best
efforts not to postpone or adjourn (other than for the absence of a quorum) the
Target Shareholders Meeting without the consent of Brown & Brown. Target's Board
of Directors shall recommend approval of this Agreement and the Merger and shall
use its best efforts to solicit from the Shareholders votes or consents in favor
of the Merger and will take all other action necessary or advisable to secure
the vote or consent of the Shareholders required to effect the Merger.
ARTICLE 2
CLOSING, ITEMS TO BE DELIVERED,
FURTHER ASSURANCES, AND EFFECTIVE DATE
Section 2.1 CLOSING. Subject to SECTION 10.1(E) hereof, the
consummation of the Merger under this Agreement (the "Closing") will take place
at 9:00 a.m., Pacific Standard Time, on the date on which all of the closing
conditions set forth in ARTICLE 8 of this Agreement are satisfied including,
without limitation, the filing of those documents or instruments necessary to
effect the Merger pursuant to applicable state law (the "Closing Date"), at the
offices of Vandeberg Johnson & Gandara, 1201 Pacific Avenue, Suite 1900, Tacoma,
Washington, unless another date or place is agreed to in writing by the parties
hereto.
Section 2.2 CLOSING OBLIGATIONS. At the Closing, together with
this executed Agreement (including those Schedules, in form and substance
satisfactory to Buyers, required under this Agreement to delivered by the
Sellers to Buyers):
(a) The Sellers will deliver to Buyer:
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(i) certificates representing the Target Shares
to Buyers, which certificates have been marked "CANCELED" by Target;
(ii) a release in form and substance as set forth
in Exhibit 2.2(a)(ii) (the "Release"), executed by each of the Shareholders;
(iii) an indemnification agreement in form and
substance as set forth in Exhibit 2.2(a)(iii) (the "Indemnification Agreement"),
executed by each of the Other Shareholders;
(iv) an escrow agreement in form and substance as
set forth in Exhibit 2.2(a)(iv) (the "Shareholder Escrow Agreement"), executed
by each of the Other Shareholders;
(v) an escrow agreement in form and substance as
set forth in Exhibit 2.2(a)(v) (the "ESOP Escrow Agreement" and together with
the Shareholder Escrow Agreement, the "Escrow Agreements"), executed by the
ESOP;
(vi) written opinion of counsel of Target dated
as of the Closing Date in form and substance as set forth in Exhibit 2.2(a)(vi)
with only such changes therein as shall be in form and substance reasonably
satisfactory to Buyers (the "Opinion of Target's Counsel");
(vii) non-competition agreements in form and
substance as set forth in Exhibit 2.2(a)(vii) (each a "Non-Competition
Agreement" and collectively, the "Non-Competition Agreements"), executed by
those Shareholders and ESOP Participants listed in Schedule 2.2(a)(vii) (each a
"Shareholder/Employee" and collectively, the "Shareholder/Employees");
(viii) Buyers' standard, at-will employment
agreement, which employment agreements contain confidentiality, non-solicitation
provisions (each a "Standard Employment Agreement" and collectively, the
"Standard Employment Agreements"), executed by Target's employees whom Buyers
wish to retain after Closing;
(ix) pursuant to Washington community property
law, executed written consents to this Agreement and the Merger contemplated
herein from the respective spouses of the Other Shareholders, in form and
substance as set forth in Exhibit 2.2(a)(ix) (collectively, the "Spousal
Consents");
(x) the Merger Documents, duly executed by
Target, to be filed with the Secretary of State of the State of Washington;
(xi) written consent for this Merger transaction,
in form and substance reasonably acceptable to the Buyers, obtained from those
parties identified on Schedule 3.5 (collectively, the "Required Consents");
(xii) (A) a copy of a favorable fairness opinion,
delivered to an independent fiduciary retained to represent the ESOP
Participants' interests in the Merger (the "ESOP Fiduciary"), stating that the
Merger would be fair to the ESOP and the ESOP's Participants and beneficiaries
from a financial point of view (the "ESOP Opinion"), and (B) a copy of a letter
from the ESOP Fiduciary to the ESOP Participants, recommending their approval of
the Merger (together with the ESOP Opinion, the "ESOP Approvals");
(xiii) resolutions of Target's Board of Directors,
duly adopted and executed in accordance with the relevant provisions of the
WBCA, (A) setting forth that the Merger, this Agreement and the transactions and
other agreements, instruments and documents contemplated herein including,
without limitation, those agreements, documents, and instruments set forth in
subsections (II) through (XII) of this SECTION 2.2(A) (collectively, the
"Ancillary Documents"), be recommended to the Shareholders for their approval,
and (B) evidencing to Buyers' satisfaction that Target has terminated (x) all of
its Employee Benefits Plans including, without limitation, the ESOP (except
Target's Employee Welfare Benefit Plans, as defined in SECTION 3.20(B) hereof,
or Target's deferred compensation (Circle K) plan), with such termination
effective prior to and contingent upon the Closing Date, with directions to
Target's legal counsel to apply for determination letters from the Internal
Revenue Service with respect to the termination of the ESOP and Target's 401(k)
Plan, respectively, (y) all of its Employee Welfare Benefit Plans effective
immediately following Closing, and (z) with respect to clauses (X) and (Y), the
Target shall also deliver a form Notice of Intent to
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Terminate, satisfactory to Buyers, regarding the termination of Target's
Employee Benefit Plans, which Notice shall be delivered to all participants and
beneficiaries under Target's Employee Benefit Plans promptly after Closing (the
"Target Board Resolutions");
(xiv) resolutions of the Shareholders (including
the ESOP voting as directed by the ESOP Participants to the extent of their
interests in the Target Shares), duly adopted in accordance with the relevant
provisions of the WCBA, approving the Merger and the other transactions
contemplated herein, the Agreement, and the Ancillary Documents (the
"Shareholder Resolutions");
(xv) a certificate executed by the chief
executive officer of Target representing and warranting to the Buyers that each
of the Target's representations and warranties hereunder was accurate in all
respects as of the date of this Agreement and is accurate in all respects as of
the Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Schedules that were delivered by the Target to Buyers prior
to the Closing Date); and
(xvi) a certificate executed by the Trustees
representing and warranting to the Buyers that each of the ESOP's
representations and warranties hereunder was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the Closing Date as
if made on the Closing Date (giving full effect to any supplements to the
Schedules that were delivered by the Target or the ESOP to the Buyers prior to
the Closing Date).
(b) Buyers shall deliver to the Sellers:
(i) certificates representing the number of
Brown & Brown Shares to be issued to the Shareholders at the Closing pursuant to
SECTION 1.8(A)(II) hereof;
(ii) the Escrow Agreements and the
Indemnification Agreement, executed by Buyers;
(iii) the Non-Competition Agreements, executed by
Brown & Brown;
(iv) resolutions of the Buyers' Boards of
Directors, duly adopted and executed in accordance with the relevant provisions
of Florida and Washington law, approving the Merger, this Agreement and the
transactions and other agreements, instruments and documents contemplated
herein, and approving the issuance of the Brown & Brown Shares to the
Shareholders (the "Buyers' Board Resolutions");
(v) written opinion of counsel dated as of the
Closing Date in substantially the form of Exhibit 2.2(b)(ii) with only such
changes therein as shall be in form and substance reasonably satisfactory to
Sellers (the "Opinion of Buyers' Counsel");
(vi) the Merger Documents, duly executed by
Merger Sub, to be filed with the Secretary of State of the State of Washington;
and
(vii) a certificate executed by Buyers to the
effect that, except as otherwise stated in such certificate, each of Buyers'
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Schedules that were delivered by Buyers to
Target prior to the Closing Date).
Section 2.4 MUTUAL PERFORMANCE. At or prior to the Closing, the
parties hereto shall also deliver to each other the agreements, certificates,
and other documents and instruments referred to in ARTICLES 6 and 7 hereof.
Section 2.5 THIRD PARTY CONSENTS. To the extent that the Merger
may not be consummated hereunder without the consent of another person which has
not been obtained, this Agreement shall not constitute an agreement to
consummate such Merger if an attempted transfer would constitute a breach
thereof or be unlawful, and the Sellers, at their expense, shall use their best
efforts to obtain any such required consent(s) as promptly as possible. If any
such consent shall not be obtained or if any attempted transfer would be
ineffective or would impair Buyers' rights so that Buyers would not in effect
acquire the benefit of all such rights, the Shareholders, to the maximum extent
permitted by law, shall act after the Closing as Buyers' agent in order to
obtain for it the benefits thereunder and shall cooperate, to the
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maximum extent permitted by law, with Buyers in any other reasonable arrangement
designed to provide such benefits to Buyers.
Section 2.6 EFFECTIVE DATE. The Effective Date of this Agreement
and all related instruments executed at the Closing shall be the Merger Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE TARGET
The Target represents and warrants to the Buyers as follows:
Section 3.1 ORGANIZATION. Target is a corporation duly organized,
validly existing and in good standing under the laws of Washington and its
status is active. Target has all requisite corporate power and authority and all
necessary governmental approvals to own, lease, and operate its properties and
to carry on its business as now being conducted. Target is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where the conduct of its insurance agency business requires it to be so
qualified.
Section 3.2 AUTHORITY. The Target has the requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on behalf of the Target, including
the approval of the Board of Directors of Target, subject only to the approval
of this Agreement by the Shareholders. This Agreement has been duly executed and
delivered by the Target and constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization or similar laws from time to time in
effect relating to or affecting the enforcement of creditors' rights generally
and general equitable principles.
Section 3.3 CAPITALIZATION. Schedule 3.3 sets forth the number of
Target Shares and the corresponding ownership percentage in Target beneficially
held by each of the Shareholders (including a schedule showing the number of
Target Shares allocated to each ESOP Participant within the ESOP). The Target
Shares constitute all of the issued and outstanding shares of capital stock of
Target. All of the Target Shares have been duly issued and are fully paid and
nonassessable. All of the Target Shares are owned and held by the Shareholders,
free and clear of all liens, encumbrances or other third-party rights of any
kind whatsoever except as described in Schedule 3.3. There are no outstanding
agreements, options, rights or privileges, whether preemptive or contractual, to
acquire shares of capital stock or other securities of Target except as
described in Schedule 3.3.
Section 3.4 CORPORATE RECORDS. The Target has delivered, or shall
deliver prior to the Closing Date, to Buyers correct and complete copies of the
Articles of Incorporation and Bylaws of Target, each as amended to date. The
minute books containing the records of meetings of the shareholders, board of
directors, and any committees of the board of directors, the stock certificate
books, and the stock record books of Target are correct and complete and have
been made available for inspection by Buyers. Target is not in default under or
in violation of any provision of its Articles of Incorporation or Bylaws.
Section 3.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set
forth in Schedule 3.5, neither the execution, delivery or performance of this
Agreement by the Target nor the consummation by it of the transactions
contemplated hereby nor compliance by it with any of the provisions hereof will
(a) conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws of Target, (b) except with respect to the filing of the
Merger Documents with the Secretary of State of Washington and the filing of
change of control information or license transfer documents with the insurance
regulators in the states (identified in Schedule 3.5) in which Target or its
employees are licensed to engage in the insurance agency business, require any
filing with, or permit, authorization, consent, or approval of, any court,
arbitral tribunal, administrative agency or commission, or other governmental or
regulatory authority or agency (each a "Governmental Entity"), except where the
failure to obtain such permits, authorizations, consents, or approvals or to
make such filings would not, individually or in the aggregate, have a material
adverse effect on the business, operation, assets, properties, liabilities,
results of operations, ownership, or financial condition of Target (a "Material
Adverse Effect"), (c) result in a violation or breach of, or constitute a
default (or give rise to any right of termination, amendment, cancellation, or
acceleration) under, any of the terms, conditions, or provisions of any note,
bond, mortgage, lease, license, agreement, or other instrument or obligation to
which Target is a party or by which Target or any of its properties or assets
may be bound, or (d) violate any order, writ, injunction, decree, statute, rule
or
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regulation applicable to the Target, or any of its properties or assets, except
in the case of (C) or (D) above for violations, breaches or defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
Section 3.6 NO THIRD PARTY OPTIONS. Except as described in
Schedule 3.3, there are no existing agreements, options, commitments, or rights
with, of or to any person to acquire any of Target's capital stock, assets,
properties or rights, or any interests therein.
Section 3.7 FINANCIAL STATEMENTS. The Target has delivered to
Buyers true and complete copies of (a) Target's balance sheet as of December 31,
2000 and the related statement of income for the twelve (12) months then ended,
and (b) Target's unaudited balance sheet at June 30, 2001 (the "Balance Sheet
Date"), and the related statement of income for the six (6) months then ended,
all of which have been prepared in accordance with generally accepted accounting
principles, consistently applied throughout the periods involved. Such balance
sheets fairly present the financial position, assets and liabilities (whether
accrued, absolute, contingent or otherwise) of Target at the dates indicated and
such statements of income fairly present the results of operations for the
periods then ended. Target's financial books and records are accurate and
complete in all material respects.
Section 3.8 ABSENCE OF CERTAIN CHANGES. Except as described in
Schedule 3.3, since the Balance Sheet Date, there have been no events or changes
having a Material Adverse Effect on Target or, to the Target's Knowledge, on the
future prospects of Target. Since the Balance Sheet Date, Target has not made
any distributions or payments to shareholders (other than normal compensation
that may have been paid to the Shareholders in their capacity as bona fide
employees) and has not entered into any agreements other than in the ordinary
course of business. Since the Balance Sheet Date, Target has carried on business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and has not taken any unusual actions in contemplation of
this transaction except to the extent that Buyers have given their prior
specific consent.
Section 3.9 ASSETS. (a) Except as set forth in Schedule 3.9(a),
Target owns and holds, free and clear of any lien, charge, pledge, security
interest, restriction, encumbrance or third-party interests of any kind
whatsoever (including insurance company payables), sole and exclusive right,
title, and interests in and to the customer expiration records for those
customers listed in Schedule 3.9(a), together with the exclusive right to use
such records and all customer accounts, copies of insurance policies and
contracts in force, and all files, invoices and records pertaining to the
customers, their contracts and insurance policies, and all related information.
All customer accounts listed in Schedule 3.9(a) represent current customers of
Target and none of such accounts has been cancelled or transferred as of the
date hereof. None of the accounts shown in Schedule 3.9(a) represents business
that has been brokered through a third party. Except as set forth in Schedule
3.9(a), Target has no Knowledge of any current customer generating over
$25,000.00 in annual commissions that is terminating or substantially reducing,
or has threatened to terminate or substantially reduce, its business with
Target.
(b) The names listed in Schedule 3.9(b) are the only
trade names used by Target within the past three (3) years. Except as described
in Schedule 3.9(b), no party has filed a claim during the past three (3) years
against Target alleging that it has violated, infringed on or otherwise
improperly used the intellectual property rights of such party, or, if so, the
claim has been settled with no existing liability to Target and, to the
Knowledge of the Target, Target has not violated or infringed any trademark,
trade name, service mark, service name, patent, copyright or trade secret held
by others.
(c) To the Target's Knowledge, the computer software of
Target performs in accordance with the documentation and other written material
used in connection therewith, is substantially free of defects in programming
and operation. The Target has delivered to Buyers complete and correct copies of
all user and technical documentation related to such software.
(d) Target owns or leases all tangible assets necessary
for the conduct of its business. Schedule 3.9(d) contains list of all tangible
assets leased by Target. All equipment, inventory, furniture and other assets
owned or leased by Target in its business are in a state of good repair and
maintenance, having regard for the purposes of which they are used, and the
purposes for which such assets are used and for which they are held by Target
are not, to the Target's Knowledge, in violation of any statute, regulation,
covenant or restriction. Target owns or leases all office furniture, fixtures
and equipment in its offices located in and throughout Washington.
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(e) All notes and accounts receivables of Target are
reflected properly on its books and records, are valid receivables subject to no
set-offs or counterclaims either asserted to date or of which the Target has
Knowledge, are presently current and collectible, and will be collected in
accordance with their terms at their recorded amounts, subject to such reserves
as are described in the Target's Balance Sheet and with the exception of those
accounts described in Schedule 3.9(e). All of Target's accounts payable,
including accounts payable to insurance carriers, are current and reflected
properly on its books and records, and will be paid in accordance with their
terms at their recorded amounts.
Section 3.10 UNDISCLOSED LIABILITIES. Target has no liabilities,
and no circumstances have occurred or arisen which could reasonably be expected
to form a basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand against Target giving rise
to any liability, except (a) those liabilities reflected in its June 30, 2001
balance sheet of Target, and (b) liabilities which have arisen after June 30,
2001 in the ordinary course of business (none of which relates to any breach of
contract, breach of warranty, tort, infringement, or violation of law, or arose
from any charge, complaint, action, suit, proceeding, hearing, investigation,
claim or demand). Except as described in Schedule 3.10, Target has not
guaranteed the obligations of any third party, including, without limitation,
guarantees relating to premium financing on behalf of its customers.
Section 3.11 LITIGATION AND CLAIMS. Except as disclosed in
Schedule 3.11, there is no suit, claim, action, proceeding or investigation
pending or, to the Target's Knowledge, threatened against Target, and there is
no basis for such a suit, claim, action, proceeding or investigation. Target is
not subject to any outstanding order, writ, injunction or decree which, insofar
as can be reasonably foreseen, individually or in the aggregate, in the future
would have an adverse effect on Target or would prevent the Target from
consummating the transactions contemplated hereby. No voluntary or involuntary
petition in bankruptcy, receivership, insolvency, or reorganization with respect
to the Target has been filed by or, to the Knowledge of the Target, against the
Target, nor will the Target file such a petition prior to the Closing Date or
for one hundred (100) days thereafter, and if such petition is filed by others,
the same will be promptly discharged. The Target is solvent on the date hereof
and will be solvent on the Closing Date. The Target has not, and at the Closing
Date will not have, made any assignment for the benefit of creditors, or
admitted in writing insolvency or that its property at fair valuation will not
be sufficient to pay its debts, nor will the Target permit any judgment,
execution, attachment, or levy against it or its properties to remain
outstanding or unsatisfied for more than ten (10) days.
Section 3.12 COMPLIANCE WITH APPLICABLE LAW. Target holds all
permits, licenses, variances, exemptions, orders, and approvals of all
Governmental Entities necessary for the lawful conduct of its business
(collectively, the "Permits"). Target is in substantial compliance with the
terms of the Permits, except where the failure to comply would not have an
adverse effect. Target is not conducting business in violation of any law,
ordinance or regulation of any Governmental Entity (including, without
limitation, the Gramm-Leach Bliley Financial Services Modernization Act of 1999
and any applicable federal or state regulations promulgated pursuant thereto),
except for possible violations that individually or in the aggregate do not,
and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect. As of the date of this Agreement, no investigation or
review by any Governmental Entity with respect to Target is pending or, to the
Knowledge of the Target, threatened, nor has any Governmental Entity indicated
an intention to conduct the same.
Section 3.13 TAX RETURNS AND AUDITS. Target has timely filed all
federal, state, local and foreign tax returns, including all amended returns, in
each jurisdiction where Target is required to do so or has paid or made
provision for the payment of any penalty or interests arising from the late
filing of any such return, has correctly reflected all taxes required to be
shown thereon, and has fully paid or made adequate provision for the payment of
all taxes that have been incurred or are due and payable pursuant to such
returns or pursuant to any assessment with respect to taxes in such
jurisdictions, whether or not in connection with such returns. Target is not
currently subject to any audits with respect to any federal, state, local or
foreign tax returns required to be filed and there are no unresolved audit
issues with respect to prior years' tax returns. There are no circumstances or
pending questions relating to potential tax liabilities nor claims asserted for
taxes or assessments of Target that, if adversely determined, could result in a
tax liability for any period prior to, including, or beginning after the Closing
Date or on Target's practices in computing or reporting taxes. Target has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect. Target is not holding
any unclaimed property that it is required to surrender to any state taxing
authority including, without limitation, any uncashed checks or unclaimed wages,
and Target has timely filed all unclaimed property reports required to be filed
with such state taxing authorities. Target does not periodically purge its
records of uncashed checks. Target has no interests in real estate in the State
of Washington, the transfer or disposition of which would give rise to
Washington State real estate excise tax. For purposes hereof, the terms "tax"
and "taxes" shall include all federal, state, local and foreign taxes,
assessments, duties, tariffs, registration fees and other
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governmental charges, including without limitation all income, franchise ,
property, production, sales, use, payroll, license, windfall profits, severance,
withholding, excise, gross receipts and other taxes, as well as any interest,
additions or penalties relating thereto and any interest in respect of such
additions or penalties. There are no liens for taxes upon the assets of the
Target except for taxes that are not yet payable. Target has withheld all taxes
required to be withheld in respect of wages, salaries and other payments to all
employees, officers, and directors and any taxes required to be withheld from
any other person and has timely paid all such amounts withheld to the proper
taxing authority. Neither the Target nor any subsidiary of the Target is a party
to any agreement, contract, or arrangement that would result in the payment of
any "excess parachute payment" within the meaning of 280G of the Code.
Section 3.14 CONTRACTS. (a) Schedule 3.14 lists all material
contracts, agreements and other written arrangements to which Target is a party,
including, without limitation, the following:
(i) any written arrangement (or group of written
arrangements) for the furnishing or receipt of services that calls for
performance over a period of more than one (1) year;
(ii) any written arrangement concerning a
partnership or joint venture;
(iii) any written arrangement (or group of written
arrangements) under which Target has created, incurred or assumed or may create,
incur or assume indebtedness (including capitalized lease obligations) involving
more than $10,000.00 or under which it has imposed (or may impose) a security
interest on any of its assets, tangible or intangible;
(iv) any form of employment agreement and a list
of each Target employee who is a party to an agreement in such form;
(v) any written arrangement concerning
confidentiality or non-competition;
(vi) any written arrangement involving Target and
its present or former affiliates, officers, directors or shareholders that was
in effect during the five (5) years prior to the Closing Date;
(vii) any written arrangement under which the
consequences of a default or termination could have a Material Adverse Effect on
the assets, liabilities, business, financial condition, operations or future
prospects of Target; or
(viii) any other written arrangement (or group of
related arrangements) either involving more than $10,000.00, or not entered into
in the ordinary course of business, including without limitation any acquisition
agreements entered into during the five (5) years prior to the Closing Date.
(b) Target is not a party to any verbal contract,
agreement or other arrangement which, if reduced to written form, would be
required to be listed in Schedule 3.14. The Target has delivered to Buyers a
correct and complete copy of each written arrangement, as amended to date,
listed in Schedule 3.14. Each such contract, agreement and written arrangement
is valid and enforceable in accordance with its terms, and no party is in
default under any provision thereof.
Section 3.15 NON-SOLICITATION COVENANTS. Target is not a party to
any agreement that restricts its ability to compete in the insurance agency
industry or solicit specific insurance accounts.
Section 3.16 INSURANCE POLICIES. Schedule 3.16 sets forth a
complete and correct list of all insurance policies held by Target with respect
to its business, and true and complete copies of such policies have been
delivered to Buyers. Target has complied with all the provisions of such
policies and the policies are in full force and effect.
Section 3.17 ERRORS AND OMISSIONS; EMPLOYMENT PRACTICES;
DIRECTORS' AND OFFICERS' AND FIDUCIARY LIABILITY. (a) Target has not incurred
any liability or taken or failed to take any action that may reasonably be
expected to result in (i) a liability for errors or omissions in the conduct of
its insurance business or (ii) employment practices liability (EPL), except such
liabilities as are fully covered by insurance. All errors and omissions (E&O)
and EPL lawsuits and claims currently pending or threatened against Target are
set forth in Schedule 3.11. Target has E&O insurance coverage
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in force, on a claims made basis, with minimum liability limits of $20 million
per claim and $40 million aggregate over the two-year term, with a deductible of
$25,000 per claim and a ceiling of $75,000 per year or $150,000 per term of two
years, and the Target will provide to Buyer a certificate of insurance
evidencing such coverage prior to or on the Closing Date. Except as described in
Schedule 3.17, Target has had the same or higher levels of E&O coverage
continuously in effect for at least the past five (5) years.
(b) Target has EPL, D&O and fiduciary liability insurance
coverage in force, on a claims made basis, with minimum liability limits of $7
million per claim and $7 million aggregate, with a deductible of $1,000 per
claim fiduciary, $25,000 per claim EPL and $25,000 per claim D&O for entity and
no deductible for D&O for individuals, and the Target will provide to Buyer a
certificate of insurance evidencing such coverage prior to or on the Closing
Date. Except as described in Schedule 3.17, Target has had the same or higher
levels of EPL, D&O and fiduciary coverage continuously in effect for at least
the past five (5) years.
Section 3.18 EMPLOYEE DISHONESTY COVERAGE. Schedule 3.18 sets
forth a complete and correct list of all employee dishonesty bonds or policies,
including the respective limits thereof, held by Target in the three (3) year
period prior to the Closing Date, and true and complete copies of such bonds or
policies have been delivered to Buyers. Target has complied with all the
provisions of such bonds or policies and Target has an employee dishonesty bond
or policy in full force and effect as of the Closing Date.
Section 3.19 EMPLOYEES. Except as disclosed in Schedule 3.14, all
employees of Target are employees at will, and Target is not a party to any
written contract of employment.
Section 3.20 EMPLOYEE BENEFIT PLANS. Schedule 3.20 lists each
Employee Benefit Plan (as defined below) that Target or any trade or business,
whether or not incorporated, that together with Target would be deemed a "single
employer" within the meaning of Section 4001 of ERISA (as defined below) (a
"Target ERISA Affiliate") maintains or to which Target or any Target ERISA
Affiliate contributes.
(a) Each such Employee Benefit Plan (and each
related trust, insurance contract, or fund) complies in form and in operation in
all respects with the applicable requirements of ERISA, the Code, and other
applicable laws. No such Employee Benefit Plan is under audit by the Internal
Revenue Service or the Department of Labor.
(b) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1s, and
summary plan descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan, or will be filed within the time
required for such filing. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Section 4980B have been met with respect to each such Employee
Benefit Plan that is an "Employee Welfare Benefit Plan" as such term is defined
in ERISA Section 3(1).
(c) All contributions (including all employer
contributions and employee salary reduction contributions) that are due have
been paid to each such Employee Benefit Plan that is an "Employee Pension
Benefit Plan" as such term is defined in ERISA Section 3(2), and all
contributions for any period ending on or before the Closing Date that are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of Target. All premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan that is an Employee Welfare
Benefit Plan.
(d) Each such Employee Benefit Plan that is an
Employee Pension Benefit Plan meets the requirements of a "qualified plan" under
Code Section 401(a) and has received, within the last two (2) years, a favorable
determination letter from the Internal Revenue Service, except that the ESOP's
determination letter is dated August 28, 1995.
(e) The market value of assets under each such
Employee Benefit Plan that is an Employee Pension Benefit Plan (other than any
"Multiemployer Plan" as such term is defined in ERISA Section 3(37)) equals or
exceeds the present value of all vested and nonvested liabilities thereunder
determined in accordance with Pension Benefit Guaranty Corporation ("PBGC")
methods, factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
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(f) Target has delivered (or no later than sixty
(60) days prior to the Closing Date shall deliver) to Buyers correct and
complete copies of the plan documents and summary plan descriptions, the most
recently filed Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements that implement each such
Employee Benefit Plan.
(g) With respect to each Employee Benefit Plan
that Target or any Target ERISA Affiliate maintains or has maintained in the
past six (6) years or to which it contributes, has contributed, or has been
required to contribute in the past six (6) years:
(i) No such Employee Benefit Plan that
is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been completely or partially terminated
or been the subject of a "Reportable Event" (as such term is defined in ERISA
Section 4043) as to which notices would be required to be filed with the PBGC.
No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or, to the Knowledge of
the Target, threatened.
(ii) There have been no "Prohibited
Transactions" as defined in ERISA Section 406 and Code Section 4975 with respect
to any such Employee Benefit Plan. No "Fiduciary" as defined in ERISA Section
3(21) has any liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of the assets of
any such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the Knowledge of the Target, threatened. None of the directors
and officers (and employees with responsibility for employee benefits matters)
of Target has any Knowledge of any basis for any such action, suit, proceeding,
hearing, or investigation.
(iii) Target has not incurred, and none
of Target and the directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect that Target shall
incur, any liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability) or under the Code
with respect to any such Employee Benefit Plan that is an Employee Pension
Benefit Plan.
(iv) Neither Target nor any Target ERISA
Affiliate contributes to, nor has ever been required to contribute to, any
Multiemployer Plan or has any liability (including withdrawal liability) under
any Multiemployer Plan.
(v) Neither Target nor any Target ERISA
Affiliate maintains or contributes, nor has ever maintained or contributed, or
has ever been required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Section 4980B).
As used in this Agreement, the term "Employee Benefit Plan" means any (a)
nonqualified deferred compensation or retirement plan or arrangement that is an
Employee Pension Benefit Plan, (b) qualified defined contribution retirement
plan or arrangement that is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement that is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit plan or program.
Section 3.21 INTELLECTUAL PROPERTY.
(a) Target owns or has the right to use pursuant
to license, sublicense, agreement, or permission all Intellectual Property (as
defined below) necessary or desirable for the operation of the businesses of
Target as presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by Target immediately prior to the
Closing hereunder shall be owned or available for use by Surviving Corporation
on identical terms and conditions immediately subsequent to the Closing
hereunder. Target has taken all necessary and desirable action to maintain and
protect each item of Intellectual Property that it owns or uses.
(b) Target has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the directors and officers (and
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employees with responsibility for Intellectual Property matters) of Target has
ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that Target must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of the Target, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Target.
(c) Target has no patents issued in its name, or
patent applications filed or pending. Schedule 3.21(c) identifies each license,
agreement, or other permission that Target has granted to any third party with
respect to any of its Intellectual Property (together with any exceptions).
Target has delivered to Buyers correct and complete copies of all such
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Buyers correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item. Schedule 3.21(c) also identifies each trade name and
registered or unregistered trademark or service mark used by Target. With
respect to each item of Intellectual Property required to be identified in
Schedule 3.21(c):
(i) Target possesses all right, title,
and interest in and to the item, free and clear of any security interest,
license, or other restriction;
(ii) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item; and
(iv) except as described in Schedule
3.21(c), Target has never agreed to indemnify any person or entity for or
against any interference, infringement, misappropriation, or other conflict with
respect to the item.
(d) Schedule 3.21(d) identifies each item of
Intellectual Property that any third party owns and that Target uses pursuant to
license, sublicense, agreement, or permission. Target has delivered to Buyers
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Schedule 3.21(d):
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or permission
shall continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Article 2 above);
(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred that with notice
or default or permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations
and warranties set forth in clauses (i) through (iv) above are true and correct
with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of the
Target, is threatened that challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
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(viii) Target has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission.
(e) To the Knowledge of the Target, Target shall not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted and as presently
proposed to be conducted.
As used in this Agreement the term "Intellectual Property" means (A) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (B)
all trademarks, service marks, trade dress, logos, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (C) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (D)
all mask works and all applications, registrations, and renewals in connection
therewith, (E) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (F) all computer
software (including data and related documentation), (G) all registered domain
names, website content, website related software, and all other Internet related
tools and applications, (H) all other proprietary rights, and (I) all copies and
tangible embodiments thereof (in whatever form or medium).
Section 3.22 ENVIRONMENT, HEALTH, AND SAFETY.
(a) Target has materially complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against it alleging any failure so to comply. Without
limiting the generality of the preceding sentence, each of Target and, to the
Knowledge of Target, its predecessors and affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations that are required under, and has materially complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables that are contained in, all
Environmental, Health, and Safety Laws.
(b) Target has no liability (and, to the Knowledge of
Target, none of Target and its predecessors and affiliates has handled or
disposed of any substance, arranged for the disposal of any substance, exposed
any employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could form the basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against Target giving rise to any liability) for
damage to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to, any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(c) No Hazardous Materials have been placed by Target on
or in any structure on the real property leased or used by Target (the "Real
Property") or, to the Knowledge of the Target, by any prior owner or user of the
Real Property. To the Knowledge of Target, no underground storage tanks for
petroleum or any other substance, or underground piping or conduits, are or have
previously been located on the Real Property. To the Knowledge of the
Shareholders or Target, no other party has caused the release of or
contamination by Hazardous Materials on the Real Property. Target has provided,
or no later than sixty (60) days prior to the Closing Date (and thereafter, as
such items are received by Target) shall provide, Buyers with all environmental
studies, records and reports in its possession or control, and all
correspondence with any governmental entities, concerning environmental
conditions of the Real Property.
(d) All properties and equipment used in the business of
Target and its predecessors and affiliates have been free of asbestos,
polychlorinated biphenyls (PCBs), methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(e) As used in this Agreement, the term:
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(i) "Environmental, Health, and Safety Laws"
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Resource Conservation and Recovery Act of 1976, and the
Occupational Safety and Health Act of 1970, each as amended, together with all
other laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes;
(ii) "Extremely Hazardous Substance" has the
meaning set forth in Section 302 of the Emergency Planning and Community
Right-to-Know Act of 1986, as amended; and
(iii) "Hazardous Materials" means any "toxic
substance" as defined in 15 U.S.C.ss.ss. 2601 et seq. on the date hereof,
including materials designated on the date hereof as "hazardous substances"
under 42 U.S.C.ss.ss.9601 et seq. or other applicable laws, and toxic,
radioactive, caustic, or otherwise hazardous substances, including petroleum and
its derivatives, asbestos, PCBs, formaldehyde, chlordane and heptachlor.
Section 3.23 POOLING-OF-INTERESTS ACCOUNTING MATTERS.
(a) Except as set forth on Schedule 3.23(a), (i) Target
has never been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded; (ii) within the past two (2) years, there
has not been any sale, spin-off or split-up of a significant amount of assets of
Target other than in the ordinary course of business; (iii) Target owns no
shares of the capital stock of Brown & Brown; (iv) Target has not acquired any
shares of its capital stock during the past two (2) years; (v) as of the
Effective Time, Target has no obligation (whether contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any distribution in respect
thereof; (vi) neither the voting stock structure of Target nor the relative
ownership of shares among the Shareholders has been altered or changed within
the last two (2) years in contemplation of the Merger; and (vii) except for the
Target Shares allocated to participants within the ESOP, none of the shares of
the capital stock of Target were issued pursuant to awards, grants or bonuses.
(b) Except as described in Schedule 3.23(a), to the
Knowledge of the Target, neither Target nor any Shareholder has taken or agreed
to or will take prior to the Closing Date any action that would prevent Brown &
Brown from accounting for this transaction as a pooling of interests. Without
limiting the generality of the foregoing, to the Knowledge of the Target, no
"Affiliate" (as defined below) of Target has, during a period of thirty (30)
days prior to the date of this Agreement, sold, pledged, hypothecated, or
otherwise transferred or encumbered any capital stock of Target held by such
Affiliate. For purposes of this Agreement, the term "Affiliate" means any
officer, director, or owner of ten percent (10%) or more of the voting capital
stock of Target.
(c) As of the Closing Date, to the Knowledge of Target,
no Shareholder has entered into any agreement to sell, pledge, hypothecate, or
otherwise transfer or encumber the Brown & Brown Shares.
Section 3.24 SECURITIES LAW REPRESENTATIONS.
(a) Representatives of the Target were granted access to
the business premises, offices, properties, and business, corporate and
financial books and records of Buyers. The Shareholders were permitted to
examine the foregoing records, to question officers of Buyers, and to make such
other investigations as they considered appropriate to determine or verify the
business and financial condition of Buyers.
(b) The Target recognizes that the Brown & Brown Shares
will, when issued, be registered under the Securities Act of 1933, as amended
(the "Securities Act") but that, in order for the Merger to qualify for
treatment under the pooling-of-interests method of accounting, the Shareholders
will not be able to sell, offer to sell, transfer, pledge, hypothecate, or
otherwise dispose of the Brown & Brown Shares until two (2) business days after
the date of Brown & Brown's earnings press release for third quarter 2001 (the
"Release Date"), which Release Date is anticipated to be October 31, 2001; and
further, Buyer will issue stop transfer orders with Buyer's transfer agent to
enforce the foregoing restrictions.
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(c) None of the information supplied or to be supplied by
Sellers for inclusion in the Form S-4 will, at the time the Form S-4 is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 3.25 NO MISREPRESENTATIONS. None of the representations
and warranties of the Target set forth in this Agreement or in the attached
Schedules, notwithstanding any investigation thereof by Buyers, contains any
untrue statement of a material fact, or omits the statement of any material fact
necessary to render the statements made not misleading.
Section 3.26 COMPLIANCE WITH LAWS. The ESOP is a tax qualified
plan and has been administered in substantial compliance with all applicable
laws, rules and regulations, including, without limitation, ERISA.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ESOP
The ESOP, as a Shareholder of Target, represents and warrants to Buyers
as follows:
Section 4.1 AUTHORITY. The ESOP has the requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the duly appointed trustees of the ESOP and constitutes the ESOP's
valid and binding obligation, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, or similar
laws from time to time in effect which offset creditors' rights generally, and
general equitable principles (regardless of whether the issue of enforceability
is considered in a proceeding in equity or in law).
Section 4.2 ASSETS. Other than as set forth in the terms of the
ESOP plan document dated _____, the ESOP owns and holds, free and clear of any
lien, charge, pledge, security interest, restriction, encumbrance or third party
interest of any kind whatsoever, sole and exclusive right, title, and interest
in and to the Target Shares which are to be transferred by the ESOP to the Buyer
pursuant to the terms of this Agreement
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each of the Buyers represents and warrants to the Target (prior to the
Closing) and the Shareholders as follows:
Section 5.1 ORGANIZATION. Merger Sub is a corporation organized
under the laws of the State of Washington and its status is active. Brown &
Brown is a corporation organized under the laws of Florida and its status is
active. Each Buyer has all requisite corporate power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted. Each Buyer is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and be in good standing would
not in the aggregate have a material adverse effect.
Section 5.2 AUTHORITY. Each Buyer has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of each
Buyer and no other corporate proceeding on the part of either Buyer is necessary
to authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly executed and delivered by each Buyer and
constitutes its valid and binding obligation, enforceable against each Buyer in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization or similar laws from time to time in effect which offset
creditors' rights generally and general equitable principles.
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Section 5.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution, delivery or performance of this Agreement by Buyers nor the
consummation by Buyers of the transactions contemplated hereby nor compliance by
Buyers with any of the provisions hereof will (a) conflict with or result in any
breach of any provision of the Articles of Incorporation or Bylaws of either
Buyer, (b) except with respect to the filing of the Merger Documents with the
Secretary of State of Washington, require any filing with, or permit
authorization, consent, or approval of, any Governmental Entity, except where
the failure to obtain such permits, authorizations, consents, or approvals or to
make such filings would not have a Material Adverse Effect with respect to
Buyers, (c) result in a violation or breach of, or constitute a default (or give
rise to any right of termination, amendment, cancellation, or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
lease, license, agreement, or other instrument or obligation to which either
Buyer is a party or by which either Buyer or its properties or assets may be
bound, or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to either Buyer or any of its properties or assets, except
in the case of (C) or (D) above for violations, breaches or defaults that would
not, individually or in the aggregate, have a Material Adverse Effect with
respect to Buyers.
Section 5.4 SEC REPORTS AND FINANCIAL STATEMENTS. Brown & Brown
has filed with the SEC, and has heretofore made available to the Sellers true
and complete copies of all forms, reports, schedules, statements and other
documents required to be filed by it since December 31, 2000 under the
Securities Exchange Act of 1934 (the "Exchange Act") or the Securities Act (as
such documents have been amended since the time of their filing, collectively,
the "Buyer SEC Documents"). The Buyer SEC Documents, including without
limitation any financial statements and schedules included therein, at the time
filed, (a) did not contain any untrue statement of a material fact or omit 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, and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. The
financial statements of Buyer included in the Buyer SEC Documents comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of Buyer and its consolidated subsidiaries as at the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended.
Section 5.5 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
the Brown & Brown SEC Documents or Schedule 5.5, since December 31, 2000, there
have been no events, changes or events having, individually or in the aggregate,
a material adverse effect on Buyers.
Section 5.6 NO UNDISCLOSED LIABILITIES. Except as and to the
extent set forth in Buyer's Quarterly Report on Form 10-Q for the three
(3)-month period ended March 31, 2001 or Schedule 5.5, as of March 31, 2001,
Buyer had no liabilities or obligations, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of Buyer and its subsidiaries.
Except as set forth in Schedule 5.5, since March 31, 2001, Buyer has not
incurred any liabilities, whether or not accrued, contingent or otherwise,
outside the ordinary course of business or that would have, individually or in
the aggregate, a material adverse effect on Buyer.
Section 5.7 LITIGATION. Except as disclosed in the Brown & Brown
SEC Documents filed prior to the date of this Agreement, there is no suit,
claim, action, proceeding or investigation pending or, to the Knowledge of Brown
& Brown, threatened against Brown & Brown or any of its subsidiaries before any
Governmental Entity that, individually or in the aggregate, is reasonably likely
to have a material adverse effect on Brown & Brown or would prevent Brown &
Brown from consummating the transactions contemplated by this Agreement. Except
as disclosed in the Brown & Brown SEC Documents, neither Brown & Brown nor any
of its subsidiaries is subject to any outstanding order, writ, injunction or
decree that, insofar as can be reasonably foreseen, individually or in the
aggregate, in the future would have a material adverse effect on Brown & Brown
or would prevent either Buyer from consummating the transactions contemplated
hereby.
Section 5.8 ACCOUNTING MATTERS. (a) To the Knowledge of Buyers,
neither Buyer nor any of their respective affiliates has through the date of
this Agreement taken or agreed to or will take prior to the Closing Date any
action that (without giving effect to any action taken or agreed to be taken by
Target or any of its affiliates) would prevent the parties from accounting for
the transaction to be effected by this Agreement as a pooling of interests.
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(b) Without limiting the generality of SECTION 5.8(A), to
the Knowledge of Buyers, no Affiliate of either Buyer has, during a period of
thirty (30) days prior to the date of this Agreement, sold, pledged,
hypothecated, or otherwise transferred or encumbered any Brown & Brown Shares
held by such Affiliate.
Section 5.9 ERRORS AND OMISSIONS. Neither Buyer has incurred any
material liability or taken or failed to take any action that may reasonably be
expected to result in a material liability for errors or omissions in the
conduct of its insurance business, except such liabilities as are fully covered
by insurance and those disclosed in the Brown & Brown SEC Documents. Buyers have
errors and omission (E&O) insurance coverage in force, with minimum liability
limits of $75,000,000.00 per occurrence and $75,000,000.00 aggregate, with a
deductible of $250,000.00.
Section 5.10 SECURITIES LAW REPRESENTATIONS.
(a) Buyers were granted, or prior to the Closing Date
will be granted, access to the business premises, offices, properties, and
business, corporate and financial books and records of Target. Buyers were
permitted, or prior to the Closing Date will be permitted, to examine the
foregoing records, to question officers of Target, and to make such other
investigations as it considered appropriate to determine or verify the business
and financial condition of Target. The Target furnished, or prior to the Closing
Date will furnish, to Buyers all information regarding the business and affairs
of Target that Buyers requested.
(b) None of the information supplied or to be supplied by
Buyers for inclusion in the Form S-4 will, at the time the Form S-4 is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE 6
COVENANTS
Section 6.1 OPERATIONS OF TARGET. From the date hereof and
continuing through the Closing Date, the Target agrees that (except as expressly
contemplated or permitted by this Agreement) it shall conduct business as
follows:
(a) Ordinary Course. Target shall carry on business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers and others
having business dealings with it to the end that the goodwill of Target and its
business shall not be impaired in any material respect at the Closing Date;
provided, however, that the Target shall continue to proceed with the moving of
its principal offices in Tacoma, Washington to a new location;
(b) No Dispositions. Other than (i) as may be required by
law to consummate the transactions contemplated hereby, (ii) sales of products
or services in the ordinary course of business consistent with prior practice or
(iii) as described in Schedule 6.1(b), Target shall not sell, lease, license,
encumber, or otherwise dispose of, or agree to sell, lease, license, encumber,
or otherwise dispose of, any of its assets that are material, individually or in
the aggregate;
(c) No Acquisitions. Target shall not acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial equity
interests in or substantial portion of the assets of, or by any manner, any
business or any corporation, partnership, or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets not in the
ordinary course of business;
(d) No Stock Issuances. Target shall not issue additional
equity securities to the Shareholders or any other party.
(e) Indebtedness and Leases. Except for the indebtedness
incurred with Buyers' prior written consent to purchase equipment and office
furniture in connection with moving its principal offices in Tacoma, Washington
to a new location, Target shall not incur any indebtedness for borrowed money,
guarantee any such indebtedness, issue or sell any debt securities, warrants, or
rights to acquire any of its debt securities, or guarantee any
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debt securities of others other than, in each case, in the ordinary course of
business consistent with prior practice. Target shall not enter into any
material leases.
Section 6.2 OTHER ACTIONS. Notwithstanding the fact that such
action might otherwise be permitted pursuant to SECTION 6.1, the Target shall
not take any action that would, or would be reasonably likely to, result in any
of its representations and warranties set forth in this Agreement being untrue,
or in any of the conditions set forth in ARTICLE 8 hereof not being satisfied.
Section 6.3 ADVISE OF CHANGES. The Target shall confer on a
regular and frequent basis with Buyers, report on operational matters, and
promptly advise Buyers of any change or event having or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on Target.
Section 6.4 TAXES. Target will provide Buyers with copies of all
tax returns, reports and information statements that have been filed or are to
be filed because due prior to the Closing Date. Target and Sellers shall
properly and timely file all returns with respect to the Target required to be
filed because due prior to the Closing Date and shall pay all taxes required to
be paid prior to the Closing Date. All returns shall be prepared consistent with
past practice and shall be subject to the approval of Buyers. Target (i) will
notify Buyers promptly if it receives notice of any tax audit, the assessment of
any tax, the assertion of any tax lien, or any request, notice or demand by any
taxing authority, (ii) provide Buyers a description of any such matter in
reasonable detail (including a copy of any written materials received from any
taxing authority), and (iii) take no action with respect to such matter without
the consent of Buyers. No Seller shall (i) make or revoke any tax election which
may affect the Target, (ii) execute any waiver of restrictions on assessment of
any tax, or (iii) enter into any agreement or settlement with respect to any tax
without the approval of Buyers.
ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice, Target
shall afford to the officers, employees, accountants, counsel, and other
authorized representatives of Buyers full access, during the period prior to the
Closing Date, to all of the properties, books, contracts, commitments, records,
and senior management of Target. The parties agree to continue to comply with
the Confidentiality Letter Agreement dated March 20, 2001 entered into among
Target, Brown & Brown and Golden Gate from and after the date hereof until the
consummation of the transactions contemplated hereby.
Section 7.2 EXPENSES. Whether or not the transaction is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that the Target shall be responsible for the expenses
relating to the termination, winding down and liquidation of the ESOP.
Section 7.3 BROKERS OR FINDERS. Each of the parties represents,
as to itself, its subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor, or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement, and
each of the parties agrees to indemnify and hold the others harmless from and
against any and all claims, liabilities, or obligations with respect to any
fees, commissions, or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliate.
Section 7.4 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other parties.
Section 7.5 POOLING-OF-INTERESTS ACCOUNTING MATTERS. The Target
and the ESOP shall not knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of this transaction as a "pooling of
interests" for accounting purposes. Without limiting the generality of the
foregoing, the ESOP agrees that they would each be deemed an "Affiliate" of
Target (as such term is defined in SECTION 3.23(B) of this Agreement) and that,
in order to preserve the pooling-of-interests treatment of this transaction, the
ESOP shall not sell, pledge,
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hypothecate, or otherwise transfer or encumber any Brown & Brown Shares issued
to the ESOP under this Agreement until the final results of at least thirty (30)
days of post-Closing combined operations have been published by Brown & Brown,
via the issuance of a quarterly earnings report or other means at Brown &
Brown's sole discretion.
Section 7.6 REMEDY FOR BREACH OF COVENANTS. In the event of a
breach of the provisions of SECTION 7.5, Buyers shall be entitled to injunctive
relief as well as any other applicable remedies at law or in equity. The Target
and ESOP each acknowledge that the covenants set forth in SECTIONS 7.5 represent
an important element of Target's value and were a material inducement for Buyers
to enter into this Agreement.
Section 7.7 SUCCESSOR RIGHTS. The covenants contained in
SECTION 7.5 shall inure to the benefit of any successor in interests of either
Buyer by way of merger, consolidation, sale or other succession.
Section 7.8 ERRORS AND OMISSIONS, EMPLOYMENT PRACTICES LIABILITY,
EMPLOYEE DISHONESTY, DIRECTORS' AND OFFICERS' AND FIDUCIARY EXTENDED REPORTING
("TAIL") COVERAGE. On or prior to the Closing Date, the Target shall purchase,
at Target's expense, a tail coverage extension on each of Target's errors and
omissions (E&O), employment practices liability (EPL), employee dishonesty
insurance policy (or employee dishonesty bond, as the case may be), and
directors' and officers' liability (D&O) and fiduciary liability policies. Such
coverages shall extend for a period of at least five (5) years from the Closing
Date, shall have full prior acts E&O coverage for all of Target's accounts
(including those acquired by merger or acquisition), shall have the same
coverages and deductibles currently in effect, and shall otherwise be in form
reasonably acceptable to Buyers. A Certificate of Insurance evidencing each such
coverage shall be delivered to Buyers at or prior to Closing.
Section 7.9 ESOP ESCROW AGREEMENT. The ESOP agrees on the
Closing Date to enter into the ESOP Escrow Agreement.
Section 7.10 SCHEDULES. The Target agrees to deliver Schedules in
form and substance satisfactory to Buyers prior to the Closing Date.
Section 7.11 MERGER DOCUMENTS. Each of the parties agree on the
Closing Date to execute the Merger Documents and to file such duly executed
Merger Documents promptly after the Closing.
Section 7.12 CONFIDENTIALITY. The parties agree to maintain the
existence of this transaction and the terms hereof in confidence, until the
earliest of the following circumstances occurs: (a) the parties mutually agree
to release such information to the public; or (b) Buyers reasonably conclude
that such disclosure is required by law.
Section 7.13 PREPARATION OF TAX RETURN. The Target recognizes that
a year-to-date income tax return must be prepared and filed for Target as a
result of this transaction and that the Target is primarily responsible for
preparing this return. The Target therefore agrees to prepare and file this
return promptly after the Closing. The Consolidated Total Net Worth will be
determined with the expenses of the preparation and filing of this return, and
the taxes owed, accounted for. Buyers shall be solely responsible for any
changes they make to the return prepared by the Target.
Section 7.14 ESOP ACTIVITY. The parties shall take the actions
described in Schedule 7.14 with respect to the ESOP.
Section 7.15 STATE TAKEOVER LAWS. Target and its Board of
Directors shall grant such approvals and take all necessary steps to exempt the
transactions contemplated by this Agreement from, or if necessary challenge, the
validity or applicability of Chapter 19 of the WBCA to the Merger.
Section 7.16 EXHIBITS. Each of the parties shall use its
reasonable best efforts to prepare mutually acceptable versions of the
Indemnification Agreement and the Escrow Agreements as promptly as practicable
following the date of this Agreement. Each of the parties shall use its
reasonable best efforts to prepare mutually acceptable versions of all other
exhibits referenced herein prior to Closing.
Section 7.17 POOLING-OF-INTERESTS ACCOUNTING. Buyers shall use
their reasonable best efforts to satisfy themselves by July 31, 2001 that the
Merger and the related issuance of the Brown & Brown Shares shall qualify for
treatment for accounting purposes as a pooling-of-interests transaction.
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ARTICLE 8
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction prior to or on the Closing Date
of the following conditions:
(a) Approvals. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity, the failure to obtain which would have a
Material Adverse Effect on Target, shall have been filed, occurred, or been
obtained.
(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction, or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transaction shall be in effect.
(c) Registration of Brown & Brown Shares. The Form S-4 in
connection with the Brown & Brown Shares to be issued as Merger Consideration
pursuant to this Agreement shall have been declared effective by the SEC.
(d) Golden Gate Merger Agreement. The transactions
contemplated by the Golden Gate Merger Agreement shall become effective
simultaneously with the transactions contemplated by this Agreement.
Section 8.2 CONDITIONS TO OBLIGATIONS OF BUYERS. The obligation
of Buyers to effect the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions, unless waived by Buyers:
(a) Representations and Warranties. The representations
and warranties of the Target set forth in this Agreement shall be true and
correct in all material respects as of the Closing Date.
(b) Performance of Obligations by the Target. The Target
shall have performed all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) Due Diligence. Buyers shall be satisfied, in their
sole discretion, with the results of their due diligence investigation of
Target.
(d) Schedules. The Target shall have delivered to Buyers
those Schedules required under this Agreement to delivered by the Sellers to
Buyers, in form and substance satisfactory to Buyers.
(e) Target Certificates. The Shareholders shall have
delivered certificates representing the Target Shares to Buyers, which
certificates have been marked "CANCELED" by Target.
(f) Release. Each Shareholder shall have executed and
delivered to Buyers the Release.
(g) Indemnification Agreement and Shareholder Escrow
Agreement. The Other Shareholders shall have executed and delivered to Buyers
the Indemnification Agreement and the Shareholder Escrow Agreement.
(h) ESOP Escrow Agreement. The ESOP shall have executed
and delivered to Buyers the ESOP Escrow Agreement.
(i) Non-Competition Agreements. (i) Each
Shareholder/Employee shall have executed and delivered to Buyers a copy of his
or her respective Non-Competition Agreement, and (ii) each employee of Target
that Buyers intend to retain shall have executed and delivered to Buyers their
respective Standard Employment Agreements.
(j) Opinion of Target's Counsel. The Target shall have
delivered to Buyers the Opinion of Target's Counsel.
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(k) Spousal Consents. The Shareholders shall have
delivered to Buyers the Spousal Consents, executed by the respective spouses of
the Shareholders.
(l) Merger Documents. Target shall have executed and
delivered to Buyers the Merger Documents, to be filed with the Secretary of
State of the State of Washington.
(m) Required Consents. The Target shall have obtained and
delivered to Buyers the Required Consents.
(n) ESOP Approvals. The Target shall have delivered to
Buyers the ESOP Approvals.
(o) Target Board and Shareholder Resolutions. The Target
shall have delivered the Target Board Resolutions and the Shareholder
Resolutions to Buyers
(p) E&O, EPL, Employee Dishonesty and D&O and Fiduciary
Tail Coverages. The Target shall have delivered to Buyers a Certificate of
Insurance evidencing Target's E&O, EPL, employee dishonesty, D&O and fiduciary
liability tail coverage policies required under SECTION 7.9.
(q) Buyers' Board Approval. Buyers' Boards of Directors
shall have approved the Merger, this Agreement and the transactions and other
agreements, instruments and documents contemplated herein, and Brown & Brown's
Board of Directors shall have approved the issuance of the Brown & Brown Shares
to the Shareholders.
(r) Estoppel Letters. Buyer shall have received
satisfactory estoppel letters from each landlord of the Real Property.
(s) Liens and Encumbrances. Buyer shall have received
evidence from the Sellers that any and all liens, judgments, or other
encumbrances on any of the Target Shares have been fully satisfied and released
prior to Closing.
(t) Accounting Treatment. Buyers shall be satisfied that
the Merger and related issuance of the Brown & Brown Shares shall qualify for
treatment for accounting purposes as a pooling-of-interests transaction, and the
holders of no more than ten percent (10%) of the outstanding capital stock of
the Target shall have exercised dissenter's rights under Washington law.
(u) Shareholder Agreements. All shareholder agreements or
other arrangements relating to the Target Shares and identified in Schedule 3.3
shall have been terminated to Buyers' satisfaction.
(v) Guarantees. All guarantees or similar arrangements
identified in Schedule 3.10 shall have been terminated to Buyers' satisfaction.
Section 8.3 CONDITIONS TO OBLIGATION OF THE TARGET. The
obligations of the Target to effect the transactions contemplated by this
Agreement are subject to the satisfaction of the following conditions, unless
waived by the Target:
(a) Target Shareholder Approval. The Shareholders shall
have duly adopted, in accordance with the relevant provisions of the WCBA, the
Shareholder Resolutions.
(b) Representations and Warranties. The representations
and warranties of Buyers set forth in this Agreement shall be true and correct
in all material respects as of the Closing Date.
(c) Performance of Obligations by Buyers. Buyers shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date.
(d) Escrow Agreements and Indemnification Agreement.
Buyers shall have executed and delivered to the Shareholders the Escrow
Agreements and the Indemnification Agreement.
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(e) Non-Competition Agreements. Buyers shall have
executed and delivered to the Shareholder/Employees the respective
Non-Competition Agreements.
(f) Merger Documents. Merger Sub shall have executed the
Merger Documents, to be filed with the Secretary of State of the State of
Washington.
(g) Opinion of Buyer's Counsel. Buyer's Assistant General
Counsel shall have delivered to the Opinion of Buyer's Counsel to the Sellers.
(h) ESOP Approvals. The Target shall have received the
ESOP Approvals.
(i) Buyers' Board Approval. The Target shall have
received Buyers' Board Resolutions.
ARTICLE 9
INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNITIES
AND COVENANTS. The representations, warranties and indemnities set forth in this
Agreement and any right to bring an action at law, in equity, or otherwise for
any misrepresentation or breach of warranty under this Agreement shall survive
for a period of one (1) year from the Closing Date (the "Indemnification
Period"). All post-closing covenants set forth in ARTICLE 7 hereof shall survive
the Closing for the period specified in this Agreement or, if not specified,
until the expiration of the Indemnification Period.
Section 9.2 INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF BUYERS.
Subject to SECTION 9.4, the Target prior to the Closing, and the ESOP solely
with respect to its specified representations, warranties obligations, and
covenants, agree to indemnify and hold Buyers and their respective officers,
directors and affiliates harmless from and against any and all Adverse
Consequences (as defined below) that any of such parties may suffer or incur
resulting from, arising out of, relating to, or caused by (a) the material
breach of any of the Target's representations, warranties, obligations or
covenants contained herein, (b) the operation of Target's insurance agency
business or ownership of the Target Shares by the Shareholders on or prior to
the Closing Date, including, without limitation, any claims or lawsuits based on
conduct of Target or the Shareholders occurring before the Closing, except to
the extent the Adverse Consequence was taken into account by reserve or accrual
in the determination of Consolidated Total Net Worth, or (c) any deficiency in
the accruals on Target's Closing Date balance sheet for (i) any insurance
company payables outstanding as of the Closing Date, or (ii) any accounts
receivable aged over fifty-nine days as of the Closing Date on Target's Closing
Date balance sheet not collected as of the expiration of the Indemnification
Period, that are in excess of the allowance for doubtful accounts on Target's
Closing Date balance sheet. For purposes of this ARTICLE 9, the phrase "Adverse
Consequences" means all charges, complaints, actions, suits, proceedings,
hearings, investigations, claims, demands, judgments, orders, decrees,
stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated, and whether due or to become
due), obligations, taxes, liens, losses, expenses, and fees, including all
attorneys' fees and court costs.
Section 9.3 INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF THE
SHAREHOLDERS. Subject to SECTION 9.4, Buyers agree, jointly and severally, to
indemnify and hold the Shareholders harmless from and against any and all
Adverse Consequences the Shareholders may suffer or incur resulting from,
arising out of, relating to, or caused by (a) the material breach of any of
Buyer's representations, warranties, obligations or covenants contained herein,
or (b) the operation of the insurance agency business of Target after the
Closing Date, including, without limitation, any claims or lawsuits based on
conduct of either Buyer occurring after the Closing.
Section 9.4 MAXIMUM INDEMNIFICATION OBLIGATION; SATISFACTION OF
OBLIGATIONS FROM ESOP'S ESCROWED SHARES. (a) The maximum indemnification
obligation of any party (the Sellers being collectively referred to as one party
for purposes of this SECTION 9.4) hereunder shall be limited to the aggregate
value, as of the Closing Date, of the Merger Consideration (the "Maximum
Liability Amount"); provided, however, that the ESOP's portion of Sellers'
maximum indemnification obligation with respect to its specified
representations, warranties, obligations and covenants shall be limited to the
value of those Escrowed Shares issued to the ESOP.
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(b) Notwithstanding anything to the contrary in this
SECTION 9.4, Target's indemnification obligations under this ARTICLE 9 with
respect to any and all Adverse Consequences that Buyer may suffer or incur
resulting from, arising out of, relating to, or caused by the breach of the
covenants set forth in SECTION 7.5 hereof shall not be subject to the Maximum
Liability Amount.
Section 9.5 LIMITATION ON INDEMNIFICATION. Anything in this
Agreement to the contrary notwithstanding, no party shall be entitled to
indemnification hereunder with respect to any claim or claims unless and until
the aggregate amount of the indemnified claim or claims exceeds $25,000,
provided that once such party's claims exceed $25,000 in the aggregate, such
party shall be entitled to be indemnified only to the extent that such claims
exceed such initial $25,000.
ARTICLE 10
TERMINATION AND AMENDMENT
Section 10.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual consent of the parties hereto;
(b) by Buyer if there shall have been a material breach
of any representation, warranty, covenant or agreement by the Target set forth
in this Agreement which breach shall not have been cured prior to the Closing;
(c) by the Target if there shall have been a material
breach of any representation, warranty, covenant or agreement by Buyer set forth
in this Agreement which breach shall not have been cured prior to the Closing;
(d) by any party if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
acquisition shall have become final and non-appealable; or
(e) If the Closing does not occur on or before August 31,
2001 (the "Termination Date"); provided, however, that if delays in the
registration of the Brown & Brown Shares pursuant to SECTION 1.12 prevent the
Brown & Brown Shares from being effectively registered prior to the Release
Date, then the parties hereto shall extend the Termination Date to November 30,
2001 (the "Extended Termination Date").
Section 10.2 EFFECTS OF TERMINATION. In the event of a termination
of this Agreement by any party as provided in SECTION 10.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
any party or any of their respective affiliates, except to the extent that such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
Section 10.3 EXTENSION; WAIVER. At any time prior to the Closing
Date, the parties may (a) extend the time for the performance of any of their
obligations or other acts, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party.
ARTICLE 11
MISCELLANEOUS
Section 11.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (if confirmed), or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or at such other
address for a party as shall be specified by like notice:
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(a) If to Buyers, to
Brown & Brown, Inc.
401 E. Jackson Street, Suite 1700
Tampa, Florida 33602
Telecopy No.: (813) 222-4464
Attn: Laurel L. Grammig, Esq.
(b) if to the Target, to
Raleigh, Schwarz & Powell, Inc.
1201 Pacific Ave., Ste. 1000
Tacoma, Washington 98402
Telecopy No.: (253) 396-4500
Attn: John P. Folsom
with a copy to
Vandeberg Johnson & Gandara
Suite 1900
1201 Pacific Avenue
Tacoma, Washington 98402
Telecopy No.: (253) 383-6377
Attn: Mark R. Patterson, Esq.
(c) If to the ESOP, to
Ludwig Goldberg & Krenzel
50 California Street, 36th Floor
San Francisco, California 94111
Telecopy No.: (415) 433-6496
Attn: Laurence A. Goldberg
Section 11.2 USE OF TERM "KNOWLEDGE". With respect to the term
"Knowledge" as used herein: (a) an individual will be deemed to have "Knowledge"
of a particular fact or other matter if (i) such individual is actually aware of
such fact or other matter, or (ii) a prudent individual could reasonably be
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonably comprehensive investigation concerning the
existence of such fact or matter; and (b) a corporation or other business entity
(including, without limitation, the ESOP) will be deemed to have "Knowledge" of
a particular fact or other matter if any individual who is serving, who has at
any time in the twelve (12) months prior to the Closing Date served, as a
director, officer, employee who is an Other Shareholder, or trustee (or in any
similar capacity) of such corporation or business entity has, or at any time
had, Knowledge of such fact or other matter.
Section 11.3 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. Facsimile
signatures shall have the same effect as original signatures.
Section 11.4 ENTIRE AGREEMENT. This Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
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150
Section 11.5 ASSIGNMENT. Except as contemplated in SECTION 7.8
hereof, neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
This Agreement will be binding upon, inure to the benefit of, and be enforceable
by the parties and their respective successors and permitted assigns.
Section 11.6 AMENDMENT. This Agreement may not be amended except
by an instrument in writing signed on behalf of all the parties hereto.
Section 11.7 JOINT EFFORTS. This Agreement is the result of the
joint efforts and negotiations of the parties hereto, with each party being
represented, or having the opportunity to be represented, by legal counsel of
its own choice, and no singular party is the author or drafter of the provisions
hereof. Each of the parties assumes joint responsibility for the form and
composition of this Agreement and each party agrees that this Agreement shall be
interpreted as though each of the parties participated equally in the
composition of this Agreement and each and every provision and part hereof. The
parties agree that the rule of judicial interpretation to the effect that any
ambiguity or uncertainty contained in an agreement is to be construed against
the party that drafted the agreement shall not be applied in the event of any
disagreement or dispute arising out of this Agreement.
Section 11.8 HEADINGS. All paragraph headings herein are inserted
for convenience of reference only and shall not modify or affect the
construction or interpretation of any provision of this Agreement.
Section 11.9 SEVERABILITY. If any provision or covenant, or any
part thereof, of this Agreement should be held by any court to be illegal,
invalid or unenforceable, either in whole or in part, such illegality,
invalidity or unenforceability shall not affect the legality, validity or
enforceability of the remaining provisions or covenants, or any part thereof,
all of which shall remain in full force and effect.
Section 11.10 ATTORNEYS' FEES. The prevailing party in any
proceeding brought to enforce the provisions of this Agreement shall be entitled
to an award of reasonable attorneys' fees and costs incurred at both the trial
and appellate levels incurred in enforcing its rights hereunder.
Section 11.11 GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Florida without regard to conflicts of laws principles thereof, except as to the
effectuation of the Merger, which shall be governed by and construed and
enforced in accordance with the WBCA.
* * * * * * * * * *
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IN WITNESS WHEREOF, the parties have signed or caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
BUYERS:
BROWN & BROWN, INC.
By: /s/ Ken Kirk
---------------------------------------
Name: Ken Kirk
--------------------------------------
Title: Regional Executive Vice President
-------------------------------------
BROWN & BROWN OF WASHINGTON, INC.
By: /s/ Ken Kirk
---------------------------------------
Name: Ken Kirk
--------------------------------------
Title: President
-------------------------------------
SELLERS:
TARGET:
RALEIGH, SCHWARZ & POWELL, INC.
By: /s/ John P. Folsom
---------------------------------------
Name: John P. Folsom
Title: President
RALEIGH, SCHWARZ & POWELL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By: /s/ John P. Folsom
---------------------------------------
Name: John P. Folsom
Title: Trustee
By: /s/ R.S. DeVine
---------------------------------------
Name: R. S. DeVine
Title: Trustee
By: /s/ Elvin J. Vandeberg
---------------------------------------
Name: Elvin J. Vandeberg
Title: Trustee
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SCHEDULES AND EXHIBITS
Schedule 1.7(a)(ii): Average Price
Schedule 1.7(b): Consolidated Total Net Worth
Schedule 2.2(a)(vi): Shareholder/Employees
Schedule 3.3: Capitalization
Schedule 3.5: Consents and Approvals
Schedule 3.9(a): Book of Business
Schedule 3.9(b): Trade names
Schedule 3.9(d): Leased Assets
Schedule 3.9(e): Accounts
Schedule 3.10: Guarantees
Schedule 3.11: Litigation and Claims
Schedule 3.14: Material Contracts
Schedule 3.16: Insurance Policies
Schedule 3.17: E&O, EPL, and D&O and Fiduciary Liability
Schedule 3.18: Employee Dishonesty Coverage
Schedule 3.20: Employee Benefit Plans
Schedule 3.21(c): Owned Intellectual Property
Schedule 3.21(d): Licensed Intellectual Property
Schedule 3.23(a): Pooling-of-Interests Accounting Matters
Schedule 5.5: Certain Changes of Buyers
Schedule 7.14: ESOP Activity
Exhibit 1.2: Plan of Merger
Exhibit 1.3: Articles of Merger
Exhibit 2.2(a)(ii): Release
Exhibit 2.2(a)(iii): Indemnification Agreement
Exhibit 2.2(a)(iv): Shareholder Escrow Agreement
Exhibit 2.2(a)(v): ESOP Escrow Agreement
Exhibit 2.2(a)(vi): Opinion of Target's Counsel
Exhibit 2.2 (a)(vii): Non-Competition Agreement
Exhibit 2.2(a)(ix): Spousal Consent
Exhibit 2.2(b)(ii): Opinion of Buyers' Counsel
Annex A-28
153
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This First Amendment (this "First Amendment") to Agreement and Plan of
Reorganization, dated as of August 10, 2001, is by and among Brown & Brown,
Inc., a Florida corporation ("Brown & Brown"), Brown & Brown of Washington, a
Washington corporation and wholly owned subsidiary of Brown & Brown ("Merger
Sub"), Raleigh, Schwarz & Powell, Inc., a Washington corporation (the "Target"),
and the Raleigh, Schwarz & Powell, Inc. Employee Stock Ownership Plan ("ESOP").
BACKGROUND
Pursuant to an Agreement and Plan of Reorganization, dated July 25,
2001 (the "Agreement"), the Target shall become a wholly-owned subsidiary of
Brown & Brown. Accordingly, in consideration of the mutual covenants and
agreements set forth below, the parties desire to amend the Agreement as
follows:
TERMS
1. Background. The Background of the Agreement is hereby amended in its
entirety to read as follows:
The ESOP and the other shareholders listed in Schedule 3.3
hereto (the "Other Shareholders" and, collectively with the ESOP, the
"Shareholders") own all of the shares of outstanding capital stock of
Target (the "Target Shares"). Target is engaged primarily in the
insurance agency business with its principal office in the State of
Washington. The respective Boards of Directors of Brown & Brown, Merger
Sub and Target have determined that it is advisable and in the best
interests of the companies and their respective stockholders, and the
trustees of the ESOP (the "Trustees") have determined that it is
advisable and in the best interests of the ESOP's participants (the
"ESOP Participants"), that Merger Sub merge with and into Target
pursuant to this Agreement with Target being the surviving corporation
(the "Merger"). Brown & Brown, Merger Sub, Target and the ESOP desire
to make certain representations, warranties, covenants and agreements
in connection with the Merger and also prescribe certain conditions to
the Merger. It is the intent of the parties hereto that the
transactions contemplated in this Agreement be treated as a
pooling-of-interests transaction for accounting purposes and as a
reorganization within the meaning of Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"). In addition, pursuant to
an Agreement and Plan of Reorganization of this date (the "Golden Gate
Merger Agreement") among Brown & Brown, Golden Gate Holdings, Inc., a
California corporation and affiliate of Target ("Golden Gate"), and
certain other parties, a wholly-owned subsidiary of Target will merge
with and into Golden Gate after the Effective Time (as defined in
SECTION 1.2 below) of the Merger pursuant to this Agreement.
2. Section 1.7 Merger Consideration. Section 1.7(a)(i) of the Agreement is
hereby amended in its entirety to read as follows:
(i) the difference of (A) $32,896,490 minus (B) 82.24% of the
amount by which the Consolidated Net Worth (as defined below) is less
than Thirteen Million Dollars ($13,000,000.00), divided by
3. Section 1.8 Delivery of Brown & Brown Shares. Section 1.8(a)(i) of the
Agreement is hereby amended in its entirety to read as follows:
(i) ten percent (10%) of the Brown & Brown Shares (including
those to be issued to the ESOP) (the "Escrowed Shares"), shall be
delivered to a mutually agreeable escrow agent (the "Escrow Agent") as
partial security for the indemnification obligations of the
Shareholders under ARTICLE 9 hereof and the Indemnification Agreement
(as defined below). These Escrowed Shares, subject to any reduction in
number as may be necessary to satisfy the Shareholders' indemnification
obligations, shall be delivered to the Shareholders one (1) year after
the Closing Date, in accordance with the terms of the Escrow Agreements
(as defined below). The Escrow Agreements shall permit the Escrow Agent
to sell or transfer the Escrowed Shares (subject to the restrictions on
resale or transfer described in SECTION 3.24(B) hereof or in SECTION
1.12 hereof), provided that the proceeds of any such sale or transfer
shall continue to be held pursuant to the Escrow Agreements until one
(1) year after the Closing Date and that such proceeds shall be
invested in any deposit which is fully insured by the Federal Deposit
Insurance Corporation, commercial paper given the highest rating by
Moody's
Annex A-29
154
Investors Service, Inc., and Standard & Poor's Corporation at the time
of investment or money market funds investing primarily in the
foregoing; and
4. Section 8.1 Conditions to Each Party's Obligations. Section 8.1(d) of
the Agreement is hereby deleted in its entirety.
5. Section 10.1 Termination. Section 10.1(e) of the Agreement is hereby
amended in its entirety to read as follows:
(e) If the Closing does not occur on or before August 31, 2001
(the "Termination Date"); provided, however, that if delays in the
registration of the Brown & Brown Shares pursuant to SECTION 1.12
prevent the Closing from occurring by that date, then the parties
hereto shall extend the Termination Date to November 30, 2001 (the
"Extended Termination Date").
6. Governing Law. This First Amendment shall be governed by and construed
and enforced in accordance with the internal laws of the State of
Florida without regard to conflicts of law principles thereof.
7. Agreement Remains in Effect. Except as specifically modified by this
First Amendment, the Agreement remains in full force and effect.
8. Counterparts. This First Amendment may be executed in counterpart
originals, and by facsimile transmission, each of which counterpart
original shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the date first written above.
BROWN & BROWN, INC.
By: /s/ Laurel L. Grammig
---------------------------------
Name: Laurel L. Grammig
-------------------------------
Title: Vice President
------------------------------
BROWN & BROWN OF WASHINGTON, INC.
By: /s/ Laurel L. Grammig
---------------------------------
Name: Laurel L. Grammig
-------------------------------
Title: Vice President
------------------------------
RALEIGH, SCHWARZ & POWELL, INC.
By: /s/ John P. Folsom
---------------------------------
Name: John P. Folsom
-------------------------------
Title: President
------------------------------
Annex A-30
155
RALEIGH, SCHWARZ & POWELL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By: /s/ John P. Folsom
---------------------------------
Name: John P. Folsom
Title: Trustee
By: /s/ R.S. DeVine
---------------------------------
Name: R. S. DeVine
Title: Trustee
By: /s/ Elvin J. Vanderberg
---------------------------------
Name: Elvin J. Vandeberg
Title: Trustee
Annex A-31
156
ANNEX B
FORM OF INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into as of the ____ day of ______, 2001, by and among BROWN & BROWN, INC., a
Florida corporation ("Brown & Brown"), BROWN & BROWN OF WASHINGTON, INC., a
Washington corporation ("Merger Sub"; Merger Sub and Brown & Brown are sometimes
hereinafter collectively referred to as the "Buyers"), RALEIGH, SCHWARZ &
POWELL, INC., a Washington corporation ("Target"), and the SHAREHOLDERS listed
on the signature pages hereto (collectively, the "Shareholders").
BACKGROUND
Buyers, Target and certain other parties entered into an Agreement and
Plan of Reorganization dated as of July 25, 2001 (as amended, the "Merger
Agreement"), pursuant to which the parties agreed, among other things, to merge
Merger Sub with and into Target with Target being the surviving corporation (the
"Merger"). Capitalized terms used in this Agreement without definition have the
respective meanings given to them in the Merger Agreement. By virtue of the
Merger, all of the Target Shares were converted into the right to receive, and
the Shareholders have received, their pro rata portion of the Merger
Consideration, in the form of issuance of shares of common stock of Brown &
Brown (sometimes referred to herein as the "Brown & Brown Shares"). In
accordance with the terms of the Merger Agreement, ten percent (10%) of the
Brown & Brown Shares are to be delivered to the Escrow Agent as security for the
performance of certain obligations of Shareholders under this Agreement.
Specifically, pursuant to this Agreement, Shareholders are making certain
representations, warranties and covenants and agreeing to indemnify and hold
Brown & Brown harmless from certain damages or losses Brown & Brown may suffer
or incur as described in Section 3 below. This Agreement is being executed and
delivered pursuant to Section 2.2(a)(iii) of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
TERMS
SECTION 1. Representations and Warranties of Shareholders. The
Shareholders jointly and severally represent and warrant to the Buyers as
follows:
(a) Authority. Each Shareholder has the requisite power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by the Merger Agreement and hereby. This Agreement has
been duly executed and delivered by the Shareholders and constitutes their valid
and binding obligation, enforceable against them in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization or similar laws
from time to time in effect relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
(b) Capitalization. Schedule 3.3 to the Merger Agreement
sets forth the number of Target Shares and the corresponding ownership
percentage in Target beneficially held by each of the Shareholders. The Target
Shares constitute all of the issued and outstanding shares of capital stock of
Target. All of the Target Shares have been duly issued and are fully paid and
nonassessable. All of the Target Shares are owned and held by the Shareholders,
free and clear of all liens, encumbrances or other third-party rights of any
kind whatsoever. There are no outstanding agreements, options, rights or
privileges, whether preemptive or contractual, to acquire shares of capital
stock or other securities of Target except as described in Schedule 3.3 to the
Merger Agreement.
(c) Consents and Approvals; No Violations. Except as set
forth in Schedule 3.5 to the Merger Agreement, neither the execution, delivery
or performance of this Agreement or the Merger Agreement by the Shareholders nor
the consummation by them of the transactions contemplated hereby or thereby nor
compliance by them with any of the provisions hereof or thereof will (a)
conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws of Target, (b) except with respect to the filing of the
Merger Documents with the Secretary of State of Washington, and the filing of
change of control information or license transfer document, with the insurance
regulators in the states (identified in Schedule 3.5 to the Merger Agreement) in
which Target or its employees are licensed to engage in the insurance agency
business require any filing with, or permit, authorization, consent, or approval
of, any Governmental Entity, except where the failure to obtain such permits,
authorizations, consents, or approvals or to make such filings would not,
individually or in the aggregate, have a Material Adverse Effect, (c) result in
a violation or breach of, or constitute a default (or give rise to any right of
termination,
Annex B-1
157
amendment, cancellation, or acceleration) under, any of the terms, conditions,
or provisions of any note, bond, mortgage, lease, license, agreement, or other
instrument or obligation to which any of the Shareholders or Target is a party
or by which any of the Shareholders or Target or any of their respective
properties or assets may be bound, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any of the Shareholders or
Target, or any of their respective properties or assets, except in the case of
(C) or (D) above for violations, breaches or defaults that would not,
individually or in the aggregate, have a Material Adverse Effect.
(d) Litigation and Claims. No voluntary or involuntary
petition in bankruptcy, receivership, insolvency, or reorganization with respect
to any of the Shareholders has been filed by or, to the Knowledge of the
Shareholders, against any of the Shareholders or Target, nor will any of the
Shareholders or Target file such a petition prior to the Closing Date or for one
hundred (100) days thereafter, and if such petition is filed by others, the same
will be promptly discharged. Each of the Shareholders is solvent on the date
hereof and will be solvent on the Closing Date. No Shareholder has made any
assignment for the benefit of creditors, or admitted in writing insolvency or
that its property at fair valuation will not be sufficient to pay its debts, nor
will any of the Shareholders permit any judgment, execution, attachment, or levy
against them or their properties to remain outstanding or unsatisfied for more
than ten (10) days.
(e) Pooling-of-Interests Accounting Matters. Except as
set forth on Schedule 3.23(a) to the Merger Agreement, (i) Target has never been
a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded; (ii) within the past two (2) years, there has not
been any sale, spin-off or split-up of a significant amount of assets of Target
other than in the ordinary course of business; (iii) Target owns no shares of
the capital stock of Brown & Brown; (iv) Target has not acquired any shares of
its capital stock during the past two (2) years; (v) as of the Effective Time,
Target has no obligation (whether contingent or otherwise) to purchase, redeem
or otherwise acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any distribution in respect thereof; (vi) neither
the voting stock structure of Target nor the relative ownership of shares among
the Shareholders has been altered or changed within the last two (2) years in
contemplation of the Merger; and (vii) except for the Target Shares allocated to
participants within the ESOP, none of the shares of the capital stock of Target
were issued pursuant to awards, grants or bonuses. To the Knowledge of each of
the Shareholders, neither Target nor any Shareholder has taken or agreed to take
any action that would prevent Brown & Brown from accounting for this transaction
as a pooling of interests. Without limiting the generality of the foregoing, to
the Knowledge of the Shareholders, no "Affiliate" (as defined below) of Target
has, during a period of thirty (30) days prior to the date of this Agreement,
sold, pledged, hypothecated, or otherwise transferred or encumbered any capital
stock of Target held by such Affiliate. For purposes of this Agreement, the term
"Affiliate" means any officer, director, or owner of ten percent (10%) or more
of the voting capital stock of Target. As of the date of this Agreement, no
Shareholder has entered into any agreement to sell, pledge, hypothecate, or
otherwise transfer or encumber the Brown & Brown Shares.
(f) Securities Law Representations. Each Shareholder has
received and reviewed a copy of the prospectus dated ______, 2001, including all
supplements thereto (as supplemented, the "S-4 Prospectus") contained in the
Form S-4. Each Shareholder (i) has such knowledge, sophistication and experience
in business and financial matters that he is capable of evaluating the merits
and risks of an investment in the Brown & Brown Shares, and (ii) can bear the
economic risk of any investment in the Brown & Brown Shares and can afford a
complete loss of such investment. The Shareholders were granted access to the
business, corporate and financial books and records of Buyers. The Shareholders
were permitted to examine the foregoing records, to question officers of Buyers,
and to make such other investigations as they considered appropriate to
determine or verify the business and financial condition of Buyers. Buyers
furnished to the Shareholders all information regarding its business and affairs
that the Shareholders requested. No Shareholder has any contract, undertaking,
agreement or arrangement, written or oral, with any other person to transfer or
grant participations in any Brown & Brown Shares.
Each Shareholder recognizes that the Brown & Brown Shares
will, when issued, be registered under the Securities Act but that, in order for
the Merger to qualify for treatment under the pooling-of-interests method of
accounting, the Shareholders will not be able to sell, offer to sell, transfer,
pledge, hypothecate, or otherwise dispose of the Brown & Brown Shares until two
(2) business days after the date of Brown & Brown's release (in such form as
Brown & Brown may determine in its sole discretion) of financial results of at
least thirty (30) days of post-Closing operations of Brown & Brown and the
Target (the "Release Date"); and further, Buyer will issue stop transfer orders
with Buyer's transfer agent to enforce the foregoing restrictions. None of the
information supplied by Shareholders for inclusion in the Form S-4 contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
Annex B-2
158
(g) No Misrepresentations. None of the representations
and warranties of the Shareholders set forth in this Agreement, notwithstanding
any investigation thereof by Buyers, contains any untrue statement of a material
fact, or omits the statement of any material fact necessary to render the
statements made not misleading.
SECTION 2. Covenants. The parties agree as follows with respect
to the period following the Closing.
(a) Third Party Consents. To the extent that the Merger
may not be consummated under the Merger Agreement without the consent of another
person which has not been obtained, the Merger Agreement shall not constitute an
agreement to consummate such Merger if an attempted transfer would constitute a
breach thereof or be unlawful, and the Shareholders, at their expense, shall use
their best efforts to obtain any such required consent(s) as promptly as
possible. If any such consent shall not be obtained or if any attempted transfer
would be ineffective or would impair Buyers' rights so that Buyers would not in
effect acquire the benefit of all such rights, the Shareholders, to the maximum
extent permitted by law, shall act after the Closing as Buyers' agent in order
to obtain for it the benefits thereunder and shall cooperate, to the maximum
extent permitted by law, with Buyers in any other reasonable arrangement
designed to provide such benefits to Buyers.
(b) Further Assurances. From time to time after the
Closing, at either Buyer's request, each Shareholder will execute, acknowledge
and deliver to the Buyers such other instruments of conveyance and transfer and
will take such other actions and execute and deliver such other documents,
certifications and further assurances as the Buyers may reasonably request in
order to vest more effectively the Merger. Each of the parties hereto will
cooperate with the others and execute, acknowledge and deliver to the other
parties such other instruments and documents and take such other actions as may
be reasonably requested from time to time by such other party as necessary to
carry out, evidence and confirm the intended purposes of this Agreement and the
Merger Agreement.
(c) Pooling-of-Interests Accounting Matters. No
Shareholder shall knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of this transaction as a "pooling of
interests" for accounting purposes. Without limiting the generality of the
foregoing, each of the Shareholders agrees that in order to preserve the
pooling-of-interests treatment of this transaction, such Shareholder shall not
sell, pledge, hypothecate, or otherwise transfer or encumber any Brown & Brown
Shares issued to such Shareholder under the Merger Agreement until the Release
Date.
(d) Remedy for Breach of Covenants. In the event of a
breach of the provisions of SECTION 2(C), Buyers shall be entitled to injunctive
relief as well as any other applicable remedies at law or in equity. The
Shareholders each acknowledge that the covenants set forth in SECTION 2(C)
represent an important element of Target's value and were a material inducement
for Buyers to enter into the Merger Agreement.
(e) Transfer Taxes. The Shareholders shall be solely
responsible for and shall pay any transfer taxes triggered by the surrender and
cancellation of the Target Shares and the issuance to the Shareholders of the
Brown & Brown Shares pursuant to the Merger Agreement.
SECTION 3. Indemnification.
(a) Survival of Representations, Warranties, Indemnities
and Covenants. The representations, warranties and indemnities set forth in this
Agreement and any right to bring an action at law, in equity, or otherwise for
any misrepresentation or breach of warranty under this Agreement or the Merger
Agreement shall survive for a period of one (1) year from the Closing Date (the
"Indemnification Period"). All post-closing covenants set forth herein or in
ARTICLE 7 of the Merger Agreement shall survive the Closing for the period
specified in this Agreement or the Merger Agreement or, if not specified, until
the expiration of the Indemnification Period.
(b) Indemnification Provisions for the Benefit of Buyers.
Subject to SECTION 3(C), the Shareholders, jointly and severally, agree to
indemnify and hold Buyers and Target (after the Closing) and their respective
officers, directors and affiliates harmless from and against any and all Adverse
Consequences (as defined below) that any of such parties may suffer or incur
resulting from, arising out of, relating to, or caused by (i) the material
breach of any of the Target's representations, warranties, obligations or
covenants contained in the Merger Agreement, (ii) the material breach of any of
the Shareholders' representations, warranties, obligations or covenants
contained in this
Annex B-3
159
Agreement or any other certificate, agreement or other document (other than the
Release) delivered by any Shareholder pursuant to the Merger Agreement, (iii)
the operation of Target's insurance agency business or ownership of the Target
Shares by the Shareholders on or prior to the Closing Date, including, without
limitation, any claims or lawsuits based on conduct of Target or the
Shareholders occurring before the Closing, except to the extent the Adverse
Consequence was taken into account by reserve or accrual in the determination
of Consolidated Total Net Worth, (iv) the exercise of any dissenters' rights by
a Shareholder as described in Section 1.7(c) of the Merger Agreement, or (v)
any deficiency in the accruals on Target's Closing Date balance sheet for (A)
any insurance company payables outstanding as of the Closing Date, or (B) any
accounts receivable aged over fifty-nine days as of the Closing Date on
Target's Closing Date balance sheet not collected as of the expiration of the
Indemnification Period, that are in excess of the allowance for doubtful
accounts on Target's Closing Date balance sheet. Subject to Section 3(c), each
Shareholder agrees to indemnify and hold Buyers and Target (after the Closing)
and their respective officers, directors and affiliates harmless from and
against any and all Adverse Consequences that any of such parties may suffer or
incur resulting from, arising out of, relating to, or caused by the material
breach of any of such Shareholder's representations, warranties, obligations or
covenants contained in the Release. For purposes of this SECTION 3, the phrase
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), obligations, taxes, liens, losses, expenses, and fees,
including all attorneys' fees and court costs.
(c) Maximum Indemnification Obligation. The maximum
indemnification obligation of any party (the Shareholders being collectively
referred to as one party for purposes of this SECTION 3(C)) hereunder shall be
limited to the aggregate value, as of the Closing Date, of the Merger
Consideration (the "Maximum Liability Amount"); provided, however, that the
Maximum Liability Amount of each Shareholder who owns less than 2,000 shares of
capital stock of the Target prior to the date of this Agreement or is listed on
Schedule 1 attached hereto shall be limited to the aggregate value, as of the
Closing Date, of the Merger Consideration received by such Shareholder.
(d) Limitation on Indemnification. Anything in this
Agreement or the Merger Agreement to the contrary notwithstanding, no party
shall be entitled to indemnification hereunder with respect to any claim or
claims unless and until the aggregate amount of the indemnified claim or claims
exceeds $25,000, provided that once such party's claims exceed $25,000 in the
aggregate, such party shall be entitled to be indemnified only to the extent
that such claims exceed such initial $25,000.
(e) No Contribution from Target. Shareholders acknowledge
and agree that, from and after Closing, they shall have no right of contribution
from the Target with respect to any indemnification obligations hereunder or
under the Merger Agreement or applicable law.
SECTION 4. No Waiver; Cumulative Remedies. No failure on the
part of Brown & Brown to exercise, and no delay in exercising, any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by Brown & Brown preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by laws.
SECTION 5. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (if confirmed), or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses or at such other
address for a party as shall be specified by like notice:
If to Brown & Brown, to:
Brown & Brown, Inc.
401 E. Jackson Street, Suite 1700
Tampa, Florida 33619
Telecopy No.: (813) 222-4464
Attn: Laurel L. Grammig, Esq.
If to a Shareholder, to the address set forth on the signature
page hereto.
The above address for any party may be changed by such party by notice given in
the manner provided herein.
SECTION 6. Binding Agreement; Assignment. This Agreement, and
the terms, covenants and conditions hereof, shall be binding upon and inure to
the benefit of the parties hereto and to their respective successors and
assigns.
Annex B-4
160
SECTION 7. Amendment; Waiver; Termination. Neither this
Agreement nor any provisions hereof may be amended, modified, waived, discharged
or terminated orally. The Section headings used herein are for convenience of
reference only, and shall not define or limit the provisions of this Agreement.
SECTION 8. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Florida without regard to choice of law principles.
* * * * * * * * * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]
Annex B-5
161
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date first above written.
BROWN & BROWN, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BROWN & BROWN OF WASHINGTON, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
RALEIGH, SCHWARZ & POWELL, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SHAREHOLDERS:
------------------------------------
David S. Allison, individually
Address:
------------------------------------
------------------------------------
James B. Binder, individually
Address:
------------------------------------
------------------------------------
Jeffrey N. Cashman, Trustee of the
Viajera Charitable Remainder Trust
Address:
------------------------------------
------------------------------------
Judith E. Cashman, Trustee of the
Viajera Charitable Remainder Trust
Address:
------------------------------------
Annex B-6
162
------------------------------------
Ruth Cox, individually
Address:
------------------------------------
------------------------------------
Daniel J. DeLorenzo, individually
Address:
------------------------------------
------------------------------------
Sharon Edmondson, individually
Address:
------------------------------------
------------------------------------
John P. Folsom, individually
Address:
------------------------------------
------------------------------------
William E. Givens, individually
Address:
------------------------------------
------------------------------------
Gary Grosenick, individually
Address:
------------------------------------
------------------------------------
Susan M. Keith, individually
Address:
------------------------------------
------------------------------------
Samuel B. Marquiss, individually
Address:
------------------------------------
------------------------------------
Richard A. Moore, individually
Address:
------------------------------------
Annex B-7
163
------------------------------------
Harold R. Ross, individually
Address:
------------------------------------
------------------------------------
Terry L. Sattler, individually
Address:
------------------------------------
------------------------------------
Judy W. Scarborough, individually
Address:
------------------------------------
------------------------------------
Dennis B. Schmidt, individually
Address:
------------------------------------
------------------------------------
Robert W. Smith, individually
Address:
------------------------------------
------------------------------------
Gary R. Stone, individually
Address:
------------------------------------
------------------------------------
Scott Strickland, individually
Address:
------------------------------------
------------------------------------
Gerald R. Zander, individually
Address:
------------------------------------
Annex B-8
164
SCHEDULE 1
Viajera Trust
William E. Givens
Richard Moore
Annex B-9
165
ANNEX C
FORM OF CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into
as of the ____ day of ______, 2001, by and among the SHAREHOLDERS of Raleigh,
Schwarz & Powell, Inc., a Washington corporation listed on the signature pages
hereto (collectively, the "Shareholders").
BACKGROUND
Brown & Brown, Inc., a Florida corporation (the "Buyer"), Raleigh,
Schwarz & Powell, Inc. (the "Target") and certain other parties entered into an
Agreement and Plan of Reorganization dated as of July 25, 2001, as amended (the
"Merger Agreement"), pursuant to which the parties agreed, among other things,
to merge Brown & Brown of Washington, Inc., a Washington corporation (the
"Merger Sub") with and into Target with Target being the surviving corporation
(the "Merger"). Capitalized terms used in this Agreement without definition have
the respective meanings given to them in the Merger Agreement. By virtue of the
Merger, all of the Target Shares were converted into the right to receive, and
the Shareholders have received, their pro rata portion of the Merger
Consideration, in the form of issuance of shares of common stock of Brown &
Brown (sometimes referred to herein as the "Brown & Brown Shares"). In
accordance with the terms of the Merger Agreement, ten percent (10%) of the
Brown & Brown Shares are to be delivered to the Escrow Agent as security for the
performance of certain obligations of Shareholders under this Agreement.
Specifically, pursuant to this Agreement, Shareholders are agreeing to indemnify
and hold each other harmless from certain damages or losses each Shareholder may
suffer or incur as described in Section 1 below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
TERMS
SECTION 1. Contribution.
(a) Indemnification Provisions for the Benefit of Buyers.
Each of the Shareholders has executed an Indemnification Agreement, agreeing to
jointly and severally indemnify and hold Buyers and Target (after the Closing)
and their respective officers, directors and affiliates harmless from and
against any and all Adverse Consequences that any of such parties may suffer or
incur resulting from, arising out of, relating to, or caused by certain claims
described in the Indemnification Agreement. For purposes of this Contribution
Agreement, the obligations of the Shareholders to Buyers and Target under the
Indemnification Agreement is referred to as the "Potential Liability."
(b) Contribution Obligation. As between the
Shareholders, for any claim made under the Indemnification Agreement or Escrow
Agreement or both (a "Claim"), the Shareholders agree that:
(i) With regard to a Claim that arises by
reason of a particular Shareholder's breach of a representation, warranty or
covenant made by such Shareholder relating to his or her ownership of stock in
the Target or that arises by reason of the failure of such Shareholder to keep
and perform his or her obligations following Closing pursuant to any agreement
entered into by such Shareholder, such Shareholder shall be responsible for the
full amount of such Claim and shall indemnify, defend and protect each other
Shareholder from any and all claims, liabilities, costs or expenses arising or
alleged to arise in relation to such Claim, including reasonable attorneys'
fees and costs, without regard to any maximum indemnification obligation amount
specified in such Shareholder's Indemnification Agreement; and
(ii) With regard to other Claims, each
Shareholder shall be responsible for a pro rata amount of the aggregate
liability arising from such Claims, in the proportion that the Merger
Consideration received by such Shareholder bears to the aggregate Merger
Consideration received by all of the Shareholders executing this Agreement
("Pro Rata Share"), and each Shareholder shall indemnify, defend and protect
each other Shareholder from claims, liabilities, costs or expenses, including
reasonable attorneys fees and costs, in excess of such other Shareholder's Pro
Rata Share, upon and subject to the terms and conditions provided in this part
(ii). No Shareholder shall be required to pay under this Agreement an amount
greater than the Merger Consideration received by such Shareholder (the
"Maximum Contribution Liability") provided, however, that if the aggregate
amount of all Claims exceeds the amount of Merger Consideration received by the
Shareholders by reason of (A) the ESOP not being liable for a Claim in
proportion to the Merger Consideration received by the ESOP, or (B) the maximum
Potential Liability Share of each Shareholder who owns less than 2,000 shares
of capital stock of the Target prior to the date of this Agreement or is listed
on Schedule 1 attached hereto being limited to the aggregate value, as of the
Closing Date, of the Merger Consideration received by such Shareholder (the
"Excess Claim Amount"), the Maximum Contribution Liability of each Shareholder
other than the ESOP, Shareholders with less than 2,000 shares and Shareholders
listed on Schedule 1 (the "Major Shareholders") shall be increased in an amount
equal to the Excess Claims Amount multiplied by the proportion that the Merger
Consideration received by such Major Shareholder bears to the aggregate Merger
Consideration received by all Major Shareholders.
(iii) For any indemnification of Claims pursuant
to part (ii) of this Section 1(b), in the event that the amount of the
aggregate liability under the Claims exceeds the amount of the Merger
Consideration received by the Shareholders contributing to a Claim (the
"Contributing Shareholders"), by reason of the failure or inability of one or
more Shareholders to contribute to the Claim, each of the Contributing
Shareholders shall bear his or her Pro Rate Share of such excess, provided,
however, that the maximum Potential Liability Share of each Shareholder who
owns less than 2,000 shares of capital stock of the Target prior to the date of
this Agreement or is listed on Schedule 1 attached hereto shall be limited to
the aggregate value, as of the Closing Date, of the Merger Consideration
received by such Shareholder.
(c) No Contribution from Target. The Shareholders
acknowledge and agree that, from and after Closing, they shall have no right of
contribution from the Target with respect to any indemnification obligations
hereunder.
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SECTION 2. No Waiver; Cumulative Remedies. No failure on the
part of a Shareholder to exercise, and no delay in exercising, any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by a Shareholder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by laws.
SECTION 3. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (if confirmed), or mailed by registered or certified mail (return
receipt requested) to the parties at the addresses shown on the signature page
or at such other address for a party as shall be specified by like notice. Such
address for a Shareholder may be changed by such Shareholder by notice given in
the manner provided herein.
SECTION 4. Binding Agreement; Assignment. This Agreement, and
the terms, covenants and conditions hereof, shall be binding upon and inure to
the benefit of the parties hereto and to their respective successors and
assigns.
SECTION 5. Amendment; Waiver; Termination. Neither this
Agreement nor any provisions hereof may be amended, modified, waived, discharged
or terminated orally. The Section headings used herein are for convenience of
reference only, and shall not define or limit the provisions of this Agreement.
SECTION 6. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Washington without regard to choice of law principles.
SECTION 7. Attorneys Fees. In any action arising under or
relating to this Agreement, the prevailing party or parties shall be entitled
to recover reasonable attorneys' fees and costs.
* * * * * * * * * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date first above written.
SHAREHOLDERS:
------------------------------------
David S. Allison, individually
Address:
------------------------------------
------------------------------------
James B. Binder, individually
Address:
------------------------------------
------------------------------------
Jeffrey N. Cashman, Trustee of the
Viajera Charitable Remainder Trust
Address:
------------------------------------
------------------------------------
Judith E. Cashman, Trustee of the
Viajera Charitable Remainder Trust
Address:
------------------------------------
------------------------------------
Ruth Cox, individually
Address:
------------------------------------
------------------------------------
Daniel J. DeLorenzo, individually
Address:
------------------------------------
------------------------------------
Sharon Edmondson, individually
Address:
------------------------------------
------------------------------------
John P. Folsom, individually
Address:
------------------------------------
William E. Givens, individually
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Address:
------------------------------------
------------------------------------
Gary Grosenick, individually
Address:
------------------------------------
------------------------------------
Susan M. Keith, individually
Address:
------------------------------------
------------------------------------
Samuel B. Marquiss, individually
Address:
------------------------------------
------------------------------------
Richard A. Moore, individually
Address:
------------------------------------
------------------------------------
Harold R. Ross, individually
Address:
------------------------------------
------------------------------------
Terry L. Sattler, individually
Address:
------------------------------------
------------------------------------
Judy W. Scarborough, individually
Address:
------------------------------------
------------------------------------
Dennis B. Schmidt, individually
Address:
------------------------------------
Annex C-4
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------------------------------------
Robert W. Smith, individually
Address:
------------------------------------
------------------------------------
Gary R. Stone, individually
Address:
------------------------------------
------------------------------------
Scott Strickland, individually
Address:
------------------------------------
------------------------------------
Gerald R. Zander, individually
Address:
------------------------------------
Annex C-5
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SCHEDULE 1
Viajera Trust
William E. Givens
Richard Moore
Annex C-6
171
ANNEX D
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT, is made and entered into of ________, 2001 (this
"Escrow Agreement"), by and among BROWN & BROWN, INC., a Florida corporation
("Brown & Brown"); the SHAREHOLDERS listed on the signature pages hereto
(collectively, the "Shareholders"); and NORTHWESTERN TRUST AND INVESTORS
ADVISORY COMPANY, as escrow agent hereunder ("Escrow Agent").
BACKGROUND
Brown & Brown and certain other parties entered into an Agreement and
Plan of Reorganization (as amended, the "Merger Agreement"), dated as of July
25, 2001, pursuant to which Brown & Brown of Washington, Inc., a Washington
corporation and wholly-owned subsidiary of Brown & Brown (the "Merger Sub"), is
merging with and into Raleigh, Schwarz & Powell, Inc., a Washington corporation
(the "Target"), with the Target being the surviving corporation and becoming a
wholly-owned subsidiary of Brown & Brown. In connection with consummation of the
transactions described in the Merger Agreement, Brown & Brown, the Shareholders
and certain other parties are entering into an Indemnification Agreement dated
as of this date (the "Indemnification Agreement") pursuant to which the
Shareholders are making certain representations, warranties and covenants and
agreeing to indemnify and hold Brown & Brown, Merger Sub and Target (after the
Closing) harmless from certain damages or losses they may suffer or incur as
described therein. Capitalized terms used in this Escrow Agreement without
definition have the respective meanings given to them in the Indemnification
Agreement. In accordance with the terms of the Merger Agreement, ten percent
(10%) of the Brown & Brown Shares are being delivered to the Escrow Agent as
partial security for the performance of certain obligations of the Shareholders
under the Indemnification Agreement. Escrow Agent has agreed to accept, hold,
and disburse the Brown & Brown Shares deposited with it in accordance with the
terms of this Escrow Agreement. In order to establish the escrow of the Brown &
Brown Shares and to effect the provisions of the Merger Agreement and the
Indemnification Agreement, the parties hereto have entered into this Escrow
Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their successors and assigns, hereby agree as follows:
TERMS
1. Definitions. The following terms shall have the following
meanings when used herein:
"Escrow Collateral" shall mean the following:
(a) the aggregate amount of _______ Brown & Brown Shares,
issued to the Escrow Agent on behalf of the Shareholders in such amounts as set
forth in Schedule 1 to this Escrow Agreement (the "Escrowed Shares"), and the
certificate(s) representing the Escrowed Shares, and all cash, securities, and
other property, excluding any cash dividends paid on the Escrowed Shares (the
"Dividends"), at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Escrowed Shares;
(b) all additional shares of stock of Brown & Brown
representing stock dividends, additional stock resulting from stock splits or
reclassification, and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Escrowed Shares, which shall in any case be issued in the name of, and
shall be held by, the Escrow Agent, as escrow agent under this Escrow Agreement,
and which shall constitute Escrowed Shares for all purposes of this Escrow
Agreement; and
(c) all securities hereafter delivered to Escrow Agent in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest
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172
coupons (if any) attached thereto, and all cash, securities, interest, and other
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof, excluding the
Dividends; and
(d) all funds received by the Escrow Agent pursuant to
the sale of Escrowed Shares under Section 3(b) below and invested as described
in Section 3(c) below, together with any interest and other income thereon.
"Escrow Period" shall mean the period commencing on the date
hereof and ending on the one (1) year anniversary of the date of this Escrow
Agreement.
A Shareholder's "Pro Rata Share" equals a fraction, expressed
as a percentage, the numerator of which is the number of the Escrowed Shares
beneficially owned by such Shareholder on the date of this Escrow Agreement, as
set forth on the attached Schedule 1, and the denominator of which is the number
of the Escrowed Shares beneficially owned by all of the Shareholders on the date
of this Escrow Agreement, as set forth on the attached Schedule 1.
"Shareholder Representative" shall mean either John P. Folsom
or Darrell Prater.
"Written Direction" shall mean a written direction executed
jointly by Brown & Brown and a Shareholder Representative and directing Escrow
Agent to disburse all or a portion of the Escrow Collateral or to take or
refrain from taking an action pursuant to this Escrow Agreement.
2. Appointment of and Acceptance by Escrow Agent. Brown & Brown
and the Shareholders hereby appoint Escrow Agent to serve as escrow agent
hereunder. Escrow Agent hereby accepts such appointment and, upon receipt of the
Escrow Collateral in accordance with SECTION 3 below, agrees to hold, dispose
of, invest and disburse the Escrow Collateral in accordance with this Escrow
Agreement.
3. Creation of Escrow Account; Sale of Escrowed Shares;
Investment of Funds.
(a) Delivery. On the date of this Escrow Agreement,
Brown & Brown and the Shareholders will deliver the Escrowed Shares directly to
the Escrow Agent. The Escrowed Shares shall be represented by one or more
certificates registered in the name of the Escrow Agent's nominee, ____________,
as agent for the Shareholders. The parties acknowledge that for convenience
purposes only Brown & Brown has issued the certificate(s) evidencing the
Escrowed Shares deposited with the Escrow Agent in the name of the Escrow Agent,
as escrow agent under this Escrow Agreement. The parties further acknowledge
that the Shareholders are the beneficial owners of the Escrowed Shares, subject
to the terms and conditions of this Escrow Agreement.
(b) Sale. Subject to the restrictions on resale and
transfer of the Escrowed Shares described in Sections 1.12 or 3.24(b) of the
Merger Agreement, from time to time prior to the end of the Escrow Period, the
Escrow Agent, in its sole discretion and pursuant to the attached Schedule 3,
may sell any or all of the Escrowed Shares in brokers' transactions on any
national securities exchange upon which such securities are traded. The proceeds
of any such sale of Escrowed Shares shall be invested as set forth in SECTION 6
below and shall continue to constitute Escrow Collateral.
(c) Investment of Funds. Escrow Agent shall invest and
reinvest the funds held in the Escrow Collateral as a result of the sale of
Escrowed Shares under SECTION 3(B) above; provided, however, that no investment
or reinvestment shall be made except in the following:
(i) any deposit which is fully insured by the
Federal Deposit Insurance Corporation;
(ii) commercial paper given the highest rating by
Moody's Investors Service, Inc. and Standard & Poor's Corporation at the time of
investment; or are direct obligations of the United States of America or
repurchase agreements that are fully collateralized by direct obligations of the
United States of America; and/or
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(iii) money market mutual funds which invest
primarily in the foregoing.
Each of the foregoing investments shall be made in the name of
Escrow Agent. Notwithstanding anything to the contrary contained herein, Escrow
Agent may, without notice to any Shareholder Representative and Brown & Brown,
sell or liquidate any of the foregoing investments at any time if the proceeds
thereof are required for any release of funds permitted or required hereunder,
and Escrow Agent shall not be liable or responsible for any loss, cost or
penalty resulting from any such sale or liquidation.
4. Disbursements of Escrow Collateral.
(a) Written Direction. Escrow Agent shall disburse Escrow
Funds, at any time and from time to time, in accordance with a Written
Direction.
(b) Claims. From time to time during the Escrow Period,
Brown & Brown may give notice (a "Notice") to either Shareholder Representative
and the Escrow Agent specifying the nature and dollar amount of any claim (a
"Claim") that Brown & Brown, Merger Sub or Target may have under the
Indemnification Agreement. Brown & Brown may make more than one claim with
respect to any underlying state of facts. If either Shareholder Representative
gives notice to Brown & Brown and Escrow Agent disputing any Claim (a "Counter
Notice") within thirty (30) days following receipt by Escrow Agent of the Notice
regarding such Claim, such Claim shall be resolved as provided in Section 4(c).
If no Counter Notice is received by Escrow Agent within such 30-day period, then
the dollar amount of damages claimed by Brown & Brown as set forth in its Notice
shall be deemed established for purposes of this Escrow Agreement and the
Indemnification Agreement and, at the end of such 30-day period, Escrow Agent
shall pay or release to Brown & Brown the dollar amount claimed in the Notice
from (and only to the extent of) the Escrow Collateral, in the form of Escrowed
Shares or other Escrowed Collateral, at Brown & Brown's option. If Brown & Brown
elects to have the Claim satisfied by the release of Escrowed Shares to it, the
dollar value of each Escrowed Share shall be $_____ for all such purposes under
this Escrow Agreement as described in Section 1.8(c) of the Merger Agreement. If
Brown & Brown elects to have the Claim satisfied in other Escrow Collateral, the
amount of such other Escrow Collateral to which Brown & Brown shall be entitled
shall be equal to the product of (i) the closing price of a Brown & Brown Share
as reported on the New York Stock Exchange on the date of the Notice multiplied
by (ii) the number of Escrowed Shares to which Brown & Brown would have been
entitled if it had elected to have the Claim satisfied by the release of
Escrowed Shares, determined as provided in the immediately preceding sentence.
The Escrow Agent shall not inquire into or consider whether a Claim complies
with the requirements of the Indemnification Agreement.
(c) Resolution of Claims. If a Counter Notice is given
with respect to a Claim, Escrow Agent shall make payment with respect thereto
only in accordance with (i) a Written Direction or (ii) a final non-appealable
order of a court of competent jurisdiction. Any court order shall be accompanied
by a legal opinion by counsel for the presenting party satisfactory to Escrow
Agent to the effect that the order is final and non-appealable. Escrow Agent
shall act on such court order and legal opinion without further question.
(d) Expiration of Escrow Period. Upon the expiration of
the Escrow Period, Escrow Agent shall distribute, as promptly as practicable,
all remaining Escrow Collateral to the Shareholders in accordance with their Pro
Rata Shares unless (i) any Claims are then pending, in which case an amount
equal to the aggregate dollar amount of such Claims (as shown in the Notices of
such Claims) shall be retained by Escrow Agent from the Escrow Collateral
(charged against the interest of each of the Shareholders in the Escrow
Collateral in accordance with their Pro Rata Shares), with the dollar value of
the retained Escrow Collateral being calculated as set forth in SECTION 4(B)
above, and the balance distributed to Shareholders in accordance with their Pro
Rata Shares or (ii) Brown & Brown has given notice to either Shareholder
Representative and Escrow Agent specifying in reasonable detail the nature of
any other claim it may have under the Indemnification Agreement with respect to
which it is unable to specify the dollar amount of the claim, in which case the
entire Escrow Collateral shall be retained by Escrow Agent, in either case until
it receives Written Direction or a final non-appealable order of a court of
competent jurisdiction as contemplated by SECTION 4(C).
5. Disbursement Into Court. If, at any time, there shall exist
any dispute between all Shareholder Representatives and Brown & Brown with
respect to the holding or disposition of any portion of the Escrow Collateral or
any other obligations of Escrow Agent hereunder, or if at any time Escrow Agent
is unable to determine, to Escrow Agent's sole satisfaction, the proper
disposition of any portion of the Escrow Collateral or
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174
Escrow Agent's proper actions with respect to its obligations hereunder, or if
either Shareholder Representative and Brown & Brown have not, within thirty (30)
days of the furnishing by Escrow Agent of a notice of resignation pursuant to
SECTION 6 hereof, appointed a successor Escrow Agent to act hereunder, then
Escrow Agent may, in its sole discretion, take either or both of the following
actions:
(a) suspend the performance of any of its obligations
under this Escrow Agreement until such dispute or uncertainty shall be resolved
to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall
have been appointed (as the case may be); provided however, that Escrow Agent
shall continue to invest the Escrow Collateral (other than Escrowed Shares) in
accordance with SECTION 3(C) hereof; and/or
(b) petition (by means of an interpleader action or any
other appropriate method) any court of competent jurisdiction in Tampa, Florida,
for instructions with respect to such dispute or uncertainty, and pay into such
court all funds held by it in the Escrow Collateral for holding and disposition
in accordance with the instructions of such court.
Escrow Agent shall have no liability to any Shareholder, Brown & Brown or its
shareholders, or any other person with respect to any such suspension of
performance or disbursement into court, specifically including any liability or
claimed liability that may arise, or be alleged to have arisen, out of or as a
result of any delay in the disbursement of funds held in the Escrow Collateral
or any delay in or with respect to any other action required or requested of
Escrow Agent.
6. Resignation and Removal of Escrow Agent. Escrow Agent may
resign from the performance of its duties hereunder at any time by giving ten
(10) days' prior written notice to either Shareholder Representative and Brown &
Brown or may be removed, with or without cause, by either Shareholder
Representative and Brown & Brown, acting jointly by furnishing a written notice
to Escrow Agent, at any time by the giving of ten (10) days' prior written
notice to Escrow Agent. Such resignation or removal shall take effect upon the
appointment of a successor Escrow Agent as provided below. Upon any such notice
of resignation or removal, a Shareholder Representative and Brown & Brown shall
appoint a successor Escrow Agent hereunder, which shall be a commercial bank,
trust company or other financial institution with a combined capital and surplus
in excess of $10,000,000. Upon the acceptance in writing of any appointment as
Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken as
Escrow Agent hereunder prior to such succession. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement.
7. Liability of Escrow Agent.
(a) Escrow Agent shall have no liability or obligation
with respect to the Escrow Collateral except for Escrow Agent's willful
misconduct or gross negligence. Escrow Agent's sole responsibility shall be for
the safekeeping, investment, and disbursement of the Escrow Collateral in
accordance with the terms of this Escrow Agreement. Escrow Agent shall have no
implied duties or obligations and shall not be charged with knowledge or notice
of any fact or circumstance not specifically set forth herein. Escrow Agent may
rely upon any instrument, not only as to its due execution, validity and
effectiveness, but also as to the truth and accuracy of any information
contained therein, which Escrow Agent shall in good faith believe to be genuine,
to have been signed or presented by the person or parties purporting to sign the
same and to conform to the provisions of this Escrow Agreement. In no event
shall Escrow Agent be liable for incidental, indirect, special, consequential or
punitive damages. Escrow Agent shall not be obligated to take any legal action
or commence any proceeding in connection with the Escrow Collateral, any account
in which Escrow Collateral are deposited, this Escrow Agreement, the Merger
Agreement or the Indemnification Agreement, or to appear in, prosecute or defend
any such legal action or proceeding. Escrow Agent may consult legal counsel
selected by it in the event of any dispute or question as to the construction of
any of the provisions hereof or of any other agreement or of its duties
hereunder, and shall incur no liability and shall be fully indemnified from any
liability whatsoever in acting in accordance with the opinion or instruction of
such counsel. Shareholders and Brown & Brown, jointly and severally, shall
promptly pay, upon demand, the reasonable fees and expenses of any such counsel.
Annex D-4
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(b) The Escrow Agent is authorized, in its sole
discretion, to comply with orders issued or process entered by any court with
respect to the Escrow Collateral, without determination by the Escrow Agent of
such court's jurisdiction in the matter. If any portion of the Escrow Collateral
is at any time attached, garnished or levied upon under any court order, or in
case the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such property
or any part thereof, then and in any such event, the Escrow Agent is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree which it is advised by legal counsel selected by it is
binding upon it without the need for appeal or other action; and if the Escrow
Agent complies with any such order, writ, judgment or decree, it shall not be
liable to any of the parties hereto or to any other person or entity by reason
of such compliance even though such order, writ, judgment or decree may be
subsequently reversed, modified, annulled, set aside or vacated.
8. Indemnification of Escrow Agent. From and at all times after
the date of this Escrow Agreement, Shareholders and Brown & Brown, jointly and
severally, shall, to the fullest extent permitted by law and to the extent
provided herein, indemnify and hold harmless Escrow Agent and each director,
officer, employee, attorney, agent and affiliate of Escrow Agent (collectively,
the "Indemnified Parties") against any and all actions, claims (whether or not
valid), losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever (including without limitation reasonable attorneys' fees, costs and
expenses) incurred by or asserted against any of the Indemnified Parties from
and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person,
including without limitation Shareholders or Brown & Brown, whether threatened
or initiated, asserting a claim for any legal or equitable remedy against any
person under any statute or regulation, including, but not limited to, any
federal or state securities laws, or under any common law or equitable cause or
otherwise, arising from or in connection with the negotiation, preparation,
execution, performance or failure of performance of this Escrow Agreement or any
transactions contemplated herein, whether or not any such Indemnified Party is a
party to any such action, proceeding, suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the right
to be indemnified hereunder for any liability finally determined by a court of
competent jurisdiction, subject to no further appeal, to have resulted solely
from the gross negligence or willful misconduct of such Indemnified Party. If
any such action or claim shall be brought or asserted against any Indemnified
Party, such Indemnified Party shall promptly notify a Shareholder Representative
and Brown & Brown in writing, and the Shareholders and Brown & Brown shall
assume the defense thereof, including the employment of counsel and the payment
of all expenses. Such Indemnified Party shall, in its sole discretion, have the
right to employ separate counsel (who may be selected by such Indemnified Party
in its sole discretion) in any such action and to participate in the defense
thereof, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Shareholders and/or Brown & Brown shall be
required to pay such fees and expenses if (a) a Shareholder Representative
and/or Brown & Brown agree to pay such fees and expenses, (b) the Shareholders
and/or Brown & Brown shall fail to assume the defense of such action or
proceeding or shall fail, in the reasonable discretion of such Indemnified
Party, to employ counsel satisfactory to the Indemnified Party in any such
action or proceeding, (c) a Shareholder or Brown & Brown is the plaintiff in any
such action or proceeding, or (d) the named parties to any such action or
proceeding (including any impleaded parties) include both Indemnified Party and
Brown & Brown and/or a Shareholder, and Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to Brown & Brown or a
Shareholder. The Shareholders and Brown & Brown shall be jointly and severally
liable to pay fees and expenses of counsel pursuant to the preceding sentence,
except that any obligation to pay under clause (A) shall apply only to the party
so agreeing. All such fees and expenses payable by Brown & Brown and/or the
Shareholders pursuant to the foregoing sentence shall be paid from time to time
as incurred, both in advance of and after the final disposition of such action
or claim. All of the foregoing losses, damages, costs and expenses of the
Indemnified Parties shall be payable by the Shareholders and Brown & Brown,
jointly and severally, upon demand by such Indemnified Party.
The parties agree that neither the payment by the Shareholders
or Brown & Brown of any claim by Escrow Agent for indemnification hereunder nor
the disbursement of any amounts to Escrow Agent from the Escrow Collateral in
respect of a claim by Escrow Agent for indemnification shall impair, limit,
modify, or affect, as between the Shareholders and Brown & Brown, the respective
rights and obligations of Shareholders, on the one hand, and Brown & Brown, on
the other hand, under the Indemnification Agreement or the Merger Agreement.
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9. Fees and Expenses of Escrow Agent.
(a) The Shareholders and Brown & Brown shall compensate
Escrow Agent for its services hereunder in accordance with Schedule 2 attached
hereto and, in addition, shall reimburse Escrow Agent for all of its reasonable
out-of-pocket expenses, including attorneys' fees, travel expenses, telephone
and facsimile transmission costs, postage (including express mail and overnight
delivery charges), copying charges and the like. All of the compensation and
reimbursement obligations set forth in this SECTION 9 shall be payable by the
Shareholders and Brown & Brown, jointly and severally, upon demand by Escrow
Agent.
(b) Escrow Agent is authorized to, and may, disburse to
itself from the Escrow Collateral, from time to time, the amount of any
compensation and reimbursement of out-of-pocket expenses due and payable
hereunder (including any amount to which Escrow Agent or any Indemnified Party
is entitled to seek indemnification pursuant to SECTION 8 hereof). Escrow Agent
shall notify a Shareholder Representative and Brown & Brown of any disbursement
from the Escrow Collateral to itself or any Indemnified Party in respect of any
compensation or reimbursement hereunder and shall furnish to a Shareholder
Representative and Brown & Brown copies of all related invoices and other
statements. If for any reason funds in the Escrow Collateral are insufficient to
cover such compensation and reimbursement, the Shareholders and Brown & Brown
shall promptly pay such amounts to Escrow Agent or any Indemnified Party upon
receipt of an itemized invoice.
10. Consent to Jurisdiction and Venue. In the event that any party
hereto commences a lawsuit or other proceeding relating to or arising from this
Escrow Agreement, the parties hereto agree that the United States District Court
for the Middle District of Florida shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the Circuit Court of Hillsborough
County, Florida shall have sole and exclusive jurisdiction. Any of these courts
shall be proper venue for any such lawsuit or judicial proceeding and the
parties hereto waive any objection to such venue. The parties hereto consent to
and agree to submit to the jurisdiction of any of the courts specified herein
and agree to accept service or process to vest personal jurisdiction over them
in any of these courts.
11. Notice. All notices and other communications hereunder shall
be in writing and shall be deemed to have been validly served, given or
delivered five (5) days after deposit in the United States mails, by certified
mail with return receipt requested and postage prepaid, when delivered
personally, one (1) day after delivery to any overnight courier, or when
transmitted by facsimile transmission facilities, and addressed to the party to
be notified as follows:
If to Brown & Brown at: Brown & Brown, Inc.
401 E. Jackson Street, Suite 1700
Tampa, Florida 33601
ATTENTION: Laurel Grammig
General Counsel
Telecopy: (813) 222-4464
If to Shareholder
Representative at:
------------------------------------
------------------------------------
------------------------------------
ATTENTION:
--------------------------
Telecopy:
---------------------------
If to the Escrow
Agent at: Northwestern Trust and Investors Advisory
Company
1201 Third Avenue, Suite 2010
Seattle, WA 98101
ATTENTION: Richard B. Thorvilson
VP, Manager, Institutional
Financial Services
Telecopy: (206) 442-6401
Annex D-6
177
or to such other address as each party may designate for itself by like notice.
12. Amendment or Waiver. This Escrow Agreement may be changed,
waived, discharged or terminated only by a writing signed by a Shareholder
Representative, Brown & Brown and Escrow Agent. No delay or omission by any
party in exercising any right with respect hereto shall operate as a waiver. A
waiver on any one occasion shall not be construed as a bar to, or waiver of, any
right or remedy on any future occasion.
13. Severability. To the extent any provision of this Escrow
Agreement is prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Escrow Agreement.
14. Governing Law. This Escrow Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida without giving effect to the conflict of laws principles thereof.
15. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties relating to the holding, investment and
disbursement of the Escrow Funds and sets forth in their entirety the
obligations and duties of Escrow Agent with respect to the Escrow Funds.
16. Binding Effect. All of the terms of this Escrow Agreement, as
amended from time to time, shall be binding upon, inure to the benefit of and be
enforceable by the respective heirs, successors and assigns of the Shareholders,
Brown & Brown and Escrow Agent.
17. Execution in Counterparts; Facsimile Signatures. This Escrow
Agreement may be executed in two or more counterparts, which when so executed
shall constitute one and the same agreement or direction. Facsimile signatures
shall have the same effect as original signatures.
18. Dealings. The Escrow Agent and any stockholder, director,
officer or employee of the Escrow Agent may buy, sell, and deal in any of the
securities of Brown & Brown and become pecuniarily interested in any transaction
in which a Shareholder or Brown & Brown may be interested, and contract and lend
money to a Shareholder or Brown & Brown and otherwise act as fully and freely as
though it were not Escrow Agent under this Escrow Agreement. Nothing herein
shall preclude the Escrow Agent from acting in any other capacity for a
Shareholder or Brown & Brown or for any other entity.
19. Dividends; Voting Rights. Shareholders shall be entitled to
receive any cash Dividends with respect to the Escrowed Shares. During the
period the Escrowed Shares are held under this Escrow Agreement, the Escrow
Shares shall be voted on all matters submitted to the shareholders of Brown &
Brown as provided in this SECTION 19. The Escrow Agent shall vote all Escrowed
Shares attributable to each Shareholder in the manner directed, in writing, by
such Shareholder or, if no such direction has been given, in accordance with the
recommendations of Brown & Brown's Board of Directors or, if Brown & Brown's
Board of Directors has not made a recommendation as to any particular matter to
be voted by the shareholders of Brown & Brown, in such a manner as the Escrow
Agent deems appropriate in its sole and absolute discretion (including without
limitation, abstaining from voting), without liability to any of the
Shareholders. During the period the Escrowed Shares are held under this Escrow
Agreement, the Escrow Agent shall cause all proxy solicitation materials,
including forms of proxy, received by the Escrow Agent in respect of the
Escrowed Shares to be sent to the Shareholders promptly.
20. Shareholder Representatives. Each of the Shareholders hereby
irrevocably appoints the Shareholder Representatives as such Shareholder's agent
and attorney-in-fact to take any action required or permitted to be taken by
such Shareholder pursuant to this Escrow Agreement, including the giving and
receipt of any notices to be delivered or received by or on behalf of any or all
of the Shareholders and the representation of the Shareholders in any
indemnification proceedings hereunder, and agrees to be bound by any and all
such actions taken by either Shareholder Representative on such Shareholder's
behalf.
21. Tax Matters. The Escrow Agent shall be responsible for
preparing, filing and distributing all IRS 1099 forms and any other tax forms
necessary with respect to income earned on the Escrow Collateral and proceeds
Annex D-7
178
arising out of any sale of the Escrowed Shares, which will be allocated among
the Shareholders based on their Pro Rata Shares and for which the Shareholders
will be responsible.
Annex D-8
179
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed under seal as of the date first above written.
BROWN & BROWN, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
NORTHWESTERN TRUST AND INVESTORS
ADVISORY COMPANY,
As Escrow Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SHAREHOLDERS:
-------------------------------------
David S. Allison, individually
-------------------------------------
James B. Binder, individually
-------------------------------------
Jeffrey N. Cashman, Trustee of the
Viajera Charitable Remainder Trust
-------------------------------------
Judith E. Cashman, Trustee of the
Viajera Charitable Remainder Trust
-------------------------------------
Ruth Cox, individually
-------------------------------------
Daniel J. DeLorenzo, individually
-------------------------------------
Sharon Edmondson, individually
-------------------------------------
John P. Folsom, individually
Annex D-9
180
-------------------------------------
William E. Givens, individually
-------------------------------------
Gary Grosenick, individually
-------------------------------------
Susan M. Keith, individually
-------------------------------------
Samuel B. Marquiss, individually
-------------------------------------
Richard A. Moore, individually
-------------------------------------
Harold R. Ross, individually
-------------------------------------
Terry L. Sattler, individually
-------------------------------------
Judy W. Scarborough, individually
-------------------------------------
Dennis B. Schmidt, individually
-------------------------------------
Robert W. Smith, individually
-------------------------------------
Gary R. Stone, individually
-------------------------------------
Scott Strickland, individually
-------------------------------------
Gerald R. Zander, individually
Annex D-10
181
SCHEDULE 1
Shareholders and Number of Escrowed Shares
Number of Escrowed
Name of Shareholder Shares
------------------- ------------------
David S. Allison
James B. Binder
The Viajera Charitable Remainder Trust
Ruth Cox
Daniel J. DeLorenzo
Sharon Edmondson
John P. Folsom
William E. Givens
Gary Grosenick
Susan M. Keith
Samuel B. Marquiss
Richard A. Moore
Harold R. Ross
Terry L. Sattler
Judy W. Scarborough
Dennis B. Schmidt
Robert W. Smith
Gary R. Stone
Scott Strickland
Gerald R. Zander
Annex D-11
182
SCHEDULE 2
Fees Payable to Escrow Agent
Fee Schedule (if no diversification required):
.58% on the first $2,000,000
.38% on the next $3,000,000
.18% on the next $5,000,000
Fee Schedule (to apply to all assets when diversification is required, at
end of 1st month)
.88% on the first $2,000,000
.58% on the next $3,000,000
.38% on the next $5,000,000
As between the Shareholders and Brown & Brown, each of them shall be
responsible for one-half of the Escrow Agent's fees. Notwithstanding the
foregoing and Section 9 of the Agreement, the Shareholders shall be solely
responsible for the Escrow Agent's fees to the extent of the excess of the Fee
Schedule above when diversification is required over the Fee Schedule above
when no diversification is required.
Minimum Annual Fee: $5,000
Annual Fees include:
- Custody of assets
- Collection and reporting of income
- Discretionary investment and financial management services
- Fund management fees
- Account servicing
- Reporting
- Trust administration
- Internet access to account
Annex D-12
183
SCHEDULE 3
Investment Objectives
The Investment Objective for this escrow account shall be the preservation of as
much of the value of the original funding of the account as possible, with a
secondary consideration of retaining as much Brown & Brown stock as possible. To
that end, Brown & Brown Shares will be monitored on a daily basis, as will the
30 day moving average of its price. No other action will be taken prior to the
expiration of any and all lock-up agreements or other restrictions impacting the
saleability of the Brown & Brown Shares in the escrow account. Once the stock is
free to trade, if the 30 day moving average of Brown & Brown Share price
declines, or has declined, such that the escrow account holdings equal 90% or
less of the value of the account at original funding, 1/3 of the holdings will
be sold the next business day. If the 30 day moving average of Brown & Brown
Share price declines or has declined such that the escrow account holdings equal
85% or less of the value of the account at original funding, 1/2 of the
remaining stock holdings will be sold the next business day. If the 30 day
moving average of Brown & Brown Share price declines or has declined such that
the escrow account holdings equal 80% or less of the value of the account at
original funding, all of the remaining stock holdings will be sold the next
business day. This structure could result in all holdings in Brown & Brown
Shares being liquidated on the first business day after the removal of all
lock-up agreements or other restrictions and an account value substantially less
than the 85% "floor" targeted by the plan outlined above.
Annex D-13
184
ANNEX E
FORM OF ESOP ESCROW AGREEMENT
THIS ESOP ESCROW AGREEMENT, is made and entered into of
________, 2001 (this "Escrow Agreement"), by and among BROWN & BROWN, INC., a
Florida corporation ("Brown & Brown"); the RALEIGH, SCHWARZ & POWELL EMPLOYEE
STOCK OWNERSHIP PLAN (the "ESOP"); and NORTHWESTERN TRUST AND INVESTORS ADVISORY
COMPANY, as escrow agent hereunder ("Escrow Agent").
BACKGROUND
Brown & Brown and certain other parties entered into an Agreement and
Plan of Reorganization (as amended, the "Merger Agreement"), dated as of July
25, 2001, pursuant to which Brown & Brown of Washington, Inc., a Washington
corporation and wholly-owned subsidiary of Brown & Brown (the "Merger Sub"), is
merging with and into Raleigh, Schwarz & Powell, Inc., a Washington corporation
(the "Target"), with the Target being the surviving corporation and becoming a
wholly-owned subsidiary of Brown & Brown. Capitalized terms used in this Escrow
Agreement without definition have the respective meanings given to them in the
Merger Agreement. In accordance with the terms of the Merger Agreement, ten
percent (10%) of the Brown & Brown Shares being issued to the ESOP are being
delivered to the Escrow Agent as partial security for the performance of certain
obligations of the ESOP under the Merger Agreement. Escrow Agent has agreed to
accept, hold, and disburse the Brown & Brown Shares deposited with it in
accordance with the terms of this Escrow Agreement. In order to establish the
escrow of the Brown & Brown Shares and to effect the provisions of the Merger
Agreement, the parties hereto have entered into this Escrow Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their successors and assigns, hereby agree as follows:
TERMS
1. Definitions. The following terms shall have the following
meanings when used herein:
"Escrow Collateral" shall mean the following:
(a) the aggregate amount of _______ Brown & Brown Shares,
issued to the Escrow Agent on behalf of the ESOP (the "Escrowed Shares"), and
the certificate(s) representing the Escrowed Shares, and all cash, securities,
and other property, excluding any cash dividends paid on the Escrowed Shares
(the "Dividends"), at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Escrowed Shares;
(b) all additional shares of stock of Brown & Brown
representing stock dividends, additional stock resulting from stock splits or
reclassification, and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Escrowed Shares, which shall in any case be issued in the name of, and
shall be held by, the Escrow Agent, as escrow agent under this Escrow Agreement,
and which shall constitute Escrowed Shares for all purposes of this Escrow
Agreement;
(c) all securities hereafter delivered to Escrow Agent in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, securities, interest,
and other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all thereof,
excluding the Dividends; and
Annex E-1
185
(d) all funds received by the Escrow Agent pursuant to
the sale of Escrowed Shares under SECTION 3(B) below and invested as described
in SECTION 6 below, together with any interest and other income thereon.
"Escrow Period" shall mean the period commencing on the date
hereof and ending on the one (1) year anniversary of the date of this Escrow
Agreement.
"Written Direction" shall mean a written direction executed
jointly by Brown & Brown and the ESOP and directing Escrow Agent to disburse all
or a portion of the Escrow Collateral or to take or refrain from taking an
action pursuant to this Escrow Agreement.
2. Appointment of and Acceptance by Escrow Agent. Brown & Brown
and the ESOP hereby appoint Escrow Agent to serve as escrow agent hereunder.
Escrow Agent hereby accepts such appointment and, upon receipt of the Escrow
Collateral in accordance with SECTION 3 below, agrees to hold, dispose of,
invest and disburse the Escrow Collateral in accordance with this Escrow
Agreement.
3. Creation of Escrow Account; Sale of Escrowed Shares.
(a) Delivery. On the date of this Escrow Agreement, Brown &
Brown and the ESOP will deliver the Escrowed Shares directly to the Escrow
Agent. The Escrowed Shares shall be represented by one or more certificates
registered in the name of the Escrow Agent's nominee, ____________, as agent for
the ESOP. The parties acknowledge that for convenience purposes only Brown &
Brown has issued the certificate(s) evidencing the Escrowed Shares deposited
with the Escrow Agent in the name of the Escrow Agent, as escrow agent under
this Escrow Agreement. The parties further acknowledge that the ESOP is the
beneficial owner of the Escrowed Shares, subject to the terms and conditions of
this Escrow Agreement.
(b) Sale. Subject to the restrictions on resale and transfer
of the Escrowed Shares described in Sections 1.12 or 3.24(b) of the Merger
Agreement, from time to time prior to the end of the Escrow Period, the ESOP may
direct the Escrow Agent (and does so direct the Escrow Agent in accordance with
the attached Schedule 2 hereto) to sell any or all of the Escrowed Shares in
brokers' transactions on any national securities exchange upon which such
securities are traded. The proceeds of any such sale of Escrowed Shares shall be
invested as set forth in SECTION 6 below and shall continue to constitute Escrow
Collateral.
4. Disbursements of Escrow Collateral.
(a) Written Direction. Escrow Agent shall disburse Escrow
Funds, at any time and from time to time, in accordance with a Written
Direction.
(b) Claims. From time to time during the Escrow Period,
Brown & Brown may give notice (a "Notice") to the ESOP and the Escrow Agent
specifying the nature and dollar amount of any claim (a "Claim") that Brown &
Brown, Merger Sub or Target may have under the Merger Agreement. Brown & Brown
may make more than one claim with respect to any underlying state of facts. If
the ESOP gives notice to Brown & Brown and Escrow Agent disputing any Claim (a
"Counter Notice") within thirty (30) days following receipt by Escrow Agent of
the Notice regarding such Claim, such Claim shall be resolved as provided in
Section 4(c). If no Counter Notice is received by Escrow Agent within such
30-day period, then the dollar amount of damages claimed by Brown & Brown as set
forth in its Notice shall be deemed established for purposes of this Escrow
Agreement and the Merger Agreement and, at the end of such 30-day period, Escrow
Agent shall pay or release to Brown & Brown the dollar amount claimed in the
Notice from (and only to the extent of) the Escrow Collateral, in the form of
Escrowed Shares or other Escrow Collateral, at Brown & Brown's option. If Brown
& Brown elects to have the Claim satisfied by the release of Escrowed Shares to
it, the dollar value of each Escrowed Share shall be $_____ for all such
purposes under this Escrow Agreement as described in Section 1.8(c) of the
Merger Agreement. If Brown & Brown elects to have the Claim satisfied in other
Escrow Collateral, the amount of such other Escrow Collateral to which Brown &
Brown shall be entitled shall be equal to the product of (i) the closing price
of a Brown & Brown Share as reported on the New York Stock Exchange on the date
of the Notice multiplied by (ii) the number of Escrowed Shares to which Brown &
Brown would have been entitled if it had elected to have the Claim satisfied by
the release of
Annex E-2
186
Escrowed Shares, determined as provided in the immediately preceding sentence.
The Escrow Agent shall not inquire into or consider whether a Claim complies
with the requirements of the Merger Agreement.
(c) Resolution of Claims. If a Counter Notice is given with
respect to a Claim, Escrow Agent shall make payment with respect thereto only in
accordance with (i) a Written Direction or (ii) a final non-appealable order of
a court of competent jurisdiction. Any court order shall be accompanied by a
legal opinion by counsel for the presenting party satisfactory to Escrow Agent
to the effect that the order is final and non-appealable. Escrow Agent shall act
on such court order and legal opinion without further question.
(d) Expiration of Escrow Period. Upon the expiration of the
Escrow Period, Escrow Agent shall distribute, as promptly as practicable, all
remaining Escrow Collateral to the ESOP unless (i) any Claims are then pending,
in which case an amount equal to the aggregate dollar amount of such Claims (as
shown in the Notices of such Claims) shall be retained by Escrow Agent from the
Escrow Collateral, with the amount of the retained Escrow Collateral being
calculated as set forth in SECTION 4(B) above, and the balance distributed to
the ESOP or (ii) Brown & Brown has given notice to the ESOP and Escrow Agent
specifying in reasonable detail the nature of any other claim it may have under
the Merger Agreement with respect to which it is unable to specify the dollar
amount of the claim, in which case the entire Escrow Collateral shall be
retained by Escrow Agent, in either case until it receives Written Direction or
a final non-appealable order of a court of competent jurisdiction as
contemplated by SECTION 4(C).
5. Disbursement Into Court. If, at any time, there shall exist any
dispute between the ESOP and Brown & Brown with respect to the holding or
disposition of any portion of the Escrow Collateral or any other obligations of
Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine,
to Escrow Agent's sole satisfaction, the proper disposition of any portion of
the Escrow Collateral or Escrow Agent's proper actions with respect to its
obligations hereunder, or if the ESOP and Brown & Brown have not, within thirty
(30) days of the furnishing by Escrow Agent of a notice of resignation pursuant
to SECTION 7 hereof, appointed a successor Escrow Agent to act hereunder, then
Escrow Agent may, in its sole discretion, take either or both of the following
actions:
(a) suspend the performance of any of its obligations under
this Escrow Agreement until such dispute or uncertainty shall be resolved to the
sole satisfaction of Escrow Agent or until a successor Escrow Agent shall have
been appointed (as the case may be); provided however, that Escrow Agent shall
continue to invest the Escrow Collateral (other than Escrowed Shares) in
accordance with SECTION 6 hereof; and/or
(b) petition (by means of an interpleader action or any
other appropriate method) any court of competent jurisdiction in Tampa, Florida,
for instructions with respect to such dispute or uncertainty, and pay into such
court all funds held by it in the Escrow Collateral for holding and disposition
in accordance with the instructions of such court.
Escrow Agent shall have no liability to the ESOP, Brown & Brown or its
shareholders, or any other person with respect to any such suspension of
performance or disbursement into court, specifically including any liability or
claimed liability that may arise, or be alleged to have arisen, out of or as a
result of any delay in the disbursement of funds held in the Escrow Collateral
or any delay in or with respect to any other action required or requested of
Escrow Agent.
6. Investment of Funds. Escrow Agent shall invest and reinvest the
funds held in the Escrow Collateral as a result of the sale of Escrowed Shares
at the direction of the ESOP under SECTION 3(B) above as the ESOP shall direct
in writing; provided, however, that no investment or reinvestment shall be made
except in the following:
(a) any deposit which is fully insured by the Federal
Deposit Insurance Corporation;
(b) commercial paper given the highest rating by Moody's
Investors Service, Inc. and Standard & Poor's Corporation at the time of
investment; or are direct obligations of the United States of America or
repurchase agreements that are fully collateralized by direct obligations of the
United States of America; and/or
Annex E-3
187
(c) money market mutual funds which invest primarily in
the foregoing.
If Escrow Agent has not received a written direction from the
ESOP at any time that an investment decision must be made, Escrow Agent shall
invest the Escrow Collateral in investments described in clause (a) above. Each
of the foregoing investments shall be made in the name of Escrow Agent.
Notwithstanding anything to the contrary contained herein, Escrow Agent may,
without notice to the ESOP and Brown & Brown, sell or liquidate any of the
foregoing investments at any time if the proceeds thereof are required for any
release of funds permitted or required hereunder, and Escrow Agent shall not be
liable or responsible for any loss, cost or penalty resulting from any such sale
or liquidation.
7. Resignation and Removal of Escrow Agent. Escrow Agent may
resign from the performance of its duties hereunder at any time by giving ten
(10) days' prior written notice to the ESOP and Brown & Brown or may be removed,
with or without cause, by the ESOP and Brown & Brown, acting jointly by
furnishing a written notice to Escrow Agent, at any time by the giving of ten
(10) days' prior written notice to Escrow Agent. Such resignation or removal
shall take effect upon the appointment of a successor Escrow Agent as provided
below. Upon any such notice of resignation or removal, the ESOP and Brown &
Brown shall appoint a successor Escrow Agent hereunder, which shall be a
commercial bank, trust company or other financial institution with a combined
capital and surplus in excess of $10,000,000. Upon the acceptance in writing of
any appointment as Escrow Agent hereunder by a successor Escrow Agent, such
successor Escrow Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Escrow Agent, and the
retiring Escrow Agent shall be discharged from its duties and obligations under
this Escrow Agreement, but shall not be discharged from any liability for
actions taken as Escrow Agent hereunder prior to such succession. After any
retiring Escrow Agent's resignation or removal, the provisions of this Escrow
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Escrow Agent under this Escrow Agreement.
8. Liability of Escrow Agent.
(a) Escrow Agent shall have no liability or obligation
with respect to the Escrow Collateral except for Escrow Agent's willful
misconduct or gross negligence. Escrow Agent's sole responsibility shall be for
the safekeeping, investment, and disbursement of the Escrow Collateral in
accordance with the terms of this Escrow Agreement. Escrow Agent shall have no
implied duties or obligations and shall not be charged with knowledge or notice
of any fact or circumstance not specifically set forth herein. Escrow Agent may
rely upon any instrument, not only as to its due execution, validity and
effectiveness, but also as to the truth and accuracy of any information
contained therein, which Escrow Agent shall in good faith believe to be genuine,
to have been signed or presented by the person or parties purporting to sign the
same and to conform to the provisions of this Escrow Agreement. In no event
shall Escrow Agent be liable for incidental, indirect, special, consequential or
punitive damages. Escrow Agent shall not be obligated to take any legal action
or commence any proceeding in connection with the Escrow Collateral, any account
in which Escrow Collateral are deposited, this Escrow Agreement or the Merger
Agreement, or to appear in, prosecute or defend any such legal action or
proceeding. Escrow Agent may consult legal counsel selected by it in the event
of any dispute or question as to the construction of any of the provisions
hereof or of any other agreement or of its duties hereunder, and shall incur no
liability and shall be fully indemnified from any liability whatsoever in acting
in accordance with the opinion or instruction of such counsel. The ESOP and
Brown & Brown, jointly and severally, shall promptly pay, upon demand, the
reasonable fees and expenses of any such counsel.
(b) The Escrow Agent is authorized, in its sole
discretion, to comply with orders issued or process entered by any court with
respect to the Escrow Collateral, without determination by the Escrow Agent of
such court's jurisdiction in the matter. If any portion of the Escrow Collateral
is at any time attached, garnished or levied upon under any court order, or in
case the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such property
or any part thereof, then and in any such event, the Escrow Agent is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree which it is advised by legal counsel selected by it is
binding upon it without the need for appeal or other action; and if the Escrow
Agent complies with any such order, writ, judgment or decree, it shall not be
liable to any of the parties hereto or to any other person or entity by reason
of such compliance even though such order, writ, judgment or decree may be
subsequently reversed, modified, annulled, set aside or vacated.
Annex E-4
188
9. Indemnification of Escrow Agent. From and at all times after the
date of this Escrow Agreement, the ESOP and Brown & Brown, jointly and
severally, shall, to the fullest extent permitted by law and to the extent
provided herein, indemnify and hold harmless Escrow Agent and each director,
officer, employee, attorney, agent and affiliate of Escrow Agent (collectively,
the "Indemnified Parties") against any and all actions, claims (whether or not
valid), losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever (including without limitation reasonable attorneys' fees, costs and
expenses) incurred by or asserted against any of the Indemnified Parties from
and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person,
including without limitation the ESOP or Brown & Brown, whether threatened or
initiated, asserting a claim for any legal or equitable remedy against any
person under any statute or regulation, including, but not limited to, any
federal or state securities laws, or under any common law or equitable cause or
otherwise, arising from or in connection with the negotiation, preparation,
execution, performance or failure of performance of this Escrow Agreement or any
transactions contemplated herein, whether or not any such Indemnified Party is a
party to any such action, proceeding, suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the right
to be indemnified hereunder for any liability finally determined by a court of
competent jurisdiction, subject to no further appeal, to have resulted solely
from the gross negligence or willful misconduct of such Indemnified Party. If
any such action or claim shall be brought or asserted against any Indemnified
Party, such Indemnified Party shall promptly notify the ESOP and Brown & Brown
in writing, and the ESOP and Brown & Brown shall assume the defense thereof,
including the employment of counsel and the payment of all expenses. Such
Indemnified Party shall, in its sole discretion, have the right to employ
separate counsel (who may be selected by such Indemnified Party in its sole
discretion) in any such action and to participate in the defense thereof, and
the fees and expenses of such counsel shall be paid by such Indemnified Party,
except that the ESOP and/or Brown & Brown shall be required to pay such fees and
expenses if (a) the ESOP and/or Brown & Brown agree to pay such fees and
expenses, (b) the ESOP and/or Brown & Brown shall fail to assume the defense of
such action or proceeding or shall fail, in the reasonable discretion of such
Indemnified Party, to employ counsel satisfactory to the Indemnified Party in
any such action or proceeding, (c) the ESOP or Brown & Brown is the plaintiff in
any such action or proceeding, or (d) the named parties to any such action or
proceeding (including any impleaded parties) include both Indemnified Party and
Brown & Brown and/or the ESOP, and Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to Brown & Brown or the ESOP.
The ESOP and Brown & Brown shall be jointly and severally liable to pay fees and
expenses of counsel pursuant to the preceding sentence, except that any
obligation to pay under clause (A) shall apply only to the party so agreeing.
All such fees and expenses payable by Brown & Brown and/or the ESOP pursuant to
the foregoing sentence shall be paid from time to time as incurred, both in
advance of and after the final disposition of such action or claim. All of the
foregoing losses, damages, costs and expenses of the Indemnified Parties shall
be payable by the ESOP and Brown & Brown, jointly and severally, upon demand by
such Indemnified Party.
The parties agree that neither the payment by the ESOP or
Brown & Brown of any claim by Escrow Agent for indemnification hereunder nor the
disbursement of any amounts to Escrow Agent from the Escrow Collateral in
respect of a claim by Escrow Agent for indemnification shall impair, limit,
modify, or affect, as between the ESOP and Brown & Brown, the respective rights
and obligations of ESOP, on the one hand, and Brown & Brown, on the other hand,
under the Merger Agreement.
10. Fees and Expenses of Escrow Agent.
(a) The ESOP and Brown & Brown shall compensate Escrow Agent
for its services hereunder in accordance with Schedule 1 attached hereto and, in
addition, shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like. All of the compensation and
reimbursement obligations set forth in this SECTION 10 shall be payable by the
ESOP and Brown & Brown, jointly and severally, upon demand by Escrow Agent.
(b) Escrow Agent is authorized to, and may, disburse to
itself from the Escrow Collateral, from time to time, the amount of any
compensation and reimbursement of out-of-pocket expenses due and payable
hereunder (including any amount to which Escrow Agent or any Indemnified Party
is entitled to seek indemnification pursuant to SECTION 9 hereof). Escrow Agent
shall notify the ESOP and Brown & Brown of any
Annex E-5
189
disbursement from the Escrow Collateral to itself or any Indemnified Party in
respect of any compensation or reimbursement hereunder and shall furnish to the
ESOP and Brown & Brown copies of all related invoices and other statements. If
for any reason funds in the Escrow Collateral are insufficient to cover such
compensation and reimbursement, the ESOP and Brown & Brown shall promptly pay
such amounts to Escrow Agent or any Indemnified Party upon receipt of an
itemized invoice.
11. Consent to Jurisdiction and Venue. In the event that any party
hereto commences a lawsuit or other proceeding relating to or arising from this
Escrow Agreement, the parties hereto agree that the United States District Court
for the Middle District of Florida shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the Circuit Court of Hillsborough
County, Florida shall have sole and exclusive jurisdiction. Any of these courts
shall be proper venue for any such lawsuit or judicial proceeding and the
parties hereto waive any objection to such venue. The parties hereto consent to
and agree to submit to the jurisdiction of any of the courts specified herein
and agree to accept service or process to vest personal jurisdiction over them
in any of these courts.
12. Notice. All notices and other communications hereunder shall
be in writing and shall be deemed to have been validly served, given or
delivered five (5) days after deposit in the United States mails, by certified
mail with return receipt requested and postage prepaid, when delivered
personally, one (1) day after delivery to any overnight courier, or when
transmitted by facsimile transmission facilities, and addressed to the party to
be notified as follows:
If to Brown & Brown at: Brown & Brown, Inc.
401 E. Jackson Street, Suite 1700
Tampa, Florida 33601
ATTENTION: Laurel Grammig
General Counsel
Telecopy: (813) 222-4464
If to the ESOP at:
----------------------------------
----------------------------------
----------------------------------
ATTENTION:
-------------------------
Telecopy:
-------------------------
If to the Escrow
Agent at: Northwestern Trust and Investors
Advisory Company
1201 Third Avenue, Suite 2010
Seattle, WA 98101
ATTENTION: Richard B. Thorvilson
VP, Manager, Institutional
Financial Services
Telecopy: (206) 442-6401
or to such other address as each party may designate for itself by like notice.
13. Amendment or Waiver. This Escrow Agreement may be changed,
waived, discharged or terminated only by a writing signed by the ESOP, Brown &
Brown and Escrow Agent. No delay or omission by any party in exercising any
right with respect hereto shall operate as a waiver. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any future occasion.
14. Severability. To the extent any provision of this Escrow
Agreement is prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Escrow Agreement.
15. Governing Law. This Escrow Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida without giving effect to the conflict of laws principles thereof.
Annex E-6
190
16. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties relating to the holding, investment and
disbursement of the Escrow Funds and sets forth in their entirety the
obligations and duties of Escrow Agent with respect to the Escrow Funds.
17. Binding Effect. All of the terms of this Escrow Agreement, as
amended from time to time, shall be binding upon, inure to the benefit of and be
enforceable by the respective heirs, successors and assigns of the ESOP, Brown &
Brown and Escrow Agent.
18. Execution in Counterparts; Facsimile Signatures. This Escrow
Agreement may be executed in two or more counterparts, which when so executed
shall constitute one and the same agreement or direction. Facsimile signatures
shall have the same effect as original signatures.
19. Dealings. The Escrow Agent and any stockholder, director,
officer or employee of the Escrow Agent may buy, sell, and deal in any of the
securities of Brown & Brown and become pecuniarily interested in any transaction
in which the ESOP or Brown & Brown may be interested, and contract and lend
money to the ESOP or Brown & Brown and otherwise act as fully and freely as
though it were not Escrow Agent under this Escrow Agreement. Nothing herein
shall preclude the Escrow Agent from acting in any other capacity for the ESOP
or Brown & Brown or for any other entity.
20. Dividends; Voting Rights. The ESOP shall be entitled to
receive any cash Dividends with respect to the Escrowed Shares. During the
period the Escrowed Shares are held under this Escrow Agreement, the Escrow
Shares shall be voted on all matters submitted to the shareholders of Brown &
Brown as provided in this SECTION 20. The Escrow Agent shall vote all Escrowed
Shares attributable to the ESOP in the manner directed, in writing, by the ESOP
or, if no such direction has been given, in accordance with the recommendations
of Brown & Brown's Board of Directors or, if Brown & Brown's Board of Directors
has not made a recommendation as to any particular matter to be voted by the
shareholders of Brown & Brown, in such a manner as the Escrow Agent deems
appropriate in its sole and absolute discretion (including without limitation,
abstaining from voting), without liability to the ESOP. During the period the
Escrowed Shares are held under this Escrow Agreement, the Escrow Agent shall
cause all proxy solicitation materials, including forms of proxy, received by
the Escrow Agent in respect of the Escrowed Shares to be sent to the ESOP
promptly.
21. Tax Matters. The Escrow Agent shall be responsible for
preparing, filing and distributing all IRS 1099 forms and any other tax forms
necessary with respect to income earned on the Escrow Collateral and proceeds
arising out of any sale of the Escrowed Shares, which will be allocated to the
ESOP and for which the ESOP will be responsible.
Annex E-7
191
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed under seal as of the date first above written.
BROWN & BROWN, INC.
By:
------------------------------------------
Name:
------------------------------------------
Title:
---------------------------------------
NORTHWESTERN TRUST AND INVESTORS
ADVISORY COMPANY,
As Escrow Agent
By:
------------------------------------------
Name:
------------------------------------------
Title:
---------------------------------------
ESOP:
RALEIGH, SCHWARZ & POWELL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By:
------------------------------------------
Name: John P. Folsom
Title: Trustee
By:
------------------------------------------
Name: R. S. DeVine
Title: Trustee
By:
------------------------------------------
Name: Elvin J. Vandeberg
Title: Trustee
Annex E-8
192
SCHEDULE 1
Fees Payable to Escrow Agent
Fee Schedule (if no diversification required):
.58% on the first $2,000,000
.38% on the next $3,000,000
.18% on the next $5,000,000
Fee Schedule (to apply to all assets when diversification is
required, at end of 1st month)
.88% on the first $2,000,000
.58% on the next $3,000,000
.38% on the next $5,000,000
As between the ESOP and Brown & Brown, each of them shall be responsible for
one-half of the Escrow Agent's fees. Notwithstanding the foregoing and Section
10 of the Agreement, the ESOP shall be solely responsible for the Escrow
Agent's fees to the extent of the excess of the Fee Schedule above when
diversification is required over the Fee Schedule above when no diversification
is required.
Minimum Annual Fee: $5,000
Annual Fees include:
-------------------
- Custody of assets
- Collection and reporting of income
- Discretionary investment and financial management services
- Fund management fees
- Account servicing
- Reporting
- Trust administration
- Internet access to account
Annex E-9
193
SCHEDULE 2
Investment Objectives
The Investment Objective for this escrow account shall be the preservation of as
much of the value of the original funding of the account as possible, with a
secondary consideration of retaining as much Brown & Brown stock as possible. To
that end, Brown & Brown Shares will be monitored on a daily basis, as will the
30 day moving average of its price. No other action will be taken prior to the
expiration of any and all lock-up agreements or other restrictions impacting the
saleability of the Brown & Brown Shares in the escrow account. Once the stock is
free to trade, if the 30 day moving average of Brown & Brown Share price
declines, or has declined, such that the escrow account holdings equal 90% or
less of the value of the account at original funding, 1/3 of the holdings will
be sold the next business day. If the 30 day moving average of Brown & Brown
Share price declines or has declined such that the escrow account holdings equal
85% or less of the value of the account at original funding, 1/2 of the
remaining stock holdings will be sold the next business day. If the 30 day
moving average of Brown & Brown Share price declines or has declined such that
the escrow account holdings equal 80% or less of the value of the account at
original funding, all of the remaining stock holdings will be sold the next
business day. This structure could result in all holdings in Brown & Brown
Shares being liquidated on the first business day after the removal of all
lock-up agreements or other restrictions and an account value substantially less
than the 85% "floor" targeted by the plan outlined above.
Annex E-10
194
ANNEX F
FORM OF RELEASE
This RELEASE (this "Release") is being executed and delivered
in accordance with Section 2.2(a)(ii) of the Agreement and Plan of
Reorganization dated as of July 25, 2001, as amended (the "Merger Agreement"),
among BROWN & BROWN, INC., a Florida corporation ("Brown & Brown"), BROWN &
BROWN OF WASHINGTON, INC., a Washington corporation ("Merger Sub"; Merger Sub
and Brown & Brown are sometimes hereinafter referred to collectively as the
"Buyers"); RALEIGH, SCHWARZ & POWELL, INC., a Washington corporation ("Target")
and certain other parties, by the shareholders of Target listed on the signature
pages hereto (collectively, the "Shareholders"). Capitalized terms used in this
Release without definition have the respective meanings given to them in the
Merger Agreement.
Each Shareholder acknowledges that execution and delivery of
this Release is a condition to Buyers' obligation to consummate the Merger and
that Buyers are relying on this Release in consummating the Merger.
Each Shareholder, for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged and intending to be
legally bound, in order to induce Buyers to consummate the Merger pursuant to
the Merger Agreement, hereby agrees as follows:
Each Shareholder, on behalf of himself or herself, each person
related thereto and any entity in which such Shareholder or its related person
(i) has an ownership interest or (ii) is a director, officer, partner, employee,
executor, or trustee (or in any similar capacity) (each a "Related Person" and
collectively, "Related Persons"), hereby releases and forever discharges Buyers,
Target and each of their respective individual, joint or mutual, past, present
and future representatives, affiliates, stockholders, controlling persons,
subsidiaries, successors and assigns (individually, a "Releasee" and
collectively, "Releasees") from any and all claims, demands, proceedings, causes
of action, orders, obligations, contracts, agreements, debts and liabilities
whatsoever, whether known or unknown, suspected or unsuspected, both at law and
in equity (hereinafter individually, a "Claim" and collectively, "Claims"),
which such Shareholder or any of his or her respective Related Persons now has,
has ever had or may hereafter have against any one or more of the respective
Releasees arising contemporaneously with or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Closing Date, including, but not limited
to, any rights to indemnification or reimbursement from the Target, whether
pursuant to its Organizational Documents, contract or otherwise and whether or
not relating to claims pending on, or asserted after, the Closing Date;
provided, however, that nothing contained herein shall operate to release any
obligations of Buyers arising under the Merger Agreement. The term "Related
Persons" shall not include Buyers or Target or any of their direct or indirect
parent or subsidiary corporations or other entities.
Each Shareholder hereby irrevocably covenants to refrain from,
and to cause his or her respective Related Persons to refrain from, directly or
indirectly, asserting any Claim, or commencing, instituting or causing to be
commenced, any proceeding of any kind against any Releasee, based upon any
matter purported to be released hereby.
Without in any way limiting any of the rights and remedies
otherwise available to any Releasee, each Shareholder, jointly and severally,
shall indemnify and hold harmless each Releasee from and against all loss,
liability, claim, damage (including incidental and consequential damages) or
expense (including costs of investigation and defense and reasonable attorney's
fees) whether or not involving third party Claims, arising directly or
indirectly from or in connection with (i) the assertion by or on behalf of such
Shareholder or any of its Related Persons of any Claim or other matter purported
to be released pursuant to this Release and (ii) the assertion by any third
party of any Claim against any Releasee which Claim arises directly or
indirectly from, or in connection with, any assertion by or on behalf of such
Shareholder or any of its Related Persons against such third party of any Claims
or other matters purported to be released pursuant to this Release.
If any provision of this Release is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Release will remain in full force and effect. Any provision of this Release
held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
Annex F-1
195
This Release may not be changed except in a writing signed by
the person(s) against whose interest such change shall operate. This Release
shall be governed by and construed under the laws of the State of Florida
without regard to principles of conflicts of law.
For the purposes of this Release, the term "Organizational
Documents" means: (i) the articles or certificate of incorporation and the
bylaws of a corporation; (ii) the partnership agreement and any statement of
partnership of a general partnership; (iii) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (iv) any
charter or similar document adopted or filed in connection with the creation,
formation, or organization of a any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity; and (v) any amendment to any of the foregoing.
All words used in this Release will be construed to be of such
gender or number as the circumstances require.
Annex F-2
196
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Release as of this ____ day of _________, 2001.
------------------------------------------------
David S. Allison, individually
------------------------------------------------
James B. Binder, individually
------------------------------------------------
Jeffrey N. Cashman, Trustee of the
Viajera Charitable Remainder
------------------------------------------------
Judith E. Cashman, Trustee of the
Ciajera Charitable Remainder
------------------------------------------------
Ruth Cox, individually
------------------------------------------------
Daniel J. DeLorenzo, individually
------------------------------------------------
Sharon Edmondson, individually
------------------------------------------------
John P. Folsom, individually
------------------------------------------------
William E. Givens, individually
------------------------------------------------
Gary Grosenick, individually
------------------------------------------------
Susan M. Keith, individually
------------------------------------------------
Samuel B. Marquiss, individually
Annex F-3
197
------------------------------------------------
Richard A. Moore, individually
------------------------------------------------
Harold R. Ross, individually
------------------------------------------------
Terry L. Sattler, individually
------------------------------------------------
Judy W. Scarborough, individually
------------------------------------------------
Dennis B. Schmidt, individually
------------------------------------------------
Robert W. Smith, individually
------------------------------------------------
Gary R. Stone, individually
------------------------------------------------
Scott Strickland, individually
------------------------------------------------
Gerald R. Zander, individually
RALEIGH, SCHWARZ & POWELL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By:
---------------------------------------------
Name: John P. Folsom
Title: Trustee
By:
---------------------------------------------
Name: R. S. DeVine
Title: Trustee
By:
---------------------------------------------
Name: Elvin J. Vandeberg
Title: Trustee
Annex F-4
198
ANNEX G
FORM OF SPOUSAL CONSENT
I, the undersigned, hereby acknowledge that I have read that
certain Agreement and Plan of Reorganization, dated as of July 25, 2001, as
amended, including the Exhibits and Schedules attached thereto and all other
agreements referred to therein (collectively, the "Agreements"), by and between
Brown & Brown, Inc., a Florida corporation ("Brown & Brown"), Raleigh, Schwarz &
Powell, Inc., a Washington corporation (the "Target"), and certain other
parties. I am aware that by the Agreements' provisions my spouse, as one of the
shareholders of the Target, will exchange all of the capital stock of the Target
held by my spouse (the "Subject Shares"), including my community interest in
them, pursuant to the terms and conditions set forth in the Agreements. I hereby
consent to the exchange of the Subject Shares, approve of the provisions of the
Agreements contained therein and fully authorize my spouse to take all actions
required or permitted under the Agreements, and agree that the Subject Shares
and my interest in them are subject to the provisions of the Agreements and that
I will take no action at any time to hinder operation of the Agreements on such
Subject Shares or my interest in them.
-----------------------------------------
Name:
-----------------------------------
Spouse of
-------------------------------
Annex G-1
199
ANNEX H
FORM OF NON-COMPETITION, NON-SOLICITATION,
AND CONFIDENTIALITY AGREEMENT
THIS NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT
(this "Agreement"), effective as of _______________, 2001 (the "Effective
Date"), is made and entered into by and between BROWN & BROWN, INC., a Florida
corporation, and BROWN & BROWN OF WASHINGTON, INC., a Washington corporation and
wholly-owned subsidiary of Brown & Brown, Inc. (collectively, the "Buyers"), and
____________________, a resident of the State of ____________ ("Shareholder").
BACKGROUND
Shareholder is a shareholder of Raleigh, Schwartz & Powell, Inc., a
Washington corporation ("RS&P"). Pursuant to an Agreement and Plan of
Reorganization, dated as of July 25, 2001, (the "Merger Agreement"), by and
among the Buyers, RS&P, Shareholder and the other shareholders of RS&P, RS&P is
to merge with and into Brown & Brown of Washington, Inc. with Brown & Brown of
Washington, Inc. being the surviving corporation. Pursuant to Section ______ of
the Merger Agreement, Shareholder is entering into this Agreement to provide
certain non-competition and other assurances to the Buyers as a material
inducement for the Buyers to enter into the transactions contemplated in the
Merger Agreement. Shareholder acknowledges that the restrictions contained in
this Agreement are reasonably necessary to protect the Buyers' legitimate
business interests, including, but not limited to, the trade secrets,
confidential business information, and customer goodwill acquired from RS&P as
part of the Merger Agreement. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Merger
Agreement.
TERMS
In consideration of the respective representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, and in
consideration of the shares of stock of the Brown & Brown, Inc. received by
Shareholder in the sale/exchange of all RS&P stock in connection with the
transaction memorialized in the Merger Agreement, the adequacy and receipt of
which is hereby acknowledged, the parties agree as follows:
1. NON-COMPETITION COVENANT. Given the regional nature of the
business of RS&P, and Shareholder's position as a shareholder [and principal] of
RS&P, Shareholder agrees that, Shareholder shall not, directly or indirectly,
for a period of three (3) years beginning on the Closing Date (the "Restricted
Period"), engage in, or be or become the owner of an equity interest in (other
than ownership of less than five percent (5%) of the outstanding shares of a
publicly traded entity), or otherwise consult with, be employed by, or
participate in the business of, any entity (other than Buyers) engaged in the
insurance agency or brokerage business within the following Washington counties
in which RS&P has conducted business: Chelan, Clallam, Douglas, Ferry, Grant,
Jefferson, King, Kitsap, Kittitas, Lincoln, Mason, Okanogan, Pierce, San Juan
Island, Skagit, Snohomish, Thurston, Whatcom, and Yakima. Shareholder
acknowledges that RS&P's business has been conducted and is presently proposed
to be conducted by Buyers throughout the above counties and that the geographic
restrictions set forth above are reasonable and necessary to protect the good
will of the business being sold by RS&P pursuant to the Merger Agreement.
2. NON-SOLICITATION COVENANT.
(a) Without limiting anything set forth in Section 1
hereof, Shareholder shall not, during the Restricted Period, directly or
indirectly (i) solicit, divert, accept business from, nor service, as insurance
solicitor, insurance agent, insurance broker or otherwise, for Shareholder's own
account or on behalf of, or in conjunction with, any other person, persons,
company, partnership, corporation or business entity (other than Buyers), either
as owner, shareholder, promoter, employee, consultant, officer, director,
partner, manager or otherwise, any account that is part of the Purchased Book of
Business or any insurance account then serviced by the Buyers or (ii) solicit,
Annex H-1
200
attempt to employ or engage any employees or personnel of the Buyers or its
affiliates, or induce or entice any such person to leave such employment or
engagement without the prior written consent of the Buyers.
(b) Shareholder acknowledges that the non-competition and
non-solicitation covenants contained in any employment agreement that
Shareholder may enter into with Buyer shall be in addition to, and shall not
supersede or be subordinate to, the non-competition and non-solicitation
covenants contained in this Agreement.
3. CONFIDENTIALITY. Shareholder recognizes and acknowledges that,
as part of the Merger Agreement, the Buyers acquired from RS&P certain
Confidential Information (as hereafter defined), which constitutes valuable,
secret, special, and unique assets of the Buyers. Shareholder covenants and
agrees that, Shareholder will not disclose the Confidential Information to any
person, firm, corporation, association, or other entity for any reason or
purpose without the express written approval of the Buyers and will not use the
Confidential Information except in the Buyers' business. It is expressly
understood and agreed that the Confidential Information is the property of the
Buyers and must be immediately returned to the Buyers upon demand. The term
"Confidential Information" includes all information, whether or not reduced to
written or recorded form, related to RS&P's insurance operations that is not
generally known to competitors of RS&P or intended for general dissemination,
whether furnished by RS&P or compiled by Shareholder, including but not limited
to: (a) lists of customers, insurance carriers, and accounts and records
pertaining thereto; (b) prospect lists, policy forms, and/or rating information,
expiration dates, information on risk characteristics, information concerning
insurance markets for large or unusual risks; and (c) information concerning
business plans, information concerning marketing strategies and information
concerning the financial condition of RS&P's insurance operations.
4. REMEDY FOR BREACH OF COVENANTS.
(a) In the event of a breach or threatened breach of the
provisions of this Agreement, the Buyers shall be entitled to injunctive relief
as well as any other applicable remedies at law or in equity. Should a court of
competent jurisdiction declare any of the covenants set forth in this Agreement
unenforceable due to a unreasonable restriction, duration, geographical area or
otherwise, the parties agree that such court shall be empowered and shall grant
the Buyers or its affiliates injunctive relief to the extent reasonably
necessary to protect their respective interests. Shareholder acknowledges that
the covenants set forth in this Agreement represent an important element of the
value of RS&P, and are a material inducement for Buyers to enter into the Merger
Agreement. Shareholder further acknowledges that without such protection, the
Buyers' business would be irreparably harmed, and that the remedy of monetary
damages alone would be inadequate.
(b) If Shareholder shall violate the restrictions
contained in this Agreement, and if any court action is instituted by the Buyers
to prevent or enjoin such violation, then the period of time during which
Shareholder's business activities shall be restricted as provided in this
Agreement shall be lengthened by a period of time equal to the period between
the date upon which Shareholder is found to have first violated the
restrictions, and the date on which the decree of the court disposing of the
issues upon the merits shall become final and not subject to further appeal.
(c) In addition to the foregoing, any damages suffered by
the Buyers or any of its affiliates as a result of any breach by Shareholder of
the provisions of this Agreement shall be subject to Shareholder's
indemnification obligations, if any, set forth in the Merger Agreement.
5. COSTS. Without limiting the foregoing or anything set forth in
the Merger Agreement, the parties agree that in the event of litigation
concerning the terms of this Agreement, the prevailing party shall be entitled,
in addition to all other remedies, to recover all costs of such action,
including, without limitation, reasonable attorneys' fees and costs both at the
trial court and appellate court level.
6. ASSIGNMENT; SUCCESSOR RIGHTS. Shareholder may not assign
Shareholder's rights or obligations hereunder. The rights and obligations of the
Buyers shall be binding upon and fully enforceable by their affiliates,
successors and assigns, including, without limitation, any successor in interest
by way of merger, consolidation, sale or other succession, without need for
further consent to such assignment by Shareholder.
7. SEVERABILITY. The provisions of this Agreement (including but
not limited to the provisions of Sections 1, 2, and 3 hereof) shall be deemed
severable, and the invalidity or unenforceability of any one or more provisions
hereof shall not affect the validity or enforceability of the other provisions
hereof.
Annex H-2
201
8. WAIVER. Failure to insist upon strict compliance with any
provision hereof shall not be deemed a waiver of such provision or any other
provisions hereof.
9. MODIFICATION. This Agreement may not be modified or superseded
except by an agreement in writing executed by the parties hereto.
10. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal law of Florida without
regard to principles of conflicts of law.
* * * * * * * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
"THE BUYERS":
BROWN & BROWN, INC./BROWN & BROWN
OF WASHINGTON, INC.
By:
--------------------------------------
Name:
Title:
"SHAREHOLDER"
Annex H-3
202
ANNEX I
OPINION OF THE ESOP FIDUCIARY'S FINANCIAL ADVISOR
DUFF & PHELPS, LLC
July 25, 2001
Mr. Seymour R. Zilberstein
Principal
Consulting Fiduciaries, Inc.
400 Skokie Boulevard, Ste. 260
Northbrook, IL 60062
Mr. John Folsom
Trustee of the Raleigh, Schwarz & Powell, Inc.
Employee Stock Ownership Plan and Trust
1201 Pacific Avenue, Ste. 1000
Tacoma, Washington 98402
Gentlemen:
You have retained Duff & Phelps, LLC ("Duff & Phelps") as independent financial
advisor to Consulting Fiduciaries, Inc. ("CEI") and the Trustee of Raleigh,
Schwarz & Powell, Inc. Employee Stock Ownership Plan and Trust (the "Plan") in
connection with a contemplated transaction (the "Proposed Transaction")
involving Raleigh, Schwarz & Powell, Inc. (the "Company") and its subsidiary
Golden Gate Holdings, Inc. ("Golden Gate"). Currently, the Plan owns 116,340 of
the Company's common stock outstanding and 4,000 of Golden Gate's common stock
outstanding. Specifically, you have requested that Duff & Phelps provide an
opinion (the "Opinion") as to whether the terms and conditions of the Proposed
Transaction, including the price, are fair to the Plan from a financial point of
view. Previously, Duff & Phelps has provided valuation services to the Trustee
for the administration of the Plan.
DESCRIPTION OF THE PROPOSED TRANSACTION
The Proposed Transaction involves the sale of 100% of the common equity of the
Company (including Golden Gate) to Brown & Brown, Inc. ("BRO"), a publicly
traded insurance brokerage company. As part of the Proposed Transaction, a
wholly-owned subsidiary of BRO will merge with and into the Company, and as a
result, the Company will be the surviving corporation and will change its name
to "Brown & Brown of Washington, Inc." The Proposed Transaction will be
structured as a stock for stock, tax free reorganization for tax purposes and a
pooling-of-interests transaction for accounting purposes.
The purchase price for 100% of the Company's and Golden Gate's common equity is
$40 million (the "Purchase Price"), with the number of shares determined by
dividing the Purchase Price by a twenty day average of the closing stock prices
of BRO ending three days prior to the closing of the Proposed Transaction. The
Purchase Price will be adjusted downwards if the Company's actual Total Net
Worth (as defined in the Agreement and Plan of Merger) at closing is less than
$13 million. The shares of BRO common stock to be received by the Company's
shareholders will be newly issued and registered under the Securities Act of
1933. However, to qualify for treatment under the pooling-of-interests method of
accounting, the BRO shares received in the Proposed Transaction will not be
eligible for resale until two business days after the date of BRO's earnings
press release for third quarter 2001.
QUALIFICATIONS OF DUFF & PHELPS, LLC
Duff & Phelps, headquartered in Chicago, is one of the nation's largest
independent specialty investment banking and financial advisory firms. Duff &
Phelps has been providing valuation and financial advisory services to clients
for over sixty years. Engagements have been typically associated with mergers
and acquisitions, corporate financing requirements, employee stock ownership,
and complex tax litigation matters. Our clients range in size from small,
closely held companies to major public corporations.
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SCOPE OF ANALYSIS
As background for our financial analysis, we discussed via telephone the
history, current operations and future outlook of the Company with senior
management in April and June 2001. We relied on detailed investigations and
meetings with senior management conducted in the past at the Company's
headquarters in Tacoma and Seattle, Washington. Our financial analysis was based
on the audited consolidated financial statements of the Company for the fiscal
years ended on or about December 31, 1996 to 2000, and unaudited internal
statements for the five months ended May 31, 2000, and May 31, 2001. In
addition, we were provided with other internal operating and financial data
supplied by management, including financial forecasts for 2001 through 2005. We
also reviewed the RSM McGladrey Inc. Preliminary Cash Flow Comparison of C
versus S Corporation and ESOP dated June 2001. With respect to BRO, we reviewed
filings on Form 10-K for the years ended on or about December 31, 1996 to 2000,
and on Form 10-Q for the three months ended March 31, 2000, and March 31, 2001.
We also reviewed BRO's stock price and trading history.
Details on the Proposed Transaction were provided in certain transaction
documents (which we have reviewed), including, but not limited to: the Letter of
Intent between BRO and the Company dated June 28, 2001; the package of documents
sent to shareholders on June 28, 2001, including a letter from the Board of
Directors and a letter from Knight Vale & Gregory PLLC; and a draft of the
Agreement and Plan of Merger. Information on comparable publicly traded
companies as well as mergers and acquisitions transactions for insurance
brokerage companies and other economic, investment, industry, and financial data
used as background for our financial analysis was obtained from publicly
available investment and financial sources.
Our Opinion assumes the accuracy and completeness of the information provided to
us. Although we have not independently verified the accuracy and completeness of
the information provided by the Company, we advise you that nothing has come to
our attention during the course of this engagement that has caused us to believe
that it was unreasonable for us to utilize and rely upon the information taken
as a whole. As part of our analysis relating to the Opinion, we made our own
judgments respects the reasonableness of any financial forecasts and
projections, taken as a whole, furnished to us by or on behalf of the Company.
Our Opinion further assumes that representations made by the Company's
management and advisors are substantially accurate regarding the Proposed
Transaction. Our Opinion is necessarily based upon current economic and market
conditions and must be considered in that context.
CONCLUSIONS
Based on the foregoing and assuming the completeness and accuracy of the
information that has been provided to us, it is our Opinion that from a
financial point of view the terms and conditions of the Proposed Transaction,
including the aggregate purchase price of $40 million for 100% of the Company's
and Golden Gate's common equity, are fair and reasonable to the Plan.
This Opinion will not be included, summarized or in any manner referred to in
materials distributed to the public or potential investors in the Company
without our prior written consent.
Respectfully submitted,
/S/ Duff & Phelps, LLC
Duff & Phelps, LLC
Annex I-2
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ANNEX J
TITLE 23B OF THE WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13 DISSENTERS' RIGHTS
RCW 23B.13.010 DEFINITIONS.
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when
and in the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
RCW 23B.13.020 RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger
by RCW 23B.11.030, 23B.11.080, or the articles of
incorporation and the shareholder is entitled to vote on the
merger, or (ii) if the corporation is a subsidiary that is
merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date
of sale;
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(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate
action creating the shareholder's entitlement unless the action fails
to comply with the procedural requirements imposed by this title, RCW
25.10.900 through 25.10.955, the articles of incorporation, or the
bylaws, or is fraudulent with respect to the shareholder or the
corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence
of any one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside
the corporate action; or
(c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation.
RCW 23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address
of each person on whose behalf the shareholder asserts dissenters'
rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the dissenter dissents and the
dissenter's other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later
than the time the beneficial shareholder asserts dissenters'
rights; and
(b) The beneficial shareholder does so with respect to all shares
of which such shareholder is the beneficial shareholder or
over which such shareholder has power to direct the vote.
RCW 23B.13.200 NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this chapter and be accompanied by a
copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days
after [the] effective date of such corporate action, shall notify in
writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in RCW
23B.13.220.
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206
RCW 23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must (a) deliver to
the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if
the proposed action is effected, and (b) not vote such shares in favor
of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares
under this chapter.
RCW 23B.13.220 DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not the
person acquired beneficial ownership of the shares before that
date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than
sixty days after the date the notice in subsection (1) of this
section is delivered; and
(e) Be accompanied by a copy of this chapter.
RCW 23B.13.230 DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to RCW 23B.13.220(2)(c), and
deposit the shareholder's certificates in accordance with the terms of
the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all
other rights of a shareholder until the proposed corporate action is
effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's
shares under this chapter.
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207
RCW 23B.13.240 SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed
corporate action is effected or the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
the effective date of the proposed corporate action.
RCW 23B.13.250 PAYMENT.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the
payment demand is received, the corporation shall pay each dissenter
who complied with RCW 23B.13.230 the amount the corporation estimates
to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
RCW 23B.13.280; and
(e) A copy of this chapter.
RCW 23B.13.260 FAILURE TO TAKE ACTION.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release any transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action,
it must send a new dissenters' notice under RCW 23B.13.220 and repeat
the payment demand procedure.
RCW 23B.13.270 AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date
of the first announcement to news media or to shareholders of the terms
of the proposed corporate action.
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208
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate
action, it shall estimate the fair value of the shares, plus accrued
interest, and shall pay this amount to each dissenter who agrees to
accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer an explanation of how it
estimated the fair value of the shares, an explanation of how the
interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
RCW 23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of
interest due, and demand payment of the dissenter's estimate, less any
payment under RCW 23B.13.250, or reject the corporation's offer under
RCW 23B.13.270 and demand payment of the dissenter's estimate of the
fair value of the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW
23B.13.250 or offered under RCW 23B.13.270 is less than the
fair value of the dissenter's shares or that the interest due
is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250
within sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty
days after the date set for demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (1) of this section within thirty days
after the corporation made or offered payment for the dissenter's
shares.
RCW 23B.13.300 COURT ACTION.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after
receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does
not commence the proceeding within the sixty-day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this
state, its registered office, is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose
shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding
as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered
or certified mail or by publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions
of this chapter, the shareholder shall be dismissed as a party.
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209
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers
have the powers described in the order appointing them, or in any
amendment to it. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
RCW 23B.13.310 COURT COSTS AND COUNSEL FEES.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the
court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially
comply with the requirements of RCW 23B.13.200 through
23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Florida corporation. Reference is made to
Section 607.0850 of the Florida Business Corporation Act, which permits, and in
some cases requires, indemnification of directors, officers, employees, and
agents of Registrant, under certain circumstances and subject to certain
limitations.
Under Article VII of the Registrant's bylaws, the Registrant
is required to indemnify its officers and directors, and officers and directors
of certain other corporations serving as such at the request of the Registrant,
against all costs and liabilities incurred by such persons by reason of their
having been an officer or director of the Registrant or such other corporation,
provided that such indemnification shall not apply with respect to any matter as
to which such officer or director shall be finally adjudged to have been
individually guilty of gross negligence or willful malfeasance in the
performance of his or her duties as a director or officer, and provided further
that the indemnification shall, with respect to any settlement of any suit,
proceeding, or claim, include reimbursement of any amounts paid and expenses
reasonably incurred in settling any such suit, proceeding, or claim when, in the
judgment of the Board of Directors, such settlement and reimbursement appeared
to be in the best interests of the Registrant.
The Registrant has purchased insurance with respect to, among
other things, liabilities that may arise under the statutory provisions referred
to above.
The general effect of the foregoing provisions may be to
reduce the circumstances in which an officer or director may be required to bear
the economic burden of the foregoing liabilities and expense.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Reorganization, dated as of July 25, 2001, by and
among the Registrant, Brown & Brown of Washington, Inc., Raleigh,
Schwarz & Powell, Inc. and the Raleigh, Schwarz & Powell, Inc. Employee
Stock Ownership Plan (included as Annex A to this proxy
statement/prospectus which is part of the Registration Statement).
2.2 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of
August 10, 2001, by and among the Registrant, Brown & Brown of
Washington, Inc., Raleigh, Schwarz & Powell, Inc. and the Raleigh,
Schwarz & Powell, Inc. Employee Stock Ownership Plan (included as Annex
A to this proxy statement/prospectus which is part of the Registration
Statement).
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3a to Form 10-Q for the quarter ended September
30, 1998).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3b to
Form 10-K for the year ended December 31, 1996).
4 Amended and Restated Revolving and Term Loan Agreement dated January 3,
2001 by and between the Registrant and SunTrust Bank (incorporated by
reference to Exhibit 4a to Form 10-K filed March 14, 2001).
5.1 Opinion of Holland & Knight LLP.*
8.1 Opinion of Holland & Knight LLP regarding United States tax
consequences of the merger.*
10.1 Asset Purchase Agreement dated September 11, 2000, by and among the
Registrant, Riedman Corporation, and Riedman Corporation's shareholders
(incorporated by reference to Exhibit 10a to Form 10-Q filed on
November 13, 2000).
10.2 Extension of the Term Loan Agreement, between the Registrant and
SunTrust (incorporated by reference to Exhibit 10b to Form 10-Q filed
on November 13, 2000).
10.3 First Amendment to Asset Purchase Agreement, dated January 3, 2001,
among the Registrant, Riedman Corporation, and Riedman Corporation's
shareholders (incorporated by reference to Exhibit 10-B to Form 8-K
filed on January 18, 2001).
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211
10.4 General Assignment and Bill of Sale, dated January 1, 2001, from
Riedman Insurance of Wyoming, Inc. to Brown & Brown of Wyoming, Inc.
(incorporated by reference to Exhibit 10(c) to Form 8-K filed on
January 18, 2001).
10.5 Lease of the Registrant for office space at 220 South Ridgewood Avenue,
Daytona Beach, Florida dated August 15, 1987 (incorporated by reference
to Exhibit 10a(3) to Form 10-K for the year ended December 31, 1994).
10.6 Lease Agreement for office space at SunTrust Financial Centre, Tampa,
Florida, dated February 1995, between Southeast Financial Center
Associates, as landlord, and the Registrant, as tenant (incorporated by
reference to Exhibit 10a(4) to Form 10-K for the year ended December
31, 1994).
10.7 Lease Agreement for office space at Riedman Tower, Rochester, New York,
dated January 3, 2001, between Riedman Corporation, as landlord, and
the Registrant, as tenant (incorporated by reference to Exhibit 10b(3)
to Form 10-K filed on March 14, 2001). 10.8 Loan Agreement between
Continental Casualty Company and the Registrant dated August 23, 1991
(incorporated by reference to Exhibit 10d to Form 10-K for the year
ended December 31, 1991).
10.9 Extension to Loan Agreement, dated August 1, 1998, between the
Registrant and Continental Casualty Company (incorporated by reference
to Exhibit 10c(2) to Form 10-Q for the quarter ended September 30,
1998).
10.10 Indemnity Agreement dated January 1, 1979, among the Registrant,
Whiting National Management, Inc., and Pennsylvania Manufacturers'
Association Insurance Company (incorporated by reference to Exhibit 10g
to Registration Statement No. 33-58090 on Form S-4).
10.11 Agency Agreement dated January 1, 1979 among the Registrant, Whiting
National Management, Inc., and Pennsylvania Manufacturers' Association
Insurance Company (incorporated by reference to Exhibit 10h to
Registration Statement No. 33-58090 on Form S-4). 10.12 Deferred
Compensation Agreement, dated May 6, 1998, between Brown & Brown, Inc.
and Kenneth E. Hill (incorporated by reference to Exhibit 10l to Form
10-Q for the quarter ended September 30, 1998).
10.13 Letter Agreement, dated May 4, 1998, between Brown & Brown, Inc. and
Kenneth E. Hill (incorporated by reference to Exhibit 10m to Form 10-Q
for the quarter ended September 30, 1998).
10.14 Employment Agreement, dated as of July 29, 1999, between the Registrant
and J. Hyatt Brown (incorporated by reference to Exhibit 10f to Form
10-K for the year ended December 31, 1999).
10.15 Portions of Employment Agreement, dated April 28, 1993 between the
Registrant and Jim W. Henderson (incorporated by reference to Exhibit
10m to Form 10-K for the year ended December 31, 1993).
10.16 Employment Agreement, dated May 6, 1998 between the Registrant and
Kenneth E. Hill (incorporated by reference to Exhibit 10k to Form 10-Q
for the quarter ended September 30, 1998).
10.17 Employment Agreement, dated January 3, 2001 between the Registrant and
John R. Riedman (incorporated by reference to Exhibit 10j to Form 10-K
filed on March 14, 2001).
10.18 Non-competition, Nonsolicitation and Confidentiality Agreement,
effective as of January 1, 2001 between the Registrant and John R.
Riedman (incorporated by reference to Exhibit 10l to Form 10-K filed on
March 14, 2001).
10.19 Registrant's 2000 Incentive Stock Option Plan (incorporated by
reference to Exhibit 4 to Registration Statement No. 333-43018 on Form
S-8 filed on August 3, 2000).
10.20 Registrant's Stock Performance Plan (incorporated by reference to
Exhibit 4 to Registration Statement No. 333-14925 on Form S-8).
10.21 Rights Agreement, dated as of July 30, 1999, between Brown & Brown and
First Union National Bank, as Rights Agent (incorporated by reference
to Exhibit 4.1 to Form 8-K filed on August 2, 1999).
11 Statement Re: Computation of Basic and Diluted Earnings Per Share
(incorporated by reference to Exhibit 11 to Form 10-K filed on March
14, 2000).
23.1 Consent of Arthur Andersen LLP, independent auditors of the Registrant.
23.2 Consent of KPMG LLP, independent auditors of Riedman Insurance (a
division of Riedman Corporation).
23.3 Consent of Holland & Knight LLP (included in Exhibit 5.1).*
23.4 Consent of Duff & Phelps, LLC.*
24 Powers of Attorney pursuant to which this Form S-4 have been signed on
behalf of certain directors and officers of the Registrant.*
99.1 Form of Proxy Card.
99.2 Form of Raleigh, Schwarz & Powell, Inc. Employee Stock Ownership Plan
and Trust Direction Letter.*
99.3 Notice to Participants in the Raleigh, Schwarz & Powell, Inc. Employee
Stock Ownership Plan and Trust.
99.4 Summary of Proposed Acquisition of Raleigh, Schwarz & Powell, Inc. and
Golden Gate Holdings, Inc. by Brown & Brown, Inc.
* Previously filed
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212
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a
part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable
registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
2. That, every prospectus: (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities
Act of 1933 and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and
included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to its Certificate of Incorporation, Bylaws,
by agreement or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Daytona
Beach, State of Florida, on October 2, 2001.
BROWN & BROWN, INC.
By: *
-----------------------------------
J. Hyatt Brown
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 2, 2001.
Signature Title
--------- -----
* Chairman of the Board, President and
-------------------------------------- Chief Executive Officer
J. Hyatt Brown (Principal Executive Officer)
* Vice President, Treasurer and
-------------------------------------- Chief Financial Officer (Principal Financial and
Cory T. Walker Accounting Officer)
* Executive Vice President,
-------------------------------------- Assistant Treasurer and Director
Jim W. Henderson
* Director
--------------------------------------
Samuel P. Bell, III
* Director
--------------------------------------
Bradley Currey, Jr.
* Director
--------------------------------------
David H. Hughes
* Director
--------------------------------------
Theodore J. Hoepner
* Director
--------------------------------------
Toni Jennings
* Director
--------------------------------------
John R. Riedman
* Director
--------------------------------------
Jan E. Smith
*By: /S/ LAUREL L. GRAMMIG
---------------------------------
LAUREL L. GRAMMIG
Attorney-in-Fact
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214
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Reorganization, dated as of July 25, 2001, by and
among the Registrant, Brown & Brown of Washington, Inc., Raleigh,
Schwarz & Powell, Inc. and the Raleigh, Schwarz & Powell, Inc. Employee
Stock Ownership Plan (included as Annex A to this proxy
statement/prospectus which is part of the Registration Statement).
2.2 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of
August 10, 2001, by and among the Registrant, Brown & Brown of
Washington, Inc., Raleigh, Schwarz & Powell, Inc. and the Raleigh,
Schwarz & Powell, Inc. Employee Stock Ownership Plan (included as Annex
A to this proxy statement/prospectus which is part of the Registration
Statement).
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3a to Form 10-Q for the quarter ended September
30, 1998).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3b to
Form 10-K for the year ended December 31, 1996).
4 Amended and Restated Revolving and Term Loan Agreement dated January 3,
2001 by and between the Registrant and SunTrust Bank (incorporated by
reference to Exhibit 4a to Form 10-K filed March 14, 2001).
5.1 Opinion of Holland & Knight LLP.*
8.1 Opinion of Holland & Knight LLP regarding United States tax
consequences of the merger.*
10.1 Asset Purchase Agreement dated September 11, 2000, by and among the
Registrant, Riedman Corporation, and Riedman Corporation's shareholders
(incorporated by reference to Exhibit 10a to Form 10-Q filed on
November 13, 2000).
10.2 Extension of the Term Loan Agreement, between the Registrant and
SunTrust (incorporated by reference to Exhibit 10b to Form 10-Q filed
on November 13, 2000).
10.3 First Amendment to Asset Purchase Agreement, dated January 3, 2001,
among the Registrant, Riedman Corporation, and Riedman Corporation's
Shareholders (incorporated by reference to Exhibit 10-B to Form 8-K
filed on January 18, 2001).
10.4 General Assignment and Bill of Sale, dated January 1, 2001, from
Riedman Insurance of Wyoming, Inc. to Brown & Brown of Wyoming, Inc.
(incorporated by reference to Exhibit 10(c) to Form 8-K filed on
January 18, 2001).
10.5 Lease of the Registrant for office space at 220 South Ridgewood Avenue,
Daytona Beach, Florida dated August 15, 1987 (incorporated by reference
to Exhibit 10a(3) to Form 10-K for the year ended December 31, 1994).
10.6 Lease Agreement for office space at SunTrust Financial Centre, Tampa,
Florida, dated February 1995, between Southeast Financial Center
Associates, as landlord, and the Registrant, as tenant (incorporated by
reference to Exhibit 10a(4) to Form 10-K for the year ended December
31, 1994).
10.7 Lease Agreement for office space at Riedman Tower, Rochester, New York,
dated January 3, 2001, between Riedman Corporation, as landlord, and
the Registrant, as tenant (incorporated by reference to Exhibit 10b(3)
to Form 10-K filed on March 14, 2001).
10.8 Loan Agreement between Continental Casualty Company and the Registrant
dated August 23, 1991 (incorporated by reference to Exhibit 10d to Form
10-K for the year ended December 31, 1991).
10.9 Extension to Loan Agreement, dated August 1, 1998, between the
Registrant and Continental Casualty Company (incorporated by reference
to Exhibit 10c(2) to Form 10-Q for the quarter ended September 30,
1998).
10.10 Indemnity Agreement dated January 1, 1979, among the Registrant,
Whiting National Management, Inc., and Pennsylvania Manufacturers'
Association Insurance Company (incorporated by reference to Exhibit 10g
to Registration Statement No. 33-58090 on Form S-4).
10.11 Agency Agreement dated January 1, 1979 among the Registrant, Whiting
National Management, Inc., and Pennsylvania Manufacturers' Association
Insurance Company (incorporated by reference to Exhibit 10h to
Registration Statement No. 33-58090 on Form S-4).
10.12 Deferred Compensation Agreement, dated May 6, 1998, between Brown &
Brown, Inc. and Kenneth E. Hill (incorporated by reference to Exhibit
10l to Form 10-Q for the quarter ended September 30, 1998).
10.13 Letter Agreement, dated May 4, 1998, between Brown & Brown, Inc. and
Kenneth E. Hill (incorporated by reference to Exhibit 10m to Form 10-Q
for the quarter ended September 30, 1998).
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215
10.14 Employment Agreement, dated as of July 29, 1999, between the Registrant
and J. Hyatt Brown (incorporated by reference to Exhibit 10f to Form
10-K for the year ended December 31, 1999).
10.15 Portions of Employment Agreement, dated April 28, 1993 between the
Registrant and Jim W. Henderson (incorporated by reference to Exhibit
10m to Form 10-K for the year ended December 31, 1993).
10.16 Employment Agreement, dated May 6, 1998 between the Registrant and
Kenneth E. Hill (incorporated by reference to Exhibit 10k to Form 10-Q
for the quarter ended September 30,1998).
10.17 Employment Agreement, dated January 3, 2001 between the Registrant and
John R. Riedman (incorporated by reference to Exhibit 10j to Form 10-K
filed on March 14, 2001).
10.18 Non-competition, Nonsolicitation and Confidentiality Agreement,
effective as of January 1, 2001 between the Registrant and John R.
Riedman (incorporated by reference to Exhibit 10l to Form 10-K filed on
March 14, 2001).
10.19 Registrant's 2000 Incentive Stock Option Plan (incorporated by
reference to Exhibit 4 to Registration Statement No. 333-43018 on Form
S-8 filed on August 3, 2000).
10.20 Registrant's Stock Performance Plan (incorporated by reference to
Exhibit 4 to Registration Statement No. 333-14925 on Form S-8).
10.21 Rights Agreement, dated as of July 30, 1999, between Brown & Brown and
First Union National Bank, as Rights Agent (incorporated by reference
to Exhibit 4.1 to Form 8-K filed on August 2, 1999).
11 Statement Re: Computation of Basic and Diluted Earnings Per Share
(incorporated by reference to Exhibit 11 to Form 10-K filed on March
14, 2000).
23.1 Consent of Arthur Andersen LLP, independent auditors of the Registrant.
23.2 Consent of KPMG LLP, independent auditors of Riedman Insurance (a
division of Riedman Corporation).
23.3 Consent of Holland & Knight LLP (included in Exhibit 5.1).*
23.4 Consent of Duff & Phelps, LLC.*
24 Powers of Attorney pursuant to which this Form S-4 have been signed on
behalf of certain directors and officers of the Registrant.*
99.1 Form of Proxy Card.
99.2 Form of Raleigh, Schwarz & Powell, Inc. Employee Stock Ownership Plan
and Trust Direction Letter.*
99.3 Notice to Participants in the Raleigh, Schwarz & Powell, Inc. Employee
Stock Ownership Plan and Trust.
99.4 Summary of Proposed Acquisition of Raleigh, Schwarz & Powell, Inc. and
Golden Gate Holdings, Inc. by Brown & Brown, Inc.
* Previously filed
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