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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 2001
REGISTRATION STATEMENT NO. 333-67418
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
BROWN & BROWN, INC.
(Exact name of registrant as specified in its charter)
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
--------------------
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)
--------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share.......... 148,144 $ 38.20 $ 5,659,651 $ 1,415
====================================================================================================================
(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 Golden
Gate Holdings, 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 aggregate book value, as of December 31, 2000, of
the shares of Golden Gate Holdings to be acquired by the Registrant in the
merger.
(4) The registration fee was previously paid.
--------------------
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
(GOLDEN GATE HOLDINGS LOGO) (BROWN & BROWN LOGO)
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Brown & Brown, Inc. and Golden Gate Holdings,
Inc. have agreed to the merger of Golden Gate Holdings and an indirect
wholly-owned subsidiary of Brown & Brown. Your vote, as a shareholder of Golden
Gate Holdings, 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 Golden Gate Holdings common
stock. Brown & Brown common stock is traded on The New York Stock Exchange under
the symbol "BRO." After the merger, Golden Gate Holdings will be an indirect
wholly-owned subsidiary of Brown & Brown.
The Golden Gate Holdings board has unanimously approved the merger and
recommends that you approve it. The Golden Gate Holdings board has scheduled a
special meeting for the Golden Gate Holdings 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
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.
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 Golden Gate Holdings in connection with the
special meeting of shareholders of Golden Gate Holdings to approve the merger.
We encourage you to read this entire document carefully. Please see "Where You
Can Find More Information" on page 76 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 11.
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 on October , 2001.
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GOLDEN GATE HOLDINGS, INC.
4040 CIVIC CENTER DRIVE, SUITE 520
SAN RAFAEL, CALIFORNIA 94903
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On October 25, 2001
To the Shareholders of Golden Gate Holdings, Inc.:
Notice is hereby given that a special meeting of shareholders of Golden
Gate Holdings, 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. and Golden Gate Holdings, Inc. Pursuant to the
Agreement and Plan of Reorganization, or merger agreement, Golden Gate Holdings
will become an indirect, wholly-owned subsidiary of Brown & Brown through the
merger of an indirect, wholly-owned subsidiary of Brown & Brown with and into
Golden Gate Holdings. Upon completion of the merger, each share of Golden Gate
Holdings common stock outstanding immediately prior to the merger (other than
shares held by Raleigh, Schwarz & Powell) will be cancelled and converted into
the right to receive shares of Brown & Brown common stock, and the Golden Gate
Holdings shareholders (other than Raleigh, Schwarz & Powell) will receive, based
on their respective ownership interests in Golden Gate Holdings, shares of Brown
& Brown common stock equal to:
- $7,103,510 minus 17.76% of the amount by which the
consolidated total net worth (as defined in the merger
agreement) of Golden Gate Holdings and its affiliate, Raleigh,
Schwarz & Powell, 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. Your vote is important.
Even if you plan to attend the special meeting, please vote now. To vote, please
complete, date and sign the enclosed proxy card and promptly return it in the
envelope provided.
By order of the Board of Directors,
------------------------------------
Secretary
SAN RAFAEL, CALIFORNIA
OCTOBER __, 2001
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TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................1
SUMMARY...........................................................................................................5
RISK FACTORS.....................................................................................................11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.......................................................17
THE GOLDEN GATE HOLDINGS SPECIAL MEETING.........................................................................18
General.......................................................................................................18
Record Date; Quorum...........................................................................................18
Required Vote.................................................................................................18
Voting and Revocation of Proxies..............................................................................18
Solicitation of Proxies.......................................................................................19
Surrender of Certificates.....................................................................................19
Dissenters' Rights............................................................................................19
THE MERGER.......................................................................................................22
Background of the Merger......................................................................................22
Brown & Brown Reasons for the Merger..........................................................................23
Golden Gate Holdings Reasons for the Merger...................................................................24
Recommendation of Golden Gate Holdings Board of Directors.....................................................25
Interests of Executive Officers of Golden Gate Holdings.......................................................25
Completion and Effectiveness of the Merger....................................................................25
Treatment of Golden Gate Holdings Common Stock................................................................25
Exchange of Golden Gate Holdings Stock Certificates for Brown & Brown Stock Certificates......................26
Accounting Treatment..........................................................................................26
Regulatory Approvals..........................................................................................26
Material Federal Income Tax Considerations....................................................................26
Dissenters' Rights............................................................................................28
Restrictions on Sales of Shares by Affiliates.................................................................28
Operations Following the Merger...............................................................................28
THE MERGER AGREEMENT.............................................................................................29
General.......................................................................................................29
Exchange of Shares............................................................................................29
Dissenters' Rights............................................................................................29
Representations and Warranties................................................................................29
Conduct of Business Before Completion of the Merger...........................................................30
Charter Documents of the Surviving Corporation................................................................30
Fees and Expenses of the Merger...............................................................................31
Conditions to Completion of the Merger........................................................................31
Termination...................................................................................................32
Extension and Waiver..........................................................................................33
OTHER AGREEMENTS.................................................................................................33
Escrow Agreements.............................................................................................33
Indemnification Agreement.....................................................................................33
Release.......................................................................................................34
Spousal Consent...............................................................................................34
Employment Agreements.........................................................................................34
Non-competition Agreements....................................................................................35
Contribution Agreement........................................................................................35
DIRECTORS AND MANAGEMENT OF BROWN & BROWN FOLLOWING THE MERGER...................................................36
Directors and Executive Officers..............................................................................36
Executive Compensation........................................................................................39
Option Grants in 2000.........................................................................................40
Aggregate Option Exercises in 2000............................................................................41
Long-Term Incentive Plans - Awards in Last Fiscal Year........................................................41
Employment and Deferred Compensation Agreements...............................................................41
Compensation Committee Interlocks and Insider Participation...................................................42
Board Compensation Committee Report on Executive Compensation.................................................43
Transactions with Management and Others.......................................................................45
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MARKET PRICE AND DIVIDEND INFORMATION............................................................................46
Brown & Brown.................................................................................................46
Golden Gate Holdings..........................................................................................46
DESCRIPTION OF BROWN & BROWN.....................................................................................47
General.......................................................................................................47
Divisions.....................................................................................................48
Employees.....................................................................................................51
Competition...................................................................................................51
Regulation, Licensing and Agency Contracts....................................................................52
Properties....................................................................................................52
Legal Proceedings.............................................................................................54
DESCRIPTION OF GOLDEN GATE HOLDINGS..............................................................................55
BROWN & BROWN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............56
General.......................................................................................................56
Results of Operations for the Six Months Ended June 30, 2001 and Six Months Ended June 30, 2000...............57
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998....................................58
Liquidity and Capital Resources...............................................................................59
Quantitative And Qualitative Disclosures About Market Risk....................................................60
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GOLDEN GATE HOLDINGS.........................61
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BROWN & BROWN................................62
DESCRIPTION OF BROWN & BROWN CAPITAL STOCK.......................................................................64
Common Stock..................................................................................................64
Rights Plan...................................................................................................64
Certain Provisions of the Brown & Brown Articles of Incorporation and Bylaws..................................66
Certain Provisions of Florida Law.............................................................................67
COMPARISON OF SHAREHOLDER RIGHTS.................................................................................68
LEGAL MATTERS....................................................................................................75
EXPERTS..........................................................................................................75
WHERE YOU CAN FIND MORE INFORMATION..............................................................................76
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
ANNEX A - AGREEMENT AND PLAN OR REORGANIZATION....................................................ANNEX A-1
ANNEX B - FORM OF INDEMNIFICATION AGREEMENT BETWEEN
THE SHAREHOLDERS (EXCLUDING THE ESOP) AND
BROWN & BROWN........................................................................ANNEX B-1
ANNEX C - FORM OF ESOP INDEMNIFICATION AGREEMENT..................................................ANNEX C-1
ANNEX D - FORM OF CONTRIBUTION AGREEMENT..........................................................ANNEX D-1
ANNEX E - FORM OF ESCROW AGREEMENT BETWEEN THE SHAREHOLDERS
(EXCLUDING THE ESOP AND RALEIGH, SCHWARZ & POWELL)
AND BROWN & BROWN....................................................................ANNEX E-1
ANNEX F - FORM OF ESCROW AGREEMENT BETWEEN THE ESOP AND
BROWN & BROWN........................................................................ANNEX F-1
ANNEX G - FORM OF RELEASE.........................................................................ANNEX G-1
ANNEX H - FORM OF SPOUSAL CONSENT.................................................................ANNEX H-1
ANNEX I - FORM OF NON-COMPETITION AGREEMENT.......................................................ANNEX I-1
ANNEX J - CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW....................................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 Golden Gate
Holdings 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: Pursuant to an Agreement and Plan of Reorganization, dated as of July
25, 2001, as amended, among Brown & Brown, Raleigh, Schwarz & Powell,
Inc., a Washington corporation and affiliate of Golden Gate Holdings,
and certain other parties, a wholly-owned subsidiary of Brown & Brown
will merge with and into Raleigh, Schwarz & Powell and Raleigh, Schwarz
& Powell will become a wholly-owned subsidiary of Brown & Brown (the
"RS&P Merger"). Following the consummation of the RS&P Merger, Raleigh,
Schwarz & Powell will form a California corporation that will be a
wholly-owned subsidiary of Raleigh, Schwarz & Powell ("New Merger
Sub"). Pursuant to an Agreement and Plan of Reorganization dated as of
July 25, 2001, as amended, between Brown & Brown and Golden Gate
Holdings, Brown & Brown will cause New Merger Sub to execute a joinder
to the merger agreement, and New Merger Sub will be merged with and
into Golden Gate Holdings. Golden Gate Holdings will survive the merger
as a wholly-owned subsidiary of Raleigh, Schwarz & Powell and the name
of Golden Gate Holdings will be changed as Brown & Brown shall
determine in its sole discretion. The filing of articles of merger in
the office of the Secretary of State of the State of California 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 GOLDEN GATE HOLDINGS RECEIVE IN THE
MERGER?
A: Upon completion of the merger, each share of Golden Gate Holdings
common stock then outstanding (other than shares held by Raleigh,
Schwarz & Powell) will be cancelled and converted into the right to
receive shares of Brown & Brown common stock, and the Golden Gate
Holdings shareholders (other than Raleigh, Schwarz & Powell) will
receive, based on their respective ownership interests in Golden Gate
Holdings, shares of Brown & Brown common stock equal to:
- $7,103,510 minus 17.76% of the amount by which the
consolidated total net worth (as defined in the merger
agreement) of Golden Gate Holdings and its affiliate, Raleigh,
Schwarz & Powell, 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 Golden Gate
Holdings 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 Golden Gate Holdings shareholders cannot be
determined until the completion of the merger.
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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) 39,563 shares of
Golden Gate Holdings common stock are issued and outstanding, which
number of shares of common stock excludes shares held by Raleigh,
Schwarz & Powell; and (2) the consolidated total net worth of Golden
Gate Holdings, Inc. and its affiliate, Raleigh, Schwarz & Powell, is
$13,000,000, at the effective time of the merger.
Number of Shares of
Average Closing Brown & Brown
Price of Common Stock to be Issued Equivalent Price of
Brown & Brown Per Share of Golden Gate Holdings
Date Common Stock Golden Gate Holdings Common Stock
---- --------------- ------------------------- --------------------
July 25, 2001 $ 43.9735 4.0831 $179.55
September 28, 2001 $ 44.5990 4.0259 $179.55
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
Golden Gate Holdings common stock will be deposited in escrow.
Accordingly, Golden Gate Holdings 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 Golden Gate Holdings shareholders, and the
Raleigh, Schwarz & Powell, Inc. 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 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" on page 33 and "--Escrow
Agreements" on page 33.
Q: WHAT AM I BEING ASKED TO APPROVE?
A: You 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 GOLDEN GATE HOLDINGS RECOMMEND VOTING IN
FAVOR OF THE PROPOSAL?
A: Yes. After careful consideration, the board of directors of Golden Gate
Holdings recommends that its shareholders vote FOR the proposal.
For a more complete description of the recommendation of the Golden
Gate Holdings board of directors, see the section entitled "The
Merger--Recommendation of Golden Gate Holdings 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
11 of this proxy statement/prospectus a number of risk factors that you
should carefully consider before voting.
Q: HOW DO I VOTE?
A: 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: WHAT DO I NEED TO DO NOW?
A: You should mail your completed and signed proxy card in the enclosed
postage-paid envelope addressed to Vandeberg, Johnson & Gandara, as
soon as possible. You should also execute the enclosed ancillary
agreements and mail each of the signed documents, along with your
Golden Gate Holdings stock certificates, in the enclosed postage-paid
envelope.
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.
Q: MAY I CHANGE MY VOTE?
A: 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 Golden Gate Holdings special meeting.
Q: SHOULD I SEND IN GOLDEN GATE HOLDINGS STOCK CERTIFICATES NOW?
A: Yes. Please return your Golden Gate Holdings stock certificates in the
envelope provided. Upon completion of the merger and receipt of your
Golden Gate Holdings stock certificates and any other required
documents, your Golden Gate Holdings 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.
Q: WHEN WILL I BE ABLE TO SELL MY SHARES?
A: Upon completion of the merger, subject to restrictions set forth in
the merger agreement, all shares of Brown & Brown common stock
received by Golden Gate Holdings shareholders in connection with the
merger will be tradeable on The New York Stock Exchange. If a
shareholder is considered an affiliate of Golden Gate Holdings 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 Golden Gate Holdings are working toward completing
the merger as soon as practicable after the Golden Gate Holdings
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 Golden Gate Holdings. 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 Golden Gate Holdings 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 26.
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Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: If the merger occurs, Golden Gate Holdings shareholders who do not vote
their Golden Gate Holdings shares in favor of the merger may be
entitled to dissenters' rights under California law.
For a more complete description of dissenters' rights, see the section
entitled "The Golden Gate Holdings Special Meeting--Dissenters' Rights
" on pages 19 to 21.
Q: WHOM SHOULD I CONTACT WITH QUESTIONS?
A: If you have more questions about the merger, you should contact:
Golden Gate Holdings, Inc.
4040 Civic Center Drive, Suite 520
San Rafael, California 94903
Attn: Bruce Ricci
Phone: (415) 479-1800 extension 126
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 76.
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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
76. We have included page references parenthetically to direct you to a more
complete description of the topics in this summary.
THE COMPANIES (PAGE 47 TO 55)
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.
Golden Gate Holdings, Inc.
4040 Civic Center Drive, Suite 520
San Rafael, California 94903
Phone: (415) 479-1800 extension 126
Golden Gate Holdings is a property/casualty insurance consulting and
brokerage firm providing services to both commercial and individual customers
throughout Northern California. Although its target geographic market is
Northern California, Golden Gate Holdings, through its affiliated company
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, Tacoma, Washington, and Golden Gate Holdings's headquarters in San
Rafael, California.
THE MERGER (PAGE 22)
Following the consummation of the RS&P Merger, Raleigh, Schwarz &
Powell will form New Merger Sub, a California corporation, that will be a
wholly-owned subsidiary of Raleigh, Schwarz & Powell. Pursuant to an Agreement
and Plan of Reorganization, dated as of July 25, 2001, as amended, between Brown
& Brown and Golden Gate Holdings, Brown & Brown will cause New Merger Sub to
execute a joinder to the merger agreement, and New Merger Sub will be merged
with and into Golden Gate Holdings. Golden Gate Holdings will survive the merger
as a wholly-owned subsidiary of Raleigh, Schwarz & Powell and the name of Golden
Gate Holdings will be changed as Brown & Brown shall determine in its sole
discretion.
If this merger becomes effective, each share of Golden Gate Holdings
common stock then outstanding (other than shares held by Raleigh, Schwarz &
Powell) will be cancelled and converted into the right to receive shares of
Brown & Brown common stock, and the Golden Gate Holdings shareholders (other
than Raleigh, Schwarz & Powell) will receive, based on their respective
ownership interests in Golden Gate Holdings, shares of Brown & Brown common
stock equal to:
- $7,103,510 minus 17.76% of the amount by which the
consolidated total net worth (as defined in the merger
agreement) of Golden Gate Holdings and its affiliate, Raleigh,
Schwarz & Powell, 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
Golden Gate Holdings encourage you to read the merger agreement carefully.
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REASONS FOR THE MERGER (PAGES 23 TO 25)
Following are the principal reasons why the Golden Gate Holdings board
of directors approved the merger:
- Golden Gate Holdings faces increased competition from larger
brokers with new local offices. To remain competitive and
achieve greater revenue mass, Golden Gate Holdings 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 Golden Gate Holdings common stock for publicly
traded Brown & Brown common stock is expected to increase
shareholders' liquidity.
- The merger provides the Golden Gate Holdings 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 Golden Gate Holdings board of directors believes that the
merger offers Golden Gate Holdings 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 Golden Gate Holdings board of directors believes that the terms of
the merger are fair to, and in the best interests of, Golden Gate Holdings 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 11, "The
Merger-- Brown & Brown Reasons for the Merger" on pages 23 to 24 and "The
Merger--Golden Gate Holdings Reasons for the Merger" on pages 24 to 25.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 31)
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 a majority of the outstanding
shares of Golden Gate Holdings Class A (voting) common stock
and a majority of the outstanding shares of Class B
(nonvoting) common stock;
- Brown & Brown and Golden Gate Holdings 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 by Brown & Brown and those
employees of Golden Gate Holdings specified in a schedule to
the merger agreement to be delivered prior to completion of
the merger;
- execution of non-competition agreements by each of the Golden
Gate Holdings 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, Golden Gate
Holdings and New Merger Sub in the merger agreement as of the
effective time of the merger;
- the effectiveness of the merger of Raleigh, Schwarz & Powell
with a subsidiary of Brown & Brown;
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- Brown & Brown's and New Merger Sub's satisfaction, in their
sole discretion, with the results of Brown & Brown's due
diligence investigation of Golden Gate Holdings;
- 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 Golden Gate Holdings will have performed in
all material respects all obligations required to be performed
by them under the merger agreement;
- Golden Gate Holdings's receipt of a legal opinion from the
Assistant General Counsel of Brown & Brown;
- Brown & Brown's receipt of a legal opinion from counsel to
Golden Gate Holdings;
- delivery by Golden Gate Holdings of those schedules required
under the merger agreement, in form and substance satisfactory
to Brown & Brown and New Merger Sub;
- execution of an escrow agreement by Brown & Brown and each of
the Golden Gate Holdings shareholders (excluding the ESOP and
Raleigh, Schwarz & Powell), in the form attached to this proxy
statement/prospectus as Annex E;
- execution of an escrow agreement by Brown & Brown and the
ESOP, in the form attached to this proxy statement/prospectus
as Annex F;
- execution of a release by each of the Golden Gate Holdings
shareholders, in the form attached to this proxy
statement/prospectus as Annex G;
- execution of an indemnification agreement by Brown & Brown and
each of the Golden Gate Holdings shareholders (excluding the
ESOP), in the form attached to this proxy statement/prospectus
as Annex B; and
- delivery by each of the Golden Gate Holdings shareholders of
his or her Raleigh, Schwarz & Powell stock certificates.
RECORD DATE; VOTE REQUIRED FOR APPROVAL (PAGE 18)
You may vote for approval of the merger if you owned shares of Golden
Gate Holdings Class A (voting) and/or Class B (nonvoting) common stock at the
close of business on September 28, 2001.
As of the record date, Golden Gate Holdings had 19,538 shares of Class
A (voting) common stock and 36,693 shares of Class B (nonvoting) common stock
outstanding. Each share of Golden Gate Holdings Class A (voting) common stock
and Class B (nonvoting) common stock outstanding on the record date entitles its
holder to one vote. Completion of the merger requires the approval of the merger
agreement by the affirmative vote of a majority of the outstanding shares of
Golden Gate Holdings Class A (voting) common stock and a majority of the
outstanding shares of Golden Gate Holdings Class B (nonvoting) common stock.
However, an agreement among the Golden Gate Holdings shareholders dated
effective October 1, 1999, provides that Raleigh, Schwarz & Powell, an affiliate
of Golden Gate Holdings and the holder of 16,668 shares of Golden Gate Holdings
Class A (voting) common stock, cannot vote in favor of the merger without the
affirmative vote of the holders of 50% or more of the outstanding shares of
Class A (voting) common stock and 50% or more of the outstanding shares of Class
B (nonvoting) common stock. As a result, the validity and effectiveness of the
affirmative vote by Raleigh, Schwarz & Powell of its 16,668 shares of Golden
Gate Holdings Class A (voting) common stock is conditioned upon the receipt of
the affirmative vote of the holders of 50% or more of the outstanding shares of
Golden Gate Holdings Class A (voting) common stock (excluding the shares held by
Raleigh, Schwarz & Powell) and 50% or more of the outstanding shares of Golden
Gate Holdings Class B (nonvoting) 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.
Golden Gate Holdings directors, executive officers and their affiliates
held shares representing approximately 94.29% of the outstanding Golden Gate
Holdings Class A (voting) common stock 61.59% of the
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outstanding Golden Gate Holdings Class B (nonvoting) common stock and 72.950% of
the combined outstanding Golden Gate Holdings Class A (voting) and Class B
(nonvoting) common stock.
ESCROW AGREEMENTS (PAGE 33)
As a condition of the merger, each Golden Gate Holdings 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 Golden Gate Holdings common stock
will be deposited in escrow to secure the indemnification obligations of such
shareholders. Accordingly, Golden Gate Holdings 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
Golden Gate Holdings shareholders, and the ESOP or its participants, pro rata.
INDEMNIFICATION AGREEMENT (PAGE 33)
As a condition of the merger, each Golden Gate Holdings shareholder
(excluding the ESOP) must execute and deliver an indemnification agreement that
provides that such Golden Gate Holdings shareholder, other than Raleigh, Schwarz
& Powell, will jointly and severally indemnify Brown & Brown for certain
damages. The 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 such 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 Golden Gate Holdings common stock
prior to July 25, 2001, 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 32)
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:
- 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 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 26)
Brown & Brown has determined that the minority interests in Golden Gate
Holdings will be acquired at fair market value and be accounted for using the
purchase method of accounting.
INTERESTS OF EXECUTIVE OFFICERS OF GOLDEN GATE HOLDINGS (PAGE 25)
In considering the recommendation of the Golden Gate Holdings board of
directors, you should be aware that the executive officers of Golden Gate
Holdings have interests in the merger that are different from, or in addition
to, those of Golden Gate Holdings shareholders generally. As a condition of the
merger, each executive officer is required to enter into an employment
agreement, generally upon the same terms and conditions as all other employees
of Golden Gate Holdings, that provides for his continued employment with the
surviving corporation of
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the merger. However, one or more senior executive officers may enter into
employment agreements with the surviving corporation that provide such executive
officers with certain guaranteed compensation levels and other benefits, and may
provide that the executive officers cannot be terminated for certain periods
without cause. As a result of these interests, these executive officers could be
more likely to vote in favor of the proposal than shareholders without these
interests.
DISSENTERS' RIGHTS (PAGE 19)
Under California law, you may have the right to dissent from the merger
and to have the appraised fair market value of your shares of Golden Gate
Holdings common stock paid to you in cash. You have the right to seek appraisal
of the value of your Golden Gate Holdings common stock and be paid the appraised
value if all of the following conditions exist:
- You deliver to Golden Gate Holdings, before the special
meeting, a written demand for payment of your shares of Golden
Gate Holdings common stock;
- The holders of at least 5% of the total number of shares of
Golden Gate Holdings common stock (including you) make the
required written demand;
- You vote against the merger; and
- You otherwise comply with the provisions governing dissenters'
rights under California law.
If you dissent from the merger and the conditions outlined above are
met, your shares of Golden Gate Holdings common stock will not be exchanged for
shares of Brown & Brown common stock in the merger, and your only right will be
to receive the appraised value of your shares in cash. You should be aware that
the failure to return a signed written consent does not dispense with the
requirement to deliver a written demand for payment. The appraised value may be
less than the consideration you would receive under the terms of the merger
agreement.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS (PAGE 26)
We have attempted to structure the merger so that, in general, Brown &
Brown, Brown & Brown shareholders, Raleigh, Schwarz & Powell, New Merger Sub,
Golden Gate Holdings and Golden Gate Holdings 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 68)
The rights of shareholders of Golden Gate Holdings 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
Golden Gate Holdings shareholders under the Golden Gate Holdings articles of
incorporation and bylaws.
MARKET PRICE INFORMATION (PAGE 46)
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 Golden Gate Holdings 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 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
--------- ---------- -------- -------- -------- -------- --------
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 GOLDEN GATE HOLDINGS MAY NOT ACHIEVE THE BENEFITS
THEY EXPECT FROM THE MERGER.
Brown & Brown and Golden Gate Holdings 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 Golden Gate
Holdings;
- 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 STOCK PRICE
AND OPERATING RESULTS OF BROWN & BROWN AND GOLDEN GATE HOLDINGS.
If the merger is not completed for any reason, Brown & Brown and Golden
Gate Holdings 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;
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- an adverse reaction for investors and potential investors of
both companies, reducing the value of their stock and their
future financing opportunities; and
- 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 Golden Gate Holdings 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. Golden Gate
Holdings 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, Golden Gate
Holdings may not be able to retain some of its key employees. If any key
employees of Golden Gate Holdings leave, its business, results of operations and
financial condition could suffer.
THE EXECUTIVE OFFICERS OF GOLDEN GATE HOLDINGS HAVE DIFFERENT INTERESTS
FROM YOURS THAT MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The executive officers of Golden Gate Holdings have interests that are
different from, or are in addition to, those of Golden Gate Holdings
shareholders generally. Specifically, the executive officers of Golden Gate
Holdings will become employees of the surviving corporation, and each of the
executive officers will enter into employment agreements with the surviving
corporation. The employment agreements may provide such executive officers with
certain guaranteed compensation levels and other benefits, and may provide that
the executive officers can not be terminated without cause. As a result, these
executive officers could be more likely to vote to approve the proposal than
Golden Gate Holdings 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 Golden Gate Holdings shareholders. The total number
of shares of Brown & Brown common stock to be issued to Golden Gate Holdings
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 Golden Gate Holdings
shareholders, other than Raleigh, Schwarz & Powell, will be delivered to an
escrow agent to secure the indemnification obligations of Golden Gate Holdings
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.
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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 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.
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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 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.
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
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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.
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.
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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 46. 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.
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 Golden Gate Holdings, 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--Golden Gate
Holdings Reasons for the Merger," "The Merger--Recommendation of Golden Gate
Holdings Board of Directors," "Description of Brown & Brown" and "Description of
Golden Gate Holdings."
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of Brown & Brown or Golden Gate Holdings 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 Golden Gate Holdings serve;
- increased competitive pressures, which may affect use of Brown
& Brown's and Golden Gate Holdings'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 Golden
Gate Holdings 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 Golden
Gate Holdings'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 GOLDEN GATE HOLDINGS SPECIAL MEETING
GENERAL
Golden Gate Holdings 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 Golden Gate Holdings shareholders will
consider and vote upon the Agreement and Plan of Reorganization, dated as of
July 25, 2001, as amended, among Brown & Brown, Golden Gate Holdings and New
Merger Sub, a wholly-owned subsidiary of Raleigh, Schwarz & Powell, Inc.
Pursuant to the Agreement and Plan of Reorganization, or merger agreement,
Golden Gate Holdings will become a wholly-owned subsidiary of Raleigh, Schwarz &
Powell through the merger of New Merger Sub, with and into Golden Gate Holdings.
RECORD DATE; QUORUM
The Golden Gate Holdings board of directors has fixed the close of
business on September 1, 2001, as the record date for the special meeting.
Therefore, only holders of Golden Gate Holdings Class A (voting) and Class B
(nonvoting) common stock as of the close of business on the record date,
September 1, 2001, may attend and vote at the special meeting. As of the record
date, Golden Gate Holdings had 19,538 shares of Class A (voting) common stock
and 36,693 shares of Class B (nonvoting) common stock outstanding. Holders of at
least 9,770 shares of Class A (voting) common stock and holders of at least
18,347 shares of Class B (nonvoting) common stock, representing a majority of
the Golden Gate Holdings Class A (voting) common stock and Class B (nonvoting)
common stock, must be present, either in person or by proxy, at the special
meeting in order to take binding action on any matter, subject to the voting
restriction described below under "-Required Vote".
REQUIRED VOTE
Completion of the merger requires the approval of the merger agreement
by the affirmative vote of a majority of the outstanding shares of Golden Gate
Holdings Class A (voting) common stock and a majority of the outstanding shares
of Golden Gate Holdings Class B (nonvoting) common stock. However, an agreement
among the Golden Gate Holdings shareholders dated effective October 1, 1999,
provides that Raleigh, Schwarz & Powell, Inc., an affiliate of Golden Gate
Holdings and the holder of 16,668 shares of Golden Gate Holdings Class A
(voting) common stock, cannot vote in favor of the merger without the
affirmative vote of the holders of 50% or more of the outstanding shares of
Class A (voting) common stock and 50% or more of the outstanding shares of Class
B (nonvoting) common stock. As a result, the validity and effectiveness of the
affirmative vote by Raleigh, Schwarz & Powell of its 16,668 shares of Golden
Gate Holdings Class A (voting) common stock is conditioned upon the receipt of
the affirmative vote of the holders of 50% or more of the outstanding shares of
Golden Gate Holdings Class A (voting) common stock (excluding the shares held by
Raleigh, Schwarz & Powell) and 50% or more of the outstanding shares of Golden
Gate Holdings Class B (nonvoting) 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.
VOTING AND REVOCATION OF PROXIES
If you vote your shares of Golden Gate Holdings 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 Golden Gate Holdings 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.
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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 Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings stock certificates when
returning the enclosed proxy card.
SOLICITATION OF PROXIES
Golden Gate Holdings will bear the costs of soliciting proxies to vote
on the merger agreement at the special meeting. Golden Gate Holdings 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 Golden Gate Holdings may also solicit proxies from shareholders
by telephone, mail, the Internet or in person. However, they will not be paid
for soliciting proxies.
SURRENDER OF CERTIFICATES
Please return your Golden Gate Holdings stock certificates in the
envelope provided. Upon completion of the merger and receipt of your Golden Gate
Holdings stock certificates and any other required documents, your Golden Gate
Holdings 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
Golden Gate Holdings shareholders who vote against the merger and who
follow certain procedures, as described below, may have the right to dissent
from the merger and to demand and obtain payment of the "fair market value" of
their shares in cash. The proceedings resulting from such a demand may result in
a determination of "fair market value" equal to, less than or greater than the
consideration to be received under the merger agreement.
The following is a summary of Chapter 13 of the California General
Corporation Law ("CGCL"), which specifies the conditions under which Golden Gate
Holdings shareholders will have the right to dissent from the merger and the
procedures that a Golden Gate Holdings shareholder must follow to dissent from
the merger and demand cash payment for his or her shares. The following summary
is not a complete statement of the law pertaining to dissenters' rights under
the CGCL and is qualified in its entirety by reference to Chapter 13 of the
CGCL. Any Golden Gate Holdings shareholder contemplating the exercise of
dissenters' rights should carefully review the provisions of Chapter 13 of the
CGCL, which is attached to this proxy statement/prospectus as Annex J,
particularly those setting out the specific procedural steps required to perfect
the dissenters' rights. FAILURE TO COMPLY WITH THE PROCEDURAL REQUIREMENTS OF
CHAPTER 13 OF THE CGCL WILL RESULT IN A WAIVER OF YOUR DISSENTERS' RIGHTS.
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In order to be entitled to exercise dissenters' rights, you must vote
"AGAINST" the merger. Thus, if you wish to dissent and you execute and return a
proxy in the accompanying form, you must specify that your shares are to be
voted "AGAINST" the merger. If you return a proxy without voting instructions or
with instructions to vote "FOR" the merger, your shares will automatically be
voted in favor of the merger and you will lose any dissenters' rights. If you do
not return a proxy and you attend the special meeting, you must vote "AGAINST"
the merger at the meeting to preserve your dissenters' rights. Further, if you
abstain from voting your shares, you will lose your dissenters' rights.
In order to preserve your dissenters' rights, you must also make a
written demand upon Golden Gate Holdings for the purchase of your shares of
Golden Gate Holdings common stock and for the payment to you in cash of the fair
market value of the shares, which we refer to in this discussion as a "demand."
The demand must:
- state the number of shares of Golden Gate Holdings common
stock you hold of record;
- contain a statement of what you claim to be the fair market
value of the shares as of June 27, 2001, the day before the
announcement of the merger, without giving effect to any
appreciation or depreciation due to the merger, which we refer
to throughout this discussion as "fair market value;" and
- be received by Golden Gate Holdings no later than the date of
the special meeting to vote on the merger.
A proxy or vote against the approval of the merger does not in itself constitute
a demand.
The statement of the fair market value contained in the demand
constitutes an offer by you to sell your shares to Golden Gate Holdings at that
price. Once you have made the demand you may not withdraw it, unless Golden Gate
Holdings consents to the withdrawal.
Under Chapter 13 of the CGCL, you will not be entitled to exercise
dissenters' rights unless holders of 5% or more of the outstanding shares of
Golden Gate Holdings common stock (including you) make a demand. If this
condition is met, and the merger is approved at the special meeting, within 10
days Golden Gate Holdings must mail a notice of approval of the merger to each
dissenting shareholder. This notice of approval must be accompanied by:
- a copy of sections 1300, 1301, 1302, 1303 and 1304 of Chapter
13 of the CGCL (which set out the procedures that must be
followed to perfect your dissenters' rights);
- a statement of the price determined by Golden Gate Holdings to
represent the fair market value of the shares; and
- a brief description of the procedure that the shareholder must
follow, if the shareholder desires to exercise dissenters'
rights .
The statement of price constitutes an offer by Golden Gate Holdings to
purchase the dissenting shares.
Within 30 days after the date on which Golden Gate Holdings mailed this
notice of approval, you must submit your stock certificates to Golden Gate
Holdings to be endorsed as dissenting shares. The certificates will be stamped
or endorsed with a statement that they are dissenting shares. Upon subsequent
transfers, new certificates must bear a like statement together with your name
as the original dissenting holder of the shares. If you transfer your dissenting
shares prior to submitting them for this required endorsement, the shares will
lose their status as dissenting shares.
If you and Golden Gate Holdings agree that shares are dissenting shares
and agree on the price of the shares, upon surrender of your endorsed
certificates, Golden Gate Holdings will make payment of that amount (plus
interest at the legal rate on judgments from the date of the agreement) within
30 days after you reached agreement on the price. Any agreement between
dissenting Golden Gate Holdings shareholders and Golden Gate Holdings fixing the
fair market value of any dissenting shares must be filed with the secretary of
Golden Gate Holdings.
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If Golden Gate Holdings denies that the shares you submit qualify as
dissenting shares, or if you and Golden Gate Holdings fail to agree on the fair
market value of those shares, either you or Golden Gate Holdings may file a
complaint in the superior court of the proper county in California requesting
that the court determine the issue. The complaint must be filed within six
months after the date on which notice of approval of the merger is mailed to
dissenting shareholders. You may join as plaintiff in such a suit filed by
another dissenting shareholder and you may be joined as a defendant in any such
action brought by Golden Gate Holdings. If the suit is not brought within six
months, your shares will lose their status as dissenting shares.
In a dissenters' rights action, the court must first determine if the
shares qualify as dissenting shares. If the court determines that they do
qualify, it will either determine the fair market value or appoint one or more
impartial appraisers to do so. The court will assess and apportion the costs of
the action as it considers equitable. However, if the appraised value of the
shares exceeds the price offered by the corporation by more than 125%, the
corporation must pay the costs of the suit, which may include (at the court's
discretion) attorneys' fees, expert witness fees, and prejudgment interest.
A shareholder who receives cash payment for dissenting shares will be
treated as if such shares were redeemed for federal income tax purposes. See
"The Merger -- Material Federal Income Tax Considerations."
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THE MERGER
This section of this proxy statement/prospectus describes some aspects
of the proposed merger. While Brown & Brown and Golden Gate Holdings 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 Chairman of the Board of
Golden Gate Holdings, contacted Michael Paschke of Brown & Brown, to inquire if
Brown & Brown had an interest in a business association with Golden Gate
Holdings and its affiliated company Raleigh, Schwarz & Powell. Golden Gate
Holdings 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 Golden Gate Holdings and
Raleigh, Schwarz & Powell.
On March 13, 2001, Mr. Folsom and Darrell Prater, a director of Golden
Gate Holdings, and Mr. Paschke and Kenneth Kirk of Brown & Brown met at the
offices of Brown & Brown in Phoenix, Arizona. At this meeting, Golden Gate
Holdings and Brown & Brown discussed Brown & Brown's strategies and the
opportunities for Golden Gate Holdings to support Brown & Brown's strategies.
Effective as of March 23, 2001, Brown & Brown and Golden Gate Holdings
entered into a confidentiality letter agreement.
On April 19, 2001, Mr. Folsom and Mr. Prater of Golden Gate Holdings
met with Messrs. Paschke and. Kirk of Brown & Brown in Seattle and Tacoma, and
had discussions relating to a possible combination.
On April 27, 2001 Messrs. Paschke and Kirk met with Bruce Ricci, the
President of Golden Gate Holdings, Inc. in San Rafael, California and discussed
a potential business combination.
On May 7, 2001, Messrs. Paschke and Kirk of Brown & Brown met with Mr.
Folsom and Mr. Prater, of Golden Gate Holdings in Phoenix. At that meeting,
Messrs. Folsom and Prater presented the representatives of Brown & Brown with an
overview of Golden Gate Holdings's services, business strategy and sales and
marketing plans.
On May 8, 2001, Messrs. Folsom and 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 Golden Gate
Holdings. During this period, Messrs. Folsom and Prater continued to negotiate
with executives of other companies regarding the terms, including the
consideration to Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings
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.
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 terms of the
proposed merger and authorized management to negotiate and execute the merger
agreement and related agreements.
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On June 27, 2001, the board of directors of Golden Gate Holdings,
together with the senior management of Golden Gate Holdings 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 volatility risks relating to each company's stock
and the likely timing of, and risks to, closing each transaction. The board of
directors of Golden Gate Holdings 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
Golden Gate Holdings from soliciting acquisition offers from third parties.
On June 27, 2001, Golden Gate Holdings and Brown & Brown signed a
letter of intent setting forth the principal terms of the acquisition of Golden
Gate Holdings 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, Golden Gate Holdings
agreed not to solicit acquisition offers from third parties before September 25,
2001. After they signed the letter of intent, Golden Gate Holdings 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 Golden Gate Holdings and
its outside legal counsel drafts of a merger agreement.
On July 16, 2001, the board of directors of Golden Gate Holdings met to
discuss the terms and conditions of the proposed merger and the merger
agreement. At that meeting, the board of directors of Golden Gate Holdings 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, Golden Gate Holdings and Brown & Brown executed an
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 Golden Gate Holdings agreed to
extend the date of termination of the merger agreement to November 30, 2001.
After further analysis regarding the accounting treatment of the
merger, Brown & Brown determined that the minority interests in Golden Gate
Holdings will be acquired at fair market value and be accounted for using the
purchase method of accounting for a business combination. On September 28, 2001,
Golden Gate Holdings and Brown & Brown executed the second amendment to the
merger agreement.
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 Golden Gate Holdings 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 Golden Gate
Holdings and reviews of the operations of Golden Gate
Holdings, Brown & Brown's management determined that
opportunities exist to reduce costs of operations if the
companies were combined.
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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
Brown & Brown board of directors voted unanimously to approve the merger.
GOLDEN GATE HOLDINGS REASONS FOR THE MERGER
The decision of the Golden Gate Holdings board of directors to enter
into the merger agreement and to recommend that Golden Gate Holdings
shareholders approve the merger agreement, the merger and related transactions
was the result of the board of directors 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 Golden Gate Holdings that might involve additional financing.
During the course of its deliberations, the board of directors of
Golden Gate Holdings 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 the Golden Gate Holdings shareholders and could
contribute to the success of the surviving corporation, including the following:
- GREATER LIQUIDITY. To date, there has been no public market
for the shares of capital stock of Golden Gate Holdings, 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 certain restrictions set forth in the merger
agreement, the shares of Brown & Brown common stock to be
issued to Golden Gate Holdings shareholders in the merger will
be tradable on The New York Stock Exchange. The merger may
allow the Golden Gate Holdings shareholders to achieve
liquidity of their investment sooner than they might otherwise
have been able.
- INCREASED COMPETITION. Golden Gate Holdings faces increasing
competition from other insurance brokerage firms. Golden Gate
Holdings 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,
Golden Gate Holdings 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 Golden Gate
Holdings also believes that the price offered by Brown & Brown
compares favorably to the current market valuations of other
companies in Golden Gate Holdings's industry.
- ADDITIONAL COST-SAVINGS AND BENEFITS. Golden Gate Holdings
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 Golden Gate
Holdings access to Brown & Brown's greater financial,
technological and human resources to continue to develop
Golden Gate Holdings's services and greater sales and
marketing resources to help promote those services more
broadly.
In addition, the Golden Gate Holdings 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, Golden Gate
Holdings will have less autonomy and independence in setting
its strategic goals;
- the fixed value of the consideration to be issued in the
merger to Golden Gate Holdings 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 from trading the Brown & Brown shares for a
period of time, during which the shares may decline in value;
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- the risk that Golden Gate Holdings may find it more difficult
to attract and retain skilled employees;
- the risk that the merger may divert management's attention
from Golden Gate Holdings's business operations; and
- the other risks described in this proxy statement/prospectus
under "Risk Factors."
This discussion of factors considered by the Golden Gate Holdings board
of directors is not intended to be exhaustive, but is intended to include the
material factors considered. The Golden Gate Holdings 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 GOLDEN GATE HOLDINGS BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative,
the board of directors of Golden Gate Holdings has determined that the merger is
in the best interests of Golden Gate Holdings and its shareholders. The Golden
Gate Holdings board of directors recommends that you vote FOR the approval of
the merger agreement, the merger and related transactions.
INTERESTS OF EXECUTIVE OFFICERS OF GOLDEN GATE HOLDINGS
In considering the recommendation of the Golden Gate Holdings board of
directors with respect to the approval of the proposal, Golden Gate Holdings
shareholders should be aware of the interests that the executive officers of
Golden Gate Holdings have in the merger. The board of directors of Golden Gate
Holdings 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, each executive officer
of Golden Gate Holdings is required to enter into an employment agreement,
generally upon the same terms and conditions as all other employees of Golden
Gate Holdings, that provides for his continued employment with the surviving
corporation of the merger. However, one or more senior executive officers may
enter into employment agreements with the surviving corporation that provide
such executive officers with certain compensation levels and other benefits, and
may provide that the executive officers cannot be terminated for certain periods
without cause. As a result of these interests, the executive officer could be
more likely to vote in favor of the proposal than shareholders without these
interests. 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 holders of a majority of the outstanding shares of Golden Gate Holdings
Class A (voting) common stock and a majority of the outstanding shares of Class
B (nonvoting) common stock. The merger will become effective upon the filing of
articles of merger in the office of the Secretary of State of the State of
California.
TREATMENT OF GOLDEN GATE HOLDINGS COMMON STOCK
With the exception of dissenting shares, if the merger becomes
effective, each share of Golden Gate Holdings common stock then outstanding
(other than shares held by Raleigh, Schwarz & Powell) will be cancelled and
converted into shares of Brown & Brown common stock, and the Golden Gate
Holdings shareholders (other than Raleigh, Schwarz & Powell) will receive, based
on their respective ownership interests in Golden Gate Holdings, shares of Brown
& Brown common stock equal to:
- $7,103,510 minus 17.76% of the amount by which the total
consolidated net worth (as defined in the merger agreement) of
Golden Gate Holdings, and its affiliate Raleigh, Schwarz &
Powell, 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.
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The actual number of shares of Brown & Brown common stock to be issued
to Golden Gate Holdings 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 Golden Gate Holdings
shareholders, see pages 1 to 2.
EXCHANGE OF GOLDEN GATE HOLDINGS STOCK CERTIFICATES FOR BROWN & BROWN STOCK
CERTIFICATES
Please return your Golden Gate Holdings stock certificates in the
envelope provided. Upon completion of the merger and receipt of your Golden Gate
Holdings stock certificates and any other required documents, your Golden Gate
Holdings 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.
ACCOUNTING TREATMENT
Brown & Brown has determined that the minority interests in Golden Gate
Holdings will be acquired at fair market value and be accounted for using the
purchase method of accounting. After completion of the merger, the results of
operations of Golden Gate Holdings will be included in the consolidated
financial statements of Brown & Brown. The purchase price will be allocated to
Golden Gate Holdings's assets and liabilities based on the fair values of the
assets acquired and the liabilities assumed. Any excess of cost over fair value
of the net tangible assets of Golden Gate Holdings acquired will be recorded on
Brown & Brown's balance sheet as goodwill and other intangible assets and will
be amortized on Brown & Brown's statement of operations by charges to operations
under generally accepted accounting principles. These allocations will be made
based upon valuations and other studies that have not yet been finalized.
REGULATORY APPROVALS
Neither Brown & Brown nor Golden Gate Holdings 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 California, and compliance with applicable state "blue sky" laws.
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, New Merger Sub, Golden Gate Holdings or Golden Gate Holdings
shareholders.
Golden Gate Holdings shareholders should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant to
particular Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings shares
are acquired or Brown & Brown shares are disposed of.
Golden Gate Holdings 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:
- Golden Gate Holdings shareholders will not recognize any gain
or loss solely upon receipt in the merger of Brown & Brown
common stock in exchange for Golden Gate Holdings capital
stock, except to the extent Golden Gate Holdings shareholders
exercise their dissenters' rights.
- The aggregate tax basis of the Brown & Brown common stock
received by a Golden Gate Holdings shareholder in the merger
should be the same as the aggregate tax basis of the
surrendered Golden Gate Holdings capital stock.
- The holding period for the Brown & Brown common stock received
by a Golden Gate Holdings shareholder in the merger should
include the period for which the surrendered Golden Gate
Holdings common stock was considered to be held, provided that
the Golden Gate Holdings 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 Golden Gate Holdings 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 Golden
Gate Holdings shares, provided that the shareholder exercising
dissenters' rights owns no shares of Golden Gate Holdings
stock (either actually or constructively within the meaning of
Section 318 of the Internal Revenue Code) immediately after
the merger.
- Neither Brown & Brown, Raleigh, Schwarz & Powell, New Merger
Sub nor Golden Gate Holdings should recognize gain or loss
solely as a result of the merger.
Brown & Brown, Raleigh, Schwarz & Powell, New Merger Sub and Golden
Gate Holdings 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 Golden Gate Holdings shareholders recognizing
taxable gain or loss with respect to each share of Golden Gate Holdings 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
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completed, of the Brown & Brown common stock received in the merger. In such
event, a shareholder's aggregate basis in the Brown & Brown 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 Golden Gate Holdings capital stock.
All or a portion of such gain may be taxable as ordinary income. A Golden Gate
Holdings 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 Golden Gate Holdings
stock.
DISSENTERS' RIGHTS
If the merger occurs, Golden Gate Holdings shareholders who do not vote
their shares in favor of the merger may be entitled to dissenters' rights under
California law. ESOP participants are not entitled to dissenters' rights. For a
further discussion of Golden Gate Holdings shareholders' possible dissenters'
rights including a summary of California law, see "The Golden Gate Holdings
Special Meeting--Dissenters' Rights."
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
All shares of Brown & Brown common stock to be issued to Golden Gate
Holdings shareholders in the merger will be registered under the Securities Act.
Subject to restrictions set forth in the merger agreement, 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 Golden
Gate Holdings, 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 Golden Gate Holdings
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 Golden Gate Holdings are made
publicly available.
OPERATIONS FOLLOWING THE MERGER
After completion of the merger, Golden Gate Holdings will continue its
operations as a wholly-owned subsidiary of Raleigh, Schwarz & Powell, Inc. and
as an indirect wholly-owned subsidiary of Brown & Brown. The name of Golden Gate
Holdings will be changed as Brown & Brown shall determine in its sole
discretion. The shareholders of Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings urge you to read it carefully.
GENERAL
Following the consummation of the RS&P Merger, Raleigh, Schwarz &
Powell will form New Merger Sub, a California corporation that will be a
wholly-owned subsidiary of Raleigh, Schwarz & Powell. Pursuant to an Agreement
and Plan of Reorganization, dated as of July 25, 2001, as amended, between Brown
& Brown and Golden Gate Holdings, Brown & Brown will cause New Merger Sub to
execute a joinder to the merger agreement, and New Merger Sub will be merged
with and into Golden Gate Holdings. Golden Gate Holdings will survive the merger
as a wholly-owned subsidiary of the Raleigh, Schwarz & Powell and the name of
Golden Gate Holdings will be changed as Brown & Brown shall determine in its
sole discretion.
EXCHANGE OF SHARES
With the exception of dissenting shares, each issued and outstanding
share of Golden Gate Holdings Class A (voting) and Class B (nonvoting) common
stock, referred to in this proxy statement/prospectus as Golden Gate Holdings
common stock, will be cancelled 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 Golden
Gate Holdings Common Stock."
DISSENTERS' RIGHTS
If any Golden Gate Holdings shareholder asserts dissenters' rights
under California law, Golden Gate Holdings must promptly notify Brown & Brown of
the claim or demand. Brown & Brown will have the right to conduct jointly with
Golden Gate Holdings all negotiations and proceedings with respect to any claim
or demand. Golden Gate Holdings 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 Golden
Gate Holdings regarding, among other things:
- 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;
- its compliance with applicable laws;
- its material contracts and compliance with the terms of such
contracts;
- material contractual restrictions on its business;
- its insurance;
- 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 also contains representations and warranties by
Brown & Brown and/or New Merger Sub regarding, among other things, aspects of
its organization, capital structure, financial statements, authority to enter
into the merger agreement, and 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
Golden Gate Holdings 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 will 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, Golden Gate Holdings 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 the business of Golden Gate
Holdings in the merger agreement are complicated and not easily summarized. You
are urged to carefully read the section of the merger agreement entitled
"Covenants."
CHARTER DOCUMENTS OF THE SURVIVING CORPORATION
The articles of incorporation and bylaws of New Merger Sub as in effect
immediately before the effective time of the merger will become the articles of
incorporation of the surviving corporation.
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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.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Brown & Brown, New Merger Sub and Golden Gate
Holdings 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 a majority of the outstanding
shares of Golden Gate Holdings Class A (voting) common stock
and a majority of the outstanding shares of Golden Gate
Holdings Class B (nonvoting) common stock;
- Brown & Brown and Golden Gate Holdings 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
statement/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 each of
the Golden Gate Holdings shareholders (excluding Raleigh,
Schwarz & Powell and the ESOP), in the form attached to this
proxy statement/prospectus as Annex E;
- execution of an escrow agreement by Brown & Brown and the
ESOP, in the form attached to this proxy statement/prospectus
as Annex F;
- execution of an indemnification agreement by Brown & Brown and
New Merger Sub, and each of the Golden Gate Holdings
shareholders (excluding the ESOP), in the form attached to
this proxy statement/prospectus as Annex B;
- execution of employment agreements by Brown & Brown and those
employees of Golden Gate Holdings specified in a schedule to
the merger agreement to be delivered prior to completion of
the merger; and
- the effectiveness of the merger of Raleigh, Schwarz & Powell,
Inc. with a subsidiary of Brown & Brown.
The obligations of Golden Gate Holdings 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 New Merger
Sub 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
- Golden Gate Holdings's receipt of a legal opinion from the
Assistant General Counsel of Brown & Brown.
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The obligations of Brown & Brown and New Merger Sub 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 Golden Gate Holdings in the
merger agreement as of the effective time of the merger, and
Golden Gate Holdings's performance in all material respects of
all of its obligations under the merger agreement required to
be performed by Golden Gate Holdings as of the effective time
of the merger;
- Brown & Brown's and New Merger Sub's satisfaction in its sole
discretion, with the results of its due diligence
investigation of Golden Gate Holdings;
- delivery by each of the Golden Gate Holdings shareholders of
his or her Golden Gate Holdings stock certificates;
- execution by each of the Golden Gate Holdings shareholders of
a release, in the form attached to this proxy
statement/prospectus as Annex G;
- delivery by Golden Gate Holdings of those schedules required
under the merger agreement, in form and substance satisfactory
to Brown & Brown and New Merger Sub;
- execution of a non-competition agreement in the form attached
to this proxy statement/prospectus as Annex I, 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; and
- Brown & Brown's and New Merger Sub's receipt of a legal
opinion from counsel to Golden Gate Holdings.
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
Golden Gate Holdings.
At any time before the effective time of the merger, the merger
agreement may also be terminated by either Brown & Brown or Golden Gate Holdings
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 have 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 Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate Holdings shareholder,
other than Raleigh, Schwarz & Powell and the ESOP, must execute and deliver an
escrow agreement, the form of which is attached to this proxy
statement/prospectus as Annex E and referred to herein as the shareholder escrow
agreement. 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 F 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 Golden Gate Holdings 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 Golden Gate
Holdings 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 remain in escrow until one year after 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
As a condition of the merger, each Golden Gate Holdings 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 such shareholders, other than Raleigh, Schwarz & Powell, will
jointly and severally indemnify Brown & Brown for damages Brown & Brown suffers
as a result of (1) any material breach of any of Golden Gate Holdings's
representations, warranties, obligations or covenants contained in the merger
agreement, (2) any material breach of any of the Golden Gate Holdings
shareholders' representations, warranties, obligations or covenants contained in
the indemnification agreement or any other certificate, agreement or other
document delivered by any
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shareholder pursuant to the merger agreement (other than the release described
below), (3) the operation of Golden Gate Holdings's insurance agency business
or ownership of the shares of Golden Gate Holdings 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 Golden Gate Holdings
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 Golden Gate Holdings shareholder, or (5) any deficiency
in the accruals on Golden Gate Holdings'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 Golden Gate Holdings'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. Such
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 Golden Gate Holdings common stock prior to July
25, 2001 shall be limited to the aggregate value, as of the effective time of
the merger, of the merger consideration received by such shareholder.
As a condition of the merger, the ESOP must execute and deliver a
separate indemnification agreement, the form of which is attached to this proxy
statement/prospectus as Annex C, which provides that the ESOP will indemnify
Brown & Brown for damages Brown & Brown suffers as a result of any material
breach of any of the ESOP's representations, warranties, obligations or
covenants contained in the indemnification agreement. The ESOP 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;
provided, however, that the maximum indemnification obligation of the ESOP is
limited to the value of the escrowed shares issued to the ESOP.
RELEASE
As a condition to the merger, each Golden Gate Holdings shareholder
must execute and deliver a release, the form of which is attached to this proxy
statement/prospectus as Annex G, which releases and discharges Brown & Brown,
New Merger Sub, Golden Gate Holdings and their respective affiliates from any
and all claims or demands such shareholder has or may have in the future against
Brown & Brown, New Merger Sub, Golden Gate Holdings and their respective
affiliates.
SPOUSAL CONSENT
As a condition of the merger, each spouse of a Golden Gate Holdings
shareholder must execute and deliver a spousal consent, the form of which is
attached to this proxy statement/prospectus as Annex H, pursuant to which such
spouse (1) consents to the exchange of shares of Golden Gate Holdings 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 Golden Gate Holdings 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 Golden Gate
Holdings, including the executive officers, specified in a schedule to the
merger agreement to be delivered prior to the 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;
provided, however, that one or more senior executive officers may enter into
employment agreements with the surviving corporation that provide such executive
officers with certain guaranteed compensation levels and other benefits, and may
provide that the executive officers cannot be terminated for certain periods
without cause.
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NON-COMPETITION AGREEMENTS
As a condition of the merger, a non-competition agreement, in the form
attached to this proxy statement/prospectus as Annex I, that prohibits the
shareholder from competing, as described below, for a period of three years from
the effective time of the merger must be executed by each of the Golden Gate
Holdings shareholders specified in a schedule to the merger agreement to be
delivered prior to completion of the merger. The non-competition agreement
requires each shareholder to refrain from:
- directly or indirectly engaging in the insurance agency or
brokerage business within the following California counties:
Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo,
Solano, or Sonoma;
- 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 Golden Gate Holdings 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, the shareholder 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 Golden Gate
Holdings shareholder, other than the ESOP, must execute and deliver an
indemnification agreement, pursuant to which the Golden Gate Holdings
shareholders (other than Raleigh, Schwarz & Powell) 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 D, 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 a 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.
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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 & 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
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Brown & Brown's Oakland, California retail office. Before joining
Brown & Brown, he was a Senior Audit Manager for Ernst & Young LLP.
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 OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#) ($)(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 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.
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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.
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
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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 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.
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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% 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 of directors 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.
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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, 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., a wholly-owned subsidiary of Brown & Brown, acquired all of the
insurance agency business-related assets of Riedman Insurance of Wyoming, Inc.,
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 of Wyoming to Brown & Brown of Wyoming. The aggregate consideration
for these assets, which is payable in cash in three installments by Brown &
Brown and Brown & Brown of 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 of 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. Brown & Brown received a discounted credit toward the
asset purchase price for amounts payable to Frank Riedman pursuant to this
assumed obligation. Brown & Brown 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 and Brown following the Merger - Compensation
Committee Interlocks and Insider Participation."
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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
-------------
High Low Cash Dividends
---- --- --------------
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.
GOLDEN GATE HOLDINGS 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 Golden Gate Holdings
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.
GOLDEN GATE HOLDINGS
The common stock of Golden Gate Holdings is not traded on an
established public trading market.
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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, 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 GOLDEN GATE HOLDINGS
Golden Gate Holdings is a property/casualty insurance consulting and
brokerage firm providing services to both commercial and individual customers
throughout Northern California. Although its target geographic market is
Northern California, the Company through its affiliated company 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, Tacoma,
Washington, and Golden Gate Holdings's headquarters in San Rafael, California.
Golden Gate Holdings maintains a diverse client base. Approximately 40%
of its total revenues are derived from its top ten clients.
With respect to its suppliers, Golden Gate Holdings places business
with a wide variety of insurance carriers depending upon the type of product
sold.
With respect to debt capitalization, Golden Gate Holdings has under
$80,000 in long-term debt.
Raleigh, Schwarz & Powell, Inc. formed Golden Gate Holdings on October
1, 1999, 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.
Raleigh, Schwarz & Powell, has offices in Tacoma, Washington and
Seattle, 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.
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.
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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 GOLDEN GATE HOLDINGS
The following table sets forth information, as of the record date,
September 28, 2001, known to Golden Gate Holdings with respect to the beneficial
ownership of Golden Gate Holdings common stock by:
- each shareholder known by Golden Gate Holdings to be the
beneficial owner of more than 5% of Golden Gate Holdings
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
19,538 shares of Class A (voting) common stock and 36,693 shares of Class B
(nonvoting) common stock of Golden Gate Holdings outstanding on the record date.
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 Golden Gate Holdings, Inc., 4040 Civic Center Drive, Suite 520, San
Rafael, California 94903.
NUMBER OF SHARES
OF COMMON STOCK
NAME OF BENEFICIAL OWNERS BENEFICIALLY OWNED(1) PERCENTAGE OF CLASS
------------------------- --------------------- -------------------
CLASS A CLASS B CLASS A CLASS B
(VOTING) (NONVOTING) (VOTING) (NONVOTING)
-------- ----------- -------- -----------
Raleigh, Schwarz & Powell................................... 16,668(2) -- 85.31% --
Raleigh, Schwarz & Powell ESOP.............................. -- 4,000 -- 10.90%
Bruce Ricci, President and Director......................... 86 1,114 0.44% 3.04%
Robert DeGraves, Director................................... 1,668 17,487 8.54% 47.66%
John P. Folsom, Vice President, Director and Chairman....... 16,668(3) -- 85.31% --
Marie Cavanaugh, Secretary.................................. -- -- -- --
Catheryn Smith-Morrow, Treasurer............................ -- -- -- --
Darrell Prater, Director.................................... -- -- -- --
All executive officers and directors
as a group (6 persons)................................. 18,422 22,601 94.29% 61.59%
(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) An agreement among the shareholders of Golden Gate Holdings common
stock dated effective October 1, 1999, provides that Raleigh, Schwarz &
Powell, Inc. cannot vote its 16,668 shares of Class A (voting) common
stock in favor of a merger without the affirmative vote of the holders
of 50% or more of the outstanding shares of Class A (voting) common
stock and 50% or more of the outstanding Class B (nonvoting) common
stock.
(3) This number includes 16,668 shares held by Raleigh, Schwarz & Powell.
Mr. Folsom is President of Raleigh, Schwarz & Powell.
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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 CEO 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 Golden Gate Holdings 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 Golden Gate Holdings and being a shareholder of Brown &
Brown.
After the merger, the shareholders of Golden Gate Holdings 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 Golden Gate Holdings shareholders.
The rights of Golden Gate Holdings shareholders are also governed by
its articles of incorporation and its bylaws. Upon completion of the merger, the
rights of Golden Gate Holdings 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 Golden Gate Holdings shareholders under the charter documents
and bylaws of Brown & Brown and Golden Gate Holdings, as well as material
differences between California and Florida law that may affect the interests of
Golden Gate Holdings shareholders.
PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
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VOTING RIGHTS
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- Under Florida law, each shareholder is entitled to one - Under California law, except with respect to the election
vote for each share of capital stock held by the of directors, each outstanding share, regardless of
shareholder, by person or proxy, on each matter submitted class, is entitled to one vote on each matter submitted
to a vote at a shareholders meeting unless the articles to a vote of shareholders, unless the articles of
of incorporation provide otherwise. Brown & Brown' incorporation provide otherwise. Golden Gate Holdings's
amended and restated articles of incorporation do not articles of incorporation do not provide otherwise.
alter the voting rights of holders of Brown & Brown Golden Gate Holdings's articles of incorporation provide
common stock. that its Class B common stock is nonvoting. However, an
agreement among the shareholders of Golden Gate Holdings
- Under Florida law, articles of incorporation may provide common stock dated effective October 1, 1999 provides
that in elections of directors, shareholders are entitled that Raleigh, Schwarz & Powell cannot vote its 16,668
to cumulate votes. The Brown & Brown amended and restated shares of Class A (voting) common stock in favor of a
articles of incorporation do not provide for cumulative merger without the affirmative agreement of shareholders
voting for the election of directors; therefore, under holding fifty percent (50%) or more of the Class A
Florida law, directors are elected by a plurality of the (voting) and Class B (nonvoting) common stock.
votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present.
- The Brown & Brown amended and restated bylaws provide - Under California law, unless otherwise provided in the
that a majority in interest of all the common stock articles of incorporation or bylaws, shareholders have
issued and outstanding, represented by shareholders of the right to cumulate their votes for the election of
record in person or by proxy, shall constitute a quorum directors. The Golden Gate Holdings bylaws state that in
for the transaction of business. an election for directors, if a candidate's name has been
placed in nomination prior to the voting and one or more
names has been placed in nomination prior to the voting
and one or more shareholders has given notice at the
meeting prior to the voting of the shareholder's intent
to cumulate the shareholder's votes, then every
shareholder entitled to vote may cumulate votes and
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
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give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of
shares which the shareholder is entitled to vote, or
distribute the votes on the same principle among as many
candidates as the shareholder chooses. The candidates
receiving the highest number of votes up to the number of
directors to be elected shall be elected. Upon the demand
of any shareholder made before the voting begins, the
election of directors shall be by ballot.
- Golden Gate Holdings's bylaws provide that a majority of
the outstanding shares entitled to vote, represented in
person or by proxy, shall constitute a quorum.
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SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
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- Generally, under Florida law, unless the articles of - Generally, under California Law, business
incorporation provide for the vote of a larger portion of reorganizations require approval by the board of
the stock, completion of a merger or consolidation or directors and an affirmative vote of a majority of the
sale of substantially all of a corporation's assets or outstanding shares entitled to vote, with each class
dissolution requires: of shares voting separately by class. For purposes of
this voting requirement, classes of common stock
(1) the approval of the board of directors; and differing only as to voting rights are considered a
single class of shares. Golden Gate Holdings Class B
(2) approvals by the vote of the holders of a majority of common stock is nonvoting.
the outstanding stock.
- In a sale of assets, California law provides that if
Brown & Brown's amended and restated articles of the acquiring party is in control of or under common
incorporation do not provide for the vote of a larger control with the disposing corporation, the principal
portion of the stock. terms of the sale must be approved by at least 90% of
the voting power of the disposing corporation, unless
the disposition is to another business entity in
consideration of non-redeemable common shares or
non-redeemable equity securities of the acquiring
party or its parent.
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ACTION BY WRITTEN CONSENT
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- Under Florida law, unless otherwise provided in the - California law provides that, unless otherwise
articles of incorporation, shareholders may take any provided in the articles of incorporation, any action
action required or permitted to be taken at a that may be taken at a special or annual meeting of
shareholders' meeting without a meeting if the action shareholders may be taken without a meeting and
is consented to in writing by shareholders entitled to without prior notice, if a consent in writing, setting
cast the same number of votes that would be required forth the action taken, is signed by the holders of
to take that action at a meeting at which all outstanding shares having not less than the minimum
shareholders were present and voting in person. The number of votes that would be necessary to authorize
amended and restated articles of incorporation of or take such action at a meeting at which all shares
Brown & Brown do not provide otherwise. entitled to vote thereon were present and voted. The
Golden Gate Holdings bylaws do not provider otherwise.
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
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DIVIDENDS
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- Under Florida law, subject to any restriction in the - California law provides that a corporation may pay
corporation's articles of incorporation, the board of dividends if the amount of the retained earnings of
directors may declare and pay dividends or other the corporation immediately prior to the proposed
distributions to shareholders unless, after giving distribution equals or exceeds the amount of the
effect to the distribution: proposed distribution. California law also provides
that a corporation may pay dividends if immediately
(1) the corporation would not be able to pay its debts after giving effect thereto, (1) the sum of the assets
as they become due in the usual course of business; of the corporation (exclusive of goodwill, capitalized
or research and development expenses and deferred
charges) would be at least equal to 1.25 times its
(2) the corporation's total assets would be less than liabilities (not including deferred taxes, deferred
the sum of its total liabilities plus the amount income and other deferred credits), and (2) the
required to satisfy outstanding liquidation rights current assets of the corporation would be at least
superior to the liquidation rights of those equal to its current liabilities or, if the average of
receiving the distribution. the earnings of the corporation before taxes on income
and before interest expense for the two preceding
Brown & Brown's amended and restated articles of fiscal years was less than the average of the interest
incorporation contain no provisions restricting dividends expense of the corporation for those fiscal years, at
on Brown & Brown's common stock. least equal to 1.25 times its current liabilities.
- Golden Gate Holdings's articles of incorporation
contain no provision restricting dividends on Golden
Gate Holdings's common stock.
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PROVISIONS RELATING TO SHARE ACQUISITIONS AND CERTAIN BUSINESS COMBINATIONS
------------------------------------------------------------ ---------------------------------------------------------------
- Florida law contains a provision which restricts many - California law does not include a similar provision
business combination transactions with an interested regarding interested shareholder business
shareholder for five years after the interested combinations. However, California law does provide
shareholder has acquired 10% of the voting power of a that when, prior to a merger, one constituent
corporation. Under Florida law, if a business corporation holds greater than 50% but less than
combination, including a merger, a disposition of 90% of the voting power of the other constituent
substantially all assets, an issuance of securities corporation, the non-redeemable common equity
and other similar transactions, occurs with a person securities of that corporation may be converted
who, together with its affiliates, owns 10% or more of only into non-redeemable common stock in the
the outstanding capital stock of the subject surviving corporation, unless all of the
corporation, then the combination must be approved by shareholders consent. This provision restricts
two-thirds of the outstanding capital stock entitled two-tier tender transactions.
to vote for directors. However, the combination may
occur without such a vote if, among other exceptions: - California law requires that in certain
transactions involving tender offers or acquisition
(1) a majority of disinterested directors approves the proposals by an "interested party," a written
transaction; opinion of an independent expert be provided as to
the fairness of the consideration offered to the
(2) the corporation has not had more than 300 shareholders of the target corporation. California
shareholders of record during the 3 years prior to law further provides that if a competing proposal
the announcement of the proposed transaction; or is made at least ten days before shareholders are
to vote or shares are to be purchased under the
(3) the related person is the beneficial owner of at pending offer by the interested party, the latter
offer must be communicated to shareholders, who
must be given a reasonable opportunity to revoke
their vote or
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
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least 90% of the outstanding voting shares of the withdraw their shares.
corporation, exclusive of shares acquired directly
from the corporation in a transaction not approved by "Interested Party" means a person who
a majority of disinterested directors.
- controls the target corporation,
The Brown & Brown amended and restated articles of
incorporation and amended and restated bylaws indicate - is an officer or director of the target corporation or
that Brown & Brown has elected to opt out of this is controlled by an officer or director of the target
provision of Florida law. corporation, or
- is an entity in which an officer of director has a
- Florida law also contains a control share provision. material interest.
This provision generally provides that shares acquired
in a "control share acquisition" will not posses 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 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 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.
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SPECIAL MEETINGS OF SHAREHOLDERS
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- Florida law provides that special meetings of - Under California law, a corporation's board of directors,
shareholders may be called only by: its Chairman of the Board, its President, the holders of
shares entitled to cast not less than 10% of the votes at
(1) the board of directors; a meeting of shareholders and such additional persons as
are specified in the corporation's articles or bylaws
(2) any person or persons authorized by the corporation's have the authority to call special meetings of
articles of incorporation or bylaws; or shareholders.
(3) if 10% or more of all the votes entitled to be cast - The Golden Gate Holdings bylaws provide that special
on an issue proposed to be considered at the special meetings of the shareholders may be called at any time by
meeting demand in writing that a special meeting be the board of directors, Chairman of the Board, President,
held. a Vice President, Secretary, or by holders of shares
entitled to cast not less than 10% of the votes at the
- Florida law requires that a corporation give shareholders meeting.
notice of each annual and special shareholders' meeting
at least 10 days and no more than 60 days before the - California law provides that whenever shareholders are
meeting date. required or permitted to take any action at a meeting a
written notice of the meeting shall be
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PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
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The Brown & Brown amended and restated articles of given not less than 10 (or, if sent by third-class mail,
incorporation do not address special meetings of 30) nor more than 60 days before the date of the meeting
shareholders. The Brown & Brown amended and restated bylaws to each shareholder entitled to vote thereat.
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 common stock
outstanding. Such meetings may be held either within or
without the State.
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DISSENTERS' RIGHTS
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- Under Florida law, shareholders of a corporation have the - Under California law, if shareholder approval is required
right to dissent from, and obtain payment of the fair for a merger, exchange or a sale of all or substantially
value of their shares in connection with, certain all of a corporation's assets, appraisal rights are
corporate actions, including an amendment to the articles available to dissenting shareholders. However, subject to
of incorporation which materially and adversely affects certain exceptions, California law does not provide for
the rights or preferences of shares held by the appraisal rights with respect to shares of certain
dissenting shareholders, a disposition of all or corporations, including those that are listed on a
substantially all of the corporation's property and national securities exchange or designated as a national
assets not in the usual course of business, a plan of market systems security on an interdealer quotations
merger in which the shareholders may vote, a plan of system by the National Association of Securities Dealers,
exchange involving the acquisition of the corporation's Inc (as long as such exchange or interdealer quotation
shares if the shareholders are entitled to vote on the system has been certified by rule or order of the
plan, and certain control share acquisitions. However, Commissioner of Corporations of the State of California).
appraisal rights are not available to holders of shares: An exception to this rule exists if demands for appraisal
are filed with respect to 5% or more of the outstanding
(1) listed on a national securities exchange; shares of that class, in which case, the holders of such
shares are entitled to appraisal rights.
(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.
----------------------------------------------------------------------------------------------------------------------------
PREEMPTIVE RIGHTS
----------------------------------------------------------------------------------------------------------------------------
- Under Florida law, a shareholder is not entitled to - Under California law a shareholder is not entitled to
preemptive rights to subscribe for additional issuances preemptive rights to subscribe for additional issuances
of stock or any security convertible into stock unless of stock or any security convertible into stock unless
they are specifically granted in the articles of the articles of incorporation provide otherwise.
incorporation.
- Golden Gate Holdings's articles of incorporation do not
Brown & Brown's amended and restated articles of provide for preemptive rights for its shareholders.
incorporation provide that no shareholder shall have
preemptive rights.
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72
78
PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
----------------------------------------------------------------------------------------------------------------------------
NUMBER AND VACANCY OF DIRECTORS
----------------------------------------------------------------------------------------------------------------------------
- Florida law provides that a board of directors must - California law provides that the bylaws of a corporation
consist of one or more individuals, with the number shall set forth (unless such provision is contained in
specified in or fixed in accordance with the articles of the articles, in which case it may only be changed by an
incorporation or bylaws. The Brown & Brown amended and amendment of the articles) the number of directors of the
restated bylaws provide that the board of directors shall corporation; or that the number of directors shall be not
consist of nine in number to be elected annually at the less than a stated minimum nor more than a stated maximum
meeting of the shareholders by a plurality of the shares (which in no case shall be greater than two times the
voted. The number may be increased or diminished from stated minimum minus one), with the exact number of
time to time, by resolution of the board of directors, directors to be fixed, within the limits specified, by
but shall never be less than three. When for any reason approval of the board or the shareholders in the manner
the office of a director shall become vacant, the provided in the bylaws. The number or minimum number of
remaining directors shall by a majority vote elect a directors shall not be less than three; provided,
success on who shall hold office until his successor is however, that (1) before shares are issued, the number
elected. may be one, (2) before shares are issued, the number may
be two, (3) so long as the corporation has only one
shareholder, the number may be one, (4) so long as the
corporation has only one shareholder, the number may be
two, and (5) so long as the corporation has only two
shareholders, the number may be two.
- The Golden Gate Holdings articles of incorporation and
bylaws provide that the number of directors shall be not
less than five, nor more than nine. The Golden Gate
Holdings bylaws provide that the board of directors or
shareholders shall fix the exact number of directors by
resolution or other action consistent with California
law. Each director shall hold office until the next
annual meeting of shareholders and until the director's
successor shall have been elected and qualified.
Vacancies on the board of directors, except those
existing as a result of removal of a director, may be
filled by a majority of the remaining directors, and each
director so elected shall hold office until the next
annual meeting and until such director's successor has
been elected and qualified.
----------------------------------------------------------------------------------------------------------------------------
INDEMNIFICATION OF OFFICERS AND DIRECTORS
------------------------------------------------------------ ---------------------------------------------------------------
- Florida law provides that a corporation may indemnify any - California law permits a corporation to indemnify any
officer or director who is made a party to any third person who was or is a party or is threatened to be made
party suit or proceeding on account of being a director, a party to any proceeding (other than an action by or in
officer or employee of the corporation against expenses, the right of the corporation to procure a judgment in its
including attorney's fees, judgments, fines and amounts favor) by reason of the fact that the person served as an
paid in settlement reasonably incurred by him in agent against expenses, judgments, fines, settlements,
connection with the action, through, among other things, and other amounts actually and reasonably incurred in
a majority vote of a quorum consisting of connection with the proceeding, if that person:
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73
79
PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
----------------------------------------------------------------------------------------------------------------------------
directors who were not parties to the suit or proceeding, (1) acted in good faith and in a manner the person
if the officer or director: reasonably believed to be in the best interests of the
corporation; and
(1) acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best (2) in the case of a criminal proceeding, had no
interests of the corporation; and reasonable cause to believe the conduct was unlawful.
(2) in a criminal proceeding, had no reasonable cause to - The Golden Gate Holdings Articles of Incorporation
believe his conduct was unlawful. provide that the corporation is authorized to provide
indemnification of agents (as defined in Section 317 of
Brown & Brown's amended and restated articles of the Corporations Code, the definition of "agent" includes
incorporation provide that the bylaws of the company may any person who is or was a director) for breach of duty
provide for the indemnification of the officers and to the corporation and its stockholders through bylaw
directors of the company for their actions and omissions provisions or through agreements with the agents, or
up to the maximum extent permitted by law. Brown & both, in excess of the indemnification otherwise provided
Brown's bylaws provide that every person who is now or by Section 317 of the Corporations Code, subject to the
hereafter may be a director or officer of the company limits on such excess indemnification set forth in
shall be indemnified by the company against all costs and Section 204 of the Corporations Code. The Golden Gate
amounts of liability therefor and expenses, including Holdings bylaws provide that the corporation may at its
counsel fees, reasonably incurred by or imposed upon him option, to the maximum extent permitted by the California
in connection with or arising from any action, suit, General Corporation Law and by the articles, indemnify
proceeding or claim of whatever nature to which he is or each of its agents against expenses, judgments, fines,
shall be made a party by reason of his being or having settlements and other amounts, actually and reasonably
been a director or officer of the company, provided that incurred in connection with such proceeding arising by
such indemnification shall not apply with respect to any reason of the fact that such person is or was an agent of
matter as to which such director or officer shall be the corporation. For purposes of this Section, an "agent"
finally adjudged in such action, suit, proceeding or of the corporation includes a person who is or was a
claim to have been individually guilty of gross Director, officer, employee or agent of another
negligence or willful malfeasance in the performance of corporation, partnership, joint venture, trust or other
his duty as such director or officer and provided further enterprise, or was a Director, officer, employee or agent
that the indemnification provided shall with respect to of a corporation which was a predecessor corporation of
any settlement of any such suit, action, proceeding or the corporation or of any other enterprise at the request
claim, include reimbursement for any amounts paid and of such predecessor corporation.
expenses reasonably incurred in settling such suit,
action, proceeding or claim when, in judgement of the - California law further provides, however, that in an
board of directors, such settlement and reimbursement action by or in the right of the corporation, indemnity
appeared to be for the best interests of the company. is not available for any of the following: (1) in respect
of any claim, issue or matter as to which the person will
have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and
its shareholders, unless and only to the extent that the
court in which the proceeding is or was pending will
determine that the person is fairly and reasonably
entitled to indemnity for expenses; (2) amounts paid in
settling or otherwise disposing of a pending action
without court approval; and (3) expenses incurred in
defending a pending action which is settled or otherwise
disposed of without court approval.
----------------------------------------------------------------------------------------------------------------------------
74
80
PROVISIONS APPLICABLE TO BROWN & BROWN PROVISIONS CURRENTLY APPLICABLE TO GOLDEN GATE
SHAREHOLDERS HOLDINGS SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------------
REMOVAL OF DIRECTORS
-----------------------------------------------------------------------------------------------------------------------------
- Florida law provides that, absent a provision in the - California law provides that directors may be removed
articles of incorporation permitting removal of directors without cause, if the removal is approved by the majority
only for cause, the directors may be removed with or of the outstanding shares entitled to vote. However,
without cause if the number of votes cast to remove the California law further provides that with respect to
director exceeds the number of votes cast not to remove directors of corporations not having classified boards of
him or her. directors, no director can be removed (unless the entire
board is removed) if the votes cast against removal of
the director would be sufficient to elect the director if
Our amended and restated articles of incorporation provide voted cumulatively (without regard to whether cumulative
that any one or more or all of the directors may be removed voting is permitted) at an election at which the same
either with or without cause, at any time by the vote of the total number of votes were cast and the entire number of
stockholders holding a majority of the stock of Brown & directors authorized at the time of the director's most
Brown entitled to vote, at any special meeting and thereupon recent election were then being elected.
the term of each director or directors who shall have been
removed shall terminate. - Golden Gate Holdings's bylaws provide that the entire
board of directors or any individual director may be
removed from office as provided by California law. In
such case, the remaining board members may elect a
successor director to fill such vacancy for the removed
director's remaining unexpired term.
-----------------------------------------------------------------------------------------------------------------------------
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.
75
81
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 Golden Gate Holdings 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 Bruce Ricci,
the President of Golden Gate Holdings, at (415) 479-1800 extension 126.
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.
76
82
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 months ended
March 31, 2001 and 2000................................................................................... F-19
Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000............................. F-20
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000................................................................................... F-21
Notes to Consolidated Financial Statements................................................................... 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
83
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
84
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
--------- ---------- ----------
(in thousands, except per share data)
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
85
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
86
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
87
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
88
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
89
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
90
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
91
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
REPORTED AMPHER-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
92
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
------- ------------ ------- ------------
(in thousands)
INVESTMENTS AT DECEMBER 31 CONSISTED OF THE FOLLOWING:
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.
F-11
93
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
94
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
95
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
96
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-ten-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 ten 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 ten 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
F-15
97
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
98
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
99
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
100
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
101
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
102
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
103
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 ended June 30, period 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
104
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, Taxes, Depreciation and Amortization (EBITDA). The 90-day LIBOR
rate was 3.83% as of June 30, 2001. The
F-23
105
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 ended June 30, period 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
======= ======= ======= =======
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
======= ======= ======= =======
F-24
106
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
================================================================================================================================
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.
F-25
107
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 July 16, 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
108
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
109
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 nonvoting 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 nonvoting common shares, at cost .............................................. (146,888)
------------
Total stockholders' equity ................................................................ 46,865,905
------------
$ 95,768,999
============
See accompanying notes to financial statements
F-28
110
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
111
RIEDMAN INSURANCE
(A DIVISION OF RIEDMAN CORPORATION)
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000
CLASS A
VOTING NONVOTING 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
112
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.
F-31
113
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
114
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.
F-33
115
(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
-----------
206,774
Less current installments ................................................. (43,723)
-----------
Long-term debt, excluding current installments ............................ $ 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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116
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 ten 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:
F-35
117
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
118
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
NORTHERN CALIFORNIA, INC., a California 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"); and GOLDEN
GATE HOLDINGS, INC., a California corporation, the principal business address of
which is 4040 Civic Center Drive, Suite 520, San Rafeal, California 94903
("Target") (Target, the Shareholders (as defined below) are sometimes
hereinafter referred to collectively as the "Sellers").
BACKGROUND
The shareholders listed in Schedule 3.3 hereto (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 California. 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, that Merger
Sub merge with and into Target pursuant to this Agreement with Target being the
surviving corporation (the "Merger"). Brown & Brown, Merger Sub and Target
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 "RS&P
Merger Agreement") among Brown & Brown, Raleigh, Schwarz & Powell, Inc., a
Washington corporation and affiliate of Target ("RS&P"), and certain other
parties, a wholly-owned subsidiary of Brown & Brown will merge with and into
RS&P.
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 California Corporations Code (the "CCC"). 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 California Secretary of State an Agreement of
Merger, substantially in the form of Exhibit 1.2 and Exhibit 1.3 (respectively,
the "Agreement of Merger" and the "Officers' Certificates", 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 CCC (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"). Buyers shall obtain a Tax Clearance Certificate from the
California Franchise Tax Board for Merger Sub prior to the Effective Time.
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
CCC. 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
119
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 Northern California, 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 Northern
California, Inc.", a California corporation. The Buyers shall notify the
California Insurance Commissioner of any changes in the corporate name or
officers of Target promptly after the Merger Date.
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) $10,096,239 minus (B)
33.38% 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 RS&P, 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 RS&P Merger Agreement,
(ii) all accruals for any transaction-related fees and expenses incurred or to
be incurred by Target or RS&P (including, without limitation, those expenses
relating to the termination, winding down and liquidation of the employee stock
ownership plan of RS&P), and (iii) all distributions to the Shareholders or the
shareholders of
Annex A-2
120
RS&P (the term "distributions" shall not include contributions to the employee
stock ownership plan of RS&P 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
1300 et seq. of the CCC 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 CCC. 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 CCC or any other provisions of California 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 CCC. 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 (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 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 Agreement (as defined below). The Escrow Agreement
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 Agreement 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.
Annex A-3
121
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.
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 California 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"),
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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:
(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 Shareholders;
(iv) an escrow agreement in form and substance as
set forth in Exhibit 2.2(a)(iv) (the "Escrow Agreement"), executed by each of
the Shareholders;
(v) written opinion of counsel of Target dated
as of the Closing Date in form and substance as set forth in Exhibit 2.2(a)(v)
with only such changes therein as shall be in form and substance reasonably
satisfactory to Buyers (the "Opinion of Target's Counsel");
(vi) non-competition agreements in form and
substance as set forth in Exhibit 2.2(a)(vi) (each a "Non-Competition Agreement"
and collectively, the "Non-Competition Agreements"), executed by those
Shareholders listed in Schedule 2.2(a)(vi) (each a "Shareholder/Employee" and
collectively, the "Shareholder/Employees");
(vii) 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;
(viii) pursuant to California community property
law, executed written consents to this Agreement and the Merger contemplated
herein from the respective spouses of the Shareholders, in form and substance as
set forth in Exhibit 2.2(a)(viii) (collectively, the "Spousal Consents");
(ix) the Merger Documents, duly executed by
Target, to be filed with the Secretary of State of the State of California;
(x) 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");
(xi) resolutions of Target's Board of Directors,
duly adopted and executed in accordance with the relevant provisions of the CCC,
(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 (X) 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 (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
Target's 401(k) Plan, (y) all of its Employee
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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 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");
(xii) resolutions of the Shareholders, duly
adopted in accordance with the relevant provisions of the CCC, approving the
Merger and the other transactions contemplated herein, the Agreement, and the
Ancillary Documents (the "Shareholder Resolutions"); and
(xiii) 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).
(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 Agreement 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 California 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 California;
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 maximum extent
permitted by law, with Buyers in any other reasonable arrangement designed to
provide such benefits to Buyers.
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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 California 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. 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 California 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
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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 California.
(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
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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. For purposes hereof, the terms "tax" and "taxes" shall include all
federal, state, local and foreign taxes, assessments, duties, tariffs,
registration fees and other 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.
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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 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
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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.
(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.
(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).
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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
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):
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(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
(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
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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:
(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
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(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) 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.
(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.
ARTICLE 4
INTENTIONALLY LEFT BLANK
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:
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Section 5.1 ORGANIZATION. Merger Sub is a corporation organized
under the laws of the State of California 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.
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 California, 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
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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.
(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:
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(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;
(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. 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 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 RS&P from and after the date hereof until the
consummation of the transactions contemplated hereby.
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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.
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
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.
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
acknowledges 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 SCHEDULES. The Target agrees to deliver Schedules
in form and substance satisfactory to Buyers prior to the Closing Date.
Section 7.10 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 7.11 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 7.12 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
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the taxes owed, accounted for. Buyers shall be solely responsible for any
changes they make to the return prepared by the Target.
Section 7.13 EXHIBITS. Each of the parties shall use its
reasonable best efforts to prepare mutually acceptable versions of the Escrow
Agreement and the Indemnification Agreement 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 7.14 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.
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) RS&P Merger Agreement. The transactions contemplated
by the RS&P 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.
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139
(f) Release. Each Shareholder shall have executed and
delivered to Buyers the Release.
(g) Indemnification Agreement and Escrow Agreement. The
Shareholders shall have executed and delivered to Buyers the Indemnification
Agreement and the Escrow Agreement.
(h) 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.
(i) Opinion of Target's Counsel. The Target shall have
delivered to Buyers the Opinion of Target's Counsel.
(j) Spousal Consents. The Shareholders shall have
delivered to Buyers the Spousal Consents, executed by the respective spouses of
the Shareholders.
(k) 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 California.
(l) Required Consents. The Target shall have obtained and
delivered to Buyers the Required Consents.
(m) Target Board and Shareholder Resolutions. The Target
shall have delivered the Target Board Resolutions and the Shareholder
Resolutions to Buyers.
(n) 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.
(o) 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.
(p) Estoppel Letters. Buyer shall have received
satisfactory estoppel letters from each landlord of the Real Property.
(q) 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.
(r) 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 California law.
(s) 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.
(t) 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:
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(a) Target Shareholder Approval. The Shareholders shall
have duly adopted, in accordance with the relevant provisions of the CCC, 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) Indemnification Agreement and Escrow Agreement.
Buyers shall have executed and delivered to the Shareholders the Escrow
Agreement and the Indemnification Agreement.
(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
California.
(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) 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 agrees 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
Annex A-23
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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. (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").
(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.
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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:
(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
Golden Gate Holdings, Inc.
---------------------------
---------------------------
Telecopy No.: (___) ___-____
Attn:
----------------------
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.
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
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
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.
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
Annex A-25
143
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 CCC.
* * * * * * * * * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]
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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 NORTHERN CALIFORNIA, INC.
By: /s/ Ken Kirk
---------------------------------------
Name: Ken Kirk
---------------------------------------
Title: President
---------------------------------------
SELLERS:
TARGET:
GOLDEN GATE HOLDINGS, INC.
By: /s/ John P. Folsom
---------------------------------------
Name: John P. Folsom
---------------------------------------
Title: President
---------------------------------------
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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
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): Escrow Agreement
Exhibit 2.2(a)(v): Opinion of Target's Counsel
Exhibit 2.2 (a)(vi): Non-Competition Agreement
Exhibit 2.2(a)(viii): Spousal Consent
Exhibit 2.2(b)(ii): Opinion of Buyers' Counsel
Annex A-28
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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 Northern
California, a California corporation and wholly owned subsidiary of Brown &
Brown ("Brown & Brown of Northern California"), and Golden Gate Holdings, Inc.,
a California corporation (the "Target").
BACKGROUND
Pursuant to an Agreement and Plan of Reorganization, dated July 25,
2001 (the "Agreement"), Brown & Brown of Northern California is to merge with
and into the Target. In consideration of the mutual covenants and agreements set
forth below, the parties desire to amend the Agreement as follows:
TERMS
1. Removal of Brown & Brown of Northern California. The parties agree that
Brown & Brown of Northern California shall no longer be a party to the
Agreement and that the references to Brown & Brown of Northern
California in the preamble to the Agreement shall be deleted in their
entirety.
2. Background. The Background of the Agreement is hereby amended in its
entirety to read as follows:
Pursuant to an Agreement and Plan of Reorganization of this
date (the "RS&P Merger Agreement") among Brown & Brown, Raleigh,
Schwarz & Powell, Inc., a Washington corporation and affiliate of
Target ("RS&P"), and certain other parties, a wholly-owned subsidiary
of Brown & Brown will merge with and into RS&P, and RS&P will become a
wholly-owned subsidiary of Brown & Brown (the "RS&P Merger"). Prior to
the consummation of the transactions contemplated by this Agreement,
RS&P will form a California corporation that will be a wholly-owned
subsidiary of RS&P ("New Merger Sub"; New Merger Sub and Brown & Brown
are sometimes referred to collectively as the "Buyers"). The
shareholders listed in Schedule 3.3 hereto (the "Shareholders") and
RS&P own all of the shares of outstanding capital stock of Target. The
shares of outstanding capital stock of Target owned by the Shareholders
are referred to in this Agreement as the "Target Shares". Target is
engaged primarily in the insurance agency business with its principal
office in the State of California. The respective Boards of Directors
of Brown & Brown and Target have determined that it is advisable and in
the best interests of the companies and their respective stockholders,
that, after the effective time of the RS&P Merger, New Merger Sub merge
with and into Target pursuant to this Agreement with Target being the
surviving corporation and being a wholly-owned subsidiary of RS&P (the
"Merger"). Brown & Brown, New Merger Sub and Target 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").
3. Merger Sub and New Merger Sub. The parties acknowledge that New Merger
Sub is not a party to the Agreement and that the foregoing shall not
result in a breach of the Agreement. The parties agree that the term
"New Merger Sub" shall be substituted for the term "Merger Sub"
throughout the Agreement. Brown & Brown shall cause New Merger Sub to
execute a joinder to the Agreement at or prior to the Closing Date.
4. Section 1.4 Articles of Incorporation; Bylaws. Section 1.4 of the
Agreement is hereby amended in its entirety to read as follows:
At the Effective Time, the Articles of Incorporation of New
Merger Sub shall be the Articles of Incorporation of Surviving
Corporation except that Article I of the Articles of Incorporation
shall be amended to provide that the name of the corporation be such
name as Brown & Brown shall determine in
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its sole discretion and the Bylaws of the Surviving Corporation shall
be the Bylaws of New 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.
5. Section 1.6 Name of Surviving Corporation. Section 1.6 of the Agreement
is hereby amended in its entirety to read as follows:
As of the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall provide that the name of the Surviving
Corporation shall be such name as Brown & Brown shall determine in its
sole discretion. The Buyers shall notify the California Insurance
Commissioner of any changes in the corporate name or officers of Target
promptly after the Merger Date.
6. Section 1.7 Merger Consideration. Section 1.7(a) of the Agreement is
hereby amended in its entirety to read as follows:
(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 owned by the Shareholders 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) $7,103,510 minus (B)
17.76% 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").
7. 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:
Ten percent (10%) of the Brown & Brown Shares (including those
to be issued to the ESOP (as defined below)) (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 the Indemnification Agreements (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
8. Section 2.2 Closing Obligations. Section 2.2(a)(iii) of the Agreement
is hereby amended in its entirety to read as follows:
Annex A-30
148
(iii) an indemnification agreement in form and substance as
set forth in Exhibit 2.2(a)(iii) (the "Indemnification Agreement"),
executed by RS&P and each of the Shareholders other than the Raleigh,
Schwartz & Powell, Inc. Employee Stock Ownership Plan (the "ESOP"), and
an indemnification agreement in form and substance as set forth in
Exhibit 2.2(a)(iii)(B), executed by the ESOP (the "ESOP Indemnification
Agreement" and, collectively with the Indemnification Agreement, the
"Indemnification Agreements");
9. Section 2.2 Closing Obligations. Section 2.2(a)(iv) of the Agreement is
hereby amended in its entirety to read as follows:
(iv) an escrow agreement in form and substance as set
forth in Exhibit 2.2(a)(iv) (the "Escrow Agreement"), executed by each
of the Shareholders other than the ESOP, and an escrow agreement in
form and substance as set forth in Exhibit 2.2(a)(iv)(B), executed by
the ESOP (the "ESOP Escrow Agreement" and, collectively with the Escrow
Agreement, the "Escrow Agreements");
10. Section 2.2 Closing Obligations. Section 2.2(b)(ii) of the Agreement is
hereby amended in its entirety to read as follows:
(ii) the Escrow Agreements and the Indemnification
Agreements, executed by Buyers;
11. Section 8.1 Conditions to Each Party's Obligations. Section 8.1(d) of
the Agreement is hereby amended in its entirety to read as follows:
(d) RS&P Merger. The RS&P Merger shall become effective
prior to the transactions contemplated by this Agreement.
12. Section 8.2 Conditions to Obligations of Buyers. Section 8.2(g) of the
Agreement is hereby amended in its entirety to read as follows:
(g) Indemnification Agreements and Escrow Agreements. The
Shareholders shall have executed and delivered to Buyers the
Indemnification Agreements and the Escrow Agreements.
13. Section 8.3 Conditions to Obligation of the Target. Section 8.3(d) of
the Agreement is hereby amended in its entirety to read as follows:
(d) Indemnification Agreements and Escrow Agreements.
Buyers shall have executed and delivered to the Shareholders the
Indemnification Agreements and the Escrow Agreements.
14. 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").
15. 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.
16. Agreement Remains in Effect. Except as specifically modified by this
First Amendment, the Agreement remains in full force and effect.
17. 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.
Annex A-31
149
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 NORTHERN CALIFORNIA, INC.
By: /s/ Ken Kirk
----------------------------------------------
Name: Ken Kirk
--------------------------------------------
Title: President
-------------------------------------------
GOLDEN GATE HOLDINGS, INC.
By: /s/ John P. Folsom
----------------------------------------------
Name: John P. Folsom
--------------------------------------------
Title: President
-------------------------------------------
Annex A-32
150
SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This Second Amendment (this "Second Amendment") to Agreement and Plan
of Reorganization, dated as of September 28, 2001, is by and among Brown &
Brown, Inc., a Florida Corporation ("Brown & Brown"), and Golden Gate Holdings,
Inc., a California corporation (the "Target").
BACKGROUND
Pursuant to an Agreement and Plan of Reorganization, dated July 25,
2001, as amended by the First Amendment thereto dated August 10, 2001 (as
amended, the "Agreement"), a wholly-owned subsidiary of Brown & Brown is to
merge with and into the Target. Brown & Brown and the Target have determined
that the transactions contemplated in the Agreement will not qualify for
treatment as a pooling-of-interests transaction for accounting purposes and, as
a result, desire to enter into this Second Amendment. In addition, the parties
also desire to clarify and acknowledge that the twenty (20) day period described
in Section 1.7(a)(ii) of the Agreement was intended to refer to a period of
twenty (20) trading days on the New York Stock Exchange. In consideration of the
mutual covenants and agreements set forth below, the parties desire to amend the
Agreement as follows:
TERMS
1. Background. The final sentence of the Background of the Agreement is
hereby amended in its entirety to read as follows:
It is the intent of the parties hereto that the transactions
contemplated in this Agreement be treated as a reorganization within
the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Section 1.11 Accounting and Tax Treatment. Section 1.11 of the
Agreement is hereby amended in its entirety to read as follows:
Section 1.11 TAX TREATMENT. The parties agree to
structure this Agreement as a tax-free exchange.
3. Section 3.23 Pooling-of-Interests Accounting Matters. Section 3.23 of
the Agreement is hereby deleted in its entirety.
4. Section 3.24 Securities Law Representations. Section 3.24(b) of the
Agreement is hereby amended in its entirety to read as follows:
(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") and agrees that 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 combined 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.
5. Section 7.5 Pooling-of-Interests Accounting Matters. Section 7.5 of the
Agreement is hereby deleted in its entirety.
6. Section 7.14 Pooling-of-Interests Accounting. Section 7.14 of the
Agreement is hereby deleted in its entirety.
7. Section 8.2(r) Conditions to Obligations of Buyers. Section 8.2(r) of
the Agreement is hereby amended in its entirety to read as follows:
Annex A-33
151
(r) Dissenters' Rights. The holders of no more than ten
percent (10%) of the outstanding capital stock of the Target shall have
exercised dissenter's rights under California law.
8. Governing Law. This Second 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.
9. Agreement Remains in Effect. Except as specifically modified by this
Second Amendment, the Agreement remains in full force and effect.
10. Counterparts. This Second 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 Second Amendment
as of the date first written above.
BROWN & BROWN, INC.
By: /s/ Laurel L. Grammig
--------------------------------------------
Name: Laurel L. Grammig
------------------------------------------
Title: Vice President
-----------------------------------------
GOLDEN GATE HOLDINGS, INC.
By: /s/ John P. Folsom
--------------------------------------------
Name: John P. Folsom
------------------------------------------
Title: Chairman
-----------------------------------------
Annex A-34
152
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 NORTHERN CALIFORNIA,
INC., a California corporation and wholly-owned subsidiary of RS&P ("Merger
Sub"; Merger Sub and Brown & Brown are sometimes hereinafter collectively
referred to as the "Buyers"), GOLDEN GATE HOLDINGS, INC., a California
corporation ("Target"), RALEIGH, SCHWARZ & POWELL, INC., a Washington
corporation ("RS&P"), and the OTHER SHAREHOLDERS listed on the signature pages
hereto (collectively, the "Other Shareholders" and, together with RS&P, the
"Shareholders").
BACKGROUND
Brown & Brown, 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 owned by the Other
Shareholders were converted into the right to receive, and the Other
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 the Other Shareholders are 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
Annex B-1
153
to the filing of the Merger Documents with the Secretary of State of California
and the filing of change of control information or license transfer documents
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, 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) Securities Law Representations. Each Other
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 Other 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 Other
Shareholders were granted access to the business, corporate and financial books
and records of Buyers. The Other 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 Other
Shareholders all information regarding its business and affairs that the Other
Shareholders requested. No Other 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 Other Shareholder recognizes that the Brown & Brown
Shares will, when issued, be registered under the Securities Act and agrees that
such Other Shareholder 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 any Other Shareholder 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.
(f) 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 Other 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 Other
Shareholders, to the maximum extent permitted by law, shall act after the
Closing as Buyers' agent in
Annex B-2
154
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 Other 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) Restriction on Disposition of Shares. Each of the
Other Shareholders agrees that such Other Shareholder shall not sell, pledge,
hypothecate, or otherwise transfer or encumber any Brown & Brown Shares issued
to such Other 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 Other
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 Other 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 Other
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 Other 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 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 Other 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
Annex B-3
155
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 Other 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 Other Shareholder who owns less than
2,000 shares of capital stock of the Target prior to the date of this Agreement
shall be limited to the aggregate value, as of the Closing Date, of the Merger
Consideration received by such Other 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. The Other Shareholders
acknowledge and agree that, from and after Closing, they shall have no right of
contribution from or other claim against the Target or RS&P 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.
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-4
156
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
NORTHERN CALIFORNIA, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
GOLDEN GATE HOLDINGS, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
RALEIGH, SCHWARZ & POWELL, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
OTHER SHAREHOLDERS:
-----------------------------------------------
Richard F. Bilotti, individually
Address:
-----------------------------------------------
-----------------------------------------------
Robert J. DeGraves, individually
Address:
-----------------------------------------------
-----------------------------------------------
Philip Lastreto, individually
Address:
-----------------------------------------------
Annex B-5
157
-----------------------------------------------
Greg Phelan, individually
Address:
-----------------------------------------------
-----------------------------------------------
Bruce Ricci, individually
Address:
-----------------------------------------------
-----------------------------------------------
Denise Schmidt, individually
Address:
-----------------------------------------------
Annex B-6
158
ANNEX C
FORM OF ESOP INDEMNIFICATION AGREEMENT
This ESOP 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 NORTHERN
CALIFORNIA, INC., a California corporation and wholly-owned subsidiary of RS&P
("Merger Sub"; Merger Sub and Brown & Brown are sometimes hereinafter
collectively referred to as the "Buyers"), GOLDEN GATE HOLDINGS, INC., a
California corporation ("Target"), and the RALEIGH, SCHWARZ & POWELL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN (the "ESOP").
BACKGROUND
Brown & Brown, 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 owned by the Shareholders were
converted into the right to receive their, and the ESOP has received its, 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"). Specifically, pursuant to this Agreement, the ESOP is 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 the ESOP. The ESOP
represents and warrants to the Buyers as follows:
(a) Authority. The ESOP has the requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and by the Merger Agreement. 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).
(b) 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 the Merger Agreement.
SECTION 2. Covenants. The parties agree as follows with respect
to the period following the Closing.
(a) Further Assurances. From time to time after the
Closing, at either Buyer's request, the ESOP 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.
(b) Pooling-of-Interests Accounting Matters. The ESOP
agrees that the ESOP shall not sell, pledge, hypothecate, or otherwise transfer
or encumber any Brown & Brown Shares issued to the ESOP under the Merger
Agreement until two (2) business days after the date of Brown & Brown's
release (in such form as Brown &
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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.
(c) Remedy for Breach of Covenants. In the event of a
breach of the provisions of SECTION 2(B), Buyers shall be entitled to injunctive
relief as well as any other applicable remedies at law or in equity. The ESOP
acknowledges that the covenants set forth in SECTION 2(B) represent an important
element of Target's value and were a material inducement for Buyers to enter
into the Merger Agreement.
(d) Transfer Taxes. The ESOP shall be solely responsible
for and shall pay any transfer taxes triggered by the surrender and cancellation
of the Target Shares and the insurance to the ESOP 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 ESOP, solely with respect to its specified
representations, warranties, obligations and covenants, 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 (as defined below) 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 the ESOP's representations, warranties, obligations or covenants
contained in this Agreement or any other certificate, agreement or other
document delivered by the ESOP pursuant to the Merger Agreement. 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 the ESOP hereunder shall be limited to the value
of those Escrowed Shares issued to the ESOP (the "Maximum Liability Amount").
(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. The ESOP acknowledges
and agrees that, from and after Closing, it shall have no right of contribution
from or other claim against the Target or RS&P 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:
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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 the ESOP, 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.
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.
* * * * * * * * * *
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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.
BROWN & BROWN, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BROWN & BROWN OF NORTHERN CALIFORNIA, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
GOLDEN GATE HOLDINGS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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
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ANNEX D
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 Golden Gate
Holdings, Inc., a California corporation listed on the signature pages hereto
(collectively, the "Shareholders").
BACKGROUND
Brown & Brown, Inc., a Florida corporation (the "Buyer"), Golden Gate
Holdings, 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 New Merger Sub, a California corporation (the "New 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 and each 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's Shareholder's breach of a representation, warranty or covenant made
by such Shareholder relating to his or her ownership of stock in Golden Gate 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 which is greater than the excess,
if any, of (A) the value, as of the Closing Date, of the Merger Consideration
received by such Shareholder, over (B) the amounts actually paid by such
Shareholder in respect of his or her aggregate liability under the
Indemnification Agreement (the "Maximum Contribution Liability"); provided,
however, that if the aggregate amount of all Claims exceeds the aggregate amount
of the Merger Consideration received by the Shareholders, by reason of the ESOP
not being liable for a Claim in proportion to the Merger Consideration received
by the ESOP (the "Excess Claims Amount"), the Maximum Contribution Liability of
each Shareholder who held, prior to closing, 2,000 or more shares of Target's
stock (a "Major Shareholder") 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 for 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
Rata Share of such excess, provided that no Shareholder shall be required to pay
in excess of his or her Maximum Contribution Liability.
(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.
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
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163
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
California 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.
* * * * * * * * * *
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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:
---------------------------------------------
Richard F. Bilotti, individually
Address:
---------------------------------------------
---------------------------------------------
Robert J. DeGraves, individually
Address:
---------------------------------------------
---------------------------------------------
Philip Lastreto, individually
Address:
---------------------------------------------
---------------------------------------------
Greg Phelan, individually
Address:
---------------------------------------------
---------------------------------------------
Bruce Ricci, individually
Address:
---------------------------------------------
---------------------------------------------
Denise Schmidt, individually
Address:
---------------------------------------------
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ANNEX E
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 Northern California, Inc., a
California corporation and wholly-owned subsidiary of RS&P (the "Merger Sub"),
is merging with and into Golden Gate Holdings, Inc., a California corporation
(the "Target"), with the Target being the surviving corporation and becoming a
wholly-owned subsidiary of RS&P, 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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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.
(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 Section 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); 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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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 E-4
169
(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.
Annex E-5
170
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 E-6
171
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 the 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 E-7
172
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 E-8
173
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:
-----------------------------------------------
Richard F. Bilotti, individually
-----------------------------------------------
Robert J. DeGraves, individually
-----------------------------------------------
Philip Lastreto, individually
-----------------------------------------------
Greg Phelan, individually
-----------------------------------------------
Bruce Ricci, individually
-----------------------------------------------
Denise Schmidt, individually
Annex E-9
174
SCHEDULE 1
Shareholders and Number of Escrowed Shares
-----------------------------------------------------------------------------
Name of Shareholder Number of Escrowed
Shares
-----------------------------------------------------------------------------
Richard F. Bilotti
-----------------------------------------------------------------------------
Robert J. DeGraves
-----------------------------------------------------------------------------
Philip Lastreto
-----------------------------------------------------------------------------
Greg Phelan
-----------------------------------------------------------------------------
Bruce Ricci
-----------------------------------------------------------------------------
Denise Schmidt
-----------------------------------------------------------------------------
Annex E-10
175
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 E-11
176
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 had 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-12
177
ANNEX F
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 Northern California, Inc., a
California corporation and wholly-owned subsidiary of RS&P (the "Merger Sub"),
is merging with and into Golden Gate Holdings, Inc., a California corporation
(the "Target"), with the Target being the surviving corporation and becoming a
wholly-owned subsidiary of RS&P, a wholly-owned subsidiary of Brown & Brown. In
connection with the consummation of the transactions described in the Merger
Agreement, the ESOP and certain other parties are entering into an ESOP
Indemnification Agreement dated as of this date (the "Indemnification
Agreement") pursuant to which the ESOP is 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 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 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 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
Annex F-1
178
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 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 Indemnification 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 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 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
Annex F-2
179
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 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 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 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;
Annex F-3
180
(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
(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, the
Indemnification 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
Annex F-4
181
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.
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 Indemnification Agreement or 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.
Annex F-5
182
(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 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.
Annex F-6
183
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.
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 F-7
184
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 F-8
185
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 F-9
186
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 F-10
187
ANNEX G
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 NORTHERN
CALIFORNIA, INC., a California corporation ("Merger Sub"; Merger Sub and Brown &
Brown are sometimes hereinafter referred to collectively as the "Buyers");
GOLDEN GATE HOLDINGS, INC., a California 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 as 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 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 G-1
188
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.
IN WITNESS WHEREOF, each of the undersigned have executed and delivered
this Release as of this ____ day of _________, 2001.
---------------------------------
Richard F. Bilotti, individually
---------------------------------
Robert J. DeGraves, individually
---------------------------------
Philip Lastreto, individually
---------------------------------
Greg Phelan, individually
---------------------------------
Bruce Ricci, individually
---------------------------------
Denise Schmidt, individually
Annex G-2
189
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 G-3
190
ANNEX H
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"), Golden Gate Holdings,
Inc., a California (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 H-1
191
ANNEX I
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 , a California corporation and an indirect wholly-owned
subsidiary of Brown & Brown, Inc. (collectively, the "Buyers"), and
____________________, a resident of the State of ____________ ("Shareholder").
BACKGROUND
Shareholder is a shareholder of Golden Gate Holdings, Inc., a
California corporation ("GGH"). Pursuant to an Agreement and Plan of
Reorganization, dated as of July 25, 2001, as amended (the "Merger Agreement"),
by and among the Buyers, GGH, Shareholder and the other shareholders of GGH, GGH
is to merge with and into with GGH 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
GGH 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 GGH 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 GGH, and Shareholder's position as a shareholder and principal of
GGH, 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 an interest of less than five percent (5%) of the total 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 California counties
in which GGH has conducted business: Alameda, Contra Costa, Marin, Napa, San
Francisco, San Mateo, Solano, or Sonoma. Shareholder acknowledges that GGH'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 GGH 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,
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192
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 GGH 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 GGH's insurance operations that is not
generally known to competitors of GGH or intended for general dissemination,
whether furnished by GGH 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 GGH'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 GGH, 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.
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193
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.
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./
--------------------
By: __________________________________
Name:
Title:
"SHAREHOLDER"
--------------------------------------
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ANNEX J
CHAPTER 13 OF THE CALIFORNIA
GENERAL CORPORATION LAW
1300. Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares
which come within all of the following descriptions:
(1) Which were not immediately prior to the
reorganization or short-form merger either (A) listed on any national
securities exchange certified by the Commissioner of Corporations under
subdivision (o) of Section 25100 or (B) listed on the National Market
System of the NASDAQ Stock Market, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the
determination of shareholders entitled to vote on the reorganization
and (A) were not voted in favor of the reorganization or, (B) if
described in subparagraph (A) or (B) of paragraph (1) (without regard
to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a
short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that
the corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301. Notice to holders of dissenting shares in reorganizations; demand for
purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price
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195
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. Payment of agreed price with interest; agreement fixing fair market
value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
1304. Action to determine whether shares are dissenting shares or fair market
value; limitation; joinder; consolidation; determination of issues; appointment
of appraisers
(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or
be joined as defendants in any such action and two or more such actions may be
consolidated.
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196
(c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the court
shall first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.
1305. Report of appraisers; confirmation; determination by court; judgment;
payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and
file a report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. Prevention of immediate payment; status as creditors; interest
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308. Rights of dissenting shareholders pending valuation; withdrawal of
demand for payment
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
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(a) The corporation abandons the reorganization. Upon abandonment
of the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree
upon the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholder's demand for purchase of the dissenting
shares.
1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
1312. Right of dissenting shareholder to attack, set aside or rescind merger
or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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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, New Merger Sub, and Golden Gate Holdings, Inc.
Plan (included as Annex A to the 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, New Merger Sub, and
Golden Gate Holdings, Inc. Plan (included as Annex A to the 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
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199
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).*
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.
* Previously filed
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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 Articles 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
-------------------------------------
Cory T. Walker Chief Financial Officer (Principal Financial and
Accounting Officer)
* Executive Vice President,
------------------------------------
Jim W. Henderson Assistant Treasurer and Director
* 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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202
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Reorganization, dated as of July 25, 2001, by and
among the Registrant, New Merger Sub, and Golden Gate Holdings, Inc.
Plan (included as Annex A to the 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, New Merger Sub, and
Golden Gate Holdings, Inc. Plan (included as Annex A to the 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).
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
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203
(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).*
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.
* Previously filed
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