AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

by and among

USI HOLDINGS CORPORATION,

COMPASS ACQUISITION HOLDINGS CORP.

and

COMPASS MERGER SUB INC.

Dated as of January 15, 2007

TABLE OF CONTENTS

 

 

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Exhibit A: Certificate of Incorporation

Exhibit B: Limited Guarantee

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of this 15th day of January, 2007 by and among USI Holdings Corporation, a Delaware corporation (the “ Company ”), Compass Acquisition Holdings Corp., a Delaware corporation (“ Parent ”), and Compass Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“ Merger Sub ”).

RECITALS

WHEREAS, the parties intend that Merger Sub will be merged with and into the Company (the “ Merger ”), with the Company surviving the Merger as a wholly owned subsidiary of Parent in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”);

WHEREAS, the Special Committee (as hereinafter defined) has unanimously ( i ) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders, ( ii ) adopted and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, and recommended to the board of directors of the Company (the “ Company Board ”) that it adopt and declare advisable this Agreement and the transactions contemplated hereby, including the Merger, ( iii ) recommended that the Company Board recommend approval of this Agreement by the Company’s stockholders and ( iv ) directed that this Agreement be submitted to the Company Board for its adoption and recommendation that the Company’s stockholders approve this Agreement;

WHEREAS, the Company Board (upon the recommendation of the Special Committee) has ( i ) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders, ( ii ) adopted and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, ( iii ) directed that this Agreement be submitted to the Company’s stockholders for their approval and ( iv ) recommended that the Company’s stockholders approve this Agreement;

WHEREAS, the board of directors of Merger Sub has unanimously adopted this Agreement and the board of directors of Parent, and Parent, as the sole stockholder of Merger Sub, in each case, has approved this Agreement and the transactions contemplated hereby, including the Merger;

WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger, as set forth herein; and

WHEREAS, concurrently with the execution of this Agreement, GS Capital Partners VI, L.P., GS Capital Partners VI Offshore, L.P., GS Capital Partners VI GmbH & Co. KG, and GS Capital Partners VI Parallel, L.P., each an affiliate of Parent and Merger Sub (“ Guarantors ”), have entered into a Limited Guarantee, dated as of the date hereof, in favor of the Company with respect to the obligations of Parent and Merger Sub arising under, or in connection with, this Agreement (the “ Guaranty ”).

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions . For purposes of this Agreement, the following terms have the respective meanings set forth below:

(a) Certain Terms . Whenever used in this Agreement (including in the Company Disclosure Letter and the Parent Disclosure Letter), the following terms shall have the respective meanings given to them below or in the Sections indicated below:

“ Advisers Act ” means the Investment Advisers Act of 1940 and the rules and regulations of the SEC thereunder, as amended.

“ Affiliate ” means any Person that, directly or indirectly, controls, is controlled by or is under common control with another Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise.

“ Alternative Transaction Proposal ” means any inquiry, proposal or offer, written or oral, from any Person relating to, or that could reasonably be expected to lead to: ( i ) any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction (any of the above, a “ Business Combination Transaction ”) involving the Company; ( ii ) the Company’s acquisition of any Person (a “ Third Party ”) in a Business Combination Transaction in which the shareholders of the Third Party immediately prior to consummation of such Business Combination Transaction will own more than fifteen percent (15%) of the Company’s outstanding capital stock immediately following such Business Combination Transaction, including the issuance by the Company of more than fifteen percent (15%) of any class of its voting equity securities as consideration for assets or securities of a Third Party; ( iii ) any direct or indirect acquisition or purchase, in a single transaction or a series of related transactions, including by means of the acquisition of capital stock of any Company Subsidiary, of assets or properties ( x ) that constitute fifteen percent (15%) or more of the assets or properties of the Company and the Company Subsidiaries, taken as a whole, or ( y ) that have a transaction value that equals or exceeds fifteen percent (15%) of the aggregate Merger Consideration; ( iv ) any direct or indirect acquisition or purchase, in a single transaction, or series of related transactions, of fifteen percent (15%) or more of any class of equity securities of the Company; or ( v ) any other transaction having a similar effect to those described in clauses ( i ) – ( iv ), in each case other than the Merger and the transactions contemplated by this Agreement.

 

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“ AMEX ” means American Stock Exchange Inc.

“ Applicable Law ” means, with respect to any party, any applicable order, law, regulation, rule, ordinance, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity applicable to any party to this Agreement, or any of its Affiliates, Subsidiaries, properties or assets, as the case may be.

“ Business Day ” means any day other than a Saturday, Sunday or a day on which banks in the City of New York are permitted or obligated by law to be closed for regular banking business.

“ Common Share ” means one share of common stock, par value $0.01 per share, of the Company.

“ Company Adviser Subsidiary ” means any Company Subsidiary that conducts activities of an investment adviser as such term is defined in Section 2(a)(11) of the Advisers Act, whether or not registered under the Advisers Act.

“ Company Benefit Plans ” means each U.S. or non-U.S. employee benefit plan, scheme, program, policy, arrangement and contract (including any “employee benefit plan,” as defined in Section 3(3) of ERISA, whether or not subject to ERISA and any bonus, deferred compensation, stock bonus, stock purchase, restricted stock, stock option, employment, termination, stay agreement or bonus, change in control and severance plan, program, policy, arrangement and contract, written or oral, whether legally enforceable or not) for the benefit of any current or former officer, employee, agent, field underwriter, director, consultant or independent contractor of the Company or any of the Company Subsidiaries that is maintained, contributed to, or required to be contributed to, by the Company, any of the Company Subsidiaries, or with respect to which any of them could incur liability or have any obligations or responsibility.

“ Company Broker Dealer Subsidiary ” means any Company Subsidiary that conducts activities of a broker or dealer, as such terms are defined in the Exchange Act, whether or not registered under Section 15 of the Exchange Act.

“ Company Credit Agreement ” means the Credit Agreement, dated as of March 24, 2006, among the Company, Various Lending Institutions and JPMorgan Chase Bank, N.A., as Administrative Agent, as amended.

“ Company Equity Plan ” means the Company’s Amended and Restated 2002 Equity Incentive Plan and any other plan pursuant to which outstanding Options and Restricted Shares have been granted.

“ Company Joint Venture ” means, with respect to the Company or any Company Subsidiary, any Person in which the Company or any Company Subsidiary, directly or indirectly, owns an equity interest that is not a Company Subsidiary.

 

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“ Company Material Adverse Effect ” means any event, occurrence, state of facts, condition, change, development or effect that individually, or in the aggregate with all other events, occurrences, state of facts, conditions, changes, developments or effects, (A) is, or would reasonably be expected ( A ) to be, materially adverse to the business, assets, properties, liabilities, results of operations or condition (financial or otherwise) of the Company and the Company Subsidiaries, taken as a whole, except to the extent that such event, occurrence, fact, condition, change, development or effect results from, alone or in combination, ( i ) changes in general economic conditions, ( ii ) general changes in financial or security market conditions, ( iii ) changes in or events generally affecting the financial services industry, insurance and insurance services industries or insurance brokerage industry in which the Company or any Company Subsidiary participates (other than changes in Applicable Law, or the interpretation thereof by any Governmental Entity, relating to the payment of Contingent Commissions or any adverse developments in any regulatory investigations relating to Contingent Commissions (whether or not involving the Company) that, individually or in the aggregate, adversely affect, or are reasonably expected to adversely affect, the ability of insurance companies to pay, or insurance brokers to receive, Contingent Commissions, except to the extent that the payment or receipt of supplemental or similar compensation in lieu of Contingent Commissions is not prohibited and that such compensation is reasonably anticipated to produce revenue for the Company substantially equivalent to that produced by Contingent Commissions), ( iv ) changes in U.S. GAAP or Applicable Law (other than changes in Applicable Law referred to in the parenthetical phrase in clause ( iii ) of this definition) after the date of this Agreement, ( v ) a worsening of current conditions caused by an act of terrorism or war or any natural disasters or any national or international calamity affecting the United States, ( vi ) changes, in and of themselves, in the market price or trading volume of the Common Shares on the NASDAQ National Market ( provided that any event, occurrence, state of facts, condition, change, development or effect causing or contributing to such changes may be considered in determining whether there is or is reasonably likely to be a Company Material Adverse Effect), ( vii ) the loss of any employees who are coded as a producer on the books and records (including electronic databases) of the Company and the Company Subsidiaries, and ( viii ) the announcement of this Agreement and the transactions contemplated hereby; provided , however , in the cases of clauses ( i ) – ( v ) above, such event, occurrence, fact, condition, change, development or effect shall not be excluded from any determination of whether a Company Material Adverse Effect has occurred to the extent that such event, occurrence, fact, condition, change, development or effect would have a disproportionate effect on the Company and the Company Subsidiaries, taken as a whole, relative to other participants in the financial services, insurance and insurance services industries or brokerage companies generally or ( B ) would, or would reasonably be expected, to prevent the Company from consummating the Merger.

“ Company Related Person ” means any trade or business, whether or not incorporated, that, together with the Company or any of the Company Subsidiaries, is, or would have been treated as a single employer under Section 414 of the Code.

 

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“ Constituent Documents ” means, with respect to any entity, the certificate or articles of incorporation and by-laws of such entity, or any similar organizational documents of such entity.

“ Contingent Commissions ” means any compensation paid to a Producer in relation to insurance which is contingent upon any Producer: ( i ) placing a particular number of policies or a dollar value of premium with an insurer; ( ii ) achieving a particular level of growth in the number of policies placed or a particular dollar value of premium with an insurer; ( iii ) meeting a particular rate of retention or renewal of policies in force with an insurer; ( iv ) placing or keeping a sufficient insurance business with an insurer to achieve a particular loss ratio or any other measure of profitability; ( v ) providing preferential treatment in the placement process, including but not limited to the giving of last looks, first looks, rights of first refusal, or limiting the number of quotes sought from insurers for insurance placements; or ( vi ) obtaining anything else of material value for an insurer.

“ Encumbrance ” means any mortgage, claim, security interest, encumbrance, license, lien, charge, option, right of first refusal or of first offer or other similar restriction or limitation.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ Exchange Act ” means the Securities Exchange Act of 1934 and the rules and regulations of the SEC thereunder, as amended.

“ Governmental Entity ” means any court or tribunal or administrative, governmental or regulatory body, agency, commission, board, legislature, instrumentality, division, department, public body or other authority of any nation or government or any political subdivision thereof, whether foreign or domestic and whether national, supranational, state or local and any self-regulatory organization.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Intellectual Property ” means trademarks, service marks, trade names, assumed names and designs (including any registrations or applications for registration, as well as common law rights in any of the foregoing), together with all goodwill related to the foregoing; patents (including any continuations, continuations in part, renewals and applications for any of the foregoing) and inventions; copyrights (including any registrations and applications therefor and whether registered or unregistered) and works of authorship; Internet domain names; computer programs and software (including source code, object code and executables); mask works; data and databases; technology; trade secrets and other confidential information; and know-how, proprietary processes, formulae, algorithms, models, user interfaces, inventions, discoveries, concepts, ideas, techniques, methods, and methodologies.

“ IRS ” means the United States Internal Revenue Service.

 

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“ Knowledge of the Company ” or “ Knowledge ” when used in reference to the Company, means the actual knowledge, after due inquiry, of the individuals set forth in Section 1.1(a) of the Company Disclosure Letter as of the date hereof.

“ Losses ” means any claim, liability, loss, fines, costs, royalties, proceedings, deficiencies or damages of any kind (whether absolute, accrued, contingent or otherwise), whether or not resulting from third-party claims, including reasonable out-of-pocket expenses and reasonable attorneys’ and accountants’ fees incurred in the investigation or defense of any of the same.

“ NASD ” means the National Association of Securities Dealers, Inc.

“ NYSE ” means the New York Stock Exchange, Inc.

“ Option ” means each option to purchase Common Shares granted pursuant to a Company Equity Plan that is outstanding and unexercised immediately prior to or as of the Effective Time.

“ Parent Material Adverse Effect ” means any event, occurrence, fact, condition, change, development or effect that would, or would reasonably be expected to, prevent Parent and Merger Sub from consummating the Merger.

“ Permitted Encumbrances ” means ( i ) Encumbrances reflected in the Company Financial Statements or set forth in Section 1.1(b) of the Company Disclosure Letter, ( ii ) Encumbrances for Taxes ( x ) not yet due and payable or ( y ) which are being contested in good faith by appropriate proceedings, ( iii ) Encumbrances for warehousemen, mechanics and materialmen and other similar Encumbrances incurred in the ordinary course of business consistent with past practice securing payments not yet due and ( iv ) Encumbrances and other matters that do not materially interfere with the current use of the assets of the business conducted by the Company and the Company Subsidiaries, taken as a whole.

“ Person ” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature.

“ Restricted Shares ” means each restricted Common Share granted pursuant to a Company Equity Plan that is outstanding immediately prior to or as of the Effective Time and prior to becoming vested pursuant to Section 4.3(c)(i) is still subject to restrictions under the Company Equity Plan and forfeiture.

“ SEC ” means the United States Securities and Exchange Commission

“ Securities Act ” means the Securities Act of 1933 and the rules and regulations of the SEC thereunder, as amended.

“ Special Committee ” means a committee comprised of certain members of the Company Board, currently four (4) in number, who are unaffiliated with Capital Z

 

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Financial Services Fund, II, LP and its Affiliates and not members of the Company’s management, formed for the purpose of evaluating and making a recommendation to the Company Board with respect to strategic alternatives reasonably available to the Company, including the Merger and the other transactions contemplated hereunder.

“ Subsidiary ” of any Person means another Person, in which such Person ( i ) owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities, equity securities, profits interest or capital interest or ( ii ) is entitled to elect at least a majority of the board of directors, board of managers or similar governing body.

“ Superior Proposal ” means a bona fide unsolicited written Alternative Transaction Proposal not arising from a breach of Section 8.4(a) which the Company Board (upon the recommendation of the Special Committee) concludes in good faith by a majority vote after consultation with its financial advisors and outside legal counsel ( i ) is reasonably likely to be consummated, taking into account all legal, financial, regulatory, timing and other aspects of the proposal and the Person making the proposal, ( ii ) for which financing, to the extent required, is then committed, and ( iii ) is otherwise on terms that the Company Board (upon the recommendation of the Special Committee) has determined in good faith by majority vote (after consultation with its financial advisor and outside counsel) is superior, from a financial point of view, to the transactions contemplated by this Agreement (taking into account any proposals by Parent to make adjustments to the terms and conditions of this Agreement pursuant to Section 8.4(b)) ; provided , however , that, for purposes of this definition of “Superior Proposal,” the term Alternative Transaction Proposal shall have the meaning assigned to such term herein, except that the reference to “fifteen percent (15%) in clauses ( ii ) through ( iv ) of the definition of “Alternative Transaction Proposal” shall be deemed to be a reference to fifty percent (50%).

“ Tax Return ” means any declaration, return, report, schedule, certificate, statement or other similar document (including relating or supporting information) required to be filed or, where none is required to be filed with a Taxing Authority, the statement or other document issued by a Taxing Authority in connection with any Tax, including any information return, claim for refund, amended return or declaration of estimated Tax.

“ Taxes ” means ( i ) any and all federal, state, local, foreign, provincial or territorial taxes, rates, levies, assessments and other governmental charges of any kind whatsoever whether imposed directly or through withholding or in respect of a failure to comply with any requirement of law relating to taxes and expenses incurred in connection with the determination, settlement or litigation of any tax liability (together with any and all interest, penalties (civil or criminal), additions to tax and additional amounts applicable with respect thereto) , including income, franchise, premium, windfall or other profits, gross receipts, property, production, customs, sales, use, capital stock, capital gains, payroll, employment, social security, workers’ compensation, unemployment compensation, disability, net worth, transfer, service, occupation, excise, severance, excise, withholding, ad valorem, add-on, value added tax, business, estimated, stamp, license, environmental (including all taxes under Section 59A of the Code), alternative

 

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minimum, production, severance,), and all estimated taxes, ( ii ) any liability of any Person for the payment of amounts with respect to payments of a type described in clause ( i ) above as a result of being a member of a Consolidated Group, or ( iii ) any liability of any Person for the payment of amounts with respect to payments of a type described in clause ( i ) or ( ii ) above whether imposed or assessed directly on a Person (or the business, assets, operations or items of income, gain or losses of such Person), or as a transferee, successor, by contract or otherwise.

“ Taxing Authority ” means with respect to any Tax, the Governmental Entity that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

“ U.S. GAAP ” means United States generally accepted accounting principles.

(b) Terms Generally . The words “hereby,” “herein,” “hereof,” “hereunder” and words of similar import refer to this Agreement as a whole (including any Exhibits hereto and Schedules delivered herewith) and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Sections, Exhibits and Schedules shall be deemed references to Sections of, Exhibits to and Schedules delivered with this Agreement unless the context shall otherwise require. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The definitions given for terms in this Section 1.1 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Except as otherwise expressly provided herein, all references to “Dollars” or “$” shall be deemed references to the lawful money of the United States of America. All references herein to “parties” shall be to the parties hereto unless the context shall otherwise require.

(c) Additional Terms . The following terms are defined in the corresponding Sections of this Agreement:

 

 

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ARTICLE II

THE MERGER; CLOSING; EFFECTIVE TIME

Section 2.1 The Merger . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the “ Surviving Corporation ”), and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

Section 2.2 Closing . The closing of the Merger (the “ Closing ”) shall take place at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York, at 9:00 a.m. (New York time) on the first Business Day following the satisfaction or waiver (in writing) of the conditions to the Closing set forth in Article IX (other than those that by their terms cannot be satisfied prior to the Closing, but subject to the fulfillment or waiver (in writing) of such conditions at the Closing); provided , however , that, notwithstanding the satisfaction or waiver of such conditions, the parties shall not be required to effect the Closing until the earliest of ( a ) a date during the Marketing Period specified by Parent on no less than three Business Days’ notice to the Company, ( b ) the final day of the Marketing Period and ( c ) the Outside Date, subject, in each case, to the satisfaction or waiver (in writing) of all the conditions set forth in Article IX as of the date determined pursuant to this proviso (other than those that by their terms cannot be satisfied prior to such date, but subject to the fulfillment or waiver (in writing) of such conditions at such date) (the date on which the Closing occurs pursuant to this Section 2.2 , the “ Closing Date ”).

Section 2.3 Effective Time . Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the parties shall file a certificate of merger as contemplated by the DGCL (the “ Certificate of Merger ”), together with any required related certificates, with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such later date and time as the Company and Parent may agree upon and as is set forth in such Certificate of Merger (such time, the “ Effective Time ”).

 

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ARTICLE III

THE SURVIVING CORPORATION

Section 3.1 Certificate of Incorporation . The Certificate of Incorporation of the Surviving Corporation shall be amended at the Effective Time to be in the form of Exhibit A , and as so amended, such Certificate of Incorporation shall be the Certificate of Incorporation of the Surviving Corporation (the “ Certificate of Incorporation ”) until thereafter changed or amended as provided therein or by Applicable Law.

Section 3.2 By-Laws . The By-Laws of Merger Sub in effect immediately prior to the Effective Time shall be the By-Laws of the Surviving Corporation (the “ By-Laws ”) until thereafter amended as provided therein or by Applicable Law.

Section 3.3 Directors and Officers . From and after the Effective Time, ( a ) the directors of Merger Sub immediately prior to the Effective Time, as set forth on a schedule delivered by Parent to the Company prior to the Effective Time, shall be the directors of the Surviving Corporation and ( b ) the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, in each case, until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Certificate of Incorporation and the By-Laws.

ARTICLE IV

EFFECT OF THE MERGER ON STOCK;

EXCHANGE OF CERTIFICATES

Section 4.1 Effect on Stock . At the Effective Time, as a result of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holder of any capital stock of the Company or Merger Sub:

(a) Merger Consideration . Each Common Share issued and outstanding immediately prior to the Effective Time (other than ( i ) Common Shares ( A ) held in treasury by the Company, or ( B ) held by any Company Subsidiary (collectively, “ Excluded Shares ”), ( ii ) Appraisal Shares, ( iii ) Restricted Shares and ( iv ) Rollover Shares) shall be converted into the right to receive, in accordance with this Article IV , $17.00 in cash (the per share cash consideration to be issued to the holders of such Common Shares, the “ Merger Consideration ”). No interest shall accrue or be paid on the Merger Consideration.

(b) Cancellation of Common Shares .

(i) At the Effective Time, each Common Share converted into the Merger Consideration pursuant to Section 4.1(a) shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate that immediately prior to the Effective Time represented any such Common Shares (each,

 

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a “ Certificate ”) (other than Certificates representing Excluded Shares, Appraisal Shares, Restricted Shares and Rollover Shares) shall thereafter represent only the right to receive the Merger Consideration upon surrender of such Certificate in accordance with this Article IV .

(ii) Each Excluded Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and shall cease to exist.

(c) Merger Sub . At the Effective Time, each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one newly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.

Section 4.2 Exchange of Certificates for Merger Consideration .

(a) Paying Agent and Procedures .

(i) Prior to the Effective Time, Parent shall select a bank or trust company reasonably acceptable to the Company as paying agent (the “ Paying Agent ”). At or prior to the Effective Time, Parent shall deposit, or shall cause the Surviving Corporation to deposit, with the Paying Agent, separate and apart from its other funds, as a trust fund for the holders of record of Certificates (each a “ Holder ”), cash in the amount equal to the aggregate Merger Consideration which such Holders are entitled to receive pursuant to this Article IV plus cash to pay for Options and Restricted Shares pursuant to Section 4.3(a) and Section 4.3(c) , respectively (such cash being hereinafter referred to as the “ Merger Fund ”).

(ii) As promptly as practicable after the Effective Time, the Surviving Corporation shall cause the Paying Agent to mail (and to make available for collection by hand) to each Holder ( A ) a letter of transmittal (in a form reasonably acceptable to the Company), which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent and which shall be in such form and have such other customary provisions as Parent and the Surviving Corporation may reasonably specify and ( B ) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration to be received by such Holder pursuant to Section 4.1(a) .

(iii) Each Holder of a Certificate representing any Common Shares that have been converted into a right to receive the Merger Consideration set forth in Section 4.1(a) shall, upon surrender of such Certificate for cancellation to the Paying Agent, together with a properly completed letter of transmittal, duly executed in accordance with the instructions thereto, be entitled to receive in exchange therefor the Merger Consideration for each Common Share formerly represented by such Certificate, in the form of a check, to be mailed (or made available for collection by hand if so elected by the surrendering Holder of a Certificate) as promptly as practicable after

 

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receipt thereof and the Certificate so surrendered shall forthwith be marked canceled. No interest will be paid or accrued on any amount payable upon due surrender of the Certificates. The Paying Agent shall accept such Certificates upon compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices.

(iv) In the event of the surrender of a Certificate that is not registered in the transfer records of the Company under the name of the Person surrendering such Certificate, the Merger Consideration shall be paid to such a transferee if such Certificate is presented to the Paying Agent and such Certificate is duly endorsed or is accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes or any other Taxes required by reason of such payments being made in a name other than the name of the Person surrendering such Certificate have been paid. If any Merger Consideration is to be delivered to a Person whose name is other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such delivery that the Person requesting such delivery shall pay any transfer or other Taxes required to be paid by reason of such delivery to a Person whose name is other than that of the Holder of the Certificate surrendered or shall establish to the reasonable satisfaction of Parent that such Tax has been paid or is not applicable.

(b) Closing of Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of the Common Shares outstanding immediately prior to the Effective Time thereafter on the records of the Company. If, after the Effective Time, any Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be marked canceled and exchanged as provided in this Article IV .

(c) Termination of Merger Fund . Any portion of the Merger Fund (including any interest and other income resulting from any investment of the Merger Fund) that remains unclaimed by the Holders and other eligible Persons in accordance with this Article IV following six (6) months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any Holder who has not previously complied with this Article IV shall thereafter look only to the Surviving Corporation for, and the Surviving Corporation shall remain liable for, payment of its claim for Merger Consideration.

(d) Lost, Stolen or Destroyed Certificates . In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond in customary amount as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue the Merger Consideration in exchange for such lost, stolen or destroyed Certificate. Delivery of such affidavit and the posting of such bond shall be deemed delivery of a Certificate with respect to the relevant Common Shares for purposes of this Article IV .

 

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(e) Withholding Taxes . Notwithstanding any provision of this Agreement to the contrary, Parent, the Surviving Corporation or the Paying Agent shall be entitled to deduct and withhold from the Merger Consideration or other amounts otherwise payable pursuant to this Agreement to any former holder of Common Shares (including Restricted Shares) or Options such amounts as Parent, the Surviving Corporation or the Paying Agent, as the case may be, is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any provision of state, local or non-U.S. Tax law. To the extent that amounts are so withheld by Parent, the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the former holder of the Common Shares (including Restricted Shares) or Options in respect of which such deduction and withholding was made by Parent, the Surviving Corporation or the Paying Agent, as the case may be.

(f) No Liability . None of Parent, Merger Sub, the Surviving Corporation or the Paying Agent shall be liable to any Person in respect of any portion of the Merger Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

(g) Investment of Merger Fund . The Paying Agent shall invest any cash included in the Merger Fund, as directed by Parent, on a daily basis; provided that in the case of any Losses incurred as a result of such investments, Parent shall take all actions necessary to ensure that the Merger Fund includes at all times cash sufficient to satisfy Parent’s obligations under this Article IV . Any interest and other income resulting from such investments shall be paid to Parent.

Section 4.3 Treatment of Options and Restricted Shares .

(a) Options .

(i) Except as provided in Section 4.3(a)(ii) and subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any holder of any Common Shares or Options, each Option (whether vested or unvested) shall be canceled and converted into the right to receive an amount in cash, without interest, equal to the excess (if any) of ( A ) of the product of ( x ) the number of Common Shares subject to such Option (assuming full vesting of such Option) and ( y ) the Merger Consideration over ( B ) the aggregate exercise price of such Option.

(ii) Notwithstanding Section 4.3(a)(i) , between the date hereof and the Effective Time, Parent may permit holders of certain Options to exchange some or all of their outstanding Options for options to purchase shares of common stock (or other class of equity) of Parent on such terms as are reasonably acceptable to Parent (each, a “ Rollover Option ”). Parent intends that such exchange will be made in compliance with procedures for substitution of options by reason of a corporate transaction pursuant to the regulations and guidance under Code Section 409A. Parent and Company will cooperate to take such actions as they reasonably agree are necessary to effectuate the transactions contemplated by this Section 4.3(a)(ii) .

 

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(b) Employee Stock Purchase Plan . As of the date hereof, the Company shall take all actions necessary so that the Offering (as that term is defined in the U.S.I. Holdings Corporation Employee Stock Purchase Plan (the “ ESPP ”)) which ends on March 31, 2007 is the last Offering under the ESPP. No further elections to purchase Common Shares may be made after the date hereof under the ESPP and the maximum number of Common Shares that may be purchased under the ESPP will not exceed 30,000.

(c) Restricted Shares . Except as provided in Section 4.3(d) and subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any holder of any Restricted Shares, all Restricted Shares outstanding immediately prior to the Effective Time shall vest and become free of all restrictions immediately prior to the Effective Time and shall be canceled, retired and shall cease to exist and shall be converted into the right to receive, in respect of each underlying Common Share, the Merger Consideration in accordance with Section 4.2(a) .

(d) Rollover Shares . Notwithstanding Section 4.3(c) , between the date hereof and the Effective Time, Parent may permit ( i ) holders of certain Restricted Shares, and ( ii ) employees of the Company or any Company Subsidiary who hold Common Shares that are issued and outstanding immediately prior to the Effective Time, to exchange some or all of their Restricted Shares or Common Shares, as applicable, for shares of common stock (or other class of equity) of Parent on such terms as are reasonably acceptable to Parent (each, a “ Rollover Share ”). Parent and Company will cooperate to take such actions as they reasonably agree are necessary to effectuate the transactions contemplated by this Section 4.3(d) .

(e) Paying Agent . Parent shall, or shall cause the Surviving Corporation to, provide the Paying Agent with a list of all holders of Options and Restricted Shares certified by an officer of the Surviving Corporation or the Surviving Corporation’s transfer agent. As promptly as practicable after the Effective Time, Parent shall cause the Paying Agent to mail to each holder of Options or Restricted Shares a letter of transmittal (in a form approved by the Company) and instructions for use in obtaining the value of such Options or Restricted Shares as contemplated by Section 4.3(a) and Section 4.3(c) , respectively. All payments with respect to canceled Options and Restricted Shares shall be made by the Paying Agent (and Parent shall cause the Paying Agent to make such payments) as promptly as practicable after the Effective Time from funds deposited by or at the direction of Parent (in order to pay such amounts) in accordance with Section 4.2(a) .

Section 4.4 Appraisal Rights . Subject to Section 9.3(d) , Common Shares that are outstanding immediately prior to the Effective Time and that are held by any Person who is entitled to demand, and who properly demands, appraisal of such Common Shares pursuant to, and who complies in all respects with, Section 262 of the DGCL (such

 

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Section, “ Section 262 ,” and such shares, “ Appraisal Shares ”) shall not be converted into the right to receive the Merger Consideration as provided in Section 4.1(a) , but rather, the holders of Appraisal Shares shall be entitled only to payment of the fair value of such Appraisal Shares in accordance with Section 262; provided that if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262, then the right of such holder to be paid the fair value of such holder’s Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for, the right to receive the Merger Consideration (without interest thereon) as provided in Section 4.1(a) . The Company shall notify Parent as promptly as reasonably practicable of any demands received by the Company for appraisal of any Common Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent (which consent shall not be unreasonably withheld), voluntarily make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

Section 4.5 Adjustments to Prevent Dilution . In the event that, notwithstanding Section 7.1(e) , the Company changes (or establishes a record date for changing) the number of Common Shares issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, recapitalization, subdivision, reclassification, combination, exchange of shares or similar transaction with respect to the outstanding Common Shares, at any time during the period from the date hereof to the Effective Time (excluding any issuances of Common Shares permitted pursuant to the terms of this Article IV ), then the Merger Consideration shall be appropriately adjusted, taking into account the record and payment or effective dates, as the case may be, for such transaction.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in ( i ) a disclosure letter (the “ Company Disclosure Letter ”) delivered to Parent by the Company prior to the execution of this Agreement, which Company Disclosure Letter identifies the sections to which it relates (it being understood that any matter disclosed in any section of the Company Disclosure Letter will be deemed to be disclosed in any other section of the Company Disclosure Letter to the extent it is readily apparent from such disclosure that such disclosure is applicable to such other section), or ( ii ) the Company Reports filed and publicly available prior to the date of this Agreement (excluding any disclosures set forth in any risk factor section, in any section relating to forward-looking statements and any other disclosures therein to the extent they are cautionary, predictive or forward-looking in nature and excluding (only with respect to the representations and warranties contained in Section 5.7 and Section 5.9 ) information in the Company Reports concerning matters relating, directly or indirectly, to Contingent Commissions) shall if, any only if, the nature and content of the applicable disclosure in such Company Reports is sufficiently specific that its applicability to a

 

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representation or warranty contained in this Article V is readily apparent, the Company represents and warrants to Parent and Merger Sub as follows:

Section 5.1 Corporate Status . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. The Company is duly qualified or licensed to own, lease and operate its properties and to carry on its business as is now being conducted 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 qualified or licensed would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect. The Company has delivered or made available to Parent or Merger Sub complete and correct copies of its Constituent Documents as amended and in effect on the date hereof. The Company is not in material violation of any provision of its Constituent Documents.

Section 5.2 Company Subsidiaries .

(a) Section 5.2(a) of the Company Disclosure Letter sets forth: ( i ) the name of each Subsidiary owned (whether directly or indirectly) by the Company (collectively, the “ Company Subsidiaries ”), and the state or jurisdiction of its organization; ( ii ) the name of each Company Subsidiary that is registered or licensed as ( A ) a broker or dealer under the Exchange Act or any similar state or foreign laws; ( B ) a futures commission merchant, commodity trading advisor, commodity pool operator or introducing broker under the Commodity Exchange Act, as amended, or under any similar state or foreign law; ( C ) an investment adviser under the Advisers Act or under any similar state or foreign law; or ( D ) an insurance company, in each case together with a listing of all such registrations and licenses held with all applicable Governmental Entities; and ( iii ) a complete list of all securities exchanges, commodity exchanges, boards of trade or similar organizations in which any Company Subsidiary holds membership or has been granted trading privileges, together with the name of the relevant Company Subsidiary. Each Company Subsidiary is a corporation, limited liability company or partnership, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be, and has all requisite corporate, limited liability company or partnership power and authority, as the case may be, to own, lease and operate its properties and to carry on its business as is now being conducted. Each Company Subsidiary is duly qualified or licensed in each jurisdiction in which such qualification or licensing is necessary, except where the failure to be so licensed or qualified would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect.

(b) The Company is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock or other equity interests of each of the Company Subsidiaries. All of such shares and other equity interests so owned by the Company are validly issued, fully paid and nonassessable and are owned by it free and clear of any Encumbrances.

 

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(c) The Company has delivered or made available to Parent or Merger Sub complete and correct copies of the Constituent Documents of the material Company Subsidiaries, as amended and in effect on the date hereof. No Company Subsidiary is in material violation of any provision of its Constituent Documents.

(d) The Company has made available to Parent and Merger Sub complete and correct copies (except as redacted to protect confidential information related to the transactions contemplated by this Agreement or other alternative strategic transactions considered since January 1, 2004) of ( i ) the minutes of all meetings of the Company Board (or, in the case of minutes that have not yet been finalized, drafts thereof) and ( ii ) recordings of all meetings of the shareholders of the Company, in each case, held since January 1, 2004 and prior to the date hereof.

(e) Section 5.2(e) of the Company Disclosure Letter sets forth a complete and correct list of all of Company Joint Ventures. To the Knowledge of the Company, all equity interests of the Company Joint Ventures held by the Company or any Company Subsidiary are validly issued, fully paid and non-assessable and were not issued in violation of any preemptive or similar rights, purchase option, call or right of first refusal or similar rights. All such equity interests owned by the Company or any Company Subsidiary are free and clear of any liens or any other limitations or restrictions on such equity interests (including any limitation or restriction on the right to vote, pledge or sell or otherwise dispose of such equity interests) other than any permitted liens or restrictions contained in the joint venture agreements related thereto. The Company has provided or made available to Parent and Merger Sub complete and correct copies of the joint venture agreements of the Company Joint Ventures (and the Company represents that, to the Knowledge of the Company, any Constituent Documents of the Company Joint Ventures not made available to Parent or Merger Sub do not contain provisions that conflict with the joint venture agreements in any material respect). Except as set forth in Section 5.2(e) of the Company Disclosure Letter, neither the Company nor any Company Subsidiary has entered into any material commitment, arrangement or agreement, or is otherwise obligated in any material respect, to contribute capital, loan money or otherwise provide funds or make any investments in any Company Joint Venture.

(f) The Company does not have or conduct, and no Company Subsidiary or Company Joint Venture has or conducts, any business or operations outside of the United States, except as set forth in Section 5.2(f) of the Company Disclosure Letter.

Section 5.3 Capitalization .

(a) The authorized capital stock of the Company consists of Three Hundred Million (300,000,000) Common Shares and Eighty-Seven Million (87,000,000) shares of preferred stock, par value $0.01 per share (“ Preferred Stock ”). At the close of business on January 12, 2007, ( i ) 58,450,807 Common Shares were issued and outstanding (of which 1,110,823 were Restricted Shares), ( ii ) no shares of Preferred Stock were issued or outstanding, ( iii ) 827,475 Common Shares were held in treasury by

 

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the Company, ( iv ) 5,678,560 Common Shares were subject to outstanding Options having an aggregate exercise price as set forth in Section 5.3(a) of the Company Disclosure Letter and ( v ) 2,793,200 Common Shares were reserved for issuance pursuant to the Company’s stock plans set forth in Section 5.3(a) of the Company Disclosure Letter. Except as set forth above, at the close of business on January 12, 2007, no shares of capital stock of the Company were issued, reserved for issuance or outstanding. Since such date, the Company has not issued any shares of capital stock, except for Company Shares reserved for issuance under the Company’s stock plans set forth in Section 5.3(a) of the Company Disclosure Letter and pursuant to the exercise of Options outstanding on such date, and has not issued any Options or Restricted Shares since such date. All issued and outstanding Common Shares have been ( i ) duly authorized and validly issued and are fully paid and nonassessable and ( ii ) issued in compliance, in all material respects, with all Applicable Laws relating to the offer and sale of securities.

(b) There are no preemptive or similar rights granted by the Company or any Company Subsidiary on the part of any holders of any class of securities of the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary has outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company or any such Company Subsidiary on any matter (“ Voting Company Debt ”). Except as set forth above or as set forth in Section 5.3(b) of the Company Disclosure Letter, there are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, contracts, arrangements or undertakings of any kind to which the Company or any of the Company Subsidiaries is a party or by which any of them is bound ( i ) obligating the Company or any of the Company Subsidiaries to issue, deliver or sell or cause to be issued, delivered or sold, additional shares of capital stock of, or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of, or other equity interest in, the Company or any Voting Company Debt, ( ii ) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, contract, arrangement or undertaking or ( iii ) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of capital stock of, or other equity interests in, the Company. There are not any outstanding contractual obligations of the Company or any of the Company Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of the Company Subsidiaries. There are no proxies, voting trusts or other agreements or understandings to which the Company or any of the Company Subsidiaries is a party or is bound with respect to the voting of the capital stock of, or other equity interests in, the Company or any of the Company Subsidiaries. Since September 30, 2006, the Company has not declared, set aside, made or paid to the stockholders of the Company any dividends or other distributions on the outstanding shares of capital stock.

 

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Section 5.4 Authority for Agreements .

(a) The Company has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by the Company and consummation by the Company of the Merger and the other transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary for it to authorize this Agreement or to consummate the transactions contemplated hereby (other than the adoption of this Agreement by the holders of at least a majority of the outstanding Common Shares entitled to vote in accordance with the DGCL (the “ Company Stockholder Approval ”)). This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by Parent and Merger Sub, as applicable, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium or other similar laws effecting or relating to enforcement of creditors’ rights generally or by general principles of equity.

(b) The Special Committee has unanimously ( i ) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders, ( ii ) adopted and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, and recommended to the Company Board that it adopt and declare advisable this Agreement and the transactions contemplated hereby, including the Merger, ( iii ) recommended that the Company Board recommend approval of this Agreement by the Company’s stockholders and ( iv ) directed that this Agreement be submitted to the Company Board for its adoption and recommendation that the Company’s stockholders approve this Agreement.

(c) The Company Board (upon the recommendation of the Special Committee) has ( i ) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders, ( ii ) adopted and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, ( iii ) directed that this Agreement be submitted to the Company’s stockholders for their approval and ( iv ) recommended that the Company’s stockholders approve this Agreement.

Section 5.5 Consents and Approvals; No Violations .

(a) The execution, delivery and performance of this Agreement by the Company and consummation of the Merger by the Company do not and will not require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity except for: ( i ) the pre-merger notification requirements under the HSR Act; ( ii ) the applicable requirements of the Exchange Act and the Advisers Act; ( iii ) the filing with the NASD required under its applicable rules of changes in the ownership of a member firm; ( iv ) the filing of the Certificate of Merger pursuant to the DGCL; ( v ) any registration, filing or notification required pursuant to state securities or blue sky laws (the requirements in clauses ( i ), ( ii ), ( iii ), ( iv ) and ( v ) collectively, the “ Governmental Requirements ”); and ( vi ) any other immaterial consent, approval, authorization, permit, filing or notification.

 

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(b) Except for the Company Stockholder Approval, as set forth in Section 5.5(b) of the Company Disclosure Letter or as contemplated by Section 5.5(a) , no consent, approval of, authorization of or notification to any other Person (including under any Company Contract) is required to be obtained by the Company for the execution, delivery or performance of this Agreement by the Company and consummation by the Company of the transactions contemplated hereby, except where the failure to obtain any such consent or approval would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect.

(c) Except as set forth in Section 5.5(c) of the Company Disclosure Letter, none of the execution, delivery or performance of this Agreement by the Company or, subject to the receipt of the Company Stockholder Approval, consummation by the Company of the transactions contemplated hereby or compliance by the Company with any provisions hereof, will ( i ) violate any provision of the Constituent Documents of the Company or any Company Subsidiary, ( ii ) subject to compliance with Section 8.18 , result in a violation or breach of any provision of, or constitute (with or without due notice or lapse of time or both) a default under, give rise to any right of termination, cancellation, payment, acceleration or revocation under, or result in the loss of any material benefit under, any agreement, undertaking, commitment or obligation to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary or any of their respective assets may be bound, ( iii ) result in the creation or imposition of any Encumbrance upon any property or asset of the Company or any Company Subsidiary or ( iv ) violate or conflict with any Applicable Law, except, in the case of clauses ( ii ), ( iii ) and ( iv ), for violations, breaches, defaults, terminations, cancellations, payments, accelerations, revocations, creations, impositions or conflicts which would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect.

Section 5.6 Company Financial Statements; SEC Reports .

(a) The Company Financial Statements have been derived from the books and records of the Company and the Company Subsidiaries and have been prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods presented, subject, in the case of interim unaudited Company Financial Statements, only to normal, recurring year-end adjustments. The consolidated balance sheets included in the Company Financial Statements present fairly in all material respects the financial position of the Company and the Company Subsidiaries as at the respective dates thereof, and the consolidated statements of income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows included in such Company Financial Statements present fairly in all material respects the results of operations, shareholders’ equity and cash flows of the Company and the Company Subsidiaries for the respective periods indicated.

 

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(b) The term “ Company Financial Statements ” means the consolidated financial statements of the Company and the Company Subsidiaries included in the Company Reports together, in the case of year-end statements, with reports thereon by Deloitte & Touche LLP, the independent auditors of the Company, including in each case a consolidated balance sheet, a consolidated statement of income, a consolidated statement of stockholders’ equity and a consolidated statement of cash flows, and accompanying notes.

(c) Each of the Company and the Company Subsidiaries has filed or furnished, as applicable, all reports, schedules, forms, statements and other agreements or documents required to be filed by it or furnished by it to the SEC since January 1, 2004 (the “ Company Reports ”). As of its respective date, each Company Report complied in all material respects with the requirements of the Exchange Act, the Securities Act and the Sarbanes-Oxley Act of 2002, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company Report, and did not contain, when filed, or if amended, as of the date of such amendment, 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. No Company Subsidiary is required to file or voluntarily files periodic reports with the SEC by reason of Section 12(b) or Section 15(d) of the Exchange Act. The Company has furnished to Parent true and correct copies of all deficiency letters from the SEC or the NASD relating to compliance examinations of any Company Broker Dealer Subsidiary or Company Adviser Subsidiary conducted since January 1, 2004 (collectively, “ Deficiency Letters ”) and the Company’s (or such Company Subsidiary’s) responses thereto. To the Knowledge of the Company, there are no outstanding or unresolved comments or issues from the SEC or its staff with respect to any SEC Reports or other submissions filed by the Company or any Company Subsidiary with the SEC. Since the date of its enactment, the Company and the Company Subsidiaries have complied in all material respects with the applicable requirements of the Sarbanes-Oxley Act of 2002.

(d) Each of the principal executive officer and the principal financial officer of the Company has made all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC promulgated thereunder with respect to the Company Reports.

(e) The Company and the Company Subsidiaries have implemented and maintain a system of internal accounting controls and financial reporting (as required by Rule 13a-15 or Rule 15d-15 under the Exchange Act) that ( i ) has been effective as of December 31, 2005 and ( ii ) with respect to subsequent periods has been designed by the Company to be, and the Company has no reason to believe it will not be, effective, in each case, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. As of the date hereof, to the Knowledge of the Company, the Company has not identified any material weaknesses in its system of internal accounting controls and financial reporting and has no reason to believe that its officers will not be in a position to furnish the certifications and attestations required pursuant to the rules and regulations of the SEC

 

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under the Sarbanes-Oxley Act of 2002. The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Such disclosure controls and procedures have been designed by the Company to be, and the Company has no reason to believe such controls and procedures are not, effective to ensure that information required to be disclosed by the Company is recorded and reported on a timely basis to the individuals responsible for the preparation of the Company Reports and other public disclosure documents and, for Company Reports filed with the SEC on or before the date hereof, were effective for such purposes.

(f) The Company disclosed, based on its most recent evaluation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), to the Company’s outside auditors and the audit committee of the Company Board ( i ) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which could reasonably be expected to adversely affect the ability of the Company or any Company Subsidiary to record, process, summarize and report financial information and ( ii ) any fraud, whether or not material, that involves management or other employees who have a role in internal control over financial reporting. Since January 1, 2004, any material change in internal control over financial reporting required to be disclosed in any Company Report has been so disclosed.

(g) The Company is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of the NASDAQ National Market.

Section 5.7 Absence of Certain Changes .

(a) Since December 31, 2005, there has been no event or condition which, individually or in the aggregate, has had, or would reasonably be expected to have, a Company Material Adverse Effect.

(b) Since December 31, 2005, the Company and the Company Subsidiaries (during the period in which they were Subsidiaries of the Company) ( i ) have in all material respects conducted their businesses in the ordinary course consistent with past practice and ( ii ) have not taken any of the actions, or authorized the taking of any actions, prohibited by Section 7.1 (other than ( A )  Sections 7.1(c), (e)(i), (f), (g) and (n) , ( B ) any payment, discharge, settlement or satisfaction by the Company or the Company Subsidiaries of any litigation, arbitration, proceeding, claim, liability or obligation (excluding those asserted by or involving any Governmental Entity other than a state insurance department) referenced in Section 7.1(i) in an amount less than one hundred thousand dollars ($100,000) and ( C )  Section 7.1(r) (but only to the extent the actions referred to in Section 7.1(r ) relate to the matters covered by Sections 7.1(c), (e)(i), (f), (g), (i)  (to the extent not excluded by reason of clause ( B ) above) and ( n )).

 

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Section 5.8 Litigation; Contingent Commissions .

(a) Except as set forth in Section 5.8(a) of the Company Disclosure Letter, there ( i ) is no suit, action, proceeding or, to the Knowledge of the Company, investigation or inquiry (whether at law or in equity, before or by any Governmental Entity or before any arbitrator) pending or, to the Knowledge of the Company, threatened against or affecting the Company, any of the Company Subsidiaries or any director or executive officer of the Company, the outcome of which, individually or in the aggregate, has had, or would reasonably be expected to have, a Company Material Adverse Effect or ( ii ) is no judgment, decree, writ, injunction, award, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of the Company Subsidiaries, or by which any of their respective assets are subject or are bound, which, individually or in the aggregate, has had or would reasonably be expected to have, a Company Material Adverse Effect. There are no legal actions, audits, inquiries or, to the Knowledge of the Company, investigations by any Governmental Entity and, to the Knowledge of the Company, no such actions have been threatened, in each case, regarding any accounting practices of the Company or any of its Subsidiaries. There has been no malfeasance by any executive officer of the Company.

(b)( i )( A ) The Company has made available to Parent or Merger Sub true, correct and complete copies of all of the subpoenas and written demands, inquiries and information requests received by the Company, any Company Subsidiary or any Affiliate of the Company or any Company Subsidiary from any Governmental Entity from (and including) January 1, 2004 to (and including) September 30, 2004 of which it has Knowledge and ( B ) the Company has made available to Parent or Merger Sub true, correct and complete copies of all of the subpoenas and written demands, inquiries and information requests received by the Company, any Company Subsidiary or any Affiliate of the Company or any Company Subsidiary from any Governmental Entity since October 1, 2004, in each case, relating to Contingent Commissions, and ( ii ) the Company has made available to Parent or Merger Sub true, correct and complete descriptions of ( A ) all oral demands, inquires and information requests received by the Company, any Company Subsidiary or any Affiliate of the Company or any Company Subsidiary from any Governmental Entity since January 1, 2004 of which it has Knowledge relating to Contingent Commissions (all such subpoenas, demands, inquiries and information requests being referred to collectively as the “ Contingent Commission Requests ”) and ( B ) descriptions of the scope of the response, if any, to such Governmental Entities in respect of such Contingent Commission Requests. The Company and the Company Subsidiaries have provided each applicable Governmental Entity with all non-privileged documents and other information that are reasonably responsive to such Governmental Entity’s Contingent Commission Requests and have provided Parent reasonable access to all such documents and information. The Company has disclosed to Parent all material facts of which it has Knowledge as of the date hereof relating to the matters covered by the Contingent Commission Requests. Except as set forth in Section 5.8(b) of the Company Disclosure Letter, as of the date hereof, no Governmental Entity has requested that the Company or any of the Company Subsidiaries enter into a settlement negotiation with respect to the matters covered by the Contingent Commission Requests.

Section 5.9 Absence of Undisclosed Liabilities . Except to the extent set forth in Section 5.9 of the Company Disclosure Letter, there are no liabilities or obligations of

 

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any kind, whether accrued, absolute, contingent or otherwise and whether or not required to be reflected in the Company Financial Statements in accordance with U.S. GAAP (collectively, “ Liabilities ”) of the Company or any of the Company Subsidiaries other than ( a ) Liabilities reflected on or reserved against in the Company’s consolidated balance sheet as of September 30, 2006 included in the Company Financial Statements or Liabilities incurred since September 30, 2006 in the ordinary course of business consistent with past practice that would be reflected in the consolidated balance sheet of the Company prepared in accordance with U.S. GAAP applied on a consistent basis if prepared as of the date hereof, ( b ) Liabilities that are not material to the Company and ( c ) contingent payments or earn-outs payable to the sellers of businesses to the Company or any Company Subsidiary as described in Section 5.9 of the Company Disclosure Letter.

Section 5.10 Taxes .

(a) The Company and the Company Subsidiaries have ( i ) duly and timely filed (or there has been filed on their behalf) with the appropriate governmental authorities all income tax returns and all other material federal, state, local and foreign Tax Returns required to be filed by them on or prior to the date hereof and ( ii ) duly and timely paid in full or made provision in accordance with U.S. GAAP in the Company Financial Statements most recently filed with the SEC for the payment of all Taxes due and owing for all periods or portions thereof ending through the date hereof.

(b) Except as set forth in Section 5.10(b) of the Company Disclosure Letter, no federal, state, local or foreign audits or other administrative proceedings or court proceedings are pending with regard to any Taxes or Tax Returns of the Company or any Company Subsidiary wherein an adverse determination or ruling in any one such proceeding or in all such proceedings, individually or in the aggregate, have or would reasonably be expected to have, a Company Material Adverse Effect.

(c) Prior to the Closing, the Company will have provided Parent with written schedules of ( i ) the taxable years of the Company for which the statutes of limitations with respect to federal income Taxes have not expired, ( ii ) with respect to federal income Taxes, for all taxable years for which the statute of limitations has not yet expired, those years for which examinations have been completed, those years for which examinations are presently being conducted, and those years for which examinations have not yet been initiated and ( iii ) any requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes with respect to any Tax Returns of the Company or any of the Company Subsidiaries.

(d) The Company and the Company Subsidiaries have complied with all rules and regulations relating to Tax information reporting and the payment and withholding of Taxes except where the failure to so comply would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect.

(e) Neither the Company nor any of the Company Subsidiaries is a party to any tax sharing, tax indemnity or other agreement or arrangement with respect to

 

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Taxes with any entity not included in the Company Financial Statements most recently filed with the SEC, other than tax indemnity provisions of agreements to acquire businesses with the sellers of businesses acquired by the Company, or the Company Subsidiaries set forth in Section 5.10(e) of the Company Disclosure Letter. Neither the Company nor any Company Subsidiary is aware of any claim of indemnity under such provisions or of any basis for any such claim.

(f) None of the Company or any of the Company Subsidiaries ( i ) has been a member of any affiliated group within the meaning of Section 1504(a) of the Code or any affiliated, combined, unitary or consolidated group for tax purposes under state, local or foreign law (a “ Consolidated Group ”) (other than a group the common parent of which is currently a member of the affiliated group of which the Company is currently the common parent or the group of which it was a member at the time of its acquisition by Parent or a Subsidiary of Parent, as set forth in Section 5.10(f) of the Company Disclosure Letter) with respect to Taxes for which the statute of limitations has not yet expired, or ( ii ) has any liability for the Taxes of any Person (other than the Company and the Company Subsidiaries) under Treasury Regulations Section 1.1502-6 or any similar provision of state, local or foreign law as a transferee or successor, by contract or otherwise.

(g) Neither the Company nor any of the Company Subsidiaries has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the five-year period ending on the date of this Agreement.

(h) No Company Subsidiaries are “S corporations” within the meaning of Section 1361(a)(1) of the Code. To the Knowledge of the Company, all Company Subsidiaries that at one time were “S corporations” (“ S Corp Subsidiaries ”) have been “S corporations” for federal income tax purposes from their inception and have maintained their status as “S corporations” at all times prior to their acquisition by the Company. To the Knowledge of the Company, at their inception, all S Corp Subsidiaries have validly elected to be “S corporations” in all state and local jurisdictions where they would, absent such an election, be subject to corporate income or franchise tax, and have maintained their status as “S corporations” in such jurisdictions at all times prior to their acquisition by the Company. To the Knowledge of the Company, no state of facts existed which presented a material risk that an S Corp Subsidiary’s status as an “S corporation” was subject to termination or revocation prior to such S Corp Subsidiary’s acquisition by the Company.

(i) There are no liens for any Taxes upon the assets of the Company or any of the Company Subsidiaries, other than ( i ) statutory liens for Taxes not yet due and payable or ( ii ) liens which are being contested in good faith by appropriate proceedings and have been disclosed in Section 5.10(i) of the Company Disclosure Letter.

(j) Within the meaning of Section 355 of the Code, neither the Company nor any Company Subsidiary was a “distributing corporation” or a “controlled corporation” in a transaction intended to be governed by Section 355 of the Code ( i ) in the two years prior to the date of this Agreement or ( ii ) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” in conjunction with the Merger.

 

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(k) Neither the Company nor any Company Subsidiary has participated, within the meaning of Treasury Regulation Section 1.6011-4(c), or has been a “material advisor” or “promoter” (as those terms are defined in Section 6111 and 6112 of the Code) in ( i ) any “reportable transaction” within the meaning of Sections 6011, 6662A and 6707A of the Code, ( ii ) any “confidential corporate tax shelter” within the meaning of Section 6111 of the Code, ( iii ) any “potentially abusive tax shelter” within the meaning of Section 6112 of the Code or ( iv ) or any “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

(l) All members of the Company’s Consolidated Group have been properly included in the tax returns of the Company’s Consolidated Group.

Section 5.11 Title to Property .

(a) Section 5.11(a) of the Company Disclosure Letter sets forth the location and description of all real property owned or leased by the Company or any of the Company Subsidiaries as of the date hereof.

(b) Each of the Company and the Company Subsidiaries ( i ) has good and valid title to all of its properties, assets and other rights that constitute personal property (other than Intellectual Property), free and clear of all Encumbrances and ( ii ) owns, has valid leasehold interests in or valid contractual rights to use, all of the assets, tangible and intangible (other than Intellectual Property), used by its business, in each case, except for Permitted Encumbrances or where the failure to have such good and valid title, own such assets, have such valid leasehold interests or have such valid contractual rights would not, individually or in the aggregate, have or reasonably be expected to have, a Company Material Adverse Effect.

(c) The Company has not pledged or mortgaged any material assets or entered into any agreement that grants or creates a security interest in any material assets, other than pursuant to the Company Credit Agreement.

Section 5.12 Insurance . Summaries of all material insurance policies maintained by the Company and the Company Subsidiaries as of the date hereof have been provided or made available