EXHIBIT 99.1
HUB INTERNATIONAL LIMITED
Information incorporated by reference into Part II, compiled as of, and
extracted from the Company's prospectus dated, June 17, 2002
RISKS RELATED TO OUR BUSINESS
WE MAY BE UNSUCCESSFUL IN IDENTIFYING AND ACQUIRING SUITABLE ACQUISITION
CANDIDATES, WHICH COULD IMPEDE OUR GROWTH AND ABILITY TO REMAIN COMPETITIVE IN
OUR INDUSTRY.
Our strategic plan includes the regular and systematic evaluation and
acquisition of insurance brokerages in new and existing markets. Since our
formation in 1998, approximately 93% of our revenue growth has been attributable
to acquisitions. However, we may not successfully identify suitable acquisition
candidates. Prospective acquisition candidates may not become available or we
may not be able to complete an acquisition once negotiations have commenced. We
compete for acquisition and expansion opportunities with entities that have
substantially greater resources than we do and these entities may be able to
outbid us for these acquisition targets. If we fail to execute our acquisition
strategy, our revenue growth is likely to suffer and we may be unable to remain
competitive.
OUR CONTINUED GROWTH IS PARTLY BASED ON OUR ABILITY TO SUCCESSFULLY INTEGRATE
ACQUIRED BROKERAGES AND OUR FAILURE TO DO SO MAY HAVE AN ADVERSE EFFECT ON OUR
REVENUE AND EXPENSES.
We may be unable to successfully integrate brokerages that we may acquire in the
future. The integration of an acquisition involves a number of factors that may
affect our operations. These factors include:
- - 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.
A failure to integrate acquired brokerages may be disruptive to our operations
and negatively impact our revenue or increase our expenses.
INSURANCE BROKERAGES THAT WE HAVE ACQUIRED MAY HAVE LIABILITIES THAT WE ARE NOT
AWARE OF AND MAY NOT BE AS PROFITABLE AS WE EXPECT THEM TO BE.
Since our formation in November 1998 through the merger of 11 insurance
brokerages, we have acquired an additional 78 brokerages. Although we conduct
due diligence in respect of the business and operations of each of the
brokerages we acquire, we may not have identified all material facts concerning
these brokerages. For example, on one occasion we discovered a brokerage's
liability for unaccrued corporate taxes only after we had completed the
acquisition of the brokerage. Unanticipated events or liabilities relating to
these brokerages could have a material adverse effect on our financial
condition. Furthermore, once we have integrated an acquired brokerage, it may
not achieve levels of revenue, profitability, or productivity comparable to our
existing locations, or otherwise perform as expected. Our failure to integrate
one or more acquired brokerages so that they achieve our performance goals may
have a material adverse effect on our results of operations and financial
condition.
IF WE FAIL TO OBTAIN ADDITIONAL FINANCING FOR ACQUISITIONS, WE MAY BE UNABLE TO
EXPAND OUR BUSINESS.
Our acquisition strategy may require us to seek additional financing. If we are
unable to obtain sufficient financing on satisfactory terms and conditions, we
may not be able to maintain or increase our market share or expand our
INTERIM REPORT JUNE 30, 2002 HUB INTERNATIONAL LIMITED 31
EXHIBIT 99.1
(CONTINUED)
business through acquisitions. Our ability to obtain additional financing will
depend upon a number of factors, many of which are beyond our control. We may
not be able to obtain additional satisfactory financing because we already have
debt outstanding and because we may not have sufficient cash flow to service or
repay our existing or additional debt. For example, as of March 31, 2002, we had
$194 million of total debt and two of our credit facilities contain covenants
that, among other things, require us to maintain certain financial ratios and
restrict our ability to incur additional debt.
WE CANNOT ACCURATELY FORECAST OUR COMMISSION REVENUE BECAUSE OUR COMMISSIONS
DEPEND ON PREMIUM RATES CHARGED BY INSURANCE COMPANIES, WHICH HISTORICALLY HAVE
VARIED AND ARE DIFFICULT TO PREDICT. ANY DECLINES IN PREMIUMS MAY ADVERSELY
IMPACT OUR PROFITABILITY.
In 2001, we derived approximately 93% of our revenue from commissions paid by
insurance companies on the sale of their insurance products to our clients. Our
revenue from commissions fluctuates with premiums charged by insurers, as
commissions typically are determined as a percentage of premiums. When premiums
decline, we experience downward pressure on our revenue and earnings.
Historically, property and casualty premiums have been cyclical in nature and
have varied widely based on market conditions. Significant reductions in premium
rates occurred during the years 1988 through 2000 as a result of expanded
underwriting capacity of property and casualty insurance companies and increased
competition. In some cases, property and casualty insurance companies lowered
commission rates. Because we cannot determine the timing and extent of premium
pricing changes, we cannot accurately forecast our commission revenue, including
whether it will significantly decline. If premiums decline or commission rates
are reduced, our revenue, earnings and cash flow could decline. In addition, 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 revenue.
INSURANCE COMPANY CONTINGENT COMMISSIONS AND VOLUME OVERRIDES ARE LESS
PREDICTABLE THAN NORMAL COMMISSIONS, WHICH IMPAIRS OUR ABILITY TO FORECAST THE
AMOUNT OF SUCH REVENUE THAT WE WILL RECEIVE AND MAY NEGATIVELY IMPACT OUR
OPERATING RESULTS.
We derive a portion of our revenue from contingent commissions and volume
overrides. The aggregate of these sources of revenue generally has accounted for
4% to 5% of our total revenue. Contingent commissions may be paid by an
insurance company based on the profit it makes on the overall volume of business
that we place with it. We generally receive these commissions in the first and
second quarters of each year. Volume overrides are paid by an insurance company
based on the volume of business that we place with it and are generally paid
over the course of the year. As a result of recent developments in the property
and casualty insurance industry, including changes in underwriting criteria due
in part to the higher numbers and dollar value of claims as compared to the
premiums collected by insurance companies, we cannot predict the payment of
these performance-based revenues as accurately as we have been able to in the
past. Further, we have no control over the process by which insurance companies
estimate their own loss reserves, which affects our ability to forecast
contingent commissions. Because these contingent commissions affect our revenue,
any decrease in their payment to us could adversely affect our results of
operations.
PROPOSED TORT REFORM LEGISLATION IN THE UNITED STATES, IF ENACTED, COULD
DECREASE DEMAND FOR LIABILITY INSURANCE, THEREBY REDUCING OUR COMMISSION
REVENUE.
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 certain policies we sell. Enactment of these or
similar provisions by Congress, or by states or countries 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 revenue.
32 HUB INTERNATIONAL LIMITED INTERIM REPORT JUNE 30, 2002
EXHIBIT 99.1
(CONTINUED)
WE HAVE ENTERED INTO PUT OPTION ARRANGEMENTS WITH FORMER SHAREHOLDERS OF OUR
ACQUIRED BROKERAGES, J.P. FLANAGAN CORPORATION AND BURNHAM INSURANCE GROUP,
INC., WHICH MAY REQUIRE US TO PAY SUBSTANTIAL AMOUNTS TO REPURCHASE OUR COMMON
SHARES FROM THESE SHAREHOLDERS. THOSE PAYMENTS WOULD REDUCE OUR CASH FLOW AND
THE FUNDS AVAILABLE TO GROW OUR BUSINESS.
In connection with our acquisitions of Flanagan and Burnham, we entered into put
option arrangements with the former shareholders of those companies whereby we
gave them the right to require us to repurchase their shares of Hub that were
issued in consideration of the acquisitions. The rights under the put
arrangements may be exercised between 2006 and 2011, and if exercised, we could
be required to buy back our common shares at C$17.00 per share at specific
exercise dates set out under the heading "Certain relationships and related
party transactions -- Put options." We may not have sufficient cash on hand on
the exercise dates to satisfy our obligations under these put arrangements and
as a consequence we may have to obtain additional financing. However, we may not
be able to incur additional debt at such time. Our inability to satisfy our
obligations under the put options may adversely affect our relationship with the
management team at Flanagan and Burnham and may result in the loss of key
management personnel from these subsidiaries and, in turn, the loss of
customers, which would adversely affect our business and financial condition. In
addition, our failure to satisfy our obligations under the put options may cause
us to breach our agreements with those shareholders.
A SUBSTANTIAL PORTION OF OUR TOTAL ASSETS ARE REPRESENTED BY GOODWILL AS A
RESULT OF OUR ACQUISITIONS AND UNDER NEW ACCOUNTING STANDARDS, WE MAY BE
REQUIRED TO WRITE DOWN THE VALUE OF OUR GOODWILL.
When we acquire a brokerage, virtually the entire purchase price for the
acquisition is allocated to goodwill and other identifiable intangible assets.
The amount of purchase price allocated to goodwill is determined by the excess
of the purchase price over the net identifiable assets paid by us to acquire the
brokerage.
On July 1, 2001, we adopted the Canadian Institute of Chartered Accountants
(CICA) Accounting Standards Board Handbook Section 1581, "Business
Combinations". These new rules require that all business combinations after June
30, 2001 be accounted for in accordance with the purchase method of accounting
and expand the definition of other identifiable intangible assets acquired in a
business combination using the purchase method.
On January 1, 2002, we adopted CICA's Section 3062, "Goodwill and Other
Intangible Assets". For all business combinations accounted for using the
purchase method prior to June 30, 2001, Section 3062 eliminates the amortization
of goodwill, requires annual impairment testing of goodwill and introduces the
concept of definite life and indefinite life intangible assets. Indefinite life
intangible assets, similar to goodwill, will no longer be amortized and will be
tested at least annually for impairment. The carrying value of our goodwill and
other indefinite life intangible assets may be adversely affected by this new
accounting standard.
THE LOSS OF MEMBERS OF OUR SENIOR MANAGEMENT OR A SIGNIFICANT NUMBER OF OUR
BROKERS COULD NEGATIVELY AFFECT OUR FINANCIAL PLANS, MARKETING AND OTHER
OBJECTIVES.
The loss of or failure to attract key personnel could significantly impede our
financial plans, growth, marketing and other objectives. Our success depends to
a substantial extent not only on the ability and experience of our senior
management but also on the individual brokers and teams that service our clients
and maintain client relationships. In the past, we have experienced short-term
disruptions to certain brokerage operations due to the early retirement of
senior members of management at those brokerages. Our operations are not
generally dependent on any one individual; however, the loss of Martin Hughes,
our Chairman and Chief Executive Officer, or Bruce Guthart, our President, U.S.
Operations, could negatively impact our acquisition strategy in the United
States due to their significant relationships and expertise in the insurance
industry.
The insurance brokerage industry has in the past experienced intense competition
for the services of leading individual brokers and brokerage teams. We believe
that our future success will depend in large part on our ability to attract and
retain additional highly skilled and qualified personnel and to expand, train
and manage our employee
INTERIM REPORT JUNE 30, 2002 HUB INTERNATIONAL LIMITED 33
EXHIBIT 99.1
(CONTINUED)
base. We may not be successful in doing so because the competition for qualified
personnel in our industry is intense. If we fail to recruit and retain top
producers, our organic growth may be adversely affected.
COMPETITION IN OUR INDUSTRY IS INTENSE, AND IF WE ARE UNABLE TO COMPETE
EFFECTIVELY, WE MAY LOSE MARKET SHARE AND OUR BUSINESS MAY BE MATERIALLY
ADVERSELY AFFECTED.
The insurance brokerage business is highly competitive and we actively compete
with other insurance brokerages for customers and insurance company markets,
many of which have existing 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 brokers and insurance companies
or clients are often local or regional in nature, this potential competitive
disadvantage is particularly pronounced. See "Business -- Competition" for a
further discussion of the level of competition in our industry.
We face competition in all markets in which we operate, based on product
breadth, innovation, quality of service and price. We compete with a number of
brokerages, such as Arthur J. Gallagher & Co., Hilb, Rogal and Hamilton Company
and Brown & Brown, Inc. in the United States, who may have greater resources
than we do, as well as with numerous Internet-based, specialist and regional
firms in the United States and Canada. If we are unable to compete effectively
against our competitors, we will suffer a loss of market share, decreased
revenue and reduced operating margins.
In addition, regulatory changes in the financial services industry in the United
States and Canada have permitted banks, securities firms and insurance companies
to affiliate, causing rapid consolidation in the insurance industry. Some
insurance companies are engaged in the direct sale of insurance, primarily to
individuals, and do not pay commissions to agents and brokers on policies they
sell directly. Increasing competition from insurance companies and from within
the financial services industry, generally, could have a negative effect on our
operations.
WE DO BUSINESS WITH CERTAIN SUBSIDIARIES OF OUR LARGEST SHAREHOLDER AND IF A
CONFLICT OF INTEREST WERE TO ARISE IT MAY NOT BE RESOLVED IN OUR FAVOR AND COULD
ADVERSELY AFFECT OUR REVENUE.
Fairfax Financial Holdings Limited owns 37% of our common shares. We do business
with certain subsidiaries of Fairfax which represented approximately 4.9% of our
revenue in 2001. We expect that this percentage will increase as a result of our
sale of Old Lyme Insurance Company of Rhode Island, Inc. and Old Lyme Insurance
Company Ltd., which together we call Old Lyme, to Fairfax, as we will continue
to do a significant amount of business with Old Lyme as described under "Certain
relationships and related party transactions." The sale of Old Lyme was
completed on May 30, 2002. If a conflict of interest were to arise between us
and Fairfax or one of its subsidiaries, we cannot assure you that this conflict
would be resolved in a manner that would favor us. In addition, if Fairfax were
to sell our common shares that it owns, it may no longer be as interested in
continuing to do business with us which could have a material adverse effect on
our revenue and expenses.
WE DEPEND ON OUR INFORMATION PROCESSING SYSTEMS. INTERRUPTION OR LOSS OF OUR
INFORMATION PROCESSING SYSTEMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
Our ability to provide administrative services depends on our capacity to store,
retrieve, process and manage significant databases and expand and upgrade
periodically our information processing capabilities. Interruption or loss of
our information processing capabilities through loss of stored data, breakdown
or malfunctioning of computer equipment and software systems, telecommunications
failure, or damage caused by fire, tornadoes, lightning, electrical power outage
or other disruption could have a material adverse effect on our business,
financial condition and results of operations. Although we have disaster
recovery procedures in place for all our hub brokerages and insurance to protect
against such contingencies, such procedures may not be effective and any
insurance or recovery procedures may not continue to be available at reasonable
prices and may not address all such losses or compensate us for the possible
loss of clients occurring during any period that we are unable to provide
services.
34 HUB INTERNATIONAL LIMITED INTERIM REPORT JUNE 30, 2002
EXHIBIT 99.1
(CONTINUED)
PRIVACY LEGISLATION MAY IMPEDE OUR ABILITY TO UTILIZE OUR CUSTOMER DATABASE AS A
MEANS TO GENERATE NEW SALES.
We intend to utilize our extensive customer databases for marketing and sales
purposes, which we believe will enhance our ability to meet our organic growth
targets. However, new privacy legislation, such as the Gramm-Leach-Bliley Act
and the Health Insurance Portability and Accountability Act of 1996 in the
United States and the Personal Information Protection and Electronic Documents
Act in Canada, as well as other regulatory changes, may restrict our ability to
utilize personal information that we have collected in our normal course of
operations to generate new sales. If we become subject to new restrictions, or
other regulatory restrictions which we are not aware of, our ability to grow our
business may be adversely affected.
THE SECURITY OF THE DATABASES THAT CONTAIN OUR CUSTOMERS' PERSONAL INFORMATION
MAY BE BREACHED WHICH COULD SUBJECT US TO LITIGATION OR ADVERSE PUBLICITY.
We depend on computer systems to store information about our customers, some of
which is private. Database privacy, identity theft and related computer and
internet issues are matters of growing public concern. We have installed privacy
protection systems and devices on our network in an attempt to prevent
unauthorized access to information in our database. However, our technology may
fail to adequately secure the private information we maintain in our databases
and protect it from theft or inadvertent leakage. In such circumstances, we may
be held liable to our customers, which could result in litigation or adverse
publicity that could have a material adverse effect on our business.
OUR CORPORATE STRUCTURE AND STRATEGY OF OPERATING THROUGH DECENTRALIZED
BROKERAGES MAY MAKE IT MORE DIFFICULT FOR US TO BECOME AWARE OF AND RESPOND TO
ADVERSE OPERATING OR FINANCIAL DEVELOPMENTS AT OUR BROKERAGES.
We depend on timely and accurate reporting of business conditions and financial
results from our brokerages to affect our business plan and determine and report
our operating results. We receive end of month reports from each of our
brokerages regarding their financial condition and operating results. If an
adverse business or financial development occurs at one or more of our
brokerages near the beginning of a month, we may not become aware of the
occurrence for several weeks which could make it more difficult for us to
effectively respond to that development. In addition, if one of our brokerages
was to report inaccurate financial information, we might not learn of these
inaccuracies for several weeks, if at all, which could adversely affect our
ability to determine and report our financial results. For example, on occasion,
inconsistent accounting treatment at a brokerage has not been detected until
preparation of our quarterly financial statements. We are investigating the
purchase of enterprise reporting software that would enable us to extract
financial and operating data from our brokerages electronically and on a real
time basis. We anticipate that such a system will be implemented in 2003.
However, such system may not be implemented within this time frame and it may
not be effective.
OUR PROFITABILITY AND LIQUIDITY MAY BE MATERIALLY ADVERSELY AFFECTED BY ERRORS
AND OMISSIONS.
We have extensive operations and are subject to claims and litigation in the
ordinary course of business resulting from alleged errors and omissions. Errors
and omissions claims can involve significant defense costs and may result in
large damage awards against us. Errors and omissions could include, for example,
our employees or sub-agents failing, whether negligently or intentionally, to
place coverage or to notify insurance companies of claims on behalf of clients,
to provide insurance companies with complete and accurate information relating
to the risks being insured or to appropriately apply funds that we hold for our
clients on a fiduciary basis. It is not always possible to prevent and detect
errors and omissions and the precautions we take may not be effective in all
cases.
INTERIM REPORT JUNE 30, 2002 HUB INTERNATIONAL LIMITED 35
EXHIBIT 99.1
(CONTINUED)
The amount of coverage limits and related deductible amounts of our errors and
omissions insurance policies are established annually based upon our assessment
of our errors and omissions exposure, loss experience and the availability and
pricing of coverage within the marketplace. While we endeavor to purchase
coverage that is appropriate to our assessment of our risk, we are unable to
predict with certainty the frequency, nature or magnitude of claims for direct
or consequential damages.
Our profitability and liquidity may be adversely affected if in the future our
insurance coverage proves to be inadequate or unavailable or there is an
increase in liabilities for which we self-insure. In addition, errors and
omissions claims may harm our reputation or divert management resources away
from operating our business.
IF WE FAIL TO COMPLY WITH REGULATORY REQUIREMENTS FOR INSURANCE BROKERAGES, WE
MAY NOT BE ABLE TO CONDUCT OUR BUSINESS.
Our business is subject to legal requirements and governmental regulatory
supervision in the jurisdictions in which we operate. These requirements are
designed to protect our clients by establishing minimum standards of conduct and
practice, particularly regarding the provision of advice and product information
as well as financial criteria.
Our activities in the United States and Canada are subject to regulation and
supervision by state and provincial authorities. Although the scope of
regulation and form of supervision by state and provincial authorities may vary
from jurisdiction to jurisdiction, insurance laws in the United States and
Canada are often complex and generally grant broad discretion to supervisory
authorities in adopting regulations and supervising regulated activities. This
supervision generally includes the licensing of insurance brokers and agents and
the regulation of the handling and investment of client funds held in a
fiduciary capacity. Our ability to conduct our business in the jurisdictions in
which we currently operate depends on our compliance with the rules and
regulations promulgated from time to time by the regulatory authorities in each
of these jurisdictions.
Our clients have the right to file complaints with the regulators about our
services, and the regulators may investigate and require us to address these
complaints. Our failure to satisfy the regulators that we are in compliance with
their requirements or the legal requirements governing our activities can result
in disciplinary action, fines, reputational damage and financial harm.
In addition, changes in legislation or regulations and actions by regulators,
including changes in administration and enforcement policies, could from time to
time require operational improvements or modifications at various locations
which could result in higher costs or hinder our ability to operate our
business. See "Business -- Government regulation."
OUR SIGNIFICANT CANADIAN OPERATIONS EXPOSE US TO EXCHANGE RATE FLUCTUATIONS, AND
OUR NET INCOME MAY SUFFER IF THE CANADIAN DOLLAR DECLINES IN VALUE.
We report our results in U.S. dollars. However, our Canadian Operations, which
accounted for 51% of our revenue in 2001 and 39.2% of our revenue for the first
quarter of 2002, earn revenue and incur expenses in Canadian dollars. The
Canadian dollar has suffered a decline in value compared to the U.S. dollar in
recent years. For example, at December 31, 1999, C$1.00 was equivalent to
$0.6925 and at December 31, 2001, C$1.00 was equivalent to only $0.6279, a
decline of more than 9%. A decline in the value of the Canadian dollar compared
to the U.S. dollar would reduce our reported revenue, which could have a
material adverse effect on our reported earnings.
36 HUB INTERNATIONAL LIMITED INTERIM REPORT JUNE 30, 2002
EXHIBIT 99.1
(CONTINUED)
RISKS RELATED TO OUR COMMON SHARES
THE PRICE OF OUR COMMON SHARES MAY FLUCTUATE SUBSTANTIALLY, WHICH COULD
NEGATIVELY AFFECT THE HOLDERS OF OUR COMMON SHARES.
The price of our common shares may fluctuate substantially due to the following
factors: (1) fluctuations in the price of the shares of the small number of
public companies in the insurance brokerage business, (2) announcements of
acquisitions as part of our growth strategy, (3) additions or departures of key
personnel, (4) announcements of legal proceedings or regulatory matters and (5)
the general volatility in the stock market. The market price of our common
shares could also fluctuate substantially if we fail to meet or exceed
securities analysts' expectations of our financial results or if there is a
change in financial estimates or securities analysts' recommendations. From the
beginning of 2000 to the end of the first quarter of 2002, the price of our
common shares on the TSX has ranged from a low of C$9.50 to a high of C$24.00.
In addition, the stock market has experienced volatility that has affected the
market prices of equity securities of many companies, and that has often been
unrelated to the operating performance of these companies. A number of other
factors, many of which are beyond our control, could also cause the market price
of our common shares to fluctuate substantially. As a result, you may not be
able to resell your shares at or above the offering price, or at all.
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON SHARES COULD RESULT IN
SECURITIES CLASS ACTION CLAIMS AGAINST US.
Significant price and value fluctuations have occurred with respect to the
securities of insurance and insurance-related companies. Our common share price
is likely to be volatile in the future. In the past, following periods of
downward volatility in the market price of a company's securities, class action
litigation has often been pursued against the respective company. If similar
litigation was pursued against us, it could result in substantial costs and a
diversion of our management's attention and resources.
OUR CONTROLLING SHAREHOLDER MAY SUBSTANTIALLY INFLUENCE CERTAIN ACTIONS
REQUIRING SHAREHOLDERS APPROVAL.
As of March 31, 2002, Fairfax owned 37% of our common shares. After giving
effect to the sales of our common shares contemplated in this offering, Fairfax
will own 29% of our common shares. Fairfax also holds $35 million of
subordinated convertible notes which it can convert at any time into our common
shares at C$17.00 per share. If Fairfax converts the notes, after giving effect
to this offering, it would hold 36% of our common shares. Under our by-laws and
articles of incorporation, Fairfax has the ability to substantially influence
certain actions requiring shareholder approval, including:
- - electing members of our board of directors;
- - adopting amendments to our articles and by-laws; and
- - approving a merger or consolidation, liquidation or sale of all or
substantially all of our assets.
Fairfax may have different interests than you have and therefore may make
decisions that are adverse to your interests.
FUTURE SALES OR THE POSSIBILITY OF FUTURE SALES OF A SUBSTANTIAL AMOUNT OF OUR
COMMON SHARES MAY DEPRESS THE PRICE OF YOUR COMMON SHARES.
Future sales of a substantial number of our common shares by us from treasury or
by one of our shareholders in the public market could adversely affect
prevailing market prices and the price of your common shares. It may also impair
our ability to raise capital through future sales of, or pay for acquisitions
using, our equity securities. Upon completion of this offering, we will have
27.7 million common shares issued and outstanding of which 15.3 million common
shares will be freely tradeable without restrictions under the Securities Act.
These numbers do not include (1) 1,270,042 common shares that may be issued upon
the exercise of options we granted on the date of this prospectus at an exercise
price of $15.67, the U.S. dollar equivalent of the closing price of our common
shares on
INTERIM REPORT JUNE 30, 2002 HUB INTERNATIONAL LIMITED 37
EXHIBIT 99.1
(CONTINUED)
the TSX on the date of this prospectus, and (2) 254,033 restricted shares and
482,745 restricted share units that we have agreed to award under our equity
incentive plan. All of the shares offered pursuant to this offering, plus any
shares sold pursuant to the exercise of the underwriters' option to purchase
additional common shares, will be freely tradeable without restriction under the
Securities Act, unless purchased by our affiliates.
Upon completion of this offering, 12.4 million shares will be restricted
securities within the meaning of Rule 144. The rules affecting the sale of these
securities are summarized under "Shares eligible for future sale."
We expect we will continue to acquire brokerages to grow our business. We intend
to pay for acquisitions using, at least in part, our common shares. In the event
any such acquisition is significant, the number of shares that we may issue may
in turn be significant. In addition, we may also grant registration rights
covering shares issued in connection with any acquisition. Any significant share
issuance by us will dilute your equity interest in our company.
WE ARE INCORPORATED IN ONTARIO, CANADA, AND, AS A RESULT, IT MAY NOT BE POSSIBLE
FOR SHAREHOLDERS TO ENFORCE CIVIL LIABILITY PROVISIONS OF THE SECURITIES LAWS OF
THE UNITED STATES.
We are organized under the laws of Ontario, Canada and some of our assets are
located outside the United States. As a result, it may not be possible for the
holders of our common shares to enforce against us in United States courts
judgments based on the civil liability provisions of the securities laws of the
United States. In addition, there is doubt as to whether the courts of Canada
would recognize or enforce judgments of United States courts obtained against us
or our directors or officers based on the civil liability provisions of the
securities laws of the United States or any state or hear actions brought in
Canada against us or those persons based on those laws.
38 HUB INTERNATIONAL LIMITED INTERIM REPORT JUNE 30, 2002