Exhibit 2.3
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "AGREEMENT") is made on July 1, 2004, by
and among HUB U.S. Holdings, Inc. ("HUB U.S."), a corporation formed under the
laws of the State of Delaware, Hub International Limited ("Hub Canada"), a
corporation formed under the laws of Ontario, Canada, TalMan, LLC ("TALMAN"), a
limited liability company formed under the laws of the State of Delaware, and
Satellite Acquisition Corporation ("SATELLITE"), a corporation formed under laws
of the State of Washington.
WHEREAS, concurrently with the entry into this Agreement, Satellite intends
to acquire all of the stock of Talbot Financial Corporation ("TFC"), a
Washington corporation;
WHEREAS, in order to induce Hub U.S. to enter into a certain subscription
agreement (the "SUBSCRIPTION AGREEMENT"), of even date herewith, by and among
Hub U.S., Satellite and the Founders, pursuant to which Hub U.S. acquired the
Class A Shares and the Preferred Shares;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. CERTAIN DEFINITIONS. The terms defined in this SECTION 1, whenever used
in this Agreement, shall have the following meanings:
1.1. "BASE EBITA" means, as determined in accordance with GAAP with respect
to each New Business, the net income or loss of the New Business for the
twelve-month period ending on the date on which TFC acquired the New Business,
as determined before taking into account any interest, taxes and amortization.
1.2. "CARRYOVER AMOUNT" means, as determined on each Exchange Date, the
excess (if any) of (a) the aggregate Exchange Amounts calculated on each of the
preceding Exchange Dates over (b) the aggregate amounts previously paid under
SECTION 2.2.
1.3. "CHANGE-IN-CONTROL DATE" means any date on which a Change-in-Control
Event occurs.
1.4. "CHANGE-IN-CONTROL EVENT" means any of the following events: (a) the
shareholders of Hub Canada or Hub U.S. approve a merger, consolidation,
recapitalization or similar transaction with respect to Hub Canada or Hub U.S.
(as the case may be), other than a merger, consolidation, recapitalization or
similar transaction in which the shareholders (as constituted immediately prior
to such merger, consolidation, recapitalization or similar transaction) of Hub
Canada or Hub U.S. (as the case may be) will hold immediately after such merger,
consolidation, recapitalization or similar transaction at least a majority of
the outstanding capital stock entitled to vote in the election of directors of
Hub Canada or Hub U.S. (as the case may be), (b) the shareholders of Hub Canada
or Hub U.S. (as the case may be) approve a plan of complete liquidation of Hub
Canada or Hub U.S. (as the case may be) or an agreement
for the sale or disposition of all or substantially all of the assets of Hub
Canada or Hub U.S. (as the case may be), (c) one or more Persons make one or
more solicited or unsolicited BONA FIDE offers to purchase or otherwise acquire
more than 50 percent of the outstanding voting securities or more than 50
percent of the outstanding non-voting securities of Hub Canada or Hub U.S. (as
the case may be), (d) the board of directors of Hub Canada or Hub U.S. (as the
case may be) shall determine to solicit one or more BONA FIDE offers for
substantially all of the assets of Hub Canada or Hub U.S. (as the case may be)
or more than 50 percent of the outstanding voting securities of or more than 50
percent of the non-voting securities of Hub Canada or Hub U.S. (as the case may
be), or (e) any foreclosure, collection, enforcement, repayment or other
settlement of any indebtedness or other obligation of Hub Canada or Hub U.S. (as
the case may be) if any Satellite Stock was pledged as collateral or otherwise
used to secure the repayment of the indebtedness or the performance of any
obligation of Hub Canada or Hub U.S. (as the case may be).
1.5. "CLASS A SHARES" means, as determined from time to time, the shares of
Class A common stock issued by Satellite and owned by Hub U.S., as adjusted to
reflect any recapitalization, reclassification, stock split, stock dividend or
other similar transaction.
1.6. "CLASS B SHARES" means, as determined from time to time, the shares of
Class B common stock issued by Satellite and owned by TalMan, as adjusted to
reflect any recapitalization, reclassification, stock split, stock dividend or
other similar transaction.
1.7. "CLOSING DATE" means the date on which Satellite acquired or will
acquire all of the stock of TFC from Safeco Corporation pursuant to the Stock
Purchase Agreement.
1.8. "EBITA" means, as determined on each Exchange Date, the net income or
net loss of TFC and its subsidiaries for the last Fiscal Year ending immediately
prior to the Exchange Date, as determined on a stand-alone, consolidated basis
in accordance with GAAP with the following adjustments:
(a) The following items shall not be taken into account: (i) any New
Business EBITA, (ii) any general and administrative expenses of Hub Canada, Hub
U.S. and any Hub Affiliate (other than any such expenses incurred directly by
TFC or any of its direct or indirect subsidiaries), (iii) any costs relating to
the purchase of errors and omissions insurance for claims against TFC arising
prior to the Closing Date, (iv) any interest, taxes and amortization (other than
any interest, taxes or amortization described in either clauses (i) or (ii) of
this SECTION 1.8(A)) and (v) any other items that the parties mutually agree.
(b) The excess (if any) of the amount of New Business EBITA for a New
Business over the amount of Base EBITA for such New Business shall be added to
such net income or loss.
(c) The EBITA Loss shall reduce any such net income or increase any
such net loss.
(d) Any item for which any Buyer Indemnitee (as defined in the Stock
Purchase Agreement) would be entitled to indemnification under SECTION 8.2 of
the Stock Purchase Agreement (as determined without regard to the application of
SECTION 8.4 of the Stock Purchase Agreement) shall, for the first Fiscal Year
ending prior to the first Exchange Date (regardless of when such item is
actually identified or incurred), reduce any such net income or increase any
such net loss, if and only to the extent that such item is not otherwise taken
into account as a current expense for such Fiscal Year under GAAP and is not
covered by insurance or other reimbursement arrangement.
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(e) Any item attributable to or derived from the breach of any
representation, warranty or covenant set forth in the Subscription Agreement
shall, for the first Fiscal Year ending prior to the first Exchange Date
(regardless of when such item is actually identified or incurred), reduce any
such net income or increase any such net loss, if and only to the extent that
such item is not otherwise taken into account as a current expense for such
Fiscal Year under GAAP and is not covered by insurance or other reimbursed
arrangement.
(f) For purposes of SECTION 1.8(D) and SECTION 1.8(E), the following
items shall be determined without regard to any terms based on knowledge,
materiality, deductible or cap or other similar limitation set forth in the
Stock Purchase Agreement or the Subscription Agreement:
(i) whether there is, has been or will be breach of any
representation, warranty or covenant set forth in the Subscription Agreement or
the Subscription Agreement,
(ii) the amount of any item for which any Buyer Indemnitee is or
would be entitled to indemnification under SECTION 8.2 (or any successor
provision thereto) of the Stock Purchase Agreement (as determined without regard
to the application of SECTION 8.4 (or any successor provision thereto) of the
Stock Purchase Agreement), and
(iii) the amount of any item attributable to or derived from the
breach of any representation, warranty or covenant set forth in the Subscription
Agreement.
1.9. "EARN-OUT" means an obligation from Hub U.S. (or its successor) to
TalMan pursuant to which Hub U.S. shall pay the same amounts and on the same
dates that Hub U.S. (or its successor) would have paid to TalMan under SECTION
2.2(A)(I) as if there had been no purchase of the Class B Shares under SECTION
2.2(B) and Hub U.S. had always exercised its option under SECTION 2.2(A)(I).
1.10. "EBITA LOSS" means, as determined on each Exchange Date, the lesser
of (a) the cumulative, aggregate EBITA determined with respect to all prior
Fiscal Years, provided that such aggregate, cumulative EBITA shall be reduced
below zero by taking into account only those items described in SECTION 1.9(D)
or SECTION 1.9(E), and (b) zero.
1.11. "EBITA MULTIPLE" means (a) if the Stock Purchase Price is less than
or equal to $82.5 million, 7.5, (b) if the Stock Purchase Price is greater than
or equal to $92.5 million, 7.0, or (c) if the Stock Purchase Price is more than
$82.5 million but less than 92.5 million, 7.5 minus the product of (i) 0.5 and
(ii) the percentage determined by dividing (A) the excess of the Stock Purchase
Price over $82.5 million by (B) $10 million.
1.12. "ENTERPRISE VALUE" means, as determined on each Exchange Date, the
greater of the (a) product of (i) EBITA and (ii) the EBITA Multiple or (b) zero.
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1.13. "EXCHANGE AMOUNT" means, as determined on each Exchange Date, an
amount equal to the Exchange Price multiplied by the Exchange Number.
1.14. "EXCHANGE DATE" means (a) with respect to Hub U.S.'s option to
purchase each of (i) September 1, 2005, (ii) March 31, 2006, (iii) March 31,
2007 and (iv) any Change-in-Control Date and (b) with respect to TalMan's option
to sell each of (i) December 31, 2005, (ii) September 30, 2006, (iii) September
30, 2007. In the event that any such date is not a business day, then the
Exchange Date shall be the next succeeding business day.
1.15. "EXCHANGE NUMBER" means (a) with respect to any Exchange Date (other
than as set forth in SECTION 1.14(A)(IV)), one-third of the total number of
Class B Shares issued to and owned by TalMan on the Closing Date, as adjusted to
reflect any recapitalization, reclassification, stock split, stock dividend or
other similar transaction and (b) with respect to any Exchange Date described in
SECTION 1.14(A)(IV), the product of (i) the product of the number of Exchange
Dates that would otherwise occur (but for SECTION 2.2(B)) on or after the
Change-in-Control Date and (ii) one-third of the total number of Class B Shares
issued to and owned by TalMan on the Closing Date, as adjusted to reflect any
recapitalization, reclassification, stock split, stock dividend or other similar
transaction.
1.16. "EXCHANGE PRICE" means, as determined on each Exchange Date, the per
share price equal to the Enterprise Value divided by the total number of shares
of Satellite Common Stock.
1.17. "EXCHANGE STATEMENT" has the meaning set forth in SECTION 2.2.(D).
1.18. "FISCAL YEAR" means the fiscal year ending December 31.
1.19. "FOUNDER" means each of Randall Talbot, Roy Taylor and David
Weymouth.
1.20. "GAAP" means United States generally accepted accounting principles,
consistently applied in accordance with past practices.
1.21. "HUB AFFILIATE" means any Person directly or indirectly controlling,
controlled by or under common control with Hub Canada.
1.22. "HUB CANADA" has the meaning set forth in the preamble to this
Agreement.
1.23. "HUB U.S." has the meaning set forth in the preamble to this
Agreement.
1.24. "HUB COMMON STOCK" means the common stock of Hub Canada as
constituted on the date hereof and any stock into which any such common stock
shall have been changed or any stock resulting from any reclassification of any
such common stock.
1.25. "INCREMENTAL AMOUNT" means, as determined on an Exchange Date, the
excess (if any) of (a) the Enterprise Value as determined on the Exchange Date
over (b) the Stock Purchase Price.
1.26. "INDEPENDENT ACCOUNTANTS" has the meaning set forth in SECTION
2.2.(D).
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1.27. "LLC INTEREST" means any direct or indirect membership, distribution,
pecuniary, economic or other interest or right in or relating to TalMan,
including, but not limited to, any right to receive any distribution or payment
from TalMan, voting rights, or management rights.
1.28. "LLC MEMBER" means any Person who or that is or has been admitted as
member of Talman pursuant to applicable law and the limited liability company
agreement or any Person (whether or not admitted as a member) who or that owns a
membership interest in Talman.
1.29. "NEW BUSINESS" means any active business operations related to TFC's
core business operations; PROVIDED THAT, (a) prior to the acquisition of such
active business operations, one or more of the Founders identified, in writing,
such active business operations for acquisition by TFC, (b) prior to the
acquisition of such active business operations, the board of directors of Hub
U.S. (or an officer designated by the board of directors of Hub U.S.) approved,
in writing, such acquisition and (c) such active business operations were
acquired after the Closing Date by TFC from an unrelated third party.
1.30. "NEW BUSINESS EBITA" means, as determined on each Exchange Date in
accordance with GAAP with respect to each New Business on a stand-alone basis,
net income or loss for the last Fiscal Year ending prior to the Exchange Date
for the New Business (on a stand-alone basis) before taking into account (a) any
interest, taxes and amortization and (b) any allocation or apportionment of
general and administrative expenses of Hub Canada, Hub U.S. and any Hub
Affiliate (other than TFC and its subsidiaries).
1.31. "PERMITTED TRANSFER" means (a) any Transfer to Hub Canada, Hub U.S.
or any Hub Affiliate, (b) any Transfer by Hub Canada, Hub U.S. or any Hub
Affiliate for the purpose of providing security or collateral for, avoiding any
default with respect to, or obtaining, incurring or maintaining any present or
future indebtedness of Hub Canada, Hub U.S. or any Hub Affiliate, (c) any
Transfer resulting from the repayment, foreclosure or other settlement of any
present or future indebtedness of Hub Canada, Hub U.S. or any Hub Affiliate or
(d) any Transfer resulting from or attributable to a Change-in-Control Event.
1.32. "PERSON" means an individual, a corporation, a limited liability
company, an association, a joint-stock company, a business trust or other
similar organization, a partnership, a joint venture, a trust, an unincorporated
organization or a government or any agency, instrumentality or political
subdivision thereof.
1.33. "PREFERRED SHARES" means, as determined from time to time, the shares
of Series A preferred stock issued by Satellite and owned by Hub U.S., as
adjusted to reflect any recapitalization, reclassification, stock split, stock
dividend or other similar transaction.
1.34. "REGULAR ACCOUNTANTS" means, as determined from time-to-time, the
accountants engaged by Hub Canada or Hub U.S. (as the case may be) for the
purposes of preparing the regular audited or unaudited financial statements for
Hub Canada or Hub U.S. (as the case may be).
1.35. "SATELLITE" has the meaning set forth in the preamble to this
Agreement.
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1.36. "SATELLITE COMMON STOCK" means any issued and outstanding Class A
common stock and Class B common stock of Satellite, as adjusted to reflect any
recapitalization, reclassification, stock split, stock dividend or other similar
transaction.
1.37. "SATELLITE STOCK" means the issued and outstanding capital stock
(including, but not limited to, the Class A Shares, the Class B Shares and the
Preferred Shares), regardless of class, series or other designation.
1.38. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations promulgated thereunder,
all as amended, modified or supplemented from time to time.
1.39. "STOCK PURCHASE AGREEMENT" means the agreement between Satellite and
Safeco pursuant to which the Satellite acquired or will acquire all of the
outstanding stock of TFC for a purchase price (as set forth in the Stock
Purchase Agreement) not to exceed $90 million and on terms and conditions
acceptable to Hub U.S. in its sole discretion.
1.40. "STOCK PURCHASE PRICE" means, as determined from time to time, the
sum of (a) total amount paid or to be paid by Satellite under the Stock Purchase
Agreement and (b) any amounts paid to the Founders by Satellite, Hub U.S., Hub
Canada or any Hub Affiliate in connection with the Stock Purchase Agreement
(including, but not limited to, any closing or similar bonus to Mr. Randall
Talbot or any other Person), minus (c) the excess (if any) of Tangible Net Worth
(as defined in the Stock Purchase Agreement) over $5 million or plus (d) the
excess (if any) of $5 million over Tangible Net Worth (as defined in the Stock
Purchase Agreement).
1.41. "SUBSCRIPTION AGREEMENT" has the meaning set forth in the preamble to
this Agreement.
1.42. "TALMAN" has the meaning set forth in the preamble to this Agreement.
1.43. "TFC" has the meaning set forth in the preamble to this Agreement.
1.44. "TRANSFER" means any action or intended action to sell, exchange,
barter, assign, transfer, give, or otherwise voluntarily or involuntarily
dispose of, or any action or intended action to pledge, escrow, hypothecate,
mortgage, grant or create a security interest in or lien upon, or otherwise
voluntarily or involuntarily encumber such stock (or any portion thereof or
interest therein).
2. TRANSFERS OF SATELLITE STOCK AND THE HUB COMMON STOCK.
2.1. GENERAL RESTRICTIONS ON TRANSFER.
(a) Except as set forth in SECTION 2.1(D) or SECTION 2.2, Satellite
shall not issue any shares of Satellite Stock or permit the Transfer of any
shares of Satellite Stock or register, recognize or otherwise acknowledge the
Transfer of any shares of Satellite Stock.
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(b) Except as set forth in SECTION 2.1(D) or SECTION 2.2, neither Hub
U.S., nor TalMan shall engage or otherwise participate in the Transfer of any
shares of Satellite Stock or register, recognize or otherwise acknowledge the
Transfer of any shares of Satellite Stock.
(c) Except (i) in connection with a Transfer of LLC Interests as a
result of (A) the death or disability of an LLC Member or (B) the termination of
an LLC Member as a full-time employee of TFC or (ii) except as specified in the
next sentence, TalMan shall not engage or otherwise participate in the Transfer
or issue of any LLC Interest or register, recognize or otherwise acknowledge the
Transfer or issue of any LLC Interest. Subject to the reasonable consent of Hub
U.S., TalMan may issue LLC Interests to any Person that TalMan may identify as
reasonably necessary to the successful operation of TFC's business; PROVIDED,
HOWEVER, THAT TalMan shall not be permitted to issue, without the consent of Hub
U.S., any LLC Interest under this sentence if, in the opinion of the Regular
Accountants for Hub U.S. or Hub Canada, the issue of the LLC Interest or any
term attached to the LLC Interest would or will (but for the passage of time)
result in a compensation or other charge in accordance with GAAP against the
earnings of Hub Canada, Hub U.S. or any Hub Affiliate.
(d) Hub Canada, Hub U.S. and all Hub Affiliates shall be permitted to
make a Transfer of Satellite Stock; PROVIDED THAT the Transfer is a Permitted
Transfer.
(e) If Hub delivers any shares of Hub Common Stock under SECTION
2.2.(C) with respect to any Class B Shares purchased on or with respect to a
date specified in SECTION 1.14(B) or SECTION 1.14(C), then TalMan shall not
engage or otherwise participate in the Transfer of more than 25 percent of any
such shares of Hub Common Stock during the two-year period beginning on the date
on which such shares of Hub Common Stock were issued under SECTION 2.2.(C) with
respect to such Class B Shares. The preceding sentence shall not apply to any
Transfer of Hub Common Stock from TalMan to any LLC Member in accordance with
the LLC Interest of such LLC Member and applicable securities law; PROVIDED
THAT, prior to any such Transfer, such LLC Member executes an agreement
substantially in the form of EXHIBIT A hereto. Hub U.S. may require TalMan to
take such action as may be reasonably necessary to ensure compliance with this
SECTION 2.1(E), including but not limited to, depositing any or all of the Hub
Common Stock into escrow. Any such escrow agreement shall be subject to the
reasonable review and consent of TalMan. This SECTION 2.1(E) shall terminate
upon the occurrence of a Change-in Control Event (other than as set forth in
SECTION 1.4(E)).
(f) Except as otherwise provided in this Agreement, any purported
Transfer of any Satellite Stock, Hub Common Stock or any LLC Interest shall be
null and void AB INITIO and of no force or effect and shall not bind any of the
parties to this Agreement (including, but not limited to, Hub Canada).
2.2. EXCHANGE OF CLASS B SHARES.
(a) (i) On each Exchange Date (other than an Exchange Date arising as
a result of a Change-in-Control Event) or, if later, the date on which the
Independent Accountants finally determine (with respect to such Exchange Date)
the Exchange Amount, the Incremental Amount (if any), and the Carryover Amount
(if any), Hub U.S. (or its designee) shall have the option to purchase from
TalMan and, if Hub U.S. exercises its option, TalMan shall sell to Hub U.S. (or
its designee) a number of Class B Shares equal to the Exchange Number (if any),
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provided that Hub U.S. provides notice of such election to TalMan on or before
the applicable Exchange Date. As consideration for the sale and purchase of
Class B Shares pursuant to the preceding sentence, Hub U.S. (or it designee)
shall pay to TalMan, on the Exchange Date or, if later, the date on which the
Independent Accountants finally determine (with respect to such Exchange Date)
the Exchange Amount, the Incremental Amount (if any), and the Carryover Amount
(if any), the lesser of (A) the Incremental Amount or (B) the sum of the
Exchange Amount and the Carryover Amount.
(ii) In the event that Hub U.S. does not exercise its option
under SECTION 2.2(a)(i), to purchase from TalMan Class B Shares on an Exchange
Date (as set forth in SECTION 1.16(A)) then TalMan shall have the option to sell
to Hub U.S. on the immediately succeeding Exchange Date and, if TalMan exercises
its option, Hub U.S. (or its designee) shall purchase from TalMan the number of
Class B Shares that Hub U.S. did not elect to purchase on the immediately
preceding Exchange Date (as set forth in SECTION 1.16(A)), PROVIDED THAT TalMan
provides notice of such election to Hub U.S. at least 30 days prior to such
applicable Exchange Date. As consideration for the sale and purchase of Class B
Shares pursuant to the preceding sentence, Hub U.S. shall pay to TalMan on the
Exchange Date or, if later, the date on which the Independent Accountants
finally determine (with respect to such Exchange Date) the Exchange Amount, the
Incremental Amount (if any), and the Carryover Amount (if any), the amount of
the consideration that Hub U.S. would have been obligated to pay to TalMan on
the immediately preceding Exchange Date (as set forth in SECTION 1.14(A)) if Hub
U.S. had exercised its option to purchase from TalMan all of the Class B Shares
under SECTION 2.2(A)(I) on the Exchange Date (as set forth in SECTION 1.14(A))
as determined under SECTION 2.2(A)(II).
(b) If an Exchange Date arising as a result of a Change-in-Control
Event occurs or such Exchange Date appears likely to occur, then, at the option
of Hub U.S. and upon three days written notice to TalMan, Hub U.S. shall
purchase all of the Class B Shares from TalMan and TalMan shall sell to Hub U.S.
(or its designee) all of the Class B Shares. As consideration for the sale and
purchase of Class B Shares pursuant to the preceding sentence, Hub shall pay to
TalMan, on the third business day after an Exchange Date either (i) the
Earn-Out, or (ii) if the Incremental Amount is greater than the sum of the
Exchange Amount and the Carryover Amount, at Hub's option, either (A) the
Earn-Out or (B) the sum of the Exchange Amount and the Carryover Amount.
(c) At the option of Hub U.S. (or its designee), Hub U.S. may pay any
amount due under SECTION 2.2(A) or SECTION 2.2(B) (including any subsequent
adjustment thereto in accordance with SECTION 2.2(E)) in cash, in shares of Hub
Common Stock with an aggregate value equal to the Exchange Amount, or any
combination of the foregoing as Hub U.S. may, in its sole discretion, determine.
For purposes of the preceding sentence, the per share value of the Hub Common
Stock shall be determined on the basis of the average of the closing prices of
the Hub Common Stock on the New York Stock Exchange on each trading day in the
one hundred eighty-three day period ending on the date on which payment is due
under SECTION 2.2(A), SECTION 2.2(B) or SECTION 2.2(E). During any period during
which the Hub Common Stock is not listed on the New York Stock Exchange or The
NASDAQ Stock Market or in the case of any payment to be made in respect of an
Earn-Out following a Change-in-Control Event, no Hub Common Stock may be issued
under this SECTION 2.2(C), and any amount under SECTION 2.2(A) or SECTION 2.2(B)
(including any subsequent adjustment thereto in accordance with SECTION 2.2(E))
due during such period or with respect to such Earn-Out shall be paid entirely
in cash.
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(d) At least 45 days prior to each Exchange Date (other than an
Exchange Date arising as a result of a Change-in-Control Event) or within 45
days after an Exchange Date arising as a result of a Change-in-Control Date, Hub
U.S. shall prepare and deliver to TalMan a statement of the Exchange Amount, the
Incremental Amount (if any) and the Carryover Amount (if any) and schedules
reasonably sufficient to permit TalMan to verify independently the calculation
of the Exchange Amount and each material component of each of the foregoing
items (collectively, the "EXCHANGE STATEMENT"). If within 10 days following
delivery of the Exchange Statement, TalMan does not give Hub U.S. written notice
of TalMan's objection to the Exchange Statement (which notice with reasonable
specificity shall state the basis for TalMan's objection), then the Exchange
Amount, the Incremental Amount (if any) and the Carryover Amount (if any) set
forth in the Exchange Statement shall be binding and conclusive on all parties
hereto. If TalMan duly gives Hub U.S. such notice of objection, and if Hub U.S.
and TalMan fail to resolve the issues outstanding with respect to the Exchange
Statement within 5 days of receipt of notice of such objection, then Hub U.S.
and TalMan shall submit the issues remaining in dispute to Ernst & Young (the
"INDEPENDENT ACCOUNTANTS") for resolution. The Independent Accountants'
determination of the Exchange Amount, the Incremental Amount (if any) and the
Carryover Amount (if any) shall be final, binding and conclusive on all parties
hereto. Hub U.S. and TalMan shall each bear 50 percent of the fees and costs of
the Independent Accountants for such determination.
(e) If the Independent Accountants determine that, in the case of an
Exchange Date arising as a result of a Change-in-Control Event, the amount
originally paid pursuant to SECTION 2.2(B) was incorrect, then, as the case may
be, Hub U.S. shall immediately make an additional payment equal to any shortfall
in the amount due under SECTION 2.2(B) (as re-determined by the Independent
Accountants) to TalMan or TalMan shall immediately refund (in the same Hub
Common Stock and cash proportions as when originally paid) any excess payment
(as re-determined by the Independent Accountants) under SECTION 2.2(B) to Hub
U.S. As a condition of payment under the preceding sentence, TalMan shall
present to Hub a revised Exchange Statement or revised Exchange Statements,
reflecting the items or events giving rise to the recalculation, and such
revised Exchange Statement or Exchange Statements shall become final, conclusive
and binding in accordance with the procedures set forth in SECTION 2.2(D).
Payment under this SECTION 2.2(E) shall be due within 10 days following the date
on which the Exchange Statement or Exchange Statements become final, conclusive
and binding under SECTION 2.2(D).
(f) If, after the payment of any amount under this SECTION 2.2, there
is an adjustment to the Stock Purchase Price, an adjustment under SECTION 1.9(D)
or any other item or event (including, but not limited to, the receipt of
insurance proceeds or similar reimbursement) that results in the recalculation
of the amount previously paid under this SECTION 2.2 and, as a result, the
previous amount paid under this SECTION 2.2 exceeds the amount that would have
been paid under this SECTION 2.2 had such item or event been properly taken into
account at the time of the previous payment, then TalMan and the Founders shall,
jointly and severally, pay immediately to Hub, at TalMan and each Founder's
election, (i) cash in amount equal to the excess, (ii) a number of shares of Hub
Common Stock (valued at the initial per share value under SECTION 2.2(C) as of
the original Exchange Date) with a value equal to the excess, or (iii) any
combination of the foregoing in an amount equal to the excess. As a condition of
payment under the preceding sentence, Hub shall present to TalMan a revised
Exchange Statement or revised Exchange Statements, reflecting the items or
events giving rise to the recalculation, and such
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revised Exchange Statement or Exchange Statements shall become final, conclusive
and binding in accordance with the procedures set forth in SECTION 2.2(D).
Payment under this SECTION 2.2(F) shall be due within 10 days following the date
on which the Exchange Statement or Exchange Statements become final, conclusive
and binding under SECTION 2.2(D). At the option of Hub, the payment obligation
under the preceding sentence may be satisfied, in whole or in part, by
withholding from or reducing any amount otherwise due under SECTION 2.2.
(g) If, after the payment of any amount under this SECTION 2.2, there
is an adjustment to the Stock Purchase Price, an adjustment under SECTION 1.9(D)
or any other item or event (including, but not limited to, the receipt of
insurance proceeds or similar reimbursement) that results in the recalculation
of the amount previously paid under this SECTION 2.2 and, as a result, the
previous amount paid under this SECTION 2.2 is less than the amount that would
have been paid under this SECTION 2.2 had such item or event been properly taken
into account at the time of the previous payment, then Hub U.S. (or its
designee) shall immediately pay to TalMan, at Hub's election, (i) cash in amount
equal to the shortfall, (ii) a number of shares of Hub Common Stock (valued at
the initial per share value under SECTION 2.2(C) as of the original Exchange
Date) with a value equal to the shortfall or (iii) any combination of the
foregoing in an amount equal to the shortfall. As a condition of payment under
the preceding sentence, Hub shall present a revised Exchange Statement or
revised Exchange Statements, reflecting the items or events giving rise to the
recalculation, and such revised Exchange Statement or Exchange Statements shall
become final, conclusive and binding in accordance with the procedures set forth
in SECTION 2.2(D). Payment under this SECTION 2.2(G) shall be due within 10 days
following the date on which the Exchange Statement or Exchange Statements become
final, conclusive and binding under SECTION 2.2(D).
3. BOARD OF DIRECTORS.
3.1. At all times, Satellite's board of directors shall consist of five
directors. Hub U.S. shall have the right to designate four directors and TalMan
shall have the right to appoint one director. Subject to SECTION 3.3, the
parties acknowledge that, for as long as he is willing and able to serve, Mr.
Randall Talbot shall be TalMan's designee for Satellite's board of directors and
that, during his tenure as director, Mr. Randall Talbot shall be the chairman of
Satellite's board of directors.
3.2. TalMan shall be entitled to designate one observer to the board of
directors of Hub Canada, which initial designee shall be Mr. Randall Talbot for
so long as he is willing and able to serve. If, prior to the fifth anniversary
of the Closing Date, an incumbent director of the board of directors of Hub
Canada is unwilling or unable to continue to serve as a director of Hub Canada,
Hub Canada shall use its best efforts, subject to applicable law, shareholder
approval, the rules of any stock exchange on which shares of stock of Hub Canada
are or will be listed or traded and best financial and corporate governance
practices, to cause Mr. Randall Talbot to be nominated to fill the vacancy,
PROVIDED THAT either (a) as determined by Hub Canada in good faith, Mr. Randall
Talbot shall be deemed to be an "independent director" within the meaning of the
applicable rules of the New York Stock Exchange, the Toronto Stock Exchange, and
the securities regulatory authorities of each of the provinces and territories
of Canada or (b) the board of directors of Hub Canada would continue to be
composed of a majority of "independent directors" within the meaning of the
applicable rules of the New York Stock Exchange, the Toronto Stock Exchange, and
the securities regulatory authorities of each of the provinces and territories
of Canada after such appointment. This SECTION 3.2 shall terminate if a
Change-in-Control Event (other than a Change-in-Control Event described in
SECTION 1.4(E) and as determined by substituting "TFC" or "Satellite" (as the
case may be) for "Hub Canada or Hub U.S. (as the case may be)" in SECTION 1.4)
occurs with respect to either Satellite or TFC.
10
3.3. If a Change-in-Control Event occurs with respect to either Satellite
or TFC, then Mr. Randall Talbot, upon the request of Hub U.S. shall immediately
resign as a director of Satellite, TFC and, upon the request of Hub Canada, as a
director or board observer of Hub Canada.
4. MEMBERSHIP RESTRICTIONS. Notwithstanding any other provision of this
Agreement, TalMan shall neither admit any Person as a TalMan member, issue an
LLC Interest to any Person, nor permit the Transfer of any LLC Interest to any
Person, unless, prior to any of the foregoing actions, such Person agrees to be
bound by and becomes a signatory to this Agreement and Hub U.S. consents to such
Transfer (which consent shall not be unreasonably withheld). TalMan shall
incorporate into its limited liability company agreement and any other agreement
by or among the LLC Members such provisions as are necessary to implement the
terms of this Agreement. In addition to restrictions set forth in SECTION
2.1(C), TalMan shall take no action that, in the opinion of the Regular
Accountants for Hub U.S. or Hub Canada, would or will (but for the passage of
time) result in a compensation or other charge in accordance with GAAP against
the earnings of Hub Canada, Hub U.S. or any Hub Affiliate.
(a) At all times from and after the date hereof and during the term of
this Agreement, the limited liability agreement for TalMan shall contain
provisions, reasonably satisfactory to Hub, that require the forfeiture of a
Founder's complete interest in TalMan in the event that TFC terminates the
Founder as an employee or as a consultant of TFC for Cause (as determined in the
employment or consulting agreement relating to the Founder) or the Founder
terminates his employment or consulting agreement other than for Good Reason (as
determined in the employment or consulting agreement relating to the Founder).
(b) In the event that any Founder ceases to be a Manager of TalMan for
any reason, such vacancy on the Board of Managers of TalMan shall be filled by a
designee reasonably acceptable to Hub U.S. and duly elected in accordance with
the Amended and Restated Operating Agreement, as it may be amended from time to
time, for TalMan.
5. LEGENDS. So long as any shares of Satellite Stock are subject to the
provisions of this Agreement, all certificates or instruments representing any
such shares of Satellite Stock shall bear a legend in substantially the form set
forth in the Subscription Agreement.
6. TERMINATION OF THIS AGREEMENT. Except for SECTION 2.1(D), SECTION
2.1(E), SECTION 2.1(F), SECTION 3.2, SECTION 3.3, and SECTION 4, this Agreement
shall terminate on the date on which all of the Class B Shares are exchanged
pursuant to SECTION 2.2.
7. NOTICES. All communications provided for herein shall be in writing and
sent (a) by facsimile if the sender on the same day sends a confirming copy of
such communication by a recognized overnight delivery service (charges prepaid),
(b) by a recognized overnight delivery service (charges prepaid), or (c) by
messenger. The respective addresses of the parties hereto for the purposes of
this Agreement are set forth on EXHIBIT B attached hereto. Any party may change
its address (or facsimile number) by notice to each of the other parties in
accordance with this SECTION 7. The date of giving or making of any such
communication shall be, in the case of clauses (a) and (c), the date of the
receipt if received during regular business hours; otherwise or in the case of
clause (b), the business day next following the date such communication is sent.
11
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
heirs, executors, successors and permitted assigns, who, upon compliance with
the applicable provisions hereof, shall, without further action, be (a) entitled
to enforce the applicable provisions and enjoy the applicable benefits hereof
and (b) bound by the terms and conditions hereof.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment, or waiver of any provision of this Agreement will be
effective unless such modification, amendment, or waiver is approved in writing
by Satellite, TalMan, the holders of at least a majority of the Class B Shares,
and Hub U.S.; PROVIDED THAT execution of a joinder hereto shall not be
considered a modification, amendment or waiver of any of the provisions of this
Agreement. The failure of any party to enforce any of the provisions of this
Agreement will in no way be construed as a waiver of such provisions and will
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
10. REMEDIES. Any Person having rights under any provision of this
Agreement shall be entitled to enforce his rights under this Agreement
specifically to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in his favor; PROVIDED THAT
the parties hereto stipulate that the remedies at law of any party hereto in the
event of any default or threatened default by any other party hereto in the
performance of or compliance with the terms hereof are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced (without posting a bond or other security) by a decree for
the specific performance thereof, whether by an injunction against violation
thereof or otherwise.
11. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Agreement shall
be governed by and construed in accordance with the domestic laws of the State
of Washington without giving effect to any choice or conflict of law provision
or rule (whether of the State of Washington or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Washington. Each party hereto submits to the jurisdiction of any state or
federal court sitting in the State of Washington, in any action or proceeding
arising out of or relating to this Agreement and agrees that all claims in
respect of the action or proceeding may be heard and determined in any such
court. Each party also agrees not to bring any action or proceeding arising out
of or relating to this Agreement in any other court. Each party hereto waives
any defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that might be required
of any other party with respect thereto. Any party may make service on any other
party by sending or delivering a copy of the process to the party to be served
at the address and in the manner provided for the giving of notices in SECTION 7
above. Nothing in this SECTION 11, however, shall affect the right of any party
to bring any action or proceeding arising out of or relating to this Agreement
in any other court or to serve legal process in any other manner permitted by
law or at equity. Each party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity. EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT,
ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTY IN RESPECT OF
ITS, HIS OR HER OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12
12. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision had never been contained herein.
13. REPORTING. The parties hereto agree not to treat any portion of the
Class A Shares owned directly or indirectly by the LLC Members or TalMan
immediately after the acquisition of TFC by Satellite as received in connection
with the performance of services for income tax purposes unless otherwise
required by tax authority.
14. ENTIRE AGREEMENT. This Agreement, those documents expressly referenced
by this Agreement, and the any other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements, or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
15. COUNTERPARTS. This Agreement may be executed in separate counterparts
each of which will be an original and all of which taken together shall
constitute one and the same agreement.
16. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
[The remainder of this page is left blank intentionally.]
13
IN WITNESS WHEREOF, the parties hereto have executed this Shareholder
Agreement on the day and year first above written.
SATELLITE ACQUISITION CORP.
By: /s/ RANDALL TALBOT
- ------------------------------------
Name:
Title:
HUB U.S. HOLDINGS, INC. HUB INTERNATIONAL LIMITED
By: /s/ W. KIRK JAMES By: /s/ W. KIRK JAMES
- ------------------------------------ ------------------------------------
Name: Name:
Title: Title:
TALMAN LLC:
By: /s/ RANDALL TALBOT
- ------------------------------------
Randall Talbot, Manager
EXHIBIT A - FORM OF LETTER AGREEMENT
[LETTERHEAD OF TALMAN LLC]
[DATE]
[ADDRESS OF LLC MEMBER]
Dear [NAME OF LLC MEMBER]
Pursuant to Section 9.6 of the Amended and Restated Operating
Agreement, as it may be amended from time to time (the "LLC Agreement"), for
TalMan LLC (the "COMPANY"), you are required to execute this letter agreement as
condition precedent to your receipt (as a result of any liquidating or
non-liquidating distribution pursuant to the LLC Agreement or otherwise) of any
common stock (the "COMMON STOCK") of Hub International Limited ("Hub"). Upon
your execution of this letter agreement and the Company's receipt thereof, the
Company shall distribute to you [NUMBER] of shares of Common Stock (the
"DISTRIBUTED SHARES"). You shall not be entitled to receive any of the
Distributed Shares unless and until you execute this letter agreement.
Accordingly, you therefore agree to the following:
1. For purposes of this letter agreement, the following definitions shall
apply:
1.1. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations promulgated thereunder,
all as amended, modified or supplemented from time to time.
1.2. "TRANSFER" means any action or intended action to sell, exchange,
barter, assign, transfer, give, or otherwise voluntarily or involuntarily
dispose of, or any action or intended action to pledge, escrow, hypothecate,
mortgage, grant or create a security interest in or lien upon, or otherwise
voluntarily or involuntarily encumber any of the Distributed Shares (or any
portion thereof or interest therein).
2. You shall not engage or otherwise participate in the Transfer of more
than 25 percent of the Distributed Shares during the two-year period beginning
on [DATE THAT LLC RECEIVED THE DISTRIBUTED SHARES FROM HUB].
3. Each certificate representing the Distributed Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
QUALIFIED FOR DISTRIBUTION TO THE PUBLIC IN CANADA UNDER THE SECURITIES
LAWS OF THE PROVINCES OR TERRITORIES OF CANADA. THE HOLDER THEREOF, BY
PURCHASING SUCH SHARES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SHARES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY: (A)
INSIDE THE UNITED STATES PURSUANT TO THE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF
APPLICABLE, OR PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND (B) IF OUTSIDE THE UNITED STATES, IN ACCORDANCE
WITH THE REQUIREMENTS OF APPLICABLE SECURITIES LAWS OF THE PROVINCES
AND TERRITORIES OF CANADA AND PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER,
IF APPLICABLE. UNLESS PERMITTED UNDER APPLICABLE SECURITIES
LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE
SECURITIES BEFORE THE DAY THAT IS TWELVE MONTHS AND ONE DAY AFTER THE
ISSUANCE OF THE SECURITIES. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE LISTED ON THE TORONTO STOCK EXCHANGE AND THE NEW YORK
STOCK EXCHANGE, HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH
THE FACILITIES OF THE TORONTO STOCK EXCHANGE SINCE THEY ARE NOT FREELY
TRANSFERABLE AND CONSEQUENTLY DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO
STOCK EXCHANGE. A NEW CERTIFICATE, BEARING NO LEGEND, (DELIVERY OF
WHICH WILL CONSTITUTE "GOOD DELIVERY" ON THE TORONTO STOCK EXCHANGE)
MAY BE OBTAINED FROM CIBC MELLON TRUST COMPANY OR MELLON INVESTOR
SERVICES, LLC UPON DELIVERY OF THIS CERTIFICATE AND AN OPINION,
ADDRESSED TO CIBC MELLON TRUST OR MELLON INVESTOR SERVICES, LLC AND THE
CORPORATION, OF COUNSEL OF RECOGNIZED STANDING REASONABLY SATISFACTORY
TO THE CORPORATION TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 144 UNDER THE
SECURITIES ACT.
4. The legend set forth in Section 3 shall be removed by delivery of substitute
certificate(s) without such legend (a) with respect to Distributed Shares that
have been registered pursuant to the Securities Act or (b) with respect to
Distributed Shares that have been sold in reliance on and in accordance with
Rule 144 if you deliver to Hub and the transfer agent an opinion of counsel, of
recognized standing reasonably satisfactory to Hub, to the effect that such
legend is no longer required under applicable requirements of the Securities Act
or state securities laws. In the event of any Transfer pursuant the Distributed
Shares, you shall also supply Hub with evidence of compliance with all
applicable securities law, in the form satisfactory to Hub in its sole
discretion. Hub may instruct its transfer agent to withhold the Transfer of any
or all of the Distributed Shares, but upon receipt of evidence of compliance
with all applicable law in accordance with the foregoing, shall instruct the
transfer agent to effectuate such Transfer.
5. Hub (or its designee) may require you to take such action as Hub may
reasonably determine to be necessary to ensure your compliance with the terms of
this letter agreement and all applicable law, including but not limited to,
depositing any or all of the Distributed Shares into escrow.
6. From time to time as reasonably requested by Hub, you shall make such
representations, and execute such certifications, agreements and any other
documents necessary to permit, in accordance with applicable law, the issue or
Transfer of or the consummation of any other transaction involving the
Distributed Shares including, but not limited to, a certification that you are
in compliance with all applicable law and any other matters contemplated by this
letter agreement.
7. Except as otherwise provided in this letter agreement, any purported
Transfer of the Distributed Shares shall be null and void AB INITIO and of no
force or effect and shall not bind any of the parties to this letter agreement.
8. This letter agreement, together with the LLC Agreement, constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto.
Please return this letter agreement (as executed) to the Company at the
address set forth above.
Sincerely,
TALMAN LLC:
By:
--------------------------
Randall Talbot, Manager
Accepted and Agreed:
--------------------
EXHIBIT B - ADDRESSES FOR NOTICES
(a) If to Satellite:
Satellite Acquisition Corporation
3421 Evergreen Point Road
Medina, WA 98039
Attention: Randall H. Talbot
Telecopy No.: (425) 376-8750
WITH A COPY (NOT CONSTITUTING NOTICE) TO:
If prior to closing:
Orrick, Herrington & Sutcliffe, LLP
719 2nd Avenue, Suite 900
Seattle, WA 98104
Attn: Stephen M. Graham
Telecopy No.: (206) 839-4300
Following closing:
Jenkens & Gilchrist Parker Chapin LLP
405 Lexington Avenue
New York, NY 10174
Attn: Mark A. Limardo
Telecopy No.: (212) 704-6288
(b) If to HUB U.S. Holdings, Inc. or HUB International Limited:
55 East Jackson Boulevard
Chicago, IL 60604
Attention: Martin P. Hughes
Telecopy No.: (312) 279-4700
WITH A COPY (NOT CONSTITUTING NOTICE) TO:
Jenkens & Gilchrist Parker Chapin LLP
405 Lexington Avenue
New York, NY 10174
Attn: Mark A. Limardo
Telecopy No.: (212) 704-6288
(c) If to TalMan,:
7770 Jefferson N.E., Suite 200
Albuquerque, NM 87110
Attn: David Weymouth
Telecopy No.: (505) 828-0710
WITH A COPY (NOT CONSTITUTING NOTICE) TO:
Orrick, Herrington & Sutcliffe, LLP
719 2nd Avenue, Suite 900
Seattle, WA 98104
Attn: Stephen M. Graham
Telecopy No.: (206) 839-4301