<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ARTHUR J. GALLAGHER & CO.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
ARTHUR J. GALLAGHER & CO.
THE GALLAGHER CENTRE
TWO PIERCE PLACE
ITASCA, ILLINOIS 60143-3141
March 28, 1997
Dear Stockholder:
Your Company's Annual Meeting of Stockholders will be held on Tuesday, May
20, 1997, at 10:00 a.m., Central Time, at The Gallagher Centre, Two Pierce
Place, Second Floor, Itasca, Illinois. Coffee and rolls will be served prior
to the meeting.
The formal Notice of Annual Meeting of Stockholders and Proxy Statement
accompanying this letter describe the business to be acted on at the meeting.
Additionally, J. Patrick Gallagher, Jr., President and Chief Executive Officer
of the Company, and I will report on the business and progress of your Company
during 1996 and our directors and officers will be available to answer your
questions.
The continued interest of our stockholders in Arthur J. Gallagher & Co. has
been very gratifying and we are pleased that in the past so many of you have
exercised your right to vote your shares. We hope that you continue to do so.
Whether or not you plan to attend, please mark, sign, date and return the
accompanying proxy card as soon as possible. The enclosed envelope requires no
postage if mailed in the United States. If you attend the meeting, you may
revoke your proxy if you wish and vote personally.
Cordially,
ROBERT E. GALLAGHER
Chairman of the Board
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
To the Stockholders of
ARTHUR J. GALLAGHER & CO.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Arthur J.
Gallagher & Co. (the "Company") will be held Tuesday, May 20, 1997, at 10:00
a.m., Central Time, at The Gallagher Centre, Two Pierce Place, Second Floor,
Itasca, Illinois for the following purposes:
1. To elect Three Class I directors and to ratify the appointment of one
Class II director;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors has fixed the close of business on March 24, 1997 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to mark,
date and sign the enclosed proxy and return it promptly so your vote can be
recorded. If you are present at the meeting and desire to do so, you may
revoke your proxy and vote in person.
Date: March 28, 1997
By Order of the Board of Directors
CARL E. FASIG
Secretary
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON.
<PAGE>
ARTHUR J. GALLAGHER & CO.
THE GALLAGHER CENTRE
TWO PIERCE PLACE
ITASCA, ILLINOIS 60143-3141
PROXY STATEMENT
GENERAL INFORMATION
USE OF PROXIES
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Arthur J. Gallagher & Co. (the "Company") of proxies to
be voted at the Annual Meeting of Stockholders to be held on Tuesday, May 20,
1997, in accordance with the foregoing notice. The Proxy Statement and
accompanying proxy are being mailed to stockholders on or about March 28,
1997.
Any proxy may be revoked by the person giving it at any time before it is
voted by delivering to the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date. Shares represented
by a proxy, properly executed and returned to the Company and not revoked,
will be voted at the Annual Meeting.
Shares will be voted in accordance with the directions of the stockholder as
specified on the proxy. In the absence of directions, the proxy will be voted
FOR the election of the Class I directors named as the nominees in this Proxy
Statement and the ratification of the appointment of one Class II director to
fill a vacancy; and FOR the ratification of the appointment of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
31, 1997. Any other matters that may properly come before the meeting will be
acted upon by the persons named in the accompanying proxy in accordance with
their discretion.
RECORD DATE AND VOTING SECURITIES
The close of business on March 24, 1997 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournment thereof. As of the
Record Date, the Company had 16,451,591 shares of Common Stock outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote,
exercisable in person or by proxy. There are no other outstanding securities
of the Company entitled to vote, and there are no cumulative voting rights
with respect to the election of directors.
The presence, in person or by proxy, of a majority of the outstanding shares
of the Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. An automated system administered by the Company's transfer
agent tabulates the votes. Abstentions and broker non-votes are included in
the number of shares present and voting for the purpose of determining if a
quorum is present. Abstentions are also included in the tabulation of votes
cast on proposals presented to the stockholders but broker non-votes are not.
<PAGE>
EXPENSES OF SOLICITATION
All expenses of the solicitation of proxies will be paid by the Company.
Officers, directors and regular employees of the Company may also solicit
proxies by telephone, facsimile or in person.
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1996, there are no beneficial owners of more than 5% of
the Company's Common Stock, par value $1.00 per share, which is its only class
of issued and outstanding capital stock. The following tabulation shows with
respect to each of the directors of the Company, the executive officers named
in the Summary Compensation Table, and all directors and executive officers as
a group, fourteen in number, (i) the total number of shares of Common Stock
beneficially owned as of March 24, 1997; and (ii) the percent of Common Stock
so owned as of the same date.
<TABLE>
<CAPTION>
PERCENT
AMOUNT & NATURE OF
NAME OF OF BENEFICIAL COMMON
BENEFICIAL OWNER OWNERSHIP(1) STOCK
- ---------------- --------------- -------
<S> <C> <C>
Robert E. Gallagher.................................... 757,338(2) 4.6%
T. Kimball Brooker..................................... 13,370 *
John G. Campbell....................................... 30,235 *
Michael J. Cloherty.................................... 87,502 *
Peter J. Durkalski..................................... 48,385(3) *
James W. Durkin, Jr. .................................. 53,950 *
J. Patrick Gallagher, Jr............................... 178,120(4) 1.1%
Jack M. Greenberg...................................... 24,370 *
Frank M. Heffernan, Jr................................. 281,500(5) 1.7%
Philip A. Marineau..................................... 14,370 *
Walter F. McClure...................................... 63,156(6) *
Gary M. Van der Voort.................................. 132,326(7) *
James R. Wimmer........................................ 26,120(8) *
All directors and executive officers as a group (14
persons).............................................. 1,768,574 10.5%
</TABLE>
- --------
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of
1934. Unless otherwise stated in these notes, each person has sole voting
and investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options exercisable within
sixty days are deemed outstanding for the purpose of computing the number
and percentage owned by such person, but are not deemed outstanding for
the purpose of computing the percentage owned by each other person listed.
Includes shares which the listed beneficial owner has a right to acquire
within sixty days as follows: T. Kimball Brooker, 3,370 shares; John G.
Campbell, 13,350 shares; Michael J. Cloherty, 27,500 shares; Peter J.
Durkalski, 23,500 shares; James W. Durkin, Jr., 43,143 shares; J. Patrick
Gallagher, Jr., 47,500 shares; Jack M. Greenberg, 22,370 shares; Frank M.
Heffernan, Jr., 17,500 shares; Philip A. Marineau, 14,370 shares; Walter
F. McClure, 48,250 shares; Gary M. Van der Voort, 84,000 shares; James R.
Wimmer, 22,120 shares; all directors and executive officers as a group (14
persons), 391,973 shares.
(2) Includes 75,000 shares held in trust for the benefit of Robert E.
Gallagher's grandchildren, 100,000 shares held by a limited partnership of
which Robert E. Gallagher and Isabel Gallagher, his wife, are the general
partners, 100,000 shares held in trust for the benefit of Isabel
Gallagher, and 69,012 shares held in the Lauren E. Gallagher Trust under
which Robert E. Gallagher is a trustee.
2
<PAGE>
(3) Includes 4,885 shares held in trust for the benefit of his minor children
by his wife, Delores Durkalski, and another as trustees.
(4) Includes 35,220 shares held in trust for the benefit of his minor children
by his wife, Anne M. Gallagher, and another as trustees and 24,134 shares
held by his wife.
(5) Includes 264,000 shares held in trust by Frank M. Heffernan, Jr. and
Lenore B. Heffernan, his wife, as trustees.
(6) Includes 11,600 shares held in trust by Walter F. McClure and Alice M.
McClure, his wife, as trustees.
(7) Includes 3,600 shares held as custodian for the benefit of his children
under the Uniform Gift to Minors Act.
(8) Includes 4,000 shares held by his wife, Gertrude A. Wimmer.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of ten directors.
The directors are divided into three classes: three Class I directors have
terms expiring at the 1997 Annual Meeting; four Class II directors have terms
expiring in 1998; and three Class III directors have terms expiring in 1999.
Each class of directors is elected to three-year terms at sequential annual
meetings once every three years.
Set forth below is information concerning the nominees for election as Class
I directors as well as information concerning all other current directors. The
Board of Directors recommends a vote FOR the election of such nominees and the
ratification of the appointment of one Class II director to fill a vacancy.
The persons named on the enclosed proxy card intend to vote the proxies
solicited hereby FOR all the nominees named below and the ratification of the
appointment of one Class II director unless such authority is withheld. The
affirmative vote of the holders of a plurality of the shares of Common Stock
represented in person or by proxy is required to elect directors.
If elected, each nominee for Class I director will serve until the 2000
annual election of directors or until his successor is elected and qualified,
or until his earlier death, resignation or removal. T. Kimball Brooker, J.
Patrick Gallagher, Jr. and James R. Wimmer are currently members of the Board
of Directors as Class I directors, each having been previously elected by the
stockholders. Messrs. Brooker, J. Patrick Gallagher, Jr. and Wimmer are the
nominees for re-election as Class I directors for three-year terms. The
enclosed proxy cannot be voted for more than three nominees. Should any
nominee be unavailable to serve or for good cause refuse to serve, an event
which the Board of Directors does not anticipate, the persons named in the
enclosed proxy intend to vote the proxies solicited hereby for the election of
such other nominee, if any, as they may select.
Frank M. Heffernan, Jr. is currently a member of the Board of Directors as a
Class II director, having been appointed to fill a vacancy in such Class on
May 21, 1996. The Company's Restated Certificate of Incorporation and By-laws
provide that any director appointed to fill a vacancy shall hold office until
the expiration of the term of the class of directors to which he was elected,
which in this case occurs at the 1998 Annual Meeting. The Board of Directors
has determined, however, that it would be desirable to obtain ratification of
the appointment of Mr. Heffernan. If the ratification of the appointment
should fail to be approved by the holders of a majority of the voting stock
represented at the Annual Meeting or any adjournment thereof, such appointment
shall nevertheless remain in effect until the 1998 Annual Meeting (or the
earlier death, resignation or removal of such appointee), but an adverse vote
will be considered as a direction to the Board to select another nominee for
election to a Class II directorship at the 1998 Annual Meeting.
3
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
AS CLASS I DIRECTORS WITH TERMS EXPIRING IN 2000
<TABLE>
<CAPTION>
YEAR FIRST ELECTED DIRECTOR, BUSINESS
NAME AGE EXPERIENCE AND OTHER DIRECTORSHIPS
---- --- -------------------------------------
<C> <C> <S>
T.Kimball Brooker........... 57 Director since 1994; President, Barbara
Oil Company since 1989; Managing Director,
Morgan Stanley & Co., Inc. from 1978 to
1988; Director of Zenith Electronics
Corporation.
J.Patrick Gallagher, Jr.(1). 45 Director since 1986; Chief Executive
Officer since 1995; President since 1990;
Chief Operating Officer from 1990 to 1994;
Vice President- Operations from 1985 to
1990.
James R. Wimmer(2).......... 68 Director since 1985; Partner, Lord,
Bissell & Brook, attorneys, from 1959 to
1992; General Counsel of Commonwealth
Industries Corporation from 1991 to 1993.
Mr. Wimmer retired as a partner from Lord,
Bissell & Brook in February, 1992 and is
presently of counsel to that firm.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE AS
CLASS II DIRECTORS WITH TERMS EXPIRING IN 1998
John G. Campbell............ Director since 1981; Vice President since
59 1978.
Robert E. Gallagher(1)...... 74 Director since 1950; Chairman since 1990;
Chief Executive Officer from 1963 to 1994.
Frank M. Heffernan, Jr...... Director since 1996; Vice President since
66 1987.
Walter F. McClure........... 63 Director since 1981; Senior Vice President
since 1993; Vice President from 1980 to
1993.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE AS
CLASS III DIRECTORS WITH TERMS EXPIRING IN 1999
Michael J. Cloherty......... 49 Director since 1982; Executive Vice
President and Chief Financial Officer
since 1996; Vice President-Finance 1981 to
1996.
Jack M. Greenberg........... 54 Director since 1985; Employed by
McDonald's Corporation since 1982, Vice
Chairman since 1992, Chief Financial
Officer from 1982 to 1996, Chairman of
McDonald's USA since 1996; Director of
McDonald's Corporation, Harcourt General,
Inc. and Stone Container Corporation.
Philip A. Marineau.......... 50 Director since 1991; Employed by Dean
Foods Co. since December, 1996 as
President and Chief Operating Officer;
President from 1993 to 1995 and Chief
Operating Officer from 1992 to 1995 of The
Quaker Oats Company; Director of Dean
Foods Co. and Pete's Brewing Company.
</TABLE>
- --------
(1) Robert E. Gallagher is an uncle of J. Patrick Gallagher, Jr.
(2) Lord, Bissell & Brook has served as outside counsel to the Company for
over twenty years.
BOARD OF DIRECTORS
The Company's Board of Directors has the responsibility to review the
overall operations of the Company. The Board members are kept informed of the
Company's results of operations and proposed plans and business objectives by
the Company's management. During 1996, the Board of Directors met six times.
All of the directors attended at least 75% of those meetings and meetings of
the committees on which they served. Included among the committees of the
Board are standing Nominating, Audit and Compensation Committees.
4
<PAGE>
NOMINATING COMMITTEE
The Nominating Committee considers new nominees proposed for the Board of
Directors and will consider individuals whose names and qualifications are
furnished in writing to the Committee (in care of the Chairman at the
Company's principal office) by stockholders. Current members of the Nominating
Committee are Robert E. Gallagher (Chairman), T. Kimball Brooker and J.
Patrick Gallagher, Jr. The Committee met once in 1996.
AUDIT COMMITTEE
The Audit Committee assists the Board in carrying out its responsibilities
for monitoring management's accounting for the Company's financial results and
for the timeliness and adequacy of the reporting of those results; discusses
and makes inquiry into the audits of the Company's books made internally and
by outside independent auditors, the Company's financial and accounting
policies, its internal controls and its financial reporting; and investigates
and makes a recommendation to the Board each year with respect to the
appointment of independent auditors for the following year. Current members of
the Audit Committee are James R. Wimmer (Chairman), T. Kimball Brooker, Jack
M. Greenberg and Philip A. Marineau. The Committee met three times in 1996.
COMPENSATION COMMITTEE
The Compensation Committee determines the salaries, bonuses and other
compensation and terms and conditions of employment of the executive officers
and certain key employees of the Company and makes recommendations to the
Board of Directors with respect to the Company's compensation plans and
policies; provided, however, that the Option Committee of the Board of
Directors administers the Company's stock option plans. Current members of the
Compensation Committee are J. Patrick Gallagher, Jr. (Chairman), T. Kimball
Brooker, Robert E. Gallagher, Jack M. Greenberg, Philip A. Marineau and James
R. Wimmer. The Committee met three times in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
J. Patrick Gallagher, Jr. and Robert E. Gallagher are executive officers of
the Company and serve on the Compensation Committee. Both officers abstain
from discussion and voting on matters concerning their respective
compensation. James R. Wimmer, a director of the Company, is of counsel to
Lord, Bissell & Brook, a law firm which provides legal services to the
Company.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate filings, including this Proxy Statement, in whole
or in part, the following report and the Comparative Performance Graph on page
9 shall not be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION
The Compensation Committee is responsible for determining the total
compensation and employment conditions of the Company's executive officers. In
determining the total 1996 compensation, the Compensation Committee generally
evaluated the executive's contribution to the overall success of the Company
in achieving the corporate goals set out below. The business growth and human
resources goals were equally weighted in determining the executive's
compensation; and, for 1996, the profit goal was weighted significantly less.
5
<PAGE>
Profit--The immediate profit goals of the Company are expressed in the
annual budget. The effort of an individual executive in meeting or
exceeding the budget of his or her department or division has
historically been an important criterion in the evaluation. Longer term
profit goals, as measured against the Company's Three Year Strategic
Plan, are also considered in the evaluation. In 1996, the executive
officers of the Company generally had difficulty with their respective
budgetary goals, and the 1996 pretax profit of the Company increased
only slightly over 1995. However, the Compensation Committee recognized
the difficult market conditions that prevailed during 1996 and accorded
this criterion significantly less weight.
Business Growth--The Company considers its long term business growth to
be a critical factor in the continued success of the Company.
Executives are expected to support the Company's acquisition program,
which seeks to achieve growth by successfully integrating independent
businesses into the corporate structure. Similarly, establishment of
operations in new geographic areas, as well as the successful
development and marketing of new product lines, are considered
necessary to the continued growth of the Company and are included in
the evaluation. In 1996, seven businesses were acquired, expanding the
Company's geographic presence. The development and marketing of new
product lines continued on a basis consistent with prior years. The
Company believes that these efforts had a direct impact on the 4%
increase in total revenues achieved in 1996 over 1995.
Human Resources--As a service business, the Company believes that its
employees are its greatest asset. Over 50% of the Company's expenses in
1996 were related to the compensation of its employees and related
benefit costs. The Company is committed to the successful hiring,
training and retaining of people who promote the growth, financial
success and management succession of the Company. An executive's
ability to manage these resources, as well as the attendant expenses,
is a significant criterion. In 1996, the Company's overall success in
effectively managing its employees evidenced the commitment of the
Company's executive officers, as a group, to the corporate goal of
preserving and developing human resources. This was demonstrated by the
Company's ability to generate $116,000 in revenue per employee for
1996, one of the highest figures in the industry and an increase from
the $112,000 in restated revenue per employee generated during 1995.
Enhancement of shareholder value is the ultimate goal of the Company. The
Compensation Committee believes that its focus on specific corporate goals
should result in a strong stock price, improved earnings per share and greater
return on stockholders' equity. Earnings per share in 1996 increased by 6%
over 1995. This modest increase represents a significant effort on the part of
the Company's executive officers during the intense competitive pressures of
1996. The Company's Nonqualified Stock Option Plan represents a significant
portion of an executive officer's compensation and directly reflects the
Company's performance through its stock price. Option grants to executive
officers are determined by the Option Committee of the Board of Directors and
are generally based upon more subjective factors than those used by the
Compensation Committee. Robert E. Gallagher and Frank M. Heffernan, Jr. served
on the Option Committee during 1996 and received no option grants in 1996. The
Option Committee considers the recommendations of the executive officers of
the Company, the responsibilities of each grantee, his past performance and
his anticipated future contribution to the Company.
The Company has a discretionary bonus pool for executive officers and key
employees, contingent upon satisfactory corporate growth and the attainment of
predetermined managerial goals. These pre-determined goals are extremely
varied and, in the case of the executive officers, are established by the
individual officer in
6
<PAGE>
conjunction with the Compensation Committee. The goals are too diverse to
generalize but typically include meeting or exceeding budgetary guidelines and
contribution to the Company's profitability. Attainment of these goals in many
cases may be determined by a subjective judgment of the individual supervisor
or, in the case of the executive officers, by the Compensation Committee. The
eligibility for participation in the bonus pool is determined by the Board.
Approximately 50 executive officers and key employees are current
participants.
Amendments to the Internal Revenue Code adopted in 1993 limit the
deductibility for federal income tax purposes of certain compensation payable
to top executive officers of publicly held corporations. Certain types of
compensation are excluded from the limitations. The Company believes that the
limitations are not applicable to stock options granted under its stock option
plans. With respect to awards under the Company's other incentive compensation
plans, the Company is considering whether to make changes to such plans so
that future awards will not be subject to the limitations on deductibility.
Executive officers participate in the Savings and Thrift Plan, Pension Plan
and Stock Option Plan, as well as customary employee health benefits and
expense reimbursement in accordance with the Company's policy.
In 1996, the Committee reviewed a report prepared by the Company which
compared the compensation of the five most highly compensated executive
officers of the Company to the four publicly held competitors of the Company
included in the Comparative Performance Graph on Page 9. The Committee targets
the middle of its competitors' salary range for its executive officers'
compensation. This report indicated that the 1995 compensation of the
Company's five most highly compensated executive officers was in the middle
range when compared to its publicly-held competitors after making certain
adjustments for the size of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
The 1996 compensation of J. Patrick Gallagher, Jr., the Company's Chief
Executive Officer, decreased by $51,000 or approximately 12% from the total
compensation received in 1995. Based upon the Company's excellent performance
in 1995, the Compensation Committee recommended a significant increase in Mr.
Gallagher's 1996 compensation. Mr. Gallagher voluntarily elected to reduce his
compensation in light of wage freezes that were imposed on certain management
employees as part of a Company-wide expense control effort. In 1996, Mr.
Gallagher also received a stock option grant for 10,000 shares of the
Company's Common Stock under the 1988 Nonqualified Stock Option Plan, the same
number of shares as the grant he received in 1995.
Compensation Committee
J. Patrick Gallagher, Jr. (Chairman)
Robert E. Gallagher
T. Kimball Brooker
Jack M. Greenberg
Philip A. Marineau
James R. Wimmer
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table presents information concerning compensation paid or set
aside by the Company and its subsidiaries on an accrual basis to or for the
benefit of the Chief Executive Officer and each of the other six most highly
compensated executive officers of the Company in each of the Company's last
three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------- ------------
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($)(1)
- --------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert E. Gallagher............. 1996 275,000 -- -- --
Chairman 1995 275,000 30,000 -- --
1994 265,000 30,000 -- --
J. Patrick Gallagher, Jr. ...... 1996 356,000 25,000 10,000 3,000
President and Chief Executive
Officer 1995 356,000 76,000 10,000 1,500
1994 341,250 73,750 15,000 1,500
Michael J. Cloherty............. 1996 346,000 25,000 10,000 3,000
Executive Vice President and 1995 325,000 85,000 10,000 1,500
Chief Financial Officer
1994 300,000 67,000 15,000 1,500
Gary M. Van der Voort........... 1996 305,760 15,000 10,000 3,000
Vice President 1995 305,760 59,100 10,000 1,500
1994 294,000 57,000 15,000 1,500
Peter J. Durkalski.............. 1996 261,500 20,000 10,000 3,000
Vice President 1995 261,500 56,225 10,000 1,500
1994 241,500 54,500 15,000 1,500
James W. Durkin, Jr............. 1996 250,000 15,000 10,000 3,000
Vice President 1995 250,000 50,000 10,000 1,500
1994 233,000 38,300 15,000 1,500
Walter F. McClure............... 1996 260,000 15,000 7,500 3,000
Senior Vice President 1995 260,000 51,150 7,500 1,500
1994 241,000 49,500 10,000 1,500
</TABLE>
- --------
(1) Indicates amounts contributed by the Company under the 401(k) feature of
the Company's Savings and Thrift Plan.
8
<PAGE>
The following graph demonstrates a five year comparison of cumulative total
returns for the Company, the S&P 500 and an Index of Peers comprised of the
Company ("AJG & Co."), Alexander & Alexander, Hilb, Rogal and Hamilton, Marsh
& McLennan, and Poe & Brown. The comparison charts the performance of $100
invested in the Company, the S&P 500 and the Index of Peers on December 31,
1991, with dividend reinvestment.
COMPARATIVE PERFORMANCE GRAPH
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
AJG & CO. 100 129 170 154 184 159
INDEX OF PEERS 100 123 121 121 165 203
S & P 100 108 118 120 143 150
</TABLE>
DIRECTORS' COMPENSATION
Directors who are officers of the Company receive compensation in their
capacities as such officers and receive no additional compensation for serving
as directors.
Non-employee directors, currently Messrs. Brooker, Greenberg, Marineau and
Wimmer, are eligible to receive compensation consisting of nonqualified stock
options. In addition, non-employee directors receive an annual retainer of
$20,000 per year or, in lieu of the cash retainer, an option to purchase
shares of the Company's Common Stock below market value, plus fees of $500 for
attendance at each Board meeting or committee meeting on a date other than a
Board meeting date. Non-employee directors are reimbursed for travel and
accommodation expenses incurred in attending Board or committee meetings. Non-
employee directors are not eligible for participation in any other
compensation plans of the Company.
In 1989, the Company's stockholders approved the adoption of the Company's
1989 Non-Employee Directors' Stock Option Plan (the "1989 Plan"), which was
subsequently amended in 1990, 1993, 1994 and 1996. The 1989 Plan currently
provides that non-employee directors are eligible to be granted nonqualified
options to purchase a maximum of 200,000 shares of the Company's Common Stock.
The Plan encompasses options granted to non-employee directors at the
discretion of the Option Committee of the Company's Board of Directors
("Discretionary Options") and options granted to non-employee directors
pursuant to an election made by a non-employee director to receive options in
lieu of his annual retainer ("Retainer Options"). Shares issued upon exercise
of options granted under the 1989 Plan may be repurchased shares held by the
Company or authorized but previously unissued shares.
9
<PAGE>
Under the 1989 Plan, a Discretionary Option shall be exercisable at such rate
and price fixed by the Option Committee. Discretionary Options terminate if not
exercised by the date set forth in the 1989 Plan or by such date established by
the Option Committee at the time it makes the grant.
Pursuant to the terms of the 1989 Plan, Messrs. Marineau and Wimmer have
elected to receive their annual retainers for 1997 in the form of an option to
purchase the Company's Common Stock. Each year on or before two weeks preceding
the Company's Annual Meeting of Stockholders, the Option Committee shall
determine the number of shares of Common Stock with respect to which a non-
employee director may be granted a Retainer Option. The non-employee director's
option exercise price per share shall be equal to the Fair Market Value of the
Common Stock subject to the Retainer Option less the Annual Retainer, divided
by the number of shares subject to the Retainer Option. The option exercise
price per share shall be not less than the par value of the Common Stock. "Fair
Market Value" is defined as the closing price of the Company's Common Stock as
reported on the New York Stock Exchange Consolidated Transaction Reporting
System for the day on which the option is granted.
On May 21, 1996, the Company granted a Retainer Option for 1,000 shares of
the Company's Common Stock to each of Messrs. Greenberg, Marineau and Wimmer at
an exercise price of $11.875 per share. Such options are exercisable at the
rate of one-fourth of such grant each successive quarter commencing August 21,
1996. In addition, on July 18, 1996, the Company granted a Discretionary Option
for 5,000 shares of the Company's Common Stock to each of Messrs. Brooker,
Greenberg, Marineau and Wimmer at an exercise price of $31.875 per share, which
was the closing price for a share of Common Stock as reported on the
Consolidated Transaction Reporting System for securities listed on the New York
Stock Exchange on that date. Such options are exercisable at the rate of one-
third of such grant each successive July 18, commencing July 18, 1997.
The Company approved a supplemental deferred compensation arrangement,
effective July 1, 1996, with Robert E. Gallagher upon his retirement, and to
his surviving spouse upon his death, and the surviving spouse of John P.
Gallagher, providing for a payment of $100,000 annually, inclusive of any
Company pension plan payments, to be paid until the death of each such
beneficiary.
SAVINGS AND THRIFT PLAN
The Company maintains a savings and thrift plan covering substantially all
U.S. employees which is qualified under the Internal Revenue Code. Employees
are covered by the plan on their date of hire and may generally contribute up
to 10% of total compensation on an after-tax basis to the plan. As of January
1, 1994, after-tax contributions are limited to employees with total annual
compensation of no more than $66,000 ($80,000 after January 1, 1997). Employees
who have attained age 21 and completed a year of service may generally
contribute up to the lesser of $8,200 in 1996 and $9,500 in 1997 or 8% of their
gross earnings on a pre-tax basis under the 401(k) "salary reduction" feature
of the plan up to a maximum salary of $160,000. Effective for plan years
beginning after 1994, the maximum includible compensation for an employee for
any year may not exceed an overall salary maximum as determined by the Internal
Revenue Service ($150,000 in 1996 and $160,000 in 1997). In 1996, the Company
matched 50% of any employee's pre-tax contributions up to a maximum 4% of such
employee's gross earnings, resulting in a possible maximum matched contribution
from the Company of 2% of such employee's gross earnings.
PENSION PLAN
The Company also maintains a non-contributory defined benefit pension plan
covering substantially all domestic employees which is qualified under the
Internal Revenue Code. The plan provides an annual
10
<PAGE>
pension benefit on normal retirement at age 65 which, when paid in the form of
a single life annuity, will equal 1% of final average earnings multiplied by
the number of years of credited service, not to exceed 25 years (without any
deduction for social security or other offset amounts). A person's earnings for
purposes of the plan include all compensation other than allowances such as
moving expenses plus any pre-tax contributions under the 401(k) feature of the
savings and thrift plan. Effective for plan years beginning after 1988, the
maximum includible compensation for a participant for any year may not exceed
an overall salary maximum as determined by the Internal Revenue Service
($150,000 in 1996 and $160,000 in 1997). The remuneration for executive
officers shown under "Salary" and "Bonus" in the Summary Compensation Table
constitutes their earnings during 1996 for purposes of the plan without regard
to the Internal Revenue Service's limitation. "Final average earnings" are the
highest average earnings received in any five consecutive full calendar years
before retirement. Employees' pension rights are fully vested after the earlier
of (i) 5 years of service with the Company or (ii) the attainment of age 65.
The following table shows the estimated annual benefits (which are not
subject to deduction for social security or other offset amounts) payable on
retirement under the Company's defined benefit plan to persons in specific
remuneration and credited years of service classifications assuming (i) the
person elects the single life annuity basis providing monthly payments without
benefits to his survivors and (ii) the person continues in the employ of the
Company at his present rate of remuneration until age 65:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE
REMUNERATION
DURING HIGHEST
FIVE YEARS OF CREDITED
CONSECUTIVE SERVICE
YEARS -----------------------
BEFORE 25 OR
RETIREMENT 15 20 MORE
-------------- ------- ------- -------
<S> <C> <C> <C>
$150,000....................................... $22,500 $30,000 $37,500
175,000....................................... 26,250 35,000 43,750
200,000....................................... 30,000 40,000 50,000
225,000....................................... 33,750 45,000 56,250
250,000....................................... 37,500 50,000 62,500
</TABLE>
For purposes of estimating potential pension benefits using the foregoing
table, the number of years of credited service as of December 31, 1996 for the
executive officers named in the Summary Compensation Table are as follows:
Robert E. Gallagher (25 years), J. Patrick Gallagher, Jr. (21 years), Michael
J. Cloherty (14 years), Peter J. Durkalski (21 years), James W. Durkin, Jr. (20
years), Walter F. McClure (19 years) and Gary M. Van der Voort (25 years). Such
pension benefits are in addition to amounts payable to such persons under the
Company's savings and thrift plan on their retirement and are subject to
certain limitations as required under the Internal Revenue Code.
STOCK OPTION PLANS
The Company maintains a 1988 Incentive Stock Option Plan and a 1988
Nonqualified Stock Option Plan.
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the
Company named in the Summary Compensation Table during the Company's 1996
fiscal year. The exercise price of the options equals the closing price for a
share of the Company's Common Stock on the date of the option grant.
11
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------
% OF POTENTIAL
TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED RATES OF STOCK PRICE
UNDERLYING TO APPRECIATION
OPTIONS EMPLOYEES FOR OPTION TERM(2)
GRANTED IN FISCAL EXERCISE EXPIRATION ---------------------
NAME (#) YEAR PRICE ($) DATE 5% ($) 10% ($)
- ---- ---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Gallagher..... -- -- -- -- -- --
J. Patrick Gallagher,
Jr..................... 10,000 1.40% 31.875 07/17/06 200,000 508,000
Michael J. Cloherty..... 10,000 1.40% 31.875 07/17/06 200,000 508,000
Gary M. Van der Voort... 10,000 1.40% 31.875 07/17/06 200,000 508,000
Peter J. Durkalski...... 10,000 1.40% 31.875 07/18/06 200,000 508,000
James W. Durkin, Jr..... 10,000 1.40% 31.875 07/18/06 200,000 508,000
Walter F. McClure....... 7,500 1.05% 31.875 07/17/06 150,000 381,000
</TABLE>
- --------
(1) Nonqualified options granted July 18, 1996, exercisable at the rate of 10%
of the total option for each calendar year after 1996.
(2) Based on actual option term and annual compounding.
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 1996 fiscal year
and the number and value of unexercised options to purchase shares of Common
Stock held at the end of the Company's 1996 fiscal year by the executive
officers of the Company named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED UNEXERCISED
NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED FY-END (#) FY-END (#) FY-END ($) FY-END ($)
NAME EXERCISE (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
- ---- ------------ -------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Gallagher..... -- -- -- -- -- --
J. Patrick Gallagher,
Jr..................... -- -- 34,000 85,000 212,000 321,000
Michael J. Cloherty..... 24,000 366,000 13,000 78,000 5,000 299,000
Gary M. Van der Voort... -- -- 69,000 81,000 706,000 329,000
Peter J. Durkalski...... 51,500 824,000 13,000 81,000 5,000 321,000
James W. Durkin, Jr..... 10,800 172,000 30,000 79,000 166,000 304,000
Walter F. McClure....... 4,500 95,000 39,000 49,000 389,000 189,000
</TABLE>
- --------
(1) Market value of underlying securities at exercise, minus the exercise
price.
(2) Market value of underlying securities at year end, minus the exercise
price.
SEVERANCE PAY PLAN
The Company has a plan for severance compensation to employees after a
hostile takeover. The plan defines a hostile takeover to include, among other
events, the following events, if not approved by two-thirds
12
<PAGE>
of the members of the Board of Directors in office immediately prior to any
such events: the election of directors not nominated by the Board of Directors,
a business combination, such as a merger, not approved by the holders of 80% or
more of the Common Stock and the Board of Directors or not meeting various
"fair price" criteria, or the acquisition of 20% or more of the combined voting
power of the Company's stock by any person or entity. All full-time and part-
time employees who are regularly scheduled to work 20 or more hours per week
and who have completed at least two years of continuous employment with the
Company are participants in the plan. A severance benefit is payable under the
plan if a participant's employment with the Company terminates voluntarily or
involuntarily within two years after a hostile takeover for reasons such as
reduction in compensation, discontinuance of employee benefit plans without
replacement with substantially similar plans, change in duties or status,
certain changes in job location and involuntary termination of employment for
reasons other than just cause. For participants who have completed two but less
than five years of employment, the benefit is equal to the employee's annual
compensation during the year immediately preceding the termination of
employment. For employees who have completed five or more years of employment,
the benefit is equal to two and one-half times the employee's annual
compensation during the 12 months ending on the date of termination of
employment, but may not exceed 2.99 times average annual compensation during
the preceding five years. Annual compensation is defined for purposes of the
plan as the amount of the employee's wages, salary, bonuses and other incentive
compensation. Benefits are payable in a lump sum not less than 10 days after
termination of employment.
PROPOSAL 2--RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1997
The Audit Committee has considered the qualifications of Ernst & Young LLP
and recommended that the Board of Directors appoint them as independent
auditors of the Company for the fiscal year ending December 31, 1997. The Board
of Directors desires to obtain stockholders' ratification of the Board's action
in such appointment. A resolution ratifying the appointment will be offered at
the meeting. If the resolution is not adopted, the adverse vote will be
considered as a direction to the Board to select other auditors for the
following year. Because of the difficulty and expense of making any
substitution of auditors so long after the beginning of the current year, it is
contemplated that the appointment for the year 1997 will stand unless the Board
finds other good reason for making a change.
A representative of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make a statement if the
representative so desires.
Ratification requires the affirmative vote by holders of at least a majority
of the outstanding shares voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
IN FAVOR OF RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR 1997.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Company at its principal office on or
before November 28, 1997 to be considered for inclusion in the Company's proxy
materials for that meeting.
13
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be presented for action at the
meeting. If any other matters should properly come before the meeting or any
adjournment thereof, such matters will be acted upon by the persons named as
proxies in the accompanying proxy according to their best judgment in the best
interests of the Company.
The Annual Report of Stockholders containing financial statements for the
year ended December 31, 1996, and other information concerning the Company is
being furnished to the stockholders but is not to be regarded as proxy
soliciting material.
Each stockholder is urged to mark, date, sign and return the enclosed proxy
card in the envelope provided for that purpose. Your prompt response is helpful
and your cooperation will be appreciated.
Dated: March 28, 1997
By Order of the Board of Directors
CARL E. FASIG
Secretary
14
<PAGE>
- -
PROXY PROXY
LOGO
ARTHUR J. GALLAGHER & CO.
TWO PIERCE PLACE
ITASCA, ILLINOIS 60143
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Gallagher and J. Patrick
Gallagher, Jr., or either of them, as attorneys and proxies, each with the power
to appoint a substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of voting stock of Arthur J. Gallagher & Co.
held of record by the undersigned on March 24, 1997, at the annual meeting of
stockholders to be held on May 20, 1997 or any adjournment thereof.
IN THEIR DISCRETION, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2. THIS PROXY IS REVOCABLE AT ANY TIME.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
ARTHUR J. GALLAGHER & CO.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
1. Election/Ratification of Directors--Class I Nominees for term expiring in
2000 are T. Kimball Brooker, J. Patrick Gallagher, Jr. and James R. Wimmer;
and for ratification of the appointment of Frank M. Heffernan, Jr. to fill a
vacant directorship in Class II with a term expiring in 1998.
----------------------------------------------------------------------------
Nominee Exception
For All
For Withheld Except
[ ] [ ] [ ]
-----------------------------------------------------------------------------
The Board of Directors Recommends a Vote "FOR" Each of the
Listed Proposals.
-----------------------------------------------------------------------------
2. Ratification of the appointment of Ernst & Young LLP as the independent
auditors of the Corporation for 1997.
For Against Abstain
[ ] [ ] [ ]
Dated: _______________________________, 1997
Signature(s) __________________________________________
-------------------------------------------------------
IMPORTANT: PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS
OPPOSITE. IN THE CASE OF JOINT HOLDERS, ALL SHOULD
SIGN. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINIS-
TRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICE
R. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
