<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________
TO _________________________
Commission File Number 1-9761
ARTHUR J. GALLAGHER & CO.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2151613
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO PIERCE PLACE, ITASCA, ILLINOIS 60143-3141
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(630) 773-3800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
The number of outstanding shares of the registrant's Common Stock, $1.00 par
value, as of June 30, 1998 was 17,241,933.
<PAGE>
ARTHUR J. GALLAGHER & CO.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part 1. Financial Information:
Item 1. Financial Statements (Unaudited):
Consolidated Statement of Earnings for the three-month
and six-month periods ended June 30, 1998 and 1997............ 3
Consolidated Balance Sheet at June 30, 1998 and
December 31, 1997............................................. 4
Consolidated Statement of Cash Flows for the six-month periods
ended June 30, 1998 and 1997.................................. 5
Notes to Consolidated Financial Statements.................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
Exhibit 10.25 - Arthur J. Gallagher & Co. United Kingdom
Incentive Stock Option Plan (Approved by the Inland Revenue
on June 12, 1998)
Exhibit 10.26 - Arthur J. Gallagher & Co. 1988 Incentive Stock
Option Plan (Restated as of May 19, 1998)
Exhibit 10.27 - Arthur J. Gallagher & Co. 1988 Nonqualified Stock
Option Plan (Restated as of January 22, 1998)
Exhibit 10.28 - Arthur J. Gallagher & Co. 1989 Non-Employee
Directors' Stock Option Plan (Restated as of January 22, 1998)
Exhibit 27.0 - Financial Data Schedule (Unaudited)
Signatures............................................................. 12
</TABLE>
-2-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three-month period ended Six-month period ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Results
Revenues:
Commissions $ 65,891 $ 63,216 $132,265 $126,495
Fees 49,588 43,354 96,415 85,127
Investment income and other 5,515 7,156 12,593 11,935
Non-recurring gains - 2,852 - 4,498
-------- -------- -------- --------
Total revenues 120,994 116,578 241,273 228,055
Expenses:
Salaries and employee benefits 67,243 57,988 133,155 119,198
Other operating expenses 39,554 39,209 77,297 75,478
-------- -------- -------- --------
Total expenses 106,797 97,197 210,452 194,676
-------- -------- -------- --------
Earnings before income taxes 14,197 19,381 30,821 33,379
Provision for income taxes 4,827 6,589 10,479 11,349
-------- -------- -------- --------
Net earnings $ 9,370 $ 12,792 $ 20,342 $ 22,030
======== ======== ======== ========
Net earnings per common share $ .55 $ .78 $ 1.20 $ 1.34
Net earnings per common and
common equivalent share .52 .76 1.15 1.30
Dividends declared per common share .35 .31 .70 .62
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -------------
<S> <C> <C>
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 60,188 $ 67,178
Restricted cash 92,725 81,160
Premiums and fees receivable 258,297 217,555
Investment strategies - trading 62,457 62,681
Other 45,062 40,267
-------- --------
Total current assets 518,729 468,841
Marketable securities - available for sale 25,201 39,203
Deferred income taxes and other noncurrent assets 125,555 95,528
Fixed assets 91,419 86,758
Accumulated depreciation and amortization (64,540) (58,948)
-------- --------
Net fixed assets 26,879 27,810
Intangible assets - net 9,926 10,370
-------- --------
$706,290 $641,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Premiums payable to insurance companies $364,331 $312,349
Accrued salaries and bonuses 10,045 18,385
Accounts payable and other accrued liabilities 83,600 89,846
Unearned fees 17,599 11,608
Income taxes payable 520 10,783
Other 32,276 23,067
-------- --------
Total current liabilities 508,371 466,038
Other noncurrent liabilities 12,584 11,807
Stockholders' equity:
Common stock - issued and outstanding 17,242 shares
in 1998 and 16,591 shares in 1997 17,242 16,591
Capital in excess of par value 16,617 4,349
Retained earnings 149,881 141,309
Accumulated other comprehensive earnings 1,595 1,658
-------- --------
Total stockholders' equity 185,335 163,907
-------- --------
$706,290 $641,752
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six-month period ended
June 30,
1998 1997
--------- ---------
<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net earnings $ 20,342 $ 22,030
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net gain on investments and other (2,695) (2,081)
Depreciation and amortization 5,731 5,334
Increase in restricted cash (11,565) (16,376)
(Increase) decrease in premiums receivable (36,345) 17,458
Increase in premiums payable 51,982 18,633
Decrease (increase) in trading investments -
net 1,671 (2,059)
Increase in other current assets (4,795) (5,079)
Decrease in accrued salaries and bonuses (8,340) (5,649)
(Decrease) increase in accounts payable and other
accrued liabilities (7,138) 4,664
Decrease in income taxes payable (10,263) (4,405)
Net change in deferred income taxes (840) 1,074
Other 5,649 1,560
-------- --------
Net cash provided by operating activities 3,394 35,104
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (16,751) (9,863)
Proceeds from sales of marketable securities 30,484 11,613
Proceeds from maturities of marketable
securities 1,423 662
Net additions to fixed assets (4,359) (4,542)
Other (29,358) (13,057)
-------- --------
Net cash used by investing activities (18,561) (15,187)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 10,068 4,127
Tax benefit from issuance of common stock 2,871 737
Repurchases of common stock (25) (13,187)
Dividends paid (11,091) (9,804)
Retirement of long-term debt (1,130) (1,130)
Borrowings on credit agreements 42,500 15,900
Repayments on credit agreements (35,000) (15,900)
Equity transactions of pooled companies prior
to dates of acquisition (16) (38)
-------- --------
Net cash provided (used) by financing activities 8,177 (19,295)
--------- --------
Net (decrease) increase in cash and
cash equivalents (6,990) 622
Cash and cash equivalents at beginning of period 67,178 57,017
-------- --------
Cash and cash equivalents at end of period $ 60,188 $ 57,639
======== ========
Supplemental disclosures of cash flow
information:
Interest paid $ 727 $ 442
Income taxes paid 17,076 11,855
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been
omitted pursuant to such rules and regulations. The Company believes the
disclosures are adequate to make the information presented not misleading.
The unaudited consolidated financial statements included herein are, in the
opinion of management, prepared on a basis consistent with the audited
consolidated financial statements for the year ended December 31, 1997 and
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information set forth. The
quarterly results of operations are not necessarily indicative of results
of operations for subsequent quarters or the full year. These unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in
the Company's 1997 Annual Report to Stockholders.
2. BUSINESS COMBINATIONS
During the six-month period ended June 30, 1998, the Company acquired
substantially all of the net assets of EBC, Inc., d/b/a Employee Benefits
of The Carolinas; Martin, Gordon & Jones, Inc.; McElveen Insurance Agency,
Inc. and three other less significant companies in exchange for 234,000
shares of Common Stock. These acquisitions, accounted for as poolings of
interests, were not significant to the Company and accordingly, prior
period financial statements were not restated. In May 1998, the Company
acquired substantially all of the net assets of an insurance brokerage
operation which was accounted for as a purchase. The Company paid cash in
this transaction, which was not material to the consolidated financial
statements.
3. EARNINGS PER SHARE
The following table sets forth the computation of net earnings per common
share and net earnings per common and common equivalent share (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED SIX-MONTH PERIOD ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net earnings $ 9,370 $12,792 $20,342 $22,030
======= ======= ======= =======
Weighted average number
of common shares outstanding 17,099 16,358 16,912 16,421
Dilutive effect of stock options
using the treasury stock method 887 532 832 517
------- ------- ------- -------
Weighted average number of
common and common equivalent
shares outstanding 17,986 16,890 17,744 16,938
======= ======= ======= =======
Net earnings per common share $ .55 $ .78 $ 1.20 $ 1.34
Net earnings per common and
common equivalent share .52 .76 1.15 1.30
</TABLE>
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
3. Earnings Per Share (continued)
Options to purchase 8,000 and 1,405,000 shares of common stock were
outstanding during the three-month period ended June 30, 1998, and 1997,
respectively, but were not included in the computation of the dilutive
effect of stock options. Options to purchase 4,000 and 2,095,000 shares of
common stock were outstanding during the six-month period ended June 30,
1998, and 1997, respectively, but were not included in the computation of
the dilutive effect of stock options. These options were excluded from the
computations because the options' exercise prices were greater than the
average market price of the common shares and, therefore, would be
antidilutive.
4. Comprehensive Earnings
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS 130
had no impact on the Company's net earnings or stockholders' equity. SFAS
130 requires unrealized gains or losses on the Company's available for sale
securities, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive earnings. Prior
year consolidated financial statements have been reclassified to conform to
the requirements of SFAS 130.
The components of comprehensive earnings and accumulated other
comprehensive earnings are as follows (in thousands):
<TABLE>
<CAPTION>
Three-month period ended Six-month period ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $9,370 $12,792 $20,342 $22,030
Net change in unrealized gain on available for
sale securities, net of income taxes of
($138), $199, ($42) and $188, respectively (207) 298 (63) 282
------ ------- ------- -------
Comprehensive earnings $9,163 $13,090 $20,279 $22,312
------ ------- ------- -------
Accumulated other comprehensive earnings
at beginning of period $1,802 $ 873 $ 1,658 $ 889
Net change in unrealized gain on available for
sale securities, net of income taxes (207) 298 (63) 282
------ ------- ------- -------
Accumulated other comprehensive earnings
at end of period $1,595 $ 1,171 $ 1,595 $ 1,171
------ ------- ------- -------
</TABLE>
5. Effect of New Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosure
about Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. However,
segment information is not required to be reported in interim financial
statements in the initial year of adoption. SFAS 131 also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The Company has not completed all of the
analyses required to determine the full impact of SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which is effective for fiscal years beginning after June 15,
1999. Because of the Company's minimal use of derivatives, management does
not anticipate the adoption of SFAS 133 will have a significant effect on
the Company's consolidated operating results or financial position.
-7-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Insurance premiums and risk management income reflect the overall pricing
pressure throughout the insurance premium marketplace and the Company does not
anticipate any change in the near future in this extremely competitive
environment.
Commission revenues increased by 4% to $65.9 million in the second quarter of
1998 and by 5% to $132.3 million in the first half of 1998 over the respective
periods in 1997. These increases are due principally to new business production
partially offset by lost business.
Fee revenues increased by 14% to $49.6 million in the second quarter of 1998 and
by 13% to $96.4 million in the first six months of 1998 over the respective
periods in 1997. These increases reflect new business production of
approximately $9.8 million in the second quarter of 1998 and $18.3 million in
the first six months of 1998 over the respective periods in 1997 and are
generated primarily by Gallagher Bassett Services, Inc. (a Company subsidiary).
These increases are partially offset by lost business.
Investment income and other decreased 45% to $5.5 million in the second quarter
of 1998 from the same period in 1997 due primarily to non-recurring gains
recognized during the second quarter of 1997 of $1.8 million related to a real
estate transaction and $1.1 million from the sale of assets, and to lower
returns on funds invested with outside fund managers. Investment income and
other decreased by 23% to $12.6 million in the first half of 1998 from the first
half of 1997 due primarily to the gains mentioned above, gains of $1.6 million
on the sale of assets and other investments recognized in the first quarter of
1997, and to lower returns on funds invested with outside fund managers.
Total expenses increased by 10% or $9.6 million in the second quarter of 1998
over the same period in 1997 and increased by 8% or $15.8 million in the first
half of 1998 over the same period in 1997.
Salaries and employee benefits increased by $9.3 million or 16% to $67.2 million
in the second quarter of 1998 and increased by $14.0 million or 12% to $133.2
million in the first six months of 1998 over the respective periods in 1997.
These increases are due primarily to a $4.8 million non-recurring gain
recognized in the second quarter of 1997 from the settlement of a defined
benefit pension plan at one of the Company's London subsidiaries and to salary
increases and associated higher employee benefit costs in 1998.
Other operating expenses increased by 1% to $39.6 million in the second quarter
of 1998 and by 2% to $77.3 million in the first six months of 1998 over the
respective periods in 1997. These increases are due primarily to increases in
expenses associated with temporary employment services and employee recruitment
for new business, rent and general office expenses related to new leases and
office expansions, and interest expense. In addition, travel and other direct
employee expenses increased in 1998 due to the growth in sales volume.
The effective income tax rate of 34% for the second quarter and first six months
of 1998 and 1997 is less than the statutory federal rate of 35% due primarily to
the effects of tax benefits generated by certain investments which are
substantially offset by state and foreign taxes.
Net earnings per common and common equivalent share for the second quarter of
1998 were $.52 compared to $.76 in 1997, a 32% decrease. First half net earnings
per common and common equivalent share decreased 8% from $1.30 in 1997 to $1.15
in 1998. These decreases primarily reflect the non-recurring gains in 1997
discussed above.
-8-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION AND LIQUIDITY
The insurance brokerage industry is not capital intensive. The Company has
historically been profitable and positive cash flow from operations and funds
available under various loan agreements have been sufficient to fund the
operating and capital expenditures of the Company. Cash generated from operating
activities was $3.4 million and $35.1 million for the six months ended June 30,
1998 and 1997, respectively. Because of the variability related to the timing of
premiums and fees receivable and premiums payable, net cash flows from
operations for the Company can vary substantially from quarter to quarter. Funds
restricted as to the Company's use, primarily premiums held as fiduciary funds,
have not been included in determining the Company's overall liquidity.
The Company maintains a $20.0 million unsecured revolving credit agreement (the
"Credit Agreement") requiring repayment of any loans under the agreement no
later than June 30, 2001. During the six months ended June 30, 1998, the Company
borrowed $15.0 million and repaid $10.0 million of short-term borrowings under
the Credit Agreement. As of June 30, 1998, $5.0 million was outstanding under
the Credit Agreement. These borrowings were primarily used to finance a portion
of the Company's expanded investment activity on a short-term basis. The Credit
Agreement requires the maintenance of certain financial requirements. The
Company is currently in compliance with these requirements. The Company also had
two Term Loan Agreements. In January and June 1998, the Company retired the
remaining loan balances of $630,000 and $500,000, respectively, on these Term
Loan Agreements.
The Company also has line of credit facilities of $27.5 million which expire on
April 30, 1999. Periodically, the Company will make short-term borrowings under
these credit facilities to meet short-term cash flow needs. During the six
months ended June 30, 1998, the Company borrowed $27.5 million and repaid $25.0
million of short-term borrowings under these facilities. As of June 30, 1998,
$17.5 million was outstanding under these facilities. These borrowings were
primarily used to finance a portion of the Company's expanded investment
activity on a short-term basis.
The Company has made commitments to invest additional funds in several of its
equity and tax advantaged investments. At December 31, 1997, the Company had
commitments to invest $26.0 million in these investments in 1998. In addition,
the Company contingently committed to invest an additional $3.0 million in 1998
related to a line of credit arrangement with one of its equity investments. As
of June 30, 1998, approximately $29.0 million had been invested under these
commitments, which were funded primarily from the $15.2 million of net proceeds
from the sales and maturities of marketable securities, with the remainder
funded from short-term borrowings. At June 30, 1998, the Company has
unconditionally guaranteed $30.0 million of debt that was incurred by two of the
Company's equity investments in 1998. As of June 30, 1998, no funds have been
expended related to these guarantees.
Through the first six months of 1998, the Company paid $11.1 million in cash
dividends on its common stock. On May 19, 1998, the Company declared a regular
quarterly cash dividend of $.35 per share payable on July 15, 1998 to
Shareholders of Record as of June 30, 1998. This is a 13% increase over the
quarterly dividend per share in 1997.
Net capital expenditures were $4.4 million and $4.5 million for the six months
ended June 30, 1998 and 1997, respectively. In 1998, the Company expects to make
expenditures for capital improvements at least equal to the $11.3 million
expended in the year ended December 31, 1997. Capital expenditures by the
Company are related primarily to expanded offices and updating computer systems
and equipment.
-9-
<PAGE>
ARTHUR J. GALLAGHER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY (Continued)
In 1988, the Company adopted a plan which has been extended through June 30,
1999, to repurchase its common stock. Through the first six months of 1998 and
1997, the Company repurchased 700 shares at a cost of $25,000 and 414,500 shares
at a cost of $13.2 million, respectively. The repurchased shares are held for
reissuance in connection with exercises of options under its stock option plans.
Under the provisions of the plan, the Company is authorized to repurchase up to
750,000 additional shares through June 30, 1999. The Company is under no
commitment or obligation to repurchase any particular amount of common stock and
at its discretion may suspend the repurchase plan at any time.
YEAR 2000 COMPLIANCE
Computer programs that have time-sensitive software may recognize the date "00"
as the year 1900 rather than the Year 2000. Beginning in the Year 2000, this
could result in a system failure or miscalculations causing disruptions of
operations. With respect to dates in the Year 2000 and thereafter, the Company
has completed an assessment of its computer systems and software. The Company is
in the process of modifying or replacing portions of its existing software so
that its computer systems will function properly in the Year 2000. Generally,
these modifications and replacements were contemplated with normal system
enhancements and improvements. The cost of internal compliance has not been
material to date and is not expected to be material in the future. The Company
plans to substantially complete the required software modifications or
replacements in 1998. The Company also has an ongoing program to review the
status of Year 2000 compliance efforts of its business partners and vendors.
While the Company believes it is taking all of the appropriate steps to assure
the Company's Year 2000 compliance, the Company is dependent on business
partner, vendor and client compliance to a large extent. Consequently, the Year
2000 compliance problems that may be experienced by the Company's business
partners, vendors or clients could have a material adverse effect on the
Company's future financial condition and future operating results. No assurance
can be given that the Company's and the other entities' efforts will completely
address the Year 2000 issue.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report contains forward-looking statements. Forward-looking
statements made by or on behalf of the Company are subject to risks and
uncertainties, including but not limited to the following: the Company's
commission revenues are highly dependent on premiums charged by insurers, which
are subject to fluctuation; the property/casualty insurance industry continues
to experience a prolonged soft market (despite high losses) which reduces
premiums thereby reducing commissions; continued low interest rates will reduce
the Company's income earned on invested funds; the insurance brokerage and
service businesses are extremely competitive with a number of competitors being
substantially larger than the Company; the alternative insurance market
continues to grow which could unfavorably impact commission and favorably impact
fee revenue; the Company's revenues vary significantly from quarter to quarter
as a result of the timing of policy renewals and the net effect of new and lost
business production; the general level of economic activity can have a
substantial impact on the Company's renewal business. The Company's ability to
grow has been enhanced through acquisitions, which may or may not be available
on acceptable terms in the future and which, if consummated, may or may not be
advantageous to the Company. Accordingly, actual results may differ materially
from those set forth in the forward-looking statements. Attention is also
directed to other risk factors set forth in documents filed by the Company with
the Securities and Exchange Commission.
-10-
<PAGE>
ARTHUR J. GALLAGHER & CO.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of Stockholders of Arthur J. Gallagher & Co. held
on May 19, 1998, 15,295,153 shares of the Company's Common Stock, or
90.4% of the total Common Stock outstanding on the record date for such
meeting, were represented.
Among other things, the stockholders of the Company elected Mr. Robert
E. Gallagher, Mr. Frank M. Heffernan, Jr., and Mr. Walter F. McClure as
Class II directors with terms expiring in 2001. Of the shares voted
with respect to the election of Mr. Robert E. Gallagher, 15,006,648
were voted in favor and 288,505 were voted against. Of the shares voted
with respect to the election of Mr. Frank M. Heffernan, Jr., 15,016,539
were voted in favor and 278,614 were voted against. Of the shares voted
with respect to the election of Mr. Walter F. McClure, 15,019,713 were
voted in favor and 275,440 were voted against.
The stockholders of the Company also approved amendments to the Arthur
J. Gallagher & Co. 1988 Incentive Stock Option Plan (i) extending the
term through May 10, 2008; (ii) authorizing the Option Committee to
amend all existing grants so that all options shall immediately vest in
the event of a change in control of the Company; (iii) providing that
future option grants shall immediately vest in the event of a change in
control of the Company; and (iv) increasing the number of shares of
Common Stock subject thereto from 550,000 to 875,000. Of the shares
voted with respect to this proposal, 13,328,081 were voted in favor,
696,420 were voted against and 1,270,652 abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 10.25 - Arthur J. Gallagher & Co. United Kingdom Incentive
Stock Option Plan (Approved by the Inland Revenue on June 12, 1998).
Exhibit 10.26 - Arthur J. Gallagher & Co. 1988 Incentive Stock Option
Plan (Restated as of May 19, 1998).
Exhibit 10.27 - Arthur J. Gallagher & Co. 1988 Nonqualified Stock
Option Plan (Restated as of January 22, 1998).
Exhibit 10.28 - Arthur J. Gallagher & Co. 1989 Non-Employee Directors'
Stock Option Plan (Restated as of January 22, 1998).
Exhibit 27.0 - Financial Data Schedule (Unaudited).
b. Reports on Form 8-K. No Reports on Form 8-K were filed during the
three-month period ended June 30, 1998.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 31st day of July,
1998.
ARTHUR J. GALLAGHER & CO.
/s/ Michael J. Cloherty
------------------------------
Michael J. Cloherty
Executive Vice President
Chief Financial Officer
/s/ Jack H. Lazzaro
------------------------------
Jack H. Lazzaro
Vice President - Finance
Chief Accounting Officer
-12-
<PAGE>
Exhibit No. 10.25
ARTHUR J. GALLAGHER & CO.
UNITED KINGDOM
INCENTIVE STOCK OPTION PLAN
-----------------------------------------
APPROVED BY THE INLAND REVENUE ON
MAY 28, 1986 AND AMENDED BY THE
DIRECTORS ON JULY 1, 1996 (APPROVED BY THE
INLAND REVENUE ON JULY 16) AND FURTHER
AMENDED BY THE DIRECTORS ON JANUARY 22,
1998 (APPROVED BY THE INLAND REVENUE ON
JUNE 12, 1998).
-----------------------------------------
<PAGE>
ARTHUR J. GALLAGHER & CO.
UNITED KINGDOM
INCENTIVE STOCK OPTION PLAN (the Plan)
1. Purpose
The Plan has been established to enable the United Kingdom resident
employees and directors of Arthur J. Gallagher & Co. (the Company) and
companies in its group to obtain beneficial tax treatment under section 185
of the Income and Corporation Taxes Act 1988 (Section 185) in respect of
options granted to them over shares in the capital of the Company.
The Plan shall be administered by the Committee of the Board of the Company
appointed to administer the Arthur J. Gallagher & Co. Incentive Stock
Option Plan (the US Plan) pursuant to the powers conferred on the Committee
under the US Plan. The Plan accordingly reflects the terms and conditions
of the US Plan and, for administrative convenience only, the rules of the
Plan show in italics those provisions which are not contained in the US
Plan.
The Plan was approved by the Inland Revenue pursuant to Schedule 10 to the
Finance Act 1984 (Schedule 10) on 28 May 1986.
The purpose of the Plan is to promote the interests of Arthur J. Gallagher
& Co., a Delaware corporation, and its shareholders by providing key
employees resident in the United Kingdom on whom rests the major
responsibility for the present and future success of the Company and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company and thereby develop a stronger incentive to put forth maximum
effort for the continued success and growth of the Company and its
subsidiaries. These goals are enhanced further by the fact that
participants in the Plan who are subject to United Kingdom tax will be
entitled to the beneficial tax treatment provided for in section 185 in
respect of options granted to and exercised by them in accordance with the
rules of the Plan and the provisions of section 185. In addition, the
opportunity to acquire a proprietary interest in the Company will aid in
attracting and retaining key personnel of outstanding ability.
2. Administration
All administrative duties hereunder shall rest with the Option Committee of
the Board of Directors (hereinafter the Committee) which will consist of
not less than two persons, each of whom will be a disinterested person as
that term is used in Rule 16b-3 under the Securities Exchange Act 1934, as
amended. The Committee shall have the duty and authority, subject to the
provisions of the Plan and of Schedule 9 to the Income and Corporation
Taxes Act 1988 (Schedule 9), to:
(a) determine which individuals shall receive options and how many options
each individual shall receive;
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(b) grant the options;
(c) at the time of a grant of options determine the terms and conditions of
the options including exercise dates, limitations on exercise, and time
periods for exercise, (Vesting Schedules) and the price and payment terms;
(d) prescribe the form or forms of the instruments evidencing any options
granted under the Plan and of any other instruments required under the
Plan, and to change such forms from time to time; and
(e) adopt such rules and regulations for the administration of the Plan as
it deems appropriate.
In making the foregoing determinations the Committee may take into account
the nature of the services rendered by the respective individuals, their
present and potential contributions to the Company's success, and such
other factors as the Committee, in its discretion, shall deem relevant.
3. Shares Subject to the Plan
The shares that may be made subject to options under the Plan shall be
shares of Common Stock of the Company, one dollar ($1.00) par value (Common
Stock), and the total shares subject to option and issued pursuant to this
Plan shall not exceed, in the aggregate, 720,000 share of the Common Stock
of the Company. If any such option lapses or terminates for any reason
without having been exercised in full, the shares covered by the
unexercised portion of such option may again be made subject to options
granted under the Plan. Shares issued upon exercise of options granted
under the Plan may be shares held by the Company either as treasury shares
or as authorized but previously unissued shares.
The shares put under option pursuant to the Plan shall comply with the
conditions contained in paragraphs 10 to 14 of Schedule 9.
4. Eligibility
Employees eligible to participate in the Plan shall be those salaried
officers and other salaried key employees of the Company and its
subsidiaries who, in the opinion of the Committee, are in a position to
affect materially the profitability and growth of the Company and its
subsidiaries. Directors who are salaried key employees within the meaning
of the foregoing are eligible to participate in the Plan, provided however
that members of the Committee shall not be eligible to receive options. An
employee owning stock comprising over 10% of the combined voting power of
the Company or any subsidiary (a 10% Shareholder) is not eligible to
receive an option unless the option price offered is at least 110% of the
fair market value of the stock at the time the option is granted, and
unless the option by its terms expires not more than five years from the
date of grant. For all purposes of the Plan, except where "wholly owned" is
indicated, the term subsidiary shall mean a corporation 50% or more of the
stock of which is owned directly
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by the Company or indirectly through another corporation or corporations in
which the Company owns 50% or more of the stock and which is, in addition,
under the control of the Company, within the meaning of section 840 of the
Income and Corporation Taxes Act 1988.
Further, an option may only be granted under the Plan to a person if (and
only if) he is a full-time executive director or qualifying employee of the
Company and he does not fall within the provisions of paragraph 8 of
Schedule 9.
For the purpose of this paragraph a person shall be treated as a full-time
executive director of the Company if he is employed by the Company or a
subsidiary to work not less than 25 hours per week (excluding meal breaks).
For the purpose of this paragraph a qualifying employee is an employee of
the Company or a subsidiary who is not also a director of the Company or a
subsidiary and who is required to work for that company under a contract of
employment.
5. Granting of Options
Subject to the terms and conditions of the Plan, the Committee may from
time to time prior to the termination of the Plan grant to eligible
employees options to purchase the number of shares of Common Stock
authorized by the Committee, subject to such terms and conditions as the
Committee may determine. More than one option may be granted to the same
employee. The day on which the Committee approves the granting of an option
shall be considered as the date on which such option is granted.
6. Option Price
The purchase price per share of Common Stock subject to an option shall be
fixed by the Committee, but shall not be less than 100% (110% in the case
of a 10% Shareholder) of the fair market value of a share of Common Stock
on the date the option is granted by the Committee. The fair market value
of a share of Common Stock shall be the closing price for the Company's
Common Stock on the New York Stock Exchange as listed in the Wall Street
Journal for the date the option is granted.
7. Terms of Options
The term of each option shall be not more than 10 years commencing with the
date of grant (5 years in the case of a 10% Shareholder). Each option shall
also terminate as provided in paragraph 13.
8. Method of Exercising Options
Any option granted hereunder may be exercised by the optionee by delivering
to the Company at is main office (attention of the Secretary) written
notice of the number of shares with respect to which the option rights are
being exercised and by paying in cash
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the purchase price of the shares purchased in full, in exchange for the
issuance and delivery of certificates therefor.
9. Amount Exercisable
Each option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its
discretion may specify upon granting the option, provided that any such
conditions have been approved by the Inland Revenue prior to their
imposition; and provided, however, that the partial exercise of an option
or a combination of options shall in no event be for the smaller of (a) 100
shares of Common Stock, or (b) 10 per cent of the shares of Common Stock
subject to options held by the employee, unless a purchase of fewer shares
would entirely exhaust the options held by the employee; and provided
further that the optionee's cumulative purchases of Common Stock subject to
this option may not exceed the following:
<TABLE>
<CAPTION>
Percentage of
Common Stock Percentage of
Subject to Option Common Stock
Years Following (Other than Subject to Option
Date of Grant 10% Shareholder) (10% Shareholder)
<S> <C> <C>
remainder of calendar year 0% 0%
following date of grant
1/st/ calendar year following date 10% 20%
of grant
2/nd/ calendar year following date 20% 40%
of grant
3/rd/ calendar year following date 30% 60%
of grant
4/th/ calendar year following date 40% 80%
of grant
5/th/ calendar year following date 50% 100%
of grant
6/th/ calendar year following date 60% 100%
of grant
7/th/ calendar year following date 70% 100%
of grant
8/th/ calendar year following date 80% 100%
of grant
9/th/ calendar year following date 90% 100%
of grant
</TABLE>
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<PAGE>
10/th/ calendar year following date 100% 100%
of grant
and provided further that the Committee shall not attach conditions to the
exercise of the option which would prevent the employee from being capable
of satisfying the requirements of sub-section (5) of Section 185 at some
time during the life of the option. Notwithstanding the provisions of this
Paragraph 9, no option granted under the Plan shall be exercised at any
time when the employee holding that option falls within the provisions of
Paragraph 8 of Schedule 9.
On the exercise or partial exercise of an option the shares will be
allotted to the employee, a share certificate issued and his name
registered as stockholder in the Company's books within the thirty days
following the date of exercise of the option.
10. Maximum Annual Amount
No option shall be granted to an employee under the Plan if the aggregate
market value (determined as in paragraph 6 above) of all shares of Common
Stock the subject of outstanding options granted to him under the Plan, or
granted to him under any other share option scheme approved under Schedule
9 and established by the Company or an associated company would exceed
(Pounds)30,000, or if different, such appropriate limit as shall from time
to time apply to the Plan by virtue of paragraph 28 of Schedule 9.
In order to calculate whether the aggregate fair market value of all shares
of Common Stock the subject of any option (determined as in paragraph 6
above) exceeds the limit referred to in this paragraph, the UK pounds
sterling equivalent of such aggregate fair market value shall be calculated
by applying the US$/UK(Pounds) spot exchange rate quoted in the London
Financial Times on the date on which the relevant option was granted.
For the purpose of this paragraph:
associated company shall mean an associated company within the meaning
of section 840 of the Income and Corporation Taxes Act 1988.
11. Capital Adjustments Affecting Common Stock
In the event of a capital adjustment resulting from a stock dividend, stock
split, reorganization, merger, consolidation, or a combination or exchange
of shares, the number of shares of Common Stock subject to the Plan and the
number of shares under the option shall be adjusted in a manner consistent
with such capital adjustment. The price of any shares under option shall be
adjusted so that there will be no change in the aggregate purchase price
payable upon exercise of any such option.
Provided that no adjustment consequent on such an event shall be made
pursuant to this paragraph 11 in respect of options granted under the Plan
at any time while the Plan is approved by the Inland Revenue without the
prior approval of the Inland Revenue.
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12. TRANSFERABILITY OF OPTIONS
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during his lifetime, only by him. Provided that an option granted under the
Plan shall only be transferable in the circumstances set out in paragraph
27(2) of Schedule 9.
13. /1/TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
Any termination of the employment relationship between the Company or a
subsidiary and the optionee due to death, disability or retirement, as
those events are provided for in (A), (B) and (C) below, shall not act to
terminate an option grant. A termination of the employment relationship
for any reason other than those so provided in (A), (B) and (C) below shall
act to terminate an option grant as of the effective date of such
termination of the employment relationship, as reflected in the records of
the Company. The Committee shall have the authority to determine whether
an authorized leave of absence or absence due to military or government
service shall constitute a termination of the employment relationship for
purposes hereof.
(A) /1/DEATH If an optionee dies while in the employ of the Company or a
subsidiary and before the date of expiration of such option, such option
shall terminate on the earlier of such date of expiration or twelve months
following the date of such death and any Vesting Schedule shall be
accelerated so that the option shall be exercisable as to 100% of the
Common Stock subject to the Option (notwithstanding that the conditions as
to cumulative purchases referred to in paragraph 9 above would not
otherwise be satisfied). After the death of the optionee, his executors,
administrators, or any person or persons to whom his option may be
transferred by will or by the laws of descent and distribution shall have
the right, at any time prior to such termination, to exercise the option,
in whole or in part, subject to the terms and conditions of the Plan and of
the option grant letter or stock option agreement entered into by the
optionee as varied by this paragraph (A).
(B) /1/RETIREMENT FOR DISABILITY If, before the date of expiration of the
option, the employment relationship between the Company or any subsidiary
and the optionee is terminated at a time when the optionees' medical
condition, upon such termination, would qualify the optionee to receive
long term disability benefits under the Company's employee benefits plan
such option shall not terminate on the termination of the employment
relationship and any Vesting Schedule shall be accelerated so that the
option shall be exercisable at any time until the expiration of the option
in respect of 100% of the Common Stock then remaining subject to the Option
(notwithstanding that the conditions as to cumulative purchases referred to
in paragraph 9 above would not otherwise be satisfied).
--------------------------
/1/ The provisions of Rule 13 were amended with effect from the date of
Inland Revenue approval on 16 July 1996 and are therefore applicable
only to options granted after that date.
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<PAGE>
(C) /1/RETIREMENT If, before the date of expiration of the option, the
holder of an option retires from the employment of the company or any
subsidiary in circumstances other than those referred to in paragraph (B)
above at a time when the optionee, upon such termination, would be
immediately eligible to commence to receive retirement benefits under the
Company's pension plan such option shall not terminate on the termination
of the employment relationship and any Vesting Schedule shall be
accelerated so that the option shall be exercisable at any time until the
expiration of the option in respect of 100% of the Common Stock then
remaining subject to the Option (notwithstanding that the conditions as to
cumulative purchases referred to in paragraph 9 above would not otherwise
be satisfied).
14. REQUIREMENTS OF LAW
In the event the shares issuable on exercise of an option are not
registered under the Securities Act of 1933 of the USA, the Company shall
imprint the following legend or any other legend which counsel for the
Company considers necessary or advisable to comply with the Securities Act
of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel in form and substance satisfactory to the Corporation that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event an shares are so
registered the Company may remove any legend on certificates representing
such shares. The Company shall make reasonable efforts to cause the
exercise of an option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
15. NO RIGHTS AS STOCKHOLDER
No optionee shall have rights as a stockholder with respect to shares
covered by his option until the date of issuance of a stock certificate for
such shares; and, except as otherwise provided in paragraph 11 hereof, no
adjustment for dividends, or otherwise, shall be made if the record date
therefor is prior to the date of issuance of such certificate.
16. EMPLOYMENT OBLIGATIONS
The granting of any option shall not impose upon the Company or subsidiary
any obligation to employ or continue to employ any optionee; and the right
of the Company or
- -----------------------
/1/ The provisions of Rule 13 were amended with effect from the date of
Inland Revenue approval on 16 July 1996 and are therefore applicable
only to options granted after that date.
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<PAGE>
subsidiary to terminate the employment of any officer or other employee
shall not be diminished or affected by reason of the fact that an option
has been granted to him.
17. WRITTEN AGREEMENT
Each option granted hereunder shall be embodied in writing, the form and
content of which shall be as the Committee in its discretion shall deem
advisable.
18. AMENDMENT, TERMINATION AND EFFECTIVE DATE
This Plan shall be effective as of the date of its approval by the Inland
Revenue and shall terminate on 29 May 2006. The Board shall have the right
to amend, suspend or terminate the Plan, provided that no termination or
amendment of the Plan may, without the consent of the individual to whom
any option shall have been therefore granted, adversely affect the rights
of such individual under such option. Unless in respect of (a), (b) and
(c) below first approved by the shareholders of the Company, no amendment
shall be made to the Plan which:
(a) materially modifies the eligibility requirements provided in paragraph
4;
(b) changes the option price specified in Paragraph 6, except as provided
in Paragraph 11; or
(c) changes the option period in Paragraph 7.
Notwithstanding the provisions of this Paragraph 18, no amendment shall
have effect at any time when the Plan is approved by the Inland Revenue
until approved by the Inland Revenue. However, the Committee may make such
amendments as are required to obtain the approval by the Inland Revenue of
the Plan pursuant to Schedule 9.
19. CHANGE IN CONTROL
In the event of a change in control of the Company, as defined below, each
option outstanding shall immediately become exercisable in full. For all
purposes of the Plan, a "change in control of the Company" occurs if:
(a) any person or group, as defined in Sections 13(d) and 14(d)(2) of the
Exchange Act, as amended, is or becomes the beneficial owner, directly
or indirectly of securities of the Company representing 50 percent or
more of the combined voting power of the Company's outstanding
securities then entitled to vote for the election of directors; or
(b) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors and any new
directors whose election by the Board or nomination for election by
the Company's Stockholders was approved by at least two-thirds of the
directors then still in office who either were
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<PAGE>
directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute at least a
majority thereof; or
(c) the Stockholders of the Company shall approve the sale of all or
substantially all of the assets of the Company or any merger,
consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in
clause (a) or (b) above.
This Paragraph 19 will be effective only for options granted after 12 June
1998 being the date on which Inland Revenue approval was given to the
relevant rule amendment.
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ARTHUR J. GALLAGHER & CO. EXHIBIT NO. 10.26
1988 INCENTIVE STOCK OPTION PLAN
(RESTATED AS OF MAY 19, 1998)
1. PURPOSE
The purpose of this 1988 Incentive Stock Option Plan (the "Plan") is to
promote the interests of Arthur J. Gallagher & Co., a Delaware corporation
(the "Company"), and its shareholders by providing key employees on whom
rests the major responsibility for the present and future success of the
Company and its subsidiaries with an opportunity to acquire a proprietary
interest in the Company and thereby develop a stronger incentive to put
forth maximum effort for the continued success and growth of the Company
and its subsidiaries. In addition, the opportunity to so acquire a
proprietary interest in the Company will aid in attracting and retaining
key personnel of outstanding ability.
2. ADMINISTRATION
A. All administrative duties hereunder shall rest with the Option
Committee of the Board of Directors (hereinafter the "Committee"). The
Committee shall have the duty and authority, subject to the provisions
of the Plan and of Section 422A of the Internal Revenue Code (the
"Code"), to:
(i) determine which individuals shall receive options and how many
options each individual shall receive;
(ii) grant the options;
(iii) determine the terms and conditions of the options including
exercise dates, limitations on exercise, and the price and
payment terms;
(iv) determine the limitation, if any, on the number of shares
acquired under an option which may be sold by the employee in
any one year;
(v) prescribe the form or forms of the instruments evidencing any
options granted under the Plan and of any other instruments
required under the Plan, and to change such forms from time to
time; and
(vi) adopt such rules and regulations for the administration of the
Plan as it deems appropriate.
B. In making the foregoing determinations the Committee may take into
account the nature of the services rendered by the respective
individuals, their present and potential contributions to the
Company's success, and such other factors as the Committee, in its
discretion, shall deem relevant.
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C. The Committee is further authorized, at its discretion, to amend at
any time all previous grants of options pursuant to the Plan and in
effect as of May 19, 1998, to provide that in the event of a change in
control of the Company, as defined in Paragraph 19 below, all such
options shall become immediately vested and exercisable.
3. SHARES SUBJECT TO THE PLAN
The shares that may be made subject to options under the Plan shall be
shares of Common Stock of the Company, one dollar ($1.00) par value
("Common Stock"), and the total shares subject to option and issued
pursuant to this Plan shall not exceed, in the aggregate, 875,000 shares of
the Common Stock of the Company. If any such option lapses or terminates
for any reason without having been exercised in full, the shares covered by
the unexercised portion of such option may again be made subject to options
granted under the Plan. Shares issued upon exercise of options granted
under the Plan may be shares held by the Company either as treasury shares
or as authorized but previously unissued shares. Upon authorization from
the Board of Directors, the Company may from time to time acquire shares of
Common Stock on the open market upon such terms as the Board shall deem
appropriate for reserve in its treasury for reissuance in connection with
exercises hereunder.
4. ELIGIBILITY
Employees eligible to participate in the Plan shall be those salaried
officers and other salaried key employees of the Company and its
subsidiaries who, in the opinion of the Committee, are in a position to
affect materially the profitability and growth of the Company and its
subsidiaries. Directors who are salaried key employees within the meaning
of the foregoing are eligible to participate in the Plan, provided however
that members of the Committee shall not be eligible to receive options. An
employee owning stock comprising over 10% of the combined voting power of
the Company or any subsidiary, as determined pursuant to applicable
regulations under the Code, (a "10% Shareholder"), is not eligible to
receive an option unless the option price offered is at least 110% of the
fair market value of the stock at the time the option is granted, and
unless the option by its terms expires not more than five years from the
date of grant. For all purposes of the Plan, except where "wholly owned"
is indicated, the term "subsidiary" shall mean a corporation 50% or more of
the stock of which is owned directly by the Company or indirectly through
another corporation or corporations in which the Company owns 50% or more
of the stock.
5. GRANTING OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may from
time to time prior to the termination of the Plan grant to eligible
employees options to purchase the number of shares of Common Stock
authorized by the Committee,
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subject to such terms and conditions as the Committee may determine. More
than one option may be granted to the same employee.
6. OPTION PRICE
The purchase price per share of Common Stock subject to an option shall be
fixed by the Committee, but shall not be less than 100% (110% in the case
of a 10% Shareholder) of the fair market value of a share of Common Stock
on the date the option is granted by the Committee.
7. TERM OF OPTIONS
The term of each option shall be not more than 10 years commencing with the
date of grant (5 years in the case of a 10% Shareholder). Except as
provided in Paragraph 13 hereof, no option may be exercised at any time
unless the holder thereof is then an employee of the Company or of a
subsidiary.
8. METHOD OF EXERCISING OPTIONS
Any option granted hereunder may be exercised by the optionee by delivering
to the Company at its main office (attention of the Secretary) written
notice of the number of shares with respect to which the option rights are
being exercised and by paying in cash the purchase price of the shares
purchased in full, in exchange for the issuance and delivery of
certificates therefor. The Committee in its discretion may permit an
employee to use shares of stock of the Company as payment for additional
stock purchased pursuant to an option. The value of the shares to be used
as payment shall be determined by the Committee. The Company may delay the
processing of any exercise hereunder so long as may be necessary, in the
opinion of counsel to the Company, to comply with securities laws and
regulations relating to disclosure of material non-public information
concerning the Company.
9. AMOUNT EXERCISABLE
Each option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its
discretion may specify upon granting the option.
10. MAXIMUM ANNUAL AMOUNT
The aggregate maximum fair market value of stock (determined at date of
grant) of the underlying Common Stock for which incentive stock options
granted hereunder and under any other "incentive" stock option plan of the
Company are first exercisable by any employee in any calendar year may not
exceed $100,000.
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<PAGE>
11. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
In the event of a capital adjustment resulting from a stock dividend, stock
split, reorganization, merger, consolidation, or a combination or exchange
of shares, the number of shares of Common Stock subject to the Plan and the
number of shares under the option shall be adjusted in a manner consistent
with such capital adjustment. The price of any shares under option shall
be adjusted so that there will be no change in the aggregate purchase price
payable upon exercise of any such option.
12. TRANSFERABILITY OF OPTIONS
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during his lifetime, only by the optionee.
13. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
Except as may be otherwise expressly provided herein, options shall
terminate upon the earlier of the date of the expiration of such option or
upon termination of the employment relationship between the Company or a
subsidiary and the optionee for any reason other than death or disability
as described below. Whether authorized leave of absence, or absence on
military or government service, shall constitute severance of the
employment relationship between the Company or a subsidiary and the
optionee shall be determined by the Committee at the time thereof.
A. DEATH. If an optionee dies while in the employ of the Company or a
subsidiary, and before the date of expiration of such option, such
option shall terminate on the earlier of such date of expiration or
three months following the date of such death. After death, the
optionee's executors, administrators, or any person or persons to whom
the optionee's option may be transferred by will or by the laws of
descent and distribution shall have the right, at any time prior to
such termination, to exercise the option, in whole or in part, subject
to the terms and conditions of the Plan and of the stock option
agreement entered into by the optionee.
B. RETIREMENT FOR DISABILITY. If, before the date of expiration of the
option, the holder of an option shall retire from the employ of the
Company or any subsidiary for reasons of disability and is disabled
within the meaning of Internal Revenue Code Section 105(d)(4), such
option shall terminate on the earlier of the date of expiration or one
year after the date of such retirement.
14. REQUIREMENTS OF LAW
In the event the shares issuable on exercise of an option are not
registered under the Securities Act of 1933, the Company shall imprint the
following legend or any
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other legend which counsel for the Company considers necessary or advisable
to comply with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel in form and substance satisfactory to the Corporation that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so
registered the Company may remove any legend on certificates representing
such shares. The Company shall make reasonable efforts to cause the
exercise of an option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
15. NO RIGHTS AS STOCKHOLDER
No optionee shall have rights as a stockholder with respect to shares
covered by an option until the date of issuance of a stock certificate for
such shares; and, except as otherwise provided in Paragraph 11 hereof, no
adjustment for dividends, or otherwise, shall be made if the record date
therefor is prior to the date of issuance of such certificate.
16. EMPLOYMENT OBLIGATION
The granting of any option shall not impose upon the Company or subsidiary
any obligation to employ or continue to employ any optionee; and the right
of the Company or subsidiary to terminate the employment of any officer or
other employee shall not be diminished or affected by reason of the fact
that an option has been granted to such officer or employee.
17. FORM OF AGREEMENT
Each option granted hereunder shall be embodied in a writing, the form and
content of which shall be as the Committee in its discretion shall deem
advisable.
18. AMENDMENT, TERMINATION AND EFFECTIVE DATE
This Plan shall be effective as of May 10, 1988, and shall terminate on May
10, 2008. The Board shall have the right to amend, suspend or terminate
the Plan, provided that no termination or amendment of the Plan may,
without the consent of the individual to whom any option shall have been
theretofor granted, adversely affect the rights of such individual under
such option. Unless first approved by the shareholders of the Company, no
amendment shall be made to the Plan which:
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A. materially modifies the eligibility requirements provided in Paragraph
4;
B. increases the total number of shares of stock which may be purchased
under the Plan by all employees or by any one of them, except as
provided in Paragraph 11;
C. changes the option price specified in Paragraph 6, except as provided in
Paragraph 11; or
D. changes the option period in Paragraph 7.
19. CHANGE IN CONTROL
In the event of a change in control of the Company, as defined below, each
option outstanding shall immediately become exercisable in full. For all
purposes of the Plan, a "change in control of the Company" occurs if: (a)
any person or group, as defined in Sections 13(d) and 14(d)(2) of the
Exchange Act, as amended, is or becomes the beneficial owner, directly or
indirectly of securities of the Company representing 50 percent or more of
the combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; (b) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose election by
the Board or nomination for election by the Company's Stockholders was
approved by at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute at least a
majority thereof; or (c) the Stockholders of the Company shall approve the
sale of all or substantially all of the assets of the Company or any
merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause
(a) or (b) above.
IN WITNESS WHEREOF, the Company has caused its President and Secretary to
execute this Restated Plan this 19th day of May, 1998.
ARTHUR J. GALLAGHER & CO.
By: /s/J. Patrick Gallagher, Jr.
---------------------------------------
J. Patrick Gallagher, Jr.
President
Attest:
/s/Carl E. Fasig
- ------------------------------
Carl E. Fasig, Secretary
6
<PAGE>
ARTHUR J. GALLAGHER & CO. EXHIBIT NO. 10.27
1988 NONQUALIFIED STOCK OPTION PLAN
(RESTATED AS OF JANUARY 22, 1998)
1. PURPOSE
The purpose of this 1988 Nonqualified Stock Option Plan (the "Plan") is to
promote the interests of Arthur J. Gallagher & Co., a Delaware corporation
(the "Company"), and its shareholders by providing key employees on whom
rests the major responsibility for the present and future success of the
Company and its subsidiaries with an opportunity to acquire a proprietary
interest in the Company and thereby develop a stronger incentive to put
forth maximum effort for the continued success and growth of the Company
and its subsidiaries. In addition, the opportunity to so acquire a
proprietary interest in the Company will aid in attracting and retaining
key personnel of outstanding ability.
2. ADMINISTRATION
A. All administrative duties hereunder shall rest with the Option
Committee of the Board of Directors (hereinafter the "Committee").
The Committee shall have the duty and authority, subject to the
provisions of the Plan, to:
(i) determine which individuals shall receive options and how many
options each individual shall receive;
(ii) grant the options;
(iii) determine the terms and conditions of the options including
exercise dates, limitations on exercise and time periods for exercise
("Vesting Schedules"), and the price and payment terms;
(iv) determine the limitation, if any, on the number of shares
acquired under an option which may be sold by the employee in any
year;
(v) prescribe the form or forms of the instruments evidencing any
options granted under the Plan ("Option Agreements") and of any other
instruments required under the Plan, and to change such forms from
time to time; and
(vi) adopt such rules and regulations for the administration of the
Plan as it deems appropriate.
B. The Committee is further authorized, at the discretion of the Committee,
to amend, at any time, all Option Agreements entered into pursuant to the
Plan and in effect as of May 11, 1993:
1
<PAGE>
(i) to provide that the Option Agreements, and all rights thereunder,
shall continue and be unaffected by any termination of the employment
relationship of the type described in Paragraph 2(C) below; and/or
(ii) to accelerate or shorten Vesting Schedules in the event of any
termination of the employment relationship of the type described in
Paragraph 2(C) below.
C. The types of termination of the employment relationship between an
optionee and the Company to which the Committee's amendatory power shall
apply are as follows:
(i) termination due to the death of the optionee; and
(ii) termination of the employment relationship at a time when the
optionee's medical condition, upon such termination, would qualify the
optionee to receive long term disability benefits under the Company's
employee benefits plan; and
(iii) termination of the employment relationship at a time when the
optionee, upon such termination, would be immediately eligible to
commence to receive retirement benefits under the Company's pension
plan.
D. The Committee is further authorized, at its discretion, to amend at any
time all previous grants of options pursuant to the Plan and in effect as
of January 22, 1998, to provide that in the event of a change in control of
the Company, as defined in Paragraph 18 below, all such options shall
become immediately vested and exercisable.
E. In exercising the authority set forth in Section 2A, the Committee may
take into account the nature of the services rendered by the respective
individuals, their present and potential contributions to the Company's
success, and such other factors as the Committee, in its discretion, shall
deem relevant."
3. SHARES SUBJECT TO THE PLAN
The shares that may be made subject to options under the Plan shall be
shares of Common Stock of the Company, one dollar ($1.00) par value
("Common Stock"), and the total shares subject to option and issued
pursuant to this Plan shall not exceed, in the aggregate, 6,350,000 shares
of the Common Stock of the Company. If any such option lapses or terminates
for any reason without having been exercised in full, the shares covered by
the unexercised portion of such option may again be made subject to options
granted under the Plan. Shares issued upon exercise of options granted
under the Plan may be shares held by the Company either as treasury shares
or as authorized but previously unissued shares. Upon
2
<PAGE>
authorization from the Board of Directors, the Company may from time to
time acquire shares of Common Stock on the open market upon such terms as
the Board shall deem appropriate for reserve in its treasury for reissuance
in connection with exercises hereunder.
4. ELIGIBILITY
Employees eligible to participate in the Plan shall be those salaried
officers and other salaried key employees of the Company and its
subsidiaries who, in the opinion of the Committee, are in a position to
affect materially the profitability and growth of the Company and its
subsidiaries. Directors who are salaried key employees within the meaning
of the foregoing are eligible to participate in the Plan, provided however
that members of the Committee shall not be eligible to receive options.
5. GRANTING OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may from
time to time prior to the termination of the Plan grant to eligible
employees options to purchase the number of shares of Common Stock
authorized by the Committee, subject to such terms and conditions as the
Committee may determine. More than one option may be granted to the same
employee. The day on which the Committee approves the granting of an
option shall be considered as the date on which such option is granted.
6. OPTION PRICE
The purchase price per share of Common Stock subject to an option shall be
fixed by the Committee.
7. TERM OF OPTIONS
The term of each option shall be not more than 10 years commencing with the
date of the grant. Each option shall also terminate as provided in Section
12.
8. METHOD OF EXERCISING OPTIONS
Any option granted hereunder may be exercised by the optionee by delivering
to the Company at its main office (attention of the Secretary) written
notice of the number of shares with respect to which the option rights are
being exercised and by paying in cash the purchase price of the shares
purchased in full, in exchange for the issuance and delivery of
certificates therefor. The Committee in its discretion may permit an
employee to use shares of stock of the Company as payment for additional
stock purchased pursuant to an option. The value of the shares to be used
as payment shall be determined by the Committee. The Company may delay the
processing of any exercise hereunder so long as may be necessary, in the
3
<PAGE>
opinion of counsel to the Company, to comply with securities laws and
regulations relating to disclosure of material non-public information
concerning the Company.
9. AMOUNT EXERCISABLE
Each option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its
discretion may specify upon granting the option.
10. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
In the event of a capital adjustment resulting from a stock dividend, stock
split, reorganization, merger, consolidation, or a combination or exchange
of shares, the number of shares of Common Stock subject to the Plan and the
number of shares under the option shall be adjusted in a manner consistent
with such capital adjustment. The price of any shares under option shall
be adjusted so that there will be no change in the aggregate purchase price
payable upon exercise of any such option.
11. TRANSFERABILITY OF OPTIONS
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during his lifetime, only by him.
12. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
Any termination of the employment relationship between the Company or a
subsidiary and the optionee due to death, disability or retirement, as
those events are provided for in Section 2(C)(i), (ii) and (iii), shall not
act to terminate an option grant. A termination of the employment
relationship for any reason other than those so provided in Section
2(C)(i), (ii) and (iii) shall act to terminate an option grant as of the
effective date of such termination of the employment relationship, as
reflected in the records of the Company. The Committee shall have the
authority to determine whether an authorized leave of absence or absence
due to military or government service shall constitute a termination of the
employment relationship for purposes hereof.
13. REQUIREMENTS OF LAW
In the event the shares issuable on exercise of an option are not
registered under the Securities Act of 1933, the Company shall imprint the
following legend or any other legend which counsel for the Company
considers necessary or advisable to comply with the Securities Act of 1933:
4
<PAGE>
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel in form and substance satisfactory to the Corporation that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so
registered the Company may remove any legend on certificates representing
such shares. The Company shall make reasonable efforts to cause the
exercise of an option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER
No optionee shall have rights as a stockholder with respect to shares
covered by an option until the date of issuance of a stock certificate for
such shares; and, except as otherwise provided in Paragraph 10 hereof, no
adjustment for dividends, or otherwise, shall be made if the record date
therefor is prior to the date of issuance of such certificate.
15. EMPLOYMENT OBLIGATION
The granting of any option shall not impose upon the Company or subsidiary
any obligation to employ or continue to employ any optionee; and the right
of the Company or subsidiary to terminate the employment of any officer or
other employee shall not be diminished or affected by reason of the fact
that an option has been granted to such officer or employee.
16. FORM OF AGREEMENT
Each option granted hereunder shall be embodied in a writing, the form and
content of which shall be as the Committee in its discretion shall deem
advisable.
17. AMENDMENT, TERMINATION AND EFFECTIVE DATE
This Plan shall be effective as of June 1, 1988, and shall terminate on May
31, 2008. The Board shall have the right to amend, suspend or terminate
the Plan, provided that no termination or amendment of the Plan may,
without the consent of the individual to whom any option shall have been
theretofor granted, adversely affect the rights of such individual under
such option.
5
<PAGE>
18. CHANGE IN CONTROL
In the event of a change in control of the Company, as defined below, each
option outstanding shall immediately become exercisable in full. For all
purposes of the Plan, a "change in control of the Company" occurs if: (a)
any person or group, as defined in Sections 13(d) and 14(d)(2) of the
Exchange Act, as amended, is or becomes the beneficial owner, directly or
indirectly of securities of the Company representing 50 percent or more of
the combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; (b) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose election by
the Board or nomination for election by the Company's Stockholders was
approved by at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute at least a
majority thereof; or (c) the Stockholders of the Company shall approve the
sale of all or substantially all of the assets of the Company or any
merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause
(a) or (b) above."
IN WITNESS WHEREOF, the Company has caused its President and Secretary to
execute this Restated Plan this 22nd day of January 1998.
ARTHUR J. GALLAGHER & CO.
By: /s/J. Patrick Gallagher, Jr.
----------------------------
J. Patrick Gallagher, Jr.
President
Attest:
/s/Carl E. Fasig
- ----------------
Carl E. Fasig, Secretary
6
<PAGE>
EXHIBIT NO. 10.28
ARTHUR J. GALLAGHER & CO.
1989 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
(RESTATED AS OF JANUARY 22, 1998)
1. PURPOSE
The purpose of this 1989 Non-Employee Directors' Stock Option Plan (the
"Plan") is to promote the interests of Arthur J. Gallagher & Co., a
Delaware corporation (the "Company"), and its shareholders by providing an
incentive to non-employee directors to serve and continue to serve on the
Company's Board of Directors and to devote the large amounts of time
required to participate actively in the work of the Board of Directors. In
that the continued services of qualified non-employee directors are
essential to the sustained growth and progress of the Company, it is
thought that the Plan will make service on the Board of Directors more
attractive to present and future non-employee directors.
2. GENERAL
The Plan encompasses options granted to a non-employee director in the
discretion of the Option Committee of the Board of Directors
("Discretionary Options") and options granted to a non-employee director
pursuant to an election made by the non-employee director to receive
options in lieu of his annual retainer, as defined in Paragraph 11 hereof,
("Retainer Options"), (together, hereinafter referred to as "Options"). All
Options under the Plan will be nonqualified options not eligible for
treatment as "incentive stock options" as that term is used in Section 422A
of the Internal Revenue Code, as amended.
3. ADMINISTRATION
A. All administrative duties hereunder shall rest with the Option
Committee of the Board of Directors (hereinafter the "Committee").
Except as otherwise provided in Paragraph 11 hereof as to Retainer
Options, the Committee shall have the duty and authority, subject to
the provisions of the Plan, to:
(i) determine which non-employee directors of the Company shall
receive Options and how many Options each non-employee director
shall receive;
(ii) grant the Options;
(iii) determine the terms and conditions of the Options including
exercise dates, limitations on exercise and time periods for
exercise ("Vesting Schedules"), and the price and payment terms;
(iv) prescribe the form or forms of the instruments evidencing any
Options granted under the Plan ("Option Agreements") and of any
other
1
<PAGE>
instruments required under the Plan, and to change such forms
from time to time; and
(v) adopt such rules and regulations for the administration of the
Plan as it deems appropriate.
B. The Committee is further authorized, at the discretion of the
Committee, to amend, at any time, all Option Agreements entered into
pursuant to the Plan and in effect as of May 11, 1993:
(i) to provide that the Option Agreements, and all rights
thereunder, shall continue and be unaffected by any termination
of optionee's association with the Company for any reason;
and/or
(ii) to accelerate or shorten Vesting Schedules in the event of a
termination of an optionee's association with the Company for
any reason.
C. The Committee is further authorized, at its discretion, to amend at
any time all previous grants of options pursuant to the Plan and in
effect as of January 22, 1998, to provide that in the event of a
change in control of the Company, as defined in Paragraph 22 below,
all such options shall become immediately vested and exercisable.
4. SHARES SUBJECT TO THE PLAN
The shares that may be made subject to the Options under the Plan shall be
shares of common stock, one dollar ($1.00) par value ("Common Stock"), of
the Company, and the total number of shares subject to the Options and
issued pursuant to this Plan shall not exceed, in the aggregate, 200,000
shares of the Common Stock of the Company. If any such Option lapses or
terminates for any reason without having been exercised in full, the shares
covered by the unexercised portion of such Option may again be made subject
to the Options granted under the Plan. Shares issued upon exercise of
Options granted under the Plan may be shares held by the Company either as
treasury shares or as authorized but previously unissued shares. Upon
authorization from the Board of Directors, the Company may from time to
time acquire shares of Common Stock in the open market upon such terms as
the Board shall deem appropriate for reserve in its treasury for reissuance
in connection with exercises hereunder.
5. ELIGIBILITY
Non-employee directors of the Company shall be eligible to receive
Discretionary Options under the Plan and on an annual basis may make an
election to receive Retainer Options as set forth in Paragraph 11 hereof.
2
<PAGE>
6. GRANTING OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may from
time to time prior to the termination of the Plan grant to non-employee
directors Discretionary Options to purchase the number of shares of Common
Stock authorized by the Committee, subject to such terms and conditions as
the Committee may determine. Retainer Options shall be granted by the
Committee subject to the terms and conditions of Paragraph 11 hereof and
such other terms and conditions as the Committee may prescribe. The day on
which the Committee approves the granting of a Discretionary Option shall
be considered as the date on which such Discretionary Option is granted.
Retainer Options shall be deemed granted on the applicable Annual Meeting
Date referred to in Paragraph 11.
7. OPTION PRICE
The purchase price per share of Common Stock subject to a Discretionary
Option shall be fixed by the Committee. The purchase price per share of
Common Stock subject to a Retainer Option shall be determined as set forth
in Section 11 hereof.
8. TERM OF OPTIONS
The term of each Discretionary Option shall be determined by the Committee
but shall be not more than 10 years commencing with the date of grant. The
term of each Retainer Option shall be unlimited subject to the provisions
of Paragraph 14 hereof.
9. METHOD OF EXERCISING OPTIONS
Any Option granted hereunder may be exercised by the Optionee by delivering
to the Company at its main office (attention of the Secretary) written
notice of the number of shares of Common Stock with respect to which the
option rights are being exercised and by paying in cash the purchase price
of the shares purchased in full, in exchange for the issuance and delivery
of certificates therefor. The Committee in its discretion may permit a
director to use shares of Common Stock as payment for additional stock
purchased pursuant to an Option. The value of the shares to be used as
payment shall be determined by the Committee. The Company may delay the
processing of any exercise hereunder so long as may be necessary, in the
opinion of counsel to the Company, to comply with securities laws and
regulations relating to the disclosure of material non-public information
concerning the Company.
10. AMOUNT EXERCISABLE
Each Option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the Option may be exercised at a
particular time and to such other conditions as the Committee in its
discretion may specify upon granting the Option.
3
<PAGE>
11. RETAINER OPTIONS
Prior to December 31 of each year that the Plan is in effect, a non-
employee director may elect to receive an option to purchase Common Stock
in lieu of receipt of his annual retainer for the twelve-month period
following the date of the next annual meeting of stockholders ("Annual
Meeting Date"). The election made by the non-employee director shall remain
in full force and effect until a revocation of this election is made prior
to any December 31. Such revocation shall become effective at the next
Annual Meeting Date. The term "annual retainer" will mean the total amount
which a non-employee director will be entitled to receive for serving as a
director and for serving as a member of any committee of the Board of
Directors in the twelve-month period following the Annual Meeting Date, but
will not include fees for attendance at either meetings of the Board of
Directors or any committee of the Board of Directors, or of any other
services which a director may provide to the Company.
Each year on or before two weeks preceding such Annual Meeting Date, the
Committee shall determine the number of shares of Common Stock with respect
to which a non-employee director may have a Retainer Option, and the non-
employee director's 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 Option.
The term "fair market value" will mean the closing price of the Company's
Common Stock as reported on the New York Stock Exchange Composite
Transaction Reporting System for the day on which the Retainer Option is
granted. The option price per share shall be not less than the par value of
the Common Stock.
12. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
In the event of a capital adjustment resulting from a stock dividend, stock
split, reorganization, merger, consolidation, or a combination or exchange
of shares, the number of shares of Common Stock subject to the Plan and the
number of shares under any Option shall be adjusted in a manner consistent
with such capital adjustment. The price of any shares under an Option shall
be adjusted so that there will be no change in the aggregate purchase price
payable upon exercise of any such Option.
13. TRANSFERABILITY OF OPTIONS
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during his lifetime, only by him.
4
<PAGE>
14. TERMINATION OF ASSOCIATION WITH COMPANY
The term and effectiveness of each Discretionary Option shall not be
limited or affected by the termination of optionee's association with the
Company for any reason.
In the event of a termination of an optionee's association with the Company
for any reason, the term of each Retainer Option of such optionee shall
terminate on the tenth anniversary of the date of grant of such Retainer
Option.
15. REQUIREMENTS OF LAW
In the event the shares issuable on exercise of an Option are not
registered under the Securities Act of 1933, the Company shall (or cause
its transfer agent to) imprint the following legend or any other legend
which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel in form and substance satisfactory to the Corporation that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so
registered the Company may remove any legend on certificates representing
such shares. The Company shall make reasonable efforts to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
16. NO RIGHTS AS STOCKHOLDER
Optionees shall have no rights as a stockholder with respect to shares
covered by an Option until the date of issuance of a stock certificate for
such shares; and, except as otherwise provided in Paragraph 12 hereof, no
adjustment for dividends, or otherwise, shall be made if the record date
therefor is prior to the date of issuance of such certificate.
17. NO RIGHT TO CONTINUE AS DIRECTOR
Neither the granting of any Option nor any other action taken pursuant to
the Plan will constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain a director for any period
of time.
5
<PAGE>
18. FORM OF AGREEMENT
Each Option granted hereunder shall be embodied in a writing, the form and
content of which shall be as the Committee in its discretion shall deem
advisable.
19. WITHHOLDING REQUIRED BY LAW
Upon the exercise of an Option, the grantee or other person receiving such
Common Stock will be required, as a condition of such distribution, either
to pay to the Company at the time of distribution thereof the amount of any
federal, state, local or foreign taxes due or required to be withheld with
respect to such Common Stock, or to have the number of shares of Common
Stock, valued at fair market value on the date of distribution, reduced by
an amount equal to the value of taxes due or required to be withheld.
20. AMENDMENT, TERMINATION AND EFFECTIVE DATE
This Plan shall be effective as of May 9, 1989, and shall terminate ten
years after this Effective Date. The Board shall have the right to amend,
suspend or terminate the Plan, provided that no termination or amendment of
the Plan may, without the consent of the individual to whom any Option
shall have been theretofore granted, adversely affect the rights of such
individual under such Option.
21. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto will
be governed by the law of the State of Delaware and construed accordingly.
22. CHANGE IN CONTROL
In the event of a change in control of the Company, as defined below, each
option outstanding shall immediately become exercisable in full. For all
purposes of the Plan, a "change in control of the Company" occurs if: (a)
any person or group, as defined in Sections 13(d) and 14(d)(2) of the
Exchange Act, as amended, is or becomes the beneficial owner, directly or
indirectly of securities of the Company representing 50 percent or more of
the combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; (b) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose election by
the Board or nomination for election by the Company's Stockholders was
approved by at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute at least a
majority thereof; or (c) the Stockholders of the Company shall approve the
sale of all or substantially all of the assets of the Company or any
merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause
(a) or (b) above.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused its President and Secretary to
execute this Restated Plan this 22nd day of January, 1998.
ARTHUR J. GALLAGHER & CO.
By /s/Patrick Gallagher, Jr.
-------------------------
J. Patrick Gallagher, Jr.
President
Attest:
/s/Carl E. Fasig
- ----------------
Carl E. Fasig, Secretary
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Arthur J. Gallagher & Co. Consolidated Financial Statements included in the
Form 10-Q for the six month period ended June 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 152,913 161,239
<SECURITIES> 62,457 57,142
<RECEIVABLES> 259,143 218,403
<ALLOWANCES> (846) (853)
<INVENTORY> 0 0
<CURRENT-ASSETS> 518,729 471,013
<PP&E> 91,419 82,738
<DEPRECIATION> (64,540) (56,788)
<TOTAL-ASSETS> 706,290 606,837
<CURRENT-LIABILITIES> 508,371 457,317
<BONDS> 0 0
0 0
0 0
<COMMON> 17,242 16,351
<OTHER-SE> 168,093 121,452
<TOTAL-LIABILITY-AND-EQUITY> 706,290 606,837
<SALES> 228,680 211,622
<TOTAL-REVENUES> 241,273 228,055
<CGS> 133,155 119,198
<TOTAL-COSTS> 133,155 119,198
<OTHER-EXPENSES> 77,152 75,094
<LOSS-PROVISION> (582) (58)
<INTEREST-EXPENSE> 727 442
<INCOME-PRETAX> 30,821 33,379
<INCOME-TAX> 10,479 11,349
<INCOME-CONTINUING> 20,342 22,030
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20,342 22,030
<EPS-PRIMARY> 1.20 1.34
<EPS-DILUTED> 1.15 1.30
</TABLE>
