<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ARTHUR J. GALLAGHER & CO.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[ARTHUR J. GALLAGHER & CO. LOGO]
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
March 30, 1999
Dear Stockholder:
Our Annual Meeting will be held on Tuesday, May 18, 1999, at 10:00 a.m.,
Central Time, at The Gallagher Centre, Two Pierce Place, Second Floor, Itasca,
Illinois.
The formal Notice of Annual Meeting of Stockholders and Proxy Statement
accompanying this letter describe the business requiring action at the
meeting. A presentation by J. Patrick Gallagher, Jr., President and Chief
Executive Officer of the Company, and me will provide information on the
business and progress of your Company during 1998 and our directors and
officers will be available to answer your questions.
We appreciate the interest of our stockholders in Arthur J. Gallagher & Co.
and are pleased that in the past so many of you have exercised your right to
vote your shares. We hope that you continue to do so.
Whether or not you plan to attend, please mark, sign, date and return the
accompanying proxy card as soon as possible. The enclosed envelope requires no
postage if mailed in the United States. If you attend the meeting, you may
revoke your proxy and vote personally.
Cordially,
ROBERT E. GALLAGHER
Chairman of the Board
<PAGE>
ARTHUR J. GALLAGHER & CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 18, 1999
To the Stockholders of
ARTHUR J. GALLAGHER & CO.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Arthur J.
Gallagher & Co. (the "Company") will be held Tuesday, May 18, 1999, at 10:00
a.m., Central Time, at The Gallagher Centre, Two Pierce Place, Second Floor,
Itasca, Illinois for the following purposes:
1. To elect Three Class III directors;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1999; and
3. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors has fixed the close of business on March 22, 1999 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to mark,
date and sign the enclosed proxy and return it promptly so your vote can be
recorded. If you are present at the meeting, you may revoke your proxy and
vote in person.
Date: March 30, 1999
By Order of the Board of Directors
MICHAEL J. CLOHERTY
Secretary
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON.
<PAGE>
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
PROXY STATEMENT
GENERAL INFORMATION
Use of Proxies
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Arthur J. Gallagher & Co. (the "Company") of proxies to
be voted at the Annual Meeting of Stockholders to be held on Tuesday, May 18,
1999, in accordance with the foregoing notice. The Proxy Statement and
accompanying proxy are being mailed to stockholders on or about March 30,
1999.
Any proxy may be revoked by the person giving it at any time before it is
voted by delivering to the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date. Shares represented
by a proxy, properly executed and returned to the Company and not revoked,
will be voted at the Annual Meeting.
Shares will be voted in accordance with the directions of the stockholder as
specified on the proxy. In the absence of directions, the proxy will be voted
FOR the election of the Class III directors named as the nominees in this
Proxy Statement and FOR the ratification of the appointment of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
31, 1999. Any other matters that may properly come before the meeting will be
acted upon by the persons named in the accompanying proxy in accordance with
their discretion.
Record Date and Voting Securities
The close of business on March 22, 1999 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournment thereof. As of the
Record Date, the Company had 18,096,257 shares of Common Stock outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote,
exercisable in person or by proxy. There are no other outstanding securities
of the Company entitled to vote, and there are no cumulative voting rights
with respect to the election of directors.
The presence, in person or by proxy, of a majority of the outstanding shares
of the Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. An automated system administered by the Company's transfer
agent tabulates the votes. Abstentions and broker non-votes are included in
the number of shares present and voting for the purpose of determining if a
quorum is present. Abstentions are also included in the tabulation of votes
cast on proposals presented to the stockholders but broker non-votes are not.
Expenses of Solicitation
All expenses of the solicitation of proxies will be paid by the Company.
Officers, directors and employees of the Company may also solicit proxies by
telephone, facsimile or in person.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1998, there were no beneficial owners of more than 5% of
the Company's Common Stock, par value $1.00 per share, which is its only class
of issued and outstanding capital stock. The following tabulation shows with
respect to each of the directors of the Company, the executive officers named
in the Summary Compensation Table, and all directors and executive officers as
a group, thirteen in number, (i) the total number of shares of Common Stock
beneficially owned as of March 22, 1999; and (ii) the percent of Common Stock
so owned as of the same date.
<TABLE>
<CAPTION>
Amount & Nature Percent of
Name of of Beneficial Common
Beneficial Owner Ownership(1) Stock
---------------- --------------- ----------
<S> <C> <C>
Robert E. Gallagher............................ 657,958(2) 3.6%
James J. Braniff III........................... 57,664 *
T. Kimball Brooker............................. 22,050 *
Michael J. Cloherty............................ 111,502 *
Peter J. Durkalski............................. 59,385(3) *
James W. Durkin, Jr............................ 78,700 *
J. Patrick Gallagher, Jr....................... 205,105(4) 1.1%
Jack M. Greenberg.............................. 28,050 *
Frank M. Heffernan, Jr......................... 277,400(5) 1.5%
Philip A. Marineau............................. 25,050 *
Walter F. McClure.............................. 74,406(6) *
David E. McGurn, Jr............................ 56,546 *
James R. Wimmer................................ 33,550(7) *
All directors and executive officers
as a group (13 persons)....................... 1,687,366 9.1%
</TABLE>
- --------
*Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of
1934. Unless otherwise stated in these notes, each person has sole voting
and investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options exercisable within
sixty days are deemed outstanding for the purpose of computing the number
and percentage owned by such person, but are not deemed outstanding for
the purpose of computing the percentage owned by each other person listed.
Includes shares which the listed beneficial owner has a right to acquire
within sixty days as follows: James J. Braniff III, 15,950; T. Kimball
Brooker, 12,050 shares; Michael J. Cloherty, 42,500 shares; Peter J.
Durkalski, 33,500 shares; James W. Durkin, Jr., 65,093 shares; J. Patrick
Gallagher, Jr., 69,500 shares; Jack M. Greenberg, 26,050 shares; Frank M.
Heffernan, Jr., 24,300 shares; Philip A. Marineau, 25,050 shares; Walter
F. McClure, 46,000 shares; David E. McGurn, Jr., 37,950 shares; James R.
Wimmer, 33,050 shares; all directors and executive officers as a group (13
persons), 430,993 shares.
(2) Includes 75,000 shares held in trust for the benefit of Robert E.
Gallagher's grandchildren, 100,000 shares held in trust for the benefit of
Isabel Gallagher, 100,000 shares held by a charitable trust under which
Robert E. Gallagher is the trustee, and 69,012 shares held in the Lauren
E. Gallagher Trust under which Robert E. Gallagher is a trustee.
(3) Includes 4,885 shares held in trust for the benefit of his minor children
by his wife, Delores Durkalski, and another as trustees.
(4) Includes 36,820 shares held in trust for the benefit of his minor children
by his wife, Anne M. Gallagher, and another as trustees and 24,619 shares
held by his wife.
2
<PAGE>
(5) Includes 251,500 shares held in trust by Frank M. Heffernan, Jr. and Lenore
B. Heffernan, his wife, as trustees.
(6) Includes 14,600 shares held in trust for the benefit of Walter F. McClure
by Walter F. McClure and Alice M. McClure, his wife, as trustees, and
10,500 shares held in trust for the benefit of Alice M. McClure by Walter
F. McClure and Alice M. McClure, as trustees.
(7) Includes 500 shares held by his wife, Gertrude A. Wimmer.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of ten directors.
The directors are divided into three classes: three Class III directors have
terms expiring at the 1999 Annual Meeting; three Class I directors have terms
expiring in 2000; and four Class II directors have terms expiring in 2001. Each
class of directors is elected to three-year terms at sequential annual
meetings.
Set forth below is information concerning the nominees for election as Class
III directors as well as information concerning the directors in the other two
classes. The Board of Directors recommends a vote FOR the election of such
nominees. The persons named on the enclosed proxy card intend to vote the
proxies solicited hereby FOR all the nominees named below unless such authority
is withheld. The affirmative vote of the holders of a plurality of the shares
of Common Stock represented in person or by proxy is required to elect
directors.
If elected, each nominee for Class III director will serve until the 2002
annual election of directors or until his successor is elected and qualified,
or until his earlier death, resignation or removal. Michael J. Cloherty, Jack
M. Greenberg and Philip A. Marineau are currently members of the Board of
Directors as Class III directors, each having been previously elected by the
stockholders. Messrs. Cloherty, Greenberg and Marineau are the nominees for re-
election as Class III directors for three-year terms. The enclosed proxy cannot
be voted for more than three nominees. Should any nominee be unavailable to
serve or for good cause refuse to serve, an event which the Board of Directors
does not anticipate, the persons named in the enclosed proxy intend to vote the
proxies solicited hereby for the election of such other nominee, if any, as
they may select.
Peter J. Durkalski is currently a member of the Board of Directors as a Class
II director, having been appointed to fill a vacancy in such Class by the Board
of Directors on March 18, 1999. The Company's Restated Certificate of
Incorporation and By-laws provide that any director appointed to fill a vacancy
shall hold office until the expiration of the term of the class of directors to
which he was elected, which in this case occurs at the 2001 Annual Meeting.
Nominees for Election to the Board of Directors
as Class III Directors with Terms Expiring in 2002
<TABLE>
<CAPTION>
Year First Elected Director, Business
Name Age Experience and Other Directorships
- ---- --- --------------------------------------------------------
<S> <C> <C>
Michael J. Cloherty..... 51 Director since 1982; Executive Vice President since 1996
and Chief Financial Officer since 1981; Vice President-
Finance 1981 to 1996.
Jack M. Greenberg....... 56 Director since 1985; Employed by McDonald's Corporation
since 1982, President and Chief Executive Officer since
August 1998; Vice Chairman from 1992 to August 1998,
Chief Financial Officer from 1982 to 1996, Chief
Executive Officer from 1997 to August 1998 and Chairman
of McDonald's USA from 1996 to August 1998; Director of
McDonald's Corporation and Harcourt General, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Year First Elected Director, Business
Name Age Experience and Other Directorships
- ---- --- --------------------------------------------------------
<S> <C> <C>
Philip A. Marineau...... 52 Director since 1991; Employed by Pepsi-Cola North
America since December 1997 as President and Chief
Executive Officer; President and Chief Operating Officer
of Dean Foods Co. from 1996 to 1997; President from 1993
to 1995 and Chief Operating Officer from 1992 to 1995 of
The Quaker Oats Company; Director of Meredith
Corporation since January 1998.
Members of the Board of Directors Continuing in Office as
Class I Directors with Terms Expiring in 2000
T. Kimball Brooker...... 59 Director since 1994; President, Barbara Oil Company
since 1989; Managing Director, Morgan Stanley & Co.,
Inc. from 1978 to 1988; Director of Zenith Electronics
Corporation.
J. Patrick Gallagher, 47 Director since 1986; Chief Executive Officer since 1995;
Jr.(1)................. President since 1990; Chief Operating Officer from 1990
to 1994; Vice President-Operations from 1985 to 1990.
James R. Wimmer(2)...... 70 Director since 1985; Partner, Lord, Bissell & Brook,
attorneys, from 1959 to 1992; Vice-Chairman and General
Counsel of Commonwealth Industries Corporation from 1991
to 1993. Mr. Wimmer retired as a partner from Lord,
Bissell & Brook in 1992 and is presently of counsel to
that firm.
Members of the Board of Directors Continuing in Office as
Class II Directors with Terms Expiring in 2001
Peter J. Durkalski...... 48 Director since March 18, 1999; Vice President since
1990.
Robert E. Gallagher(1).. 76 Director since 1950; Chairman since 1990; Chief
Executive Officer from 1963 to 1994.
Frank M. Heffernan, Jr.. 68 Director since 1996; Vice President since 1987.
Walter F. McClure....... 65 Director since 1981; Senior Vice President since 1993;
Vice President from 1980 to 1993.
</TABLE>
- --------
(1) Robert E. Gallagher is an uncle of J. Patrick Gallagher, Jr.
(2) Lord, Bissell & Brook has served as outside counsel to the Company for over
twenty years.
Board of Directors
The Company's Board of Directors has the responsibility to review the overall
operations of the Company. The Board members are kept informed of the Company's
results of operations and proposed plans and business objectives by the
Company's management. During 1998, the Board of Directors met six times.
4
<PAGE>
All of the directors attended at least 75% of those meetings and meetings of
the committees on which they served. Included among the committees of the
Board are standing Nominating, Audit and Compensation Committees.
Nominating Committee
The Nominating Committee considers new nominees proposed for the Board of
Directors and will consider individuals whose names and qualifications are
furnished in writing to the Committee (in care of the Chairman at the
Company's principal office) by stockholders. Current members of the Nominating
Committee are Robert E. Gallagher (Chairman), T. Kimball Brooker and J.
Patrick Gallagher, Jr. The Committee met once in 1998. The Company's By-Laws
establish advance notice procedures with regard to the nomination by a
stockholder of a candidate for election as a director. In general, notice must
be received by the Company not less than 45 days prior to an annual meeting of
stockholders of the Company. Such notice must set forth all information with
respect to each such nominee as required by the federal proxy rules. Such
notice must be accompanied by a consent of such nominee to serve as a
director, if elected.
Audit Committee
The Audit Committee assists the Board in carrying out its responsibilities
for monitoring management's accounting for the Company's financial results and
for the timeliness and adequacy of the reporting of those results; discusses
and makes inquiry into the audits of the Company's books made internally and
by outside independent auditors, the Company's financial and accounting
policies, its internal controls and its financial reporting; and investigates
and makes a recommendation to the Board each year with respect to the
appointment of independent auditors for the following year. Current members of
the Audit Committee are James R. Wimmer (Chairman), T. Kimball Brooker, Jack
M. Greenberg and Philip A. Marineau. The Committee met three times in 1998.
Compensation Committee
The Compensation Committee determines the salaries, bonuses and other
compensation and terms and conditions of employment of the executive officers
and certain key employees of the Company and makes recommendations to the
Board of Directors with respect to the Company's compensation plans and
policies; provided, however, that the Option Committee of the Board of
Directors administers the Company's stock option plans. Current members of the
Compensation Committee are J. Patrick Gallagher, Jr. (Chairman), T. Kimball
Brooker, Robert E. Gallagher, Jack M. Greenberg, Philip A. Marineau and James
R. Wimmer. The Committee met three times in 1998.
Compensation Committee Interlocks and Insider Participation
J. Patrick Gallagher, Jr., President and Chief Executive Officer, and Robert
E. Gallagher, Chairman, of the Company, respectively, serve on the
Compensation Committee and abstain from discussion and voting on matters
concerning their respective compensation. James R. Wimmer, a director of the
Company, is of counsel to Lord, Bissell & Brook, a law firm which provides
legal services to the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and executive officers of the Company and beneficial owners of
more than ten percent of the Common Stock file periodic reports regarding
ownership of shares of Common Stock with the Securities and
5
<PAGE>
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act
of 1934. Messrs. Braniff and McGurn's initial statements of beneficial
ownership were inadvertently filed untimely.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate filings, including this Proxy Statement, in whole
or in part, the following report and the Comparative Performance Graph on Page
10 shall not be incorporated by reference into any such filings.
Report of the Compensation Committee
Executive Compensation
The Compensation Committee is responsible for determining the total
compensation, other than stock options, and employment conditions of the
Company's executive officers. In determining the total 1998 compensation, the
Compensation Committee generally evaluated the executive's contribution to the
overall success of the Company in achieving the corporate goals set out below.
The business growth and human resources goals were given less weight in
determining the executive's compensation than the operating earnings growth
goal.
Operating Earnings Growth--Year-over-year operating earnings growth is one
of the most important goals of the Company. Operating earnings represent
pretax earnings less non-recurring gains recognized during the year. The
effort of an individual executive in meeting or exceeding year-over-year
growth for his or her department or division has historically been an
important criterion in the evaluation. However, in 1998, the Compensation
Committee focused on the contribution of the executive to the overall
success of the Company in meeting its plan for growth. Longer term growth
goals, as measured against the Company's Three Year Strategic Plan, are
also considered in the evaluation. In 1998, the Company's net operating
earnings increased 23% over 1997 which surpassed the average annual growth
rate for the period 1989 to 1997.
Business Growth--The Company considers its long term business growth to be
a critical factor in the continued success of the Company. Executives are
expected to support the Company's acquisition program, which seeks to
achieve growth by successfully integrating independent businesses into the
corporate structure. Similarly, establishment of operations in new
geographic areas, as well as the successful development and marketing of
new product lines, are considered necessary to the continued growth of the
Company and are included in the evaluation. In 1998, 16 businesses were
acquired. The development and marketing of new product lines continued on a
basis consistent with prior years. The Company believes that these efforts
had a direct impact on the 10% increase in total operating revenues
achieved in 1998 over 1997. Operating revenues exclude non-recurring gains.
Human Resources--As a service business, the Company believes that its
employees are its greatest asset. Over 60% of the Company's expenses in
1998 were related to the compensation of its employees and related costs.
The Company is committed to the successful hiring, training and retaining
of people who promote the growth, financial success and management
succession of the Company. An executive's ability to manage these
resources, as well as the attendant expenses, is a significant criterion.
In 1998, the Company's overall success in effectively managing its
employees evidenced the commitment of the Company's executive officers, as
a group, to the corporate goal of continuously improving the quality and
6
<PAGE>
efficiency of its human resources. This was demonstrated by the Company's
ability to generate $126,000 in operating revenue per employee for 1998,
one of the highest figures in the industry and an increase from the
$124,000 in restated operating revenue per employee generated during 1997.
This was accomplished even as the 1998 employee headcount increased by 8%
over 1997.
Enhancement of shareholder value is the ultimate goal of the Company. The
Compensation Committee believes that its focus on specific corporate goals
should result in a strong stock price, improved earnings per share and greater
return on stockholders' equity. Net operating earnings per share in 1998
increased by 17% over 1997. This substantial increase was directly related to
the efforts of the Company's executive officers during the intense competitive
pressures of 1998 and prior years. Recognizing these efforts, the Compensation
Committee applied a bonus formula, determined early in 1998, which was based
on growth in net operating earnings per share. Most of the executive officers
received bonuses, which were paid in March 1999, from the application of this
formula.
The Company also has a discretionary bonus pool for executive officers and
key employees, contingent upon satisfactory corporate growth and the
attainment of predetermined managerial goals. These pre-determined goals are
extremely varied and, in the case of the executive officers, are established
by the individual officer in conjunction with the Compensation Committee. The
goals are too diverse to generalize but typically include meeting or exceeding
budgetary guidelines and contribution to the Company's profitability.
Attainment of these goals in many cases may be determined by a subjective
judgment of the individual supervisor or, in the case of the executive
officers, by the Compensation Committee. The eligibility for participation in
the bonus pool is determined by the Board. Approximately 50 officers and key
employees are current participants. Certain officers who received the formula
bonus discussed above also received a discretionary bonus for 1998.
Option grants to executive officers under the Company's Stock Option Plans
are determined by the Option Committee of the Board of Directors and are
generally based upon more subjective factors than those used by the
Compensation Committee. The Option Committee considers the recommendations of
the executive officers of the Company, the responsibilities of each grantee,
his or her past performance and his or her anticipated future contribution to
the Company. Options directly reflect the Company's performance through its
stock price.
Amendments to the Internal Revenue Code adopted in 1993 limit the
deductibility for federal income tax purposes of certain compensation payable
to top executive officers of publicly held corporations. Certain types of
compensation are excluded from the limitations. The Company believes that the
limitations are not applicable to stock options granted under its 1988
Incentive Stock Option Plan.
Executive officers participate in the Savings and Thrift Plan, Pension Plan
and Stock Option Plans, as well as customary employee health benefits and
expense reimbursement in accordance with the Company's policy.
During 1998, the Committee compared the compensation of the six most highly
compensated executive officers of the Company to the publicly held competitors
of the Company included in the Comparative Performance Graph on Page 10. The
Committee targets the middle of its competitors' salary range for its
executive officers' compensation. The Committee believes that the 1998
compensation of the Company's six most highly compensated executive officers
will be in the middle range when compared to its publicly-held competitors
after making certain adjustments for the size of the Company.
7
<PAGE>
Chief Executive Officer Compensation
The 1998 salary of J. Patrick Gallagher, Jr., the Company's Chief Executive
Officer, was increased to $500,000 from the $356,000 salary received in 1997.
Mr. Gallagher received bonuses of $300,000 for 1997 and $250,000 for 1998. In
determining Mr. Gallagher's salary and bonus, the Compensation Committee
considered the Company's excellent performance in 1997 and 1998, as well as
Mr. Gallagher's voluntary election to reduce his total compensation in prior
years.
Compensation Committee
J. Patrick Gallagher, Jr. (Chairman)
Jack M. Greenberg
Robert E. Gallagher Philip A. Marineau
T. Kimball Brooker James R. Wimmer
SUMMARY COMPENSATION TABLE
The following table presents information concerning compensation paid or set
aside by the Company and its subsidiaries on an accrual basis to or for the
benefit of the Chief Executive Officer and each of the other five most highly
compensated executive officers of the Company in each of the Company's last
three fiscal years.
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
--------------- ------------
Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position Year ($) ($) (1) Options (#) ($) (2)
- ------------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
J. Patrick Gallagher, Jr....... 1998 500,000 250,000 10,000 5,000
President and Chief Executive
Officer 1997 356,000 300,000 - 5,100
1996 356,000 25,000 10,000 4,200
Michael J. Cloherty............ 1998 475,000 250,000 10,000 6,100
Executive Vice President and
Chief 1997 346,000 500,000 - 6,200
Financial Officer 1996 346,000 25,000 10,000 4,900
James J. Braniff III........... 1998 320,000 165,000 10,000 7,400
Vice President 1997 265,700 236,900 - 7,300
1996 265,700 151,700 10,000 7,300
Peter J. Durkalski............. 1998 290,000 115,000 10,000 4,500
Vice President 1997 261,500 104,600 - 4,500
1996 261,500 20,000 10,000 4,500
James W. Durkin, Jr............ 1998 290,000 - 10,000 4,500
Vice President 1997 270,000 108,000 - 4,500
1996 250,000 30,000 10,000 4,400
David E. McGurn, Jr............ 1998 275,000 125,000 10,000 3,900
Vice President 1997 250,000 100,000 - 3,900
1996 250,000 15,000 10,000 3,300
</TABLE>
- --------
(1) Represents bonuses related to services rendered in the fiscal year
indicated above that were determined and paid in the subsequent fiscal
year.
(2) Includes amounts contributed by the Company under the 401(k) match feature
of the Company's Savings and Thrift Plan of $3,200 in 1998 and 1997 and
$3,000 in 1996, and the equivalent annual value of insurance premiums paid
by the Company for group term life insurance for the benefit of the named
executive officer.
8
<PAGE>
The following graph demonstrates a five year comparison of cumulative total
returns for the Company, the S&P 500 and a Peer Group comprised of the
Company, Aon Corporation, Hilb, Rogal and Hamilton Co., Marsh & McLennan
Companies, Inc., Poe & Brown, Inc. and Willis Corroon Group P.L.C. (through
its ADRs). The Peer Group was revised in 1998 to reflect the acquisition of
Sedgwick Group P.L.C. by Marsh & McLennan Companies, Inc., in late 1998
because their results were not available for inclusion in the Comparative
Performance Graph for 1998. The comparison charts the performance of $100
invested in the Company, the S&P 500 and the Peer Group on December 31, 1993,
with dividend reinvestment.
<TABLE>
<CAPTION>
Gallagher (Arthur J.) & S&P 500 Index Peer Group
<S> <C> <C> <C>
1993............. 100 100 100
1994............. 90.81 101.32 96.97
1995............. 108.66 139.40 126.98
1996............. 93.62 171.40 153.45
1997............. 107.69 228.59 220.52
1998............. 142.50 293.91 243.85
</TABLE>
Directors' Compensation
Directors who are officers of the Company receive compensation in their
capacities as officers and receive no additional compensation for serving as
directors.
Non-employee directors, currently Messrs. Brooker, Greenberg, Marineau and
Wimmer, are eligible to receive compensation consisting of nonqualified stock
options. In addition, non-employee directors receive an annual retainer of
$20,000 per year or, in lieu of the cash retainer, an option to purchase
shares of the Company's Common Stock below market value, plus fees of $500 for
attendance at each Board meeting or committee meeting on a date other than a
Board meeting date. Non-employee directors are reimbursed for travel and
accommodation expenses incurred in attending Board or committee meetings. Non-
employee directors are not eligible for participation in any other
compensation plans of the Company.
In 1989, the Company's stockholders approved the adoption of the Company's
1989 Non-Employee Directors' Stock Option Plan (the "1989 Plan"), which was
subsequently amended in 1990, 1993, 1994, 1996, 1997, and 1998. The 1989 Plan
currently provides that non-employee directors are eligible to be granted
nonqualified options to purchase a maximum of 200,000 shares of the Company's
Common Stock. The Plan encompasses options granted to non-employee directors
at the discretion of the Option Committee of the Company's Board of Directors
("Discretionary Options") and options granted to non-employee directors
9
<PAGE>
pursuant to an election made by a non-employee director to receive options in
lieu of his annual retainer ("Retainer Options"). Shares issued upon exercise
of options granted under the 1989 Plan may be repurchased shares held by the
Company or authorized but previously unissued shares.
Under the 1989 Plan, a Discretionary Option shall be exercisable at such rate
and price fixed by the Option Committee. Discretionary Options terminate if not
exercised by the date set forth in the 1989 Plan or by such date established by
the Option Committee at the time it makes the grant.
Pursuant to the terms of the 1989 Plan, Messrs. Marineau and Wimmer have
elected to receive their annual retainers for 1999 in the form of an option to
purchase the Company's Common Stock. Each year on or before two weeks preceding
the Company's Annual Meeting of Stockholders, the Option Committee shall
determine the number of shares of Common Stock with respect to which a non-
employee director may be granted a Retainer Option. The non-employee director's
option exercise price per share shall be equal to the Fair Market Value of the
Common Stock subject to the Retainer Option less the Annual Retainer, divided
by the number of shares subject to the Retainer Option. The option exercise
price per share shall be not less than the par value of the Common Stock. "Fair
Market Value" is defined as the closing price of the Company's Common Stock as
reported on the New York Stock Exchange Consolidated Transaction Reporting
System for the day on which the option is granted.
On May 19, 1998, the Company granted a Retainer Option for 1,000 shares of
the Company's Common Stock to each of Messrs. Marineau and Wimmer at an
exercise price of $22.813 per share. Such options are exercisable at the rate
of one-fourth of such grant each successive quarter commencing August 19, 1998.
In addition, on August 31, 1998, the Company granted a Discretionary Option for
6,000 shares of the Company's Common Stock to each of Messrs. Brooker,
Greenberg, Marineau and Wimmer at an exercise price of $37.00 per share, which
was the closing price for a share of Common Stock as reported on the
Consolidated Transaction Reporting System for securities listed on the New York
Stock Exchange on that date. Such options are exercisable at the rate of one-
third of such grant each successive August 31, commencing August 31, 1999.
The Company approved a supplemental deferred compensation arrangement,
effective July 1, 1996, with Robert E. Gallagher upon his retirement, and to
his surviving spouse upon his death, and the surviving spouse of John P.
Gallagher, providing for a payment of $100,000 annually, inclusive of any
Company pension plan payments, to be paid until the death of each such
beneficiary.
The Company approved a supplemental deferred compensation arrangement,
effective September 18, 1998, with Walter F. McClure and John G. Campbell upon
their respective retirements, and to their respective surviving spouses upon
their respective deaths, providing for a payment of $75,000 annually, exclusive
of any Company pension plan payments, to be paid until the death of each such
beneficiary.
Savings and Thrift Plan
The Company maintains a savings and thrift plan covering substantially all
U.S. employees which is qualified under the Internal Revenue Code. Employees
who have attained age 21 and completed a year of service may generally
contribute up to the lesser of $10,000 in 1998 and 1999 or 15% of their gross
earnings on a pre-tax basis under the 401(k) "salary reduction" feature of the
plan. Effective for plan years beginning after 1994, the maximum includible
compensation for an employee for any year may not exceed an overall salary
maximum as determined by the Internal Revenue Service of $160,000. In 1998, the
Company matched 50% of any employee's pre-tax contributions up to a maximum 4%
of such employee's gross earnings, resulting in a possible maximum matched
contribution from the Company of 2% of such employee's gross earnings.
Participating employees may borrow up to 50% of their account balance, subject
to certain limitations.
10
<PAGE>
Pension Plan
The Company also maintains a non-contributory defined benefit pension plan
covering substantially all domestic employees which is qualified under the
Internal Revenue Code. The plan provides an annual pension benefit on normal
retirement at age 65 which, when paid in the form of a single life annuity,
will equal 1% of final average earnings multiplied by the number of years of
credited service, not to exceed 25 years (without any deduction for social
security or other offset amounts). A person's earnings for purposes of the
plan include all compensation other than allowances such as moving expenses
plus any pre-tax contributions under the 401(k) feature of the savings and
thrift plan. Effective for plan years beginning after 1988, the maximum
includible compensation for a participant for any year may not exceed an
overall salary maximum as determined by the Internal Revenue Service of
$160,000. The remuneration for executive officers shown under "Salary" and
"Bonus" in the Summary Compensation Table constitutes their earnings during
1998 for purposes of the plan without regard to the Internal Revenue Service's
limitation. "Final average earnings" are the highest average earnings received
in any five consecutive full calendar years before retirement. Employees'
pension rights are fully vested after the earlier of (i) 5 years of service
with the Company or (ii) the attainment of age 65.
The following table shows the estimated annual benefits (which are not
subject to deduction for social security or other offset amounts) payable on
retirement under the Company's defined benefit plan to persons in specific
remuneration and credited years of service classifications assuming (i) the
person elects the single life annuity basis providing monthly payments without
benefits to his survivors and (ii) the person continues in the employ of the
Company at his present rate of remuneration until age 65:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Credited
Average remuneration Service
during highest five -----------------------
consecutive years 25 or
before retirement 15 20 more
-------------------- ------- ------- -------
<S> <C> <C> <C>
$150,000........................................ $22,500 $30,000 $37,500
175,000........................................ 26,250 35,000 43,750
200,000........................................ 30,000 40,000 50,000
225,000........................................ 33,750 45,000 56,250
250,000........................................ 37,500 50,000 62,500
</TABLE>
For purposes of estimating potential pension benefits using the foregoing
table, the number of years of credited service as of December 31, 1998 for the
executive officers named in the Summary Compensation Table are as follows: J.
Patrick Gallagher, Jr. (23 years), Michael J. Cloherty (16 years), James J.
Braniff III (10 years), Peter J. Durkalski (23 years), James W. Durkin, Jr.
(22 years) and David E. McGurn, Jr. (19 years). Such pension benefits are in
addition to amounts payable to such persons under the Company's savings and
thrift plan on their retirement and are subject to certain limitations as
required under the Internal Revenue Code.
11
<PAGE>
Stock Option Plans
The Company maintains a 1988 Incentive Stock Option Plan and a 1988
Nonqualified Stock Option Plan.
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the
Company named in the Summary Compensation Table during the Company's 1998
fiscal year. The exercise price of the options equals the closing price for a
share of the Company's Common Stock on the date of the option grant.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option Term
Individual Grants (2)
--------------------- ---------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#) Year ($) Date 5% ($) 10% ($)
---- ---------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Gallagher,
Jr..................... 10,000 1.34 37.00 8/30/08 233,000 590,000
Michael J. Cloherty..... 10,000 1.34 37.00 8/30/08 233,000 590,000
James J. Braniff III.... 10,000 1.34 37.00 8/30/08 233,000 590,000
Peter J. Durkalski...... 10,000 1.34 37.00 8/30/08 233,000 590,000
James W. Durkin, Jr..... 10,000 1.34 37.00 8/30/08 233,000 590,000
David E. McGurn, Jr..... 10,000 1.34 37.00 8/30/08 233,000 590,000
</TABLE>
Option Grants in the Last Fiscal Year(1)
- --------
(1) Nonqualified options granted August 31, 1998, exercisable at the rate of
10% of the total option for each calendar year after 1998.
(2) Based on actual option term and annual compounding.
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 1998 fiscal
year and the number and value of unexercised options to purchase shares of
Common Stock held at the end of the Company's 1998 fiscal year by the
executive officers of the Company named in the Summary Compensation Table.
Aggregated Option Exercises in the Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Number of Value of
Securities Securities Unexercised Value of
Underlying Underlying In-the- Unexercised
Unexercised Unexercised Money In-the-Money
Number of Options at Options at Options at Options at
Shares FY-End FY-End FY-End FY-End
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercise(#) Realized($)(1) (#) (#) ($)(2) ($)(2)
- ------------------------ ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Gallagher,
Jr..................... 5,000 130,000 56,000 68,000 960,000 932,000
Michael J. Cloherty..... 1,000 25,000 30,500 61,500 403,000 814,000
James J. Braniff III.... -- -- 11,000 32,500 148,000 364,000
Peter J. Durkalski...... 1,000 28,000 35,000 63,500 505,000 860,000
James W. Durkin, Jr..... 1,500 32,000 52,600 63,500 908,000 860,000
David E. McGurn, Jr..... 7,500 179,000 31,000 38,500 579,000 482,000
</TABLE>
- --------
(1) Market value of underlying securities at exercise, minus the exercise
price.
(2) Market value of underlying securities at year end, minus the exercise
price.
12
<PAGE>
Severance Arrangements
The Company has a plan for severance compensation to employees after a
hostile takeover. The plan defines a hostile takeover to include, among other
events, the following events, if not approved by two-thirds of the members of
the Board of Directors in office immediately prior to any such events: the
election of directors not nominated by the Board of Directors, a business
combination, such as a merger, not approved by the holders of 80% or more of
the Common Stock and the Board of Directors or not meeting various "fair price"
criteria, or the acquisition of 20% or more of the combined voting power of the
Company's stock by any person or entity. All full-time and part-time employees
who are regularly scheduled to work 20 or more hours per week and who have
completed at least two years of continuous employment with the Company are
participants in the plan. A severance benefit is payable under the plan if a
participant's employment with the Company terminates voluntarily or
involuntarily within two years after a hostile takeover for reasons such as
reduction in compensation, discontinuance of employee benefit plans without
replacement with substantially similar plans, change in duties or status,
certain changes in job location and involuntary termination of employment for
reasons other than just cause. For participants who have completed two but less
than five years of employment, the benefit is equal to the employee's annual
compensation during the year immediately preceding the termination of
employment. For employees who have completed five or more years of employment,
the benefit is equal to two and one-half times the employee's annual
compensation during the 12 months ending on the date of termination of
employment, but may not exceed 2.99 times average annual compensation during
the preceding five years. Annual compensation is defined for purposes of the
plan as the amount of the employee's wages, salary, bonuses and other incentive
compensation. Benefits are payable in a lump sum not later than 10 days after
termination of employment.
Each of the executive officers of the Company named in the Summary
Compensation Table has entered into a change in control agreement with the
Company. A severance benefit is payable under the agreement if the executive
officer's employment with the Company is terminated by (i) the Company for any
reason other than death, physical or mental incapacity, or cause within 24
months following a change in control of the Company; or (ii) the resignation of
the executive officer within 24 months following a change in control of the
Company upon the occurrence of a material change in the nature or scope of the
executive's authorities, powers, functions or duties or a reduction in the
executive's total compensation. In the event of any such termination of the
executive officer's employment, under the agreement the Company is required to
pay the executive a severance allowance equal to his then salary and bonus
payments for a 24 calendar month period. Additionally, the executive will also
continue to participate for a period of two years in the Company's welfare
benefit plans. Cash benefits are payable in a lump sum not later than seven
days after termination of employment.
PROPOSAL 2--RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999
The Audit Committee has considered the qualifications of Ernst & Young LLP
and recommended that the Board of Directors appoint them as independent
auditors of the Company for the fiscal year ending December 31, 1999. The Board
of Directors desires to obtain stockholders' ratification of the Board's action
in such appointment. A resolution ratifying the appointment will be offered at
the meeting. If the resolution is not adopted, the adverse vote will be
considered as a direction to the Board to select other auditors for the
following year. Because of the difficulty and expense of making any
substitution of auditors so long after the beginning of the current year, it is
contemplated that the appointment for the year 1999 will stand unless the Board
finds other good reason for making a change.
13
<PAGE>
A representative of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make a statement if the
representative so desires.
Ratification requires the affirmative vote by holders of at least a majority
of the outstanding shares voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
IN FAVOR OF RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR 1999.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company at its principal office on or
before November 30, 1999 to be considered for inclusion in the Company's proxy
materials for that meeting.
OTHER MATTERS
The Company knows of no other matters to be presented for action at the
meeting. If any other matters should properly come before the meeting or any
adjournment thereof, such matters will be acted upon by the persons named as
proxies in the accompanying proxy according to their best judgment in the best
interests of the Company.
The Annual Report of Stockholders containing financial statements for the
year ended December 31, 1998, and other information concerning the Company is
being furnished to the stockholders but is not to be regarded as proxy
soliciting material.
Each stockholder is urged to mark, date, sign and return the enclosed proxy
card in the envelope provided for that purpose. Your prompt response is helpful
and your cooperation will be appreciated.
Dated: March 30, 1999
By Order of the Board of Directors
MICHAEL J. CLOHERTY
Secretary
14
<PAGE>
- -
- -
PROXY PROXY
Arthur J. Gallagher & Co.
Two Pierce Place
Itasca, Illinois 60143
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert E. Gallagher and J. Patrick Gallagher,
Jr., or either of them, as attorneys and proxies, each with the power to
appoint a substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of voting stock of Arthur J. Gallagher & Co.
held of record by the undersigned on March 22, 1999, at the Annual Meeting of
Stockholders to be held on May 18, 1999 or any adjournment thereof.
In Their Discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted for Proposals 1 and 2. This proxy is revocable at any time.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
ARTHUR J. GALLAGHER & CO.
PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER
USING DARK INK ONLY.
0
I
0
- -
- -
For
All
0
Withheld
All
0
For All
Except
0
For
0
Against
0
Abstain
0
1. Election of Directors--Class III Nominees for term expiring in 2002 are
Michael J. Cloherty, Jack M. Greenberg and Philip A. Marineau.
----------------
Nominee Exception
2. Ratification of the appointment of Ernst & Young LLP as the independent
auditors of the Corporation for 1999.
Dated: ______________________________________________________________, 1999
Signature(s) ___________________________________________________________________
________________________________________________________________________________
IMPORTANT: Please sign your name exactly as it appears opposite. In the case of
joint holders, all should sign. When signing as an attorney, executor, adminis-
trator, trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
The Board of Directors Recommends a Vote "FOR" Each of the Listed Proposals.
