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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1997 Commission file number 0-15981
HILB, ROGAL AND HAMILTON COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1194795
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
4235 Innslake Drive
Glen Allen, Virginia 23060
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(804) 747-6500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K ( 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
$227,344,044 as of March 2, 1998
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
Class Outstanding at March 2, 1998
Common Stock, no par value 12,683,023
Documents Incorporated by Reference
Portions of the registrant's 1997 Annual Report to Shareholders
are incorporated by reference into Parts I and II of this report.
Portions of the registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders are incorporated by reference into Part
III of this report.
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<PAGE>
PART I
ITEM 1. BUSINESS
The Company
Hilb, Rogal and Hamilton Company (the Company), through its network of
wholly-owned subsidiary insurance agencies (the Agencies), places various
types of insurance, including property, casualty, marine, aviation and
employee benefits, with insurance underwriters on behalf of its clients.
The Agencies operate 66 offices in 16 states and five Canadian provinces.
The Company's client base ranges from personal to large national accounts
and is primarily comprised of middle market commercial and industrial
accounts. Insurance commissions accounted for approximately 91% of the
Company's total revenues in 1997. The Company also advises clients on risk
management and employee benefits and provides claims administration and
loss control consulting services to clients, which contributed
approximately 5.6% of revenues in 1997.
The Company has historically grown principally through acquisitions of
independent agencies with significant local market shares in small to
medium-size metropolitan areas. Since 1984, the Company has acquired 167
independent agencies. The Company's prior growth strategy emphasized
acquisitions of established independent agencies staffed by local
professionals and centralization of certain administrative functions to
allow agents to focus on business production. The Company believes that a
key to its success has been a strong emphasis on local client service by
experienced personnel with established community relationships. Beginning
in 1997, the Company began to pursue a more focused merger and acquisition
strategy which is expected to continue in the future. This program is
focused on acquisitions which fit into the strategic and regional plans and
targets entities which provide a specialty or product expertise which can
be exported throughout the Company.
The Agencies act as independent agents representing a large number of
insurance companies, which gives the Company access to specialized products
and capacity needed by its clients. Agencies and regions are staffed to
handle the broad variety of insurance needs of their clients.
Additionally, certain Agencies and regions have developed special expertise
in areas such as aviation, construction and marine insurance services and
this expertise is made available to clients throughout the regions and
Company.
The Company has established direct access to certain foreign insurance
markets without the need to share commissions with excess and surplus lines
brokers. This direct access allows the Company to enhance its revenues
from insurance products written by foreign insurers and allows it to
provide a broader array of insurance products to its clients.
While the Agencies have historically been largely decentralized with
respect to client solicitation, account maintenance, underwriting
decisions, selection of insurance carriers and areas of insurance
specialization, the Company maintains centralized administrative functions,
including cash management and investment, human resources and legal
functions, through its corporate headquarters. Accounting records and
systems are maintained at each Agency, but the Company requires each Agency
to comply with standardized financial reporting and control requirements.
Through its internal auditing department, Company personnel periodically
visit each Agency and monitor compliance with internal accounting controls
and procedures.
In the latter part of 1995, the Company created regional operating
units to coordinate the efforts of several local offices in a geographic
area to focus on markets, account retention, client service and new
business production. The six U.S. regions are the Mid-Atlantic
(Connecticut, Pennsylvania, Maryland and Virginia); Alabama/Georgia;
Florida; Oklahoma/Texas, Northern California and Southwest (Arizona,
Colorado, Michigan and Southern California). Regional management of a
sizable mass of coordinated and
<PAGE>
complementary resources has enabled each Agency to address a broader
spectrum of client needs and respond more quickly and expertly than
each could do on a stand-alone basis. Additionally, operations were
streamlined by merging multiple locations in the same city into a single
profit center and converting smaller locations into sales offices of a
larger profit center in the same region.
The Company derives income primarily from commissions on the sale of
insurance products to clients paid by the insurance underwriters with whom
the Agencies place their clients' insurance. The Company acts as an agent
in soliciting, negotiating and effecting contracts of insurance through
insurance companies and occasionally as a broker in procuring contracts of
insurance on behalf of insureds. The Company derived in excess of 94% of
its commission and fee revenue in 1997 from the sale of insurance products,
principally property and casualty insurance. Accordingly, no breakdown by
industry segments has been made. The balance is primarily derived from
service fee income related to employee benefits and third party claims
administration. Within its range of services, the Company also places
surplus lines coverages (coverages not available from insurance companies
licensed by the states in which the risks are located) with surplus lines
insurers for various specialized risks.
Insurance agents' commissions are generally a percentage of the
premium paid by the client. Commission rates vary substantially within the
insurance industry. Commissions depend upon a number of factors, including
the type of insurance, the amount of the premium, the particular insurer,
the capacity in which the Company acts and the scope of the services it
renders to the client. In some cases, the Company or an Agency is
compensated by a fee paid directly by the client. The Company may also
receive contingent commissions which are based on the profit an insurance
company makes on the overall volume of business placed with it by the
Company. Contingent commissions are generally received in the first
quarter of each year and, accordingly, may cause first quarter revenues and
earnings to vary from other quarterly results.
The Company provides a variety of professional services to assist
clients in analyzing risks and in determining whether protection against
risks is best obtained through the purchase of insurance or through
retention of all or a portion of those risks and the adoption of risk
management policies and cost-effective loss control and prevention
programs.
No material part of the Company's business is dependent on a single
client or on a few clients, and the Company does not depend on a single
industry or type of client for a substantial amount of its business. In
1997, the largest single client accounted for less than 0.6% of the
Company's total revenues.
Operating History and Acquisition Program
The Company was formed in 1982 to acquire and continue an existing
insurance agency network. At that time, the Company undertook a program of
consolidating agencies, closing or selling unprofitable locations and
acquiring new agencies. Since 1984, a total of 167 agencies have been
acquired. One hundred seventeen of those agencies were acquired using the
purchase method of accounting at a total purchase price of approximately
$127.0 million. In a purchase acquisition, the purchase price of an agency
is typically paid in cash and deferred cash payments. In some cases, a
portion of the purchase price may also be paid in Common Stock. From
November 1, 1988 to May 1, 1995, 50 agencies were acquired under the
pooling-of-interests method of accounting in exchange for a total of
approximately 8.1 million shares of Common Stock of the Company.
<PAGE>
The Company has substantial experience in acquiring insurance
agencies. Each acquisition candidate is subjected to a due diligence
process in which the Company evaluates the quality and reputation of the
business and its management, revenues and earnings, specialized products
and expertise, administrative and accounting records, growth potential and
location. For candidates that pass this screening process, the Company
uses a pricing method that emphasizes pro forma revenues, profits and
tangible net worth. As a condition to completing an acquisition, the
Company requires that the principals execute Company-prepared covenants not
to compete and other restrictive covenants and that agents execute non-
piracy agreements. Once the acquisition is consummated, the Company takes
steps to introduce its procedures and protocols and to integrate the
agency's systems and employees into the Company.
Recent Developments
During 1997, the Company acquired six insurance agencies. See "Note
K--Acquisitions" of the Notes to Consolidated Financial Statements in the
Company's 1997 Annual Report to Shareholders which is incorporated herein
by reference for a description of these acquisitions.
Competition
The Company participates in a very competitive industry. It is a
leading independent insurance agency system serving a wide variety of
clients through its network of wholly-owned subsidiaries which operate 66
insurance agencies located in 16 states and five Canadian provinces. Many
of the Company's competitors are larger and have greater resources than the
Company and operate on an international scale.
In some of the Agencies' cities, because no major national insurance
broker has established a presence, the Company competes with local agents
and private, regional firms, some of whom may be larger than the Company's
local Agency.
The Company is also in competition with certain insurance companies
which write insurance directly for their customers, and the banking
industry, as well as self-insurance and other employer sponsored programs.
Employees
As of December 31, 1997, the Company had approximately 1,770
employees. No employees are currently represented by a union. The Company
believes its relations with its employees are good.
<PAGE>
Regulation
In every state in which the Company does business, the applicable
Agency or an employee is required to be licensed or to have received
regulatory approval by the state insurance department in order for the
Company to conduct business. In addition to licensing requirements
applicable to the Company, most jurisdictions require individuals who
engage in brokerage and certain insurance service activities to be licensed
personally.
The Company's operations depend on the validity of and its continued
good standing under the licenses and approvals pursuant to which it
operates. Licensing laws and regulations vary from jurisdiction to
jurisdiction. In all jurisdictions, the applicable licensing laws and
regulations are subject to amendment or interpretation by regulatory
authorities, and generally such authorities are vested with general
discretion as to the grant, renewal and revocation of licenses and
approvals.
ITEM 2. PROPERTIES
Except as mentioned below, the Company leases its Agencies' offices.
For information with respect to the Company's lease commitments see "Note
H--Leases" of the Notes to Consolidated Financial Statements in the
Company's 1997 Annual Report to Shareholders which is incorporated herein
by reference.
At December 31, 1997, the Company owned buildings in Oklahoma City,
Oklahoma; Fort Myers, Florida; Mobile, Alabama and Victoria, Texas in which
the Agencies in those cities are located. In addition, the Company owned a
building in Charlottesville, Virginia.
ITEM 3. LEGAL PROCEEDINGS
The Company and its Agencies have no material pending legal
proceedings other than ordinary, routine litigation incidental to the
business, to which it or a subsidiary is a party. With respect to the
routine litigation, upon the advice of counsel, management believes that
none of these proceedings, either individually or in the aggregate, if
determined adversely to the Company, would have a material effect on the
financial position or results of operations of the Company or its ability
to carry on its business as currently conducted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Robert H. Hilb, 71, has been Chairman of the Company since 1991 and
has been a director of the Company since 1982. He was Chief Executive
Officer of the Company from 1991 to May 1997 and was President of the
Company from 1982 to 1995.
Andrew L. Rogal, 49, has been Chief Executive Officer of the Company
since May 1997, and President of the Company since 1995 and has been a
director of the Company since 1989. He was Chief Operating Officer of the
Company from 1995 to May 1997. He was Executive Vice President of the
Company from 1991 to 1995 and Senior Vice President of the Company from
1990 to 1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton
Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995
and was President of this subsidiary from 1987 to 1993.
Timothy J. Korman, 45, has been Executive Vice President-Finance and
Administration since August 1997. He was Executive Vice President, Chief
Financial Officer and Treasurer of the Company from November 1995 to August
1997, and was Senior Vice President and Treasurer of the Company from 1989
to November 1995. He is a first cousin of Robert S. Ukrop, a director of
the Company.
John C. Adams, Jr., 61, has been Executive Vice President of the
Company since 1991 and was a director of the Company from 1987 to 1995. He
has been Chairman of Hilb, Rogal and Hamilton Company of Daytona Beach,
Inc., a subsidiary of the Company, since 1990.
Dianne F. Fox, 49, has been Senior Vice President and Secretary of the
Company since 1989.
Carolyn Jones, 42, has been Senior Vice President, Chief Financial
Officer and Treasurer since August 1997 and was Vice President and
Controller of the Company from 1991 to August 1997.
Walter L. Smith, 40, has been Vice President and General Counsel of
the Company since 1991 and has been Assistant Secretary of the Company
since 1989.
Vincent P. Howley, 49, has been Vice President-Agency Financial
Operations since August 1997. He was Vice President-Audit of the Company
from 1993 to August 1997, and was Assistant Vice President-Audit of the
Company from 1986 to 1993.
Henry C. Kramer, 53, joined the Company as Vice President-Human
Resources in October 1997. Prior thereto, he held various human resource
positions with Alexander & Alexander, Inc. in Baltimore, Maryland from 1973
to 1997.
Robert J. Hilb, 34, has been Vice President of the Company since
August 1997. He was President of HRH Resource Group, Ltd., a subsidiary of
the Company from 1994 to 1997. Prior thereto, he held various insurance
related positions within the Company. He is the son of Robert H. Hilb,
Chairman and a director of the Company.
Robert W. Blanton, Jr., 33, has been Assistant Vice President and
Controller since August 1997 and was Assistant Vice President of the
Company from 1993 to August 1997. He joined the Company in 1990 as
Accounting Senior.
Valerie C. Elwood, 36, has been Assistant Vice President of the
Company since 1993. She joined the Company in 1987 and has held various
positions in the accounting department.
<PAGE>
All officers serve at the discretion of the Board of Directors. Each
holds office until the next annual election of officers, which is held at
the meeting of the Board of Directors after the Annual Meeting of
Shareholders, called to be held on May 5, 1998, or until their successors
are elected. There are no family relationships nor any arrangements or
understandings between any officer and any other person pursuant to which
any such officer was selected, except as noted above.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Information as to market price and dividends per share of Common Stock
and related stockholder matters is incorporated herein by reference to the
material under the headings "Shareholders" and "Market Price of Common
Stock" in the Company's 1997 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Information as to selected financial data is incorporated herein by
reference to the material under the heading "Selected Financial Data" in
the Company's 1997 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information as to management's analysis of financial condition and
results of operations is incorporated herein by reference to the material
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1997 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors included on page 12 of Form 10-K
and consolidated financial statements included on pages 20 through 30 of
the Company's 1997 Annual Report to Shareholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the directors of the registrant is incorporated
herein by reference to the material under the heading "Proposal One
Election of Directors" in the Company's definitive Proxy Statement for the
1998 Annual Meeting of Shareholders. Information as to the executive
officers of the registrant is set forth following Item 4 of Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information as to executive compensation is incorporated herein by
reference to the material included on pages 8 through 13 in the Company's
definitive Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information as to security ownership of certain beneficial owners and
management is incorporated herein by reference to the material under the
headings "Security Ownership of Management" and "Security Ownership of
Certain Beneficial Owners" in the Company's definitive Proxy Statement for
the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions or series of transactions or proposed
transactions since January 1, 1997 which require disclosure under Item 13
of Part III of this report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Hilb, Rogal and
Hamilton Company and subsidiaries, included in the Company's 1997 Annual
Report to Shareholders are incorporated herein by reference in Item 8 of
this report:
Consolidated Balance Sheet -- December 31, 1997 and 1996
Statement of Consolidated Income -- Years Ended December 31, 1997, 1996 and
1995
Statement of Consolidated Shareholders' Equity -- Years Ended December 31,
1997, 1996 and 1995
Statement of Consolidated Cash Flows -- Years Ended December 31, 1997, 1996
and 1995
Notes to Consolidated Financial Statements -- December 31, 1997
The following consolidated financial statement schedule of Hilb, Rogal
and Hamilton Company and subsidiaries is included in Item 14(d):
Schedule
Number Description Page
Number
II Valuation and Qualifying Accounts 13
All other schedules for which provision is
made in the applicable accounting regulation
of the Securities and Exchange Commission are
not required under the related instructions
or are inapplicable and therefore have been
omitted.
<PAGE>
(3) Exhibits - Index
Exhibit No. Document
3.1 Articles of Incorporation
(incorporated by reference
to Exhibit 4.1 to the
Company's Registration State-
ment on Form S-3, File No.
33-56488, effective March 1,
1994, hereinafter, the Form
S-3)
3.2 Amended and Restated Bylaws
10.1 $20,000,000 Credit Agreement
dated February 12, 1996 among
Hilb, Rogal and Hamilton Company,
Certain Banks and Crestar Bank,
as Agent of the Banks (incorporated
by reference to Exhibit 10.1 to the
Company's Form 10-K for the year
ended December 31, 1995, File
No. 0-15981)
10.2 Amendment dated February 24, 1997
to Credit Agreement dated February
12, 1996 among Hilb, Rogal and
Hamilton Company, Certain Banks
and Crestar Bank as Agent of the
Bank (incorporated by reference to
Exhibit 10.2 to the Company's Form
10-K for the year ended December
31, 1996, File No. 0-15981)
10.3 Incentive Stock Option Plan, as
amended (incorporated by reference
to Exhibit 28.27 of the Form S-3)
10.4 Consulting Agreement with Robert H.
Hilb (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended June 30, 1997,
File No. 0-15981)
<PAGE>
(3) Exhibits - Index (Continued)
Exhibit No. Document
10.5 Employment Agreement of Andrew L. Rogal
(incorporated by reference to Exhibit 10.2 to
the Company's Form 10-Q for the quarter
ended June 30, 1997, File No. 0-15981)
10.6 Employment Agreement of Dianne F. Fox
and amendments thereto and Severance and
Release Agreement
10.7 Hilb, Rogal and Hamilton
Company 1989 Stock Plan, as amended
10.8 Supplemental Executive Retire-
ment Plan, as amended and restated
10.9 Hilb, Rogal and Hamilton Company
Outside Directors Deferral Plan, as
amended and restated
13 1997 Annual Report to Shareholders
22 Subsidiaries of Hilb, Rogal and
Hamilton Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1997.
(c) Exhibits
The response to this portion of Item 14 as listed in Item 14(a)(3)
above is submitted as a separate section of this report.
(d) Financial Statement Schedules
The report of independent auditors and financial statement schedule
(as indexed in Item 14(a)(2)) of this report are as follows:
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Hilb, Rogal and Hamilton Company
We have audited the consolidated balance sheet of Hilb, Rogal and Hamilton
Company and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997 (incorporated
by reference herein). Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state
ments. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Hilb, Rogal and Hamilton Company and subsidiaries at December
31, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Richmond, Virginia
February 11, 1998
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY
AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------
Additions
Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions at End
Description of Period and Expenses (Describe)* (Describe)** of Period
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1997:
Allowance for doubt-
ful accounts....... $2,445,000 $ 384,000 $ 66,000 $ 596,000 $2,299,000
Year ended
December 31, 1996:
Allowance for doubt-
ful accounts....... 1,772,000 1,276,000 100,000 703,000 2,445,000
Year ended
December 31, 1995:
Allowance for doubt-
ful accounts....... 2,348,000 1,500,000 121,000 2,197,000 1,772,000
</TABLE>
______________________
* Recoveries
** Bad debts written off
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HILB, ROGAL AND HAMILTON COMPANY
By /s/ Andrew L. Rogal
Andrew L. Rogal, President
and Chief Executive Officer
Date March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title
Date
/s/ Andrew L. Rogal President and Chief Executive March 26, 1998
Andrew L. Rogal Officer(principal
executive officer)
/s/ Carolyn Jones Senior Vice President, Chief March 26, 1998
Carolyn Jones Financial Officer and Treasurer
(principal financial officer)
/s/ Robert W. Blanton, Jr. Assistant Vice President and March 26, 1998
Robert W. Blanton, Jr. Controller
(principal accounting officer)
/s/ Robert H. Hilb Chairman and Director March 26, 1998
Robert H. Hilb
Philip J. Faccenda Director
/s/ Robert S. Ukrop Director March 26, 1998
Robert S. Ukrop
/s/ Thomas H. O'Brien Director March 26, 1998
Thomas H. O'Brien
/s/ J.S.M. French Director March 26, 1998
J.S.M. French
/s/ Norwood H. Davis, Jr. Director March 26, 1998
Norwood H. Davis, Jr.
/s/ Theodore L. Chandler, Jr. Director March 26, 1998
Theodore L. Chandler, Jr.
AMENDED AND RESTATED
BYLAWS
OF
HILB, ROGAL AND HAMILTON COMPANY
* * * * * * * *
ARTICLE I
Shareholders
The shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or more
shares of the capital stock, and the original stock transfer
books shall be prima facie evidence as to the identity of the
shareholders entitled to vote at any meeting of shareholders.
ARTICLE II
Meetings of the Shareholders
Section 1. The annual meeting of the shareholders
of the Corporation shall be held on the first Tuesday in May of
each year during normal business hours, at the offices of the
Corporation, or at such other place within or without the
Commonwealth of Virginia as may from time to time be fixed by the
Board of Directors, or in the absence of action by the Directors,
as may be fixed by the Chief Executive Officer.
Section 2. Special meetings of the shareholders of
the Corporation may be held at any time, at such place within or
without the Commonwealth of Virginia as shall be designated in
the notice of any such meeting, upon the call of the Chief
Executive Officer, or by order of the Board of Directors,
whenever they deem it necessary.
Section 3. Written notice of any annual or special
meeting of the shareholders shall be mailed to the address of or
be delivered to each shareholder of record entitled to vote at
such meeting not less than ten (10) nor more than fifty (50) days
prior to the date of such meeting; provided, however, that
written notice of any meeting to act on an amendment of the
Articles of Incorporation or on a reduction of stated capital or
on a plan of merger, consolidation or exchange shall be given not
less than twenty-five (25) nor more than fifty (50) days prior to
the date of such meeting. In the case of a special meeting, the
notice shall include a statement of the purpose or purposes for
which the meeting is called.
Section 4. To constitute a quorum, shareholders
holding a majority of all the outstanding shares of stock of the
Corporation entitled to vote must be present, either in person or
by proxy, each share of such stock being entitled to one vote,
which may be given personally or by duly authorized proxy. Less
than a quorum may adjourn the meeting to a fixed time and place,
no further notice of any adjourned meeting being required.
Section 5. The Board of Directors may fix in
advance a date as the record date for the purposes of determining
shareholders entitled to notice of or to vote at any meeting of
the shareholders or any adjournment thereof, or entitled to
receive a payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, such
date not to be more than seventy (70) days preceding the date on
which the particular action requiring such determination of the
shareholders is to be taken.
Section 6. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall
make, at least ten (10) days before each meeting of shareholders,
a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, with the address of and the
number of shares held by each. Such list, for a period of ten
(10) days prior to such meeting, shall be kept on file at the
registered office of the Corporation or at its principal place of
business or at the office of its transfer agent or registrar and
shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced
and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole
time of the meeting for the purposes thereof. The original stock
transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
Section 7. The Chief Executive Officer shall
preside over all meetings of the shareholders of the Corporation
at which he is present. If the Chief Executive Officer is not
present, a chairman of the meeting shall be elected at the
meeting by those authorized to vote at the meeting. The
Secretary of the Corporation shall record the minutes of all the
meetings if he is present at the meeting. If he is not present,
the chairman of the meeting shall appoint a secretary of the
meeting. The chairman of the meeting may appoint one or more
inspectors of the election to determine the qualification of
voters, the validity of proxies, and the results of ballots.
Section 8. Notice of Shareholder Business and Nominations.
A. Annual Meetings of Shareholders.
(1) Nominations of persons for election to
the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an
annual meeting of shareholders (a) pursuant to the Corporation's
notice of meeting ("Corporate Initiative"), (b) by or at the
direction of the Board of Directors ("Board Initiative") or (c)
by any shareholder of the Corporation who was a shareholder of
record at the time of giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this Bylaw ("Shareholder
Initiative").
(2) For nominations or other business to be
properly brought before an annual meeting by Shareholder
Initiative, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for shareholder
action. If the annual meeting date of the Corporation is no more
than 30 days before nor 60 days after the anniversary date of the
preceding annual meeting of the Corporation ("Anniversary Date"),
then notice of the Shareholder Initiative must be delivered to
the Secretary at the Corporation's principal executive offices,
during normal business hours, no more than 90 days nor less than
60 days prior to the Anniversary Date. If the annual meeting
date of the Corporation is more than 30 days before or more than
60 days after the Anniversary Date, then the notice of
Shareholder Initiative must be delivered to the Secretary of the
Corporation's principal executive offices, during normal business
hours, no more than 90 days prior to such annual meeting and no
later than the later to occur of (i) 60 days prior to the annual
meeting or (ii) the tenth day following the day on which public
announcement of the date of the annual meeting was made by the
Corporation. If an annual meeting is adjourned, the public
announcement thereof shall not commence a new time period for
delivery of the notice of Shareholder Initiative. Notice of a
Shareholder Initiative shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to
being named in the proxy statement as a nominee and to serving as
a director if elected); (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such shareholder
and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as
they appear on the Corporation's books, and of such beneficial
owner and (ii) the class or series and number of shares of the
Corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in paragraph
A(2) of this Bylaw to the contrary, if the number of directors to
be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 70 days prior to the
Anniversary Date, notice of a Shareholder Initiative shall also
be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered
to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made
by the Corporation.
B. Special Meetings of Shareholders. Only such
business shall be conducted at a special meeting of shareholders
as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special
meeting of shareholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (1) by or at the
direction of the Board of Directors or (2) provided that the
Board of Directors has determined that directors shall be elected
at such meeting, by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided
for in this Bylaw, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this
Bylaw. If the Corporation calls a special meeting of
shareholders for the purpose of electing one or more directors to
the Board of Directors, any such shareholder may nominate a
person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting,
if the shareholder's notice required by paragraph A(2) of this
Bylaw shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the close
of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day
on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting
commence a new time period for the giving of a shareholder's
notice as described above.
C. General.
(1) Only such persons who are nominated in
accordance with the procedures set forth in this Bylaw shall be
eligible to serve as directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures
set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this bylaw, "public
announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions
of this Bylaw, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in
this Bylaw. Nothing in this Bylaw shall be deemed to affect any
rights (a) of shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (b) of the holders of any class of series of
Preferred Stock to elect directors under specified circumstances.
ARTICLE III
Board of Directors
Section 1. The affairs and business of the
Corporation shall be under the management and control of the
Board of Directors, which shall be composed of not less than
three (3) nor more than fourteen (14) members, as may be fixed
from time to time by the shareholders. Directors need not be
residents of Virginia or shareholders of the Corporation. No
person other than Robert H. Hilb, a founder of the Corporation,
may stand for election as a Director if that person has attained
the age of seventy (70) years. The Board of Directors may elect,
employ or appoint such other officers and agents as it deems
necessary.
Section 2. The Directors shall be elected at each
annual meeting of the shareholders of the Corporation held at the
time and place hereinbefore designated. No individual shall be
named or elected as a director without his prior consent.
Vacancies in the Board, whether caused by death, resignation, or
otherwise, may be filled by the Board of Directors, and the
person so elected shall hold office until the next annual meeting
of the shareholders, or until their successors are elected;
provided, however, that nothing herein shall prevent the
shareholders from filling any such vacancies existing at the time
of any meeting of the shareholders, annual or special, or created
at the time of such meeting by resignations accepted, or
otherwise, or additional placed created by an increase in the
Board authorized at such meetings. The shareholders may increase
the Board of Directors from time to time and may provide that the
additional places shall be filled by the Board of Directors at
such time as they may deem proper. Should the number of
Directors at any time be increased, the resulting additional
places on the Board shall be considered vacancies to be filled,
as above provided, by the Board of Directors or shareholders.
Until any such additional places shall have been filled by the
election of Directors, the total number of Directors of the
Corporation, for the purposes of determining a quorum, shall be
the number of Directors actually elected and serving at the time
of any given meeting.
Section 3. The Board of Directors shall hold its
meetings at such time and place as shall be designated, or in the
absence of designation by the Board of Directors, at such place
as shall be designated in the notice. A meeting may be called at
any time by the Chairman or by any two Directors. Due notice of
the time and place of each meeting of the Directors shall be
given by the Secretary personally, or by mail or telegraph, to
all Directors. A majority of the Directors shall constitute a
quorum. The Chairman shall preside over all meetings of the
Board of Directors at which he is present. If the Chairman is
not present, the Chief Executive Officer shall preside. If
neither of such officers is present, a chairman of the meeting
shall be elected at the meeting by the Directors present at the
meeting.
Section 4. The Board of Directors may, by
resolution adopted by a majority of the Directors, designate
three or more of their number, of whom the Chairman and the Chief
Executive Officer shall each be one ex officio, to constitute an
Executive Committee, which shall have and exercise all the powers
of the Board that may be lawfully delegated, including the power
to authorize the seal of the Corporation to be affixed to such
documents as may require it, but shall not be empowered to
declare dividends. The acts and records of said Executive
Committee shall at all times be subject to the supervision and
control of the Board of Directors when in meeting assembled. The
Secretary shall attend and keep a record of the meetings of the
said Executive Committee.
Section 5. The vote of a majority of disinterested
Directors and the vote of a majority of independent Directors
shall be required to approve any contract, lease, loan or
transaction of any kind between the Corporation and any executive
officer, Director or affiliated person of the Corporation.
ARTICLE IV
Officers
Section 1. The officers of the Corporation shall be
a Chairman, a Chief Executive Officer, a President, a Secretary,
a Treasurer and such Chief Operating Officers, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents, Assistant
Secretaries, Assistant Treasurers, Assistant Vice Presidents or
other officers as may be deemed necessary from time to time by
the Board of Directors. Assistant officers shall have the same
authority and power as the primary officeholder. Any two or more
offices may be held by the same person, except the offices of
Chief Executive Officer and Secretary shall be held by different
persons. All of the officers shall be elected by the Board of
Directors each year as soon after the annual meeting of the
shareholders as is convenient.
Section 2. The Chairman shall preside at all
meetings of the Board of Directors at which he is present. In
addition, he shall do everything and discharge all duties
generally pertaining to his office as Chairman of the Board of
Directors of a corporation of this character and such additional
duties as may be delegated to him from time to time by the Board
of Directors.
Section 3. The Chief Executive Officer of the
Corporation shall attend and preside at all meetings of the
shareholders, shall attend all meetings of the Board of
Directors, shall exercise general supervision over the property,
business and affairs of the Corporation and shall do everything
and discharge all duties generally pertaining to his office as
the executive head of a corporation of this character, subject to
the control of the Board of Directors. He may at each annual
meeting of the shareholders render a general report of the
Corporation's condition and business.
Section 4. The President, or the Chief Operating
Officer, as the case may be, shall supervise the day-to-day
operations and affairs of the corporation and do everything and
discharge all duties generally pertaining to his office as the
operating head of a corporation of this character and such
additional duties as may be delegated to him from time to time by
the Chief Executive Officer, subject to the control of the Board
of Directors.
Section 5. In the instance of the inability of the
Chief Executive Officer to act on account of absence, illness or
for any other reason, his duties shall be performed during the
period of such inability by the President, or the Chief Operating
Officer, as the case may be. In the instance of the inability of
the President, or the Chief Operating Officer, as the case may
be, to act on account of absence, illness, or for any other
reason, his duties shall be performed during the period of such
inability by the most senior vice president available. The vice
presidents in the order of their seniority ranking shall be
Executive Vice President, Senior Vice President and Vice
President. The acts of the vice president, duly authorized and
performed under such conditions, shall be the acts of, and
binding upon, the Corporation. If a vice president who has
temporarily assumed the duties of the President, or the Chief
Operating Officer, as the case may be, is unable for any reason
to continue to perform such duties, the same shall be performed
by the Vice President next in seniority ranking who is available
for the purpose. The President, or the Chief Operating Officer,
as the case may be, if either should act as Chief Executive
Officer under this Bylaw shall report fully to the Chief
Executive Officer upon the Chief Executive Officer's return to
duty with respect to all actions taken and transactions
accomplished by the President, or the Chief Operating Officer, as
the case may be, during the absence or disability of the Chief
Executive Officer. A vice president who acts as President under
this Bylaw shall report fully to the President upon his return to
duty with respect to all actions taken and transactions
accomplished by him during the absence or disability of the
President.
Section 6. In the absence of the Chief Executive
Officer, the President and any Vice President, the Board of
Directors may designate some other individual to discharge such
executive duties as may be required for the elapsed period.
Section 7. The Treasurer shall have charge and
custody of the funds, securities of whatsoever nature and other
like property of the Corporation. The Treasurer shall endorse
checks, notes and bills for deposit only as may be required for
the business of the Corporation, shall have authority to collect
the funds of the Corporation and shall deposit same in such bank
or banks as the Board may designate, and the same shall not be
drawn therefrom except by checks to be signed in the manner
designated herein.
Section 8. The Secretary shall sign, with the Chief
Executive Officer, all certificates of stock. The Secretary
shall keep a book containing the names of all persons who are
now, or may hereafter become, shareholders of the Corporation,
showing their place of residence, the number of shares held by
them, respectively, and the time when they respectively became
the owners of such shares. The Secretary shall keep a record of
the proceedings of the meetings of the shareholders, of the Board
of Directors and of the Executive Committee. He shall have
charge of the seal of the Corporation and shall perform such
other duties as pertain to such office or as the Chief Executive
Officer or the Board of Directors may from time to time require.
ARTICLE V
Certificates of Stock
Section 1. Each shareholder shall be entitled to a
certificate of certificates of stock in such form as may be
approved by the Board of Directors, signed by the Chief Executive
Officer, or the President, and by the Secretary and with the
corporate seal impressed thereon.
Section 2. All transfers of stock of the
Corporation shall be made upon its books by surrender of the
certificate for the shares transferred accompanied by an
assignment in writing by the holders and may be accomplished
either by the holder in person or by a duly authorized attorney
in fact.
Section 3. In case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate
may be issued upon such terms not in conflict with law as the
Board of Directors may prescribe.
Section 4. The Board of Directors may also appoint
one or more Transfer Agents and Registrars for its stock and may,
at its option, require stock certificates to be both
countersigned by a Transfer Agent and registered by a Registrar.
If certificates of capital stock of the Corporation are signed
both by a Transfer Agent and Registrar, the signatures thereon of
the officers of the Corporation and the seal of the Corporation
thereon may be facsimiles, engraved or printed. In case any
officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates
or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of the
Corporation.
ARTICLE VI
Voting of Stock Held
Unless otherwise provided by a vote of the Board of
Directors, the Chief Executive Officer may either appoint
attorney(s)-in-fact to vote any stock of any other Corporation
owned by this Corporation or may attend any meeting of the
holders of stock of such other Corporation and vote such shares
in person.
ARTICLE VII
Checks
All checks, notes, drafts, and bonds given by the
Corporation in the course of its business shall be signed in the
name of the Corporation in such manner as may be designated by
the Directors from time to time.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall end on
December 31st of each calendar year.
ARTICLE IX
Corporate Seal
The corporate seal of this Corporation shall consist of
two concentric circles around the inner edge of which shall be
engraved the words "HILB, ROGAL AND HAMILTON COMPANY" and
"VIRGINIA" and across the center thereof the word "SEAL."
ARTICLE X
Amendments
These Bylaws may be altered, amended or repealed by a
vote of the majority of the number of Directors present at any
meeting of the Board of Directors, or by the shareholders at any
special meeting, when notice of such proposed amendment has been
given in the notice calling said board meeting or special meeting
of the shareholders, unless the same shall be waived in the
manner prescribed by law, or by the shareholders at any annual
meeting.
ARTICLE XI
Gender
Wherever the context requires or is appropriate,
references in these Bylaws to the masculine gender of words shall
include the feminine and vice versa.
Certified to be the original of the Amended and Restated Bylaws
of Hilb, Rogal & Hamilton Company duly adopted by the Board of
Directors of the Corporation on February 3, 1998.
/s/Dianne F. Fox
Secretary
0358123A
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated January 1, 1991,
is made between HILB, ROGAL AND HAMILTON COMPANY, a Virginia
corporation ("HRH"), and Dianne F. Fox
("Employee"), a resident of Richmond. Virginia
RECITALS
WHEREAS, HRH desires that Employee be employed for the
period of time and in a capacity with HRH as specified herein;
WHEREAS, Employee desires to accept such employment subject
to the terms and conditions specified herein; and
NOW, THEREFORE, in consideration of the premises stated
above and the sum of $1.00, receipt of which is acknowledged by
Employee, HRH's employment or continued employment of Employee,
and the mutual promises contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT: TERM RENEWAL, COMPENSATION. HRH agrees to
employ Employee for an initial term of three (3) years (the
"Initial Term"), effective as of January 1, 1991 ("Effective
Date"), and to compensate Employee as described herein.
Upon the expiration of the Initial Term, Employee shall
continue in the employ of HRH, upon the same terms and conditions
as provided herein, until either HRH or Employee gives the other
party ninety (90) days advance written notice of its or his
intention to discontinue such relationship as of a specific
future date.
Employee's principal areas of responsibility shall be those
of Senior Vice President & Corporate Secretary of HRH. HRH agrees
that Employee shall have such executive powers and authority as
may reasonably be required by him in order to discharge his
duties in an efficient and proper manner
Employee's base annual salary at the beginning of the
Initial Term will be $74,000.00 payable semi-monthly, as earned.
Employee's compensation shall be reviewed by HRH not less
frequently than annually during the term of this Agreement and
any extensions or renewals thereof, may be adjusted upward or
downward in HRH's sole discretion and shall be full compensation
for all services performed by Employee under this Agreement,
provided however, notwithstanding anything said to the contrary,
Employee shall not be paid a base salary less than $74,000.00 per
annum during the Initial Term.
2. FULL EFFORTS OF EMPLOYEE. Employee agrees (i) to devote
his full business time and energies to the business and affairs
of HRH, (ii) to use his best efforts, skills and abilities to
promote the interests of HRH and its other subsidiaries and (iii)
to perform faithfully and to the best of his ability all
assignments of work given to him by HRH. During the course of his
employment hereunder, Employee shall not, directly or indirectly,
enter into or engage in any business which competes with the
business of HRH without the written consent of HRH.
3. CONFIDENTIAL INFORMATION. Employee acknowledges that, in
the course of his employment hereunder, he will become acquainted
and entrusted with certain confidential information and trade
secrets of HRH and the HRH Companies (any company directly owned
by or operationally or administratively controlled by HRH, is
herein referred to as the "HRH Companies"), concerning
acquisitions, prospects for acquisitions and customers and
prospects of HRH and the HRH Companies ("HRH Customers"), which
confidential information includes, but is not limited to,
customer lists, financial data and marketing programs of HRH and
the HRH Companies, policy expiration dates, policy terms,
conditions and rates, customers' risk characteristics, and
information concerning the insurance markets for large or unusual
commercial risks (the "Confidential Information"). Employee
agrees that he will safeguard the Confidential Information from
exposure to, or appropriation by, unauthorized persons and that
he will not, without the prior written consent of HRH during the
term of this Agreement or any time thereafter, divulge or make
any use of the Confidential Information except as may be required
in the course of his employment hereunder. Upon termination of
his employment, Employee promises to deliver to HRH all
materials, including personal notes and reproductions, relating
to the Confidential Information, to HRH and the HRH Companies,
and to the HRH Customers, which are in his possession or control.
Employee agrees that compensation and benefits otherwise owing to
him may be withheld for failure to comply with the terms of this
paragraph.
4. EMPLOYEE COVENANTS. Employee agrees that during the
initial term of his employment under this Agreement and during
any extension of such term, and for an additional period of three
years after the first to occur of (i) the expiration of the
initial term of his employment under this Agreement or any
extension of such term, (ii) his voluntary resignation or
departure from the employment of HRH, or (iii) his inability to
perform his duties under this Agreement for reason of mental or
physical disability for a continuous period in excess of 180
days, Employee will not:
(a) Compete, directly or indirectly, with HRH or the HRH
Companies within the City of Richmond, Virginia, and a 100-mile
radius of the City of Richmond, Virginia or within the City or
County in which any HRH Company is located; or
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(b) Disclose to any other person, firm or corporation the
names or addresses of any of the customers of HRH or HRH
Companies, who were customers at any time during the term of this
Agreement or any extension hereof or communicate with or contact
in any manner whatsoever such customers of HRH or HRH Companies,
regardless of location, for the purpose of: (i) inducing such
customers to patronize any business other than that of HRH or HRH
Companies, (ii) canvassing, soliciting or accepting from any such
customers any business relating to the insurance agency business;
(iii) requesting or advising any customers of HRH or HRH
Companies, to withdraw, curtail or cancel such customer's
business with HRH or HRH Companies; nor will he induce or attempt
to induce any employee of HRH or HRH Companies to leave the
employ of his respective employer;
(c)(i) The term "insurance agency business" as used
herein shall be deemed to include, without
limitation, the sale, and servicing of policies of
life, health, group, casualty, or other forms of
insurance.
(ii) The word "compete" as used herein shall be deemed
to include, without limitation; (a) permitting
use of Employee's name in competition with HRH
or HRH Companies; (b) becoming or being an
employee (in any capacity in which he performs
services comparable to any services performed for
HRH hereunder), owner, partner, agent, stockholder
(other than a stockholder in a corporation listed
on a national securities exchange, or a
corporation whose securities are traded in the
over-the-counter market), director or officer of
any person, firm or corporation that engages,
directly or indirectly, in the insurance agency
business, or (c) undertaking to perform services
comparable to any services performed for HRH
pursuant to this Agreement on behalf of any
person, firm or corporation.
5. EMPLOYEE BREACH OF AGREEMENT. If, during the period of
three (3) years following the termination of employment
hereunder, any commission or fee becomes payable to Employee or
to any person, firm, partnership, corporation or other entity by
or with whom Employee is then employed or affiliated, as a result
of a violation by Employee of the provisions of paragraph 3 or 4
of this Agreement, Employee agrees to promptly pay to HRH an
amount equal to 75% of such commission or fee.
3
<PAGE>
In addition, the parties agree that, in the event of a
breach by Employee of the terms of paragraph 3 or 4, monetary
damages alone will not be sufficient to protect the interests of
HRH and, as a result, that HRH shall be entitled to injunctive
relief against Employee to prevent the breach of any such
provisions hereunder. It is further agreed that the foregoing
remedies shall be cumulative and not exclusive, and shall be in
addition to any other remedies available to HRH at law or in
equity.
6. STANDARDS OF PERFORMANCE: CAUSE. In addition to the full
efforts required of Employee in paragraph 2 hereof and
notwithstanding anything herein to the contrary, Employee's
employment may be terminated or altered, without notice, in the
discretion of HRH, prior to the expiration (including renewals)
of this Agreement for "Cause." For purposes hereof and without
limitation Cause shall include any dishonest, criminal or immoral
conduct or any act which will have more than a nominal adverse
effect against HRH and shall also include the failure of
Employee, whether through incompetence, inefficiency, negligence,
inability, incapacity or otherwise, to observe or perform any or
his duties or obligations hereunder.
7. TERMINATION UPON OCCURRENCE OF LONG-TERM DISABILITY.
HRH may terminate this Agreement, at its sole option, upon the
occurrence of "Long-Term Disability." "Long-Term Disability"
means a physical or mental incapacity, or any combinations
thereof which has prevented Employee from performing the duties
customarily assigned to him by HRH for one hundred-eighty (180)
days, whether or not consecutive, out of any twelve (12)
consecutive months, and which thereafter can reasonably be
expected by HRH to continue or to recur with similar frequency.
8. ATTORNEYS' FEES. In any dispute over this Agreement or in
pursuit of any remedy permitted under this Agreement, each party
shall bear its own costs and fees, including attorneys' fees,
irrespective of the laws of that jurisdiction concerning such
fees and costs.
9. SEVERABILITY. If any provision of this Agreement or any
part of any provision of this Agreement is determined to be
unenforceable for any reason whatsoever, it shall be severable
from the rest of this Agreement and shall not invalidate or
affect the other portions or parts of the Agreement, which shall
remain in full force and effect and be enforceable according to
their terms.
10. GOVERNING LAW. This Agreement shall be construed under
and governed by the laws of the Commonwealth of Virginia.
11. CASE AND GENDER. Wherever required by the context of
this Agreement, the singular and plural cases and the masculine,
feminine and neuter genders shaft be interchangeable.
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<PAGE>
12. NONWAIVER. The waiver by HRH of a breach of any
provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach or as a waiver of any other
provisions of this Agreement.
13. CAPTIONS. The captions provided in this Agreement are
intended for descriptive and reference purposes only and are not
intended to limit the applicability of the terms of any paragraph
to that caption.
14. SUCCESSION. This Agreement shall be binding upon the
parties hereto and is not assignable by Employee. This Agreement
shall inure, however, to the benefit of HRH's respective
successors and assigns, including without limitation, any
successor corporation by way of merger and consolidation or any
entity which purchases substantially all of the assets of HRH.
WITNESS the following signatures.
HRH:
HILB, ROGAL AND HAMILTON COMPANY
By /s/Robert H.Hilb
Its President
EMPLOYEE:
/s/Dianne F. Fox
Dianne F. Fox
5
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AMENDMENT NUMBER ONE
THIS AMENDMENT NUMBER ONE, dated September 1, 1991, by and
between Hilb, Rogal and Hamilton Company, a Virginia corporation
(hereinafter called "HRH"), and Dianne F. Fox of Richmond,
Virginia (hereinafter called "Employee"):
W I T N E S S E T H:
WHEREAS, HRH and Employee have heretofore entered into a
certain Employment Agreement ("Employment Agreement"; terms
defined therein being used herein as therein defined) dated as of
January 1, 1991; and
WHEREAS, HRH and Employee desire to make amendments to the
Employment Agreement as set forth below;
1. For all purposes therein, Section 1 of the Employment
Agreement is hereby amended by deleting the amount of $74,000 and
substituting in lieu thereof the amount of $80,000.
2. All other provisions or terms of the Employment
Agreement are hereby ratified and confirmed, including, but not
limited to, the provisions and terms of Section 4 thereof.
3. The effective date of this Amendment Number One is
September 1, 1991.
IN WITNESS WHEREOF, HRH has caused this Agreement to be
executed by its officers thereunto duly authorized and Employee
has hereunto set his hand and seal, all as of the day and year
first above written.
HILB,ROGAL AND HAMILTON COMPANY
By: /s/Robert H. Hilb
its President
Attest:
/s/Ann B Davis
/s/ Dianne F. Fox
Dianne F Fox
Witness By:
/s/ Ann B. Davis
<PAGE>
AMENDMENT NUMBER TWO
THIS AMENDMENT NUMBER TWO, dated September 1, 1993, by and
between Hilb, Rogal and Hamilton Company, a Virginia corporation
(hereinafter called "HRH"), and Dianne F. Fox of Richmond,
Virginia (hereinafter called "Employee")
W I T N E S S E T H:
WHEREAS, HRH and Employee have heretofore entered into a
certain Employment Agreement ("Employment Agreement"; terms
defined therein being used herein as therein defined) dated as of
January 1, 1991; and
WHEREAS, HRH and Employee desire to make amendments to the
Employment Agreement as set forth below;
1. For all purposes therein, Section 1 of the Employment
Agreement is hereby amended by deleting the amount of $80,000 and
substituting in lieu thereof the amount of $88,000.
2. All other provisions or terms of the Employment
Agreement are hereby ratified and confirmed, including, but not
limited to, the provisions and terms of Section 4 thereof.
3. The effective date of this Amendment Number Two is
September 1, 1993.
IN WITNESS WHEREOF, HRH has caused this Agreement to be
executed by its officers thereunto duly authorized and Employee
has hereunto set his hand and seal, all as of the day and year
first above written.
Hilb, Rogal and Hamilton
Company
By: /s/ Robert H. Hilb
its President
Attest:
/s/Ann B. Davis
/s/Dianne F. Fox (SEAL)
Dianne F. Fox
Witness By:
/s/ Ann B. Davis
<PAGE>
AMENDMENT NUMBER THREE
THIS AMENDMENT NUMBER THREE, dated as of December 1, 1997,
by and between Hilb, Rogal and Hamilton Company, a Virginia
corporation, (hereinafter called "HRH") and Dianne F. Fox of
Richmond, Virginia (hereinafter called "Employee"):
W I T N E S S E T H:
WHEREAS, HRH and Employee have heretofore entered into a
certain Employment Agreement dated as of January 1, 1991 and
amended on September 1, 1991 and September 1, 1993 ("Employment
Agreement"; terms defined therein being used herein as therein
defined); and
WHEREAS, HRH and Employee have agreed upon and duly executed
the Severance and Release Agreement relating to the severance of
Employee's employment attached hereto as Exhibit A;
WHEREAS, HRH and Employee wish to make amendments the
Employment Agreement as set forth below;
A. For all purposes therein, Section 1, the first sentence
of Section 2, Section 6 and Section 7 of the Employment Agreement
are hereby deleted and substituted in lieu thereof is the
following:
1. EMPLOYMENT TERM; COMPENSATION. HRH agrees to
employ Employee for a term of thirteen (13) months,
effective as of December 1, 1997 ("Effective Date"),
and to compensate Employee as described herein.
Employee's principal areas of responsibility has
been that of Senior Vice President and Corporate
Secretary of HRH. Employee will begin this term of
employment with substantially the same employment
responsibilities as she has had, however, a transition
of those responsibilities to other personnel will take
place over the course of this term of the Agreement.
HRH agrees that Employee shall have such executive
powers and authority as may reasonably be required by
her in order to discharge her duties in an efficient
and proper manner.
Employee's base annual salary at the beginning of
this term of the Agreement will be $121,200.00, payable
semi-monthly, as earned. Employee shall be entitled to
a bonus for 1997, payable in February, 1998, in the
gross amount of $25,000, or such higher amount as the
Compensation Committee of the Company may award.
Employee shall not be granted any further stock
options. Employee shall continue participation in the
qualified and non-qualified plans of the Company to the
extent that Employee continues to qualify for
participation.
B. All other provisions or terms of the Employment
Agreement are hereby ratified and confirmed, including but not
limited to, the provisions and terms of Section 4 thereof.
IN WITNESS WHEREOF, HRH has caused this Agreement to be
executed by its officers thereunto duly authorized and Employee
has hereunto set her hand and seal, all as of the day and year
first above written.
HILB, ROGAL AND HAMILTON COMPANY
By: /s/ Andrew L. Rogal
Its: President and Chief Executive
Officer
ATTEST:
/s/Dianne F. Fox (SEAL)
Dianne F. Fox
WITNESS:
<PAGE>
SEVERANCE AND RELEASE AGREEMENT
This Severance and Release Agreement (the "Agreement"),
dated as of this 1st day of December, 1997, by and between DIANNE
F. FOX ("Employee") and HILB, ROGAL AND HAMILTON COMPANY, a
Virginia corporation (the "Company") provides:
1. Termination of Employment; Severance Benefits.
Employee's employment shall terminate on December 31, 1998.
In consideration of Employee's acceptance of this Agreement, the
Company will pay Employee the following benefits:
The Company agrees to pay Employee a gross sum equivalent to
twelve (12) months' salary continuation at Employee's last
regular rate of pay. This sum shall be paid to Employee in
regular installments on a monthly basis, each coinciding with the
Company's regularly scheduled pay days and commencing with the
first pay day following the Effective Date of this Agreement.
The Company will also reimburse Employee for any group health
insurance premiums paid by Employee pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1986 ("COBRA") for coverage
through the twelve (12) months following the termination of
Employee's employment.
Employee understands that prior to payment of salary
continuation, the Company will deduct from these gross sums all
federal withholding taxes and other payroll deductions the
Company is required by law to make from wage payments to
employees. Employee further understands that these amounts are
all the Employee is entitled to receive from the Company except
for payments for any accrued but unused vacation days and pension
or other retirement benefits, if any, to which Employee may be
entitled under the Company's standard retirement program.
2. No Obligation to Make Payment under Normal Policies.
Employee agrees that this payment is more than the Company
is required to pay under its normal policies and procedures.
3. Complete Release.
Employee agrees to release the Company and any other related
companies, and the employees, officers, agents and directors of
any of them from all claims or demands Employee may have based on
Employee's employment with the Company or the termination of that
employment. This includes but is not limited to a release of any
rights or claims Employee may have under Title VII of the Civil
Rights Act of 1964, which prohibits discrimination in employment
based on race, color, national origin, religion or sex; the Age
Discrimination in Employment Act of 1967, which prohibits
discrimination in employment based on age; the Equal Pay Act,
which prohibits paying men and women unequal pay for equal work;
the Americans with Disabilities Act, which prohibits
discrimination against otherwise qualified disabled individuals,
or any other federal, state or local laws or regulations
prohibiting employment discrimination. This also includes but is
not limited to a release by Employee of any claims for wrongful
discharge or breach of contract. This release covers both claims
that Employee knows about and those the Employee may not know
about.
This release does not include, however, a release of
Employee's right, if any, to payment from ERISA benefits under
the Company's standard retirement program, and the right to
continuation in Company medical plans as provided by COBRA.
4. No Future Lawsuits.
Employee promises never to file a lawsuit asserting any
claims that are released in the Third Paragraph.
5. Disclaimer of Liability.
This Agreement and the payments and performances hereunder
are made solely to assist Employee in making the transition from
employment with the Company, and are not and shall not be
construed to be an admission of liability, an admission of the
truth of any fact, or a declaration against interest on the part
of the Company.
6. Confidential Information.
Employee shall not use or divulge, publish or disclose to
any person or organization, information obtained by Employee
during the course of Employee's employment, which the Company, in
its sole discretion, determines to be of a confidential or
sensitive nature. Such information expressly includes, but is
not limited to, this Agreement itself, information concerning the
Company's formulas, designs, methods of business, trade secrets,
technology, business operations, business records, customer lists
and other customer information. Employee further agrees to
immediately return to the Company all of the Company's property,
including but not limited to all cellular phones, computer
equipment, keys, credit cards, records, files, and other
documentation of whatever nature relating to the Company's
business or to the business of any of the Company's customers.
7. Claim for Reinstatement
Employee agrees to waive and abandon any claim to
reinstatement with the Company.
8. Statements Regarding Company And/Or Employment.
Employee agrees not to make any derogatory statement with
regard to the performance, character, or reputation of the
Company, its personnel and any and all related companies, or
assert that any current or former employee, agent, director or
officer of same has acted improperly or unlawfully with respect
to Employee regarding employment.
9. Period for Review and Consideration of Agreement.
Employee understands that Employee has been given a period
of twenty-one (21) days to review and consider this Agreement
before signing it. Employee further understands that Employee
may use as much of this twenty-one (21) day period as Employee
wishes prior to signing. The twenty-one (21) day period shall
commence upon receipt by Employee of this Agreement.
10. Employee's Right to Revoke Agreement.
Employee may revoke this Agreement within seven (7) days of
Employee's signing it. Revocation can be made by delivering a
written notice of revocation to the Company at 4235 Innslake
Drive, Glen Allen, Virginia 23060-1220; Attn: Andrew L. Rogal.
For this revocation to be effective, written notice must be
received by the Company no later than the close of business on
the seventh day after Employee signs this Agreement. If Employee
revokes this Agreement, it shall not be effective or enforceable
and Employee will not receive the benefits described in Paragraph
1 of the Agreement. In no event shall this Agreement be
effective or enforceable until after the period during which
Employee may revoke it (the "Revocation Period"); therefore, the
eighth day following the date on which Employee signs this
Agreement shall be the "Effective Date" of this Agreement, unless
Employee has revoked the Agreement during the Revocation Period,
in which case it shall not be effective or enforceable.
11. Encouragement to Consult with Attorney.
Employee has been strongly encouraged to consult with an
attorney before signing this Agreement, and understands that
whether or not to do so is Employee's own decision.
12. Acknowledgment.
Employee acknowledges that she has signed this Agreement
freely and voluntarily without duress of any kind.
13. Entire Agreement.
This Agreement, coupled with Amendment Number Three to
Employee's Employment Agreement, constitutes the entire Agreement
between Employee and the Company related to severance of
employment. The Company has made no promises to Employee other
than set forth therein. Notwithstanding the foregoing, all
restrictive covenants binding Employee and contained in the
Employment Agreement between Employee and the Company dated
January 1, 1991, as thereafter amended, shall continue in full
force and effect.
14. Successorship.
It is the intention of the parties that the provisions
hereof be binding upon the parties, their employees, affiliates,
agents, heirs, successors and assigns forever.
15. Governing Law.
This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
EMPLOYEE ACKNOWLEDGES THAT HE OR SHE HAS READ THIS
AGREEMENT, UNDERSTANDS IT, AND IS VOLUNTARILY ENTERING INTO IT.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF
ALL KNOWN AND UNKNOWN CLAIMS.
11/26/97 /s/ Dianne F. Fox
Date Dianne F. Fox
HILB, ROGAL AND HAMILTON COMPANY
By: /s/ Andrew L. Rogal
Its: President and Chief Executive
11/26/97 Officer
Date
- - 14 -
HILB, ROGAL AND HAMILTON COMPANY
1989 STOCK PLAN
(As Amended August 5, 1997)
I. PURPOSE
This 1989 Stock Plan is intended to assist Hilb, Rogal and
Hamilton Company (the "Company") in recruiting, retaining and
motivating capable individuals as key employees and Directors by
enabling those individuals who contribute significantly to the
Company to participate in its future success and to associate
their interests with those of the Company through equity
participation or equity-based rewards. This Plan is also
intended to assist affiliated corporations in recruiting,
retaining and motivating capable individuals as key employees by
enabling such employees who contribute significantly to the
affiliated corporation and, thereby the Company, to participate
in the Company's future success and to associate their interests
with those of the Company through equity participation or equity-
based rewards. The proceeds received by the Company from the
sale of Common Stock pursuant to this Plan shall be used for
general corporate purposes.
II. DEFINITIONS
For purposes of this Plan, the following terms shall have
the following meanings:
(a) Affiliate means any "subsidiary" or "parent"
corporation (within the meaning of Section 424 of the Code) of
the Company.
(b) Agreement means a written agreement (including any
amendment or supplement thereto) between the Company and a
Participant specifying the terms and conditions of an Option, SAR
or Restricted Stock award granted to such Participant.
(c) Board means the Board of Directors of the Company.
(d) Change of Control means and shall be deemed to have
taken place if: (i) any individual, entity or "group" (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act)
becomes the beneficial owner of shares of the Company having 25
percent or more of the total number of votes that may be cast for
the election of directors of the Company, other than (a) as a
result of any acquisition directly from the Company, or (b) as a
result of any acquisition by any employee benefit plans (or
related trusts) sponsored or maintained by the Company or its
Subsidiaries; or (ii) there is a change in the composition of the
Board such that the individuals who, as of August 5, 1997,
constitute the Board (the Board as of August 5, 1997 shall be
hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, for purposes of this definition, that any individual who
becomes a member of the Board subsequent to August 5, 1997 whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to
this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of
the Incumbent Board; or (iii) if at any time, (w) the Company
shall consolidate with, or merge with, any other Person and the
Company shall not be the continuing or surviving corporation, (x)
any Person shall consolidate with, or merge with, the Company,
and the Company shall be the continuing or surviving corporation
and in connection therewith, all or part of the outstanding
Common Stock shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other
property, (y) the Company shall be a party to a statutory share
exchange with any other Person after which the Company is a
Subsidiary of any other Person, or (z) the Company shall sell or
otherwise transfer 50% or more of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to any Person
or Persons.
(e) Change of Control Date is the date of the occurrence of
an event described in (i), (ii) or (iii) of the definition of
"Change of Control" above.
(f) Code means the Internal Revenue Code of 1986, and any
amendments thereto.
(g) Committee means the Compensation Committee which shall
be appointed from time to time by the Board but shall always
consist of three individuals, all of whom shall be Directors of
the Company who are not employees of the Company.
(h) Common Stock means the common stock of the Company.
(i) Director means a member of the Board.
(j) Exchange Act means the Securities Exchange Act of 1934,
as amended from time to time, and any successor thereto.
(k) Fair Market Value means, for any given date, the
closing price per share of Common Stock as reported on the New
York Stock Exchange composite tape on that day or, if the Common
Stock was not traded on such day, then the next preceding day
that the Common Stock was traded on such exchange, all as
reported by such source as the Committee may select.
(l) Initial Value means with respect to any SAR, the Fair
Market Value on the date of the grant of the SAR as set forth in
the applicable Agreement.
(m) Option means a stock option, not otherwise specifically
qualified for favorable tax treatment under a section of the
Code, that entitles the holder to purchase from the Company a
stated number of shares of Common Stock at the price set forth in
an Agreement under the terms of this Plan.
(n) Participant means an employee of the Company or an
Affiliate or a member of the Board of Directors of the Company,
whether or not an employee of the Company, who satisfies the
requirements of Section IV of the Plan and who either is selected
by the Committee to receive an Option, SAR or award of Restricted
Stock or receives a grant of an Option pursuant to Section VII.
(o) Person shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d).
(p) Plan means the Hilb, Rogal and Hamilton Company 1989
Stock Plan.
(q) 1986 Plan means the Hilb, Rogal and Hamilton Company
1986 Incentive Stock Option Plan.
(r) Restricted Stock means shares of Common Stock awarded
to a Participant under Section X of this Plan. Shares of Common
Stock shall cease to be Restricted Stock when, in accordance with
the terms of the applicable Agreement, they become freely
transferable and free of substantial risk of forfeiture.
(s) SAR means a stock appreciation right entitling the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the excess of the Fair
Market Value over the Initial Value of the SAR.
(t) Subsidiary means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code Section
424(f).
III. ADMINISTRATION
This Plan shall be administered by the Committee. Employees
of the Company and its Affiliates and Directors, whether or not
employees of the Company or an Affiliate, shall be eligible to
participate in this Plan; provided, however, that non-employee
Directors shall only receive awards of Options under Section VII
below and no other awards or grants hereunder except for
adjustments pursuant to Section XI. The Committee shall have
authority to grant Options, Restricted Stock awards, or SARs or
any combination thereof to any individual eligible to be a
Participant other than a non-employee Director, upon such terms
(not inconsistent with the provisions of this Plan) as it may
consider appropriate. The terms upon which each Option,
Restricted Stock award or SAR is granted by the Committee may
include conditions (in addition to those contained in this Plan)
established by the Committee upon the exercisability of all or
any part of the Option or SAR (including the terms of exercise,
Option price, time of vesting, transferability and
forfeitability) and the price, transferability or forfeitability
of Restricted Stock. Notwithstanding any such conditions, the
Committee may, in its discretion, accelerate the time at which
any Option or SAR which has been granted by the Committee may be
exercised or at which Restricted Stock becomes freely
transferable and free of risk of forfeiture. The Committee, in
its discretion, may establish guidelines supplementing this Plan
regarding the selection of Participants, other than non-employee
Directors, and the amounts, times and terms for grants by the
Committee of Options, Restricted Stock awards and SARs. In
addition, the Committee shall have complete authority to
interpret all provisions of this Plan, to adopt, amend, and
rescind rules and regulations pertaining to the administration of
this Plan, and to make all other determinations necessary or
advisable for the administration of this Plan. The Committee
shall prescribe the form of Agreements, consistent with the Plan,
to set forth terms and conditions for Options, SARs and
Restricted Stock awards granted to individual Participants. Any
decision made, or action taken, by the Committee in connection
with the administration of this Plan shall be final and
conclusive. No member of the Committee shall be liable for any
act done in good faith with respect to this Plan or any Agreement
or Common Stock or stock right granted under its terms. All
expenses associated with the administration of this Plan shall be
borne by the Company.
IV. ELIGIBILITY
(1) General. Any employee of the Company, or any employee
of an Affiliate, who, in the judgment of the Committee, has
contributed or may be expected to contribute to the profits or
growth of the Company or an Affiliate, as the case may be, may be
granted one or more Options, SARs or awards of Restricted Stock
by the Committee. Non-employee Directors shall receive Options
only under the terms of Sections VII below.
(2) Grants. The Committee will designate employees to whom
Options, SARs or awards of Restricted Stock are to be granted and
will specify the number of shares of Common Stock subject to each
grant. An Option may be granted to an employee with a related
SAR and an SAR may be granted to an employee with a related
Option or each may be granted independently. All Options, SARs
and awards of Restricted Stock granted under this Plan shall be
evidenced by Agreements which shall be subject to applicable
provisions of this Plan and, with respect to grants of Options,
SARs and awards of Restricted Stock to employees, to such other
terms and provisions as the Committee may adopt.
V. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
Upon the proper exercise of any Option, independent SAR or
award of Restricted Stock, and payment therefor, the Company may
deliver to the Participant authorized but previously unissued
Common Stock. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to both this Plan and the 1986
Plan is 625,000, inclusive of all shares issued pursuant to the
1986 Plan prior to the adoption of this Plan, (the "Maximum
Issuable Shares"). The Maximum Issuable Shares shall be
increased, or decreased, at the end of each fiscal year by 13.39%
of the increase, or decrease, in the number of shares of Common
Stock issued and outstanding between the first and last days of
the fiscal year (other than increases from the issuance of Common
Stock under this Plan or the 1986 Plan); provided, however, that
the Maximum Issuable Shares shall not be reduced below the number
that is the sum of those already issued and those that are the
subject of outstanding options under the 1986 Plan or this Plan
at the end of the fiscal year. This annual adjustment shall
first be made as of the last day of the Company's fiscal year
that begins on January 1, 1989.
If an Option is terminated, in whole or in part, for any
reason other than its exercise, the number of shares of Common
Stock allocated to the Option or portion thereof may be
reallocated to other Options to be granted under this Plan or
options under the 1986 Plan. Any shares of Restricted Stock that
are forfeited by a Participant may be reallocated to other awards
of Restricted Stock under this Plan. Upon the exercise of an SAR
granted independently of an Option, the Company may deliver to
the Participant authorized but previously unissued Common Stock,
cash, or a combination thereof as provided in Section IX(3). If
such an SAR is terminated, in whole or in part, for any reason
other than its exercise, the number of shares of Common Stock
allocated to that SAR, or portion thereof, respectively, may be
reallocated to other Options under this Plan or options under the
1986 Plan or SARs which may be granted independently of Options
under this Plan.
VI. OPTION PRICE
The price per share for Common Stock which may be purchased
by the exercise of any Option granted by the Committee under this
Plan shall be set by the Committee. Such Option price may differ
between Options and may be less than Fair Market Value at the
time of grant in the discretion of the Committee.
VII. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
Each Director of the Company who is not an employee of the
Company at the time of the grant shall receive a grant of an
Option for the purchase of 2,000 shares of Common Stock on the
first business day following the 1993, 1994, 1995, 1996 and 1997
Annual Meetings of the Shareholders of the Company. Each such
Option granted to a non-employee Director shall be for a purchase
price equal to the Fair Market Value of the Common Stock at the
time of the grant and shall be evidenced by an Agreement. Such
Agreement shall contain terms and provisions consistent with the
applicable provisions of this Plan.
VIII. EXERCISE OF OPTIONS AND SARS
(1) Maximum Option or SAR Period. Options and SARs granted
to employees may be exercisable immediately or become exercisable
after any term of months or years and may remain exercisable for
any term of months or years as set by the Committee in its
discretion at the time of granting. The date upon which any
Option or SAR granted by the Committee becomes exercisable may be
accelerated by the Committee in its discretion. The term of
exercisability for any Option or SAR granted by the Committee may
be extended by the Committee and may be made contingent upon the
continued employment of the Participant by the Company or
Affiliate. The terms of any Option or SAR granted by the
Committee may provide that the Option or SAR is exercisable in
whole or in part from time to time over such period of time as
the Committee shall consider appropriate.
(2) Nontransferability. Any Option or SAR granted under
this Plan shall be nontransferable except, in the case of the
death of the Participant, by will or by the laws of descent and
distribution. In the event of any such transfer upon the death
of the Participant, the Option and any related SAR must be
transferred to the same person or persons, trust or estate and
may not be separated. During the lifetime of the Participant to
whom an Option or SAR is granted, the Option or SAR may be
exercised only by the Participant. No right or interest of a
Participant in any Option or SAR shall be liable for, or subject
to, any obligation, lien, or liability of such Participant.
(3) Employee Status. In the event that the terms of any
Option or SAR granted to an employee of the Company provide that
the Option or SAR may be exercised only during the employment of
the Participant or within a specified period of time after the
termination of his employment, the Committee may decide in each
case whether and the extent to which leaves of absence for
governmental or military service, illness, temporary disability,
or other reasons shall be deemed interruptions of continuous
employment.
IX. METHODS OF EXERCISE
(1) Exercise. Subject to the provisions of Sections VIII,
XI and XIII, an Option or SAR granted by the Committee may be
exercised in whole at any time or in part from time to time at
such times and in compliance with the applicable Agreement and
such other requirements as the Committee shall determine. An
Option granted under Section VII hereof may be exercised in whole
at any time or in part from time to time at such times and in
compliance with the applicable Agreement. A partial exercise of
an Option or SAR shall not affect the right to exercise the
Option or SAR from time to time in accordance with this Plan with
respect to remaining shares subject to the Option or SAR, except
that the exercise of an Option shall result in the termination of
any related SAR to the extent of the number of shares with
respect to which the Option is exercised.
(2) Payment for Option Exercises. Unless otherwise
provided by the Agreement (or permitted by the Committee for non-
qualified Options granted by the Committee), payment of the
Option price shall be made in cash (in United States dollars) or
a cash equivalent acceptable to the Committee. If the Agreement
so provides (or the Committee so permits), payment of all or a
part of the Option price for a non-qualified Option may be
effected by a "cashless exercise" thereof (i) by the Participant
surrendering shares of Common Stock to the Company, or (ii) by
the Participant delivering to a broker instructions to sell a
sufficient number of the shares of Common Stock being acquired
upon exercise of the Option to cover the Option price and any
additional costs and expenses associated with the cashless
exercise. If Common Stock is surrendered to pay all or part of
the Option price, the shares surrendered must have a Fair Market
Value (determined as of the date of exercise of the Option) that
is not less than such Option price or part thereof.
(3) Settlement of SARs. At the discretion of the
Committee, the amount payable as a result of the exercise of an
SAR may be settled in cash, Common Stock or a combination of cash
and Common Stock. No fractional share shall be delivered upon
the exercise of an SAR but cash shall be paid in lieu thereof.
(4) Shareholder Rights. No Participant shall, as a result
of receipt of any Option or SAR, have any rights as a shareholder
until the date he exercises such Option or SAR.
(5) Tax Withholding With Respect to Options. In the case
of the exercise of an Option, the Participant shall pay to the
Company in cash the full amount of all federal and state income
and employment taxes required to be withheld by the Company in
respect of the taxable income of the Participant from such
exercise. If the Agreement so provides (or the Committee so
permits for non-qualified Options granted by the Committee),
payment of all or a part of such taxes may be made by the
Participant surrendering shares of Common Stock to the Company,
provided the shares surrendered have a Fair Market Value
(determined as of the date of exercise of the Option) that is not
less than the amount of such taxes or part thereof, or by the
sale of shares of Common Stock upon the cashless exercise of an
Option through a broker.
X. RESTRICTED STOCK.
(1) Award. In accordance with the provisions of Section
IV, the Committee will designate employees to whom an award of
Restricted Stock is to be made and will specify the number of
shares of Restricted Stock to be awarded, and the purchase price
per share to be paid by the Participant.
(2) Vesting. The Committee, on the date of the award, may
prescribe that the Participant's rights in the Restricted Stock
shall be forfeitable or otherwise restricted in any manner in the
discretion of the Committee for such period of time as is set
forth in the Agreement. By way of example and not limitation,
the restrictions may postpone transferability of the shares or
may provide that the shares will be forfeited if the employment
of the Participant by the Company or an Affiliate or the service
of the Participant as a Director terminates before the expiration
of a stated term.
(3) Shareholder Rights. Prior to the forfeiture of shares
in accordance with the terms of the Agreement and while the
shares are Restricted Stock, a Participant will have all rights
of a shareholder with respect to Restricted Stock, including the
right to receive dividends and vote the shares; provided,
however, that (i) a Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of Restricted Stock,
(ii) the Company shall retain custody of the certificates
evidencing shares of Restricted Stock, and (iii) the Participant
will deliver to the Company a stock power, endorsed in blank,
with respect to each award of Restricted Stock. The limitations
set forth in the preceding sentence shall not apply after the
shares cease to be Restricted Stock.
(4) Tax Withholding With Respect to Restricted Stock. The
Participant shall pay or provide for the payment to the Company
in cash of the full amount of all federal and state income and
employment taxes required to be withheld by the Company with
respect to the inclusion in the taxable income of the Participant
of any amount pursuant to an award of Restricted Stock, including
an election made pursuant to Section 83(b) of the Code or the
lapse of any restriction with respect thereto.
XI. CHANGES IN CAPITAL STRUCTURE
Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each
outstanding Option or SAR, and the price per share thereof, and
the number of shares of Restricted Stock awarded, shall be
adjusted proportionately for any increase or decrease in the
number of issued and outstanding shares of Common Stock of the
Company by reason of any stock dividend, stock split,
combination, reclassification, recapitalization, or the general
issuance to holders of Common Stock of rights to purchase Common
Stock at substantially below its then fair market value, or any
change in the number of shares of Common Stock outstanding
effected without receipt of cash, property, labor or services by
the Company, or any spin-off or other type of distribution of
assets to shareholders.
In the event of a change in the Common Stock of the Company
as presently constituted, which is limited to a change of all or
part of its authorized shares without par value into the same
number of shares with a par value, or any subsequent change into
the same number of shares with a different par value, the shares
resulting from any such change shall be deemed to be the Common
Stock within the meaning of the Plan.
Except as expressly provided above in this Section XI or in
Section XIII(3), a Participant shall have no rights by reason of
any subdivision or consolidation of shares of stock of any class
or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or consolidation
or spin-off of assets or stock of another corporation. Any issue
by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Restricted Stock or of
Common Stock subject to any Option or SAR.
The grant of an Option, SAR or Restricted Stock award
pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure
or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
XII. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock or
Restricted Stock shall be issued, no certificates for shares of
Common Stock or Restricted Stock shall be delivered, and no
payment shall be made under this Plan (i) except in compliance
with all applicable federal and state laws and regulations and
rules of all domestic stock exchanges on which the Company's
shares may be listed and (ii) until the Company has obtained such
consent or approval as the Board or the Committee may deem
advisable from regulatory bodies having jurisdiction over such
matters and from the shareholders. The Company and the Committee
shall have the right to rely on the opinion of counsel for either
of them as to such compliance. Any share certificate issued to
evidence Common Stock for which an Option or SAR is exercised or
to evidence Restricted Stock may bear such legends and statements
as the Board or the Committee may deem advisable to assure
compliance with federal and state laws and regulations.
XIII. GENERAL PROVISIONS
(1) Effect on Employment. Neither the adoption of this
Plan, its operation, nor any documents describing or referring to
this Plan (or any part thereof) shall confer upon any employee
any right to continue in the employ of the Company or an
Affiliate or in any way affect any right and power of the Company
or an Affiliate, as the case may be, to terminate the employment
of any employee at any time with or without assigning a reason
therefor.
(2) Unfunded Plan. This Plan, insofar as it provides for
grants, shall be unfunded, and the Company shall not be required
to segregate any assets that may at any time be represented by
grants under the Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created
pursuant to this Plan. No such obligation of the Company shall
be deemed to be secured by any pledge of, or other encumbrance
on, any property of the Company.
(3) Change of Control. Notwithstanding any other provision
of the Plan to the contrary, in the event of a Change of Control:
(a) Any outstanding Option or SAR which is not
presently exercisable or vested as of a Change of Control Date
shall become fully exercisable and vested to the full extent of
the original grant upon such Change of Control Date.
(b) The restrictions applicable to any outstanding
Restricted Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested,
nonforfeitable and transferable to the full extent of the
original grant.
(4) Rules of Construction. Headings are given to the
articles and sections of this Plan solely as a convenience to
facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
XIV. AMENDMENTS
The Board may amend or terminate this Plan from time to
time; provided, however, that: (i) no amendment may become
effective until the approval of the Company's shareholders is
obtained if the amendment (a) increases the aggregate number of
shares that may be issued hereunder or (b) changes the class of
individuals eligible to become Participants and, (ii) the Board
may amend Section VII hereof but only to provide for the granting
of Options to non-employee Directors in a year or years after
1997 which Option grants must not cause this Plan to fail to
qualify for exemption from Section 16(b) of the Securities
Exchange Act of 1934 under the provisions of Rule 16b-3 or any
successor rule and provided that such amendment to Section VII
hereof must also be approved by a majority of the employee
Directors then serving on the Board. No amendment shall, without
a Participant's consent, adversely affect any rights of such
Participant under any Option or SAR outstanding or Restricted
Stock issued at the time such amendment is made unless required
by law, regulation or rule of stock exchange.
XV. EFFECTIVE DATE OF PLAN
Options and SARs may be granted under this Plan, upon its
adoption by the Board, provided that no Option or SAR will be
effective unless and until this Plan is approved by the holders
of a majority of the shares of the Company's outstanding voting
stock present in person, or represented by proxy, and entitled to
vote at a duly held meeting of the shareholders. No Option or
SAR granted prior to such shareholder approval may be exercised
before the requisite shareholder approval is obtained.
XVI. GOVERNING LAW
The Plan shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia, except
to the extent that federal law shall be deemed to apply.
Stkpln97
HILB, ROGAL, AND HAMILTON COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Amended and Restated
Effective January 1, 1998
HILB, ROGAL, AND HAMILTON COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table of Contents
Page
ARTICLE I
GENERAL
Section 1.1 Effective Date 1
Section 1.2 Purpose 1
ARTICLE II
DEFINITIONS AND USAGE
Section 2.1 Definitions 2
Section 2.2 Usage 6
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility and Participation 6
ARTICLE IV
SUPPLEMENTAL BENEFIT
Section 4.1 Entitlement to Benefits 7
Section 4.2 Supplemental Benefit 7
Section 4.3 Normal Form of Payment 8
Section 4.4 Time of Payment 9
Section 4.5 Segregation of Assets 9
Section 4.6 Forfeiture of Supplemental Benefit 9
ARTICLE V
DEATH AND DISABILITY BENEFITS
Section 5.1 Death Benefit 9
Section 5.2 Disability Benefit 10
ARTICLE VI
ADMINISTRATION
Section 6.1 General 10
Section 6.2 Administrative Rules 11
Section 6.3 Duties 11
Section 6.4 Fees 12
ARTICLE VII
CLAIMS PROCEDURE
Section 7.1 General 12
Section 7.2 Denials 12
Section 7.3 Notice 12
Section 7.4 Appeals Procedure 13
Section 7.5 Review 13
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Amendment 13
Section 8.2 Termination 14
Section 8.3 No Assignment 14
Section 8.4 Incapacity 15
Section 8.5 Successors and Assigns 15
Section 8.6 Governing Law 15
Section 8.7 No Guarantee of Employment 15
Section 8.8 Unfunded Plan 15
Section 8.9 Severability 16
Section 8.10 Notification of Addresses 16
Section 8.11 Bonding 16
HILB, ROGAL, AND HAMILTON COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
GENERAL
1.1 Effective Date. The provisions of the Plan shall be
effective as of December 16, 1994, and, as amended and restated,
effective January 1, 1998. The rights, if any, of any person
whose status as an employee of the Company and its subsidiaries
and affiliates, if any, has terminated shall be determined
pursuant to the Plan as in effect on the date such employee
terminated, unless subsequently adopted provisions of the Plan
are made specifically applicable to such person.
1.2 Purpose. The purpose of the Plan is to provide
supplemental retirement income to a Participant. The Plan is
intended to be (and shall be construed and administered as) an
"employee pension benefit plan" under the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") which
is unfunded and maintained by the Company solely to provide
retirement income to a select group of management or highly
compensated employees as such group is described under sections
201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the
U.S. Department of Labor. The Plan is not intended to be a plan
described in section 401(a) of the Code or section 3(2)(A) of
ERISA.
ARTICLE II
DEFINITIONS AND USAGE
2.1 Definitions. Wherever used in the Plan, the following
words and phrases shall have the meanings set forth below unless
the context plainly requires a different meaning:
"Benefit Commencement Date" means the January 1
following a Participant's termination of employment
with the Company, or such earlier date in the absolute
discretion of the Committee.
"Board" means the Board of Directors of the
Company.
"Change of Control" means and shall be deemed to
have taken place if: (i) any individual, entity or
"group" (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Exchange Act) becomes the beneficial
owner of shares of the Company having 25 percent or
more of the total number of votes that may be cast for
the election of directors of the Company, other than
(a) as a result of any acquisition directly from the
Company, or (b) as a result of any acquisition by any
employee benefit plans (or related trusts) sponsored or
maintained by the Company or its Subsidiaries; or (ii)
there is a change in the composition of the Board such
that the individuals who, as of January 1, 1998,
constitute the Board (the Board as of January 1, 1998
shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes
of this definition, that any individual who becomes a
member of the Board subsequent to January 1, 1998 whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of those individuals who are members of the
Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall
be considered as though such individual were a member
of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office
occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the
Board shall not be so considered as a member of the
Incumbent Board; or (iii) if at any time, (a) the
Company shall consolidate with, or merge with, any
other Person and the Company shall not be the
continuing or surviving corporation, (b) any Person
shall consolidate with, or merge with, the Company, and
the Company shall be the continuing or surviving
corporation and in connection therewith, all or part of
the outstanding Common Stock shall be changed into or
exchanged for stock or other securities of any other
Person or cash or any other property, (c) the Company
shall be a party to a statutory share exchange with any
other Person after which the Company is a Subsidiary of
any other Person, or (d) the Company shall sell or
otherwise transfer 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" means the Compensation Committee of
the Board, if any, and otherwise, the Board.
"Company" means Hilb, Rogal, and Hamilton Company
and any successor thereto.
"Compensation" means total base compensation,
excluding bonuses and other forms of compensation, paid
to a Participant for personal services rendered to the
Company without regard to any Compensation Limitation.
"Compensation Limitation" means $150,000 as
adjusted to reflect cost-of-living increases by the
Secretary of the Treasury or his delegate from time to
time under section 401(a)(17) of the Code.
"Eligible Employee" means an employee of the
Company whose Compensation exceeds $150,000 as adjusted
from time to time under section 401(a)(17) of the Code.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"Grandfathered Participant" means a Participant
who is designated by the Committee as a "grandfathered
participant."
"Participant" means an Eligible Employee who is
participating in the Plan in accordance with Section
3.1 hereof and shall include a Grandfathered
Participant, unless otherwise specified.
"Plan" means the Hilb, Rogal, and Hamilton Company
Supplemental Executive Retirement Plan.
"Plan Year" means the calendar year.
"Pre-1998 Accrued Benefit" means the value of the
benefit for each Participant in the Plan who was not in
pay status (receiving benefits) as of December 31, 1997
determined in accordance with the terms of the Plan
then in effect as though the Participant had terminated
employment as of that date.
"Retirement Plan" means the Hilb, Rogal and
Hamilton Company Profit Sharing Savings Plan.
"Separation from Service" means a Participant's
termination from employment as described in the
Retirement Plan.
"Supplemental Benefit" means the benefit provided
in accordance with Section 4.2 of the Plan.
"Years of Service", for purposes of benefit
accrual and vesting, means a Participant's full years
of employment with the Company. Years of employment
with Insurance Management Corporation shall be credited
as Years of Service for purposes of vesting and benefit
accrual.
2.2 Usage. Except where otherwise indicated by the
context, any masculine terminology used herein shall also include
the feminine and vice versa, and the definition of any term
herein in the singular shall also include the plural and vice
versa.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. The Committee shall
designate from time to time Eligible Employees of the Company who
shall participate in the Plan; provided, however, that such
Eligible Employees shall be members of a select group of
management or highly compensated employees as such group is
described under sections 201(2), 301(a)(3), and 401(a)(1) of
ERISA. The Eligible Employees of the Company so designated by
the Committee shall become Participants in the Plan.
ARTICLE IV
SUPPLEMENTAL BENEFIT
4.1 Entitlement to Benefits. Each Participant shall be
entitled to the vested portion of his Supplemental Benefit
provided in Section 4.2 of the Plan upon reaching his Benefit
Commencement Date. A Participant who terminates employment (for
any reason other than disability or death) shall have a vested
interest in his Supplemental Benefit, based upon the following
vesting schedule:
Years of Service Vesting Percentage
0-4 0%
5 33.33%
6-15 6.66% per year
Notwithstanding the foregoing, a Participant shall be fully
vested upon a Change of Control.
4.2 Supplemental Benefit. A Participant's Supplemental
Benefit shall be equal to his account balance under the Plan.
(a) Deemed Contributions to Account. Annually the
account of a Participant shall be credited (deemed to have been
contributed) with an amount that is calculated by determining the
total employer match and profit sharing contribution (as a
percentage of compensation) that the Participant would have
received under the Retirement Plan but without the Compensation
Limitation that applies to such Retirement Plan, reduced by the
amount of employer match and profit sharing contribution actually
contributed to the Retirement Plan by the Company.
(b) Account Adjustments. A deemed contribution to the
Participant's account shall be treated as having been invested in
one or more deemed investments designated by the Committee from
time to time. The value of a Participant's account shall be
adjusted at least annually to reflect increase or decrease in the
value of such deemed investments. In the absence of any
designation of one or more deemed investments, the Participant's
account shall be credited with interest at an annual rate
specified from time to time by the Committee.
(c) Exception for Grandfathered Participants.
Participants in the Plan as of December 31, 1997 shall be
regarded as Grandfathered Participants. Effective January 1,
1998, their accounts shall be administered as set forth above
except as follows:
(1) A Grandfathered Participant's
Pre-1998 Accrued Benefit shall be determined
and shall be the beginning amount in the
Participant's account as of January 1, 1998.
(2) Annually, the account of a
Grandfathered Participant shall be credited
with the greater of 2% of Compensation or the
amount determined in Paragraph (a) above.
4.3 Normal Form of Payment. The normal form of payment of
the Participant's Supplemental Benefit shall be five annual
installments with interest as determined by the Committee from
time to time.
4.4 Time of Payment.
(a) General Time of Payment. The actual payment of
the Supplemental Benefit shall commence on the Participant's
Benefit Commencement Date.
(b) Accelerated Payment of Benefits: Notwithstanding
anything herein to the contrary, in the sole discretion of the
Committee, payment of benefits under Article IV or V of the Plan
may be accelerated.
4.5 Segregation of Assets. The Company may, but shall not
be obligated, to segregate assets in trust or otherwise for the
purpose of paying obligations under this plan. Further, the
Company has no obligation to match with actual investment any
deemed contribution or deemed investment.
4.6 Forfeiture of Supplemental Benefit. Notwithstanding
anything in Article IV to the contrary, a Participant shall
forfeit the right to or interest in his Supplemental Benefit as
follows:
After a Participant has begun receiving payment of his
Supplemental Benefit, he shall forfeit all right to or interest
in any future payments if he enters into employment with a
competitor of the Company without the consent of the Company.
ARTICLE V
DEATH AND DISABILITY BENEFITS
5.1 Death Benefit. If a Participant dies while employed by
the Company before his Benefit Commencement Date, the surviving
spouse of the Participant shall be entitled to a death benefit
equal to the Participant's Supplemental Benefit determined as of
the Participant's date of death. A deceased Participant shall be
fully vested in his Supplemental Benefit as of his date of death.
If a Participant dies after retirement and after he has begun to
receive his benefits under the Plan, the death benefit shall be
equal to the principal of any of the Participant's remaining
payments.
The death benefit shall be paid to his designated
beneficiary, if any, in a lump sum within sixty (60) days of the
Participant's date of death or as soon thereafter as is
practicable. If no beneficiary is designated, the death benefit
shall be paid to his estate.
5.2 Disability Benefit. If a Participant becomes disabled,
as defined in the Retirement Plan, he shall become fully vested in
his Supplemental Benefit determined as of the date of his
separation from service as a result of disability.
ARTICLE VI
ADMINISTRATION
6.1 General. The Administrator shall be the Committee, or
such other person or persons as designated by the Committee.
Except as otherwise specifically provided in the Plan, the
Administrator shall be responsible for administration of the
Plan. The Administrator shall be the "named fiduciary" within
the meaning of Section 402(c)(2) of ERISA.
6.2 Administrative Rules. The Administrator may adopt such
rules of procedure as it deems desirable for the conduct of its
affairs, except to the extent that such rules conflict with the
provisions of the Plan.
6.3 Duties. The Administrator shall have the following
rights, powers and duties:
(a) The decision of the Administrator in matters
within its jurisdiction shall be final, binding and conclusive
upon the Company and upon any other person affected by such
decision, subject to the claims procedure hereinafter set forth.
(b) The Administrator shall have the duty and
authority to interpret and construe the provisions of the Plan,
to decide any question that may arise regarding the rights of
employees, Participants and beneficiaries, and the amounts of
their respective interests, to adopt such rules and to exercise
such powers as the Administrator may deem necessary for the
administration of the Plan, and to exercise any other rights,
powers or privileges granted to the Administrator by the terms of
the Plan.
(c) The Administrator shall maintain full and complete
records of its decisions. Its records shall contain all relevant
data pertaining to the Participant and his rights and duties
under the Plan. The Administrator shall have the duty to
maintain account records of all Participants.
(d) The Administrator shall cause the principal
provisions of the Plan to be communicated to the Participants,
and a copy of the Plan and other documents to be available at the
principal office of the Company for inspection by the
Participants at reasonable times determined by the Administrator.
(e) The Administrator shall periodically report to the
Committee with respect to the status of the Plan.
6.4 Fees. No fee or compensation shall be paid to any
person for services as the Administrator.
ARTICLE VII
CLAIMS PROCEDURE
7.1 General. Any claim for benefits under the Plan shall
be filed by the Participant or surviving spouse ("claimant") on
the form prescribed for such purpose with the Administrator.
7.2 Denials. If a claim for benefits under the Plan is
wholly or partially denied, notice of the decision shall be
furnished to the claimant by the Administrator within a
reasonable period of time after receipt of the claim by the
Administrator.
7.3 Notice. Any claimant who is denied a claim for
benefits shall be furnished written notice setting forth:
(a) the specific reason or reasons for the denial;
(b) specific reference to the pertinent provision of
the Plan upon which the denial is based;
(c) a description of any additional material or
information necessary for the claimant to perfect the claim; and
(d) an explanation of the claim review procedure under
the Plan.
7.4 Appeals Procedure. In order that a claimant may appeal
a denial of a claim, the claimant or the claimant's duly
authorized representative may:
(a) request a review by written application to the
Administrator, or its designate, no later than sixty (60) days
after receipt by the claimant of written notification of denial
of a claim;
(b) review pertinent documents; and
(c) submit issues and comments in writing.
7.5 Review. A decision on review of a denied claim shall
be made not later than sixty (60) days after receipt of a request
for review, unless special circumstances require an extension of
time for processing, in which case a decision shall be rendered
within a reasonable period of time, but not later than one
hundred and twenty (120) days after receipt of a request for
review. The decision on review shall be in writing and shall
include the specific reason(s) for the decision and the specific
reference(s) to the pertinent provisions of the Plan on which the
decision is based.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. The Company reserves the right to amend the
Plan in any manner that it deems advisable by a resolution of the
Board, which shall be communicated to Participants not later than
sixty (60) days following the effective date of such amendment.
No amendment shall, without the Participant's consent, affect the
amount of the Participant's Supplemental Benefit at the time the
amendment becomes effective or the right of the Participant to
receive a Retirement Benefit after the Participant has met the
entitlement requirements provided in Section 4.1 of the Plan.
8.2 Termination. The Company reserves the right to
terminate the Plan at any time by resolution of the Board, which
shall be communicated to Participant not later than sixty (60)
days following the effective date of such amendment. No
termination shall, without the consent of the Participant, affect
the amount of the Participant's Supplemental Benefit prior to the
termination of the right of the Participant to receive a
Supplemental Benefit after the Participant has met the
entitlement requirements provided in Section 4.1 of the Plan.
8.3 No Assignment. The Participant shall not have the
power to pledge, transfer, assign, anticipate, mortgage or
otherwise encumber or dispose of in advance any interest in
amounts payable hereunder or any of the payments provided for
herein, no shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payment of any debts,
judgments, alimony or separate maintenance, or be reached or
transferred by operation of law in the event of bankruptcy,
insolvency or otherwise.
8.4 Incapacity. If the Administrator determines that any
person to whom such benefit is payable is incompetent by reason
of physical or mental disability, the Administrator may cause the
payments becoming due to such person to be made to another for
his benefit. Payments made pursuant to this Section shall, as to
such payment, operate as a complete discharge of the Plan, each
Company, the Committee and the Administrator.
8.5 Successors and Assigns. The provisions of the Plan are
binding upon and inure to the benefit of each Company, its
respective successors and assigns, and the Participant and his
beneficiaries, heirs, legal representatives, and assigns.
8.6 Governing Law. The Plan shall be subject to and
construed in accordance with the laws of the Commonwealth of
Virginia to the extent not preempted by the provisions of ERISA.
8.7 No Guarantee of Employment. Nothing contained in the
Plan shall be construed as a contract of employment or deemed to
give any Participant the right to be retained in the employ of
the Company or to give any Participant any equity or other
interest in the assets, business, or affairs of the Company. No
Participant hereunder shall have a security interest in assets of
any Company used to make contributions or pay benefits.
8.8 Unfunded Plan. The obligation of the Company to make
payments under this Plan constitutes nothing more than an
unsecured promise of the Company to make such payments, and any
property of the Company that may be set aside in a trust or
otherwise for the payment of benefits under this Plan shall, in
the event of the Company's bankruptcy or insolvency, remain
subject to the claims of the Company's general creditors until
such benefits are distributed in accordance with Article IV
hereof.
8.9 Severability. If any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan,
but the Plan shall be construed and enforced as if such illegal
or invalid provision had never been included herein.
8.10 Notification of Addresses. Each Participant shall file
with the Administrator, from time to time, in writing, the post
office address of the Participant, the post office address of
each Beneficiary, and each change of post office address. Any
communication, statement or notice addressed to the last post
office address filed with the Administrator (or if no such
address was filed with the Administrator, then to the last post
office address of the Participant or beneficiary as shown on the
Company's records) shall be binding on the Participant and each
beneficiary for all purposes of the Plan and neither the
Administrator nor any Company shall be obliged to search for or
ascertain the whereabouts of any Participant or beneficiary.
8.11 Bonding. The Administrator and all agents and advisors
employed by it shall not be required to be bonded, except as
otherwise required by ERISA.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized officer.
HILB, ROGAL & HAMILTON COMPANY
By_/s/Andrew L. Rogal
0401639.02
Hilb, Rogal and Hamilton Company
Amended and Restated Outside Directors Deferral Plan
Effective
April 1, 1998
TABLE OF CONTENTS
Page
ARTICLE I
Definition of Terms
1.1 Accounts 1
1.2 Administrator 1
1.3 Affiliate 1
1.4 Beneficiary 1
1.5 Benefit Commencement Date 1
1.6 Board 2
1.7 Code 2
1.8 Compensation 2
1.9 Corporation 2
1.10 Death Benefit 2
1.11 Deferral Amount 2
1.12 Deferral Benefit 2
1.13 Deferral Contributions 2
1.14 Deferral Year 2
1.15 Deferral Election 2
1.16 Deferred Cash Account 2
1.17 Deferred Stock Unit 2
1.18 Deferred Stock Unit Account 3
1.19 Director 3
1.20 Effective Date 3
1.21 Eligible Director 3
1.22 Former Plan 3
1.23 Participant 3
1.24 Plan 3
1.25 Plan Year 3
1.26 Rate of Return 3
1.27 Short Plan Year 3
ARTICLE II
Eligibility and Participation
2.1 Eligibility 4
2.2 Notice and Election Regarding Active Participation 4
2.3 Commencement of Active Participation 4
2.4 Length of Participation 4
ARTICLE III
Determination of Deferral Benefits
3.1 Deferral Benefit 4
3.2 Transition Credits 5
3.3 Deferral Election 5
3.4 Subtractions from Deferred Cash Account and Deferred Stock
Unit Account 6
3.5 Crediting of Deemed Earnings to Deferred Cash Account 6
3.6 Equitable Adjustment in Case of Error or Omission 6
3.7 Statement of Benefits 6
ARTICLE IV
Accounts and Investments
4.1 Accounts 6
4.2 Deferred Stock Units 7
4.3 Hypothetical Nature of Accounts and Investments 8
ARTICLE V
Vesting
5.1 Vesting 8
ARTICLE VI
Death Benefits
6.1 Pre-Benefit Commencement Date Death Benefit 8
6.2 Post-Benefit Commencement Date Death Benefit 8
ARTICLE VII
Payment of Benefits
7.1 Payment of Deferral Benefit 8
7.2 Payment of Death Benefit 9
7.3 Form of Payment of Deferral Benefit 9
7.4 Benefit Determination and Payment Procedure 9
7.5 Payments to Minors and Incompetents 9
7.6 Distribution of Benefit When Distributee Cannot Be Located 9
ARTICLE VIII
Beneficiary Designation
8.1 Beneficiary Designation 9
ARTICLE IX
Withdrawals
9.1 No Withdrawals Permitted 10
ARTICLE X
Funding
10.1 Funding 10
ARTICLE XI
Change of Control
11.1 Change of Control 11
11.2 Effect of Change of Control 11
ARTICLE XII
Plan Administrator
12.1 Appointment of Administrator 12
12.2 Duties and Responsibilities of Plan Administrator 12
ARTICLE XIII
Amendment or Termination of Plan
13.1 Amendment or Termination of Plan 12
ARTICLE XIV
Miscellaneous
14.1 Non-assignability 12
14.2 Notices and Elections 13
14.3 Delegation of Authority 13
14.4 Service of Process 13
14.5 Governing Law 13
14.6 Binding Effect 13
14.7 Severability 13
14.8 Gender and Number 13
14.9 Titles and Captions 13
Hilb, Rogal and Hamilton Company
Amended and Restated Outside Directors Deferral Plan
Effective January 1, 1995, the Board of Directors of Hilb,
Rogal and Hamilton Company (the "Corporation") adopted the
Outside Directors Deferral Plan, under which non-employee
directors of the Corporation had the opportunity to defer receipt
of certain compensation until retirement or departure from the
Board.
The Board of Directors is of the opinion that it is in the
best interests of the Corporation to allow non-employee directors
of the Corporation to continue to have the opportunity to defer
receipt of certain compensation until retirement or departure
from the Board provided that the deferred amounts are aligned
with the interests of the Corporation by being tied to the
performance of the Corporation's common stock. Therefore, the
Board of Directors believes it to be in the best interest of the
Corporation to amend and restate the Outside Directors Deferral
Plan for such purpose.
Pursuant to action taken by the Board of Directors, the
Hilb, Rogal and Hamilton Company Amended and Restated Outside
Directors Deferral Plan (the "Plan") is hereby adopted. The
Corporation's Outside Directors Deferral Plan is hereby amended
and restated in its entirety as follows:
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall
have the meaning set forth below, unless a different
meaning is clearly required by the context:
1.1 "Account": A bookkeeping account established for a
Participant under Article IV hereof.
1.2 "Administrator": The Compensation Committee of the
Board is the Plan Administrator unless responsibility is
delegated as provided for in Article XII hereof.
1.3 "Affiliate": Any subsidiary, parent, affiliate, or
other related business entity to the Corporation.
1.4 "Beneficiary": The person or persons designated by a
Participant or otherwise entitled pursuant to Section 8.1 to
receive benefits under the Plan attributable to such Participant
after the death of such Participant.
1.5 "Benefit Commencement Date": The date irrevocably
elected by the Participant pursuant to Section 3.3. The Benefit
Commencement Date shall be January 1 following the Participant's
having attained age 55, 60, 65, 70 or 75. The same Benefit
Commencement Date shall be required for all Deferral
Contributions made and Deferral Benefits attributable to a
Deferral Year.
1.6 "Board": The present and any succeeding Board of
Directors of the Corporation, unless such term is used with
respect to a particular Affiliate and its Directors, in which
event it shall mean the present and any succeeding Board of
Directors of that Affiliate.
1.7 "Code": The Internal Revenue Code of 1986, as the same
may be amended from time to time.
1.8 "Compensation": Fees payable to a Participant for
service as a member of the Board, including (i) annual retainer
fee ("Retainer") and (ii) meeting or committee fees (collectively
referred to as "Additional Fees") paid by the Corporation to an
Eligible Director, but excluding any such compensation deferred
from a prior period, expense reimbursement and allowances and
benefits not normally paid in cash to the Participant.
1.9 "Corporation": Hilb, Rogal and Hamilton Company, or any
successor thereto.
1.10 "Death Benefit": The benefit with respect to a
Participant due a Participant's Beneficiary, determined in
accordance with Article VI hereof.
1.11 "Deferral Amount": With respect to each Plan Year, the
sum of the Deferral Contributions of a Participant with respect
to his Retainer and/or his Additional Fees to be paid during the
Plan Year.
1.12 "Deferral Benefit": The balance in a Participant's
Deferred Cash Account and Deferred Stock Unit Account.
1.13 "Deferral Contributions": That portion of a
Participant's Compensation which is deferred under the Plan or
which has been deferred under the Former Plan.
1.14 "Deferral Year": The Plan Year with respect to which a
Deferral Contribution is made. For purposes hereof, a Deferral
Contribution is considered made with respect to the Plan Year in
which the amount would otherwise have been paid to the
Participant.
1.15 "Deferral Election": An irrevocable election of a
Deferral Amount in writing executed by the Eligible Director or
Participant and timely filed with the Administrator.
1.16 "Deferred Cash Account": An unfunded, bookkeeping
account maintained on the books of the Corporation for a
Participant which reflects his interest in amounts attributable
to his Deferred Contributions under the Former Plan. The
Deferred Cash Account of a Participant consists of his Deferral
Contributions made under the Former Plan with respect to
Compensation earned after December 31, 1994 and before April 1,
1998. Separate subdivisions of the Deferred Cash Account shall
continue to be maintained to reflect Deferral Contributions made
and Deferral Benefits attributable with respect to each Deferral
Year and within each Deferral Year, the Deferral Contributions
and Deferral Benefits attributable to Deferral Contributions of
Retainer and Deferral Contributions of Additional Fees.
1.17 "Deferred Stock Unit": A hypothetical share of the
Corporation's common stock.
1.18 "Deferred Stock Unit Account": An unfunded, bookkeeping
account maintained on the books of the Corporation for a
Participant which reflects his interest in amounts attributable
to his Deferred Contributions under the Plan. The Deferred Stock
Unit Account of a Participant consists of his Deferral
Contributions made under the Plan with respect to Compensation
earned after April 1, 1998. Separate subdivisions of the
Deferred Stock Unit Account shall be maintained to reflect
Deferral Contributions made and Deferral Benefits attributable
with respect to each Deferral Year and within each Deferral Year,
the Deferral Contributions and Deferral Benefits attributable to
Deferral Contributions of Retainer and Deferral Contributions of
Additional Fees.
1.19 "Director": An individual who serves as a member of the
Board.
1.20 "Effective Date": The Effective Date of the Plan is
April 1, 1998.
1.21 "Eligible Director": A Director who is not an employee
of the Corporation and who has not reached the age of 75 before
the Deferral Year.
1.22 "Former Plan": The Hilb Rogal and Hamilton Company
Outside Directors Deferral Plan effective January 1, 1995.
1.23 "Participant": An Eligible Director who elects to
participate in the Plan, and further differentiated as follows:
(i) "Active Participant": A Participant who has an
election to make Deferral Contributions to the Plan in
effect at the time in question.
(ii) "Inactive Participant": A Participant who does not
have an election to make Deferral Contributions to the Plan
in effect at the time in question.
1.24 "Plan": This document, as contained herein or duly
amended, which shall be known as the "Hilb, Rogal and Hamilton
Amended and Restated Outside Directors Deferral Plan".
1.25 "Plan Year": The calendar year or any Short Plan Year.
1.26 "Rate of Return": Nine percent (9%) for the 1995
through 1999 Deferral Years, and nine percent (9%) for Deferral
Years after 1999 until, if ever, increased by the Compensation
Committee.
1.27 "Short Plan Year": The remaining portion of the
calendar year after the Effective Date of this Plan.
ARTICLE II
Eligibility and Participation
2.1 Eligibility. Each Eligible Director shall be eligible
to participate in the Plan and to defer Compensation hereunder
for such Plan Year.
2.2 Notice and Election Regarding Active Participation.
(a) The Administrator shall notify each Eligible Director
within a reasonable period of time prior to the beginning of each
Plan Year.
(b) In order to become an Active Participant and to make
Deferral Contributions with respect to a Plan Year, an Eligible
Director must file with the Administrator a Deferral Election, as
provided in Section 3.3 which is effective as of the first day of
the Plan Year, such election must be filed by the date
established by the Administrator, which date shall be no later
than the December 31 preceding such Plan Year or the last day
before the commencement of a Short Plan Year, whichever is
applicable.
(c) By executing and filing such election with the
Administrator, an Eligible Director consents and agrees to the
following:
(i) To execute such applications and take such
physical examinations and to supply truthfully and
completely such information as may be requested by any
health questionnaire provided by the Administrator;
(ii) To be bound by all terms and conditions of the
Former Plan, the Plan and all amendments thereto.
2.3 Commencement of Active Participation. An Eligible
Director shall become an Active Participant with respect to a
Plan Year only if he is expected to have Compensation during such
Plan Year, and he timely files and has in effect a Deferral
Election for such Plan Year.
2.4 Length of Participation. An individual who is or
becomes a Participant shall be or remain an Active Participant as
long as he has a Deferral Election in effect; and he shall be or
remain an Inactive Participant as long as he is entitled to
future benefits under the terms of the Plan and is not considered
an Active Participant.
ARTICLE III
Determination of Deferral
3.1 Deferral Benefit. For purposes hereof, a Participant's
Deferral Benefit shall be the balance in his Deferred Cash
Account and his Deferred Stock Unit Account at the time in
question.
3.2 Transition Credits. Each Participant who has a balance
standing to his credit in the Former Plan as of April 1, 1998,
shall be permitted a one-time election, on or before April 1,
1998, to convert all or a portion of the balance standing to his
credit in the Former Plan to Deferred Stock Units as of April 1,
1998. A Participant who elects to convert all or a portion of
his Deferral Account (as defined in the Former Plan) in the
Former Plan to Deferred Stock Units shall be credited with the
number of Deferred Stock Units determined by dividing the portion
of his Deferred Cash Account under the Former Plan on April 1,
1998 for which such election is made, by the Closing Price of the
common stock of the Corporation on the date of the Participant's
election. If the formula produces a fractional Deferred Stock
Unit, then the fractional Deferred Stock shall be rounded off to
the nearest thousandth and credited to the Participant. Once a
Participant has made an election under this Section 3.2 to
convert some or all of his Deferred Cash Account to Deferred
Stock Units of the Corporation, the Corporation's rights and
obligations, if any, with respect to the Deferred Stock Units
will be governed by this Plan.
3.3 Deferral Election.
(a) Subject to the restrictions and conditions hereinafter
provided, a Participant may irrevocably elect, as a Deferral
Contribution with respect to a Plan Year, to receive an amount of
his Compensation which is specified by his Deferral Election for
such Plan Year in the form of Deferred Stock Units. Any such
election must be filed with the Administrator at the time
required under Section 2.2(b).
(b) The following conditions apply:
(i) The maximum Deferral Contribution of Retainer with
respect to any Participant for a Plan Year shall be one
hundred percent (100%) of his Retainer for such Plan Year
and such election shall be made in whole dollar amounts. A
Participant who elects to receive his Retainer in Deferred
Stock Units shall have credited to his Deferred Stock Unit
Account as of the first day of each calendar quarter the
number of Deferred Stock Units determined by dividing that
portion of his accrued, deferred Retainer for the quarter
(determined by dividing the amount of such Retainer
previously selected by the Participant to be applied to the
purchase of Deferred Stock Units by four) by the Closing
Price as of the first day of such calendar quarter.
(ii) The maximum Deferral Contribution of Additional
Fees with respect to any Participant for a Plan Year shall
be one hundred percent (100%) of his Additional Fees for
such Plan Year and such election shall be made in twenty-
five percent (25%) increments. A Participant who elects to
receive his Additional Fees in Deferred Stock Units shall
have credited to his Deferred Stock Unit Account as of the
day on which the Additional Fees are accrued the number of
Deferred Stock Units determined by multiplying his accrued
Additional Fees on said day by the percentage of such
Additional Fees previously selected by the Participant to be
applied to the purchase of Deferred Stock Units, and
dividing the product thereof by the Closing Price as of the
day on which the Additional Fees are accrued.
(iii) A Participant who elects to defer one hundred
percent (100%) of his Compensation shall receive additional
Deferred Stock Units equal to thirty percent (30%) of said
Participant's Compensation for the Plan Year. Such Deferred
Stock Units shall be credited to the Participant in addition
to the Deferred Stock Units received as a result of the
election to defer the Retainer and Additional Fees in the
manner provided by subsections (i) and (ii) above.
(iv) A separate Deferral Election must be filed for
each Plan Year.
(v) Each Deferral Election shall be made on a form
provided by the Administrator and shall specify the Deferral
Amount and source of deferrals and such additional
information as the Administrator may require.
(vi) A Deferral Election must specify the period of
payment. A Participant may elect to receive a lump sum
payment or installment payments over periods of five, ten or
fifteen years beginning after age 55, 60, 65, 70 or 75.
3.4 Subtractions from Deferred Cash Account and Deferred
Stock Unit Account. All distributions from a Participant's
Deferred Cash Account and Deferred Stock Unit Account shall be
subtracted when such distributions are made.
3.5 Crediting of Interest to Deferred Cash Account. There
shall be credited to each Participant's Deferred Cash Account an
amount representing interest on the balance of such account.
Under the Former Plan, the interest was credited as of the first
day of the Deferral Year. Under this Plan, interest shall be
credited as earned. Such interest shall be based on the
applicable Rate of Return for the Deferral Year.
3.6 Equitable Adjustment in Case of Error or Omission. If
an error or omission is discovered in the Deferred Cash Account
and Deferred Stock Unit Account of a Participant, the
Administrator shall make such equitable adjustment as the
Administrator deems appropriate.
3.7 Statement of Benefits. Within a reasonable time after
the end of the Plan Year and at the date a Participant's Deferral
Benefit or Death Benefit becomes payable under the Plan, the
Administrator shall provide to each Participant (or, if deceased,
to his Beneficiary) a statement of the benefit under the Plan.
ARTICLE IV
Accounts and Investments
4.1 Accounts. A separate Account under the Plan shall be
established for each Participant. Such Account shall be (a)
credited with the amounts credited in accordance with Sections
3.2 and 3.3, (b) credited (or charged, as the case may be) with
the investment results determined in accordance with Sections 4.2
and 4.3, and (c) charged with the amounts paid by the Plan to or
on behalf of the Participant in accordance with Article VII.
With each Participant's Account, separate subaccounts (including,
as necessary, a Deferred Stock Unit Account and a Deferred Cash
Account) shall be maintained to the extent that the Board
determines them necessary or useful in the administration of the
Plan.
4.2 Deferred Stock Units. Except as provided below, a
Participant's Deferred Stock Unit Account shall be treated as if
it were invested in Deferred Stock Units that are equivalent in
value to the fair market value of the shares of the Corporation's
common stock in accordance with the following rules:
(a) Before the Benefit Commencement Date, the number of
Deferred Stock Units credited to a Participant's Deferred Stock
Unit Account shall be increased on each date on which a dividend
is paid on the Corporation's common stock. The number of
additional Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account as a result of such increase shall be
determined by (i) multiplying the total number of Deferred Stock
Units (with fractional Deferred Stock Units rounded off to the
nearest thousandth) credited to the Participant's Deferred Stock
Unit Account immediately before such increase by the amount of
the dividend paid per share of the Corporation's Common Stock on
the dividend payment date, and (ii) dividing the product so
determined by the Closing Price on the dividend payment date.
(b) The dollar value of the Deferred Stock Units credited
to a Participant's Deferred Stock Unit Account on any date shall
be determined by multiplying the number of Deferred Stock Units
(including fractional Deferred Stock Units) credited to the
Participant's Deferred Stock Unit Account by the Closing Price on
that date.
(c) In the event of a transaction or event described in
this subsection (c), the number of Deferred Stock Units credited
to a Participant's Deferred Stock Unit Account shall be adjusted
in such manner as the Board, in its sole discretion, deems
equitable. A transaction or event is described in this
subsection (c) if (i) it is a dividend (other than regular
quarterly dividends) or other distribution (whether in the form
of cash, shares, other securities, or other property),
extraordinary cash dividend, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-
up, spin-off, repurchase, or exchange of shares or other
securities, the issuance or exercisability of stock purchase
rights, the issuance of warrants or other rights to purchase
shares or other securities, or other similar corporate
transaction or event and (ii) the Board determines that such
transaction or event affects the shares of the Corporation's
Common Stock, such that an adjustment pursuant to this paragraph
(c) is appropriate to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan.
(d) A Participant who elects to receive distribution of his
Accounts in annual installments will not have his or her Deferred
Stock Unit Account credited with Deferred Stock Units on or after
the Benefit Commencement Date.
(e) On the Benefit Commencement Date, the Deferred Stock
Unit Account of a Participant who has elected to receive his
Deferral Benefit in annual installments shall be converted to a
Deferred Cash Account which shall accrue annual interest at the
Rate of Return.
4.3 Hypothetical Nature of Accounts and Investments. Each
Account established under this Article IV shall be maintained for
bookkeeping purposes only. Neither the Plan nor any of the
Accounts established under the Plan shall hold any actual funds
or assets. The Deferred Stock Units established hereunder shall
be used solely to determine the amounts to be paid hereunder,
shall not represent an equity security of the Corporation, shall
not be convertible into or otherwise entitle a Participant to
acquire an equity security of the Corporation and shall not carry
any voting or dividend rights.
ARTICLE V
Vesting
5.1 Vesting. A Participant's Deferred Cash Account and
Deferred Stock Unit Account shall be fully vested and non-
forfeitable at all times.
ARTICLE VI
Death Benefits
6.1 Pre-Benefit Commencement Date Death Benefit. In the
event that a Participant dies prior to his Benefit Commencement
Date, then the Participant's Deferred Stock Unit Account shall be
converted to a Deferred Cash Account as of the first of January
following the Participant's date of death, which Deferred Cash
Account shall accrue annual interest thereafter at the Rate of
Return to the extent not paid out in a lump sum pursuant to the
Participant's election form. If the Participant has not reached
age 65 at the time of the Participant's death, the Beneficiary of
such Participant shall be entitled to receive as a Death Benefit
an amount equal to the Deferral Benefit as of the Benefit
Commencement Date that the Participant would have received had
the Participant lived to received the full Deferral Benefit. If
the Participant is age 65 or older at the time of the
Participant's death, the Beneficiary of such Participant shall be
entitled to receive as a Death Benefit an amount equal to the
Deferral Benefit as of the Participant's date of death. This
Death Benefit shall be paid pursuant to the Participant's
election form except that the payment shall be made, or begin, on
the first of January after the Participant's date of death.
6.2 Post-Benefit Commencement Date Death Benefit. In the
event that a Participant dies after his Benefit Commencement
Date, then the Beneficiary of such participant shall be entitled
to receive as a Death Benefit a continuation of the payment of
the Deferral Benefit in the same manner and in the same amount
that the Participant would have received had the Participant
lived to receive the Deferral Benefit.
ARTICLE VII
Payment of Benefits
7.1 Payment of Deferral Benefit. A Participant's Deferral
Benefit, if any, shall become payable to the Participant as of
the Benefit Commencement Date specified in his Deferral Election
or as soon thereafter as is administratively practical. If the
Participant has elected to receive the Deferral Benefit in
installments, each of the Participant's annual installment
payments shall be comprised of accrued interest for the year, if
any, and that portion of the Participant's Deferral Benefit equal
to the balance in the Participant's Deferred Cash Account divided
by the number of remaining annual installment payments to be made
to the Participant.
7.2 Payment of Death Benefit. A Participant's pre-
commencement Death Benefit shall be payable to his Beneficiary as
set forth in Article VI. A Participant's post-commencement Death
Benefit shall be paid in installments payable annually over the
period irrevocably elected by the Participant pursuant to his
Deferral Election.
7.3 Form of Payment of Deferral Benefit. A Participant
shall be paid his Deferral Benefit beginning at the Benefit
Commencement Date in a lump sum or in periodic installment
payments payable annually over a period of five, ten, or fifteen
years as irrevocably elected by the Participant pursuant to
Section 3.3.
7.4 Benefit Determination and Payment Procedure. The
Administrator shall make all determinations concerning
eligibility for benefits under the Plan, the time or terms of
payment, and the form or manner of payment to the Participant or
the Participant's Beneficiary, in the event of the death of the
Participant. The Administrator shall promptly notify the
Corporation of each such determination that benefit payments are
due and provide to the Corporation all other information
necessary to allow the Corporation to carry out said
determination, whereupon the Corporation shall pay such benefits
in accordance with the Administrator's determination.
7.5 Payments to Minors and Incompetents. If a Participant
or Beneficiary entitled to receive any benefits hereunder is a
minor or is adjudged to be legally incapable of giving valid
receipt and discharge for such benefits, or is deemed so by the
Administrator, benefits will be paid to such person as the
Administrator may designate for the benefit of such Participant
or Beneficiary. Such payments shall be considered a payment to
such Participant or Beneficiary and shall, to the extent made, be
deemed a complete discharge of any liability for such payments
under the Plan.
7.6 Distribution of Benefit When Distributee Cannot Be
Located. The Administrator shall make all reasonable attempts to
determine the identity and/or whereabouts of a Participant or a
Participant's Beneficiary entitled to benefits under the Plan,
including the mailing by certified mail of a notice to the last
known address shown on the Corporation's or the Administrator's
records. If the Administrator is unable to locate such a person
entitled to benefits hereunder, or if there has been no claim
made for such benefits, the Corporation shall continue to hold
the benefit due such person, subject to any applicable statute of
escheats.
ARTICLE VIII
Beneficiary Designation
8.1 Beneficiary Designation.
(a) A Participant may designate a Beneficiary as part of
his Deferral Election. Any Beneficiary designation made
hereunder shall be effective only if properly signed and dated by
the Participant and delivered to the Administrator prior to the
time of the Participant's death. Any Beneficiary designation
hereunder shall remain effective until changed or revoked
hereunder.
(b) A Beneficiary designation may be changed by the
Participant at any time, or from time to time, by filing a new
designation in writing with the Administrator.
(c) If the Participant dies without having designated a
Beneficiary, or if the Beneficiary so designated has predeceased
him, then his estate shall be deemed to be his Beneficiary.
(e) If a Beneficiary of the Participant shall survive the
Participant but shall die before the Participant's entire benefit
under the Plan has been distributed, then the unpaid balance
thereof shall be distributed to any other beneficiary named by
the deceased Beneficiary to receive his interest or, if none, to
the estate of the deceased Beneficiary.
ARTICLE IX
Withdrawals
9.1 No Withdrawals Permitted. No withdrawals or other
distributions shall be permitted from the Deferred Cash Account
and Deferred Stock Unit Account except as provided in Article
VII.
ARTICLE X
Funding
10.1 Funding.
(a) All Plan Participants and Beneficiaries are general
unsecured creditors of the Corporation with respect to the
benefits due hereunder and the Plan constitutes a mere promise by
the Corporation to make benefit payments in the future. It is
the intention of the Corporation that the Plan be considered
unfunded for tax purposes.
(b) The Corporation may, but is not required to, purchase
life insurance in amounts sufficient to provide some or all of
the benefits provided under this Plan or may otherwise segregate
assets for such purpose.
(c) The Corporation may, but is not required to, establish
a grantor trust which may be used to hold assets of the
Corporation which are maintained as reserves against the
Corporation's unfunded, unsecured obligations hereunder. Such
reserves shall at all times be subject to the claims of the
Corporation's creditors. To the extent such trust or other
vehicle is established, and assets contributed, for the purpose
of fulfilling the Corporation's obligation hereunder, then such
obligation of the Corporation shall be reduced to the extent such
assets are utilized to meet its obligations hereunder. Any such
trust and the assets held thereunder are intended to conform in
substance to the terms of the model trust described in Revenue
Procedure 92-64.
ARTICLE XI
Change of Control
11.1 Change of Control.
A "Change of Control" shall mean and shall be deemed to
have taken place if: (i) any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act")) becomes the beneficial
owner of shares of the Company having 25 percent or more of the
total number of votes that may be cast for the election of
directors of the Company, other than (x) as a result of any
acquisition directly from the Company, or (y) as a result of any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or its subsidiaries; or
(ii) a change in the composition of the Board such that the
individuals who, as of the date hereof, constitute the Board (the
Board as of such date shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this
Section, that any individual who becomes a member of the Board
subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of
at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be considered as
though such individual were a member of the Incumbent Board; but,
provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-
11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board shall not be so
considered as a member of the Incumbent Board.
11.2 Effect of Change of Control.
Notwithstanding any other provision in any other Article of
this Plan to the contrary, (i) the value of all amounts deferred
by a Participant which have not yet been credited to the
Participant's Account and (ii) the value of such Participant's
Account shall be paid to such Participant in each case in a lump-
sum cash payment on the occurrence of a Change of Control or as
soon thereafter as practicable, but in no event later than five
days after the Change of Control. The amount of cash credited to
each Participant's Account prior to determining the amount of
cash to be paid from the Account shall be determined by the Board
(which, for this purpose, shall be comprised of employee members
of the Board prior to the Change of Control) so as to reflect
fairly and equitably appropriate interest and dividends and
circumstances as the Board deems appropriate, including, without
limitation, the recent price of shares of the Corporation's
common stock. For purposes of payments under this Article XI,
the value of a Deferred Stock Unit shall be computed as the
greater of (1) the Closing Price on or nearest the date on which
the Change of Control is deemed to occur, or (2) the highest per
share price for shares of the Corporation's common stock actually
paid in connection with the Change of Control.
ARTICLE XII
Plan Administrator
12.1 Appointment of Administrator.
(a) The Compensation Committee may appoint one or more
persons to serve as the Plan Administrator (the "Administrator")
for the purpose of administering the Plan. In the event more
than one person is appointed, the persons shall form a committee
for the purpose of functioning as the Administrator of the Plan.
The person or committeemen serving as Administrator shall serve
for indefinite terms at the pleasure of the Compensation
Committee, and may, by thirty (30) days prior written notice to
the Compensation Committee, terminate such appointment.
12.2 Duties and Responsibilities of Plan Administrator.
(a) The Administrator shall maintain and retain necessary
records regarding its administration of the Plan.
(b) The Administrator is empowered to settle claims against
the Plan and to make such equitable adjustments in a
Participant's or Beneficiary's rights or entitlements under the
Plan as it deems appropriate in the event an error or omission is
discovered or claimed in the operation or administration of the
Plan.
(c) The Administrator may construe the Plan, correct
defects, supply omissions or reconcile inconsistencies to the
extent necessary to effectuate the Plan, and such action shall be
conclusive.
ARTICLE XIII
Amendment or Termination of Plan
13.1 Amendment or Termination of the Plan. The Plan may be
terminated or amended at any time by the Board, effective as of
any date specified. Any such action taken by the Board shall be
evidenced by a resolution and shall be communicated to
Participants and Beneficiaries prior to the effective date
thereof. No amendment or termination shall decrease a
Participant's Deferral Benefit accrued prior to the effective
date of the amendment or termination. The Board reserves the
right to unilaterally shorten the deferral period of any
Participant hereunder in its sole discretion if, in its sole
discretion, it determines that to do so will be fair and
equitable to the Participant.
ARTICLE XIV
Miscellaneous
14.1 Non-assignability. The interests of each Participant
under the Plan are not subject to claims of the Participant's
creditors; and neither the Participant nor his Beneficiary shall
have any right to sell, assign, transfer or otherwise convey the
right to receive any payments hereunder or any interest under the
Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.
14.2 Notices and Elections. All notices required to be given
in writing and all elections required to be made in writing under
any provision of the Plan shall be invalid unless made on such
forms as may be provided or approved by the Administrator and, in
the case of a notice or election by a Participant or Beneficiary,
unless executed by the Participant or Beneficiary giving such
notice or making such election. Notices and elections shall be
deemed given or made when received by any member of the committee
that serves as Administrator.
14.3 Delegation of Authority. Whenever the Corporation is
permitted or required to perform any act, such act may be
performed by its Chief Executive Officer or President or other
person duly authorized by its Chief Executive Officer or
President or its Board.
14.4 Service of Process. The Administrator shall be the
agent for service of process on the Plan.
14.5 Governing Law. The Plan shall be construed, enforced
and administered in accordance with the laws of the Commonwealth
of Virginia.
14.6 Binding Effect. The Plan shall be binding upon and
inure to the benefit of the Corporation, its successors and
assigns, and the Participant and his heirs, executors,
administrators and legal representatives.
14.7 Severability. If any provision of the Plan should for
any reason be declared invalid or unenforceable by a court of
competent jurisdiction, the remaining provisions shall
nevertheless remain in full force and effect.
14.8 Gender and Number. In the construction of the Plan, the
masculine shall include the feminine or neuter and the singular
shall include the plural and vice-versa in all cases where such
meanings would be appropriate.
14.9 Titles and Captions. Titles and captions and headings
herein have been inserted for convenience of reference only and
are to be ignored in any construction of the provisions hereof.
IN WITNESS WHEREOF, the Corporation has caused the Plan to
be signed on its behalf by its duly authorized officer on the 1st
day of April, 1998.
Hilb, Rogal and Hamilton Company
By: /s/ Dianne F. Fox
Its Senior Vice-President and Secretary
0396446.05
[Cover]
(An abstract photograph of a swinging metal kinetic ball depicting
momentum)
Hilb, Rogal and Hamilton Company 1997 Annual Report
<PAGE>
Our Business:
Hilb, Rogal and Hamilton Company serves as an intermediary between
our clients-who are traditionally the middle market businesses of
the nation-and insurance companies that underwrite client risks.
With more than 60 agencies, Hilb, Rogal and Hamilton Company is
able to assist clients in managing their risks in areas such as
property and casualty, employee benefits and other areas of
specialized exposure. Revenues are derived primarily from
commissions received from insurance companies with whom client risk
is placed. Support services related to risk transfer transactions
are an additional revenue source. As an industry leader, the
Company expands its business by developing new clients, providing
additional services to current clients and maintaining a well-
focused merger and acquisition strategy.
Contents:
4 LETTER TO SHAREHOLDERS
8 MASS + FORCE + ACCELERATION + TRAJECTORY
17 SELECTED FINANCIAL DATA
18 MANAGEMENT'S DISCUSSION AND ANALYSIS
20 CONSOLIDATED BALANCE SHEET
21 STATEMENT OF CONSOLIDATED INCOME
22 STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
23 STATEMENT OF CONSOLIDATED CASH FLOWS
24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 REPORT OF ERNST & YOUNG LLP
31 BOARD OF DIRECTORS AND OFFICERS
32 AGENCY LOCATIONS
(BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION)
Basic Net Income Per Share
Year In Dollars
- ---------------------------
1997 .98
1996 .84
1995 .82
1994 .77
1993 .57
(BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION)
Basic Operating Cash Flow Per Share
Year In Dollars
- ---------------------------
1997 1.87
1996 1.65
1995 1.49
1994 1.40
1993 1.24
(BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION)
Total Revenues
Year In Millions of Dollars
- ---------------------------------------
1997 173.7
1996 158.2
1995 148.1
1994 140.8
1993 141.7
(BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION)
Net Income
Year In Millions of Dollars
- ---------------------------------------
1997 12.8
1996 11.4
1995 11.8
1994 11.4
1993 8.3
<PAGE>
(An abstract photograph of a kinetic metal ball with an overlay of
the words Mass + Force + Acceleration + Trajectory = Momentum)
<PAGE>
(Abstract photograph with the word Momentum centered on the page)
<PAGE>
Remember how momentum felt when you were a child? It felt
like sitting on your bicycle at the top of a big hill,
struggling to push the pedals to get the bike moving
forward. You started off slowly, then picked up speed-the
wheels moving faster and faster, the wind rushing in your
face-as the bike took on a life of its own and raced
effortlessly down the slope. And as you hung on to the
handlebars and guided the bicycle down the hill to your
final destination, you knew that nothing could stop you.
It felt exhilarating. It felt empowering.
That's how 1997 felt at Hilb, Rogal and Hamilton Company.
<PAGE>
[Photograph of Andrew L. Rogal, President and Chief Executive Officer]
To our shareholders:
1997 was a tremendous year for Hilb, Rogal and Hamilton
Company. We created value for our shareholders and
strengthened our competitive position in the marketplace.
Perhaps even more exciting, we generated real momentum in
1997; momentum that will enable us to continue the
exciting pace of change that has so positively impacted
our business.
Our stock price rose from $13.25 per share at
December 31, 1996 to $19.3125 at December 31, 1997-a 46%
increase. This represented the second highest increase in
our industry and marked our stock's highest level since
the fourth quarter of 1989. Our market capitalization
rose from $176.5 million at December 31, 1996 to $247.5
million at December 31, 1997, representing the creation
of over $70.0 million in value to our shareholders.
Basic earnings per share increased by more than 16%,
from $.84 per share in 1996 to $.98 per share in 1997.
Operating cash flow (net income plus amortization and
depreciation) was $24.5 million in 1997, 10% higher than
the 1996 level. Basic operating cash flow per share,
calculated under the same method used for net income per
share, was $1.87 in 1997, a 13% increase over $1.65 in
1996. Operating cash flow is a relevant measure of
financial performance for shareholders because it measures
the Company's ability to support growth through
acquisitions, repurchase stock and pay dividends. The
Company is using its powerful operating cash flow in a
<PAGE>
disciplined fashion to build long-term shareholder value.
Operating cash flow, however, is not a substitute for net
income per share.
In addition, our offices reported core commission
growth of over 3%, which is strong considering the
difficult market conditions in our industry. Total
revenues increased from $158.2 million in 1996 to $173.7
million in 1997. We also continued our stock buyback
program, purchasing 700,000 shares in 1997. This reduced
our number of shares outstanding to 12,813,023 at
December 31, 1997.
How We Gained Momentum
The momentum we gained in 1997 was largely due to
the Company's new focus on operating in ways that
create greater value. This focus served as the filter for
all that we did last year and drove every aspect of our
business. Yet, there were several specific factors which
I believe contributed to our growth and success.
The Strategic Plan. In May 1997, the Board of
Directors approved our Strategic Plan for the Company.
The goals of this plan are: to become the premier
domestic middle market insurance and risk services
intermediary; to double earnings within three to five
years; and to continue to cultivate a corporate culture
which focuses on the creation of value through
commitments to employees, excellence and communication.
The Strategic Plan gave our Company a defined course
to follow and set us in motion toward meeting these
goals. It united our leadership and our employees and now
serves as the basis for all we strive to do as a
business.
A Redefined Operating Structure. We have always
believed in the strength of our people. Now we have given
them an operating platform that's equally strong. The
completion of our regionalization strategy made us
stronger, providing our operating units a better way to
compete with both public national and private regional
firms while also making us more attractive to insurance
carriers.
With an eye toward creating greater value, in 1997
we began the process of rationalizing our operations
along two core business groups: cost-based business and
value-based business. In our cost-based business-i.e.,
small commercial lines-we began focusing on providing
effective and efficient delivery of service to achieve a
cost-competitive advantage. In our value-based business
- -such as middle market commercial lines, employee benefits
<PAGE>
and association programs-we committed ourselves to
offering clients significant industry and product
expertise while maintaining a high level of personal
service and client intimacy. This realignment of our core
business will fuel continued increases in our Company's
revenue growth.
Strategic Mergers and Acquisitions. In 1997, we
completed our transition from a revenue-based acquisition
program to a specialty/expertise-based program. The
existing program is focused on acquisitions which fit
into the Strategic and Regional Plans and entities which
provide a specialty or product expertise that can be
exported throughout the Company. During 1997, the Company
consummated six acquisitions.
This new approach to acquisitions also applied to
divestitures. Throughout the year, the Company divested
itself of offices which were consistent underperformers
- -or whose businesses or locations no longer matched our
Strategic Plan-in order to maximize the return on core
assets and our value to shareholders. During 1997, the
Company divested of four such offices.
An Empowered Team. New leadership was put into place
at all levels of the organization and a new spirit
of enthusiasm swept across our ranks. The Company renewed
its dedication to its employees and committed itself to
nurturing its work culture based upon excellence and
communication. Through our Strategic Plan, shared values
were created and embraced by everyone in the Company.
Our Regional Directors began aggressively
implementing the Strategic Plan and our people responded
with astounding energy. New incentive programs were
developed to reward these individuals and their
outstanding efforts directly contributed to our bottom
line.
A Consolidating Industry. Dramatic changes
occurred within our industry in the last year. Mergers
took several of our competitors off the playing field, as
the larger brokers continued to focus on national and
global accounts. Because these larger players view small
and middle market accounts as commodity business,
we gained an important competitive advantage in the
marketplace. Our value-based approach to these accounts
made us more attractive to middle market clients in 1997.
We are now positioned to become a dominant player in the
middle market.
Moving Toward the Future
The momentum we generated in 1997 has placed
us in a position of strength in 1998 and we are poised to
capitalize upon the many opportunities which have been
created. Clearly, the steps we took in the last year that
contributed to our success will continue to positively
impact us in the future. We will maintain our strategy of
<PAGE>
specialty/expertise-based acquisitions and will continue
our policy of divesting underperforming assets. We will
also continue our aggressive stock buyback program as a
strategy to create greater shareholder value.
The speed of change in our Company has been dramatic
and these changes have greatly accelerated our growth.
But many changes remain to be made as we seek to ensure
outstanding service to our clients and disciplined control
of the Company's expenses.
More change will be necessary to complete the
realignment of our Company on a line-of-business basis.
Likewise, more changes will take place to maintain the
sound financial management of the Company. Our financial
organization has been restructured to include regional
controllers. And, as part of our effort to increase value
for shareholders, we will slow the growth of our
dividend, using those dollars to return more value for
shareholders through acquisitions and stock repurchases.
All of these efforts will be driven by our Strategic Plan
and our ongoing commitment to creating value in all that
we do.
In closing, I'd like to thank the people of HRH for
their hard work and dedication throughout 1997. Our
Company's greatest asset has always been its people.
Working together-and moving in the same direction, with
the same focus-our people have unleashed a
powerful energy that will sustain our Company for
years to come.
Our goal is to become the premier domestic middle
market insurance and risk services intermediary through
the superb implementation of the Strategic Plan. That
goal is now within our reach, and we have the talent, the
will and the momentum needed to carry us there. On behalf
of everyone at Hilb, Rogal and Hamilton Company, I thank
you for your continued support. We look forward to
bringing you even stronger results in the years to come.
Sincerely,
Andrew L. Rogal
President and Chief Executive Officer
<PAGE>
Mass(mas)-n.
1. The quantity of matter that an object contains; a measure
of an object's potential for acceleration.
2. A grouping of individual parts or elements that
compose a unified body.
(An abstract photograph of a kinetic metal ball depicting mass)
<PAGE>
"We have always believed in the strength of
our people. Now we have given them an operating
platform that's equally strong."
As the direct liaison between our Company and the clients
we serve, the employees of Hilb, Rogal and Hamilton
Company are our most important resource. Now we are
giving our employees even greater opportunities. HRH has
made a special commitment to providing employees the
tools they need to be more successful. Through our
empowered operating structure, increased training and
development, improved communications and special
incentive programs tied to performance, the employees of
HRH will be able to create greater value for the Company
and its shareholders.
Behind the scenes, HRH's human resources department is
making great strides towards acquiring and retaining top
talent for our Company. Our goal is to keep HRH employee-
sensitive and family-friendly, even as we grow in size.
New benefit packages and other programs are being
implemented to keep current employees happy and
productive, while new employees are being oriented to the
Company more quickly and efficiently.
<PAGE>
Force(fo^rs) - n.
1. Vector quantity that, when applied to an object, leads
to acceleration.
2. A power that causes an object to change direction.
(An abstract photograph of a kinetic metal ball catapulting a
smaller kinetic metal ball into the air)
<PAGE>
"Working together-and moving in the same
direction, with the same focus-our people have
unleashed a powerful energy."
New leadership throughout the Company has been the
driving force behind many of the positive changes that
have taken place at HRH. Our strong regional units are
led by aggressive individuals who are seeking to achieve
higher levels of success than ever before. With the
complete support of employees who have found enthusiasm
and motivation in the new operating structure, the
Company has begun moving forward in new and significant
ways.
Changes have also occurred in the Corporate Office that
are driving improvements in the Company. Timothy J.
Korman was appointed Executive Vice President of Finance
and Administration, while Carolyn Jones was named Senior
Vice President, Chief Financial Officer and Treasurer. Our
financial organization was further strengthened with the
appointments of Vincent P. Howley to Vice President of
Agency Financial Operations and Robert W. Blanton, Jr. to
Assistant Vice President and Controller. Henry C. Kramer
was appointed Vice President of Human Resources and
Robert J. Hilb was promoted to Vice President responsible
for corporate risk management. These new leaders are
committed to building an operationally-strong, financially-
sound organization.
<PAGE>
Acceleration (ak-sel`e-ra shen) - n.
1. The rate at which an object changes velocity with respect to
time.
2. The act of accelerating.
(An abstract photograph of a kinetic metal ball depicting
acceleration.)
<PAGE>
"The speed of change in our Company
has been dramatic-and these changes
have greatly accelerated our growth."
Hilb, Rogal and Hamilton Company has become one of the
largest insurance and risk services intermediaries in the
nation-operating more than 60 offices in the United States
and Canada. But changes in our industry have created an even
greater opportunity for HRH. Consolidation has left fewer
players in the middle market field, as the newly-consolidated
intermediaries turn their attention to national and global accounts.
The establishment of regional operating units allows our
Company to compete successfully for middle market
companies in need of risk management services. Our size
allows us to provide more value to clients in the middle
market by sharing specialties and expertise from other
offices throughout the Company. This high level of service
allows us to compete successfully with both public
national and private regional firms. These advantages,
combined with shrinking competition in the field, position
us to become dominant in the middle market-a position we
are confident we can achieve.
<PAGE>
Trajectory (tra-jek'te-re) - n.
1. The path that an object follows as it moves through space.
2. A chosen course or a course taken.
(An abstract photograph of a kinetic metal ball hitting its target)
<PAGE>
"The Strategic Plan gave our Company
a defined course to follow and set us in motion
toward meeting these goals."
The development and implementation of a new Strategic
Plan was a critical step in our Company's growth. Through
the successful implementation of this Plan, we believe
that Hilb, Rogal and Hamilton Company can double earnings
within three to five years, while becoming the premier
independent, domestic middle market insurance and risk
services intermediary. To reach this goal, the Company
will continue to cultivate a corporate culture which
focuses on the creation of value through commitments to
employees, excellence and communication.
The Strategic Plan specifically requires a commitment to
improving our distribution system by increasing our range
of services; to achieving an increase in core commissions
and fees through internal growth and strategically-
focused acquisitions; to enhancing the creation of a
performance oriented culture through compensation and
incentive programs; to improving communications within
the Company and to continuing the identification and
elimination of non-productive costs. We are firmly
committed to following this Plan-and are confident it will
succeed.
<PAGE>
data
+
analysis
+
notes
+
operations
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Consolidated Income Data:1
Commissions and fees $168,558 $153,968 $141,555 $132,914 $137,662
Investment and other income2 5,151 4,275 6,592 7,895 3,994
-------- -------- -------- -------- --------
Total revenues 173,709 158,243 148,147 140,809 141,656
Compensation and employee benefits 96,240 88,406 82,761 78,311 82,470
Other operating expenses 45,477 41,951 38,264 35,976 37,774
Amortization of intangibles 8,110 7,596 6,966 6,436 6,581
Interest expense 2,037 1,245 559 812 1,270
Pooling-of-interests expense - - - 488 503
-------- -------- -------- -------- --------
Total expenses 151,864 139,198 128,550 122,023 128,598
Income before income taxes 21,845 19,045 19,597 18,786 13,058
Income taxes 9,055 7,639 7,768 7,394 4,765
-------- -------- -------- -------- --------
Net income $ 12,790 $ 11,406 $ 11,829 $ 11,392 $ 8,293
======== ======== ======== ======== ========
Net income per Common Share:3
Basic $ 0.98 $ 0.84 $ 0.82 $ 0.77 $ 0.57
======== ======== ======== ======== ========
Diluted $ 0.97 $ 0.84 $ 0.82 $ 0.77 $ 0.57
======== ======== ======== ======== ========
Weighted average number of shares
outstanding:
Basic 13,099 13,500 14,470 14,778 14,459
======== ======== ======== ======== ========
Diluted 13,215 13,526 14,480 14,785 14,538
======== ======== ======== ======== ========
Dividends paid per Common Share $ 0.62 $ 0.605 $ 0.57 $ 0.50 $ 0.45
Consolidated Balance Sheet Data:
Intangible assets, net $ 82,170 $ 80,006 $ 60,854 $ 48,729 $ 49,454
Total assets 181,607 181,475 163,249 158,895 160,922
Long-term debt, less current portion 32,458 27,196 11,750 3,173 7,249
Other long-term liabilities 9,537 9,870 7,514 2,144 2,889
Total shareholders' equity 51,339 55,298 56,646 66,430 64,157
</TABLE>
1. See Note K of Notes to Consolidated Financial
Statements for information regarding business purchase
transactions which impact the comparability of this
information. In addition, during the years ended December
31, 1994 and 1993, the Company consummated four and six
purchase acquisitions, respectively.
2. During 1997, 1996, 1995, 1994 and 1993, the Company
sold certain insurance accounts and other assets
resulting in gains of approximately $2,475,000,
$1,856,000, $3,337,000, $5,044,000 and $1,735,000,
respectively.
3. The net income per share amounts prior to 1997 have
been restated as required to comply with Statement of
Financial Accounting Standards No. 128, "Earnings Per
Share" (Statement No. 128). For further discussion of net
income per share and the impact of Statement No. 128, see
Note A and Note J of Notes to Consolidated Financial
Statements.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The income of an insurance agency business such as
the Company is principally derived from commissions
earned, which are generally percentages of premiums
placed with insurance underwriters. Premium pricing
within the insurance underwriting industry has been
cyclical and has displayed a high degree of volatility
based on prevailing economic and competitive conditions.
Decreases in premium rates result directly in revenue
decreases to the Company. Since 1987, the property and
casualty insurance industry has been in a "soft market,"
during which the underwriting capacity of insurance
companies expanded, stimulating an increase in
competition and a decrease in premium rates and related
commissions and fees. The effect of the softness in rates
on the Company's revenues has been offset by the
Company's acquisitions and new business programs.
Management cannot predict the timing or extent of premium
pricing changes due to market conditions or their effects
on the Company's operations in the future, but believes
that the "soft market" conditions will continue into
1998.
Results of Operations
Total revenues for 1997 were $173.7 million, an
increase of $15.5 million or 9.8% over 1996. For 1996,
total revenues were $158.2 million, an increase of $10.1
million or 6.8% from 1995.
Commissions and fees for 1997 were $168.6 million,
or 9.5% higher than 1996. Approximately $18.3 million of
commissions and fees were derived from purchase
acquisitions of new insurance agencies. These increases
were offset by decreases of $7.1 million from the sale of
certain offices and accounts in 1997 and 1996. Core
commissions and fees from continuing operations increased
3.1%.
Commissions and fees for 1996 were $154.0 million,
or 8.8% higher than 1995. Approximately $14.7 million of
commissions and fees were derived from purchase
acquisitions of new insurance agencies. These increases
were offset by decreases of $2.2 million from the sale of
certain offices and accounts in 1996 and 1995.
Investment and other income increased by $0.9
million in 1997 and decreased by $2.3 million in 1996.
These amounts include gains of $2.5 million, $1.9 million
and $3.3 million in 1997, 1996 and 1995, respectively,
from the sale of certain offices, insurance accounts and
other assets.
Total operating expenses for 1997 were $151.9
million, an increase of $12.7 million or 9.1% from 1996.
For 1996, total operating expenses were $139.2 million,
an increase of $10.6 million or 8.3% from 1995.
Compensation and employee benefits costs for 1997
were $96.2 million, an increase of $7.8 million or 8.9%
from 1996. Increases include approximately $9.3 million
related to purchase acquisitions and increases of $1.7
million in incentive compensation related to improved
operating results offset by decreases of $3.0 million
related to offices sold in 1997 and 1996. Compensation
and employee benefits costs for 1996 were $88.4 million,
an increase of $5.6 million or 6.8% from 1995. Increases
include approximately $7.1 million related to purchase
acquisitions offset by decreases of $1.1 million related
to offices sold in 1996 and 1995.
Other operating expenses for 1997 were $45.5
million, or 8.4% higher than 1996. Increases relate
primarily to purchase acquisitions and consulting fees
totaling $1.0 million associated with the Company's
strategic plan offset in part by the sale of
certain offices in 1997 and 1996.
Other operating expenses for 1996 were $42.0
million, or 9.6% higher than 1995. Increases relate
primarily to purchase acquisitions offset in part by the
sale of certain offices in 1996 and 1995.
Amortization expense primarily reflects the
amortization of expiration rights, an intangible asset
acquired in the purchase of insurance agencies. Amortization
expense increased by $0.5 million or 6.8% in 1997 and by $0.6
million or 9.0% in 1996 which is attributable to purchase
acquisitions consummated during 1997, 1996 and 1995
offset by decreases from amounts which became fully
amortized or were sold in those years.
The effective tax rates for the Company were 41.5%
in 1997, 40.1% in 1996 and 39.6% in 1995. An analysis of
the effective income tax rates is presented in "Note
G-Income Taxes" of Notes to Consolidated Financial
Statements.
Over the last three years, inflationary pressure has
been relatively modest and did not have a significant effect
on the Company's operations.
Liquidity and Capital Resources
Net cash provided by operations totaled $21.0
million, $16.6 million and $16.2 million for the years
ended December 31, 1997, 1996 and 1995, respectively, and
is primarily dependent upon the timing of the collection
of insurance premiums from clients and payment of those
premiums to the appropriate insurance underwriters.
The Company has historically generated sufficient
funds internally to finance capital expenditures for
personal property and equipment. Cash expenditures for
the acquisition of property and equipment were $2.1
million, $5.1 million and $4.0 million for the years
ended December 31, 1997, 1996 and 1995, respectively. The
timing and extent of the purchase of investments is
dependent upon cash needs and yields on alternate
investments and cash equivalents. In addition, during
1997 and 1996, total investments decreased by $2.4
million and $4.2 million, respectively, as the Company
utilized these funds for the repurchase of Common Stock
of the Company and the acquisition of insurance agencies.
Cash expenditures for the purchase of insurance agencies
accounted for under the purchase method of accounting
amounted to $9.3 million, $9.7 million and $6.5 million
in the years ended December 31, 1997, 1996 and 1995,
respectively. Cash expenditures for such insurance agency
acquisitions have been funded primarily through
operations and from long-term borrowings. In addition, a
portion of the purchase price in such acquisitions may be
paid through Common Stock and deferred cash payments.
Cash proceeds from the sale of certain offices, insurance
accounts and other assets totaled $6.5 million, $2.5
million and $3.5 million in the years ended December 31,
1997, 1996 and 1995, respectively. The Company did not
have any material capital expenditure commitments as of
December 31, 1997.
Financing activities utilized cash of $16.0 million,
$6.0 million and $22.1 million for the years ended
December 31, 1997, 1996 and 1995, respectively, as the
Company made scheduled debt payments and annually paid
its dividend. In addition, during 1997, 1996 and 1995,
the Company repurchased 700,000, 801,700 and 1,336,820,
respectively, shares of its Common Stock under a stock
repurchase program. The Company is currently authorized
to purchase an additional 723,000 shares and anticipates
that it will continue to repurchase shares in 1998. The
Company has a bank credit agreement for $30.0 million
<PAGE>
under loans due in 2002. At December 31, 1997, there were
loans of $30.0 million outstanding under this agreement.
The Company had a current ratio (current assets to
current liabilities) of 0.87 to 1.00 as of December 31,
1997. Shareholders' equity of $51.3 million at December
31, 1997, decreased from $55.3 million at December 31,
1996, and the debt to equity ratio of 0.63 to 1.00 at
December 31, 1997 increased from the last year-end ratio
of 0.49 to 1.00 due to the aforementioned purchase of
Common Stock of the Company and an increase in borrowings
to $30.0 million under the bank agreement used for
insurance agency acquisitions and the repurchase of
Common Stock.
The Company believes that cash generated from
operations, together with proceeds from borrowings, will
provide sufficient funds to meet the Company's short and
long-term funding needs.
Impact of Year 2000
Many existing computer programs use only two digits
to identify a year in the date field. These programs were
designed and developed without considering the impact of
the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous
results by or in the year 2000. The potential costs and
uncertainties to companies in addressing this issue (the
Year 2000 Issue) will depend on a number of factors,
including their software and hardware and the nature of
their industries. Companies must also coordinate with
other entities with which they electronically interact,
including suppliers, clients, creditors and financial
service organizations.
The Company has examined the Year 2000 Issue and the
potential costs and consequences to the Company in
addressing this issue. The Company is also communicating
with third parties with which it does business to
coordinate further action with respect to the Year 2000
Issue. The project is estimated to be completed not later
than December 31, 1998, which is prior to any anticipated
impact on its operating systems. As a result, management
believes that the Year 2000 Issue will not have a
material impact on the Company's results of operations
and that the cost of the Company addressing the issue is
not a material event or uncertainty.
The costs of the project and the date on which the
Company believes it will complete the Year 2000
modifications are based on management's estimates, which
were derived utilizing numerous assumptions of future
events, including the continued availability of certain
resources and other factors. However, there can be no
guarantee that these estimates will be realized and
actual results could differ materially from those
anticipated.
Forward-Looking Statements
When used in this annual report, in Form 10-K or
other filings by the Company with the Securities and
Exchange Commission, in the Company's press releases or
other public or shareholder communications, or in oral
statements made with the approval of an authorized
Company executive officer, the words or phrases "would
be," "will allow," "expects to," "will continue," "is
anticipated," "estimate," "project" or similar
expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
While forward-looking statements are provided to
assist in the understanding of the Company's anticipated
future financial performance, the Company cautions
readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made.
Forward-looking statements are subject to significant
risks and uncertainties, many of which are beyond the
Company's control. Although the Company believes that the
assumptions underlying its forward-looking statements are
reasonable, any of the assumptions could prove to be
inaccurate. Actual results may differ materially from
those contained in or implied by such forward-looking
statements for a variety of reasons. Risk factors and
uncertainties that might cause such a difference include,
but are 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 and casualty insurance industry continues to
experience a prolonged "soft market" despite high losses;
continued low interest rates will reduce 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; 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; and
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.
The Company does not undertake, and specifically
disclaims any obligation, to update any forward-looking
statements to reflect occurrences or unanticipated events
or circumstances after the date of such statements.
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including $7,645,000 and
$11,260,000, respectively, of restricted funds $ 22,314,860 $ 19,774,374
Investments 3,892,533 5,088,020
Receivables:
Premiums, less allowance for doubtful accounts
of $2,299,000 and $2,445,000, respectively 41,292,489 41,453,677
Other 5,720,513 6,122,612
------------ ------------
47,013,002 47,576,289
Prepaid expenses and other current assets 3,612,523 3,816,819
------------ ------------
TOTAL CURRENT ASSETS 76,832,918 76,255,502
INVESTMENTS 5,030,000 6,185,686
PROPERTY AND EQUIPMENT, NET 11,762,080 16,092,075
INTANGIBLE ASSETS
Expiration rights 75,193,075 76,402,292
Goodwill 33,411,145 32,718,982
Noncompetition agreements 11,636,847 11,421,278
------------ ------------
120,241,067 120,542,552
Less accumulated amortization 38,071,304 40,536,482
------------ ------------
82,169,763 80,006,070
OTHER ASSETS 5,811,797 2,936,014
------------ ------------
$181,606,558 $181,475,347
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 67,520,370 $ 66,527,381
Accounts payable and accrued expenses 10,925,646 11,401,805
Premium deposits and credits due customers 7,752,502 8,837,483
Current portion of long-term debt 2,074,788 2,345,059
------------ ------------
TOTAL CURRENT LIABILITIES 88,273,306 89,111,728
LONG-TERM DEBT 32,457,882 27,195,571
OTHER LONG-TERM LIABILITIES 9,536,771 9,869,777
SHAREHOLDERS' EQUITY
Common Stock, no par value; authorized 50,000,000
shares;outstanding 12,813,023 and 13,320,577 shares,
respectively 16,540,461 25,266,279
Retained earnings 34,798,138 30,031,992
------------ ------------
51,338,599 55,298,271
------------ ------------
$181,606,558 $181,475,347
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Income
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Commissions and fees $168,558,411 $153,967,914 $141,555,188
Investment and other income 5,150,469 4,275,186 6,591,850
------------ ------------ ------------
173,708,880 158,243,100 148,147,038
Operating expenses
Compensation and employee benefits 96,239,782 88,406,342 82,760,664
Other operating expenses 45,476,904 41,950,933 38,264,085
Amortization of intangibles 8,110,010 7,596,274 6,965,947
Interest expense 2,037,338 1,244,729 559,654
------------ ------------ ------------
151,864,034 139,198,278 128,550,350
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 21,844,846 19,044,822 19,596,688
Income Taxes 9,054,995 7,638,431 7,767,778
------------ ------------ ------------
NET INCOME $ 12,789,851 $ 11,406,391 $ 11,828,910
============ ============ ============
NET INCOME PER COMMON SHARE:
BASIC $ 0.98 $ 0.84 $ 0.82
============ ============ ============
DILUTED $ 0.97 $ 0.84 $ 0.82
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Shareholders' Equity
<TABLE>
<CAPTION>
Common Retained
Stock Earnings
- -------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1995 $43,426,295 $23,003,861
Issuance of 318,326 shares of Common Stock 3,817,746
Purchase of 1,336,820 shares of Common Stock (17,389,044)
Payment of dividends ($.57 per share) (8,209,877)
Other 48,903 119,096
Net income 11,828,910
------------ ------------
Balance at December 31, 1995 29,903,900 26,741,990
Issuance of 462,170 shares of Common Stock 6,251,661
Purchase of 801,700 shares of Common Stock (10,845,095)
Payment of dividends ($.605 per share) (8,116,389)
Other (44,187)
Net income 11,406,391
------------ ------------
Balance at December 31, 1996 25,266,279 30,031,992
Issuance of 192,446 shares of Common Stock 2,895,697
Purchase of 700,000 shares of Common Stock (11,338,557)
Payment of dividends ($.62 per share) (8,023,705)
Other (282,958)
Net income 12,789,851
------------ ------------
Balance at December 31, 1997 $16,540,461 $34,798,138
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statement of Consolidated Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $12,789,851 $11,406,391 $11,828,910
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of intangible assets 8,110,010 7,596,274 6,965,947
Depreciation and amortization 3,557,298 3,259,452 2,790,772
----------- ----------- -----------
Net income plus amortization and depreciation 24,457,159 22,262,117 21,585,629
Provision for losses on receivables 383,670 1,276,258 1,500,231
Provision for deferred income taxes (397,674) (816,246) 44,119
Gain on sale of assets (2,474,894) (1,856,443) (3,337,219)
Changes in operating assets and
liabilities net of effects from
insurance agency acquisitions and dispositions:
(Increase) decrease in accounts receivable 3,784,756 (1,405,660) 513,907
(Increase) decrease in prepaid expenses 197,802 (1,649,239) (768,431)
Decrease in premiums payable to
insurance companies (2,115,712) (4,241,464) (1,156,960)
Increase (decrease) in premium
deposits and credits due customers (1,197,195) 774,857 (784,471)
Increase (decrease) in accounts
payable and accrued expenses (1,178,335) 224,046 (1,639,586)
Other operating activities (475,547) 2,077,498 230,569
----------- ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,984,030 16,645,724 16,187,788
INVESTING ACTIVITIES
Purchase of held-to-maturity investments (3,549,631) (7,339,705) (7,399,402)
Purchase of available-for-sale investments - (260,000) -
Proceeds from maturities and calls of held-to-
maturity investments 5,640,804 7,866,672 24,546,279
Proceeds from sale of available-for-sale investments 260,000 3,914,000 -
Purchase of property and equipment (2,135,837) (5,051,253) (4,007,468)
Purchase of insurance agencies, net of cash acquired (9,309,760) (9,722,979) (6,540,948)
Proceeds from sale of assets 6,546,661 2,461,177 3,515,102
Other investing activities 115,892 222,231 216,173
----------- ----------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,431,871) (7,909,857) 10,329,736
FINANCING ACTIVITIES
Proceeds from long-term debt 7,750,668 30,861,966 32,522,950
Principal payments on long-term debt (5,329,866) (18,024,341) (29,194,326)
Repurchase of Common Stock (11,338,557) (10,845,095) (17,389,044)
Dividends (8,023,705) (8,116,389) (8,209,877)
Other financing activities 929,787 141,660 158,347
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (16,011,673) (5,982,199) (22,111,950)
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,540,486 2,753,668 4,405,574
Cash and cash equivalents at beginning of year 19,774,374 17,020,706 12,615,132
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $22,314,860 $19,774,374 $17,020,706
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1997
Hilb, Rogal and Hamilton Company (the Company), a
Virginia corporation, operates as a network of insurance
agencies with offices located in 16 states and five
Canadian provinces. Its principal activity is the
performance of retail insurance services which involves
placing property and casualty and life and health
insurance with insurers on behalf of commercial clients
in a variety of industries and individual clients.
Note A-Significant Accounting Policies
Principles of Consolidation: The accompanying
financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the amounts
reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenues: Commission income as well as the related
premiums receivable from customers and premiums payable
to insurance companies are recorded as of the effective
date of insurance coverage or the billing date, whichever
is later. Premium adjustments, including policy
cancellations, are recorded as they occur. Contingent
commissions and commissions on premiums billed and
collected directly by insurance companies are recorded as
revenue when received. Fees for services rendered are
recorded as earned. These policies are in accordance with
predominant industry practice.
Cash Equivalents: The Company considers all highly
liquid investments with a maturity of three months or
less at the date of acquisition to be cash equivalents.
The carrying amounts reported on the balance sheet
approximate the fair values.
Investments: Management determines the appropriate
classification of debt securities at the time of purchase
and reevaluates such designation at each balance sheet
date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to
hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, which is
adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in
investment income. Interest and dividends are included in
investment income. Realized gains and losses, and
declines in value judged to be other than temporary are
included in investment income.
Marketable debt securities not classified as held-to-
maturity are classified as available-for-sale. Available-
for-sale securities are carried at fair value. Amortized
cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value
judged to be other than temporary on available-for-sale
securities are included in investment income. The cost of
securities sold is based on the specific identification
method. Interest and dividends on securities classified
as available-for-sale are included in investment income.
Property and Equipment: Property and equipment are
stated on the basis of cost. Depreciation is computed by
the straight-line method over estimated useful lives (30
to 33 years for buildings, 3 to 7 years for equipment).
Leasehold improvements are generally amortized using a
straight-line method over the term of the related lease.
Intangible Assets: Intangible assets arising from
acquisitions accounted for as purchases principally
represent expiration rights, the excess of costs over the
fair value of net assets acquired and noncompetition
agreements. The cost of such assets is being amortized
principally on a straight-line basis over periods ranging
up to 20 years for expiration rights, 15 to 40 years for
the excess of costs over the fair value of net assets
acquired and 3 to 20 years for noncompetition agreements.
Effective January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." Adoption of this
statement did not have a material impact on the Company's
financial position or results of operations.
Accounting for Stock-Based Compensation: In October
1995, the Financial Accounting Standards Board (the FASB)
issued Statement No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123). The statement defines
a fair value based method of accounting for employee
stock options. Companies may, however, elect to adopt
this new accounting rule through a pro forma disclosure
option, while continuing to use the intrinsic value based
method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25).
The Company has elected to continue to follow APB
No. 25 and related interpretations in accounting for its
employee stock options. In addition, the effect of
applying Statement No. 123's fair value method to the
Company's employee stock options does not result in net
income and net income per share that are materially
different from amounts reported. Accordingly, the pro
forma disclosures required by Statement No. 123 have not been
included in the footnotes to the financial statements.
Fair Value of Financial Instruments: The carrying
amounts reported in the balance sheet for cash and cash
equivalents, receivables, premiums payable to insurance
companies, accounts payable and accrued expenses and long-
term debt approximate those assets and liabilities' fair
values. Fair values for investment securities are based
on quoted market prices and are disclosed in Note B. Fair
value for interest rate swaps are based on a discounted
cash flow method.
Interest Rate Swaps: The Company enters into
interest rate swap agreements to modify the interest
characteristics of its outstanding debt. Each interest
rate swap agreement is designated with all or a portion
of the principal balance and term of a specific debt
obligation. These agreements involve the exchange of
amounts based on variable interest rates for amounts
based on fixed interest rates over the life of the
agreement without an exchange of the notional amount upon
which the payments are based. The differential to be paid
or received as interest rates change is accrued and
recognized as an adjustment of interest expense related
to the debt (the accrual accounting method).
The related amount payable to or receivable from
counterparties is included in other liabilities or assets. The fair
value of the swap agreements and changes in the fair
value as a result of changes in market interest rates are
not recognized in the financial statements.
Gains and losses on terminations of interest rate
swap agreements are deferred as an adjustment to the
carrying amount of the outstanding debt and amortized as an
adjustment to interest expense related to the debt over the
remaining term of the original contract life of the terminated swap
agreement. In the event of the early extinguishment of a
designated debt obligation, any realized or unrealized
gain or loss from the swap would be recognized in income
coincident with the extinguishment gain or loss.
<PAGE>
Income Taxes: The Company (except for its Canadian
subsidiary) files a consolidated federal income tax
return. Deferred taxes result from temporary differences
between the reporting for income tax and financial
statement purposes primarily related to bad debt expense,
depreciation expense, basis differences in intangible
assets, deferred compensation arrangements and the
recognition of net operating loss carryforwards from
pooled entities.
Net Income Per Share: In 1997, the FASB issued
Statement No. 128, "Earnings Per Share" (Statement No.
128). Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to
Statement No. 128 requirements.
Accounting Pronouncements: In 1997, the FASB issued
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (Statement No. 130)
effective for years beginning after December 15, 1997.
The new rules require companies to display items of other
comprehensive income either below the total for net
income, in a separate statement of comprehensive income,
or in a statement of changes in shareholders' equity, and
disclose the accumulated balance of other comprehensive
income separately from retained earnings and additional
paid-in capital in the equity section of the balance
sheet.
The Company will adopt the provisions of Statement
No. 130 during the first quarter of 1998. The adoption of
Statement No. 130 will not materially affect the
Company's results of operations or financial position.
Note B-Investments
The following is a summary of held-to-maturity and
available-for-sale investments included in current and
long-term assets on the consolidated balance sheet:
<TABLE>
<CAPTION>
Held-to-Maturity Investments
----------------------------
Gross Gross
December 31, 1997 Cost Unrealized Gains Unrealized Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies $ 1,000,000 $ 1,000,000
Obligations of states and political subdivisions 5,840,000 $75,000 $1,000 5,914,000
Certificates of deposit and other 2,083,000 2,083,000
-----------------------------------------------------------------
$ 8,923,000 $75,000 $1,000 $ 8,997,000
=================================================================
Held-to-Maturity Investments
----------------------------
Gross Gross
December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies $ 1,500,000 $3,000 $ 1,497,000
Obligations of states and political subdivisions 7,795,000 $75,000 1,000 7,869,000
Certificates of deposit and other 1,719,000 1,719,000
------------------------------------------------------------------
$ 11,014,000 $75,000 $4,000 $ 11,085,000
==================================================================
Available-for-Sale Investments
------------------------------
Gross Gross
December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $ 260,000 $ - $ - $ 260,000
==================================================================
</TABLE>
The amortized cost and fair value of held-to-
maturity investments at December 31, 1997, by contractual
maturity, are as follows. Actual maturities may differ
from contractual maturities because the issuers of the
securities may have the right to prepay obligations
without prepayment penalties.
<TABLE>
<CAPTION>
Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Held-to-Maturity Investments
Due in one year $ 3,893,000 $ 3,905,000
Due after one year
through five years 5,030,000 5,092,000
------------------------------
$ 8,923,000 $ 8,997,000
==============================
</TABLE>
Note C-Property and Equipment
Property and equipment consists of the following:
1997 1996
- -------------------------------------------------------------------------------
Furniture and equipment $27,880,000 $27,589,000
Buildings and land 3,835,000 7,666,000
Leasehold improvements 1,887,000 1,986,000
--------------------------
33,602,000 37,241,000
Less accumulated depreciation and amortization 21,840,000 21,149,000
--------------------------
$11,762,000 $16,092,000
==========================
<PAGE>
Note D-Long-Term Debt
1997 1996
----------------------------
Notes payable to banks,
interest currently at 6.42% $30,000,000 $23,000,000
Installment notes payable
incurred in acquisitions
of insurance agencies, 4.9%
to 10.0%, due in various
installments, to 1999 4,123,000 3,846,000
Mortgage notes payable,
paid in full during 1997 - 2,156,000
Installment notes payable,
6.0% to 8.5%, due in various
installments, to 2003 410,000 539,000
--------------------------
34,533,000 29,541,000
Less current portion 2,075,000 2,345,000
--------------------------
$32,458,000 $27,196,000
==========================
Maturities of long-term debt for the four years
ending after December 31, 1998 are $1,509,000 in 1999;
$821,000 in 2000; $48,000 in 2001; and $30,048,000 in
2002.
Interest paid was $3,437,000, $1,232,000 and
$733,000 in 1997, 1996 and 1995, respectively.
The Company entered into a credit agreement with two
banks that allows for borrowings of up to $30,000,000
under loans due in 2002, which bear interest at variable
rates. At December 31, 1997, $30,000,000 was borrowed
under this agreement. This credit agreement contains,
among other provisions, requirements for maintaining
certain financial ratios.
The Company entered into an interest rate swap
agreement effective December 19, 1997 to manage interest
rate exposure on its long-term debt. The swap agreement
is a contract to exchange floating rate for fixed rate
interest payments periodically over the life of the
agreement without the exchange of the underlying notional
amount of $7,500,000. The notional amounts of interest
rate agreements are used to measure interest to be paid
or received and do not represent the amount of exposure
to credit loss. The credit risk to the Company would be
the counterparty's inability to pay the differential in
the fixed rate and variable rate in a rising interest
rate environment. The Company is exposed to market risk
from changes in interest rates.
The differential paid or received on the interest
rate per the agreement is recognized as an adjustment to
interest expense. Under the Company's interest rate swap
agreement, the Company contracted with the counterparty
to exchange the difference between the Company's fixed
pay rate of 6.52% and the counterparty's variable pay
rate of LIBOR plus 0.575%. At December 31, 1997, the
variable rate was approximately 6.54%. The contract
expires December 19, 2002.
Effective January 21, 1998, the Company entered into
an interest rate swap agreement similar to the agreement
described above with an underlying notional amount of
$7,500,000. The contract expires on January 21, 2003.
Note E-Retirement Plans
The Hilb, Rogal and Hamilton Company Profit Sharing
Savings Plan (the Profit Sharing Plan) covers
substantially all employees of the Company and its
subsidiaries. The Profit Sharing Plan, which may be
amended or terminated by the Company at any time,
provides that the Company shall contribute to a trust
fund such amounts as the Board of Directors shall
determine subject to certain earnings restrictions as
defined in the Profit Sharing Plan.
Prior to merger with the Company, certain of the
merged companies had a separate profit sharing, ESOP or
benefit plan. These plans were terminated or frozen at
the time of merger with the Company.
The total expense under these plans for 1997, 1996
and 1995 was approximately $3,120,000, $2,680,000 and
$2,075,000, respectively.
The Company has a Supplemental Executive Retirement
Plan (the SERP), which is a defined benefit plan under
which the Company will pay supplemental pension benefits
to key executives in addition to amounts received under
the Profit Sharing Plan. Such benefits will be paid from
Company assets.
The following table sets forth the SERP's funded
status and amounts recognized in the Company's
consolidated balance sheet:
1997 1996
---------------------------
Actuarial present value of:
Vested benefits $(2,038,000) $(1,923,000)
Nonvested benefits (190,000) (226,000)
---------------------------
Accumulated benefit obligation (2,228,000) (2,149,000)
Effect of anticipated future
compensation levels (915,000) (827,000)
---------------------------
Projected benefit obligation (3,143,000) (2,976,000)
Plan assets at fair value - -
---------------------------
Excess of projected benefit
obligation over assets (3,143,000) (2,976,000)
Unrecognized prior
service costs 1,795,000 1,921,000
Unrecognized net (gain) loss (45,000) 38,000
---------------------------
Accrued SERP expense (1,393,000) (1,017,000)
Adjustment to recognize
minimum liability (835,000) (1,132,000)
---------------------------
Pension liability recognized in
consolidated balance sheet $(2,228,000) $(2,149,000)
===========================
<PAGE>
The expense for the SERP includes the following
components:
1997 1996 1995
------------------------------
Service cost $188,000 $182,000 $159,000
Interest cost 229,000 223,000 175,000
Amortization of
prior service cost 126,000 135,000 126,000
----------------------------
$543,000 $540,000 $460,000
============================
Significant assumptions used in determining
obligations and the related expense for the SERP include
a weighted average discount rate of 7.5% and 8.0% in 1997
and 1996, respectively, and an assumed rate of increase
in future compensation of 4.0% in both years.
Note F-Other Postretirement Benefit Plans
The Company sponsors postretirement benefit plans
that provide medical and life insurance benefits to
retirees. Employees who retire after age 55 with 10 years
of service are eligible to participate. The plans are
contributory for substantially all participants, with
retiree contributions adjusted annually and the health
care plan contains other cost sharing features such as
deductibles and coinsurance. The accounting for the
health care plan anticipates future cost sharing changes
to the written plan that are consistent with the
Company's expressed intent to increase retiree
contributions annually in accordance with increases in
health care costs. The Company's policy is to fund the
cost of these benefits when actual claims are incurred.
The following table sets forth the plans' combined
funded status reconciled with the amount shown in the Company's
consolidated balance sheet:
1997 1996
-------------------------------
Accumulated postretirement
benefit obligation:
Retirees $(896,000) $(1,050,000)
Active plan participants - -
----------------------------
Total (896,000) (1,050,000)
Plan assets at fair value - -
----------------------------
Accumulated postretirement
benefit obligation in
excess of plan assets (896,000) (1,050,000)
Unrecognized net gain (704,000) (909,000)
Unrecognized transition
benefit cost 991,000 1,149,000
----------------------------
Accrued postretirement
benefit liability $(609,000) $ (810,000)
============================
Net periodic postretirement benefit cost includes
the following components:
1997 1996 1995
- ---------------------------------------------------------------------------
Interest cost $ 80,000 $ 82,000 $ 104,000
Amortization of
transition obligation
over 14 years 115,000 115,000 115,000
Amortization of
prior gain (79,000) (67,000) (29,000)
----------------------------------------
$ 116,000 $ 130,000 $ 190,000
========================================
For measurement purposes, a 7.20% and a 7.85% annual
rate of increase in the per capita cost of covered health
care benefits was assumed for 1998 and 1997,
respectively; the rate was assumed to decrease gradually
to 6.15% in 2021 and remain at that level thereafter. The
health care cost trend rate assumption has an effect on
the amounts. For example, increasing the assumed health
care cost trend rates by one percentage point in each
year would increase the accumulated postretirement
benefit obligation for the medical plan as of December
31, 1997 and 1996 by $87,000 and $97,000, respectively,
and the net periodic postretirement benefit cost for 1997
by $8,000.
The weighted average discount rate used in
determining the accumulated postretirement benefit
obligation was 7.5% and 8.0% at December 31, 1997 and
1996, respectively.
Note G-Income Taxes
The components of income taxes shown in the
statement of consolidated income are as follows:
1997 1996 1995
- ---------------------------------------------------------------------------
Current
Federal $7,401,000 $6,481,000 $6,232,000
State 1,438,000 1,305,000 1,268,000
Foreign 614,000 668,000 224,000
-----------------------------------------
9,453,000 8,454,000 7,724,000
Deferred
Federal (247,000) (639,000) 76,000
State (46,000) (73,000) 14,000
Foreign (105,000) (104,000) (46,000)
-----------------------------------------
(398,000) (816,000) 44,000
-----------------------------------------
$9,055,000 $7,638,000 $7,768,000
=========================================
The effective income tax rate varied from the
statutory federal income tax rate as follows:
1997 1996 1995
- ---------------------------------------------------------------------------
Statutory federal income
tax rate 35.0% 35.0% 35.0%
Tax exempt investment
income (0.8) (1.4) (2.1)
State income taxes,
net of federal tax benefit 4.2 4.5 4.2
Other 3.1 2.0 2.5
-----------------------------------------
Effective income tax rate 41.5% 40.1% 39.6%
=========================================
Income taxes paid were $9,646,000, $10,128,000 and
$8,428,000 in 1997, 1996 and 1995, respectively.
Income before income taxes from Canadian operations
was $900,000, $1,168,000 and $317,000 in 1997, 1996 and
1995, respectively.
Deferred income taxes reflect the tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and
assets on the consolidated balance sheet are as
follows:
1997 1996
- ---------------------------------------------------------------
Deferred tax liabilities:
Intangible assets $6,015,000 $6,483,000
Other-net 1,129,000 661,000
---------------------------
Total deferred tax liabilities 7,144,000 7,144,000
Deferred tax assets:
Deferred compensation 917,000 844,000
Bad debts 870,000 925,000
Other 833,000 751,000
---------------------------
Total deferred tax assets 2,620,000 2,520,000
---------------------------
Net deferred tax liabilities $4,524,000 $4,624,000
===========================
In 1997, the Company reached a final agreement with
the Internal Revenue Service (the IRS) which resolved all
issues arising from the IRS's audit of the Company's
income tax returns for the seven years ended December 31,
1994. Since the agreement related to deductions claimed
in connection with intangible assets acquired by the
Company, the additional tax that resulted from the
agreement, including current payments and an increase in
deferred tax liabilities of $2,626,000 and $1,500,000,
respectively, has been recorded as an increase in
goodwill of $4,126,000 on the December 31, 1996 balance
sheet. The settlement will not have a significant impact
on the Company's future earnings.
<PAGE>
Note H-Leases
The Company and its subsidiaries have noncancellable
lease contracts for office space, equipment and automobiles
which expire at various dates through the year 2008 and
generally include escalation clauses for increases in
lessors' operating expenses and increased real estate
taxes.
Future minimum rental payments required under such
operating leases are summarized as follows:
1998 $ 6,341,000
1999 5,327,000
2000 4,045,000
2001 2,637,000
2002 1,790,000
Thereafter 2,217,000
-----------
$22,357,000
===========
Rental expense for all operating leases amounted to
$7,276,000 in 1997, $6,845,000 in 1996 and $6,712,000 in
1995. Included in rental expense for 1997, 1996 and 1995
is approximately $386,000, $313,000 and $435,000,
respectively, which was paid to employees or related
parties.
Note I-Shareholders' Equity
The Company has adopted and the shareholders have
approved the 1986 Incentive Stock Option Plan and the
Hilb, Rogal and Hamilton Company 1989 Stock Plan, which
provide for the granting of options to purchase up to an
aggregate of approximately 1,765,000 and 1,843,000 shares
of Common Stock as of December 31, 1997 and 1996,
respectively. The number of shares available for grant
may increase or decrease with the respective changes in
the number of shares of Common Stock outstanding. Stock
options granted have seven to ten year terms and vest and
become fully exercisable at various periods up to five years.
Stock option activity under the plan was as follows:
Weighted
Average
Shares Exercise Price
- ------------------------------------------------------------
Outstanding at January 1, 1995 869,575 $13.39
Granted 25,000 12.17
Exercised 600 12.75
Expired 87,250 13.10
---------
Outstanding at December 31, 1995 806,725 13.38
Granted 72,900 13.00
Exercised 3,600 10.40
Expired 132,700 13.21
---------
Outstanding at December 31, 1996 743,325 13.39
Granted 528,190 15.97
Exercised 78,052 12.19
Expired 87,000 13.42
---------
Outstanding at December 31, 1997 1,106,463 14.70
=========
Exercisable at December 31, 1997 514,935 13.56
The options outstanding at December 31, 1997 have
exercise prices that range from $10.00 to $18.20. The
weighted average contractual life of these options is six
years.
There were 466,000 and 978,000 shares available for
future grant under these plans as of December 31, 1997
and 1996, respectively.
No compensation expense is recognized in operations
for 1997, 1996 or 1995.
<PAGE>
Note J-Net Income per Share
The following table sets forth the computation of
basic and diluted net income per share:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and dilutive
net income per share -net income $12,789,851 $11,406,391 $11,828,910
=========================================
Denominator
Weighted average shares 13,069,453 13,493,255 14,470,407
Effect of guaranteed future shares
to be issued in connection
with an agency acquisition 29,764 7,075 -
-----------------------------------------
Denominator for basic net income per share 13,099,217 13,500,330 14,470,407
Effect of dilutive securities:
Employee stock options 101,280 25,451 9,989
Contingent stock - acquisition 14,222 - -
-----------------------------------------
Dilutive potential common shares 115,502 25,451 9,989
-----------------------------------------
Denominator for diluted net income
per share -adjusted weighted
average shares and assumed conversions 13,214,719 13,525,781 14,480,396
=========================================
Net Income Per Common Share:
Basic $ 0.98 $ 0.84 $ 0.82
=========================================
Diluted $ 0.97 $ 0.84 $ 0.82
=========================================
</TABLE>
Note K-Acquisitions
During 1997, the Company acquired certain assets and
liabilities of six insurance agencies for $9,426,000
($6,333,000 in cash, $2,393,000 in guaranteed future
payments and 53,555 shares of Common Stock) in purchase
accounting transactions. Assets acquired include
expiration rights of $7,082,000, noncompetition
agreements of $1,151,000 and goodwill of $1,310,000. The
combined purchase price may be increased by approximately
$1,490,000 in 1998, $1,490,000 in 1999 and $1,490,000 in
2000 based upon commissions or net profits realized.
During 1996, the Company acquired certain assets and
liabilities of 15 insurance agencies for $16,189,000
($7,343,000 in cash, $2,736,000 in guaranteed future
payments and 451,610 shares of Common Stock) in purchase
accounting transactions. Assets acquired include
expiration rights of $13,565,000, noncompetition
agreements of $2,820,000 and goodwill of $2,717,000. The
combined purchase price was increased by approximately
$3,392,000 in 1997 and may be increased by approximately
$4,675,000 in 1998, $1,354,000 in 1999, $127,000 in 2000
and $37,000 in 2001 based upon commissions or net profits
realized.
During 1995, the Company acquired certain assets and
liabilities of 14 insurance agencies for $13,097,000
($7,303,000 in cash, $1,914,000 in guaranteed future
payments and 317,726 shares of Common Stock) in purchase
accounting transactions. Assets acquired include
expiration rights of $9,616,000, noncompetition
agreements of $395,000 and goodwill of $7,278,000. The
combined purchase price was increased by approximately
$2,174,000 in 1997 and $1,748,000 in 1996 and may be
increased by approximately $690,000 in 1998 and $358,000
in 1999 based upon commissions or net profits realized.
The above purchase acquisitions have been included
in the Company's consolidated financial statements from
their respective acquisition dates.
The pro forma unaudited results of operations for
the years ended December 31, 1997 and 1996, assuming the
above 1997 and 1996 purchase acquisitions had occurred as
of January 1, 1996, are as follows:
1997 1996
- --------------------------------------------------------------
Revenues $176,072,000 $177,054,000
Net Income 12,970,000 11,458,000
Net Income Per
Common Share:
Basic 0.99 0.84
Diluted 0.98 0.84
Note L-Sale of Assets
During 1997, 1996 and 1995, the Company sold certain
insurance accounts and other assets resulting in gains of
approximately $2,475,000, $1,856,000 and $3,337,000,
respectively. These amounts are included in other
revenues in the statement of consolidated income.
Revenues, expenses and assets of these operations were
not material to the consolidated financial statements.
<PAGE>
Note M-Commitments and Contingencies
Included in cash and cash equivalents and premium
deposits and credits due customers are approximately
$1,496,000 and $1,798,000 of funds held in escrow at
December 31, 1997 and 1996, respectively. In addition,
premiums collected from insureds but not yet remitted to
insurance carriers are restricted as to use by laws in
certain states in which the Company operates. The amount
of cash and cash equivalents so restricted was
approximately $6,149,000 and $9,462,000 at December 31,
1997 and 1996, respectively.
There are in the normal course of business various
outstanding commitments and contingent liabilities.
Management does not anticipate material losses as a
result of such matters.
The Company is generally involved in routine
insurance policy related litigation. Several suits have
been brought against the Company involving settlement of
various insurance matters where customers are seeking
both punitive and compensatory damages. Management, upon
the advice of counsel, is of the opinion that such suits
are substantially without merit, that valid defenses
exist and that such litigation will not have a material
effect on the consolidated financial statements.
Note N-Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results
of operations for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
Three Months Ended1
(in thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Total Revenues $47,913 $44,323 $41,850 $39,623
Net Income 5,407 3,537 2,566 1,280
Net Income Per Common Share:2
Basic 0.41 0.27 0.20 0.10
Diluted 0.40 0.27 0.19 0.10
1996
Total Revenues $43,076 $37,936 $38,315 $38,916
Net Income 5,162 2,674 2,241 1,329
Net Income Per Common Share:2
Basic 0.38 0.20 0.17 0.10
Diluted 0.38 0.20 0.17 0.10
</TABLE>
1. Quarterly financial information is affected by
seasonal variations. The timing of contingent
commissions, policy renewals and acquisitions may cause
revenues, expenses and net income to vary significantly
from quarter to quarter.
2. The 1996 and first three quarters of 1997 net income
per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Hilb, Rogal and Hamilton Company
We have audited the accompanying consolidated
balance sheet of Hilb, Rogal and Hamilton Company and
subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Hilb, Rogal and
Hamilton Company and subsidiaries at December 31, 1997
and 1996, and the consolidated results of their
operations and their cash flows for each of the three
years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
February 11, 1998
<PAGE>
Board of Directors & Officers
Board of Directors
Robert H. Hilb (1) (2) (3) (4)
Chairman
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Andrew L. Rogal (1)
President and Chief Executive Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Theodore L. Chandler, Jr. (1)(2)(3)
Attorney
Williams, Mullen, Christian & Dobbins
Richmond, Virginia
J.S.M. French (2)(3)(4)
President
Dunn Investment Company
Birmingham, Alabama
Thomas H. O'Brien (2)(3)(4)
Chairman and Chief Executive Officer
PNC Bank Corp.
Pittsburgh, Pennsylvania
Robert S. Ukrop (1)(4)
President and Chief Operating Officer
Ukrop's Super Markets, Inc.
Richmond, Virginia
Philip J. Faccenda (2)
Vice President and General Counsel, Emeritus
University of Notre Dame
Notre Dame, Indiana
Norwood H. Davis, Jr. (3)
Chairman of the Board and Chief Executive Officer
Trigon Healthcare, Inc.
Richmond, Virginia
(1) Executive Committee Member
(2) Compensation Committee Member
(3) Audit Committee Member
(4) Nominating Committee Member
Officers
Robert H. Hilb
Chairman
Andrew L. Rogal
President and Chief Executive Officer
Timothy J. Korman
Executive Vice President - Finance and Administration
John C. Adams, Jr.
Executive Vice President
Dianne F. Fox
Senior Vice President and Secretary
Carolyn Jones
Senior Vice President, Chief Financial Officer and Treasurer
Walter L. Smith
Vice President, General Counsel and Assistant Secretary
Vincent P. Howley
Vice President - Agency Financial Operations
Henry C. Kramer
Vice President - Human Resources
Robert J. Hilb
Vice President
Robert W. Blanton, Jr.
Assistant Vice President and Controller
Valerie C. Elwood
Assistant Vice President
<PAGE>
Agency Locations
UNITED STATES
Alabama/Georgia Region
Alabama
Birmingham
Fort Payne*
Mobile*
Georgia
Atlanta
Gainesville
St. Simons Island
Savannah
Florida Region
Daytona Beach
Fort Lauderdale
Fort Myers
Gainesville
Orlando
Tampa
Illinois
Moline
Chicago*
Mid-Atlantic Region
Connecticut
New Haven (2 locations)
Middletown*
Old Saybrook*
Maryland
Baltimore
Rockville
Pennsylvania
Pittsburgh
New York, New York*
Virginia
Richmond
Norfolk*
New York
Buffalo
Rochester*
Syracuse*
Northern California Region
Fresno
Bakersfield*
Dinuba*
Redwood City
Newport Beach*
Charlotte,
North Carolina*
San Rafael
Sacramento*
Santa Rosa*
Truckee*
Vallejo*
Oklahoma/Texas Region
Oklahoma
Oklahoma City
Tulsa*
Texas
Amarillo
Hereford*
Corpus Christi
Dallas
Abilene*
Houston
McAllen
Victoria
Cuero*
Edna*
Southwest Region
Arizona
Phoenix
Flagstaff*
Mesa*
Tucson*
California
Ontario
Palm Desert
Colorado
Denver
Michigan
Grand Rapids
Port Huron
Richmond*
CANADA
Edmonton, Alberta
Montreal, Quebec
Toronto, Ontario
Winnipeg, Manitoba
Vancouver, British Columbia
*Denotes Branch Offices
<PAGE>
GENERAL INFORMATION
Form 10-K
Any shareholder wishing to obtain a copy of the Company's Form
10-K for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission may do so without charge by
writing to the Secretary at the corporate address.
Annual Meeting
The Company's Annual Meeting of Shareholders will be held on
May 5, 1998 at 10:00 A.M. at Crestar Bank, 919 East Main Street,
Richmond, Virginia.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 756-3353
www.chasemellon.com
Shareholder Inquiries
Communications regarding dividends, lost stock certificates, change
of address, etc. should be directed to ChaseMellon Shareholder
Services. Other inquiries should be directed to the Secretary
at the corporate address.
Outside Counsel
Williams, Mullen, Christian & Dobbins
Richmond, Virginia
Independent Auditors
Ernst & Young LLP
Richmond, Virginia
Corporate Headquarters
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
(804) 747-6500
(804) 747-6046 fax
www.hrh.com
Shareholders
The Company's Common Stock has been publicly traded since July 15, 1987.
It is traded on the New York Stock Exchange under the symbol "HRH."
As of December 31, 1997, there were 626 holders of record of the
Company's Common Stock.
Market Price of Common Stock
High and low stock prices and dividends per share for the indicated
quarters were:
Cash
Sales Price Dividends
Quarter Ended High Low Declared
- ---------------------------------------------------------
1996
March 31 $14.00 $12.63 $.15
June 30 14.00 12.63 .15
September 30 13.75 11.38 .15
December 31 14.00 12.13 .155
1997
March 31 $13.88 $12.50 $.155
June 30 17.25 13.50 .155
September 30 18.69 15.75 .155
December 31 19.63 17.56 .155
<PAGE>
(Back cover)
(Picture of Hilb, Rogal and Hamilton's Corporate Logo)
Hilb, Rogal and Hamilton Company
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
804.747.6500
804.747.6046 fax
Exhibit 22
Subsidiaries of Hilb, Rogal and Hamilton Company
Name of Subsidiary State/Province of Incorporation
- -----------------------------------------------------------------------
The Burton Company Connecticut
Clover Insurance Agency, Inc. California
S. H. Gow & Company, Inc. (three locations) Delaware
Hilb, Rogal and Hamilton Company of Canada, Limited Manitoba,Canada
(five locations)
Hilb, Rogal and Hamilton Company of Alabama, Inc. Alabama
(three locations)
Hilb, Rogal and Hamilton Company of Arizona Arizona
(four locations)
Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia
Hilb, Rogal and Hamilton Company of Baltimore Maryland
Hilb, Rogal and Hamilton Insurance Services of
Central California, Inc. (three locations) California
HRH Insurance Services of the Coachella Valley, Inc. California
Hilb, Rogal and Hamilton Company of Daytona Beach, Inc.Florida
Hilb, Rogal and Hamilton Company of Denver Colorado
Hilb, Rogal and Hamilton Company of the District
of Columbia Delaware
Hilb, Rogal and Hamilton Company of Fort Lauderdale Florida
Hilb, Rogal and Hamilton Company of Fort Myers Florida
Hilb, Rogal and Hamilton Company of Gainesville,
Florida, Inc. Florida
Hilb, Rogal and Hamilton Company of
Gainesville, Georgia Georgia
Hilb, Rogal and Hamilton Company of Grand Rapids Michigan
HRH of Northern California Insurance Services, Inc.
(five locations) California
Hilb, Rogal and Hamilton Company of Oklahoma
(two locations) Oklahoma
Hilb, Rogal and Hamilton Company of Orlando Florida
Hilb, Rogal and Hamilton Company of Pittsburgh, Inc.
(two locations) Pennsylvania
Hilb, Rogal and Hamilton Company of Port Huron
(two locations) Michigan
Hilb, Rogal and Hamilton Company of the Quad Cities
(two locations) Illinois
Hilb, Rogal and Hamilton Realty Company Delaware
Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia
Hilb, Rogal and Hamilton Company of St. Simons Island Georgia
Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia
Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida
Hilb, Rogal and Hamilton Company of Texas
(ten locations) Texas
Hilb, Rogal and Hamilton Company of Virginia
(two locations) Virginia
Insurance Management Incorporated (three locations) Connecticut
Professional Practice Insurance Brokers, Inc.
(three locations) California
Each of the above subsidiaries is 100% owned by the registrant.
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Form S-4 No. 33-44271, Form S-8 No. 33-59866 and Form
S-8 No. 333-44735) of Hilb, Rogal and Hamilton Company and in the
related prospectuses of our report dated February 11, 1998, with
respect to the consolidated financial statements and schedule of
Hilb, Rogal and Hamilton Company included in this Annual Report
(Form 10-K) for the year ended December 31, 1997.
Ernst & Young LLP
/s/ Ernst & Young LLP
Richmond, Virginia
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HILB, ROGAL AND HAMILTON COMPANY AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1997, INCORPORATED BY REFERENCE INTO THE 1997 FORM 10-K, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,314,860
<SECURITIES> 3,892,533
<RECEIVABLES> 49,312,002
<ALLOWANCES> 2,299,000
<INVENTORY> 0
<CURRENT-ASSETS> 76,832,918
<PP&E> 33,602,598
<DEPRECIATION> 21,840,518
<TOTAL-ASSETS> 181,606,558
<CURRENT-LIABILITIES> 88,273,306
<BONDS> 32,457,882
<COMMON> 16,540,461
0
0
<OTHER-SE> 34,798,138
<TOTAL-LIABILITY-AND-EQUITY> 181,606,558
<SALES> 0
<TOTAL-REVENUES> 173,708,880
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 149,826,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,037,338
<INCOME-PRETAX> 21,844,846
<INCOME-TAX> 9,054,995
<INCOME-CONTINUING> 12,798,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,798,851
<EPS-PRIMARY> .98
<EPS-DILUTED> .97
</TABLE>
