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, 1999
COMMISSION FILE NO. 0-15981
HILB, ROGAL AND HAMILTON COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1194795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4235 Innslake Drive 23060
Glen Allen, Virginia (Zip Code)
(Address of principal executive offices)
(804) 747-6500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
-------------- ------------------------------------
Common Stock, no par value New York Stock Exchange
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 (ss. 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 [ X ].
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
$354,269,029 as of March 1, 2000
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 1, 2000
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Common Stock, no par value 13,153,009
Documents Incorporated by Reference
Portions of the registrant's 1999 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 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
<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 approximately 70 offices in 18 states. 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 89% of the Company's total revenues in 1999. 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 8% of revenues in 1999.
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 175
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.
On May 3, 1999, the Company acquired American Phoenix Corporation, the
property and casualty brokerage subsidiary of Phoenix Home Life Mutual Insurance
Company, its largest acquisition to date. American Phoenix Corporation, based in
Hartford, Connecticut, was the 14th largest property and casualty insurance
brokerage firm in the United States. With 16 offices located primarily in the
Mid-Atlantic states, New England and Florida, American Phoenix Corporation
generated approximately $73 million in revenues in 1998.
The Company's current acquisition program is largely 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.
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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 (Pennsylvania, Maryland, Virginia and
the District of Columbia); Northeast (Connecticut, Massachusetts, New York and
New Jersey); Alabama/Georgia; Florida; Oklahoma/Texas and West (Arizona,
California, Colorado, Illinois, Michigan and North Carolina). Regional
management of a sizable mass of coordinated and 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 92% of its commission and
fee revenue in 1999 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
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business. In 1999, the largest single client accounted for approximately 1.1% 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. From 1984 to March 1, 2000, a total of 175 agencies have been
acquired. One hundred twenty-five of those agencies were acquired using the
purchase method of accounting at a total purchase price of approximately $248.0
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 and, in the case of the American
Phoenix acquisition, the issuance of Convertible Subordinated Debentures. 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.
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 be subject to restrictive
covenants, either in a Company prepared form or as an amendment of the existing
contracts. 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.
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 approximately 70
insurance agencies located in 18 states. 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 who 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, 1999, the Company had approximately 2,100 employees.
No employees are currently represented by a union. The Company believes its
relations with its employees are good.
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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.
Information on the Company's lease commitments is incorporated herein by
reference to "Note G--Leases" of the Notes to Consolidated Financial Statements
in the Company's 1999 Annual Report to Shareholders.
At December 31, 1999, the Company owned buildings in Oklahoma City,
Oklahoma and Victoria, Texas from which the Agencies in those cities operate. 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Andrew L. Rogal, 51, has been Chairman of the Company since January
2000 and Chief Executive Officer since 1997. He was President of the Company
from 1995 to January 2000 and has been a director of the Company since 1989. He
was Chief Operating Officer of the Company from 1995 to 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
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Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and
was President of this subsidiary from 1987 to 1993.
Martin L. Vaughan, III, 52, has been President since January 2000,
Chief Operating Officer since May 1999 and director of the Company since June
1999. Prior thereto, he was President and Chief Operating Officer of American
Phoenix Corporation form 1990 to 1999.
Timothy J. Korman, 47, has been Executive Vice President, Finance and
Administration since 1997 and has been a director of the Company since June
1999. He was Executive Vice President, Chief Financial Officer and Treasurer of
the Company from 1995 to 1997, and was Senior Vice President and Treasurer of
the Company from 1989 to 1995. He is a first cousin of Robert S. Ukrop, a
director of the Company.
Carolyn Jones, 44, has been Senior Vice President, Chief Financial
Officer and Treasurer since 1997 and was Vice President and Controller of the
Company from 1991 to 1997.
Walter L. Smith, 42, has been Vice President and General Counsel of the
Company since 1991 and Secretary of the Company since 1998. He was Assistant
Secretary of the Company from 1989 to 1998.
Vincent P. Howley, 51, has been Vice President, Agency Financial
Operations since 1997. He was Vice President-Audit of the Company from 1993 to
1997, and was Assistant Vice President-Audit of the Company from 1986 to 1993.
John P. McGrath, 42, has been Senior Vice President - Business and
Product Development since June 1999 and was Vice President of the Company from
1998 to June 1999. He has been Vice President of Hilb, Rogal and Hamilton
Company of Pittsburgh, Inc. and President of HRH Financial Institutions Group,
Inc., subsidiaries of the Company since 1998. He was Director of the
Mid-Atlantic region from 1995 to March 2000, President and Chief Executive
Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. from 1993 to
1998, Senior Vice President and Chief Executive Officer of this subsidiary from
1991 to 1992 and Vice President of this subsidiary from 1990 to 1991.
Richard E. Simmons, III, 46, has been Vice President of the Company
since 1998. He has been Director of the Alabama/Georgia region since 1995 and
Chairman of Hilb, Rogal and Hamilton Company of Alabama, Inc., a subsidiary of
the Company, since 1999. He was Chief Executive Officer of this subsidiary from
1996 to 1999. He was President and Chief Executive Officer of this subsidiary
from 1990 to 1996.
William L. Chaufty, 47, has been Vice President of the Company since
1998. He has been Director of the Texas/Oklahoma region since 1997 and President
of Hilb, Rogal and Hamilton Company of Oklahoma, a subsidiary of the Company,
since 1989.
Michael A. Janes, 40, has been Vice President of the Company since
1998. He has been Director of the West region since 1997 and Chairman of Hilb,
Rogal and Hamilton Company of Arizona, a subsidiary of the Company, since June
1998. He was President of this subsidiary from 1993 to 1998.
Robert B. Lockart, 49, has been Vice President of the Company since May
1999. He has been Director of the Northeast region since May 1999. He was
President of American Phoenix Corporation of
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Connecticut from 1996 to 1999. Prior thereto, he held various positions at Marsh
& McLennan, Inc. from 1975 to 1996.
Benjamin A. Tyler, 51, has been Vice President of the Company since May
1999. He has been Director of the Florida region since May 1999. He was
President of American Phoenix Corporation of Maryland from 1997 until May 1999.
From 1994 until 1997, he was Senior Vice President of Marsh & McLennan,
Baltimore/Washington. Prior thereto, he was President and Senior Consultant of
Inteco, Incorporated from 1981 to 1994.
Steven C. Deal, 46, has been Vice President of the Company since 1998.
He has been Director of the Mid-Atlantic region since March 2000, National
Director of Select Commercial Operations since 1997, National Director of
Personal Lines since 1998 and Chairman of Hilb, Rogal and Hamilton Company of
Virginia, a subsidiary of the Company, since October 1997. He was President of
this subsidiary from 1990 to 1997, Executive Vice President from 1989 to 1990
and Vice President from 1987 to 1988.
Richard F. Galardini, 50, has been Vice President of the Company since
1998. He has been National Director of Employee Benefits since 1997. He was
Executive Vice President and Chief Operating Officer of Hilb, Rogal and Hamilton
Company of Pittsburgh, Inc., a subsidiary of the Company, from 1996 to 1997 and
was Vice President of this subsidiary from 1992 to 1996.
Karl E. Manke, 53, has been Vice President of the Company since May
1999. Prior thereto, he was Vice President, Sales and Marketing for American
Phoenix Corporation from 1993 to 1999.
Henry C. Kramer, 55, joined the Company as Vice President, Human
Resources in 1997. Prior thereto, he held various human resource positions with
Alexander & Alexander, Inc. in Baltimore, Maryland from 1973 to 1997.
Robert J. Hilb, 36, has been Vice President of the Company since 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, a director of the Company.
Robert W. Blanton, Jr., 35, has been Vice President and Controller of
the Company since May 1998. He was Assistant Vice President and Controller from
1997 to 1998 and was Assistant Vice President of the Company from 1993 to 1997.
He joined the Company in 1990 as Accounting Senior.
Valerie C. Elwood, 38, 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.
William C. Widhelm, 31, has been Assistant Vice President, Internal
Audit since 1999. He joined the Company in 1994 and has held various positions
in the auditing department.
All officers serve at the discretion of the Board of Directors. Each
holds office until the next annual election of officers by the Board of
Directors, which will occur after the Annual Meeting of Shareholders, scheduled
to be held on May 2, 2000, 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.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
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, 1999, there were 565 holders of record of the Company's Common
Stock.
The following table sets forth the reported high and low sales prices
per share of the Common Stock on the NYSE Composite Tape, based on published
financial sources, and the dividends per share declared on Common Stock for the
quarter indicated.
Cash
Dividends
Quarter Ended Sales Price Declared
- --------------------------------------------------------------------------------
High Low
1998
March 31 $19.19 $16.25 $.155
June 30 18.44 15.50 .160
September 30 19.13 16.13 .160
December 31 19.88 15.94 .160
1999
March 31 19.13 15.56 .160
June 30 22.38 17.19 .165
September 30 25.06 20.88 .165
December 31 29.13 24.25 .165
The Company's current dividend policy anticipates the payment of
quarterly dividends in the future. The declaration and payment of dividends to
holders of Common Stock will be at the discretion of the Board of Directors and
will be dependent upon the future earnings and financial condition of the
Company.
The Company's current credit facility with five banks limits the
payment of cash dividends and other distributions on the Common Stock of the
Company. The Company may not make dividend payments or other distributions
exceeding $10,500,000 for years ending December 31, 1999 and 2000; $11,000,000
for the year ending December 31, 2001; and $11,500,000 for the years ending
December 31, 2002 through the due date of the loan agreement (June 30, 2004.)
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 1999 Annual Report to Shareholders.
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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 materials under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1999 Annual Report to Shareholders.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk associated with
transactions using derivative financial instruments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as to certain information regarding executive officers included
in Part I, the information as to the directors is incorporated by reference in
the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information as to executive compensation is incorporated by reference
to the material included on pages 11 through 14 in the Company's definitive
Proxy Statement for the 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the directors of the registrant is incorporated
herein by reference to the material under the headings "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" in the
definitive Proxy Statement for the 2000 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement for the 2000 Annual Meeting of the Shareholders is
incorporated herein by reference for the information required by this item.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2). The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) Exhibits - Index
Exhibit No. Document
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3.1 Articles of Incorporation (incorporated
by reference to Exhibit 4.1 to the
Company's Registration Statement on
Form S-3, File No. 33-56488, effective
March 1, 1993, hereinafter, the Form
S-3)
3.2 Amended and Restated Bylaws
(incorporated by reference to Exhibit
3.2 to the Company's Form 10-K for the
year ended December 31, 1999, File No.
0-15981)
10.1 Credit Agreement dated as of May 3,
1999, among the registrant, as
Borrower, the lenders named therein,
First Union National Bank, as
administrative agent, PNC Bank, as
documentation agent and NationsBanc
Montgomery Securities LLC, as
syndication agent (incorporated by
reference to Exhibit 99.1 to the
Company's Form 8-K dated May 3, 1999,
File No. 0-15981)
10.2 Indenture dated as of May 3, 1999 made
by and among the registrant and Crestar
Bank as Trustee (incorporated by
reference to Exhibit 10.2 to the
Company's Form 10-Q dated May 14, 1999,
File No. 0-15981)
10.3 Risk Management Agreement dated as of
May 3, 1999 by and between Phoenix Home
Life Mutual Insurance Company and the
registrant (incorporated by reference
to Exhibit 10.3 to the Company's Form
10-Q dated May 14, 1999, File No.
0-15981)
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Exhibit No. Document
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10.4 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit
28.27 of the Form S-3)
10.5 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)
10.6 First Amendment to Consulting Agreement
with Robert H. Hilb*
10.7 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)
10.8 Employment Agreement for Martin L.
Vaughan, III (incorporated by reference
to Exhibit 10.4 to the Company's Form
10-Q dated May 14, 1999, File No.
0-15981)
10.9 Hilb, Rogal and Hamilton Company 1989
Stock Plan, as amended and restated
(incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the
year ended December 31, 1998)
10.10 Supplemental Executive Retirement Plan,
as amended and restated (incorporated
by reference to Exhibit 10.8 to the
Company's Form 10-K for the year ended
December 31, 1998)
10.11 Hilb, Rogal and Hamilton Company
Outside Directors Deferral Plan, as
amended and restated (incorporated by
reference to Exhibit 10.9 to the
Company's Form 10-K for the year ended
December 31, 1998)
10.12 Hilb, Rogal and Hamilton Company
Non-employee Directors Stock Incentive
Plan, as amended and restated
(incorporated by reference to Exhibit
10.10 to the Company's Form 10-K for
the year ended December 31, 1998)
10.13 Hilb, Rogal and Hamilton Company
Executive Voluntary Deferral Plan
(incorporated by reference to Exhibit
4.3 to the Company's Form S-8
Registration Statement, File No.
333-93633)
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Exhibit No. Document
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10.14 Voting and Standstill Agreement dated
as of May 3, 1999 made by and among the
registrant, PM Holdings, Inc. and
Phoenix Home Life Mutual Insurance
Company (incorporated by reference to
Exhibit 10.5 to the Company's Form 10-Q
dated May 14, 1999, File No. 0-15981)
10.15 Registration Rights Agreement dated as
of May 3, 1999 made between the
registrant, PM Holdings, Inc. and
Phoenix Home Life Mutual Insurance
Company (incorporated by reference to
Exhibit 10.6 to the Company's Form 10-Q
dated May 14, 1999, File No. 0-15981)
10.16 Sale and Quitclaim Agreement between
Hilb, Rogal and Hamilton Company of
Pittsburgh, Inc. and Harold J. Bigler,
Chandler G. Ketchum and Richard F.
Galardini (incorporated by reference to
Exhibit 10.11 to the Company's Form
10-K for the year ended December 31,
1998, File No. 0-15981)
10.17 Form of Change of Control Employment
Agreement for the following executive
officers: Andrew L. Rogal, Timothy J.
Korman, Martin L. Vaughan, III, Carolyn
Jones, Walter L. Smith, Vincent P.
Howley, Henry C. Kramer, Robert J. Hilb
and Robert W. Blanton, Jr.
(incorporated by reference to Exhibit
10.12 to the Company's Form 10-K for
the year ended December 31, 1998, File
No. 0-15981)
10.18 Form of Change of Control Employment
Agreement for the following executive
officers: John P. McGrath, Richard E.
Simmons, III, William C. Chaufty,
Steven C. Deal, Michael A. Janes,
Robert B. Lockhart, Benjamin A. Tyler,
Karl E. Manke and Richard F. Galardini
(incorporated by reference to Exhibit
10.13 to the Company's Form 10-K for
the year ended December 31, 1998, File
No. 0-15981)
10.19 Employment Agreement of John P.
McGrath*
10.20 Employment Agreement of Richard F.
Galardini (incorporated by reference to
Exhibit 10.15 to the Company's Form
10-K for the year ended December 31,
1998, File No. 0-15981)
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Exhibit No. Document
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10.21 Employment Agreement of Michael A.
Janes (incorporated by reference to
Exhibit 10.16 to the Company's Form
10-K for the year ended December 31,
1998, File No. 0-15981)
10.22 Employment Agreement of Timothy J.
Korman as amended by Amendment Number
One, Amendment Number Two and Amendment
Number Three, dated September 1, 1991,
September 1, 1993 and January 1, 1995,
respectively*
10.23 Form of Hilb, Rogal and Hamilton
Employee Non-qualified Stock Option
Agreement with schedule of optionees
and amounts of options granted*
10.24 Form of Hilb, Rogal and Hamilton 2000
Restricted Stock Agreement with
schedule of grantees and amounts of
restricted stock granted*
13 1999 Annual Report to Shareholders*
21 Subsidiaries of Hilb, Rogal and
Hamilton Company*
23 Consent of Ernst & Young LLP*
27 Financial Data Schedule* (electronic
copy only)
* Filed Herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
1999.
(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 response to this portion of Item 14 is submitted as a separate
section of this report.
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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, Chairman
of the Board and Chief
Executive Officer
Date: March 28, 2000
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.
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Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andrew L. Rogal Chairman of the Board and Chief March 28, 2000
- -------------------------------------------- Executive Officer and Director
Andrew L. Rogal (Principal Executive Officer)
/s/ Carolyn Jones Senior Vice President, Chief Financial March 28, 2000
- -------------------------------------------- Officer and Treasurer
Carolyn Jones (Principal Financial Officer)
/s/ Robert W. Blanton, Jr. Vice President and Controller March 28, 2000
- -------------------------------------------- (Principal Accounting Officer)
Robert W. Blanton, Jr.
/s/ Robert H. Hilb Chairman Emeritus and Director March 28, 2000
- --------------------------------------------
Robert H. Hilb
/s/ Martin L. Vaughan, III President, Chief Operating Officer and March 28, 2000
- --------------------------------------------- Director
Martin L. Vaughan, III
/s/ Timothy J. Korman Executive Vice President, March 28, 2000
- --------------------------------------------- Administration and Finance
Timothy J. Korman and Director
/s/ Philip J. Faccenda Director March 28, 2000
- ---------------------------------------------
Philip J. Faccenda
14
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Robert S. Ukrop Director March 28, 2000
- ---------------------------------------------
Robert S. Ukrop
/s/ Thomas H. O'Brien Director March 28, 2000
- --------------------------------------------
Thomas H. O'Brien
Director March , 2000
- --------------------------------------------
J.S.M. French
/s/ Norwood H. Davis, Jr. Director March 28, 2000
- --------------------------------------------
Norwood H. Davis, Jr.
/s/ Theodore L. Chandler, Jr. Director March 28, 2000
- --------------------------------------------
Theodore L. Chandler, Jr.
/s/ Anthony F. Markel Director March 28, 2000
- --------------------------------------------
Anthony F. Markel
Director March , 2000
- --------------------------------------------
Robert W. Fiondella
/s/ David W. Searfoss Director March 28, 2000
- --------------------------------------------
David W. Searfoss
</TABLE>
15
<PAGE>
ITEM 8, ITEMS 14 (a)(1) AND (2) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1999
HILB, ROGAL AND HAMILTON COMPANY
GLEN ALLEN, VIRGINIA
16
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The report of independent auditors included on page 18 of this Form
10-K and the following consolidated financial statements of Hilb, Rogal and
Hamilton Company and subsidiaries, included in the Company's 1999 Annual Report
to Shareholders are incorporated by reference in Item 8 of this report:
Consolidated Balance Sheets, December 31, 1999 and 1998
Statement of Consolidated Income,
Years Ended December 31, 1999, 1998 and 1997
Statement of Consolidated Shareholders' Equity,
Years Ended December 31, 1999, 1998 and 1997
Statement of Consolidated Cash Flows,
Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Hilb, Rogal and
Hamilton Company and subsidiaries is included in item 14(d):
Page Number
Schedule II Valuation and Qualifying Accounts............... 19
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.
17
<PAGE>
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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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.
/s/ Ernst & Young LLP
Richmond, Virginia
February 9, 2000
18
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY
AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 1999:
Allowance for
doubtful
Accounts $1,505,000 $402,000 $377,000 $828,000 $1,456,000
Year ended
December 31, 1998:
Allowance for
doubtful
Accounts 2,299,000 560,000 44,000 1,398,000 1,505,000
Year ended
December 31, 1997:
Allowance for
doubtful
Accounts 2,445,000 384,000 66,000 596,000 2,299,000
</TABLE>
__________________
* Recoveries ($131,000) and other adjustments ($246,000)
** Bad debts written off
19
Exhibit 10.6
FIRST AMENDMENT TO CONSULTING AGREEMENT
WHEREAS, Robert H. Hilb ("Consultant") entered into a Consulting
Agreement (attached) with Hilb, Rogal and Hamilton Company ("Company") on June
1, 1997;
WHEREAS, the Consulting Agreement provided for a three year term
expiring May 31, 2000;
WHEREAS, the Company and Consultant desire to extend the term of the
Consulting Agreement for three (3) years and to provide for an acceleration of
fees due Consultant upon a specified change in Company's management;
IT IS HEREBY, AGREED:
A. Section 3. Term is hereby amended by deleting May 31, 2000, and
substituting therefor May 31, 2003.
B. A new Section is hereby added as follows:
13. Removal of Andrew L. Rogal. If Andrew L. Rogal should cease to
be CEO of Company prior to May 31, 2003, for any reason other
than his death or disability or voluntary resignation, then
Consultant may, within sixty (60) days of such change, elect
to be paid in a lump sum all consulting fees due to be paid
him through May 31, 2003, with no further obligation to
perform any such consulting services.
C. Except as set forth above, the Consulting Agreement remains in full
force and effect.
HILB, ROGAL AND HAMILTON COMPANY
/s/ Robert H. Hilb By: /s/ Andrew L. Rogal
- -------------------------------- ----------------------------------------
Robert H. Hilb Andrew L. Rogal, Chief Executive Officer
November 9, 1999 November 9, 1999
Exhibit 10.19
HILB, ROGAL AND HAMILTON COMPANY
Employment Agreement With
JOHN P. MCGRATH
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of July,
1999, by and between JOHN P. MCGRATH, an individual residing in Pittsburgh,
Pennsylvania (the "Executive"), and HILB, ROGAL AND HAMILTON COMPANY, a Virginia
corporation with corporate offices located at 4235 Innslake Drive, Glen Allen,
Virginia (the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") desires
that the Company employ the Executive as the Senior Vice President - Business
and Product Development of the Company, and the Executive desires to accept such
position with the Company, all on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
I. Term Of Employment.
------------------
(A) The term of the employment of the Executive under this
Agreement shall commence on the signing of this Agreement, and shall continue
thereafter for a two (2) year period.
(B) Upon the commencement of this Agreement as set forth above,
and notwithstanding the two (2) year term provided in provision (A) of this
Section I, the term of employment of the Executive under this Agreement shall be
subject to earlier termination by:
(1) the determination of disability of the Executive
pursuant to Section IV; or
(2) the dismissal of the Executive from his position as
Senior Vice President - Business and Product Development pursuant to
resolution by the Board, or failure or refusal of the Board to re-elect
the Executive to the position of Senior Vice President - Business and
Product Development or some greater office; or
(3) the death of the Executive;
provided, however, that
(i) in the event of termination for
determination of disability pursuant to Paragraph (1) above,
Section IV shall apply;
(ii) in the event of termination pursuant to
Paragraph (2) above for "Proper Cause" (as defined in Section
V(A)), Section V(B) shall apply;
(iii) in the event of termination pursuant to
Paragraph (2) above without "Proper Cause" (as defined in
Section V(A)), Section VI shall apply; and
<PAGE>
(iv) in the event of termination due to the death
of the Executive pursuant to Paragraph (3) above, Section VII
shall apply.
II. Services To Be Rendered.
-----------------------
The Company agrees to continue to employ the Executive as the Senior
Vice President - Business and Product Development of the Company, subject to the
terms, conditions and provisions of this Agreement, and the Executive hereby
accepts such employment. The Executive agrees that his employment as Senior Vice
President - Business and Product Development of the Company pursuant to this
Agreement is a full time position. Notwithstanding the foregoing, the Executive
may devote a reasonable amount of his time to serving as an officer and director
of other companies affiliated with the Company; to his personal investments and
business affairs, including service as a director of unaffiliated companies; and
to civic, political and charitable activities; provided however, the Executive
shall not accept any position as a director of any unaffiliated for-profit
business organization, other than positions presently held by him, without prior
approval of the Board (which approval will not be unreasonably withheld).
III. Compensation.
------------
In consideration for the services rendered to the Company under this
Agreement, the Company shall pay and provide to the Executive the following
compensation and benefits:
(A) Salary.
------
The Company shall pay the Executive an annual base salary of $306,000,
payable in twenty-four (24) equal semi-monthly installments. This annual base
salary shall be reviewed annually by the Compensation Committee of the Board
(the "Compensation Committee") to consider appropriate increases, but in no
event shall the amount of the base salary be reduced.
(B) Annual Incentive Bonus.
----------------------
In addition to the base salary to be paid to the Executive under
Section III(A), the Executive may also be entitled to an annual incentive bonus
as established and modified, from time to time, by the Compensation Committee.
The bonus may include a mutually agreed performance bonus for leadership of the
Financial Institutions Group.
(C) Ancillary Benefits.
------------------
The Executive shall also be entitled to vacations, participation in the
Company's Profit Sharing Savings Plan (401K) and Supplemental Executive
Retirement Plan, sick leave benefits, post-retirement benefit plan, and all
other ancillary benefits provided by the Company, including, but not limited to,
group life, health and disability insurance coverages, consistent with the
compensation policies and practices of the Company from time to time prevailing
with respect to persons who are executive officers of the Company.
-2-
<PAGE>
(D) The Executive shall receive such stock option awards each year
as determined by the Compensation Committee in its sole discretion.
IV. Disability.
----------
(A) The term of employment of the Executive may be terminated at
the election of the Company upon a determination by the Board, made based upon a
qualified medical opinion, that the Executive will be unable, by reason of
physical or mental incapacity, to perform the reasonably expected or customary
duties of Senior Vice President - Business and Product Development of the
Company on a full-time basis for a period longer than three (3) consecutive
months or more than six (6) months in any consecutive twelve (12)-month period.
In the exercise of its determination, the Board shall give due consideration to
the opinion of the Executive's personal physician or physicians and to the
opinion of any physician or physicians selected by the Board for these purposes.
If the Executive's personal physician disagrees with the physician retained by
the Company, the Board will retain an impartial physician selected by the
Executive's personal physician and the Company's physician and the opinion of
the impartial physician shall be binding upon the Company and the Executive. The
Executive shall submit to examination by any physician or physicians so selected
by the Board, and shall otherwise cooperate with the Board in making the
determination contemplated hereunder, such cooperation to include, without
limitation, consenting to the release of information by any such physician(s) to
the Board.
(B) In the event of such termination for disability, the Company
shall thereupon be relieved of its obligations to pay any compensation and
benefits under Section III, except for accrued and unpaid items, but shall, in
addition, pay to the Executive such disability compensation as set forth in any
disability plan established by the Company for its executive officers.
V. Termination For Proper Cause.
----------------------------
(A) The occurrence of any of the following events shall constitute
"Proper Cause" for termination of the employment of the Executive under this
Agreement, at the election of the Board:
(1) the Executive shall voluntarily resign as a director,
officer or employee of the Company or any of its affiliates without the
written consent of the Board;
(2) the Executive shall breach this Agreement in any
material respect and fail to cure such breach within sixty (60)
calendar days after receiving written notice of such breach from the
Company; or
(3) the commission of a fraud, or other criminal act, by
the Executive directly involving the Company or any of its affiliates
which would constitute a felony if prosecuted under criminal law;
-3-
<PAGE>
provided, however, the inability of the Executive to achieve
favorable results of operations shall clearly not be deemed Proper
Cause for termination hereunder.
(B) In the event of termination of the Executive's employment
pursuant to Section I(B)(2) for Proper Cause, the Company shall thereupon be
relieved of its obligations to pay any compensation and benefits under Section
III, except for accrued and unpaid items.
VI. Termination Without Proper Cause.
--------------------------------
(A) In the event of termination of the Executive pursuant to
Section I(B)(2) without Proper Cause (as defined in Section V(A) above), the
Company shall thereafter be and remain obligated to pay to the Executive (or his
estate or designated beneficiary), on a prorated basis if such termination is
mid-month or mid-year, the compensation and benefits provided under Section
III(A) and III(B) and such benefits under III(C) as are payable to a terminated
employee until expiration of the two (2) year term of employment established by
Section I(A). In the event of a dispute as to whether the Executive was
terminated for or without "Proper Cause," or regarding the amount of
compensation the Executive is entitled to receive under this Section VI, the
Company shall be obligated to continue to pay to the Executive (or his estate or
designated beneficiary) all of the compensation and benefits reserved under
Section III until the dispute is resolved by an arbitrator pursuant to Section
XVIII hereof.
(B) For purposes of calculating the annual incentive bonus payable
under Section III(B), for the remainder of the term of this Agreement, the
Company shall make to the Executive (or his estate or designated beneficiary) an
annual (prorated on a calendar year basis for any partial year) payment equal to
the greater of the (i) highest annual incentive bonus payment received by
Executive pursuant to Section III(B) during the term of this Agreement, or (ii)
fifty percent (50%) of his annual base salary.
VII. Death.
-----
In the event of termination of the Executive's employment pursuant to
Section I(B)(3) above, the Company shall pay the Executive's estate or
designated beneficiary such death benefits as may be set forth in any life
insurance plan established by the Company for its executive officers, and shall
have no further obligation hereunder thereafter.
VIII. Confidentiality.
---------------
For purposes of this Agreement, "Confidential Information" shall mean
any information of a proprietary or confidential nature and trade secrets of the
Company and its affiliates relating to the business of the Company and its
affiliates that have not previously been publicly released by duly authorized
representatives of the Company. The Executive agrees to regard and preserve as
confidential all Confidential Information pertaining to the Company's business
that has been or may be obtained by the Executive in the course of his
employment with the Company, whether he has such information in his memory or in
writing or other physical form. The Executive shall not, without written
authority from the Company to do so, use for his personal benefit or his
personal purposes, unrelated to business of the Company, nor disclose to others,
-4-
<PAGE>
either during the term of his employment hereunder or for two (2) years
thereafter, except as required by the conditions of his employment hereunder,
any Confidential Information of the Company. This provision shall not apply
after the Confidential Information has been voluntarily disclosed to the public
by a duly authorized representative of the Company, independently developed and
disclosed by others, or otherwise enters the public domain through lawful means.
IX. Removal Of Documents Or Objects.
-------------------------------
The Executive agrees not to remove from the premises of the Company,
except as an employee of the Company in pursuit of the business of the Company
or any of its affiliates, or except as specifically permitted in writing by the
Company, any document or object containing or reflecting any Confidential
Information of the Company. The Executive recognizes that all documents or
material containing Confidential Information developed by him or by someone else
in the course of employment by the Company, are the exclusive property of the
Company.
X. Nonpiracy Covenants.
-------------------
(A) For the purpose of this Agreement, the following terms shall
have the following meanings:
(1) "Customers" shall be limited to those customers of
the Company or its affiliates for whom there is an insurance policy or
bond in force or to or for whom the Company or its affiliates are
rendering services as of the date of termination of the Executive's
employment;
(2) "Affiliates of the Company" shall mean each of the
direct and indirect subsidiary corporations of Hilb, Rogal and Hamilton
Company as of the date of termination of the Executive's employment;
(3) "Prohibited Services" shall mean services in the
fields of insurance performed by the Company or its affiliates, their
agents or employees, and services in any other business engaged in by
the Company or its affiliates on the date of termination of the
Executive's employment. "Fields of Insurance" does not include title
insurance, but does include all lines of insurance sold by the Company
or its affiliates, including, without limitation, property and
casualty, life, group, accident, health, disability, and annuities, and
premium financing related thereto;
(4) "Prospective Customers" shall be limited to those
persons and entities known by the Executive to have been solicited for
business with respect to any Prohibited Service within the twelve (12)
month period preceding the date of termination of the Executive's
employment, and with or from whom, within the twelve (12) month period
preceding the date of termination of the Executive's employment,
someone acting on behalf of the Company or its affiliates either had
met for the purpose of offering any Prohibited Service or had received
a written response to an earlier solicitation to provide a Prohibited
Service; and
-5-
<PAGE>
(5) "Restricted Period" shall mean the period of two (2)
years immediately following the date of termination of the Executive's
employment.
(B) The Executive recognizes that over a period of many years the
Company has developed, at considerable expense, relationships with, and
knowledge about, Customers and Prospective Customers which constitute a major
part of the value of the Company. During the course of his employment by the
Company, the Executive will have substantial contact with, and/or obtain
substantial knowledge about, these Customers and Prospective Customers. In order
to protect the value of the Company's business, the Executive covenants and
agrees that, in the event of the termination of his employment, but only if said
termination is voluntary or for Proper Cause, he shall not, directly or
indirectly, for his own account or for the account of any other person or
entity, as an owner, stockholder, director, employee, partner, agent, broker,
consultant or other participant during the Restricted Period:
(1) solicit a Customer for the purpose of providing
Prohibited Services to such Customer;
(2) accept an invitation from a Customer for the purpose
of providing Prohibited Services to such Customer;
(3) solicit a Prospective Customer for the purpose of
providing Prohibited Services to such Prospective Customer; and
(4) accept an invitation from a Prospective Customer for
the purpose of providing Prohibited Services to such Prospective
Customer.
Subsections (1), (2), (3), and (4) are separate and divisible
covenants; if for any reason any one covenant is held to be illegal, invalid or
unenforceable, in whole or in part, the remaining covenants shall remain valid
and enforceable and shall not be affected thereby. Further, the periods and
scope of the restrictions set forth in any such subsection shall be reduced by
the minimum amount necessary to reform such subsection to the maximum level of
enforcement permitted to the Company by the law governing this Agreement.
Additionally, the Executive agrees that no separate geographic limitation is
needed for the foregoing nonpiracy covenants as such are not a prohibition on
the Executive's employment in the insurance agency business and are already
limited to only those entities which are included within the definition of
"Customer" and "Prospective Customer."
XI. Nonraiding of Employees.
-----------------------
The Executive covenants that during his employment hereunder and the
Restricted Period specified in Section X hereof, but only if said termination is
voluntary or for Proper Cause, he will not solicit, induce or encourage for the
purposes of employing or offering employment to any individuals who, as of the
date of termination of the Executive's employment, are employees of the Company
or its affiliates, nor will he directly or indirectly solicit, induce or
encourage any of the Company's or its affiliates' employees to seek employment
with any other business, whether or not the Executive is then affiliated with
such business.
-6-
<PAGE>
XII. Remedies Upon Employee Breach of Agreement.
------------------------------------------
(A) If the Executive materially breaches any provision of this
Agreement and fails to cure any such material breach within thirty (30) days
after written notice of said material breach is received from the Company, the
Company reserves the right to avail itself of any reasonable remedy available to
it at law or in equity. Further, if the Executive fails to cure any such
material breach after thirty (30) days from receipt of written notice of the
material breach, the Company may, at its sole option, employ reasonable
disciplinary procedures against the Executive for any material breach, up to and
including discharge. The Executive acknowledges and agrees that the Company
shall be entitled to injunctive relief against the Executive for any material
violation by the Executive of Sections VIII, IX, X, or XI of this Agreement. The
Executive agrees that the foregoing remedies shall be cumulative and not
exclusive, shall not be waived by any partial exercise or nonexercise thereof
and shall be in addition to any other remedies available to the Company at law
or in equity.
(B) Notwithstanding the foregoing, if the Executive materially
breaches Section X of this Agreement, the Company may, at its sole option, seek
liquidated damages with respect to each Customer or Prospective Customer
procured by or through the Executive, directly or indirectly, in violation of
Section X of this Agreement (with such Customers being hereafter referred to as
"Lost Customers" and with such Prospective Customers being hereafter referred to
as "Lost Prospects"). The Executive acknowledges that it would be difficult to
calculate damages incurred by the Company in the event of such a material breach
and that the following liquidated damages clause, when so elected by the
Company, is necessary and reasonable for the protection of the Executive. The
Company agrees that, if it elects to exercise the liquidated damages provision
with respect to a Lost Customer or Lost Prospect, it shall not seek an
injunction with respect thereto if the Executive pays such liquidated damages.
The Executive also acknowledges that the Company may or may not choose to
exercise this liquidated damages provision and that the Company may, at its sole
option, seek injunctive relief with respect to some Lost Customers and Lost
Prospects and liquidated damages with respect to other Lost Customers and Lost
Prospects. Finally, the Executive acknowledges that he has no right whatsoever
to force the Company to exercise this liquidated damages provision, and that
such choice remains entirely the Company's. Liquidated damages shall be
calculated as follows:
(1) A Lost Customer shall be valued at 150% of the gross
revenue to the Company in the most recent twelve (12) month period
preceding the date of loss of such account. If such Lost Customer had
not been a Customer of the Company for an entire twelve (12) month
period, such liquidated damages shall be 150% of the gross revenue
which would have been, in the absence of a material breach by the
Executive, realized by the Company in the initial twelve (12) month
period of such Customer being served by the Company. A Lost Prospect
shall be valued at 150% of the gross revenue realized in the initial
twelve (12) month period of such Lost Prospect being served by any one
or more persons or entities receiving such revenue as a direct result
of the Executive's material breach.
-7-
<PAGE>
(2) The Executive acknowledges that the foregoing damage
amounts are fair and reasonable, that an industry rule of thumb for the
valuation of any agency is 150% of revenue and that, on the margin,
selected accounts may be worth much more than 150% of their annual
revenue to an agency.
(C) The Executive shall pay such liquidated damages to the Company
within ninety (90) calendar days after a final order is entered by an arbitrator
and received by the Executive ordering the Executive to make such payment.
Thereafter, such liquidated damages shall bear interest at the prime rate of
interest in effect at NationsBank, N.A. The Executive acknowledges that a broker
of record letter granted during the Restricted Period, if applicable, by a
Customer or Prospective Customer in favor of the Executive or any person or
entity with whom or which the Executive is directly affiliated shall be prima
facie evidence of a violation of Section X of this Agreement and establishes a
rebuttable presumption in favor of the Company that Section X of this Agreement
has been violated by the Executive. Further, the Executive acknowledges that if
the Restricted Period is applicable to him, he has an affirmative duty to inform
such Customer or Prospective Customer that he cannot accept its business until
after the Restricted Period and that he must minimize all contact with such
Customer or Prospective Customer.
XIII. Tolling of Restrictive Covenants During Violation.
-------------------------------------------------
If a material breach by the Executive of any of the restrictive
covenants of this Agreement occurs, the Executive agrees that the restrictive
period of each such covenant so materially violated shall be extended by a
period of time equal to the period of such material violation by the Executive.
It is the intent of this Section that the running of the restricted period of a
restrictive covenant shall be tolled during any period of material violation of
such covenant so that the Company shall get the full and reasonable protection
for which it contracted and so that the Executive may not profit by his material
breach.
XIV. Notices.
-------
All notices and other communications which are required or may be given
under this Agreement shall be in writing and shall be deemed to have been given
if delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid:
(A) If to the Company, to it at the following address:
4235 Innslake Drive
Glen Allen, Virginia 23060
Attn: Chairman of the Board
(B) If to the Executive, to him at the following address:
10 Wilson Drive
Pittsburgh, Pennsylvania 15202
-8-
<PAGE>
or to such other place as either party shall have specified by notice in writing
to the other. A copy of any notice or other communication given under this
Agreement shall also be sent to the Secretary and the Treasurer of the Company
addressed to such officers at the then principal office of the Company.
XV. Governmental Regulation.
-----------------------
Nothing contained in this Agreement shall be construed so as to require
commission of any act contrary to law and whenever there is any conflict between
any provision of this Agreement and any statute, law, ordinance, order or
regulation, the latter shall prevail, but in such event any such provision of
this Agreement shall be curtailed and limited only to the extent necessary to
bring it within the legal requirements.
XVI. Arbitration.
-----------
Any dispute or controversy as to the interpretation, construction,
application or enforcement of, or otherwise arising under or in connection with
this Agreement, shall be submitted at the request of either party hereto for
mandatory, final and binding arbitration in the City of Richmond, Virginia, in
accordance with the commercial arbitration rules then prevailing of the American
Arbitration Association. The Company and Executive waive the right to submit any
controversy or dispute to a court and/or a jury. The arbitrator shall have the
authority to grant any equitable, including, without limitation, injunctive
relief, and any other legal remedies that would be available in any judicial
proceeding, and any award rendered therein shall be final and binding on each of
the parties hereto and their heirs, executors, administrators, successors and
assigns and judgment may be entered thereon in any court having jurisdiction.
The prevailing party in any such arbitration shall be entitled to an award by
the arbitrator of all reasonable attorneys' fees and expenses incurred in
connection with the arbitration. The arbitration provisions of this Agreement
shall survive any termination or expiration of this Agreement.
XVII. Indemnification by the Company.
------------------------------
The Company shall defend, indemnify and hold harmless the Executive
against any and all claims, causes of actions, damages and expenses (including
all legal fees and expenses) in any threatened, pending or completed action
arising out of or relating in any way to action or conduct by the Executive by
reason of the fact that he was a representative of the Company or was serving at
the request of the Company or acts or conduct within the course of his
employment pursuant to this Agreement or in his capacity as a director of the
Company. If the Company contends that any action or conduct by the Executive was
not within the course of his employment or is otherwise not subject to this
provision, the Company shall pay to the Executive all defense costs and expenses
to defend such an action and shall only be entitled to reimbursement of such
fees and expenses if after a final adjudication, including all available
appeals, there is a holding that the Executive was not entitled to the defense
and indemnification under this provision.
-9-
<PAGE>
XVIII. Governing Law.
-------------
As the headquarters of the Company are located in the Commonwealth of
Virginia and the Executive provides substantial services therein, and related
thereto, this Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia.
IX. Severability.
------------
Should an arbitrator declare any provision of this Agreement to be
invalid, such declaration shall not affect the validity of the remaining portion
of any such provision or the validity of any other term or provision of this
Agreement as a whole or any part thereof, other than the specific portion
declared to be invalid.
XX. Non-Assignable by Executive.
---------------------------
The Agreement and the benefits and obligations herein shall expressly
be non-assignable by the Executive.
XXI. Headings.
--------
The headings to the Sections and Paragraphs of this Agreement are for
convenience of reference only and in case of any conflict, the text of this
Agreement, rather than the headings, shall control.
XXII. Successors and Assigns.
----------------------
This Agreement is binding upon and shall inure to the benefit of the
successors and assigns of the Company and the heirs, executors and legal
representatives of the Executive.
XXIII. Entire Agreement.
----------------
This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein and supersedes all prior
agreements, arrangements and understandings relating to the subject matter and
may only be amended by a written agreement signed by the parties hereto or their
duly authorized representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS:
/s/ Elizabeth J. Cougot /s/ John P. McGrath
- ------------------------------- -------------------------------
John P. McGrath
-10-
<PAGE>
ATTEST: HILB, ROGAL and HAMILTON
COMPANY
/s/ Elizabeth J. Cougot By: /s/ Andrew L. Rogal
- ------------------------------- -------------------------------
Andrew L. Rogal
Its: President and Chief Executive Officer
-11-
Exhibit 10.22
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated January 9, 1991, is made between HILB, ROGAL AND
HAMILTON COMPANY, a Virginia corporation ("HRH"), and Timothy J. Korman
("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 & Treasurer 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 $82,000.00, 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 $82,000.00 per annum during
the Initial Term.
<PAGE>
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
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
-2-
<PAGE>
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.
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 of his duties or obligations hereunder.
-3-
<PAGE>
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 shall be interchangeable.
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.
-4-
<PAGE>
WITNESS the following signatures.
HRH:
HILB, ROGAL AND HAMILTON COMPANY
By: /s/ Robert H. Hilb
----------------------------------------
Its: President
-----------------------------------
EMPLOYEE:
/s/ Timothy J. Korman
--------------------------------------------
Timothy J. Korman
--------------------------------------------
-5-
<PAGE>
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 Timothy J. Korman 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 $82,000 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 One is September
1, 1991.
<PAGE>
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/ Timothy J. Korman
----------------------------(SEAL)
Timothy J. Korman
WITNESS BY:
/s/ Ann B. Davis
- -----------------------------------
-2-
<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 Timothy J. Korman 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 $88,000 and substituting
in lieu thereof the amount of $102,000.
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.
<PAGE>
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/ Timothy J. Korman
----------------------------(SEAL)
Timothy J. Korman
WITNESS BY:
/s/ Ann B. Davis
- -----------------------------------
-2-
<PAGE>
AMENDMENT NUMBER THREE
THIS AMENDMENT NUMBER THREE, dated January 1, 1995, by and between
Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called
"HRH"), and Timothy J. Korman 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 $102,000 and substituting
in lieu thereof the amount of $120,000.
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 Three is January
1, 1995.
<PAGE>
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/ Timothy J. Korman
----------------------------(SEAL)
Timothy J. Korman
WITNESS BY:
/s/ Ann B. Davis
- -----------------------------------
-2-
Exhibit 10.23
HILB, ROGAL AND HAMILTON COMPANY
EMPLOYEE
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the 1st day of March, 2000, between Hilb,
Rogal and Hamilton Company, a Virginia corporation (the "Company"), and ___
(Optionee"), is made pursuant and subject to the provisions of the Company's
1989 Stock Plan, as amended (the "Plan"), a copy of which is attached. All terms
used herein that are defined in the Plan shall have the same meaning given them
in the Plan.
1. Grant of Option. Pursuant to the Plan, the Company, on March
1, 2000, granted to Optionee, subject to the terms and conditions of the Plan
and subject further to the terms and conditions herein set forth, the right and
option to purchase from the Company all or any part of an aggregate of ___
shares of the common stock of the Company ("Common Stock") at the Option price
of $28.4375 per share. Such Option will be exercisable as hereinafter provided.
2. Terms and Conditions. This Option is subject to the following
terms and conditions:
(a) Expiration Date. The "Expiration Date" of this Option is March
1, 2007.
(b) Exercise of Option. Except as provided in paragraphs 3, 4, 5
and 10, this Option shall be exercisable with respect to twenty-five percent
(25%) of the aggregate number of shares covered by this Option for each one (1)
full year, up to a total of four (4) full years, that Optionee continues to be
employed by the Company after the date of this Agreement. Once this Option has
become exercisable with respect to any portion of the total number of shares in
accordance
<PAGE>
with the preceding sentence, it shall continue to be exercisable with respect to
such shares until the termination of Optionee's rights hereunder pursuant to
paragraphs 3, 4 or 5, or until the Expiration Date. A partial exercise of this
Option shall not affect Optionee's right to exercise subsequently this Option
with respect to the remaining shares that are exercisable, subject to the
conditions of the Plan and this Agreement.
(c) Method of Exercising and Payment for Shares. This Option may
be exercised only by written notice delivered to the attention of the Company's
Secretary at the Company's principal office in Richmond, Virginia. The written
notice shall specify the number of shares being acquired pursuant to the
exercise of the Option when such Option is being exercised in part in accordance
with subparagraph 2(b) hereof. The exercise date shall be the date such notice
is received by the Company. Such notice shall be accompanied by payment of the
Option price in full for each share (a) in cash (United States dollars) or by
cash equivalent acceptable to the Company, or (b) by a cashless exercise
pursuant to Section IX(2) of the Plan.
(d) Nontransferability. This Option is nontransferable except, in
the event of the Optionee's death, by will or by the laws of descent and
distribution subject to the terms hereof. During Optionee's lifetime, this
Option may be exercised only by Optionee.
3. Exercise in the Event of Death. This Option shall be
exercisable in full in the event that Optionee dies while employed by the
Company or an Affiliate and prior to the Expiration Date of this Option. In that
event, this Option may be exercised by Optionee's estate, or the person or
persons to whom his rights under this Option shall pass by will or the laws of
descent and distribution. Optionee's estate or such persons must exercise this
Option, if at all, within one year of the date of Optionee's death or during the
remainder of the period preceding
-2-
<PAGE>
the Expiration Date, whichever is shorter, but in no event may the Option be
exercised prior to the expiration of six (6) months from the date of the grant
of the Option.
4. Exercise in the Event of Permanent and Total Disability. This Option
shall be exercisable in full if Optionee becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed by
the Company or an Affiliate and prior to the Expiration Date of this Option. In
that event, Optionee must exercise this Option, if at all, within one year of
the date he becomes disabled or during the remainder of the period preceding the
Expiration Date, whichever is shorter, but in no event may the Option be
exercised prior to the expiration of six (6) months from the date of the grant
of the Option.
5. Exercise After Termination of Employment. In the event that the
Optionee retires from employment with the Company after attaining age 62 and
serving at least 10 consecutive years with the Company or an Affiliate or
predecessor thereof, then this Option shall be exercisable in full but must be
exercised by the Optionee, if at all, within one year following his retirement
date or during the remainder of the period preceding the Expiration Date,
whichever is shorter, but in no event may the Option be exercised prior to the
expiration of six (6) months from the date of the grant of the Option. In all
events other than those events addressed in paragraphs 3 or 4 or the foregoing
sentence of this paragraph 5, in which Optionee ceases to be employed by the
Company: (a) Optionee may exercise the Option in whole or in part with respect
to that number of shares which are exercisable by him under paragraph 2(b) above
on the date his employment terminated, and (b) this Option must be exercised by
Optionee, if at all, within ninety (90) days following the date upon which he
ceases to be employed by the Company or during the remainder of the period
preceding the Expiration Date, whichever is shorter, but in
-3-
<PAGE>
no event may the Option be exercised prior to the expiration of six (6) months
from the date of the grant of the Option.
6. Fractional Shares. Fractional shares shall not be issuable
hereunder, and when any provision hereof may entitle Optionee to a fractional
share such fraction shall be disregarded.
7. No Right to Continued Employment. This Option does not confer
upon Optionee any right with respect to continuance of employment by the Company
or an Affiliate, nor shall it interfere in any way with the right of the Company
or an Affiliate to terminate his employment at any time.
8. Investment Representation. Optionee agrees that, unless such
shares previously have been registered under the Securities Act of 1933, as
amended (the "Securities Act"): (i) any shares purchased by him hereunder will
be purchased for investment and not with a view to distribution or resale and
(ii) until such registration, certificates representing such shares may bear an
appropriate legend to assure compliance with the Securities Act. This investment
representation shall terminate when such shares have been registered under the
Securities Act.
9. Change in Capital Structure. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
this Option, and the price per share thereof, shall be proportionately adjusted
by the Company for any increase or decrease in the number of issued and
outstanding shares of Common Stock of the Company resulting from any stock
dividend (but only on the Common Stock), stock split, combination,
reclassification, recapitalization or 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 such shares outstanding effected
without receipt of cash or property or labor or services by the Company, or any
spin-off or other distribution of assets to shareholders.
-4-
<PAGE>
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 a 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.
The grant of this Option 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.
10. Change of Control. Notwithstanding any other provision of this
Agreement to the contrary, in the event of a Change of Control, the provisions
of Section XIII(3) of the Plan shall apply to this Option.
11. Governing Law. This Agreement 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.
12. Conflicts. In the event of any conflict between the provisions
of the Plan as in effect on the date hereof and the provisions of this
Agreement, the provisions of the Plan shall govern. All references herein to the
Plan shall mean the Plan as in effect on the date hereof.
13. Optionee Bound by Plan. Optionee hereby acknowledges receipt
of a copy of the Plan and agrees to be bound by all the terms and provisions
thereof.
14. Binding Effect. Subject to the limitations stated above and in
the Plan, this Agreement shall be binding upon and inure to the benefit of the
legatees, distributees, and personal representatives of Optionee and the
successors of the Company.
-5-
<PAGE>
15. Gender. All pronouns used herein shall be deemed to refer to
either the male or female as appropriate.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized officer, and Optionee has affixed his signature hereto.
OPTIONEE: HILB, ROGAL AND HAMILTON COMPANY
By:
- ---------------------------- --------------------------------------
Title: Chairman and Chief Executive Officer
-6-
<PAGE>
NONQUALIFIED STOCK OPTIONS
FOR NAMED EXECUTIVE EMPLOYEES
GRANT DATE OPTIONS GRANTED
---------- ---------------
Richard F. Galardini 03/01/2000 4,000
Michael A. Janes 03/01/2000 6,500
Timothy J. Korman 03/01/2000 8,000
John P. McGrath 03/01/2000 8,000
Andrew L. Rogal 03/01/2000 16,000
Exhibit 10.24
HILB, ROGAL AND HAMILTON COMPANY
2000 RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, dated as of this 1st day of March,
2000, between Hilb, Rogal and Hamilton Company, a Virginia corporation ("the
Company"), and ____ (the "Employee"), is made pursuant and subject to the
provisions of the Company's 1989 Stock Plan, as amended, which is incorporated
herein by reference, and any future amendments thereto (the "Plan"), a copy of
which is attached. All terms used herein that are defined in the Plan shall have
the same meanings given them in the Plan.
1. Award of Restricted Stock. The Company hereby awards to the
Employee, subject to the terms and conditions of the Plan and the provisions of
this Agreement, __ shares of Common Stock of the Company (the "Restricted
Stock").
2. Terms and Conditions. The award of Restricted Stock hereunder
is subject to the following terms and conditions:
(a) Restricted Period. Except as provided in paragraph 3,
the Restricted Stock shall vest and become nonforfeitable in accordance with the
schedule set forth below:
Percent of
Date Award Vested
---- ------------
March 1, 2002 25%
March 1, 2003 50%
March 1, 2004 75%
March 1, 2005 100%
The period from the date hereof until the shares of Restricted Stock
have become 100% vested shall be referred to as the "Restricted Period."
(b) Issuance of Certificates; Restrictive Legend. The
stock certificate(s) evidencing the Restricted Stock shall be issued and
registered on the Company's books and
<PAGE>
records in the name of the Employee as soon as practicable following the date of
this Agreement. The Company shall retain physical possession and custody of each
stock certificate representing the Restricted Stock until such time as the
Restricted Stock becomes vested in accordance with paragraph 2(a) above. The
Employee will deliver to the Company a stock power, endorsed in blank, with
respect to each award of Restricted Stock. Each stock certificate shall bear a
restrictive legend in substantially the following form:
The shares represented by this certificate are
restricted and may be transferred only in accordance with the
Restricted Stock Agreement between Hilb, Rogal and Hamilton
Company and [name of Employee], dated March 1, 2000.
Upon the written request of the Employee following the vesting of any portion of
the shares of Restricted Stock prior to any event of forfeiture under paragraph
3, the Company will promptly issue a stock certificate, without such restrictive
legend, with respect to the vested portion of the shares of the Restricted Stock
registered on the Company's books and records in the name of the Employee.
Following the expiration of the Restricted Period, the Company will promptly
issue a stock certificate, without such restrictive legend, for any shares of
Restricted Stock that have vested prior to any event of forfeiture under
paragraph 3 and have not been reissued without a restrictive legend as provided
in the preceding sentence.
(c) Transferability. During the Restricted Period, the
Employee shall not sell, assign, transfer, pledge, exchange, hypothecate, or
otherwise dispose of unvested Restricted Stock. Upon receipt by the Employee of
stock certificate(s) representing vested shares without a restrictive legend
pursuant to paragraph 2(b) above, the Employee may hold or dispose of the shares
represented by such certificate(s), subject to compliance with (i) the terms and
conditions of the Plan and this Agreement and (ii) applicable securities laws of
the United States of America and the Commonwealth of Virginia.
-2-
<PAGE>
(d) Shareholder Rights. Prior to any forfeiture of the
shares of Restricted Stock and while the shares are Restricted Stock, the
Employee shall, subject to the terms of this Agreement and the restrictions of
the Plan, have all rights of a shareholder with respect to the shares of
Restricted Stock awarded hereunder, including the right to receive dividends and
other distributions as and when declared by the Board of Directors of the
Company and the right to vote the shares of Restricted Stock.
(e) Tax Withholding. The Company shall have the right to
retain and withhold from any award of the Restricted Stock, the amount of taxes
required by any government to be withheld or otherwise deducted and paid with
respect to such award. At its discretion, the Company may require the Employee
receiving shares of Restricted Stock to pay or otherwise reimburse the Company
in cash for any such taxes required to be withheld by the Company and withhold
any distribution in whole or in part until the Company is so paid or reimbursed.
In lieu thereof, the Company shall have the unrestricted right to withhold, from
any other cash amounts due (or to become due) from the Company to the Employee,
an amount equal to such taxes required to be withheld by the Company to
reimburse the Company for any such taxes (or retain and withhold a number of
shares of vested Restricted Stock, having a market value not less than the
amount of such taxes, and cancel in whole or in part any such shares so
withheld, in order to reimburse the Company for any such taxes).
3. Death; Disability; Retirement; Termination of Employment. The
shares of Restricted Stock not yet vested shall become 100% vested and
transferable in the event that the Employee dies or becomes permanently and
total disabled (within the meaning of Section 22(e)(3) of the Internal Revenue
Code) while employed by the Company or an Affiliate during the Restricted
Period. Upon attaining age 62 with 10 consecutive years of service with the
-3-
<PAGE>
Company or an Affiliate, or in any other circumstance approved by the Committee
in its sole discretion, the shares of Restricted Stock shall become 100% vested
and transferable. In all events other than those previously addressed in this
paragraph, if the Employee ceases to be an employee of the Company or an
Affiliate, the Employee shall be vested only as to that percentage of shares of
Restricted Stock which are vested at the time of the termination of his
employment and the Employee shall forfeit the right to the shares of Restricted
Stock which are not yet vested on the termination date.
4. No Right to Continued Employment. This Agreement does not
confer upon the Employee any right with respect to continuance of employment by
the Company or an Affiliate, nor shall it interfere in any way with the right of
the Company or an Affiliate to terminate his or her employment at any time.
5. Change of Control or Capital Structure. Subject to any
required action by the shareholders of the Company, the number of shares of
Restricted Stock covered by this award shall be proportionately adjusted and the
terms of the restrictions on such shares shall be adjusted as the Committee
shall determine to be equitably required for any increase or decrease in the
number of issued and outstanding shares of Common Stock of the Company resulting
from any stock dividend (but only on the Common Stock), stock split,
subdivision, combination, reclassification, recapitalization or general issuance
to the 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 for any spin-off or other distribution of
assets to shareholders.
In the event of a Change of Control, this award of Restricted Stock
shall immediately vest pursuant to the provisions of Section XIII(3) of the
Plan. In the event of a change in the Common
-4-
<PAGE>
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.
The award of Restricted Stock 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, sell or
transfer all or any part of its business or assets.
6. Governing Law. This Agreement 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.
7. Conflicts. In the event of any conflict between the provisions
of the Plan as in effect on the date hereof and the provisions of this
Agreement, the provisions of the Plan shall govern. All references herein to the
Plan shall mean the Plan as in effect on the date hereof.
8. Employee Bound by Plan. The Employee hereby acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof.
9. Binding Effect. Subject to the limitations stated herein and
in the Plan, this Agreement shall be binding upon and inure to the benefit of
the legatees, distributees, and personal representatives of the Employee and the
successors of the Company.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized Employee, and the Employee has affixed his or her signature
hereto.
HILB, ROGAL AND HAMILTON COMPANY
By:_____________________________________
Title:__________________________________
[NAME OF EMPLOYEE]
________________________________________
Signature
-6-
<PAGE>
FOR VALUE RECEIVED I hereby sell, assign and transfer unto HILB, ROGAL AND
HAMILTON COMPANY, _________ (___) shares of the Common Stock of Hilb, Rogal and
Hamilton Company standing in my name on the books of said Corporation
represented by Certificate No. ____ herewith and do hereby irrevocably
constitute and appoint WALTER L. SMITH, or his designee or successor, attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated __________, 200_
__________________________________
[Signature - exact name as it
appears on certificate(s)]
__________________________________
[Print Name]
-7-
<PAGE>
RESTRICTED STOCK AWARDS
TO NAMED EXECUTIVE EMPLOYEES
GRANT DATE SHARES GRANTED
Richard F. Galardini 03/01/2000 2,000
Michael A. Janes 03/01/2000 4,300
Timothy J. Korman 03/01/2000 8,600
John P. McGrath 03/01/2000 8,600
Andrew L. Rogal 03/01/2000 13,000
[HRH LOGO]
Performance
A POLICY PROVEN
HILB, ROGAL AND
HAMILTON COMPANY
1999 ANNUAL REPORT
<PAGE>
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 approximately 70 offices
in the United States, 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 disciplined merger and acquisition strategy.
Financial Highlights 1
Letter to Shareholders 2
Performance Statement 5
Mergers and Acquisitions 8
Best Practices 12
New Products/Business Development 16
Agency Locations 20
Financial Section 21
<PAGE>
1
NET INCOME
PER SHARE
In Dollars
[BAR GRAPH - NET INCOME PER SHARE]
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
0.82 0.84 0.97 1.18 1.44
OPERATING CASH FLOW
PER SHARE
In Dollars
[BAR GRAPH - OPERATING CASH FLOW PER SHARE]
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
1.49 1.65 1.85 2.08 2.53
TOTAL REVENUE
In Millions of Dollars
[BAR GRAPH - TOTAL REVENUE]
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
143.5 153.0 168.4 175.4 227.2
NET INCOME
In Millions of Dollars
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
[BAR GRAPH - NET INCOME]
11.8 11.4 12.8 14.9 19.5
SELECTED FINANCIAL DATA
Hilb, Rogal and Hamilton Company and Subsidiaries
(in thousands, except per share amount) 1999 1998
- --------------------------------------------------------------------------------
Total Revenues $227,226 $175,364
Net Income $ 19,486 $ 14,945
Net Income Per Common Share:
Basic $ 1.51 $ 1.20
Diluted $ 1.44 $ 1.18
Dividends Per Common Share $ .655 $ .635
Total Assets $317,981 $188,066
Total Shareholders' Equity $ 71,176 $ 45,710
- --------------------------------------------------------------------------------
<PAGE>
2
TO OUR SHAREHOLDERS
[PHOTO OF ANDREW ROGAL]
ANDREW ROGAL
Chairman and Chief Executive Officer
FOR HRH, 1999 WAS AN OUTSTANDING YEAR, EVIDENCED BY SIGNIFICANT VALUE CREATION.
For clients, value was created through improved service, more specialty lines
and deeper risk management expertise; for insurers, through our broader
distribution channels. For shareholders, value took the form of a well-executed
strategic acquisition and record financial results. The acquisition and
integration of American Phoenix Corporation (American Phoenix) is proving to be
a classic combination in which the whole is greater than the sum of its parts.
HRH now has the size and scope to command the full attention of the leading
insurers and to provide the products and expertise required by the most
demanding middle-market clients. Opportunities to create value in the future,
and the determination to make it happen, have never been greater.
<PAGE>
3
The highlight of our year was the acquisition in May of American Phoenix,
formerly Phoenix Home Life Mutual Insurance Company's (Phoenix Home Life)
property and casualty brokerage subsidiary. From a strategic standpoint, this
was a model acquisition with benefits extending well beyond the addition of new
offices and a new geographic region (the Northeast), and increased earnings per
share. HRH inherited an entrepreneurial management team, complementary
productivity and administrative tools and systems, additional insurance
specialties and a new strategic shareholder, Phoenix Home Life, with which we
are teaming to distribute selected insurance products.
The addition of American Phoenix, as well as internally generated growth, drove
revenues up 29.6 percent for the year to $227.2 million from $175.4 million.
Commissions and fees, excluding the effect of acquisitions and divestitures,
increased 4.4 percent, an achievement best viewed in light of continued
industry-wide softness in premiums, on which commissions are based. Net income
for the year rose 30.4 percent to $19.5 million or $1.44 per share from $14.9
million or $1.18 per share. Excluding non-recurring items in both periods, net
income per share was $1.29, up 22.9 percent from $1.05 a year ago. Operating
cash flow (net income plus depreciation and amortization) for the year was $34.7
million or $2.53 per share, more than 75 percent above net income.
In 1998, we set up separate operating models for "value-based" businesses
(customized middle-market products and risk management services) and
"cost-based" businesses (standardized products, differentiated primarily by
cost). In the cost-based businesses, which included personal and select
commercial lines, we centralized key functions, which enhanced efficiency and
profitability. In 1999, we focused on the value-based operating model. Soon
after American Phoenix was acquired, we identified a common set of middle-market
Best Practices, drawn from both firms, aimed at achieving a more systematic and
value-added sales process, a more responsive service and support staff, and
improved accountability for performance throughout the organization. Through our
regional and line-of-business organizations, we began to introduce the Best
Practices for Middle-Market program and the tools to measure its effectiveness.
The rollout is expected to be completed in 2000.
Middle-market insurance and risk management services are and will remain
businesses based on personal relationships. However, information technology,
which enables the risks to be analyzed and monitored, applications processed,
coverages selected, claims processed and loss experience monitored, underlies
most of the operations. With the rise of the Internet, innovative networking and
e-commerce, we believe technology will continue to make the process more
effective and efficient. During 1999, HRH expanded its in-house information
technology staff, which is responsible for bringing new technologies to our
attention and overseeing their adoption.
NEW DISTRIBUTION CHANNELS
The Internet has created opportunities for nearly all businesses; the more
information intense, the greater the potential. The insurance brokerage industry
is a natural for Internet applications targeting consumers, employee benefits
and business-to-business information exchange and transactions, and we are
actively exploring various possibilities. In November, we announced our first
web-based distribution channel, developed through a collaboration
<PAGE>
4
with Workplus.com. This employee communication service enables companies to
distribute information pertaining to benefits, training and other material to
their employees and to provide them with information and links for selected
vendors of financial services, including insurance. Workplus.com is a
cost-effective way of bringing human resource communication through the power of
the Internet. Employees appreciate the convenient access to pre-selected vendors
for financial services. HRH has begun marketing Workplus.com web sites to its
commercial clients and prospects and offers insurance products directly to
employees of those clients through their sites.
In 1999, HRH continued to explore possibilities for distributing insurance
products through banks. Our initial focus was personal lines, offering
competitive and convenient homeowners and auto insurance to bank mortgage
customers. While we have made considerable progress, technology development has
taken longer than expected. Following the enactment of the Financial Services
Modernization Act in November, which ended the long-standing separation of the
insurance, banking and securities industries in the United States, we began to
evaluate the idea of offering middle-market insurance and risk management
services in partnership with a bank. As with any new distribution channel, we
are carefully considering the advantages to the insurance buyer, the partner and
HRH, as well as the quality and efficiency of the process. We view the costs
associated with evaluating and potentially launching such a program as
investments in future growth.
2000 OUTLOOK
Over the past few years, HRH has been able to more than offset the effect of
lower industry-wide premiums through a combination of new clients, new products
and services, and, in 1998 and 1999, enhanced commission arrangements from our
largest carriers. As industry market and loss conditions begin to show signs of
change, volume-related and loss-sensitive commissions, at least for a while,
will be less predictable. In 2000, we will continue to benefit from the addition
of American Phoenix and from the rollout of our Best Practices program to all
offices. In addition, we plan to continue broadening our product lines with more
specialty, employee benefit and affinity group insurance programs, as well as
develop and introduce new distribution channels. Finally, in view of the
continuing consolidation opportunities among middle-market insurance brokerage
agencies, acquisitions that strengthen our presence in existing markets, or open
new markets or specialties, are an integral part of our growth plans. These
varied initiatives, together with momentum in our existing business, enhance our
confidence that our trendline growth objectives are achievable.
In closing, I want to thank all of the employees of HRH for their continued
strong performance. Their dedication, energy and professionalism have been the
driving force behind our success. The addition of the American Phoenix employees
to the HRH family has strengthened our Company in both geographic reach and
capabilities and I look forward to working with them in the years ahead.
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,
/s/ Andrew L. Rogal
Andrew L. Rogal
Chairman and Chief Executive Officer
<PAGE>
5
[LOGO]
1999 WAS A RECORD-BREAKING YEAR FOR OUR COMPANY.
It was a year in which the marketplace first recognized the true value of the
strategic plan HRH implemented four years ago.
OUR SUCCESS WAS EASY TO RECOGNIZE: We realized a record increase in shareholder
value; successfully integrated a major acquisition; and launched new products,
distribution systems and business initiatives. We look forward to continued
strong performance in the years ahead.
<PAGE>
6
[PHOTO OF ANDREW ROGAL]
"Our operating results are evidence that our policy of performance is proving
itself."
"The implementation of our strategic plan has resulted in effective operating
models and the creation of tremendous value for our Company and its
shareholders." ANDREW ROGAL Chairman and Chief Executive Officer
NET INCOME Per Share
In Dollars
[NET INCOME PER SHARE LINE GRAPH]
----------------------------------------
1995 1996 1997 1998 1999
----------------------------------------
0.82 0.84 0.97 1.18 1.44
----------------------------------------
<PAGE>
7
At HRH, value creation has become the touchstone of our business -- by design.
We've created an enormous amount of value this year by the continued
implementation of our strategic plan: At HRH, we've increased operating earnings
per share a minimum of 15 percent per year since 1997, and we intend to maintain
this trendline growth objective. Our profit margins and revenues continue to
improve despite competitive industry conditions. In addition, our stock price
increased over 42 percent during 1999.
In 2000, in order to continue to create value for our clients and shareholders,
our primary focus will be on the continued refinement of our operating models,
mergers and acquisitions (M&A), the execution of Best Practices for the Middle
Market and new products and business development.
MERGERS AND ACQUISITIONS
We grow to create value. The 1999 acquisition and subsequent integration of
American Phoenix Corporation went extremely well and the combined company is
operating as expected. As we head into 2000, our M&A philosophy is to acquire
businesses that either enable us to expand our geographic base or to provide
expanded specialties and services that meet the needs of current and prospective
clients across our organization.
BEST PRACTICES FOR OUR CLIENTS
We operate to create value. The future belongs to the team with the best people.
At HRH we're investing in our people and proven operational practices to create
and maintain sales and service teams of unparalleled professionalism, who
deliver unparalleled results for our clients.
NEW PRODUCTS/BUSINESS DEVELOPMENT
We innovate to create value. From e-commerce to partnerships with banks, we're
developing new product offerings and distribution systems to meet the needs of
existing clients and to expand our client base. For example, Workplus.com -- one
of our e-commerce initiatives -- allows us to provide our commercial customers
with a unique employee communication tool and to offer personal insurance
products directly to employees of those clients.
<PAGE>
8
TIMOTHY KORMAN Executive Vice President, Finance and Administration
[PHOTO OF TIMOTHY KORMAN]
"It's our disciplined approach to mergers and acquisitions and its proven
success that will ultimately make a difference to our clients and shareholders.
We're not just out there buying agencies."
Policy
<PAGE>
9
Performance
Our approach to mergers and acquisitions is focused and limited to those
companies that fit into our current operating models and strategic plan. At HRH,
we're sticking with our core business and attracting companies that strengthen
our regions and middle-market position or add to our specialty lines of business
and increase our range of services.
It's this disciplined approach to mergers and acquisitions and its proven
success that will ultimately make a difference to our clients and shareholders.
In all of our mergers and acquisitions, our goal is for the new whole to be
greater than the sum of its previous parts. We've found that ensuring a
strategic fit, as well as a people fit, usually produces this positive outcome.
HRH has grown through the acquisition of firms like us, who share the legacy of
the independent American agency system, but who are looking to meld old
traditions with the new in order to achieve optimum performance.
<PAGE>
10
MERGERS AND ACQUISITIONS
GROWING
"Today, our highest expectations are being realized: In HRH we have a national
organization whose overall acquisition philosophy lets us continue to be
entrepreneurs and grow. They don't stifle creativity. They don't stifle
independence. They encourage it, and they look for us to make a difference in
the organization."
[PHOTO OF JOHN JACOBS AND STEVEN GREENBERG]
John Jacobs, Senior Vice President, HRH of Connecticut
Steven Greenberg, Senior Vice President, HRH of Connecticut
1999 saw the successful integration of HRH's largest acquisition -- American
Phoenix Corporation (APC). For HRH and APC, this was a textbook merger of what
can only be described as mirror image companies, whose strategic and people fit
couldn't have been closer. APC brought its sales culture, Northeast and Florida
geographic base and affinity business to the union; HRH, its name recognition,
distribution system and extensive carrier relationships.
Together, the mix has worked. The smooth APC/HRH transition attests to the fact
that when you stick to your business and draw on the strengths of both
organizations as you join forces, the risk for integration problems is low.
Jose Perez-Albela, Senior Vice President, HRH International and former Senior
Vice President, American Phoenix Corporation, was pleasantly surprised at the
smoothness of the transition, as well as its many benefits -- from increased
business opportunities to more selling tools.
The APC acquisition and smooth integration demonstrates one side of HRH's M&A
philosophy -- to acquire businesses that enable us to expand our geographic base
among middle-market companies. The acquisition of Insurance Concepts of
Connecticut, Inc. demonstrates the other side -- to acquire and develop more
specializations and services that allow us to create value by leveraging the
expertise across our markets.
For Steven Greenberg and John Jacobs, both former principals of Insurance
Concepts of Connecticut, Inc., selling to HRH has allowed them to fulfill their
dreams for the Insurance Concepts business. "Over 10 years, John and I built
Insurance Concepts into one of the largest independent employee benefits
agencies in Connecticut. We were looking to take the agency to the next level
and to do that we had to either buy other agencies, hire more producers or
sell," explains Greenberg.
However, if they sold, the principals didn't want to lose the entrepreneurial
spark that
<PAGE>
11
allowed them to build Insurance Concepts, or their reputation for
professionalism and integrity. In HRH, they saw a company that was built on the
same foundation they built their own agency upon.
Jacobs and Greenberg continue, "In short, we saw an excellent match from our
perspectives, as well as those of our employees and producers. Today, our
highest expectations are being realized."
Other benefits of becoming part of HRH, say Greenberg and Jacobs, include many
cross-selling opportunities, management infrastructure, as well as the clout
with insurance carriers that comes from being part of a large, respected,
national organization.
"When APC was first acquired, I was looking for negative aspects to the buyout
and, in the end, couldn't find any. The fact is, we have a lot of new
opportunities with HRH and the transition went very smoothly. Post acquisition,
we're doing business as usual with more opportunities, more access to
information, more ways to sell, and more tools. There are no gaps."
[PHOTO OF JOSE PEREZ-ALBELA]
Jose Perez-Albela, Senior Vice President, HRH International, Reinsurance
Division
<PAGE>
12
MARTIN VAUGHAN, III President and Chief Operating Officer
[PHOTO OF MARTIN VAUGHAN, III]
"Through Best Practices, HRH is developing a company-wide sales culture centered
on giving our sales professionals the sales materials, training and management
skills necessary to win new accounts, provide the optimal service to current and
future clients and operate efficiently."
Policy
<PAGE>
13
Performance
HRH's Best Practices initiative is a blueprint for better performance: increased
sales, higher closing ratios, more efficient operations and better service. Our
Best Practices program covers 16 areas that specifically impact how we perform
in the middle market. In addition, Best Practices provide us with a method of
measuring sales success and a common, company-wide language for discussing sales
opportunities.
Best Practices represent the importance of relationships at HRH. We know the
future belongs to the team with the best people -- and the best-served clients.
We value our relationships with our clients and are dedicated to providing them
with true professionals, who can provide superior products and services. That's
why we invested our time in 1999 to establish company-wide task forces to
identify and develop Best Practices for our middlemarket clients. In 2000, we
are investing our resources in providing the sales materials, training,
management skills and producer recognition programs necessary for our producers
to win new accounts, provide optimal service to our clients and operate
efficiently -- in other words, to simply be the best.
<PAGE>
14
BEST PRACTICES
OPERATING
"Today, price is not the main reason a client does business with you. It's the
relationship you've developed with them over the years that is key -- the trust
factor, the service factor, adding value to the relationship. Price is a
consideration but it's not the determining factor. Best Practices allow me to be
true to my relationships with my clients and to provide them with the value they
deserve."
[PHOTO OF DAVE DEARDEUFF]
Dave Deardeuff,
Vice President and Producer,
HRH of Oklahoma City
From HRH agency presidents to producers, HRH's Best Practices initiative is
already making a big difference, bottom line. As an agency president, Kim
McGillicuddy, President and CEO, Hilb, Rogal and Hamilton Company of
Connecticut, believes her role is to drive the sales process. Best Practices,
she says, help her to do that.
For Dave Deardeuff, a top producer at HRH of Oklahoma City, the new tools that
Best Practices provide are critical to ongoing success in a continually changing
business. "I've been in the business for 17 years but our industry is changing
every year and almost daily. To continue to be successful, you have to develop
new skills. You can't live on what you've done in the past. Every day is a new
challenge.
Best Practices provide us with critical new skills and updated information on a
regular basis," says Deardeuff.
Both McGillicuddy and Deardeuff have only good words for the Miller-Heiman
Strategic and Conceptual Sales Program, whose selling wisdom, based on
understanding your prospect and developing long-term relationships, will reach
all HRH producers, managers and account executives by summer 2000.
McGillicuddy says, "Miller-Heiman is imbedded into our sales process. It's a
process that we all follow and it provides us with a common language and a way
to recognize what works best and make it uniform throughout the organization.
Miller-Heiman will be supported by additional training and sales support tools.
We expect all of these initiatives to help increase our closing ratios. In the
time we've been using Miller-Heiman alone, we've seen a significant increase in
closing rates."
<PAGE>
15
Miller-Heiman in general and HRH's Best Practices initiative in particular,
believes Deardeuff, put the focus where it should be, on building long-term
relationships. "Today, price is not the main reason a client does business with
you. It's the relationship you've developed with them over the years that is key
- -- the trust factor, the service factor, adding value to the relationship. Price
is a consideration but it's not the determining factor. Best Practices allow me
to be true to my relationships with my clients and to provide them with the
value they deserve," says Deardeuff.
"As an agency president, my role is to drive the sales process and Best
Practices helps me to accomplish that goal. From a sales management perspective,
Best Practices provide the information I need to effectively measure producers'
sales performance and their overall profitability. This in turn results in
higher margins and better accountability."
[PHOTO OF KIM MCGILLICUDDY]
Kim McGillicuddy, President and CEO, Hilb, Rogal and Hamilton Company of
Connecticut
<PAGE>
16
JOHN McGRATH Senior Vice President, New Products and Business Development
[PHOTO OF JOHN McGRATH]
"The ever-changing business environment demands that we constantly look to the
future and create new ways to better serve our clients and develop new business
products. That's the driving force behind our partnerships with banks and
Workplus.com."
Policy
<PAGE>
17
Performance
Innovation -- at HRH that's another way we're creating value for our customers
and shareholders. In 1999, bank deregulation and e-commerce gave rise to our
most recent innovations -- business partnerships with banks and Workplus.com.
Our exclusive bank partnerships will allow us access to a new stream of
qualified, middle-market, commercial prospects. They represent yet another way
for HRH to serve the middle market with tailor-made products and risk management
services. Our collaboration with Workplus.com allows us to provide our
commercial customers with a unique, web-based employee communication tool, which
includes the ability to offer personal insurance products directly to employees
of those clients.
Because our personal relationships with clients remain paramount, we at HRH
recognize new needs created by the rise of the Internet, innovative networking
and e-commerce. In 1999, we expanded our in-house information technology staff
and we are prepared to manage the unique risk exposures faced by innovative
clients who market through the Internet.
<PAGE>
18
NEW PRODUCTS AND BUSINESS DEVELOPMENT
INNOVATING
"In collaborating with HRH on Workplus.com, we're doing what we do best, which
is to manufacture, create and administer this very high quality product. They're
doing what they do best, which is identify and service their clients' needs.
It's a perfect match."
[PHOTO OF RICHARD SHAW]
Richard Shaw, President, Workplus.com
HRH is offering a new and exclusive product to its commercial lines
middle-market clients -- Workplus.com. This innovative tool is making it easier
for HRH producers to get appointments with new accounts and stimulating fresh
dialogue with old accounts.
Workplus.com provides commercial clients with easy to manage, rapid to deploy,
user-friendly employee communication web sites, which are secure and reasonably
priced. A distinguishing characteristic of these sites is that their content can
be completely controlled by the client's nontechnical staff. No programmers are
required and there is no equipment or software to buy.
Richard Shaw, President of Workplus.com, says the product is ideal for employers
who have a desire and a need to communicate with their employees on the Web
about generic topics. Information typically posted to the site includes employee
manuals, job postings, company calendars, newsletters and employee benefit
information.
In addition, Workplus.com makes it possible for HRH to sell its retail insurance
products to employees of those middle-market clients. "On the sites, there is a
subtle menu of hyperlinks to personal financial products that are important to
employees, such as auto, homeowners and life insurance; mortgages; and credit
cards," says Shaw.
Shaw says collaborating with HRH to bring this new product to the market has
been a perfect match. "As a result of our affiliation with HRH, we have adapted
and evolved the product to more closely fit the needs of their middle-market
clients. We've made evolutionary and adaptive changes to make it fit like a
glove."
For the major accounts of Hall Vetterlein, President of HRH of Philadelphia, the
Internet has created new and unusual risk exposures: theft of intellectual
property, credit card fraud and unauthorized access, to name a few. While
Vetterlein's groundbreaking e-commerce clients' businesses and needs are
relatively unique
<PAGE>
19
right now, he thinks it won't be long before their risk management concerns are
most businesses' concerns.
"It's only a matter of time until e-commerce has an impact on most businesses.
While not all businesses will operate exclusively on line, most will use a web
site as a supplementary means of marketing their products. This will expose them
to new risks," says Vetterlein.
Vetterlein believes it's crucial for middle-market intermediaries to be able to
recognize and develop risk management strategies for the new exposures
e-commerce businesses face and be able to explain them to their clients. "At
HRH, because we make it our business to anticipate our clients' changing needs,
we're ready to offer the latest insurance and risk management solutions," says
Vetterlein.
"There is clearly an evolution going on from the old economy to a new
e-commerce-based economy. It's crucial for middle-market intermediaries to be
able to recognize and develop risk management strategies for the new exposures
e-commerce businesses face and be able to explain them to their clients. At HRH,
because we make it our business to anticipate our clients' changing needs, we're
ready to offer the latest insurance and risk management solutions."
[PHOTO OF HALL VETTERLEIN]
Hall Vetterlein, President,
HRH of Philadelphia
<PAGE>
20 HRH Agency Locations
NORTHEAST REGION
Hamden, Connecticut
Hartford, Connecticut
Old Saybrook, Connecticut
Lowell, Massachusetts
Bordentown, New Jersey
Fairfield, New Jersey
Marlton, New Jersey
Mt. Holly, New Jersey
Northfield, New Jersey
Buffalo, New York
Jamestown, New York
New York, New York
Rochester, New York
Syosett, New York
Syracuse, New York
WEST REGION
Flagstaff, Arizona
Mesa, Arizona
Phoenix, Arizona
Tuscon, Arizona
Bakersfield, California
Concord, California
Dinuba, California
Fresno, California
Newport Beach, California
Novato, California
Ontario, California
Palm Desert, California
Redwood City, California
Sacramento, California
Santa Rosa, California
Truckee, California
Denver, Colorado
Chicago, Illinois
Moline, Illinois
Grand Rapids, Michigan
Port Huron, Michigan
Charlotte, North Carolina
MID-ATLANTIC REGION
District of Columbia
Baltimore, Maryland
Chambersburg, Pennsylvania
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Wexford, Pennsylvania
Norfolk, Virginia
Richmond, Virginia
TEXAS/OKLAHOMA REGION
Oklahoma City, Oklahoma
Amarillo, Texas
Corpus Christi, Texas
Cuero, Texas
Dallas, Texas
Hereford, Texas
Houston, Texas
McAllen, Texas
Victoria, Texas
ALABAMA/GEORGIA REGION
Birmingham, Alabama
Fort Payne, Alabama
Huntsville, Alabama
Mobile, Alabama
Atlanta, Georgia
Gainesville, Georgia
St. Simons Island, Georgia
Savannah, Georgia
FLORIDA REGION
Fort Myers, Florida
Gainesville, Florida
Miami, Florida
Orlando, Florida
Sarasota, Florida
Tallahassee, Florida
Tampa, Florida
<PAGE>
21
Financial
FINANCIAL SECTION
<PAGE>
22
23 Selected Financial Data
24 Management's Discussion and Analysis
27 Consolidated Balance Sheet
28 Statement of Consolidated Income
29 Statement of Consolidated Shareholders' Equity
30 Statement of Consolidated Cash Flows
31 Notes to Consolidated Financial Statements
40 Report of Independent Auditors
41 Board of Directors and Officers
42 General Information
<PAGE>
SELECTED FINANCIAL DATA 23
Hilb, Rogal and Hamilton Company and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998(3) 1997(3) 1996(3) 1995(3)
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Consolidated Income Data:(1)
Commissions and fees $219,293 $170,203 $163,262 $148,692 $136,910
Investment income 2,046 1,579 1,740 1,533 2,077
Other(2) 5,887 3,582 3,411 2,742 4,515
-----------------------------------------------------------------------------
Total revenues 227,226 175,364 168,413 152,967 143,502
Compensation and employee benefits 125,577 98,478 96,240 88,406 82,761
Other operating expenses 49,500 41,286 40,181 36,675 33,619
Amortization of intangibles 10,690 7,919 8,110 7,596 6,966
Interest expense 6,490 2,317 2,037 1,245 559
Integration costs 1,900 -- -- -- --
-----------------------------------------------------------------------------
Total expenses 194,157 150,000 146,568 133,922 123,905
-----------------------------------------------------------------------------
Income before income taxes 33,069 25,364 21,845 19,045 19,597
Income taxes 13,583 10,419 9,055 7,639 7,768
-----------------------------------------------------------------------------
Net income $ 19,486 $ 14,945 $ 12,790 $ 11,406 $ 11,829
=============================================================================
Net income per Common Share:
Basic $ 1.51 $ 1.20 $ 0.98 $ 0.84 $ 0.82
=============================================================================
Diluted $ 1.44 $ 1.18 $ 0.97 $ 0.84 $ 0.82
=============================================================================
Weighted average number of shares outstanding:
Basic 12,876 12,497 13,099 13,500 14,470
Diluted 14,007 12,709 13,215 13,526 14,480
Dividends paid per Common Share $ 0.655 $ 0.635 $ 0.62 $ 0.605 $ 0.57
Consolidated Balance Sheet Data:
Intangible assets, net $184,048 $ 87,471 $ 82,170 $ 80,006 $ 60,854
Total assets 317,981 188,066 181,607 181,475 163,249
Long-term debt, less current portion 111,826 43,658 32,458 27,196 11,750
Other long-term liabilities 10,672 10,192 9,537 9,870 7,514
Total shareholders' equity 71,176 45,710 51,339 55,298 56,646
</TABLE>
1. See Note J 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, 1996 and
1995, the Company consummated fifteen and fourteen purchase acquisitions,
respectively.
2. During 1999, 1998, 1997, 1996 and 1995 the Company sold certain insurance
accounts and other assets resulting in gains of approximately $4,906,000,
$2,638,000, $2,475,000, $1,856,000 and $3,337,000, respectively.
3. In accordance with industry practice, the Company has changed its reporting
to state revenues net of commissions paid to outside brokers; amounts for
the years 1995 through 1998 have been restated.
<PAGE>
24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Hilb, Rogal and Hamilton Company and Subsidiaries
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.
On May 3, 1999, the Company acquired all of the issued and outstanding shares of
common stock of American Phoenix Corporation (American Phoenix), a subsidiary of
Phoenix Home Life Mutual Insurance Company, from Phoenix Home Life Mutual
Insurance Company and Martin L. Vaughan, III. The assets and liabilities of
American Phoenix have been revalued to their respective fair market values. The
financial statements of the Company reflect the combined operations of the
Company and American Phoenix from the closing date of the acquisition.
RESULTS OF OPERATIONS
Total revenues for 1999 were $227.2 million, an increase of $51.9 million or
29.6% over 1998. For 1998, total revenues were $175.4 million, an increase of
$7.0 million or 4.1% from 1997.
Commissions and fees for 1999 were $219.3 million, or 28.8% higher than 1998.
Approximately $52.2 million of commissions and fees were derived from purchase
acquisitions of new insurance agencies. These increases were offset by decreases
of $10.4 million from the sale of certain offices and accounts in 1999 and 1998.
Excluding the effects of acquisitions and dispositions, commissions and fees
increased 4.4%.
Commissions and fees for 1998 were $170.2 million, or 4.3% higher than 1997.
Approximately $6.5 million of commissions and fees were derived from purchase
acquisitions of new insurance agencies. These increases were offset by decreases
of $7.4 million from the sale of certain offices and accounts in 1998 and 1997.
Excluding the effects of acquisitions and dispositions, commissions and fees
increased 5.0%.
Investment and other income increased by $2.8 million in 1999 and remained level
in 1998. These amounts include gains of $4.9 million, $2.6 million and $2.5
million in 1999, 1998 and 1997, respectively, from the sale of certain offices,
insurance accounts and other assets.
Total operating expenses for 1999 were $194.2 million, an increase of $44.2
million or 29.4% from 1998. For 1998, total operating expenses were $150.0
million, an increase of $3.4 million or 2.3% from 1997.
Compensation and employee benefits costs for 1999 were $125.6 million, an
increase of $27.1 million or 27.5% from 1998. Increases include approximately
$28.6 million related to purchase acquisitions and amounts related to revenue
growth offset by decreases of $5.3 million related to offices sold in 1999 and
1998. Compensation and employee benefits costs for 1998 were $98.5 million, an
increase of $2.2 million or 2.3% from 1997. Increases include approximately $3.2
million related to purchase acquisitions, amounts related to revenue growth and
$1.7 million in incentive compensation related to improved operating results
offset by decreases of $4.5 million related to offices sold in 1998 and 1997.
Other operating expenses for 1999 were $49.5 million, or 19.9% higher than 1998.
Increases relate primarily to purchase acquisitions and costs associated with
revenue growth offset in part by the sale of certain offices in 1999 and 1998.
Other operating expenses for 1998 were $41.3 million, or 2.7% higher than 1997.
Increases relate primarily to purchase acquisitions and costs associated with
revenue growth offset in part by the sale of certain offices in 1998 and 1997
and consulting fees totaling $1.0 million in 1997 related to the Company's
strategic plan.
Amortization expense reflects the amortization of expiration rights, an
intangible asset acquired in the purchase of insurance agencies, non-compete
agreements, goodwill and other intangible assets. Amortization expense increased
by $2.8 million or 35.0% in 1999 and decreased by $0.2 million or 2.4% in 1998
which is attributable to purchase acquisitions consummated during 1999, 1998 and
1997 offset by decreases related to the sale of certain offices and amounts
which became fully amortized in those years.
Interest expense increased by $4.2 million or 180.1% in 1999 and remained level
in 1998. The increase is due to additional bank borrowings and the issuance of
Convertible Subordinated Debentures utilized to finance the American Phoenix
acquisition.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 25
RESULTS OF OPERATIONS
Hilb, Rogal and Hamilton Company and Subsidiaries
During the second quarter of 1999, integration costs of $1.9 million were
recorded related to severance, lease termination costs and other costs necessary
to integrate the operations of American Phoenix with the Company.
The effective tax rates for the Company were 41.1% in 1999, 41.1% in 1998 and
41.5% in 1997. An analysis of the effective income tax rates is presented in
"Note F--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 $17.3 million, $19.6 million and $21.0
million for the years ended December 31, 1999, 1998 and 1997, 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. Cash expenditures for the acquisition of property and
equipment were $6.6 million, $5.0 million and $2.1 million for the years ended
December 31, 1999, 1998 and 1997, 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 1999 and 1998, total
proceeds from maturities of investments exceeded purchases of investments by
$1.8 million and $0.4 million, respectively, as the Company utilized these funds
for the repurchase of Common Stock of the Company and the acquisition of
insurance agencies. Cash outlays related to the purchase of insurance agencies
accounted for under the purchase method of accounting amounted to $33.7 million,
$10.4 million and $9.3 million in the years ended December 31, 1999, 1998 and
1997, respectively. Cash outlays for such insurance agency acquisitions have
been funded primarily through operations and from long-term borrowings. In
addition, a portion of the purchase price of such acquisitions may be paid
through Common Stock, deferred cash payments and, in the case of the American
Phoenix acquisition, issuance of Convertible Subordinated Debentures, see "Note
J--Acquisitions" of the Notes to Consolidated Financial Statements. Cash
proceeds from the sales of certain offices, insurance accounts and other assets
totaled $5.6 million, $8.9 million and $6.5 million in the years ended December
31, 1999, 1998 and 1997, respectively. The Company did not have any material
capital expenditure commitments as of December 31, 1999.
Financing activities provided (utilized) cash of $21.1 million, ($16.4) million
and ($16.0) million for the years ended December 31, 1999, 1998 and 1997,
respectively, as the Company borrowed funds to finance the American Phoenix
acquisition, made scheduled debt payments and annually increased its dividend
rate. In addition, during 1999, 1998 and 1997, the Company repurchased 270,700,
1,045,280 and 700,000, respectively, shares of its Common Stock under a stock
repurchase program. The Company is currently authorized to purchase an
additional 506,800 shares and anticipates that it will continue to repurchase
shares in 2000. The Company has a bank credit agreement for $110.0 million under
which loans are due in various amounts through 2004 and $28.5 million of 5.25%
Convertible Subordinated Debentures due 2014. At December 31, 1999, there were
loans of $78.0 million outstanding under the bank agreement.
The Company had a current ratio (current assets to current liabilities) of 0.89
to 1.00 as of December 31, 1999. Shareholders' equity of $71.2 million at
December 31, 1999, increased from $45.7 million at December 31, 1998, and the
debt to equity ratio of 1.57 to 1.00 at December 31, 1999 increased from the
last year-end ratio of 0.96 to 1.00 due to the above mentioned increase in
borrowings under the bank credit agreement, issuance of Convertible Subordinated
Debentures and the issuance of $17.0 million of stock related to the American
Phoenix acquisition offset by the impact of the aforementioned Common Stock
repurchase program.
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.
MARKET RISK
The Company has certain investments and utilizes derivative financial
instruments which are subject to market risk; however, the Company believes that
exposure to market risk associated with these instruments is not material.
IMPACT OF YEAR 2000
In prior years, the Company discussed its plans and progress related to
achieving year 2000 readiness. During 1999, the Company completed all phases of
this plan. The Company experienced no significant disruptions from mission
critical systems or third party vendors. As of December 31, 1999, the Company
had spent approximately $4.6 million in connection with remediating its systems.
The Company is not aware of any material problems resulting from year 2000
issues, either with its internal systems or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any year 2000 matters that may arise are addressed promptly.
<PAGE>
26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Hilb, Rogal and Hamilton Company and Subsidiaries
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 premium rates charged by insurers, which are subject to
fluctuation; the continuation of the "soft market" during which the underwriting
capacity of insurance companies has expanded causing increased competition and
decreased premium rates and related commissions and fees; carrier override and
contingent commissions are less predictable than usual; continued low interest
rates will reduce income earned on invested funds; the insurance intermediary
business is 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; the general level of economic activity can have a
substantial impact on the Company's renewal business. The Company's continued
growth has also 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 27
Hilb, Rogal and Hamilton Company and Subsidiaries
<TABLE>
<CAPTION>
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including $14,619,000
and $10,951,000, respectively, of restricted funds $ 22,336,722 $ 19,394,958
Investments 2,939,238 3,383,742
Receivables:
Premiums, less allowance for doubtful accounts of
$1,456,000 and $1,505,000, respectively 61,853,039 45,313,620
Other 13,418,165 6,257,370
--------------------------------
75,271,204 51,570,990
Prepaid expenses and other current assets 10,653,387 3,852,095
--------------------------------
TOTAL CURRENT ASSETS 111,200,551 78,201,785
INVESTMENTS 1,761,463 3,068,140
--------------------------------
PROPERTY AND EQUIPMENT, NET 15,412,623 12,387,194
INTANGIBLE ASSETS 229,130,542 131,800,607
Less accumulated amortization 45,082,914 44,329,974
--------------------------------
184,047,628 87,470,633
OTHER ASSETS 5,559,054 6,938,074
--------------------------------
$317,981,319 $188,065,826
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities
Premiums payable to insurance companies $ 87,752,334 $ 65,436,784
Accounts payable and accrued expenses 17,496,667 13,025,426
Premium deposits and credits due customers 15,192,499 7,765,575
Current portion of long-term debt 3,865,137 2,277,479
--------------------------------
TOTAL CURRENT LIABILITIES 124,306,637 88,505,264
LONG-TERM DEBT 111,826,434 43,658,306
OTHER LONG-TERM LIABILITIES 10,672,472 10,191,881
SHAREHOLDERS' EQUITY
Common Stock, no par value; authorized 50,000,000 shares;
outstanding 13,058,978 and 12,117,412 shares, respectively 18,248,712 3,831,208
Retained earnings 52,927,064 41,879,167
--------------------------------
71,175,776 45,710,375
--------------------------------
$317,981,319 $188,065,826
================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
28 STATEMENT OF CONSOLIDATED INCOME
Hilb, Rogal and Hamilton Company and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Commissions and fees $219,293,008 $170,202,554 $163,262,846
Investment income 2,045,596 1,578,782 1,739,578
Other 5,887,335 3,582,345 3,410,891
----------------------------------------------------
227,225,939 175,363,681 168,413,315
OPERATING EXPENSES
Compensation and employee benefits 125,576,664 98,478,098 96,239,782
Other operating expenses 49,500,824 41,285,499 40,181,339
Amortization of intangibles 10,690,269 7,919,355 8,110,010
Interest expense 6,489,645 2,317,195 2,037,338
Integration costs 1,900,000 -- --
----------------------------------------------------
194,157,402 150,000,147 146,568,469
INCOME BEFORE INCOME TAXES 33,068,537 25,363,534 21,844,846
Income Taxes 13,582,740 10,418,469 9,054,995
----------------------------------------------------
NET INCOME $ 19,485,797 $ 14,945,065 $ 12,789,851
====================================================
NET INCOME PER COMMON SHARE:
BASIC $ 1.51 $ 1.20 $ 0.98
====================================================
DILUTED $ 1.44 $ 1.18 $ 0.97
====================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY 29
Hilb, Rogal and Hamilton Company and Subsidiaries
<TABLE>
<CAPTION>
Common Stock Retained Earnings
- ---------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 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 ($.62 per share) (8,023,705)
Other (282,958)
Net income 12,789,851
---------------------------------
BALANCE AT DECEMBER 31, 1997 16,540,461 34,798,138
Issuance of 349,669 shares of Common Stock 5,684,404
Purchase of 1,045,280 shares of Common Stock (18,672,302)
Payment of dividends ($.635 per share) (7,864,036)
Other 278,645
Net income 14,945,065
---------------------------------
BALANCE AT DECEMBER 31, 1998 3,831,208 41,879,167
Issuance of 1,212,266 shares of Common Stock 20,634,046
Purchase of 270,000 shares of Common Stock (6,216,542)
Payment of dividends ($.655 per share) (8,437,900)
Net income 19,485,797
---------------------------------
BALANCE AT DECEMBER 31, 1999 $ 18,248,712 $ 52,927,064
=================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
30 STATEMENT OF CONSOLIDATED CASH FLOWS
Hilb, Rogal and Hamilton Company and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,485,797 $ 14,945,065 $ 12,789,851
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets 10,690,269 7,919,355 8,110,010
Depreciation and amortization 4,501,081 3,589,957 3,557,298
------------------------------------------------------
Net income plus amortization and depreciation 34,677,147 26,454,377 24,457,159
Provision for losses on receivables 402,226 560,262 383,670
Provision for deferred income taxes 972,342 (503,796) (397,674)
Gain on sale of assets (4,906,173) (2,637,829) (2,474,894)
Changes in operating assets and liabilities
net of effects from insurance agency acquisitions
and dispositions:
(Increase) decrease in accounts receivable 11,372,878 (5,991,755) 3,784,756
(Increase) decrease in prepaid expenses (4,014,117) (460,178) 197,802
Increase (decrease) in premiums payable to
insurance companies (27,232,583) 2,562,095 (2,115,712)
Increase (decrease) in premium deposits
and credits due customers 7,278,076 13,073 (1,197,195)
Increase (decrease) in accounts payable
and accrued expenses (4,080,753) 405,635 (1,178,335)
Other operating activities 2,802,707 (752,315) (475,547)
------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,271,750 19,649,569 20,984,030
INVESTING ACTIVITIES
Purchase of held-to-maturity investments (2,116,165) (444,281) (3,549,631)
Proceeds from maturities and calls of held-to-
maturity investments 3,867,344 833,593 5,640,804
Proceeds from sale of available-for-sale investments -- -- 260,000
Purchase of property and equipment (6,587,055) (4,978,966) (2,135,837)
Purchase of insurance agencies, net of cash acquired (33,681,000) (10,446,138) (9,309,760)
Proceeds from sale of assets 5,635,066 8,912,516 6,546,661
Other investing activities (2,519,849) 2,403 115,892
------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (35,401,659) (6,120,873) (2,431,871)
FINANCING ACTIVITIES
Proceeds from long-term debt 106,000,000 18,975,000 7,750,668
Principal payments on long-term debt (73,976,681) (11,071,664) (5,329,866)
Repurchase of Common Stock (6,216,542) (18,672,302) (11,338,557)
Dividends (8,437,900) (7,864,036) (8,023,705)
Other financing activities 3,702,796 2,184,404 929,787
------------------------------------------------------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 21,071,673 (16,448,598) (16,011,673)
------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,941,764 (2,919,902) 2,540,486
Cash and cash equivalents at beginning of year 19,394,958 22,314,860 19,774,374
------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,336,722 $ 19,394,958 $ 22,314,860
======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
Hilb, Rogal and Hamilton Company and Subsidiaries
December 31, 1999
Hilb, Rogal and Hamilton Company (the Company), a Virginia corporation, operates
as a network of wholly-owned subsidiary insurance agencies located in 18 states.
Its principal activity is the performance of retail insurance services which
involves placing various types of insurance, including property, casualty,
marine, aviation, and employee benefits, with insurance underwriters on behalf
of its 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 and override commissions 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, 4 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 40 years. The carrying value of the Company's intangible assets is
periodically reviewed to ensure that there are no conditions which exist
indicating that the recorded amount of intangible assets is not recoverable from
future undiscounted cash flows.
<PAGE>
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hilb, Rogal and Hamilton Company and Subsidiaries
Accounting for Stock-Based Compensation: The Company continues to account for
its employee stock options using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25).
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123), established accounting and disclosure
requirements using a fair value based method of accounting for employee stock
options. 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 and interest rate swaps are based on quoted market prices
and are disclosed in Notes B and D, respectively.
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.
Income Taxes: The Company files a consolidated federal income tax return with
its subsidiaries. Deferred taxes result from temporary differences between the
income tax and financial statement bases of assets and liabilities and are based
on tax laws as currently enacted.
Accounting Pronouncements: In June 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which is required
to be adopted in years beginning after June 15, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the new
statement will have a significant effect on earnings or the financial position
of the Company.
Reclassifications: In accordance with industry practice, the Company has changed
its reporting to state revenues net of commissions paid to outside brokers.
Amounts for the prior periods have been classified to conform to current year
presentation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33
Hilb, Rogal and Hamilton Company and Subsidiaries
NOTE B
INVESTMENTS
The following is a summary of held-to-maturity investments included in current
and long-term assets on the consolidated balance sheet:
<TABLE>
<CAPTION>
Held-to-Maturity Investments
---------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and political subdivisions $3,057,000 $10,000 $ -- $ 3,067,000
Certificates of deposit and other 1,644,000 -- -- 1,644,000
---------------------------------------------------
$4,701,000 $10,000 $ -- $ 4,711,000
===================================================
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Investments
---------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and political subdivisions $4,719,000 $64,000 $ -- $ 4,783,000
Certificates of deposit and other 1,733,000 -- -- 1,733,000
---------------------------------------------------
$6,452,000 $64,000 $ -- $ 6,516,000
===================================================
</TABLE>
The amortized cost and fair value of held-to-maturity investments at December
31, 1999, 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.
Held-to-Maturity Investments Cost Fair Value
- ----------------------------------------------------------
Due in one year $ 2,939,000 $2,944,000
Due after one year
through five years 1,762,000 1,767,000
- ----------------------------------------------------------
$ 4,701,000 $4,711,000
==========================================================
NOTE C
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1999 1998
- -------------------------------------------------------------------
Furniture and equipment $31,747,000 $28,830,000
Buildings and land 2,688,000 3,350,000
Leasehold improvements 3,424,000 2,376,000
- -------------------------------------------------------------------
37,859,000 34,556,000
- -------------------------------------------------------------------
Less accumulated depreciation
and amortization 22,446,000 22,169,000
- -------------------------------------------------------------------
$15,413,000 $12,387,000
===================================================================
NOTE D
LONG-TERM DEBT
1999 1998
- -----------------------------------------------------------------------
Notes payable to banks,
interest currently 7.00%
to 7.375% $ 78,000,000 $ 40,000,000
5.25% Convertible Subordinated
Debentures due 2014, with a
conversion price of $22.75,
callable 2009 28,594,000 --
Installment notes payable
incurred in acquisitions
of insurance agencies,
4.24% to 8.0%, due in
various installments, to 2003 8,909,000 5,651,000
Installment notes payable,
6.25% to 6.50%, due in
various installments, to 2003 189,000 284,000
--------------------------------
115,692,000 45,935,000
Less current portion 3,865,000 2,277,000
--------------------------------
$111,827,000 $ 43,658,000
================================
<PAGE>
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hilb, Rogal and Hamilton Company and Subsidiaries
Maturities of long-term debt for the four years ending after December 31, 2000
are $3,002,000 in 2001; $1,170,000 in 2002; $6,647,000 in 2003; $71,750,000 in
2004 and $29,258,000 beyond 2004.
Interest paid was $6,674,000, $2,321,000 and $3,437,000 in 1999, 1998 and 1997,
respectively.
The Company entered into a credit agreement with five banks that allows for
borrowings of up to $110,000,000 consisting of a term loan facility of
$45,000,000 and a revolving credit facility in the aggregate principal amount of
$65,000,000, both of which bear interest at variable rates. The term portion of
the facility is payable quarterly beginning September 30, 2000 with the final
payment due June 30, 2004. The revolving credit facility is due in 2004. At
December 31, 1999, $78,000,000 was borrowed under this agreement. This credit
agreement contains, among other provisions, requirements for maintaining certain
financial ratios and specific limits or restrictions on merger activity,
indebtedness, investments, payment of dividends and repurchase of Common Stock.
The Company entered into two interest rate swap agreements effective June 17,
1999 to manage interest rate exposure on its long-term debt. The swap agreements
are contracts to exchange floating rate for fixed rate interest payments
periodically over the life of the agreement without the exchange of the
underlying combined notional amount of $45,000,000, which amortizes quarterly by
$937,500 beginning September 30, 2000 through their maturity on June 30, 2004.
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 counterparties' inability to pay the
differential between 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 agreements is
recognized as an adjustment to interest expense. Under the Company's interest
rate swap agreements, the Company contracted with the counterparties to exchange
the difference between the Company's fixed pay rates of 6.43% and 6.46% and the
counterparties' variable LIBOR pay rate. At the end of the year, the variable
rate was approximately 6.49%. The contracts expire June 30, 2004. The fair
market value of the interest rate swaps at December 31, 1999 was $567,000.
NOTE E
RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors the HRH Retirement Savings Plan (the Retirement Savings
Plan) which covers substantially all employees of the Company and its
subsidiaries. The Retirement Savings 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 Retirement Savings Plan.
Prior to merger with the Company, certain of the merged companies had separate
profit sharing, ESOP or benefit plans. These plans were terminated or frozen at
the time of merger with the Company.
The total expense recorded under these plans for 1999, 1998 and 1997 was
approximately $2,075,000, $2,378,000 and $3,120,000, respectively.
In addition, in January 1998, the Company amended and restated the Supplemental
Executive Retirement Plan (the Plan) for key executives to convert the Plan from
a defined benefit arrangement to a cash balance plan. Upon amendment of the
Plan, benefits earned prior to 1998 were frozen. The Company continues to accrue
interest and amortize prior service costs related to the benefits earned prior
to January 1, 1998 under the Plan and recognized expense related to these items
of $241,000, $274,000 and $543,000 in 1999, 1998 and 1997, respectively. The
Plan, as amended, provides that beginning in 1998 the Plan participants shall be
credited each year with an amount that is calculated by determining the total
Company match and profit sharing contribution that the participant would have
received under the Retirement Savings Plan absent the compensation limitation
that applies to such plan, reduced by the amount of actual company match and
profit sharing contributions to such Plan. The Plan also provides for the
crediting of interest to participant accounts. Expense recognized by the Company
in 1999 and 1998 related to these Plan provisions amounted to $108,000 and
$75,000, respectively. At December 31, 1999 and 1998, the Company's accrued
liability for benefits under the Plan, including benefits earned prior to
January 1, 1998 was $1,631,000 and $1,500,000, respectively and is included in
other long-term liabilities on the balance sheet.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35
Hilb, Rogal and Hamilton Company and Subsidiaries
The following tables set forth a reconciliation of the changes in benefit
obligation and fair value of assets, a statement of funded status, weighted
average discount rates and components of net periodic benefit costs for the
Postretirement Benefit Plans:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF CHANGES IN BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year $ 895,000 $ 896,000
Interest cost 60,000 64,000
Actuarial gain (259,000) (34,000)
Benefit payments (2,000) (31,000)
------------------------------
Benefit obligation at end of year $ 694,000 $ 895,000
==============================
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at beginning of year $ -- $ --
Employer contributions 2,000 31,000
Benefit payments (2,000) (31,000)
------------------------------
Fair value of plan assets at end of year $ -- $ --
==============================
FUND STATUS:
Funded status as of December 31 $(694,000) $(895,000)
Unrecognized transition cost 771,000 881,000
Unrecognized gain (873,000) (668,000)
------------------------------
Accrued benefit cost $(796,000) $(682,000)
==============================
WEIGHTED AVERAGED DISCOUNT RATE AS OF DECEMBER 31 7.75% 7.00%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Interest cost $ 60,000 $ 64,000 $ 80,000
Amortization of transition obligation 110,000 110,000 115,000
Amortization of prior gains (54,000) (70,000) (79,000)
----------------------------------------
Net periodic benefit cost $ 116,000 $ 104,000 $ 116,000
========================================
</TABLE>
The accrued benefit liability recognized in the statement of financial position
as of December 31, 1999 and 1998 was $796,000 and $682,000, respectively.
For measurement purposes, a 7.00% gross medical trend rate was assumed in 2000.
The rate is assumed to decrease to 6.20% over the period to 2020 and remain
level thereafter. The effect of a 1% change in the assumed health care costs
trend rates is immaterial.
NOTE F
INCOME TAXES
The components of income taxes shown in the statement of consolidated income are
as follows:
1999 1998 1997
- -------------------------------------------------------------------------
Current
Federal $10,409,000 $ 8,542,000 $7,401,000
State 2,201,000 2,039,000 1,438,000
Foreign -- 341,000 614,000
- -------------------------------------------------------------------------
12,610,000 10,922,000 9,453,000
Deferred
Federal 825,000 (362,000) (247,000)
State 148,000 (68,000) (46,000)
Foreign -- (74,000) (105,000)
- -------------------------------------------------------------------------
973,000 (504,000) (398,000)
- -------------------------------------------------------------------------
$13,583,000 $10,418,000 $9,055,000
=========================================================================
<PAGE>
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hilb, Rogal and Hamilton Company and Subsidiaries
The effective income tax rate varied from the statutory federal income tax rate
as follows:
1999 1998 1997
- -----------------------------------------------------------------------
Statutory federal
income tax rate 35.0% 35.0% 35.0%
Tax exempt
investment income (0.4) (0.5) (0.8)
State income taxes,
net of federal tax benefit 4.6 5.0 4.2
Other 1.9 1.6 3.1
- -----------------------------------------------------------------------
Effective income tax rate 41.1% 41.1% 41.5%
=======================================================================
Income taxes paid were $15,346,000, $10,678,000 and $9,646,000 in 1999, 1998 and
1997, respectively.
Income before income taxes from the Company's Canadian operations (sold during
1998) was $451,000 and $900,000 in 1998 and 1997, 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:
1999 1998
- ----------------------------------------------------------------------
Deferred tax liabilities:
Intangible assets $6,042,000 $5,531,000
Other--net 438,000 1,513,000
- ----------------------------------------------------------------------
Total deferred tax liabilities 6,480,000 7,044,000
Deferred tax assets:
Deferred compensation 1,434,000 1,083,000
Bad debts 575,000 571,000
Accrued transaction costs 1,407,000 --
Other 1,464,000 1,255,000
- ----------------------------------------------------------------------
Total deferred tax assets 4,880,000 2,909,000
- ----------------------------------------------------------------------
Net deferred tax liabilities $1,600,000 $4,135,000
======================================================================
NOTE G
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:
2000 $ 11,594,000
2001 10,415,000
2002 9,570,000
2003 7,137,000
2004 4,293,000
Thereafter 8,751,000
- ------------------------------------------------------
$ 51,760,000
======================================================
Rental expense for all operating leases amounted to $10,225,000 in 1999,
$7,474,000 in 1998 and $7,276,000 in 1997. Included in rental expense for 1999,
1998 and 1997 is approximately $429,000, $554,000 and $386,000, respectively,
which was paid to employees or related parties.
NOTE H
SHAREHOLDERS' EQUITY
The Company has adopted and the shareholders have approved the 1986 Incentive
Stock Option Plan, the Hilb, Rogal and Hamilton Company 1989 Stock Plan and the
Non-employee Directors Stock Incentive Plan, which provide for the granting of
options to purchase up to an aggregate of approximately 1,955,000 and 1,853,000
shares of Common Stock as of December 31, 1999 and 1998, 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
plans were as follows:
Weighted
Average
Exercise
Shares Price
- -------------------------------------------------------------------
Outstanding at January 1, 1997 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
Granted 290,747 17.68
Exercised 136,405 13.16
Expired 54,346 15.20
- -------------------------------------------------
Outstanding at December 31, 1998 1,206,459 15.54
Granted 91,100 21.24
Exercised 180,667 14.73
Expired 36,642 14.96
- -------------------------------------------------
Outstanding at December 31, 1999 1,080,250 16.17
=================================================
Exercisable at December 31, 1999 635,480 15.61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37
Hilb, Rogal and Hamilton Company and Subsidiaries
The options outstanding at December 31, 1999 have exercise prices that range
from $10.00 to $21.63. The weighted average contractual life of these options is
five years.
There were 349,000 and 309,000 shares available for future grant under these
plans as of December 31, 1999 and 1998, respectively.
No compensation expense is recognized in operations for 1999, 1998 or 1997.
During 1999, the Company also awarded 5,500 shares of restricted stock under the
1989 Stock Plan, with a weighted average fair value at the grant date of $22.63
per share. These restricted shares vest ratably over a four year period
beginning in the second year of continued employment. Compensation expense
related to this award was $17,000 for the year ended December 31, 1999.
NOTE I
NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic net income per share--net income $19,485,797 $14,945,065 $12,789,851
Effect of dilutive securities:
5.25% convertible debenture 710,995 -- --
---------------------------------------------------
Numerator for dilutive net income per share--
net income after assumed conversions $20,196,792 $14,945,065 $12,789,851
===================================================
Denominator
Weighted average shares 12,783,299 12,453,558 13,069,453
Effect of guaranteed future shares to be issued
in connection with agency acquisitions 92,212 43,194 29,764
---------------------------------------------------
Denominator for basic net income per share 12,875,511 12,496,752 13,099,217
Effect of dilutive securities:
Employee stock options 181,702 187,794 101,280
Employee restricted stock 282 -- --
Contingent stock-- acquisitions 11,999 24,198 14,222
5.25% convertible debenture 937,729 -- --
---------------------------------------------------
Dilutive potential common shares 1,131,712 211,992 115,502
---------------------------------------------------
Denominator for diluted net income per
share-- adjusted weighted average
shares and assumed conversions 14,007,223 12,708,744 13,214,719
===================================================
Net Income Per Common Share:
Basic $ 1.51 $ 1.20 $ 0.98
===================================================
Diluted $ 1.44 $ 1.18 $ 0.97
===================================================
</TABLE>
<PAGE>
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hilb, Rogal and Hamilton Company and Subsidiaries
NOTE J
ACQUISITIONS
On May 3, 1999, the Company acquired all of the issued and outstanding shares of
American Phoenix Corporation, a subsidiary of Phoenix Home Life Mutual Insurance
Company, from Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan,
III. The shares were acquired in exchange for approximately $49 million in cash,
$32 million face value in 5.25% Convertible Subordinated Debentures due 2014,
with a conversion price of $22.75 per share, callable in 2009, and 1,000,000
shares of Common Stock of the Company. The Company funded the cash portion of
the purchase price with a credit facility obtained in connection with the
acquisition. The acquisition has been accounted for by the purchase method of
accounting. Intangible assets of approximately $97 million, created by the
acquisition, will be amortized over 25 years. The assets and liabilities of
American Phoenix Corporation have been revalued to their respective fair market
values. Certain fair value estimates used in the determination of goodwill were
preliminary and are subject to adjustment, which may increase or decrease the
amount of goodwill recorded. The financial statements of the Company reflect the
combined operations of the Company and American Phoenix Corporation from the
closing date of the acquisition.
Pursuant to EITF 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity," the Company recorded a charge of
$1.9 million in the second quarter related to employee severance, lease
termination costs and other costs necessary to integrate the operations of
American Phoenix Corporation with the Company. Costs incurred to exit certain
leases and physically merge common locations comprised $950,000 of this amount.
The remaining amount relates to employee severance and other integration costs.
As of December 31, 1999, the Company had paid approximately $562,000 of these
integration costs. These charges have been included in the following pro forma
amounts. Similar costs related to American Phoenix Corporation's severance and
termination costs, which are estimated at $2,200,000, have been capitalized as
part of the purchase price. The following unaudited pro forma results of
operations of the Company give effect to the acquisition of American Phoenix
Corporation as though the transaction had occurred on January 1, 1999 and 1998,
respectively.
1999 1998
- ----------------------------------------------------------------------------
Revenues $252,000,000 $250,616,000
Net Income 20,783,000 13,913,000
Net Income Per Common Share:
Basic $ 1.57 $ 1.03
Diluted $ 1.45 $ 0.99
Weighted Average Shared Outstanding
Basic 13,209,000 13,497,000
Diluted 14,809,000 15,115,000
During 1999, the Company also acquired certain assets and liabilities of two
other insurance agencies for $4,313,000 ($3,250,000 in cash and $1,063,000 in
guaranteed future payments) in purchase accounting transactions. Assets acquired
include expiration rights of $3,073,000, noncompetition agreements of $430,000
and goodwill of $997,000. The combined purchase price may be increased by
approximately $875,000 in 2000 and $875,000 in 2001 based upon net profits
realized.
During 1998, the Company acquired certain assets and liabilities of six
insurance agencies for $9,998,000 ($4,498,000 in cash, $3,500,000 in guaranteed
future payments and 113,945 shares of Common Stock) in purchase accounting
transactions. Assets acquired include expiration rights of $7,220,000,
noncompetition agreements of $2,645,000 and goodwill of $1,922,000. The combined
purchase price was increased by approximately $2,389,000 in 1999, and may be
increased by approximately $1,635,000 in 2000, $1,500,000 in 2001, $1,125,000 in
2002 and $525,000 in 2003 based upon commissions or net profits realized.
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 was increased by $1,173,000 in 1999 and $2,564,000 in 1998 and
may be increased by approximately $1,490,000 in 2000 based upon net profits
realized.
The above purchase acquisitions have been included in the Company's consolidated
financial statements from their respective acquisition dates.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39
Hilb, Rogal and Hamilton Company and Subsidiaries
NOTE K
SALE OF ASSETS
During 1999, 1998 and 1997, the Company sold certain insurance accounts and
other assets resulting in gains of approximately $4,906,000, $2,638,000 and
$2,475,000, 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.
NOTE L
COMMITMENTS AND CONTINGENCIES
Included in cash and cash equivalents and premium deposits and credits due
customers are approximately $213,000 and $929,000 of funds held in escrow at
December 31, 1999 and 1998, 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 $14,406,000 and $10,022,000 at
December 31, 1999 and 1998, 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 M
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended(1)
---------------------------------------------------------------
(in thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total Revenues $ 50,254 $ 54,885 $ 63,207 $ 58,880
Net Income 7,437 3,044 5,916 3,089
Net Income Per Common Share:
Basic 0.61 0.24 0.45 0.23
Diluted 0.60 0.23 0.42 0.23
1998
Total Revenues $ 47,289 $ 44,535 $ 42,266 $ 41,274
Net Income 5,946 4,446 3,101 1,452
Net Income Per Common Share:
Basic 0.47 0.35 0.25 0.12
Diluted 0.46 0.35 0.25 0.12
</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.
<PAGE>
40 REPORT OF INDEPENDENT AUDITORS
Hilb, Rogal and Hamilton Company and Subsidiaries
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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Richmond, Virginia
February 9, 2000
<PAGE>
BOARD OF DIRECTORS AND OFFICERS 41
Hilb, Rogal and Hamilton Company and Subsidiaries
BOARD OF DIRECTORS
Andrew L. Rogal (1)
Chairman and Chief Executive Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Robert H. Hilb (1) (2) (4)
Chairman Emeritus
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Martin L. Vaughan, III (6)
President and Chief Operating Officer
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Timothy J. Korman (5)
Executive Vice President
Finance and Administration
Hilb, Rogal and Hamilton Company
Glen Allen, Virginia
Theodore L. Chandler, Jr. (1) (2) (4) (5)
Senior Executive Vice President
LandAmerica Financial Group, Inc.
Richmond, Virginia
Norwood H. Davis, Jr. (1) (2) (4) (6)
Chairman of the Board
Trigon Healthcare, Inc.
Richmond, Virginia
Philip J. Faccenda (3)
Vice President and General Counsel, Emeritus
University of Notre Dame
Notre Dame, Indiana
Robert W. Fiondella (5) (6)
Chairman, President and Chief Executive Officer
Phoenix Home Life Mutual Insurance Company
Hartford, Connecticut
J.S.M. French (3)
President
Dunn Investment Company
Birmingham, Alabama
Anthony F. Markel (3) (6)
President and Chief Operating Officer
Markel Corporation
Glen Allen, Virginia
Thomas H. O'Brien (1) (2) (4)
Chairman and Chief Executive Officer
The PNC Financial Services Group, Inc.
Pittsburgh, Pennsylvania
David W. Searfoss (3)
Executive Vice President and Chief Financial Officer
Phoenix Home Life Mutual Insurance Company
Hartford, Connecticut
Robert S. Ukrop (5)
President and Chief Executive Officer
Ukrop's Super Markets, Inc.
Richmond, Virginia
OFFICERS
Andrew L. Rogal
Chairman and Chief Executive Officer
Martin L. Vaughan, III
President and Chief Operating Officer
Timothy J. Korman
Executive Vice President, Finance and Administration
Carolyn Jones
Senior Vice President, Chief Financial Officer and Treasurer
John P. McGrath
Senior Vice President, Business and Product Development
Walter L. Smith
Vice President, General Counsel and Secretary
Richard E. Simmons, III
Vice President; Director, Alabama/Georgia Region
William L. Chaufty
Vice President; Director, Texas/Oklahoma Region
Robert B. Lockhart
Vice President; Director, Northeast Region
Benjamin A. Tyler
Vice President; Director, Florida Region
Michael A. Janes
Vice President; Director, West Region
Steven C. Deal
Vice President; Director, Mid-Atlantic Region
Richard F. Galardini
Vice President; Director, Employee Benefits
Karl E. Manke
Vice President, Marketing and Sales Development
Henry C. Kramer
Vice President, Human Resources
Vincent P. Howley
Vice President, Agency Financial Operations
Robert J. Hilb
Vice President
Robert W. Blanton, Jr.
Vice President and Controller
Valerie C. Elwood
Assistant Vice President
William C. Widhelm
Assistant Vice President, Internal Audit
(1) Executive Committee Member
(2) Compensation Committee Member
(3) Audit Committee Member
(4) Corporate Governance Committee Member
(5) Corporate Affairs Committee Member
(6) Product Development Committee
<PAGE>
42 GENERAL INFORMATION
Hilb, Rogal and Hamilton Company and Subsidiaries
FORM 10-K
Any shareholder wishing to obtain a copy of the Company's Form 10-K for the year
ended December 31, 1999 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 2, 2000 at
10:00 A.M. at the Jefferson Hotel, 101 West Franklin Street, Richmond, Virginia.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, LLC
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, Clark & 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,
1999, there were 565 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:
Sales Price Cash
----------------- Dividends
Quarter Ended High Low Declared
- -----------------------------------------------------
1998
March 31 $19.19 $16.25 $.155
June 30 18.44 15.50 .160
September 30 19.13 16.13 .160
December 31 19.88 15.94 .160
1999
March 31 19.13 15.56 .160
June 30 22.38 17.19 .165
September 30 25.06 20.88 .165
December 31 29.13 24.25 .165
<PAGE>
[HRH LOGO]
HILB, ROGAL AND HAMILTON COMPANY
4235 INNSLAKE DRIVE
P.O. BOX 1220
GLEN ALLEN, VA 23060-1220
Tel 804-747-6500
www.hrh.com
Exhibit 21
Subsidiaries of Hilb, Rogal and Hamilton Company
<TABLE>
<CAPTION>
State/Province of
-----------------
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
HRH Financial Institutions Group, Inc. Pennsylvania
HRH Insurance Services of the Coachella Valley, Inc. (2 locations) California
HRH Insurance Services of Central California, Inc. (3 locations) California
HRH of Connecticut, Inc. (2 locations) Connecticut
HRH of Northern California Insurance Services, Inc. (5 locations) California
Hilb, Rogal and Hamilton Company of Alabama, Inc. (4 locations) Alabama
Hilb, Rogal and Hamilton Company of Arizona (4 locations) Arizona
Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia
Hilb, Rogal and Hamilton Company of Baltimore Maryland
Hilb, Rogal and Hamilton Company of Connecticut Connecticut
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 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
Hilb, Rogal and Hamilton Company of Massachusetts, Inc. Massachusetts
Hilb, Rogal and Hamilton Company of New York, Inc. New York
Hilb, Rogal and Hamilton Company of Northern New Jersey New Jersey
Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma
Hilb, Rogal and Hamilton Company of Orlando Florida
<PAGE>
Subsidiaries of Hilb, Rogal and Hamilton Company
State/Province of
-----------------
Name of Subsidiary Incorporation
------------------ -------------
Hilb, Rogal and Hamilton Company of Philadelphia Pennsylvania
Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. (3 locations) Pennsylvania
Hilb, Rogal and Hamilton Company of Port Huron (2 locations) Michigan
Hilb, Rogal and Hamilton Company of the Quad Cities (2 locations) Illinois
Hilb, Rogal and Hamilton Company of St. Simons Island Georgia
Hilb, Rogal and Hamilton Company of Sarasota Florida
Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia
Hilb, Rogal and Hamilton Company of South Florida Florida
Hilb, Rogal and Hamilton Company of Southern New Jersey New Jersey
Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida
Hilb, Rogal and Hamilton Company of Texas (8 locations) Texas
Hilb, Rogal and Hamilton Company of Upstate New York, Inc. (4 Delaware
locations)
Hilb, Rogal and Hamilton Company of Virginia (2 locations) Virginia
Hilb, Rogal and Hamilton Realty Company Delaware
Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia
Hunt Insurance Group, Inc. Florida
Kalvin-Miller Consulting Group, Inc. New York
Premium Funding Associates, Inc. Connecticut
Professional Practice Insurance Brokers, Inc. (3 locations) California
The Managing Agency, Inc. Connecticut
</TABLE>
Each of the above subsidiaries is 100% owned by the registrant, except for Hilb,
Rogal and Hamilton Company of South Florida which is 85% 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, Form S-8 No. 333-44735, Form S-8
333-93633 and Form S-8 No. 333-30650) of Hilb, Rogal and Hamilton Company and in
the related Prospectuses of our report dated February 9, 2000, with respect to
the consolidated financial statements of Hilb, Rogal and Hamilton Company
incorporated by reference in this Annual Report (Form 10-K) for the year ended
December 31, 1999 and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Richmond, Virginia
March 24, 2000
<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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,336,722
<SECURITIES> 2,939,238
<RECEIVABLES> 63,309,300
<ALLOWANCES> (1,456,261)
<INVENTORY> 0
<CURRENT-ASSETS> 111,200,551
<PP&E> 37,858,797
<DEPRECIATION> (22,446,174)
<TOTAL-ASSETS> 317,981,319
<CURRENT-LIABILITIES> 124,306,637
<BONDS> 111,826,434
0
0
<COMMON> 18,248,712
<OTHER-SE> 52,927,064
<TOTAL-LIABILITY-AND-EQUITY> 317,981,319
<SALES> 0
<TOTAL-REVENUES> 227,225,939
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 187,667,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,489,645
<INCOME-PRETAX> 33,068,537
<INCOME-TAX> 13,582,740
<INCOME-CONTINUING> 19,485,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,485,797
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.44
</TABLE>
