-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NnVbMXgze7cKqpM4XslSsVXJCILnr3wYPYzgDxg7IqpQk+x5qDHzCS8PW9eM8Oq3 f61R7LKJ7GGsKBWoP7ovjA== 0000814898-98-000002.txt : 19980327 0000814898-98-000002.hdr.sgml : 19980327 ACCESSION NUMBER: 0000814898-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILB ROGAL & HAMILTON CO /VA/ CENTRAL INDEX KEY: 0000814898 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 541194795 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15981 FILM NUMBER: 98573997 BUSINESS ADDRESS: STREET 1: 4235 INNSLAKE DR CITY: GLEN ALLEN STATE: VA ZIP: 23060 BUSINESS PHONE: 8047476500 MAIL ADDRESS: STREET 1: P O BOX 1220 CITY: GLEN ALLEN STATE: VA ZIP: 23060 10-K 1 ========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended December 31, 1997 Commission file number 0-15981 HILB, ROGAL AND HAMILTON COMPANY (Exact name of registrant as specified in its charter) Virginia 54-1194795 -------- ---------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 4235 Innslake Drive Glen Allen, Virginia 23060 ---------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 747-6500 Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value (Title of class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. State the aggregate market value of the voting stock held by non-affiliates of the registrant. $227,344,044 as of March 2, 1998 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 2, 1998 Common Stock, no par value 12,683,023 Documents Incorporated by Reference Portions of the registrant's 1997 Annual Report to Shareholders are incorporated by reference into Parts I and II of this report. Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. ================================================================== PART I ITEM 1. BUSINESS The Company Hilb, Rogal and Hamilton Company (the Company), through its network of wholly-owned subsidiary insurance agencies (the Agencies), places various types of insurance, including property, casualty, marine, aviation and employee benefits, with insurance underwriters on behalf of its clients. The Agencies operate 66 offices in 16 states and five Canadian provinces. The Company's client base ranges from personal to large national accounts and is primarily comprised of middle market commercial and industrial accounts. Insurance commissions accounted for approximately 91% of the Company's total revenues in 1997. The Company also advises clients on risk management and employee benefits and provides claims administration and loss control consulting services to clients, which contributed approximately 5.6% of revenues in 1997. The Company has historically grown principally through acquisitions of independent agencies with significant local market shares in small to medium-size metropolitan areas. Since 1984, the Company has acquired 167 independent agencies. The Company's prior growth strategy emphasized acquisitions of established independent agencies staffed by local professionals and centralization of certain administrative functions to allow agents to focus on business production. The Company believes that a key to its success has been a strong emphasis on local client service by experienced personnel with established community relationships. Beginning in 1997, the Company began to pursue a more focused merger and acquisition strategy which is expected to continue in the future. This program is focused on acquisitions which fit into the strategic and regional plans and targets entities which provide a specialty or product expertise which can be exported throughout the Company. The Agencies act as independent agents representing a large number of insurance companies, which gives the Company access to specialized products and capacity needed by its clients. Agencies and regions are staffed to handle the broad variety of insurance needs of their clients. Additionally, certain Agencies and regions have developed special expertise in areas such as aviation, construction and marine insurance services and this expertise is made available to clients throughout the regions and Company. The Company has established direct access to certain foreign insurance markets without the need to share commissions with excess and surplus lines brokers. This direct access allows the Company to enhance its revenues from insurance products written by foreign insurers and allows it to provide a broader array of insurance products to its clients. While the Agencies have historically been largely decentralized with respect to client solicitation, account maintenance, underwriting decisions, selection of insurance carriers and areas of insurance specialization, the Company maintains centralized administrative functions, including cash management and investment, human resources and legal functions, through its corporate headquarters. Accounting records and systems are maintained at each Agency, but the Company requires each Agency to comply with standardized financial reporting and control requirements. Through its internal auditing department, Company personnel periodically visit each Agency and monitor compliance with internal accounting controls and procedures. In the latter part of 1995, the Company created regional operating units to coordinate the efforts of several local offices in a geographic area to focus on markets, account retention, client service and new business production. The six U.S. regions are the Mid-Atlantic (Connecticut, Pennsylvania, Maryland and Virginia); Alabama/Georgia; Florida; Oklahoma/Texas, Northern California and Southwest (Arizona, Colorado, Michigan and Southern California). Regional management of a sizable mass of coordinated and complementary resources has enabled each Agency to address a broader spectrum of client needs and respond more quickly and expertly than each could do on a stand-alone basis. Additionally, operations were streamlined by merging multiple locations in the same city into a single profit center and converting smaller locations into sales offices of a larger profit center in the same region. The Company derives income primarily from commissions on the sale of insurance products to clients paid by the insurance underwriters with whom the Agencies place their clients' insurance. The Company acts as an agent in soliciting, negotiating and effecting contracts of insurance through insurance companies and occasionally as a broker in procuring contracts of insurance on behalf of insureds. The Company derived in excess of 94% of its commission and fee revenue in 1997 from the sale of insurance products, principally property and casualty insurance. Accordingly, no breakdown by industry segments has been made. The balance is primarily derived from service fee income related to employee benefits and third party claims administration. Within its range of services, the Company also places surplus lines coverages (coverages not available from insurance companies licensed by the states in which the risks are located) with surplus lines insurers for various specialized risks. Insurance agents' commissions are generally a percentage of the premium paid by the client. Commission rates vary substantially within the insurance industry. Commissions depend upon a number of factors, including the type of insurance, the amount of the premium, the particular insurer, the capacity in which the Company acts and the scope of the services it renders to the client. In some cases, the Company or an Agency is compensated by a fee paid directly by the client. The Company may also receive contingent commissions which are based on the profit an insurance company makes on the overall volume of business placed with it by the Company. Contingent commissions are generally received in the first quarter of each year and, accordingly, may cause first quarter revenues and earnings to vary from other quarterly results. The Company provides a variety of professional services to assist clients in analyzing risks and in determining whether protection against risks is best obtained through the purchase of insurance or through retention of all or a portion of those risks and the adoption of risk management policies and cost-effective loss control and prevention programs. No material part of the Company's business is dependent on a single client or on a few clients, and the Company does not depend on a single industry or type of client for a substantial amount of its business. In 1997, the largest single client accounted for less than 0.6% of the Company's total revenues. Operating History and Acquisition Program The Company was formed in 1982 to acquire and continue an existing insurance agency network. At that time, the Company undertook a program of consolidating agencies, closing or selling unprofitable locations and acquiring new agencies. Since 1984, a total of 167 agencies have been acquired. One hundred seventeen of those agencies were acquired using the purchase method of accounting at a total purchase price of approximately $127.0 million. In a purchase acquisition, the purchase price of an agency is typically paid in cash and deferred cash payments. In some cases, a portion of the purchase price may also be paid in Common Stock. From November 1, 1988 to May 1, 1995, 50 agencies were acquired under the pooling-of-interests method of accounting in exchange for a total of approximately 8.1 million shares of Common Stock of the Company. The Company has substantial experience in acquiring insurance agencies. Each acquisition candidate is subjected to a due diligence process in which the Company evaluates the quality and reputation of the business and its management, revenues and earnings, specialized products and expertise, administrative and accounting records, growth potential and location. For candidates that pass this screening process, the Company uses a pricing method that emphasizes pro forma revenues, profits and tangible net worth. As a condition to completing an acquisition, the Company requires that the principals execute Company-prepared covenants not to compete and other restrictive covenants and that agents execute non- piracy agreements. Once the acquisition is consummated, the Company takes steps to introduce its procedures and protocols and to integrate the agency's systems and employees into the Company. Recent Developments During 1997, the Company acquired six insurance agencies. See "Note K--Acquisitions" of the Notes to Consolidated Financial Statements in the Company's 1997 Annual Report to Shareholders which is incorporated herein by reference for a description of these acquisitions. Competition The Company participates in a very competitive industry. It is a leading independent insurance agency system serving a wide variety of clients through its network of wholly-owned subsidiaries which operate 66 insurance agencies located in 16 states and five Canadian provinces. Many of the Company's competitors are larger and have greater resources than the Company and operate on an international scale. In some of the Agencies' cities, because no major national insurance broker has established a presence, the Company competes with local agents and private, regional firms, some of whom may be larger than the Company's local Agency. The Company is also in competition with certain insurance companies which write insurance directly for their customers, and the banking industry, as well as self-insurance and other employer sponsored programs. Employees As of December 31, 1997, the Company had approximately 1,770 employees. No employees are currently represented by a union. The Company believes its relations with its employees are good. Regulation In every state in which the Company does business, the applicable Agency or an employee is required to be licensed or to have received regulatory approval by the state insurance department in order for the Company to conduct business. In addition to licensing requirements applicable to the Company, most jurisdictions require individuals who engage in brokerage and certain insurance service activities to be licensed personally. The Company's operations depend on the validity of and its continued good standing under the licenses and approvals pursuant to which it operates. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally such authorities are vested with general discretion as to the grant, renewal and revocation of licenses and approvals. ITEM 2. PROPERTIES Except as mentioned below, the Company leases its Agencies' offices. For information with respect to the Company's lease commitments see "Note H--Leases" of the Notes to Consolidated Financial Statements in the Company's 1997 Annual Report to Shareholders which is incorporated herein by reference. At December 31, 1997, the Company owned buildings in Oklahoma City, Oklahoma; Fort Myers, Florida; Mobile, Alabama and Victoria, Texas in which the Agencies in those cities are located. In addition, the Company owned a building in Charlottesville, Virginia. ITEM 3. LEGAL PROCEEDINGS The Company and its Agencies have no material pending legal proceedings other than ordinary, routine litigation incidental to the business, to which it or a subsidiary is a party. With respect to the routine litigation, upon the advice of counsel, management believes that none of these proceedings, either individually or in the aggregate, if determined adversely to the Company, would have a material effect on the financial position or results of operations of the Company or its ability to carry on its business as currently conducted. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant are as follows: Robert H. Hilb, 71, has been Chairman of the Company since 1991 and has been a director of the Company since 1982. He was Chief Executive Officer of the Company from 1991 to May 1997 and was President of the Company from 1982 to 1995. Andrew L. Rogal, 49, has been Chief Executive Officer of the Company since May 1997, and President of the Company since 1995 and has been a director of the Company since 1989. He was Chief Operating Officer of the Company from 1995 to May 1997. He was Executive Vice President of the Company from 1991 to 1995 and Senior Vice President of the Company from 1990 to 1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and was President of this subsidiary from 1987 to 1993. Timothy J. Korman, 45, has been Executive Vice President-Finance and Administration since August 1997. He was Executive Vice President, Chief Financial Officer and Treasurer of the Company from November 1995 to August 1997, and was Senior Vice President and Treasurer of the Company from 1989 to November 1995. He is a first cousin of Robert S. Ukrop, a director of the Company. John C. Adams, Jr., 61, has been Executive Vice President of the Company since 1991 and was a director of the Company from 1987 to 1995. He has been Chairman of Hilb, Rogal and Hamilton Company of Daytona Beach, Inc., a subsidiary of the Company, since 1990. Dianne F. Fox, 49, has been Senior Vice President and Secretary of the Company since 1989. Carolyn Jones, 42, has been Senior Vice President, Chief Financial Officer and Treasurer since August 1997 and was Vice President and Controller of the Company from 1991 to August 1997. Walter L. Smith, 40, has been Vice President and General Counsel of the Company since 1991 and has been Assistant Secretary of the Company since 1989. Vincent P. Howley, 49, has been Vice President-Agency Financial Operations since August 1997. He was Vice President-Audit of the Company from 1993 to August 1997, and was Assistant Vice President-Audit of the Company from 1986 to 1993. Henry C. Kramer, 53, joined the Company as Vice President-Human Resources in October 1997. Prior thereto, he held various human resource positions with Alexander & Alexander, Inc. in Baltimore, Maryland from 1973 to 1997. Robert J. Hilb, 34, has been Vice President of the Company since August 1997. He was President of HRH Resource Group, Ltd., a subsidiary of the Company from 1994 to 1997. Prior thereto, he held various insurance related positions within the Company. He is the son of Robert H. Hilb, Chairman and a director of the Company. Robert W. Blanton, Jr., 33, has been Assistant Vice President and Controller since August 1997 and was Assistant Vice President of the Company from 1993 to August 1997. He joined the Company in 1990 as Accounting Senior. Valerie C. Elwood, 36, has been Assistant Vice President of the Company since 1993. She joined the Company in 1987 and has held various positions in the accounting department. All officers serve at the discretion of the Board of Directors. Each holds office until the next annual election of officers, which is held at the meeting of the Board of Directors after the Annual Meeting of Shareholders, called to be held on May 5, 1998, or until their successors are elected. There are no family relationships nor any arrangements or understandings between any officer and any other person pursuant to which any such officer was selected, except as noted above. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information as to market price and dividends per share of Common Stock and related stockholder matters is incorporated herein by reference to the material under the headings "Shareholders" and "Market Price of Common Stock" in the Company's 1997 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Information as to selected financial data is incorporated herein by reference to the material under the heading "Selected Financial Data" in the Company's 1997 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information as to management's analysis of financial condition and results of operations is incorporated herein by reference to the material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1997 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors included on page 12 of Form 10-K and consolidated financial statements included on pages 20 through 30 of the Company's 1997 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information as to the directors of the registrant is incorporated herein by reference to the material under the heading "Proposal One Election of Directors" in the Company's definitive Proxy Statement for the 1998 Annual Meeting of Shareholders. Information as to the executive officers of the registrant is set forth following Item 4 of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information as to executive compensation is incorporated herein by reference to the material included on pages 8 through 13 in the Company's definitive Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information as to security ownership of certain beneficial owners and management is incorporated herein by reference to the material under the headings "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the Company's definitive Proxy Statement for the 1998 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There have been no transactions or series of transactions or proposed transactions since January 1, 1997 which require disclosure under Item 13 of Part III of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules The following consolidated financial statements of Hilb, Rogal and Hamilton Company and subsidiaries, included in the Company's 1997 Annual Report to Shareholders are incorporated herein by reference in Item 8 of this report: Consolidated Balance Sheet -- December 31, 1997 and 1996 Statement of Consolidated Income -- Years Ended December 31, 1997, 1996 and 1995 Statement of Consolidated Shareholders' Equity -- Years Ended December 31, 1997, 1996 and 1995 Statement of Consolidated Cash Flows -- Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements -- December 31, 1997 The following consolidated financial statement schedule of Hilb, Rogal and Hamilton Company and subsidiaries is included in Item 14(d): Schedule Number Description Page Number II Valuation and Qualifying Accounts 13 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits - Index Exhibit No. Document 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's Registration State- ment on Form S-3, File No. 33-56488, effective March 1, 1994, hereinafter, the Form S-3) 3.2 Amended and Restated Bylaws 10.1 $20,000,000 Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank, as Agent of the Banks (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 10.2 Amendment dated February 24, 1997 to Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank as Agent of the Bank (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended December 31, 1996, File No. 0-15981) 10.3 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 28.27 of the Form S-3) 10.4 Consulting Agreement with Robert H. Hilb (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) (3) Exhibits - Index (Continued) Exhibit No. Document 10.5 Employment Agreement of Andrew L. Rogal (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) 10.6 Employment Agreement of Dianne F. Fox and amendments thereto and Severance and Release Agreement 10.7 Hilb, Rogal and Hamilton Company 1989 Stock Plan, as amended 10.8 Supplemental Executive Retire- ment Plan, as amended and restated 10.9 Hilb, Rogal and Hamilton Company Outside Directors Deferral Plan, as amended and restated 13 1997 Annual Report to Shareholders 22 Subsidiaries of Hilb, Rogal and Hamilton Company 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1997. (c) Exhibits The response to this portion of Item 14 as listed in Item 14(a)(3) above is submitted as a separate section of this report. (d) Financial Statement Schedules The report of independent auditors and financial statement schedule (as indexed in Item 14(a)(2)) of this report are as follows: Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the consolidated balance sheet of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997 (incorporated by reference herein). Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial state ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Richmond, Virginia February 11, 1998 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Col. A Col. B Col. C Col. D Col. E - ------------------------------------------------------------------------------------------- Additions Charged Balance at Charged to Other Balance Beginning to Costs Accounts Deductions at End Description of Period and Expenses (Describe)* (Describe)** of Period - ------------------------------------------------------------------------------------------- Year ended December 31, 1997: Allowance for doubt- ful accounts....... $2,445,000 $ 384,000 $ 66,000 $ 596,000 $2,299,000 Year ended December 31, 1996: Allowance for doubt- ful accounts....... 1,772,000 1,276,000 100,000 703,000 2,445,000 Year ended December 31, 1995: Allowance for doubt- ful accounts....... 2,348,000 1,500,000 121,000 2,197,000 1,772,000
______________________ * Recoveries ** Bad debts written off SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By /s/ Andrew L. Rogal Andrew L. Rogal, President and Chief Executive Officer Date March 26, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Andrew L. Rogal President and Chief Executive March 26, 1998 Andrew L. Rogal Officer(principal executive officer) /s/ Carolyn Jones Senior Vice President, Chief March 26, 1998 Carolyn Jones Financial Officer and Treasurer (principal financial officer) /s/ Robert W. Blanton, Jr. Assistant Vice President and March 26, 1998 Robert W. Blanton, Jr. Controller (principal accounting officer) /s/ Robert H. Hilb Chairman and Director March 26, 1998 Robert H. Hilb Philip J. Faccenda Director /s/ Robert S. Ukrop Director March 26, 1998 Robert S. Ukrop /s/ Thomas H. O'Brien Director March 26, 1998 Thomas H. O'Brien /s/ J.S.M. French Director March 26, 1998 J.S.M. French /s/ Norwood H. Davis, Jr. Director March 26, 1998 Norwood H. Davis, Jr. /s/ Theodore L. Chandler, Jr. Director March 26, 1998 Theodore L. Chandler, Jr. EX-3 2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF HILB, ROGAL AND HAMILTON COMPANY * * * * * * * * ARTICLE I Shareholders The shareholders of the Corporation shall be those who appear on the books of the Corporation as holders of one or more shares of the capital stock, and the original stock transfer books shall be prima facie evidence as to the identity of the shareholders entitled to vote at any meeting of shareholders. ARTICLE II Meetings of the Shareholders Section 1. The annual meeting of the shareholders of the Corporation shall be held on the first Tuesday in May of each year during normal business hours, at the offices of the Corporation, or at such other place within or without the Commonwealth of Virginia as may from time to time be fixed by the Board of Directors, or in the absence of action by the Directors, as may be fixed by the Chief Executive Officer. Section 2. Special meetings of the shareholders of the Corporation may be held at any time, at such place within or without the Commonwealth of Virginia as shall be designated in the notice of any such meeting, upon the call of the Chief Executive Officer, or by order of the Board of Directors, whenever they deem it necessary. Section 3. Written notice of any annual or special meeting of the shareholders shall be mailed to the address of or be delivered to each shareholder of record entitled to vote at such meeting not less than ten (10) nor more than fifty (50) days prior to the date of such meeting; provided, however, that written notice of any meeting to act on an amendment of the Articles of Incorporation or on a reduction of stated capital or on a plan of merger, consolidation or exchange shall be given not less than twenty-five (25) nor more than fifty (50) days prior to the date of such meeting. In the case of a special meeting, the notice shall include a statement of the purpose or purposes for which the meeting is called. Section 4. To constitute a quorum, shareholders holding a majority of all the outstanding shares of stock of the Corporation entitled to vote must be present, either in person or by proxy, each share of such stock being entitled to one vote, which may be given personally or by duly authorized proxy. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. Section 5. The Board of Directors may fix in advance a date as the record date for the purposes of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or entitled to receive a payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, such date not to be more than seventy (70) days preceding the date on which the particular action requiring such determination of the shareholders is to be taken. Section 6. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. Such list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation or at its principal place of business or at the office of its transfer agent or registrar and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 7. The Chief Executive Officer shall preside over all meetings of the shareholders of the Corporation at which he is present. If the Chief Executive Officer is not present, a chairman of the meeting shall be elected at the meeting by those authorized to vote at the meeting. The Secretary of the Corporation shall record the minutes of all the meetings if he is present at the meeting. If he is not present, the chairman of the meeting shall appoint a secretary of the meeting. The chairman of the meeting may appoint one or more inspectors of the election to determine the qualification of voters, the validity of proxies, and the results of ballots. Section 8. Notice of Shareholder Business and Nominations. A. Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation's notice of meeting ("Corporate Initiative"), (b) by or at the direction of the Board of Directors ("Board Initiative") or (c) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw ("Shareholder Initiative"). (2) For nominations or other business to be properly brought before an annual meeting by Shareholder Initiative, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareholder action. If the annual meeting date of the Corporation is no more than 30 days before nor 60 days after the anniversary date of the preceding annual meeting of the Corporation ("Anniversary Date"), then notice of the Shareholder Initiative must be delivered to the Secretary at the Corporation's principal executive offices, during normal business hours, no more than 90 days nor less than 60 days prior to the Anniversary Date. If the annual meeting date of the Corporation is more than 30 days before or more than 60 days after the Anniversary Date, then the notice of Shareholder Initiative must be delivered to the Secretary of the Corporation's principal executive offices, during normal business hours, no more than 90 days prior to such annual meeting and no later than the later to occur of (i) 60 days prior to the annual meeting or (ii) the tenth day following the day on which public announcement of the date of the annual meeting was made by the Corporation. If an annual meeting is adjourned, the public announcement thereof shall not commence a new time period for delivery of the notice of Shareholder Initiative. Notice of a Shareholder Initiative shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class or series and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in paragraph A(2) of this Bylaw to the contrary, if the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the Anniversary Date, notice of a Shareholder Initiative shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. B. Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. If the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareholder's notice required by paragraph A(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. C. General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (a) of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any class of series of Preferred Stock to elect directors under specified circumstances. ARTICLE III Board of Directors Section 1. The affairs and business of the Corporation shall be under the management and control of the Board of Directors, which shall be composed of not less than three (3) nor more than fourteen (14) members, as may be fixed from time to time by the shareholders. Directors need not be residents of Virginia or shareholders of the Corporation. No person other than Robert H. Hilb, a founder of the Corporation, may stand for election as a Director if that person has attained the age of seventy (70) years. The Board of Directors may elect, employ or appoint such other officers and agents as it deems necessary. Section 2. The Directors shall be elected at each annual meeting of the shareholders of the Corporation held at the time and place hereinbefore designated. No individual shall be named or elected as a director without his prior consent. Vacancies in the Board, whether caused by death, resignation, or otherwise, may be filled by the Board of Directors, and the person so elected shall hold office until the next annual meeting of the shareholders, or until their successors are elected; provided, however, that nothing herein shall prevent the shareholders from filling any such vacancies existing at the time of any meeting of the shareholders, annual or special, or created at the time of such meeting by resignations accepted, or otherwise, or additional placed created by an increase in the Board authorized at such meetings. The shareholders may increase the Board of Directors from time to time and may provide that the additional places shall be filled by the Board of Directors at such time as they may deem proper. Should the number of Directors at any time be increased, the resulting additional places on the Board shall be considered vacancies to be filled, as above provided, by the Board of Directors or shareholders. Until any such additional places shall have been filled by the election of Directors, the total number of Directors of the Corporation, for the purposes of determining a quorum, shall be the number of Directors actually elected and serving at the time of any given meeting. Section 3. The Board of Directors shall hold its meetings at such time and place as shall be designated, or in the absence of designation by the Board of Directors, at such place as shall be designated in the notice. A meeting may be called at any time by the Chairman or by any two Directors. Due notice of the time and place of each meeting of the Directors shall be given by the Secretary personally, or by mail or telegraph, to all Directors. A majority of the Directors shall constitute a quorum. The Chairman shall preside over all meetings of the Board of Directors at which he is present. If the Chairman is not present, the Chief Executive Officer shall preside. If neither of such officers is present, a chairman of the meeting shall be elected at the meeting by the Directors present at the meeting. Section 4. The Board of Directors may, by resolution adopted by a majority of the Directors, designate three or more of their number, of whom the Chairman and the Chief Executive Officer shall each be one ex officio, to constitute an Executive Committee, which shall have and exercise all the powers of the Board that may be lawfully delegated, including the power to authorize the seal of the Corporation to be affixed to such documents as may require it, but shall not be empowered to declare dividends. The acts and records of said Executive Committee shall at all times be subject to the supervision and control of the Board of Directors when in meeting assembled. The Secretary shall attend and keep a record of the meetings of the said Executive Committee. Section 5. The vote of a majority of disinterested Directors and the vote of a majority of independent Directors shall be required to approve any contract, lease, loan or transaction of any kind between the Corporation and any executive officer, Director or affiliated person of the Corporation. ARTICLE IV Officers Section 1. The officers of the Corporation shall be a Chairman, a Chief Executive Officer, a President, a Secretary, a Treasurer and such Chief Operating Officers, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Vice Presidents or other officers as may be deemed necessary from time to time by the Board of Directors. Assistant officers shall have the same authority and power as the primary officeholder. Any two or more offices may be held by the same person, except the offices of Chief Executive Officer and Secretary shall be held by different persons. All of the officers shall be elected by the Board of Directors each year as soon after the annual meeting of the shareholders as is convenient. Section 2. The Chairman shall preside at all meetings of the Board of Directors at which he is present. In addition, he shall do everything and discharge all duties generally pertaining to his office as Chairman of the Board of Directors of a corporation of this character and such additional duties as may be delegated to him from time to time by the Board of Directors. Section 3. The Chief Executive Officer of the Corporation shall attend and preside at all meetings of the shareholders, shall attend all meetings of the Board of Directors, shall exercise general supervision over the property, business and affairs of the Corporation and shall do everything and discharge all duties generally pertaining to his office as the executive head of a corporation of this character, subject to the control of the Board of Directors. He may at each annual meeting of the shareholders render a general report of the Corporation's condition and business. Section 4. The President, or the Chief Operating Officer, as the case may be, shall supervise the day-to-day operations and affairs of the corporation and do everything and discharge all duties generally pertaining to his office as the operating head of a corporation of this character and such additional duties as may be delegated to him from time to time by the Chief Executive Officer, subject to the control of the Board of Directors. Section 5. In the instance of the inability of the Chief Executive Officer to act on account of absence, illness or for any other reason, his duties shall be performed during the period of such inability by the President, or the Chief Operating Officer, as the case may be. In the instance of the inability of the President, or the Chief Operating Officer, as the case may be, to act on account of absence, illness, or for any other reason, his duties shall be performed during the period of such inability by the most senior vice president available. The vice presidents in the order of their seniority ranking shall be Executive Vice President, Senior Vice President and Vice President. The acts of the vice president, duly authorized and performed under such conditions, shall be the acts of, and binding upon, the Corporation. If a vice president who has temporarily assumed the duties of the President, or the Chief Operating Officer, as the case may be, is unable for any reason to continue to perform such duties, the same shall be performed by the Vice President next in seniority ranking who is available for the purpose. The President, or the Chief Operating Officer, as the case may be, if either should act as Chief Executive Officer under this Bylaw shall report fully to the Chief Executive Officer upon the Chief Executive Officer's return to duty with respect to all actions taken and transactions accomplished by the President, or the Chief Operating Officer, as the case may be, during the absence or disability of the Chief Executive Officer. A vice president who acts as President under this Bylaw shall report fully to the President upon his return to duty with respect to all actions taken and transactions accomplished by him during the absence or disability of the President. Section 6. In the absence of the Chief Executive Officer, the President and any Vice President, the Board of Directors may designate some other individual to discharge such executive duties as may be required for the elapsed period. Section 7. The Treasurer shall have charge and custody of the funds, securities of whatsoever nature and other like property of the Corporation. The Treasurer shall endorse checks, notes and bills for deposit only as may be required for the business of the Corporation, shall have authority to collect the funds of the Corporation and shall deposit same in such bank or banks as the Board may designate, and the same shall not be drawn therefrom except by checks to be signed in the manner designated herein. Section 8. The Secretary shall sign, with the Chief Executive Officer, all certificates of stock. The Secretary shall keep a book containing the names of all persons who are now, or may hereafter become, shareholders of the Corporation, showing their place of residence, the number of shares held by them, respectively, and the time when they respectively became the owners of such shares. The Secretary shall keep a record of the proceedings of the meetings of the shareholders, of the Board of Directors and of the Executive Committee. He shall have charge of the seal of the Corporation and shall perform such other duties as pertain to such office or as the Chief Executive Officer or the Board of Directors may from time to time require. ARTICLE V Certificates of Stock Section 1. Each shareholder shall be entitled to a certificate of certificates of stock in such form as may be approved by the Board of Directors, signed by the Chief Executive Officer, or the President, and by the Secretary and with the corporate seal impressed thereon. Section 2. All transfers of stock of the Corporation shall be made upon its books by surrender of the certificate for the shares transferred accompanied by an assignment in writing by the holders and may be accomplished either by the holder in person or by a duly authorized attorney in fact. Section 3. In case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms not in conflict with law as the Board of Directors may prescribe. Section 4. The Board of Directors may also appoint one or more Transfer Agents and Registrars for its stock and may, at its option, require stock certificates to be both countersigned by a Transfer Agent and registered by a Registrar. If certificates of capital stock of the Corporation are signed both by a Transfer Agent and Registrar, the signatures thereon of the officers of the Corporation and the seal of the Corporation thereon may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. ARTICLE VI Voting of Stock Held Unless otherwise provided by a vote of the Board of Directors, the Chief Executive Officer may either appoint attorney(s)-in-fact to vote any stock of any other Corporation owned by this Corporation or may attend any meeting of the holders of stock of such other Corporation and vote such shares in person. ARTICLE VII Checks All checks, notes, drafts, and bonds given by the Corporation in the course of its business shall be signed in the name of the Corporation in such manner as may be designated by the Directors from time to time. ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall end on December 31st of each calendar year. ARTICLE IX Corporate Seal The corporate seal of this Corporation shall consist of two concentric circles around the inner edge of which shall be engraved the words "HILB, ROGAL AND HAMILTON COMPANY" and "VIRGINIA" and across the center thereof the word "SEAL." ARTICLE X Amendments These Bylaws may be altered, amended or repealed by a vote of the majority of the number of Directors present at any meeting of the Board of Directors, or by the shareholders at any special meeting, when notice of such proposed amendment has been given in the notice calling said board meeting or special meeting of the shareholders, unless the same shall be waived in the manner prescribed by law, or by the shareholders at any annual meeting. ARTICLE XI Gender Wherever the context requires or is appropriate, references in these Bylaws to the masculine gender of words shall include the feminine and vice versa. Certified to be the original of the Amended and Restated Bylaws of Hilb, Rogal & Hamilton Company duly adopted by the Board of Directors of the Corporation on February 3, 1998. /s/Dianne F. Fox Secretary 0358123A EX-10 3 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated January 1, 1991, is made between HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("HRH"), and Dianne F. Fox ("Employee"), a resident of Richmond. Virginia RECITALS WHEREAS, HRH desires that Employee be employed for the period of time and in a capacity with HRH as specified herein; WHEREAS, Employee desires to accept such employment subject to the terms and conditions specified herein; and NOW, THEREFORE, in consideration of the premises stated above and the sum of $1.00, receipt of which is acknowledged by Employee, HRH's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. EMPLOYMENT: TERM RENEWAL, COMPENSATION. HRH agrees to employ Employee for an initial term of three (3) years (the "Initial Term"), effective as of January 1, 1991 ("Effective Date"), and to compensate Employee as described herein. Upon the expiration of the Initial Term, Employee shall continue in the employ of HRH, upon the same terms and conditions as provided herein, until either HRH or Employee gives the other party ninety (90) days advance written notice of its or his intention to discontinue such relationship as of a specific future date. Employee's principal areas of responsibility shall be those of Senior Vice President & Corporate Secretary of HRH. HRH agrees that Employee shall have such executive powers and authority as may reasonably be required by him in order to discharge his duties in an efficient and proper manner Employee's base annual salary at the beginning of the Initial Term will be $74,000.00 payable semi-monthly, as earned. Employee's compensation shall be reviewed by HRH not less frequently than annually during the term of this Agreement and any extensions or renewals thereof, may be adjusted upward or downward in HRH's sole discretion and shall be full compensation for all services performed by Employee under this Agreement, provided however, notwithstanding anything said to the contrary, Employee shall not be paid a base salary less than $74,000.00 per annum during the Initial Term. 2. FULL EFFORTS OF EMPLOYEE. Employee agrees (i) to devote his full business time and energies to the business and affairs of HRH, (ii) to use his best efforts, skills and abilities to promote the interests of HRH and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by HRH. During the course of his employment hereunder, Employee shall not, directly or indirectly, enter into or engage in any business which competes with the business of HRH without the written consent of HRH. 3. CONFIDENTIAL INFORMATION. Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with certain confidential information and trade secrets of HRH and the HRH Companies (any company directly owned by or operationally or administratively controlled by HRH, is herein referred to as the "HRH Companies"), concerning acquisitions, prospects for acquisitions and customers and prospects of HRH and the HRH Companies ("HRH Customers"), which confidential information includes, but is not limited to, customer lists, financial data and marketing programs of HRH and the HRH Companies, policy expiration dates, policy terms, conditions and rates, customers' risk characteristics, and information concerning the insurance markets for large or unusual commercial risks (the "Confidential Information"). Employee agrees that he will safeguard the Confidential Information from exposure to, or appropriation by, unauthorized persons and that he will not, without the prior written consent of HRH during the term of this Agreement or any time thereafter, divulge or make any use of the Confidential Information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee promises to deliver to HRH all materials, including personal notes and reproductions, relating to the Confidential Information, to HRH and the HRH Companies, and to the HRH Customers, which are in his possession or control. Employee agrees that compensation and benefits otherwise owing to him may be withheld for failure to comply with the terms of this paragraph. 4. EMPLOYEE COVENANTS. Employee agrees that during the initial term of his employment under this Agreement and during any extension of such term, and for an additional period of three years after the first to occur of (i) the expiration of the initial term of his employment under this Agreement or any extension of such term, (ii) his voluntary resignation or departure from the employment of HRH, or (iii) his inability to perform his duties under this Agreement for reason of mental or physical disability for a continuous period in excess of 180 days, Employee will not: (a) Compete, directly or indirectly, with HRH or the HRH Companies within the City of Richmond, Virginia, and a 100-mile radius of the City of Richmond, Virginia or within the City or County in which any HRH Company is located; or 2 (b) Disclose to any other person, firm or corporation the names or addresses of any of the customers of HRH or HRH Companies, who were customers at any time during the term of this Agreement or any extension hereof or communicate with or contact in any manner whatsoever such customers of HRH or HRH Companies, regardless of location, for the purpose of: (i) inducing such customers to patronize any business other than that of HRH or HRH Companies, (ii) canvassing, soliciting or accepting from any such customers any business relating to the insurance agency business; (iii) requesting or advising any customers of HRH or HRH Companies, to withdraw, curtail or cancel such customer's business with HRH or HRH Companies; nor will he induce or attempt to induce any employee of HRH or HRH Companies to leave the employ of his respective employer; (c)(i) The term "insurance agency business" as used herein shall be deemed to include, without limitation, the sale, and servicing of policies of life, health, group, casualty, or other forms of insurance. (ii) The word "compete" as used herein shall be deemed to include, without limitation; (a) permitting use of Employee's name in competition with HRH or HRH Companies; (b) becoming or being an employee (in any capacity in which he performs services comparable to any services performed for HRH hereunder), owner, partner, agent, stockholder (other than a stockholder in a corporation listed on a national securities exchange, or a corporation whose securities are traded in the over-the-counter market), director or officer of any person, firm or corporation that engages, directly or indirectly, in the insurance agency business, or (c) undertaking to perform services comparable to any services performed for HRH pursuant to this Agreement on behalf of any person, firm or corporation. 5. EMPLOYEE BREACH OF AGREEMENT. If, during the period of three (3) years following the termination of employment hereunder, any commission or fee becomes payable to Employee or to any person, firm, partnership, corporation or other entity by or with whom Employee is then employed or affiliated, as a result of a violation by Employee of the provisions of paragraph 3 or 4 of this Agreement, Employee agrees to promptly pay to HRH an amount equal to 75% of such commission or fee. 3 In addition, the parties agree that, in the event of a breach by Employee of the terms of paragraph 3 or 4, monetary damages alone will not be sufficient to protect the interests of HRH and, as a result, that HRH shall be entitled to injunctive relief against Employee to prevent the breach of any such provisions hereunder. It is further agreed that the foregoing remedies shall be cumulative and not exclusive, and shall be in addition to any other remedies available to HRH at law or in equity. 6. STANDARDS OF PERFORMANCE: CAUSE. In addition to the full efforts required of Employee in paragraph 2 hereof and notwithstanding anything herein to the contrary, Employee's employment may be terminated or altered, without notice, in the discretion of HRH, prior to the expiration (including renewals) of this Agreement for "Cause." For purposes hereof and without limitation Cause shall include any dishonest, criminal or immoral conduct or any act which will have more than a nominal adverse effect against HRH and shall also include the failure of Employee, whether through incompetence, inefficiency, negligence, inability, incapacity or otherwise, to observe or perform any or his duties or obligations hereunder. 7. TERMINATION UPON OCCURRENCE OF LONG-TERM DISABILITY. HRH may terminate this Agreement, at its sole option, upon the occurrence of "Long-Term Disability." "Long-Term Disability" means a physical or mental incapacity, or any combinations thereof which has prevented Employee from performing the duties customarily assigned to him by HRH for one hundred-eighty (180) days, whether or not consecutive, out of any twelve (12) consecutive months, and which thereafter can reasonably be expected by HRH to continue or to recur with similar frequency. 8. ATTORNEYS' FEES. In any dispute over this Agreement or in pursuit of any remedy permitted under this Agreement, each party shall bear its own costs and fees, including attorneys' fees, irrespective of the laws of that jurisdiction concerning such fees and costs. 9. SEVERABILITY. If any provision of this Agreement or any part of any provision of this Agreement is determined to be unenforceable for any reason whatsoever, it shall be severable from the rest of this Agreement and shall not invalidate or affect the other portions or parts of the Agreement, which shall remain in full force and effect and be enforceable according to their terms. 10. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the Commonwealth of Virginia. 11. CASE AND GENDER. Wherever required by the context of this Agreement, the singular and plural cases and the masculine, feminine and neuter genders shaft be interchangeable. 4 12. NONWAIVER. The waiver by HRH of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or as a waiver of any other provisions of this Agreement. 13. CAPTIONS. The captions provided in this Agreement are intended for descriptive and reference purposes only and are not intended to limit the applicability of the terms of any paragraph to that caption. 14. SUCCESSION. This Agreement shall be binding upon the parties hereto and is not assignable by Employee. This Agreement shall inure, however, to the benefit of HRH's respective successors and assigns, including without limitation, any successor corporation by way of merger and consolidation or any entity which purchases substantially all of the assets of HRH. WITNESS the following signatures. HRH: HILB, ROGAL AND HAMILTON COMPANY By /s/Robert H.Hilb Its President EMPLOYEE: /s/Dianne F. Fox Dianne F. Fox 5 AMENDMENT NUMBER ONE THIS AMENDMENT NUMBER ONE, dated September 1, 1991, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Dianne F. Fox of Richmond, Virginia (hereinafter called "Employee"): W I T N E S S E T H: WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of January 1, 1991; and WHEREAS, HRH and Employee desire to make amendments to the Employment Agreement as set forth below; 1. For all purposes therein, Section 1 of the Employment Agreement is hereby amended by deleting the amount of $74,000 and substituting in lieu thereof the amount of $80,000. 2. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including, but not limited to, the provisions and terms of Section 4 thereof. 3. The effective date of this Amendment Number One is September 1, 1991. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set his hand and seal, all as of the day and year first above written. HILB,ROGAL AND HAMILTON COMPANY By: /s/Robert H. Hilb its President Attest: /s/Ann B Davis /s/ Dianne F. Fox Dianne F Fox Witness By: /s/ Ann B. Davis AMENDMENT NUMBER TWO THIS AMENDMENT NUMBER TWO, dated September 1, 1993, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Dianne F. Fox of Richmond, Virginia (hereinafter called "Employee") W I T N E S S E T H: WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of January 1, 1991; and WHEREAS, HRH and Employee desire to make amendments to the Employment Agreement as set forth below; 1. For all purposes therein, Section 1 of the Employment Agreement is hereby amended by deleting the amount of $80,000 and substituting in lieu thereof the amount of $88,000. 2. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including, but not limited to, the provisions and terms of Section 4 thereof. 3. The effective date of this Amendment Number Two is September 1, 1993. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set his hand and seal, all as of the day and year first above written. Hilb, Rogal and Hamilton Company By: /s/ Robert H. Hilb its President Attest: /s/Ann B. Davis /s/Dianne F. Fox (SEAL) Dianne F. Fox Witness By: /s/ Ann B. Davis AMENDMENT NUMBER THREE THIS AMENDMENT NUMBER THREE, dated as of December 1, 1997, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation, (hereinafter called "HRH") and Dianne F. Fox of Richmond, Virginia (hereinafter called "Employee"): W I T N E S S E T H: WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement dated as of January 1, 1991 and amended on September 1, 1991 and September 1, 1993 ("Employment Agreement"; terms defined therein being used herein as therein defined); and WHEREAS, HRH and Employee have agreed upon and duly executed the Severance and Release Agreement relating to the severance of Employee's employment attached hereto as Exhibit A; WHEREAS, HRH and Employee wish to make amendments the Employment Agreement as set forth below; A. For all purposes therein, Section 1, the first sentence of Section 2, Section 6 and Section 7 of the Employment Agreement are hereby deleted and substituted in lieu thereof is the following: 1. EMPLOYMENT TERM; COMPENSATION. HRH agrees to employ Employee for a term of thirteen (13) months, effective as of December 1, 1997 ("Effective Date"), and to compensate Employee as described herein. Employee's principal areas of responsibility has been that of Senior Vice President and Corporate Secretary of HRH. Employee will begin this term of employment with substantially the same employment responsibilities as she has had, however, a transition of those responsibilities to other personnel will take place over the course of this term of the Agreement. HRH agrees that Employee shall have such executive powers and authority as may reasonably be required by her in order to discharge her duties in an efficient and proper manner. Employee's base annual salary at the beginning of this term of the Agreement will be $121,200.00, payable semi-monthly, as earned. Employee shall be entitled to a bonus for 1997, payable in February, 1998, in the gross amount of $25,000, or such higher amount as the Compensation Committee of the Company may award. Employee shall not be granted any further stock options. Employee shall continue participation in the qualified and non-qualified plans of the Company to the extent that Employee continues to qualify for participation. B. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including but not limited to, the provisions and terms of Section 4 thereof. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set her hand and seal, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Andrew L. Rogal Its: President and Chief Executive Officer ATTEST: /s/Dianne F. Fox (SEAL) Dianne F. Fox WITNESS: SEVERANCE AND RELEASE AGREEMENT This Severance and Release Agreement (the "Agreement"), dated as of this 1st day of December, 1997, by and between DIANNE F. FOX ("Employee") and HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation (the "Company") provides: 1. Termination of Employment; Severance Benefits. Employee's employment shall terminate on December 31, 1998. In consideration of Employee's acceptance of this Agreement, the Company will pay Employee the following benefits: The Company agrees to pay Employee a gross sum equivalent to twelve (12) months' salary continuation at Employee's last regular rate of pay. This sum shall be paid to Employee in regular installments on a monthly basis, each coinciding with the Company's regularly scheduled pay days and commencing with the first pay day following the Effective Date of this Agreement. The Company will also reimburse Employee for any group health insurance premiums paid by Employee pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") for coverage through the twelve (12) months following the termination of Employee's employment. Employee understands that prior to payment of salary continuation, the Company will deduct from these gross sums all federal withholding taxes and other payroll deductions the Company is required by law to make from wage payments to employees. Employee further understands that these amounts are all the Employee is entitled to receive from the Company except for payments for any accrued but unused vacation days and pension or other retirement benefits, if any, to which Employee may be entitled under the Company's standard retirement program. 2. No Obligation to Make Payment under Normal Policies. Employee agrees that this payment is more than the Company is required to pay under its normal policies and procedures. 3. Complete Release. Employee agrees to release the Company and any other related companies, and the employees, officers, agents and directors of any of them from all claims or demands Employee may have based on Employee's employment with the Company or the termination of that employment. This includes but is not limited to a release of any rights or claims Employee may have under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Age Discrimination in Employment Act of 1967, which prohibits discrimination in employment based on age; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act, which prohibits discrimination against otherwise qualified disabled individuals, or any other federal, state or local laws or regulations prohibiting employment discrimination. This also includes but is not limited to a release by Employee of any claims for wrongful discharge or breach of contract. This release covers both claims that Employee knows about and those the Employee may not know about. This release does not include, however, a release of Employee's right, if any, to payment from ERISA benefits under the Company's standard retirement program, and the right to continuation in Company medical plans as provided by COBRA. 4. No Future Lawsuits. Employee promises never to file a lawsuit asserting any claims that are released in the Third Paragraph. 5. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist Employee in making the transition from employment with the Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of the Company. 6. Confidential Information. Employee shall not use or divulge, publish or disclose to any person or organization, information obtained by Employee during the course of Employee's employment, which the Company, in its sole discretion, determines to be of a confidential or sensitive nature. Such information expressly includes, but is not limited to, this Agreement itself, information concerning the Company's formulas, designs, methods of business, trade secrets, technology, business operations, business records, customer lists and other customer information. Employee further agrees to immediately return to the Company all of the Company's property, including but not limited to all cellular phones, computer equipment, keys, credit cards, records, files, and other documentation of whatever nature relating to the Company's business or to the business of any of the Company's customers. 7. Claim for Reinstatement Employee agrees to waive and abandon any claim to reinstatement with the Company. 8. Statements Regarding Company And/Or Employment. Employee agrees not to make any derogatory statement with regard to the performance, character, or reputation of the Company, its personnel and any and all related companies, or assert that any current or former employee, agent, director or officer of same has acted improperly or unlawfully with respect to Employee regarding employment. 9. Period for Review and Consideration of Agreement. Employee understands that Employee has been given a period of twenty-one (21) days to review and consider this Agreement before signing it. Employee further understands that Employee may use as much of this twenty-one (21) day period as Employee wishes prior to signing. The twenty-one (21) day period shall commence upon receipt by Employee of this Agreement. 10. Employee's Right to Revoke Agreement. Employee may revoke this Agreement within seven (7) days of Employee's signing it. Revocation can be made by delivering a written notice of revocation to the Company at 4235 Innslake Drive, Glen Allen, Virginia 23060-1220; Attn: Andrew L. Rogal. For this revocation to be effective, written notice must be received by the Company no later than the close of business on the seventh day after Employee signs this Agreement. If Employee revokes this Agreement, it shall not be effective or enforceable and Employee will not receive the benefits described in Paragraph 1 of the Agreement. In no event shall this Agreement be effective or enforceable until after the period during which Employee may revoke it (the "Revocation Period"); therefore, the eighth day following the date on which Employee signs this Agreement shall be the "Effective Date" of this Agreement, unless Employee has revoked the Agreement during the Revocation Period, in which case it shall not be effective or enforceable. 11. Encouragement to Consult with Attorney. Employee has been strongly encouraged to consult with an attorney before signing this Agreement, and understands that whether or not to do so is Employee's own decision. 12. Acknowledgment. Employee acknowledges that she has signed this Agreement freely and voluntarily without duress of any kind. 13. Entire Agreement. This Agreement, coupled with Amendment Number Three to Employee's Employment Agreement, constitutes the entire Agreement between Employee and the Company related to severance of employment. The Company has made no promises to Employee other than set forth therein. Notwithstanding the foregoing, all restrictive covenants binding Employee and contained in the Employment Agreement between Employee and the Company dated January 1, 1991, as thereafter amended, shall continue in full force and effect. 14. Successorship. It is the intention of the parties that the provisions hereof be binding upon the parties, their employees, affiliates, agents, heirs, successors and assigns forever. 15. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Virginia. EMPLOYEE ACKNOWLEDGES THAT HE OR SHE HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND IS VOLUNTARILY ENTERING INTO IT. PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. 11/26/97 /s/ Dianne F. Fox Date Dianne F. Fox HILB, ROGAL AND HAMILTON COMPANY By: /s/ Andrew L. Rogal Its: President and Chief Executive 11/26/97 Officer Date EX-10 4 EXHIBIT 10.7 - - 14 - HILB, ROGAL AND HAMILTON COMPANY 1989 STOCK PLAN (As Amended August 5, 1997) I. PURPOSE This 1989 Stock Plan is intended to assist Hilb, Rogal and Hamilton Company (the "Company") in recruiting, retaining and motivating capable individuals as key employees and Directors by enabling those individuals who contribute significantly to the Company to participate in its future success and to associate their interests with those of the Company through equity participation or equity-based rewards. This Plan is also intended to assist affiliated corporations in recruiting, retaining and motivating capable individuals as key employees by enabling such employees who contribute significantly to the affiliated corporation and, thereby the Company, to participate in the Company's future success and to associate their interests with those of the Company through equity participation or equity- based rewards. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. II. DEFINITIONS For purposes of this Plan, the following terms shall have the following meanings: (a) Affiliate means any "subsidiary" or "parent" corporation (within the meaning of Section 424 of the Code) of the Company. (b) Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an Option, SAR or Restricted Stock award granted to such Participant. (c) Board means the Board of Directors of the Company. (d) Change of Control means and shall be deemed to have taken place if: (i) any individual, entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares of the Company having 25 percent or more of the total number of votes that may be cast for the election of directors of the Company, other than (a) as a result of any acquisition directly from the Company, or (b) as a result of any acquisition by any employee benefit plans (or related trusts) sponsored or maintained by the Company or its Subsidiaries; or (ii) there is a change in the composition of the Board such that the individuals who, as of August 5, 1997, constitute the Board (the Board as of August 5, 1997 shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to August 5, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) if at any time, (w) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (x) any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (y) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a Subsidiary of any other Person, or (z) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons. (e) Change of Control Date is the date of the occurrence of an event described in (i), (ii) or (iii) of the definition of "Change of Control" above. (f) Code means the Internal Revenue Code of 1986, and any amendments thereto. (g) Committee means the Compensation Committee which shall be appointed from time to time by the Board but shall always consist of three individuals, all of whom shall be Directors of the Company who are not employees of the Company. (h) Common Stock means the common stock of the Company. (i) Director means a member of the Board. (j) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto. (k) Fair Market Value means, for any given date, the closing price per share of Common Stock as reported on the New York Stock Exchange composite tape on that day or, if the Common Stock was not traded on such day, then the next preceding day that the Common Stock was traded on such exchange, all as reported by such source as the Committee may select. (l) Initial Value means with respect to any SAR, the Fair Market Value on the date of the grant of the SAR as set forth in the applicable Agreement. (m) Option means a stock option, not otherwise specifically qualified for favorable tax treatment under a section of the Code, that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement under the terms of this Plan. (n) Participant means an employee of the Company or an Affiliate or a member of the Board of Directors of the Company, whether or not an employee of the Company, who satisfies the requirements of Section IV of the Plan and who either is selected by the Committee to receive an Option, SAR or award of Restricted Stock or receives a grant of an Option pursuant to Section VII. (o) Person shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (p) Plan means the Hilb, Rogal and Hamilton Company 1989 Stock Plan. (q) 1986 Plan means the Hilb, Rogal and Hamilton Company 1986 Incentive Stock Option Plan. (r) Restricted Stock means shares of Common Stock awarded to a Participant under Section X of this Plan. Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of the applicable Agreement, they become freely transferable and free of substantial risk of forfeiture. (s) SAR means a stock appreciation right entitling the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value over the Initial Value of the SAR. (t) Subsidiary means, with respect to any corporation, a subsidiary of that corporation within the meaning of Code Section 424(f). III. ADMINISTRATION This Plan shall be administered by the Committee. Employees of the Company and its Affiliates and Directors, whether or not employees of the Company or an Affiliate, shall be eligible to participate in this Plan; provided, however, that non-employee Directors shall only receive awards of Options under Section VII below and no other awards or grants hereunder except for adjustments pursuant to Section XI. The Committee shall have authority to grant Options, Restricted Stock awards, or SARs or any combination thereof to any individual eligible to be a Participant other than a non-employee Director, upon such terms (not inconsistent with the provisions of this Plan) as it may consider appropriate. The terms upon which each Option, Restricted Stock award or SAR is granted by the Committee may include conditions (in addition to those contained in this Plan) established by the Committee upon the exercisability of all or any part of the Option or SAR (including the terms of exercise, Option price, time of vesting, transferability and forfeitability) and the price, transferability or forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR which has been granted by the Committee may be exercised or at which Restricted Stock becomes freely transferable and free of risk of forfeiture. The Committee, in its discretion, may establish guidelines supplementing this Plan regarding the selection of Participants, other than non-employee Directors, and the amounts, times and terms for grants by the Committee of Options, Restricted Stock awards and SARs. In addition, the Committee shall have complete authority to interpret all provisions of this Plan, to adopt, amend, and rescind rules and regulations pertaining to the administration of this Plan, and to make all other determinations necessary or advisable for the administration of this Plan. The Committee shall prescribe the form of Agreements, consistent with the Plan, to set forth terms and conditions for Options, SARs and Restricted Stock awards granted to individual Participants. Any decision made, or action taken, by the Committee in connection with the administration of this Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or Common Stock or stock right granted under its terms. All expenses associated with the administration of this Plan shall be borne by the Company. IV. ELIGIBILITY (1) General. Any employee of the Company, or any employee of an Affiliate, who, in the judgment of the Committee, has contributed or may be expected to contribute to the profits or growth of the Company or an Affiliate, as the case may be, may be granted one or more Options, SARs or awards of Restricted Stock by the Committee. Non-employee Directors shall receive Options only under the terms of Sections VII below. (2) Grants. The Committee will designate employees to whom Options, SARs or awards of Restricted Stock are to be granted and will specify the number of shares of Common Stock subject to each grant. An Option may be granted to an employee with a related SAR and an SAR may be granted to an employee with a related Option or each may be granted independently. All Options, SARs and awards of Restricted Stock granted under this Plan shall be evidenced by Agreements which shall be subject to applicable provisions of this Plan and, with respect to grants of Options, SARs and awards of Restricted Stock to employees, to such other terms and provisions as the Committee may adopt. V. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN Upon the proper exercise of any Option, independent SAR or award of Restricted Stock, and payment therefor, the Company may deliver to the Participant authorized but previously unissued Common Stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to both this Plan and the 1986 Plan is 625,000, inclusive of all shares issued pursuant to the 1986 Plan prior to the adoption of this Plan, (the "Maximum Issuable Shares"). The Maximum Issuable Shares shall be increased, or decreased, at the end of each fiscal year by 13.39% of the increase, or decrease, in the number of shares of Common Stock issued and outstanding between the first and last days of the fiscal year (other than increases from the issuance of Common Stock under this Plan or the 1986 Plan); provided, however, that the Maximum Issuable Shares shall not be reduced below the number that is the sum of those already issued and those that are the subject of outstanding options under the 1986 Plan or this Plan at the end of the fiscal year. This annual adjustment shall first be made as of the last day of the Company's fiscal year that begins on January 1, 1989. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other Options to be granted under this Plan or options under the 1986 Plan. Any shares of Restricted Stock that are forfeited by a Participant may be reallocated to other awards of Restricted Stock under this Plan. Upon the exercise of an SAR granted independently of an Option, the Company may deliver to the Participant authorized but previously unissued Common Stock, cash, or a combination thereof as provided in Section IX(3). If such an SAR is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to that SAR, or portion thereof, respectively, may be reallocated to other Options under this Plan or options under the 1986 Plan or SARs which may be granted independently of Options under this Plan. VI. OPTION PRICE The price per share for Common Stock which may be purchased by the exercise of any Option granted by the Committee under this Plan shall be set by the Committee. Such Option price may differ between Options and may be less than Fair Market Value at the time of grant in the discretion of the Committee. VII. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS Each Director of the Company who is not an employee of the Company at the time of the grant shall receive a grant of an Option for the purchase of 2,000 shares of Common Stock on the first business day following the 1993, 1994, 1995, 1996 and 1997 Annual Meetings of the Shareholders of the Company. Each such Option granted to a non-employee Director shall be for a purchase price equal to the Fair Market Value of the Common Stock at the time of the grant and shall be evidenced by an Agreement. Such Agreement shall contain terms and provisions consistent with the applicable provisions of this Plan. VIII. EXERCISE OF OPTIONS AND SARS (1) Maximum Option or SAR Period. Options and SARs granted to employees may be exercisable immediately or become exercisable after any term of months or years and may remain exercisable for any term of months or years as set by the Committee in its discretion at the time of granting. The date upon which any Option or SAR granted by the Committee becomes exercisable may be accelerated by the Committee in its discretion. The term of exercisability for any Option or SAR granted by the Committee may be extended by the Committee and may be made contingent upon the continued employment of the Participant by the Company or Affiliate. The terms of any Option or SAR granted by the Committee may provide that the Option or SAR is exercisable in whole or in part from time to time over such period of time as the Committee shall consider appropriate. (2) Nontransferability. Any Option or SAR granted under this Plan shall be nontransferable except, in the case of the death of the Participant, by will or by the laws of descent and distribution. In the event of any such transfer upon the death of the Participant, the Option and any related SAR must be transferred to the same person or persons, trust or estate and may not be separated. During the lifetime of the Participant to whom an Option or SAR is granted, the Option or SAR may be exercised only by the Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or subject to, any obligation, lien, or liability of such Participant. (3) Employee Status. In the event that the terms of any Option or SAR granted to an employee of the Company provide that the Option or SAR may be exercised only during the employment of the Participant or within a specified period of time after the termination of his employment, the Committee may decide in each case whether and the extent to which leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall be deemed interruptions of continuous employment. IX. METHODS OF EXERCISE (1) Exercise. Subject to the provisions of Sections VIII, XI and XIII, an Option or SAR granted by the Committee may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement and such other requirements as the Committee shall determine. An Option granted under Section VII hereof may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement. A partial exercise of an Option or SAR shall not affect the right to exercise the Option or SAR from time to time in accordance with this Plan with respect to remaining shares subject to the Option or SAR, except that the exercise of an Option shall result in the termination of any related SAR to the extent of the number of shares with respect to which the Option is exercised. (2) Payment for Option Exercises. Unless otherwise provided by the Agreement (or permitted by the Committee for non- qualified Options granted by the Committee), payment of the Option price shall be made in cash (in United States dollars) or a cash equivalent acceptable to the Committee. If the Agreement so provides (or the Committee so permits), payment of all or a part of the Option price for a non-qualified Option may be effected by a "cashless exercise" thereof (i) by the Participant surrendering shares of Common Stock to the Company, or (ii) by the Participant delivering to a broker instructions to sell a sufficient number of the shares of Common Stock being acquired upon exercise of the Option to cover the Option price and any additional costs and expenses associated with the cashless exercise. If Common Stock is surrendered to pay all or part of the Option price, the shares surrendered must have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than such Option price or part thereof. (3) Settlement of SARs. At the discretion of the Committee, the amount payable as a result of the exercise of an SAR may be settled in cash, Common Stock or a combination of cash and Common Stock. No fractional share shall be delivered upon the exercise of an SAR but cash shall be paid in lieu thereof. (4) Shareholder Rights. No Participant shall, as a result of receipt of any Option or SAR, have any rights as a shareholder until the date he exercises such Option or SAR. (5) Tax Withholding With Respect to Options. In the case of the exercise of an Option, the Participant shall pay to the Company in cash the full amount of all federal and state income and employment taxes required to be withheld by the Company in respect of the taxable income of the Participant from such exercise. If the Agreement so provides (or the Committee so permits for non-qualified Options granted by the Committee), payment of all or a part of such taxes may be made by the Participant surrendering shares of Common Stock to the Company, provided the shares surrendered have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than the amount of such taxes or part thereof, or by the sale of shares of Common Stock upon the cashless exercise of an Option through a broker. X. RESTRICTED STOCK. (1) Award. In accordance with the provisions of Section IV, the Committee will designate employees to whom an award of Restricted Stock is to be made and will specify the number of shares of Restricted Stock to be awarded, and the purchase price per share to be paid by the Participant. (2) Vesting. The Committee, on the date of the award, may prescribe that the Participant's rights in the Restricted Stock shall be forfeitable or otherwise restricted in any manner in the discretion of the Committee for such period of time as is set forth in the Agreement. By way of example and not limitation, the restrictions may postpone transferability of the shares or may provide that the shares will be forfeited if the employment of the Participant by the Company or an Affiliate or the service of the Participant as a Director terminates before the expiration of a stated term. (3) Shareholder Rights. Prior to the forfeiture of shares in accordance with the terms of the Agreement and while the shares are Restricted Stock, a Participant will have all rights of a shareholder with respect to Restricted Stock, including the right to receive dividends and vote the shares; provided, however, that (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each award of Restricted Stock. The limitations set forth in the preceding sentence shall not apply after the shares cease to be Restricted Stock. (4) Tax Withholding With Respect to Restricted Stock. The Participant shall pay or provide for the payment to the Company in cash of the full amount of all federal and state income and employment taxes required to be withheld by the Company with respect to the inclusion in the taxable income of the Participant of any amount pursuant to an award of Restricted Stock, including an election made pursuant to Section 83(b) of the Code or the lapse of any restriction with respect thereto. XI. CHANGES IN CAPITAL STRUCTURE Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or SAR, and the price per share thereof, and the number of shares of Restricted Stock awarded, shall be adjusted proportionately for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company by reason of any stock dividend, stock split, combination, reclassification, recapitalization, or the general issuance to holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value, or any change in the number of shares of Common Stock outstanding effected without receipt of cash, property, labor or services by the Company, or any spin-off or other type of distribution of assets to shareholders. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all or part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. Except as expressly provided above in this Section XI or in Section XIII(3), a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Restricted Stock or of Common Stock subject to any Option or SAR. The grant of an Option, SAR or Restricted Stock award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. XII. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option or SAR shall be exercisable, no Common Stock or Restricted Stock shall be issued, no certificates for shares of Common Stock or Restricted Stock shall be delivered, and no payment shall be made under this Plan (i) except in compliance with all applicable federal and state laws and regulations and rules of all domestic stock exchanges on which the Company's shares may be listed and (ii) until the Company has obtained such consent or approval as the Board or the Committee may deem advisable from regulatory bodies having jurisdiction over such matters and from the shareholders. The Company and the Committee shall have the right to rely on the opinion of counsel for either of them as to such compliance. Any share certificate issued to evidence Common Stock for which an Option or SAR is exercised or to evidence Restricted Stock may bear such legends and statements as the Board or the Committee may deem advisable to assure compliance with federal and state laws and regulations. XIII. GENERAL PROVISIONS (1) Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate, as the case may be, to terminate the employment of any employee at any time with or without assigning a reason therefor. (2) Unfunded Plan. This Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under the Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. (3) Change of Control. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control: (a) Any outstanding Option or SAR which is not presently exercisable or vested as of a Change of Control Date shall become fully exercisable and vested to the full extent of the original grant upon such Change of Control Date. (b) The restrictions applicable to any outstanding Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested, nonforfeitable and transferable to the full extent of the original grant. (4) Rules of Construction. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. XIV. AMENDMENTS The Board may amend or terminate this Plan from time to time; provided, however, that: (i) no amendment may become effective until the approval of the Company's shareholders is obtained if the amendment (a) increases the aggregate number of shares that may be issued hereunder or (b) changes the class of individuals eligible to become Participants and, (ii) the Board may amend Section VII hereof but only to provide for the granting of Options to non-employee Directors in a year or years after 1997 which Option grants must not cause this Plan to fail to qualify for exemption from Section 16(b) of the Securities Exchange Act of 1934 under the provisions of Rule 16b-3 or any successor rule and provided that such amendment to Section VII hereof must also be approved by a majority of the employee Directors then serving on the Board. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Option or SAR outstanding or Restricted Stock issued at the time such amendment is made unless required by law, regulation or rule of stock exchange. XV. EFFECTIVE DATE OF PLAN Options and SARs may be granted under this Plan, upon its adoption by the Board, provided that no Option or SAR will be effective unless and until this Plan is approved by the holders of a majority of the shares of the Company's outstanding voting stock present in person, or represented by proxy, and entitled to vote at a duly held meeting of the shareholders. No Option or SAR granted prior to such shareholder approval may be exercised before the requisite shareholder approval is obtained. XVI. GOVERNING LAW The Plan shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply. Stkpln97 EX-10 5 EXHIBIT 10.8 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective January 1, 1998 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Table of Contents Page ARTICLE I GENERAL Section 1.1 Effective Date 1 Section 1.2 Purpose 1 ARTICLE II DEFINITIONS AND USAGE Section 2.1 Definitions 2 Section 2.2 Usage 6 ARTICLE III ELIGIBILITY AND PARTICIPATION Section 3.1 Eligibility and Participation 6 ARTICLE IV SUPPLEMENTAL BENEFIT Section 4.1 Entitlement to Benefits 7 Section 4.2 Supplemental Benefit 7 Section 4.3 Normal Form of Payment 8 Section 4.4 Time of Payment 9 Section 4.5 Segregation of Assets 9 Section 4.6 Forfeiture of Supplemental Benefit 9 ARTICLE V DEATH AND DISABILITY BENEFITS Section 5.1 Death Benefit 9 Section 5.2 Disability Benefit 10 ARTICLE VI ADMINISTRATION Section 6.1 General 10 Section 6.2 Administrative Rules 11 Section 6.3 Duties 11 Section 6.4 Fees 12 ARTICLE VII CLAIMS PROCEDURE Section 7.1 General 12 Section 7.2 Denials 12 Section 7.3 Notice 12 Section 7.4 Appeals Procedure 13 Section 7.5 Review 13 ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 Amendment 13 Section 8.2 Termination 14 Section 8.3 No Assignment 14 Section 8.4 Incapacity 15 Section 8.5 Successors and Assigns 15 Section 8.6 Governing Law 15 Section 8.7 No Guarantee of Employment 15 Section 8.8 Unfunded Plan 15 Section 8.9 Severability 16 Section 8.10 Notification of Addresses 16 Section 8.11 Bonding 16 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I GENERAL 1.1 Effective Date. The provisions of the Plan shall be effective as of December 16, 1994, and, as amended and restated, effective January 1, 1998. The rights, if any, of any person whose status as an employee of the Company and its subsidiaries and affiliates, if any, has terminated shall be determined pursuant to the Plan as in effect on the date such employee terminated, unless subsequently adopted provisions of the Plan are made specifically applicable to such person. 1.2 Purpose. The purpose of the Plan is to provide supplemental retirement income to a Participant. The Plan is intended to be (and shall be construed and administered as) an "employee pension benefit plan" under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") which is unfunded and maintained by the Company solely to provide retirement income to a select group of management or highly compensated employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the U.S. Department of Labor. The Plan is not intended to be a plan described in section 401(a) of the Code or section 3(2)(A) of ERISA. ARTICLE II DEFINITIONS AND USAGE 2.1 Definitions. Wherever used in the Plan, the following words and phrases shall have the meanings set forth below unless the context plainly requires a different meaning: "Benefit Commencement Date" means the January 1 following a Participant's termination of employment with the Company, or such earlier date in the absolute discretion of the Committee. "Board" means the Board of Directors of the Company. "Change of Control" means and shall be deemed to have taken place if: (i) any individual, entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares of the Company having 25 percent or more of the total number of votes that may be cast for the election of directors of the Company, other than (a) as a result of any acquisition directly from the Company, or (b) as a result of any acquisition by any employee benefit plans (or related trusts) sponsored or maintained by the Company or its Subsidiaries; or (ii) there is a change in the composition of the Board such that the individuals who, as of January 1, 1998, constitute the Board (the Board as of January 1, 1998 shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to January 1, 1998 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) if at any time, (a) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (b) any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (c) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a Subsidiary of any other Person, or (d) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Compensation Committee of the Board, if any, and otherwise, the Board. "Company" means Hilb, Rogal, and Hamilton Company and any successor thereto. "Compensation" means total base compensation, excluding bonuses and other forms of compensation, paid to a Participant for personal services rendered to the Company without regard to any Compensation Limitation. "Compensation Limitation" means $150,000 as adjusted to reflect cost-of-living increases by the Secretary of the Treasury or his delegate from time to time under section 401(a)(17) of the Code. "Eligible Employee" means an employee of the Company whose Compensation exceeds $150,000 as adjusted from time to time under section 401(a)(17) of the Code. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Grandfathered Participant" means a Participant who is designated by the Committee as a "grandfathered participant." "Participant" means an Eligible Employee who is participating in the Plan in accordance with Section 3.1 hereof and shall include a Grandfathered Participant, unless otherwise specified. "Plan" means the Hilb, Rogal, and Hamilton Company Supplemental Executive Retirement Plan. "Plan Year" means the calendar year. "Pre-1998 Accrued Benefit" means the value of the benefit for each Participant in the Plan who was not in pay status (receiving benefits) as of December 31, 1997 determined in accordance with the terms of the Plan then in effect as though the Participant had terminated employment as of that date. "Retirement Plan" means the Hilb, Rogal and Hamilton Company Profit Sharing Savings Plan. "Separation from Service" means a Participant's termination from employment as described in the Retirement Plan. "Supplemental Benefit" means the benefit provided in accordance with Section 4.2 of the Plan. "Years of Service", for purposes of benefit accrual and vesting, means a Participant's full years of employment with the Company. Years of employment with Insurance Management Corporation shall be credited as Years of Service for purposes of vesting and benefit accrual. 2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility and Participation. The Committee shall designate from time to time Eligible Employees of the Company who shall participate in the Plan; provided, however, that such Eligible Employees shall be members of a select group of management or highly compensated employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. The Eligible Employees of the Company so designated by the Committee shall become Participants in the Plan. ARTICLE IV SUPPLEMENTAL BENEFIT 4.1 Entitlement to Benefits. Each Participant shall be entitled to the vested portion of his Supplemental Benefit provided in Section 4.2 of the Plan upon reaching his Benefit Commencement Date. A Participant who terminates employment (for any reason other than disability or death) shall have a vested interest in his Supplemental Benefit, based upon the following vesting schedule: Years of Service Vesting Percentage 0-4 0% 5 33.33% 6-15 6.66% per year Notwithstanding the foregoing, a Participant shall be fully vested upon a Change of Control. 4.2 Supplemental Benefit. A Participant's Supplemental Benefit shall be equal to his account balance under the Plan. (a) Deemed Contributions to Account. Annually the account of a Participant shall be credited (deemed to have been contributed) with an amount that is calculated by determining the total employer match and profit sharing contribution (as a percentage of compensation) that the Participant would have received under the Retirement Plan but without the Compensation Limitation that applies to such Retirement Plan, reduced by the amount of employer match and profit sharing contribution actually contributed to the Retirement Plan by the Company. (b) Account Adjustments. A deemed contribution to the Participant's account shall be treated as having been invested in one or more deemed investments designated by the Committee from time to time. The value of a Participant's account shall be adjusted at least annually to reflect increase or decrease in the value of such deemed investments. In the absence of any designation of one or more deemed investments, the Participant's account shall be credited with interest at an annual rate specified from time to time by the Committee. (c) Exception for Grandfathered Participants. Participants in the Plan as of December 31, 1997 shall be regarded as Grandfathered Participants. Effective January 1, 1998, their accounts shall be administered as set forth above except as follows: (1) A Grandfathered Participant's Pre-1998 Accrued Benefit shall be determined and shall be the beginning amount in the Participant's account as of January 1, 1998. (2) Annually, the account of a Grandfathered Participant shall be credited with the greater of 2% of Compensation or the amount determined in Paragraph (a) above. 4.3 Normal Form of Payment. The normal form of payment of the Participant's Supplemental Benefit shall be five annual installments with interest as determined by the Committee from time to time. 4.4 Time of Payment. (a) General Time of Payment. The actual payment of the Supplemental Benefit shall commence on the Participant's Benefit Commencement Date. (b) Accelerated Payment of Benefits: Notwithstanding anything herein to the contrary, in the sole discretion of the Committee, payment of benefits under Article IV or V of the Plan may be accelerated. 4.5 Segregation of Assets. The Company may, but shall not be obligated, to segregate assets in trust or otherwise for the purpose of paying obligations under this plan. Further, the Company has no obligation to match with actual investment any deemed contribution or deemed investment. 4.6 Forfeiture of Supplemental Benefit. Notwithstanding anything in Article IV to the contrary, a Participant shall forfeit the right to or interest in his Supplemental Benefit as follows: After a Participant has begun receiving payment of his Supplemental Benefit, he shall forfeit all right to or interest in any future payments if he enters into employment with a competitor of the Company without the consent of the Company. ARTICLE V DEATH AND DISABILITY BENEFITS 5.1 Death Benefit. If a Participant dies while employed by the Company before his Benefit Commencement Date, the surviving spouse of the Participant shall be entitled to a death benefit equal to the Participant's Supplemental Benefit determined as of the Participant's date of death. A deceased Participant shall be fully vested in his Supplemental Benefit as of his date of death. If a Participant dies after retirement and after he has begun to receive his benefits under the Plan, the death benefit shall be equal to the principal of any of the Participant's remaining payments. The death benefit shall be paid to his designated beneficiary, if any, in a lump sum within sixty (60) days of the Participant's date of death or as soon thereafter as is practicable. If no beneficiary is designated, the death benefit shall be paid to his estate. 5.2 Disability Benefit. If a Participant becomes disabled, as defined in the Retirement Plan, he shall become fully vested in his Supplemental Benefit determined as of the date of his separation from service as a result of disability. ARTICLE VI ADMINISTRATION 6.1 General. The Administrator shall be the Committee, or such other person or persons as designated by the Committee. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for administration of the Plan. The Administrator shall be the "named fiduciary" within the meaning of Section 402(c)(2) of ERISA. 6.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan. 6.3 Duties. The Administrator shall have the following rights, powers and duties: (a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Company and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth. (b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to decide any question that may arise regarding the rights of employees, Participants and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Plan. (c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participant and his rights and duties under the Plan. The Administrator shall have the duty to maintain account records of all Participants. (d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents to be available at the principal office of the Company for inspection by the Participants at reasonable times determined by the Administrator. (e) The Administrator shall periodically report to the Committee with respect to the status of the Plan. 6.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator. ARTICLE VII CLAIMS PROCEDURE 7.1 General. Any claim for benefits under the Plan shall be filed by the Participant or surviving spouse ("claimant") on the form prescribed for such purpose with the Administrator. 7.2 Denials. If a claim for benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator. 7.3 Notice. Any claimant who is denied a claim for benefits shall be furnished written notice setting forth: (a) the specific reason or reasons for the denial; (b) specific reference to the pertinent provision of the Plan upon which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim; and (d) an explanation of the claim review procedure under the Plan. 7.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant's duly authorized representative may: (a) request a review by written application to the Administrator, or its designate, no later than sixty (60) days after receipt by the claimant of written notification of denial of a claim; (b) review pertinent documents; and (c) submit issues and comments in writing. 7.5 Review. A decision on review of a denied claim shall be made not later than sixty (60) days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Amendment. The Company reserves the right to amend the Plan in any manner that it deems advisable by a resolution of the Board, which shall be communicated to Participants not later than sixty (60) days following the effective date of such amendment. No amendment shall, without the Participant's consent, affect the amount of the Participant's Supplemental Benefit at the time the amendment becomes effective or the right of the Participant to receive a Retirement Benefit after the Participant has met the entitlement requirements provided in Section 4.1 of the Plan. 8.2 Termination. The Company reserves the right to terminate the Plan at any time by resolution of the Board, which shall be communicated to Participant not later than sixty (60) days following the effective date of such amendment. No termination shall, without the consent of the Participant, affect the amount of the Participant's Supplemental Benefit prior to the termination of the right of the Participant to receive a Supplemental Benefit after the Participant has met the entitlement requirements provided in Section 4.1 of the Plan. 8.3 No Assignment. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, no shall any interest in amounts payable hereunder or in any payments be subject to seizure for payment of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. 8.4 Incapacity. If the Administrator determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability, the Administrator may cause the payments becoming due to such person to be made to another for his benefit. Payments made pursuant to this Section shall, as to such payment, operate as a complete discharge of the Plan, each Company, the Committee and the Administrator. 8.5 Successors and Assigns. The provisions of the Plan are binding upon and inure to the benefit of each Company, its respective successors and assigns, and the Participant and his beneficiaries, heirs, legal representatives, and assigns. 8.6 Governing Law. The Plan shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by the provisions of ERISA. 8.7 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Company or to give any Participant any equity or other interest in the assets, business, or affairs of the Company. No Participant hereunder shall have a security interest in assets of any Company used to make contributions or pay benefits. 8.8 Unfunded Plan. The obligation of the Company to make payments under this Plan constitutes nothing more than an unsecured promise of the Company to make such payments, and any property of the Company that may be set aside in a trust or otherwise for the payment of benefits under this Plan shall, in the event of the Company's bankruptcy or insolvency, remain subject to the claims of the Company's general creditors until such benefits are distributed in accordance with Article IV hereof. 8.9 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. 8.10 Notification of Addresses. Each Participant shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each Beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on the Company's records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Administrator nor any Company shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary. 8.11 Bonding. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by ERISA. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer. HILB, ROGAL & HAMILTON COMPANY By_/s/Andrew L. Rogal 0401639.02 EX-10 6 EXHIBIT 10.9 Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan Effective April 1, 1998 TABLE OF CONTENTS Page ARTICLE I Definition of Terms 1.1 Accounts 1 1.2 Administrator 1 1.3 Affiliate 1 1.4 Beneficiary 1 1.5 Benefit Commencement Date 1 1.6 Board 2 1.7 Code 2 1.8 Compensation 2 1.9 Corporation 2 1.10 Death Benefit 2 1.11 Deferral Amount 2 1.12 Deferral Benefit 2 1.13 Deferral Contributions 2 1.14 Deferral Year 2 1.15 Deferral Election 2 1.16 Deferred Cash Account 2 1.17 Deferred Stock Unit 2 1.18 Deferred Stock Unit Account 3 1.19 Director 3 1.20 Effective Date 3 1.21 Eligible Director 3 1.22 Former Plan 3 1.23 Participant 3 1.24 Plan 3 1.25 Plan Year 3 1.26 Rate of Return 3 1.27 Short Plan Year 3 ARTICLE II Eligibility and Participation 2.1 Eligibility 4 2.2 Notice and Election Regarding Active Participation 4 2.3 Commencement of Active Participation 4 2.4 Length of Participation 4 ARTICLE III Determination of Deferral Benefits 3.1 Deferral Benefit 4 3.2 Transition Credits 5 3.3 Deferral Election 5 3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit Account 6 3.5 Crediting of Deemed Earnings to Deferred Cash Account 6 3.6 Equitable Adjustment in Case of Error or Omission 6 3.7 Statement of Benefits 6 ARTICLE IV Accounts and Investments 4.1 Accounts 6 4.2 Deferred Stock Units 7 4.3 Hypothetical Nature of Accounts and Investments 8 ARTICLE V Vesting 5.1 Vesting 8 ARTICLE VI Death Benefits 6.1 Pre-Benefit Commencement Date Death Benefit 8 6.2 Post-Benefit Commencement Date Death Benefit 8 ARTICLE VII Payment of Benefits 7.1 Payment of Deferral Benefit 8 7.2 Payment of Death Benefit 9 7.3 Form of Payment of Deferral Benefit 9 7.4 Benefit Determination and Payment Procedure 9 7.5 Payments to Minors and Incompetents 9 7.6 Distribution of Benefit When Distributee Cannot Be Located 9 ARTICLE VIII Beneficiary Designation 8.1 Beneficiary Designation 9 ARTICLE IX Withdrawals 9.1 No Withdrawals Permitted 10 ARTICLE X Funding 10.1 Funding 10 ARTICLE XI Change of Control 11.1 Change of Control 11 11.2 Effect of Change of Control 11 ARTICLE XII Plan Administrator 12.1 Appointment of Administrator 12 12.2 Duties and Responsibilities of Plan Administrator 12 ARTICLE XIII Amendment or Termination of Plan 13.1 Amendment or Termination of Plan 12 ARTICLE XIV Miscellaneous 14.1 Non-assignability 12 14.2 Notices and Elections 13 14.3 Delegation of Authority 13 14.4 Service of Process 13 14.5 Governing Law 13 14.6 Binding Effect 13 14.7 Severability 13 14.8 Gender and Number 13 14.9 Titles and Captions 13 Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan Effective January 1, 1995, the Board of Directors of Hilb, Rogal and Hamilton Company (the "Corporation") adopted the Outside Directors Deferral Plan, under which non-employee directors of the Corporation had the opportunity to defer receipt of certain compensation until retirement or departure from the Board. The Board of Directors is of the opinion that it is in the best interests of the Corporation to allow non-employee directors of the Corporation to continue to have the opportunity to defer receipt of certain compensation until retirement or departure from the Board provided that the deferred amounts are aligned with the interests of the Corporation by being tied to the performance of the Corporation's common stock. Therefore, the Board of Directors believes it to be in the best interest of the Corporation to amend and restate the Outside Directors Deferral Plan for such purpose. Pursuant to action taken by the Board of Directors, the Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan (the "Plan") is hereby adopted. The Corporation's Outside Directors Deferral Plan is hereby amended and restated in its entirety as follows: ARTICLE I Definition of Terms The following words and terms as used in this Plan shall have the meaning set forth below, unless a different meaning is clearly required by the context: 1.1 "Account": A bookkeeping account established for a Participant under Article IV hereof. 1.2 "Administrator": The Compensation Committee of the Board is the Plan Administrator unless responsibility is delegated as provided for in Article XII hereof. 1.3 "Affiliate": Any subsidiary, parent, affiliate, or other related business entity to the Corporation. 1.4 "Beneficiary": The person or persons designated by a Participant or otherwise entitled pursuant to Section 8.1 to receive benefits under the Plan attributable to such Participant after the death of such Participant. 1.5 "Benefit Commencement Date": The date irrevocably elected by the Participant pursuant to Section 3.3. The Benefit Commencement Date shall be January 1 following the Participant's having attained age 55, 60, 65, 70 or 75. The same Benefit Commencement Date shall be required for all Deferral Contributions made and Deferral Benefits attributable to a Deferral Year. 1.6 "Board": The present and any succeeding Board of Directors of the Corporation, unless such term is used with respect to a particular Affiliate and its Directors, in which event it shall mean the present and any succeeding Board of Directors of that Affiliate. 1.7 "Code": The Internal Revenue Code of 1986, as the same may be amended from time to time. 1.8 "Compensation": Fees payable to a Participant for service as a member of the Board, including (i) annual retainer fee ("Retainer") and (ii) meeting or committee fees (collectively referred to as "Additional Fees") paid by the Corporation to an Eligible Director, but excluding any such compensation deferred from a prior period, expense reimbursement and allowances and benefits not normally paid in cash to the Participant. 1.9 "Corporation": Hilb, Rogal and Hamilton Company, or any successor thereto. 1.10 "Death Benefit": The benefit with respect to a Participant due a Participant's Beneficiary, determined in accordance with Article VI hereof. 1.11 "Deferral Amount": With respect to each Plan Year, the sum of the Deferral Contributions of a Participant with respect to his Retainer and/or his Additional Fees to be paid during the Plan Year. 1.12 "Deferral Benefit": The balance in a Participant's Deferred Cash Account and Deferred Stock Unit Account. 1.13 "Deferral Contributions": That portion of a Participant's Compensation which is deferred under the Plan or which has been deferred under the Former Plan. 1.14 "Deferral Year": The Plan Year with respect to which a Deferral Contribution is made. For purposes hereof, a Deferral Contribution is considered made with respect to the Plan Year in which the amount would otherwise have been paid to the Participant. 1.15 "Deferral Election": An irrevocable election of a Deferral Amount in writing executed by the Eligible Director or Participant and timely filed with the Administrator. 1.16 "Deferred Cash Account": An unfunded, bookkeeping account maintained on the books of the Corporation for a Participant which reflects his interest in amounts attributable to his Deferred Contributions under the Former Plan. The Deferred Cash Account of a Participant consists of his Deferral Contributions made under the Former Plan with respect to Compensation earned after December 31, 1994 and before April 1, 1998. Separate subdivisions of the Deferred Cash Account shall continue to be maintained to reflect Deferral Contributions made and Deferral Benefits attributable with respect to each Deferral Year and within each Deferral Year, the Deferral Contributions and Deferral Benefits attributable to Deferral Contributions of Retainer and Deferral Contributions of Additional Fees. 1.17 "Deferred Stock Unit": A hypothetical share of the Corporation's common stock. 1.18 "Deferred Stock Unit Account": An unfunded, bookkeeping account maintained on the books of the Corporation for a Participant which reflects his interest in amounts attributable to his Deferred Contributions under the Plan. The Deferred Stock Unit Account of a Participant consists of his Deferral Contributions made under the Plan with respect to Compensation earned after April 1, 1998. Separate subdivisions of the Deferred Stock Unit Account shall be maintained to reflect Deferral Contributions made and Deferral Benefits attributable with respect to each Deferral Year and within each Deferral Year, the Deferral Contributions and Deferral Benefits attributable to Deferral Contributions of Retainer and Deferral Contributions of Additional Fees. 1.19 "Director": An individual who serves as a member of the Board. 1.20 "Effective Date": The Effective Date of the Plan is April 1, 1998. 1.21 "Eligible Director": A Director who is not an employee of the Corporation and who has not reached the age of 75 before the Deferral Year. 1.22 "Former Plan": The Hilb Rogal and Hamilton Company Outside Directors Deferral Plan effective January 1, 1995. 1.23 "Participant": An Eligible Director who elects to participate in the Plan, and further differentiated as follows: (i) "Active Participant": A Participant who has an election to make Deferral Contributions to the Plan in effect at the time in question. (ii) "Inactive Participant": A Participant who does not have an election to make Deferral Contributions to the Plan in effect at the time in question. 1.24 "Plan": This document, as contained herein or duly amended, which shall be known as the "Hilb, Rogal and Hamilton Amended and Restated Outside Directors Deferral Plan". 1.25 "Plan Year": The calendar year or any Short Plan Year. 1.26 "Rate of Return": Nine percent (9%) for the 1995 through 1999 Deferral Years, and nine percent (9%) for Deferral Years after 1999 until, if ever, increased by the Compensation Committee. 1.27 "Short Plan Year": The remaining portion of the calendar year after the Effective Date of this Plan. ARTICLE II Eligibility and Participation 2.1 Eligibility. Each Eligible Director shall be eligible to participate in the Plan and to defer Compensation hereunder for such Plan Year. 2.2 Notice and Election Regarding Active Participation. (a) The Administrator shall notify each Eligible Director within a reasonable period of time prior to the beginning of each Plan Year. (b) In order to become an Active Participant and to make Deferral Contributions with respect to a Plan Year, an Eligible Director must file with the Administrator a Deferral Election, as provided in Section 3.3 which is effective as of the first day of the Plan Year, such election must be filed by the date established by the Administrator, which date shall be no later than the December 31 preceding such Plan Year or the last day before the commencement of a Short Plan Year, whichever is applicable. (c) By executing and filing such election with the Administrator, an Eligible Director consents and agrees to the following: (i) To execute such applications and take such physical examinations and to supply truthfully and completely such information as may be requested by any health questionnaire provided by the Administrator; (ii) To be bound by all terms and conditions of the Former Plan, the Plan and all amendments thereto. 2.3 Commencement of Active Participation. An Eligible Director shall become an Active Participant with respect to a Plan Year only if he is expected to have Compensation during such Plan Year, and he timely files and has in effect a Deferral Election for such Plan Year. 2.4 Length of Participation. An individual who is or becomes a Participant shall be or remain an Active Participant as long as he has a Deferral Election in effect; and he shall be or remain an Inactive Participant as long as he is entitled to future benefits under the terms of the Plan and is not considered an Active Participant. ARTICLE III Determination of Deferral 3.1 Deferral Benefit. For purposes hereof, a Participant's Deferral Benefit shall be the balance in his Deferred Cash Account and his Deferred Stock Unit Account at the time in question. 3.2 Transition Credits. Each Participant who has a balance standing to his credit in the Former Plan as of April 1, 1998, shall be permitted a one-time election, on or before April 1, 1998, to convert all or a portion of the balance standing to his credit in the Former Plan to Deferred Stock Units as of April 1, 1998. A Participant who elects to convert all or a portion of his Deferral Account (as defined in the Former Plan) in the Former Plan to Deferred Stock Units shall be credited with the number of Deferred Stock Units determined by dividing the portion of his Deferred Cash Account under the Former Plan on April 1, 1998 for which such election is made, by the Closing Price of the common stock of the Corporation on the date of the Participant's election. If the formula produces a fractional Deferred Stock Unit, then the fractional Deferred Stock shall be rounded off to the nearest thousandth and credited to the Participant. Once a Participant has made an election under this Section 3.2 to convert some or all of his Deferred Cash Account to Deferred Stock Units of the Corporation, the Corporation's rights and obligations, if any, with respect to the Deferred Stock Units will be governed by this Plan. 3.3 Deferral Election. (a) Subject to the restrictions and conditions hereinafter provided, a Participant may irrevocably elect, as a Deferral Contribution with respect to a Plan Year, to receive an amount of his Compensation which is specified by his Deferral Election for such Plan Year in the form of Deferred Stock Units. Any such election must be filed with the Administrator at the time required under Section 2.2(b). (b) The following conditions apply: (i) The maximum Deferral Contribution of Retainer with respect to any Participant for a Plan Year shall be one hundred percent (100%) of his Retainer for such Plan Year and such election shall be made in whole dollar amounts. A Participant who elects to receive his Retainer in Deferred Stock Units shall have credited to his Deferred Stock Unit Account as of the first day of each calendar quarter the number of Deferred Stock Units determined by dividing that portion of his accrued, deferred Retainer for the quarter (determined by dividing the amount of such Retainer previously selected by the Participant to be applied to the purchase of Deferred Stock Units by four) by the Closing Price as of the first day of such calendar quarter. (ii) The maximum Deferral Contribution of Additional Fees with respect to any Participant for a Plan Year shall be one hundred percent (100%) of his Additional Fees for such Plan Year and such election shall be made in twenty- five percent (25%) increments. A Participant who elects to receive his Additional Fees in Deferred Stock Units shall have credited to his Deferred Stock Unit Account as of the day on which the Additional Fees are accrued the number of Deferred Stock Units determined by multiplying his accrued Additional Fees on said day by the percentage of such Additional Fees previously selected by the Participant to be applied to the purchase of Deferred Stock Units, and dividing the product thereof by the Closing Price as of the day on which the Additional Fees are accrued. (iii) A Participant who elects to defer one hundred percent (100%) of his Compensation shall receive additional Deferred Stock Units equal to thirty percent (30%) of said Participant's Compensation for the Plan Year. Such Deferred Stock Units shall be credited to the Participant in addition to the Deferred Stock Units received as a result of the election to defer the Retainer and Additional Fees in the manner provided by subsections (i) and (ii) above. (iv) A separate Deferral Election must be filed for each Plan Year. (v) Each Deferral Election shall be made on a form provided by the Administrator and shall specify the Deferral Amount and source of deferrals and such additional information as the Administrator may require. (vi) A Deferral Election must specify the period of payment. A Participant may elect to receive a lump sum payment or installment payments over periods of five, ten or fifteen years beginning after age 55, 60, 65, 70 or 75. 3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit Account. All distributions from a Participant's Deferred Cash Account and Deferred Stock Unit Account shall be subtracted when such distributions are made. 3.5 Crediting of Interest to Deferred Cash Account. There shall be credited to each Participant's Deferred Cash Account an amount representing interest on the balance of such account. Under the Former Plan, the interest was credited as of the first day of the Deferral Year. Under this Plan, interest shall be credited as earned. Such interest shall be based on the applicable Rate of Return for the Deferral Year. 3.6 Equitable Adjustment in Case of Error or Omission. If an error or omission is discovered in the Deferred Cash Account and Deferred Stock Unit Account of a Participant, the Administrator shall make such equitable adjustment as the Administrator deems appropriate. 3.7 Statement of Benefits. Within a reasonable time after the end of the Plan Year and at the date a Participant's Deferral Benefit or Death Benefit becomes payable under the Plan, the Administrator shall provide to each Participant (or, if deceased, to his Beneficiary) a statement of the benefit under the Plan. ARTICLE IV Accounts and Investments 4.1 Accounts. A separate Account under the Plan shall be established for each Participant. Such Account shall be (a) credited with the amounts credited in accordance with Sections 3.2 and 3.3, (b) credited (or charged, as the case may be) with the investment results determined in accordance with Sections 4.2 and 4.3, and (c) charged with the amounts paid by the Plan to or on behalf of the Participant in accordance with Article VII. With each Participant's Account, separate subaccounts (including, as necessary, a Deferred Stock Unit Account and a Deferred Cash Account) shall be maintained to the extent that the Board determines them necessary or useful in the administration of the Plan. 4.2 Deferred Stock Units. Except as provided below, a Participant's Deferred Stock Unit Account shall be treated as if it were invested in Deferred Stock Units that are equivalent in value to the fair market value of the shares of the Corporation's common stock in accordance with the following rules: (a) Before the Benefit Commencement Date, the number of Deferred Stock Units credited to a Participant's Deferred Stock Unit Account shall be increased on each date on which a dividend is paid on the Corporation's common stock. The number of additional Deferred Stock Units credited to a Participant's Deferred Stock Unit Account as a result of such increase shall be determined by (i) multiplying the total number of Deferred Stock Units (with fractional Deferred Stock Units rounded off to the nearest thousandth) credited to the Participant's Deferred Stock Unit Account immediately before such increase by the amount of the dividend paid per share of the Corporation's Common Stock on the dividend payment date, and (ii) dividing the product so determined by the Closing Price on the dividend payment date. (b) The dollar value of the Deferred Stock Units credited to a Participant's Deferred Stock Unit Account on any date shall be determined by multiplying the number of Deferred Stock Units (including fractional Deferred Stock Units) credited to the Participant's Deferred Stock Unit Account by the Closing Price on that date. (c) In the event of a transaction or event described in this subsection (c), the number of Deferred Stock Units credited to a Participant's Deferred Stock Unit Account shall be adjusted in such manner as the Board, in its sole discretion, deems equitable. A transaction or event is described in this subsection (c) if (i) it is a dividend (other than regular quarterly dividends) or other distribution (whether in the form of cash, shares, other securities, or other property), extraordinary cash dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split- up, spin-off, repurchase, or exchange of shares or other securities, the issuance or exercisability of stock purchase rights, the issuance of warrants or other rights to purchase shares or other securities, or other similar corporate transaction or event and (ii) the Board determines that such transaction or event affects the shares of the Corporation's Common Stock, such that an adjustment pursuant to this paragraph (c) is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (d) A Participant who elects to receive distribution of his Accounts in annual installments will not have his or her Deferred Stock Unit Account credited with Deferred Stock Units on or after the Benefit Commencement Date. (e) On the Benefit Commencement Date, the Deferred Stock Unit Account of a Participant who has elected to receive his Deferral Benefit in annual installments shall be converted to a Deferred Cash Account which shall accrue annual interest at the Rate of Return. 4.3 Hypothetical Nature of Accounts and Investments. Each Account established under this Article IV shall be maintained for bookkeeping purposes only. Neither the Plan nor any of the Accounts established under the Plan shall hold any actual funds or assets. The Deferred Stock Units established hereunder shall be used solely to determine the amounts to be paid hereunder, shall not represent an equity security of the Corporation, shall not be convertible into or otherwise entitle a Participant to acquire an equity security of the Corporation and shall not carry any voting or dividend rights. ARTICLE V Vesting 5.1 Vesting. A Participant's Deferred Cash Account and Deferred Stock Unit Account shall be fully vested and non- forfeitable at all times. ARTICLE VI Death Benefits 6.1 Pre-Benefit Commencement Date Death Benefit. In the event that a Participant dies prior to his Benefit Commencement Date, then the Participant's Deferred Stock Unit Account shall be converted to a Deferred Cash Account as of the first of January following the Participant's date of death, which Deferred Cash Account shall accrue annual interest thereafter at the Rate of Return to the extent not paid out in a lump sum pursuant to the Participant's election form. If the Participant has not reached age 65 at the time of the Participant's death, the Beneficiary of such Participant shall be entitled to receive as a Death Benefit an amount equal to the Deferral Benefit as of the Benefit Commencement Date that the Participant would have received had the Participant lived to received the full Deferral Benefit. If the Participant is age 65 or older at the time of the Participant's death, the Beneficiary of such Participant shall be entitled to receive as a Death Benefit an amount equal to the Deferral Benefit as of the Participant's date of death. This Death Benefit shall be paid pursuant to the Participant's election form except that the payment shall be made, or begin, on the first of January after the Participant's date of death. 6.2 Post-Benefit Commencement Date Death Benefit. In the event that a Participant dies after his Benefit Commencement Date, then the Beneficiary of such participant shall be entitled to receive as a Death Benefit a continuation of the payment of the Deferral Benefit in the same manner and in the same amount that the Participant would have received had the Participant lived to receive the Deferral Benefit. ARTICLE VII Payment of Benefits 7.1 Payment of Deferral Benefit. A Participant's Deferral Benefit, if any, shall become payable to the Participant as of the Benefit Commencement Date specified in his Deferral Election or as soon thereafter as is administratively practical. If the Participant has elected to receive the Deferral Benefit in installments, each of the Participant's annual installment payments shall be comprised of accrued interest for the year, if any, and that portion of the Participant's Deferral Benefit equal to the balance in the Participant's Deferred Cash Account divided by the number of remaining annual installment payments to be made to the Participant. 7.2 Payment of Death Benefit. A Participant's pre- commencement Death Benefit shall be payable to his Beneficiary as set forth in Article VI. A Participant's post-commencement Death Benefit shall be paid in installments payable annually over the period irrevocably elected by the Participant pursuant to his Deferral Election. 7.3 Form of Payment of Deferral Benefit. A Participant shall be paid his Deferral Benefit beginning at the Benefit Commencement Date in a lump sum or in periodic installment payments payable annually over a period of five, ten, or fifteen years as irrevocably elected by the Participant pursuant to Section 3.3. 7.4 Benefit Determination and Payment Procedure. The Administrator shall make all determinations concerning eligibility for benefits under the Plan, the time or terms of payment, and the form or manner of payment to the Participant or the Participant's Beneficiary, in the event of the death of the Participant. The Administrator shall promptly notify the Corporation of each such determination that benefit payments are due and provide to the Corporation all other information necessary to allow the Corporation to carry out said determination, whereupon the Corporation shall pay such benefits in accordance with the Administrator's determination. 7.5 Payments to Minors and Incompetents. If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, or is deemed so by the Administrator, benefits will be paid to such person as the Administrator may designate for the benefit of such Participant or Beneficiary. Such payments shall be considered a payment to such Participant or Beneficiary and shall, to the extent made, be deemed a complete discharge of any liability for such payments under the Plan. 7.6 Distribution of Benefit When Distributee Cannot Be Located. The Administrator shall make all reasonable attempts to determine the identity and/or whereabouts of a Participant or a Participant's Beneficiary entitled to benefits under the Plan, including the mailing by certified mail of a notice to the last known address shown on the Corporation's or the Administrator's records. If the Administrator is unable to locate such a person entitled to benefits hereunder, or if there has been no claim made for such benefits, the Corporation shall continue to hold the benefit due such person, subject to any applicable statute of escheats. ARTICLE VIII Beneficiary Designation 8.1 Beneficiary Designation. (a) A Participant may designate a Beneficiary as part of his Deferral Election. Any Beneficiary designation made hereunder shall be effective only if properly signed and dated by the Participant and delivered to the Administrator prior to the time of the Participant's death. Any Beneficiary designation hereunder shall remain effective until changed or revoked hereunder. (b) A Beneficiary designation may be changed by the Participant at any time, or from time to time, by filing a new designation in writing with the Administrator. (c) If the Participant dies without having designated a Beneficiary, or if the Beneficiary so designated has predeceased him, then his estate shall be deemed to be his Beneficiary. (e) If a Beneficiary of the Participant shall survive the Participant but shall die before the Participant's entire benefit under the Plan has been distributed, then the unpaid balance thereof shall be distributed to any other beneficiary named by the deceased Beneficiary to receive his interest or, if none, to the estate of the deceased Beneficiary. ARTICLE IX Withdrawals 9.1 No Withdrawals Permitted. No withdrawals or other distributions shall be permitted from the Deferred Cash Account and Deferred Stock Unit Account except as provided in Article VII. ARTICLE X Funding 10.1 Funding. (a) All Plan Participants and Beneficiaries are general unsecured creditors of the Corporation with respect to the benefits due hereunder and the Plan constitutes a mere promise by the Corporation to make benefit payments in the future. It is the intention of the Corporation that the Plan be considered unfunded for tax purposes. (b) The Corporation may, but is not required to, purchase life insurance in amounts sufficient to provide some or all of the benefits provided under this Plan or may otherwise segregate assets for such purpose. (c) The Corporation may, but is not required to, establish a grantor trust which may be used to hold assets of the Corporation which are maintained as reserves against the Corporation's unfunded, unsecured obligations hereunder. Such reserves shall at all times be subject to the claims of the Corporation's creditors. To the extent such trust or other vehicle is established, and assets contributed, for the purpose of fulfilling the Corporation's obligation hereunder, then such obligation of the Corporation shall be reduced to the extent such assets are utilized to meet its obligations hereunder. Any such trust and the assets held thereunder are intended to conform in substance to the terms of the model trust described in Revenue Procedure 92-64. ARTICLE XI Change of Control 11.1 Change of Control. A "Change of Control" shall mean and shall be deemed to have taken place if: (i) any individual, entity or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the beneficial owner of shares of the Company having 25 percent or more of the total number of votes that may be cast for the election of directors of the Company, other than (x) as a result of any acquisition directly from the Company, or (y) as a result of any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or its subsidiaries; or (ii) a change in the composition of the Board such that the individuals who, as of the date hereof, constitute the Board (the Board as of such date shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section, that any individual who becomes a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a- 11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board shall not be so considered as a member of the Incumbent Board. 11.2 Effect of Change of Control. Notwithstanding any other provision in any other Article of this Plan to the contrary, (i) the value of all amounts deferred by a Participant which have not yet been credited to the Participant's Account and (ii) the value of such Participant's Account shall be paid to such Participant in each case in a lump- sum cash payment on the occurrence of a Change of Control or as soon thereafter as practicable, but in no event later than five days after the Change of Control. The amount of cash credited to each Participant's Account prior to determining the amount of cash to be paid from the Account shall be determined by the Board (which, for this purpose, shall be comprised of employee members of the Board prior to the Change of Control) so as to reflect fairly and equitably appropriate interest and dividends and circumstances as the Board deems appropriate, including, without limitation, the recent price of shares of the Corporation's common stock. For purposes of payments under this Article XI, the value of a Deferred Stock Unit shall be computed as the greater of (1) the Closing Price on or nearest the date on which the Change of Control is deemed to occur, or (2) the highest per share price for shares of the Corporation's common stock actually paid in connection with the Change of Control. ARTICLE XII Plan Administrator 12.1 Appointment of Administrator. (a) The Compensation Committee may appoint one or more persons to serve as the Plan Administrator (the "Administrator") for the purpose of administering the Plan. In the event more than one person is appointed, the persons shall form a committee for the purpose of functioning as the Administrator of the Plan. The person or committeemen serving as Administrator shall serve for indefinite terms at the pleasure of the Compensation Committee, and may, by thirty (30) days prior written notice to the Compensation Committee, terminate such appointment. 12.2 Duties and Responsibilities of Plan Administrator. (a) The Administrator shall maintain and retain necessary records regarding its administration of the Plan. (b) The Administrator is empowered to settle claims against the Plan and to make such equitable adjustments in a Participant's or Beneficiary's rights or entitlements under the Plan as it deems appropriate in the event an error or omission is discovered or claimed in the operation or administration of the Plan. (c) The Administrator may construe the Plan, correct defects, supply omissions or reconcile inconsistencies to the extent necessary to effectuate the Plan, and such action shall be conclusive. ARTICLE XIII Amendment or Termination of Plan 13.1 Amendment or Termination of the Plan. The Plan may be terminated or amended at any time by the Board, effective as of any date specified. Any such action taken by the Board shall be evidenced by a resolution and shall be communicated to Participants and Beneficiaries prior to the effective date thereof. No amendment or termination shall decrease a Participant's Deferral Benefit accrued prior to the effective date of the amendment or termination. The Board reserves the right to unilaterally shorten the deferral period of any Participant hereunder in its sole discretion if, in its sole discretion, it determines that to do so will be fair and equitable to the Participant. ARTICLE XIV Miscellaneous 14.1 Non-assignability. The interests of each Participant under the Plan are not subject to claims of the Participant's creditors; and neither the Participant nor his Beneficiary shall have any right to sell, assign, transfer or otherwise convey the right to receive any payments hereunder or any interest under the Plan, which payments and interest are expressly declared to be non-assignable and non-transferable. 14.2 Notices and Elections. All notices required to be given in writing and all elections required to be made in writing under any provision of the Plan shall be invalid unless made on such forms as may be provided or approved by the Administrator and, in the case of a notice or election by a Participant or Beneficiary, unless executed by the Participant or Beneficiary giving such notice or making such election. Notices and elections shall be deemed given or made when received by any member of the committee that serves as Administrator. 14.3 Delegation of Authority. Whenever the Corporation is permitted or required to perform any act, such act may be performed by its Chief Executive Officer or President or other person duly authorized by its Chief Executive Officer or President or its Board. 14.4 Service of Process. The Administrator shall be the agent for service of process on the Plan. 14.5 Governing Law. The Plan shall be construed, enforced and administered in accordance with the laws of the Commonwealth of Virginia. 14.6 Binding Effect. The Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and the Participant and his heirs, executors, administrators and legal representatives. 14.7 Severability. If any provision of the Plan should for any reason be declared invalid or unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless remain in full force and effect. 14.8 Gender and Number. In the construction of the Plan, the masculine shall include the feminine or neuter and the singular shall include the plural and vice-versa in all cases where such meanings would be appropriate. 14.9 Titles and Captions. Titles and captions and headings herein have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. IN WITNESS WHEREOF, the Corporation has caused the Plan to be signed on its behalf by its duly authorized officer on the 1st day of April, 1998. Hilb, Rogal and Hamilton Company By: /s/ Dianne F. Fox Its Senior Vice-President and Secretary 0396446.05 EX-13 7 EXHIBIT 13 [Cover] (An abstract photograph of a swinging metal kinetic ball depicting momentum) Hilb, Rogal and Hamilton Company 1997 Annual Report Our Business: Hilb, Rogal and Hamilton Company serves as an intermediary between our clients-who are traditionally the middle market businesses of the nation-and insurance companies that underwrite client risks. With more than 60 agencies, Hilb, Rogal and Hamilton Company is able to assist clients in managing their risks in areas such as property and casualty, employee benefits and other areas of specialized exposure. Revenues are derived primarily from commissions received from insurance companies with whom client risk is placed. Support services related to risk transfer transactions are an additional revenue source. As an industry leader, the Company expands its business by developing new clients, providing additional services to current clients and maintaining a well- focused merger and acquisition strategy. Contents: 4 LETTER TO SHAREHOLDERS 8 MASS + FORCE + ACCELERATION + TRAJECTORY 17 SELECTED FINANCIAL DATA 18 MANAGEMENT'S DISCUSSION AND ANALYSIS 20 CONSOLIDATED BALANCE SHEET 21 STATEMENT OF CONSOLIDATED INCOME 22 STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY 23 STATEMENT OF CONSOLIDATED CASH FLOWS 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 REPORT OF ERNST & YOUNG LLP 31 BOARD OF DIRECTORS AND OFFICERS 32 AGENCY LOCATIONS (BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION) Basic Net Income Per Share Year In Dollars - --------------------------- 1997 .98 1996 .84 1995 .82 1994 .77 1993 .57 (BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION) Basic Operating Cash Flow Per Share Year In Dollars - --------------------------- 1997 1.87 1996 1.65 1995 1.49 1994 1.40 1993 1.24 (BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION) Total Revenues Year In Millions of Dollars - --------------------------------------- 1997 173.7 1996 158.2 1995 148.1 1994 140.8 1993 141.7 (BAR GRAPH REFLECTING THE FOLLOWING FINANCIAL INFORMATION) Net Income Year In Millions of Dollars - --------------------------------------- 1997 12.8 1996 11.4 1995 11.8 1994 11.4 1993 8.3 (An abstract photograph of a kinetic metal ball with an overlay of the words Mass + Force + Acceleration + Trajectory = Momentum) (Abstract photograph with the word Momentum centered on the page) Remember how momentum felt when you were a child? It felt like sitting on your bicycle at the top of a big hill, struggling to push the pedals to get the bike moving forward. You started off slowly, then picked up speed-the wheels moving faster and faster, the wind rushing in your face-as the bike took on a life of its own and raced effortlessly down the slope. And as you hung on to the handlebars and guided the bicycle down the hill to your final destination, you knew that nothing could stop you. It felt exhilarating. It felt empowering. That's how 1997 felt at Hilb, Rogal and Hamilton Company. [Photograph of Andrew L. Rogal, President and Chief Executive Officer] To our shareholders: 1997 was a tremendous year for Hilb, Rogal and Hamilton Company. We created value for our shareholders and strengthened our competitive position in the marketplace. Perhaps even more exciting, we generated real momentum in 1997; momentum that will enable us to continue the exciting pace of change that has so positively impacted our business. Our stock price rose from $13.25 per share at December 31, 1996 to $19.3125 at December 31, 1997-a 46% increase. This represented the second highest increase in our industry and marked our stock's highest level since the fourth quarter of 1989. Our market capitalization rose from $176.5 million at December 31, 1996 to $247.5 million at December 31, 1997, representing the creation of over $70.0 million in value to our shareholders. Basic earnings per share increased by more than 16%, from $.84 per share in 1996 to $.98 per share in 1997. Operating cash flow (net income plus amortization and depreciation) was $24.5 million in 1997, 10% higher than the 1996 level. Basic operating cash flow per share, calculated under the same method used for net income per share, was $1.87 in 1997, a 13% increase over $1.65 in 1996. Operating cash flow is a relevant measure of financial performance for shareholders because it measures the Company's ability to support growth through acquisitions, repurchase stock and pay dividends. The Company is using its powerful operating cash flow in a disciplined fashion to build long-term shareholder value. Operating cash flow, however, is not a substitute for net income per share. In addition, our offices reported core commission growth of over 3%, which is strong considering the difficult market conditions in our industry. Total revenues increased from $158.2 million in 1996 to $173.7 million in 1997. We also continued our stock buyback program, purchasing 700,000 shares in 1997. This reduced our number of shares outstanding to 12,813,023 at December 31, 1997. How We Gained Momentum The momentum we gained in 1997 was largely due to the Company's new focus on operating in ways that create greater value. This focus served as the filter for all that we did last year and drove every aspect of our business. Yet, there were several specific factors which I believe contributed to our growth and success. The Strategic Plan. In May 1997, the Board of Directors approved our Strategic Plan for the Company. The goals of this plan are: to become the premier domestic middle market insurance and risk services intermediary; to double earnings within three to five years; and to continue to cultivate a corporate culture which focuses on the creation of value through commitments to employees, excellence and communication. The Strategic Plan gave our Company a defined course to follow and set us in motion toward meeting these goals. It united our leadership and our employees and now serves as the basis for all we strive to do as a business. A Redefined Operating Structure. We have always believed in the strength of our people. Now we have given them an operating platform that's equally strong. The completion of our regionalization strategy made us stronger, providing our operating units a better way to compete with both public national and private regional firms while also making us more attractive to insurance carriers. With an eye toward creating greater value, in 1997 we began the process of rationalizing our operations along two core business groups: cost-based business and value-based business. In our cost-based business-i.e., small commercial lines-we began focusing on providing effective and efficient delivery of service to achieve a cost-competitive advantage. In our value-based business - -such as middle market commercial lines, employee benefits and association programs-we committed ourselves to offering clients significant industry and product expertise while maintaining a high level of personal service and client intimacy. This realignment of our core business will fuel continued increases in our Company's revenue growth. Strategic Mergers and Acquisitions. In 1997, we completed our transition from a revenue-based acquisition program to a specialty/expertise-based program. The existing program is focused on acquisitions which fit into the Strategic and Regional Plans and entities which provide a specialty or product expertise that can be exported throughout the Company. During 1997, the Company consummated six acquisitions. This new approach to acquisitions also applied to divestitures. Throughout the year, the Company divested itself of offices which were consistent underperformers - -or whose businesses or locations no longer matched our Strategic Plan-in order to maximize the return on core assets and our value to shareholders. During 1997, the Company divested of four such offices. An Empowered Team. New leadership was put into place at all levels of the organization and a new spirit of enthusiasm swept across our ranks. The Company renewed its dedication to its employees and committed itself to nurturing its work culture based upon excellence and communication. Through our Strategic Plan, shared values were created and embraced by everyone in the Company. Our Regional Directors began aggressively implementing the Strategic Plan and our people responded with astounding energy. New incentive programs were developed to reward these individuals and their outstanding efforts directly contributed to our bottom line. A Consolidating Industry. Dramatic changes occurred within our industry in the last year. Mergers took several of our competitors off the playing field, as the larger brokers continued to focus on national and global accounts. Because these larger players view small and middle market accounts as commodity business, we gained an important competitive advantage in the marketplace. Our value-based approach to these accounts made us more attractive to middle market clients in 1997. We are now positioned to become a dominant player in the middle market. Moving Toward the Future The momentum we generated in 1997 has placed us in a position of strength in 1998 and we are poised to capitalize upon the many opportunities which have been created. Clearly, the steps we took in the last year that contributed to our success will continue to positively impact us in the future. We will maintain our strategy of specialty/expertise-based acquisitions and will continue our policy of divesting underperforming assets. We will also continue our aggressive stock buyback program as a strategy to create greater shareholder value. The speed of change in our Company has been dramatic and these changes have greatly accelerated our growth. But many changes remain to be made as we seek to ensure outstanding service to our clients and disciplined control of the Company's expenses. More change will be necessary to complete the realignment of our Company on a line-of-business basis. Likewise, more changes will take place to maintain the sound financial management of the Company. Our financial organization has been restructured to include regional controllers. And, as part of our effort to increase value for shareholders, we will slow the growth of our dividend, using those dollars to return more value for shareholders through acquisitions and stock repurchases. All of these efforts will be driven by our Strategic Plan and our ongoing commitment to creating value in all that we do. In closing, I'd like to thank the people of HRH for their hard work and dedication throughout 1997. Our Company's greatest asset has always been its people. Working together-and moving in the same direction, with the same focus-our people have unleashed a powerful energy that will sustain our Company for years to come. Our goal is to become the premier domestic middle market insurance and risk services intermediary through the superb implementation of the Strategic Plan. That goal is now within our reach, and we have the talent, the will and the momentum needed to carry us there. On behalf of everyone at Hilb, Rogal and Hamilton Company, I thank you for your continued support. We look forward to bringing you even stronger results in the years to come. Sincerely, Andrew L. Rogal President and Chief Executive Officer Mass(mas)-n. 1. The quantity of matter that an object contains; a measure of an object's potential for acceleration. 2. A grouping of individual parts or elements that compose a unified body. (An abstract photograph of a kinetic metal ball depicting mass) "We have always believed in the strength of our people. Now we have given them an operating platform that's equally strong." As the direct liaison between our Company and the clients we serve, the employees of Hilb, Rogal and Hamilton Company are our most important resource. Now we are giving our employees even greater opportunities. HRH has made a special commitment to providing employees the tools they need to be more successful. Through our empowered operating structure, increased training and development, improved communications and special incentive programs tied to performance, the employees of HRH will be able to create greater value for the Company and its shareholders. Behind the scenes, HRH's human resources department is making great strides towards acquiring and retaining top talent for our Company. Our goal is to keep HRH employee- sensitive and family-friendly, even as we grow in size. New benefit packages and other programs are being implemented to keep current employees happy and productive, while new employees are being oriented to the Company more quickly and efficiently. Force(fo^rs) - n. 1. Vector quantity that, when applied to an object, leads to acceleration. 2. A power that causes an object to change direction. (An abstract photograph of a kinetic metal ball catapulting a smaller kinetic metal ball into the air) "Working together-and moving in the same direction, with the same focus-our people have unleashed a powerful energy." New leadership throughout the Company has been the driving force behind many of the positive changes that have taken place at HRH. Our strong regional units are led by aggressive individuals who are seeking to achieve higher levels of success than ever before. With the complete support of employees who have found enthusiasm and motivation in the new operating structure, the Company has begun moving forward in new and significant ways. Changes have also occurred in the Corporate Office that are driving improvements in the Company. Timothy J. Korman was appointed Executive Vice President of Finance and Administration, while Carolyn Jones was named Senior Vice President, Chief Financial Officer and Treasurer. Our financial organization was further strengthened with the appointments of Vincent P. Howley to Vice President of Agency Financial Operations and Robert W. Blanton, Jr. to Assistant Vice President and Controller. Henry C. Kramer was appointed Vice President of Human Resources and Robert J. Hilb was promoted to Vice President responsible for corporate risk management. These new leaders are committed to building an operationally-strong, financially- sound organization. Acceleration (ak-sel`e-ra shen) - n. 1. The rate at which an object changes velocity with respect to time. 2. The act of accelerating. (An abstract photograph of a kinetic metal ball depicting acceleration.) "The speed of change in our Company has been dramatic-and these changes have greatly accelerated our growth." Hilb, Rogal and Hamilton Company has become one of the largest insurance and risk services intermediaries in the nation-operating more than 60 offices in the United States and Canada. But changes in our industry have created an even greater opportunity for HRH. Consolidation has left fewer players in the middle market field, as the newly-consolidated intermediaries turn their attention to national and global accounts. The establishment of regional operating units allows our Company to compete successfully for middle market companies in need of risk management services. Our size allows us to provide more value to clients in the middle market by sharing specialties and expertise from other offices throughout the Company. This high level of service allows us to compete successfully with both public national and private regional firms. These advantages, combined with shrinking competition in the field, position us to become dominant in the middle market-a position we are confident we can achieve. Trajectory (tra-jek'te-re) - n. 1. The path that an object follows as it moves through space. 2. A chosen course or a course taken. (An abstract photograph of a kinetic metal ball hitting its target) "The Strategic Plan gave our Company a defined course to follow and set us in motion toward meeting these goals." The development and implementation of a new Strategic Plan was a critical step in our Company's growth. Through the successful implementation of this Plan, we believe that Hilb, Rogal and Hamilton Company can double earnings within three to five years, while becoming the premier independent, domestic middle market insurance and risk services intermediary. To reach this goal, the Company will continue to cultivate a corporate culture which focuses on the creation of value through commitments to employees, excellence and communication. The Strategic Plan specifically requires a commitment to improving our distribution system by increasing our range of services; to achieving an increase in core commissions and fees through internal growth and strategically- focused acquisitions; to enhancing the creation of a performance oriented culture through compensation and incentive programs; to improving communications within the Company and to continuing the identification and elimination of non-productive costs. We are firmly committed to following this Plan-and are confident it will succeed. data + analysis + notes + operations Selected Financial Data
Year Ended December 31 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Statement of Consolidated Income Data:1 Commissions and fees $168,558 $153,968 $141,555 $132,914 $137,662 Investment and other income2 5,151 4,275 6,592 7,895 3,994 -------- -------- -------- -------- -------- Total revenues 173,709 158,243 148,147 140,809 141,656 Compensation and employee benefits 96,240 88,406 82,761 78,311 82,470 Other operating expenses 45,477 41,951 38,264 35,976 37,774 Amortization of intangibles 8,110 7,596 6,966 6,436 6,581 Interest expense 2,037 1,245 559 812 1,270 Pooling-of-interests expense - - - 488 503 -------- -------- -------- -------- -------- Total expenses 151,864 139,198 128,550 122,023 128,598 Income before income taxes 21,845 19,045 19,597 18,786 13,058 Income taxes 9,055 7,639 7,768 7,394 4,765 -------- -------- -------- -------- -------- Net income $ 12,790 $ 11,406 $ 11,829 $ 11,392 $ 8,293 ======== ======== ======== ======== ======== Net income per Common Share:3 Basic $ 0.98 $ 0.84 $ 0.82 $ 0.77 $ 0.57 ======== ======== ======== ======== ======== Diluted $ 0.97 $ 0.84 $ 0.82 $ 0.77 $ 0.57 ======== ======== ======== ======== ======== Weighted average number of shares outstanding: Basic 13,099 13,500 14,470 14,778 14,459 ======== ======== ======== ======== ======== Diluted 13,215 13,526 14,480 14,785 14,538 ======== ======== ======== ======== ======== Dividends paid per Common Share $ 0.62 $ 0.605 $ 0.57 $ 0.50 $ 0.45 Consolidated Balance Sheet Data: Intangible assets, net $ 82,170 $ 80,006 $ 60,854 $ 48,729 $ 49,454 Total assets 181,607 181,475 163,249 158,895 160,922 Long-term debt, less current portion 32,458 27,196 11,750 3,173 7,249 Other long-term liabilities 9,537 9,870 7,514 2,144 2,889 Total shareholders' equity 51,339 55,298 56,646 66,430 64,157
1. See Note K of Notes to Consolidated Financial Statements for information regarding business purchase transactions which impact the comparability of this information. In addition, during the years ended December 31, 1994 and 1993, the Company consummated four and six purchase acquisitions, respectively. 2. During 1997, 1996, 1995, 1994 and 1993, the Company sold certain insurance accounts and other assets resulting in gains of approximately $2,475,000, $1,856,000, $3,337,000, $5,044,000 and $1,735,000, respectively. 3. The net income per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement No. 128). For further discussion of net income per share and the impact of Statement No. 128, see Note A and Note J of Notes to Consolidated Financial Statements. Management's Discussion and Analysis of Financial Condition and Results of Operations The income of an insurance agency business such as the Company is principally derived from commissions earned, which are generally percentages of premiums placed with insurance underwriters. Premium pricing within the insurance underwriting industry has been cyclical and has displayed a high degree of volatility based on prevailing economic and competitive conditions. Decreases in premium rates result directly in revenue decreases to the Company. Since 1987, the property and casualty insurance industry has been in a "soft market," during which the underwriting capacity of insurance companies expanded, stimulating an increase in competition and a decrease in premium rates and related commissions and fees. The effect of the softness in rates on the Company's revenues has been offset by the Company's acquisitions and new business programs. Management cannot predict the timing or extent of premium pricing changes due to market conditions or their effects on the Company's operations in the future, but believes that the "soft market" conditions will continue into 1998. Results of Operations Total revenues for 1997 were $173.7 million, an increase of $15.5 million or 9.8% over 1996. For 1996, total revenues were $158.2 million, an increase of $10.1 million or 6.8% from 1995. Commissions and fees for 1997 were $168.6 million, or 9.5% higher than 1996. Approximately $18.3 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.1 million from the sale of certain offices and accounts in 1997 and 1996. Core commissions and fees from continuing operations increased 3.1%. Commissions and fees for 1996 were $154.0 million, or 8.8% higher than 1995. Approximately $14.7 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $2.2 million from the sale of certain offices and accounts in 1996 and 1995. Investment and other income increased by $0.9 million in 1997 and decreased by $2.3 million in 1996. These amounts include gains of $2.5 million, $1.9 million and $3.3 million in 1997, 1996 and 1995, respectively, from the sale of certain offices, insurance accounts and other assets. Total operating expenses for 1997 were $151.9 million, an increase of $12.7 million or 9.1% from 1996. For 1996, total operating expenses were $139.2 million, an increase of $10.6 million or 8.3% from 1995. Compensation and employee benefits costs for 1997 were $96.2 million, an increase of $7.8 million or 8.9% from 1996. Increases include approximately $9.3 million related to purchase acquisitions and increases of $1.7 million in incentive compensation related to improved operating results offset by decreases of $3.0 million related to offices sold in 1997 and 1996. Compensation and employee benefits costs for 1996 were $88.4 million, an increase of $5.6 million or 6.8% from 1995. Increases include approximately $7.1 million related to purchase acquisitions offset by decreases of $1.1 million related to offices sold in 1996 and 1995. Other operating expenses for 1997 were $45.5 million, or 8.4% higher than 1996. Increases relate primarily to purchase acquisitions and consulting fees totaling $1.0 million associated with the Company's strategic plan offset in part by the sale of certain offices in 1997 and 1996. Other operating expenses for 1996 were $42.0 million, or 9.6% higher than 1995. Increases relate primarily to purchase acquisitions offset in part by the sale of certain offices in 1996 and 1995. Amortization expense primarily reflects the amortization of expiration rights, an intangible asset acquired in the purchase of insurance agencies. Amortization expense increased by $0.5 million or 6.8% in 1997 and by $0.6 million or 9.0% in 1996 which is attributable to purchase acquisitions consummated during 1997, 1996 and 1995 offset by decreases from amounts which became fully amortized or were sold in those years. The effective tax rates for the Company were 41.5% in 1997, 40.1% in 1996 and 39.6% in 1995. An analysis of the effective income tax rates is presented in "Note G-Income Taxes" of Notes to Consolidated Financial Statements. Over the last three years, inflationary pressure has been relatively modest and did not have a significant effect on the Company's operations. Liquidity and Capital Resources Net cash provided by operations totaled $21.0 million, $16.6 million and $16.2 million for the years ended December 31, 1997, 1996 and 1995, respectively, and is primarily dependent upon the timing of the collection of insurance premiums from clients and payment of those premiums to the appropriate insurance underwriters. The Company has historically generated sufficient funds internally to finance capital expenditures for personal property and equipment. Cash expenditures for the acquisition of property and equipment were $2.1 million, $5.1 million and $4.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. The timing and extent of the purchase of investments is dependent upon cash needs and yields on alternate investments and cash equivalents. In addition, during 1997 and 1996, total investments decreased by $2.4 million and $4.2 million, respectively, as the Company utilized these funds for the repurchase of Common Stock of the Company and the acquisition of insurance agencies. Cash expenditures for the purchase of insurance agencies accounted for under the purchase method of accounting amounted to $9.3 million, $9.7 million and $6.5 million in the years ended December 31, 1997, 1996 and 1995, respectively. Cash expenditures for such insurance agency acquisitions have been funded primarily through operations and from long-term borrowings. In addition, a portion of the purchase price in such acquisitions may be paid through Common Stock and deferred cash payments. Cash proceeds from the sale of certain offices, insurance accounts and other assets totaled $6.5 million, $2.5 million and $3.5 million in the years ended December 31, 1997, 1996 and 1995, respectively. The Company did not have any material capital expenditure commitments as of December 31, 1997. Financing activities utilized cash of $16.0 million, $6.0 million and $22.1 million for the years ended December 31, 1997, 1996 and 1995, respectively, as the Company made scheduled debt payments and annually paid its dividend. In addition, during 1997, 1996 and 1995, the Company repurchased 700,000, 801,700 and 1,336,820, respectively, shares of its Common Stock under a stock repurchase program. The Company is currently authorized to purchase an additional 723,000 shares and anticipates that it will continue to repurchase shares in 1998. The Company has a bank credit agreement for $30.0 million under loans due in 2002. At December 31, 1997, there were loans of $30.0 million outstanding under this agreement. The Company had a current ratio (current assets to current liabilities) of 0.87 to 1.00 as of December 31, 1997. Shareholders' equity of $51.3 million at December 31, 1997, decreased from $55.3 million at December 31, 1996, and the debt to equity ratio of 0.63 to 1.00 at December 31, 1997 increased from the last year-end ratio of 0.49 to 1.00 due to the aforementioned purchase of Common Stock of the Company and an increase in borrowings to $30.0 million under the bank agreement used for insurance agency acquisitions and the repurchase of Common Stock. The Company believes that cash generated from operations, together with proceeds from borrowings, will provide sufficient funds to meet the Company's short and long-term funding needs. Impact of Year 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or in the year 2000. The potential costs and uncertainties to companies in addressing this issue (the Year 2000 Issue) will depend on a number of factors, including their software and hardware and the nature of their industries. Companies must also coordinate with other entities with which they electronically interact, including suppliers, clients, creditors and financial service organizations. The Company has examined the Year 2000 Issue and the potential costs and consequences to the Company in addressing this issue. The Company is also communicating with third parties with which it does business to coordinate further action with respect to the Year 2000 Issue. The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. As a result, management believes that the Year 2000 Issue will not have a material impact on the Company's results of operations and that the cost of the Company addressing the issue is not a material event or uncertainty. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be realized and actual results could differ materially from those anticipated. Forward-Looking Statements When used in this annual report, in Form 10-K or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized Company executive officer, the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. While forward-looking statements are provided to assist in the understanding of the Company's anticipated future financial performance, the Company cautions readers not to place undue reliance on any forward- looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by such forward-looking statements for a variety of reasons. Risk factors and uncertainties that might cause such a difference include, but are not limited to the following: the Company's commission revenues are highly dependent on premiums charged by insurers, which are subject to fluctuation; the property and casualty insurance industry continues to experience a prolonged "soft market" despite high losses; continued low interest rates will reduce income earned on invested funds; the insurance brokerage and service businesses are extremely competitive with a number of competitors being substantially larger than the Company; the alternative insurance market continues to grow; the Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business production; and the general level of economic activity can have a substantial impact on the Company's renewal business. The Company's ability to grow has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to the Company. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. Consolidated Balance Sheet
December 31 1997 1996 - ------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents, including $7,645,000 and $11,260,000, respectively, of restricted funds $ 22,314,860 $ 19,774,374 Investments 3,892,533 5,088,020 Receivables: Premiums, less allowance for doubtful accounts of $2,299,000 and $2,445,000, respectively 41,292,489 41,453,677 Other 5,720,513 6,122,612 ------------ ------------ 47,013,002 47,576,289 Prepaid expenses and other current assets 3,612,523 3,816,819 ------------ ------------ TOTAL CURRENT ASSETS 76,832,918 76,255,502 INVESTMENTS 5,030,000 6,185,686 PROPERTY AND EQUIPMENT, NET 11,762,080 16,092,075 INTANGIBLE ASSETS Expiration rights 75,193,075 76,402,292 Goodwill 33,411,145 32,718,982 Noncompetition agreements 11,636,847 11,421,278 ------------ ------------ 120,241,067 120,542,552 Less accumulated amortization 38,071,304 40,536,482 ------------ ------------ 82,169,763 80,006,070 OTHER ASSETS 5,811,797 2,936,014 ------------ ------------ $181,606,558 $181,475,347 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Premiums payable to insurance companies $ 67,520,370 $ 66,527,381 Accounts payable and accrued expenses 10,925,646 11,401,805 Premium deposits and credits due customers 7,752,502 8,837,483 Current portion of long-term debt 2,074,788 2,345,059 ------------ ------------ TOTAL CURRENT LIABILITIES 88,273,306 89,111,728 LONG-TERM DEBT 32,457,882 27,195,571 OTHER LONG-TERM LIABILITIES 9,536,771 9,869,777 SHAREHOLDERS' EQUITY Common Stock, no par value; authorized 50,000,000 shares;outstanding 12,813,023 and 13,320,577 shares, respectively 16,540,461 25,266,279 Retained earnings 34,798,138 30,031,992 ------------ ------------ 51,338,599 55,298,271 ------------ ------------ $181,606,558 $181,475,347 ============ ============
See notes to consolidated financial statements. Statement of Consolidated Income
Year Ended December 31 1997 1996 1995 - ---------------------------------------------------------------------------------------- Revenues Commissions and fees $168,558,411 $153,967,914 $141,555,188 Investment and other income 5,150,469 4,275,186 6,591,850 ------------ ------------ ------------ 173,708,880 158,243,100 148,147,038 Operating expenses Compensation and employee benefits 96,239,782 88,406,342 82,760,664 Other operating expenses 45,476,904 41,950,933 38,264,085 Amortization of intangibles 8,110,010 7,596,274 6,965,947 Interest expense 2,037,338 1,244,729 559,654 ------------ ------------ ------------ 151,864,034 139,198,278 128,550,350 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 21,844,846 19,044,822 19,596,688 Income Taxes 9,054,995 7,638,431 7,767,778 ------------ ------------ ------------ NET INCOME $ 12,789,851 $ 11,406,391 $ 11,828,910 ============ ============ ============ NET INCOME PER COMMON SHARE: BASIC $ 0.98 $ 0.84 $ 0.82 ============ ============ ============ DILUTED $ 0.97 $ 0.84 $ 0.82 ============ ============ ============
See notes to consolidated financial statements. Statement of Consolidated Shareholders' Equity
Common Retained Stock Earnings - ------------------------------------------------------------------------- Balance at January 1, 1995 $43,426,295 $23,003,861 Issuance of 318,326 shares of Common Stock 3,817,746 Purchase of 1,336,820 shares of Common Stock (17,389,044) Payment of dividends ($.57 per share) (8,209,877) Other 48,903 119,096 Net income 11,828,910 ------------ ------------ Balance at December 31, 1995 29,903,900 26,741,990 Issuance of 462,170 shares of Common Stock 6,251,661 Purchase of 801,700 shares of Common Stock (10,845,095) Payment of dividends ($.605 per share) (8,116,389) Other (44,187) Net income 11,406,391 ------------ ------------ Balance at December 31, 1996 25,266,279 30,031,992 Issuance of 192,446 shares of Common Stock 2,895,697 Purchase of 700,000 shares of Common Stock (11,338,557) Payment of dividends ($.62 per share) (8,023,705) Other (282,958) Net income 12,789,851 ------------ ------------ Balance at December 31, 1997 $16,540,461 $34,798,138 ============ ============
See notes to consolidated financial statements. Statement of Consolidated Cash Flows
Year Ended December 31 1997 1996 1995 - ---------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $12,789,851 $11,406,391 $11,828,910 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 8,110,010 7,596,274 6,965,947 Depreciation and amortization 3,557,298 3,259,452 2,790,772 ----------- ----------- ----------- Net income plus amortization and depreciation 24,457,159 22,262,117 21,585,629 Provision for losses on receivables 383,670 1,276,258 1,500,231 Provision for deferred income taxes (397,674) (816,246) 44,119 Gain on sale of assets (2,474,894) (1,856,443) (3,337,219) Changes in operating assets and liabilities net of effects from insurance agency acquisitions and dispositions: (Increase) decrease in accounts receivable 3,784,756 (1,405,660) 513,907 (Increase) decrease in prepaid expenses 197,802 (1,649,239) (768,431) Decrease in premiums payable to insurance companies (2,115,712) (4,241,464) (1,156,960) Increase (decrease) in premium deposits and credits due customers (1,197,195) 774,857 (784,471) Increase (decrease) in accounts payable and accrued expenses (1,178,335) 224,046 (1,639,586) Other operating activities (475,547) 2,077,498 230,569 ----------- ----------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 20,984,030 16,645,724 16,187,788 INVESTING ACTIVITIES Purchase of held-to-maturity investments (3,549,631) (7,339,705) (7,399,402) Purchase of available-for-sale investments - (260,000) - Proceeds from maturities and calls of held-to- maturity investments 5,640,804 7,866,672 24,546,279 Proceeds from sale of available-for-sale investments 260,000 3,914,000 - Purchase of property and equipment (2,135,837) (5,051,253) (4,007,468) Purchase of insurance agencies, net of cash acquired (9,309,760) (9,722,979) (6,540,948) Proceeds from sale of assets 6,546,661 2,461,177 3,515,102 Other investing activities 115,892 222,231 216,173 ----------- ----------- ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,431,871) (7,909,857) 10,329,736 FINANCING ACTIVITIES Proceeds from long-term debt 7,750,668 30,861,966 32,522,950 Principal payments on long-term debt (5,329,866) (18,024,341) (29,194,326) Repurchase of Common Stock (11,338,557) (10,845,095) (17,389,044) Dividends (8,023,705) (8,116,389) (8,209,877) Other financing activities 929,787 141,660 158,347 ------------ ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (16,011,673) (5,982,199) (22,111,950) ------------ ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 2,540,486 2,753,668 4,405,574 Cash and cash equivalents at beginning of year 19,774,374 17,020,706 12,615,132 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $22,314,860 $19,774,374 $17,020,706 ============ ============ ============
See notes to consolidated financial statements. Notes to Consolidated Financial Statements December 31, 1997 Hilb, Rogal and Hamilton Company (the Company), a Virginia corporation, operates as a network of insurance agencies with offices located in 16 states and five Canadian provinces. Its principal activity is the performance of retail insurance services which involves placing property and casualty and life and health insurance with insurers on behalf of commercial clients in a variety of industries and individual clients. Note A-Significant Accounting Policies Principles of Consolidation: The accompanying financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenues: Commission income as well as the related premiums receivable from customers and premiums payable to insurance companies are recorded as of the effective date of insurance coverage or the billing date, whichever is later. Premium adjustments, including policy cancellations, are recorded as they occur. Contingent commissions and commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received. Fees for services rendered are recorded as earned. These policies are in accordance with predominant industry practice. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. The carrying amounts reported on the balance sheet approximate the fair values. Investments: Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest and dividends are included in investment income. Realized gains and losses, and declines in value judged to be other than temporary are included in investment income. Marketable debt securities not classified as held-to- maturity are classified as available-for-sale. Available- for-sale securities are carried at fair value. Amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. Property and Equipment: Property and equipment are stated on the basis of cost. Depreciation is computed by the straight-line method over estimated useful lives (30 to 33 years for buildings, 3 to 7 years for equipment). Leasehold improvements are generally amortized using a straight-line method over the term of the related lease. Intangible Assets: Intangible assets arising from acquisitions accounted for as purchases principally represent expiration rights, the excess of costs over the fair value of net assets acquired and noncompetition agreements. The cost of such assets is being amortized principally on a straight-line basis over periods ranging up to 20 years for expiration rights, 15 to 40 years for the excess of costs over the fair value of net assets acquired and 3 to 20 years for noncompetition agreements. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of." Adoption of this statement did not have a material impact on the Company's financial position or results of operations. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board (the FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123). The statement defines a fair value based method of accounting for employee stock options. Companies may, however, elect to adopt this new accounting rule through a pro forma disclosure option, while continuing to use the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). The Company has elected to continue to follow APB No. 25 and related interpretations in accounting for its employee stock options. In addition, the effect of applying Statement No. 123's fair value method to the Company's employee stock options does not result in net income and net income per share that are materially different from amounts reported. Accordingly, the pro forma disclosures required by Statement No. 123 have not been included in the footnotes to the financial statements. Fair Value of Financial Instruments: The carrying amounts reported in the balance sheet for cash and cash equivalents, receivables, premiums payable to insurance companies, accounts payable and accrued expenses and long- term debt approximate those assets and liabilities' fair values. Fair values for investment securities are based on quoted market prices and are disclosed in Note B. Fair value for interest rate swaps are based on a discounted cash flow method. Interest Rate Swaps: The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on variable interest rates for amounts based on fixed interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. Income Taxes: The Company (except for its Canadian subsidiary) files a consolidated federal income tax return. Deferred taxes result from temporary differences between the reporting for income tax and financial statement purposes primarily related to bad debt expense, depreciation expense, basis differences in intangible assets, deferred compensation arrangements and the recognition of net operating loss carryforwards from pooled entities. Net Income Per Share: In 1997, the FASB issued Statement No. 128, "Earnings Per Share" (Statement No. 128). Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to Statement No. 128 requirements. Accounting Pronouncements: In 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement No. 130) effective for years beginning after December 15, 1997. The new rules require companies to display items of other comprehensive income either below the total for net income, in a separate statement of comprehensive income, or in a statement of changes in shareholders' equity, and disclose the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The Company will adopt the provisions of Statement No. 130 during the first quarter of 1998. The adoption of Statement No. 130 will not materially affect the Company's results of operations or financial position. Note B-Investments The following is a summary of held-to-maturity and available-for-sale investments included in current and long-term assets on the consolidated balance sheet:
Held-to-Maturity Investments ---------------------------- Gross Gross December 31, 1997 Cost Unrealized Gains Unrealized Losses Fair Value - -------------------------------------------------------------------------------------------------------------------- Obligations of U.S. government agencies $ 1,000,000 $ 1,000,000 Obligations of states and political subdivisions 5,840,000 $75,000 $1,000 5,914,000 Certificates of deposit and other 2,083,000 2,083,000 ----------------------------------------------------------------- $ 8,923,000 $75,000 $1,000 $ 8,997,000 ================================================================= Held-to-Maturity Investments ---------------------------- Gross Gross December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value - -------------------------------------------------------------------------------------------------------------------- Obligations of U.S. government agencies $ 1,500,000 $3,000 $ 1,497,000 Obligations of states and political subdivisions 7,795,000 $75,000 1,000 7,869,000 Certificates of deposit and other 1,719,000 1,719,000 ------------------------------------------------------------------ $ 11,014,000 $75,000 $4,000 $ 11,085,000 ================================================================== Available-for-Sale Investments ------------------------------ Gross Gross December 31, 1996 Cost Unrealized Gains Unrealized Losses Fair Value - -------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 260,000 $ - $ - $ 260,000 ==================================================================
The amortized cost and fair value of held-to- maturity investments at December 31, 1997, by contractual maturity, are as follows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Cost Fair Value - --------------------------------------------------------------------------------------------------------------------- Held-to-Maturity Investments Due in one year $ 3,893,000 $ 3,905,000 Due after one year through five years 5,030,000 5,092,000 ------------------------------ $ 8,923,000 $ 8,997,000 ==============================
Note C-Property and Equipment Property and equipment consists of the following: 1997 1996 - ------------------------------------------------------------------------------- Furniture and equipment $27,880,000 $27,589,000 Buildings and land 3,835,000 7,666,000 Leasehold improvements 1,887,000 1,986,000 -------------------------- 33,602,000 37,241,000 Less accumulated depreciation and amortization 21,840,000 21,149,000 -------------------------- $11,762,000 $16,092,000 ========================== Note D-Long-Term Debt 1997 1996 ---------------------------- Notes payable to banks, interest currently at 6.42% $30,000,000 $23,000,000 Installment notes payable incurred in acquisitions of insurance agencies, 4.9% to 10.0%, due in various installments, to 1999 4,123,000 3,846,000 Mortgage notes payable, paid in full during 1997 - 2,156,000 Installment notes payable, 6.0% to 8.5%, due in various installments, to 2003 410,000 539,000 -------------------------- 34,533,000 29,541,000 Less current portion 2,075,000 2,345,000 -------------------------- $32,458,000 $27,196,000 ========================== Maturities of long-term debt for the four years ending after December 31, 1998 are $1,509,000 in 1999; $821,000 in 2000; $48,000 in 2001; and $30,048,000 in 2002. Interest paid was $3,437,000, $1,232,000 and $733,000 in 1997, 1996 and 1995, respectively. The Company entered into a credit agreement with two banks that allows for borrowings of up to $30,000,000 under loans due in 2002, which bear interest at variable rates. At December 31, 1997, $30,000,000 was borrowed under this agreement. This credit agreement contains, among other provisions, requirements for maintaining certain financial ratios. The Company entered into an interest rate swap agreement effective December 19, 1997 to manage interest rate exposure on its long-term debt. The swap agreement is a contract to exchange floating rate for fixed rate interest payments periodically over the life of the agreement without the exchange of the underlying notional amount of $7,500,000. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The credit risk to the Company would be the counterparty's inability to pay the differential in the fixed rate and variable rate in a rising interest rate environment. The Company is exposed to market risk from changes in interest rates. The differential paid or received on the interest rate per the agreement is recognized as an adjustment to interest expense. Under the Company's interest rate swap agreement, the Company contracted with the counterparty to exchange the difference between the Company's fixed pay rate of 6.52% and the counterparty's variable pay rate of LIBOR plus 0.575%. At December 31, 1997, the variable rate was approximately 6.54%. The contract expires December 19, 2002. Effective January 21, 1998, the Company entered into an interest rate swap agreement similar to the agreement described above with an underlying notional amount of $7,500,000. The contract expires on January 21, 2003. Note E-Retirement Plans The Hilb, Rogal and Hamilton Company Profit Sharing Savings Plan (the Profit Sharing Plan) covers substantially all employees of the Company and its subsidiaries. The Profit Sharing Plan, which may be amended or terminated by the Company at any time, provides that the Company shall contribute to a trust fund such amounts as the Board of Directors shall determine subject to certain earnings restrictions as defined in the Profit Sharing Plan. Prior to merger with the Company, certain of the merged companies had a separate profit sharing, ESOP or benefit plan. These plans were terminated or frozen at the time of merger with the Company. The total expense under these plans for 1997, 1996 and 1995 was approximately $3,120,000, $2,680,000 and $2,075,000, respectively. The Company has a Supplemental Executive Retirement Plan (the SERP), which is a defined benefit plan under which the Company will pay supplemental pension benefits to key executives in addition to amounts received under the Profit Sharing Plan. Such benefits will be paid from Company assets. The following table sets forth the SERP's funded status and amounts recognized in the Company's consolidated balance sheet: 1997 1996 --------------------------- Actuarial present value of: Vested benefits $(2,038,000) $(1,923,000) Nonvested benefits (190,000) (226,000) --------------------------- Accumulated benefit obligation (2,228,000) (2,149,000) Effect of anticipated future compensation levels (915,000) (827,000) --------------------------- Projected benefit obligation (3,143,000) (2,976,000) Plan assets at fair value - - --------------------------- Excess of projected benefit obligation over assets (3,143,000) (2,976,000) Unrecognized prior service costs 1,795,000 1,921,000 Unrecognized net (gain) loss (45,000) 38,000 --------------------------- Accrued SERP expense (1,393,000) (1,017,000) Adjustment to recognize minimum liability (835,000) (1,132,000) --------------------------- Pension liability recognized in consolidated balance sheet $(2,228,000) $(2,149,000) =========================== The expense for the SERP includes the following components: 1997 1996 1995 ------------------------------ Service cost $188,000 $182,000 $159,000 Interest cost 229,000 223,000 175,000 Amortization of prior service cost 126,000 135,000 126,000 ---------------------------- $543,000 $540,000 $460,000 ============================ Significant assumptions used in determining obligations and the related expense for the SERP include a weighted average discount rate of 7.5% and 8.0% in 1997 and 1996, respectively, and an assumed rate of increase in future compensation of 4.0% in both years. Note F-Other Postretirement Benefit Plans The Company sponsors postretirement benefit plans that provide medical and life insurance benefits to retirees. Employees who retire after age 55 with 10 years of service are eligible to participate. The plans are contributory for substantially all participants, with retiree contributions adjusted annually and the health care plan contains other cost sharing features such as deductibles and coinsurance. The accounting for the health care plan anticipates future cost sharing changes to the written plan that are consistent with the Company's expressed intent to increase retiree contributions annually in accordance with increases in health care costs. The Company's policy is to fund the cost of these benefits when actual claims are incurred. The following table sets forth the plans' combined funded status reconciled with the amount shown in the Company's consolidated balance sheet: 1997 1996 ------------------------------- Accumulated postretirement benefit obligation: Retirees $(896,000) $(1,050,000) Active plan participants - - ---------------------------- Total (896,000) (1,050,000) Plan assets at fair value - - ---------------------------- Accumulated postretirement benefit obligation in excess of plan assets (896,000) (1,050,000) Unrecognized net gain (704,000) (909,000) Unrecognized transition benefit cost 991,000 1,149,000 ---------------------------- Accrued postretirement benefit liability $(609,000) $ (810,000) ============================ Net periodic postretirement benefit cost includes the following components: 1997 1996 1995 - --------------------------------------------------------------------------- Interest cost $ 80,000 $ 82,000 $ 104,000 Amortization of transition obligation over 14 years 115,000 115,000 115,000 Amortization of prior gain (79,000) (67,000) (29,000) ---------------------------------------- $ 116,000 $ 130,000 $ 190,000 ======================================== For measurement purposes, a 7.20% and a 7.85% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998 and 1997, respectively; the rate was assumed to decrease gradually to 6.15% in 2021 and remain at that level thereafter. The health care cost trend rate assumption has an effect on the amounts. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plan as of December 31, 1997 and 1996 by $87,000 and $97,000, respectively, and the net periodic postretirement benefit cost for 1997 by $8,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 8.0% at December 31, 1997 and 1996, respectively. Note G-Income Taxes The components of income taxes shown in the statement of consolidated income are as follows: 1997 1996 1995 - --------------------------------------------------------------------------- Current Federal $7,401,000 $6,481,000 $6,232,000 State 1,438,000 1,305,000 1,268,000 Foreign 614,000 668,000 224,000 ----------------------------------------- 9,453,000 8,454,000 7,724,000 Deferred Federal (247,000) (639,000) 76,000 State (46,000) (73,000) 14,000 Foreign (105,000) (104,000) (46,000) ----------------------------------------- (398,000) (816,000) 44,000 ----------------------------------------- $9,055,000 $7,638,000 $7,768,000 ========================================= The effective income tax rate varied from the statutory federal income tax rate as follows: 1997 1996 1995 - --------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax exempt investment income (0.8) (1.4) (2.1) State income taxes, net of federal tax benefit 4.2 4.5 4.2 Other 3.1 2.0 2.5 ----------------------------------------- Effective income tax rate 41.5% 40.1% 39.6% ========================================= Income taxes paid were $9,646,000, $10,128,000 and $8,428,000 in 1997, 1996 and 1995, respectively. Income before income taxes from Canadian operations was $900,000, $1,168,000 and $317,000 in 1997, 1996 and 1995, respectively. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets on the consolidated balance sheet are as follows: 1997 1996 - --------------------------------------------------------------- Deferred tax liabilities: Intangible assets $6,015,000 $6,483,000 Other-net 1,129,000 661,000 --------------------------- Total deferred tax liabilities 7,144,000 7,144,000 Deferred tax assets: Deferred compensation 917,000 844,000 Bad debts 870,000 925,000 Other 833,000 751,000 --------------------------- Total deferred tax assets 2,620,000 2,520,000 --------------------------- Net deferred tax liabilities $4,524,000 $4,624,000 =========================== In 1997, the Company reached a final agreement with the Internal Revenue Service (the IRS) which resolved all issues arising from the IRS's audit of the Company's income tax returns for the seven years ended December 31, 1994. Since the agreement related to deductions claimed in connection with intangible assets acquired by the Company, the additional tax that resulted from the agreement, including current payments and an increase in deferred tax liabilities of $2,626,000 and $1,500,000, respectively, has been recorded as an increase in goodwill of $4,126,000 on the December 31, 1996 balance sheet. The settlement will not have a significant impact on the Company's future earnings. Note H-Leases The Company and its subsidiaries have noncancellable lease contracts for office space, equipment and automobiles which expire at various dates through the year 2008 and generally include escalation clauses for increases in lessors' operating expenses and increased real estate taxes. Future minimum rental payments required under such operating leases are summarized as follows: 1998 $ 6,341,000 1999 5,327,000 2000 4,045,000 2001 2,637,000 2002 1,790,000 Thereafter 2,217,000 ----------- $22,357,000 =========== Rental expense for all operating leases amounted to $7,276,000 in 1997, $6,845,000 in 1996 and $6,712,000 in 1995. Included in rental expense for 1997, 1996 and 1995 is approximately $386,000, $313,000 and $435,000, respectively, which was paid to employees or related parties. Note I-Shareholders' Equity The Company has adopted and the shareholders have approved the 1986 Incentive Stock Option Plan and the Hilb, Rogal and Hamilton Company 1989 Stock Plan, which provide for the granting of options to purchase up to an aggregate of approximately 1,765,000 and 1,843,000 shares of Common Stock as of December 31, 1997 and 1996, respectively. The number of shares available for grant may increase or decrease with the respective changes in the number of shares of Common Stock outstanding. Stock options granted have seven to ten year terms and vest and become fully exercisable at various periods up to five years. Stock option activity under the plan was as follows: Weighted Average Shares Exercise Price - ------------------------------------------------------------ Outstanding at January 1, 1995 869,575 $13.39 Granted 25,000 12.17 Exercised 600 12.75 Expired 87,250 13.10 --------- Outstanding at December 31, 1995 806,725 13.38 Granted 72,900 13.00 Exercised 3,600 10.40 Expired 132,700 13.21 --------- Outstanding at December 31, 1996 743,325 13.39 Granted 528,190 15.97 Exercised 78,052 12.19 Expired 87,000 13.42 --------- Outstanding at December 31, 1997 1,106,463 14.70 ========= Exercisable at December 31, 1997 514,935 13.56 The options outstanding at December 31, 1997 have exercise prices that range from $10.00 to $18.20. The weighted average contractual life of these options is six years. There were 466,000 and 978,000 shares available for future grant under these plans as of December 31, 1997 and 1996, respectively. No compensation expense is recognized in operations for 1997, 1996 or 1995. Note J-Net Income per Share The following table sets forth the computation of basic and diluted net income per share:
1997 1996 1995 - ------------------------------------------------------------------------------------- Numerator for basic and dilutive net income per share -net income $12,789,851 $11,406,391 $11,828,910 ========================================= Denominator Weighted average shares 13,069,453 13,493,255 14,470,407 Effect of guaranteed future shares to be issued in connection with an agency acquisition 29,764 7,075 - ----------------------------------------- Denominator for basic net income per share 13,099,217 13,500,330 14,470,407 Effect of dilutive securities: Employee stock options 101,280 25,451 9,989 Contingent stock - acquisition 14,222 - - ----------------------------------------- Dilutive potential common shares 115,502 25,451 9,989 ----------------------------------------- Denominator for diluted net income per share -adjusted weighted average shares and assumed conversions 13,214,719 13,525,781 14,480,396 ========================================= Net Income Per Common Share: Basic $ 0.98 $ 0.84 $ 0.82 ========================================= Diluted $ 0.97 $ 0.84 $ 0.82 =========================================
Note K-Acquisitions During 1997, the Company acquired certain assets and liabilities of six insurance agencies for $9,426,000 ($6,333,000 in cash, $2,393,000 in guaranteed future payments and 53,555 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,082,000, noncompetition agreements of $1,151,000 and goodwill of $1,310,000. The combined purchase price may be increased by approximately $1,490,000 in 1998, $1,490,000 in 1999 and $1,490,000 in 2000 based upon commissions or net profits realized. During 1996, the Company acquired certain assets and liabilities of 15 insurance agencies for $16,189,000 ($7,343,000 in cash, $2,736,000 in guaranteed future payments and 451,610 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $13,565,000, noncompetition agreements of $2,820,000 and goodwill of $2,717,000. The combined purchase price was increased by approximately $3,392,000 in 1997 and may be increased by approximately $4,675,000 in 1998, $1,354,000 in 1999, $127,000 in 2000 and $37,000 in 2001 based upon commissions or net profits realized. During 1995, the Company acquired certain assets and liabilities of 14 insurance agencies for $13,097,000 ($7,303,000 in cash, $1,914,000 in guaranteed future payments and 317,726 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $9,616,000, noncompetition agreements of $395,000 and goodwill of $7,278,000. The combined purchase price was increased by approximately $2,174,000 in 1997 and $1,748,000 in 1996 and may be increased by approximately $690,000 in 1998 and $358,000 in 1999 based upon commissions or net profits realized. The above purchase acquisitions have been included in the Company's consolidated financial statements from their respective acquisition dates. The pro forma unaudited results of operations for the years ended December 31, 1997 and 1996, assuming the above 1997 and 1996 purchase acquisitions had occurred as of January 1, 1996, are as follows: 1997 1996 - -------------------------------------------------------------- Revenues $176,072,000 $177,054,000 Net Income 12,970,000 11,458,000 Net Income Per Common Share: Basic 0.99 0.84 Diluted 0.98 0.84 Note L-Sale of Assets During 1997, 1996 and 1995, the Company sold certain insurance accounts and other assets resulting in gains of approximately $2,475,000, $1,856,000 and $3,337,000, respectively. These amounts are included in other revenues in the statement of consolidated income. Revenues, expenses and assets of these operations were not material to the consolidated financial statements. Note M-Commitments and Contingencies Included in cash and cash equivalents and premium deposits and credits due customers are approximately $1,496,000 and $1,798,000 of funds held in escrow at December 31, 1997 and 1996, respectively. In addition, premiums collected from insureds but not yet remitted to insurance carriers are restricted as to use by laws in certain states in which the Company operates. The amount of cash and cash equivalents so restricted was approximately $6,149,000 and $9,462,000 at December 31, 1997 and 1996, respectively. There are in the normal course of business various outstanding commitments and contingent liabilities. Management does not anticipate material losses as a result of such matters. The Company is generally involved in routine insurance policy related litigation. Several suits have been brought against the Company involving settlement of various insurance matters where customers are seeking both punitive and compensatory damages. Management, upon the advice of counsel, is of the opinion that such suits are substantially without merit, that valid defenses exist and that such litigation will not have a material effect on the consolidated financial statements. Note N-Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly results of operations for the years ended December 31, 1997 and 1996:
Three Months Ended1 (in thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ---------------------------------------------------------------------------------------------- 1997 Total Revenues $47,913 $44,323 $41,850 $39,623 Net Income 5,407 3,537 2,566 1,280 Net Income Per Common Share:2 Basic 0.41 0.27 0.20 0.10 Diluted 0.40 0.27 0.19 0.10 1996 Total Revenues $43,076 $37,936 $38,315 $38,916 Net Income 5,162 2,674 2,241 1,329 Net Income Per Common Share:2 Basic 0.38 0.20 0.17 0.10 Diluted 0.38 0.20 0.17 0.10
1. Quarterly financial information is affected by seasonal variations. The timing of contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly from quarter to quarter. 2. The 1996 and first three quarters of 1997 net income per share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the accompanying consolidated balance sheet of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Richmond, Virginia February 11, 1998 Board of Directors & Officers Board of Directors Robert H. Hilb (1) (2) (3) (4) Chairman Hilb, Rogal and Hamilton Company Glen Allen, Virginia Andrew L. Rogal (1) President and Chief Executive Officer Hilb, Rogal and Hamilton Company Glen Allen, Virginia Theodore L. Chandler, Jr. (1)(2)(3) Attorney Williams, Mullen, Christian & Dobbins Richmond, Virginia J.S.M. French (2)(3)(4) President Dunn Investment Company Birmingham, Alabama Thomas H. O'Brien (2)(3)(4) Chairman and Chief Executive Officer PNC Bank Corp. Pittsburgh, Pennsylvania Robert S. Ukrop (1)(4) President and Chief Operating Officer Ukrop's Super Markets, Inc. Richmond, Virginia Philip J. Faccenda (2) Vice President and General Counsel, Emeritus University of Notre Dame Notre Dame, Indiana Norwood H. Davis, Jr. (3) Chairman of the Board and Chief Executive Officer Trigon Healthcare, Inc. Richmond, Virginia (1) Executive Committee Member (2) Compensation Committee Member (3) Audit Committee Member (4) Nominating Committee Member Officers Robert H. Hilb Chairman Andrew L. Rogal President and Chief Executive Officer Timothy J. Korman Executive Vice President - Finance and Administration John C. Adams, Jr. Executive Vice President Dianne F. Fox Senior Vice President and Secretary Carolyn Jones Senior Vice President, Chief Financial Officer and Treasurer Walter L. Smith Vice President, General Counsel and Assistant Secretary Vincent P. Howley Vice President - Agency Financial Operations Henry C. Kramer Vice President - Human Resources Robert J. Hilb Vice President Robert W. Blanton, Jr. Assistant Vice President and Controller Valerie C. Elwood Assistant Vice President Agency Locations UNITED STATES Alabama/Georgia Region Alabama Birmingham Fort Payne* Mobile* Georgia Atlanta Gainesville St. Simons Island Savannah Florida Region Daytona Beach Fort Lauderdale Fort Myers Gainesville Orlando Tampa Illinois Moline Chicago* Mid-Atlantic Region Connecticut New Haven (2 locations) Middletown* Old Saybrook* Maryland Baltimore Rockville Pennsylvania Pittsburgh New York, New York* Virginia Richmond Norfolk* New York Buffalo Rochester* Syracuse* Northern California Region Fresno Bakersfield* Dinuba* Redwood City Newport Beach* Charlotte, North Carolina* San Rafael Sacramento* Santa Rosa* Truckee* Vallejo* Oklahoma/Texas Region Oklahoma Oklahoma City Tulsa* Texas Amarillo Hereford* Corpus Christi Dallas Abilene* Houston McAllen Victoria Cuero* Edna* Southwest Region Arizona Phoenix Flagstaff* Mesa* Tucson* California Ontario Palm Desert Colorado Denver Michigan Grand Rapids Port Huron Richmond* CANADA Edmonton, Alberta Montreal, Quebec Toronto, Ontario Winnipeg, Manitoba Vancouver, British Columbia *Denotes Branch Offices GENERAL INFORMATION Form 10-K Any shareholder wishing to obtain a copy of the Company's Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission may do so without charge by writing to the Secretary at the corporate address. Annual Meeting The Company's Annual Meeting of Shareholders will be held on May 5, 1998 at 10:00 A.M. at Crestar Bank, 919 East Main Street, Richmond, Virginia. Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 (800) 756-3353 www.chasemellon.com Shareholder Inquiries Communications regarding dividends, lost stock certificates, change of address, etc. should be directed to ChaseMellon Shareholder Services. Other inquiries should be directed to the Secretary at the corporate address. Outside Counsel Williams, Mullen, Christian & Dobbins Richmond, Virginia Independent Auditors Ernst & Young LLP Richmond, Virginia Corporate Headquarters 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 (804) 747-6500 (804) 747-6046 fax www.hrh.com Shareholders The Company's Common Stock has been publicly traded since July 15, 1987. It is traded on the New York Stock Exchange under the symbol "HRH." As of December 31, 1997, there were 626 holders of record of the Company's Common Stock. Market Price of Common Stock High and low stock prices and dividends per share for the indicated quarters were: Cash Sales Price Dividends Quarter Ended High Low Declared - --------------------------------------------------------- 1996 March 31 $14.00 $12.63 $.15 June 30 14.00 12.63 .15 September 30 13.75 11.38 .15 December 31 14.00 12.13 .155 1997 March 31 $13.88 $12.50 $.155 June 30 17.25 13.50 .155 September 30 18.69 15.75 .155 December 31 19.63 17.56 .155 (Back cover) (Picture of Hilb, Rogal and Hamilton's Corporate Logo) Hilb, Rogal and Hamilton Company 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 804.747.6500 804.747.6046 fax EX-22 8 EXHIBIT 22 Exhibit 22 Subsidiaries of Hilb, Rogal and Hamilton Company Name of Subsidiary State/Province of Incorporation - ----------------------------------------------------------------------- The Burton Company Connecticut Clover Insurance Agency, Inc. California S. H. Gow & Company, Inc. (three locations) Delaware Hilb, Rogal and Hamilton Company of Canada, Limited Manitoba,Canada (five locations) Hilb, Rogal and Hamilton Company of Alabama, Inc. Alabama (three locations) Hilb, Rogal and Hamilton Company of Arizona Arizona (four locations) Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia Hilb, Rogal and Hamilton Company of Baltimore Maryland Hilb, Rogal and Hamilton Insurance Services of Central California, Inc. (three locations) California HRH Insurance Services of the Coachella Valley, Inc. California Hilb, Rogal and Hamilton Company of Daytona Beach, Inc.Florida Hilb, Rogal and Hamilton Company of Denver Colorado Hilb, Rogal and Hamilton Company of the District of Columbia Delaware Hilb, Rogal and Hamilton Company of Fort Lauderdale Florida Hilb, Rogal and Hamilton Company of Fort Myers Florida Hilb, Rogal and Hamilton Company of Gainesville, Florida, Inc. Florida Hilb, Rogal and Hamilton Company of Gainesville, Georgia Georgia Hilb, Rogal and Hamilton Company of Grand Rapids Michigan HRH of Northern California Insurance Services, Inc. (five locations) California Hilb, Rogal and Hamilton Company of Oklahoma (two locations) Oklahoma Hilb, Rogal and Hamilton Company of Orlando Florida Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. (two locations) Pennsylvania Hilb, Rogal and Hamilton Company of Port Huron (two locations) Michigan Hilb, Rogal and Hamilton Company of the Quad Cities (two locations) Illinois Hilb, Rogal and Hamilton Realty Company Delaware Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia Hilb, Rogal and Hamilton Company of St. Simons Island Georgia Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida Hilb, Rogal and Hamilton Company of Texas (ten locations) Texas Hilb, Rogal and Hamilton Company of Virginia (two locations) Virginia Insurance Management Incorporated (three locations) Connecticut Professional Practice Insurance Brokers, Inc. (three locations) California Each of the above subsidiaries is 100% owned by the registrant. EX-23 9 EXHIBIT 23 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-4 No. 33-44271, Form S-8 No. 33-59866 and Form S-8 No. 333-44735) of Hilb, Rogal and Hamilton Company and in the related prospectuses of our report dated February 11, 1998, with respect to the consolidated financial statements and schedule of Hilb, Rogal and Hamilton Company included in this Annual Report (Form 10-K) for the year ended December 31, 1997. Ernst & Young LLP /s/ Ernst & Young LLP Richmond, Virginia March 20, 1998 EX-27 10 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF HILB, ROGAL AND HAMILTON COMPANY AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997, INCORPORATED BY REFERENCE INTO THE 1997 FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 22,314,860 3,892,533 49,312,002 2,299,000 0 76,832,918 33,602,598 21,840,518 181,606,558 88,273,306 32,457,882 16,540,461 0 0 34,798,138 181,606,558 0 173,708,880 0 0 149,826,696 0 2,037,338 21,844,846 9,054,995 12,798,851 0 0 0 12,798,851 .98 .97
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