-----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, U8JJ5N9mnLofN493J0OWNIzLg964WR0kPrjMKe29PqOAr3tXjfJ+LJpDsUeT4BoG lR+WyjskgNknSBd6xXWfwA== 0000814898-96-000007.txt : 19960327 0000814898-96-000007.hdr.sgml : 19960327 ACCESSION NUMBER: 0000814898-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 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: 1934 Act SEC FILE NUMBER: 000-15981 FILM NUMBER: 96538580 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, 1995 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. $177,064,401 as of March 5, 1996 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 5, 1996 Common Stock, no par value 13,742,367 Documents Incorporated by Reference Portions of the registrant's 1995 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 1996 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 insurance, with insurance underwriters on behalf of its clients. The Agencies operate 56 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 medium-size commercial and industrial accounts. Insurance commissions accounted for approximately 93% of the Company's total revenues in 1995. 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 2% of revenues in 1995. The Company has 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 148 independent agencies. The Company's growth strategy emphasizes 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. The Company generally pursues growth in markets where it believes it can achieve a significant market position. The Company expects to continue seeking opportunities to add qualified agencies in both existing and new markets. 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 are staffed to handle the broad variety of insurance needs of their clients. Additionally, certain Agencies have developed special expertise in areas such as aviation, construction and marine insurance services, and this expertise is made available to clients throughout the 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 five U.S. regions are the Mid-Altantic (Pennsylvania, New Jersey, Maryland and Virginia); Georgia/Alabama; Florida; Texas and California. The Canadian operation with its six locations form a sixth region. Regional management of a sizeable mass of coordinated and complementary resources will enable 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 98% of its commission and fee revenue in 1995 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 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 by the client directly. 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 1995, the largest single client accounted for less than .9% 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 148 agencies have been acquired. Ninety-eight of those agencies were acquired using the purchase method of accounting at a total purchase price of approximately $93.6 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. Since November 1, 1988, 50 agencies have been 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 believes that the public market for its Common Stock, existing since 1987, has and will continue to enhance its ability to acquire agencies. 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, 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 1995, the Company acquired 14 insurance agencies. See "Note J--Acquisitions" of the Notes to Consolidated Financial Statements in the Company's 1995 Annual Report to Shareholders which is incorporated herein by reference for a description of these acquisitions. Subsequent to December 31, 1995, the Company acquired certain assets and liabilities of three insurance agencies for $1,811,000 ($1,276,000 in cash and 40,000 shares of Common Stock). These transactions will be accounted for as purchase transactions. See "Note M--Subsequent Events" of the Notes to Consolidated Financial Statements in the Company's 1995 Annual Report to Shareholders which is incorporated herein by reference. Competition The Company participates in a very competitive industry. It is a leading independent insurance agency company serving a wide variety of clients through its network of wholly-owned subsidiaries which operate 56 independent 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, some of whom may be larger than the Company's local Agency. The Company's larger competitors also have extensive facilities to manage captive insurance companies or self-insurance programs for larger clients, while the Company has only a limited ability to administer self-insurance and does not currently manage any captive insurance companies. The Company is also in competition with certain insurance companies which write insurance directly for their customers, as well as self- insurance and other employer sponsored programs. Employees As of December 31, 1995, the Company had approximately 1,700 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 1995 Annual Report to Shareholders which is incorporated herein by reference. At December 31, 1995, the Company owned seven buildings in Richmond and Charlottesville, Virginia; Oklahoma City, Oklahoma; Daytona Beach and Fort Myers, Florida; Mobile, Alabama and Victoria, Texas (the Richmond, Virginia building being subject to a mortgage), in which the Agencies in those cities are located. See "Note D--Long-Term Debt and Override Commission Agreements" of the Notes to Consolidated Financial Statements in the Company's 1995 Annual Report to Shareholders which is incorporated herein by reference for information regarding mortgage notes payable and related collateral property. 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, 69, has been Chairman and Chief Executive Officer of the Company since 1991 and has been a director of the Company since 1982. He was President of the Company from 1982 to 1995. Andrew L. Rogal, 47, has been President and Chief Operating Officer of the Company since 1995 and has been a director of the Company since 1989. 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. John C. Adams, Jr., 59, has been Executive Vice President of the Company since 1991 and was a director of the Company from 1987 to 1995. He was Senior Vice President of the Company from 1989 to 1991. He has been Chairman of Hilb, Rogal and Hamilton Company of Daytona Beach, Inc., a subsidiary of the Company, since 1990 and was Chief Executive Officer of this subsidiary from 1990 to 1992. Prior thereto, he was President of this subsidiary. Timothy J. Korman, 43, has been Executive Vice President, Chief Financial Officer and Treasurer of the Company since November 1995, and was Senior Vice President and Treasurer of the Company from 1989 to November 1995. He was Vice President and Treasurer of the Company from 1982 to 1989. He is a first cousin of Robert S. Ukrop, a director of the Company. Dianne F. Fox, 47, has been Senior Vice President-Administration and Secretary of the Company since 1989 and was Vice President and Secretary of the Company from 1984 to 1989. Ronald J. Schexnaydre, 59, has been Senior Vice President of the Company since 1993 and was Vice President of the Company from 1991 to 1993. He has been Chairman of Hilb, Rogal and Hamilton Company of Louisiana, a subsidiary of the Company since 1995 and was President of this subsidiary from 1986 to 1995. Ann B. Davis, 41, has been Vice President-Human Resources of the Company since 1993 and was Assistant Vice President-Human Resources of the Company from 1986 to 1993. Vincent P. Howley, 47, has been Vice President-Audit of the Company since 1993 and was Assistant Vice President-Audit of the Company from 1986 to 1993. Carolyn Jones, 40, has been Vice President and Controller of the Company since 1991 and was Assistant Vice President and Controller from 1989 to 1991. Walter L. Smith, 38, has been Vice President and General Counsel of the Company since 1991 and was Assistant Vice President and General Counsel from 1988 to 1991. He has been Assistant Secretary of the Company since 1989. Robert W. Blanton, Jr., 31, has been Assistant Vice President of the Company since 1993. He joined the Company in 1990 as Accounting Senior. Valerie C. Elwood, 34, 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. Janice G. Pouzar, 49, joined the Company as Assistant Vice President- Retirement Plans in 1993. Prior thereto, she was employed by William M. Mercer in Richmond, Virginia from 1972 to 1993. 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 7, 1996, 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 heading "Market Price of Common Stock" in the Company's 1995 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 1995 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 1995 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 8 through 19 of the Company's 1995 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 1996 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 7 through 14 in the Company's definitive Proxy Statement for the 1996 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 1996 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information as to certain relationships and related transactions is incorporated herein by reference to the material under the heading "Certain Transactions" in the Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders. 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 1995 Annual Report to Shareholders are incorporated herein by reference in Item 8 of this report: Consolidated Balance Sheet -- December 31, 1995 and 1994 Statement of Consolidated Income -- Years Ended December 31, 1995, 1994 and 1993 Statement of Consolidated Shareholders' Equity -- Years Ended December 31, 1995, 1994 and 1993 Statement of Consolidated Cash Flows -- Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements -- December 31, 1995 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 10.2 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 28.27 of the Form S-3) 10.3 Amendment Number Twelve to Employment Agreement of Robert H. Hilb (the Employment Agreement is incorp- orated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 10.4 Employment Agreement of Andrew L. Rogal 10.5 Hilb, Rogal and Hamilton Company 1989 Stock Plan, as amended (incorporated by reference to Exhibit 28.28 of the Form S-3) 10.6 Amendment to Hilb, Rogal and Hamilton Company Supplemental Executive Retirement Plan (Supplemental Executive Retirement Plan is incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 10.7 Hilb, Rogal and Hamilton Company Outside Directors Deferral Plan (incorp- orated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1994, File No. 0-15981) 10.8 Promissory Note dated September 25, 1995, payable by Andrew L. Rogal to Hilb, Rogal and Hamilton Company 10.9 Stock Pledge Agreement, dated September 25, 1995, between Andrew L. Rogal and Hilb, Rogal and Hamilton Company 11 Statement Regarding Computation of Per Share Earnings 13 1995 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 1995. (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 reports 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, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995 (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 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 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, 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 14, 1996 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, 1995: Allowance for doubt- ful accounts....... $2,348,000 $1,500,000 $121,000 $2,197,000 $1,772,000 Year ended December 31, 1994: Allowance for doubt- ful accounts....... 2,390,000 1,239,000 70,000 1,351,000 2,348,000 Year ended December 31, 1993: Allowance for doubt- ful accounts....... 2,065,000 1,335,000 96,000 1,106,000 2,390,000
______________________ * 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/ Robert H. Hilb Robert H. Hilb, Chairman Date March 25, 1996 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/ Robert H. Hilb Chairman (principal executive March 25, 1996 Robert H. Hilb officer) and Director /s/ Timothy J. Korman Executive Vice President and March 25, 1996 Timothy J. Korman Treasurer (principal financial officer) /s/ Carolyn Jones Vice President and Controller March 25, 1996 Carolyn Jones (principal accounting officer) /s/ Andrew L. Rogal Director March 25, 1996 Andrew L. Rogal Director Philip J. Faccenda /s/ Robert S. Ukrop Director March 25, 1996 Robert S. Ukrop Director Thomas H. O'Brien Director J.S.M. French /s/ Norwood H. Davis, Jr. Director March 25, 1996 Norwood H. Davis, Jr. /s/ Theodore L. Chandler, Jr. Director March 25, 1996 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 Chairman. 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 Chairman, the President, 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 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 Chairman shall preside over all meetings of the shareholders of the Corporation at which he is present. If the Chairman is not present, the President shall preside. If neither of such officers is 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 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. 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 before the end of the term for which the election is to be held that person will have 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 persons 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 places 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 President 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 shall 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 The executive officers of the Corporation shall be a Chairman, a President, a Secretary, a Treasurer, and such 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 Chairman, President and Secretary. All of the officers shall be elected by the Board of Directors each year as soon after the annual meeting of the shareholders as convenient. ARTICLE V Chairman, President and Vice President Section 1. The Chairman shall be the Chief Executive Officer of the Corporation. He shall attend and preside at all meetings of the shareholders and all meetings of the Board of Directors at which he is present, exercise general supervision over the property, business and affairs of the Corporation and 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 2. The President shall be the Chief Operating Officer of the Corporation. He 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 Chairman, subject to the control of the Chairman and the Board of Directors. Section 3. In the instance of the inability of the Chairman 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. In the instance of the inability of the President 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, 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 if he should act as Chairman under this bylaw shall report fully to the Chairman upon the Chairman's return to duty with respect to all actions taken and transactions accomplished by the President during the absence or disability of the Chairman. 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 4. In the absence of the Chairman, 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. ARTICLE VI Treasurer Section 1. The Treasurer shall have charge and custody of the funds, securities of whatsoever nature, and other like property of the Corporation; he shall endorse checks, notes, and bills for deposit only as may be required for the business of the Corporation; he 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. ARTICLE VII Secretary The Secretary shall sign, with the Chairman or the President, 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 become the owners of such shares. He shall keep a record of the proceedings of the meetings of the shareholders and Directors of the Corporation and of the Executive Committee. He shall have charge of the seal of the Corporation and shall perform such other duties as pertain to said office or as the Chairman or Board of Directors may from time to time require. ARTICLE VIII Certificates of Stock Section 1. Each shareholder shall be entitled to a certificate or certificates of stock in such form as may be approved by the Board of Directors, signed by the Chairman, 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 holder 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 IX Voting of Stock Held Unless otherwise provided by a vote of the Board of Directors, the Chairman 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 X 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 XI Fiscal Year The fiscal year of the Corporation shall end on December 31st of each calendar year. ARTICLE XII 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 XII 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 said 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 XIII Gender Wherever the context requires or is appropriate, references in these Bylaws to the masculine gender of wordsshall 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 8, 1995. /s/Dianne F. Fox Secretary AMENDMENT OF AMENDED AND RESTATED BYLAWS ESTABLISHING NOTICE PROCEDURES FOR SHAREHOLDER BUSINESS AND NOMINATIONS Article II of the Amended and Restated Bylaws of the Corporation is hereby amended to insert the following Section 8 to Article II: 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 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 14 A 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 t o 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 s uch 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 ea rlier 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 no minees 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 re gulations 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 or series of Preferred Stock to elect directors under specified circumstances. EX-10 3 EXHIBIT 10.1 $20,000,000 CREDIT AGREEMENT Dated as of February 12, 1996 Among HILB, ROGAL, AND HAMILTON COMPANY The Banks Listed Herein and CRESTAR BANK, as Agent for the Banks =============================================================================== TABLE OF CONTENTS ARTICLE I LOANS . . . . . . . . . . . .. . . . 1 SECTION 1.01. Commitment.. . . . . . . . . . . . . . . . .. . . . 1 SECTION 1.02. Funding Loans. . . . . . . . . . . . . . . .. . . . 1 SECTION 1.03. Notes; Principal Payments. . . . . . . . . .. . . . 2 SECTION 1.04. Interest.. . . . . . . . . . . . . . . . . .. . . . 2 SECTION 1.05. Commitment Fee; Termination and Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . .. . . . 3 SECTION 1.06. Additional Interest; Alternate Rate of Interest; Maximum Interest Rate. . . . . . . . . . . .. . . . 4 SECTION 1.07. Continuation and Conversion of Loans.. . . .. . . . 4 SECTION 1.08. Optional Prepayment of Loans.. . . . . . . .. . . . 6 SECTION 1.09. Manner of Payment. . . . . . . . . . . . . .. . . . 6 SECTION 1.10. Change in Circumstances. . . . . . . . . . .. . . . 7 SECTION 1.11. Change in Legality.. . . . . . . . . . . . .. . . . 7 SECTION 1.12. Indemnity for Eurodollar Loans.. . . . . . .. . . . 8 SECTION 1.13. Capital Adequacy.. . . . . . . . . . . . . .. . . . 8 SECTION 1.14. Reasonableness of Increased Costs. . . . . .. . . . 9 SECTION 1.15. Pro Rata Treatment.. . . . . . . . . . . . .. . . . 9 SECTION 1.16. Certain Notices. . . . . . . . . . . . . . .. . . . 9 ARTICLE II COLLATERAL AND GUARANTIES . . . . . . .. . . . 10 SECTION 2.01. Unsecured Obligations. . . . . . . . . . . .. . . . 10 SECTION 2.02. Guaranty . . . . . . . . . . . . . . . . . .. . . . 10 SECTION 2.03. Loan Documents . . . . . . . . . . . . . . .. . . . 10 ARTICLE III CONDITIONS OF LENDING . . . . . . . .. . . . 10 SECTION 3.01. Initial Loans. . . . . . . . . . . . . . . .. . . . 10 SECTION 3.02. All Loans. . . . . . . . . . . . . . . . . .. . . . 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . .. . . . 11 SECTION 4.01. Organization; Powers; Qualification. . . . .. . . . 11 SECTION 4.02. Authorization; Enforceability. . . . . . . .. . . . 12 SECTION 4.03. Consents and Approvals.. . . . . . . . . . .. . . . 12 SECTION 4.04. Financial Statements.. . . . . . . . . . . .. . . . 12 SECTION 4.05. No Material Adverse Change.. . . . . . . . .. . . . 13 SECTION 4.06. Subsidiaries . . . . . . . . . . . . . . . .. . . . 13 SECTION 4.07. Litigation.. . . . . . . . . . . . . . . . .. . . . 13 SECTION 4.08. Tax Returns. . . . . . . . . . . . . . . . .. . . . 13 SECTION 4.09. Properties.. . . . . . . . . . . . . . . . .. . . . 14 SECTION 4.10. Employee Benefit Plans.. . . . . . . . . . .. . . . 14 SECTION 4.11. Government Regulation. . . . . . . . . . . .. . . . 14 SECTION 4.12. Margin Stock.. . . . . . . . . . . . . . . .. . . . 15 SECTION 4.13. No Material Misstatements. . . . . . . . . .. . . . 15 SECTION 4.14. Patents, Trademarks, etc.. . . . . . . . . .. . . . 15 SECTION 4.15. Hazardous Wastes.. . . . . . . . . . . . . .. . . . 16 SECTION 4.16. No Brokers or Finders. . . . . . . . . . . .. . . . 16 SECTION 4.17. No Default of Indebtedness; Solvency.. . . .. . . . 16 SECTION 4.18. Agreements.. . . . . . . . . . . . . . . . .. . . . 16 SECTION 4.19. Compliance with Law. . . . . . . . . . . . .. . . . 17 SECTION 4.20. Labor Controversies. . . . . . . . . . . . .. . . . 17 SECTION 4.21. Non-Material Subsidiaries. . . . . . . . . .. . . . 17 RTICLE V AFFIRMATIVE COVENANTS . . . . . . . .. . . . 17 SECTION 5.01. Corporate Existence and Maintenance of Properties.. . . . . . . . . . . . . . . . . . . . . .. . . . 17 SECTION 5.02. Compliance with Laws.. . . . . . . . . . . .. . . . 18 SECTION 5.03. Insurance. . . . . . . . . . . . . . . . . .. . . . 19 SECTION 5.04. Obligations and Taxes. . . . . . . . . . . .. . . . 19 SECTION 5.05. Accounting Methods and Financial Records.. .. . . . 19 SECTION 5.06. Financial Statements, Certificates and Reports. . . . . . . . . . . . . . . . . . . . . . . .. . . . 19 SECTION 5.07. Access to Premises and Records.. . . . . . .. . . . 21 SECTION 5.08. Notice of Default. . . . . . . . . . . . . .. . . . 21 SECTION 5.09. Notice of Litigation.. . . . . . . . . . . .. . . . 21 SECTION 5.10. Notice of Strikes, Labor Controversies, etc.. . . . 21 SECTION 5.11 Update of Subsidiaries. . . . . . . . . . 22 ARTICLE VI NEGATIVE COVENANTS . . . . . . . . .. . . . 21 SECTION 6.01. Liens. . . . . . . . . . . . . . . . . . . .. . . . 22 SECTION 6.02. Indebtedness.. . . . . . . . . . . . . . . .. . . . 23 SECTION 6.03. Liquidation, Sale of Assets and Merger.. . .. . . . 23 SECTION 6.04. Investments. . . . . . . . . . . . . . . . .. . . . 24 SECTION 6.05. Guarantees.. . . . . . . . . . . . . . . . .. . . . 25 SECTION 6.06. Breach or Violation. . . . . . . . . . . . .. . . . 25 SECTION 6.07. No Amendments. . . . . . . . . . . . . . . .. . . . 25 SECTION 6.08. Use of Proceeds. . . . . . . . . . . . . . .. . . . 26 SECTION 6.09. Transactions with Affiliates.. . . . . . . .. . . . 26 SECTION 6.10. Restrictive Covenants. . . . . . . . . . . .. . . . 26 SECTION 6.11. Increase in Benefits; New Plans. . . . . . .. . . . 26 ARTICLE VII FINANCIAL COVENANTS. . . . . . . . .. . . . 27 SECTION 7.01. Adjusted Funded Debt to Adjusted Cash Flow Ratio. . . . . . . . . . . . . . . . . . . . . . . . .. . . . 27 SECTION 7.02. Consolidated Net Worth.. . . . . . . . . . .. . . . 27 SECTION 7.03. Debt Service Coverage. . . . . . . . . . . .. . . . 27 ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . .. . . . 27 SECTION 8.01. Events of Default. . . . . . . . . . . . . .. . . . 27 SECTION 8.02. Exercise of Remedies.. . . . . . . . . . . .. . . . 30 ARTICLE IX THE AGENT . . . . . . . . . . .. . . . 31 SECTION 9.01. Appointment and Authorization. . . . . . . .. . . . 31 SECTION 9.02. Noteholders. . . . . . . . . . . . . . . . .. . . . 31 SECTION 9.03. Consultation with Counsel. . . . . . . . . .. . . . 31 SECTION 9.04. Documents. . . . . . . . . . . . . . . . . .. . . . 31 SECTION 9.05. Resignation or Removal of the Agent. . . . .. . . . 32 SECTION 9.06. Responsibility of the Agent. . . . . . . . .. . . . 32 SECTION 9.07. Notices of Event of Default. . . . . . . . .. . . . 33 SECTION 9.08. Bank Credit Decision.. . . . . . . . . . . .. . . . 33 SECTION 9.09. Indemnification. . . . . . . . . . . . . . .. . . . 33 SECTION 9.10. Benefit of Article IX. . . . . . . . . . . .. . . . 34 ARTICLE X MISCELLANEOUS . . . . . . . . . .. . . . 34 SECTION 10.01. Modification. . . . . . . . . . . . . . . .. . . . 34 SECTION 10.02. Waiver. . . . . . . . . . . . . . . . . . .. . . . 34 SECTION 10.03. Payment of Expenses.. . . . . . . . . . . .. . . . 35 SECTION 10.04. Notices.. . . . . . . . . . . . . . . . . .. . . . 36 SECTION 10.05. Governing Law.. . . . . . . . . . . . . . .. . . . 37 SECTION 10.06. Invalid Provisions. . . . . . . . . . . . .. . . . 37 SECTION 10.07. Nonliability of Banks.. . . . . . . . . . .. . . . 38 SECTION 10.08. Binding Effect and Assignability. . . . . .. . . . 38 SECTION 10.09. Entirety; Conflicts.. . . . . . . . . . . .. . . . 38 SECTION 10.10. Headings, etc.. . . . . . . . . . . . . . .. . . . 38 SECTION 10.11. Survival. . . . . . . . . . . . . . . . . .. . . . 38 SECTION 10.12. Sale and Transfers etc. . . . . . . . . . .. . . . 38 SECTION 10.13. No Third Party Beneficiary. . . . . . . . .. . . . 39 SECTION 10.14. Waiver of Jury Trial. . . . . . . . . . . .. . . . 40 SECTION 10.15. Consent to Jurisdiction.. . . . . . . . . .. . . . 40 SECTION 10.16. Multiple Counterparts.. . . . . . . . . . .. . . . 41 SECTION 10.17. Disclosures.. . . . . . . . . . . . . . . .. . . . 42 SECTION 10.18. Sharing of Setoffs. . . . . . . . . . . . .. . . . 42 SECTION 10.19. Repayments in Bankruptcy. . . . . . . . . .. . . . 43 ARTICLE XI DEFINITIONS. . . . . . . . . . .. . . . 43 SECTION 11.01. Definitions.. . . . . . . . . . . . . . . .. . . . 43 SECTION 11.02. Other Definitional Provisions.. . . . . . .. . . . 43 SECTION 11.03. Accounting Matters. . . . . . . . . . . . .. . . . 43 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of February 12, 1996, among HILB, ROGAL, AND HAMILTON COMPANY, a Virginia corporation (the "Borrower"), the Banks set forth on the signature page hereto (the "Banks"), and CRESTAR BANK, a Virginia banking corporation, as agent for the Banks under this Agreement (in such capacity, the "Agent")(unless otherwise indicated, capitalized terms herein have the meanings set forth in Exhibit A hereto), recites and provides as follows: RECITALS WHEREAS, the Borrower has requested that the Banks extend credit to the Borrower in an aggregate principal amount of up to $20,000,000 to finance the repurchase of the Borrower's Capital Securities, to finance acquisitions and to provide funds for other general corporate purposes; and WHEREAS, the Banks are willing to extend such credit on the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the mutual promises set forth herein and for other valuable consideration, the parties agree as follows: ARTICLE I LOANS SECTION 1.01. Commitment. Subject to the terms and conditions and relying upon the representations and warranties herein, each Bank, severally and not jointly, agrees to make Loans to the Borrower, from time to time on or after the date hereof and until the Commitment Termination Date, in an aggregate principal amount at any time outstanding not exceeding the amount of its Commitment. The Borrower may borrow, repay and reborrow hereunder on or after the date hereof and prior to the Commitment Termination Date, subject to the terms and conditions herein. SECTION 1.02. Funding Loans. (a) Each Loan shall be either a Eurodollar Loan or a Base Rate Loan as the Borrower may request subject to and in accordance with this Section. The Eurodollar Loans made by the Banks in any one borrowing shall be in a minimum aggregate principal amount of $2,000,000 and in integral multiples of $1,000,000 in excess thereof. The Base Rate Loans made by the Banks in any one borrowing shall be in a minimum aggregate principal amount of $1,000,000 and in integral multiples of $1,000,000 in excess thereof. Loans shall be made ratably by the Banks in accordance with their respective Percentages; provided, however, that the failure of any Bank to make its Loan shall not in itself relieve any other Bank of its obligation to lend hereunder. Each Bank may, at its option, fulfill its commitment with respect to any Eurodollar Loan by causing a foreign branch or Affiliate of such Bank to make such Loan, provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the applicable Note. Subject to the other provisions of this Section and the provisions of Section 1.07, Loans of more than one type may be outstanding at the same time. (b) The Borrower shall give the Agent written notice (as provided in Section 1.16) of each borrowing under Section 1.01. Upon receipt by the Agent of notice from the Borrower pursuant to this paragraph, the Agent shall promptly notify the Banks thereof. On the borrowing date requested in such notice, each Bank shall make its ratable share (determined by its Percentage) of the borrowing available to the Borrower at its account maintained at the offices of the Agent no later than 2:00 p.m. Richmond time, in federal or other immediately available funds. (c) Notwithstanding any provision in this Agreement to the contrary, the Borrower shall not in any notice of borrowing under this Section 1.02 request any Eurodollar Loan that would not be permitted if characterized as a continuation or conversion pursuant to Section 1.07. SECTION 1.03. Notes; Principal Payments. (a) The Loans made by each Bank and the Borrower's obligation to repay the Loans with interest in accordance with the terms of this Agreement shall be evidenced by this Agreement, the records of such Bank and a Note duly executed on behalf of the Borrower, dated the Closing Date, in substantially the form attached hereto as Exhibit B, payable to the order of such Bank in a principal amount equal to its Commitment. Each Note shall bear interest from its date on the outstanding principal balance thereof as set forth in Section 1.04. The outstanding aggregate unpaid amount of the Loans of each Bank at any time shall be the principal amount owing on the Note of such Bank at such time. The records of each Bank shall be prima facie evidence of the Loans of such Bank and accrued interest thereon and of all payments made in respect thereof. (b) If not sooner paid, the entire unpaid principal balance of each Note shall be due and payable on the Commitment Termination Date. SECTION 1.04. Interest. (a) Subject to the provisions of Section 1.06, each Base Rate Loan and each other amount (other than principal on the Loans) becoming due hereunder shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate. (b) Subject to the provisions of Section 1.06, each Eurodollar Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Adjusted Eurodollar Rate plus the Applicable Margin. The Agent shall determine the applicable Adjusted Eurodollar Rate for each such Loan as at 11:00 a.m., London time, or as soon as practicable thereafter, on the date when such determination is to be made in respect of such Interest Period and shall notify the Borrower and the Banks of the Adjusted Eurodollar Rate so determined. (c) Interest on each Loan shall be payable on each applicable Interest Payment Date, commencing with the first of such dates after the date of such Loan, and on each Conversion Date and the Commitment Termination Date. SECTION 1.05. Commitment Fee; Termination and Reduction of Commitments. (a) In consideration of the Commitments hereunder, the Borrower shall pay in immediately available funds to the Agent, for the pro rata account of each Bank, on the last day of each calendar quarter, commencing with the first such date after the Closing Date, and on the date of any reduction or termination of the Commitments of the Banks hereunder, a commitment fee (the "Commitment Fee") in an amount equal to the Commitment Rate (computed on the basis of the actual number of days elapsed in a year of 360 days) multiplied by the average daily unused amount of the Commitment of such Bank during the period or quarter then ending. The Commitment Fee shall commence to accrue as of the Closing Date, and shall cease to accrue on the Commitment Termination Date. (b) The Borrower may, by written notice to the Agent (as provided in Section 1.16) terminate in full, or from time to time permanently reduce in part, the aggregate Commitments. Each such voluntary partial reduction of the aggregate Commitments shall be in an aggregate principal amount of $2,000,000 and in integral multiples of $1,000,000 in excess thereof. (c) The Borrower shall repay the Loans upon reduction of the Commitments pursuant to this Section 1.05 in an amount sufficient to reduce the outstanding principal balance of the Loans to an amount not greater than the aggregate reduced Commitments. All repayments under this Section shall be accompanied by accrued interest on the principal amount being repaid to the date of repayment. (d) Each reduction in the aggregate Commitments shall be made ratably among the Banks in accordance with each Bank's Percentage. Once reduced, the Commitments cannot be reinstated without the unanimous consent of the Banks. SECTION 1.06. Additional Interest; Alternate Rate of Interest; Maximum Interest Rate. (a) Upon the occurrence and during the continuation of an Event of Default, the outstanding principal balance of the Loans and all other amounts becoming due hereunder shall accrue interest at a rate per annum equal to the Base Rate plus 2%. (b) If the Agent, in its reasonable judgment, determines at any time that dollar deposits in the amount of the principal amount of any requested Eurodollar Loan are not generally available in the relevant interbank market, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Banks of making or maintaining the principal amount of such requested Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted Eurodollar Rate, the Agent shall, as soon as practicable thereafter, give prompt written or telephonic notice of such determination to the Borrower and the Banks. After such notice has been given and until the circumstances giving rise to such notice no longer exist, each request for a Eurodollar Loan or for conversion to or maintenance of a Eurodollar Loan shall be deemed to be a request for a Base Rate Loan. Each determination by the Agent hereunder shall be conclusive absent manifest error. (c) Nothing contained in this Agreement or any Note shall require the Borrower at any time to pay interest at a rate exceeding the Maximum Permitted Rate. If interest payable to any Bank on any date would exceed the maximum amount permitted by the Maximum Permitted Rate, such interest payment shall automatically be reduced to such maximum permitted amounts, and interest for any subsequent period, to the extent less than the maximum amount permitted for such period by the Maximum Permitted Rate, shall be increased by the unpaid amount of such reduction. Any interest actually received for any period in excess of such maximum allowable amount for such period shall be deemed to have been applied as a prepayment of the then outstanding Loans in accordance with Section 1.08. SECTION 1.07. Continuation and Conversion of Loans. Subject to Sections 1.10 and 1.11, the Borrower may, by written notice to the Agent (as provided in Section 1.16) at any time, continue any Eurodollar Loan or portion thereof, into a subsequent Interest Period and convert any Loan or portion thereof into a Loan of a different type, subject in each case to the following: (a) no Default (except in the case of conversion to Base Rate Loans) shall have occurred and be continuing at the time of such notice or such continuation or conversion; (b) On and as of the date of such continuation or conversion, each representation and warranty set forth in Article IV shall be true and correct, as determined by the Agent, it being understood that the representations and warranties set forth in Sections 4.04 and 4.05 shall be deemed to apply to the most recent financial statements furnished by the Borrower to the Banks prior to such Loan; (c) the notice given to the Agent by the Borrower shall specify the Loans (identified by reference to the aggregate amount of such Loans by all of the Banks) to be continued or converted and provide the information required pursuant to Section 1.16 with respect to the continuation or conversion; (d) such continuation or conversion shall be made pro rata among the Banks in accordance with their respective Percentages; (e) in the case of a continuation or conversion of less than all Loans, the aggregate principal amount of Loans continued or converted shall not be less than the minimum borrowing amounts set forth in Section 1.02(a); (f) no Loan may be continued or converted to a Eurodollar Loan having an Interest Period that would extend beyond the scheduled Commitment Termination Date; (g) the Conversion Date must be a Business Day with respect to the new Loan; (h) no Loan (or portion thereof) may be converted to a Eurodollar Loan if, after such conversion, and after giving effect to any prepayment of Loans, an aggregate of more than five separate Eurodollar Loans of any Bank would be outstanding hereunder, it being understood that for such purposes Loans having different Interest Periods, regardless of whether they commence or end on the same date, shall be considered separate Loans; (i) each request for continuation of or conversion into a Eurodollar Loan that fails to state an applicable Interest Period shall be deemed to be a request for an Interest Period of one- month; (j) in the event that the Borrower fails to give notice to continue any Eurodollar Loan into a subsequent Interest Period or convert any such Loan into a Loan of another type, such Loan (unless repaid in full) shall automatically become a Base Rate Loan at the expiration of the then current Interest Period; and (k) each continuation or conversion shall be effected by each Bank as if the proceeds of the new Loan were applied to payment of the Loan (or portion thereof) being continued or converted, and accrued interest on the Loan (or portion thereof) being continued or converted shall be paid by the Borrower on and as of the Conversion Date. SECTION 1.08. Optional Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Base Rate Loan in whole or in part, without premium or penalty, upon prior written notice to the Agent; provided, however, that each such partial prepayment shall be in the principal amount of at least $1,000,000 and in increments of $1,000,000 in excess thereof. (b) The Borrower shall have the right to prepay any Eurodollar Loan, in whole or in part, upon prior written notice to the Agent (as provided in Section 1.16); provided, however, that each such partial prepayment shall be in the principal amount of at least $2,000,000 and in increments of $1,000,000 in excess thereof. If the Borrower prepays any Eurodollar Loan except on the last day of the Interest Period in effect for such Loan, then the Borrower shall make the payments required by Section 1.12. (c) Each notice of prepayment shall specify which Loan(s) is to be prepaid, the prepayment date and the principal amount of each Loan to be prepaid. All prepayments under this Section shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. Amounts prepaid pursuant to this Section prior to the Commitment Termination Date shall be available to be reborrowed from the Banks hereunder in accordance with the terms hereof to the extent such reborrowings do not cause the outstanding Loans to exceed the then outstanding Commitments of the Banks. SECTION 1.09. Manner of Payment. (a) All payments by the Borrower hereunder and under the Notes shall be made to the Agent, at its primary office in Richmond, Virginia, for the account of each Bank in Dollars in federal or other immediately available funds by 11:00 a.m., Richmond time, on the date on which such payment is due, in all cases without any deduction or withholdings whatsoever, including any deduction or withholding for any setoff, recoupment, counterclaim or Tax. Whenever any payment required to be made hereunder or under the Notes is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and interest shall continue to accrue thereon until such payment is made. Interest in respect of any Loan hereunder shall accrue from and including the date of such Loan to but excluding the date on which such Loan is paid in full. If such payments are not received by the Agent within five (5) Business Days after the due date thereof, such payments may be deducted by the Banks in accordance with Section 10.18. (b) All payments received by the Agent shall be remitted to the Banks on the Business Day on which such payments are received or deemed to be received by the Agent. SECTION 1.10. Change in Circumstances. In the event of any Regulatory Change or any change after the date hereof in conditions with respect to cost of funding or otherwise affecting the transactions contemplated by this Agreement or the Notes that: (a) subjects any Bank to any tax of any kind or changes the basis of taxation with respect to any Eurodollar Loan (other than any tax on the overall net income of such Bank or of the lending office or Affiliate of such Bank making any Eurodollar Loan hereunder) imposed by the United States of America or by the jurisdiction in which such Bank has its principal office (or in which such lending office or Affiliate is located) or any political subdivision or taxing authority therein; or (b) imposes, modifies or deems applicable any reserve (other than, in the case of Eurodollar Loans, any reserve taken into account in the computation of Eurodollar Statutory Reserves), deposit or similar requirement against any assets held by, deposits with or for the account of or loans or commitments by an office of such Bank; or (c) imposes upon such Bank or the relevant interbank market any other condition with respect to Eurodollar Loans or upon the Bank any other condition with respect to this Agreement; and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining any Eurodollar Loan hereunder or to reduce the amount of any payment (whether of principal, interest or otherwise) received or receivable by such Bank, or to require such Bank to make any payment in connection with any Eurodollar Loan, then and in each such case the Borrower shall pay to such Bank such amounts as shall be necessary to compensate such Bank for such cost, reduction or payment. The protection of this Section shall be available to each Bank regardless of any possible contention of the invalidity or inapplicability of any law, regulation or other condition that gives rise to any right of such Bank for compensation hereunder. SECTION 1.11. Change in Legality. Notwithstanding any provision in this Agreement to the contrary, if any Regulatory Change shall make it unlawful for a Bank to make or maintain a Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to a Eurodollar Loan, then, by written notice to the Borrower, such Bank may: (a) declare that Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon the Borrower shall be prohibited from requesting Eurodollar Loans from such Bank hereunder unless such declaration is subsequently withdrawn; and (b) to the extent that maintenance of any Eurodollar Loan has been made unlawful, require that all outstanding Eurodollar Loans made by it be converted to Base Rate Loans, whereupon all of such Eurodollar Loans shall be automatically converted to Base Rate Loans upon receipt by the Borrower of such notice, and the Borrower shall make the payments, if any, required by Section 1.12. SECTION 1.12. Indemnity for Eurodollar Loans. The Borrower shall reimburse each Bank for any loss incurred or to be incurred by it in the reemployment of the funds released by any prepayment or conversion of any Eurodollar Loan required or permitted by any other provision of this Agreement if such Loan is prepaid or converted other than on the last day of the Interest Period for such Loan. Such loss shall be the difference as determined by such Bank between (a) the amount that would have been realized by such Bank for the remainder of such Interest Period for such Loan and (b) any lesser amount that would be realized by such Bank in reemploying such funds by purchasing on the date of prepayment or conversion a U.S. Treasury security in the principal amount prepaid or converted that matures on the last day of the Interest Period of the Loan being prepaid or converted. Without duplication of the foregoing indemnity payments, the Borrower shall indemnify each Bank against any actual loss or expense that such Bank may sustain or incur as a consequence of any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise), or the occurrence of any Event of Default, including but not limited to any loss or expense sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof. SECTION 1.13. Capital Adequacy. If, after the date hereof, any Bank shall have determined that any Regulatory Change regarding capital adequacy or compliance by such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority, has or would have the effect of reducing the rate of return on such Bank's (or its holding company's) capital as a consequence of this Agreement or the Loans to a level below that which such Bank (or its holding company) could have achieved but for such Regulatory Change or compliance (taking into consideration such Bank's policies with respect to capital adequacy), then from time to time, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. In determining any such amount, the Bank may use any reasonable averaging and attribution methods. SECTION 1.14. Reasonableness of Increased Costs. Notwithstanding anything to the contrary in Sections 1.10, 1.11, 1.12 and 1.13, the amounts payable by the Borrower thereunder shall not exceed the amounts necessary to indemnify the affected Bank against such increased cost actually incurred or the reduction in amount actually received. A certificate in reasonable detail as to the amount of such increased cost or reduction in amount received and the method of calculation shall be submitted to the Borrower by such Bank and shall be conclusive absent manifest error. The Borrower shall pay to each Bank the amounts shown as due on any such certificate within ten (10) days after its receipt of the same. No failure on the part of any Bank to demand compensation under such Sections above on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion. SECTION 1.15. Pro Rata Treatment. Except as otherwise provided in Sections 1.10, 1.11, 1.12 and 1.13, all payments and prepayments of principal and interest in respect of the Loans, all payments of Commitment Fees and all borrowings hereunder shall be made pro rata among the Banks in accordance with their respective Percentages. SECTION 1.16. Certain Notices. Notices by the Borrower to the Agent of any terminations or reductions of the Commitments, of borrowings and prepayments of Loans, of continuation and conversion of Loans, of type of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 a.m. Richmond time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, continuation, conversion, or prepayment or the first day of such Interest Period specified below (it being understood that notices received by the Agent after 11:00 a.m. Richmond time shall be considered timely received on the next Business Day): Number of Business Notice Days Prior Termination or reduction of Commitment 10 Borrowing, continuation or prepayment of or conversion into Base Rate Loans same day Borrowing, continuation or prepayment of, conversion into, or notification of duration of Interest Period for, Eurodollar Loans 3 Each such notice of termination or reduction shall specify the amount of the Commitment to be terminated or reduced. Each such notice of borrowing, continuation, conversion or prepayment shall specify the Loans to be borrowed, continued, converted or prepaid and the amount and type of the Loans to be borrowed, continued, converted or prepaid and the date of borrowing, continuation, conversion or prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. In the event that the Borrower fails to select within the time period and otherwise as provided in this Section 1.16 the type of Loan or the duration of the Interest Period for any Eurodollar Loan, such Loan shall be automatically converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or will remain as, or will be made as, a Base Rate Loan. ARTICLE II COLLATERAL AND GUARANTIES SECTION 2.01. Unsecured Obligations. The parties acknowledge that the Loans are unsecured obligations of the Borrower. SECTION 2.02. Guaranty. Payment of the Obligations is not guaranteed by any third party. SECTION 2.03. Loan Documents. The Borrower agrees to execute and deliver all Loan Documents and other instruments contemplated by this Agreement, in form and substance reasonably satisfactory to the Agent and its counsel. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Initial Loans. In addition to the conditions precedent in Section 3.02, the obligations of the Banks to make initial Loans hereunder are subject to the following conditions precedent: (a) Satisfaction of each of the conditions set forth on Exhibit C hereto, the satisfaction of which shall be determined by the Banks and the Agent in their sole discretion. (b) All legal matters incident to this Agreement and the Loans shall be satisfactory to Hunton & Williams, special counsel for the Agent. SECTION 3.02. All Loans. As conditions to each Loan to be made hereunder: (a) The Agent shall have received a notice of such Loan as required by Section 1.02. (b) On and as of the date of such Loan, both before and after giving effect to such Loan and applying the proceeds thereof: (i) each representation and warranty set forth in Article IV shall be true and correct, as determined by the Agent in its sole and absolute discretion, it being understood that the representations and warranties set forth in Sections 4.04 and 4.05 shall be deemed to apply to the most recent financial statements furnished by the Borrower to the Banks prior to such Loan, and (ii) the Borrower shall be in compliance with all the terms and provisions of this Agreement on its part to be observed or performed, no Default shall have occurred and be continuing, and the Agent and the Banks shall have received a certificate to such effect. (c) Such Loan will not contravene any Legal Requirement applicable to the Agent or any Bank. The Borrower shall be deemed to make representations and warranties on the date of each Loan as to the matters specified in paragraphs (b) and (c) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants to the Agent and to each of the Banks that: SECTION 4.01. Organization; Powers; Qualification. The Borrower is (a) a corporation duly organized, validly existing and in good standing under the laws of Virginia, (b) has the power and authority to own its properties and to carry on its businesses as now conducted, (c) is qualified to do business in the jurisdictions indicated on Schedule 4.01, (d) is not required to be qualified in any other jurisdiction where the failure to be so qualified would have a Material Adverse Effect, and (e) has the power to execute, deliver and perform its obligations under this Agreement, to borrow hereunder and to execute and deliver the Notes and the other Loan Documents and to perform its obligations thereunder. SECTION 4.02. Authorization; Enforceability. The execution, delivery and performance of this Agreement, the borrowings hereunder, the execution, delivery and performance of the Notes and the other Loan Documents and the transactions contemplated hereby and thereby (a) have been duly authorized by all requisite action on the part of the Borrower, (b) will not (i) violate (A) any provision of law, the Organizational Documents of the Borrower or any Material Subsidiary or (B) any applicable order of any Governmental Authority, (ii) violate, conflict with, breach or constitute (with due notice or lapse of time or both) a default under any indenture, agreement for borrowed money, bond, note, instrument or other agreement to which the Borrower or any Material Subsidiary is a party or by which the Borrower or any Material Subsidiary or any of their respective property is bound or (iii) result in the creation or imposition of any Lien of any nature whatsoever upon any property or assets of the Borrower or any Material Subsidiary. This Agreement has been duly executed and delivered by the Borrower and constitutes, and the Notes and the other Loan Documents party when executed and delivered will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. SECTION 4.03. Consents and Approvals. No action, consent or approval of, or registration or filing with, or any other action by any Governmental Authority or of shareholders is required in connection with the execution, delivery and performance by the Borrower of this Agreement, the borrowings hereunder or the execution, delivery and performance of the Notes or any other Loan Document. SECTION 4.04. Financial Statements. The Borrower has heretofore furnished the following financial statements to each of the Banks: (i) the consolidated balance sheet of the Borrower and the Consolidated Subsidiaries as of December 31, 1994 and the consolidated statements of income, retained earnings and cash flows of the Borrower and the Consolidated Subsidiaries for the fiscal year then ended, reported on by Ernst & Young, independent public accountants, and (ii) the unaudited consolidated balance sheet of the Borrower and the Consolidated Subsidiaries as of June 30, 1995, and the related statements of income, retained earnings and cash flows of the Borrower and the Consolidated Subsidiaries for the period then ended, duly certified by a financial officer of the Borrower. Such financial statements fairly present the consolidated financial condition of the Borrower and the Consolidated Subsidiaries as of the dates thereof and the consolidated results of the operations of the Borrower and the Consolidated Subsidiaries for the periods covered thereby and are complete and correct. All such financial statements were prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis (subject, in the case of such interim statements, to the omission of footnotes and year-end audit adjustments). SECTION 4.05. No Material Adverse Change. There has been no material adverse change in the business, assets, liabilities, condition (financial or otherwise), results of operations or business prospects, on a consolidated basis, of the Borrower and the Consolidated Subsidiaries since June 30, 1995. SECTION 4.06. Subsidiaries. (a) Set forth on Schedule 4.06(a) is a complete and accurate list of all Material Subsidiaries of the Borrower on the date hereof, showing as to each such Material Subsidiary the jurisdiction of its organization, its type of entity and its principal place of business. All of the outstanding Capital Securities of each of the Material Subsidiaries are wholly owned, directly or indirectly, by the Borrower. Such Capital Securities are owned free and clear of all Liens except Permitted Liens, and the owner of such Capital Securities has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, such Capital Securities. (b) Each of the Material Subsidiaries is (i) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is the type of entity described in Schedule 4.06(a), (ii) has the power and authority to own its properties and to carry on its businesses as now conducted, and (iii) is qualified to do business in every jurisdiction where such qualification is necessary or failure to qualify would have a Material Adverse Effect. (c) Set forth on Schedule 4.06(c) is a complete and accurate list of all foreign Subsidiaries of the Borrower on the date hereof that have annual revenues (either historically or on a pro forma basis) exceeding 2.25% of total consolidated revenues of the Borrower and the Consolidated Subsidiaries, showing as to each such Subsidiary the jurisdiction of its organization, its type of entity and its principal place of business. All of the outstanding Capital Securities of each of the foreign Subsidiaries are wholly owned, directly or indirectly, by the Borrower. Such Capital Securities are owned free and clear of all Liens except Permitted Liens, and the owner of such Capital Securities has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, such Capital Securities. SECTION 4.07. Litigation. Borrower has filed with the SEC all reports it is required to file with the SEC regarding any action, suit or proceeding at law or in equity or by or before any court or Governmental Authority now pending or threatened against or affecting the Borrower or any of the Material Subsidiaries or any property or rights of the Borrower or any of the Material Subsidiaries. SECTION 4.08. Tax Returns. Except as set forth in Schedule 4.08, the Borrower and the Material Subsidiaries have filed or caused to be filed all federal, state and local tax returns that are required to be filed and have paid or caused to be paid all taxes as shown on such returns or on any assessment received by any of them to the extent that such taxes have become due, except taxes the validity of which is being contested in good faith by appropriate proceedings and with respect to which the Borrower or such Material Subsidiary, as the case may be, has set aside on its books adequate reserves, if any, required in accordance with Generally Accepted Accounting Principles. SECTION 4.09. Properties. The Borrower and the Material Subsidiaries have good and marketable title (subject to minor title defects) to all their respective properties and assets reflected on the consolidated balance sheet of the Borrower and the Consolidated Subsidiaries dated June 30, 1995, referred to in Section 4.04, except for such properties and assets as have been disposed of since such date as no longer necessary in the conduct of their respective businesses or as have been disposed of in the ordinary course of business. The Borrower and the Material Subsidiaries have good and marketable title to all their respective properties and assets and own all such properties and assets free and clear of any Liens except Permitted Liens. SECTION 4.10. Employee Benefit Plans. Schedule 4.10 sets forth a true and complete list of all Plans that the Borrower or any Material Subsidiary maintains, or expects to maintain, or to which the Borrower or any Material Subsidiary is, or is expected to be, required to make any contribution. The Borrower, the Material Subsidiaries and each Plan are in compliance in all material respects with the applicable provisions of law, including the applicable provisions of ERISA and the regulations and published interpretations thereunder. No Plan is (i) a multiemployer plan (as defined in Section 3(37) of ERISA), (ii) subject to the provisions of Title IV of ERISA or (iii) subject to the minimum funding provisions of ERISA or the Internal Revenue Code. Neither the Borrower nor any ERISA Affiliate has maintained, contributed to, or had an obligation to contribute to, any plan described in items (i), (ii) or (iii) of the preceding sentence. Except for the continued coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 and subsequent legislation and as disclosed in Schedule 4.10, the Borrower and the Material Subsidiaries are not obligated to provide medical benefits, hospitalization benefits or benefits under any other employee welfare benefit plan (within the meaning of Section 3(1) of ERISA) to any former employee or the spouse or dependent of any former employee. SECTION 4.11. Government Regulation. Neither the Borrower nor any Subsidiary is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as any of such acts may be amended) or any other law (other than Regulation X) that regulates the incurring by the Borrower or any Subsidiary of indebtedness. SECTION 4.12. Margin Stock. No proceeds of any Loan will be used for the purpose of purchasing or carrying any Margin Stock or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a Margin Stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation U or G. Neither the Borrower nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stocks. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause the Notes or any of the other Loan Documents, including this Agreement, to violate Regulation U or G or any other regulations of the Federal Reserve Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Neither the Borrower nor any Subsidiary owns any Margin Stock except as set forth in Schedule 4.12 and, as of the date hereof, the aggregate value of all Margin Stock owned by the Borrower does not exceed 25% of all of the value of all of the Borrower's assets. SECTION 4.13. No Material Misstatements. All information, financial statements and documents furnished to the Agent and the Banks in connection herewith are complete and accurate in all material respects. No information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower to the Agent or any Bank in connection with the negotiation, execution, delivery or performance of this Agreement, any Note or any other Loan Document hereunder, or any schedule hereto or thereto contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no event or fact that the Borrower has not disclosed to the Banks in writing that causes a Material Adverse Effect or, so far as the Borrower can now foresee, is likely to cause a Material Adverse Effect. SECTION 4.14. Patents, Trademarks, etc. Each of the Borrower and the Material Subsidiaries possesses adequate assets, licenses, patents, patent applications, copyrights, trademarks, service marks, trademark applications, trade names, technology, processes and permits and other governmental approvals and authorizations to conduct its business. Except as set forth in Schedule 4.14, there are no existing or, to the knowledge of the Borrower, threatened claims of any Person based on the use of such permits, patents, trademarks, trade names, copyrights, technology and processes by the Borrower or any of the Material Subsidiaries and to the knowledge of the Borrower, no such use infringes on the rights of any Person. SECTION 4.15. Hazardous Wastes. To the best of Borrower's knowledge, all land owned, leased or otherwise used by the Borrower and the Material Subsidiaries is free from reportable quantities of Hazardous Wastes, and no portion of such land would subject the Borrower or any Material Subsidiary to liability under federal, state or local law or regulation because of the presence of stored, leaked or spilled Toxic Substances or Hazardous Wastes, underground storage tanks, "asbestos" (as defined in 40 C.F.R. 61.141) or the past or present accumulation, spillage or leakage of any such substance, nor has the Borrower or any Material Subsidiary arranged for disposal or treatment (or arranged with a transporter for transport for disposal or treatment) of any such substance to any other location except in compliance with Environmental Laws. Neither the Borrower nor any Material Subsidiary has received any notice from the Environmental Protection Agency or any other Governmental Authority alleging that it is a "responsible party" with respect to any of the foregoing. SECTION 4.16. No Brokers or Finders. No broker or finder brought about or contributed to the obtaining, making or closing of the Loans made pursuant to this Agreement, and the Borrower has no obligation to any person in respect of any finder's or brokerage fees in connection with the Loans contemplated by this Agreement. SECTION 4.17. No Default of Indebtedness; Solvency. (a) Neither the Borrower nor any of the Material Subsidiaries is in default of any Indebtedness, and no holder of any such Indebtedness has given notice of an asserted default thereunder. No liquidation, dissolution or other winding up of the Borrower or any of the Material Subsidiaries and no bankruptcy or similar proceedings relative to them or their property are pending or, to the knowledge of the Borrower, threatened against them. (b) On the date hereof, each of the Borrower and the Material Subsidiaries is, and after consummation of this Agreement and after giving effect to all Indebtedness incurred (assuming the entire Commitment is fully advanced on the Closing Date) and Liens, if any, created by the Borrower and the Material Subsidiaries in connection herewith will be, Solvent. SECTION 4.18. Agreements. Neither the Borrower nor any Material Subsidiary is a party to any agreement or instrument or subject to any provision in its Organizational Documents that could have a Material Adverse Effect or conflict with or constitute a Default under this Agreement or any other Loan Document. Neither the Borrower nor any Material Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party in any manner that could have a Material Adverse Effect. The Banks understand that the Borrower and its Subsidiaries are parties to agency and brokerage contracts that are material to their respective businesses and that such contracts are subject to negotiation and may be amended, extended or terminated from time to time in the ordinary course of business. SECTION 4.19. Compliance with Law. Each of the Borrower and the Material Subsidiaries has complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any Governmental Authority. SECTION 4.20. Labor Controversies. Neither the Borrower nor any Material Subsidiary is a party to any collective bargaining agreement. To the best knowledge of the Borrower, it and the Material Subsidiaries are in compliance with all applicable laws respecting employment and employment practices where such failure to comply could reasonably be expected to have a Material Adverse Effect. SECTION 4.21. Non-Material Subsidiaries. To the best of the Borrower's knowledge, each of the representations and warranties set forth in this Article IV (except for Section 4.06(a)) with respect to the Material Subsidiaries is true and correct with respect to all Subsidiaries that are not Material Subsidiaries except for such matters as would not have a Material Adverse Effect. ARTICLE V AFFIRMATIVE COVENANTS The Borrower covenants and agrees with the Agent and the Banks that until the Repayment Date, unless the Majority Banks otherwise consent in writing, as follows: SECTION 5.01. Corporate Existence and Maintenance of Properties. The Borrower shall, and shall cause each of the Material Subsidiaries to, do or cause to be done all things necessary to preserve, maintain, renew and keep in full force and effect its corporate existence and all of its material rights, licenses, permits and franchises; conduct its business in substantially the same manner as heretofore conducted; at all times maintain and preserve all property used or useful in the conduct of its business and keep the same in good repair, working order and condition (ordinary wear and tear excepted), and from time to time make, or cause to be made, all necessary and proper repairs, renewals and replacements thereto, so that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.02. Compliance with Laws. The Borrower shall, and shall cause each of the Material Subsidiaries to, do or cause to be done all things necessary to comply with all laws and regulations applicable to it, including without limitation the following: (a) SEC Filings. The Borrower shall make, and shall cause each of the Subsidiaries to make, on a timely basis, all filings, if any, it is required to make with the SEC. (b) ERISA. The Borrower shall comply, and shall cause each of its ERISA Affiliates to comply, in all material respects with the applicable provisions of ERISA and as soon as possible, and in any event within 10 days after the Borrower knows or has reason to know of a violation of ERISA with respect to any Plan, shall deliver to the Agent and each Bank a statement signed by a senior financial officer of the Borrower setting forth details respecting such event or condition and the action, if any, that the Borrower or its ERISA Affiliate proposes to take with respect thereto. (c) Environmental Laws. (i) The Borrower shall be and remain, and shall cause each Material Subsidiary to be and remain, in compliance in all material respects with the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances, and all rules and regulations issued thereunder. The Borrower shall notify the Banks immediately of any notice of a hazardous discharge or environmental complaint received from any Governmental Authority or any other Person; notify the Banks immediately of any hazardous discharge from or affecting the Premises, which is also required to be reported to any Governmental Authority; immediately contain and remove the same, in compliance with all applicable Legal Requirements; permit the Banks to inspect the Premises, to conduct tests thereon, and to inspect all books, correspondence and records pertaining thereto; and at a Bank's request, and at the Borrower's expense, provide a report of a qualified environmental engineer satisfactory in scope, form, and contents to the Banks, and such other and further assurances reasonably satisfactory to the Banks that the condition has been corrected. (ii) The Borrower acknowledges that the Agent and the Banks have entered into this Agreement and made the Loans in reliance upon the Borrower's representations and warranties in Section 4.15 and its covenants in this Section 5.02(c). Accordingly, the Borrower hereby agrees that the Borrower shall be liable for all costs and expenses incurred by or asserted against the Agent or any Bank arising under violations of the terms of this Section 5.02(c) or a breach of any representation or warranty contained in Section 4.15 of this Agreement. All of the representations and warranties contained in Section 4.15 and the Borrower's covenants under this Section 5.02(c) shall survive the Repayment Date. SECTION 5.03. Insurance. The Borrower shall maintain, and shall cause each of the Material Subsidiaries to maintain, insurance with financially sound and reputable insurance companies or associations, in such amounts and covering such risks (but including, in any event, public liability) as is usually carried by companies engaged in the same or similar businesses and owning similar properties in the same general areas in which the Borrower and each of the Material Subsidiaries operates and furnish to the Agent, upon reasonable request, full information (including certificates and originals or certified copies of the policies) as to the insurance carried. SECTION 5.04. Obligations and Taxes. The Borrower shall pay, and shall cause each of the Material Subsidiaries to pay, all of its Indebtedness and obligations promptly and in accordance with the terms thereof and pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become in default or delinquent, as the case may be, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might become a Lien upon such properties or any part thereof; provided, however, that neither the Borrower nor any of the Subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof is contested in good faith by appropriate proceedings and the Borrower or such Subsidiary, as the case may be, sets aside on its books adequate reserves therefor, if any, required in accordance with Generally Accepted Accounting Principles. SECTION 5.05. Accounting Methods and Financial Records. The Borrower shall maintain, and shall cause each Subsidiary to maintain, a system of accounting and financial records in accordance with Generally Accepted Accounting Principles, and keep such books, records and accounts (which shall be true and complete), as may be required or necessary to permit (a) the preparation of financial statements required to be delivered pursuant to Section 5.06 and (b) the determination of the Borrower's compliance with the terms of this Agreement. SECTION 5.06. Financial Statements, Certificates and Reports. The Borrower shall furnish to the Agent and the Banks: (a) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of the Borrower, copies of the Quarterly Report of the Borrower on Form 10-Q as filed with the SEC, containing a balance sheet of the Borrower and the Consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income and cash flows of the Borrower and the Consolidated Subsidiaries for such quarter and for the portion of the fiscal year ending with such quarter, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year; (b) Annual Statements. As soon as available and in any event within ninety (90) days after the close of each fiscal year of the Borrower, copies of the Annual Report of the Borrower on Form 10-K as filed with the SEC, containing a consolidated balance sheet of the Borrower and the Consolidated Subsidiaries as of the close of such fiscal year and consolidated statements of income and cash flows of the Borrower and the Consolidated Subsidiaries for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year; (c) Other SEC Filings. The Borrower shall deliver to the Agent and the Banks promptly upon its becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Borrower or any Material Subsidiary to holders of its Capital Securities and of each regular or periodic report, registration statement or prospectus, if any, filed by the Borrower or any Material Subsidiary with any securities exchange or the SEC or any successor agency, including without limitations Forms 10-K, 8-K and 10-Q. (d) Audit Reports. Promptly upon receipt thereof, one copy of each written report submitted to the Borrower by independent accountants in any annual, quarterly or special audit made; (e) Compliance Certificate. As soon as available, and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year and within ninety (90) days after the end of the fourth quarter of each fiscal year of the Borrower hereafter, a Compliance Certificate. (f) Notices of Discrepancies. Immediately after Borrower's discovery thereof, written notice of any inaccuracy or incorrect statement contained in any of the foregoing that is material or that changes any of the financial calculations under this Agreement, including a statement containing the correct information required; and (g) Other Information. Such other information concerning the business, properties or financial condition of the Borrower and the Material Subsidiaries as the Majority Banks shall request, including without limitation pro forma financial information, which shall be prepared in such form and such detail as shall be satisfactory to the Agent and the Banks, shall be prepared on the same basis as those prepared by the Borrower in prior years and shall be the same financial reports as those furnished to the Borrower's officers and directors. SECTION 5.07. Access to Premises and Records. Upon reasonable notice, the Borrower shall permit, and shall cause each Material Subsidiary to permit, representatives of the Agent and each Bank to have access to the financial records and the premises of the Borrower and each Material Subsidiary at reasonable times and to make copies of such records. SECTION 5.08. Notice of Default. The Borrower shall give to the Agent and each Bank, promptly after learning of the occurrence of any Default that has not previously been disclosed in writing to the Agent and the Banks, (a) notice of such event, (b) the Borrower's assessment of the effect such event is likely to have on the financial condition of the Borrower and the Material Subsidiaries during the following ninety days, (c) the Borrower's plan for minimizing the adverse effects of such event and (d) a description of any material development in any such event. SECTION 5.09. Notice of Litigation. The Borrower shall, upon request, deliver or cause to be delivered to the Agent and each Bank, a description of any material development in any of the matters described in Section 4.07 that has been disclosed in filings with the SEC. SECTION 5.10. Notice of Strikes, Labor Controversies, etc. The Borrower shall deliver or cause to be delivered to the Agent and each Bank, promptly after learning of the occurrence of any event described in Section 4.20 that has not previously been disclosed in writing to the Agent and the Banks, (a) notice of such event, (b) the Borrower's assessment of the effect such event is likely to have on the financial condition of the Borrower and the Material Subsidiaries during the following ninety days, (c) the Borrower's plan for minimizing the adverse effects of such event and (d) a description of any material development in any such event. SECTION 5.11. Update of Subsidiaries. The Borrower shall, upon request, deliver or cause to be delivered to the Agent and each Bank an update of the Material Subsidiaries listed on Schedule 4.06(a) and the foreign Subsidiaries listed on Schedule 4.06(c). ARTICLE VI NEGATIVE COVENANTS The Borrower covenants and agrees with the Agent and the Banks that, until the Repayment Date, unless the Majority Banks otherwise consent in writing, as follows: SECTION 6.01. Liens. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries, directly or indirectly, to create, incur, assume or suffer to exist any Lien upon or with respect to any of its assets or properties, now owned or hereafter acquired, or assign or otherwise convey any right to receive income; provided that the foregoing restrictions shall not apply to Liens: (a) for taxes, assessments or governmental charges or levies on its property if they (i) are not delinquent at the time or thereafter can be paid without penalty and (ii) are being contested in good faith and by appropriate proceedings and with respect to which it has set aside on its books adequate reserves, if any, required in accordance with Generally Accepted Accounting Principles; (b) imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens, that arise in the ordinary course of business with respect to obligations not yet due or being contested in good faith and by appropriate proceedings and with respect to which it has set aside on its books adequate reserves, if any, required in accordance with Generally Accepted Accounting Principles; (c) arising in the ordinary course of business out of pledges or deposits under workmen's compensation laws, unemployment insurance, pensions, or other social security or retirement benefits, or similar legislation; (d) incidental to the conduct of its business or the ownership of its property and assets (such as easements, zoning restrictions and restrictive covenants) not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (e) arising in the ordinary course of business out of pledges or deposits to secure performance in connection with bids, tenders, contracts (other than contracts for the payment of money), bonds (other than bonds of or for the benefit of the Borrower or any Subsidiary) or leases to which the Borrower or any Subsidiary is a party; (f) securing Indebtedness owing by any Subsidiary to the Borrower or any Material Subsidiary; (g) in respect of property acquired or constructed by it after the date hereof for use in the business of the Borrower and the Material Subsidiaries (such as real property and equipment), which Liens (including Capitalized Lease Obligations) exist or are created at the time of acquisition or completion of construction of such property or within 60 days thereafter, to secure Indebtedness assumed or incurred to finance all or any part of the purchase price or cost of construction of such property, but any such Lien shall cover only the property so acquired or constructed and the aggregate amount secured by such Liens shall not exceed $2,500,000 at any time outstanding; (h) in respect of automobiles and office equipment acquired by it prior to the date hereof for use in the business of the Borrower and the Material Subsidiaries, which Liens (including Capitalized Lease Obligations) existed or were created at the time of acquisition of such property, or within 60 days thereafter, to secure Indebtedness assumed or incurred to finance all or any part of the purchase price of such property, but any such Lien shall cover only the property so acquired and the amount secured by each such Lien shall not exceed $50,000; (i) on assets of any Person existing at the time such Person becomes, by acquisition, consolidation or merger, a Material Subsidiary, provided that such Lien covers only the assets of the Person so acquired and was not created in connection with or in contemplation of such acquisition; and (j) set forth in Schedule 6.01. SECTION 6.02. Indebtedness. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries, directly or indirectly, to create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness hereunder and under the Loan Documents in respect of the Notes; (b) Indebtedness to the Agent pursuant to the Balancing Line; (c) Indebtedness of the Material Subsidiaries to the Borrower or another Material Subsidiary; (d) Indebtedness of the Material Subsidiaries (other than as permitted in clause (c) above) that is not guaranteed by the Borrower in an aggregate principal amount not to exceed $2,000,000; (e) Indebtedness assumed or incurred to finance all or any part of the purchase price or cost of acquisition or construction of property and secured by Liens permitted pursuant to Section 6.01(g); (f) Indebtedness assumed in connection with any acquisition permitted pursuant to Section 6.03 provided that such Indebtedness was not created in connection with or in contemplation of such acquisition; and (g) Indebtedness payable to the applicable seller as all or any part of the purchase price of any acquisition permitted pursuant to Section 6.03. SECTION 6.03. Liquidation, Sale of Assets and Merger. (a) Except as otherwise provided herein, the Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, (i) sell, lease, transfer or otherwise dispose of any portion of its properties and assets to any Person (other than in the ordinary course of business, including sales for fair value to former employees of their "book of business" so long as such business does not account for more than (x) $750,000 in annual revenue per employee for any fiscal year, or (y) $3,000,000 in annual revenue for all employees for any fiscal year) or (ii) liquidate or discontinue its business; provided, however, that a Material Subsidiary may sell, lease or transfer all or substantially all of its assets to the Borrower or another Material Subsidiary and the Borrower may acquire (for an amount not exceeding the fair value thereof) all or substantially all of the properties and assets of the Material Subsidiary so to be sold, leased or transferred to it, if immediately before and after giving effect to such sale, lease or transfer, no Default shall have occurred and be continuing. (b) The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, merge or consolidate with or into any other Person or acquire all or substantially all the Capital Securities, properties or assets of any other Person except that (i) a Material Subsidiary may be merged into, or consolidated with, the Borrower or another Material Subsidiary and (ii) the Borrower or any Material Subsidiary may acquire all or substantially all of the properties or assets of any other Person or a Controlling Interest in any other Person, provided that (A) if the acquisition of such Controlling Interest is by way of a merger with the Borrower, the Borrower will be the surviving entity, (B) if a Controlling Interest is acquired other than through a merger with the Borrower, such Controlling Interest shall constitute such Person a Material Subsidiary, (C) immediately prior to such acquisition, no Default shall have occurred and be continuing, and (D) immediately after giving effect to such acquisition, no Default shall have occurred or be continuing. SECTION 6.04. Investments. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase of any stock, bonds, notes, debentures or other securities of, or make any other investment (by way of guarantee or otherwise) in any Person other than (i) investments in obligations of, and obligations of third parties that are fully guaranteed as to principal and interest by, the United States of America; or (ii) investments in commercial paper issued by any Person having at least an A2 credit rating from the publication services of Standard & Poor's Credit Corp. ("S&P"), or P2 by Moody's Investor Services, Inc. ("Moody's"), or similar ratings provided by successor rating agencies; or (iii) demand deposits maintained in the ordinary course of the Borrower's business or that of any of the Material Subsidiaries; or (iv) repurchase agreements collateralized by the investments referred to in (i) or (ii) above; or (v) certificates of deposit, master notes, bankers' acceptances, or Eurodollar time deposits issued by commercial banks or trust companies having capital and surplus in excess of $100,000,000; or (vi) obligations of states, municipalities, counties, political subdivisions, agencies of the foregoing and other similar entities, rated at least A, MIG-1, or MIG-2 by Moody's or at least A by S&P, or similar ratings by successor rating agencies; or (vii) unrated obligations of states, munici- palities, counties, political subdivisions, agencies of the foregoing and other similar entities, supported by irrevocable letters of credit issued by commercial banks having capital and surplus in excess of $100,000,000 and long-term debt that is rated at least A by Moody's or S&P (or similar ratings by successor rating agencies) or commercial paper that is rated at least A2 by Moody's or P2 by S&P (or similar ratings by successor rating agencies); or (viii) unrated general obligations of states, municipalities, counties, political subdivisions, agencies of the foregoing and other similar entities, provided that the issuer has other outstanding general obligations rated at least A, MIG-1 or MIG-2 by Moody's or A by S&P (or similar ratings by successor rating agencies; (ix) repurchases of Capital Securities of the Borrower pursuant to Borrowers Stock Repurchase Plan; (x) investments permitted pursuant to Section 6.03(b); and (xi) other investments not to exceed in the aggregate $2,000,000 acquired in the ordinary course of business. Nothing in this Section 6.04 shall be construed to restrict the ability of the Borrower and the Subsidiaries to invest in insurance agencies. SECTION 6.05. Guarantees. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, issue any Guaranty except that (i) the Borrower and the Material Subsidiaries may endorse checks for deposit in the ordinary course of business and (ii) the Borrower may guarantee the obligations of the Material Subsidiaries to the extent such obligations are permitted hereunder (provided, however, that the Borrower shall not guarantee, directly or indirectly, the obligations of any partnership or joint venture which is a Subsidiary or in which the Borrower or any Subsidiary has invested), and (iii) the Borrower and the Material Subsidiaries may enter into Guaranties of obligations (other than Premium Payment Obligations and lease payments) in the ordinary course of business not exceeding $2,500,000 in the aggregate and Guaranties of Premium Payment Obligations in the ordinary course of business. SECTION 6.06. Breach or Violation. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, enter into any agreement containing any provision that would be violated or breached by the performance of the Borrower's or any Material Subsidiary's obligations under this Agreement, the Notes or any of the other Loan Documents. SECTION 6.07. No Amendments. The Borrower shall not, and shall not cause, permit or suffer any amendment or modification of its Organizational Documents without the written consent of the Banks, which shall not be unreasonably withheld. SECTION 6.08. Use of Proceeds. The Borrower shall not, and shall not cause, permit or suffer any of the Subsidiaries to, use any of the proceeds of any of the Loans for any purpose other than the purposes set forth in the Recitals herein. Without limiting the generality of the foregoing, no part of the proceeds of the Loans hereunder will be used (a) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock if such action would violate, or be inconsistent with, any rules or regulations of the Federal Reserve Board, including without limitation any provisions of Regulation G, U or X, or (b) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities Exchange Act of 1934, including particularly (but without limitation) Sections 13(d) and 14(d) thereof. If requested by the Agent or any Bank, the Borrower will furnish to the Banks a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U. SECTION 6.09. Transactions with Affiliates. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, effect any transaction with any Affiliate on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party. SECTION 6.10. Restrictive Covenants. The Borrower shall not, and shall not cause, permit or suffer any of the Material Subsidiaries to, enter into any Contract, or otherwise create or cause or permit to exist or become effective any consensual restriction, limiting the ability (whether by covenant, event of default or otherwise) of any Material Subsidiary to (a) pay dividends or make any other distributions on its Capital Securities held by the Borrower or any other Material Subsidiary, (b) pay any obligation owed to the Borrower or any other Material Subsidiary, (c) make any loans or advances to or investments in the Borrower or in any other Material Subsidiary, (d) transfer any of its property or assets to the Borrower or any other Material Subsidiary, or (e) create any Lien (other than Permitted Liens) upon its property or assets whether now owned or hereafter acquired or upon any income or profits therefrom. SECTION 6.11. Increase in Benefits; New Plans. The Borrower shall not, and shall not cause, permit or suffer any ERISA Affiliate to, (a) increase benefits under any Plan or adopt or establish any new employee benefit plans (within the meaning of Section 3(3) of ERISA), fringe benefit plans or arrangements, or executive or incentive plans, if such action would require it to make substantial additional contributions thereto or to incur a substantial obligation thereto, except for changes in the ordinary course of business consistent with past practices of the Borrower (such as annual cost of living increases) and changes to existing benefits or new benefits deemed necessary by the Borrower to remain competitive with the benefits generally offered by other companies in the same business as the Borrower; or (b) adopt, establish, or become a party to any Plan that is subject to the provisions of Title IV of ERISA or any multiemployer plan (within the meaning of Section 3(37) of ERISA). ARTICLE VII FINANCIAL COVENANTS The Borrower covenants and agrees with the Agent and the Banks that, until the Repayment Date, unless the Majority Banks otherwise consent in writing, it shall comply with the following financial covenants: SECTION 7.01. Adjusted Funded Debt to Adjusted Cash Flow Ratio. The ratio of Adjusted Funded Debt to Adjusted Cash Flow as of the last day of each calendar quarter shall not exceed 3.00 to 1.00. SECTION 7.02. Consolidated Net Worth. On the last day of each quarter, commencing March 31, 1996, Consolidated Net Worth shall not be less than the sum of (a) $42,500,000, plus (b) twenty five percent (25%) of positive Consolidated Net Income, if any, for each fiscal quarter beginning after December 31, 1995, and ending on or before the date of such determination, plus (c) fifty percent (50%) of the net proceeds received by the Borrower or any Subsidiary after December 31, 1995, from the sale of Capital Securities. SECTION 7.03. Debt Service Coverage. The ratio of Adjusted Cash Flow to Debt Service as of the last day of each calendar quarter shall not be less than 2.50 to 1.00. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.01. Events of Default. Each of the following shall constitute an "Event of Default", whatever the reason for such event and whether it shall be voluntary or involuntary, or within or beyond the control of the Borrower or any Subsidiary, or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or nongovernmental body: (a) any payment of the principal of or interest on any Note or of the Commitment Fee or any other amount due under this Agreement or the Notes shall not be made, within five Business Days after the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (b) any representation or warranty made herein or in any other Loan Document or any statement or representation made in any report, certificate, financial statement or other instrument furnished by the Borrower to the Agent or the Banks pursuant to this Agreement shall prove to have been false or misleading in any material respect (whether or not known to the Borrower) when made or delivered or when deemed made in accordance with the terms hereof; (c) the Borrower gives notice to the Agent or the Banks or the Banks otherwise become aware that an event has occurred or a circumstance exists or has become known after the Closing Date, including without limitation notices pursuant to Sections 5.02. 5.06, 5.08, 5.09 and 5.10, that, after notice to the Borrower and an opportunity (within five Business Days) to discuss Borrower's plans with respect thereto, the Agent and the Banks determine could reasonably be expected to have a Material Adverse Effect; (d) the Borrower or any Subsidiary shall fail to observe or perform any covenant, warranty or agreement contained in or referred to in Sections 5.02 and 5.07 and Article VII; (e) the Borrower or any Subsidiary shall fail to observe or perform any covenant, warranty or agreement contained in or referred to in Article VI, provided that any such inadvertent failure made in good faith shall not constitute an Event of Default if it is curable and is cured promptly after notice from Agent (not to exceed, in any event, 15 days); (f) the Borrower or any Subsidiary shall fail to observe or perform any other covenant, condition or agreement to be observed or performed pursuant to the terms hereof and such default shall continue unremedied for thirty (30) days after written notice thereof to the Borrower by the Agent or the Majority Banks; (g) the Borrower or any Material Subsidiary shall fail to pay any Indebtedness under the Balancing Line or any other Indebtedness other than the Loans hereunder greater than $1,000,000 owing by the Borrower or such Material Subsidiary, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or the Borrower or any Material Subsidiary shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to the Balancing Line or such Indebtedness; provided that in the case of Indebtedness payable to sellers in connection with acquisitions by the Borrower and its Subsidiaries, such failure shall not constitute an Event of Default if there is a valid dispute regarding the payment or a valid counterclaim exists against such seller and, in either case, the payment of such Indebtedness is contested in good faith; (h) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Borrower or such Material Subsidiary or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) admit in writing its inability or fail generally to pay its debts as they become due, or (vii) take corporate action for the purpose of effecting any of the foregoing; (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Material Subsidiary, or of a substantial part of its property, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Borrower or such Material Subsidiary or for a substantial part of its property or (iii) the winding-up or liquidation of the Borrower or such Material Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days; (j) a default or event of default shall have occurred and be continuing pursuant to any other Loan Document after the expiration of any applicable notice and cure period provided therein; (k) a judgment or order for the payment of money shall be entered against the Borrower or any Material Subsidiary by any court, and either (i) such judgment or order shall continue undischarged and unstayed for a period of 10 days in which the aggregate amount of all such judgments and orders exceeds $500,000 or (ii) enforcement proceedings shall have been commenced upon such judgment or order; (l) any Person or group of related Persons owns of record or beneficially, or files with the SEC notice of intent to acquire, 20% or more of the voting Capital Securities of the Borrower (excluding amounts owned by such Persons as of the date hereof), it being understood that for purposes hereof employees of the Borrower and the Subsidiaries shall not be deemed to be "related Persons" solely as a result of their common employment; (m) (i) any Person shall engage in any transaction involving any Plan that is prohibited under Internal Revenue Code Section 4975 or ERISA Section 406 and not exempt under Internal Revenue Code Section 4975 or ERISA Section 408, (ii) the Borrower or any ERISA Affiliate shall fail to pay when due an amount that is payable by it to a Plan or (iii) any other event or condition shall occur or exist with respect to a Plan, except that no event or condition referred to in clauses (i) through (iii) shall constitute an Event of Default if it, together with all other such events or conditions at the time existing, has not subjected, or in the reasonable determination of the Majority Banks would not subject, the Borrower or any ERISA Affiliate to any Indebtedness or liability that, alone or in the aggregate with all such Indebtedness and liabilities, would have a Material Adverse Effect; or (n) the Borrower shall fail to deliver any notice required to be delivered to the Agent and the Banks pursuant to any of Sections 5.02. 5.06, 5.08, 5.09 and 5.10 within ten (10) days after the event giving rise to the obligation to give notice thereunder. SECTION 8.02. Exercise of Remedies. Upon the occurrence of an Event of Default and in every such event and at any time thereafter during the continuance of such event, the Agent, upon written request from the Majority Banks, shall by written notice to the Borrower, take either or both of the following actions, at the same or different times: (a) terminate the Commitments and (b) declare the Notes to be forthwith due and payable, whereupon the Notes shall become forthwith due and payable, both as to principal and interest (which, after such declaration, shall bear interest as provided in Section 1.06(a)), without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Notes to the contrary notwithstanding. Notwithstanding the foregoing, if an Event of Default specified in paragraph (h) or (i) of Section 8.01 occurs with respect to the Borrower or any Material Subsidiary, the Commitments shall automatically terminate and the Notes shall become immediately due and payable, both as to principal and interest, without any action by any Bank or the Agent and without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Notes to the contrary notwithstanding. The Agent shall further be entitled to exercise, for the benefit of the Banks, all of the rights and remedies available under the Loan Documents and applicable law. ARTICLE IX THE AGENT SECTION 9.01. Appointment and Authorization. Each Bank hereby irrevocably appoints and authorizes the Agent to take such action on its behalf and to exercise such powers hereunder and under the other Loan Documents as are delegated to the Agent by the terms hereof and thereof together with such powers as are incidental thereto. With respect to the Loans made by it and the Notes issued to it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent in its capacity as a Bank. The Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of and generally engage in any kind of business with, the Borrower, and any Person that may do business with the Borrower, all as if the Agent were not the Agent hereunder and without any duty to account therefor to the Banks. SECTION 9.02. Noteholders. The Agent may treat the payee of any Note as the holder thereof. SECTION 9.03. Consultation with Counsel. The Banks agree that the Agent may consult with legal counsel selected by it and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. SECTION 9.04. Documents. The Agent shall not be under a duty to examine or pass upon the validity, effectiveness, enforceability, genuineness or value of any of the Loan Documents or any other instrument or document furnished pursuant thereto or in connection therewith, and the Agent shall be entitled to assume that the same are valid, effective, enforceable and genuine and what they purport to be. SECTION 9.05. Resignation or Removal of the Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving written notice thereof to the Banks and the Borrower and the Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as the Agent, the provisions of this Article IX shall continue in effect for its benefit in respect to any actions taken or omitted to be taken by it while it was acting as the Agent. SECTION 9.06. Responsibility of the Agent. (a) It is expressly understood and agreed that the obligations of the Agent under the Loan Documents are only those expressly set forth in the Loan Documents and that the Agent shall be entitled to assume that no Default has occurred and is continuing, unless the Agent has actual knowledge of such fact or has received written notice from the Borrower or from a Bank that such Bank considers that a Default has occurred and is continuing and specifying the nature thereof. The Banks recognize and agree that the Agent shall not be required to determine independently whether the conditions described in Articles I and III have been satisfied and, in disbursing funds to the Borrower, may rely fully upon statements contained in the relevant notice. Neither the Agent nor any of its directors, officers or employees shall be liable for any action taken or omitted to be taken by it under or in connection with the Loan Documents, except for its own gross negligence or willful misconduct. The Agent shall incur no liability under or in respect of any of the Loan Documents by acting upon any notice, consent, certificate, warranty or other paper or instrument believed by it to be genuine or authentic or to be signed by the proper party or parties, or with respect to anything that it may do or refrain from doing in the reasonable exercise of its judgment, or that may seem to it to be necessary or desirable in the circumstances. (b) The Agent shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any Bank under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any document referred to or provided for herein or for any failure by the Borrower to perform any of its obligations hereunder. The Agent may employ agents and attorneys-in-fact and shall not be answerable, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact. (c) The relationship between the Agent and each of the Banks is only that of agent and principal and has no fiduciary aspects, and the Agent's duties hereunder are acknowledged to be only administrative and ministerial and not involving the exercise of discretion on its part. Nothing in this Agreement or elsewhere contained shall be construed to impose on the Agent any duties or responsibilities other than those for which express provision is herein made. In performing its duties and functions hereunder, the Agent does not assume and shall not be deemed to have assumed, and hereby expressly disclaims, any obligation or responsibility toward or any relationship of agency or trust with or for the Borrower. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks and such instructions shall be binding upon all the Banks and all holders of Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. SECTION 9.07. Notices of Event of Default. In the event that the Agent shall have acquired actual knowledge of any Default or Event of Default, the Agent shall promptly give notice thereof to the other Banks. SECTION 9.08. Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on the financial information referred to in Section 4.04 and such other documents and information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 9.09. Indemnification. (a) The Banks jointly and severally agree to indemnify the Agent (to the extent not reimbursed by the Borrower), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Agent (other than in its capacity as a Bank hereunder) under the Loan Documents, provided that (i) payment of each Bank's indemnification shall be made ratably according to its Percentage unless one or more Banks is not able or permitted to make such indemnification, in which case each other Bank ratably shall make payments on behalf of the Bank(s) not so permitted or able and (ii) no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. (b) The Banks hereby agree that any amounts owed to the Agent by any of the Banks may be deducted by the Agent, and applied to such amounts, from amounts made available, in accordance with any of the Loan Documents to the Agent for the account of the Banks, with the Banks remaining liable for any deficiency. SECTION 9.10. Benefit of Article IX. The agreements contained in this Article IX are solely for the benefit of the Agent and the Banks, and are not for the benefit of or to be relied upon by, the Borrower or any third party. ARTICLE X MISCELLANEOUS SECTION 10.01. Modification. All modifications, consents, amendments or waivers of any provision of any Loan Document, or consent to any departure by the Borrower therefrom, shall be effective only if the same shall be in writing and concurred in by the Majority Banks and then shall be effective only in the specific instance and for the purpose for which given; provided, however, that no change in the provisions of Articles I, III and VII, this Section 10.01 or in the definition of the Majority Banks, shall be effective absent the written concurrence of all of the Banks, and no change in the provisions of Article IX shall be effective absent the written concurrence of the Agent. SECTION 10.02. Waiver. No failure to exercise, and no delay in exercising, on the part of any Bank, any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of the Banks hereunder and under the Loan Documents shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Agreement, the Notes or any Loan Documents, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. SECTION 10.03. Payment of Expenses. Whether or not any Loans are made hereunder, the Borrower shall, on demand, pay or reimburse (a) the Agent and the Banks for all transfer, documentary, stamp and similar taxes, and all recording and filing fees, payable in connection with, arising out of or in any way related to the execution, delivery and performance of this Agreement, the Notes or the making of the Loans, (b) the Agent for all of its costs and expenses (including reasonable fees and disbursements of legal counsel and other experts employed or retained by the Agent) incurred, and all payments made, and indemnify and hold the Agent harmless from and against all losses suffered, by the Agent and the Banks in connection with, arising out of, or in any way related to (i) the negotiation, preparation, execution and delivery of (A) this Agreement and the other Loan Documents and (B) (whether or not executed) any waiver, amendment or consent hereunder or thereunder and (ii) the administration of any operations under this Agreement, and (c) the Agent and the Banks for all of their reasonable costs and expenses (including reasonable fees and disbursements of legal counsel and other experts employed or retained by the Agent and the Banks) incurred, and all payments made, and indemnify and hold the Agent and the Banks harmless from and against all losses suffered, by the Agent and the Banks in connection with, arising out of, or in any way related to (i) consulting with respect to any matter in any way arising out of, relating to, or connected with, this Agreement or any other Loan Document, including but not limited to the enforcement by the Agent and the Banks of any of their rights hereunder or thereunder or the performance by the Agent and the Banks of any of their obligations hereunder or thereunder, (ii) protecting, preserving, exercising or enforcing any of the rights of the Agent and the Banks hereunder and under the other Loan Documents, (iii) any claim (whether asserted by the Agent, the Banks or the Borrower or any other Person and whether asserted before or after the payment, performance and observance in full of the Borrower's obligations hereunder and under the other Loan Documents) and the prosecution or defense thereof, in any way arising under, related to, or connected with, this Agreement, the other Loan Documents or the relationship established hereunder or thereunder and (iv) any governmental investigation arising out of, relating to, or in any way connected with this Agreement or any other Loan Document, except that the foregoing indemnity shall not be applicable to any loss suffered by the Agent and the Banks to the extent such loss is determined by a judgment of a court that is binding on the Agent and the Banks, final and not subject to review on appeal, to be the result of acts or omissions on the Agent's or the Banks' part, as the case may be, constituting (x) willful misconduct, (y) knowing violations of law or, in the case only of claims by the Borrower against the Agent or the Banks, the Agent's or the Banks' failure, as the case may be, to comply with its contractual obligations under this Agreement or any other Loan Document or, but only to the extent not waivable thereunder, applicable law. Upon request of the Borrower, the Banks shall request an itemization (with reasonable detail) of all costs and expenses from all third parties for which it seeks reimbursement hereunder and shall provide a copy thereof to the Borrower upon receipt. Further, the Agent and the Banks shall not be entitled to reimbursement for costs and expenses of third party consultants (other than their regular inside and outside legal counsel) unless an Event of Default has occurred and is continuing or a bona fide dispute exists hereunder. SECTION 10.04. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall (unless otherwise indicated) be given or made by telecopy or in writing and telecopied, mailed or delivered to the intended recipient at the address of such party as follows: (a) The Borrower: 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 Attention: Timothy J. Korman, Senior Vice President and Treasurer Telecopier Number: (804)747-6046 And with a copy of such notice to: Walter L. Smith, Esquire Vice President and General Counsel Hilb, Rogal, and Hamilton Company 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 Telecopier Number: (804)747-6046 (b) The Agent or any Bank at its address shown below its name on the signature pages hereof. With a copy of such notice to: Hunton & Williams Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia 23219-4074 Attention: Douglas S. Granger, Esq. Telecopier Number: (804) 788-8218 Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier, personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. Any such notice or communication that is delivered by mail shall be presumed to have been received three Business Days after the day it is mailed. Unless otherwise indicated, notices received after 5:00 p.m. Richmond time on any day shall be deemed to have been given by the sender on the next succeeding Business Day. Any party may change its address for purposes of this Agreement by giving notice of such change to the other parties pursuant to this Section 10.04. SECTION 10.05. Governing Law. This Agreement has been prepared, is being executed and delivered, and is intended to be performed in the Commonwealth of Virginia, and the substantive laws of such state (without regard to choice of law provisions thereof) shall govern the validity, construction, enforcement and interpretation of this Agreement and all of the other Loan Documents. SECTION 10.06. Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable under present or future laws during the term of this Agreement, such provision shall be fully severable; such Loan Document shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Document; and the remaining provisions of such Loan Document shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from such Loan Document. Furthermore, in lieu of each such illegal, invalid or unenforceable provision shall be added as part of such Loan Document a provision mutually agreeable to the Borrower, the Agent and the Majority Banks as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. In the event the Borrower, the Agent, and the Majority Banks are unable to agree, after good faith negotiations, upon a provision to be added to the Loan Document within a period of ten (10) Business Days after a provision of the Loan Document is held to be illegal, invalid or unenforceable, then a provision acceptable to the Agent and the Majority Banks as similar in terms to the illegal, invalid or unenforceable provision as is possible and be legal, valid and enforceable shall be added automatically to such Loan Document. In either case, the effective date of the added provision shall be the date upon which the prior provision was held to be illegal, invalid or unenforceable. SECTION 10.07. Nonliability of Banks. The relationship between the Borrower and the Banks is, and shall at all times remain, solely that of borrower and lenders, and the Banks and the Agent neither undertake nor assume any responsibility or duty to the Borrower to review, inspect, supervise, pass judgment upon, or inform the Borrower of any matter in connection with any phase of the Borrower's business, operations, or condition, financial or otherwise. The Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment, or information supplied to the Borrower by any Bank or the Agent in connection with any such matter is for the protection of the Banks and the Agent, and neither the Borrower nor any third party is entitled to rely thereon. SECTION 10.08. Binding Effect and Assignability. The Loan Documents shall be binding upon and inure to the benefit of the Borrower, the Agent and the Banks and their respective successors, assigns and legal representatives; provided, however, that the Borrower may not, without the prior written consent of the Agent and the Banks, assign any rights, powers, duties or obligations thereunder. SECTION 10.09. Entirety; Conflicts. The Loan Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. In the event of any conflict in the provisions of this Agreement with the provisions of any other Loan Document, the provisions of this Agreement shall govern. SECTION 10.10. Headings, etc. Article and Section headings and captions and the table of contents hereto are for convenience of reference only and shall in no way affect the interpretation of this Agreement. SECTION 10.11. Survival. All representations and warranties made by the Borrower herein shall survive delivery of the Notes and the making of the Loans. SECTION 10.12. Sale and Transfers etc. of Commitments and Notes; Participations in Commitments and Notes. (a) Each Bank shall have the right at any time to sell, assign, transfer or negotiate all or part (but not less than $5,000,000 in principal amount) of its Commitments, Loans, Notes, and other rights and obligations under this Agreement and each other Loan Document, upon payment to the Agent of an assignment fee of $2,500 for each such transaction. (b) Each Bank may grant participations in all or any part of its Commitment, Loans and its Notes; provided, however, no holder of any such participation, other than an Affiliate of such Bank, shall be entitled to require such Bank to take or omit to take any action hereunder and no Bank shall, as among the Borrower and such Bank, be relieved of any of its obligations hereunder as a result of any such granting of a participation, but the participating Bank shall be entitled to rely on, and possess all rights under, any opinions, certificates, or other instruments delivered under or in connection with this Agreement or any other Loan Document. (c) The Borrower authorizes each Bank to disclose to any participant, assignee or Purchasing Bank (each, a "Transferee") and any prospective Transferee any and all financial and other information in such Bank's possession concerning the Borrower and the Subsidiaries, if any, that has been delivered to such Bank by the Borrower pursuant to this Agreement or that has been delivered to such Bank by the Borrower. (d) If, pursuant to this Section 10.12, any interest in this Agreement or any Commitment, Loan or Note is transferred to any Transferee that is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Bank shall cause such Transferee (other than any participant), and shall cause any participant, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent, and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, and the Borrower or the transferor Bank with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the transferor Bank, the Agent and the Borrower either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Bank, the Agent and the Borrower) to provide the transferor Bank, the Agent and the Borrower a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. SECTION 10.13. No Third Party Beneficiary. Without limiting the effect of Sections 10.08, 10.12 and 10.18, the parties do not intend the benefits of this Agreement to inure to any third party, nor shall this Agreement be construed to make or render the Agent or the Banks liable to any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by the Borrower, or for debts or claims accruing to any such persons against the Borrower. Notwithstanding anything contained herein or in the Notes, or in any other Loan Document, or any conduct or course of conduct by any or all of the parties hereto, before or after signing this Agreement nor any other Loan Document shall be construed as creating any right, claim or cause of action against the Agent or the Banks, or any of their officers, directors, agents or employees, in favor of any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by the Borrower, nor to any other person or entity other than the Borrower. SECTION 10.14. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE AGENT, THE BANKS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (VERBAL OR WRITTEN), OR ACTIONS OF THE AGENT, THE BANKS, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING INTO THIS AGREEMENT. SECTION 10.15. Consent to Jurisdiction. (a) The Borrower, in respect of itself and its properties, represents that it is subject to (and hereby irrevocably submits to) the nonexclusive jurisdiction of any United States federal or Virginia state court sitting in Richmond, Virginia in respect of any suit, action or proceeding arising out of or relating to this Agreement or the Notes, and irrevocably agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in any such court. The Borrower irrevocably waives, to the fullest extent it may effectively do so under applicable law, any objection to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (b) The Borrower hereby irrevocably appoints Walter L. Smith, Esq. with an office on the date hereof at 4235 Innslake Drive, Richmond, Virginia 23060, as its agent to receive and acknowledge on behalf of itself and its properties and assets service of any and all process that may be served in any suit, action or proceeding of the nature referred to in the preceding paragraph in any United States federal or Virginia state court sitting in Richmond, Virginia. Said designation and appointment shall, to the fullest extent permitted by law, be irrevocable until the Repayment Date. If (i) such agent (or any agent appointed pursuant to this sentence) shall cease so to act or (ii) the appointment of such agent (or any agent appointed pursuant to this sentence) shall prove to be ineffective for any reason, then the Borrower shall without delay appoint another such agent satisfactory to the Majority Banks and shall promptly deliver to the Agent evidence in writing of such other agent's acceptance of such appointment. (c) If service cannot promptly and conveniently be made upon the Borrower's statutory agent for service of process, the Borrower irrevocably consents to process being served in any suit, action or proceeding of the nature referred to in clause (a) of this Section: (i) by serving a copy of thereof upon the agent for service of process referred to herein (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or, in the absence of said agent from its office referred to, or specified in the most recent notice provided for in, clause (b) of this Section, by delivering a copy of the same to such office; provided that, to the extent lawful and possible, written notice of said service shall be mailed by registered or certified mail, postage prepaid, return receipt requested, to the Borrower at its address specified in or designated pursuant to Section 10.04; or (ii) if service pursuant to clause (i) of this clause (c) shall prove in the good faith judgment of the Agent or any Bank to be illegal or impracticable, by mailing a copy thereof by registered or certified air mail, postage prepaid, return receipt requested, to the address of the Borrower specified in or designated pursuant to Section 10.04. To the fullest extent it may effectively do so under applicable law, the Borrower irrevocably waives all claim of error by reason of any such service and agrees that said service (A) shall be deemed in every respect effective service of process upon the Borrower in any such suit, action or proceeding and (B) shall be taken and held to be valid personal service upon and personal delivery to such Borrower. (d) The foregoing provisions shall not limit the right of any Bank, the Agent or any other party hereto to serve process in any other manner permitted by law or limit the right of any Bank or the Agent or other party hereto to bring any suit, action or proceeding or to obtain execution on any judgment rendered in any suit, action or proceeding in any other appropriate jurisdiction or in any other manner. SECTION 10.16. Multiple Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. SECTION 10.17. Disclosures. The Agent and each Bank may disclose to, and exchange and discuss with, any other Person (the Agent, each Bank and each such other Person being hereby irrevocably authorized to do so) any information concerning the Borrower or any Subsidiary (whether received by the Agent, the Bank or such Person in connection with or pursuant to this Agreement or otherwise) solely as may be determined by the disclosing party to be required by applicable law or necessary or desirable for the purpose of protecting, preserving, exercising or enforcing any rights hereunder or under the Notes, or consulting with respect to any such rights or any rights of the Borrower. SECTION 10.18. Sharing of Setoffs. Upon the occurrence and during the continuance of an Event of Default, the holder of any Note shall have the right, in addition to and not in limitation of any right that any such holder may have under applicable law or otherwise, to setoff against the unpaid balance of any Note or Notes or participations therein held by it any debt owing to the Borrower by such holder, including, without limitation, any funds in any deposit account maintained by the Borrower with such holder, and nothing in this Agreement shall be deemed any waiver or prohibition of any Bank's right of banker's lien or setoff. Each holder of a Note agrees that if it shall, through the exercise of a right of banker's lien, setoff, counterclaim or otherwise, obtain payment of a proportion of any Notes held by it in excess of the proportion of the Notes of the other holders of the Notes being paid simultaneously or required hereby to be paid proportionately, it shall be deemed to have simultaneously purchased from such other holders a participation in the Notes held by such other holders so that the aggregate unpaid principal amount of all Notes then outstanding as the principal amount of such note held by it prior to such exercise of banker's lien, setoff or counterclaim or receipt of other payment was to the principal amount of all Notes outstanding prior to such exercise of banker's lien, setoff or counterclaim or receipt of other payment, and it shall promptly remit to each such holder the amount of the participation thus deemed to have been purchased. The Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation in a Note so acquired may exercise any and all rights of banker's lien, setoff, counterclaim or otherwise with respect to any and all moneys owing by such holder to the Borrower as fully as if such holder were a holder of a Note in the amount of such participation. If all or any portion of any such excess payment is thereafter recovered from the holder that received the same, the purchase provided for herein shall be deemed to have been rescinded to the extent of such recovery, without interest. Each holder of a Note agrees to give prompt written notice to the Borrower of any setoff made pursuant to this Section 10.18. SECTION 10.19. Repayments in Bankruptcy. In the event any amount of the Indebtedness of the Borrower to the Banks hereunder is paid by the Borrower and because of bankruptcy or other laws relating to creditors' rights the Banks repay any such amounts to the Borrower or to any trustee, receiver or otherwise, then the amounts so repaid shall again become part of the Loans payable by the Borrower. ARTICLE XI DEFINITIONS SECTION 11.01. Definitions. For purposes of this Agreement, unless the context otherwise requires, capitalized terms shall have the respective meanings assigned to them in Exhibit A hereto. SECTION 11.02. Other Definitional Provisions. (a) Except as otherwise specified herein, all references herein (i) to any Person shall be deemed to include such person's, successors, transferees and assignees, but only, in the case of transferees and assignees of the Borrower, the Agent and the Banks, to the extent the applicable transfer or assignment complies with the provisions of this Agreement, (ii) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time and (iii) to any Contract defined or referred to herein shall be deemed references to such Contract (and, in the case of any instrument, any other instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time. (b) When used in this Agreement, the words "herein", "hereof", and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any provision of this Agreement, and the words "section", "schedule" and "exhibit" shall refer to Sections of and Schedules and Exhibits to this Agreement unless otherwise specified. (c) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. (d) All terms defined in this Agreement shall have the defined meanings when used in the Notes, and except as otherwise expressly stated therein, any certificate, opinion or other Loan Document delivered pursuant hereto or referred to herein. SECTION 11.03. Accounting Matters. Unless otherwise specified herein, all accounting determinations hereunder and all computations utilized by the Borrower in complying with the covenants contained herein shall be made, all accounting terms used herein shall be interpreted, and all financial statements required to be delivered hereunder shall be prepared, in accordance with Generally Accepted Accounting Principles, except, in the case of such financial statements, for departures from Generally Accepted Accounting Principles that may from time to time be approved in writing by the independent certified accountants who are at the time in accordance with Section 5.05 reporting on the Borrower's financial statements. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} {SIGNATURES BEGIN ON THE FOLLOWING PAGE} IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers as of the day and year first above written. HILB, ROGAL, AND HAMILTON COMPANY By__________________________ Title:_______________________ CRESTAR BANK, as Agent By__________________________ Christopher B. Werner Vice President Address: 919 East Main Street Richmond, Virginia 23219 Fax: (804) 782-5413 Amount of Percentage Commitment Interest CRESTAR BANK $10,000,000 50% By_________________________ Christopher B. Werner Vice President Address: 919 East Main Street Richmond, Virginia 23219 Fax: (804) 782-5413 FIRST UNION NATIONAL BANK OF VIRGINIA $10,000,000 50% By_________________________ Title:______________________ Address: 901 East Cary Street One James Center Richmond, Virginia 23219 Fax: (804) ____________ EXHIBIT A DEFINITIONS This is Exhibit A to that certain Credit Agreement dated as of February 12, 1996, among Hilb, Rogal, and Hamilton Company, Crestar Bank, and the Banks listed therein (the "Agreement"). When used in this Exhibit, the words "herein", "hereof", and "hereunder" and words of similar import shall refer to the Agreement, and the words "section", "schedule" and "exhibit" shall refer to Sections of and Schedules and Exhibits to the Agreement, unless otherwise specified. "Adjusted Cash Flow" means, for any period, the sum for the Borrower and its Consolidated Subsidiaries, of (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income for such period, (i) depreciation and amortization, (ii) taxes, (iii) Interest Expense, (iv) Operating Lease Rentals, (v) extraordinary and unusual items and (vi) loss attributable to equity in Affiliates. "Adjusted Eurodollar Rate" means, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum determined by the Agent (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the Fixed Eurodollar Rate in effect for the Interest Period applicable to such Loan and (b) Eurodollar Statutory Reserves, adjusted to reflect all additional actual costs, including brokers' fees and other acquisition costs, and Taxes as determined by the Agent, which are incurred by the Agent in connection with making such Eurodollar Loan. For purposes hereof, the term "Fixed Eurodollar Rate" shall mean the arithmetic average of the interest rates at which deposits of Dollars approximately equal in principal amount to the Eurodollar Loan and for a maturity comparable to the applicable Interest Period are offered in immediately available funds to the Agent by leading banks in the interbank market selected by the Agent for such deposits at approximately 11:00 a.m. (London time), or as soon thereafter as is practicable, two Business Days prior to the commencement of the Interest Period. "Eurodollar Statutory Reserves" shall mean, on any date, a fraction, the numerator of which is one and the denominator of which is one minus the maximum reserve percentages (including without limitation, basic, supplemental, marginal and emergency reserves) expressed by the Federal Reserve Board and any other banking authority to which the Agent is subject with respect to "Eurocurrency liabilities" as currently defined in Regulation D, or under any similar or successor regulation with respect to Eurocurrency liabilities or Eurocurrency funding. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of each change in Eurodollar Statutory Reserves. Each determination by the Agent of any Adjusted Eurodollar Rate and of Eurodollar Statutory Reserves and Taxes shall be conclusive and binding on the Borrower and the Banks absent manifest error. The Banks and the Borrower acknowledge that the Agent may from time to time determine the Fixed Eurodollar Rate from quotations of the Agent's money desk or by reference to Reuter Screen or similar quotations, in the discretion of the Agent, on and as of the date of determination. "Adjusted Funded Debt" means, as of any date of determination, the sum of (a) all Indebtedness (including the current portion thereof) of the Borrower and its Consolidated Subsidiaries on such date and (b) an amount equal to eight times the total Operating Lease Rentals of the Borrower and its Consolidated Subsidiaries paid during the twelve months immediately preceding such date. "Affiliate" means, with respect to any Person, any other Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such first Person. For the purposes of this definition, "control" (including the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Capital Securities having voting rights or by contract or otherwise. Unless otherwise specified, "Affiliate" means an Affiliate of the Borrower. "Agent" shall have the meaning assigned to such term in the preamble hereof, and any successor thereto pursuant to Article IX hereof. "Agreement" means the Credit Agreement among the Borrower, the Banks and the Agent, dated as of February 12, 1996, as the same may be amended, modified, supplemented or restated from time to time. "Applicable Margin" means the annual rate of interest to be added to the Adjusted Eurodollar Rate in calculating interest payable on Eurodollar Loans Notes and shall be determined based on the ratio of Adjusted Funded Debt to Adjusted Cash Flow as of the last day of the fiscal quarter ending one quarter prior to the first day of the quarter for which such determination is being made as follows: Ratio Applicable Margin 2.50 to 1.00 or greater 0.700% greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 0.575% greater than or equal to 1.75 to 1.00 but less than 2.00 to 1.00 0.450% Less than 1.75 to 1.00 0.375% The ratio upon which a determination of "Applicable Margin" is based shall be computed on the basis of the financial statements delivered by Borrower pursuant to Section 5.06(a). Changes in the Applicable Margin shall be effective as of the first day of each fiscal quarter for which such determination is being made. In the event that any financial information provided by Borrower is subsequently determined to be inaccurate and accurate information would have resulted in a higher Applicable Margin, such higher Applicable Margin shall be given effect retroactively and Borrower shall promptly pay to the Agent for the benefit of the Banks such amount as is necessary to give effect to such change. "Balancing Line" means the uncommitted line of credit from Crestar Bank to the Borrower pursuant to a letter agreement dated February 12, 1996, in a maximum principal amount not to exceed $5,000,000. "Banks" means the institutions indicated as Banks on the signature pages hereof, and shall include, at such times as they shall become parties hereto, Purchasing Banks, if any. "Base Rate" means the greater of (a) the Federal Funds Rate plus 1/4 of 1% and (b) the rate of interest announced from time to time by the Agent as its prime rate of interest (which rate of interest may not be the lowest rate charged by the Agent or any Bank on similar loans). Each change in the Base Rate shall become effective without prior notice to the Borrower automatically as of the date of such change in the Base Rate. "Base Rate Loan" shall mean a Loan on which interest accrues based on the Base Rate in accordance with Article I. "Borrower" shall have the meaning assigned to such term in the preamble hereof. "Business Day" means any day other than Saturday, Sunday or a day on which banks are required or authorized to be closed for business in Richmond, Virginia, and, with respect to any Eurodollar Loan, means any such Business Day on which transactions are effected in deposits of U.S. Dollars in the relevant interbank foreign currency deposits market and on which commercial banks are open for domestic and international business (including dealings in Dollar deposits) in the jurisdiction in which such interbank market is located. "Capital Lease" means, as of any date, any lease of property, real or personal, that would be capitalized on a balance sheet of the lessee prepared as of such date in accordance with Generally Accepted Accounting Principles, together with any other lease by such lessee that is in substance a financing lease, including without limitation, any lease under which (a) such lessee has or will have an option to purchase the property subject thereto at a nominal amount or an amount less than a reasonable estimate of the fair market value of such property as of the date such lease is entered into, or (b) the term of the lease approximates or exceeds the expected useful life of the property leased thereunder. "Capitalized Lease Obligations" means all obligations of the Borrower and the Subsidiaries under Capital Leases. "Capital Securities" means with respect to any Person that is (a) a corporation, any shares of capital stock of such corporation, (b) a general or limited partnership, any general or limited partnership interest of such partnership, (c) a limited liability company, any stock or other membership or ownership interests in such limited liability company, and also means any security convertible into, or any option, warrant or other right to acquire, any of the items described in clause (a), (b) or (c) above of such Person. "Closing Date" means February 12, 1996, or such other date as the Borrower and the Banks may agree. "Commitment" means, with respect to each Bank, the amount of the Commitment of such Bank as set forth opposite such Bank's name on the signature pages hereof, as the same may be reduced from time to time pursuant to this Agreement. "Commitment Fee" shall have the meaning assigned to such term in Section 1.05 hereof. "Commitment Rate" shall mean the per annum rate to be used to calculate the payment of Commitment Fees and shall mean the percentage rate, determined based on the ratio of Adjusted Funded Debt to Adjusted Cash Flow as of the last day of the fiscal quarter ending one quarter prior to the first day of the quarter for which such determination is being made as follows: Ratio Commitment Rate 2.50 to 1.00 or greater 0.30% greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 0.25% greater than or equal to 1.75 to 1.00 but less than 2.00 to 1.00 0.20% Less than 1.75 to 1.00 0.175% The ratio upon which a determination of "Commitment Rate" is based shall be computed on the basis of the financial statements delivered by Borrower pursuant to Section 5.06(a). Changes in the Commitment Rate shall be effective as of the first day of each fiscal quarter for which such determination is being made. In the event that any financial information provided by Borrower is subsequently determined to be inaccurate and accurate information would have resulted in a higher Commitment Rate, such higher Commitment Rate shall be given effect retroactively and Borrower shall promptly pay to the Agent for the benefit of the Banks such amount as is necessary to give effect to such change. "Commitment Termination Date" means January 31, 2001, or such earlier date and time on which the Commitments are terminated pursuant to Article VIII. "Commitment Transfer Supplement" means an agreement among the Agent, a Bank, the Borrower and a Purchasing Bank providing for the transfer of a portion of the Loans and the Commitment of such Bank (or any prior Purchasing Bank) to a Purchasing Bank, which shall be in form and substance satisfactory to the Borrower, the Agent and such Bank and shall set forth the reallocations of the Commitment and the outstanding principal amounts of the Loans by each Bank. "Compliance Certificate" shall mean a certificate of the chief financial officer of the Borrower in the form of Exhibit D hereto setting forth computations in reasonable detail as of the date thereof of compliance with Article VII. "Consolidated Net Income" means, for any period, the consolidated net income of the Borrower and the Consolidated Subsidiaries for such period (taken as a cumulative whole) provided that there shall be excluded: (a) any net income of a Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Consolidated Subsidiary is not at the time permitted by operation of the terms of any contract or applicable law; (b) any net income (or net loss) of any Person (other than a Consolidated Subsidiary) in which the Borrower or any Consolidated Subsidiary has an ownership interest, except to the extent that any such income has actually been received by the Borrower or such Subsidiary in the form of cash dividends or similar distributions; (c) any net gains or losses on the sale or other disposition, not in the ordinary course of business, of investments and other capital assets in excess of an aggregate amount for such period of $7,500,000, provided that there shall also be excluded any related charges for taxes thereon; (d) any net gain arising from the collection of the proceeds of any insurance policy; (e) any write-up of any asset; (f) any net gains resulting from the defeasance of any Indebtedness; and (g) any extraordinary gains or losses. "Consolidated Subsidiaries" means, as of any date, all Affiliates of the Borrower included as of such date in the consolidated financial statements of the Borrower. "Consolidated Net Worth" means, at any date, all amounts which would be included under shareholder's equity on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries at such time. "Contract" means an indenture, agreement (other than this Agreement), other contractual restriction, lease, instrument (other than the Notes), certificate or Organizational Document. "Controlled Group" means (a) the controlled group of corporations as defined in Section 1563 of the Internal Revenue Code or (b) the group of trades or businesses under common control as defined in Section 414(c) of the Internal Revenue Code of which the Borrower is a part or may become a part. "Controlling Interests" means ownership of a sufficient interest in a Person to approve mergers, sales of assets, dissolutions, amendments to Organizational Documents and other acts requiring a "supermajority" vote under applicable law and such Person's Organizational Documents. "Conversion Date" means the date on which any Loan is converted from a Base Rate Loan or a Eurodollar Loan to a Loan of a different type pursuant to Section 1.07 hereof. "Debt Service" means, for any twelve month period, the sum (determined on a consolidated basis) for the Borrower and its Consolidated Subsidiaries of (a) Operating Lease Rentals accrued or paid during such period plus (b) Interest Expense for such period. "Default" means an Event of Default or any condition or event that with the giving of notice or the lapse of time or both would become an Event of Default. "Dollars" and the sign "$" shall refer to lawful currency of the United States of America. "Environmental Laws" means all laws relating to Hazardous Waste disposal, Toxic Substances, or environmental conservation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, together with all regulations and official rulings and interpretations issued pursuant thereto. "ERISA Affiliate" means any corporation or trade or business, whether or not incorporated, which together with the Borrower would be treated as a single employer under ERISA or the Internal Revenue Code. "Eurodollar Loan" means a Loan on which interest accrues based on the Adjusted Eurodollar Rate in accordance with Article I. "Event of Default" shall have the meaning assigned to such term in Article VIII. "Federal Funds Rate" means for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York, on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System and any successor agency. "Generally Accepted Accounting Principles" means those generally accepted accounting principles and practices that are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and that are consistently applied for all periods after the date of the most recent balance sheet of the Borrower referred to in Section 5.06 so as to properly reflect the financial condition, and the results of operations and cash flows, of the Borrower and its Consolidated Subsidiaries, except that any accounting principle or practice required to be changed by the Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of such Boards) in order to continue as a generally accepted accounting principle or practice may so be changed. In the event of a change in Generally Accepted Accounting Principles, the Banks and the Borrower will thereafter negotiate in good faith to revise any covenants of this Agreement affected by such change in order to make such covenants consistent with Generally Accepted Accounting Principles then in effect. "Governmental Authority" means (a) with respect to the Borrower and the Subsidiaries, any government (or any political unit thereof), court, bureau, agency or other governmental authority having or claiming jurisdiction over the Borrower or a Subsidiary or any of their respective businesses, operations or properties and (b) with respect to the Agent, the Banks and their Affiliates, the Federal Reserve Board, the Comptroller of the Currency, any state banking regulator or any other government (or any political unit thereof), court, bureau, agency or other governmental authority having or claiming jurisdiction or regulatory authority over the Agent, such Bank or their Affiliates or any of their respective businesses, operations or properties. "Guaranty" of any Person means any contract, agreement or understanding of such Person pursuant to which such Person provides for the payment of any Indebtedness of any other Person (the "Primary Obligor") or otherwise protecting, or having the practical effect of protecting, the holder of such Indebtedness against loss, in any manner, whether directly or indirectly, contingent or otherwise, including without limitation agreements: (a) to purchase such Indebtedness or any property constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness, or (ii) to maintain net worth or working capital or other balance sheet conditions, or otherwise to advance or make available funds for the purchase or payment of such Indebtedness, (c) to purchase property, securities or service primarily for the purpose of assuring the holder of such Indebtedness of the ability of the Primary Obligor to make payment of the Indebtedness, or (d) otherwise to assure the holder of the Indebtedness of the Primary Obligor against loss in respect thereof. "Hazardous Wastes" means all waste materials subject to regulation or defined as such under the Comprehensive Environmental Response, Compensation, and Liability Act as modified by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Toxic Substance Control Act, or any applicable state law and any other applicable federal, state or local laws and their regulations now in force or hereafter enacted relating to hazardous waste disposal or environmental conservation. "Indebtedness" means, with respect to any Person and without duplication: (a) all obligations of such Person for borrowed money or the deferred purchase price of goods or services (except trade payables in the ordinary course of business); (b) all obligations of such Person in respect of any Guaranty (other than endorsements of checks for deposit in the ordinary course of business), (c) all obligations of such Person in respect of any Capital Lease, (d) all obligations, indebtedness and liabilities, including any refinancings thereof, secured by any lien or any security interest on any property or assets of such Person, and (e) all Mandatorily Redeemable Securities of such Person valued in accordance with Generally Accepted Accounting Principles. "Interest Expense" means, for any period, all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period). "Interest Payment Date" means (a) with respect to each Eurodollar Loan, the last day of each Interest Period for such Loan and (b) with respect to each Base Rate Loan, the last day of each calendar month and the Commitment Termination Date. "Interest Period" means, as to any Eurodollar Loan, the period commencing on the date of such Eurodollar Loan or continuation thereof and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2 or 3 months thereafter, as the Borrower may elect; provided, however, that (y) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (z) no Interest Period with respect to any Loan shall end later than the Commitment Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, and all regulations and official rulings and interpretations thereunder or thereof. "Legal Requirement" means any requirement imposed upon the Agent or any Bank by any law of the United States of America or any other jurisdiction exercising or claiming authority over the Agent or such Bank, including without limitation, any regulation, order, interpretation, ruling or official directive (whether or not having the force of law) of any Governmental Authority. "Lien" means any lien, mortgage, security interest, tax lien, attachment, levy, charge, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property or assets (or the income or profits therefrom) designed to secure the repayment of Indebtedness, whether consensual or nonconsensual and whether arising by agreement or under any statute or law, or otherwise. "Loan" means an amount advanced pursuant to Section 1.01 and a Loan of a "type" means a Loan that bears, or is to bear, as the context may require, interest based on the Base Rate or Adjusted Eurodollar Rate. "Loan Documents" means this Agreement, the Notes and any other document now or hereafter executed or delivered in connection with this Agreement or the Obligations, including, without limitation, any life insurance assignment, pledge agreement, security agreement, financing statement, deed of trust, mortgage, promissory note, or subordination agreement (including any renewals, extensions and refundings thereof and any modifications, supplements and amendments thereto and substitutes therefor), each of which shall be in form and substance satisfactory to the Banks. "Majority Banks" means, as of any date, Banks holding Notes representing at least sixty-six percent (66%) of the aggregate unpaid principal amount of the Loans outstanding on such date, and in the event no Loans are outstanding on such date, Banks holding at least sixty-six percent (66%) of the aggregate Commitments of all Banks ; provided, however, that solely for purposes of Section 8.02 hereof Majority Banks means Banks holding Notes representing at least forty percent (40%) of the aggregate unpaid principal amount of the Loans outstanding on such date. "Mandatorily Redeemable Securities" means, as applied to a Person, any of such Person's Capital Securities or debt to the extent that it is redeemable, payable or required to be purchased or otherwise retired or extinguished (a) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (b) at the option of any Person other than such Person or (c) upon the occurrence of a condition not solely within the control of such Person, such as a redemption required to be made out of future earnings. "Margin Stock" means "margin stock" as defined in Regulation U or G. "Material Adverse Effect" means any material adverse effect upon (a) the validity, performance or enforceability of any Loan Document, (b) the financial condition or business operations of the Borrower and the Material Subsidiaries, or (c) the ability of the Borrower to fulfill its obligations under the Loan Documents. "Material Subsidiary" means any of the Subsidiaries listed on Schedule 4.06(a) and any other domestic Subsidiary now or in the future that has annual revenues (either historically or on a pro forma basis) exceeding 2.25% of total consolidated revenues of the Borrower and the Consolidated Subsidiaries, provided that the sum of all revenues of all Material Subsidiaries shall not be less than 75% of total consolidated revenues of the Borrower and the Consolidated Subsidiaries, and if less, additional Subsidiaries (in descending order of total revenues) shall become Material Subsidiaries until the sum of all revenues exceeds 75%. "Maximum Permitted Rate" means, with respect to interest payable on any amount, the rate of interest on such amount that, if exceeded could, under applicable law, result in (a) civil or criminal penalties being imposed on any Bank or (b) any Bank's being unable to enforce payment of (or if collected, to retain) all or part of such amount or the interest payable thereon. "Notes" means the promissory notes executed by the Borrower and delivered to the Banks pursuant to Section 1.03 of this Agreement, together with any renewals, extensions, replacements or modifications thereof. "Obligations" means all indebtedness, liabilities and obligations, whether now existing or hereafter arising, direct or indirect, fixed or contingent, secured or unsecured, matured or unmatured, joint, several or joint and several, arising out of or in connection with this Agreement, the Notes, the Loans or any other Loan Document or other document executed or delivered in connection with this Agreement or the Loans. "Operating Lease Rentals" of any Person means, as of any date, the aggregate amount of the obligations and liabilities (including future obligations and liabilities not yet due and payable) of such Person to make payments under all leases, subleases and similar arrangements for the use of real, personal or mixed property, other than leases that are Capital Leases. "Organizational Documents" means the fundamental organizational and governing documents of a Person and includes, without limitation, (a) in the case of a corporation, its articles of incorporation and other charter documents, bylaws and agreements among shareholders, (b) in the case of a partnership, its certificate of partnership, partnership agreement and other agreements among partners and (c) in the case of a limited liability company, its articles of organization, operating agreement and other agreements among members. "Percentage" means, with respect to each Bank, the percentage set forth opposite the name of such Bank on the signature pages hereof. "Permitted Liens" shall mean the Liens permitted pursuant to the provisions of Section 6.01. "Person" shall include an individual, a sole proprietorship, a corporation, a joint venture, a general or limited partnership, a trust, an unincorporated organization, a mutual company, a joint stock company, an estate, a union, an employee organization or a Governmental Authority. "Plan" means an employee benefit plan as defined in Section 3(3) of ERISA maintained by the Borrower or any Subsidiary for employees of the Borrower and/or the Subsidiaries, and every other employee benefit arrangement not subject to ERISA, including but not limited to, those arrangements providing profit-sharing, stock bonus, stock option, executive compensation, deferred compensation, severance, hospitalization, medical, dental, disability or life insurance benefits. "Premises" means any and all of the real property owned, leased or otherwise used by the Borrower and its Material Subsidiaries. "Premium Payment Obligations" means the obligation of the Borrower or any Subsidiary to insurance companies or brokers for insurance coverages or risk management services purchased for clients for whom the Borrower or any Subsidiary acted as an agent or broker in the purchase of such insurance coverages or risk management services. "Purchasing Bank" shall have the meaning assigned to such term in Section 10.12 hereof. "Regulations D, G, U and X" means Regulations D, G, U and X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings thereunder or thereof. "Regulatory Change" means (a) any new, or any change in any existing, law, regulation, interpretation, directive or request (whether or not having the force of law) or (b) any change in the administration or enforcement of any such applicable law, regulation, interpretation, directive or request that becomes effective after the date of this Agreement, whether as a result of an enactment or determination of a Governmental Authority or otherwise. "Repayment Date" means the later of (a) the Commitment Termination Date or the reduction to zero of the Commitments, whichever first occurs and (b) the date on which the Loans and all other amounts payable hereunder are paid in full. "SEC" means the Securities and Exchange Commission of the United States and any successor agency thereto. "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the amount that will be required to pay the probable liabilities of such Person on its debts as they become absolute and matured will not be greater than the fair salable value of the assets of such Person at such time, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to prevailing practices in the industry in which such Person is engaged. In computing the amount of any contingent liability at any time, it is intended that such liability will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that might reasonably be expected to become an actual or matured liability. "State Official" means, with respect to any Person, the Secretary of State or other appropriate official of the jurisdiction in which such Person was incorporated or organized who is authorized to certify official records of such Person on file in such jurisdiction. "Subsidiary" means, with respect to any Person, any other Person fifty percent (50%) or more of the outstanding Capital Securities of each class of which is owned or controlled, directly or indirectly, by such first Person and its Affiliates. "Tax" means, in relation to any Eurodollar Loan and the applicable Eurodollar, any federal, state, local or foreign tax, levy, impost, duty, deduction, withholding or other charge of whatever nature required by any Legal Requirement (a) to be paid by the Banks or (b) to be withheld or deducted from any payment otherwise required hereby to be made by the Borrower to the Banks; provided, however, that the term "Tax" shall not include any taxes imposed upon the net income of the Banks by the United States, any political subdivision thereof or any other taxing authority. "Toxic Substances" means and includes any materials present on the Premises which have been shown to have significant adverse effects on human health or which are subject to regulation under the Toxic Substances Control Act, applicable state law, or any other applicable federal, state or local laws now in force or hereafter enacted relating to toxic substances. "Toxic Substances" includes, but is not limited to, asbestos, polychlorinated biphenyls ("PCBs"), petroleum products, and lead- based paints. "Wholly Owned Subsidiary" means a Subsidiary all of the Capital Securities of which are, directly or indirectly, owned or controlled by the Borrower or one or more Wholly Owned Subsidiaries or by the Borrower and one or more of such Subsidiaries. EXHIBIT B [Form of Revolving Note] $________ Richmond, Virginia February 12, 1996 FOR VALUE RECEIVED, HILB, ROGAL, AND HAMILTON COMPANY, a Virginia corporation (the "Borrower"), hereby promises to pay to the order of __________________ (the "Bank"), at the office of Crestar Bank, as Agent (the "Agent"), at 919 East Main Street, Richmond, Virginia 23219, on the dates provided in the Credit Agreement (the "Credit Agreement") dated as of February 12, 1996 among the Borrower, the Agent and the Banks described in the Credit Agreement, but in no event later than the Commitment Termination Date as defined in the Credit Agreement, in lawful money of the United States of America, in immediately available funds, the principal amount of ___________________________ Dollars ($___________ ) or, if less than such principal amount, the aggregate unpaid principal amount of the Loans (as defined in the Credit Agreement) made by the Bank to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates selected in accordance with Article I of the Credit Agreement. The Borrower promises to pay interest, payable on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates determined as set forth in the Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be evidenced by the books and records of the Agent and the Bank. This Note is one of the Notes referred to in the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional prepayment of the principal hereof prior to the maturity thereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia. HILB, ROGAL, AND HAMILTON COMPANY By__________________________ Title: EXHIBIT C CONDITIONS TO INITIAL LOANS This is Exhibit C to that certain Credit Agreement dated as of February 12, 1996, among Hilb, Rogal, and Hamilton Company, Crestar Bank, and the Banks listed therein (the "Agreement"). All capitalized terms used but not defined herein or in the appendices hereto shall have the meanings given to them in the Agreement. 1. The Borrower shall have delivered, or caused to be delivered, to each Bank: (a) a duplicate original of the Agreement executed on the Borrower's behalf by its duly authorized officer. (b) a duly executed Note payable to its order and otherwise complying with the provisions of Section 1.03 of the Agreement. (c) the written opinion of Williams, Mullen, Christian & Dobbins, counsel to the Borrower, substantially in the form attached as Appendix 1 to this Exhibit, and addressing such other legal matters as the Banks and their counsel may require. 2. The Borrower shall have delivered, or caused to be delivered, to the Agent: (a) A copy of the Borrower's Articles of Incorporation, as amended, certified as of a recent date by a State Official. (b) A certificate of a State Official, dated as of a recent date, as to the good standing and charter documents of the Borrower on file in the office of such State Official. (c) A certificate of the Secretary or an Assistant Secretary of the Borrower dated as of the Closing Date substantially in the form attached as Appendix 2 to this Exhibit. (d) A certificate of the Chief Financial Officer of the Borrower, substantially in the form attached as Appendix 3 to this Exhibit, certifying that (i) the Borrower is in compliance with all the terms and provisions of the Agreement and at the time of and immediately after such borrowing no Default has occurred or is continuing and (ii) the representations and warranties contained in Article IV of the Agreement are true and correct. (e) Certified copies of all consents and required governmental approvals, if any, necessary for the execution, delivery and performance of the Agreement, the Note, and the other Loan Documents and the transactions contemplated thereby. (f) Payment in full of all fees required to be paid on the Closing Date (including the fees, if any, payable pursuant to Section 1.05 of the Agreement) and all of the Banks' out-of- pocket costs and expenses (including counsel fees and disbursements) payable in accordance with Section 10.03 for which invoices have been submitted on or prior to such date. (g) A notice of such Loan as required by Section 1.02 of the Agreement. (h) Such other documents as the Agent, the Banks and their counsel may request. APPENDIX 1 FORM OF OPINION [Letterhead of Counsel to Borrower] [Date of First Borrowing] [Addressed to the Agent and the Banks] Dear Sirs: We have acted as counsel to Hilb, Rogal, and Hamilton Company, a Virginia corporation (the "Borrower"), and its subsidiaries in connection with the preparation, execution and delivery of the Credit Agreement dated as of February 12, 1996 (the "Credit Agreement"), among the Borrower and Crestar Bank, as agent for itself and the banks named therein (the "Banks"). Terms capitalized but not defined herein shall have the meanings given to them in the Credit Agreement. In so acting, we have reviewed executed copies of the Credit Agreement and the Notes. We have relied upon originals or copies certified or otherwise identified to our satisfaction, of such records, documents, certificates, and other instruments, and have made such other investigations, as in our judgment are necessary or appropriate to enable us to render the opinions expressed below. Except with respect to the Borrower and the Material Subsidiaries, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents. Based upon and subject to the foregoing and the qualifications and assumptions set forth below, we are of the opinion that: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Virginia, and each Material Subsidiary is duly organized, validly existing and in good standing in each case under the laws of the jurisdiction of its organization. The Borrower and each of its Material Subsidiaries has the corporate power and authority to own its respective properties and to carry on its respective businesses as now conducted and is duly qualified to do business, and is in good standing as a foreign entity in all jurisdictions wherein such qualification is required by reason of the nature of its business and activities or the location of its property. The Borrower has the corporate power to execute, deliver and perform the Credit Agreement, to borrow thereunder and to execute and deliver the Note. 2. The execution and delivery by the Borrower of, and performance by the Borrower of the obligations provided for in, the Loan Documents have been duly authorized by all proper and necessary corporate action. Each of the Loan Documents to which the Borrower is a party has been duly executed and delivered by the Borrower. 3. The Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as may be limited by (a) bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and (b) general principles of equity (whether considered in a proceeding in at law or in equity). 4. No action, suit, proceeding, inquiry or investigation before or by any arbitrator or any court, public body, board, administrative agency or other Governmental Authority is pending or, to best of our knowledge, threatened against or affecting the Borrower or any Material Subsidiary. 5. To the best of our knowledge, neither the Borrower nor any Material Subsidiary is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any governmental instrumentality or other agency where such default could have a material and adverse affect on the financial condition of the Borrower or of the Borrower and the Material Subsidiaries taken as a whole. 6. No approval of, consent from or filing with any Governmental Authority or any other Person, which approval, consent or filing has not heretofore been obtained, given or made, is required in connection with the execution and delivery by the Borrower of any of the Loan Documents. 7. The execution and delivery of the Loan Documents, the consummation of the transactions therein contemplated, the performance of and compliance with the provisions thereof and the application of the proceeds of the Loans as therein contemplated do not and will not (A) violate, conflict with, result in the breach of, or constitute a default under (i) any provision of law, (ii) the Organizational Documents of the Borrower or any Material Subsidiary, (iii) any instrument, agreement or contract to which the Borrower or any Material Subsidiary is a party, or by or to which the Borrower or any Material Subsidiary or any properties of the Borrower or any Material Subsidiary may be affected, bound or subject, or (iv) any order, writ, injunction or decree of any court, arbitrator or Governmental Authority, or (B) result in the creation or imposition of any lien, charge or encumbrance upon any assets of the Borrower or any Material Subsidiary except in favor of the Agent for the benefit of the Banks. 8. The execution, delivery and performance of the Credit Agreement and the use of the proceeds of the Loans thereunder do not and will not constitute a violation of Regulations G, X or U of the Board of Governors of the Federal Reserve System. 9. The Agent and the Banks will not be (i) deemed to be doing business for purposes of any requirement for qualification as a foreign corporation in _________ [list jurisdictions of the Borrower] solely by reason of making the Loans or enforcing any of the Loan Documents, or (ii) denied access to the court system of such jurisdictions by reason of not having so qualified in such jurisdiction on the sole basis of having made the Loans or enforcing the Loan Documents. We express no opinion in this paragraph with respect to any other loans or activities of the Agent and the Banks, and the Agent and the Banks shall not, nor shall they have any right to, rely on such opinion in connection with any loans or activities except those expressly referred to in the first sentence of this paragraph. 10. The payment by the Borrower and receipt by the Banks, as applicable, of interest and other payments required to be paid pursuant to the terms of Credit Agreement and the Notes will not constitute unlawful interest or otherwise violate the usury laws of the Commonwealth of Virginia. This opinion is being delivered to you at the request of our clients pursuant to Section [1(c)] of Exhibit C to the Credit Agreement. This opinion is solely for your benefit and may not be relied upon by any other person without our prior written consent. We are members of the Bar of the Commonwealth of Virginia and express no opinion with respect to the law of any jurisdiction other than the laws of the Commonwealth of Virginia and the federal laws of the United States, in each case as in effect on the date hereof. Very truly yours, APPENDIX 2 FORM OF SECRETARY'S CERTIFICATE Hilb, Rogal, and Hamilton Company (the "Company") Secretary's Certificate Regarding Incumbency, Resolutions, Articles of Incorporation and By-Laws The undersigned, being the duly appointed, qualified and acting Secretary of the Company, hereby certifies that the persons named below are, on the date hereof, the duly elected, qualified and acting officers of the Company and occupy the offices set opposite their respective names, and the signatures opposite their names below are their true and correct signatures: Name Office Signature __________________ _________________ _ __________________ and hereby further certifies that: (a) The Board of Directors of the Company adopted, on ______________, at a duly called meeting at which a quorum was present and voting throughout, the resolutions set forth in Exhibit "A" attached hereto, none of which has been amended or repealed in any respect since such date, and all of which remain in full force and effect as of the date hereof. (b) Attached hereto as Exhibit "B" is a true, correct and complete copy of the Articles of Incorporation of the Company, certified by the appropriate State Official, and no action has been taken by the Board of Directors of the Company or its Shareholders to amend or in contemplation of amending the Articles of Incorporation since such certification date. (c) Attached hereto as Exhibit "C" is a true, correct and complete copy of the By-Laws of the Company in effect on the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand and the corporate seal of the Company as of this ___ day of ______, 19__. __________________________ ______________, Secretary [SEAL] I, ___________________, _____________________ of the Company do hereby certify that __________________ is the duly elected, qualified and acting Secretary of the Company, and that his signature set forth above is his true signature. IN WITNESS WHEREOF, I have hereunto set my hand as of this __ day of ______________, 19__. __________________________ APPENDIX 3 FORM OF OFFICER'S CERTIFICATE [Company letterhead] Hilb, Rogal and Hamilton Company (the "Company") The undersigned, who is Chief Financial Officer of the Company, in connection with a certain Credit Agreement dated as of February ___, 1996 (the "Credit Agreement"), among the Company, the banks listed therein (the "Banks") and Crestar Bank, as the agent (the "Agent") for the Banks, hereby certifies to the Agent and each of the Banks that, as of the date of this certificate: (a) The Company is in compliance with all the terms and provisions of the Credit Agreement and no Default has occurred or is continuing; and (b) Each of the representations and warranties contained in Article IV of the Credit Agreement are true and correct. Terms used herein but not defined shall have the meanings ascribed to them in the Credit Agreement. IN WITNESS WHEREOF, I have hereunto set my hand and the corporate seal of the Company as of this ___ day of ______, 19__. HILB, ROGAL AND HAMILTON COMPANY By: _____________________________ Chief Financial Officer EXHIBIT D FORM OF COMPLIANCE CERTIFICATE [company letterhead] [To the Agent and the Banks] Hilb, Rogal and Hamilton Company Ladies and Gentlemen: This certificate is delivered to you pursuant to Section 5.06(e) of the Credit Agreement, dated as of February 9, 1996 (the "Credit Agreement"), among Hilb, Rogal and Hamilton Company (the "Borrower"), the banks listed therein as, or that may from time to time become, parties thereto (collectively, the "Banks"), and Crestar Bank, as the agent (the "Agent") for the Banks. Unless otherwise defined, terms used herein (including the Attachment hereto) have the meanings ascribed to them in the Credit Agreement. The undersigned hereby certifies that he is the Chief Financial Officer of the Borrower and further certifies that as of ________, 19___ (the "Computation Date"): (a) the Borrower's (i) Adjusted Funded Debt was $________, (ii) Adjusted Cash Flow was $______ and (iii) ratio of Adjusted Funded Debt to Adjusted Cash Flow was _________, as shown in detail on the Attachment hereto, which [complies][does not comply] with the requirements of Section 7.01 of the Credit Agreement, and which results in an Applicable Margin of _______; (b) the Borrower's Consolidated Net Worth was $__________, as shown in detail on the Attachment hereto, which [complies][does not comply] with the requirements of Section 7.02 of the Credit Agreement; (c) the Borrower's (i) Adjusted Cash Flow was $_________, (ii) Debt Service was $_____, and (iii) Debt Service Coverage ratio was ________, as shown in detail on the Attachment hereto, which [complies][does not comply] with the requirements of Section 7.03 of the Credit Agreement. IN WITNESS WHEREOF, I have hereunto set my hand and the corporate seal of the Borrower as of this ___ day of ______, 19__. HILB, ROGAL AND HAMILTON COMPANY By: _____________________________ Chief Financial Officer [SEAL] ATTACHMENT to ___\ ___\ ___ Compliance Certificate 1. Adjusted Funded Debt: (a) All Indebtedness (including the current portion thereof) of the Borrower and its Consolidated Subsidiaries, plus _____________ (b) Total Operating Lease Rentals of the Borrower and its Consolidated Subsidiaries paid during the twelve months immediately preceding the date hereof, multiplied by eight (8), equals ______________ ADJUSTED FUNDED DEBT $ 2. Adjusted Cash Flow: (a) Consolidated Net Income of the Borrower and its Consolidated Subsidiaries, plus ______________ (b) Depreciation and amortization (to the extent deducted in determining Consolidated Net Income), plus ______________ (c) Taxes (to the extent deducted in determining Consolidated Net Income), plus ______________ (d) Interest Expense (to the extent deducted in determining Consolidated Net Income), plus ______________ (e) Operating Lease Rentals (to the extent deducted in determining Consolidated Net Income), plus ______________ (f) Extraordinary and unusual items (to the extent deducted in determining Consolidated Net Income), plus ______________ (g) Loss attributable to equity in Affiliates (to the extent deducted in determining Consolidated Net Income), equals ______________ ADJUSTED CASH FLOW $ 3. Consolidated Net Worth: (a) Base amount, plus $42,500,000 (b) Twenty-five percent (25%) of positive Consolidated Net Income for each fiscal quarter beginning after December 31, 1995, and ending on or before the date hereof, plus _____________ (c) Fifty percent (50%) of the net proceeds received by the Borrower or any Subsidiary after December 31, 1995, from the sale of Capital Securities, equals ______________ CONSOLIDATED NET WORTH $ 4. Debt Service: (a) Operating Lease Rentals accrued or paid by the Borrower and its Consolidated Subsidiaries (on a consolidated basis) for the immediately preceding twelve month period, plus ______________ (b) Interest Expense of the Borrower and its Consolidated Subsidiaries (on a consolidated basis) for the immediately preceding twelve month period, equals ______________ DEBT SERVICE $ EX-10 4 EXHIBIT 10.3 AMENDMENT NUMBER TWELVE THIS AMENDMENT NUMBER TWELVE, dated as of December 15, 1995, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Robert H. Hilb of Glen Ellyn, Illinois (hereinafter called "Hilb"): W I T N E S S E T H: WHEREAS, HRH and Hilb have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of June 1, 1982; and WHEREAS, HRH and Hilb desire to make amendments to the Employment Agreement as set forth below, pursuant to Section 12 of the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto hereby agree as follows: 1. Section 1 of the Employment Agreement is hereby amended by deleting the present Section 1 and substituting in lieu thereof of the following revised Section 1: "1. HRH hereby employs Hilb and Hilb agrees to serve HRH for a term of fourteen years and seven months (hereinafter called the "initial term") commencing on the 1st day of June, 1982, and upon expiration of the said term, Hilb shall continue in the employ of HRH, upon all the same terms and conditions as provided herein, until either HRH or Hilb gives the other party one hundred eighty (180) days advance written notice of its or his intention to discontinue such relationship as of a specific future date." 2. For all purposes therein, Section 4 of the Employment Agreement is hereby amended by deleting the amount of $380,000 and substituting in lieu thereof the amount of $310,000. 3. 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 7 thereof. 4. The effective date of this Amendment Number Twelve is January 1, 1996. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Hilb has hereunto set his hand and seal, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By:/s/ Dianne F. Fox ---------------------------------------- Its:Senior Vice President & Secretary ________________________________________ ATTEST: /s/ Walter L. Smith ________________________________________ /s/ Robert H. Hilb ___________________________________[SEAL] Robert H. Hilb WITNESS BY: /s/ Carolyn Jones ________________________________________ EX-10 5 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated November 10, 1995, is made between HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("Employer"), and ANDREW L. ROGAL ("Employee"), formerly a resident of Pittsburgh, Pennsylvania, and now a resident of Richmond, Virginia. RECITALS WHEREAS, Employer is a publicly traded holding company for a network of insurance agencies in the United States and Canada; WHEREAS, Employee has since 1982 been an employee of Employer's Pittsburgh office; WHEREAS, Employee was named President of Employer on February 8, 1995, and has recently moved to Richmond; WHEREAS, Employee, as President of Employer, will have access to sensitive knowledge about all aspects of Employers' operations, including, without limitations, information about the customer base and financial capabilities of each of Employer's other offices; WHEREAS, Employer desires to protect its operations and to limit disclosure or use of the knowledge of each such office; WHEREAS, Employee desires to accept employment as President for the term specified herein, subject to the terms, covenants and conditions specified herein; and WHEREAS, Employer avers and Employee acknowledges that Employer will incur substantial costs in developing, increasing, improving, and protecting its business; NOW, THEREFORE, in consideration of the premises stated above and the sum of $1.00, receipt of which is acknowledged by Employee, Employer's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. EMPLOYMENT: TERM, COMPENSATION; RENEWAL. Employer agrees to employ Employee as its President for an initial term of three (3) years ("Initial Term"), effective as of January 1, 1996 ("Effective Date"), and to compensate Employee as described on Exhibit A attached hereto and incorporated herein by this reference. Upon the expiration of the Initial Term, this Agreement shall renew for one (1) year terms; provided that this Agreement shall not renew if either party gives written notice to the other not less than ninety (90) days prior to the end of the Initial Term (or any renewals thereof) of its intent not to renew the Agreement, and provided further that either party may terminate this Agreement at any time after the Initial Term, with or without cause, upon the giving of ninety (90) days written notice to the other of its intent to do so. If this Agreement is terminated by either party on notice, Employee shall continue to render services faithfully during such period and his employment hereunder shall terminate at the end of the notice period. At its sole option, Employer may elect to pay Employee, as severance pay, the base salary due Employee for the unexpired portion of the notice period, thereby immediately terminating Employee's employment in lieu of permitting Employee to continue performing his duties during the notice period. Employee's compensation shall be reviewed by the Compensation Committee of the Board of Directors of Employer not less frequently than annually during the term of this Agreement and any extensions or renewals thereof, may be adjusted upward or downward in Employer's sole exercise of its reasonable business discretion and shall be full compensation for all services performed by Employee under this Agreement. 2. FULL EFFORTS OF EMPLOYEE. Employee represents to Employer that he has no employment or other relationship with any competitor of Employer which would restrict him in performing the duties contemplated herein. Employee agrees to indemnify and hold Employer harmless from all claims and damages (including reasonable attorneys' fees and costs) suffered by Employer and arising out of a breach of the foregoing representation. Employee agrees (i) to devote his full business time and energies to the business and affairs of Employer, (ii) to use his best efforts, skills and abilities to promote the interests of the Employer and the related business interests of employer and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by Employer. During the course of his employment hereunder, Employee shall not, directly or indirectly, enter into or engage in any other activity or other gainful employment without the prior written consent of employer. 3. FULL COMPENSATION FOR SERVICES. All business, including insurance, bond, risk management, self-insurance and other services (collectively, the "HRH Business"), transacted through the efforts of Employee or any other employee of Employer or any of its subsidiary corporations (Employer and its subsidiary corporations are herein referred to as the "HRH Companies.") shall be the sole property of the Employer and the HRH Companies, and Employee acknowledges that he shall have no right to any commission or fee resulting from the conduct of such business other than in the form of the compensation referred to in paragraph 1. Premiums, commissions or fees on the HRH Business transacted through the efforts of Employee shall be invoiced to the insured or purchaser by Employer or one of the other HRH Companies. All checks or bank drafts received by Employee from any insured or purchaser shall be made payable to such company and all amounts collected by Employee shall be promptly turned over to Employer. 4. CONFIDENTIAL INFORMATION. For purposes of this paragraph 4, the following words shall have the following respective meanings: "Confidential Information" shall mean any and all information of a proprietary or confidential nature and trade secrets of Employer and the HRH Companies. Such confidential information shall include, but not be limited to, information about the HRH Customers such as customer identities and lists, revenues from customers' accounts, customer risk characteristics and requirements, key contact personnel, financial data and performance, payroll, policy expiration dates, policy terms, conditions and rates, information about prospective customers; information about the HRH Companies such as methods of soliciting business, documents, financial data, marketing programs and specialized insurance markets; and nonpublic information about Employer such as financial results and operations and pending or threatened litigation. Confidential information may be acquired from any source during Employee's term of employment, whether or not such information was expressly disclosed to Employee during the term of his employment. "Employer" shall mean Hilb, Rogal and Hamilton Company, any of its predecessors and any person or entity from which it has, now or at the time of termination, acquired insurance accounts; "HRH Companies" means Employer and any subsidiary of Employer; and "HRH Customers" means the customers of the HRH Companies, specifically including, without limitation, "Customers" and "Prospective Customers" (each as defined in paragraph 5). Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with Confidential Information which is the exclusive property of Employer. Employee further acknowledges that (i) Employer and the HRH Companies derive actual and potential economic value from the Confidential Information not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and (ii) Employer and the HRH Companies have expended and currently expend substantial effort to acquire Confidential Information, and expend substantial effort, and expect their employees to expend substantial effort, to maintain the secrecy of the Confidential Information. Employee agrees and covenants that he will safeguard such Confidential Information from exposure to, or appropriation by, unauthorized persons, either within or outside the employment of Employer or the HRH Companies, and that he will not, directly or indirectly, without the prior written consent of Employer and HRH during the term of this Agreement and any time in the three year period following termination of this Agreement, divulge or make any use of any Confidential Information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee covenants to deliver to Employer all information and materials, including personal notes and reproductions, relating to any Confidential Information, the HRH Companies, and the HRH Customers, which are in his possession or control. 5. NONPIRACY COVENANTS. For the purpose of this paragraph 5, the following terms shall have the following meanings: "Customers" shall be limited to those customers of Employer for whom there is an insurance policy or bond in force or to or for whom Employer is rendering services as of the date of termination of Employee's employment; "Employer" shall mean Hilb, Rogal and Hamilton Company, its predecessors and successors, and each of the subsidiary corporations of Hilb, Rogal and Hamilton Company engaged in business as an insurance agency as of the date of termination of Employee's employment; "Prohibited Services" shall mean (i) services in the fields of insurance or bonds or (ii) services performed by Employer, its agents or employees in any other business engaged in by Employer on the date of termination of Employee's employment. "Field of insurance" does not include title insurance, but does include all other lines of insurance sold by Employer, including, without limitation, property and casualty, life, group, accident, health, disability, and annuities; "Prospective Customers" shall be limited to those parties known by Employee to have been solicited for business within any Prohibited Service within the twelve (12) month period preceding the date of termination of Employee's employment, and with or from whom, within the twelve (12) month period preceding the date of termination of Employee's employment, someone acting on behalf of Employer either had met for the purpose of offering any Prohibited Service or had received a written response to an earlier solicitation to provide a Prohibited Service; "Restricted Period" shall mean the period of three (3) years immediately following the date of termination of Employee's employment. Employee recognizes that over a period of many years the Employer has developed, at considerable expense, relationships with, and knowledge about, Customers and Prospective Customers which constitute a major part of the value of the Employer. During the course of his employment by Hilb, Rogal and Hamilton Company, Employee will either have substantial contact with, or obtain substantial knowledge about, these Customers and Prospective Customers. In order to protect the value of the Employer's business, Employee covenants and agrees that, in the event of the termination of his employment, whether voluntary or involuntary, whether with or without cause, he shall not, directly or indirectly, for his own account or for the account of any other person or entity, as an owner, stockholder, director, employee, partner, agent, broker, consultant or other participant during the Restricted Period: (a) solicit a Customer for the purpose of providing Prohibited Services to such Customer; (b) accept an invitation from a Customer for the purpose of providing Prohibited Services to such Customer; (c) solicit a Prospective Customer for the purpose of providing Prohibited Services to such Prospective Customer; and (d) accept an invitation from a Prospective Customer for the purpose of providing Prohibited Services to such Prospective Customer. Subparagraphs (a), (b), (c) and (d) are separate and divisible covenants; if for any reason any one covenant is held to be illegal, invalid or unenforceable, in whole or in part, the remaining covenants shall remain valid and enforceable and shall not be affected thereby. Further, the periods and scope of the restrictions set forth in any such subparagraph shall be reduced by the minimum amount necessary to reform such subparagraph to the maximum level of enforcement permitted to Employer by the law governing this Agreement. Additionally, Employee agrees that no separate geographic limitation is needed for the foregoing nonpiracy covenants as such are not a prohibition on Employee's employment in the insurance agency business and are already limited to only those entities which are included within the definition of "Customer" or "Prospective Customer." 6. NONRAIDING OF EMPLOYEES. Employee covenants that during his employment hereunder (including renewals) and for twenty- four (24) months after termination of his employment, whether voluntary or involuntary, with or without cause, he will not solicit, induce or encourage for the purposes of employing or offering employment to any individuals who, as of the date of termination of Employee's employment, were employees of Employer or had been employees of Employer within the twelve (12) month period preceding Employee's termination, nor will he directly or indirectly solicit, induce or encourage any of the Employer's employees to seek employment with any other business, whether or not Employee is then affiliated with such business. 7. NOTIFICATION OF FORMER AND NEW EMPLOYMENT. During the term of this Agreement and the Restricted Period specified in paragraph 5 hereof, Employee covenants to notify any prospective employer or joint venturer, which is a competitor of Employer of this Agreement with Employer; and if Employee accepts employment or establishes a relationship with such competitor, Employee covenants to notify Employer immediately of such relationship. If Employer reasonably believes that Employee is affiliated or employed by or with a competitor of Employer during the Restricted Period, then Employee grants Employer the right to forward a copy of this Agreement to such competitor. 8. REMEDIES UPON EMPLOYEE BREACH OF AGREEMENT. If Employee breaches any provision of this Agreement, each of Employer and the HRH Companies reserves the right to avail itself of any remedy available to it at law or in equity. Further, Employer may, at its sole option, employ disciplinary procedures against Employee for any breach, up to and including discharge. Additionally, where allowed by law, Employer reserves the right to offset against any sums due Employer from Employee, whether for a violation of this Agreement (such as paragraph 8 or 12 hereof) or any other obligation or debt, any amounts which may otherwise be due from Employer to Employee. Employee acknowledges and agrees that Employer and the HRH Companies shall be entitled to injunctive relief against Employee for any violation by Employee of paragraph 4, 5, 6 or 7 of this Agreement. Employee agrees that the foregoing remedies shall be cumulative and not exclusive, shall not be waived by any partial exercise or nonexercise thereof and shall be in addition to any other remedies available to Employer and the HRH Companies at law or in equity. Notwithstanding the foregoing, if Employee breaches paragraph 4 or 5 of this Agreement, Employer may, at its sole option, seek liquidated damages with respect to each Customer or Prospective Customer procured by or through Employee, directly or indirectly, in violation of paragraph 4 or 5 of this Agreement (with such Customers being hereafter referred to as "Lost Customers" and with such Prospective Customers being hereafter referred to as "Lost Prospects"). Employee acknowledges that it would be difficult to calculate damages incurred by Employer in the event of such a breach and that the following liquidated damages clause, when so elected by Employer, is necessary and reasonable for the protection of Employer. Employer agrees that, if it elects to exercise the liquidated damages provision with respect to a Lost Customer or Lost Prospect, it shall not seek an injunction with respect thereto if Employee pays such liquidated damages. Employee also acknowledges that Employer may or may not choose to exercise this liquidated damages provision and that Employer may, at its sole option, seek injunctive relief with respect to some Lost Customers and Lost Prospects and liquidated damages with respect to other Lost Customers and Lost Prospects. Finally, Employee acknowledges that he has no right whatsoever to force Employer to exercise this liquidated damages provision, and that such choice remains entirely Employer's. Liquidated damages shall be calculated as follows: A Lost Customer shall be valued at 150% of the gross revenue to Employer in the most recent twelve (12) month period preceding the date of loss of such account. If such Lost Customer had not been a Customer of Employer for an entire twelve (12) month period, such liquidated damages shall be 150% of the gross revenue which would have been, in the absence of a breach by Employee, realized by Employer in the initial twelve (12) month period of such customer being served by Employer. A Lost Prospect shall be valued at 150% of the gross revenue realized in the initial twelve (12) month period of such Lost Prospect being served by any one or more persons or entities receiving such revenue as a result of Employee's breach. Employee acknowledges that the foregoing damage amounts are fair and reasonable, that an industry rule of thumb for the valuation of an agency is 150% of revenue and that, on the margin, selected accounts may be worth much more than 150% of their annual revenue to an agency. Employee shall pay such liquidated damages to Employer within five (5) business days after written demand therefor. Thereafter, such liquidated damages shall bear interest at the maximum lawful rate. Employee acknowledges that a broker of record letter granted during the Restricted Period by a Customer or Prospective Customer in favor of Employee or any person or entity with whom or which Employee is directly or indirectly affiliated shall be prima facie evidence of a violation of paragraph 5 of this Agreement and establishes a rebuttable presumption in favor of Employer that paragraph 5 of this Agreement has been violated by Employee. Further, Employee acknowledges that he has an affirmative duty to inform such Customer or Prospective Customer that he cannot accept its business until after the Restricted Period and that he must minimize all contact with such Customer or Prospective Customer. 9. TOLLING OF RESTRICTIVE COVENANTS DURING VIOLATION. If a violation by Employee of any of the restrictive covenants of this Agreement occurs, Employee agrees that the restrictive period of each such covenant so violated shall be extended by a period of time equal to the period of such violation by Employee. It is the intent of this paragraph that the running of the restricted period of a restrictive covenant shall be tolled during any period of violation of such covenant so that the Employer shall get the full and reasonable protection for which it contracted and so that Employee may not profit by his breach. 10. 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, immediately upon notice to the Employee, in the discretion of Employer, prior to the expiration (including renewals) of this Agreement, for "Cause." For purposes hereof and without limitation Cause shall be solely determined in good faith by Employer and shall include any dishonest, criminal or immoral conduct or any one or more acts having a material adverse effect on Employer. 11. ESSENCE OF AGREEMENT. The restrictive covenants from Employee for the benefit of the Employer set forth herein are the essence of this Agreement with respect to Employer agreeing to employ Employee and each such covenant shall be construed as independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Employer, whether predicated on this Agreement or not, shall not constitute a defense to the enforcement by the Employer of any of the restrictive covenants contained herein. Employer shall at all times maintain the right to seek enforcement of these provisions whether or not Employer has previously refrained from seeking enforcement of any such provision as to Employee or any other individual who has signed an agreement with similar provisions. Further, Employee grants to Employer the continuous and unilateral right, upon written notice to Employee, to lessen the restrictions of any of the covenants set forth in paragraphs 4, 5, 6 and 7 hereof by so much as Employer deems necessary either to make this Agreement in accordance with public policy of the Commonwealth of Virginia or to fit the circumstances peculiar to Employee. Additionally, Employee covenants that, during the Restricted Period, if he has any questions about the scope or meaning of any restrictive covenants of this Agreement, then he shall put such questions in writing to General Counsel of Employer, who shall then endeavor to answer such requests as soon as practicable. 12. SEVERABILITY AND INDEPENDENCE. 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. Furthermore, no covenant herein shall be dependent upon any other covenant or provision herein, each of which covenants shall stand independently and be enforceable without regard to the other or to any other provision of this Agreement. 13. INTERPRETATION. There shall be no presumption that this Agreement is to be construed against the Employer or the HRH Companies, since Employee acknowledges that he understands all provisions of this Agreement, that the restrictive covenants contained herein are ancillary to an enforceable agreement and are fair, necessary for the protection of Employer and the HRH Companies and relatively standard to the insurance agency industry and that he was offered the opportunity to negotiate, alter, and amend any and all provisions of this Agreement before executing this Agreement and legally binding himself hereto. 14. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the Commonwealth of Virginia. 15. MISCELLANEOUS. A. Case and Gender. Wherever required by the context of this Agreement, the singular and plural cases and the masculine, feminine and neuter genders shall be interchangeable. B. Nonwaiver. The waiver by Employer 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. C. 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. D. Succession and Assignment. This Agreement shall be binding upon the parties hereto and is not assignable by Employee. This Agreement shall inure, however, to the benefit of Employer's successors and assigns, including, without limitation, successor corporations by way of merger or consolidation or any entity which purchases substantially all of the assets of Employer. E. Entire Agreement. This Agreement supersedes any prior written or unwritten agreement, representation or understanding between the Employer and Employee and represents the entire agreement, representations and understanding between Employer and Employee concerning the subject matter hereof. F. WAIVER OF JURY TRIAL; PRAYER FOR REFORMATION. EACH OF EMPLOYER AND EMPLOYEE KNOWINGLY AND VOLUNTARILY (I) WAIVES THE RIGHT TO A JURY TRIAL IN RESPECT OF ANY LEGAL PROCEEDINGS IN STATE OR FEDERAL COURT ARISING IN CONNECTION HEREWITH; AND (II) REQUESTS THAT ANY COURT OR ARBITER BEFORE WHOM THIS EMPLOYMENT AGREEMENT IS IN CONTROVERSY REFORM THE RESTRICTIVE COVENANTS HEREIN, IF SUCH REFORMATION IS NECESSARY TO MAKE ANY OF THEM ENFORCEABLE, TO THE MAXIMUM LEVEL OF ENFORCEMENT PERMISSIBLE TO EMPLOYER AND EQUITABLE UNDER THE CIRCUMSTANCES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EMPLOYER TO ENTER INTO THIS AGREEMENT. /s/ Robert H. Hilb /s/ Andrew L. Rogal _______________________________ ________________________________ EMPLOYER EMPLOYEE WITNESS the following signatures. EMPLOYER: HILB, ROGAL ANDHAMILTON COMPANY /s/ Rober H. Hilb By___________________________________ Chairman and CEO Its___________________________________ EMPLOYEE: /s/Andrew L. Rogal ______________________________________ Andrew L. Rogal EXHIBIT A At the beginning of the Initial Term, Employee shall be paid an annual salary of $305,000, payable semi-monthly, as earned. Future changes in compensation need not be reflected by amendment hereto as the Compensation Committee of the Board of Directors of Employer may cause such change to be effected through signature of a payroll authorization form. EX-10 6 EXHIBIT 10.6 HILB, ROGAL AND HAMILTON COMPANY AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, the Company adopted the Hilb, Rogal and Hamilton Company Supplemental Executive Retirement Plan (the "Plan"), effective December 16, 1994; and WHEREAS, the Company reserves the right to amend the Plan by resolution of the Board of Directors, communicated to Participants not later than sixty (60) days following the effective date of such amendment, and WHEREAS, the Company desires to amend the Plan effective February 5, 1996; now therefore be it RESOLVED, that the following amendments to the Plan are hereby approved and adopted, effective February 5, 1996: 1. Section 2.1 shall be amended by amending and restating the definition of "Final Average Compensation" as follows: "Final Average Compensation" means a Participant's average annual Compensation for the sixty (60) consecutive whole months immediately prior to Separation from Service but shall not include Compensation earned after age 65 (or age 68, for a Grandfathered Participant). 2. The first sentence of Section 4.1 shall be amended to read as follows: 4.1 Entitlement to Benefits. Each Participant shall be entitled to the Supplemental Benefit provided in Section 4.2 of the Plan upon reaching his Benefit Commencement Date; provided, however, that a Participant whose Benefit Commencement Date does not coincide with his attaining age 65 (for a Grandfathered Participant, age 68) shall receive the Actuarial equivalent of his Supplemental Benefit determined as of age 65 (or 68). . . . 3. The following sentence shall be added at the end of Section 4.2: Notwithstanding anything in this Section 4.2 to the contrary, the Supplemental Benefit for a Grandfathered Participant shall be fixed at $185,000. EX-10 7 EXHIBIT 10.8 PROMISSORY NOTE $200,000 Date: September 25, 1995 Place: Glen Allen, VA FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the order of HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("Holder"), at 4235 Innslake Drive, Glen Allen, Virginia 23060, or at such other place as the Holder may in writing designate, in lawful money of the United States of America, the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000), with interest accruing from the date hereof on the unpaid principal hereof from time to time outstanding at an annual rate of FIVE and 73/100 PERCENT (5.73%), compounded monthly, which rate is the "applicable federal rate" for August, 1995, for short term obligations. This Note, including all interest so accrued, shall be payable upon the earlier to occur of: (i) September 25, 1997; or (ii) the sale of Maker's former residence at 528 Briarcliff Road, Pittsburgh, Pennsylvania 15221 ("Sale"). The Maker agrees to pay a late charge equal to two percent (2%) of the amount not timely paid to the Holder if the payment called for herein is not paid within ten (10) days after its due date. Maker covenants to notify Holder as soon as the Sale is expected to occur if such date is prior to September 25, 1997. Maker hereby reserves the right of anticipation for all or any portion of the indebtedness evidenced hereby at any time without penalty on any amounts so prepaid. Maker waives presentment, demand, notice of dishonor, protest, homestead and all other exemptions provided by law. Maker shall pay all costs, fees and expenses (including court costs and reasonable attorneys' fees) incurred by the Holder in collecting or attempting to collect any amount that becomes due hereunder. All notices, requests, demands and other communications with respect hereto shall be in writing and shall be delivered by hand, sent prepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States mail, certified, postage prepaid, return receipt requested, at the address designated herein. Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be given or made (as the case may be) when actually received by the intended recipient. The parties hereto may change their respective addresses by notifying the other party of the new address in any manner permitted by this paragraph. Notwithstanding anything in the foregoing to the contrary and by way of illustration and not by way of limitation, this Note is subject to all those rights contained in that certain Stock Pledge Agreement by and among Maker and Holder dated September 25, 1995, and by this reference incorporated herein. MAKER: /s/ Andrew L. Rogal _________________________________________ Andrew L. Rogal ADDRESS OF MAKER: 9023 Norwick Road Richmond, Virginia 23229 EX-10 8 EXHIBIT 10.9 STOCK PLEDGE AGREEMENT Agreement made September 25, 1995, between ANDREW L. ROGAL, ("Pledgor") and HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation, located at 4235 INNSLAKE DRIVE, P. O. BOX 1220, GLEN ALLEN, VIRGINIA 23060-1220 ("Pledgee"). Recitals At the time of the execution of this agreement the Pledgor owed Pledgee the sum of $200,000 ("Indebtedness"), pursuant to the terms of a promissory note, such funds having been advanced to Pledgor for the purpose of a "bridge loan" to enable Pledgor to purchase a house in Virginia prior to the sale of his Pennsylvania house. To induce the Pledgee to advance the Indebtedness, the Pledgor has agreed to pledge with the Pledgee a certain amount of the Pledgor's stock in Pledgee as security for the repayment of the Indebtedness. It is therefore agreed: 1. Pledge. As collateral for the Indebtedness, the Pledgor hereby grants a security interest to the Pledgee in the instrument of the following description: 37,325 common shares of Pledgee, represented by certificate H 7587. The Pledgor appoints the Pledgee his attorney to arrange for the transfer of the pledged shares on the books of the company to the name of the Pledgee. The Pledgee shall hold the pledged shares as security for the repayment of the Indebtedness, and shall not encumber or dispose of the shares except in accordance with the provisions of paragraph 8 of this agreement. Pledgor may order the sale of such pledged shares, provided he makes arrangements satisfactory to Pledgee, in its sole exercise of its reasonable business discretion, either to pay the note in full or to substitute collateral. 2. Dividends. During the term of this pledge and so long as Pledgor is not in default, all dividends and other amounts shall be received by Pledgor. 3. Voting rights. During the term of this pledge, and so long as the Pledgor is not in default in the performance of any of the terms of this agreement or in the payment of the Indebtedness, the Pledgor shall have the right to vote the pledged shares on all corporate questions, and, where necessary and requested, the Pledgee shall execute due and timely proxies in favor of the Pledgor to this end. 4. Representations. The Pledgor warrants and represents that there are no restrictions upon the transfer of any of the pledged shares, other than any applicable securities laws, and that the Pledgor has the right to transfer such shares free of any encumbrances and without obtaining the consents of the other shareholders. 5. Adjustments. In the event that, during the term of this pledge, any share dividend, reclassification, readjustment, or other change is declared or made in the capital structure of the Pledgee, all new, substituted, and additional shares, or other securities, issued by reason of any such change shall be held by the Pledgee under the terms of this agreement in the same manner as the shares originally pledged hereunder. 6. Warrants and rights. In the event that during the term of this pledge, subscription warrants or any other rights or options shall be issued in connection with the pledged shares, such warrants, rights and options shall be immediately assigned by the Pledgee to the Pledgor, and if exercised by the Pledgor all new shares or other securities so acquired by the Pledgor shall be immediately assigned to the Pledgee to be held under the terms of this agreement in the same manner as the shares originally pledged hereunder. 7. Payment of Indebtedness. Upon payment at maturity of the Indebtedness, less amounts theretofore received and applied by the Pledgee in reduction thereof, the Pledgee shall transfer to the Pledgor all the pledged shares and all rights received by the Pledgee as a result of this Agreement. 8. Default. In the event that the Pledgor defaults in the performance of any of the terms of this agreement, or in the payment of the Indebtedness, the Pledgee shall have the rights and remedies provided in the Uniform Commercial Code in force in the Commonwealth of Virginia at the date of this agreement and in this connection, the Pledgee may, upon five days' notice to the Pledgor, sent by registered mail, and without liability for any diminution in price which may have occurred, sell all the pledged shares in such manner and for such price as the Pledgee may determine. At any bona fide public sale the Pledgee shall be free to purchase all or any part of the pledged shares. Out of the proceeds of any sale the Pledgee may retain an amount equal to the Indebtedness, plus the amount of the expenses of the sale, and shall pay any balance of such proceeds to the Pledgor. In the event that the proceeds of any sale are insufficient to cover the Indebtedness plus expenses of the sale, the Pledgor shall remain liable to the Pledgee for any deficiency. In witness whereof the parties have executed this agreement. PLEDGOR: PLEDGEE: HILB, ROGAL AND HAMILTON COMPANY /s/ Andrew L. Rogal /s/Dianne F. Fox _______________________________ By:_______________________________ Andrew L. Rogal Secretary Its:_______________________________ FOR VALUE RECEIVED I, Andrew L. Rogal, hereby sell, assign and transfer unto HILB, ROGAL AND HAMILTON COMPANY THIRTY-SEVEN THOUSAND THREE HUNDRED TWENTY-FIVE (37,325) Shares of its Common Stock standing in my name on the books of said Corporation represented by Certificate No. H 7587 herewith and do hereby irrevocably constitute and appoint WALTER L. SMITH or his designee or successor or any other officer of said Corporation, attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated September 25, 1995 /s/ Andrew L. Rogal ____________________________________ Andrew L. Rogal EX-11 9 EXHIBIT 11 Exhibit 11 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31 __________________________________ 1995 1994 1993 PRIMARY: Average shares outstanding 14,470,407 14,778,304 14,456,055 Net effect of dilutive stock options-- based on the treasury stock method using average fair value 9,989 7,082 33,575 Net effect of guaranteed future shares to be issued in connection with an agency acquisition 3,009 ---------- ---------- ---------- Average number of shares as adjusted 14,480,396 14,785,386 14,492,639 ========== ========== ========== Net income $11,828,910 $11,392,283 $ 8,293,393 =========== =========== =========== Per share amount $.82 $.77 $.57 ==== ==== ==== FULLY DILUTED: Average shares outstanding 14,470,407 14,778,304 14,456,055 Net effect of dilutive stock options-- based on the treasury stock method using the end of period fair value, if higher than average fair value 27,458 7,344 33,575 Net effect of guaranteed future shares to be issued in connection with an agency acquisition 3,009 Net effect of future shares to be issued in connection with an agency acquisition contingent upon performance 45,135 ---------- ---------- ---------- Average number of shares as adjusted 14,497,865 14,785,648 14,537,774 =========== =========== =========== Net income $11,828,910 $11,392,283 $ 8,293,393 =========== =========== =========== Per share amount $.82 $.77 $.57 ==== ==== ====
Note: The per share amounts for each period presented above do not necessarily support amounts in the statement of consolidated income because common stock equivalents are less than 3% dilutive. EX-13 10 EXHIBIT 13 (front cover) HILB, ROGAL AND HAMILTON COMPANY (HRH INSURANCE logo) 1995 ANNUAL REPORT Financial HIghlights HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES (in thousands of dollars, except per share amounts) (Bar graphs relecting the following financial information follow) 1995 1994 1993 1992 1991 Total Revenues $148,147 $140,809 $141,656 $140,461 $142,270 Net Income 11,829 11,392 8,293 8,591 4,736 Net Income Per Common Share .82 .77 .57 .65 .36 Dividends Per Common Share .57 .50 .45 .41 .37 OUR BUSINESS Hilb, Rogal and Hamilton Company serves as an intermediary between its clients, who are traditionally the mid-size Main Street businesses of the nation, and insurance companies which underwrite clients' risks. In this way, Hilb, Rogal and Hamilton Company agencies in 56 locations in North America assist clients in transferring their risks in areas such as property and casualty, employee benefits and other areas of specialized risk exposure. The Company's agency system, which extends to 16 states and five Canadian provinces, is among the leaders nationally and worldwide in its industry. 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. The Company expands its business by developing new clients, providing additional services to current clients and through acquisitions. TO OUR SHAREHOLDERS (This section includes two photographs of Robert H. Hilb, Chairman and Chief Executive Officer, and Andrew L. Rogal, President and Chief Operating Officer and a map showing the agency locations.) Management is pleased to report that 1995 Company performance improved over the last year. We also want to bring you up to date on developments in the evolution of the Company designed to continue steady progress in building Company strength and value for its shareholders. Anyone watching our industry knows that any measure of progress has been hard earned during the first half of the 1990s. Softness and uncertainty in pricing, with the intense competition that rages in such a market, is continuing into a tenth year - this in an industry that historically experienced regular price adjustments every four to five years. Overlaid on these insurance industry dynamics is the larger condition affecting American business so far this decade - merging, consolidating, downsizing. This amounts to a broad shrinkage of many businesses, whether from being melded into another or trimmed to the bone in order to compete. Many of these affected businesses lie within our principal client profile of mid-size, Main Street enterprises. In the best of times, keeping business you have against strong competitors, making it profitable, while doing the development work to expand services and to perfect service delivery, is a fair test of talent and commitment. In our business today, these challenges have never been more formidable. Yet HRH grows. Your Company has basic strength for steady growth, residing in the people and their commitment to enduring value, to the goal of being a great Company. In 1995, management took the next steps to support HRH people with increasingly efficient operating systems and management structure, with new corporate resources to accelerate bringing to market an expanding range of services and, through 14 acquisitions, more business in areas of high growth potential. We consider it a solid achievement that the people of Hilb, Rogal and Hamilton Company in 1995 reached new levels of revenues and earnings. They produced, they controlled costs and they adapted to evolutionary refinements with solid effort and performance. FINANCIAL ACCOMPLISHMENTS These are highlights of what was achieved: total 1995 revenues of $148.1 million were up 5.2 percent over the prior year; earnings per share, at $.82, were 6.5 percent above 1994; and Company directors, as is their policy, once again raised the shareholder dividend - it stood at an annual level of $.60 per share for the first quarter of 1996. Total dividends paid in 1995 were $.57. The dividend growth pattern is an indicator of shareholder value increasing year-to-year. We have kept you informed through the year of our program of purchasing Company stock. More than 1.6 million shares have been repurchased since our initial authorization in November 1990 and the program is continuing. We are currently authorized to buy back up to 2.9 million total HRH shares, less those shares previously purchased, as long as we believe we are being undervalued. We regard our Company as an excellent investment. More than once, we have heard HRH characterized as rock-solid financially, the result of careful, conservative financial management and performance improvements year-to-year. We urge you to examine details of our balance sheet, cash flow and other indicators to see why we invest in our own Company. We also advised you early in the year that we had completed the divestiture, according to plan, of agencies which were not meeting performance goals. Following this, we quickened the pace of our acquisition efforts over that of the previous two years. Fourteen acquisitions were successfully completed in 1995, all but two merged into existing offices where the opportunity seemed excellent. HRH ENTERS CANADA One notable exception to the pattern of expanding existing growth agencies through acquisitions was our purchase of Hayhurst Elias Dudek, Inc., effective July 1, 1995. It was a favorable acquisition for a number of reasons. First, the agency principal, Art Elias, continues to run the business. Under his direction, the agency has had success in developing specialized approaches to serving selected types of clients. In addition, although based in Winnipeg, the agency operates across Canada, with other offices in Vancouver, Calgary, Edmonton, Toronto and Montreal. And, unlike our U.S. market, the Canadian market is not suffering the same degree of softness and uncertainty in pricing which drives our domestic competition. We believe that our new Canadian team will make important contributions to the Company. Our expanded North American agency network of 56 offices took its next step in the maturing process in 1995, with the beginning of our regionalization of operations. Creation of regional operating units to coordinate the efforts of several local offices in a geographic area will further improve cost control. Support to agencies from corporate resources and other agency offices in the network also will now be more rapid and efficient. Regional management of a sizeable mass of coordinated and complementary resources - from offices within the region, from corporate and from other regions - will enable each office to address a broader spectrum of client needs and respond more quickly and expertly than each could do on a stand-alone basis. REGIONS FORMALIZED IN '95 Five U.S. regions were formalized in the latter months of 1995. The acquired Canadian agency offices currently form a sixth region, with its six locations operating virtually coast to coast north of the border. The five U.S. regions are: Mid-Atlantic, stretching from New Jersey south through Virginia and across Pennsylvania; Georgia/Alabama; Florida; Texas and California. Several HRH offices remain unaligned within a region. Some will likely become part of a regional unit as this year proceeds. Measured by its revenues at year-end 1995, the Mid-Atlantic region is larger than the Company was when it became a public company. All of the current regions have good markets and strong positions, but the nature of the business and insurance placement opportunities can be quite different from one region to another. For this reason, and because the insurance carriers themselves operate differently depending on exposure characteristics in different parts of the country, HRH regional management will have flexibility in the types of business they pursue with their offices. Each region is expected to achieve steady growth and increasing profitability from current and new classes of service offered through its local offices during the remaining years of this decade. HRH network operations management at both the regional and local office levels now have an added value available as the result of the creation in 1995 of a new corporate-based Resource Group. Working hand in hand with agencies, the Resource Group is focused on leveraging current services offered through local offices by opening markets to HRH offices across the entire network. In addition, this group will develop new services that will provide additional revenue sources to help fuel internal growth in the years ahead. The Resource Group already is working with HRH producers in several U.S. regions and has national service programs, including a coordinated flood insurance program, employment practices protection and a new program for bicycle dealers which grew out of a product originating in a single office. Experience in the early months of support to offices from the Resource Group shows clear evidence of enhanced revenue from the coordinated support and development effort. There was a senior management change late in 1995, when Timothy J. Korman, who has been with the Company and its predecessor since 1978, was named executive vice president and chief financial officer of Hilb, Rogal and Hamilton Company. Tim continues in his role as Company treasurer. He was vice president and treasurer from our formative stages in 1982 through 1989, when he was named a senior vice president of the Company. In addition to his financial role, Tim also directs Company automation programs. Increased activity in acquisitions strengthened and broadened the business base for several of our locations already well positioned in growth markets. Two acquired agencies were merged into our northern California operations. In the Texas region, agency operations in Houston and Amarillo were enlarged through acquisitions and their own internal growth. Additional capability and business accrued to the growing Baltimore agency from two acquisitions at mid-year. Acquired agencies were merged into HRH offices also in Denver, Virginia Beach, Phoenix, Tampa and Birmingham. Since January 1 of this year, we have merged agency acquisitions into our offices in Birmingham, New Haven and Pittsburgh. ACQUISITIONS PICK UP THEIR PACE These merged agencies, plus the entry into Canada form another solid year in our ongoing merger and acquisition program. Over the years, the Company has integrated with a high rate of success 147 acquisitions or mergers in its steady, orderly growth from a newborn in 1982 to a prominent position today as the 10th largest agency network in North America and 15th in size in our business worldwide. We are now embarked on the next stage in the evolution of our Company. Today, the drive to progressively improve the efficiency, response time and performance of our operational structure through more sophisticated methods and regional management direction shares the strategic platform with our tradition of merger and acquisition initiatives. Company management, a careful balance of experience, practical vision and energy, expects to continue moving HRH up in our industry in size, accomplishment and value. The goal is realistic, cycles or no cycles...consistent improvements in operating performance year-after-year, top line and bottom line through the latter 1990s and into the next century. We have been referred to within our industry as the consolidator in our business, the unique organization capable of drawing together separate agency strengths and business into a system that serves clients well and brings significant opportunities to carriers of a size and type that they find appealing. This role of the consolidator is essential during this soft industry period especially, and it is one we are increasingly well-suited to fill. We are making careful, measured responses to what is happening within our industry as our insurance carriers undergo significant change and as our client organizations seek better ways to manage and reduce their risk. The evolving HRH agency servicing system is tailored to fit our clients today, and is developing new solutions to meet growing client requirements to assure the fit in future years. IMPROVING CLIENT SERVICES Regionalization will aid in managing the dynamic process of delivering services, transporting more and more proven products and services quickly across our network to clients. Our Resource Group is an ally in developing a wider range of services, and new services, to help clients do more than simply transfer risk - services that improve loss control and claims administration. Over the first half of the 1990s, the Company solidified its reputation for its expertise in consolidating top caliber agencies into a national insurance agency system. In the remaining years of this decade, the Company expects to be as highly regarded for its operational excellence and expanding service programs. We expect to be among the top performing insurance agency systems. We will do it as we have done in the past, with care, steered by practical vision and sound management. Hilb, Rogal and Hamilton Company is taking measured steps as we pursue the goal of being a great company. This means having great expectations and making them come to pass through orderly gains in a disciplined organization with the tools to succeed. With your continued support we made significant progress in 1995 and expect more of the same this year and in years to come. /s/Robert H. Hilb Robert H. Hilb Chairman and Chief Executive Officer /s/Andrew L. Rogal Andrew L. Rogal President and Chief Operating Officer (Page 7 of the annual report is a pictorial reflection of the regions of the Company, including the Golden Gate Bridge (California region), cowboys roping a horse (Texas region), the Lincoln Memorial (Midatlantic region), a arial view of Miami Beach (Florida region), magnolia blossoms (Georgia/Alabama region) and Niagara Falls (Canadian region). CONSOLIDATED BALANCE SHEET HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES December 31 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents, including $10,104,000 and $9,594,000, respectively, of restricted funds $ 17,020,706 $ 12,615,132 Investments 11,154,673 23,131,550 Receivables: Premiums, less allowance for doubtful accounts of $1,772,000 and $2,348,000, respectively 41,707,706 39,261,731 Other 4,794,396 6,635,856 ------------ ------------ 46,502,102 45,897,587 Prepaid expenses and other current assets 3,937,964 3,262,743 ------------ ------------ TOTAL CURRENT ASSETS 78,615,445 84,907,012 INVESTMENTS 4,300,000 9,470,000 PROPERTY AND EQUIPMENT, NET 13,700,260 12,426,949 INTANGIBLE ASSETS Expiration rights 68,345,441 57,742,996 Goodwill 24,432,875 16,480,408 Noncompetition agreements 9,888,798 9,603,414 ------------ ------------- 102,667,114 83,826,818 Less accumulated amortization 41,812,787 35,097,409 ------------ ------------ 60,854,327 48,729,409 OTHER ASSETS 5,778,932 3,361,425 ------------ ------------ $163,248,964 $158,894,795 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Premiums payable to insurance companies $ 69,481,803 $ 65,361,846 Accounts payable and accrued expenses 8,040,022 8,438,709 Premium deposits and credits due customers 8,062,626 8,847,097 Current portion of long-term debt 1,755,238 4,499,378 ------------ ------------ TOTAL CURRENT LIABILITIES 87,339,689 87,147,030 LONG-TERM DEBT 11,749,848 3,173,405 OTHER LONG-TERM LIABILITIES 7,513,537 2,144,204 SHAREHOLDERS' EQUITY Common Stock, no par value; authorized 50,000,000 shares; outstanding 13,706,764 and 14,679,464 shares, respectively 29,903,900 43,426,295 Retained earnings 26,741,990 23,003,861 ------------ ------------ 56,645,890 66,430,156 ------------ ------------ $163,248,964 $158,894,795 ============ ============ See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED INCOME HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31 1995 1994 1993 Revenues Commissions and fees $141,555,188 $132,914,113 $137,662,048 Investment income 2,077,462 1,899,803 1,558,982 Other 4,514,388 5,995,698 2,435,150 ------------ ------------ ------------ 148,147,038 140,809,614 141,656,180 Operating expenses Compensation and employee benefits 82,760,664 78,310,999 82,469,714 Other operating expenses 38,264,085 35,975,715 37,773,552 Amortization of intangibles 6,965,947 6,436,119 6,581,550 Interest expense 559,654 812,216 1,270,268 Pooling-of-interests expense - 487,986 503,207 ------------ ------------ ------------ 128,550,350 122,023,035 128,598,291 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 19,596,688 18,786,579 13,057,889 Income Taxes 7,767,778 7,394,296 4,764,496 ------------ ------------ ------------ NET INCOME $ 11,828,910 $ 11,392,283 $ 8,293,393 ============ ============ ============ NET INCOME PER COMMON SHARE $0.82 $0.77 $0.57 ===== ===== ===== Weighted Average Number of Shares of Common Stock Outstanding 14,470,407 14,778,304 14,456,055 ========== ========== ==========
See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Unearned Common Retained Compensation Stock Earnings ESOP Balance at January 1, 1993 $22,358,063 $16,876,641 $(1,082,700) Issuance of 1,642,494 shares of Common Stock................................. 24,006,654 Purchase of 61,300 shares of Common Stock................................. (822,266) Payment of dividends ($.45 per share)... (6,310,225) Repayment of notes receivable on stock purchases of a pooled entity, secured by underlying Common Stock............ 69,322 Transactions related to pooled companies (234,953) (79,636) Net income.............................. 8,293,393 Repayment of liability by ESOP.......... 1,082,700 ----------- ----------- ---------- Balance at December 31, 1993 45,376,820 18,780,173 - Issuance of 15,450 shares of Common Stock................................. 169,050 Purchase of 172,360 shares of Common Stock................................. (2,076,406) Payment of dividends ($.50 per share)... (7,224,935) Transactions related to pooled companies (43,169) 56,340 Net income.............................. 11,392,283 ----------- ----------- ----------- Balance at December 31, 1994 43,426,295 23,003,861 - Issuance of 318,326 shares of Common Stock................................. 3,817,746 Purchase of 1,336,820 shares of Common Stock................................. (17,389,044) Payment of dividends ($.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 $ - =========== =========== ===========
See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED CASH FLOWS HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31 1995 1994 1993 OPERATING ACTIVITIES Net income $ 11,828,910 $ 11,392,283 $ 8,293,393 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,790,772 2,849,831 3,107,872 Amortization of intangible assets 6,965,947 6,436,119 6,581,550 Provision for losses on receivables 1,500,231 1,238,500 1,335,085 Provision for deferred income taxes 44,119 (148,756) (505,731) Gain on sale of assets (3,337,219) (5,047,488) (1,768,901) ------------ ------------ ------------ 19,792,760 16,720,489 17,043,268 Changes in operating assets and liabilities net of effects from insurance agency acquisitions and dispositions: Decrease in accounts receivable 513,907 976,828 2,103,592 (Increase) decrease in prepaid expenses (768,431) 546,613 326,951 Decrease in premiums payable to insurance companies (1,156,960) (506,723) (6,930,184) Increase (decrease) in premium deposits and credits due customers (784,471) 743,579 (2,082,030) Increase (decrease) in accounts payable and accrued expenses (1,639,586) 551,458 (83,615) Other operating activities 230,569 624,242 559,323 ------------ ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 16,187,788 19,656,486 10,937,305 INVESTING ACTIVITIES Purchase of held-to-maturity investments (7,399,402) (25,488,282) (39,093,059) Proceeds from maturities of held-to-maturity investments 24,546,279 21,238,187 24,315,989 Purchase of property and equipment (4,007,468) (2,179,808) (3,093,744) Purchase of insurance agencies, net of cash acquired (6,540,948) (9,740,808) (5,396,028) Proceeds from sale of assets 3,515,102 7,943,937 1,173,036 Other investing activities 216,173 114,153 749,118 ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 10,329,736 (8,112,621) (21,344,688) FINANCING ACTIVITIES Proceeds from long-term debt 32,522,950 16,000,000 4,279,024 Principal payments on long-term debt (29,194,326) (20,205,709) (12,840,356) Proceeds from issuance of Common Stock 7,650 19,050 22,391,654 Repurchase of Common Stock (17,389,044) (1,950,661) (822,266) Dividends (8,209,877) (7,224,935) (6,310,225) Other financing activities 150,697 13,171 (255,267) ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,111,950) (13,349,084) 6,442,564 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,405,574 (1,805,219) (3,964,819) Cash and cash equivalents at beginning of year 12,615,132 14,420,351 18,385,170 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,020,706 $ 12,615,132 $ 14,420,351 ============ ============ ============
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES 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 and override commissions are recorded as earned. These policies are in accordance with predominant industry practice. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. The carrying amounts reported on the balance sheet approximate the fair values. Investments: In May 1993, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. The adoption of this statement did not have a material impact on the Company's financial position or results of operations. 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 15 years for expiration rights, 15 to 40 years for the excess of cost over the fair value of net assets acquired and the terms of the related contracts for noncompetition agreements, generally 3 to 20 years. In March 1995, the FASB issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. Adoption of this statement is not expected to have a material impact on the Company's financial position or results of operations. Income Taxes: The Company (except for pooled entities prior to acquisition and 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 Common Share: Net income per Common Share is based on the weighted average number of shares of Common Stock outstanding during each year. 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:
Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value Held-to-Maturity Investments December 31, 1995 Obligations of U.S. government agencies $ 107,000 $ 1,000 $ 108,000 Obligations of states and political subdivisions 10,570,000 97,000 $2,000 10,665,000 Certificates of deposit 864,000 864,000 ----------- -------- ------ ----------- $11,541,000 $ 98,000 $2,000 $11,637,000 =========== ======== ====== =========== Available-for-Sale Investments December 31, 1995 Obligations of states and political subdivisions $ 3,914,000 $ - $ - $ 3,914,000 =========== ======== ====== =========== Held-to-Maturity Investments December 31, 1994 Obligations of U.S. government agencies $ 500,000 $ 41,000 $ 459,000 Obligations of states and political subdivisions 31,149,000 $187,000 218,000 31,118,000 Certificates of deposit 953,000 953,000 ----------- -------- -------- ----------- $32,602,000 $187,000 $259,000 $32,530,000 =========== ======== ======== ===========
During December 1995, the Company reclassified certain investments aggregating $3,914,000 from held-to-maturity to available-for-sale, pursuant to the FASB's one time "holiday" allowing such reclassification without calling into question the Company's intent to hold other debt securities to maturity in the future. The amortized cost and fair value of held-to-maturity and available- for-sale investments at December 31, 1995, by contractual maturity, are shown below. 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 $ 7,241,000 $ 7,263,000 Due after one year through five years 2,950,000 2,981,000 Due after five years through ten years 1,350,000 1,393,000 ----------- ----------- $11,541,000 $11,637,000 =========== =========== Available-for-Sale Investments Due in one year $ 3,914,000 $ 3,914,000 =========== =========== NOTE C--PROPERTY AND EQUIPMENT Property and equipment consists of the following: 1995 1994 Furniture and equipment $24,454,000 $22,462,000 Buildings and land 7,565,000 7,421,000 Leasehold improvements 1,641,000 1,449,000 ----------- ----------- 33,660,000 31,332,000 Less accumulated depreciation and amortization 19,960,000 18,905,000 ----------- ----------- $13,700,000 $12,427,000 =========== =========== NOTE D--LONG-TERM DEBT AND OVERRIDE COMMISSION AGREEMENTS 1995 1994 Notes payable to banks, interest currently at 6.14% $ 8,500,000 Notes payable to insurance companies including interest at 10% per annum, to February 1995 $ 2,288,000 Installment notes payable incurred in acquisitions of insurance agencies, 3.6% to 12%, due in various installments, to 1999 2,637,000 2,227,000 Mortgage notes payable, currently 9.4%, due in installments, to 2000 2,180,000 2,867,000 Installment notes payable, 8% to 9.75%, due in various installments, to 1999 188,000 290,000 ----------- ----------- 13,505,000 7,672,000 Less current portion 1,755,000 4,499,000 ----------- ---------- $11,750,000 $ 3,173,000 =========== =========== Maturities of long-term debt for the four years ending after December 31, 1996 are $1,045,000 in 1997; $96,000 in 1998; $44,000 in 1999; and $ 2,065,000 in 2000. Interest paid was $733,000, $1,014,000 and $1,524,000 in 1995, 1994 and 1993, respectively. At December 31, 1995, land and buildings having a depreciated cost of $2,452,000 were pledged as collateral for the mortgage notes payable. The Company entered into a credit agreement with two banks that allows for borrowings of up to $20,000,000 under loans due through 2001, which bear interest at variable rates. At December 31, 1995, $8,500,000 was borrowed under this agreement. This credit agreement contains, among other provisions, requirements for maintaining a minimum level of shareholders' equity ($42,500,000 at December 31, 1995) and certain financial ratios. The Company had entered into Override Commission Agreements with its insurance company lenders which provided additional commission income through 1994, up to a maximum of $2,517,000 if specified levels of premiums were placed with the respective lenders or their affiliated insurance companies. Additional commission income earned under these agreements amounted to $1,225,000 in 1994 and $1,033,000 in 1993. 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 1995, 1994 and 1993 was approximately $2,075,000, $2,812,000 and $2,208,000, respectively. Effective December 16, 1994, the Company adopted the 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: 1995 1994 Actuarial present value of: Vested benefits $(2,054,000) $(1,527,000) Nonvested benefits (210,000) (192,000) ----------- ----------- Accumulated benefit obligation (2,264,000) (1,719,000) Effect of anticipated future compensation levels (710,000) (470,000) ----------- ----------- Projected benefit obligation (2,974,000) (2,189,000) Plan assets at fair value - - ----------- ----------- Excess of projected benefit obligation over assets (2,974,000) (2,189,000) Unrecognized prior service costs 2,047,000 2,172,000 Unrecognized net loss 450,000 - ----------- ----------- Accrued SERP expense (477,000) (17,000) Adjustment to recognize minimum liability (1,786,000) (1,702,000) ----------- ----------- Pension liability recognized in consolidated balance sheet $(2,263,000) $(1,719,000) =========== =========== The expense for the SERP includes the following components: 1995 1994 Service cost $159,000 $ 6,000 Interest cost 175,000 7,000 Amortization of prior service cost 126,000 4,000 -------- ------- Net periodic postretirement benefit cost $460,000 $17,000 ======== ======= 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% at December 31, 1995 and 1994, respectively, and an assumed rate of increase in future compensation of 4% at both dates. 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: 1995 1994 Accumulated postretirement benefit obligation: Retirees $(1,419,000) $(1,391,000) Active plan participants -- -- ----------- ----------- Total (1,419,000) (1,391,000) Plan assets at fair value -- -- ----------- ----------- Accumulated postretirement benefit obligation in excess of plan assets (1,419,000) (1,391,000) Unrecognized net (gain) loss (512,000) (424,000) Unrecognized transition benefit cost 1,264,000 1,379,000 ----------- ----------- Accrued postretirement benefit liability $ (667,000) $ (436,000) =========== =========== Net periodic postretirement benefit cost includes the following components: 1995 1994 1993 Interest cost $104,000 $103,000 $125,000 Amortization of transition obligation over 14 years 115,000 115,000 115,000 Amortization of prior gains (29,000) (6,000) -------- -------- -------- Net periodic postretirement benefit cost $190,000 $212,000 $240,000 ======== ======== ======== For measurement purposes, a 9.1% and a 10.2% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1996 and 1995, 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, 1995 and 1994 by $130,000 and the net periodic postretirement benefit cost for 1995 by $10,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 8.0% at December 31, 1995 and 1994, respectively. NOTE G--INCOME TAXES The components of income taxes shown in the statement of consolidated income are as follows: 1995 1994 1993 Current Federal $6,232,000 $6,176,000 $4,348,000 State 1,268,000 1,367,000 922,000 Foreign 224,000 -- -- ---------- ---------- ---------- 7,724,000 7,543,000 5,270,000 Deferred Federal 76,000 (125,000) (428,000) State 14,000 (24,000) (78,000) Foreign (46,000) -- -- --------- ---------- ---------- 44,000 (149,000) (506,000) --------- ---------- ---------- $7,768,000 $7,394,000 $4,764,000 ========== ========== ========== Included in prepaid expenses and other current assets and other long-term liabilities on the consolidated balance sheet are deferred income taxes of $1,180,000 and $3,535,000, respectively, at December 31, 1995 and $1,529,000 and $623,000, respectively, at December 31, 1994. The effective income tax rate varied from the statutory federal income tax rate as follows: 1995 1994 1993 Statutory federal income tax rate 35.0% 35.0% 35.0% Tax exempt investment income (2.1) (2.4) (2.2) State income taxes, net of federal tax benefit 4.2 4.8 4.4 Other 2.5 2.0 (0.7) ----- ----- ----- Effective income tax rate 39.6% 39.4% 36.5% ===== ===== ===== Income taxes paid were $8,428,000, $7,074,000 and $5,478,000 in 1995, 1994 and 1993, respectively. The Internal Revenue Service has examined the Company's federal income tax return for the years ended December 31, 1988 through 1992, and adjustments are being contested. In the opinion of management, the outcome of such action is not expected to materially affect the financial position or results of operations of the Company. 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 2002 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: 1996 $ 5,663,000 1997 5,126,000 1998 3,740,000 1999 2,381,000 2000 1,642,000 Thereafter 1,190,000 ----------- $19,742,000 =========== Rental expense for all operating leases amounted to $6,712,000 in 1995, $6,549,000 in 1994 and $7,270,000 in 1993. Included in rental expense for 1995, 1994 and 1993 is approximately $435,000, $798,000 and $1,351,000, 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 1,895,000 and 2,026,000 shares of Common Stock as of December 31, 1995 and 1994, 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 option activity under the plans was as follows: Shares Option Price Outstanding at January 1,1993 339,875 $ 6.00 - $18.20 Granted 593,000 12.13 - 15.75 Exercised 14,875 6.00 - 12.75 Expired 31,600 10.73 - 14.75 ------- Outstanding at December 31, 1993 886,400 6.00 - 18.20 Granted 38,000 11.88 - 12.13 Exercised 2,950 6.00 - 12.75 Expired 51,875 10.73 - 18.20 ------- Outstanding at December 31, 1994 869,575 6.00 - 18.20 Granted 25,000 11.75 - 12.50 Exercised 600 12.75 Expired 87,250 10.00 - 14.00 ------- Outstanding at December 31, 1995 806,725 $ 6.00 - $18.20 ======= These options expire at various dates through August 2005 (411,875 shares exercisable at December 31, 1995). NOTE J--ACQUISITIONS During 1995, the Company acquired certain assets and liabilities of 14 insurance agencies for $13,097,000 ($7,303,000 in cash, $1,974,000 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 $385,000 and goodwill of $7,278,000. The combined purchase price may be increased by approximately $2,354,000 in 1996, $2,354,000 in 1997, $690,000 in 1998 and $358,000 in 1999 based upon commissions or net profits realized. During 1994, the Company acquired all of the outstanding shares of three insurance agencies in exchange for 543,930 shares of Common Stock of the Company. The transactions were accounted for as pooling-of- interests mergers. During 1994, the Company acquired certain assets and liabilities of four insurance agencies for $8,766,000 ($8,340,000 in cash, $276,000 in guaranteed future payments and 12,500 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,350,000 and noncompetition agreements of $966,000. The combined purchase price was increased by approximately $1,203,000 in 1995 and may be increased by approximately $1,289,000 in 1996 and $75,000 in 1997 based upon commissions or net profits realized. During 1993, the Company acquired all of the outstanding shares of two insurance agencies in exchange for 784,000 shares of Common Stock of the Company. The transactions were accounted for as pooling-of-interests mergers. During 1993, the Company acquired certain assets and liabilities of six insurance agencies for $6,407,000 ($3,568,000 in cash, $1,224,000 in guaranteed future payments and 120,793 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $4,773,000 and noncompetition agreements of $1,210,000. The combined purchase price was increased by approximately $665,000 in 1995 and $1,008,000 in 1994 and may be increased by $1,185,000 in 1996 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, 1995 and 1994, assuming the above 1995 and 1994 purchase acquisitions had occurred as of January 1, 1994, are as follows: 1995 1994 Revenues $155,376,000 $163,322,000 Net Income 11,612,000 11,114,000 Net Income Per Common Share $0.80 $0.74 NOTE K--SALE OF ASSETS During 1995, 1994 and 1993, the Company sold certain insurance accounts and other assets resulting in gains of approximately $3,337,000, $5,044,000 and $1,735,000, respectively. These amounts are included in other revenues in the statement of consolidated income. Revenues, expenses and assets of these operations were not material to the consolidated financial statements. NOTE L--COMMITMENTS AND CONTINGENCIES Included in cash and cash equivalents and premium deposits and credits due customers are approximately $1,396,000 and $927,000 of funds held in escrow at December 31, 1995 and 1994, 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 $8,708,000 and $8,667,000 at December 31, 1995 and 1994, respectively. There are in the normal course of business various outstanding commitments and contingent liabilities. Management does not anticipate material losses as a result of such matters. The Company is generally involved in routine insurance policy related litigation. Several suits have been brought against the Company involving settlement of various insurance matters where customers are seeking both punitive and compensatory damages. Management, upon the advice of counsel, is of the opinion that such suits are substantially without merit, that valid defenses exist, and that such litigation will not have a material effect on the consolidated financial statements. NOTE M--SUBSEQUENT EVENTS Subsequent to December 31, 1995, the Company acquired certain assets and liabilities of three insurance agencies in exchange for $1,811,000 ($1,276,000 in cash and 40,000 shares of Common Stock). The transactions, which are not material to the consolidated financial statements, will be accounted for as purchase transactions. NOTE N--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1995 and 1994: Three Months Ended(1) March 31 June 30 Sept. 30 Dec. 31 (in thousands, except per share amounts) 1995 Total Revenues $39,455 $36,573 $36,395 $35,724 Net Income 4,928 3,310(2) 2389 1,202 Net Income Per Common Share(3) 0.33 0.23 0.17 0.09 1994 Total Revenues $39,332 $35,186 $34,130 $32,162 Net Income 4,731(2) 2,918(2) 2,474(2) 1,269(4) Net Income Per Common Share(3) 0.32 0.20 0.17 0.09 (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) Second quarter 1995 and first, second and third quarter 1994 net income increased approximately $1,477,000, $677,000, $892,000 and $1,343,000, respectively, from the sale of certain insurance accounts and other assets. (3) Income per share calculations for each of the quarters is based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year net income per share amount. (4) Fourth quarter 1994 net income increased approximately $550,000 due to reductions made to amounts expensed during the first nine months of the year under the discretionary compensation programs. 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, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Richmond, Virginia February 14, 1996 Selected Financial Data HILB, ROGAL AND HAMILTON COMPANY & SUBSIDIARIES
Year Ended December 31 1995 1994 1993 1992 1991 (in thousands, except per share amounts) (Unaudited) Statement of Consolidated Income Data:(1) Commissions and fees $141,555 $132,914 $137,662 $137,296 $136,927 Investment income and other(2) 6,592 7,895 3,994 3,165 5,343 -------- -------- -------- -------- -------- Total revenues 148,147 140,809 141,656 140,461 142,270 Compensation and employee benefits 82,761 78,311 82,470 81,940 86,510 Other operating expenses 38,264 35,976 37,774 36,209 37,453 Amortization of intangibles 6,966 6,436 6,581 6,558 6,573 Interest expense 559 812 1,270 1,821 2,576 Pooling-of-interests expense - 488 503 533 1,082 -------- -------- -------- -------- -------- Total expenses 128,550 122,023 128,598 127,061 134,194 -------- -------- -------- -------- -------- Income before income taxes 19,597 18,786 13,058 13,400 8,076 Income taxes 7,768 7,394 4,765 4,809 3,340 -------- -------- -------- -------- -------- Net Income $ 11,829 $ 11,392 $ 8,293 $ 8,591 $ 4,736 ======== ======== ======== ======== ======== Net income per Common Share $ .82 $ .77 $ .57 $ .65 $ .36 ======== ======== ======== ======== ======== Weighted average number of shares outstanding 14,470 14,778 14,456 13,241 13,313 Dividends paid per Common Share $ .57 $ .50 $ .45 $ .41 $ .37 Consolidated Balance Sheet Data: Intangible assets, net $ 60,854 $ 48,729 $ 49,454 $ 47,682 $ 46,196 Total assets 163,249 158,895 160,922 151,992 153,566 Long-term debt, less current portion 11,750 3,173 7,249 15,110 19,218 Other long-term liabilities 7,514 2,144 2,889 3,120 2,796 Total shareholders' equity 56,646 66,430 64,157 38,152 34,163
(1) See Note J of Notes to Consolidated Financial Statements for information regarding business purchase transactions which impact the comparability of this information. In addition, during the years ended December 31, 1992 and 1991, the Company consummated 9 and 16 purchase acquisitions, respectively. (2) During 1995, 1994, 1993, 1992 and 1991, the Company sold certain insurance accounts and other assets resulting in gains of approximately $3,337,000, $5,044,000, $1,735,000, $1,138,000 and $1,759,000, respectively. 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 somewhat 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 1996. RESULTS OF OPERATIONS Total revenues for 1995 were $148.1 million, an increase of $7.3 million or 5.2% over 1994. For 1994, total revenues were $140.8 million, a decrease of $0.8 million or 0.6% from 1993. Commissions and fees for 1995 were $141.6 million, or 6.5% higher than 1994. Approximately $14.9 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $6.4 million from the sale of certain offices and accounts in 1995 and 1994 and reductions in override commissions of $1.2 million. Commissions and fees for 1994 were $132.9 million, or 3.4% lower than 1993. Approximately $6.3 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $8.4 million from the sale of certain offices and insurance accounts in 1994 and 1993 and the impact of the soft market conditions, which have resulted in decreasing premium rates and increased competition. Investment income increased by $0.2 million in 1995 and $0.3 million in 1994 due to increases in interest rates, offset in 1995 by a decrease in average invested assets due primarily to the use of available funds for the Company's acquisition program and repurchase of shares of Common Stock of the Company. Other revenues decreased by $1.5 million in 1995 and increased by $3.6 million in 1994. These amounts include gains of $3.3 million, $5.0 million and $1.7 million in 1995, 1994 and 1993, respectively, from the sale of certain offices, insurance accounts and other assets. Total operating expenses for 1995 were $128.6 million, an increase of $6.5 million or 5.3% from 1994. For 1994, total operating expenses were $122.0 million, a decrease of $6.6 million or 5.1% from 1993. Compensation and employee benefits costs for 1995 were $82.8 million, an increase of $4.4 million or 5.7% over 1994. Increases include approximately $8.4 million related to purchase acquisitions offset by decreases of $3.9 million related to offices sold in 1995 and 1994. Compensation and employee benefits costs for 1994 were $78.3 million, a decrease of $4.2 million or 5.0% from 1993. Decreases include approximately $5.4 million related to offices sold in 1994 and 1993 offset by the impact of purchase acquisitions. Other operating expenses for 1995 were $38.3 million, or 6.4% higher than 1994. Increases relate primarily to purchase acquisitions offset in part by the sales of certain offices in 1995 and 1994. Other operating expenses for 1994 were $36.0 million, or 4.8% less than 1993. Decreases include approximately $2.4 million related to offices sold in 1994 and 1993 offset by the impact of purchase acquisitions. Amortization expense primarily reflects the amortization of expiration rights, an intangible asset acquired in the purchase of insurance agencies. Amortization expense increased by $530,000 or 8.2% in 1995 and decreased by $145,000 or 2.2% in 1994 which is attributable to purchase acquisitions consummated during 1995, 1994 and 1993 offset by decreases from amounts which became fully amortized or were sold in those years. The Company consummated three business combinations during 1994 and two during 1993, which were accounted for under the pooling-of-interests method of accounting. One-time costs incurred with each transaction, principally legal, accounting and consulting fees, along with insurance for errors and omissions coverage, are expensed when incurred. These costs approximated $0.5 million in each of 1994 and 1993. The effective tax rates for the Company were 39.6% in 1995, 39.4% in 1994 and 36.5% in 1993. 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 totalled $16.2 million, $19.7 million and $10.9 million for the years ended December 31, 1995, 1994 and 1993, 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. Real properties acquired for offices of the Company are generally financed by long-term mortgages. Cash expenditures for the acquisition of property and equipment were $4.0 million, $2.2 million and $3.1 million in the years ended December 31, 1995, 1994 and 1993, 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 1995, total investments decreased by $17.1 million as the Company utilized these funds for the repurchase of Common Stock of the Company. Cash expenditures for the purchase of insurance agencies accounted for under the purchase method of accounting amounted to $6.5 million, $9.7 million and $5.4 million in the years ended December 31, 1995, 1994 and 1993, respectively. Cash expenditures for such insurance agency acquisitions have been funded primarily through operations and from the proceeds of the sale of 1,504,000 shares of Common Stock offered through a Form S-3 Registration Statement effective in March 1993. 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 totalled $3.5 million, $7.9 million and $1.2 million in the years ended December 31, 1995, 1994 and 1993, respectively. The Company did not have any material capital expenditure commitments as of December 31, 1995. Financing activities utilized cash of $22.1 million and $13.3 million for the years ended December 31, 1995 and 1994, respectively, and provided cash of $6.4 million for the year ended December 31, 1993 as the Company generated $22.2 million from the aforementioned stock offering in 1993, repaid its debt, including debt of pooled entities and annually increased its dividend rate. In addition, during 1995, 1994 and 1993, the Company repurchased 1,336,820, 172,360 and 61,300, respectively, shares of its Common Stock under a stock repurchase program. The Company is currently authorized to purchase an additional 1,225,000 shares and anticipates that it will continue to repurchase shares in 1996. The Company anticipates the continuance of its dividend policy. The Company has a bank credit agreement for borrowings of up to $20.0 million under loans due through 2001. At December 31, 1995, there were loans of $8.5 million outstanding under the agreement. The Company had a current ratio (current assets to current liabilities) of 0.90 to 1.00 as of December 31, 1995. Shareholders' equity of $56.6 million at December 31, 1995 is decreased from $66.4 million at December 31, 1994 and the debt to equity ratio of 0.21 to 1.00 at December 31, 1995, is increased from the last year-end ratio of 0.05 to 1.00 due to the aforementioned purchase of Common Stock of the Company and borrowings of $8.5 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 the proceeds from borrowings, will provide sufficient funds to meet the Company's short and long-term funding needs. Market Price of Common Stock The Company's Common Stock has been publicly traded since July 15, 1987. Prior to June 19, 1992, the Common Stock was traded on the NASDAQ National Market System under the symbol "HRHC." Since that date, it has been traded on the New York Stock Exchange under the symbol "HRH." As of December 31, 1995, there were 763 holders of record of the Company's Common Stock. The transfer agent and registrar for the Common Stock is Chemical Mellon Shareholder Services, L.L.C., Ridgefield Park, New Jersey. High and low stock prices and dividends per share for the indicated quarters were: Cash Sales Price Dividends Quarter Ended High Low Declared March 31, 1994 $12.88 $11.13 $.12 June 30, 1994 13.38 11.25 .12 September 30, 1994 12.63 11.50 .12 December 31, 1994 12.63 11.00 .14 March 31, 1995 12.13 10.75 .14 June 30, 1995 13.13 10.50 .14 September 30, 1995 13.50 12.00 .14 December 31, 1995 14.38 13.25 .15 Board of Directors Robert H. Hilb (1) (4) Chairman and Chief Executive Officer Hilb, Rogal and Hamilton Company Glen Allen, Virginia Andrew L. Rogal (1) President and Chief Operating 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 Blue Cross Blue Shield Richmond, Virginia (1) Executive Committee Member (2) Compensation Committee Member (3) Audit Committee Member (4) Nominating Committee Member Officers Robert H. Hilb Chairman and Chief Executive Officer Andrew L. Rogal President and Chief Operating Officer Timothy J. Korman Executive Vice President, Chief Financial Officer and Treasurer John C. Adams, Jr. Executive Vice President Dianne F. Fox Senior Vice President - Administration and Secretary Ronald J. Schexnaydre Senior Vice President Carolyn Jones Vice President and Controller Walter L. Smith Vice President, General Counsel and Assistant Secretary Vincent P. Howley Vice President - Audit Ann B. Davis Vice President - Human Resources Janice G. Pouzar Assistant Vice President - Retirement Plans Robert W. Blanton, Jr. Assistant Vice President Valerie C. Elwood Assistant Vice President Agency Locations UNITED STATES - ----------------------------------------------------------------------------- Alabama - ------- Birmingham Mobile Arizona - ------- Flagstaff Mesa Phoenix Tucson California - ---------- Bakersfield Dinuba Fresno Orange County Palm Desert Sacramento San Rafael Santa Rosa Truckee Vallejo Colorado - -------- Denver Connecticut - ----------- New Haven Florida - ------- Daytona Beach Fort Lauderdale Fort Myers Gainesville Orlando Tampa Georgia - ------- Atlanta Gainesville St. Simons Island Savannah Louisiana - --------- New Orleans Maryland - -------- Baltimore Rockville Michigan - -------- Grand Rapids Port Huron New Jersey - ---------- Voorhees Nevada - ------ Incline Village Oklahoma - -------- Oklahoma City Pennsylvania - ------------ Pittsburgh Texas - ----- Abilene Amarillo Corpus Christi Dallas (2 locations) Houston McAllen Victoria (2 locations) Virginia - -------- Charlottesville Fredericksburg Richmond Virginia Beach Canada - ----------------------------------------------------------------------------- Alberta - ------- Calgary Edmonton British Columbia - ---------------- Vancouver Manitoba - -------- Winnipeg Quebec - ------ Montreal Ontario - ------- Toronto 10-K Available Shareholders are entitled to receive, without charge and upon written request, a copy of the Company's Form 10-K Annual Report for the year ended December 31, 1995, which has been filed with the Securities and Exchange Commission. Address requests to Dianne F. Fox, Senior Vice President and Secretary, Corporate Headquarters. Annual Meeting The Company's Annual Meeting of Shareholders will be held on May 7, 1996 at 10 A.M. at Crestar Bank, 919 East Main Street, Richmond, Virginia. Transfer Agent and Registrar Chemical Mellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 Corporate Headquarters 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 Tel: (804) 747-6500 Fax: (804) 747-6046 EX-22 11 EXHIBIT 22 Exhibit 22 Subsidiaries of Hilb, Rogal and Hamilton Company Name of Subsidiary State/Province of Incorporation ------------------ ------------------------------- The Burton Company Connecticut Hilb, Rogal and Hamilton Company of Canada, Ltd. Manitoba, Canada (six locations) Hilb, Rogal and Hamilton Company of Alabama, Inc. (two locations) Alabama Hilb, Rogal and Hamilton Company of Arizona (four locations) Arizona 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 Hilb, Rogal and Hamilton International, LTD. Virginia Hilb, Rogal and Hamilton Company of Louisiana Louisiana Hilb, Rogal and Hamilton Company of New Jersey New Jersey HRH of Northern California Insurance Services, Inc. (six locations) California Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma Hilb, Rogal and Hamilton Insurance Services of Orange County, Inc. California Hilb, Rogal and Hamilton Company of Orlando Florida Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. Pennsylvania Hilb, Rogal and Hamilton Company of Port Huron Michigan 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 (nine locations) Texas Hilb, Rogal and Hamilton Company of Virginia (four locations) Virginia Each of the above subsidiaries is 100% owned by the registrant. EX-23 12 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 and Form S-8 No. 33-59866) of Hilb, Rogal and Hamilton Company and in the related prospectuses of our report dated February 14, 1996, 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, 1995. Ernst & Young LLP Richmond, Virginia March 21, 1996 EX-27 13 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, 1995, INCORPORATED BY REFERENCE INTO THE 1995 FORM 10K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 DEC-31-1995 17,020,706 11,154,673 48,274,102 1,772,000 0 78,615,445 33,660,106 19,959,846 163,248,964 87,339,689 11,749,848 29,903,900 0 0 26,741,990 163,248,964 0 148,147,038 0 0 127,990,696 0 559,654 19,596,688 7,767,778 11,828,910 0 0 0 11,828,910 .82 .82
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