-----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, DCdFO6qIPzRuXciJAPK6vgXT34LCMVzChJ3L4iZTmarYiSqX9TANacpq9Dbwa/rj 71HMpaCJIyFLomydNPoB+A== 0001002105-00-000021.txt : 20000411 0001002105-00-000021.hdr.sgml : 20000411 ACCESSION NUMBER: 0001002105-00-000021 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 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-K405 SEC ACT: SEC FILE NUMBER: 000-15981 FILM NUMBER: 581628 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-K405 1 10-K - HILB, ROGAL AND HAMILTON COMPANY SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended December 31, 1999 COMMISSION FILE NO. 0-15981 HILB, ROGAL AND HAMILTON COMPANY (Exact name of registrant as specified in its charter) Virginia 54-1194795 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4235 Innslake Drive 23060 Glen Allen, Virginia (Zip Code) (Address of principal executive offices) (804) 747-6500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Exchange on Which Registered -------------- ------------------------------------ Common Stock, no par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]. State the aggregate market value of the voting stock held by non-affiliates of the registrant. $354,269,029 as of March 1, 2000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 1, 2000 ----- ---------------------------- Common Stock, no par value 13,153,009 Documents Incorporated by Reference Portions of the registrant's 1999 Annual Report to Shareholders are incorporated by reference into Parts I and II of this report. Portions of the registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders are incorporated by reference into Part III hereof. PART I ITEM 1. BUSINESS The Company Hilb, Rogal and Hamilton Company (the "Company"), through its network of wholly-owned subsidiary insurance agencies (the "Agencies"), places various types of insurance, including property, casualty, marine, aviation and employee benefits, with insurance underwriters on behalf of its clients. The Agencies operate approximately 70 offices in 18 states. The Company's client base ranges from personal to large national accounts and is primarily comprised of middle-market commercial and industrial accounts. Insurance commissions accounted for approximately 89% of the Company's total revenues in 1999. The Company also advises clients on risk management and employee benefits and provides claims administration and loss control consulting services to clients, which contributed approximately 8% of revenues in 1999. The Company has historically grown principally through acquisitions of independent agencies with significant local market shares in small to medium-size metropolitan areas. Since 1984, the Company has acquired 175 independent agencies. The Company's prior growth strategy emphasized acquisitions of established independent agencies staffed by local professionals and centralization of certain administrative functions to allow agents to focus on business production. The Company believes that a key to its success has been a strong emphasis on local client service by experienced personnel with established community relationships. On May 3, 1999, the Company acquired American Phoenix Corporation, the property and casualty brokerage subsidiary of Phoenix Home Life Mutual Insurance Company, its largest acquisition to date. American Phoenix Corporation, based in Hartford, Connecticut, was the 14th largest property and casualty insurance brokerage firm in the United States. With 16 offices located primarily in the Mid-Atlantic states, New England and Florida, American Phoenix Corporation generated approximately $73 million in revenues in 1998. The Company's current acquisition program is largely focused on acquisitions which fit into the strategic and regional plans and targets entities which provide a specialty or product expertise which can be exported throughout the Company. The Agencies act as independent agents representing a large number of insurance companies, which gives the Company access to specialized products and capacity needed by its clients. Agencies and regions are staffed to handle the broad variety of insurance needs of their clients. Additionally, certain Agencies and regions have developed special expertise in areas such as aviation, construction and marine insurance services and this expertise is made available to clients throughout the regions and Company. The Company has established direct access to certain foreign insurance markets without the need to share commissions with excess and surplus lines brokers. This direct access allows the Company to enhance its revenues from insurance products written by foreign insurers and allows it to provide a broader array of insurance products to its clients. 2 While the Agencies have historically been largely decentralized with respect to client solicitation, account maintenance, underwriting decisions, selection of insurance carriers and areas of insurance specialization, the Company maintains centralized administrative functions, including cash management and investment, human resources and legal functions, through its corporate headquarters. Accounting records and systems are maintained at each Agency, but the Company requires each Agency to comply with standardized financial reporting and control requirements. Through its internal auditing department, Company personnel periodically visit each Agency and monitor compliance with internal accounting controls and procedures. In the latter part of 1995, the Company created regional operating units to coordinate the efforts of several local offices in a geographic area to focus on markets, account retention, client service and new business production. The six U.S. regions are the Mid-Atlantic (Pennsylvania, Maryland, Virginia and the District of Columbia); Northeast (Connecticut, Massachusetts, New York and New Jersey); Alabama/Georgia; Florida; Oklahoma/Texas and West (Arizona, California, Colorado, Illinois, Michigan and North Carolina). Regional management of a sizable mass of coordinated and complementary resources has enabled each Agency to address a broader spectrum of client needs and respond more quickly and expertly than each could do on a stand-alone basis. Additionally, operations were streamlined by merging multiple locations in the same city into a single profit center and converting smaller locations into sales offices of a larger profit center in the same region. The Company derives income primarily from commissions on the sale of insurance products to clients paid by the insurance underwriters with whom the Agencies place their clients' insurance. The Company acts as an agent in soliciting, negotiating and effecting contracts of insurance through insurance companies and occasionally as a broker in procuring contracts of insurance on behalf of insureds. The Company derived in excess of 92% of its commission and fee revenue in 1999 from the sale of insurance products, principally property and casualty insurance. Accordingly, no breakdown by industry segments has been made. The balance is primarily derived from service fee income related to employee benefits and third party claims administration. Within its range of services, the Company also places surplus lines coverages (coverages not available from insurance companies licensed by the states in which the risks are located) with surplus lines insurers for various specialized risks. Insurance agents' commissions are generally a percentage of the premium paid by the client. Commission rates vary substantially within the insurance industry. Commissions depend upon a number of factors, including the type of insurance, the amount of the premium, the particular insurer, the capacity in which the Company acts and the scope of the services it renders to the client. In some cases, the Company or an Agency is compensated by a fee paid directly by the client. The Company may also receive contingent commissions which are based on the profit an insurance company makes on the overall volume of business placed with it by the Company. Contingent commissions are generally received in the first quarter of each year and, accordingly, may cause first quarter revenues and earnings to vary from other quarterly results. The Company provides a variety of professional services to assist clients in analyzing risks and in determining whether protection against risks is best obtained through the purchase of insurance or through retention of all, or a portion of those risks, and the adoption of risk management policies and cost-effective loss control and prevention programs. No material part of the Company's business is dependent on a single client or on a few clients, and the Company does not depend on a single industry or type of client for a substantial amount of its 3 business. In 1999, the largest single client accounted for approximately 1.1% of the Company's total revenues. Operating History and Acquisition Program The Company was formed in 1982 to acquire and continue an existing insurance agency network. At that time, the Company undertook a program of consolidating agencies, closing or selling unprofitable locations and acquiring new agencies. From 1984 to March 1, 2000, a total of 175 agencies have been acquired. One hundred twenty-five of those agencies were acquired using the purchase method of accounting at a total purchase price of approximately $248.0 million. In a purchase acquisition, the purchase price of an agency is typically paid in cash and deferred cash payments. In some cases, a portion of the purchase price may also be paid in Common Stock and, in the case of the American Phoenix acquisition, the issuance of Convertible Subordinated Debentures. From November 1, 1988 to May 1, 1995, 50 agencies were acquired under the pooling-of-interests method of accounting in exchange for a total of approximately 8.1 million shares of Common Stock of the Company. The Company has substantial experience in acquiring insurance agencies. Each acquisition candidate is subjected to a due diligence process in which the Company evaluates the quality and reputation of the business and its management, revenues and earnings, specialized products and expertise, administrative and accounting records, growth potential and location. For candidates that pass this screening process, the Company uses a pricing method that emphasizes pro forma revenues, profits and tangible net worth. As a condition to completing an acquisition, the Company requires that the principals be subject to restrictive covenants, either in a Company prepared form or as an amendment of the existing contracts. Once the acquisition is consummated, the Company takes steps to introduce its procedures and protocols and to integrate the agency's systems and employees into the Company. Competition The Company participates in a very competitive industry. It is a leading independent insurance agency system serving a wide variety of clients through its network of wholly-owned subsidiaries which operate approximately 70 insurance agencies located in 18 states. Many of the Company's competitors are larger and have greater resources than the Company and operate on an international scale. In some of the Agencies' cities, because no major national insurance broker has established a presence, the Company competes with local agents and private, regional firms, some of who may be larger than the Company's local Agency. The Company is also in competition with certain insurance companies which write insurance directly for their customers, and the banking industry, as well as self-insurance and other employer sponsored programs. Employees As of December 31, 1999, the Company had approximately 2,100 employees. No employees are currently represented by a union. The Company believes its relations with its employees are good. 4 Regulation In every state in which the Company does business, the applicable Agency or an employee is required to be licensed or to have received regulatory approval by the state insurance department in order for the Company to conduct business. In addition to licensing requirements applicable to the Company, most jurisdictions require individuals who engage in brokerage and certain insurance service activities to be licensed personally. The Company's operations depend on the validity of and its continued good standing under the licenses and approvals pursuant to which it operates. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally such authorities are vested with general discretion as to the grant, renewal and revocation of licenses and approvals. ITEM 2. PROPERTIES Except as mentioned below, the Company leases its Agencies' offices. Information on the Company's lease commitments is incorporated herein by reference to "Note G--Leases" of the Notes to Consolidated Financial Statements in the Company's 1999 Annual Report to Shareholders. At December 31, 1999, the Company owned buildings in Oklahoma City, Oklahoma and Victoria, Texas from which the Agencies in those cities operate. In addition, the Company owned a building in Charlottesville, Virginia. ITEM 3. LEGAL PROCEEDINGS The Company and its Agencies have no material pending legal proceedings other than ordinary, routine litigation incidental to the business, to which it or a subsidiary is a party. With respect to the routine litigation, upon the advice of counsel, management believes that none of these proceedings, either individually or in the aggregate, if determined adversely to the Company, would have a material effect on the financial position or results of operations of the Company or its ability to carry on its business as currently conducted. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant are as follows: Andrew L. Rogal, 51, has been Chairman of the Company since January 2000 and Chief Executive Officer since 1997. He was President of the Company from 1995 to January 2000 and has been a director of the Company since 1989. He was Chief Operating Officer of the Company from 1995 to 1997. He was Executive Vice President of the Company from 1991 to 1995 and Senior Vice President of the Company from 1990 to 1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton 5 Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and was President of this subsidiary from 1987 to 1993. Martin L. Vaughan, III, 52, has been President since January 2000, Chief Operating Officer since May 1999 and director of the Company since June 1999. Prior thereto, he was President and Chief Operating Officer of American Phoenix Corporation form 1990 to 1999. Timothy J. Korman, 47, has been Executive Vice President, Finance and Administration since 1997 and has been a director of the Company since June 1999. He was Executive Vice President, Chief Financial Officer and Treasurer of the Company from 1995 to 1997, and was Senior Vice President and Treasurer of the Company from 1989 to 1995. He is a first cousin of Robert S. Ukrop, a director of the Company. Carolyn Jones, 44, has been Senior Vice President, Chief Financial Officer and Treasurer since 1997 and was Vice President and Controller of the Company from 1991 to 1997. Walter L. Smith, 42, has been Vice President and General Counsel of the Company since 1991 and Secretary of the Company since 1998. He was Assistant Secretary of the Company from 1989 to 1998. Vincent P. Howley, 51, has been Vice President, Agency Financial Operations since 1997. He was Vice President-Audit of the Company from 1993 to 1997, and was Assistant Vice President-Audit of the Company from 1986 to 1993. John P. McGrath, 42, has been Senior Vice President - Business and Product Development since June 1999 and was Vice President of the Company from 1998 to June 1999. He has been Vice President of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. and President of HRH Financial Institutions Group, Inc., subsidiaries of the Company since 1998. He was Director of the Mid-Atlantic region from 1995 to March 2000, President and Chief Executive Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. from 1993 to 1998, Senior Vice President and Chief Executive Officer of this subsidiary from 1991 to 1992 and Vice President of this subsidiary from 1990 to 1991. Richard E. Simmons, III, 46, has been Vice President of the Company since 1998. He has been Director of the Alabama/Georgia region since 1995 and Chairman of Hilb, Rogal and Hamilton Company of Alabama, Inc., a subsidiary of the Company, since 1999. He was Chief Executive Officer of this subsidiary from 1996 to 1999. He was President and Chief Executive Officer of this subsidiary from 1990 to 1996. William L. Chaufty, 47, has been Vice President of the Company since 1998. He has been Director of the Texas/Oklahoma region since 1997 and President of Hilb, Rogal and Hamilton Company of Oklahoma, a subsidiary of the Company, since 1989. Michael A. Janes, 40, has been Vice President of the Company since 1998. He has been Director of the West region since 1997 and Chairman of Hilb, Rogal and Hamilton Company of Arizona, a subsidiary of the Company, since June 1998. He was President of this subsidiary from 1993 to 1998. Robert B. Lockart, 49, has been Vice President of the Company since May 1999. He has been Director of the Northeast region since May 1999. He was President of American Phoenix Corporation of 6 Connecticut from 1996 to 1999. Prior thereto, he held various positions at Marsh & McLennan, Inc. from 1975 to 1996. Benjamin A. Tyler, 51, has been Vice President of the Company since May 1999. He has been Director of the Florida region since May 1999. He was President of American Phoenix Corporation of Maryland from 1997 until May 1999. From 1994 until 1997, he was Senior Vice President of Marsh & McLennan, Baltimore/Washington. Prior thereto, he was President and Senior Consultant of Inteco, Incorporated from 1981 to 1994. Steven C. Deal, 46, has been Vice President of the Company since 1998. He has been Director of the Mid-Atlantic region since March 2000, National Director of Select Commercial Operations since 1997, National Director of Personal Lines since 1998 and Chairman of Hilb, Rogal and Hamilton Company of Virginia, a subsidiary of the Company, since October 1997. He was President of this subsidiary from 1990 to 1997, Executive Vice President from 1989 to 1990 and Vice President from 1987 to 1988. Richard F. Galardini, 50, has been Vice President of the Company since 1998. He has been National Director of Employee Benefits since 1997. He was Executive Vice President and Chief Operating Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., a subsidiary of the Company, from 1996 to 1997 and was Vice President of this subsidiary from 1992 to 1996. Karl E. Manke, 53, has been Vice President of the Company since May 1999. Prior thereto, he was Vice President, Sales and Marketing for American Phoenix Corporation from 1993 to 1999. Henry C. Kramer, 55, joined the Company as Vice President, Human Resources in 1997. Prior thereto, he held various human resource positions with Alexander & Alexander, Inc. in Baltimore, Maryland from 1973 to 1997. Robert J. Hilb, 36, has been Vice President of the Company since 1997. He was President of HRH Resource Group, Ltd., a subsidiary of the Company from 1994 to 1997. Prior thereto, he held various insurance related positions within the Company. He is the son of Robert H. Hilb, a director of the Company. Robert W. Blanton, Jr., 35, has been Vice President and Controller of the Company since May 1998. He was Assistant Vice President and Controller from 1997 to 1998 and was Assistant Vice President of the Company from 1993 to 1997. He joined the Company in 1990 as Accounting Senior. Valerie C. Elwood, 38, has been Assistant Vice President of the Company since 1993. She joined the Company in 1987 and has held various positions in the accounting department. William C. Widhelm, 31, has been Assistant Vice President, Internal Audit since 1999. He joined the Company in 1994 and has held various positions in the auditing department. All officers serve at the discretion of the Board of Directors. Each holds office until the next annual election of officers by the Board of Directors, which will occur after the Annual Meeting of Shareholders, scheduled to be held on May 2, 2000, or until their successors are elected. There are no family relationships nor any arrangements or understandings between any officer and any other person pursuant to which any such officer was selected, except as noted above. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been publicly traded since July 15, 1987. It is traded on the New York Stock Exchange under the symbol "HRH." As of December 31, 1999, there were 565 holders of record of the Company's Common Stock. The following table sets forth the reported high and low sales prices per share of the Common Stock on the NYSE Composite Tape, based on published financial sources, and the dividends per share declared on Common Stock for the quarter indicated. Cash Dividends Quarter Ended Sales Price Declared - -------------------------------------------------------------------------------- High Low 1998 March 31 $19.19 $16.25 $.155 June 30 18.44 15.50 .160 September 30 19.13 16.13 .160 December 31 19.88 15.94 .160 1999 March 31 19.13 15.56 .160 June 30 22.38 17.19 .165 September 30 25.06 20.88 .165 December 31 29.13 24.25 .165 The Company's current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends to holders of Common Stock will be at the discretion of the Board of Directors and will be dependent upon the future earnings and financial condition of the Company. The Company's current credit facility with five banks limits the payment of cash dividends and other distributions on the Common Stock of the Company. The Company may not make dividend payments or other distributions exceeding $10,500,000 for years ending December 31, 1999 and 2000; $11,000,000 for the year ending December 31, 2001; and $11,500,000 for the years ending December 31, 2002 through the due date of the loan agreement (June 30, 2004.) ITEM 6. SELECTED FINANCIAL DATA Information as to selected financial data is incorporated herein by reference to the material under the heading "Selected Financial Data" in the Company's 1999 Annual Report to Shareholders. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information as to management's analysis of financial condition and results of operations is incorporated herein by reference to the materials under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1999 Annual Report to Shareholders. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that its exposure to market risk associated with transactions using derivative financial instruments is not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except as to certain information regarding executive officers included in Part I, the information as to the directors is incorporated by reference in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Information as to executive compensation is incorporated by reference to the material included on pages 11 through 14 in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information as to the directors of the registrant is incorporated herein by reference to the material under the headings "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Proxy Statement for the 2000 Annual Meeting of the Shareholders is incorporated herein by reference for the information required by this item. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2). The response to this portion of Item 14 is submitted as a separate section of this report. (3) Exhibits - Index Exhibit No. Document ----------- -------- 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, File No. 33-56488, effective March 1, 1993, hereinafter, the Form S-3) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1999, File No. 0-15981) 10.1 Credit Agreement dated as of May 3, 1999, among the registrant, as Borrower, the lenders named therein, First Union National Bank, as administrative agent, PNC Bank, as documentation agent and NationsBanc Montgomery Securities LLC, as syndication agent (incorporated by reference to Exhibit 99.1 to the Company's Form 8-K dated May 3, 1999, File No. 0-15981) 10.2 Indenture dated as of May 3, 1999 made by and among the registrant and Crestar Bank as Trustee (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q dated May 14, 1999, File No. 0-15981) 10.3 Risk Management Agreement dated as of May 3, 1999 by and between Phoenix Home Life Mutual Insurance Company and the registrant (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q dated May 14, 1999, File No. 0-15981) 10 Exhibit No. Document ----------- -------- 10.4 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 28.27 of the Form S-3) 10.5 Consulting Agreement with Robert H. Hilb (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) 10.6 First Amendment to Consulting Agreement with Robert H. Hilb* 10.7 Employment Agreement of Andrew L. Rogal (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) 10.8 Employment Agreement for Martin L. Vaughan, III (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q dated May 14, 1999, File No. 0-15981) 10.9 Hilb, Rogal and Hamilton Company 1989 Stock Plan, as amended and restated (incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1998) 10.10 Supplemental Executive Retirement Plan, as amended and restated (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 1998) 10.11 Hilb, Rogal and Hamilton Company Outside Directors Deferral Plan, as amended and restated (incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1998) 10.12 Hilb, Rogal and Hamilton Company Non-employee Directors Stock Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1998) 10.13 Hilb, Rogal and Hamilton Company Executive Voluntary Deferral Plan (incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration Statement, File No. 333-93633) 11 Exhibit No. Document ----------- -------- 10.14 Voting and Standstill Agreement dated as of May 3, 1999 made by and among the registrant, PM Holdings, Inc. and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q dated May 14, 1999, File No. 0-15981) 10.15 Registration Rights Agreement dated as of May 3, 1999 made between the registrant, PM Holdings, Inc. and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q dated May 14, 1999, File No. 0-15981) 10.16 Sale and Quitclaim Agreement between Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. and Harold J. Bigler, Chandler G. Ketchum and Richard F. Galardini (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1998, File No. 0-15981) 10.17 Form of Change of Control Employment Agreement for the following executive officers: Andrew L. Rogal, Timothy J. Korman, Martin L. Vaughan, III, Carolyn Jones, Walter L. Smith, Vincent P. Howley, Henry C. Kramer, Robert J. Hilb and Robert W. Blanton, Jr. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1998, File No. 0-15981) 10.18 Form of Change of Control Employment Agreement for the following executive officers: John P. McGrath, Richard E. Simmons, III, William C. Chaufty, Steven C. Deal, Michael A. Janes, Robert B. Lockhart, Benjamin A. Tyler, Karl E. Manke and Richard F. Galardini (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1998, File No. 0-15981) 10.19 Employment Agreement of John P. McGrath* 10.20 Employment Agreement of Richard F. Galardini (incorporated by reference to Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1998, File No. 0-15981) 12 Exhibit No. Document ----------- -------- 10.21 Employment Agreement of Michael A. Janes (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1998, File No. 0-15981) 10.22 Employment Agreement of Timothy J. Korman as amended by Amendment Number One, Amendment Number Two and Amendment Number Three, dated September 1, 1991, September 1, 1993 and January 1, 1995, respectively* 10.23 Form of Hilb, Rogal and Hamilton Employee Non-qualified Stock Option Agreement with schedule of optionees and amounts of options granted* 10.24 Form of Hilb, Rogal and Hamilton 2000 Restricted Stock Agreement with schedule of grantees and amounts of restricted stock granted* 13 1999 Annual Report to Shareholders* 21 Subsidiaries of Hilb, Rogal and Hamilton Company* 23 Consent of Ernst & Young LLP* 27 Financial Data Schedule* (electronic copy only) * Filed Herewith (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1999. (c) Exhibits The response to this portion of Item 14 as listed in Item 14(a)(3) above is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Andrew L. Rogal ---------------------------------- Andrew L. Rogal, Chairman of the Board and Chief Executive Officer Date: March 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Andrew L. Rogal Chairman of the Board and Chief March 28, 2000 - -------------------------------------------- Executive Officer and Director Andrew L. Rogal (Principal Executive Officer) /s/ Carolyn Jones Senior Vice President, Chief Financial March 28, 2000 - -------------------------------------------- Officer and Treasurer Carolyn Jones (Principal Financial Officer) /s/ Robert W. Blanton, Jr. Vice President and Controller March 28, 2000 - -------------------------------------------- (Principal Accounting Officer) Robert W. Blanton, Jr. /s/ Robert H. Hilb Chairman Emeritus and Director March 28, 2000 - -------------------------------------------- Robert H. Hilb /s/ Martin L. Vaughan, III President, Chief Operating Officer and March 28, 2000 - --------------------------------------------- Director Martin L. Vaughan, III /s/ Timothy J. Korman Executive Vice President, March 28, 2000 - --------------------------------------------- Administration and Finance Timothy J. Korman and Director /s/ Philip J. Faccenda Director March 28, 2000 - --------------------------------------------- Philip J. Faccenda 14 Signature Title Date --------- ----- ---- /s/ Robert S. Ukrop Director March 28, 2000 - --------------------------------------------- Robert S. Ukrop /s/ Thomas H. O'Brien Director March 28, 2000 - -------------------------------------------- Thomas H. O'Brien Director March , 2000 - -------------------------------------------- J.S.M. French /s/ Norwood H. Davis, Jr. Director March 28, 2000 - -------------------------------------------- Norwood H. Davis, Jr. /s/ Theodore L. Chandler, Jr. Director March 28, 2000 - -------------------------------------------- Theodore L. Chandler, Jr. /s/ Anthony F. Markel Director March 28, 2000 - -------------------------------------------- Anthony F. Markel Director March , 2000 - -------------------------------------------- Robert W. Fiondella /s/ David W. Searfoss Director March 28, 2000 - -------------------------------------------- David W. Searfoss
15 ITEM 8, ITEMS 14 (a)(1) AND (2) AND (d) INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS YEAR ENDED DECEMBER 31, 1999 HILB, ROGAL AND HAMILTON COMPANY GLEN ALLEN, VIRGINIA 16 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The report of independent auditors included on page 18 of this Form 10-K and the following consolidated financial statements of Hilb, Rogal and Hamilton Company and subsidiaries, included in the Company's 1999 Annual Report to Shareholders are incorporated by reference in Item 8 of this report: Consolidated Balance Sheets, December 31, 1999 and 1998 Statement of Consolidated Income, Years Ended December 31, 1999, 1998 and 1997 Statement of Consolidated Shareholders' Equity, Years Ended December 31, 1999, 1998 and 1997 Statement of Consolidated Cash Flows, Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements The following consolidated financial statement schedule of Hilb, Rogal and Hamilton Company and subsidiaries is included in item 14(d): Page Number Schedule II Valuation and Qualifying Accounts............... 19 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 17 Report of Ernst & Young LLP, Independent Auditors ------------------------------------------------- Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the accompanying consolidated balance sheet of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Richmond, Virginia February 9, 2000 18 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, 1999: Allowance for doubtful Accounts $1,505,000 $402,000 $377,000 $828,000 $1,456,000 Year ended December 31, 1998: Allowance for doubtful Accounts 2,299,000 560,000 44,000 1,398,000 1,505,000 Year ended December 31, 1997: Allowance for doubtful Accounts 2,445,000 384,000 66,000 596,000 2,299,000
__________________ * Recoveries ($131,000) and other adjustments ($246,000) ** Bad debts written off 19 EX-10 2 EXHIBIT 10.6 Exhibit 10.6 FIRST AMENDMENT TO CONSULTING AGREEMENT WHEREAS, Robert H. Hilb ("Consultant") entered into a Consulting Agreement (attached) with Hilb, Rogal and Hamilton Company ("Company") on June 1, 1997; WHEREAS, the Consulting Agreement provided for a three year term expiring May 31, 2000; WHEREAS, the Company and Consultant desire to extend the term of the Consulting Agreement for three (3) years and to provide for an acceleration of fees due Consultant upon a specified change in Company's management; IT IS HEREBY, AGREED: A. Section 3. Term is hereby amended by deleting May 31, 2000, and substituting therefor May 31, 2003. B. A new Section is hereby added as follows: 13. Removal of Andrew L. Rogal. If Andrew L. Rogal should cease to be CEO of Company prior to May 31, 2003, for any reason other than his death or disability or voluntary resignation, then Consultant may, within sixty (60) days of such change, elect to be paid in a lump sum all consulting fees due to be paid him through May 31, 2003, with no further obligation to perform any such consulting services. C. Except as set forth above, the Consulting Agreement remains in full force and effect. HILB, ROGAL AND HAMILTON COMPANY /s/ Robert H. Hilb By: /s/ Andrew L. Rogal - -------------------------------- ---------------------------------------- Robert H. Hilb Andrew L. Rogal, Chief Executive Officer November 9, 1999 November 9, 1999 EX-10 3 EXHIBIT 10.19 Exhibit 10.19 HILB, ROGAL AND HAMILTON COMPANY Employment Agreement With JOHN P. MCGRATH EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 1st day of July, 1999, by and between JOHN P. MCGRATH, an individual residing in Pittsburgh, Pennsylvania (the "Executive"), and HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation with corporate offices located at 4235 Innslake Drive, Glen Allen, Virginia (the "Company"). WHEREAS, the Board of Directors of the Company (the "Board") desires that the Company employ the Executive as the Senior Vice President - Business and Product Development of the Company, and the Executive desires to accept such position with the Company, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: I. Term Of Employment. ------------------ (A) The term of the employment of the Executive under this Agreement shall commence on the signing of this Agreement, and shall continue thereafter for a two (2) year period. (B) Upon the commencement of this Agreement as set forth above, and notwithstanding the two (2) year term provided in provision (A) of this Section I, the term of employment of the Executive under this Agreement shall be subject to earlier termination by: (1) the determination of disability of the Executive pursuant to Section IV; or (2) the dismissal of the Executive from his position as Senior Vice President - Business and Product Development pursuant to resolution by the Board, or failure or refusal of the Board to re-elect the Executive to the position of Senior Vice President - Business and Product Development or some greater office; or (3) the death of the Executive; provided, however, that (i) in the event of termination for determination of disability pursuant to Paragraph (1) above, Section IV shall apply; (ii) in the event of termination pursuant to Paragraph (2) above for "Proper Cause" (as defined in Section V(A)), Section V(B) shall apply; (iii) in the event of termination pursuant to Paragraph (2) above without "Proper Cause" (as defined in Section V(A)), Section VI shall apply; and (iv) in the event of termination due to the death of the Executive pursuant to Paragraph (3) above, Section VII shall apply. II. Services To Be Rendered. ----------------------- The Company agrees to continue to employ the Executive as the Senior Vice President - Business and Product Development of the Company, subject to the terms, conditions and provisions of this Agreement, and the Executive hereby accepts such employment. The Executive agrees that his employment as Senior Vice President - Business and Product Development of the Company pursuant to this Agreement is a full time position. Notwithstanding the foregoing, the Executive may devote a reasonable amount of his time to serving as an officer and director of other companies affiliated with the Company; to his personal investments and business affairs, including service as a director of unaffiliated companies; and to civic, political and charitable activities; provided however, the Executive shall not accept any position as a director of any unaffiliated for-profit business organization, other than positions presently held by him, without prior approval of the Board (which approval will not be unreasonably withheld). III. Compensation. ------------ In consideration for the services rendered to the Company under this Agreement, the Company shall pay and provide to the Executive the following compensation and benefits: (A) Salary. ------ The Company shall pay the Executive an annual base salary of $306,000, payable in twenty-four (24) equal semi-monthly installments. This annual base salary shall be reviewed annually by the Compensation Committee of the Board (the "Compensation Committee") to consider appropriate increases, but in no event shall the amount of the base salary be reduced. (B) Annual Incentive Bonus. ---------------------- In addition to the base salary to be paid to the Executive under Section III(A), the Executive may also be entitled to an annual incentive bonus as established and modified, from time to time, by the Compensation Committee. The bonus may include a mutually agreed performance bonus for leadership of the Financial Institutions Group. (C) Ancillary Benefits. ------------------ The Executive shall also be entitled to vacations, participation in the Company's Profit Sharing Savings Plan (401K) and Supplemental Executive Retirement Plan, sick leave benefits, post-retirement benefit plan, and all other ancillary benefits provided by the Company, including, but not limited to, group life, health and disability insurance coverages, consistent with the compensation policies and practices of the Company from time to time prevailing with respect to persons who are executive officers of the Company. -2- (D) The Executive shall receive such stock option awards each year as determined by the Compensation Committee in its sole discretion. IV. Disability. ---------- (A) The term of employment of the Executive may be terminated at the election of the Company upon a determination by the Board, made based upon a qualified medical opinion, that the Executive will be unable, by reason of physical or mental incapacity, to perform the reasonably expected or customary duties of Senior Vice President - Business and Product Development of the Company on a full-time basis for a period longer than three (3) consecutive months or more than six (6) months in any consecutive twelve (12)-month period. In the exercise of its determination, the Board shall give due consideration to the opinion of the Executive's personal physician or physicians and to the opinion of any physician or physicians selected by the Board for these purposes. If the Executive's personal physician disagrees with the physician retained by the Company, the Board will retain an impartial physician selected by the Executive's personal physician and the Company's physician and the opinion of the impartial physician shall be binding upon the Company and the Executive. The Executive shall submit to examination by any physician or physicians so selected by the Board, and shall otherwise cooperate with the Board in making the determination contemplated hereunder, such cooperation to include, without limitation, consenting to the release of information by any such physician(s) to the Board. (B) In the event of such termination for disability, the Company shall thereupon be relieved of its obligations to pay any compensation and benefits under Section III, except for accrued and unpaid items, but shall, in addition, pay to the Executive such disability compensation as set forth in any disability plan established by the Company for its executive officers. V. Termination For Proper Cause. ---------------------------- (A) The occurrence of any of the following events shall constitute "Proper Cause" for termination of the employment of the Executive under this Agreement, at the election of the Board: (1) the Executive shall voluntarily resign as a director, officer or employee of the Company or any of its affiliates without the written consent of the Board; (2) the Executive shall breach this Agreement in any material respect and fail to cure such breach within sixty (60) calendar days after receiving written notice of such breach from the Company; or (3) the commission of a fraud, or other criminal act, by the Executive directly involving the Company or any of its affiliates which would constitute a felony if prosecuted under criminal law; -3- provided, however, the inability of the Executive to achieve favorable results of operations shall clearly not be deemed Proper Cause for termination hereunder. (B) In the event of termination of the Executive's employment pursuant to Section I(B)(2) for Proper Cause, the Company shall thereupon be relieved of its obligations to pay any compensation and benefits under Section III, except for accrued and unpaid items. VI. Termination Without Proper Cause. -------------------------------- (A) In the event of termination of the Executive pursuant to Section I(B)(2) without Proper Cause (as defined in Section V(A) above), the Company shall thereafter be and remain obligated to pay to the Executive (or his estate or designated beneficiary), on a prorated basis if such termination is mid-month or mid-year, the compensation and benefits provided under Section III(A) and III(B) and such benefits under III(C) as are payable to a terminated employee until expiration of the two (2) year term of employment established by Section I(A). In the event of a dispute as to whether the Executive was terminated for or without "Proper Cause," or regarding the amount of compensation the Executive is entitled to receive under this Section VI, the Company shall be obligated to continue to pay to the Executive (or his estate or designated beneficiary) all of the compensation and benefits reserved under Section III until the dispute is resolved by an arbitrator pursuant to Section XVIII hereof. (B) For purposes of calculating the annual incentive bonus payable under Section III(B), for the remainder of the term of this Agreement, the Company shall make to the Executive (or his estate or designated beneficiary) an annual (prorated on a calendar year basis for any partial year) payment equal to the greater of the (i) highest annual incentive bonus payment received by Executive pursuant to Section III(B) during the term of this Agreement, or (ii) fifty percent (50%) of his annual base salary. VII. Death. ----- In the event of termination of the Executive's employment pursuant to Section I(B)(3) above, the Company shall pay the Executive's estate or designated beneficiary such death benefits as may be set forth in any life insurance plan established by the Company for its executive officers, and shall have no further obligation hereunder thereafter. VIII. Confidentiality. --------------- For purposes of this Agreement, "Confidential Information" shall mean any information of a proprietary or confidential nature and trade secrets of the Company and its affiliates relating to the business of the Company and its affiliates that have not previously been publicly released by duly authorized representatives of the Company. The Executive agrees to regard and preserve as confidential all Confidential Information pertaining to the Company's business that has been or may be obtained by the Executive in the course of his employment with the Company, whether he has such information in his memory or in writing or other physical form. The Executive shall not, without written authority from the Company to do so, use for his personal benefit or his personal purposes, unrelated to business of the Company, nor disclose to others, -4- either during the term of his employment hereunder or for two (2) years thereafter, except as required by the conditions of his employment hereunder, any Confidential Information of the Company. This provision shall not apply after the Confidential Information has been voluntarily disclosed to the public by a duly authorized representative of the Company, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. IX. Removal Of Documents Or Objects. ------------------------------- The Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or any of its affiliates, or except as specifically permitted in writing by the Company, any document or object containing or reflecting any Confidential Information of the Company. The Executive recognizes that all documents or material containing Confidential Information developed by him or by someone else in the course of employment by the Company, are the exclusive property of the Company. X. Nonpiracy Covenants. ------------------- (A) For the purpose of this Agreement, the following terms shall have the following meanings: (1) "Customers" shall be limited to those customers of the Company or its affiliates for whom there is an insurance policy or bond in force or to or for whom the Company or its affiliates are rendering services as of the date of termination of the Executive's employment; (2) "Affiliates of the Company" shall mean each of the direct and indirect subsidiary corporations of Hilb, Rogal and Hamilton Company as of the date of termination of the Executive's employment; (3) "Prohibited Services" shall mean services in the fields of insurance performed by the Company or its affiliates, their agents or employees, and services in any other business engaged in by the Company or its affiliates on the date of termination of the Executive's employment. "Fields of Insurance" does not include title insurance, but does include all lines of insurance sold by the Company or its affiliates, including, without limitation, property and casualty, life, group, accident, health, disability, and annuities, and premium financing related thereto; (4) "Prospective Customers" shall be limited to those persons and entities known by the Executive to have been solicited for business with respect to any Prohibited Service within the twelve (12) month period preceding the date of termination of the Executive's employment, and with or from whom, within the twelve (12) month period preceding the date of termination of the Executive's employment, someone acting on behalf of the Company or its affiliates either had met for the purpose of offering any Prohibited Service or had received a written response to an earlier solicitation to provide a Prohibited Service; and -5- (5) "Restricted Period" shall mean the period of two (2) years immediately following the date of termination of the Executive's employment. (B) The Executive recognizes that over a period of many years the Company has developed, at considerable expense, relationships with, and knowledge about, Customers and Prospective Customers which constitute a major part of the value of the Company. During the course of his employment by the Company, the Executive will have substantial contact with, and/or obtain substantial knowledge about, these Customers and Prospective Customers. In order to protect the value of the Company's business, the Executive covenants and agrees that, in the event of the termination of his employment, but only if said termination is voluntary or for Proper Cause, he shall not, directly or indirectly, for his own account or for the account of any other person or entity, as an owner, stockholder, director, employee, partner, agent, broker, consultant or other participant during the Restricted Period: (1) solicit a Customer for the purpose of providing Prohibited Services to such Customer; (2) accept an invitation from a Customer for the purpose of providing Prohibited Services to such Customer; (3) solicit a Prospective Customer for the purpose of providing Prohibited Services to such Prospective Customer; and (4) accept an invitation from a Prospective Customer for the purpose of providing Prohibited Services to such Prospective Customer. Subsections (1), (2), (3), and (4) are separate and divisible covenants; if for any reason any one covenant is held to be illegal, invalid or unenforceable, in whole or in part, the remaining covenants shall remain valid and enforceable and shall not be affected thereby. Further, the periods and scope of the restrictions set forth in any such subsection shall be reduced by the minimum amount necessary to reform such subsection to the maximum level of enforcement permitted to the Company by the law governing this Agreement. Additionally, the Executive agrees that no separate geographic limitation is needed for the foregoing nonpiracy covenants as such are not a prohibition on the Executive's employment in the insurance agency business and are already limited to only those entities which are included within the definition of "Customer" and "Prospective Customer." XI. Nonraiding of Employees. ----------------------- The Executive covenants that during his employment hereunder and the Restricted Period specified in Section X hereof, but only if said termination is voluntary or for Proper Cause, he will not solicit, induce or encourage for the purposes of employing or offering employment to any individuals who, as of the date of termination of the Executive's employment, are employees of the Company or its affiliates, nor will he directly or indirectly solicit, induce or encourage any of the Company's or its affiliates' employees to seek employment with any other business, whether or not the Executive is then affiliated with such business. -6- XII. Remedies Upon Employee Breach of Agreement. ------------------------------------------ (A) If the Executive materially breaches any provision of this Agreement and fails to cure any such material breach within thirty (30) days after written notice of said material breach is received from the Company, the Company reserves the right to avail itself of any reasonable remedy available to it at law or in equity. Further, if the Executive fails to cure any such material breach after thirty (30) days from receipt of written notice of the material breach, the Company may, at its sole option, employ reasonable disciplinary procedures against the Executive for any material breach, up to and including discharge. The Executive acknowledges and agrees that the Company shall be entitled to injunctive relief against the Executive for any material violation by the Executive of Sections VIII, IX, X, or XI of this Agreement. The Executive agrees that the foregoing remedies shall be cumulative and not exclusive, shall not be waived by any partial exercise or nonexercise thereof and shall be in addition to any other remedies available to the Company at law or in equity. (B) Notwithstanding the foregoing, if the Executive materially breaches Section X of this Agreement, the Company may, at its sole option, seek liquidated damages with respect to each Customer or Prospective Customer procured by or through the Executive, directly or indirectly, in violation of Section X of this Agreement (with such Customers being hereafter referred to as "Lost Customers" and with such Prospective Customers being hereafter referred to as "Lost Prospects"). The Executive acknowledges that it would be difficult to calculate damages incurred by the Company in the event of such a material breach and that the following liquidated damages clause, when so elected by the Company, is necessary and reasonable for the protection of the Executive. The Company agrees that, if it elects to exercise the liquidated damages provision with respect to a Lost Customer or Lost Prospect, it shall not seek an injunction with respect thereto if the Executive pays such liquidated damages. The Executive also acknowledges that the Company may or may not choose to exercise this liquidated damages provision and that the Company may, at its sole option, seek injunctive relief with respect to some Lost Customers and Lost Prospects and liquidated damages with respect to other Lost Customers and Lost Prospects. Finally, the Executive acknowledges that he has no right whatsoever to force the Company to exercise this liquidated damages provision, and that such choice remains entirely the Company's. Liquidated damages shall be calculated as follows: (1) A Lost Customer shall be valued at 150% of the gross revenue to the Company in the most recent twelve (12) month period preceding the date of loss of such account. If such Lost Customer had not been a Customer of the Company for an entire twelve (12) month period, such liquidated damages shall be 150% of the gross revenue which would have been, in the absence of a material breach by the Executive, realized by the Company in the initial twelve (12) month period of such Customer being served by the Company. A Lost Prospect shall be valued at 150% of the gross revenue realized in the initial twelve (12) month period of such Lost Prospect being served by any one or more persons or entities receiving such revenue as a direct result of the Executive's material breach. -7- (2) The Executive acknowledges that the foregoing damage amounts are fair and reasonable, that an industry rule of thumb for the valuation of any agency is 150% of revenue and that, on the margin, selected accounts may be worth much more than 150% of their annual revenue to an agency. (C) The Executive shall pay such liquidated damages to the Company within ninety (90) calendar days after a final order is entered by an arbitrator and received by the Executive ordering the Executive to make such payment. Thereafter, such liquidated damages shall bear interest at the prime rate of interest in effect at NationsBank, N.A. The Executive acknowledges that a broker of record letter granted during the Restricted Period, if applicable, by a Customer or Prospective Customer in favor of the Executive or any person or entity with whom or which the Executive is directly affiliated shall be prima facie evidence of a violation of Section X of this Agreement and establishes a rebuttable presumption in favor of the Company that Section X of this Agreement has been violated by the Executive. Further, the Executive acknowledges that if the Restricted Period is applicable to him, he has an affirmative duty to inform such Customer or Prospective Customer that he cannot accept its business until after the Restricted Period and that he must minimize all contact with such Customer or Prospective Customer. XIII. Tolling of Restrictive Covenants During Violation. ------------------------------------------------- If a material breach by the Executive of any of the restrictive covenants of this Agreement occurs, the Executive agrees that the restrictive period of each such covenant so materially violated shall be extended by a period of time equal to the period of such material violation by the Executive. It is the intent of this Section that the running of the restricted period of a restrictive covenant shall be tolled during any period of material violation of such covenant so that the Company shall get the full and reasonable protection for which it contracted and so that the Executive may not profit by his material breach. XIV. Notices. ------- All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (A) If to the Company, to it at the following address: 4235 Innslake Drive Glen Allen, Virginia 23060 Attn: Chairman of the Board (B) If to the Executive, to him at the following address: 10 Wilson Drive Pittsburgh, Pennsylvania 15202 -8- or to such other place as either party shall have specified by notice in writing to the other. A copy of any notice or other communication given under this Agreement shall also be sent to the Secretary and the Treasurer of the Company addressed to such officers at the then principal office of the Company. XV. Governmental Regulation. ----------------------- Nothing contained in this Agreement shall be construed so as to require commission of any act contrary to law and whenever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, the latter shall prevail, but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. XVI. Arbitration. ----------- Any dispute or controversy as to the interpretation, construction, application or enforcement of, or otherwise arising under or in connection with this Agreement, shall be submitted at the request of either party hereto for mandatory, final and binding arbitration in the City of Richmond, Virginia, in accordance with the commercial arbitration rules then prevailing of the American Arbitration Association. The Company and Executive waive the right to submit any controversy or dispute to a court and/or a jury. The arbitrator shall have the authority to grant any equitable, including, without limitation, injunctive relief, and any other legal remedies that would be available in any judicial proceeding, and any award rendered therein shall be final and binding on each of the parties hereto and their heirs, executors, administrators, successors and assigns and judgment may be entered thereon in any court having jurisdiction. The prevailing party in any such arbitration shall be entitled to an award by the arbitrator of all reasonable attorneys' fees and expenses incurred in connection with the arbitration. The arbitration provisions of this Agreement shall survive any termination or expiration of this Agreement. XVII. Indemnification by the Company. ------------------------------ The Company shall defend, indemnify and hold harmless the Executive against any and all claims, causes of actions, damages and expenses (including all legal fees and expenses) in any threatened, pending or completed action arising out of or relating in any way to action or conduct by the Executive by reason of the fact that he was a representative of the Company or was serving at the request of the Company or acts or conduct within the course of his employment pursuant to this Agreement or in his capacity as a director of the Company. If the Company contends that any action or conduct by the Executive was not within the course of his employment or is otherwise not subject to this provision, the Company shall pay to the Executive all defense costs and expenses to defend such an action and shall only be entitled to reimbursement of such fees and expenses if after a final adjudication, including all available appeals, there is a holding that the Executive was not entitled to the defense and indemnification under this provision. -9- XVIII. Governing Law. ------------- As the headquarters of the Company are located in the Commonwealth of Virginia and the Executive provides substantial services therein, and related thereto, this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. IX. Severability. ------------ Should an arbitrator declare any provision of this Agreement to be invalid, such declaration shall not affect the validity of the remaining portion of any such provision or the validity of any other term or provision of this Agreement as a whole or any part thereof, other than the specific portion declared to be invalid. XX. Non-Assignable by Executive. --------------------------- The Agreement and the benefits and obligations herein shall expressly be non-assignable by the Executive. XXI. Headings. -------- The headings to the Sections and Paragraphs of this Agreement are for convenience of reference only and in case of any conflict, the text of this Agreement, rather than the headings, shall control. XXII. Successors and Assigns. ---------------------- This Agreement is binding upon and shall inure to the benefit of the successors and assigns of the Company and the heirs, executors and legal representatives of the Executive. XXIII. Entire Agreement. ---------------- This Agreement contains the entire understanding of the parties with respect to the subject matter contained herein and supersedes all prior agreements, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by the parties hereto or their duly authorized representatives. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. WITNESS: /s/ Elizabeth J. Cougot /s/ John P. McGrath - ------------------------------- ------------------------------- John P. McGrath -10- ATTEST: HILB, ROGAL and HAMILTON COMPANY /s/ Elizabeth J. Cougot By: /s/ Andrew L. Rogal - ------------------------------- ------------------------------- Andrew L. Rogal Its: President and Chief Executive Officer -11- EX-10 4 EXHIBIT 10.22 Exhibit 10.22 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated January 9, 1991, is made between HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("HRH"), and Timothy J. Korman ("Employee"), a resident of Richmond, Virginia. RECITALS WHEREAS, HRH desires that Employee be employed for the period of time and in a capacity with HRH as specified herein; WHEREAS, Employee desires to accept such employment subject to the terms and conditions specified herein; and NOW, THEREFORE, in consideration of the premises stated above and the sum of $1.00, receipt of which is acknowledged by Employee, HRH's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. EMPLOYMENT; TERM, RENEWAL, COMPENSATION. HRH agrees to employ Employee for an initial term of three (3) years (the "Initial Term), effective as of January 1, 1991 ("Effective Date), and to compensate Employee as described herein. Upon the expiration of the Initial Term, Employee shall continue in the employ of HRH, upon the same terms and conditions as provided herein, until either HRH or Employee gives the other party ninety (90) days advance written notice of its or his intention to discontinue such relationship as of a specific future date. Employee's principal areas of responsibility shall be those of Senior Vice President & Treasurer of HRH. HRH agrees that Employee shall have such executive powers and authority as may reasonably be required by him in order to discharge his duties in an efficient and proper manner. Employee's base annual salary at the beginning of the Initial Term will be $82,000.00, payable semi-monthly, as earned. Employee's compensation shall be reviewed by HRH not less frequently than annually during the term of this Agreement and any extensions or renewals thereof, may be adjusted upward or downward in HRH's sole discretion and shall be full compensation for all services performed by Employee under this Agreement, provided however, notwithstanding anything said to the contrary, Employee shall not be paid a base salary less than $82,000.00 per annum during the Initial Term. 2. FULL EFFORTS OF EMPLOYEE. Employee agrees (i) to devote his full business time and energies to the business and affairs of HRH, (ii) to use his best efforts, skills and abilities to promote the interests of HRH and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by HRH. During the course of his employment hereunder, Employee shall not, directly or indirectly, enter into or engage in any business which competes with the business of HRH without the written consent of HRH. 3. CONFIDENTIAL INFORMATION. Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with certain confidential information and trade secrets of HRH and the HRH Companies (any company directly owned by or operationally or administratively controlled by HRH, is herein referred to as the "HRH Companies"), concerning acquisitions, prospects for acquisitions and customers and prospects of HRH and the HRH Companies ("HRH Customers"), which confidential information includes, but is not limited to, customer lists, financial data and marketing programs of HRH and the HRH Companies, policy expiration dates, policy terms, conditions and rates, customers' risk characteristics, and information concerning the insurance markets for large or unusual commercial risks ( the "Confidential Information"). Employee agrees that he will safeguard the Confidential Information from exposure to, or appropriation by, unauthorized persons and that he will not, without the prior written consent of HRH during the term of this Agreement or any time thereafter, divulge or make any use of the Confidential Information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee promises to deliver to HRH all materials, including personal notes and reproductions, relating to the Confidential Information, to HRH and the HRH Companies, and to the HRH Customers, which are in his possession or control. Employee agrees that compensation and benefits otherwise owing to him may be withheld for failure to comply with the terms of this paragraph. 4. EMPLOYEE COVENANTS. Employee agrees that during the initial term of his employment under this Agreement and during any extension of such term, and for an additional period of three years after the first to occur of (i) the expiration of the initial term of his employment under this Agreement or any extension of such term, (ii) his voluntary resignation or departure from the employment of HRH, or (iii) his inability to perform his duties under this Agreement for reason of mental or physical disability for a continuous period in excess of 180 days, Employee will not: a) Compete, directly or indirectly, with HRH or the HRH Companies within the City of Richmond, Virginia, and a 100-mile radius of the City of Richmond, Virginia or within the City or County in which any HRH Company is located; or b) Disclose to any other person, firm or corporation the names or addresses of any of the customers of HRH or HRH Companies, who were customers at any time during the term of this Agreement or any extension hereof or communicate with or contact in any manner whatsoever such customers of HRH or HRH Companies, regardless of location, for the purpose of: (i) inducing such customers to patronize any business other than that of HRH or HRH Companies, (ii) canvassing, soliciting or accepting from any such customers any business relating to the insurance agency business; (iii) requesting or advising any customers of HRH or -2- HRH Companies, to withdraw, curtail or cancel such customer's business with HRH or HRH Companies; nor will he induce or attempt to induce any employee of HRH or HRH Companies to leave the employ of his respective employer; (c) (i) The term "insurance agency business" as used herein shall be deemed to include, without limitation, the sale, and servicing of policies of life, health, group, casualty, or other forms of insurance. (ii) The word "compete" as used herein shall be deemed to include, without limitation; (a) permitting use of Employee's name in competition with HRH or HRH Companies; (b) becoming or being an employee (in any capacity in which he performs services comparable to any services performed for HRH hereunder), owner, partner, agent, stockholder (other than a stockholder in a corporation listed on a national securities exchange, or a corporation whose securities are traded in the over-the-counter market), director or officer of any person, firm or corporation that engages, directly or indirectly, in the insurance agency business, or (c) undertaking to perform services comparable to any services performed for HRH pursuant to this Agreement on behalf of any person, firm or corporation. 5. EMPLOYEE BREACH OF AGREEMENT. If, during the period of three (3) years following the termination of employment hereunder, any commission or fee becomes payable to Employee or to any person, firm, partnership, corporation or other entity by or with whom Employee is then employed or affiliated, as a result of a violation by Employee of the provisions of paragraph 3 or 4 of this Agreement, Employee agrees to promptly pay to HRH an amount equal to 75% of such commission or fee. In addition, the parties agree that, in the event of a breach by Employee of the terms of paragraph 3 or 4, monetary damages alone will not be sufficient to protect the interests of HRH and, as a result, that HRH shall be entitled to injunctive relief against Employee to prevent the breach of any such provisions hereunder. It is further agreed that the foregoing remedies shall be cumulative and not exclusive, and shall be in addition to any other remedies available to HRH at law or in equity. 6. STANDARDS OF PERFORMANCE; CAUSE. In addition to the full efforts required of Employee in paragraph 2 hereof and notwithstanding anything herein to the contrary, Employee's employment may be terminated or altered, without notice, in the discretion of HRH, prior to the expiration (including renewals) of this Agreement for "Cause." For purposes hereof and without limitation Cause shall include any dishonest, criminal or immoral conduct or any act which will have more than a nominal adverse effect against HRH and shall also include the failure of Employee, whether through incompetence, inefficiency, negligence, inability, incapacity or otherwise, to observe or perform any of his duties or obligations hereunder. -3- 7. TERMINATION UPON OCCURRENCE OF LONG-TERM DISABILITY. HRH may terminate this Agreement, at its sole option, upon the occurrence of "Long-Term Disability." "Long-Term Disability" means a physical or mental incapacity, or any combinations thereof, which has prevented Employee from performing the duties customarily assigned to him by HRH for one hundred-eighty (180) days, whether or not consecutive, out of any twelve (12) consecutive months, and which thereafter can reasonably be expected by HRH to continue or to recur with similar frequency. 8. ATTORNEYS' FEES. In any dispute over this Agreement or in pursuit of any remedy permitted under this Agreement, each party shall bear its own costs and fees, including attorneys' fees, irrespective of the laws of that jurisdiction concerning such fees and costs. 9. SEVERABILITY. If any provision of this Agreement or any part of any provision of this Agreement is determined to be unenforceable for any reason whatsoever, it shall be severable from the rest of this Agreement and shall not invalidate or affect the other portions or parts of the Agreement, which shall remain in full force and effect and be enforceable according to their terms. 10. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the Commonwealth of Virginia. 11. CASE AND GENDER. Wherever required by the context of this Agreement, the singular and plural cases and the masculine, feminine and neuter genders shall be interchangeable. 12. NONWAIVER. The waiver by HRH of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or as a waiver of any other provisions of this Agreement. 13. CAPTIONS. The captions provided in this Agreement are intended for descriptive and reference purposes only and are not intended to limit the applicability of the terms of any paragraph to that caption. 14. SUCCESSION. This Agreement shall be binding upon the parties hereto and is not assignable by Employee. This Agreement shall inure, however, to the benefit of HRH's respective successors and assigns, including without limitation, any successor corporation by way of merger and consolidation or any entity which purchases substantially all of the assets of HRH. -4- WITNESS the following signatures. HRH: HILB, ROGAL AND HAMILTON COMPANY By: /s/ Robert H. Hilb ---------------------------------------- Its: President ----------------------------------- EMPLOYEE: /s/ Timothy J. Korman -------------------------------------------- Timothy J. Korman -------------------------------------------- -5- AMENDMENT NUMBER ONE THIS AMENDMENT NUMBER ONE, dated September 1, 1991, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Timothy J. Korman of Richmond, Virginia (hereinafter called "Employee"): W I T N E S S E T H : WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of January 1, 1991; and WHEREAS, HRH and Employee desire to make amendments to the Employment Agreement as set forth below; 1. For all purposes therein, Section 1 of the Employment Agreement is hereby amended by deleting the amount of $82,000 and substituting in lieu thereof the amount of $88,000. 2. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including, but not limited to, the provisions and terms of Section 4 thereof. 3. The effective date of this Amendment Number One is September 1, 1991. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set his hand and seal, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Robert H. Hilb ---------------------------------- Its: President ----------------------------- ATTEST: /s/ Ann B. Davis - ---------------------------------- /s/ Timothy J. Korman ----------------------------(SEAL) Timothy J. Korman WITNESS BY: /s/ Ann B. Davis - ----------------------------------- -2- AMENDMENT NUMBER TWO THIS AMENDMENT NUMBER TWO, dated September 1, 1993, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Timothy J. Korman of Richmond, Virginia (hereinafter called "Employee"): W I T N E S S E T H : WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of January 1, 1991; and WHEREAS, HRH and Employee desire to make amendments to the Employment Agreement as set forth below; 1. For all purposes therein, Section 1 of the Employment Agreement is hereby amended by deleting the amount of $88,000 and substituting in lieu thereof the amount of $102,000. 2. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including, but not limited to, the provisions and terms of Section 4 thereof. 3. The effective date of this Amendment Number Two is September 1, 1993. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set his hand and seal, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Robert H. Hilb ---------------------------------- Its: President ----------------------------- ATTEST: /s/ Ann B. Davis - ---------------------------------- /s/ Timothy J. Korman ----------------------------(SEAL) Timothy J. Korman WITNESS BY: /s/ Ann B. Davis - ----------------------------------- -2- AMENDMENT NUMBER THREE THIS AMENDMENT NUMBER THREE, dated January 1, 1995, by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (hereinafter called "HRH"), and Timothy J. Korman of Richmond, Virginia (hereinafter called "Employee"): W I T N E S S E T H : WHEREAS, HRH and Employee have heretofore entered into a certain Employment Agreement ("Employment Agreement"; terms defined therein being used herein as therein defined) dated as of January 1, 1991; and WHEREAS, HRH and Employee desire to make amendments to the Employment Agreement as set forth below; 1. For all purposes therein, Section 1 of the Employment Agreement is hereby amended by deleting the amount of $102,000 and substituting in lieu thereof the amount of $120,000. 2. All other provisions or terms of the Employment Agreement are hereby ratified and confirmed, including, but not limited to, the provisions and terms of Section 4 thereof. 3. The effective date of this Amendment Number Three is January 1, 1995. IN WITNESS WHEREOF, HRH has caused this Agreement to be executed by its officers thereunto duly authorized and Employee has hereunto set his hand and seal, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Robert H. Hilb ---------------------------------- Its: President ----------------------------- ATTEST: /s/ Ann B. Davis - ---------------------------------- /s/ Timothy J. Korman ----------------------------(SEAL) Timothy J. Korman WITNESS BY: /s/ Ann B. Davis - ----------------------------------- -2- EX-10 5 EXHIBIT 10.23 Exhibit 10.23 HILB, ROGAL AND HAMILTON COMPANY EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT dated as of the 1st day of March, 2000, between Hilb, Rogal and Hamilton Company, a Virginia corporation (the "Company"), and ___ (Optionee"), is made pursuant and subject to the provisions of the Company's 1989 Stock Plan, as amended (the "Plan"), a copy of which is attached. All terms used herein that are defined in the Plan shall have the same meaning given them in the Plan. 1. Grant of Option. Pursuant to the Plan, the Company, on March 1, 2000, granted to Optionee, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and option to purchase from the Company all or any part of an aggregate of ___ shares of the common stock of the Company ("Common Stock") at the Option price of $28.4375 per share. Such Option will be exercisable as hereinafter provided. 2. Terms and Conditions. This Option is subject to the following terms and conditions: (a) Expiration Date. The "Expiration Date" of this Option is March 1, 2007. (b) Exercise of Option. Except as provided in paragraphs 3, 4, 5 and 10, this Option shall be exercisable with respect to twenty-five percent (25%) of the aggregate number of shares covered by this Option for each one (1) full year, up to a total of four (4) full years, that Optionee continues to be employed by the Company after the date of this Agreement. Once this Option has become exercisable with respect to any portion of the total number of shares in accordance with the preceding sentence, it shall continue to be exercisable with respect to such shares until the termination of Optionee's rights hereunder pursuant to paragraphs 3, 4 or 5, or until the Expiration Date. A partial exercise of this Option shall not affect Optionee's right to exercise subsequently this Option with respect to the remaining shares that are exercisable, subject to the conditions of the Plan and this Agreement. (c) Method of Exercising and Payment for Shares. This Option may be exercised only by written notice delivered to the attention of the Company's Secretary at the Company's principal office in Richmond, Virginia. The written notice shall specify the number of shares being acquired pursuant to the exercise of the Option when such Option is being exercised in part in accordance with subparagraph 2(b) hereof. The exercise date shall be the date such notice is received by the Company. Such notice shall be accompanied by payment of the Option price in full for each share (a) in cash (United States dollars) or by cash equivalent acceptable to the Company, or (b) by a cashless exercise pursuant to Section IX(2) of the Plan. (d) Nontransferability. This Option is nontransferable except, in the event of the Optionee's death, by will or by the laws of descent and distribution subject to the terms hereof. During Optionee's lifetime, this Option may be exercised only by Optionee. 3. Exercise in the Event of Death. This Option shall be exercisable in full in the event that Optionee dies while employed by the Company or an Affiliate and prior to the Expiration Date of this Option. In that event, this Option may be exercised by Optionee's estate, or the person or persons to whom his rights under this Option shall pass by will or the laws of descent and distribution. Optionee's estate or such persons must exercise this Option, if at all, within one year of the date of Optionee's death or during the remainder of the period preceding -2- the Expiration Date, whichever is shorter, but in no event may the Option be exercised prior to the expiration of six (6) months from the date of the grant of the Option. 4. Exercise in the Event of Permanent and Total Disability. This Option shall be exercisable in full if Optionee becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) while employed by the Company or an Affiliate and prior to the Expiration Date of this Option. In that event, Optionee must exercise this Option, if at all, within one year of the date he becomes disabled or during the remainder of the period preceding the Expiration Date, whichever is shorter, but in no event may the Option be exercised prior to the expiration of six (6) months from the date of the grant of the Option. 5. Exercise After Termination of Employment. In the event that the Optionee retires from employment with the Company after attaining age 62 and serving at least 10 consecutive years with the Company or an Affiliate or predecessor thereof, then this Option shall be exercisable in full but must be exercised by the Optionee, if at all, within one year following his retirement date or during the remainder of the period preceding the Expiration Date, whichever is shorter, but in no event may the Option be exercised prior to the expiration of six (6) months from the date of the grant of the Option. In all events other than those events addressed in paragraphs 3 or 4 or the foregoing sentence of this paragraph 5, in which Optionee ceases to be employed by the Company: (a) Optionee may exercise the Option in whole or in part with respect to that number of shares which are exercisable by him under paragraph 2(b) above on the date his employment terminated, and (b) this Option must be exercised by Optionee, if at all, within ninety (90) days following the date upon which he ceases to be employed by the Company or during the remainder of the period preceding the Expiration Date, whichever is shorter, but in -3- no event may the Option be exercised prior to the expiration of six (6) months from the date of the grant of the Option. 6. Fractional Shares. Fractional shares shall not be issuable hereunder, and when any provision hereof may entitle Optionee to a fractional share such fraction shall be disregarded. 7. No Right to Continued Employment. This Option does not confer upon Optionee any right with respect to continuance of employment by the Company or an Affiliate, nor shall it interfere in any way with the right of the Company or an Affiliate to terminate his employment at any time. 8. Investment Representation. Optionee agrees that, unless such shares previously have been registered under the Securities Act of 1933, as amended (the "Securities Act"): (i) any shares purchased by him hereunder will be purchased for investment and not with a view to distribution or resale and (ii) until such registration, certificates representing such shares may bear an appropriate legend to assure compliance with the Securities Act. This investment representation shall terminate when such shares have been registered under the Securities Act. 9. Change in Capital Structure. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by this Option, and the price per share thereof, shall be proportionately adjusted by the Company for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from any stock dividend (but only on the Common Stock), stock split, combination, reclassification, recapitalization or general issuance to holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value, or any change in the number of such shares outstanding effected without receipt of cash or property or labor or services by the Company, or any spin-off or other distribution of assets to shareholders. -4- In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all or a part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. The grant of this Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. 10. Change of Control. Notwithstanding any other provision of this Agreement to the contrary, in the event of a Change of Control, the provisions of Section XIII(3) of the Plan shall apply to this Option. 11. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply. 12. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on the date hereof and the provisions of this Agreement, the provisions of the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the date hereof. 13. Optionee Bound by Plan. Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Binding Effect. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees, and personal representatives of Optionee and the successors of the Company. -5- 15. Gender. All pronouns used herein shall be deemed to refer to either the male or female as appropriate. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized officer, and Optionee has affixed his signature hereto. OPTIONEE: HILB, ROGAL AND HAMILTON COMPANY By: - ---------------------------- -------------------------------------- Title: Chairman and Chief Executive Officer -6- NONQUALIFIED STOCK OPTIONS FOR NAMED EXECUTIVE EMPLOYEES GRANT DATE OPTIONS GRANTED ---------- --------------- Richard F. Galardini 03/01/2000 4,000 Michael A. Janes 03/01/2000 6,500 Timothy J. Korman 03/01/2000 8,000 John P. McGrath 03/01/2000 8,000 Andrew L. Rogal 03/01/2000 16,000 EX-10 6 EXHIBIT 10.24 Exhibit 10.24 HILB, ROGAL AND HAMILTON COMPANY 2000 RESTRICTED STOCK AGREEMENT THIS RESTRICTED STOCK AGREEMENT, dated as of this 1st day of March, 2000, between Hilb, Rogal and Hamilton Company, a Virginia corporation ("the Company"), and ____ (the "Employee"), is made pursuant and subject to the provisions of the Company's 1989 Stock Plan, as amended, which is incorporated herein by reference, and any future amendments thereto (the "Plan"), a copy of which is attached. All terms used herein that are defined in the Plan shall have the same meanings given them in the Plan. 1. Award of Restricted Stock. The Company hereby awards to the Employee, subject to the terms and conditions of the Plan and the provisions of this Agreement, __ shares of Common Stock of the Company (the "Restricted Stock"). 2. Terms and Conditions. The award of Restricted Stock hereunder is subject to the following terms and conditions: (a) Restricted Period. Except as provided in paragraph 3, the Restricted Stock shall vest and become nonforfeitable in accordance with the schedule set forth below: Percent of Date Award Vested ---- ------------ March 1, 2002 25% March 1, 2003 50% March 1, 2004 75% March 1, 2005 100% The period from the date hereof until the shares of Restricted Stock have become 100% vested shall be referred to as the "Restricted Period." (b) Issuance of Certificates; Restrictive Legend. The stock certificate(s) evidencing the Restricted Stock shall be issued and registered on the Company's books and records in the name of the Employee as soon as practicable following the date of this Agreement. The Company shall retain physical possession and custody of each stock certificate representing the Restricted Stock until such time as the Restricted Stock becomes vested in accordance with paragraph 2(a) above. The Employee will deliver to the Company a stock power, endorsed in blank, with respect to each award of Restricted Stock. Each stock certificate shall bear a restrictive legend in substantially the following form: The shares represented by this certificate are restricted and may be transferred only in accordance with the Restricted Stock Agreement between Hilb, Rogal and Hamilton Company and [name of Employee], dated March 1, 2000. Upon the written request of the Employee following the vesting of any portion of the shares of Restricted Stock prior to any event of forfeiture under paragraph 3, the Company will promptly issue a stock certificate, without such restrictive legend, with respect to the vested portion of the shares of the Restricted Stock registered on the Company's books and records in the name of the Employee. Following the expiration of the Restricted Period, the Company will promptly issue a stock certificate, without such restrictive legend, for any shares of Restricted Stock that have vested prior to any event of forfeiture under paragraph 3 and have not been reissued without a restrictive legend as provided in the preceding sentence. (c) Transferability. During the Restricted Period, the Employee shall not sell, assign, transfer, pledge, exchange, hypothecate, or otherwise dispose of unvested Restricted Stock. Upon receipt by the Employee of stock certificate(s) representing vested shares without a restrictive legend pursuant to paragraph 2(b) above, the Employee may hold or dispose of the shares represented by such certificate(s), subject to compliance with (i) the terms and conditions of the Plan and this Agreement and (ii) applicable securities laws of the United States of America and the Commonwealth of Virginia. -2- (d) Shareholder Rights. Prior to any forfeiture of the shares of Restricted Stock and while the shares are Restricted Stock, the Employee shall, subject to the terms of this Agreement and the restrictions of the Plan, have all rights of a shareholder with respect to the shares of Restricted Stock awarded hereunder, including the right to receive dividends and other distributions as and when declared by the Board of Directors of the Company and the right to vote the shares of Restricted Stock. (e) Tax Withholding. The Company shall have the right to retain and withhold from any award of the Restricted Stock, the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such award. At its discretion, the Company may require the Employee receiving shares of Restricted Stock to pay or otherwise reimburse the Company in cash for any such taxes required to be withheld by the Company and withhold any distribution in whole or in part until the Company is so paid or reimbursed. In lieu thereof, the Company shall have the unrestricted right to withhold, from any other cash amounts due (or to become due) from the Company to the Employee, an amount equal to such taxes required to be withheld by the Company to reimburse the Company for any such taxes (or retain and withhold a number of shares of vested Restricted Stock, having a market value not less than the amount of such taxes, and cancel in whole or in part any such shares so withheld, in order to reimburse the Company for any such taxes). 3. Death; Disability; Retirement; Termination of Employment. The shares of Restricted Stock not yet vested shall become 100% vested and transferable in the event that the Employee dies or becomes permanently and total disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code) while employed by the Company or an Affiliate during the Restricted Period. Upon attaining age 62 with 10 consecutive years of service with the -3- Company or an Affiliate, or in any other circumstance approved by the Committee in its sole discretion, the shares of Restricted Stock shall become 100% vested and transferable. In all events other than those previously addressed in this paragraph, if the Employee ceases to be an employee of the Company or an Affiliate, the Employee shall be vested only as to that percentage of shares of Restricted Stock which are vested at the time of the termination of his employment and the Employee shall forfeit the right to the shares of Restricted Stock which are not yet vested on the termination date. 4. No Right to Continued Employment. This Agreement does not confer upon the Employee any right with respect to continuance of employment by the Company or an Affiliate, nor shall it interfere in any way with the right of the Company or an Affiliate to terminate his or her employment at any time. 5. Change of Control or Capital Structure. Subject to any required action by the shareholders of the Company, the number of shares of Restricted Stock covered by this award shall be proportionately adjusted and the terms of the restrictions on such shares shall be adjusted as the Committee shall determine to be equitably required for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from any stock dividend (but only on the Common Stock), stock split, subdivision, combination, reclassification, recapitalization or general issuance to the holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value or any change in the number of shares of Common Stock outstanding effected without receipt of cash, property, labor or services by the Company or for any spin-off or other distribution of assets to shareholders. In the event of a Change of Control, this award of Restricted Stock shall immediately vest pursuant to the provisions of Section XIII(3) of the Plan. In the event of a change in the Common -4- Stock of the Company as presently constituted, which is limited to a change of all or part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. The award of Restricted Stock pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 6. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply. 7. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on the date hereof and the provisions of this Agreement, the provisions of the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the date hereof. 8. Employee Bound by Plan. The Employee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 9. Binding Effect. Subject to the limitations stated herein and in the Plan, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees, and personal representatives of the Employee and the successors of the Company. -5- IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized Employee, and the Employee has affixed his or her signature hereto. HILB, ROGAL AND HAMILTON COMPANY By:_____________________________________ Title:__________________________________ [NAME OF EMPLOYEE] ________________________________________ Signature -6- FOR VALUE RECEIVED I hereby sell, assign and transfer unto HILB, ROGAL AND HAMILTON COMPANY, _________ (___) shares of the Common Stock of Hilb, Rogal and Hamilton Company standing in my name on the books of said Corporation represented by Certificate No. ____ herewith and do hereby irrevocably constitute and appoint WALTER L. SMITH, or his designee or successor, attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. Dated __________, 200_ __________________________________ [Signature - exact name as it appears on certificate(s)] __________________________________ [Print Name] -7- RESTRICTED STOCK AWARDS TO NAMED EXECUTIVE EMPLOYEES GRANT DATE SHARES GRANTED Richard F. Galardini 03/01/2000 2,000 Michael A. Janes 03/01/2000 4,300 Timothy J. Korman 03/01/2000 8,600 John P. McGrath 03/01/2000 8,600 Andrew L. Rogal 03/01/2000 13,000 EX-13 7 EXHIBIT 13 [HRH LOGO] Performance A POLICY PROVEN HILB, ROGAL AND HAMILTON COMPANY 1999 ANNUAL REPORT HILB, ROGAL AND HAMILTON COMPANY serves as an intermediary between our clients - -- who are traditionally the middle-market businesses of the nation -- and insurance companies that underwrite client risks. With approximately 70 offices in the United States, Hilb, Rogal and Hamilton Company is able to assist clients in managing their risks in areas such as property and casualty, employee benefits and other areas of specialized exposure. Revenues are derived primarily from commissions received from insurance companies with whom client risk is placed. Support services related to risk transfer transactions are an additional revenue source. As an industry leader, the Company expands its business by developing new clients, providing additional services to current clients and maintaining a disciplined merger and acquisition strategy. Financial Highlights 1 Letter to Shareholders 2 Performance Statement 5 Mergers and Acquisitions 8 Best Practices 12 New Products/Business Development 16 Agency Locations 20 Financial Section 21 1 NET INCOME PER SHARE In Dollars [BAR GRAPH - NET INCOME PER SHARE] 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- 0.82 0.84 0.97 1.18 1.44 OPERATING CASH FLOW PER SHARE In Dollars [BAR GRAPH - OPERATING CASH FLOW PER SHARE] 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- 1.49 1.65 1.85 2.08 2.53 TOTAL REVENUE In Millions of Dollars [BAR GRAPH - TOTAL REVENUE] 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- 143.5 153.0 168.4 175.4 227.2 NET INCOME In Millions of Dollars 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- [BAR GRAPH - NET INCOME] 11.8 11.4 12.8 14.9 19.5 SELECTED FINANCIAL DATA Hilb, Rogal and Hamilton Company and Subsidiaries (in thousands, except per share amount) 1999 1998 - -------------------------------------------------------------------------------- Total Revenues $227,226 $175,364 Net Income $ 19,486 $ 14,945 Net Income Per Common Share: Basic $ 1.51 $ 1.20 Diluted $ 1.44 $ 1.18 Dividends Per Common Share $ .655 $ .635 Total Assets $317,981 $188,066 Total Shareholders' Equity $ 71,176 $ 45,710 - -------------------------------------------------------------------------------- 2 TO OUR SHAREHOLDERS [PHOTO OF ANDREW ROGAL] ANDREW ROGAL Chairman and Chief Executive Officer FOR HRH, 1999 WAS AN OUTSTANDING YEAR, EVIDENCED BY SIGNIFICANT VALUE CREATION. For clients, value was created through improved service, more specialty lines and deeper risk management expertise; for insurers, through our broader distribution channels. For shareholders, value took the form of a well-executed strategic acquisition and record financial results. The acquisition and integration of American Phoenix Corporation (American Phoenix) is proving to be a classic combination in which the whole is greater than the sum of its parts. HRH now has the size and scope to command the full attention of the leading insurers and to provide the products and expertise required by the most demanding middle-market clients. Opportunities to create value in the future, and the determination to make it happen, have never been greater. 3 The highlight of our year was the acquisition in May of American Phoenix, formerly Phoenix Home Life Mutual Insurance Company's (Phoenix Home Life) property and casualty brokerage subsidiary. From a strategic standpoint, this was a model acquisition with benefits extending well beyond the addition of new offices and a new geographic region (the Northeast), and increased earnings per share. HRH inherited an entrepreneurial management team, complementary productivity and administrative tools and systems, additional insurance specialties and a new strategic shareholder, Phoenix Home Life, with which we are teaming to distribute selected insurance products. The addition of American Phoenix, as well as internally generated growth, drove revenues up 29.6 percent for the year to $227.2 million from $175.4 million. Commissions and fees, excluding the effect of acquisitions and divestitures, increased 4.4 percent, an achievement best viewed in light of continued industry-wide softness in premiums, on which commissions are based. Net income for the year rose 30.4 percent to $19.5 million or $1.44 per share from $14.9 million or $1.18 per share. Excluding non-recurring items in both periods, net income per share was $1.29, up 22.9 percent from $1.05 a year ago. Operating cash flow (net income plus depreciation and amortization) for the year was $34.7 million or $2.53 per share, more than 75 percent above net income. In 1998, we set up separate operating models for "value-based" businesses (customized middle-market products and risk management services) and "cost-based" businesses (standardized products, differentiated primarily by cost). In the cost-based businesses, which included personal and select commercial lines, we centralized key functions, which enhanced efficiency and profitability. In 1999, we focused on the value-based operating model. Soon after American Phoenix was acquired, we identified a common set of middle-market Best Practices, drawn from both firms, aimed at achieving a more systematic and value-added sales process, a more responsive service and support staff, and improved accountability for performance throughout the organization. Through our regional and line-of-business organizations, we began to introduce the Best Practices for Middle-Market program and the tools to measure its effectiveness. The rollout is expected to be completed in 2000. Middle-market insurance and risk management services are and will remain businesses based on personal relationships. However, information technology, which enables the risks to be analyzed and monitored, applications processed, coverages selected, claims processed and loss experience monitored, underlies most of the operations. With the rise of the Internet, innovative networking and e-commerce, we believe technology will continue to make the process more effective and efficient. During 1999, HRH expanded its in-house information technology staff, which is responsible for bringing new technologies to our attention and overseeing their adoption. NEW DISTRIBUTION CHANNELS The Internet has created opportunities for nearly all businesses; the more information intense, the greater the potential. The insurance brokerage industry is a natural for Internet applications targeting consumers, employee benefits and business-to-business information exchange and transactions, and we are actively exploring various possibilities. In November, we announced our first web-based distribution channel, developed through a collaboration 4 with Workplus.com. This employee communication service enables companies to distribute information pertaining to benefits, training and other material to their employees and to provide them with information and links for selected vendors of financial services, including insurance. Workplus.com is a cost-effective way of bringing human resource communication through the power of the Internet. Employees appreciate the convenient access to pre-selected vendors for financial services. HRH has begun marketing Workplus.com web sites to its commercial clients and prospects and offers insurance products directly to employees of those clients through their sites. In 1999, HRH continued to explore possibilities for distributing insurance products through banks. Our initial focus was personal lines, offering competitive and convenient homeowners and auto insurance to bank mortgage customers. While we have made considerable progress, technology development has taken longer than expected. Following the enactment of the Financial Services Modernization Act in November, which ended the long-standing separation of the insurance, banking and securities industries in the United States, we began to evaluate the idea of offering middle-market insurance and risk management services in partnership with a bank. As with any new distribution channel, we are carefully considering the advantages to the insurance buyer, the partner and HRH, as well as the quality and efficiency of the process. We view the costs associated with evaluating and potentially launching such a program as investments in future growth. 2000 OUTLOOK Over the past few years, HRH has been able to more than offset the effect of lower industry-wide premiums through a combination of new clients, new products and services, and, in 1998 and 1999, enhanced commission arrangements from our largest carriers. As industry market and loss conditions begin to show signs of change, volume-related and loss-sensitive commissions, at least for a while, will be less predictable. In 2000, we will continue to benefit from the addition of American Phoenix and from the rollout of our Best Practices program to all offices. In addition, we plan to continue broadening our product lines with more specialty, employee benefit and affinity group insurance programs, as well as develop and introduce new distribution channels. Finally, in view of the continuing consolidation opportunities among middle-market insurance brokerage agencies, acquisitions that strengthen our presence in existing markets, or open new markets or specialties, are an integral part of our growth plans. These varied initiatives, together with momentum in our existing business, enhance our confidence that our trendline growth objectives are achievable. In closing, I want to thank all of the employees of HRH for their continued strong performance. Their dedication, energy and professionalism have been the driving force behind our success. The addition of the American Phoenix employees to the HRH family has strengthened our Company in both geographic reach and capabilities and I look forward to working with them in the years ahead. On behalf of everyone at Hilb, Rogal and Hamilton Company, I thank you for your continued support. We look forward to bringing you even stronger results in the years to come. Sincerely, /s/ Andrew L. Rogal Andrew L. Rogal Chairman and Chief Executive Officer 5 [LOGO] 1999 WAS A RECORD-BREAKING YEAR FOR OUR COMPANY. It was a year in which the marketplace first recognized the true value of the strategic plan HRH implemented four years ago. OUR SUCCESS WAS EASY TO RECOGNIZE: We realized a record increase in shareholder value; successfully integrated a major acquisition; and launched new products, distribution systems and business initiatives. We look forward to continued strong performance in the years ahead. 6 [PHOTO OF ANDREW ROGAL] "Our operating results are evidence that our policy of performance is proving itself." "The implementation of our strategic plan has resulted in effective operating models and the creation of tremendous value for our Company and its shareholders." ANDREW ROGAL Chairman and Chief Executive Officer NET INCOME Per Share In Dollars [NET INCOME PER SHARE LINE GRAPH] ---------------------------------------- 1995 1996 1997 1998 1999 ---------------------------------------- 0.82 0.84 0.97 1.18 1.44 ---------------------------------------- 7 At HRH, value creation has become the touchstone of our business -- by design. We've created an enormous amount of value this year by the continued implementation of our strategic plan: At HRH, we've increased operating earnings per share a minimum of 15 percent per year since 1997, and we intend to maintain this trendline growth objective. Our profit margins and revenues continue to improve despite competitive industry conditions. In addition, our stock price increased over 42 percent during 1999. In 2000, in order to continue to create value for our clients and shareholders, our primary focus will be on the continued refinement of our operating models, mergers and acquisitions (M&A), the execution of Best Practices for the Middle Market and new products and business development. MERGERS AND ACQUISITIONS We grow to create value. The 1999 acquisition and subsequent integration of American Phoenix Corporation went extremely well and the combined company is operating as expected. As we head into 2000, our M&A philosophy is to acquire businesses that either enable us to expand our geographic base or to provide expanded specialties and services that meet the needs of current and prospective clients across our organization. BEST PRACTICES FOR OUR CLIENTS We operate to create value. The future belongs to the team with the best people. At HRH we're investing in our people and proven operational practices to create and maintain sales and service teams of unparalleled professionalism, who deliver unparalleled results for our clients. NEW PRODUCTS/BUSINESS DEVELOPMENT We innovate to create value. From e-commerce to partnerships with banks, we're developing new product offerings and distribution systems to meet the needs of existing clients and to expand our client base. For example, Workplus.com -- one of our e-commerce initiatives -- allows us to provide our commercial customers with a unique employee communication tool and to offer personal insurance products directly to employees of those clients. 8 TIMOTHY KORMAN Executive Vice President, Finance and Administration [PHOTO OF TIMOTHY KORMAN] "It's our disciplined approach to mergers and acquisitions and its proven success that will ultimately make a difference to our clients and shareholders. We're not just out there buying agencies." Policy 9 Performance Our approach to mergers and acquisitions is focused and limited to those companies that fit into our current operating models and strategic plan. At HRH, we're sticking with our core business and attracting companies that strengthen our regions and middle-market position or add to our specialty lines of business and increase our range of services. It's this disciplined approach to mergers and acquisitions and its proven success that will ultimately make a difference to our clients and shareholders. In all of our mergers and acquisitions, our goal is for the new whole to be greater than the sum of its previous parts. We've found that ensuring a strategic fit, as well as a people fit, usually produces this positive outcome. HRH has grown through the acquisition of firms like us, who share the legacy of the independent American agency system, but who are looking to meld old traditions with the new in order to achieve optimum performance. 10 MERGERS AND ACQUISITIONS GROWING "Today, our highest expectations are being realized: In HRH we have a national organization whose overall acquisition philosophy lets us continue to be entrepreneurs and grow. They don't stifle creativity. They don't stifle independence. They encourage it, and they look for us to make a difference in the organization." [PHOTO OF JOHN JACOBS AND STEVEN GREENBERG] John Jacobs, Senior Vice President, HRH of Connecticut Steven Greenberg, Senior Vice President, HRH of Connecticut 1999 saw the successful integration of HRH's largest acquisition -- American Phoenix Corporation (APC). For HRH and APC, this was a textbook merger of what can only be described as mirror image companies, whose strategic and people fit couldn't have been closer. APC brought its sales culture, Northeast and Florida geographic base and affinity business to the union; HRH, its name recognition, distribution system and extensive carrier relationships. Together, the mix has worked. The smooth APC/HRH transition attests to the fact that when you stick to your business and draw on the strengths of both organizations as you join forces, the risk for integration problems is low. Jose Perez-Albela, Senior Vice President, HRH International and former Senior Vice President, American Phoenix Corporation, was pleasantly surprised at the smoothness of the transition, as well as its many benefits -- from increased business opportunities to more selling tools. The APC acquisition and smooth integration demonstrates one side of HRH's M&A philosophy -- to acquire businesses that enable us to expand our geographic base among middle-market companies. The acquisition of Insurance Concepts of Connecticut, Inc. demonstrates the other side -- to acquire and develop more specializations and services that allow us to create value by leveraging the expertise across our markets. For Steven Greenberg and John Jacobs, both former principals of Insurance Concepts of Connecticut, Inc., selling to HRH has allowed them to fulfill their dreams for the Insurance Concepts business. "Over 10 years, John and I built Insurance Concepts into one of the largest independent employee benefits agencies in Connecticut. We were looking to take the agency to the next level and to do that we had to either buy other agencies, hire more producers or sell," explains Greenberg. However, if they sold, the principals didn't want to lose the entrepreneurial spark that 11 allowed them to build Insurance Concepts, or their reputation for professionalism and integrity. In HRH, they saw a company that was built on the same foundation they built their own agency upon. Jacobs and Greenberg continue, "In short, we saw an excellent match from our perspectives, as well as those of our employees and producers. Today, our highest expectations are being realized." Other benefits of becoming part of HRH, say Greenberg and Jacobs, include many cross-selling opportunities, management infrastructure, as well as the clout with insurance carriers that comes from being part of a large, respected, national organization. "When APC was first acquired, I was looking for negative aspects to the buyout and, in the end, couldn't find any. The fact is, we have a lot of new opportunities with HRH and the transition went very smoothly. Post acquisition, we're doing business as usual with more opportunities, more access to information, more ways to sell, and more tools. There are no gaps." [PHOTO OF JOSE PEREZ-ALBELA] Jose Perez-Albela, Senior Vice President, HRH International, Reinsurance Division 12 MARTIN VAUGHAN, III President and Chief Operating Officer [PHOTO OF MARTIN VAUGHAN, III] "Through Best Practices, HRH is developing a company-wide sales culture centered on giving our sales professionals the sales materials, training and management skills necessary to win new accounts, provide the optimal service to current and future clients and operate efficiently." Policy 13 Performance HRH's Best Practices initiative is a blueprint for better performance: increased sales, higher closing ratios, more efficient operations and better service. Our Best Practices program covers 16 areas that specifically impact how we perform in the middle market. In addition, Best Practices provide us with a method of measuring sales success and a common, company-wide language for discussing sales opportunities. Best Practices represent the importance of relationships at HRH. We know the future belongs to the team with the best people -- and the best-served clients. We value our relationships with our clients and are dedicated to providing them with true professionals, who can provide superior products and services. That's why we invested our time in 1999 to establish company-wide task forces to identify and develop Best Practices for our middlemarket clients. In 2000, we are investing our resources in providing the sales materials, training, management skills and producer recognition programs necessary for our producers to win new accounts, provide optimal service to our clients and operate efficiently -- in other words, to simply be the best. 14 BEST PRACTICES OPERATING "Today, price is not the main reason a client does business with you. It's the relationship you've developed with them over the years that is key -- the trust factor, the service factor, adding value to the relationship. Price is a consideration but it's not the determining factor. Best Practices allow me to be true to my relationships with my clients and to provide them with the value they deserve." [PHOTO OF DAVE DEARDEUFF] Dave Deardeuff, Vice President and Producer, HRH of Oklahoma City From HRH agency presidents to producers, HRH's Best Practices initiative is already making a big difference, bottom line. As an agency president, Kim McGillicuddy, President and CEO, Hilb, Rogal and Hamilton Company of Connecticut, believes her role is to drive the sales process. Best Practices, she says, help her to do that. For Dave Deardeuff, a top producer at HRH of Oklahoma City, the new tools that Best Practices provide are critical to ongoing success in a continually changing business. "I've been in the business for 17 years but our industry is changing every year and almost daily. To continue to be successful, you have to develop new skills. You can't live on what you've done in the past. Every day is a new challenge. Best Practices provide us with critical new skills and updated information on a regular basis," says Deardeuff. Both McGillicuddy and Deardeuff have only good words for the Miller-Heiman Strategic and Conceptual Sales Program, whose selling wisdom, based on understanding your prospect and developing long-term relationships, will reach all HRH producers, managers and account executives by summer 2000. McGillicuddy says, "Miller-Heiman is imbedded into our sales process. It's a process that we all follow and it provides us with a common language and a way to recognize what works best and make it uniform throughout the organization. Miller-Heiman will be supported by additional training and sales support tools. We expect all of these initiatives to help increase our closing ratios. In the time we've been using Miller-Heiman alone, we've seen a significant increase in closing rates." 15 Miller-Heiman in general and HRH's Best Practices initiative in particular, believes Deardeuff, put the focus where it should be, on building long-term relationships. "Today, price is not the main reason a client does business with you. It's the relationship you've developed with them over the years that is key - -- the trust factor, the service factor, adding value to the relationship. Price is a consideration but it's not the determining factor. Best Practices allow me to be true to my relationships with my clients and to provide them with the value they deserve," says Deardeuff. "As an agency president, my role is to drive the sales process and Best Practices helps me to accomplish that goal. From a sales management perspective, Best Practices provide the information I need to effectively measure producers' sales performance and their overall profitability. This in turn results in higher margins and better accountability." [PHOTO OF KIM MCGILLICUDDY] Kim McGillicuddy, President and CEO, Hilb, Rogal and Hamilton Company of Connecticut 16 JOHN McGRATH Senior Vice President, New Products and Business Development [PHOTO OF JOHN McGRATH] "The ever-changing business environment demands that we constantly look to the future and create new ways to better serve our clients and develop new business products. That's the driving force behind our partnerships with banks and Workplus.com." Policy 17 Performance Innovation -- at HRH that's another way we're creating value for our customers and shareholders. In 1999, bank deregulation and e-commerce gave rise to our most recent innovations -- business partnerships with banks and Workplus.com. Our exclusive bank partnerships will allow us access to a new stream of qualified, middle-market, commercial prospects. They represent yet another way for HRH to serve the middle market with tailor-made products and risk management services. Our collaboration with Workplus.com allows us to provide our commercial customers with a unique, web-based employee communication tool, which includes the ability to offer personal insurance products directly to employees of those clients. Because our personal relationships with clients remain paramount, we at HRH recognize new needs created by the rise of the Internet, innovative networking and e-commerce. In 1999, we expanded our in-house information technology staff and we are prepared to manage the unique risk exposures faced by innovative clients who market through the Internet. 18 NEW PRODUCTS AND BUSINESS DEVELOPMENT INNOVATING "In collaborating with HRH on Workplus.com, we're doing what we do best, which is to manufacture, create and administer this very high quality product. They're doing what they do best, which is identify and service their clients' needs. It's a perfect match." [PHOTO OF RICHARD SHAW] Richard Shaw, President, Workplus.com HRH is offering a new and exclusive product to its commercial lines middle-market clients -- Workplus.com. This innovative tool is making it easier for HRH producers to get appointments with new accounts and stimulating fresh dialogue with old accounts. Workplus.com provides commercial clients with easy to manage, rapid to deploy, user-friendly employee communication web sites, which are secure and reasonably priced. A distinguishing characteristic of these sites is that their content can be completely controlled by the client's nontechnical staff. No programmers are required and there is no equipment or software to buy. Richard Shaw, President of Workplus.com, says the product is ideal for employers who have a desire and a need to communicate with their employees on the Web about generic topics. Information typically posted to the site includes employee manuals, job postings, company calendars, newsletters and employee benefit information. In addition, Workplus.com makes it possible for HRH to sell its retail insurance products to employees of those middle-market clients. "On the sites, there is a subtle menu of hyperlinks to personal financial products that are important to employees, such as auto, homeowners and life insurance; mortgages; and credit cards," says Shaw. Shaw says collaborating with HRH to bring this new product to the market has been a perfect match. "As a result of our affiliation with HRH, we have adapted and evolved the product to more closely fit the needs of their middle-market clients. We've made evolutionary and adaptive changes to make it fit like a glove." For the major accounts of Hall Vetterlein, President of HRH of Philadelphia, the Internet has created new and unusual risk exposures: theft of intellectual property, credit card fraud and unauthorized access, to name a few. While Vetterlein's groundbreaking e-commerce clients' businesses and needs are relatively unique 19 right now, he thinks it won't be long before their risk management concerns are most businesses' concerns. "It's only a matter of time until e-commerce has an impact on most businesses. While not all businesses will operate exclusively on line, most will use a web site as a supplementary means of marketing their products. This will expose them to new risks," says Vetterlein. Vetterlein believes it's crucial for middle-market intermediaries to be able to recognize and develop risk management strategies for the new exposures e-commerce businesses face and be able to explain them to their clients. "At HRH, because we make it our business to anticipate our clients' changing needs, we're ready to offer the latest insurance and risk management solutions," says Vetterlein. "There is clearly an evolution going on from the old economy to a new e-commerce-based economy. It's crucial for middle-market intermediaries to be able to recognize and develop risk management strategies for the new exposures e-commerce businesses face and be able to explain them to their clients. At HRH, because we make it our business to anticipate our clients' changing needs, we're ready to offer the latest insurance and risk management solutions." [PHOTO OF HALL VETTERLEIN] Hall Vetterlein, President, HRH of Philadelphia 20 HRH Agency Locations NORTHEAST REGION Hamden, Connecticut Hartford, Connecticut Old Saybrook, Connecticut Lowell, Massachusetts Bordentown, New Jersey Fairfield, New Jersey Marlton, New Jersey Mt. Holly, New Jersey Northfield, New Jersey Buffalo, New York Jamestown, New York New York, New York Rochester, New York Syosett, New York Syracuse, New York WEST REGION Flagstaff, Arizona Mesa, Arizona Phoenix, Arizona Tuscon, Arizona Bakersfield, California Concord, California Dinuba, California Fresno, California Newport Beach, California Novato, California Ontario, California Palm Desert, California Redwood City, California Sacramento, California Santa Rosa, California Truckee, California Denver, Colorado Chicago, Illinois Moline, Illinois Grand Rapids, Michigan Port Huron, Michigan Charlotte, North Carolina MID-ATLANTIC REGION District of Columbia Baltimore, Maryland Chambersburg, Pennsylvania Philadelphia, Pennsylvania Pittsburgh, Pennsylvania Wexford, Pennsylvania Norfolk, Virginia Richmond, Virginia TEXAS/OKLAHOMA REGION Oklahoma City, Oklahoma Amarillo, Texas Corpus Christi, Texas Cuero, Texas Dallas, Texas Hereford, Texas Houston, Texas McAllen, Texas Victoria, Texas ALABAMA/GEORGIA REGION Birmingham, Alabama Fort Payne, Alabama Huntsville, Alabama Mobile, Alabama Atlanta, Georgia Gainesville, Georgia St. Simons Island, Georgia Savannah, Georgia FLORIDA REGION Fort Myers, Florida Gainesville, Florida Miami, Florida Orlando, Florida Sarasota, Florida Tallahassee, Florida Tampa, Florida 21 Financial FINANCIAL SECTION 22 23 Selected Financial Data 24 Management's Discussion and Analysis 27 Consolidated Balance Sheet 28 Statement of Consolidated Income 29 Statement of Consolidated Shareholders' Equity 30 Statement of Consolidated Cash Flows 31 Notes to Consolidated Financial Statements 40 Report of Independent Auditors 41 Board of Directors and Officers 42 General Information SELECTED FINANCIAL DATA 23 Hilb, Rogal and Hamilton Company and Subsidiaries
Year Ended December 31 1999 1998(3) 1997(3) 1996(3) 1995(3) - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Statement of Consolidated Income Data:(1) Commissions and fees $219,293 $170,203 $163,262 $148,692 $136,910 Investment income 2,046 1,579 1,740 1,533 2,077 Other(2) 5,887 3,582 3,411 2,742 4,515 ----------------------------------------------------------------------------- Total revenues 227,226 175,364 168,413 152,967 143,502 Compensation and employee benefits 125,577 98,478 96,240 88,406 82,761 Other operating expenses 49,500 41,286 40,181 36,675 33,619 Amortization of intangibles 10,690 7,919 8,110 7,596 6,966 Interest expense 6,490 2,317 2,037 1,245 559 Integration costs 1,900 -- -- -- -- ----------------------------------------------------------------------------- Total expenses 194,157 150,000 146,568 133,922 123,905 ----------------------------------------------------------------------------- Income before income taxes 33,069 25,364 21,845 19,045 19,597 Income taxes 13,583 10,419 9,055 7,639 7,768 ----------------------------------------------------------------------------- Net income $ 19,486 $ 14,945 $ 12,790 $ 11,406 $ 11,829 ============================================================================= Net income per Common Share: Basic $ 1.51 $ 1.20 $ 0.98 $ 0.84 $ 0.82 ============================================================================= Diluted $ 1.44 $ 1.18 $ 0.97 $ 0.84 $ 0.82 ============================================================================= Weighted average number of shares outstanding: Basic 12,876 12,497 13,099 13,500 14,470 Diluted 14,007 12,709 13,215 13,526 14,480 Dividends paid per Common Share $ 0.655 $ 0.635 $ 0.62 $ 0.605 $ 0.57 Consolidated Balance Sheet Data: Intangible assets, net $184,048 $ 87,471 $ 82,170 $ 80,006 $ 60,854 Total assets 317,981 188,066 181,607 181,475 163,249 Long-term debt, less current portion 111,826 43,658 32,458 27,196 11,750 Other long-term liabilities 10,672 10,192 9,537 9,870 7,514 Total shareholders' equity 71,176 45,710 51,339 55,298 56,646
1. See Note J of Notes to Consolidated Financial Statements for information regarding business purchase transactions which impact the comparability of this information. In addition, during the years ended December 31, 1996 and 1995, the Company consummated fifteen and fourteen purchase acquisitions, respectively. 2. During 1999, 1998, 1997, 1996 and 1995 the Company sold certain insurance accounts and other assets resulting in gains of approximately $4,906,000, $2,638,000, $2,475,000, $1,856,000 and $3,337,000, respectively. 3. In accordance with industry practice, the Company has changed its reporting to state revenues net of commissions paid to outside brokers; amounts for the years 1995 through 1998 have been restated. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hilb, Rogal and Hamilton Company and Subsidiaries The income of an insurance agency business such as the Company is principally derived from commissions earned, which are generally percentages of premiums placed with insurance underwriters. Premium pricing within the insurance underwriting industry has been cyclical and has displayed a high degree of volatility based on prevailing economic and competitive conditions. Decreases in premium rates result directly in revenue decreases to the Company. Since 1987, the property and casualty insurance industry has been in a "soft market," during which the underwriting capacity of insurance companies expanded, stimulating an increase in competition and a decrease in premium rates and related commissions and fees. The effect of the softness in rates on the Company's revenues has been offset by the Company's acquisitions and new business programs. Management cannot predict the timing or extent of premium pricing changes due to market conditions or their effects on the Company's operations in the future. On May 3, 1999, the Company acquired all of the issued and outstanding shares of common stock of American Phoenix Corporation (American Phoenix), a subsidiary of Phoenix Home Life Mutual Insurance Company, from Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan, III. The assets and liabilities of American Phoenix have been revalued to their respective fair market values. The financial statements of the Company reflect the combined operations of the Company and American Phoenix from the closing date of the acquisition. RESULTS OF OPERATIONS Total revenues for 1999 were $227.2 million, an increase of $51.9 million or 29.6% over 1998. For 1998, total revenues were $175.4 million, an increase of $7.0 million or 4.1% from 1997. Commissions and fees for 1999 were $219.3 million, or 28.8% higher than 1998. Approximately $52.2 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $10.4 million from the sale of certain offices and accounts in 1999 and 1998. Excluding the effects of acquisitions and dispositions, commissions and fees increased 4.4%. Commissions and fees for 1998 were $170.2 million, or 4.3% higher than 1997. Approximately $6.5 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.4 million from the sale of certain offices and accounts in 1998 and 1997. Excluding the effects of acquisitions and dispositions, commissions and fees increased 5.0%. Investment and other income increased by $2.8 million in 1999 and remained level in 1998. These amounts include gains of $4.9 million, $2.6 million and $2.5 million in 1999, 1998 and 1997, respectively, from the sale of certain offices, insurance accounts and other assets. Total operating expenses for 1999 were $194.2 million, an increase of $44.2 million or 29.4% from 1998. For 1998, total operating expenses were $150.0 million, an increase of $3.4 million or 2.3% from 1997. Compensation and employee benefits costs for 1999 were $125.6 million, an increase of $27.1 million or 27.5% from 1998. Increases include approximately $28.6 million related to purchase acquisitions and amounts related to revenue growth offset by decreases of $5.3 million related to offices sold in 1999 and 1998. Compensation and employee benefits costs for 1998 were $98.5 million, an increase of $2.2 million or 2.3% from 1997. Increases include approximately $3.2 million related to purchase acquisitions, amounts related to revenue growth and $1.7 million in incentive compensation related to improved operating results offset by decreases of $4.5 million related to offices sold in 1998 and 1997. Other operating expenses for 1999 were $49.5 million, or 19.9% higher than 1998. Increases relate primarily to purchase acquisitions and costs associated with revenue growth offset in part by the sale of certain offices in 1999 and 1998. Other operating expenses for 1998 were $41.3 million, or 2.7% higher than 1997. Increases relate primarily to purchase acquisitions and costs associated with revenue growth offset in part by the sale of certain offices in 1998 and 1997 and consulting fees totaling $1.0 million in 1997 related to the Company's strategic plan. Amortization expense reflects the amortization of expiration rights, an intangible asset acquired in the purchase of insurance agencies, non-compete agreements, goodwill and other intangible assets. Amortization expense increased by $2.8 million or 35.0% in 1999 and decreased by $0.2 million or 2.4% in 1998 which is attributable to purchase acquisitions consummated during 1999, 1998 and 1997 offset by decreases related to the sale of certain offices and amounts which became fully amortized in those years. Interest expense increased by $4.2 million or 180.1% in 1999 and remained level in 1998. The increase is due to additional bank borrowings and the issuance of Convertible Subordinated Debentures utilized to finance the American Phoenix acquisition. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 25 RESULTS OF OPERATIONS Hilb, Rogal and Hamilton Company and Subsidiaries During the second quarter of 1999, integration costs of $1.9 million were recorded related to severance, lease termination costs and other costs necessary to integrate the operations of American Phoenix with the Company. The effective tax rates for the Company were 41.1% in 1999, 41.1% in 1998 and 41.5% in 1997. An analysis of the effective income tax rates is presented in "Note F--Income Taxes" of Notes to Consolidated Financial Statements. Over the last three years, inflationary pressure has been relatively modest and did not have a significant effect on the Company's operations. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totaled $17.3 million, $19.6 million and $21.0 million for the years ended December 31, 1999, 1998 and 1997, respectively, and is primarily dependent upon the timing of the collection of insurance premiums from clients and payment of those premiums to the appropriate insurance underwriters. The Company has historically generated sufficient funds internally to finance capital expenditures. Cash expenditures for the acquisition of property and equipment were $6.6 million, $5.0 million and $2.1 million for the years ended December 31, 1999, 1998 and 1997, respectively. The timing and extent of the purchase of investments is dependent upon cash needs and yields on alternate investments and cash equivalents. In addition, during 1999 and 1998, total proceeds from maturities of investments exceeded purchases of investments by $1.8 million and $0.4 million, respectively, as the Company utilized these funds for the repurchase of Common Stock of the Company and the acquisition of insurance agencies. Cash outlays related to the purchase of insurance agencies accounted for under the purchase method of accounting amounted to $33.7 million, $10.4 million and $9.3 million in the years ended December 31, 1999, 1998 and 1997, respectively. Cash outlays for such insurance agency acquisitions have been funded primarily through operations and from long-term borrowings. In addition, a portion of the purchase price of such acquisitions may be paid through Common Stock, deferred cash payments and, in the case of the American Phoenix acquisition, issuance of Convertible Subordinated Debentures, see "Note J--Acquisitions" of the Notes to Consolidated Financial Statements. Cash proceeds from the sales of certain offices, insurance accounts and other assets totaled $5.6 million, $8.9 million and $6.5 million in the years ended December 31, 1999, 1998 and 1997, respectively. The Company did not have any material capital expenditure commitments as of December 31, 1999. Financing activities provided (utilized) cash of $21.1 million, ($16.4) million and ($16.0) million for the years ended December 31, 1999, 1998 and 1997, respectively, as the Company borrowed funds to finance the American Phoenix acquisition, made scheduled debt payments and annually increased its dividend rate. In addition, during 1999, 1998 and 1997, the Company repurchased 270,700, 1,045,280 and 700,000, respectively, shares of its Common Stock under a stock repurchase program. The Company is currently authorized to purchase an additional 506,800 shares and anticipates that it will continue to repurchase shares in 2000. The Company has a bank credit agreement for $110.0 million under which loans are due in various amounts through 2004 and $28.5 million of 5.25% Convertible Subordinated Debentures due 2014. At December 31, 1999, there were loans of $78.0 million outstanding under the bank agreement. The Company had a current ratio (current assets to current liabilities) of 0.89 to 1.00 as of December 31, 1999. Shareholders' equity of $71.2 million at December 31, 1999, increased from $45.7 million at December 31, 1998, and the debt to equity ratio of 1.57 to 1.00 at December 31, 1999 increased from the last year-end ratio of 0.96 to 1.00 due to the above mentioned increase in borrowings under the bank credit agreement, issuance of Convertible Subordinated Debentures and the issuance of $17.0 million of stock related to the American Phoenix acquisition offset by the impact of the aforementioned Common Stock repurchase program. The Company believes that cash generated from operations, together with proceeds from borrowings, will provide sufficient funds to meet the Company's short- and long-term funding needs. MARKET RISK The Company has certain investments and utilizes derivative financial instruments which are subject to market risk; however, the Company believes that exposure to market risk associated with these instruments is not material. IMPACT OF YEAR 2000 In prior years, the Company discussed its plans and progress related to achieving year 2000 readiness. During 1999, the Company completed all phases of this plan. The Company experienced no significant disruptions from mission critical systems or third party vendors. As of December 31, 1999, the Company had spent approximately $4.6 million in connection with remediating its systems. The Company is not aware of any material problems resulting from year 2000 issues, either with its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any year 2000 matters that may arise are addressed promptly. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hilb, Rogal and Hamilton Company and Subsidiaries FORWARD-LOOKING STATEMENTS When used in this annual report, in Form 10-K or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized Company executive officer, the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. While forward-looking statements are provided to assist in the understanding of the Company's anticipated future financial performance, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by such forward-looking statements for a variety of reasons. Risk factors and uncertainties that might cause such a difference include, but are not limited to the following: the Company's commission revenues are highly dependent on premium rates charged by insurers, which are subject to fluctuation; the continuation of the "soft market" during which the underwriting capacity of insurance companies has expanded causing increased competition and decreased premium rates and related commissions and fees; carrier override and contingent commissions are less predictable than usual; continued low interest rates will reduce income earned on invested funds; the insurance intermediary business is extremely competitive with a number of competitors being substantially larger than the Company; the alternative insurance market continues to grow; the Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business production; the general level of economic activity can have a substantial impact on the Company's renewal business. The Company's continued growth has also been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to the Company. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. CONSOLIDATED BALANCE SHEET 27 Hilb, Rogal and Hamilton Company and Subsidiaries
December 31 1999 1998 - ----------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents, including $14,619,000 and $10,951,000, respectively, of restricted funds $ 22,336,722 $ 19,394,958 Investments 2,939,238 3,383,742 Receivables: Premiums, less allowance for doubtful accounts of $1,456,000 and $1,505,000, respectively 61,853,039 45,313,620 Other 13,418,165 6,257,370 -------------------------------- 75,271,204 51,570,990 Prepaid expenses and other current assets 10,653,387 3,852,095 -------------------------------- TOTAL CURRENT ASSETS 111,200,551 78,201,785 INVESTMENTS 1,761,463 3,068,140 -------------------------------- PROPERTY AND EQUIPMENT, NET 15,412,623 12,387,194 INTANGIBLE ASSETS 229,130,542 131,800,607 Less accumulated amortization 45,082,914 44,329,974 -------------------------------- 184,047,628 87,470,633 OTHER ASSETS 5,559,054 6,938,074 -------------------------------- $317,981,319 $188,065,826 ================================ LIABILITIES AND SHAREHOLDERS' EQUITY current liabilities Premiums payable to insurance companies $ 87,752,334 $ 65,436,784 Accounts payable and accrued expenses 17,496,667 13,025,426 Premium deposits and credits due customers 15,192,499 7,765,575 Current portion of long-term debt 3,865,137 2,277,479 -------------------------------- TOTAL CURRENT LIABILITIES 124,306,637 88,505,264 LONG-TERM DEBT 111,826,434 43,658,306 OTHER LONG-TERM LIABILITIES 10,672,472 10,191,881 SHAREHOLDERS' EQUITY Common Stock, no par value; authorized 50,000,000 shares; outstanding 13,058,978 and 12,117,412 shares, respectively 18,248,712 3,831,208 Retained earnings 52,927,064 41,879,167 -------------------------------- 71,175,776 45,710,375 -------------------------------- $317,981,319 $188,065,826 ================================
See notes to consolidated financial statements. 28 STATEMENT OF CONSOLIDATED INCOME Hilb, Rogal and Hamilton Company and Subsidiaries
Year Ended December 31 1999 1998 1997 - ---------------------------------------------------------------------------------------------- REVENUES Commissions and fees $219,293,008 $170,202,554 $163,262,846 Investment income 2,045,596 1,578,782 1,739,578 Other 5,887,335 3,582,345 3,410,891 ---------------------------------------------------- 227,225,939 175,363,681 168,413,315 OPERATING EXPENSES Compensation and employee benefits 125,576,664 98,478,098 96,239,782 Other operating expenses 49,500,824 41,285,499 40,181,339 Amortization of intangibles 10,690,269 7,919,355 8,110,010 Interest expense 6,489,645 2,317,195 2,037,338 Integration costs 1,900,000 -- -- ---------------------------------------------------- 194,157,402 150,000,147 146,568,469 INCOME BEFORE INCOME TAXES 33,068,537 25,363,534 21,844,846 Income Taxes 13,582,740 10,418,469 9,054,995 ---------------------------------------------------- NET INCOME $ 19,485,797 $ 14,945,065 $ 12,789,851 ==================================================== NET INCOME PER COMMON SHARE: BASIC $ 1.51 $ 1.20 $ 0.98 ==================================================== DILUTED $ 1.44 $ 1.18 $ 0.97 ====================================================
See notes to consolidated financial statements. STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY 29 Hilb, Rogal and Hamilton Company and Subsidiaries
Common Stock Retained Earnings - --------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1997 $ 25,266,279 $ 30,031,992 Issuance of 192,446 shares of Common Stock 2,895,697 Purchase of 700,000 shares of Common Stock (11,338,557) Payment of dividends ($.62 per share) (8,023,705) Other (282,958) Net income 12,789,851 --------------------------------- BALANCE AT DECEMBER 31, 1997 16,540,461 34,798,138 Issuance of 349,669 shares of Common Stock 5,684,404 Purchase of 1,045,280 shares of Common Stock (18,672,302) Payment of dividends ($.635 per share) (7,864,036) Other 278,645 Net income 14,945,065 --------------------------------- BALANCE AT DECEMBER 31, 1998 3,831,208 41,879,167 Issuance of 1,212,266 shares of Common Stock 20,634,046 Purchase of 270,000 shares of Common Stock (6,216,542) Payment of dividends ($.655 per share) (8,437,900) Net income 19,485,797 --------------------------------- BALANCE AT DECEMBER 31, 1999 $ 18,248,712 $ 52,927,064 =================================
See notes to consolidated financial statements. 30 STATEMENT OF CONSOLIDATED CASH FLOWS Hilb, Rogal and Hamilton Company and Subsidiaries
Year Ended December 31 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 19,485,797 $ 14,945,065 $ 12,789,851 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 10,690,269 7,919,355 8,110,010 Depreciation and amortization 4,501,081 3,589,957 3,557,298 ------------------------------------------------------ Net income plus amortization and depreciation 34,677,147 26,454,377 24,457,159 Provision for losses on receivables 402,226 560,262 383,670 Provision for deferred income taxes 972,342 (503,796) (397,674) Gain on sale of assets (4,906,173) (2,637,829) (2,474,894) Changes in operating assets and liabilities net of effects from insurance agency acquisitions and dispositions: (Increase) decrease in accounts receivable 11,372,878 (5,991,755) 3,784,756 (Increase) decrease in prepaid expenses (4,014,117) (460,178) 197,802 Increase (decrease) in premiums payable to insurance companies (27,232,583) 2,562,095 (2,115,712) Increase (decrease) in premium deposits and credits due customers 7,278,076 13,073 (1,197,195) Increase (decrease) in accounts payable and accrued expenses (4,080,753) 405,635 (1,178,335) Other operating activities 2,802,707 (752,315) (475,547) ------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 17,271,750 19,649,569 20,984,030 INVESTING ACTIVITIES Purchase of held-to-maturity investments (2,116,165) (444,281) (3,549,631) Proceeds from maturities and calls of held-to- maturity investments 3,867,344 833,593 5,640,804 Proceeds from sale of available-for-sale investments -- -- 260,000 Purchase of property and equipment (6,587,055) (4,978,966) (2,135,837) Purchase of insurance agencies, net of cash acquired (33,681,000) (10,446,138) (9,309,760) Proceeds from sale of assets 5,635,066 8,912,516 6,546,661 Other investing activities (2,519,849) 2,403 115,892 ------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (35,401,659) (6,120,873) (2,431,871) FINANCING ACTIVITIES Proceeds from long-term debt 106,000,000 18,975,000 7,750,668 Principal payments on long-term debt (73,976,681) (11,071,664) (5,329,866) Repurchase of Common Stock (6,216,542) (18,672,302) (11,338,557) Dividends (8,437,900) (7,864,036) (8,023,705) Other financing activities 3,702,796 2,184,404 929,787 ------------------------------------------------------ NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 21,071,673 (16,448,598) (16,011,673) ------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,941,764 (2,919,902) 2,540,486 Cash and cash equivalents at beginning of year 19,394,958 22,314,860 19,774,374 ------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,336,722 $ 19,394,958 $ 22,314,860 ======================================================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31 Hilb, Rogal and Hamilton Company and Subsidiaries December 31, 1999 Hilb, Rogal and Hamilton Company (the Company), a Virginia corporation, operates as a network of wholly-owned subsidiary insurance agencies located in 18 states. Its principal activity is the performance of retail insurance services which involves placing various types of insurance, including property, casualty, marine, aviation, and employee benefits, with insurance underwriters on behalf of its clients. NOTE A SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenues: Commission income as well as the related premiums receivable from customers and premiums payable to insurance companies are recorded as of the effective date of insurance coverage or the billing date, whichever is later. Premium adjustments, including policy cancellations, are recorded as they occur. Contingent commissions and commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received. Fees for services rendered and override commissions are recorded as earned. These policies are in accordance with predominant industry practice. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. The carrying amounts reported on the balance sheet approximate the fair values. Investments: Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest and dividends are included in investment income. Realized gains and losses, and declines in value judged to be other than temporary are included in investment income. Marketable debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value. Amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. Property and Equipment: Property and equipment are stated on the basis of cost. Depreciation is computed by the straight-line method over estimated useful lives (30 to 33 years for buildings, 4 to 7 years for equipment). Leasehold improvements are generally amortized using a straight-line method over the term of the related lease. Intangible Assets: Intangible assets arising from acquisitions accounted for as purchases principally represent expiration rights, the excess of costs over the fair value of net assets acquired and noncompetition agreements. The cost of such assets is being amortized principally on a straight-line basis over periods ranging up to 40 years. The carrying value of the Company's intangible assets is periodically reviewed to ensure that there are no conditions which exist indicating that the recorded amount of intangible assets is not recoverable from future undiscounted cash flows. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hilb, Rogal and Hamilton Company and Subsidiaries Accounting for Stock-Based Compensation: The Company continues to account for its employee stock options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123), established accounting and disclosure requirements using a fair value based method of accounting for employee stock options. The effect of applying Statement No. 123's fair value method to the Company's employee stock options does not result in net income and net income per share that are materially different from amounts reported. Accordingly, the pro forma disclosures required by Statement No. 123 have not been included in the footnotes to the financial statements. Fair Value of Financial Instruments: The carrying amounts reported in the balance sheet for cash and cash equivalents, receivables, premiums payable to insurance companies, accounts payable and accrued expenses and long-term debt approximate those assets' and liabilities' fair values. Fair values for investment securities and interest rate swaps are based on quoted market prices and are disclosed in Notes B and D, respectively. Interest Rate Swaps: The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on variable interest rates for amounts based on fixed interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. Income Taxes: The Company files a consolidated federal income tax return with its subsidiaries. Deferred taxes result from temporary differences between the income tax and financial statement bases of assets and liabilities and are based on tax laws as currently enacted. Accounting Pronouncements: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the new statement will have a significant effect on earnings or the financial position of the Company. Reclassifications: In accordance with industry practice, the Company has changed its reporting to state revenues net of commissions paid to outside brokers. Amounts for the prior periods have been classified to conform to current year presentation. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33 Hilb, Rogal and Hamilton Company and Subsidiaries NOTE B INVESTMENTS The following is a summary of held-to-maturity investments included in current and long-term assets on the consolidated balance sheet:
Held-to-Maturity Investments --------------------------------------------------- Gross Gross Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $3,057,000 $10,000 $ -- $ 3,067,000 Certificates of deposit and other 1,644,000 -- -- 1,644,000 --------------------------------------------------- $4,701,000 $10,000 $ -- $ 4,711,000 ===================================================
Held-to-Maturity Investments --------------------------------------------------- Gross Gross Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $4,719,000 $64,000 $ -- $ 4,783,000 Certificates of deposit and other 1,733,000 -- -- 1,733,000 --------------------------------------------------- $6,452,000 $64,000 $ -- $ 6,516,000 ===================================================
The amortized cost and fair value of held-to-maturity investments at December 31, 1999, by contractual maturity, are as follows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Held-to-Maturity Investments Cost Fair Value - ---------------------------------------------------------- Due in one year $ 2,939,000 $2,944,000 Due after one year through five years 1,762,000 1,767,000 - ---------------------------------------------------------- $ 4,701,000 $4,711,000 ========================================================== NOTE C PROPERTY AND EQUIPMENT Property and equipment consists of the following: 1999 1998 - ------------------------------------------------------------------- Furniture and equipment $31,747,000 $28,830,000 Buildings and land 2,688,000 3,350,000 Leasehold improvements 3,424,000 2,376,000 - ------------------------------------------------------------------- 37,859,000 34,556,000 - ------------------------------------------------------------------- Less accumulated depreciation and amortization 22,446,000 22,169,000 - ------------------------------------------------------------------- $15,413,000 $12,387,000 =================================================================== NOTE D LONG-TERM DEBT 1999 1998 - ----------------------------------------------------------------------- Notes payable to banks, interest currently 7.00% to 7.375% $ 78,000,000 $ 40,000,000 5.25% Convertible Subordinated Debentures due 2014, with a conversion price of $22.75, callable 2009 28,594,000 -- Installment notes payable incurred in acquisitions of insurance agencies, 4.24% to 8.0%, due in various installments, to 2003 8,909,000 5,651,000 Installment notes payable, 6.25% to 6.50%, due in various installments, to 2003 189,000 284,000 -------------------------------- 115,692,000 45,935,000 Less current portion 3,865,000 2,277,000 -------------------------------- $111,827,000 $ 43,658,000 ================================ 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hilb, Rogal and Hamilton Company and Subsidiaries Maturities of long-term debt for the four years ending after December 31, 2000 are $3,002,000 in 2001; $1,170,000 in 2002; $6,647,000 in 2003; $71,750,000 in 2004 and $29,258,000 beyond 2004. Interest paid was $6,674,000, $2,321,000 and $3,437,000 in 1999, 1998 and 1997, respectively. The Company entered into a credit agreement with five banks that allows for borrowings of up to $110,000,000 consisting of a term loan facility of $45,000,000 and a revolving credit facility in the aggregate principal amount of $65,000,000, both of which bear interest at variable rates. The term portion of the facility is payable quarterly beginning September 30, 2000 with the final payment due June 30, 2004. The revolving credit facility is due in 2004. At December 31, 1999, $78,000,000 was borrowed under this agreement. This credit agreement contains, among other provisions, requirements for maintaining certain financial ratios and specific limits or restrictions on merger activity, indebtedness, investments, payment of dividends and repurchase of Common Stock. The Company entered into two interest rate swap agreements effective June 17, 1999 to manage interest rate exposure on its long-term debt. The swap agreements are contracts to exchange floating rate for fixed rate interest payments periodically over the life of the agreement without the exchange of the underlying combined notional amount of $45,000,000, which amortizes quarterly by $937,500 beginning September 30, 2000 through their maturity on June 30, 2004. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The credit risk to the Company would be the counterparties' inability to pay the differential between the fixed rate and variable rate in a rising interest rate environment. The Company is exposed to market risk from changes in interest rates. The differential paid or received on the interest rate per the agreements is recognized as an adjustment to interest expense. Under the Company's interest rate swap agreements, the Company contracted with the counterparties to exchange the difference between the Company's fixed pay rates of 6.43% and 6.46% and the counterparties' variable LIBOR pay rate. At the end of the year, the variable rate was approximately 6.49%. The contracts expire June 30, 2004. The fair market value of the interest rate swaps at December 31, 1999 was $567,000. NOTE E RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS The Company sponsors the HRH Retirement Savings Plan (the Retirement Savings Plan) which covers substantially all employees of the Company and its subsidiaries. The Retirement Savings Plan, which may be amended or terminated by the Company at any time, provides that the Company shall contribute to a trust fund such amounts as the Board of Directors shall determine subject to certain earnings restrictions as defined in the Retirement Savings Plan. Prior to merger with the Company, certain of the merged companies had separate profit sharing, ESOP or benefit plans. These plans were terminated or frozen at the time of merger with the Company. The total expense recorded under these plans for 1999, 1998 and 1997 was approximately $2,075,000, $2,378,000 and $3,120,000, respectively. In addition, in January 1998, the Company amended and restated the Supplemental Executive Retirement Plan (the Plan) for key executives to convert the Plan from a defined benefit arrangement to a cash balance plan. Upon amendment of the Plan, benefits earned prior to 1998 were frozen. The Company continues to accrue interest and amortize prior service costs related to the benefits earned prior to January 1, 1998 under the Plan and recognized expense related to these items of $241,000, $274,000 and $543,000 in 1999, 1998 and 1997, respectively. The Plan, as amended, provides that beginning in 1998 the Plan participants shall be credited each year with an amount that is calculated by determining the total Company match and profit sharing contribution that the participant would have received under the Retirement Savings Plan absent the compensation limitation that applies to such plan, reduced by the amount of actual company match and profit sharing contributions to such Plan. The Plan also provides for the crediting of interest to participant accounts. Expense recognized by the Company in 1999 and 1998 related to these Plan provisions amounted to $108,000 and $75,000, respectively. At December 31, 1999 and 1998, the Company's accrued liability for benefits under the Plan, including benefits earned prior to January 1, 1998 was $1,631,000 and $1,500,000, respectively and is included in other long-term liabilities on the balance sheet. The Company sponsors postretirement benefit plans that provide medical and life insurance benefits to retirees. Employees who retire after age 55 with 10 years of service are eligible to participate. The plans are contributory for substantially all participants, with retiree contributions adjusted annually and the health care plan contains other cost sharing features such as deductibles and coinsurance. The accounting for the health care plan anticipates future cost sharing changes to the written plan that are consistent with the Company's expressed intent to increase retiree contributions annually in accordance with increases in health care costs. The Company's policy is to fund the cost of these benefits when actual claims are incurred. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35 Hilb, Rogal and Hamilton Company and Subsidiaries The following tables set forth a reconciliation of the changes in benefit obligation and fair value of assets, a statement of funded status, weighted average discount rates and components of net periodic benefit costs for the Postretirement Benefit Plans:
1999 1998 - --------------------------------------------------------------------------------------- RECONCILIATION OF CHANGES IN BENEFIT OBLIGATIONS: Benefit obligation at beginning of year $ 895,000 $ 896,000 Interest cost 60,000 64,000 Actuarial gain (259,000) (34,000) Benefit payments (2,000) (31,000) ------------------------------ Benefit obligation at end of year $ 694,000 $ 895,000 ============================== RECONCILIATION OF FAIR VALUE OF PLAN ASSETS: Fair value of plan assets at beginning of year $ -- $ -- Employer contributions 2,000 31,000 Benefit payments (2,000) (31,000) ------------------------------ Fair value of plan assets at end of year $ -- $ -- ============================== FUND STATUS: Funded status as of December 31 $(694,000) $(895,000) Unrecognized transition cost 771,000 881,000 Unrecognized gain (873,000) (668,000) ------------------------------ Accrued benefit cost $(796,000) $(682,000) ============================== WEIGHTED AVERAGED DISCOUNT RATE AS OF DECEMBER 31 7.75% 7.00%
1999 1998 1997 - ------------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Interest cost $ 60,000 $ 64,000 $ 80,000 Amortization of transition obligation 110,000 110,000 115,000 Amortization of prior gains (54,000) (70,000) (79,000) ---------------------------------------- Net periodic benefit cost $ 116,000 $ 104,000 $ 116,000 ========================================
The accrued benefit liability recognized in the statement of financial position as of December 31, 1999 and 1998 was $796,000 and $682,000, respectively. For measurement purposes, a 7.00% gross medical trend rate was assumed in 2000. The rate is assumed to decrease to 6.20% over the period to 2020 and remain level thereafter. The effect of a 1% change in the assumed health care costs trend rates is immaterial. NOTE F INCOME TAXES The components of income taxes shown in the statement of consolidated income are as follows: 1999 1998 1997 - ------------------------------------------------------------------------- Current Federal $10,409,000 $ 8,542,000 $7,401,000 State 2,201,000 2,039,000 1,438,000 Foreign -- 341,000 614,000 - ------------------------------------------------------------------------- 12,610,000 10,922,000 9,453,000 Deferred Federal 825,000 (362,000) (247,000) State 148,000 (68,000) (46,000) Foreign -- (74,000) (105,000) - ------------------------------------------------------------------------- 973,000 (504,000) (398,000) - ------------------------------------------------------------------------- $13,583,000 $10,418,000 $9,055,000 ========================================================================= 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hilb, Rogal and Hamilton Company and Subsidiaries The effective income tax rate varied from the statutory federal income tax rate as follows: 1999 1998 1997 - ----------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax exempt investment income (0.4) (0.5) (0.8) State income taxes, net of federal tax benefit 4.6 5.0 4.2 Other 1.9 1.6 3.1 - ----------------------------------------------------------------------- Effective income tax rate 41.1% 41.1% 41.5% ======================================================================= Income taxes paid were $15,346,000, $10,678,000 and $9,646,000 in 1999, 1998 and 1997, respectively. Income before income taxes from the Company's Canadian operations (sold during 1998) was $451,000 and $900,000 in 1998 and 1997, respectively. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets on the consolidated balance sheet are as follows: 1999 1998 - ---------------------------------------------------------------------- Deferred tax liabilities: Intangible assets $6,042,000 $5,531,000 Other--net 438,000 1,513,000 - ---------------------------------------------------------------------- Total deferred tax liabilities 6,480,000 7,044,000 Deferred tax assets: Deferred compensation 1,434,000 1,083,000 Bad debts 575,000 571,000 Accrued transaction costs 1,407,000 -- Other 1,464,000 1,255,000 - ---------------------------------------------------------------------- Total deferred tax assets 4,880,000 2,909,000 - ---------------------------------------------------------------------- Net deferred tax liabilities $1,600,000 $4,135,000 ====================================================================== NOTE G LEASES The Company and its subsidiaries have noncancellable lease contracts for office space, equipment and automobiles which expire at various dates through the year 2008 and generally include escalation clauses for increases in lessors' operating expenses and increased real estate taxes. Future minimum rental payments required under such operating leases are summarized as follows: 2000 $ 11,594,000 2001 10,415,000 2002 9,570,000 2003 7,137,000 2004 4,293,000 Thereafter 8,751,000 - ------------------------------------------------------ $ 51,760,000 ====================================================== Rental expense for all operating leases amounted to $10,225,000 in 1999, $7,474,000 in 1998 and $7,276,000 in 1997. Included in rental expense for 1999, 1998 and 1997 is approximately $429,000, $554,000 and $386,000, respectively, which was paid to employees or related parties. NOTE H SHAREHOLDERS' EQUITY The Company has adopted and the shareholders have approved the 1986 Incentive Stock Option Plan, the Hilb, Rogal and Hamilton Company 1989 Stock Plan and the Non-employee Directors Stock Incentive Plan, which provide for the granting of options to purchase up to an aggregate of approximately 1,955,000 and 1,853,000 shares of Common Stock as of December 31, 1999 and 1998, respectively. The number of shares available for grant may increase or decrease with the respective changes in the number of shares of Common Stock outstanding. Stock options granted have seven to ten year terms and vest and become fully exercisable at various periods up to five years. Stock option activity under the plans were as follows: Weighted Average Exercise Shares Price - ------------------------------------------------------------------- Outstanding at January 1, 1997 743,325 $ 13.39 Granted 528,190 15.97 Exercised 78,052 12.19 Expired 87,000 13.42 - ------------------------------------------------- Outstanding at December 31, 1997 1,106,463 14.70 Granted 290,747 17.68 Exercised 136,405 13.16 Expired 54,346 15.20 - ------------------------------------------------- Outstanding at December 31, 1998 1,206,459 15.54 Granted 91,100 21.24 Exercised 180,667 14.73 Expired 36,642 14.96 - ------------------------------------------------- Outstanding at December 31, 1999 1,080,250 16.17 ================================================= Exercisable at December 31, 1999 635,480 15.61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37 Hilb, Rogal and Hamilton Company and Subsidiaries The options outstanding at December 31, 1999 have exercise prices that range from $10.00 to $21.63. The weighted average contractual life of these options is five years. There were 349,000 and 309,000 shares available for future grant under these plans as of December 31, 1999 and 1998, respectively. No compensation expense is recognized in operations for 1999, 1998 or 1997. During 1999, the Company also awarded 5,500 shares of restricted stock under the 1989 Stock Plan, with a weighted average fair value at the grant date of $22.63 per share. These restricted shares vest ratably over a four year period beginning in the second year of continued employment. Compensation expense related to this award was $17,000 for the year ended December 31, 1999. NOTE I NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- Numerator for basic net income per share--net income $19,485,797 $14,945,065 $12,789,851 Effect of dilutive securities: 5.25% convertible debenture 710,995 -- -- --------------------------------------------------- Numerator for dilutive net income per share-- net income after assumed conversions $20,196,792 $14,945,065 $12,789,851 =================================================== Denominator Weighted average shares 12,783,299 12,453,558 13,069,453 Effect of guaranteed future shares to be issued in connection with agency acquisitions 92,212 43,194 29,764 --------------------------------------------------- Denominator for basic net income per share 12,875,511 12,496,752 13,099,217 Effect of dilutive securities: Employee stock options 181,702 187,794 101,280 Employee restricted stock 282 -- -- Contingent stock-- acquisitions 11,999 24,198 14,222 5.25% convertible debenture 937,729 -- -- --------------------------------------------------- Dilutive potential common shares 1,131,712 211,992 115,502 --------------------------------------------------- Denominator for diluted net income per share-- adjusted weighted average shares and assumed conversions 14,007,223 12,708,744 13,214,719 =================================================== Net Income Per Common Share: Basic $ 1.51 $ 1.20 $ 0.98 =================================================== Diluted $ 1.44 $ 1.18 $ 0.97 ===================================================
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hilb, Rogal and Hamilton Company and Subsidiaries NOTE J ACQUISITIONS On May 3, 1999, the Company acquired all of the issued and outstanding shares of American Phoenix Corporation, a subsidiary of Phoenix Home Life Mutual Insurance Company, from Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan, III. The shares were acquired in exchange for approximately $49 million in cash, $32 million face value in 5.25% Convertible Subordinated Debentures due 2014, with a conversion price of $22.75 per share, callable in 2009, and 1,000,000 shares of Common Stock of the Company. The Company funded the cash portion of the purchase price with a credit facility obtained in connection with the acquisition. The acquisition has been accounted for by the purchase method of accounting. Intangible assets of approximately $97 million, created by the acquisition, will be amortized over 25 years. The assets and liabilities of American Phoenix Corporation have been revalued to their respective fair market values. Certain fair value estimates used in the determination of goodwill were preliminary and are subject to adjustment, which may increase or decrease the amount of goodwill recorded. The financial statements of the Company reflect the combined operations of the Company and American Phoenix Corporation from the closing date of the acquisition. Pursuant to EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," the Company recorded a charge of $1.9 million in the second quarter related to employee severance, lease termination costs and other costs necessary to integrate the operations of American Phoenix Corporation with the Company. Costs incurred to exit certain leases and physically merge common locations comprised $950,000 of this amount. The remaining amount relates to employee severance and other integration costs. As of December 31, 1999, the Company had paid approximately $562,000 of these integration costs. These charges have been included in the following pro forma amounts. Similar costs related to American Phoenix Corporation's severance and termination costs, which are estimated at $2,200,000, have been capitalized as part of the purchase price. The following unaudited pro forma results of operations of the Company give effect to the acquisition of American Phoenix Corporation as though the transaction had occurred on January 1, 1999 and 1998, respectively. 1999 1998 - ---------------------------------------------------------------------------- Revenues $252,000,000 $250,616,000 Net Income 20,783,000 13,913,000 Net Income Per Common Share: Basic $ 1.57 $ 1.03 Diluted $ 1.45 $ 0.99 Weighted Average Shared Outstanding Basic 13,209,000 13,497,000 Diluted 14,809,000 15,115,000 During 1999, the Company also acquired certain assets and liabilities of two other insurance agencies for $4,313,000 ($3,250,000 in cash and $1,063,000 in guaranteed future payments) in purchase accounting transactions. Assets acquired include expiration rights of $3,073,000, noncompetition agreements of $430,000 and goodwill of $997,000. The combined purchase price may be increased by approximately $875,000 in 2000 and $875,000 in 2001 based upon net profits realized. During 1998, the Company acquired certain assets and liabilities of six insurance agencies for $9,998,000 ($4,498,000 in cash, $3,500,000 in guaranteed future payments and 113,945 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,220,000, noncompetition agreements of $2,645,000 and goodwill of $1,922,000. The combined purchase price was increased by approximately $2,389,000 in 1999, and may be increased by approximately $1,635,000 in 2000, $1,500,000 in 2001, $1,125,000 in 2002 and $525,000 in 2003 based upon commissions or net profits realized. During 1997, the Company acquired certain assets and liabilities of six insurance agencies for $9,426,000 ($6,333,000 in cash, $2,393,000 in guaranteed future payments and 53,555 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,082,000, noncompetition agreements of $1,151,000 and goodwill of $1,310,000. The combined purchase price was increased by $1,173,000 in 1999 and $2,564,000 in 1998 and may be increased by approximately $1,490,000 in 2000 based upon net profits realized. The above purchase acquisitions have been included in the Company's consolidated financial statements from their respective acquisition dates. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39 Hilb, Rogal and Hamilton Company and Subsidiaries NOTE K SALE OF ASSETS During 1999, 1998 and 1997, the Company sold certain insurance accounts and other assets resulting in gains of approximately $4,906,000, $2,638,000 and $2,475,000, respectively. These amounts are included in other revenues in the statement of consolidated income. Revenues, expenses and assets of these operations were not material to the consolidated financial statements. NOTE L COMMITMENTS AND CONTINGENCIES Included in cash and cash equivalents and premium deposits and credits due customers are approximately $213,000 and $929,000 of funds held in escrow at December 31, 1999 and 1998, respectively. In addition, premiums collected from insureds but not yet remitted to insurance carriers are restricted as to use by laws in certain states in which the Company operates. The amount of cash and cash equivalents so restricted was approximately $14,406,000 and $10,022,000 at December 31, 1999 and 1998, respectively. There are in the normal course of business various outstanding commitments and contingent liabilities. Management does not anticipate material losses as a result of such matters. The Company is generally involved in routine insurance policy related litigation. Several suits have been brought against the Company involving settlement of various insurance matters where customers are seeking both punitive and compensatory damages. Management, upon the advice of counsel, is of the opinion that such suits are substantially without merit, that valid defenses exist and that such litigation will not have a material effect on the consolidated financial statements. NOTE M QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998:
Three Months Ended(1) --------------------------------------------------------------- (in thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ----------------------------------------------------------------------------------------------------------------------- 1999 Total Revenues $ 50,254 $ 54,885 $ 63,207 $ 58,880 Net Income 7,437 3,044 5,916 3,089 Net Income Per Common Share: Basic 0.61 0.24 0.45 0.23 Diluted 0.60 0.23 0.42 0.23 1998 Total Revenues $ 47,289 $ 44,535 $ 42,266 $ 41,274 Net Income 5,946 4,446 3,101 1,452 Net Income Per Common Share: Basic 0.47 0.35 0.25 0.12 Diluted 0.46 0.35 0.25 0.12
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. 40 REPORT OF INDEPENDENT AUDITORS Hilb, Rogal and Hamilton Company and Subsidiaries Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the accompanying consolidated balance sheet of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Richmond, Virginia February 9, 2000 BOARD OF DIRECTORS AND OFFICERS 41 Hilb, Rogal and Hamilton Company and Subsidiaries BOARD OF DIRECTORS Andrew L. Rogal (1) Chairman and Chief Executive Officer Hilb, Rogal and Hamilton Company Glen Allen, Virginia Robert H. Hilb (1) (2) (4) Chairman Emeritus Hilb, Rogal and Hamilton Company Glen Allen, Virginia Martin L. Vaughan, III (6) President and Chief Operating Officer Hilb, Rogal and Hamilton Company Glen Allen, Virginia Timothy J. Korman (5) Executive Vice President Finance and Administration Hilb, Rogal and Hamilton Company Glen Allen, Virginia Theodore L. Chandler, Jr. (1) (2) (4) (5) Senior Executive Vice President LandAmerica Financial Group, Inc. Richmond, Virginia Norwood H. Davis, Jr. (1) (2) (4) (6) Chairman of the Board Trigon Healthcare, Inc. Richmond, Virginia Philip J. Faccenda (3) Vice President and General Counsel, Emeritus University of Notre Dame Notre Dame, Indiana Robert W. Fiondella (5) (6) Chairman, President and Chief Executive Officer Phoenix Home Life Mutual Insurance Company Hartford, Connecticut J.S.M. French (3) President Dunn Investment Company Birmingham, Alabama Anthony F. Markel (3) (6) President and Chief Operating Officer Markel Corporation Glen Allen, Virginia Thomas H. O'Brien (1) (2) (4) Chairman and Chief Executive Officer The PNC Financial Services Group, Inc. Pittsburgh, Pennsylvania David W. Searfoss (3) Executive Vice President and Chief Financial Officer Phoenix Home Life Mutual Insurance Company Hartford, Connecticut Robert S. Ukrop (5) President and Chief Executive Officer Ukrop's Super Markets, Inc. Richmond, Virginia OFFICERS Andrew L. Rogal Chairman and Chief Executive Officer Martin L. Vaughan, III President and Chief Operating Officer Timothy J. Korman Executive Vice President, Finance and Administration Carolyn Jones Senior Vice President, Chief Financial Officer and Treasurer John P. McGrath Senior Vice President, Business and Product Development Walter L. Smith Vice President, General Counsel and Secretary Richard E. Simmons, III Vice President; Director, Alabama/Georgia Region William L. Chaufty Vice President; Director, Texas/Oklahoma Region Robert B. Lockhart Vice President; Director, Northeast Region Benjamin A. Tyler Vice President; Director, Florida Region Michael A. Janes Vice President; Director, West Region Steven C. Deal Vice President; Director, Mid-Atlantic Region Richard F. Galardini Vice President; Director, Employee Benefits Karl E. Manke Vice President, Marketing and Sales Development Henry C. Kramer Vice President, Human Resources Vincent P. Howley Vice President, Agency Financial Operations Robert J. Hilb Vice President Robert W. Blanton, Jr. Vice President and Controller Valerie C. Elwood Assistant Vice President William C. Widhelm Assistant Vice President, Internal Audit (1) Executive Committee Member (2) Compensation Committee Member (3) Audit Committee Member (4) Corporate Governance Committee Member (5) Corporate Affairs Committee Member (6) Product Development Committee 42 GENERAL INFORMATION Hilb, Rogal and Hamilton Company and Subsidiaries FORM 10-K Any shareholder wishing to obtain a copy of the Company's Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission may do so without charge by writing to the Secretary at the corporate address. ANNUAL MEETING The Company's Annual Meeting of Shareholders will be held on May 2, 2000 at 10:00 A.M. at the Jefferson Hotel, 101 West Franklin Street, Richmond, Virginia. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, LLC Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 (800) 756-3353 www.chasemellon.com SHAREHOLDER INQUIRIES Communications regarding dividends, lost stock certificates, change of address, etc. should be directed to ChaseMellon Shareholder Services. Other inquiries should be directed to the Secretary at the corporate address. OUTSIDE COUNSEL Williams, Mullen, Clark & Dobbins Richmond, Virginia INDEPENDENT AUDITORS Ernst & Young LLP Richmond, Virginia CORPORATE HEADQUARTERS 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 (804) 747-6500 (804) 747-6046 fax www.hrh.com SHAREHOLDERS The Company's Common Stock has been publicly traded since July 15, 1987. It is traded on the New York Stock Exchange under the symbol "HRH." As of December 31, 1999, there were 565 holders of record of the Company's Common Stock. MARKET PRICE OF COMMON STOCK High and low stock prices and dividends per share for the indicated quarters were: Sales Price Cash ----------------- Dividends Quarter Ended High Low Declared - ----------------------------------------------------- 1998 March 31 $19.19 $16.25 $.155 June 30 18.44 15.50 .160 September 30 19.13 16.13 .160 December 31 19.88 15.94 .160 1999 March 31 19.13 15.56 .160 June 30 22.38 17.19 .165 September 30 25.06 20.88 .165 December 31 29.13 24.25 .165 [HRH LOGO] HILB, ROGAL AND HAMILTON COMPANY 4235 INNSLAKE DRIVE P.O. BOX 1220 GLEN ALLEN, VA 23060-1220 Tel 804-747-6500 www.hrh.com EX-21 8 EXHIBIT 21 Exhibit 21 Subsidiaries of Hilb, Rogal and Hamilton Company
State/Province of ----------------- Name of Subsidiary Incorporation ------------------ ------------- HRH Financial Institutions Group, Inc. Pennsylvania HRH Insurance Services of the Coachella Valley, Inc. (2 locations) California HRH Insurance Services of Central California, Inc. (3 locations) California HRH of Connecticut, Inc. (2 locations) Connecticut HRH of Northern California Insurance Services, Inc. (5 locations) California Hilb, Rogal and Hamilton Company of Alabama, Inc. (4 locations) Alabama Hilb, Rogal and Hamilton Company of Arizona (4 locations) Arizona Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia Hilb, Rogal and Hamilton Company of Baltimore Maryland Hilb, Rogal and Hamilton Company of Connecticut Connecticut Hilb, Rogal and Hamilton Company of Denver Colorado Hilb, Rogal and Hamilton Company of the District of Columbia Delaware Hilb, Rogal and Hamilton Company of Fort Myers Florida Hilb, Rogal and Hamilton Company of Gainesville, Florida, Inc. Florida Hilb, Rogal and Hamilton Company of Gainesville, Georgia Georgia Hilb, Rogal and Hamilton Company of Grand Rapids Michigan Hilb, Rogal and Hamilton Company of Massachusetts, Inc. Massachusetts Hilb, Rogal and Hamilton Company of New York, Inc. New York Hilb, Rogal and Hamilton Company of Northern New Jersey New Jersey Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma Hilb, Rogal and Hamilton Company of Orlando Florida Subsidiaries of Hilb, Rogal and Hamilton Company State/Province of ----------------- Name of Subsidiary Incorporation ------------------ ------------- Hilb, Rogal and Hamilton Company of Philadelphia Pennsylvania Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. (3 locations) Pennsylvania Hilb, Rogal and Hamilton Company of Port Huron (2 locations) Michigan Hilb, Rogal and Hamilton Company of the Quad Cities (2 locations) Illinois Hilb, Rogal and Hamilton Company of St. Simons Island Georgia Hilb, Rogal and Hamilton Company of Sarasota Florida Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia Hilb, Rogal and Hamilton Company of South Florida Florida Hilb, Rogal and Hamilton Company of Southern New Jersey New Jersey Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida Hilb, Rogal and Hamilton Company of Texas (8 locations) Texas Hilb, Rogal and Hamilton Company of Upstate New York, Inc. (4 Delaware locations) Hilb, Rogal and Hamilton Company of Virginia (2 locations) Virginia Hilb, Rogal and Hamilton Realty Company Delaware Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia Hunt Insurance Group, Inc. Florida Kalvin-Miller Consulting Group, Inc. New York Premium Funding Associates, Inc. Connecticut Professional Practice Insurance Brokers, Inc. (3 locations) California The Managing Agency, Inc. Connecticut
Each of the above subsidiaries is 100% owned by the registrant, except for Hilb, Rogal and Hamilton Company of South Florida which is 85% owned by the registrant. EX-23 9 EXHIBIT 23 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors -------------------------------------------------- We consent to the incorporation by reference in the Registration Statements (Form S-4 No. 33-44271, Form S-8 No. 33-59866, Form S-8 No. 333-44735, Form S-8 333-93633 and Form S-8 No. 333-30650) of Hilb, Rogal and Hamilton Company and in the related Prospectuses of our report dated February 9, 2000, with respect to the consolidated financial statements of Hilb, Rogal and Hamilton Company incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1999 and the related financial statement schedule included therein, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Richmond, Virginia March 24, 2000 EX-27 10 FDS -- HILB, ROGAL AND HAMILTON COMPANY
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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS DEC-31-1999 DEC-31-1999 22,336,722 2,939,238 63,309,300 (1,456,261) 0 111,200,551 37,858,797 (22,446,174) 317,981,319 124,306,637 111,826,434 0 0 18,248,712 52,927,064 317,981,319 0 227,225,939 0 0 187,667,757 0 6,489,645 33,068,537 13,582,740 19,485,797 0 0 0 19,485,797 1.51 1.44
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