UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Hilb, Rogal and Hamilton Company
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(Name of Registrant as Specified In Its Charter)
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[LOGO]
HRH
Insuring the Way
April 5, 2002
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders on
Tuesday, May 7, 2002, at 10:00 a.m. at The Jefferson Hotel, 101 W. Franklin
Street, Richmond, Virginia. At the meeting you will be asked to elect five
directors, four to the class of directors whose term of office expires in 2005
and one to the class of directors whose term of office expires in 2003. On the
following pages, you will find the formal notice of annual meeting and the
proxy statement.
Whether or not you plan to attend the meeting, it is important that your
shares be represented and voted at the meeting. Therefore, you are urged to
complete, sign, date and mail your proxy card or voting instruction promptly in
the enclosed postage-paid envelope. Also, registered shareholders may vote by
telephone or over the Internet. Instructions for using these convenient
services are included on the proxy card. Beneficial owners of shares held in
street name should follow the voting instructions provided by their bank or
broker.
We hope you will participate in the annual meeting, either in person or by
proxy.
Sincerely,
/s/ ANDREW L. ROGAL
Andrew L. Rogal
Chairman and Chief Executive Officer
HILB, ROGAL AND HAMILTON COMPANY
4951 Lake Brook Drive, Suite 500
Glen Allen, Virginia 23060
-----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 7, 2002
-----------------
The Annual Meeting of Shareholders of Hilb, Rogal and Hamilton Company (the
Company) will be held on Tuesday, May 7, 2002, at 10:00 a.m. at The Jefferson
Hotel, 101 W. Franklin Street, Richmond, Virginia, for the following purposes:
1. To elect four directors to the class of directors whose term of office
expires in 2005;
2. To elect one director to the class of directors whose term of office
expires in 2003; and
3. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 15, 2002, the
record date fixed by the Board of Directors of the Company, are entitled to
notice of, and to vote at, the meeting.
By Order of The Board of Directors
/s/ WALTER L. SMITH
Walter L. Smith
Senior Vice President, General
Counsel and
Corporate Secretary
April 5, 2002
PROXY STATEMENT
Proxies in the form enclosed are solicited by the Board of Directors for the
Annual Meeting of Shareholders to be held on May 7, 2002, and any duly
reconvened meeting after adjournment thereof (the Meeting). Any shareholder who
executes a proxy has the power to revoke it at any time by written notice to
the Secretary of the Company, by executing a proxy dated as of a later date or
by voting in person at the Meeting. It is expected that this proxy statement
and the enclosed proxy card will be mailed on or about April 5, 2002, to all
shareholders entitled to vote at the Meeting.
Shareholders and participants in plans holding shares of the Company's
Common Stock are urged to complete, sign and date the enclosed proxy or voting
instruction and return it as promptly as possible in the postage-paid envelope
enclosed for that purpose. Registered shareholders can also deliver proxies by
calling a toll-free telephone number or by using the Internet. The telephone
and Internet voting procedures are designed to authenticate shareholders'
identities, to allow shareholders to give their voting instructions and to
confirm that such instructions have been recorded properly. Instructions for
voting by telephone or over the Internet are set forth on the enclosed proxy
card. If your shares are held in street name with your bank or broker, please
vote in the manner provided by the voting instruction enclosed with this Proxy
Statement.
The Company will pay all of the costs associated with this proxy
solicitation. In addition, certain officers and employees of the Company or its
subsidiaries, without additional compensation, may use their personal efforts,
by telephone or otherwise, to obtain proxies. The Company will also reimburse
banks, brokerage firms and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in forwarding proxy materials to the
beneficial owners of the shares.
On the record date of March 15, 2002, the date for determining shareholders
entitled to notice of, and to vote at, the Meeting, there were 28,493,653
shares of Common Stock issued and outstanding. Each share of Common Stock is
entitled to one vote on each matter to be acted upon at the Meeting. A majority
of the shares entitled to vote, represented in person or by proxy, will
constitute a quorum for the transaction of business at the Meeting. Shares held
in street name (Broker Shares) that are not voted on any matter at the Meeting
will not be included in determining the number of shares present or represented
at the Meeting.
The management and directors are not aware of any matters to be presented
for action at the Meeting other than the matters stated in the notice of the
Meeting. If any such matter requiring a vote of the shareholders should
properly come before the Meeting, unless otherwise instructed, it is the
intention of the persons named in the proxy card to vote such proxy in
accordance with their best judgment.
1
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 2002, certain information
with respect to (a) the beneficial ownership of the Company's Common Stock by
(i) each director and nominee; (ii) the Chief Executive Officer, Andrew L.
Rogal, and each of the Company's four other most highly paid executive
officers, Martin L. Vaughan, III, Timothy J. Korman, John P. McGrath and
Michael A. Janes (collectively, the Named Executive Officers); and (iii) all
directors and executive officers as a group and (b) the amount of Deferred
Stock Units held by each such person and group.
Beneficial Ownership
-------------------------
Number of Deferred
Common Exercisable Stock
Name Shares (1)(2) Options (3) Units (4)
---- ------------- ----------- ---------
Theodore L. Chandler, Jr....................... 26,958 60,000 13,584
Norwood H. Davis, Jr........................... 20,000 56,000 2,307
Robert W. Fiondella (5)........................ 10,000 30,000 6,115
J. S. M. French................................ 80,600 60,000 11,174
Robert H. Hilb................................. 194,000 40,000 13,009
Michael A. Janes............................... 40,675 89,750 2,996
Timothy J. Korman.............................. 127,523 91,500 --
Anthony F. Markel.............................. 14,000 40,000 10,762
John P. McGrath................................ 58,046 114,000 --
Thomas H. O'Brien.............................. 27,329 60,000 --
Andrew L. Rogal................................ 206,763 229,000 --
David W. Searfoss (5).......................... 2,000 30,000 6,302
Julious P. Smith, Jr........................... 2,223 10,000 1,488
Robert S. Ukrop................................ 69,296 40,000 10,725
Martin L. Vaughan, III......................... 297,561 18,000 10,274
--------- --------- -------
All directors and executive officers as a group
(27 persons, including those named above).... 1,494,673 1,381,600 117,104
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(1) The number of shares of Common Stock shown in the table includes (i)
113,253 shares held for certain executive officers in the Company's
Retirement Savings Plan as of March 1, 2002, (ii) 214,175 shares of
Restricted Stock granted to executive officers pursuant to the Company's
1989 Stock Plan and 2000 Stock Incentive Plan, and (iii) 172,645 shares of
Common Stock held by immediate family members and controlled entities and
in various fiduciary capacities. Such shares may be deemed to be
beneficially owned by the rules of the Securities and Exchange Commission,
but inclusion of the shares in the table does not constitute admission of
beneficial ownership.
(2) On March 1, 2002, the Company had 28,491,053 shares of Common Stock issued
and outstanding. Each of the individuals listed in the table is the
beneficial owner of less than 1% of the issued and outstanding shares of
Common Stock on that date, except for Andrew L. Rogal and Martin L.
Vaughan, III, who beneficially owned 1.52% and 1.11%, respectively, of the
issued and outstanding shares as determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. As a group, the
directors and executive officers beneficially owned 9.63% of the issued and
outstanding shares of Common Stock on that date.
(3) The amounts reported in this column represent shares which may be acquired
through the exercise of stock options within sixty days after March 1,
2002, pursuant to the Company's 1989 Stock Plan, 2000 Stock Incentive Plan
and Non-Employee Directors Stock Incentive Plan.
(4) The amounts reported in this column are Deferred Stock Units held by (i)
non-employee directors under the Company's Amended and Restated Outside
Directors Deferral Plan (see "Director's Compensation") and (ii) executive
officers under the Company's Executive Voluntary Deferral Plan, a deferred
compensation plan, as of March 1, 2002. Each Deferred Stock Unit represents
a hypothetical share of the Company's Common Stock, fluctuates in value
with the market price of such stock and is payable only in shares of Common
Stock.
2
(5) The number of shares listed for Messrs. Fiondella and Searfoss does not
include 1,730,084 shares of Common Stock owned by Phoenix Life Insurance
Company (Phoenix Life) and debentures owned by Phoenix Life which are
convertible into 2,813,186 shares of Common Stock at $11.375 per share,
beneficial ownership of each of which is disclaimed by Messrs. Fiondella
and Searfoss.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to each
person or group known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock of the Company. In preparing the
table below, the Company has relied, without further investigation, on
information contained in the filings by each reporting person with the
Securities and Exchange Commission (the Commission) under the Securities
Exchange Act of 1934, as amended.
Number Percent of
Name and Address of Beneficial Owner of Shares Class (1)
------------------------------------ --------- ----------
Westport Asset Management, Inc. (2).... 3,586,400 12.6%
Westport Advisers LLC
253 Riverside Avenue
Westport, Connecticut 06880
Phoenix Life Insurance Company......... 4,543,270 (3)
1 American Row
Hartford, Connecticut 06103
Investors Group Inc. (4)............... 1,802,000 6.3%
Investors Group Trustco Inc.
Investors Group Trust Co. Ltd.
I. G. Investment Management, Ltd.
Investors U.S. Large Cap Value Fund
One Canada Centre
447 Portage Avenue
Winnipeg, Manitoba R3C 3B6
--------
(1) Based on 28,491,053 shares of Common Stock issued and outstanding on March
1, 2001.
(2) Westport Asset Management, Inc. filed a joint Schedule 13G/A with the
Commission on February 25, 2002, reporting that as of December 31, 2001, it
had sole and shared dispositive power as to 1,793,200 shares of Common
Stock (3,586,400 shares following adjustment for the Company's two-for-one
stock split paid December 31, 2001). The Schedule 13G/A states that
Westport Asset Management, Inc., an investment advisor, owns 50% of
Westport Advisors LLC, which is an investment advisor for a series of
public mutual funds.
(3) Phoenix Life filed a Form 3 for May 1999 reporting that as of May 3, 1999,
it had sole voting and dispositive power as to 865,042 shares of Common
Stock (1,730,084 shares following adjustment for the Company's two-for-one
stock split paid December 31, 2001), which represents 6.1% of the issued
and outstanding shares of Common Stock as of March 1, 2002. Additionally,
Phoenix Life holds $32,000,000 of subordinated debentures convertible into
2,813,186 shares of Common Stock at a price of $11.375 per share. If the
debentures were converted as of March 1, 2002, Phoenix Life would own
4,543,270 shares of Common Stock representing 14.5% of the issued and
outstanding Common Stock.
(4) Investors Group, Inc. filed a joint Schedule 13G/A with the Commission on
February 20, 2002, reporting that as of December 31, 2001, it had shared
voting and dispositive power as to 901,000 shares of Common Stock
(1,802,000 shares following adjustment for the Company's two-for-one stock
split paid December 31, 2001) in its Investors U.S. Large Cap Value Fund
(the Fund). According to the Schedule 13G/A, the Fund is an open-end mutual
fund trust managed by I.G. Investment Management, Ltd. Investors Group
Trust Co. Ltd. serves as trustee of the Fund. Investors Group, Inc. and
Investors Group Trustco Inc. are holding companies.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
Four (4) directors are to be elected at the Meeting to serve for terms of
three (3) years expiring on the date of the Annual Meeting in 2005 and until
their successors are elected and one (1) director is to be elected at the
Meeting to serve for a term of one (1) year expiring on the date of the Annual
Meeting in 2003 and until his successor is elected.
It is intended that votes represented by proxies, unless otherwise
specified, will be cast for the election as directors of the nominees listed
below, all of whom are now directors of the Company. The election of each
nominee for director requires a plurality of the votes cast by shares of Common
Stock entitled to vote in the election of directors. Votes that are withheld
and Broker Shares that are not voted in the election of directors will not be
included in determining the number of votes cast. Each nominee has consented to
being named in this Proxy Statement and has agreed to serve if elected.
If, at the time of the Meeting, any nominee should be unable to serve as a
director, votes will be cast, pursuant to the enclosed proxy, for such
substitute nominee as may be nominated by the Board of Directors. As of the
date of this proxy statement, the Board of Directors has no reason to believe
that any of the nominees will be unable or unwilling to serve.
BIOGRAPHICAL INFORMATION
The following information is furnished with respect to each nominee and each
director whose term of office will continue after the Meeting.
Nominees For Terms Expiring in 2005
Theodore L. Chandler, Jr., 49, has been Senior Executive Vice President of
LandAmerica Financial Group, Inc., a company providing title insurance and real
estate transaction services through its underwriting and other subsidiaries,
since January 2000. He had been a principal in the law firm of Williams Mullen
in Richmond, Virginia from 1982 to January 2000. Williams Mullen has
represented the Company as legal counsel since the Company's formation in 1982.
Mr. Chandler is a director of LandAmerica Financial Group, Inc., Open Plan
Systems, Inc. and Mutual Assurance Society of Virginia. Mr. Chandler is
Chairman of the Audit Committee and a member of the Compensation Committee,
Corporate Affairs Committee and Corporate Governance Committee. He has been a
director of the Company since 1986.
Norwood H. Davis, Jr., 62, has been Chairman Emeritus of the Board of Trigon
Healthcare, Inc., a company providing health care coverage and specialty health
services in Virginia, since 2001. Mr. Davis had been Chairman of that company
from 1981 to 2001, and Chief Executive Officer from 1981 to 1999. Mr. Davis is
the Managing Director of CMD Management, LLC. Mr. Davis is Chairman of the
Corporate Governance Committee and a member of the Executive Committee. He has
been a director of the Company since 1994.
Timothy J. Korman, 49, has been Executive Vice President, Finance and
Administration of the Company since 1997. He was Executive Vice President,
Chief Financial Officer and Treasurer of the Company from 1995 to 1997. Mr.
Korman is a member of the Corporate Affairs Committee and has been a director
of the Company since 1999.
Thomas H. O'Brien, 65, was the Chairman and Chief Executive Officer of The
PNC Financial Services Group, Inc., a multi-bank holding company engaged in
financial services activities in Pittsburgh, Pennsylvania, from 1985 to 2001.
He was Chairman of PNC Bank, N.A., a national banking institution in
Pittsburgh, Pennsylvania, from 1993 to 2001. He is a director of Verizon
Communications, BlackRock, Inc., Viasystems, Inc., USAirways Group, Inc. and
The PNC Financial Services Group, Inc. Mr. O'Brien is Chairman of the
Compensation Committee and a member of the Corporate Governance Committee. He
has been a director of the Company since 1982.
4
Nominee For Term Expiring in 2003
Julious P. Smith, Jr., 58, is Chairman and Chief Executive Officer and a
member of the law firm of Williams Mullen. Prior to June 1, 1999, he was
President and Chief Executive Officer and a member of that law firm, positions
he held for more than five years. Mr. Smith is a director of LandAmerica
Financial Group, Inc. He is a member of the Corporate Governance Committee and
the Product Development Committee and has been a director of the Company since
2001.
The Board of Directors recommends that the shareholders vote FOR the five
(5) nominees set forth above.
Incumbent Directors Whose Terms Expire at the 2003 Annual Meeting
Robert W. Fiondella, 59, has been Chairman and Chief Executive Officer and a
director of The Phoenix Companies, Inc., a company providing insurance services
throughout the Northeast, since November 2000 and Chairman and Chief Executive
Officer of Phoenix Life since February 1994. He served as President of Phoenix
Life from 1987 until February 2000 and has been a director of Phoenix Life
since 1987. Mr. Fiondella is also a director of PXRE Group Ltd. Mr. Fiondella
is Chairman of the Product Development Committee and a member of the
Compensation Committee, Corporate Affairs Committee, and the Executive
Committee. He has been a director of the Company since 1999.
Robert H. Hilb, 74, has been Chairman Emeritus since January 2000. He was
Chairman of the Company from 1991 until December 1999 and was Chief Executive
Officer of the Company from 1991 to May 1997. Mr. Hilb is a member of the
Executive Committee and Compensation Committee and has been a director of the
Company since 1982.
Andrew L. Rogal, 53, has been Chairman since January 2000 and Chief
Executive Officer since May 1997. He was President of the Company from 1995
until December 1999 and was Chief Operating Officer of the Company from 1995 to
May 1997. Mr. Rogal is Chairman of the Executive Committee and has been a
director of the Company since 1989.
Martin L. Vaughan, III, 55, has been President of the Company since January
2000 and has been Chief Operating Officer of the Company since 1999. He was
President and Chief Executive Officer of American Phoenix Corporation from 1990
to 1999. Mr. Vaughan is a member of the Executive Committee and Product
Development Committee, and has been a director of the Company since 1999.
Incumbent Directors Whose Terms Expire at the 2004 Annual Meeting
J.S.M. French, 61, has been President of Dunn Investment Company, a
construction materials and construction investment company in Birmingham,
Alabama, since 1978. He is a director of Regions Financial Corporation, Energen
Corporation and Protective Life Corporation. Mr. French is a member of the
Audit Committee and the Corporate Affairs Committee and has been a director of
the Company since 1984.
Anthony F. Markel, 60, has been President and Chief Operating Officer of
Markel Corporation, an insurance company headquartered in Richmond, Virginia
and comprised of five operating units underwriting specialty insurance products
and programs to a variety of niche markets, since March 1992. He is a director
of Markel Corporation and Open Plan Systems, Inc. Mr. Markel is a member of the
Audit Committee, Compensation Committee, Executive Committee and the Product
Development Committee. He has been a director of the Company since 1998.
David W. Searfoss, 50, has been Executive Vice President and Chief Financial
Officer of The Phoenix Companies, Inc., a company providing insurance services
throughout the Northeast, since November 2000 and Executive Vice President and
Chief Financial Officer of Phoenix Life since 1994. Mr. Searfoss is a director
of PXRE Group Ltd. Mr. Searfoss is a member of the Audit Committee, and the
Corporate Governance Committee, and has been a director of the Company since
1999.
5
Robert S. Ukrop, 55, has been President and Chief Executive Officer of
Ukrop's Super Markets, Inc., a company owning 27 retail food stores and 3 food
manufacturing facilities in Central Virginia, since 1994. He is a first cousin
of Timothy J. Korman, Executive Vice President, Finance and Administration of
the Company. Mr. Ukrop is Chairman of the Corporate Affairs Committee, and a
member of the Product Development Committee and has been a director of the
Company since 1989.
CERTAIN NOMINATION AND VOTING ARRANGEMENTS
On May 3, 1999, the Company acquired from PM Holdings, Inc. (Holdings), a
subsidiary of Phoenix Life, and Martin L. Vaughan, III (Vaughan) all of the
issued and outstanding shares of the capital stock of American Phoenix
Corporation (APC), resulting in APC becoming a wholly owned subsidiary of the
Company. In connection with the acquisition, the Company, Holdings and
Holdings' parent, Phoenix Life, entered into a Voting and Standstill Agreement
(the Voting Agreement). The Voting Agreement provided, among other things, that
(i) in connection with the 2000 Annual Meeting, the Company would nominate and
recommend for election two directors, Vaughan and a person designated by the
Company, and (ii) commencing with the 2000 Annual Meeting and continuing during
the term of the Voting Agreement, the Company would nominate and recommend for
election two additional directors, Robert W. Fiondella and a person designated
by Holdings, to serve on the Board of Directors of the Company. Timothy J.
Korman and David W. Searfoss were the designees of the Company and Holdings,
respectively. The Voting Agreement requires the Holdings designee to resign
from the Board of Directors once Holdings' ownership percentage of the
Company's adjusted outstanding shares of Common Stock (as defined in the Voting
Agreement) is reduced to less than 10%.
Pursuant to the Voting Agreement, Phoenix Life and Holdings have agreed to
vote the shares of Common Stock owned by them or their affiliates in accordance
with the recommendation of the Board of Directors on matters relating to (i)
the election of directors nominated by the Board of Directors or a nominating
committee thereof, (ii) certain tender or exchange offers, election contests
and other attempts to acquire control of the Company or the Board of Directors
and (iii) for a period of five years, business combination and similar
transactions for which shareholder approval is sought. Unless terminated
earlier by written agreement of the parties, the Voting Agreement will remain
in effect until May 3, 2009.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Executive
Committee, the Audit Committee, the Compensation Committee, the Corporate
Affairs Committee, the Product Development Committee and the Corporate
Governance Committee. The Executive Committee, which is subject to the
supervision and control of the Board of Directors, has been delegated
substantially all of the powers of the Board of Directors in order for the
Executive Committee to act between meetings of the Board. As more fully
discussed below under ''Compensation Committee Report on Executive
Compensation,'' the Compensation Committee establishes the compensation of all
executive officers of the Company and administers the Company's stock option
plans, the Outside Directors Deferral Plan, the Executive Voluntary Deferral
Plan and the Supplemental Executive Retirement Plan. The Corporate Affairs
Committee is responsible for monitoring the Company's external relations in its
communities. The Product Development Committee is charged with investigating
and developing new product offerings for the Company's subsidiaries. The
Corporate Governance Committee is responsible for recommending to the Board of
Directors persons to be nominated for election as directors of the Company and
other matters related to corporate governance and procedures.
The responsibilities of the Audit Committee include the review of the scope
and the results of the work of the independent auditors and internal auditors,
the review of internal accounting controls and the recommendation of the
independent auditors to be designated for the ensuing year. The Board of
Directors has adopted a written charter for the Audit Committee, a copy of
which is on file with the Commission as an exhibit to the Company's proxy
statement for the 2001 Annual Meeting of Shareholders. The Audit Committee is
composed of four members, each of whom is independent as that term is defined
in the listing standards of the New York Stock Exchange.
6
In 2001, there were four meetings of the Board of Directors, three meetings
of the Audit Committee, three meetings of the Compensation Committee, three
meetings of the Corporate Governance Committee, and three meetings of the
Corporate Affairs Committee. The Executive Committee and Product Development
Committee did not meet in 2001. Each member of the Board of Directors attended
at least 75% of the aggregate total number of meetings of the Board and the
committees on which he served.
DIRECTORS' COMPENSATION
Prior to August 1, 2001, each director who was not an employee of the
Company received an annual retainer of $14,000, a fee of $2,500 for each Board
meeting attended and a fee of $1,000 for each committee meeting attended.
Effective August 1, 2001, the fee structure was changed to an annual retainer
of $20,000, a fee of $2,000 for each Board meeting attended and a fee of $1,000
for each committee meeting attended. Additionally, the chair of every committee
receives an annual retainer of $2,000. Directors who are also employees of the
Company receive no compensation for their services as directors.
The Company has an Amended and Restated Outside Directors Deferral Plan (the
Amended and Restated Plan) which permits a non-employee director to defer all
or a portion of his compensation. Under the Amended and Restated Plan,
directors of the Company who are not employees of the Company may elect to
defer all or part of their annual retainer fees and meeting fees in Deferred
Stock Units that represent a hypothetical share of the Company's Common Stock.
Retainer fees are credited to a director's account quarterly and meeting fees
are credited on the date such retainer fees are earned at the closing price of
the Common Stock on the applicable date. A participant's Deferred Stock Unit
Account is increased by phantom dividends equal to the dividends paid by the
Company on the Common Stock. Those directors who elect to defer 100% of their
total compensation into Deferred Stock Units for a given year are entitled to
receive additional compensation in the form of Deferred Stock Units equal to
30% of their total compensation. Any amounts deferred under the former Outside
Directors Deferral Plan and held in a Deferred Cash Account in the Amended and
Restated Plan are credited with interest annually at the rate of return set
forth in the Amended and Restated Plan, which is currently 9%, and are paid out
in cash. Deferred Stock Units credited to a director's account under the
Amended and Restated Plan are paid out in shares of Common Stock on the basis
of one share of Common Stock for each Deferred Stock Unit in the director's
account. Payment of amounts accrued to a director are made either in
installments or in a lump sum pursuant to the director's irrevocable election
or otherwise in accordance with the terms of the Amended and Restated Plan.
On May 5, 1998, the shareholders of the Company approved the Non-Employee
Directors Stock Incentive Plan which provides that each non-employee director
will receive a grant of an option to purchase 10,000 shares of the Common Stock
on the first business day following each Annual Meeting of Shareholders.
Therefore, pursuant to the plan, on May 2, 2001, Theodore L. Chandler, Jr.,
Norwood H. Davis, Jr., Robert W. Fiondella, J.S.M. French, Robert H. Hilb,
Anthony F. Markel, Thomas H. O'Brien, David W. Searfoss, Julious P. Smith, Jr.
and Robert S. Ukrop were each granted an option to purchase 10,000 shares of
the Common Stock of the Company. The exercise price of all options granted to
each non-employee director is the fair market value of the Common Stock on the
date of grant. All of the options become exercisable six months after the date
of grant and expire ten years from the date of grant. The Company may also make
grants of options to directors under the 2000 Stock Incentive Plan.
Pursuant to the Company's Non-Employee Directors Stock Incentive Plan,
directors may elect to receive some or all of their fees in shares of the
Company's Common Stock. Those directors electing to receive 100% of their fees
in Common Stock receive additional compensation in the form of Common Stock
equal to 30% of their compensation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who beneficially own
more than 10% of the Company's Common Stock to file
7
initial reports of ownership and reports of changes in ownership of Common
Stock with the Commission. Such persons are required by Commission regulation
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that applicable Section 16(a)
filing requirements were satisfied for transactions that occurred in 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Commission, the Company is required to
provide certain information with respect to the compensation and benefits
provided to the Company's Chief Executive Officer, Andrew L. Rogal, and the
other Named Executive Officers. The following report of the Compensation
Committee of the Board of Directors addresses the Company's compensation
policies in effect during 2001.
Role of Compensation Committee
Decisions on compensation of certain executive officers of the Company are
made by the Compensation Committee of the Board of Directors. The Compensation
Committee has authority from the Board of Directors to review and determine the
salaries of all of the Company's executive officers with the title of Vice
President and above. In addition to determining salaries, the Compensation
Committee reviews and approves management incentive programs and other benefits
for executive officers. The Compensation Committee also administers the
Company's stock option plans. Finally, the Committee recommends to the Board of
Directors such other forms of remuneration as the Committee deems appropriate.
All decisions by the Compensation Committee relating to the compensation of the
Company's executive officers are reported to the full Board of Directors.
Executive Compensation Policies
The Compensation Committee's executive compensation policies are designed to
provide competitive levels of compensation that integrate pay with the
Company's annual and long-term performance goals, recognize individual
initiative and achievement and assist the Company in attracting and retaining
highly qualified executives. They provide for competitive base salaries which
reflect individual performance and level of responsibility, annual bonuses
payable in cash on the basis of Company financial success, individual merit and
achievement in obtaining annual performance goals and long-term stock-based
incentive opportunities which strengthen the mutuality of interests between
senior management and the Company's shareholders.
To further this mutuality of interests, the Insider Stock Ownership Plan was
adopted in 1998 to align the interests of senior management with the
shareholders by requiring senior management to attain certain stock ownership
levels and therefore maintain a vested interest in the equity performance of
the Company. Over a five year period, measured from the later of adoption of
the plan or admittance into the executive group, the executives covered by such
plan are expected to reach a prescribed ownership level, which is expressed as
a multiple of the executive's base salary and which ranges from five times base
salary to one times base salary depending on the executive's position. By
December 31, 2001, all Named Executive Officers had achieved their prorated
goals for the five year implementation period.
In furtherance of its responsibility to determine executive compensation,
the Compensation Committee annually, or more frequently, reviews the Company's
executive compensation program. The Compensation Committee evaluates the
salaries and compensation structures of executive officers of peer companies in
the industry in order to establish general parameters within which it may fix
competitive compensation for its executive officers. The peer group used for
compensation analysis for 2001 is the same as the peer group reflected in the
performance graph included in this proxy statement. The Committee believes that
the Company's compensation of its executive officers is comparable to its peer
companies and provides proper incentives to the executive officer group.
8
The Compensation Committee then determines the appropriate salary and
management incentive opportunity for each executive officer using a number of
factors, including the executive officer's individual duties and
responsibilities in the Company, tenure, his or her relative importance to the
overall success of the Company's short and long-term goals and attainment of
individual performance goals, if appropriate. It is the philosophy of the
Compensation Committee that incentive compensation should be a very substantial
component of total compensation in order to implement the Company's aggressive
pay-for-performance policy.
2001 Base Salaries and Annual Incentives
On June 1, 1997, the Company entered into an employment agreement with
Andrew L. Rogal to serve as Chief Executive Officer of the Company, which
agreement has been superseded with a new agreement as of December 1, 2001.
Pursuant to the terms of the previous employment agreement, Mr. Rogal's annual
base salary was fixed at $400,000, subject to an annual review by the Committee
to consider appropriate increases. In March of 2001, Mr. Rogal's base annual
salary was increased to $490,000, and this salary level was adopted as the base
salary under the new employment agreement. This annual base salary was set
based on Mr. Rogal's individual duties and responsibilities, his tenure and a
review of salaries paid to the chief executive officers of the Company's peer
group companies. In addition, Mr. Rogal is entitled to receive an annual
incentive bonus as established and modified from time to time by the Committee.
In awarding the annual incentive bonus to Mr. Rogal for 2001, the Committee
considered his individual merit and achievement in attaining annual performance
goals, the Company's financial success and Mr. Rogal's leadership in
strategically focusing the Company. Mr. Rogal is also eligible to receive stock
option awards and other long-term equity incentives, as determined by the
Committee. In 2001, Mr. Rogal was awarded 8,000 shares of Restricted Stock and
a Nonqualified Stock Option for 32,000 shares of Common Stock.
The Company's other executive officers are also eligible for an annual
management incentive award in the form of a cash bonus. On February 12, 2001,
the Committee approved the 2001 Corporate Incentive Plan for certain key
executives of the Company. The purpose of the program is to more closely align
the interests of the senior executives with the shareholders and further
strengthen the Company's pay-for-performance policy by providing a pool based
on increased operating earnings per share. Under the Plan, those individuals
responsible for overseeing and implementing the strategic initiatives of the
Company and for the overall earnings per share of the Company are eligible to
participate in the executive bonus pool. The available dollar pool is based on
improved operating earnings per share. On February 11, 2002, using the
aforementioned factors, the Committee awarded Mr. Rogal an incentive bonus of
$488,800 out of the pool for his 2001 performance.
Tax Considerations
The Omnibus Budget Reconciliation Act of 1993 established certain criteria
for the tax deductibility of compensation in excess of $1.0 million paid to the
Company's executive officers. The Company believes it is not in danger of
losing deductions under the law. The Committee will carefully consider any plan
or compensation arrangement that would result in the disallowance of
compensation deductions. The Committee will use its best judgment in such
cases, taking all factors into account, including the materiality of any
deductions that may be lost. To date, the Committee has not adopted a policy
that dictates its decision in such a situation.
The tables which follow this report, and accompanying narrative and
footnotes, reflect the decisions covered by the above discussion.
COMPENSATION COMMITTEE
Thomas H. O'Brien, Chairman
Theodore L. Chandler, Jr.
Robert W. Fiondella
Robert H. Hilb
Anthony F. Markel
9
Compensation Committee Interlocks And Insider Participation
Robert H. Hilb, a member of the Company's Compensation Committee, is the
former Chairman and Chief Executive Officer of the Company and currently holds
the position of Chairman Emeritus.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual and long-term compensation paid by
the Company to each of the Named Executive Officers for the fiscal years ended
December 31, 2001, 2000 and 1999.
Long-Term Compensation
Annual Compensation Awards
---------------------------------- -------------------------
Other Annual Restricted Securities All Other
Compensation Stock Underlying Compensation
Name and Principal Position Year Salary($) Bonus($)(1) ($)(2) Awards ($)(3) Options (#) ($)(4)
--------------------------- ---- --------- ----------- ------------ ------------- ----------- ------------
Andrew L. Rogal............ 2001 $490,008 $488,800 -- $150,040 32,000 $140,558
Chairman and Chief 2000 460,832 362,300 -- 369,720 32,000 137,405
Executive Officer 1999 437,076 272,899 -- -- -- 134,236
Martin L. Vaughan, III (5). 2001 385,008 361,300 -- 112,530 24,000 62,705
President and Chief 2000 366,676 264,100 -- 258,804 24,000 17,778
Operating Officer 1999 233,344 132,900 -- -- -- 10,166
Timothy J. Korman.......... 2001 286,008 286,000 -- 75,020 16,000 56,810
Executive Vice President, 2000 269,180 210,200 -- 244,584 16,000 54,667
Finance and
Administration 1999 235,208 128,700 -- -- -- 52,051
Jack P. McGrath............ 2001 331,992 236,400 -- 75,020 16,000 37,676
Senior Vice President- 2000 317,660 210,200 -- 244,584 16,000 36,826
Business and Product 1999 304,376 166,100 -- -- -- 35,995
Development
Michael A. Janes........... 2001 259,992 221,500 -- 60,016 13,000 24,352
Vice President 2000 246,673 128,700 -- 122,292 13,000 23,764
1999 226,042 170,000 -- -- -- 22,953
--------
(1) Bonuses reported in the table reflect the amount earned by the Named
Executive Officer for each year shown. Payment of such bonuses occurred in
the year following the year in which such bonuses were earned.
(2) The dollar value of perquisites and other personal benefits received by
each of the Named Executive Officers did not exceed the lesser of $50,000
or 10 percent of the total amount of annual salary and bonus reported for
any named individual.
(3) The 2001 amounts in this column are the dollar values, based on the $18.755
closing price of a share of Common Stock on February 12, 2001, as reported
on the New York Stock Exchange, of the following number of shares of
Restricted Stock awarded on such date to the Named Executive Officers: Mr.
Rogal, 8,000 shares; Mr. Vaughan, 6,000 shares; Mr. Korman, 4,000 shares;
Mr. McGrath, 4,000 shares; and Mr. Janes, 3,200 shares. The Restricted
Stock vests 25% per year on each of four successive anniversary dates
commencing two years after the date of the award, provided the Named
Executive Officer is employed full time by the Company on the applicable
vesting date, and provided further that, with respect to the 2001 grants,
the Company's operating earnings must have increased by at least ten
percent on a year over year basis in at least one of the two calendar years
preceding each vesting date. The aggregate number of shares of Restricted
Stock held by each of the Named Executive Officers on December 31, 2001,
and the dollar value of such shares on such date based on the $28.025
closing price of a share of Common Stock on December 31, 2001, as reported
on the New York Stock Exchange, were as follows: Mr. Rogal, 34,000 shares,
$952,850; Mr. Vaughan, 24,200 shares, $678,205; Mr. Korman, 21,200 shares,
$594,130; Mr. McGrath, 21,200 shares, $594,130; and Mr. Janes, 11,800
shares, $330,695. Dividends will be paid on the shares of Restricted Stock
awarded to the Named Executive Officers.
10
(4) The amount shown for each Named Executive Officer for 2001 includes (a) the
Company's profit sharing and 401(k) matching contributions as follows: Mr.
Rogal, $5,100; Mr. Vaughan, $5,100; Mr. Korman, $5,100; Mr. McGrath, $5,100
and Mr. Janes, $5,100; (b) the Company's expense to the Supplemental
Executive Retirement Plan as follows: Mr. Rogal, $32,617 ($9,717
contribution and $22,900 interest accrual); Mr. Vaughan, $7,432 ($6,375
contribution and $1,057 interest accrual); Mr. Korman, $22,631 ($5,684
contribution and $16,947 interest accrual); Mr. McGrath, $6,186 ($4,800
contribution and $1,386 interest accrual) and Mr. Janes, $3,229 ($2,650
contribution and $579 interest accrual); and (c) the amount of premiums
paid on term and split-dollar life insurance as follows: Mr. Rogal,
$102,841; Mr. Vaughan, $50,173; Mr. Korman, $29,079; Mr. McGrath, $26,390
and Mr. Janes, $16,023.
(5) Mr. Vaughan was elected to his office shown in the table effective May 3,
1999 in connection with the acquisition of American Phoenix Corporation.
The amounts reported in the table for Mr. Vaughan for fiscal year 1999
reflect compensation paid to him by the Company following the acquisition
and his employment by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning grants of stock options
to each of the Named Executive Officers during the fiscal year ended December
31, 2001. No stock appreciation rights (SARs) were granted during fiscal year
2001 and there are no outstanding SARs.
Individual Grants
-------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base Grant Date
Options in Fiscal Price Expiration Present
Name Granted (1) Year ($/Sh)(2) Date (3) Value ($)(4)
---- ----------- ---------- --------- ---------- ------------
Andrew L. Rogal....... 32,000 5.45% $18.76 02/12/08 $159,040
Martin L. Vaughan, III 24,000 4.09 18.76 02/12/08 119,280
Timothy J. Korman..... 16,000 2.73 18.76 02/12/08 79,520
John P. McGrath....... 16,000 2.73 18.76 02/12/08 79,520
Michael A. Janes...... 13,000 2.21 18.76 02/12/08 64,610
--------
(1) The options granted to the Named Executive Officers contain a provision
whereby the right to exercise such options vests at a rate of 25% of the
aggregate number of shares of Common Stock of the Company covered by such
options on each of the first four successive anniversary dates of the date
of grant.
(2) The exercise price for the options listed in the table was the fair market
value on the date of grant. The exercise price may be paid in cash, in
shares of Common Stock of the Company valued at fair market value on the
date of exercise or pursuant to a cashless exercise procedure under which
the optionee provides irrevocable instructions to a brokerage firm to sell
the purchased shares and to remit to the Company, out of the sale proceeds,
an amount equal to the exercise price plus all required withholding and
other deductions.
(3) The options listed in the table expire seven years from the date of grant.
An earlier expiration date may apply in the event of the optionee's
termination of employment, retirement, death or disability.
(4) The Black-Scholes option pricing model was used to determine the ''Grant
Date Present Value'' of the options listed in the table. The model assumed
a volatility measure of .199, a risk free interest rate of 5.08% and a
dividend yield of 1.81%. The model also assumed an exercise date seven
years after its grant. Because the magnitude of any non-transferability
discount is extremely difficult to determine, none was applied in
determining the value of the reported options. The grant date present
values set forth in the table are only theoretical values and may not
accurately determine present value. The actual value, if any, an optionee
will realize will depend on the excess of market value of a share of the
Company's Common Stock over the exercise price on the date the option is
exercised.
11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table provides information concerning the value of the
outstanding options for the Named Executive Officers on December 31, 2001.
Messrs. Timothy J. Korman and John P. McGrath were the only Named Executive
Officers to exercise options during 2001.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year the-Money Options at
End (#) Fiscal Year End ($)(2)
Shares Value ------------------------- -------------------------
Acquired Realized
Name on Exercise ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
Andrew L. Rogal....... N/A N/A 233,000 / 71,000 $4,640,593 / 915,699
Martin L. Vaughan, III N/A N/A 6,000 / 42,000 82,836 / 470,988
Timothy J. Korman..... 10,000 $227,000 103,500 / 34,500 2,046,254 / 438,669
John P. McGrath....... 4,000 89,600 106,000 / 34,000 2,105,582 / 429,078
Michael A. Janes...... N/A N/A 83,250 / 27,750 1,646,835 / 351,024
--------
(1) The value realized represents the difference between the exercise price of
the option and the fair market value of the Company's stock on the date of
exercise.
(2) The value of in-the-money options at fiscal year end was calculated by
determining the difference between the closing price of $28.025 per share
of the Company's Common Stock on the New York Stock Exchange on December
31, 2001, the last trading day of the fiscal year, and the exercise price
of the options.
HRH RETIREMENT SAVINGS PLAN
The Company administers the HRH Retirement Savings Plan (the Retirement
Savings Plan) in which the Named Executive Officers are permitted to
participate on the same terms as other employees who meet the applicable
eligibility criteria. The Retirement Savings Plan's main component is a salary
reduction provision under Section 401(k) of the Internal Revenue Code. As of
January 1, 2002, the Retirement Savings Plan was amended to allow participants
age 50 or over to make additional catch-up contributions to the Retirement
Savings Plan over and above the normal annual dollar limit for salary reduction
contributions. The maximum catch-up contribution for each eligible participant
for 2002 is $1,000. The Retirement Savings Plan also provides for a matching
contribution equal to 100% of the first 3% of a participant's salary reduction.
The profit sharing component of the Retirement Savings Plan is discretionary
and is not expected to be used except in exceptional circumstances. The Company
matching contribution for 2001 for Named Executive Officers was $25,500, and
for all executive officers as a group was $75,578, under the salary reduction
provision of the Retirement Savings Plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Named Executive Officers participate in the Company's Supplemental
Executive Retirement Plan (the SERP), which as of January 1, 1998, was amended
and restated to convert the plan from a defined benefit arrangement to a cash
balance arrangement, to provide a contribution to participants equal to the
Company's profit sharing and matching contributions applied to the
participant's base salary in excess of the Internal Revenue Service (the IRS)
maximum allowable salary for qualified plans, which was $170,000 for 2001. The
SERP was further amended to allow all current and future employees earning in
excess of the IRS maximum allowable salary for qualified plans to become
participants in the plan, to grandfather the current participants and provide
these individuals with a contribution each year equal to the greater of a fixed
2% contribution of their base salary or the calculation for regular
participants, to convert the vested benefit accrued for current participants to
a cash balance as of December 31, 1997, and to add a provision wherein
terminated or retired participants who are employed by a competing entity of
the Company will forfeit their remaining account balance.
12
Contributions to the SERP for 2001 for each of the Named Executive Officers
were as follows: Mr. Rogal, $9,717; Mr. Vaughan, $6,375; Mr. Korman, $5,684;
Mr. McGrath, $4,800 and Mr. Janes, $2,650. For all executive officers as a
group, the 2001 contribution to the SERP was $49,598. Additionally, interest
accruals on their balances for 2001 were as follows: Mr. Rogal, $22,900; Mr.
Vaughan, $1,057; Mr. Korman, $16,947; Mr. McGrath, $1,386 and Mr. Janes, $579.
For all executive officers as a group, interest accruals on their balances for
2001 equaled $50,506.
EMPLOYMENT AGREEMENTS
Mr. Rogal entered into an employment agreement with the Company, effective
December 1, 2001, to serve as Chairman and Chief Executive Officer of the
Company. The employment agreement replaces Mr. Rogal's previous employment
agreement dated June 1, 1997, as amended. Mr. Rogal's term of employment under
the agreement terminates on May 31, 2006; provided that, commencing on May 31,
2005 and on each annual anniversary of that date, the term of employment will
be automatically extended for an additional two year period, unless notice that
the term of employment will not be extended is given by either party to the
other at least 60 days prior to May 31, 2005 or an anniversary date. The
agreement provides for an annual review of his salary by the Compensation
Committee of the Board of Directors of the Company to consider appropriate
increases, but in no event shall his base annual salary of $490,000 be reduced.
Mr. Rogal is also eligible for an annual incentive bonus and stock options as
may be determined by the Compensation Committee. The agreement may be
terminated by the Company with or without "proper cause" or by Mr. Rogal for
"good reason," in each case as defined in the agreement; however, should the
agreement be terminated without proper cause or for good reason, Mr. Rogal
would be entitled to receive salary, annual incentive bonus and benefits until
the expiration of the term of employment or for one year, whichever is greater,
all stock options and awards of restricted stock would immediately vest in
full, all benefits in the Company's Supplemental Executive Retirement Plan
would immediately vest in full and the Company would be required to transfer
its interest in split dollar agreements to Mr. Rogal. The annual incentive
bonus would be equal to the greater of the highest annual incentive bonus
payment previously received by Mr. Rogal for the last four fiscal years prior
to the date of termination or 50% of his annual base salary.
Mr. Vaughan entered into an employment agreement with the Company, effective
December 1, 2001, to serve as President and Chief Operating Officer of the
Company. The employment agreement replaces Mr. Vaughan's previous employment
agreement dated May 3, 1999, as amended. Mr. Vaughan's term of employment under
the agreement terminates on May 31, 2005; provided that, commencing on May 31,
2004 and on each annual anniversary of that date, the term of employment will
be automatically extended for an additional two year period, unless notice that
the term of employment will not be extended is given by either party to the
other at least 60 days prior to May 31, 2004 or an anniversary date. The
agreement provides for an annual review of his salary by the Compensation
Committee of the Board of Directors of the Company to consider appropriate
increases, but in no event shall his base annual salary of $385,000 be reduced.
Mr. Vaughan is also eligible for an annual incentive bonus and stock options as
may be determined by the Compensation Committee. The agreement may be
terminated by the Company with or without "proper cause" or by Mr. Vaughan for
"good reason," in each case as defined in the agreement; however, should the
agreement be terminated without proper cause or for good reason, Mr. Vaughan
would be entitled to receive salary, annual incentive bonus and benefits until
the expiration of the term of employment or for one year, whichever is greater,
all stock options and awards of restricted stock would immediately vest in
full, all benefits in the Company's Supplemental Executive Retirement Plan
would immediately vest in full and the Company would be required to transfer
its interest in split dollar agreements to Mr. Vaughan. The annual incentive
bonus would be equal to the greater of the highest annual incentive bonus
payment previously received by Mr. Vaughan for the last four fiscal years prior
to the date of termination or 50% of his annual base salary.
Mr. Korman entered into an employment agreement with the Company, effective
December 1, 2001, to serve as Executive Vice President, Finance and
Administration of the Company. The employment agreement
13
replaces Mr. Korman's previous employment agreement dated January 9, 1991, as
amended. Mr. Korman's agreement has an initial term of two years terminating on
November 30, 2003; provided that, commencing on December 1, 2002 and on each
annual anniversary of that date, the term of employment will be automatically
extended for an additional two year period, unless notice that the term of
employment will not be extended is given by either party to the other at least
60 days prior to December 1, 2002 or an anniversary date. The agreement
provides for an annual review of his salary by the Compensation Committee of
the Board of Directors of the Company to consider appropriate increases, but in
no event shall his base annual salary of $286,000 be reduced. Mr. Korman is
also eligible for an annual incentive bonus and stock options as may be
determined by the Compensation Committee. The agreement may be terminated by
the Company with or without "proper cause" or by Mr. Korman for "good reason,"
in each case as defined in the agreement; however, should the agreement be
terminated without proper cause or for good reason, Mr. Korman would be
entitled to receive salary, annual incentive bonus and benefits until the
expiration of the term of employment. The annual incentive bonus would be equal
to the greater of the highest annual incentive bonus payment previously
received by Mr. Korman for the last two fiscal years prior to the date of
termination or 50% of his annual base salary.
Mr. McGrath entered into an employment agreement with the Company, effective
December 1, 2001, to serve as Senior Vice President--Business and Product
Development of the Company. The employment agreement replaces Mr. McGrath's
previous employment agreement dated July 1, 1999, as amended. Mr. McGrath's
agreement has an initial term of two years terminating on November 30, 2003;
provided that, commencing on December 1, 2002 and on each annual anniversary of
that date, the term of employment will be automatically extended for an
additional two year period, unless notice that the term of employment will not
be extended is given by either party to the other at least 60 days prior to
December 1, 2002 or an anniversary date. The agreement provides for an annual
review of his salary by the Compensation Committee of the Board of Directors of
the Company to consider appropriate increases, but in no event shall his base
annual salary of $306,000 be reduced. Mr. McGrath is also eligible for an
annual incentive bonus and stock options as may be determined by the
Compensation Committee. The agreement may be terminated by the Company with or
without "proper cause" or by Mr. McGrath for "good reason," in each case as
defined in the agreement; however, should the agreement be terminated without
proper cause or for good reason, Mr. McGrath would be entitled to receive
salary, annual incentive bonus and benefits until the expiration of the term of
employment. The annual incentive bonus would be equal to the greater of the
highest annual incentive bonus payment previously received by Mr. McGrath for
the last two fiscal years prior to the date of termination or 50% of his annual
base salary.
Mr. Janes entered into an employment agreement with a subsidiary of the
Company for an initial term of three years effective April 1, 1993. The
agreement renews automatically for an additional one year term on April 1/st of
each year unless notice that the agreement will not be renewed is given by
either party to the other not less than 30 days prior to the renewal date. The
agreement may be terminated with or without cause at any time by either party
on thirty days' notice. Mr. Janes' salary, annual incentive bonus and benefits
are established by the Compensation Committee of the Board of Directors. /
All of the foregoing employment agreements contain restrictive covenants
relating to the protection of confidential information and clients of the
Company.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
To ensure continuity and the continued dedication of key executives during
any period of uncertainty caused by the threat or occurrence of a takeover, the
Company has entered into change of control employment agreements with its
executive officers, including each of the Named Executive Officers named in the
Summary Compensation Table.
In the event there is a change of control of the Company, the executive will
be employed for a period of three years after the change of control. If the
employment of the executive terminates at any time during the three
14
year period following a change of control for any reason other than death,
cause or the executive's election, the executive will receive an agreed upon
amount of severance pay equal to two to three times such executive's highest
applicable annual salary and bonus. Additionally, the executive would be
eligible to receive benefits substantially equivalent to those which would have
been received under the Company's qualified and non-qualified plans. The change
of control employment agreements provide that any excise taxes shall be paid by
the Company, as well as any legal expenses of the executive. If an executive
elects to terminate his employment in the first year after the change of
control, but without any deemed breach by the Company or its successor, the
executive shall be entitled to severance equal to one-half to one times the
executive's highest applicable annual salary and bonus.
Mr. Rogal, Mr. Vaughan and Mr. Korman each have a change of control
employment agreement which provides for a three times severance formula (except
for death or cause) and a one-time severance formula for a voluntary
termination in the first year after the change of control. The change of
control agreements for the other Named Executive Officers provide for a two
times and a one-half times severance formula.
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
shareholder return on its Common Stock, assuming reinvestment of dividends,
with the cumulative total return on the published Standard & Poor's 500 Index
and the cumulative total return on the Company-constructed composite industry
index, consisting of the Company, Arthur J. Gallagher & Co., Brown & Brown,
Inc., Marsh & McLennan Cos., Inc., and Aon Corporation, over the five year
period ended December 31, 2001. The Company selected the businesses in the
composite industry index in its good faith belief that these other public
companies are most similar to the Company's insurance agency business.
[CHART]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG HILB, ROGAL AND HAMILTON COMPANY, S&P 500
& PEER GROUP INDEX
Hib, Rogal and Hamilton S&P 500 Index Peer Group
1996 100 100 100
1997 151.21 133.36 145.59
1998 161.16 171.48 161.00
1999 235.84 207.56 233.75
2000 339.35 188.66 275.81
2001 484.60 166.24 273.46
ASSUMES $100 INVESTED ON DECEMBER 31, 1996 IN HILB, ROGAL AND HAMILTON
COMPANY COMMON STOCK, S&P 500 INDEX AND PEER GROUP INDEXES.
Source: Standard & Poor's Compustat Services Inc.
15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 3, 1999, the Company issued to Holdings and Phoenix Life $32,000,000
in aggregate principal amount of the Company's 5.25% Convertible Subordinated
Debentures Due 2014 (Debentures) in connection with the Company's acquisition
of APC from Holdings and Vaughan. Immediately after the Company's acquisition
of APC, Holdings distributed all of its consideration received, including the
Debentures, to Phoenix Life. Two directors of the Company, Robert W. Fiondella
and David W. Searfoss, are executive officers of Phoenix Life and its parent,
The Phoenix Companies, Inc. The aggregate amount of the Company's indebtedness
to Phoenix Life represented approximately 5.8% of the Company's total
consolidated assets as of December 31, 2001.
Julious P. Smith, Jr., a director of the Company, is the Chairman and Chief
Executive Officer of the law firm of Williams Mullen, which serves as outside
counsel to the Company.
In 2001, the Company entered into an aircraft lease agreement with Tiger
Air, L.L.C., a Virginia limited liability company, for the lease of a jet
aircraft for use by the Company. Norwood H. Davis, Jr., a director of the
Company, is a managing director of Tiger Air, L.L.C. The initial term of the
lease is three years, subject to automatic renewals for successive one year
periods unless terminated by either party on sixty days written notice prior to
the expiration of the initial term or any renewal period. The lease provides
for monthly payments by the Company of $2,200 per flight hour for use of the
aircraft plus any applicable fuel surcharge; however, the minimum monthly lease
payment is $27,500 irrespective of use by the Company.
Robert H. Hilb, a director and Chairman Emeritus of the Company, entered
into a consulting agreement with the Company, dated June 1, 1997, to provide
consulting services to the Company at the request of the Board of Directors or
the Chief Executive Officer of the Company. The agreement currently provides
for the payment to Mr. Hilb of $7,000 per month for his consulting services
until the expiration of the agreement. The consulting agreement, as amended in
1999, expires May 31, 2003 and provides that, if Mr. Rogal ceases to be Chief
Executive Officer of the Company prior to May 31, 2003 for any reason other
than his death, disability or voluntary resignation, then Mr. Hilb may elect to
be paid in a lump sum all consulting fees due to be paid him through the
expiration date of the agreement without further obligation to perform any
consulting services.
AUDIT INFORMATION
The firm of Ernst & Young LLP has audited the consolidated financial
statements of the Company for the fiscal year ended December 31, 2001. The
following information is furnished with respect to fees billed and expected to
be billed for professional services rendered to the Company by Ernst & Young
LLP for the 2001 fiscal year.
Audit Fees
The aggregate amount of fees billed or expected to be billed to the Company
by Ernst & Young LLP for professional services rendered in connection with the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2001, and for the review of the Company's interim financial
statements included in the Company's quarterly reports on Form 10-Q for that
fiscal year, is $202,000.
Financial Information System Design and Implementation Fees
There were no professional services rendered to the Company by Ernst & Young
LLP for the design and implementation of financial information systems for the
fiscal year ended December 31, 2001.
16
All Other Fees
The aggregate amount of fees billed to the Company by Ernst & Young LLP for
all other non-audit services rendered to the Company for the fiscal year ended
December 31, 2001 was $162,000, including audit-related services of $104,000
and non-audit services of $58,000. Audit-related services generally include
fees for pension audits, accounting consultations and SEC registration
statements.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP as independent public accountants to
audit the consolidated financial statements of the Company for the fiscal year
ending December 31, 2002. Representatives of Ernst & Young LLP will be present
at the Meeting, will be available to respond to appropriate questions from
shareholders and may make a statement if they so desire.
AUDIT COMMITTEE REPORT
Management is responsible for the Company's internal controls, financial
reporting process and compliance with laws and regulations and ethical business
standards. The independent auditor is responsible for performing
an independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and issuing a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes on behalf of the Board of Directors.
In this context, the Audit Committee has reviewed and discussed the audited
financial statements with management and the independent auditors. The Audit
Committee has discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by Independence Standards
Board No. 1 (Independence Discussions with Audit Committees) and discussed with
them their independence from the Company and its management. Moreover, the
Audit Committee has considered whether the independent auditor's provision of
non-audit services to the Company is compatible with maintaining the auditor's
independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, for filing with the Securities and
Exchange Commission. By recommending to the Board of Directors that the audited
financial statements be so included, the Audit Committee is not opining on the
accuracy, completeness or presentation of the information contained in the
audited financial statements.
AUDIT COMMITTEE
Theodore L. Chandler, Jr., Chairman
Anthony F. Markel
David W. Searfoss
J.S.M. French
17
PROPOSALS FOR 2003 ANNUAL MEETING
Under the regulations of the Commission, any shareholder desiring to make a
proposal to be acted upon at the 2003 Annual Meeting of Shareholders must cause
such proposal to be delivered, in proper form, to the Corporate Secretary of
the Company, whose address is 4951 Lake Brook Drive, Suite 500, Glen Allen,
Virginia 23060, no later than December 6, 2002, in order for the proposal to be
considered for inclusion in the Company's proxy statement and form of proxy for
that meeting. The Company anticipates holding the 2003 Annual Meeting of
Shareholders on May 6, 2003.
The Company's Bylaws also prescribe the procedure a shareholder must follow
to nominate directors or to bring other business before shareholders' meetings.
For a shareholder to nominate a candidate for director or to bring other
business before a meeting, notice must be received by the Corporate Secretary
of the Company not less than 60 days and not more than 90 days prior to the
date of the meeting. Based on an anticipated date of May 6, 2003 for the 2003
Annual Meeting of Shareholders, the Company must receive such notice no later
than March 7, 2003, and no earlier than February 5, 2003. Notice of a
nomination for director must describe various matters regarding the nominee and
the shareholder giving notice. Notice of other business to be brought before
the meeting must include a description of the proposed business, the reasons
therefor and other specified matters. Any shareholder may obtain a copy of the
Company's Bylaws, without charge, upon written request to the Corporate
Secretary of the Company.
ANNUAL REPORTS
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 2001, including consolidated financial statements, is being mailed
to shareholders with this Proxy Statement. A copy of the Company's Annual
Report on Form 10-K for 2001 filed with the Commission, excluding exhibits, can
be obtained without charge by writing to the Corporate Secretary, 4951 Lake
Brook Drive, Suite 500, Glen Allen, Virginia 23060.
18
PROXY
HILB, ROGAL AND HAMILTON COMPANY
This Proxy is Solicited on Behalf of the Board of Directors
The shareholder shown on the reverse side hereby appoints Andrew L. Rogal and
Walter L. Smith, and each or any of them, proxy for said shareholder, with
power of substitution, to vote all the shares of Common Stock of Hilb, Rogal
and Hamilton Company held of record by said shareholder as of March 15, 2002 at
the Annual Meeting of Shareholders of Hilb, Rogal and Hamilton Company to be
held at The Jefferson Hotel, 101 West Franklin Street, Richmond, Virginia, on
May 7, 2002, at 10:00 a.m. eastern time, and at any adjournments or
postponements thereof, upon the matters designated on the reverse side, as more
fully set forth in the Proxy Statement, and for the transaction of such other
business as may properly come before the meeting and any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN ITEM 1.
(Continued on reverse side)
Please fold and detach card at perforation before mailing.
--------------------------------------------------------------------------------
-------------------------------- Please mark your votes as
indicated in this example [X]
HILB, ROGAL AND HAMILTON COMPANY
--------------------------------
COMMON STOCK
ITEM 1. ELECTION OF DIRECTORS
Nominees: Please disregard if you have previously
FOR all nominees WITHHOLD (01) Theodore L. Chandler, Jr. provided your consent decision.
listed at right AUTHORITY (02) Norwood H. Davis, Jr.
except as marked to vote for all (03) Timothy J. Korman By checking the box to the right, [_]
to the contrary nominees (04) Thomas H. O'Brien I consent to future delivery of annual
listed at right (05) Julious P. Smith, Jr. reports, proxy statements, prospectuses
and other materials and shareholder
[_] [_] INSTRUCTIONS: To withhold communications electronically via the
authority to vote for any Internet at a webpage which will be
individual nominee, write each disclosed to me. I understand the
such nominee's name in the Company may no longer distribute
following space: printed materials to me from any
future shareholder meeting until such
----------------------- consent is revoked. I understand that I
may revoke my consent at any time by
contacting the Company's transfer
agent, Mellon Investor Services LLC,
Ridgefieldk Park, NJ and that costs
CONTROL normally associated with electronic
NUMBER: delivery, such as usage and telephone
charges as well as any costs I may
RECORD DATE incur in printing documents, will be
SHARES: my responsibility.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature(s) _________________ Signature(s) _______________ Date ______________
Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title of such. If a corporation, please sign in
corporation's name by President or other authorized officer. If a partnership,
please sign in partnership's name by authorized person.
--------------------------------------------------------------------------------
Please fold and detach card at perforation before mailing.
[Internet and Telephone Voting Instructions]
VOTING INSTRUCTION
HILB, ROGAL AND HAMILTON COMPANY
TO TRUSTEE, HRH RETIREMENT SAVINGS PLAN
This Voting Instruction is Solicited on Behalf of the
Board of Directors of Hilb, Rogal and Hamilton Company
Pursuant to Section 12.9 of the HRH Retirement Savings Plan of Hilb, Rogal and
Hamilton Company, you are directed to vote, in person or by proxy, the whole
shares of Common Stock of Hilb, Rogal and Hamilton Company credited to the
undersigned Participant's Account as of March 15, 2002 at the Annual Meeting of
Shareholders of Hilb, Rogal and Hamilton Company to be held at The Jefferson
Hotel, 101 West Franklin Street, Richmond, Virginia, on May 7, 2002, at 10:00
a.m. eastern time, and at any adjournments or postponements thereof, upon the
matters designated on the reverse side, as more fully set forth in the Proxy
Statement, and for the transaction of such other business as may properly come
before the meeting and any adjournments or postponements thereof.
THIS VOTING INSTRUCTION, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED ON THE REVERSE SIDE BY THE UNDERSIGNED PARTICIPANT. IF NO DIRECTION IS
MADE, OR IF A VOTING INSTRUCTION IS NOT PROPERLY EXECUTED AND RECEIVED BY THE
TRUSTEE, THE SHARES OF HILB, ROGAL AND HAMILTON COMPANY COMMON STOCK CREDITED
TO YOUR ACCOUNT WILL BE VOTED IN THE SAME PROPORTION AS THOSE SHARES FOR WHICH
THE TRUSTEE HAS RECEIVED PROPER VOTING INSTRUCTIONS.
(Continued on reverse side)
Please fold and detach card at perforation before mailing.
--------------------------------------------------------------------------------
HILB, ROGAL AND HAMILTON COMPANY
TO TRUSTEE, HRH RETIREMENT SAVINGS PLAN
This Voting Instruction, when properly executed, will be voted in the manner
directed by the undersigned shareholder.
ITEM 1. ELECTION OF DIRECTORS INSTRUCTIONS: To withhold authority to vote for any
individual nominee, write each such
nominee's name in the following
space:
[_] FOR Nominee: Theodore L. Chandler,
Jr. Norwood H. Davis,
Jr. Timothy J. Korman
Thomas H. O'Brien
Julious P. Smith, Jr. -------------------------------------------
[_] WITHHOLD AUTHORITY RECORD DATE SHARES:
to vote for all such nominees
Please be sure to mark, sign, date and return this Voting
Instruction using the enclosed. Please sign
exactly as name appears hereon.
-------------------------------------------
Participant Sign Here
Date:________________________________, 2002
Please fold and detach card at perforation before mailing.
--------------------------------------------------------------------------------