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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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ARTHUR J. GALLAGHER & CO.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[ARTHUR J. GALLAGHER & CO. LOGO]
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
April 5, 2001
Dear Stockholder:
Our Annual Meeting will be held on Tuesday, May 22, 2001, at 10:00 a.m.,
Central Time, at The Gallagher Centre, Two Pierce Place, Second Floor, Itasca,
Illinois.
The formal Notice of Annual Meeting of Stockholders and Proxy Statement
accompanying this letter describe the business requiring action at the
meeting. A presentation by J. Patrick Gallagher, Jr., President and Chief
Executive Officer of the Company, and me will provide information on the
business and progress of your Company during 2000 and our directors and
officers will be available to answer your questions.
We appreciate the interest of our stockholders in Arthur J. Gallagher & Co.
and are pleased that in the past so many of you have exercised your right to
vote your shares. We hope that you continue to do so.
Whether or not you plan to attend, please mark, sign, date and mail the
accompanying proxy card as soon as possible. The enclosed envelope requires no
postage if mailed in the United States. If you attend the meeting, you may
revoke your proxy and vote personally.
Cordially,
ROBERT E. GALLAGHER
Chairman of the Board
ARTHUR J. GALLAGHER & CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 2001
To the Stockholders of
ARTHUR J. GALLAGHER & CO.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Arthur J.
Gallagher & Co. (the "Company") will be held Tuesday, May 22, 2001, at 10:00
a.m., Central Time, at The Gallagher Centre, Two Pierce Place, Second Floor,
Itasca, Illinois for the following purposes:
1. To elect one Class I director, to elect four Class II directors, to
elect one Class III director, and to ratify the appointment of one Class
III director;
2. To consider and act upon a proposal to approve an amendment to the
Company's Restated Certificate of Incorporation increasing the
authorized Common Stock from 200,000,000 to 400,000,000 shares;
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2001; and
4. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors has fixed the close of business on March 23, 2001 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to
mark, date and sign the enclosed proxy and return it promptly so your vote can
be recorded. If you are present at the meeting, you may revoke your proxy and
vote in person.
Date: April 5, 2001
By Order of the Board of Directors
MICHAEL J. CLOHERTY
Secretary
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON.
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
PROXY STATEMENT
GENERAL INFORMATION
Use of Proxies
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Arthur J. Gallagher & Co. (the "Company") of proxies
to be voted at the Annual Meeting of Stockholders to be held on Tuesday,
May 22, 2001, in accordance with the foregoing notice. This Proxy Statement
and accompanying proxy are being mailed to stockholders on or about April 5,
2001.
Any proxy may be revoked by the person giving it at any time before it is
voted by delivering to the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date. Shares represented
by a proxy, properly executed and returned to the Company and not revoked,
will be voted at the Annual Meeting.
Shares will be voted in accordance with the directions of the stockholder
as specified on the proxy. In the absence of directions, the proxy will be
voted FOR the election of the directors named as the nominees in this Proxy
Statement and the ratification of the appointment of one Class III director;
FOR the approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized Common Stock, $1.00 par value, from
200,000,000 to 400,000,000 shares; and FOR the ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending December 31, 2001. Any other matters that may properly come before the
meeting will be acted upon by the persons named in the accompanying proxy in
accordance with their discretion.
Record Date and Voting Securities
The close of business on March 23, 2001 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournment thereof. As of the
Record Date, the Company had shares of Common Stock outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote,
exercisable in person or by proxy. There are no other outstanding securities
of the Company entitled to vote, and there are no cumulative voting rights
with respect to the election of directors.
The presence, in person or by proxy, of a majority of the outstanding
shares of the Common Stock of the Company is necessary to constitute a quorum
at the Annual Meeting. An automated system administered by the Company's
transfer agent tabulates the votes. Abstentions and broker non-votes are
included in the number of shares present and voting for the purpose of
determining if a quorum is present. Abstentions are also included in the
tabulation of votes cast on proposals presented to the stockholders but broker
non-votes are not.
Expenses of Solicitation
All expenses of the solicitation of proxies will be paid by the Company.
Officers, directors and employees of the Company may also solicit proxies by
telephone, facsimile or in person.
PRINCIPAL HOLDERS OF SECURITIES
The following table shows with respect to any person who is known to be the
beneficial owner as of December 31, 2000 of more than 5% of the Company's
Common Stock, par value $1.00 per share, which is its only class of issued and
outstanding capital stock, (i) the total number of shares of Common Stock
beneficially owned as of such date; and (ii) the percent of Common Stock so
owned as of the same date. All numbers of Common Stock have been adjusted for
the January, 2001 2-for-1 stock split.
Amount & Percent
Nature of of
Beneficial Common
Name and Address of Beneficial Owner Ownership Stock
------------------------------------ ------------ -------
Capital Research and Management Company.............. 5,090,800(1) 6.3%
333 South Hope Street
Los Angeles, CA 90071
The following table shows with respect to each of the directors and
nominees for director of the Company, the executive officers named in the
Summary Compensation Table, and all directors and executive officers as a
group, twelve in number, (i) the total number of shares of Common Stock
beneficially owned as of March 1, 2001; and (ii) the percent of Common Stock
so owned as of the same date.
Amount & Percent
Nature of of
Beneficial Common
Name of Beneficial Owner Ownership(2) Stock
------------------------ ------------ -------
Robert E. Gallagher............................... 2,609,908 (3) 3.2%
James J. Braniff III.............................. 335,056 *
T. Kimball Brooker................................ 132,240 *
Michael J. Cloherty............................... 262,408 *
Gary P. Coughlan.................................. 2,000 *
James W. Durkin, Jr. ............................. 297,228 *
J. Patrick Gallagher, Jr. ........................ 628,656 (4) *
Ilene S. Gordon................................... 18,160 *
David E. McGurn, Jr. ............................. 226,784 *
Richard J. McKenna................................ 124,548 *
Robert Ripp....................................... 6,000 *
James R. Wimmer................................... 134,240 *
All directors and executive officers as a group
(12 persons)..................................... 4,777,228 5.8%
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* Less than 1%
(1) Information obtained from a Schedule 13G dated February 9, 2001 filed
with the Securities and Exchange Commission by Capital Research and
Management Company. The Company has been informed that Capital Research
and Management Company is deemed to be the beneficial owner in the
aggregate of 5,090,800 shares (adjusted for 2-for-1 stock split), or 6.5%
(sic) of shares outstanding of the Company's voting Common Stock as a
result of acting as investment adviser to various investment companies,
including Smallcap World Fund, Inc., which owned 4,740,800 of such
5,090,800 shares.
2
(2) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of
1934. Unless otherwise stated in these notes, each person has sole voting
and investment power with respect to all such shares. Under Rule 13d-
3(d), shares not outstanding which are subject to options exercisable
within sixty days are deemed outstanding for the purpose of computing the
number and percentage owned by such person, but are not deemed
outstanding for the purpose of computing the percentage owned by each
other person listed. Includes shares which the listed beneficial owner
has a right to acquire within sixty days as follows: James J. Braniff
III, 168,000 shares; T. Kimball Brooker, 80,240 shares; Michael J.
Cloherty, 207,000 shares; James W. Durkin, Jr., 197,000 shares; J.
Patrick Gallagher, Jr., 49,000 shares; Ilene S. Gordon, 14,160 shares;
David E. McGurn, Jr., 142,400 shares; Richard J. McKenna, 59,160 shares;
Robert Ripp, 2,000 shares; and James R. Wimmer, 134,240 shares; all
directors and executive officers as a group (12 persons), 1,053,200
shares.
(3) Includes 300,000 shares held in trust for the benefit of Robert E.
Gallagher's grandchildren, 400,000 shares held in trust for the benefit
of Isabel Gallagher, 400,000 shares held by a charitable trust under
which Robert E. Gallagher is the trustee, and 276,048 shares held in the
Lauren E. Gallagher Trust under which Robert E. Gallagher is a trustee.
(4) Includes 158,480 shares held in trust for the benefit of his minor
children by his wife, Anne M. Gallagher, and another, as trustees and
99,512 shares held by his wife.
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes. The
regular terms of office for the Class II, Class III and Class I directors
expire at the 2001, 2002 and 2003 Annual Meetings of Stockholders,
respectively. Four persons are to be elected at the meeting to hold office as
Class II directors for a term of three years and until their respective
successors are elected and qualified. One person is to be elected at the
meeting to hold office as a Class I director for a term expiring in 2003 and
until his successor is elected and qualified. One person is to be elected at
the meeting to hold office as a Class III director for a term expiring in 2002
and until his successor is elected and qualified.
James W. Durkin, Jr. is a new nominee for election as a member of the Board
of Directors as a Class I director. T. Kimball Brooker, currently a member of
the Board of Directors as a Class I director, is nominated for election as a
Class II director, replacing a Class II director who did not stand for re-
election. David E. McGurn, Jr. and Richard J. McKenna are new nominees for
election as members of the Board of Directors as Class II directors, replacing
two Class II directors who did not stand for re-election. Robert E. Gallagher
is currently a member of the Board of Directors as a Class II director and is
a nominee for re-election as a Class II director. James J. Braniff III is a
new nominee for election as a member of the Board of Directors as a Class III
director.
Gary P. Coughlan is currently a member of the Board of Directors as a Class
III director, having been appointed to fill a vacancy in such Class on
September 28, 2000. The Company's Restated Certificate of Incorporation and
By-laws provide that any director appointed to fill a vacancy shall hold
office until the expiration of the term of the class of directors to which he
was elected, which in this case occurs at the 2002 Annual Meeting. The Board
of Directors has determined, however, that it would be desirable to obtain
ratification of the appointment of Mr. Coughlan. If the ratification of the
appointment should fail to be approved by the holders of a majority of the
voting stock represented at the Annual Meeting or any adjournment thereof,
such appointment shall nevertheless remain in effect until the 2002 Annual
Meeting (or
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the earlier death, resignation or removal of such appointee), but an adverse
vote will be considered as a direction to the Board to select another nominee
for election to a Class III directorship at the 2002 Annual Meeting.
Set forth below is information concerning the nominees for election as
Class I, Class II and Class III directors as well as information concerning
the current directors in each class. The Board of Directors recommends a vote
FOR the election of such nominees and the ratification of the appointment of
one Class III director. The persons named on the enclosed proxy card intend to
vote the proxies solicited hereby FOR all the nominees named below and the
ratification of one Class III director unless such authority is withheld. The
affirmative vote of the holders of a plurality of the shares of Common Stock
represented in person or by proxy is required to elect directors. The enclosed
proxy cannot be voted for more than six nominees. Should any nominee be
unavailable to serve or for good cause refuse to serve, an event which the
Board of Directors does not anticipate, the persons named in the enclosed
proxy intend to vote the proxies solicited hereby for the election of such
other nominee, if any, as they may select.
Nominee for Election to the Board of Directors
as a Class I Director with a Term Expiring in 2003
Year First Elected Director, Business
Name Age Experience and Other Directorships
---- --- --------------------------------------------------------
James W. Durkin, Jr. ... 51 Vice President since 1985; President of Gallagher
Benefit
Services, Inc. since 1985.
Nominees for Election to the Board of Directors
as Class II Directors with Terms Expiring in 2004
T. Kimball Brooker...... 61 Director since 1994; President, Barbara Oil Company
since 1989; Managing Director, Morgan Stanley & Co.,
Inc. from 1978 to 1988.
Robert E. Gallagher(1) . 78 Director since 1950; Chairman since 1990; Chief
Executive Officer from 1963 to 1994.
David E. McGurn, Jr. ... 47 Vice President-Specialty Marketing & International since
1996; Vice President from 1993 to 1996.
Richard J. McKenna...... 54 Vice President since 1994; President of Gallagher
Bassett Services, Inc. since April 2000.
Nominee for Election to the Board of Directors
as a Class III Director with a Term Expiring in 2002
James J. Braniff III.... 61 Vice President since 1995; President and Chief Operating
Officer of Brokerage Services Division since 1999.
4
Members of the Board of Directors Continuing in Office as
Class III Directors with Terms Expiring in 2002
Year First Elected Director, Business
Name Age Experience and Other Directorships
---- --- --------------------------------------------------------
Michael J. Cloherty..... 53 Director since 1982; Executive Vice President since 1996
and Chief Financial Officer since 1981; Vice President-
Finance 1981 to 1996.
Gary P. Coughlan........ 56 Director since 2000; Senior Vice President and Chief
Financial Officer of Abbott Laboratories since 1990;
Senior Vice President of Kraft General Foods from 1989
to 1990; prior thereto Senior Vice President and Chief
Financial Officer of Kraft, Inc. which he joined in
1972.
Robert Ripp............. 59 Director since 2000; Chairman of Lightpath Technologies,
Inc. since November 1999; Chairman and Chief Executive
Officer of AMP Incorporated during 1998, Executive Vice
President from 1997 to 1998 and Vice President and Chief
Financial Officer from 1994 to 1997; Vice President and
Treasurer of IBM from 1989 to 1993. Director of
Lightpath Technologies, Inc. and ACE, Ltd.
Members of the Board of Directors Continuing in Office as
Class I Directors with Terms Expiring in 2003
J. Patrick Gallagher, 49 Director since 1986; Chief Executive Officer since 1995;
Jr.(1)................. President since 1990; Chief Operating Officer from 1990
to 1994; Vice President--Operations from 1985 to 1990.
Ilene S. Gordon......... 47 Director since 1999; President of Pechiney Plastic
Packaging, Inc. and Senior Vice President of Pechiney
Group since June 1999; Vice President and General
Manager of Tenneco Packaging Folding Carton Business
from 1997 to 1999; Vice President-Operations of Tenneco,
Inc. from 1994 to 1997. Director of United Stationers,
Inc.
James R. Wimmer......... 72 Director since 1985; Partner, Lord, Bissell & Brook,
attorneys, from 1959 to 1992 and Of Counsel from 1992 to
1999; Vice-Chairman and General Counsel of Commonwealth
Industries Corporation from 1991 to 1993.
--------
(1) Robert E. Gallagher is an uncle of J. Patrick Gallagher, Jr.
Board of Directors
The Company's Board of Directors has the responsibility to review the
overall operations of the Company. The Board members are kept informed of the
Company's results of operations and proposed plans and business objectives by
the Company's management. During 2000, the Board of Directors met six times.
All of the directors attended at least 75% of those meetings and meetings of
the committees on which they served. Included among the committees of the
Board are standing Nominating, Audit and Compensation Committees.
Nominating Committee
The Nominating Committee considers new nominees proposed for the Board of
Directors and will consider individuals whose names and qualifications are
furnished in writing to the Committee (in care of the
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Chairman at the Company's principal office) by stockholders. Current members
of the Nominating Committee are Robert E. Gallagher (Chairman), T. Kimball
Brooker and J. Patrick Gallagher, Jr. The Committee met three times in 2000.
The Company's By-Laws establish advance notice procedures with regard to the
nomination by a stockholder of a candidate for election as a director. In
general, notice must be received by the Company not less than 45 days prior to
an annual meeting of stockholders of the Company. Such notice must set forth
all information with respect to each such nominee as required by the federal
proxy rules. Such notice must be accompanied by a consent of such nominee to
serve as a director, if elected.
Audit Committee
The Audit Committee of the Board of Directors is composed of 5 directors,
none of whom is an employee of the Company. The Committee is governed by a
charter as approved by the Board of Directors on May 16, 2000. A copy of the
Charter is attached as Exhibit A. In accordance with its Charter, the
Committee assists the Board in carrying out its responsibilities for
monitoring management's accounting for the Company's financial results and for
the timeliness and adequacy of the reporting of those results; discusses and
makes inquiry into the audits of the Company's books made internally and by
outside independent auditors, the Company's financial and accounting policies,
its internal controls and its financial reporting; and investigates and makes
a recommendation to the Board each year with respect to the appointment of
independent auditors for the following year. Current members of the Committee
are James R. Wimmer (Chairman), T. Kimball Brooker, Gary P. Coughlan, Ilene S.
Gordon and Robert Ripp, each of whom meets the independence and experience
requirements of the New York Stock Exchange. The Audit Committee met eight
times in 2000.
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate filings, including this Proxy Statement, in whole
or in part, the following report shall not be incorporated by reference into
any such filings.
Report of the Audit Committee
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1 "Independence Discussions with Audit Committees" and
discussed with the auditors any relationships that may impact their
objectivity and independence. The Committee discussed and reviewed with the
independent auditors all communications required by generally accepted
auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended, "Communication with Audit Committees". The
Committee reviewed and discussed the audited consolidated financial statements
of the Company as of and for the fiscal year ended December 31, 2000, with
management and the independent auditors. Management has the responsibility for
the preparation of the Company's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that the
Company's audited consolidated financial statements be included in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2000, for filing
with the Securities and Exchange Commission.
Audit Committee
James R. Wimmer (Chairman)
T. Kimball Brooker
Gary P. Coughlan
Ilene S. Gordon
Robert Ripp
6
Compensation Committee
The Compensation Committee determines the salaries, bonuses and other
compensation and terms and conditions of employment of the executive officers
and certain key employees of the Company and makes recommendations to the
Board of Directors with respect to the Company's compensation plans and
policies; provided, however, that the Option Committee of the Board of
Directors administers the Company's stock option plans. Current members of the
Compensation Committee are J. Patrick Gallagher, Jr. (Chairman), T. Kimball
Brooker, Gary P. Coughlan, Robert E. Gallagher, Ilene S. Gordon, Robert Ripp
and James R. Wimmer. The Committee met four times in 2000.
Compensation Committee Interlocks and Insider Participation
J. Patrick Gallagher, Jr., President and Chief Executive Officer, and
Robert E. Gallagher, Chairman, of the Company, respectively, serve on the
Compensation Committee and abstain from discussion and voting on matters
concerning their respective compensation. During 2000, as part of its ongoing
share repurchase program, the Company purchased from Mr. James R. Wimmer
10,000 shares of Company Common Stock for an aggregate price of $380,000,
based on the closing price on the New York Stock Exchange the date preceding
the purchase.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and executive officers of the Company and beneficial owners of
more than ten percent of the Common Stock file periodic reports regarding
ownership of shares of Common Stock with the Securities and Exchange
Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934.
Mr. Ripp inadvertently filed a statement of changes in beneficial ownership
untimely.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate filings, including this Proxy Statement, in whole
or in part, the following report and the Comparative Performance Graph on Page
11 shall not be incorporated by reference into any such filings.
Report of the Compensation Committee
Executive Compensation
The Compensation Committee is responsible for determining the total
compensation, other than stock options, and employment conditions of the
Company's executive officers. In determining the total 2000 compensation, the
Compensation Committee generally evaluated the executive's contribution to the
overall success of the Company in achieving the corporate goals set out below.
The business growth and human resources goals were given less weight in
determining the executive's compensation than the earnings growth goal.
Earnings Growth--Year-over-year earnings growth is one of the most
important goals of the Company. The effort of an individual executive in
meeting or exceeding year-over-year growth for his or her department or
division has historically been an important criterion in the evaluation.
However, in 2000, the Compensation Committee focused on the contribution of
the executive to the overall success of the Company in meeting its plan for
growth. Longer term growth goals, as measured against the Company's Three
Year Strategic Plan, are also considered in the evaluation. In 2000, the
Company's net earnings increased 25% which surpassed the average annual
growth rate for the period 1990 to 1999.
7
Business Growth--The Company considers its long term business growth to be
a critical factor in the continued success of the Company. Executives are
expected to support the Company's acquisition program, which seeks to
achieve growth by successfully integrating independent businesses into the
corporate structure. Similarly, establishment of operations in new
geographic areas, as well as the successful development and marketing of
new product lines, are considered necessary to the continued growth of the
Company and are included in the evaluation. In 2000, sixteen businesses
were acquired. The development and marketing of new product lines continued
on a basis consistent with prior years. The Company believes that these
efforts had a direct impact on the 13% increase in total revenues achieved
in 2000 over 1999.
Human Resources--As a service business, the Company believes that its
employees are its greatest asset. Over 60% of the Company's expenses in
2000 were related to the compensation of its employees and related costs.
The Company is committed to the successful hiring, training and retaining
of people who promote the growth, financial success and management
succession of the Company. An executive's ability to manage these
resources, as well as the attendant expenses, is a significant criterion.
In 2000, the Company's overall success in effectively managing its
employees evidenced the commitment of the Company's executive officers, as
a group, to the corporate goal of continuously improving the quality and
efficiency of its human resources. This was demonstrated by the Company's
ability to generate $142,000 in revenue per employee for 2000, one of the
highest figures in the industry and an increase from the $134,000 in
revenue per employee generated during 1999. This was accomplished even as
the 2000 employee headcount increased by 6% over 1999.
Enhancement of shareholder value is the ultimate goal of the Company. The
Compensation Committee believes that its focus on specific corporate goals
should result in a strong stock price, improved earnings per share and greater
return on stockholders' equity. Net earnings per share in 2000 increased by
21% over 1999. This substantial increase was directly related to the efforts
of the Company's executive officers during the intense competitive pressures
of 2000 and prior years. Recognizing these efforts, the Compensation Committee
applied a bonus formula, determined early in 2000, which was based on growth
in net earnings per share. Most of the executive officers received bonuses,
which were paid in March, 2001, from the application of this formula.
The Company also has a discretionary bonus pool for executive officers and
key employees, contingent upon satisfactory corporate growth and the
attainment of predetermined managerial goals. These predetermined goals are
extremely varied and, in the case of the executive officers, are established
by the individual officer in conjunction with the Compensation Committee. The
goals are too diverse to generalize but typically include meeting or exceeding
budgetary guidelines and contribution to the Company's profitability.
Attainment of these goals in many cases may be determined by a subjective
judgment of the individual supervisor or, in the case of the executive
officers, by the Compensation Committee. The eligibility for participation in
the bonus pool is determined by the Board. Approximately 50 officers and key
employees are current participants. Certain officers who received the formula
bonus discussed above also received a discretionary bonus for 2000.
The Company has adopted the Deferred Equity Participation Plan to encourage
key executive officers to remain with the Company until their normal
retirement. Under the Plan, the Company contributes an amount of cash,
approved by the Compensation Committee, which is used to purchase Common
Stock. The Chief Executive Officer of the Company, in conjunction with the
Compensation Committee, determines the key executives that will receive an
award under the Plan and the amount of such award. Distributions under the
Plan may not be made until the participant retires after reaching age 62 and
are subject to forfeiture in
8
the event of a voluntary termination of employment prior to age 62. All
distributions are made in the form of Common Stock of the Company.
Option grants to executive officers under the Company's Stock Option Plans
are determined by the Option Committee of the Board of Directors and are
generally based upon more subjective factors than those used by the
Compensation Committee. The Option Committee considers the recommendations of
the executive officers of the Company, the responsibilities of each grantee,
his or her past performance and his or her anticipated future contribution to
the Company. Options directly reflect the Company's performance through its
stock price.
The Internal Revenue Code limits the deductibility for federal income tax
purposes of certain compensation payable to top executive officers of publicly
held corporations. Certain types of compensation are excluded from the
limitations. The Company generally attempts to preserve the federal income tax
deductibility of compensation paid when it is appropriate and is in the best
interests of the Company and its stockholders. However, the Company reserves
the right to authorize the payment of nondeductible compensation which it
deems appropriate.
Executive officers participate in the Savings and Thrift Plan, Supplemental
Savings and Thrift Plan, Pension Plan and Stock Option Plans, as well as
customary employee health benefits and expense reimbursement in accordance
with the Company's policy.
During 2000, the Committee compared the compensation of the six most highly
compensated executive officers of the Company to the publicly held competitors
of the Company included in the Comparative Performance Graph on Page 11. The
Committee targets the middle of its competitors' salary range for its
executive officers' compensation. The Committee believes that the 2000
compensation of the Company's six most highly compensated executive officers
will be in the middle range when compared to its publicly-held competitors
after making certain adjustments for the size of the Company.
Chief Executive Officer Compensation
The 2000 salary of J. Patrick Gallagher, Jr., the Company's Chief Executive
Officer, was $650,000. Mr. Gallagher received a bonus of $500,000 and an award
of $400,000 under the Company's Deferred Equity Participation Plan for 2000
and a bonus of $350,000 for 1999. In determining Mr. Gallagher's salary and
bonus, the Compensation Committee considered the Company's excellent
performance in 2000 and 1999, as well as Mr. Gallagher's voluntary election to
reduce his total compensation in prior years.
Compensation Committee
J. Patrick Gallagher, Jr. (Chairman)
Robert E. Gallagher
T. Kimball Brooker
Gary P. Coughlan
Ilene S. Gordon
Robert Ripp
James R. Wimmer
9
Summary Compensation Table
The following table presents information concerning compensation paid or
set aside by the Company and its subsidiaries on an accrual basis to or for
the benefit of the Chief Executive Officer and each of the other five most
highly compensated executive officers of the Company in each of the Company's
last three fiscal years.
Long Term
Compensation
Annual Compensation Awards
----------------------- ------------
Securities All Other
Name and Principal Salary Bonus Other Underlying Compensation
Position Year ($) ($) (1) ($) (3) Options (#) ($) (2)
----------------------- ---- ------- ------- ------- ------------ ------------
J. Patrick Gallagher,
Jr.................... 2000 650,000 500,000 400,000 30,000 21,700
President and Chief
Executive Officer 1999 500,000 350,000 -- -- 16,800
1998 500,000 250,000 -- 40,000 5,000
Michael J. Cloherty.... 2000 600,000 -- -- 30,000 194,600(4)
Executive Vice
President and Chief 1999 475,000 738,000 -- -- 17,200
Financial Officer 1998 475,000 250,000 -- 40,000 6,100
James J. Braniff III... 2000 600,000 285,000 300,000 30,000 254,600(5)
Vice President 1999 600,000 125,000 -- 200,000 22,500
1998 320,000 165,000 -- 40,000 7,400
James W. Durkin, Jr.... 2000 320,000 175,000 300,000 30,000 10,500
Vice President 1999 290,000 150,000 -- -- 7,400
1998 290,000 -- -- 40,000 4,500
David E. McGurn, Jr.... 2000 300,000 142,500 300,000 30,000 9,300
Vice President 1999 300,000 125,000 -- -- 9,400
1998 275,000 125,000 -- 40,000 3,900
Richard J. McKenna..... 2000 300,000 200,000 300,000 30,000 7,300
Vice President 1999 270,000 -- -- -- 7,400
1998 220,000 90,000 -- 40,000 4,700
--------
(1) Represents bonuses related to services rendered in the fiscal year
indicated above that were determined and paid in the subsequent fiscal
year.
(2) Includes amounts contributed by the Company under the 401(k) match feature
of the Company's Savings and Thrift Plan of $3,400 in 2000, amounts
contributed by the Company under the match feature of the Company's
Supplemental Savings and Thrift Plan in 2000 (Mr. Gallagher--$16,600, Mr.
Cloherty--$23,400, Mr. Braniff--$11,100, Mr. Durkin--$6,000, Mr. McGurn--
$5,100 and Mr. McKenna--$2,600) and the equivalent annual value of
insurance premiums paid by the Company for group term life insurance for
the benefit of the named executive officer (Mr. Gallagher--$1,700, Mr.
Cloherty--$2,600, Mr. Braniff--$6,200, Mr. Durkin--$1,100, Mr. McGurn--
$800 and Mr. McKenna--$1,300).
(3) Represents amounts awarded under the Company's Deferred Equity
Participation Plan. Amounts shown do not represent actual payments to the
executive officer. Participation in the Plan by any person, and the amount
of such participation, is at the sole discretion of the Company's Chief
Executive Officer, in conjunction with the Compensation Committee. The
Plan provides that the Company will contribute to the Plan an amount of
cash or options to purchase Common Stock approved by the Compensation
Committee. All funds allocated by the Company to the Plan will be used to
purchase Common Stock. Prior to payout, the participant is not entitled to
vote, dispose of or receive dividends with respect to such shares, and
shares are subject to forfeiture under certain conditions, including but
not limited to, the participant's voluntary termination of employment with
the Company prior to age 62. A participant
10
will be eligible to receive a distribution from the Plan upon reaching age
62. All distributions will be made in the form of Common Stock of the
Company.
(4) Mr. Cloherty agreed to waive his right to receive any bonus from the
Company for 2000. In consideration for such waiver, on March 15, 2001,
the Company paid Mr. Cloherty a waiver fee of $165,200 and loaned Mr.
Cloherty the principal amount of $2,382,900. Under Mr. Cloherty's
promissory note, repayment of the outstanding principal amount plus
interest at the annual rate of 5.2% is payable upon demand of the
Company. The Company has agreed to forgive repayment of the principal
amount of the loan plus interest on an annual basis at the rate of 33-1/3
percent per year beginning in 2002 so long as Mr. Cloherty remains
employed by the Company. In the event Mr. Cloherty voluntarily terminates
his employment with the Company or Mr. Cloherty's employment is
terminated for cause by the Company, the outstanding principal amount of
the loan becomes immediately due and payable. In addition, Mr. Cloherty
has a loan in the principal amount of $40,000 in connection with his
relocation to Illinois in 1983 which is payable on demand and is without
interest.
(5) The Company has an Employment Agreement with James J. Braniff III ending
on December 31, 2003. Under the Agreement, Mr. Braniff is to receive an
annual salary of not less than $600,000 and is entitled to participate in
the Brokerage Services Division Management Bonus Plan. On January 1,
2000, Mr. Braniff was indebted to the Company in the principal amount of
$1,155,000, which accrued interest at the annual rate of 3%. During 2000
the Company forgave $233,900 of principal and interest in connection with
such indebtedness which amount is included in his compensation for 2000.
Under the Agreement, an additional $115,500 of Mr. Braniff's indebtedness
is to be forgiven annually while Mr. Braniff is an employee of the
Company. In addition, Mr. Braniff has a loan in the principal amount of
$100,000 in connection with his relocation to Illinois which is payable
on demand and is without interest.
Comparative Performance Graph
The following graph demonstrates a five year comparison of cumulative total
returns for the Company, the S&P 500 and a Peer Group comprised of the
Company, Aon Corporation, Hilb, Rogal and Hamilton Co., Marsh & McLennan
Companies, Inc. and Brown & Brown, Inc. The comparison charts the performance
of $100 invested in the Company, the S&P 500 and the Peer Group on December
31, 1995, with dividend reinvestment.
11
Directors' Compensation
Directors who are officers of the Company receive compensation in their
capacities as officers and receive no additional compensation for serving as
directors.
Non-employee directors, currently Messrs. Brooker, Coughlan, Ripp and
Wimmer and Ms. Gordon, are eligible to receive compensation consisting of
nonqualified stock options. In addition, non-employee directors receive an
annual retainer of $25,000 per year or, in lieu of the cash retainer, an
option to purchase shares of the Company's Common Stock below market value,
plus fees of $500 for attendance at each Board meeting or committee meeting on
a date other than a Board meeting date. Non-employee directors are reimbursed
for travel and accommodation expenses incurred in attending Board or committee
meetings. Non-employee directors are not eligible for participation in any
other compensation plans of the Company.
In 1989, the Company's stockholders approved the adoption of the Company's
1989 Non-Employee Directors' Stock Option Plan (the "1989 Plan"), which was
subsequently amended in 1990, 1993, 1994, 1996, 1997, 1998, 1999, 2000 and
2001. The 1989 Plan currently provides that non-employee directors are
eligible to be granted nonqualified options to purchase a maximum of 1,025,000
shares of the Company's Common Stock. The 1989 Plan encompasses options
granted to non-employee directors at the discretion of the Option Committee of
the Company's Board of Directors ("Discretionary Options") and options granted
to non-employee directors pursuant to an election made by a non-employee
director to receive options in lieu of his or her annual retainer ("Retainer
Options"). Shares issued upon exercise of options granted under the 1989 Plan
may be repurchased shares held by the Company or authorized but previously
unissued shares.
Under the 1989 Plan, a Discretionary Option shall be exercisable at such
rate and price fixed by the Option Committee. Discretionary Options terminate
if not exercised by the date set forth in the 1989 Plan or by such date
established by the Option Committee at the time it makes the grant.
Pursuant to the terms of the 1989 Plan, Messrs. Coughlan, Ripp and Wimmer
and Ms. Gordon have elected to receive their annual retainers for 2001 in the
form of an option to purchase the Company's Common Stock. Each year on or
before two weeks preceding the Company's Annual Meeting of Stockholders, the
Option Committee shall determine the number of shares of Common Stock with
respect to which a non-employee director may be granted a Retainer Option. The
non-employee director's option exercise price per share shall be equal to the
Fair Market Value of the Common Stock subject to the Retainer Option less the
Annual Retainer, divided by the number of shares subject to the Retainer
Option. The option exercise price per share shall be not less than the par
value of the Common Stock. "Fair Market Value" is defined as the closing price
of the Company's Common Stock as reported on the New York Stock Exchange
composite listing for the day on which the option is granted.
On May 16, 2000, the Company granted a Retainer Option for 2,000 shares of
the Company's Common Stock to Messrs. Ripp and Wimmer and Ms. Gordon at an
exercise price of $6.38 per share. Such options are exercisable at the rate of
one-fourth of such grant each successive quarter commencing August 16, 2000.
In addition, on June 21, 2000, the Company granted a Discretionary Option for
24,000 shares of the Company's Common Stock to each of Messrs. Brooker, Ripp,
and Wimmer and Ms. Gordon at an exercise price of $18.50 per share, which was
the closing price for a share of Common Stock as reported on the New York
Stock Exchange composite listing on that date. Such options are exercisable at
the rate of one-third of such grant each successive June 21, commencing June
21, 2001.
The Company approved a supplemental deferred compensation arrangement,
effective July 1, 1996, with Robert E. Gallagher after his retirement, and to
his surviving spouse after his death, and the surviving spouse
12
of John P. Gallagher, providing for a payment of $100,000 annually, inclusive
of any Company pension plan payments, to be paid until the death of each such
beneficiary.
Pension Plan
The Company also maintains a non-contributory defined benefit pension plan
covering substantially all domestic employees which is qualified under the
Internal Revenue Code. The plan provides an annual pension benefit on normal
retirement at age 65 which, when paid in the form of a single life annuity,
will equal 1% of final average earnings multiplied by the number of years of
credited service, not to exceed 25 years (without any deduction for social
security or other offset amounts). A person's earnings for purposes of the
plan include all compensation other than allowances such as moving expenses
plus any pre-tax contributions under the 401(k) feature of the Savings and
Thrift Plan, less pre-tax contributions under the Supplemental Savings and
Thrift Plan. Effective for plan years beginning after 1988, the maximum
includible compensation for a participant for any year may not exceed an
overall salary maximum as determined by the Internal Revenue Service of
$170,000 (in 2000 and 2001). The remuneration for executive officers shown
under "Salary" and "Bonus" in the Summary Compensation Table constitutes their
earnings during 2000 for purposes of the plan without regard to the Internal
Revenue Service's limitation. "Final average earnings" are the highest average
earnings received in any five consecutive full calendar years before
retirement. Employees' pension rights are fully vested after the earlier of
(i) 5 years of service with the Company or (ii) the attainment of age 65.
The following table shows the estimated annual benefits (which are not
subject to deduction for social security or other offset amounts) payable on
retirement under the Company's defined benefit plan to persons in specific
remuneration and credited years of service classifications assuming (i) the
person elects the single life annuity basis providing monthly payments without
benefits to his survivors and (ii) the person continues in the employ of the
Company at his present rate of remuneration until age 65:
PENSION PLAN TABLE
Years of Credited
Average remuneration Service
during highest five -----------------------
consecutive years 25 or
before retirement 15 20 more
-------------------- ------- ------- -------
$110,000........................................ $16,500 $22,000 $27,500
130,000........................................ 19,500 26,000 32,500
150,000........................................ 22,500 30,000 37,500
170,000........................................ 25,500 34,000 42,500
For purposes of estimating potential pension benefits using the foregoing
table, the number of years of credited service as of December 31, 2000 for the
executive officers named in the Summary Compensation Table are as follows: J.
Patrick Gallagher, Jr. (25 years), Michael J. Cloherty (18 years), James J.
Braniff III (12 years), James W. Durkin, Jr. (24 years), David E. McGurn, Jr.
(21 years) and Richard J. McKenna (23 years). Such pension benefits are in
addition to amounts payable to such persons under the Company's Savings and
Thrift Plan and Supplemental Savings and Thrift Plan on their retirement and
are subject to certain limitations as required under the Internal Revenue
Code.
13
Stock Option Plans
The Company maintains a 1988 Incentive Stock Option Plan and a 1988
Nonqualified Stock Option Plan.
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the
Company named in the Summary Compensation Table during the Company's 2000
fiscal year. The exercise price of the options equals the closing price for a
share of the Company's Common Stock on the date of the option grant.
Option Grants in the Last Fiscal Year(1)
Individual Grants
--------------------
% of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted Price
Underlying to Appreciation for
Options Employees Exercise Option Term (2)
Granted in Fiscal Price Expiration ---------------------
Name (#) Year ($) Date 5% ($) 10% ($)
---- ---------- --------- -------- ---------- ---------- ----------
J. Patrick Gallagher,
Jr. ................... 30,000 1.18 18.50 6-21-10 349,000 885,000
Michael J. Cloherty..... 30,000 1.18 18.50 6-21-10 349,000 885,000
James J. Braniff III.... 30,000 1.18 18.50 6-21-10 349,000 885,000
James W. Durkin, Jr. ... 30,000 1.18 18.50 6-21-10 349,000 885,000
David E. McGurn, Jr. ... 30,000 1.18 18.50 6-21-10 349,000 885,000
Richard J. McKenna...... 30,000 1.18 18.50 6-21-10 349,000 885,000
--------
(1) Nonqualified options granted June 21, 2000, exercisable at the rate of
10% of total option for each calendar year after 2000.
(2) Based on actual option term and annual compounding.
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 2000 fiscal
year and the number and value of unexercised options to purchase shares of
Common Stock held at the end of the Company's 2000 fiscal year by the
executive officers of the Company named in the Summary Compensation Table.
Aggregated Option Exercises in the Last Fiscal Year
and Fiscal Year End Option Values
Number of Number of
Number Securities Securities Value of Value of
of Underlying Underlying Unexercised Unexercised
Shares Unexercised Unexercised In-the-Money In-the-Money
Acquired Options at Options at Options at Options at
on Value FY-End FY-End FY-End FY-End
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($)(1) (#) (#) ($)(2) ($)(2)
---- -------- ---------- ----------- ------------- ------------ -------------
J. Patrick Gallagher,
Jr. ................... 304,000 $6,622,194 -- 198,000 -- $4,416,940
Michael J. Cloherty..... 30,000 374,500 164,000 184,000 $3,871,400 4,064,720
James J. Braniff III.... 2,000 27,820 107,200 280,400 2,359,584 5,624,292
James W. Durkin, Jr. ... 4,000 55,400 260,000 188,000 6,420,360 4,170,720
David E. McGurn, Jr. ... 20,000 272,240 126,600 131,400 3,109,642 2,794,918
Richard J. McKenna...... 23,440 231,769 44,000 96,160 1,034,908 1,937,845
--------
(1) Market value of underlying securities at exercise, minus the exercise
price.
(2) Market value of underlying securities at year end, minus the exercise
price.
14
Severance Arrangements
The Company has a plan for severance compensation to employees after a
hostile takeover. The plan defines a hostile takeover to include, among other
events, the following events, if not approved by two-thirds of the members of
the Board of Directors in office immediately prior to any such events: the
election of directors not nominated by the Board of Directors, a business
combination, such as a merger, not approved by the holders of 80% or more of
the Common Stock and the Board of Directors or not meeting various "fair
price" criteria, or the acquisition of 20% or more of the combined voting
power of the Company's stock by any person or entity. All full-time and part-
time employees who are regularly scheduled to work 20 or more hours per week
and who have completed at least two years of continuous employment with the
Company are participants in the plan. A severance benefit is payable under the
plan if a participant's employment with the Company terminates voluntarily or
involuntarily within two years after a hostile takeover for reasons such as
reduction in compensation, discontinuance of employee benefit plans without
replacement with substantially similar plans, change in duties or status,
certain changes in job location and involuntary termination of employment for
reasons other than just cause. For participants who have completed two but
less than five years of employment, the benefit is equal to the employee's
annual compensation during the year immediately preceding the termination of
employment. For employees who have completed five or more years of employment,
the benefit is equal to two and one-half times the employee's annual
compensation during the 12 months ending on the date of termination of
employment, but may not exceed 2.99 times average annual compensation during
the preceding five years. Annual compensation is defined for purposes of the
plan as the amount of the employee's wages, salary, bonuses and other
incentive compensation. Benefits are payable in a lump sum not later than 10
days after termination of employment.
Each of the executive officers of the Company named in the Summary
Compensation Table has entered into a change in control agreement with the
Company. A severance benefit is payable under the agreement if the executive
officer's employment with the Company is terminated by (i) the Company for any
reason other than death, physical or mental incapacity, or cause within 24
months following a change in control of the Company; or (ii) the resignation
of the executive officer within 24 months following a change in control of the
Company upon the occurrence of a material change in the nature or scope of the
executive's authorities, powers, functions or duties or a reduction in the
executive's total compensation. In the event of any such termination of the
executive officer's employment, under the agreement the Company is required to
pay the executive a severance allowance equal to his then salary and bonus
payments for a 24 calendar month period. Additionally, the executive will also
continue to participate for a period of two years in the Company's welfare
benefit plans. Cash benefits are payable in a lump sum not later than seven
days after termination of employment.
PROPOSAL 2--APPROVAL OF AN INCREASE IN THE
AUTHORIZED COMMON STOCK OF THE COMPANY
The Board of Directors deems advisable and in the best interests of the
Company and its stockholders, and recommends to the stockholders, an amendment
to Clause (A) of Article FOURTH of the Company's Restated Certificate of
Incorporation (the "Amendment") increasing the Company's authorized Common
Stock, par value $1.00 per share, from 200,000,000 to 400,000,000 shares, so
that said Clause (A), as amended, shall read as follows:
(A) The aggregate number of shares which the corporation is authorized
to issue is 401,000,000, of which 1,000,000 shares shall be Preferred Stock
with no par value per share and 400,000,000 shares shall be Common Stock
with par value of $1.00 per share.
15
The remainder of Article FOURTH of the Company's Restated Certificate of
Incorporation, which is Clause (B) and which specifies the designations,
relative rights, voting rights, preferences and privileges of each class of
stock of the Company, is unaffected by the Amendment.
The Company is currently authorized to issue 200,000,000 shares of Common
Stock, $1.00 par value per share, and 1,000,000 shares of Preferred Stock,
without par value. As of March 1, 2001, there were 80,758,335 shares of Common
Stock outstanding held by 663 stockholders of record, approximately 21,834,000
shares of Common Stock reserved for issuance in connection with the exercises
of stock options, 10,950,000 shares of Common Stock reserved for issuance in
connection with acquisitions, and 50,000,000 shares of Common Stock reserved
for issuance in connection with the exercises of outstanding Rights under the
Company's Rights Agreement (described herein). Accordingly, only approximately
36,457,665 shares of Common Stock are unissued, unreserved, and available for
issuance. The proposed Amendment would increase the number of authorized
shares of Common Stock from 200,000,000 to 400,000,000 and has no effect on
the present authorization with respect to the Preferred Stock.
The proposed increase in the authorized Common Stock will provide the
Company with greater flexibility to issue Common Stock for appropriate
corporate purposes. Among the purposes for which such additional authorized
Common Stock could be issued are the acquisition of desirable businesses,
properties or securities, stock splits, stock dividends, the sale of shares
for cash, the issuance of shares to the Company's Savings and Thrift Plan and
other employee benefit plans that may be adopted by the Company and its
subsidiaries and issuances in connection with stock options.
The additional shares of Common Stock resulting from the Amendment would be
identical in all respects to the existing Common Stock. Holders of the
outstanding Common Stock are entitled to one vote for each share held of
record on all matters presented to stockholders. The shares of Common Stock
have no cumulative voting rights in the election of directors, and accordingly
holders of a majority of the outstanding voting stock are entitled to elect
the entire Board. The holders of Common Stock have no conversion, preemptive
or subscription rights. Subject to the rights of holders of Preferred Stock,
upon liquidation of the Company, the net assets will be distributed ratably
among the holders of Common Stock. Subject to the prior payment of all
preferred dividends on shares of outstanding Preferred Stock, the holders of
Common Stock are entitled to receive ratably out of funds legally available
therefor dividends at such time and in such amounts as the Board of Directors
may from time to time determine. All shares of Common Stock currently
outstanding are fully paid and nonassessable.
The Company also is authorized to issue 1,000,000 shares of Preferred Stock
without par value, issuable in series. The Board of Directors is authorized to
designate each series and the number of shares within the series and to
determine and fix the relative rights and preferences of the shares of each
series. No shares of Preferred Stock are currently issued or outstanding.
Preferred Stock, when and if issued, will be senior to Common Stock with
respect to dividend and liquidation rights. The relative rights and
preferences which may hereafter be fixed by resolution of the Board for any
series of Preferred Stock may provide that the shares of such series shall be
senior to the other series of Preferred Stock with respect to dividends,
liquidation or other rights and that such shares may be redeemable or may be
convertible into Common Stock or other securities.
The Board may cause authorized shares of Common Stock and Preferred Stock
in excess of those outstanding to be issued without further action by the
stockholders, unless such action is required by applicable law or regulatory
agencies or by the rules, if the Company shall choose to comply with such
rules, of any stock exchange on which the Company's securities may then be
listed. Stockholders have no preemptive rights to subscribe to or to purchase
any securities of the Company of any kind or class.
16
On March 10, 1987, the Board of Directors adopted a Common Share Purchase
Rights Plan (the "Rights Plan"), which was approved by the Company's
stockholders at their Annual Meeting on May 12, 1987. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and Harris Trust & Savings Bank.
Under the Rights Plan, Common Share Purchase Rights (the "Rights") were
distributed as a dividend at the rate of one Right for each share of Common
Stock held by stockholders of record as of May 12, 1987 (the "Record Date").
The Company also will issue one Right with respect to each share of Common
Stock that becomes outstanding after May 12, 1987, but prior to the earliest
of the Distribution Date (as hereinafter defined), the redemption of the
Rights or the expiration of the Rights. Each Right entitles the registered
holder to purchase from the Company one share of Common Stock at the price of
$25 per share, subject to certain adjustments (the "Purchase Price").
With respect to the shares of Common Stock outstanding as of May 12, 1987,
the Rights are evidenced by the Common Stock certificates. With respect to the
shares of Common Stock that become outstanding after May 12, 1987 but prior to
the earliest of the Distribution Date (as hereinafter defined), the redemption
of the Rights or the expiration of the Rights, the Rights will be evidenced by
Common Stock certificates that contain a legend incorporating the Rights
Agreement by reference.
The Rights are not exercisable or transferable apart from the Common Stock
until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") acquired or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding Common Stock or (ii) ten days following the
commencement or announcement of an intention to make a tender offer or
exchange offer for 30% or more of the outstanding Common Stock (the earlier of
such dates being called the "Distribution Date"). Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates representing Common Stock outstanding as of May
12, 1987 (or issued after May 12, 1987 but prior to the earliest of the
Distribution Date, the redemption of the Rights or the expiration of the
Rights) would also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights (the "Right
Certificates") would be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date and such separate Right
Certificates alone would evidence the Rights.
The Rights are not exercisable until the Distribution Date and would expire
on May 12, 2007 unless earlier redeemed as described below or extended by the
Company. Until a Right is exercised, the holder thereof, as such, would have
no rights as a stockholder, including, without limitation, the right to vote
or to receive dividends. The Rights would be redeemable by the Company in
whole, but not in part, at a price of $0.0125 per Right (the "Redemption
Price") prior to the public announcement that 20% or more of the Company's
Common Stock had been accumulated by a single acquirer or group.
In the event that the Company were acquired in a merger or other business
combination transaction or 50% or more of its assets or earning power were
sold, proper provision would be made so that each holder of a Right thereafter
would have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Right. In the event that the
Company were the surviving corporation in a merger and its Common Stock was
not changed or exchanged, or in the event that an Acquiring Person engages in
one of a number of self-dealing transactions specified in the Rights
Agreement, such as certain sales of assets to the Company or obtaining certain
financial benefits
17
from the Company, proper provision would be made so that each holder of a
Right, other than Rights that were beneficially owned by the Acquiring Person
on the Distribution Date (which would thereafter be void) will thereafter have
the right to receive upon exercise that number of shares of Common Stock
having a market value of two times the exercise price of the Right.
The Purchase Price payable and the number of shares of Common Stock or
other securities or property purchasable, upon exercise of the Rights is
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of
the Common Stock, (ii) upon the grant to holders of shares of the Common Stock
of certain rights or warrants to subscribe for shares of Common Stock or
convertible securities at less than the current market price of the Common
Stock, or (ii) upon the distribution to holders of shares of the Common Stock
of evidences of indebtedness or assets (excluding regular periodic cash
dividends out of earnings or retained earnings at a rate not in excess of 125%
of the rate of the last cash dividend theretofore paid or dividends payable in
shares of Common Stock) or of subscription rights or warrants (other than
those referred to above). With certain exceptions, no adjustment in the
Purchase Price would be required until cumulative adjustments required an
adjustment of at least 1% in such Purchase Price. No fractional shares would
be issued and in lieu thereof, an adjustment in cash will be made based on the
market price of the Common Stock on the last trading date prior to the date of
exercise.
The Rights have certain anti-takeover effects. The Rights would cause
substantial dilution to a person who attempts to acquire the Company without
conditioning his offer on a substantial number of Rights being acquired. The
Rights would have no effect, however, on a person who is willing to acquire
control of the Company and wait until the Rights expire before acquiring 100%
ownership. Moreover, the Rights would not affect a transaction approved by the
Company prior to the public announcement that 20% or more of the Company's
Common Stock had been accumulated by a single acquirer or group, because the
Rights could be redeemed until that time.
Authorized shares of Common Stock and Preferred Stock in excess of those
outstanding might be issued at such times and under such circumstances as to
have a dilutive effect on earnings per share and on the equity ownership of
the present holders of Common Stock. Such shares could also be used to make
more difficult a change in control of the Company. Under certain
circumstances, the Board could create impediments or frustrate persons seeking
to effect a takeover or otherwise gain control of the Company by causing such
shares to be issued to a holder or holders who might side with the Board in
opposing a takeover bid that the Board determines is not in the best interests
of the Company and its stockholders. In addition, the existence of such shares
might have the effect of discouraging an attempt by another person or entity,
through the acquisition of a substantial amount of Common Stock, to acquire
control of the Company, since the issuance of such shares could dilute the
stock ownership of such person or entity. The Board of Directors may cause
such shares to be issued to a holder or holders that would thereby have
sufficient voting power to assure that certain types of proposals (including
any proposal to remove directors, to replace directors, to accomplish certain
business combinations opposed by the Board, or to alter, amend or repeal
provisions in the Company's Restated Certificate of Incorporation and/or By-
laws relating to any such action) would not receive the 80% stockholder vote
(as described below) required by such provisions. It should be noted, however,
that all of the actions described in this paragraph are currently possible and
that the power of the Board to take such actions would not be increased by the
Amendment.
The Company has no present agreement, commitment, plan or intent with
respect to the sale or issuance of Common Stock, other than the possible
issuances of Common Stock in acquisitions currently under negotiation in which
the Company would be the acquiring or surviving entity, the shares of Common
Stock
18
reserved for issuance in connection with the exercises of stock options and
the reserve of sufficient shares of Common Stock to permit the exercise in
full of outstanding Rights as required by the Rights Agreement.
Certain Charter and By-law Provisions
The Company's Restated Certificate of Incorporation contains provisions
which could deter, delay or prevent a change in control of the Company which
is opposed by the Board of Directors. Such provisions include the following:
(a) a provision for classification of the Board of Directors into three
classes and a minimum of three and a maximum of fifteen directors at any time;
(b) a requirement that a director or the entire Board of Directors may only be
removed, with or without cause, by the affirmative vote of the holders of 80%
of the outstanding shares of voting stock of the Company and of not less than
67% of the voting stock held by stockholders other than a "Related Person" as
defined below; (c) a requirement that any merger, purchase of assets or other
business combination ("Business Combination") between the Company and certain
owners of 20% or more of the outstanding voting stock of the Company ("Related
Person") in order to become effective must be approved by the affirmative vote
of not less than 80% of the shares of outstanding voting stock of the Company
and by 67% of the stock owned by stockholders other than the Related Person;
and (d) a requirement that the provisions summarized in (a), (b) and (c) may
only be repealed or amended by the affirmative vote of 80% of the outstanding
voting stock of the Company and the affirmative vote of 67% of the outstanding
voting stock owned by stockholders other than a Related Person. The 80% and
67% approval requirements do not apply if (1) two-thirds of the directors who
held office immediately prior to the date the Related Person became a Related
Person approve the Business Combination or (2) the Business Combination is
between the Company and a subsidiary at least 50% owned by the Company and in
which the Related Person has no interest, or (3) any consideration to be paid
to stockholders of the Company as part of the Business Combination meets
certain fair price tests and stockholders of the Company have received a
timely mailing containing (A) the recommendation of outside directors and
directors who held office immediately prior to the Related Person's becoming
such and (B) the opinion of a reputable investment banking or financial
services firm as to the fairness of the Business Combination. The By-laws also
provide that special meetings of stockholders may be called by the President
or by the Secretary at the request in writing of the majority of the Board of
Directors. On May 14, 1991 the stockholders approved a proposal to amend the
Company's Restated Certificate of Incorporation to require all stockholder
action take place at a meeting of the stockholders.
The foregoing provisions of the Restated Certificate of Incorporation and
By-laws could have the effect of perpetuating current management or preventing
approval by the holders of a majority of the Company's voting stock. In
addition, it would be possible for the Board of Directors to authorize
issuance of the Preferred Stock, without further approval by the stockholders,
with rights and preferences which could impede a takeover of the Company.
Vote Required
The affirmative vote of a majority of the outstanding shares entitled to
notice of and to vote at the meeting is required to approve the proposal.
Unless otherwise instructed, proxies will be voted in favor of the proposal to
adopt the Amendment. If approved, the Amendment will become effective upon
filing and recording as required by the General Corporation Law of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE ADOPTION OF THE AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION.
19
PROPOSAL 3--RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2001
The Audit Committee has considered the qualifications of Ernst & Young LLP
and recommended that the Board of Directors appoint them as independent
auditors of the Company for the fiscal year ending December 31, 2001. The
Board of Directors desires to obtain stockholders' ratification of the Board's
action in such appointment. A resolution ratifying the appointment will be
offered at the meeting. If the resolution is not adopted, the adverse vote
will be considered as a direction to the Board to select other auditors for
the following year. Because of the difficulty and expense of making any
substitution of auditors so long after the beginning of the current year, it
is contemplated that the appointment for the year 2001 will stand unless the
Board finds other good reason for making a change.
Fees paid to Ernst & Young LLP for professional services rendered to the
Company during 2000 were as follows: Audit Fees $524,000 and All Other Fees
$866,000, including audit related services of $470,000 and other non-audit
related services of $396,000. Audit related services primarily include fees
for employee benefit plan audits, accounting consultations, other attest
services for certain subsidiaries and due diligence procedures. No services
were performed or fees incurred in connection with financial information
systems design and implementation projects during 2000. The Audit Committee
considered the effects that the provision of non-audit services may have on
the Company's independent auditors' independence.
A representative of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make a statement if the
representative so desires.
Ratification requires the affirmative vote by holders of at least a
majority of the outstanding shares voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
IN FAVOR OF RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR 2001.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Stockholder proposals to be presented at the 2002 Annual Meeting of
Stockholders must be received by the Company at its principal office on or
before December 6, 2001 to be considered for inclusion in the Company's proxy
materials for that meeting. With respect to any stockholder proposal to be
presented at the 2002 Annual Meeting of Stockholders that is received by the
Company after February 19, 2002, the proxies solicited on behalf of the Board
of Directors may exercise discretionary voting power.
OTHER MATTERS
The Company knows of no other matters to be presented for action at the
meeting. If any other matters should properly come before the meeting or any
adjournment thereof, such matters will be acted upon by the persons named as
proxies in the accompanying proxy according to their best judgment in the best
interests of the Company.
20
The Annual Report to Stockholders containing financial statements for the
year ended December 31, 2000, and other information concerning the Company is
being furnished to the stockholders but is not to be regarded as proxy
soliciting material.
Each stockholder is urged to mark, date, sign and return the enclosed proxy
card in the envelope provided for that purpose. Your prompt response is
helpful and your cooperation will be appreciated.
Dated: April 5, 2001
By Order of the Board of Directors
MICHAEL J. CLOHERTY
Secretary
21
EXHIBIT A
ARTHUR J. GALLAGHER & CO.
("AJGCO")
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
The Audit Committee is appointed by the Board to assist the Board of
Directors in monitoring the integrity of AJGCO's financial statements; the
compliance of AJGCO with legal and regulatory requirements; and the
independence and performance of AJGCO's external auditors and the performance
of AJGCO's internal auditors.
The Audit Committee shall be comprised of three or more directors as
determined and appointed by the Board. The members of the Audit Committee
shall meet the independence and experience requirements of the New York Stock
Exchange. The Audit Committee shall have the authority to retain special
legal, accounting or other consultants to advise the Audit Committee. The
Audit Committee may request any officer or employee of AJGCO or AJGCO's
outside counsel or independent auditor to attend a meeting of the Audit
Committee or to meet with any members of, or consultants to, the Audit
Committee.
The members of the Audit Committee shall be elected by the Board at the
annual meeting of the Board or until their successors shall be duly elected
and qualified. Unless a Chair is elected by the Board, the members of the
Audit Committee may designate a Chair by majority vote of the full Audit
Committee membership.
The Audit Committee shall:
. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
. Review the significant reports to management prepared by the internal
audit department and management's responses.
. Recommend to the Board of Directors the selection of the independent
auditor (which firm is ultimately accountable to the Audit Committee and
the Board), considering independence and effectiveness and approve the
fees and other compensation to be paid to the independent auditor. On at
least an annual basis, the Audit Committee should review and discuss
with the independent auditor all significant relationships the
independent auditor has with AJGCO to determine its independence and
obtain a written statement on such matters.
. Review the performance of the independent auditor and approve any
proposed discharge of the independent auditor when circumstances
warrant.
. Periodically consult with the independent auditor out of the presence of
management about internal controls and the fullness and accuracy of
AJGCO's financial statements.
. Consider the independent auditor's judgments about the quality and
appropriateness of AJGCO's accounting principles as applied in its
financial reporting.
. Consider and approve, if appropriate, major changes to AJGCO's auditing
and accounting principles and practices as suggested by the independent
auditor or management.
. Establish regular and separate systems of reporting to the Audit
Committee by each of the independent auditor and the internal auditors
regarding any significant judgments made in management's preparation of
the financial statements and the view of each as to appropriateness of
such judgments.
. Following completion of the annual audit, review separately with each of
management, AJGCO's internal audit department and the independent
auditor any significant difficulties encountered during the course of
the audit, including any restrictions on the scope of work or access to
required information.
. Prior to filing, review with management and the independent auditor
AJGCO's quarterly report to the SEC. The Chairman of the Audit
Committee, or the Chairman's designee, who shall be a member of the
Audit Committee, may represent the Audit Committee for this purpose.
. Review any significant disagreement among management, AJGCO's internal
audit department and the independent auditor in connection with the
preparation of the financial statements.
. Review with the independent auditor and management the extent to which
changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
. Review with AJGCO's General Counsel legal matters that may have a
material impact on AJGCO's financial statements and legal compliance
matters.
. Prepare the report required by the rules of the SEC to be included in
AJGCO's annual proxy statement.
. Obtain from the independent auditor assurance that Section 10A of the
Private Securities Litigation Reform Act have not been implicated.
. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that AJGCO's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is
it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and AJGCO's Code of Ethics.
A-2
- -
- -
PROXY PROXY
[ARTHUR J. GALLAGHER LOGO]
Arthur J. Gallagher & Co.
Two Pierce Place
Itasca, Illinois 60143
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert E. Gallagher and J. Patrick Gallagher,
Jr., or either of them, as attorneys and proxies, each with the power to
appoint a substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of voting stock of Arthur J. Gallagher & Co.
held of record by the undersigned on March 23, 2001, at the Annual Meeting of
Stockholders to be held on May 22, 2001 or any adjournment thereof.
In Their Discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted for Proposals 1, 2 and 3. This proxy is revocable at any time.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
ARTHUR J. GALLAGHER & CO.
PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER
USING DARK INK ONLY.
0
I
0
- -
- -
For
All
0
Withheld
All
0
For All
Except
0
For
0
Against
0
Abstain
0
1. Election of Directors--Class I Nominee for term expiring in 2003 is 01-James
W. Durkin, Jr.; Class II Nominees for term expiring in 2004 are 02-T. Kimball
Brooker, 03-Robert E. Gallagher, 04-David E. McGurn, Jr., 05-Richard J.
McKenna; Class III Nominee for term expiring in 2002 is 06-James J. Braniff
III; and for ratification of the appointment of 07-Gary P. Coughlan to fill a
vacant directorship in Class III with a term expiring in 2002.
----------------
Nominee Exception
2. Amend Company's Restated Certificate of Incorporation to increase authorized
common stock from 200,000,000 to 400,000,000 shares.
For
0
Against
0
Abstain
0
3. Ratification of the appointment of Ernst & Young LLP as the independent au-
ditors of the Company for 2001.
The Board of Directors Recommends a Vote "FOR"
Each of the Listed Proposals.
Dated: ______________________________________________________________, 2001
Signature(s) ___________________________________________________________________
________________________________________________________________________________
IMPORTANT: Please sign your name exactly as it appears opposite. In the case of
joint holders, all should sign. When signing as an attorney, executor, adminis-
trator, trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.