PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrantx Filed by a Party other than the Registrant¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 |
EASTERN INSURANCE HOLDINGS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
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| x | No Fee Required |
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April 17, 2007
Dear Fellow Shareholder:
We will hold our Annual Meeting of Shareholders on May 16, 2007, at our offices at 25 Race Avenue, Lancaster, Pennsylvania, at 4:30 p.m., Eastern Time, for the following purposes:
(1) To elect four Class II directors of Eastern Insurance Holdings, Inc., each to serve for a term of three years and until their successors shall have been duly elected and qualified;
(2) To ratify the appointment by the audit committee of our Board of Directors of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007; and
(3) Such other matters as may properly come before the meeting.
Shareholders of record at the close of business on March 30, 2007 are entitled to notice of, and to vote at, the meeting.
Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the meeting, we urge you to complete, sign, date and return the enclosed proxy and in the enclosed envelope. This will not prevent you from voting in person at the meeting but will assure that your vote is counted if you are unable to attend.
I look forward to seeing you at the annual meeting.
| Respectfully yours, |
 |
Bruce M. Eckert Chief Executive Officer |
25 Race Avenue • Lancaster, PA 17603
Eastern Insurance Holdings, Inc.
25 Race Avenue
Lancaster, Pennsylvania 17603
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 17, 2007
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Eastern Insurance Holdings, Inc. will be held on May 16, 2007, at 4:30 p.m., Eastern Time, at our office at 25 Race Avenue, Lancaster, Pennsylvania, for the following purposes:
1. To elect four Class II directors of Eastern Insurance Holdings, Inc., each to serve for a term of three years and until their successors shall have been duly elected by the shareholders and qualified;
2. To ratify the appointment by the audit committee of our Board of Directors of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007; and
3. Such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 30, 2007 are entitled to notice of, and to vote at, the meeting.
Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the meeting, we urge you to complete, sign, date and return the enclosed proxy in the enclosed envelope. This will not prevent you from voting in person at the Meeting but will assure that your vote is counted if you are unable to attend.
This notice, the accompanying proxy statement and form of proxy are sent to you by order of the Board of Directors.
 |
Scott C. Penwell Corporate Secretary |
Lancaster, Pennsylvania
April 17, 2007
EASTERN INSURANCE HOLDINGS, INC.
PROXY STATEMENT
Annual Meeting of Shareholders
May 16, 2007
The Board of Directors (the “Board”) of Eastern Insurance Holdings, Inc. (“EIHI,” or the “Company”) is soliciting proxies for use at its 2007 annual meeting of shareholders to be held on May 16, 2007, and at any adjournment of the meeting (the “meeting”). This proxy statement and the enclosed proxy card are first being mailed or given to shareholders on or about April 17, 2007.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
What is the purpose of the meeting?
At the meeting, shareholders will be asked to consider and vote on the following proposals:
| • | To elect four Class II directors of the Company, each to serve for a term of three years and until their successors shall have been duly elected by the shareholders and qualified; and |
| • | To ratify the appointment by the audit committee of our Board of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007. |
Other business may be addressed at the meeting if properly presented. However, at this time, we are not aware of any other business to be presented. Our management will present a report on our performance during the 2006 fiscal year and the current fiscal year to-date, and respond to any questions from shareholders.
Who is entitled to vote at the meeting?
The Board has set March 30, 2007, as the record date for the meeting. If you were a shareholder of record at the close of business on March 30, 2007, you are entitled to vote at the meeting.
As of the record date, 11,597,729 shares of our common stock, without par value (the “common stock”), were issued and outstanding and, therefore, eligible to vote at the meeting.
What are my voting rights?
Holders of our common stock are entitled to one vote per share. Therefore, a total of 11,597,729 votes are entitled to be cast at the meeting. There is no cumulative voting.
What is the difference between a shareholder of record and a “street name” holder?
If your shares are registered directly in your name, you are considered the “shareholder of record” with respect to those shares.
If your shares are held in a stock brokerage account or by a bank, trust company or other nominee, then the broker, bank, trust company or other nominee is considered to be the shareholder of record with respect to those shares. However, you still are considered the beneficial owner of those shares, and your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the broker, bank, trust company or other nominee how to vote their shares using the method described below.
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How many shares must be present to hold the meeting?
In accordance with our bylaws, shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast must be present in person or by proxy in order to hold the meeting and conduct business. This is called a quorum. Your shares are counted as present at the meeting if:
| • | you are present and vote in person at the meeting; or |
| • | you have properly submitted a proxy card by mail. |
Abstentions and broker “non-votes” will be counted as present for purposes of determining a quorum. Brokers, banks, trust companies or other nominees are permitted to vote shares held by them on behalf of their “street name” customers on matters considered to be “routine” (such as the uncontested election of directors), even though the broker, bank, trust company or nominee has not received instructions from its customer. A broker “non-vote” occurs when a broker, bank, trust company or nominee has not received voting instructions from its customer and the broker, bank, trust company or nominee does not have discretion to vote shares of street name holders because the matter is not considered “routine.”
As of the date of this proxy statement, the proposals with respect to the election of the Class II nominees for director and the appointment of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007, are “routine” matters. Therefore, a broker, bank, trust company or other nominee may vote the shares of a street name holder in favor of such proposals if the broker, bank, trust company or other nominee does not receive instructions from such street name holder.
How do I vote my shares?
If you are a shareholder of record as of the record date, you can give a proxy to be voted at the meeting by completing, signing and mailing the enclosed proxy card prior to the meeting.
If you hold your shares in “street name,” you must direct your broker, bank, trust company or other nominee to vote your shares. Your broker, bank, trust company or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the broker, bank, trust company or nominee how to vote your shares.
How do I vote if my shares are held in the Eastern Insurance Holdings, Inc. Employee Stock Ownership Plan?
If you hold any shares in the Eastern Insurance Holdings, Inc. Employee Stock Ownership Plan (ESOP shares), your completed proxy card will serve as voting instructions to the plan trustee. However, your voting instructions must be received by 5:00 p.m. on May 11, 2007 in order to be voted at the meeting. In accordance with the terms of the plan, the trustee will vote shares allocated to participant accounts in accordance with the instructions submitted by plan participants at least five days prior to the meeting. The trustee will vote all unallocated ESOP shares, and the allocated shares of participants who fail to timely give voting instructions, in the same proportion as the allocated shares for which timely instructions were received from participants.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, it means that you hold shares registered in more than one account. To ensure that all of your shares are voted, sign and return each proxy card you receive.
Can I vote my shares in person at the meeting?
If you are a shareholder of record, you may vote your shares in person at the meeting by completing a ballot at the meeting. Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.
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If you are a street name holder, you may vote your shares in person at the meeting only if you obtain a signed letter or other proxy from your broker, bank, trust company or other nominee giving you the right to vote the shares at the meeting.
If you are a participant in our Employee Stock Ownership Plan, you may submit a proxy vote as described above, but you maynot vote your Employee Stock Ownership Plan shares in person at the meeting.
What vote is required for the election of directors or for the other proposals to be approved?
Directors are elected by a plurality of the votes cast at the meeting. “Plurality” means the nominees receiving the largest number of votes cast “FOR” are elected as directors up to the maximum number of directors to be elected at the meeting. At our meeting, the maximum number of directors to be elected is four. Accordingly, the four nominees who receive the highest number of votes cast at the meeting will be elected as Class II directors.
The affirmative vote of a majority of all votes cast at the meeting is required for the approval of each other proposal properly presented at the meeting.
How are votes counted?
You may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for election as a director. You may vote “FOR,” “AGAINST” or “ABSTAIN” on the proposal to ratify PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007.
If you submit your proxy but “ABSTAIN” or “WITHHOLD” authority to vote on one or more proposals, your shares will be counted as present at the meeting for the purpose of determining a quorum.
Because directors are elected by a plurality of votes cast at the meeting, if you “WITHHOLD” authority to vote with respect to any nominee for election as a Class II director, this will have no effect on the election of the nominee, unless there are more than four nominees, in which case, withholding authority to vote with respect to a nominee would have the same effect as a vote against the nominee. Because all other proposals properly presented at the meeting require the affirmative vote of a majority of all votes cast at the meeting, if you “ABSTAIN” from voting on such a proposal, your abstention will not be counted as a vote cast at the meeting, and therefore, will have no effect on that proposal.
If you hold your shares in street name and do not provide voting instructions to your broker, bank, trust company or other nominee, the nominee generally has authority to vote your shares on “routine” matters as described above. The proposal to elect directors and the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditor are deemed “routine,” which means that the nominee may vote your shares on these matters if you do not timely provide instructions for voting your shares. Shares that constitute broker non-votes may be counted as present at the meeting for the purpose of determining a quorum, but with respect to all “non-routine” proposals, will not be counted as a vote cast at the meeting, and therefore, will have no effect on that proposal.
Who will count the votes?
Our counsel will tabulate votes and act as the independent inspector of election.
How does the Board recommend that I vote?
You will be asked to consider and vote on the following proposals submitted on behalf of the Board:
| • | Election of four Class II directors: Lawrence W. Bitner; Bruce M. Eckert; John O. Shirk; and W. Lloyd Snyder III; and |
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| • | Ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007. |
Your Board recommends that you vote “FOR” each of the nominees to the Board and “FOR” the ratification of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007.
What if I do not specify how I want my shares voted?
If you submit a signed proxy card and do not specify how you want to vote your shares, we will vote your shares:
| • | “FOR”all of the nominees for Class II director; and |
| • | “FOR”the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007. |
Can I change my vote after submitting my proxy?
Yes. You may revoke your proxy and change your vote at any time before your proxy is voted at the meeting. If you are a shareholder of record, you may revoke your proxy and change your vote by submitting a later-dated proxy or by voting in person at the meeting. To request an additional proxy card, or if you have any questions about the meeting or how to vote or revoke your proxy, you should contact Kevin M. Shook, our Chief Financial Officer, at (717) 735-1660.
If you hold your shares in street name, contact your broker, bank, trust company or other nominee regarding how to instruct your nominee to revoke your proxy and change your vote.
If you are a participant in our Employee Stock Ownership Plan, you may revoke your proxy and change your vote as described above, but only until 5:00 p.m. on May 11, 2007.
How can I attend the meeting?
Attendance at the meeting will be limited to shareholders of record as of March 30, 2007, the record date, their authorized representatives and guests of the Company.
Who pays for the cost of proxy preparation and solicitation?
We pay for the cost of proxy preparation and solicitation, including the reasonable charges and expenses of brokerage firms, banks, trust companies or other nominees for forwarding proxy materials to street name holders.
We are soliciting proxies primarily by mail. In addition, our directors, officers and regular employees may solicit proxies by telephone, facsimile or personally. These individuals will receive no additional compensation for their services other than their regular salaries or fees, if any.
Can I receive future proxy statements and annual reports electronically instead of receiving paper copies through the mail?
No. We do not offer electronic delivery of these documents at this time, but we may offer this service in the future. Investors may view our proxy statements, SEC filings, annual reports and corporate governance documents by accessing the “Investor Relations” page on our website athttp://www.easterninsuranceholdings.com.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding persons or entities known to our management to own of record or beneficially, as of the record date, 5% or more of the outstanding shares of our common stock.
Name and Address of Beneficial Owner | Amount of Beneficial Ownership | Percent of Common Stock | |||
Northaven Management, Inc. and its affiliates, Paul R. Burke (1) Richard Brown 375 Park Avenue Suite 2709 New York, New York 10152 | 1,015,205 | 8.8 | % | ||
Steven J. Tynan James L. Zech (2) High Ridge Capital Partners II, L.P. 5405 2 Morgan Hill Road South Woodstock, VT 05071 | 866,915 | 7.5 | % | ||
OZ Management, L.L.C. (“OZ”) 9 West 57th Street, 39th Floor New York, NY 10019 | 627,355 | 5.4 | % | ||
Sterling Financial Trust Company, as trustee of the Eastern Insurance Holdings, Inc. Employee Stock Ownership Plan 101 North Pointe Boulevard Lancaster, PA 17601 | 747,500 | 6.4 | % | ||
(1) | Mr. Burke is a principal of Northaven Management, Inc. and its affiliates and a director of EIHI. Affiliates of Northaven Management, Inc. include Northaven Partners, L. P., Northaven Partners II, L. P., Northaven Partners III, L.P., Northaven Offshore, Ltd. and Northaven Associates, LLC. Amount does not include an unvested option to acquire 21,304 shares of common stock and an unvested restricted stock award of 8,522 shares of common stock. |
| (2) | Mr. Zech is a principal of High Ridge Capital Partners II, L.P. and its affiliates and is a director of EIHI. Amount does not include an unvested option to acquire 21,304 shares of common stock and an unvested restricted stock award of 8,522 shares of common stock. |
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, including information regarding beneficial ownership of shares of our common stock outstanding as of the record date, for (i) our directors (which includes the four Class II nominees for election as directors), (ii) each of our named executive officers identified in the Summary Compensation Table, and (iii) all of our directors and executive officers as a group. Unless otherwise indicated, each EIHI director and each named executive officer holds sole voting and investment power over the shares listed as beneficially owned and the shares constitute less than 1% of the outstanding shares. Unless otherwise indicated in a footnote, shares are not pledged as security. In addition, footnotes indicate shares subject to options, but because there are no options outstanding and vested under our stock option plans as of, or within 60 days after, the record date, such shares are not included in the table.
| Amount and Nature of Beneficial Ownership | Percentage of Common Stock | ||||
Directors | |||||
Ronald L. King (1) | 23,522 | * | |||
Robert M. McAlaine (2) | 117,007 | 1.0 | % | ||
John O. Shirk (1) | 26,022 | * | |||
W. Lloyd Snyder III (1) | 83,522 | * | |||
Richard Stevens III (1) | 18,522 | * | |||
Charles H. Vetterlein, Jr. (1) | 18,522 | * | |||
Lawrence W. Bitner (1)(3) | 452,365 | 3.9 | % | ||
Paul R. Burke (1)(4) | 1,023,727 | 8.8 | % | ||
Bruce M. Eckert (5) | 194,402 | 1.7 | % | ||
Scott C. Penwell (1) | 93,211 | * | |||
James L. Zech (1)(6) | 875,437 | 7.5 | % | ||
Named Executive Officers | |||||
Michael L. Boguski (7) | 109,820 | 1.0 | % | ||
Kevin M. Shook (8) | 45,640 | * | |||
Robert A. Gilpin (9) | 37,452 | * | |||
Suzanne M. Emmet (10) | 31,522 | * | |||
All EIHI directors and executive officers as a group (15 persons) | 3,146,208 | 27.1 | % | ||
| * | Less than 1% |
| (1) | Includes 8,522 shares of restricted stock granted on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 21,304 shares subject to an option granted on January 3, 2007 that vests ratably over a five year period. |
| (2) | Includes 13,007 shares of restricted stock granted on January 3, 2007 that vest ratably over a five year period but as to which Mr. McAlaine has voting control. Includes 4,000 shares of common stock held in trusts for Mr. McAlaine’s daughter (2,000 shares) and son (2,000 shares), for which Mr. McAlaine and his wife are co-trustees. Does not include 32,516 shares subject to an option granted on January 3, 2007 that vests ratably over a five year period. |
| (3) | Includes a warrant to acquire 306,099 shares of EIHI common stock. |
| (4) | Includes shares owned or controlled by Northaven Management, Inc. and its affiliates. |
| (5) | Includes 54,941 shares of restricted stock granted to Mr. Eckert on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 94,185 shares subject to an option granted to Mr. Eckert on January 3, 2007 that vests ratably over a five year period. |
| (6) | Includes shares owned or controlled by High Ridge Capital Partners II, L.P. and its affiliates. |
| (7) | Includes 39,244 shares of restricted stock granted to Mr. Boguski on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 82,412 shares subject to an option granted to Mr. Boguski on January 3, 2007 that vests ratably over a five year period. |
| (8) | Includes 25,116 shares of restricted stock granted to Mr. Shook on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 58,866 shares subject to an option granted to Mr. Shook on January 3, 2007 that vests ratably over a five year period. |
| (9) | Includes 12,588 shares of restricted stock granted to Mr. Gilpin on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 35,319 shares subject to an option granted to Mr. Gilpin on January 3, 2007 that vests ratably over a five year period. |
| (10) | Includes 9,419 shares of restricted stock granted to Ms. Emmet on January 3, 2007 that vest ratably over a five year period but as to which the director has voting control. Does not include 23,546 shares subject to an option granted to Ms. Emmet on January 3, 2007 that vests ratably over a five year period. |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our officers and directors, and any persons owning 10% or more of our common stock, to file in their personal capacities initial statements of beneficial ownership on Form 3, statements of changes in beneficial ownership on Form 4 and annual statements of beneficial ownership with the Commission on Form 5. Persons filing such beneficial ownership statements are required by SEC regulation to furnish us with copies of all such statements filed with the Commission. The rules of the Commission regarding the filing of such statements require that “late filings” of such statements be disclosed in our proxy statement. Based solely on our review of Forms 3 and 4 and amendments thereto furnished to us during the 2006 fiscal year and Forms 5 and amendments thereto furnished to us with respect to the 2006 fiscal year, we believe that all such statements were timely filed in 2006.
ELECTION OF DIRECTORS
General Matters
Our articles of incorporation provide that the number of directors shall consist of not less than five nor more than 15 members, as fixed by the Board from time to time. The Board currently consists of 11 directors.
The articles of incorporation also divide the Board into three classes, which under applicable law, must be, in terms of the number of directors in each class, as nearly equal as possible.
The current members and Class composition of the Board are set forth in the following table:
Class I (to serve until 2009) | Class II (to serve until 2007) | Class III (to serve until 2008) | ||
Paul R. Burke Ronald L. King Richard Stevens III | Lawrence W. Bitner Bruce M. Eckert John O. Shirk W. Lloyd Snyder III | Robert M. McAlaine Scott C. Penwell Charles H. Vetterlein, Jr. James L. Zech |
Nominees for Election as Class II Directors—Terms Expiring in 2010
Based on the recommendation of the nominating/governance committee, the Board of Directors has nominated (with each director abstaining as to his own nomination) Lawrence W. Bitner, Bruce M. Eckert, John O. Shirk and W. Lloyd Snyder III for election as Class II directors of the Company with terms expiring at the 2010 annual meeting of shareholders. Each of the nominees has consented to being named in this Proxy Statement and to serve if duly elected by the shareholders. If any of the nominees become unable to accept nomination or election, the persons named in the proxy may vote for a substitute nominee selected by the Board. We, however, have no present reason to believe that any Class II nominee will be unable to serve as a director, if elected.
The four nominees who receive the highest number of votes cast at the meeting will be elected Class II directors. Shares represented by properly delivered proxies, unless indicated otherwise, will be voted “FOR” the election of the four nominees named above as Class II nominees with terms expiring at the 2010 annual meeting of shareholders. Any shareholder who wishes to withhold authority from the proxyholders to vote for the election of directors or to withhold authority to vote for any individual nominee may do so by voting his or her proxy to that effect. Shareholders cannot cumulate their votes for the election of directors. No proxy may be voted for a greater number of persons than the number of nominees named.
Independence of Directors and Certain Relationships
Pursuant to the applicable rules of the Nasdaq Global Market, our Board must consist of at least a majority of independent directors who meet the criteria for independence required by the Nasdaq Global Market and all
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other applicable legal requirements. Except for Mr. Eckert, all of our directors are non-employee directors. As described below, the Board has affirmatively determined that all non-employee directors, other than Mr. Bitner, are independent directors within the meaning of the Nasdaq Global Market rules.
Through an annual questionnaire process, the Board, with the assistance of outside counsel, conducts an annual evaluation of director independence under the Nasdaq Global Market rules and, with respect to directors serving on the audit committee, applicable SEC rules and regulations. In connection with this process, the Board evaluated commercial, charitable, consulting, social, familial or other relationships between each director or immediate family member and their related interests, on one hand, and EIHI and its affiliates on the other, including those relationships described under “Additional Information Regarding Directors and Officers.” As a result of these evaluations, the Board determined that each of our non-management directors, other than Mr. Bitner, is independent under the applicable Nasdaq Global Market rules and regulations. Mr. Bitner is an investor in Alliance Impairment Management, Inc., which provides claims administration services to certain of our insurance company subsidiaries. The details of this relationship are more fully described in the section entitled “Related Party Transactions and Policies and Procedures.”
Committees of the Board
Our Board has established various committees, including an audit committee, a compensation/human resources committee, an executive committee, a finance/investment committee, an acquisition committee and a nominating/governance committee. These committees will operate in accordance with written charters, which are reviewed on an annual basis by each committee.
Audit Committee
| Members: | Paul R. Burke, Chairman W. Lloyd Snyder III Richard Stevens III |
Our Board has determined that each member of the audit committee is independent in the judgment of the Board and as defined by the regulations of the Nasdaq Global Market and the SEC’s rules and regulation. Mr. Burke has been designated the audit committee financial expert. The committee is responsible, among other things, for the appointment, compensation, oversight, and termination of our independent auditors and the approval of non-audit services proposed to be performed. The committee also assists the Board in providing oversight over the integrity of our financial statements, internal controls and our compliance with applicable legal and regulatory requirements. The audit committee meets at least quarterly and at each quarterly meeting meets with the independent auditors in an executive session without management present.
Our audit committee met five times in 2006.
The audit committee is governed by a written charter which complies with the requirements of the Nasdaq Global Market’s listing standards and SEC rules and regulations. A copy of the audit committee’s charter is posted, in full text, on our website athttp://www.easterninsuranceholdings.com under the tab “Investor Relations.”
Nominating/Governance Committee
| Members: | John O. Shirk, Chairman Paul R. Burke Ronald L. King Charles H. Vetterlein, Jr. |
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Our Board has determined that each member of the nominating/governance committee is independent in the judgment of the Board and as defined by the regulations of the Nasdaq Global Market. The committee is responsible for nominating individuals to stand for election as directors at the Annual Meeting of Shareholders, assisting the Board in the event of any vacancy on the Board by identifying and recommending to the Board qualified individuals to fill such vacancy, and recommending to the Board, on an annual basis, nominees for each Board committee. The nominating/governance committee will consider nominees recommended by shareholders and, in considering such candidates, the committee will apply the same criteria it applies in connection with committee-recommended candidates. Shareholders may nominate persons for election as directors in accordance with the procedures set forth in Section 1.3 of our bylaws. Notification of such nomination, containing the required information, must be mailed to the Chairman of the Board not less than 90 days or more than 120 days prior to any meeting of shareholders called for the election of directors.
The nominating/governance committee held its first meeting on January 23, 2007.
The nominating/governance committee is governed by a written charter which complies with the requirements of the Nasdaq Global Market’s listing standards. A copy of the nominating/governance committee’s charter is posted, in full text, on our website athttp://www.easterninsuranceholdings.com under the tab “Investor Relations.”
Compensation/Human Resources Committee
| Members: | James L. Zech, Chairman Ronald L. King Richard Stevens III Charles H. Vetterlein, Jr. |
Our Board has determined that each member of the compensation/human resources is independent in the judgment of the Board and as defined by the regulations of The Nasdaq Global Market. The committee is responsible for reviewing and making recommendations regarding our compensation system, including recommendations concerning stock-based compensation and other employee benefits.
The compensation/human resources committee met twice in 2006.
The compensation/human resources committee is governed by a written charter. A copy of the compensation/human resources committee’s charter is posted, in full text, on our website athttp://www.easterninsuranceholdings.com under the tab “Investor Relations.”
The Executive Committee
| Members: | Robert M. McAlaine, Chairman Lawrence W. Bitner Bruce M. Eckert John O. Shirk |
The executive committee serves as a resource for management to seek guidance on issues between regularly scheduled meetings or with respect to matters that generally do not warrant calling a special board meeting. In addition, from time to time, the executive committee may be asked to study strategic issues in greater depth than may be practical for the Board as a whole.
The executive committee met eight times in 2006.
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The Finance/Investment Committee
| Members: | W. Lloyd Snyder III, Chairman Robert M. McAlaine Scott C. Penwell James L. Zech |
The finance/investment committee is responsible for overseeing our investment portfolio and policy and monitoring interest rates, liquidity and market risk.
The finance/investment committee met four times in 2006.
The Acquisition Committee
| Members: | Robert M. McAlaine, Chairman Paul R. Burke John O. Shirk | Bruce R. Eckert Scott C. Penwell W. Lloyd Snyder III |
A key element of our strategic plan is to deploy the capital raised in connection with our initial public offering by making prudent acquisitions. To that end, the Board has formed a committee whose function is to assist management in the evaluation of acquisition opportunities.
The acquisition committee was established on December 18, 2006 but did not hold any meetings in 2006.
Nominating/Governance Committee Process for the Selection of Nominee Candidates
As part of its first meeting after completion of our initial public offering, the nominating/governance committee determined that it would develop written criteria that candidates for nomination to the Board should meet. The committee expects to adopt those criteria in 2007. At present, the nominating/governance committee evaluates candidates for nomination to the Board in the context of the needs of the Board, whether the nominee’s skills are complementary to the existing Board members’ skills, and assesses any material relationships with the Company or third parties that might adversely impact independence and objectivity, as well as such other criteria as the nominating/governance committee determines to be relevant at the time. The nominating/governance committee and our Chief Executive Officer will interview candidates that meet the criteria, and the nominating/governance committee will recommend to the Board nominees that best suit the Board’s needs. The nominating/governance committee may from time to time hire an independent search firm to help identify and facilitate the nominating/governance committee and interview process of director nominees.
The nominating/governance committee considers nominees recommended by shareholders that are made in accordance with the procedures set forth in our bylaws. Our bylaws provide that any shareholder entitled to vote for the election of directors may nominate candidates for election to the Board by giving proper notice of the nomination in writing, delivered or mailed by first-class United States mail, postage prepaid, to the Secretary of EIHI not less than 90 days nor more than 120 days prior to such annual meeting. Potential nominees recommended by shareholders who comply with these procedures receive the same consideration that the nominating/governance committee’s nominees receive.
Attendance of Meetings
The Board met a total of five times in 2006, and each director attended at least 75% of the total number of meetings of the Board and its committees on which the director served during 2006 based on the number of such meetings held during the period for which each person served as a director or on a committee. Each time there was a regularly scheduled Board meeting in 2006, our non-employee members of the Board also met without management present with our Chairman, Mr. Robert M. McAlaine, acting as presiding director at such meetings.
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The Board plans to meet in executive sessions without management at least two times in 2007, with Mr. McAlaine presiding over such meetings. This Annual Meeting of Shareholders will be our first such meeting and all directors are expected to attend.
DIRECTORS OF EASTERN INSURANCE HOLDINGS, INC.
The principal occupation and business experience during the last five years of, and other information with respect to, each of our 11 directors is below. Ages are as of March 30, 2007. Except as otherwise indicated, none of the corporations or organizations listed below are a parent, subsidiary or other affiliate of EIHI.
Name | Age | Principal Occupation During the Past Five Years/Public Directorships | Year Expires | Director Since | ||||
Lawrence W. Bitner | 58 | President of Americana Program Underwriters, Inc., an independent insurance producer, since 1999. | 2007 | 2005 | ||||
Paul R. Burke | 44 | Co-founder of Northaven Management, Inc., a private investment firm focused on the financial services industry. Mr. Burke has served as an officer, a director and shareholder of Northaven Management, Inc. since 1995. | 2009 | 2005 | ||||
Bruce M. Eckert | 63 | Chief Executive Officer of EIHI since 2005. Chairman and Chief Executive Officer of Eastern Holding Company, Ltd., a predecessor of EIHI, and its subsidiaries since 1987. | 2007 | 2005 | ||||
Ronald L. King | 62 | Business consultant and Chairman Emeritus of Specialty Products & Insulation Co. (a building products distribution company) since 2004. Prior thereto, Mr. King was Chairman, President and Chief Executive Officer of Specialty Products & Insulation Co. from 1993 to 2004. | 2009 | 2005 | ||||
Robert M. McAlaine | 69 | Chairman of Educators Mutual Life Insurance Company, a predecessor of EIHI, since 2004, and a director since 1987. Prior thereto, Mr. McAlaine was Managing Partner of iNetVenture Partners, a technology consulting firm that he co-founded in 2000. From 1980 to 1999, Mr. McAlaine was Chairman, President and Chief Executive Officer of Namico, Inc., a manufacturer of institutional and industrial cleaning products. | 2008 | 2005 | ||||
Scott C. Penwell | 54 | Shareholder in the law firm of Stevens & Lee P.C. since 2004. Prior thereto, Mr. Penwell was a partner in the law firm of Duane Morris LLP from 1989 to 2003. | 2008 | 2005 | ||||
John O. Shirk | 63 | Partner in the law firm of Barley Snyder LLC since 1974. Director of Fulton Financial Corporation. | 2007 | 2005 | ||||
W. Lloyd Snyder III | 63 | Managing Director of Snyder & Company, an investment banking firm, since 1973. Chairman of Huff Paper Co., a redistributor of food service and janitorial products, since 1977. | 2007 | 2005 | ||||
Richard Stevens III | 74 | Founder and owner of rs3associates, a technology consulting firm, since 2001. Director of KNBT Bancorp, Inc. | 2009 | 2005 | ||||
Charles H. Vetterlein, Jr. | 46 | President of Plymouth Meeting office of Hilb, Rogal and Hobbs, an insurance brokerage firm, since 1996. | 2008 | 2005 | ||||
James L. Zech | 49 | Partner in Northaven Management, Inc. since October 1, 2005. Prior thereto, Mr. Zech was President of High Ridge Capital, LLC, a private equity firm, since 1995. | 2008 | 2005 |
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THE COMPENSATION/HUMAN RESOURCES COMMITTEE
Committee Members and Independence
Ronald L. King, Richard Stevens III, Charles H. Vetterlein, Jr., and James L. Zech are the members of the Compensation/Human Resources Committee. Mr. Zech is the Committee chair. Each member of the Compensation/Human Resources Committee qualifies as an independent director under the regulations of The Nasdaq Stock Market and our standards of Board independence.
Authority and Responsibilities of Compensation/Human Resources Committee
The Compensation/Human Resources Committee operates under a written charter adopted by the Board. A copy of the charter is available online on our website at www.easterninsuranceholdings.com under “Investor Relations.” The fundamental authority and responsibilities of the Committee are:
| • | to adopt and review an executive compensation philosophy that reflects our mission, vision, values, and long-term strategic objectives; |
| • | to administer our executive compensation programs in a manner that furthers our strategic goals and serves the interests of our shareholders; |
| • | to establish compensation-related performance objectives for executive officers that support our strategic goals; |
| • | to evaluate the job performance of the Chief Executive Officer in light of our goals and objectives; |
| • | to determine the total compensation levels of the senior executive officers (currently nine officers) and to allocate total compensation among the various components pursuant to the executive compensation philosophy; |
| • | to administer our equity compensation and other incentive compensation plans; |
| • | to make recommendations to the Board regarding equity-based and incentive compensation plans; and |
| • | to recommend to the Board the compensation arrangements with respect to our non-employee directors. |
Compensation/Human Resources Committee Process
Since becoming a public company in June 2006, the Compensation/Human Resources Committee has met twice in 2006 and twice in 2007. The first meeting was held on October 13, 2006 to review and approve the proposed 2006 Stock Incentive Plan; the second meeting was held on December 18, 2006 to make awards under that plan; the third meeting was held on February 12, 2007 to set bonuses for 2006 and salaries for 2007; and the last meeting was held on March 27, 2007 to review the compensation portions of this proxy statement and proposed awards under the 2006 Stock Incentive Plan. The Committee intends to meet as often as necessary, and at least once annually in an executive session without management present, to perform its duties and responsibilities. Mr. Zech works with the Chief Executive Officer and the Chief Financial Officer to establish each meeting agenda.
The Committee receives and reviews materials in advance of each meeting. The material includes, or will include, information that management believes will be helpful to the Committee as well as materials that the Committee has specifically requested. Depending on the agenda for a specific meeting, the materials may include:
| • | financial reports on year to date performance versus budget and comparison to prior year performance; |
| • | calculations and reports on levels of achievement of individual and corporate performance objectives; |
| • | reports on our strategic objectives and budget for future periods; |
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| • | reports on both current and past performance versus a peer group of companies; |
| • | information with respect to equity compensation awards; |
| • | estimated value of equity awards (using a Black-Scholes evaluation methodology); |
| • | tally sheets setting forth the total compensation of the senior executive officers which includes, base salary, cash incentives, equity awards, perquisites, and other compensation as well as amounts payable to the executives upon voluntary or involuntary termination, or following a change in control; and |
| • | proposed proxy statement or other shareholder disclosure, including Compensation Discussion and Analysis. |
Management’s Role in the Compensation Process
Management plays an important role in the compensation process. The most significant aspects of management’s role are:
| • | evaluating employee performance; |
| • | establishing business performance targets and objectives; and |
| • | recommending salary levels, and equity and incentive awards. |
We expect our Chief Executive Officer to participate in Committee meetings, if the Committee requests, to provide:
| • | background information regarding our strategic goals; |
| • | evaluation of the performance of our senior executive officers; and |
| • | compensation recommendations for our senior executive officers (other than himself). |
Committee Advisors
At the present time, the Committee has not retained any independent compensation consultant or advisor but expects that it may consider doing so in the future.
Annual Evaluation
The Compensation/Human Resources Committee will meet in February of each year to evaluate the performance of our named executive officers to determine their annual incentive bonuses for the prior fiscal year, if any, and to establish their annual performance objectives for the current fiscal year, as well as to review and set base salaries. Other senior officer evaluations are performed on the anniversary date of employment. Incentive bonuses, if approved, will be paid in February. Equity incentive awards were recommended in December 2006 after approval of our 2006 Stock Incentive Plan at a special meeting of shareholders.
Performance Objectives
The Compensation/Human Resources Committee’s process will begin with establishing corporate performance objectives for senior executive officers in the first quarter of each fiscal year. The Committee will engage in an active dialogue with the Chief Executive Officer and other senior executive officers concerning strategic objectives and performance targets. The Committee will consider performance of the Company against budget, including specifically net income, earnings per share and return on equity. The Committee expects that because of the Company’s excess capital position, it will also consider capital management objectives. The Committee will review the appropriateness of the financial measures used in our incentive plans and the degree of difficulty in achieving specific performance targets.
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Targeted Compensation Levels
Together with the performance objectives, the Compensation/Human Resources Committee will establish targeted total compensation levels for each of the named executive officers. In making its determination, the Committee will be guided by the compensation philosophy described below in the Compensation Discussion and Analysis. The Committee also will consider historical compensation levels, competitive pay practices at our peer companies, and the relative compensation levels among our senior executive officers as a group. We also will consider industry conditions, corporate performance compared to peer companies, and the overall effectiveness of our compensation program in achieving desired performance levels.
As targeted total compensation levels are determined, the Committee also will determine the portion of total compensation that will be contingent, performance-based pay. Performance-based pay generally includes cash bonuses for achievement of specific performance objectives and equity-based compensation whose value is dependent upon long-term appreciation in the price of our common stock.
Committee Effectiveness
In accordance with the provisions of our charter, the Compensation/Human Resources Committee reviews, on an annual basis, its performance and the effectiveness of our compensation program in obtaining desired results.
Reasonableness of Compensation
After considering all the components of the compensation paid to the senior executive officers, the Compensation/Human Resources Committee has determined that the compensation paid to senior executive officers is reasonable and not excessive.
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COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy
We have designed our executive compensation program with the fundamental objective of supporting our core values and strategic mission and vision. The basis of our compensation philosophy is to align the interests of management with those of our shareholders. The following principles influence and guide the Compensation/Human Resources Committee’s compensation decisions:
| • | The Compensation/Human Resources Committee examines our business plan and strategic objectives in order to ensure that its compensation decisions attract and retain leaders and reward them for achieving our strategic objectives. |
| • | At the core of our compensation philosophy is our belief that we should link pay directly to performance. This philosophy guides our compensation-related decisions. |
| • | A portion of executive officer compensation is contingent and variable on achievement of corporate and/or individual performance objectives. |
| • | Our equity compensation plans do not permit discounted stock options, reload stock options, and re-pricing of stock options. |
| • | The Compensation/Human Resources Committee believes that compensation should generally increase with position and responsibility. |
| • | Total compensation is higher for individuals with greater responsibility and greater ability to influence our achievement of targeted results and strategic initiatives. |
| • | As position and responsibility increases, a greater portion of the executive officer’s total compensation becomes performance-based and contingent on the achievement of performance objectives. |
| • | Equity-based compensation is higher for persons with higher levels of responsibility, making a significant portion of their total compensation dependent on long-term appreciation in the value of our common stock. |
Business Context
We are committed to maximizing shareholder value by aggressively building our business lines and units through an entrepreneurial customer-focused strategy. The success of this strategy depends on a highly skilled executive team of unquestioned integrity committed to delivering creative solutions for driving increased market share and customer loyalty.
As a result, we have adopted guiding compensation principles that will directly align the interests of executives with shareholders in accomplishing these objectives. These guiding principles are as follows:
| • | Attracting and retaining quality executive leadership; |
| • | Ensuring the alignment of the interests of executives and shareholders; |
| • | Motivating executives through competitive total compensation opportunities based on job scope and sustained individual and company performance; and |
| • | Using equity compensation as our long-term compensation component. |
Compensation Targets
We believe that information regarding pay practices at peer companies is useful in two respects. First, we recognize that our compensation practices must be competitive if we are to attract and retain quality executives. Second, this information is one of the many factors that we consider in assessing the reasonableness of our compensation package. Accordingly, we review compensation levels for our named executive officers against compensation levels at the companies in a peer group which the Committee has identified.
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We base executive compensation opportunities on peer group information to determine competitive levels for base salary, short-term (annual) and long-term incentives, and executive benefits and perquisites. We base actual compensation on competitive pay levels as well as individual positions in the executive group. We do not use formulas to allocate compensation between long- and short term compensation or between equity and non-equity awards, rather we target all compensation components, base salary, annual and long-term incentives (including equity awards), benefits, and perquisites, at median market levels compared to our peer group, with the variable components having significant upside potential and downside risk to reinforce pay for performance. We use the same peer group to assess business performance. The peer group will change over time as needed, adding and replacing companies to reflect our asset size and competitive market for executive talent. Set forth below is our current peer group, as of December 31, 2006.
| • | ProCentury Corporation |
| • | SeaBright Insurance Holdings, Inc. |
| • | RTW, Inc. |
| • | James River Group, Inc. |
| • | PMA Capital Corporation |
For 2006, compensation paid to our named executive officers consisted primarily of base salary and short-term cash incentives. In addition, at the end of 2006, shareholders adopted the 2006 Stock Incentive Plan and stock options and restricted stock awards were made under this plan early in 2007. Executive officers are also eligible for participation in company-wide benefits plans, including our employee stock ownership plan. We provide five selected executive officers with automobile allowances. One of those executive officers receives a club membership. There are no other material perquisites. Incentive awards are directly related to both corporate and individual performance. Market data, individual performance, retention needs, and internal pay equity have been the primary factors considered in decisions to increase or decrease compensation.
Furthermore, together with the performance objectives, the Compensation/Human Resources Committee will establish targeted total compensation levels for each of the senior executive officers. In making its determination, the Compensation/Human Resources Committee will be guided by the compensation philosophy described in this Compensation Discussion and Analysis. The Compensation/Human Resources Committee also will consider historical compensation levels, competitive pay practices at our peer companies, the size of the companies in the peer group and the relative compensation levels among our senior executive officers as a group. We also will consider industry conditions, corporate performance compared to peer companies, and the overall effectiveness of our compensation program in achieving desired performance levels.
As targeted total compensation levels are determined, the Compensation/Human Resources Committee also determines the portion of total compensation that will be contingent, performance-based pay. Performance-based pay generally includes cash bonuses for achievement of specific performance objectives and equity-based compensation whose value is dependent upon long-term appreciation in the price of our common stock.
Base Salaries
Base salary is a critical element of executive compensation because it provides our executive officers with a base level of bi-weekly income. In determining the base salaries of senior executive officers, the Compensation/Human Resources Committee considers the following criteria:
| • | the overall job scope and responsibilities; |
| • | the executive’s qualifications, including education and experience level; |
| • | the goals and objectives established for the executive; |
| • | individual performance versus objectives; |
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| • | the executive’s past performance; |
| • | competitive salary practices at peer companies; |
| • | internal pay equity; and |
| • | the tax deductibility of base salary. |
We annually review the base salaries for our named executive officers to assess the above criteria and determine any necessary adjustments. We generally adjust the base salaries in February of each year. Periodic increases also may occur if warranted due to significant increases in job scope and responsibility.
Short-Term Incentive Compensation
Our short-term incentive program is a cash bonus plan.
We provide annual short-term incentive opportunities for the named executive officers that are designed to reward achievement of company, market, and individual performance objectives, as well as reinforce key cultural behaviors used to achieve short-term and long-term success. The bonuses paid in July 2006 were paid to reward the executives for the successful completion of the merger/conversion transaction and initial public offering. The bonuses paid in February 2007 with respect to the year ended December 31, 2006, were discretionary bonuses awarded by the Committee based on Company performance.
Long-Term Incentive Compensation
We believe in maintaining a strong correlation between shareholders’ long-term interests and objectives for executives. This correlation is strengthened by using equity-based compensation through programs that are easily understood and incorporate long-term business growth strategies.
We believe that equity compensation is the most effective means of creating a long-term link between the compensation provided to our executive officers with gains realized by shareholders. We have elected to use stock options and restricted stock as the primary equity compensation vehicles. We award all options and restricted stock pursuant to the 2006 Plan, which we describe in detail under “Equity Compensation Plan.” Under the 2006 Plan, we may grant both incentive stock options and nonqualified stock options.
We use stock options as a long-term incentive vehicle because, among other things:
| • | we believe that stock options align the interests of executives with those of the shareholders, support a pay for performance culture, facilitate executive stock ownership and focus the executive management team on increasing value for our shareholders; |
| • | stock options are performance-based. All the value received by the recipient from exercising a stock option is based upon the increase in the value of a share of our common stock above the option exercise price; |
| • | stock options help to provide a balance to the overall compensation program; and |
| • | the vesting period encourages executive retention and, we believe, the preservation of shareholder value. |
All stock options include the following features:
| • | the term of grants do not exceed 10 years (in the case of incentive stock options) and 10 years and one month (in the case of non-qualified stock options); |
| • | the grant price is not less than the closing price of a share of our common stock on the date of grant; |
| • | grants do not include “re-load provisions”; and |
| • | re-pricing of options is prohibited. |
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We also use restricted stock as a long-term incentive vehicle because, among other things:
| • | restricted stock provides an equally motivating form of incentive compensation as stock options; and |
| • | awarding restricted stock permits us to use fewer shares than options to deliver the same potential value to the executive, which reduces the potential dilution to our shareholders. |
In determining the number of options and shares of restricted stock that we grant to our executive officers as long-term incentive compensation, the Compensation/Human Resources Committee takes into account the individual’s position, scope of responsibility, and the level of award in relation to other elements of the executive’s total compensation.
On December 18, 2006, the Compensation/Human Resources Committee awarded long-term incentive compensation, that was effective as of January 3, 2007, to certain of our executive officers, including the named executive officers, in the form of incentive stock options, nonqualified stock options and shares of restricted stock. We made these awards under the 2006 Plan, which we describe in more detail below in the section entitled “Equity Compensation Plan.” The option and restricted stock awards vest ratably over five years, subject to accelerated vesting in accordance with the terms of the 2006 Plan. These awards were made in recognition of the fact that, as a private company before June 2006, stock-based compensation opportunities were of more limited value because of a lack of liquidity. Future awards are expected to be smaller and future restricted stock awards are likely to be performance-based. The awards to the named executive officers were as follows:
Name | Shares Underlying Options | Shares of Restricted Stock | ||
Bruce M. Eckert | 94,185 | 54,941 | ||
Michael L. Boguski | 82,412 | 39,244 | ||
Kevin M. Shook | 58,866 | 25,116 | ||
Robert A. Gilpin | 35,319 | 12,588 | ||
Suzanne M. Emmet | 27,471 | 9,419 |
Equity Awards
Value of Equity Awards
All equity awards to our employees, including the named executive officers, are awarded and will be reflected in our 2007 consolidated financial statements, based on applicable accounting guidance, at fair market value on the grant date in accordance with SFAS 123(R).
Timing of Stock Option Grants
Subject to certain exceptions described below, we plan the dates of our equity awards, including stock options well in advance of any actual grant. Except in highly unusual circumstances, we do not grant stock options to executive officers at other dates. The grant date of stock options is established when the Compensation/Human Resources Committee approves the grant and all key terms have been determined. Under the terms of each of our equity compensation plans that provides for stock option grants, the exercise price of each of our stock option grants is the closing price of our common stock on the grant date. In general, the Compensation/Human Resources Committee intends to review and approve all equity awards in February of each year. Grant dates will be set at least forty-eight hours after any earnings announcement.
Internal Pay Equity
We believe that internal pay equity is an important factor to be considered in establishing compensation for executive officers. We have not established a formal policy regarding the ratio of total compensation of the Chief Executive Officer to that of the other executive officers, but we review compensation levels to ensure that appropriate equity exists.
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The Tax Deductibility of Compensation Should Be Maximized Where Appropriate
We generally seek to maximize deductibility for tax purposes of all elements of compensation. The Compensation/Human Resources Committee reviews compensation plans in light of applicable tax provisions, including Section 162(m) of the Internal Revenue Code, and may revise compensation plans from time to time to maximize deductibility. The Committee may, however, approve compensation that does not qualify for deductibility when the Committee deems it to be in our best interest.
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COMPENSATION/HUMAN RESOURCES COMMITTEE REPORT
We have reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management. Based upon our review and discussion with management, we have recommended to the Board that the Compensation and Discussion and Analysis be included in this proxy statement and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Submitted by:
THE COMPENSATION/HUMAN RESOURCES COMMITTEE
James L. Zech, Chair Ronald L. King Richard Stevens III Charles Vetterlein, Jr. |
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Exchange Act, that incorporate future filings, including this proxy statement, in whole or in part, the foregoing Compensation/Human Resources Committee Report shall not be incorporated by reference into any such filings.
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SUMMARY COMPENSATION TABLE—2006
NAME AND PRINCIPAL POSITION | YEAR | SALARY ($) (1) | BONUS ($) | STOCK AWARDS ($) | OPTION AWARDS ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($) | CHANGE IN VALUE AND NONQUALIFIED DEFERRED ($) | ALL OTHER COMPENSATION ($) (2) | TOTAL ($) | |||||||||||||||||
BRUCE M. ECKERT CHIEF EXECUTIVE OFFICER | 2006 | $ | 391,800 | $ | 85,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 28,233 | $ | 505,033 | |||||||||
MICHAEL L. BOGUSKI PRESIDENT AND CHIEF OPERATING OFFICER | 2006 | $ | 265,000 | $ | 85,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 42,233 | $ | 392,233 | |||||||||
KEVIN M. SHOOK TREASURER AND CHIEF FINANCIAL OFFICER | 2006 | $ | 192,500 | $ | 70,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,830 | $ | 297,330 | |||||||||
ROBERT A. GILPIN SENIOR VICE PRESIDENT OF MARKETING | 2006 | $ | 154,385 | $ | 27,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 30,981 | $ | 212,866 | |||||||||
SUZANNE M. EMMET SENIOR VICE PRESIDENT OF CLAIMS | 2006 | $ | 134,250 | $ | 22,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 22,599 | $ | 179,349 | |||||||||
Footnotes
| (1) | “Salary” is the actual base pay compensation paid through December 31, 2006. As of December 31, 2006, the named executive officer’s annual base salaries were as follows: |
Bruce M. Eckert | $391,800 | |
Michael L. Boguski | $280,000 | |
Kevin M. Shook | $210,000 | |
Robert A. Gilpin | $167,500 | |
Suzanne M. Emmet | $140,000 |
| On February 19, 2007, we set the annual base salaries of the named executive officers for 2007 as follows: |
Bruce M. Eckert | $416,000 | |
Michael L. Boguski | $304,000 | |
Kevin M. Shook | $227,500 | |
Robert A. Gilpin | $167,500 (last adjusted 11/06/2006) | |
Suzanne M. Emmet | $140,000 (last adjusted 07/06/2006) |
| (2) | Includes the following payments that we paid to or on behalf of the named executive officers: |
NAME | YEAR | CAR ALLOWANCE OR PERSONAL USE OF COMPANY CAR ($) | CLUB ($) | CONTRIBUTION ($) | TOTAL ($) | |||||||||
BRUCE M. ECKERT | 2006 | $ | 9,000 | $ | 0 | $ | 19,233 | $ | 28,233 | |||||
MICHAEL L. BOGUSKI | 2006 | $ | 10,200 | $ | 6,200 | $ | 25,833 | $ | 42,233 | |||||
KEVIN M. SHOOK | 2006 | $ | 9,000 | $ | 0 | $ | 25,833 | $ | 34,833 | |||||
ROBERT A. GILPIN | 2006 | $ | 10,200 | $ | 0 | $ | 20,781 | $ | 30,981 | |||||
SUZANNE M. EMMET | 2006 | $ | 4,500 | $ | 0 | $ | 18,099 | $ | 22,599 | |||||
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OUR COMPENSATION PLANS
2006 Plan-Based Awards
Short-Term Incentive Compensation
Our executive officers received two bonuses in respect of the fiscal year ended December 31, 2006. The first bonus was paid in mid-year in recognition of the successful completion of our public offering. Then, on February 15, 2007, the Compensation/Human Resources Committee made additional short-term cash bonus awards in respect of the fiscal year ended December 31, 2006, which were based on the Committee’s evaluation of the performance of EIHI and the individual’s contribution during the year.
Name | Mid-Year Bonus | Year-End Bonus | ||||
BRUCE M. ECKERT | $ | 35,000 | $ | 50,000 | ||
MICHAEL L. BOGUSKI | $ | 35,000 | $ | 50,000 | ||
KEVIN M. SHOOK | $ | 40,000 | $ | 30,000 | ||
ROBERT A. GILPIN | $ | 15,000 | $ | 12,500 | ||
SUZANNE M. EMMET | $ | 7,500 | $ | 15,000 | ||
Long-Term Incentive Compensation
We do not have any cash-based, long-term incentive compensation plan. The only long-term incentive compensation that we offer is stock based compensation under our 2006 Stock Incentive Plan.
Equity Compensation Plan
On December 18, 2006, our shareholders approved the Eastern Insurance Holdings, Inc. 2006 Stock Incentive Plan, which we refer to as the “2006 Plan.” We designed the 2006 Plan in accordance with our strong belief that we will continue to have a performance-oriented culture and will create greater shareholder value if director and key employee stock ownership levels are increased at all levels.
The 2006 Plan authorizes the Compensation/Human Resources Committee to award employees and directors incentive stock options and nonqualified stock options to purchase shares of our common stock at the fair market value per share as of the date the option is granted. The 2006 Plan also authorizes the award of shares of restricted stock to employees and directors.
Subject to certain limits set forth in the 2006 Plan, the Compensation/Human Resources Committee has the discretionary authority to determine the size of an award and any vesting or performance-based requirements. Awards under the 2006 Plan generally will not become 100% vested until after the participant has completed at least three years of employment or service with us or one of our subsidiaries. The Compensation Committee, at the time of award, may provide for a later date or dates in which an award will become 100% vested, including a date that may be tied to the satisfaction of one or more performance goals.
The 2006 Plan provides for acceleration of vesting in certain circumstances, including a change in control of EIHI. In addition, the 2006 Plan provides that, upon a participant’s termination of employment, the Compensation/Human Resources Committee may, in circumstances in which it deems it appropriate, exercise its discretion to accelerated vesting of outstanding stock option grants and restricted stock awards and extend the exercise period for vested options.
As of December 31, 2006, we had not issued any options or restricted stock to employees or directors under the 2006 Plan or any other equity compensation plan. As of December 31, 2006, there were 1,046,500 shares available for future issuance under the 2006 Plan. However, on December 18, 2006, we did approve grants of options and restricted stock awards that were effective on January 3, 2007.
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Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average options, warrants | Number of securities remaining available for future issuance under plans (excluding securities reflected in the first column) | ||||
Equity compensation plans approved by shareholders | 0 | N/A | 1,046,500 | ||||
Equity compensation plans not approved by shareholders | 306,099 | (1) | N/A | 306,099 | |||
Total | 0 | N/A | 1,352,599 |
| (1) | Represents a warrant held by Mr. Bitner that he earned from Eastern Holding Company, Ltd., a predecessor of EIHI, that was converted into a warrant to acquire EIHI Common Stock upon completion of the our initial public offering. |
Outstanding Equity Awards At Fiscal Year End
Our named executive officers did not have any outstanding equity awards on December 31, 2006. All equity awards were granted effective as of January 3, 2007.
Option Exercises and Stock Vested
Our named executive officers did not exercise any stock options or have any stock awards subject to vesting during the year ended December 31, 2006.
Pension Benefits
Our named executive officers did not participate in or otherwise receive benefits under any pension or retirement plan that we sponsored during the year ended December 31, 2006.
Nonqualified Deferred Compensation
Our named executive officers did not earn or otherwise receive nonqualified deferred compensation benefits from us during the year ended December 31, 2006.
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Bruce M. Eckert, Michael L. Boguski, Kevin M. Shook, Robert A. Gilpin, and Suzanne M. Emmet and are parties to employment agreements with Eastern Holding Company, Ltd, which we have assumed in connection with our acquisition of Eastern Holding Company, Ltd. The employment agreements specify the executive’s position and duties, term of employment, compensation, benefits, and termination rights.
Bruce M. Eckert
Mr. Eckert’s agreement is dated March 17, 2005, and has an initial term of three years and, unless terminated as set forth therein, is automatically extended each day for an additional day until Mr. Eckert’s 65th birthday, except that we may give Mr. Eckert notice of non-extension at any time, in which case the agreement will expire at the end of its then current term.
The agreement provides an initial base salary, which, if increased by action of the Board, becomes the new base salary provided thereafter by the agreement. In addition, the agreement provides, among other things, a right to participate in any bonus plan, stock option and other equity compensation plans approved by the Board. Mr. Eckert is also entitled to participate in any other employee benefit plans provided by EIHI. In addition, Mr. Eckert is entitled to vacation days and an automobile allowance.
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Mr. Eckert’s agreement provides that if we terminate his employment without “cause,” or if he terminates his employment for “good reason,” he is entitled to severance benefits under the agreement. The term “cause” means any of the following:
| • | his conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime involving moral turpitude, or the actual incarceration of the executive for a period of ten consecutive days or more; |
| • | his willful refusal to follow the good faith instructions of the Board, with respect to the company’s operations, and the failure to cure such refusal within ten days after written notice is given, unless it is apparent under the circumstances that the executive is unable to cure such refusal within such period (in which case termination shall be immediate); |
| • | his intentional violation of the provisions of the employment agreement, after written notice is given to him by the Board, and the failure to cure such violation within ten days of such written notice, unless it is apparent under the circumstances that he is unable to cure such violation within such period (in which case termination shall be immediate); |
| • | material dishonesty of him in the performance of his duties; or |
| • | his intentional and material violation of any of our written policies that has a material and adverse effect on us. |
The term “good reason” includes:
| • | any reduction in his title or a material adverse change in his responsibilities or authority which are inconsistent with, or the assignment of duties and responsibilities inconsistent with, Mr. Eckert’s position and duties as Chief Executive Officer; |
| • | a reduction in Mr. Eckert’s salary, except for a reduction in salary for all of our similarly situated executives; |
| • | a reassignment requiring Mr. Eckert to move his principal residence more than 100 miles from our principal executive offices in Lancaster, Pennsylvania; |
| • | the failure to provide Mr. Eckert with the benefits provided under the agreement or any material reduction in such benefits, unless such failure or reduction applies to all similarly situated plan participants; |
| • | our giving notice of non-extension of the agreement to Mr. Eckert; or |
| • | our material breach of the agreement. |
If any such termination occurs, we will pay Mr. Eckert (in 36 equal monthly payments) an amount totaling three times the sum of:
| • | his highest annual base salary under the agreement, and |
| • | the average of his annual bonuses with respect to the three calendar years immediately preceding his termination. |
In addition, Mr. Eckert will be entitled to the lesser of:
| • | 22.5% of his highest annual base salary under the agreement, or |
| • | 36 months of tax-effected employee benefits substantially similar to those he enjoyed over the twelve-month period immediately preceding his termination. |
Mr. Eckert is also entitled to any accrued compensation and any benefits to which he may be entitled under the terms of any of our plans or programs that he is a participant. If the payments and benefits under the
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agreement, when aggregated with other amounts received from us, are such that Mr. Eckert becomes subject to excise tax on excess parachute payments under Sections 4999 and 280G of the Internal Revenue Code, he is entitled to receive such additional payments as are necessary to neutralize the effect on him of such excise tax and any related incremental income taxes he may be required to pay by reason of the receipt of additional amounts under the agreement.
If Mr. Eckert’s employment terminates by reason of his death and his wife survives him, she is entitled to receive his base annual salary for a period of one year. If Mr. Eckert’s employment terminates by reason of his disability, he will be entitled to continuation of his base annual salary, less amounts payable under any disability plan of EIHI, until the earliest of:
| • | his return to employment, |
| • | his attainment of age 65, or |
| • | his death. |
The agreement contains provisions restricting Mr. Eckert’s right to compete with us during the three years after the termination of his employment.
Michael L. Boguski
Mr. Boguski’s agreement is substantially the same as Mr. Eckert’s agreement except for the following:
| • | Mr. Boguski’s agreement has an initial term of three years and, unless terminated as set forth therein, is automatically extended each day for an additional day until Mr. Boguski’s 62nd birthday; |
| • | unless the termination of Mr. Boguski’s employment occurs after a “change of control,” in the event that Mr. Boguski is gainfully employed during the last twelve months of such period, any compensation paid to Mr. Boguski during such twelve month period by his employer will reduce the amounts payable to Mr. Boguski under the agreement on a dollar-for-dollar basis; and |
| • | the agreement contains provisions restricting Mr. Boguski’s right to compete with EIHI during the two years after the termination of his employment. |
Kevin M. Shook
Mr. Shook’s agreement is substantially the same as Mr. Eckert’s agreement except for the following:
| • | Mr. Shook’s agreement has an initial term of two years and, and unless terminated as set forth therein, is automatically extended each day for an additional day until Mr. Shook’s 63rd birthday; |
| • | if Mr. Shook’s employment is terminated without “cause,” or if he terminates his employment for “good reason,” we will pay Mr. Shook (in 24 monthly payments) an amount totaling two times the sum of: |
| • | his highest annual base salary under the agreement, and |
| • | the average of his annual bonuses with respect to the three calendar years immediately preceding his termination. Such amount will be payable in 24 equal monthly installments. |
In addition, Mr. Shook will be entitled to the lesser of:
| • | 22.5% of his highest annual base salary under the agreement, |
| • | twenty-four months of tax-effected employee benefits substantially similar to those Mr. Shook enjoyed over the twelve-month period immediately preceding his termination; |
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| • | unless the termination of Mr. Shook’s employment occurs after a “change of control,” in the event that Mr. Shook is gainfully employed during the last twelve months of such period, any compensation paid to Mr. Shook during such twelve month period by his employer will reduce the amounts payable to Mr. Shook under the agreement on a dollar-for-dollar basis; and |
| • | the agreement contains provisions restricting Mr. Shook’s right to compete with us for one year after the termination of his employment. |
Robert A. Gilpin
Mr. Gilpin’s agreement is substantially the same as Mr. Eckert’s agreement except for the following:
| • | Mr. Gilpin’s agreement has an initial term of one year and, unless terminated as set forth therein, is automatically extended each day for an additional day until Mr. Gilpin’s 64th birthday; |
| • | if Mr. Gilpin’s employment is terminated without “cause,” or if he terminates his employment for “good reason,” Mr. Gilpin will be paid in 12 equal monthly installments an amount equal to the sum of: |
| • | his highest annual base salary under the agreement, and |
| • | the average of annual bonuses with respect to the three calendar years immediately preceding his termination; and |
| • | the agreement does not contain a provision offsetting amounts paid to Mr. Gilpin by another employer. |
Suzanne M. Emmet
Ms. Emmet’s agreement is substantially the same as Mr. Gilpin’s agreement.
OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS
Each of the named executive officers will be entitled to certain benefits if such officer terminates employment under certain circumstances following a change in control. These benefits are payable pursuant to their employment agreements. These agreements are described under the caption “Description of Employment Agreements.”
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We calculated the potential post-employment payments due to each of our named executive officers assuming each named executive officer terminated employment or a change in control occurred on December 31, 2006, and assuming a price per share of our common stock of $14.56 (the closing price on December 29, 2006, the last trading day of the year). Interest assumptions for the calculations used 120% of the appropriate monthly Applicable Federal Rate for December 2006. Actual amounts that we will pay out can only be determined at the time of such executive’s termination. The following table summarizes the potential payments:
| Absent a change in control | Following a change in control | ||||||||||
| Voluntary Termination w/out Good Reason OR Involuntary Termination For Cause | Involuntary Termination Not For Cause OR Termination For Good Reason | Involuntary Termination Not For Cause OR Termination For Good Reason | |||||||||
Bruce M. Eckert | Base salary (2)(3) | $ | 0 | $ | 1,175,400 | $ | 1,175,400 | ||||
| Bonus | $ | 0 | $ | 243,000 | $ | 243,000 | |||||
| Medical continuation (4)(5) | $ | 0 | $ | 31,283 | $ | 31,283 | |||||
| Value of accelerated stock options | $ | 0 | $ | 0 | $ | 0 | |||||
| Value of accelerated restricted stock | $ | 0 | $ | 0 | $ | 0 | |||||
| Potential Excise Tax Gross-Up | N/A | N/A | $ | 496,876 | |||||||
| Total | $ | 0 | $ | 1,449,683 | $ | 1,946,559 | |||||
Michael L. Boguski | Base salary (2)(3) | $ | 0 | $ | 840,000 | $ | 840,000 | ||||
| Bonus | $ | 0 | $ | 270,000 | $ | 270,000 | |||||
| Medical continuation (4)(5) | $ | 0 | $ | 40,736 | $ | 40,736 | |||||
| Value of accelerated stock options | $ | 0 | $ | 0 | $ | 0 | |||||
| Value of accelerated restricted stock | $ | 0 | $ | 0 | $ | 0 | |||||
| Potential Excise Tax Gross-Up | N/A | N/A | $ | 429,907 | |||||||
| Total | $ | 0 | $ | 1,150,736 | $ | 1,580,643 | |||||
Kevin M. Shook | Base salary (2)(3) | $ | 0 | $ | 420,000 | $ | 420,000 | ||||
| Bonus | $ | 0 | $ | 115,000 | $ | 115,000 | |||||
| Medical continuation (4)(5) | $ | 0 | $ | 27,157 | $ | 27,157 | |||||
| Value of accelerated stock options | $ | 0 | $ | 0 | $ | 0 | |||||
| Value of accelerated restricted stock | $ | 0 | $ | 0 | $ | 0 | |||||
| Potential Excise Tax Gross-Up | N/A | N/A | $ | 0 | |||||||
| Total | $ | 0 | $ | 562,157 | $ | 562,157 | |||||
Robert A. Gilpin | Base salary (2)(3) | $ | 0 | $ | 167,500 | $ | 167,500 | ||||
| Bonus | $ | 0 | $ | 30,000 | $ | 30,000 | |||||
| Medical continuation (4)(5) | $ | 0 | $ | 13,579 | $ | 13,579 | |||||
| Value of accelerated stock options | $ | 0 | $ | 0 | $ | 0 | |||||
| Value of accelerated restricted stock | $ | 0 | $ | 0 | $ | 0 | |||||
| Potential Excise Tax Gross-Up | N/A | N/A | $ | 0 | |||||||
| Total | $ | 0 | $ | 211,079 | $ | 211,079 | |||||
Suzanne M. Emmet | Base salary (2)(3) | $ | 0 | $ | 140,000 | $ | 140,000 | ||||
| Bonus | $ | 0 | $ | 16,250 | $ | 16,250 | |||||
| Medical continuation (4)(5) | $ | 0 | $ | 12,440 | $ | 12,440 | |||||
| Value of accelerated stock options | $ | 0 | $ | 0 | $ | 0 | |||||
| Value of accelerated restricted stock | $ | 0 | $ | 0 | $ | 0 | |||||
| Potential Excise Tax Gross-Up | N/A | N/A | $ | 0 | |||||||
| Total | $ | 0 | $ | 168,690 | $ | 168,690 | |||||
| (1) | Timing and frequency of payout varies by benefit. |
| (2) | In the event executive is terminated by reason of disability, executive shall be entitled to 100% of annual base salary until the earliest of executive’s return to any employment, age 65, or death. |
| (3) | In the event executive is terminated by reason of death, executive’s spouse (if any) shall be entitled to one times executive’s annual base salary. |
| (4) | Assumes no increase in the cost of welfare benefits. |
| (5) | Assumes no tax on welfare benefits. |
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DIRECTOR COMPENSATION IN FISCAL YEAR 2006
We believe that the amount, form, and methods used to determine compensation of our non-employee directors are important factors in:
| • | attracting and retaining directors who are independent, interested, diligent, and actively involved in our affairs, |
| • | more substantially aligning the interests of our directors with the interests of our shareholders, and |
| • | is a simple straight-forward package that compensates our directors for the responsibilities and demands of the role of director. |
The following table sets forth a summary of the compensation that we paid to our non-employee directors in 2006:
NAME | FEES EARNED OR PAID IN CASH ($) | STOCK AWARDS ($) | OPTION AWARDS ($) | ALL OTHER COMPENSATION ($) | TOTAL ($) | ||||||||||
LAWRENCE W. BITNER | $ | 13,000 | $ | 0 | $ | 0 | $ | 0 | $ | 13,000 | |||||
PAUL R. BURKE | $ | 19,500 | $ | 0 | $ | 0 | $ | 0 | $ | 19,500 | |||||
RONALD L. KING | $ | 12,750 | $ | 0 | $ | 0 | $ | 0 | $ | 12,750 | |||||
ROBERT M. MCALAINE | $ | 29,000 | $ | 0 | $ | 0 | $ | 0 | $ | 29,000 | |||||
SCOTT C. PENWELL | $ | 14,000 | $ | 0 | $ | 0 | $ | 0 | $ | 14,000 | |||||
JOHN O. SHIRK | $ | 15,750 | $ | 0 | $ | 0 | $ | 0 | $ | 15,750 | |||||
W. LLOYD SNYDER III | $ | 20,500 | $ | 0 | $ | 0 | $ | 0 | $ | 20,500 | |||||
RICHARD STEVENS III | $ | 17,000 | $ | 0 | $ | 0 | $ | 0 | $ | 17,000 | |||||
CHARLES VETTERLEIN, JR. | $ | 12,750 | $ | 0 | $ | 0 | $ | 0 | $ | 12,750 | |||||
JAMES L. ZECH | $ | 17,500 | $ | 0 | $ | 0 | $ | 0 | $ | 17,500 | |||||
Director Compensation Plan
Mr. McAlaine, as the non-executive Chairman of our Board, receives a retainer of $40,000 per year, and all other directors receive a retainer of $18,000 per year. Directors also are paid $1,500 per meeting for attendance at Board meetings or $1,250 for attendance by telephone, and $1,000 per meeting for attendance at committee meetings or $750 for attendance by telephone. The Chair of our audit committee receives an additional $7,500 per year in compensation and all other members of our audit committee receive an additional $2,500 per year. Chairs of all other Board committees receive an additional $4,000 per year. Directors are eligible to participate in the 2006 Plan, which is described above under “Our Compensation Plans.” On December 18, 2006, each non-employee director, other than our chairman, Mr. McAlaine, received a grant effective on January 3, 2007 of a non-qualified option to acquire 21,304 shares of our common stock and an award of 8,522 shares of restricted stock. Mr. McAlaine received a non-qualified option to acquire 32,516 shares of our common stock and an award of 13,007 shares of restricted stock. Both the options and restricted stock awards vest ratably over five years.
ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS
Indemnification
The bylaws of EIHI provide for (i) indemnification of directors, officers, employees and agents of EIHI and its subsidiaries and (ii) the elimination of a director’s liability for monetary damages, each to the fullest extent permitted by Pennsylvania law. Pennsylvania law provides that a Pennsylvania corporation may indemnify directors, officers, employees and agents of the corporation against liabilities they may incur in such capacities for any action taken or any failure to act, whether or not the corporation would have the power to indemnify the
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person under any provision of law, unless such action or failure to act is determined by a court to have constituted recklessness or willful misconduct. Pennsylvania law also permits the adoption of a bylaw amendment, approved by shareholders, providing for the elimination of a director’s liability for monetary damages for any action taken or any failure to take any action unless (i) the director has breached or failed to perform the duties of his office and (ii) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
Directors and officers of EIHI are also insured against certain liabilities for their actions, as such, by an insurance policy obtained by EIHI.
Code of Ethics
EIHI has adopted a Code of Conduct and Ethics which applies to all of its directors, officers and employees. This document is available free of charge on our web site atwww.easterninsuranceholdings.com under the tab “Investor Relations.”
Related Party Transactions and Policies and Procedures
The nominating/governance committee of the Board reviews transactions with related parties and applies the independence standards required by The Nasdaq Global Market and applicable law in reviewing such transactions. Set forth below is a description of certain relationships and transactions between EIHI and certain of our respective directors and officers. All transactions were on terms as favorable as could have been obtained from unaffiliated third parties.
Lawrence W. Bitner. Mr. Bitner, a member of our Board, is an employee of AmPro and is responsible for managing the AmPro program business that Eastern Re reinsures. This business constitutes a majority of the business of our specialty reinsurance segment, and absent our relationship with Mr. Bitner, it is unlikely that we would obtain this business. Although we do not pay any compensation to Mr. Bitner in connection with this business, Mr. Bitner receives a commission from the primary insurer for these programs, and Mr. Bitner has advised us that these commissions are customary in amount.
Lawrence W. Bitner and Bruce M. Eckert. Mr. Bitner and Mr. Eckert, our Chief Executive Officer, are investors in Alliance Impairment Management, Inc., which provides claims administration services to certain of EIHI’s insurance company subsidiaries. For the year ended December 31, 2006, EIHI’s insurance companies paid $1.3 million to Alliance Impairment Management, Inc. for claims administration services. We believe that the fees paid to Alliance Impairment Management, Inc. are on market terms and conditions and are no less favorable to EIHI than it could negotiate with any unrelated party providing similar services.
Scott C. Penwell. Mr. Penwell is a director of EIHI and is a shareholder in the law firm of Stevens & Lee, P.C., which provides legal services to EIHI and its predecessors and subsidiaries. For the year ended December 31, 2006, EIHI and its predecessors and subsidiaries paid Stevens & Lee $916,671 in fees for its services.
John O. Shirk. Mr. Shirk is a director of EIHI and is a principal in the law firm of Barley Snyder LLC, a law firm that has provided legal services to EIHI and its predecessors and subsidiaries. For the year ended December 31, 2006, EIHI and its predecessors and subsidiaries paid Barley Snyder LLC $44,643.
Charles H. Vetterlein, Jr. Mr. Vetterlein is a director of EIHI, and is a principal of Hilb Rogal and Hobbs, an insurance brokerage firm that obtains directors’ and officers’ liability insurance for EIHI. Mr. Vetterlein’s firm receives a commission from the insurance company issuing such policy in connection with such services, but neither Mr. Vetterlein nor the office he manages will receive any portion of this commission.
James L. Zech. High Ridge II is a venture capital firm that invested in Eastern Holding Company, Ltd., a predecessor of EIHI. Mr. Zech, a principal in such firm, is a director of EIHI. In connection with the investment
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by High Ridge II in Eastern Holding Company, Ltd. Mr. Zech received an annual monitoring fee of $100,000 from Eastern Holding Company, Ltd., which terminated upon completion of the initial public offering. For the year ended December 31, 2006, Eastern Holding Company, Ltd. paid Mr. Zech a monitoring fee of $45,753.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship existed between any member of the compensation/human resources committee or an executive officer of EIHI, on the one hand, and any member of the compensation committee (or committee performing equivalent functions, or the full Board) or an executive officer of any other entity, on the other hand, requiring disclosure pursuant to the applicable rules of the SEC.
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AUDIT COMMITTEE REPORT
In fulfilling its responsibilities, the audit committee reviewed and discussed the audited financial statements contained in the 2006 Annual Report on Form 10-K with our management and with our independent auditor, including a discussion of the quality, not just the acceptability of our accounting principles as applied in its financial reports, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. The audit committee discussed with our independent auditors the overall scope and plans for their respective audits. The audit committee met with management to discuss our disclosure controls and procedures and internal control over financial reporting. The audit committee also met with the independent auditor, with and without our management present, to discuss the results of its examinations and overall quality of our financial reporting.
The audit committee also discussed with the independent auditor, who is responsible for expressing an opinion on the conformity of those financial statements with generally accepted accounting principles, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. In addition, the audit committee has discussed with the independent auditor, the auditor’s independence from Eastern and its management, including the matters in the written disclosures and letters which were received by the audit committee from the independent auditor as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as amended.
Based on the process referred to above, the audit committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
This Report is not intended to be incorporated by reference into any filing made by EIHI with the Commission under the Securities Act of 1933 or the Exchange Act.
Paul R. Burke, Chairman
W. Lloyd Snyder III
Richard Stevens III
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees of the Independent Auditor
The following tables set forth the aggregate fees billed to EIHI for the year ended December 31, 2006, by our principal accounting firm PricewaterhouseCoopers LLP.
Year Ended December 31, 2006 | |||
Audit Fees | $ | 538,450 | |
Audit-Related Fees | — | ||
Tax Fees | 55,000 | ||
All Other Fees | — | ||
Total Fees | $ | 593,450 | |
Audit fees in 2006 included fees associated with the annual audit of the financial statements, the reviews of our Quarterly Reports on Form 10-Q, certain accounting consultations, and consent to use the report of PricewaterhouseCoopers LLP in connection with documents filed with the Securities and Exchange Commission and comfort letters issued to the underwriter in connection with our initial public offering.
Audit-related fees in 2006 principally included accounting consultations and audits of employee benefit plans.
Tax fees in 2006 included tax compliance, tax advice and tax planning.
The audit committee considered whether the provision of non-audit services by our principal auditor during 2006 was compatible with maintaining auditor independence.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor
The audit committee pre-approves all audit and non-prohibited, non-audit services provided by the independent auditor. These services may include audit services, audit-related services, tax services and other services. The audit committee has adopted a policy for the pre-approval of services provided by the independent auditor. Under the policy, pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. For each proposed service, the audit committee has received detailed information sufficient to enable the audit committee to pre-approve and evaluate such service. The audit committee may delegate pre-approval authority to one or more of its members. Any pre-approval decisions made under delegated authority must be communicated to the audit committee at or before the next scheduled meeting. There were no waivers by the audit committee of the pre-approval requirement for permissible non-audit services in 2006.
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PROPOSAL TO RATIFY AUDIT COMMITTEE
APPOINTMENT OF INDEPENDENT AUDITOR
The audit committee has appointed PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending December 31, 2007. No determination has been made as to what action the audit committee would take if shareholders do not ratify the appointment.
PricewaterhouseCoopers LLP has conducted the audit of the financial statements of EIHI and its subsidiaries for the year ended December 31, 2006. Representatives of PricewaterhouseCoopers LLP are expected to be present at the meeting and will be given an opportunity to make a statement if they desire to do so, and will be available to answer appropriate questions from shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE AUDIT COMMITTEE’S APPOINTMENT OF PRICEWATERHOUSECOOPERS AS INDEPENDENT AUDITOR FOR THE 2007 FISCAL YEAR.
The affirmative vote of a majority of all votes cast at the meeting is required to ratify the appointment. Abstentions and broker non-votes will not be counted as votes cast at the meeting, and therefore, will have no effect on this proposal. If you submit a signed proxy card and do not specify how you want to vote your shares, your shares will be voted “FOR” ratification of the appointment.
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ADDITIONAL INFORMATION
2008 Annual Meeting
Our 2008 annual meeting of shareholders will be held on or about May 16, 2008, subject to the right of our Board to change such date based on changed circumstances.
Shareholder Proposals
In accordance with our bylaws, a shareholder who desires to propose a matter for consideration at an annual meeting of shareholders must provide notice of such proposal in writing, delivered or mailed by first-class United States mail, postage prepaid, to the Corporate Secretary of EIHI, not less than 90 days nor more than 150 days prior to such annual meeting. If the 2008 Annual Meeting is held on May 16, 2008, this period will begin on December 18, 2007 and end on February 15, 2008.
If the 2008 annual meeting is held on May 16, 2008, any shareholder who desires to submit a proposal to be considered for inclusion in our proxy materials relating to our 2008 annual meeting of shareholders in accordance with the rules of the Commission must submit such proposal in writing, addressed to Eastern Insurance Holdings, Inc. at 25 Race Avenue, Lancaster, Pennsylvania 17603 (Attn: Scott C. Penwell, Corporate Secretary), on or before December 18, 2007.
Nominations for Election of Directors
In accordance with our bylaws, any shareholder entitled to vote for the election of directors may nominate candidates for election to the Board provided that the shareholder has given proper notice of the nomination, as required by our bylaws, in writing, delivered or mailed by first-class United States mail, postage prepaid, to the Corporate Secretary of EIHI not less than 90 days nor more than 120 days prior to such annual meeting. If the 2008 annual meeting is held on May 16, 2008, this period will begin on January 17, 2008 and end on February 15, 2008.
Shareholders may also recommend qualified persons for consideration by the Board to be included in our proxy materials as a nominee of the Board. Shareholders making a recommendation must submit the same information as that required to be included by us in our proxy statement with respect to nominees of the Board. If our 2008 annual meeting is held on May 16, 2008, the shareholder recommendation should be submitted in writing, addressed to Eastern Insurance Holdings, Inc. at 25 Race Avenue, Lancaster, Pennsylvania 17603 (Attn: Scott C. Penwell, Corporate Secretary), on or before December 18, 2007.
Annual Report for 2006
Our Annual Report to the Shareholders for the year ended December 31, 2006 has been mailed to all shareholders entitled to notice of and to vote at the meeting. Our Annual Report is furnished to shareholders for their information. No part of the Annual Report is incorporated by reference herein.
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UPON REQUEST OF ANY SHAREHOLDER, A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2006 (FILED WITH THE COMMISSION ON APRIL 2, 2007), INCLUDING A LIST OF THE EXHIBITS THERETO, REQUIRED TO BE FILED WITH THE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934, MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO INVESTOR RELATIONS, EASTERN INSURANCE HOLDINGS, INC., OR BY CALLING INVESTOR RELATIONS DIRECTLY AT (888) 654-7100. EACH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT, AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL OWNER OF OUR COMMON STOCK ENTITLED TO VOTE AT THE MEETING.
Corporate Governance Documents
A copy of our Code of Ethics, and the charters of our audit committee, nominating/governance committee, and compensation/human resources committee are available on our website atwww.easterninsuranceholdings.comunder the tab “Investor Relations” and any shareholder may obtain a printed copy of these documents by writing to Investor Relations, Eastern Insurance Holdings, Inc., 25 Race Avenue, Lancaster, Pennsylvania 17603, by e-mailing our Chief Financial Officer at kshook@eains.com or by calling Investor Relations at (888) 654-7100.
Waivers of Provisions of Codes of Conduct
There were no waivers of the provisions of our Code of Ethics for any EIHI director, senior financial officer or any other executive officer in 2006 or through the date of this proxy statement during 2007. In the unlikely event that there is a waiver of our Code of Ethics, the waiver will be described on our website atwww.easterninsuranceholdings.comunder the tab “Investor Relations”.
Complaints and Concerns
Shareholders, employees and other interested parties who desire to express concerns or complaints relating to accounting, internal controls or auditing matters should communicate directly with our audit committee in writing addressed to audit committee Chair, Eastern Insurance Holdings, Inc., 25 Race Avenue, Lancaster, Pennsylvania 17603, or by submitting information through the whistleblower submission site located on the “Governance Documents” page under the “Investor Relations” tab on our website atwww.easterninsuranceholdings.com.
BY ORDER OF THE BOARD OF DIRECTORS
Scott C. Penwell
Corporate Secretary
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ANNUAL MEETING OF SHAREHOLDERS OF
EASTERN INSURANCE HOLDINGS, INC.
May 16, 2007
| PROOF # 1 |
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
ê Please detach along perforated line and mail in the envelope provided. ê
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x |
| 1. Election of Class II Directors | FOR | AGAINST | ABSTAIN | |||||||||||||||
NOMINEES:
| 2. | Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent auditor of Eastern Insurance Holdings, Inc. for the fiscal year ending December 31, 2007. | ¨ | ¨ | ¨ | |||||||||||||
| ¨ | FOR ALL NOMINEES | m | Lawrence W. Bitner |
I/We hereby acknowledge the receipt, prior to the signing of this Proxy, of a Notice of Annual | ||||||||||||||
| m | Bruce M. Eckert | Meeting of Shareholders of Eastern Insurance Holdings, Inc. called for May 16, 2007 and an attached Proxy Statement for the Annual Meeting. | ||||||||||||||||
| ¨ | WITHHOLD AUTHORITY FOR ALL NOMINEES | m | John O. Shirk | |||||||||||||||
| m | W. Lloyd Snyder III | |||||||||||||||||
| ¨ | FOR ALL EXCEPT (See instructions below) | |||||||||||||||||
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: l | ||||||||||||||||||
| To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | ¨ | |||||||||||||||||
| Signature of Shareholder | Date: | Signature of Shareholder | Date: |
| Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. | |||||
| PROOF # 1 |
| ¨ |
REVOCABLE PROXY
EASTERN INSURANCE HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder signing this proxy card hereby appoints Robert M. McAlaine and Bruce M. Eckert, or either one of them, as proxyholders with full power of substitution, and authorizes them to represent and to vote, as designated, all the shares of common stock of Eastern Insurance Holdings, Inc. that the shareholder holds of record on March 30, 2007, at the 2007 Annual Meeting of Shareholders of Eastern Insurance Holdings, Inc. to be held on May 16, 2007, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY SIGNED BY YOU, WILL BE VOTED IN THE MANNER YOU DIRECT ON THIS CARD. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE LISTED NOMINEES AND PROPOSALS, AND IN THE DISCRETION OF THE PROXYHOLDERS NAMED IN THIS PROXY UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT.
THIS PROXY MAY BE REVOKED BY YOU AT ANY TIME BEFORE IT IS VOTED AT THE ANNUAL MEETING.
(Continued and to be signed on the reverse side)
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| 14475 |