SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 2011
For the transition period from to
Commission File Number 001-32899
EASTERN INSURANCE HOLDINGS, INC.
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229-405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ¨ No x
The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing price of the registrants common stock on June 30, 2011, as reported by the NASDAQ Global Market, was $90,674,116.
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 2012 Annual Meeting of StockholdersPart III.
On March 12, 2012, we filed our Annual Report on Form 10-K for the year ended December 31, 2011 (the Original Filing) with the Securities and Exchange Commission (the SEC). We are filing this Amendment, which amends and restates Part III, Item 11 with respect to the Original Filing, to revise the disclosure in such section.
This Form 10-K/A only amends information in Part III, Item 11 (Executive Compensation). Part IV, Item 15 is also included to indicate that new certifications are being filed as described below. All other items as presented in the Original Filing are unchanged. Except for the foregoing amended and restated information, this Amendment does not amend, update or change any other information presented in the Original Filing.
In addition, as required by Rule 12b-15 of the Securities Exchange Act of 1934, this Form 10-K/A contains new certifications by our principal executive officer and principal financial and accounting officer, filed as exhibits hereto.
Item 11Executive Compensation
THE COMPENSATION/HUMAN RESOURCES COMMITTEE
Committee Members and Independence
Ronald L. King, Robert M. McAlaine and Charles H. Vetterlein, Jr. are the members of the Compensation/Human Resources Committee. Mr. King 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.eihi.com under Investor Relations. The authority and responsibilities of the Committee are:
Compensation/Human Resources Committee Process
The Compensation/Human Resources Committee meets as often as necessary, and at least once annually in an executive session without management present, to perform its duties and responsibilities. The Committee met two times in 2009, six times in 2010, and three times in 2011. Mr. King works with the Chief Executive Officer and Chief Financial Officer to establish each meeting agenda.
The Committee receives and reviews materials in advance of each meeting. The material includes 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:
Managements Role in the Compensation Process
Management plays an important role in the compensation process. The most significant aspects of managements role are:
We expect our Chief Executive Officer and Chief Financial Officer to participate in Committee meetings, and, if the Committee requests, to provide:
The Committee retains a compensation consultant to assist in its determination of competitive levels for base salary, short-term (annual) and long-term incentives, peer group adequacy and executive benefits and perquisites. The Company paid such compensation consultant a total of $4,476 in connection with such services in 2011.
The Compensation/Human Resources Committee meets 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, are paid in March.
The Compensation/Human Resources Committees process begins with establishing corporate performance objectives for senior executive officers in the first quarter of each fiscal year. The Committee engages in an active dialogue with the Chief Executive Officer, Chief Financial 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 will review the appropriateness of the financial measures used in our incentive plans and the degree of difficulty in achieving specific performance targets.
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, corporate performance compared to budget, 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.
The charter of the Compensation/Human Resources Committee provides that we review, on an annual basis, our 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.
COMPENSATION DISCUSSION AND ANALYSIS
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 Committees compensation decisions:
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:
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 that the Committee has identified.
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 was our peer group as of December 31, 2011:
For 2011, compensation paid to our named executive officers consisted of base salary and short-term cash incentives. Executive officers are also eligible for participation in company-wide benefits plans, including our employee stock ownership plan. We provide certain executive officers with automobile allowances, including the use of a Company paid gas card. One of the executive officers receives a club membership at a club that does not accept corporate members, and which the executive uses primarily for business purposes. 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 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:
Neither the Board of Directors nor the Compensation/Human Resources Committee have set forth any additional specific goals or objectives for the named executive officers.
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 March of each year. Periodic increases also may occur if warranted due to significant increases in job scope and responsibility.
Management Annual Incentive Plan
On August 19, 2010, our Board of Directors approved a Management Annual Incentive Plan (the Management Incentive Plan), which became effective on January 1, 2011. The Management Incentive Plan replaces the short-term incentive cash bonus plan that was approved by the Compensation/Human Resources Committee and our Board of Directors in 2007.
The purposes of the Management Incentive Plan are to (i) motivate and reward management for positive performance on an annual basis, (ii) provide a form of variable compensation to management which is directly linked to their individual and collective performance, and (iii) emphasize the growth and profitability of the Company.
Participation in the plan is recommended at the beginning of each plan year by the President and Chief Executive Officer and approved by the Compensation/Human Resources Committee and Board of Directors. To participate, an individual must be a regular employee of the Company in a senior management position and under the review of the Compensation/Human Resources Committee, unless otherwise approved by the Compensation/Human Resources Committee. The President and Chief Executive Officers participation is approved annually by the committee and subsequently by the Board of Directors.
A participants eligibility ceases at termination of employment (other than retirement, death, or disability), and the executive will not receive any awards under the Management Incentive Plan for the year of termination. Termination as a result of retirement, death or disability with a minimum of six months of service during the year of occurrence will result in pro-rated awards under the Management Incentive Plan.
The Management Incentive Plan is based upon annual company financial performance factors, which may change from year to year, and each factor has quantifiable objectives consisting of threshold, target, and optimum goals. Additionally, a portion of each participants award is based on individual performance objectives, determined by management, subject to approval of the Compensation/Human Resources Committee, at the beginning of each year. Such individual performance factors are based on both qualitative and quantitative measures.
Awards under the Management Incentive Plan are calculated by comparing actual performance to the established performance factors at year-end. Company performance below threshold will result in no award under the Management Incentive Plan for the company portion of the award. Awards for individual performance may still be paid, with Compensation/Human Resources Committee approval, at a reduced level and according to each participants individual performance.
Once established, performance factors remain in place for the respective fiscal year. Participation, performance factors, thresholds, targets, and any other participation features are established each plan year and may change from year to year according to the strategic objectives of the Company.
For 2011, the Board established five categories of senior management employees based on their respective levels of responsibility. The company performance measures and the threshold, target and optimum amounts were the same for each category of employee. The percentage of base pay awarded as a result of achieving company performance measures and individual goals varied among categories as follows:
Michael L. Boguski was classified as a Category 1 employee, Kevin M. Shook was classified as a Category 2 employee, and Robert A. Gilpin and Suzanne M. Emmert were classified as Category 3 employees.
Separate threshold, target, and optimum goals were established for net income, return on average equity, and earnings per share achieved by the Company during 2011, with each accounting for a specified percentage of the award based on meeting company performance goals. In addition, a specified percentage of the total award was based on the employee achieving objectives based on individual goals designed to advance the Companys strategic plan, with performance measured against the number, timeliness and quality of goals achieved by the Company. Awards based on performance in excess of the optimum level are prorated, subject to certain limitations.
The threshold, target and optimum goals are set forth below. The Companys actual net income was $7,354,000, its actual return on average equity was 5.87%, and its actual earnings per share were $0.93. Accordingly, the Company exceeded its net income measure at the optimum level, the return on average equity measure at the optimum level, and the earnings per share measure at the optimum level. The Compensation/Human Resources Committee determined the portion of the award of each employee participating in the Management Incentive Plan that was based on the Companys performance against its goals by multiplying the employees base salary by the applicable percentages for that employee. As noted above, because the Company achieved each of its performance goals in excess of the optimum level, the Compensation/Human Resources Committee increased the portion of the awards based on those goals on a pro rated basis.
Individual goals for each of the employees participating in the Management Incentive Plan were based on that employees functional responsibilities within the Company and included numerous factors, both quantitative and qualitative in nature, designed to advance the Companys strategic plan. As described above, for Mr. Boguski and Mr. Shook ten percent of their individual awards were based upon their performance in achieving those goals. For Mr. Gilpin and Ms. Emmert, twenty percent of their individual awards were based on their performance in achieving the individual goals established for them. Based on evaluations of the participating employees achievements during the year in satisfying the individual goals assigned to that employee, the Compensation/Human Resources Committee determined whether the employees achievements met the minimum performance level or the expected performance level or whether such achievements exceeded the expected performance by such employee.
Based on these factors and individual goal awards, we approved the following bonuses: $199,338 for Mr. Boguski; $135,974 for Mr. Shook; $62,675 for Mr. Gilpin; and $58,173 for Ms. Emmet. Also, we approved a discretionary bonus of $50,000 for Mr. Eckert.
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 Stock Incentive Plan, which we refer to as the 2006 Plan and 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:
All stock options include the following features:
We also use restricted stock as a long-term incentive vehicle because, among other things:
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 individuals position, scope of responsibility, and the level of award in relation to other elements of the executives total compensation.
We did not make any awards of restricted stock or options under the 2006 Plan to any of the named executive officers in 2011 for 2010 performance.
Value of Equity Awards
All equity awards to our employees, including the named executive officers, are reflected in our consolidated financial statements, based on applicable accounting guidance, at fair market value on the grant date in accordance with FASB ASC Topic 718.
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 the 2006 Plan, 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 48 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.
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.
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, 2011.
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.
SUMMARY COMPENSATION TABLE
On February 9, 2012, we set the annual base salaries of the named executive officers for 2012 as follows:
Grants of Plan Based Awards2011
Outstanding Equity Awards at Fiscal Year End2011
Option Exercises and Stock Vested2011
OUR COMPENSATION PLANS
2011 Plan-Based Awards
Short-Term Incentive Compensation
Our executive officers received the following bonuses for the fiscal year ended December 31, 2011, which were paid on March 2, 2012.
Our executive officers received the following bonuses for the fiscal year ended December 31, 2010, which were paid in 2011.
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 five years of employment or service with us or one of our subsidiaries. The Compensation/Human Resources 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 participants termination of employment, the Compensation/Human Resources Committee may, in circumstances in which it deems it appropriate, exercise its discretion to accelerate vesting of outstanding stock option grants and restricted stock awards and extend the exercise period for vested options.
On August 24, 2010, we awarded a total of 205,000 options under the 2006 Plan. As of January 1, 2012, there were 291,354 shares available for future issuance of stock option awards and 177,703 available for issuance of restricted stock awards under the 2006 Plan.
The following table provides information about securities authorized for issuance under our equity compensation plan as of December 31, 2011:
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Michael L. Boguski, Kevin M. Shook, Robert A. Gilpin, and Suzanne M. Emmet are parties to employment agreements with the Company. The employment agreements specify the executives position and duties, term of employment, compensation, benefits, and termination rights. On December 17, 2008, these employment agreements were amended to comply with Section 409A of the Internal Revenue Code, and the final regulations issued thereunder. On August 23, 2010, Messrs. Eckert and Boguski entered into amendments to their respective employment agreements which provided that, effective January 1, 2011, Bruce M. Eckert assumed the role of Vice Chairman of the Company and Mr. Boguski assumed the position of President and Chief Executive Officer of the Company.
Bruce M. Eckert
Mr. Eckerts employment agreement, effective as of September 21, 2004, as amended December 17, 2008, and August 23, 2010, had an initial term of 3 years and was automatically extended each day for an additional day until Mr. Eckerts 65th birthday, which was March 8, 2009. Accordingly, on March 8, 2012, Mr. Eckerts employment agreement terminated. Mr. Eckert continues to serve as a director of the Company, but effective March 8, 2012, he is no longer an officer of the Company.
Michael L. Boguski
As noted above, Mr. Boguski entered into a second amendment to his employment agreement on August 23, 2010, that provided for Mr. Boguski to become the President and Chief Executive Officer of the Company. 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. Boguski is also entitled to participate in any of the Companys other employee benefit plans. In addition, Mr. Boguski is entitled to vacation days and an automobile allowance.
Mr. Boguskis agreement has an initial term of 3 years and, unless terminated as set forth therein, is automatically extended each day for an additional day until Mr. Boguskis 62nd birthday; Mr. Boguskis agreement provides that if we terminate his employment without cause (upon thirty (30) days notice) or if he terminates his employment for good reason (by written notice within 90 days after the occurrence of the event constituting good reason and our failure to cure the same within 30 days thereafter) he is entitled to severance benefits under the agreement. Unless the termination of Mr. Boguskis employment occurs after a change of control (as described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code or as declared by the Board), in the event that Mr. Boguski is gainfully employed during the third twelve-month period following his termination, 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.
In addition, if Mr. Boguskis employment terminates by reason of his disability, he will be entitled to continuation of his base annual salary, less amounts payable under any of the Companys disability plans, until the earliest of:
The term cause means any of the following:
The term good reason includes:
If any such termination occurs, we will pay Mr. Boguski (in 36 equal monthly installments) an amount totaling 3 times the sum of:
In addition, Mr. Boguski will be entitled to the lesser of:
Mr. Boguski is also entitled to any accrued compensation and any benefits to which he may be entitled under the terms of any Company plans or programs in which he is a participant. If the payments and benefits under the agreement, when aggregated with other amounts received from the Company, are such that Mr. Boguski 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. Boguskis 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 (1) year.
The agreement provides that Mr. Boguski will execute a release agreement in the event of his termination under circumstances which would entitle him to receive severance benefits.
The agreement contains provisions restricting Mr. Boguskis right to compete with the Company during the two-year period after the termination of his employment.
Kevin M. Shook
Mr. Shooks agreement is substantially the same as Mr. Boguskis agreement except for the following:
Robert A. Gilpin
Mr. Gilpins agreement is substantially the same as Mr. Boguskis agreement except for the following:
Suzanne M. Emmet
Ms. Emmets agreement is substantially the same as Mr. Gilpins 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 above under the caption Description of Employment Agreements.
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, 2011, and assuming a price per share of our common stock of $13.98 (the closing price on December 30, 2011, the last trading day of the year). Interest assumptions for the calculations used 120% of the appropriate monthly Applicable Federal Rate for December 2011. Actual amounts that we will pay out can only be determined at the time of such executives termination. The following table summarizes the potential payments:
DIRECTOR COMPENSATION IN FISCAL YEAR 2011
We believe that the amount, form, and methods used to determine compensation of our non-employee directors are important factors in:
The following table sets forth a summary of the compensation that we paid to our non-employee directors in 2011:
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 Chairman 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.
ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS
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 directors 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 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 directors 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 at www.eihi.com under the tab Investor Relations.
Related Party Transactions and Policies and Procedures
The Audit Committee of the Board reviews transactions with related parties (directors, director nominees, executive officers, beneficial owners of more than 5% of EIHI common stock, and their respective immediate family members) at least quarterly and applies the independence standards required by the Nasdaq Stock 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 directors and officers. All transactions were on terms as favorable as could have been obtained from unaffiliated third parties.
Bruce M. Eckert. Mr. Eckert, our Chief Executive Officer for 2010 and a member of our Board of Directors, is an investor in Alliance Impairment Management, Inc., which provides case management services to certain of EIHIs insurance company subsidiaries. For the year ended December 31, 2011, EIHIs insurance companies paid $3.6 million in fees to Alliance Impairment Management, Inc. for its 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. On September 2, 2011, as part of our previously announced stock repurchase program, we entered into a stock purchase agreement, dated September 2, 2011, with Mr. Penwell, a member of our Board of Directors, to repurchase 5,000 shares of the Companys common stock held by Mr. Penwell for an aggregate purchase price of $66,000, or $13.20 per share, which was the closing price of our common stock on the Nasdaq Global Market on September 1, 2011.
Mr. Penwell was a shareholder in the law firm of Stevens & Lee during the year ended December 31, 2011, which provides legal services to EIHI and its subsidiaries. For the year ended December 31, 2011, EIHI and its subsidiaries paid Stevens & Lee $184,000 in fees for its services.
Robert M. McAlaine. Thomas S. McAlaine, Mr. McAlaines son, is the owner of U.S. Detectives, LLC, an investigative services company that specializes in insurance fraud. For the year ended December 31, 2011, EIHI and its subsidiaries paid U.S. Detectives, LLC $352,000 for its services. Director McAlaine has no financial interest in U.S. Detectives, LLC.
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/Human Resources 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.
Item 15Exhibits and Financial Statement Schedules
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to its Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on the date indicated: