================================================================================



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------


                                    FORM 8-K


                                 CURRENT REPORT


                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


                          Date of Report: July 1, 2002
                        (Date of earliest event reported)



                        HILB, ROGAL AND HAMILTON COMPANY
             (Exact Name of Registrant as Specified in its Charter)



         Virginia                     0-15981                   54-1194795
(State or Other Jurisdiction   (Commission File Number)        (IRS Employer
     of Incorporation)                                       Identification No.)

             4951 Lake Brook Drive, Suite 500
                    Glen Allen, Virginia                  23060
         (Address of Principal Executive Offices)      (Zip Code)



               Registrant's telephone number, including area code:
                                 (804) 747-6500


================================================================================
<PAGE>

Item 2.         Acquisition or Disposition of Assets.

         On July 1, 2002,  Hilb,  Rogal and  Hamilton  Company  (the  "Company")
acquired  (i) all of the issued and  outstanding  membership  interest  units of
Hobbs Group, LLC ("Hobbs") other than those owned by Hobbs IRA Corp.  ("HIRAC"),
and (ii) all of the issued and outstanding capital stock of HIRAC (collectively,
the "Acquisition")  pursuant to a Purchase Agreement (the "Purchase Agreement"),
dated May 10, 2002, by and among the Company, Hobbs, the members of Hobbs (other
than HIRAC) and the shareholders of HIRAC.  HIRAC was created by Hobbs to permit
certain  of its  investors  and  employees  to own  interests  in Hobbs  through
individual retirement accounts.

         Hobbs,  which is  based in  Atlanta,  Georgia,  is one of the  nation's
premier  independent  insurance brokers serving upper middle-market and top-tier
clients and provides property and casualty insurance brokerage, risk management,
executive  compensation  and  employee  benefits  services.  As a result  of the
Acquisition,  each of Hobbs and HIRAC became a  wholly-owned  subsidiary  of the
Company.

         The  purchase  price  that  the  Company  paid in  connection  with the
Acquisition consists of (i) approximately $114.2 million in cash, which includes
the Company's  assumption and retirement of certain debt of Hobbs,  and (ii) the
issuance to the members of Hobbs  (other  than  HIRAC) and the  shareholders  of
HIRAC of an aggregate of 719,729  shares of the Company's  common stock ("Common
Stock"). In addition,  the Company has agreed to pay up to approximately  $101.9
million  in cash and  shares  of Common  Stock  contingent  on Hobbs'  achieving
certain  financial  performance goals within the next two years. The Company has
further  agreed to assume and satisfy  certain  existing  earn-out  and deferred
compensation  obligations of Hobbs from Hobbs' prior  acquisitions  estimated to
approximate a net present value of $30 million.

         The  various  components  of the  purchase  price  were  determined  by
arms-length negotiations between the parties. Based upon a value for the 719,729
shares of Common Stock of $31.6  million,  the aggregate  purchase price paid by
the Company to the members of Hobbs (other than HIRAC) and the  shareholders  of
HIRAC at the  closing  of the  Acquisition  was  approximately  $146.6  million,
excluding  potential earn-out and other future payments.  For information on the
estimated  aggregate  acquisition  cost  to  be  recorded  by  the  Company  for
accounting  purposes,  see  footnote  1 to  the  Pro  Forma  Condensed  Combined
Financial  Statements set forth in "Item 7(b), Pro Forma Financial  Information"
below.

         In connection  with the  consummation of the  Acquisition,  the Company
agreed to increase the size of the Board of Directors from 13 to 14 and to elect
Thomas A. Golub,  who serves as President and Chief Executive  Officer of Hobbs,
as a director and Executive Vice President of the Company.

         As of the close of business on July 1, 2002, the total number of shares
of Common Stock issued and  outstanding  was  29,311,009.  The 719,729 shares of
<PAGE>

Common  Stock  acquired  by the  members  of Hobbs  (other  than  HIRAC) and the
shareholders of HIRAC at the closing of the Acquisition represent  approximately
2.45% of the issued and outstanding shares of Common Stock as of that date.

         In addition, on July 1, 2002, the Company entered into a Second Amended
and Restated Credit Agreement (the "Amended Credit Agreement"), dated as of July
1, 2002,  among the Company,  as Borrower;  the lenders named therein;  Wachovia
Bank,  National  Association  (formerly  known as First Union National Bank), as
administrative  agent; PNC Bank, National  Association,  as documentation agent;
and Bank of America  Securities,  LLC, as syndication  agent. The Amended Credit
Agreement amends and restates an Amended and Restated Credit Agreement, dated as
of April 6, 2001, among the parties, and provides for a credit facility of up to
an aggregate of $260.0 million. In particular,  the Amended Credit Agreement (i)
maintains the  availability to the Company of a revolving credit facility in the
aggregate principal amount of $100.0 million and (ii) increases the availability
to the Company of a term loan  facility  from an aggregate  principal  amount of
$60.0 million to an aggregate  principal  amount of $160.0 million.  Pursuant to
the  Amended  Credit  Agreement,  the  increased  term  loan  facility  was made
available (i) to finance the $114.2 million cash payment in connection  with the
Acquisition and (ii) for working capital and general corporate purposes.

         The Amended Credit Agreement  contains certain covenants that restrict,
or  may  have  the  effect  of   restricting,   the  payment  of   dividends  or
distributions,  and the  purchase  or  redemption  by the Company of its capital
stock.  Management  does not  believe  that the  restrictions  contained  in the
Amended Credit Agreement will, in the foreseeable  future,  adversely affect the
Company's  ability to pay cash dividends at the current dividend rate.  However,
there can be no assurance in this regard.

Item 7.         Financial Statements, Pro Forma Financial Information and
                Exhibits.

         (a)    Financial Statements of Businesses Acquired.

         The following  financial  statements of Hobbs and its  subsidiaries are
included in this report:

         (i) Report of Independent Auditors

             Combined Balance Sheets as of December 31, 2001 and 2000

             Combined Statements  of  Operations  for the Years Ended  December
                31, 2001, 2000 and 1999

             Combined Statements of Changes in  Shareholders'  Equity  (Deficit)
                for the Years Ended December 31, 2001, 2000 and 1999

             Combined  Statements of Cash Flows for the Years Ended December 31,
                2001, 2000 and 1999
<PAGE>

         Notes to Combined Financial Statements

         (ii) Combined  Balance  Sheets as  of  March 31, 2002  (unaudited)  and
                 December 31, 2001

              Combined Statements of Operations for the Quarters Ended March 31,
                 2002 and 2001 (unaudited)

              Combined Statements of Cash Flows for the Quarters Ended March 31,
                 2002 and 2001 (unaudited)

              Notes to Combined Interim Financial Statements (unaudited)


<PAGE>





COMBINED FINANCIAL STATEMENTS
Hobbs Group, LLC
Years ended December 31, 2001, 2000 and 1999
with Report of Independent Auditors


<PAGE>


                                Hobbs Group, LLC

                          Combined Financial Statements


                  Years ended December 31, 2001, 2000 and 1999




                                    Contents

Report of Independent Auditors.................................................1

Combined Financial Statements

Combined Balance Sheets........................................................2
Combined Statements of Operations..............................................4
Combined Statements of Changes in Shareholders' Equity (Deficit)...............5
Combined Statements of Cash Flows..............................................7
Notes to Combined Financial Statements.........................................8



<PAGE>







                         Report of Independent Auditors

Board of Directors
Hobbs Group, LLC

We have audited the accompanying combined balance sheets as of December 31, 2001
and 2000, of the entities listed in Note 1, and the related combined  statements
of operations, changes in shareholders' equity (deficit) and cash flows for each
of the three  years in the period  ended  December  31,  2001.  These  financial
statements   are  the   responsibility   of  the  Companies'   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the combined financial position at December 31, 2001 and
2000,  of the  entities  listed  in Note 1, and the  combined  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.



                                                        /s/ Ernst & Young LLP

Atlanta, Georgia
February 15, 2002


                                       1
<PAGE>



                                Hobbs Group, LLC

                             Combined Balance Sheets
<TABLE>
<CAPTION>

                                                                                December 31
                                                                        2001                  2000
                                                                --------------------------------------------
<S>                                                               <C>                    <C>

Assets
Current assets:
   Cash and cash equivalents                                        $    6,155,350         $   3,134,814
   Cash and cash equivalents held in a fiduciary capacity               23,899,571            22,755,903
   Premiums and commissions receivable, less allowance for
     doubtful accounts - (2001 - $589,000; 2000 - $401,000)             61,027,107            33,143,246
   Accounts receivable                                                     987,813               685,849
   Prepaid assets                                                          986,015             1,097,149
   Income taxes receivable                                                       -                76,157
                                                                --------------------------------------------
Total current assets                                                    93,055,856            60,893,118






Investments                                                                 68,843                68,843
Furniture, equipment and leasehold improvements, less
   accumulated depreciation - (2001 - $4,166,000; 2000 -
   $2,966,000)                                                           2,567,818             3,041,971
Goodwill and other intangible assets, less accumulated
   amortization - (2001 - $16,838,000; 2000 - $11,573,000)              63,355,545            67,203,160
Other assets                                                               555,852               434,754
                                                                --------------------------------------------
Total assets                                                          $159,603,914          $131,641,846
                                                                ============================================
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                                                                December 31
                                                                        2001                  2000
                                                                --------------------------------------------
<S>                                                               <C>                    <C>

Liabilities and shareholders' deficit
Current liabilities:
   Premiums due to insurance companies                              $   69,016,144        $   49,122,915
   Commissions expense payable                                           3,441,127             1,376,679
   Accounts payable and accrued expenses                                12,989,980             4,712,177
   Income taxes payable                                                     39,292                     -
   Current portion of long-term debt                                     6,520,456               335,282
   Unearned commission income                                            2,439,365             1,966,723
                                                                --------------------------------------------
Total current liabilities                                               94,446,364            57,513,776

Long-term debt, less current portion                                    36,801,022            52,092,749
Other long-term liabilities                                              2,536,830             1,167,193
                                                                --------------------------------------------
Total liabilities                                                      133,784,216           110,773,718

Minority interests                                                         436,697               150,843

Commitments and contingencies

Redeemable preferred shares; no par value:
   Issued and outstanding shares - (2001 -
     363,196; 2000 - 363,196)                                           25,819,567            20,243,573
Special common shares; no par value:
   Issued and outstanding shares - (2001 - 7,867;
     2000 - 50,000)                                                        550,690             1,750,000


Shareholders' deficit:
   Voting common shares; no par value:
     Issued and outstanding shares - (2001 - 346,881; 2000 -
       361,829)                                                          4,072,428             3,439,225
   Nonvoting common shares, no par value:
     Issued and outstanding shares - (2001 - 913,640; 2000 -
       876,303)                                                         13,201,914            12,568,006
   Texas and Canada common shares, $1 par value:
     Issued and outstanding shares - (2001 - 1,029; 2000 -
       1,029)                                                                1,029                 1,029
   Additional paid-in-capital                                                1,000                 1,000
   Accumulated other comprehensive income                                   13,276                84,709
   Deferred compensation                                                (1,384,339)             (581,258)
   Retained earnings (deficit)                                         (16,892,564)          (16,788,999)
                                                                --------------------------------------------
Total shareholders' deficit                                               (987,256)           (1,276,288)
                                                                --------------------------------------------
Total liabilities and shareholders' deficit                           $159,603,914          $131,641,846
                                                                ============================================
</TABLE>

See accompanying notes.

                                       3
<PAGE>


                                Hobbs Group, LLC

                        Combined Statements of Operations
<TABLE>
<CAPTION>


                                                                              Year ended December 31
                                                                  2001                2000                 1999
                                                           -------------------------------------------------------------
<S>                                                             <C>               <C>                   <C>

Revenues:
   Net commissions and fees                                       $94,232,835         $72,281,363         $55,718,035
   Interest income                                                    833,802           1,130,075           1,110,224
   Other                                                              158,030             200,099             779,156
                                                           -------------------------------------------------------------
                                                                   95,224,667          73,611,537          57,607,415

Operating expenses:
   Employee compensation and benefits                              55,614,459          41,209,700          34,153,970
   Travel and entertainment expense                                 4,108,033           4,776,456           3,595,931
   Management, legal and accounting services                        1,727,702           2,979,412           3,780,214
   Office equipment leases and supplies                             2,073,261           2,030,691           1,710,525
   Rent and utilities                                               5,293,256           4,566,795           3,489,084
   Other                                                            3,448,907           3,667,847           3,276,997
                                                           -------------------------------------------------------------
                                                                   72,265,618          59,230,901          50,006,721
                                                           -------------------------------------------------------------
                                                                   22,959,049          14,380,636           7,600,694

Other expenses:
   Interest expense                                                 4,316,309           5,848,182           3,520,700
   Depreciation                                                     1,200,258           1,179,019             926,135
   Amortization of goodwill and other intangible
     assets                                                         5,298,460           5,280,064           3,692,618
                                                           -------------------------------------------------------------
Income (loss) before income taxes, extraordinary item and
   minority interests                                              12,144,022           2,073,371            (538,759)
Income tax expense                                                  1,390,191             815,035             643,640
                                                           -------------------------------------------------------------
Income (loss) before extraordinary item and minority
   interests                                                       10,753,831           1,258,336          (1,182,399)
Extraordinary item - loss on extinguishment of debt                         -                   -           1,380,862
                                                           -------------------------------------------------------------
Income (loss) before minority interests                            10,753,831           1,258,336          (2,563,261)
Minority interests                                                    594,882             242,405             378,202
                                                           -------------------------------------------------------------
Net income (loss)                                                 $10,158,949        $  1,015,931         $(2,941,463)
                                                           =============================================================

</TABLE>

See accompanying notes.

                                       4
<PAGE>




                                Hobbs Group, LLC
        Combined Statements of Changes in Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>

                                                                      Accumulated                                        Total
                                                       Additional        Other                           Retained    Shareholders'
                                       Common Shares Paid-In-Capital Comprehensive       Deferred        Earnings   Equity (Deficit)
                                                                     Income (Loss)     Compensation     (Deficit)
                                       ---------------------------------------------------------------------------------------------
<S>                                     <C>             <C>          <C>              <C>            <C>              <C>

Balance at January 1, 1999               $11,043,479     $1,000       $    9,276       $        -     $ (1,733,382)    $  9,320,373
   Comprehensive loss net of tax:
     Net loss                                      -          -                -                -       (2,941,463)      (2,941,463)
     Foreign currency translation                  -          -          118,191                -                -          118,191
                                                                                                                     --------------
   Comprehensive loss                                                                                                    (2,823,272)
   Issuance of common shares               4,704,220          -                -                -                -        4,704,220
   Redemption and forfeiture of
     common shares                        (1,086,180)         -                -                -       (3,214,923)      (4,301,103)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (105,327)        (105,327)
   Accretion of redeemable preferred
     shares                                        -          -                -                -       (2,249,999)      (2,249,999)
   Distributions declared to
     shareholders                                  -          -                -                -       (1,660,643)      (1,660,643)
                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 1999              14,661,519      1,000          127,467                -      (11,905,737)       2,884,249
   Comprehensive income net of tax:
     Net income                                    -          -                -                -        1,015,931        1,015,931
     Foreign currency translation                  -          -          (42,758)               -                -          (42,758)
                                                                                                                     ---------------
   Comprehensive income                                                                                                     973,173
   Issuance of common shares               1,620,041          -                -                -                -        1,620,041
   Deferred compensation:
     Shares restricted - vesting                   -          -                -         (915,270)               -         (915,270)
     Amortization                                  -          -                -          334,012                -          334,012
                                                                                    -----------------                ---------------
   Deferred compensation                                                                 (581,258)                         (581,258)
   Redemption and forfeiture of
     common shares                          (273,300)         -                -                -         (136,840)        (410,140)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (140,437)        (140,437)
   Accretion of redeemable preferred
     shares and special common shares
                                                   -          -                -                -       (4,699,998)      (4,699,998)
   Distributions declared to
     shareholders                                  -          -                -                -         (921,918)        (921,918)
                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 2000              16,008,260      1,000           84,709         (581,258)     (16,788,999)      (1,276,288)

</TABLE>
                                       5
<PAGE>
<TABLE>
<CAPTION>

                                                                      Accumulated                                        Total
                                                       Additional        Other                           Retained    Shareholders'
                                       Common Shares Paid-In-Capital Comprehensive       Deferred        Earnings   Equity (Deficit)
                                                                     Income (Loss)     Compensation     (Deficit)
                                       --------------------------------------------------------------------------------------------
<S>                                     <C>             <C>          <C>              <C>            <C>              <C>
   Comprehensive loss net of tax:
     Net income                                    -          -                -                -       10,158,949       10,158,949
     Foreign currency translation                  -          -          (71,433)               -                -          (71,433)
                                                                                                                     ---------------
   Comprehensive income                            -          -                -                -                -       10,087,516
   Issuance of common shares               1,692,138          -                -                -                -        1,692,138
   Deferred compensation:
     Shares restricted - vesting                   -          -                -       (1,390,133)               -       (1,390,133)
     Amortization                                  -          -                -          587,052                -          587,052
                                                                                    -----------------                ---------------
   Deferred compensation                           -          -                -         (803,081)               -         (803,081)
   Redemption and forfeiture of
     common shares                          (425,027)         -                -                -         (671,941)      (1,096,968)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (140,437)        (140,437)
   Accretion of redeemable preferred
     shares and special common shares
                                                   -          -                -                -       (5,710,902)      (5,710,902)
   Redemption of special common
     shares                                        -          -                -                -          337,064          337,064
   Distributions declared to
     shareholders                                  -          -                -                -       (4,076,298)      (4,076,298)
                                       ---------------------------------------------------------------------------------------------
   Balance at December 31, 2001          $17,275,371     $1,000      $    13,276      $(1,384,339)    $(16,892,564)   $    (987,256)
                                       =============================================================================================

See accompanying notes.
</TABLE>

                                       6
<PAGE>


                                Hobbs Group, LLC

                        Combined Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                              Year ended December 31
                                                                     2001               2000                1999
                                                           -------------------------------------------------------------
<S>                                                           <C>                 <C>                  <C>
Operating activities
Net income (loss)                                               $  10,158,949       $   1,015,931        $ (2,941,463)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation and amortization                                  6,498,718           6,459,083           4,618,753
     Extraordinary item - loss on extinguishment of debt                   -                   -            1,380,862
     Minority interests - net of distributions                        285,854               1,959              90,310
     Expenses related to share issuance                               587,052             386,490           2,629,638
     Amortization of debt issuance costs                              211,762             210,266             135,126
     Gain on disposition of business                                       -                   -             (502,242)
     Changes in operating assets and liabilities:
       Premiums and commissions receivable                        (27,883,861)         (9,730,476)          4,007,154
       Prepaid assets                                                  46,633            (306,852)            477,214
       Accounts receivable                                           (301,964)            350,830            (641,543)
       Premiums due to insurance companies                         19,893,229          15,927,939          (1,752,545)
       Commissions expense payable                                  2,064,448            (655,934)          1,474,165
       Accounts payable and accrued expenses                        7,148,923          (1,147,866)            573,669
       Other assets and other liabilities                           1,198,892          (2,187,909)            308,789
                                                           -------------------------------------------------------------
Net cash provided by operating activities                          19,908,635          10,323,461           9,857,887

Investing activities
Purchase of businesses, net of cash acquired                         (191,032)         (7,755,528)        (24,348,776)
Disposition of business                                                37,296                  -            1,253,000
Purchase of investments                                                    -                   -                    -
Purchase of furniture, equipment and leasehold
   improvements                                                      (726,105)         (1,665,274)         (1,049,117)
                                                           -------------------------------------------------------------
Net cash used in investing activities                                (879,841)         (9,420,802)        (24,144,893)

Financing activities
Proceeds from issuance of long-term debt                            4,000,000           4,764,872          46,704,761
Repayments of long-term debt                                      (13,335,282)         (5,266,757)        (28,409,437)
Proceeds from issuance of redeemable preferred shares                      -                   -           14,297,812
Proceeds from issuance of common shares                                    -                   -              744,556
Redemption of common shares                                        (1,080,000)           (107,020)         (4,301,103)
Redemption of special common shares                                (1,137,591)                 -                    -
Distributions to shareholders                                      (3,311,717)           (732,087)         (1,158,613)
                                                           -------------------------------------------------------------
Net cash (used in) provided by financing activities               (14,864,590)         (1,340,992)         27,877,976

Net increase (decrease) in cash and cash equivalents                4,164,204            (438,333)         13,590,970
Cash and cash equivalents at beginning of period                   25,890,717          26,329,050          12,738,080
                                                           -------------------------------------------------------------
Cash and cash equivalents at end of period                      $  30,054,921         $25,890,717         $26,329,050
                                                           =============================================================
</TABLE>


See accompanying notes.

                                       7
<PAGE>


                                Hobbs Group, LLC

                     Notes to Combined Financial Statements

                                December 31, 2001


1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The combined  financial  statements include the accounts of Hobbs Group, LLC and
its  majority-owned  subsidiaries,  Hobbs Group, Inc. (a Texas  corporation) and
Hobbs Group (Canada) Insurance Brokers Ltd. (hereafter  collectively referred to
as the  "Company").  The  Company is engaged in the  insurance  brokerage,  risk
management  and  benefits  consulting  business.  All  significant  intercompany
accounts and transactions have been eliminated in combination.

Hobbs  Group,  LLC is a limited  liability  company  formed  under the  Delaware
Limited Liability Company Act (the "Act") in 1997. Hobbs Group, Inc. is owned by
an employee of that  corporation,  but  controlled  by Hobbs Group,  LLC through
contractual  agreements.  A majority of the voting stock of Hobbs Group (Canada)
Insurance  Brokers Ltd.  ("Hobbs Group (Canada)") is held by a director of Hobbs
Group (Canada).  By written agreement,  a subsidiary of Hobbs Group, LLC has the
right,  among other  things,  to  reacquire  the shares of the director at their
original  cost to the  director and has  retained  operating  control over Hobbs
Group (Canada).

On March 30, 1999, the Company  approved a Second  Amended and Restated  Limited
Liability  Company  Agreement  ("the LLC  Agreement")  which  supersedes the two
previous  agreements  dated  October  20, 1997 and  October  24,  1997.  The LLC
Agreement established five classes of membership interests,  including preferred
shares, with varying voting and economic rights.

Use of Estimates

Preparation of the combined  financial  statements  requires  management to make
estimates  and  assumptions  that  affect the amounts  reported in the  combined
financial  statements and accompanying  notes.  Actual results could differ from
those estimates.


                                       8
<PAGE>

1. Basis of Presentation and Significant Accounting Policies (continued)

Cash and Cash Equivalents

All highly  liquid  investments  with  maturities  of three  months or less when
purchased are classified as cash equivalents.

Fiduciary Funds

In its capacity as an insurance  broker,  the Company may collect  premiums from
insureds  and,  after  deducting  its  commissions,  remit the  premiums  to the
respective  insurance  underwriters.  Premiums  which are due from  insureds are
reported as assets and as a corresponding  liability to the insurance  carriers.
Premiums received from insureds but not remitted to the carriers are included in
cash and cash equivalents held in a fiduciary capacity.

Furniture, Equipment and Leasehold Improvements

Furniture,   equipment  and  leasehold   improvements   are  recorded  at  cost.
Depreciation  is  computed  principally  by the  straight-line  method  over the
estimated useful lives (generally three to seven years) of the assets.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets primarily  represent the excess of the cost
over the fair value of net assets acquired.  Generally,  the Company records any
contingent  payments to be made in connection with an acquisition at the date of
the contingent  payment.  Generally,  these assets are being amortized using the
straight-line method over a fifteen-year life.

The  carrying  value of  goodwill  and other  intangible  assets is  continually
evaluated  for  impairment.  If the  undiscounted  cash  flows  estimated  to be
generated by these assets are less than the carrying amounts, an impairment loss
is  recognized.  As of  December  31,  2001,  the  Company  has not  recorded an
impairment loss.

                                       9
<PAGE>


1. Basis of Presentation and Significant Accounting Policies (continued)

Income Taxes

Generally,  federal or state income  taxes are not payable by Hobbs Group,  LLC,
because as a limited  liability  company  income taxes are the  liability of the
members,  and  their  respective  pro rata  share of net  income  or net loss is
included in the members' tax returns. The Company has certain entities which are
C-corporations  under the Internal Revenue Code and,  accordingly,  file and pay
federal and state income  taxes.  Income taxes for these  entities are accounted
for using the provisions of Statement of Financial  Accounting  Standards (SFAS)
No. 109, Accounting for Income Taxes. Accordingly,  for these entities, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using current
enacted tax rates.

Long-Term Debt

In  connection  with  obtaining  certain  long-term  financing,  the Company has
incurred  certain loan origination  costs. The loan origination  costs are being
amortized using the effective interest method over the term of the debt.

Revenue Recognition

Commissions are reported net of sub-broker  commissions and are recognized as of
the later of the billing date or effective  date of the insurance  policy except
for  commissions on installment  premiums which are recognized  periodically  as
billed. Any subsequent commission  adjustments,  including policy cancellations,
are  recognized  upon  notification  from  the  insurance  carriers.  Contingent
commissions  represent a profit-sharing  commission from the insurance  carrier,
the amount of which depends on, among other  things,  the  profitability  of the
business  produced by the  agent/broker.  Contingent  commissions are recognized
when received. Fee income is recognized when services are rendered.

Interest income from investments is recognized on the accrual basis.

                                       10
<PAGE>


1. Basis of Presentation and Significant Accounting Policies (continued)

Equity Compensation

The  Company  has  elected  to follow  APB 25,  Accounting  for Stock  Issued to
Employees and related  Interpretations in accounting for its equity compensation
and adopted the  disclosure-only  provisions  of SFAS No.  123,  Accounting  for
Stock-Based Compensation.

The Company has issued  equity  capital  securities to key employees for no cash
consideration  which  contain a base price (the value that does not inure to the
holder  of  the  security).   For  these  equity  capital  securities   granted,
compensation  expense is recognized  based on the fair value on the  measurement
date. The measurement  date is the first date both the number of shares that the
employee  is  entitled to receive the shares and the fair value of the shares is
known. Compensation expense is recognized over the vesting period.  Accordingly,
the  Company  has  established  a  deferred  compensation  account to record the
unvested compensation expense. The fair value of these equity capital securities
was  determined  to be from $2.50 per share to $29 per share in 2001,  $2.17 per
share in 2000 and $1.50 per share in 1999.

The Company has also issued equity capital  securities for no cash consideration
which do not  contain a base  price  ("zero-based  capital  securities")  to key
employees and business  advisors.  The Company recognizes  compensation  expense
based on the fair value of the zero-based  capital  securities issued to the key
employees at the date of grant,  and is recognized over the vesting period.  The
unvested  compensation expense is recorded in the deferred compensation account.
The Company records loan  origination fees and equity issuance fees based on the
fair value of the zero-based  capital  securities issued to business advisors at
the date of grant. The fair value of the zero-based  capital  securities granted
in 1999 was determined to be $41.30 per share based on the proceeds  received by
the Company for the redeemable  preferred shares. In 2000, the fair value ranged
from the  $40.00  per share to $46.20 per share  based on the  valuation  of the
Company at the time shares were awarded.  Using the same valuation  technique in
2001,  the fair value  ranged  from  $35.00 per share to $40.00 per share at the
time these shares were awarded.

                                       11
<PAGE>


1. Basis of Presentation and Significant Accounting Policies (continued)

Common Share Redemptions

The Company has redeemed certain common shares at amounts in accordance with the
LLC  Agreement.  Common  shares are  reduced  at the stated  value of the shares
redeemed using a specific  identification  method.  Redemption amounts differing
from the stated value are reflected in retained earnings.

Redeemable Preferred Shares and Special Common Shares

In connection with the issuance of the redeemable  preferred shares, the Company
has incurred certain issuance costs. The issuance costs are being amortized into
retained earnings using the straight-line method over a five-year period.

The redeemable  preferred  shares are carried at the current  redemption  amount
less unamortized issuance costs of $316,000 at December 31, 2001 and $457,000 at
December  31,  2000.  The  special  common  shares are  carried  at the  current
redemption  amount.  Adjustments  in the  redemption  amount for the  redeemable
preferred  shares and special common shares are reflected in retained  earnings.
Redemption  amounts  differing  from the stated value are  reflected in retained
earnings.

Foreign Currency Translation

In general,  foreign  revenues and expenses are  translated at average  exchange
rates. Foreign assets and liabilities are translated at year-end exchange rates.
Net  foreign   exchange  gains  and  losses  on  translation   are  reported  in
shareholders' equity.

                                       12
<PAGE>


1. Basis of Presentation and Significant Accounting Policies (continued)

Pending Accounting Pronouncements

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards  No.141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible  Assets.  Statement 141 requires that the purchase
method of accounting be used for all business combinations  initiated after June
30, 2001.  Statement 141 also includes  guidance on the initial  recognition and
measurement  of goodwill  and other  intangible  assets  arising  from  business
combinations  completed  after  June  30,  2001.  Statement  142  prohibits  the
amortization  of goodwill and intangible  assets with  indefinite  useful lives.
Statement  142 requires  that these assets be reviewed for  impairment  at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives.

The Company will apply Statement 142 beginning in the first quarter of 2002. The
Company will test goodwill for impairment using the two-step process  prescribed
in Statement 142. The first step is a screen for potential impairment, while the
second step measures the amount of the  impairment,  if any. The Company expects
to perform the first of the required impairment tests of goodwill and indefinite
lived intangible  assets as of January 1, 2002. Any impairment  charge resulting
from these  transitional  impairment  tests will be reflected as the  cumulative
effect of a change in  accounting  principle  in 2002.  The  Company has not yet
determined  what the effect of these tests will be on the earnings and financial
position of the Company.

Reclassifications

Certain  reclassifications  have been made to prior year  balances to conform to
the current year presentation.


                                       13
<PAGE>


2. Fair Values

Cash  and  cash  equivalents,  premiums  and  commissions  receivable,  accounts
receivable,  premiums due to insurance  companies,  accounts payable and accrued
expenses, and long-term debt are considered financial instruments.  The carrying
amount for all these items approximates their fair value.

The fair values used to determine the carrying  amount of  redeemable  preferred
shares,  special common  shares,  and the equity  capital  securities  issued as
compensation  to  key  employees  and  business  advisors  was  determined  by a
valuation  consulting  organization that owns  approximately 3% of the Company's
Voting and Nonvoting Common Shares. The fair value of (the Class B Junior Common
Shares) was determined using an option valuation model.

3. Acquisitions, Formations and Dispositions of Subsidiaries

AVA Insurance Agency

On February 1, 1998,  the Company  purchased  certain assets and the business of
AVA Insurance Agency, Inc. ("AVA") for $1,900,000.  A contingent payment, not to
exceed  $1,000,000,  will be payable to AVA should the purchased business exceed
certain financial thresholds over a five-year period.

Westport

On April  1,  1998,  the  Company  acquired  51% of the  outstanding  membership
interests  of  Westport  Worldwide,  LLC  ("Westport").  On November  16,  1999,
Westport's  49%  minority  shareholders  exchanged  their  minority  stake for a
contingent payment based upon future operating results of Westport.  No goodwill
was recorded related to this step acquisition.

                                       14
<PAGE>


3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

EBG

On November  17, 1999,  Westport  purchased  certain  assets and the business of
Executive Benefits Group, Inc. and EBG Insurance Agency, Inc. (together, "EBG").
This executive  benefits  consulting  business was purchased for  $16,320,000 in
cash and a contingent  payment  based upon future  operating  results.  Goodwill
established  with this purchase  relating to the excess  purchase price over the
fair  value  of  tangible  net  assets   acquired   amounted  to   approximately
$16,853,000.

Commencing  March 2006 (with  provisions for  acceleration in certain  liquidity
events), the owners of the contingent  obligations associated with the purchases
of Westport and EBG have the right to have the  contingent  payments  calculated
and paid based upon a pre-agreed  formula. If this right had been exercisable at
December 31, 2001,  the  contingent  payments  would have totaled  approximately
$13,119,000.  The  maximum  cash  obligation  associated  with these  contingent
payments  is  $13,800,000,  with  the  Company  retaining  the  right to pay the
remaining amount in cash and/or shares of the Company.

OFJ

On December 1, 1998, the Company, through a series of transactions,  purchased a
66.625%  ownership  interest in  Hobbs/OFJ  Acquisition  Corp ("OFJ  Acquisition
Corp."), which in turn owns 100% of O'Neill, Finnegan & Jordan Insurance Agency,
Inc. ("OFJ"), a benefits consulting organization.

Commencing December 2003, the non-Company  stockholders of OFJ Acquisition Corp.
have  the  right  to  require  OFJ  Acquisition  Corp.  to  purchase  their  OFJ
Acquisition  Corp.  stock  based  on  a  pre-agreed  formula.  Additionally,  in
connection with certain liquidity  events,  OFJ Acquisition Corp. has either the
obligation or the option to exchange the non-Company OFJ Acquisition Corp. stock
for the Company's  equity based on a pre-agreed  formula.  If the put option was
exercised or the exchange  right was triggered on December 31, 2001, the cost to
the  Company to make the  purchase  or  exchange  would have been  approximately
$10,759,000.

                                       15
<PAGE>


3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Campbell

On February 1, 1999,  OFJ  purchased  certain  assets and the employee  benefits
consulting business of David J. Campbell for $533,000. Goodwill established with
this  purchase  relating  to the  excess  purchase  price over the fair value of
tangible net assets acquired amounted to approximately $533,000.

Commencing  February  2003,  Mr.  Campbell has the right to receive a contingent
payment  based upon the future  operating  results  of his former  business  and
calculated using a pre-agreed formula. The contingent payments will be paid over
a three-year period.  This contingent amount was calculated to be $1,233,000 and
was recorded  during 2001 as goodwill as the  contingency was determined to be a
liability to Mr. Campbell beyond a reasonable doubt.

Kirklin

On March 31,  1999,  the Company  purchased  certain  assets and the business of
Kirklin  and  Company,   Inc.  ("Kirklin")  for  $1,953,000  in  cash.  Goodwill
established in conjunction with this purchase relating to the excess of purchase
price  over  the  fair  value  of  tangible  net  assets  acquired  amounted  to
approximately $2,039,000.

Mills

On April 15, 1999, the Company, through a series of transactions, purchased 100%
of the  stock of  Timothy  S.  Mills  Insurance  Services,  Inc.  ("Mills")  for
$4,189,000 and a contingent  obligation based upon future operating results. The
purchase price included cash payments of $3,169,000, two subordinated promissory
notes totaling $770,000 and 6,054 Nonvoting Common Shares.  Goodwill established
in conjunction with this purchase relating to the excess purchase price over the
fair  value of the  tangible  net  assets  acquired  amounted  to  approximately
$3,812,000.


                                       16
<PAGE>


3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Mills (continued)

Commencing  June 2004 (with  provision  for  acceleration  in certain  liquidity
events),  the  owner of the  contingent  obligation  associated  with the  Mills
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $1,200,000.  The
maximum cash obligation  associated with a contingent payment is $730,000,  with
any remaining amount to be paid in shares of the Company.

Linden

On August 4, 1999, the Company, through a series of transactions, purchased 100%
of the stock of The Linden  Company  ("Linden")  for $5,139,000 and a contingent
obligation based upon future operating results. The purchase price included cash
payments  of  $2,889,000  and  two   subordinated   promissory   notes  totaling
$2,250,000.  Goodwill  established in conjunction with this purchase relating to
the excess  purchase  price over the fair value of tangible net assets  acquired
amounted to approximately $4,967,000.

Commencing  December 2002 (with provisions for acceleration in certain liquidity
events),  the owner of the  contingent  obligation  associated  with the  Linden
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $1,767,000.  The
maximum cash obligation associated with a contingent payment is $1,100,000, with
the Company retaining the right to pay any remaining amount in cash or shares of
the Company.

Integrated Risk

On September 1, 1999, the Company purchased the remaining 49% ownership interest
of  Integrated  Risk  Solutions  Insurance  Services,  LLC  ("Integrated  Risk")
previously owned by its joint venture partner for $421,000 in cash.  During 2000
and 2001,  the Company  made  additional  contingent  payments  of $300,000  and
$104,000,  respectively,  to its former joint  venture  partner  pursuant to the
purchase agreement.  Goodwill  established as a result of this purchase amounted
to  approximately  $276,000,  $300,000  and  $104,000 in 1999,  2000,  and 2001,
respectively.

                                       17
<PAGE>


3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Pro-Form

On June 30, 1999, the Company disposed of its 51% majority ownership of Pro-Form
Insurance Services,  Inc. for $1,253,000 in cash. The transaction  resulted in a
gain totaling $502,000 and is recorded in other revenues.

JTK

On April 1, 2000, the Company  purchased certain assets and the business of JTK,
LLC ("JTK"), a benefits consulting organization,  for $4,570,000 in cash, 10,811
Nonvoting Common Shares and a contingent  obligation based upon future operating
results. Goodwill established with this purchase relating to the excess purchase
price  over  the  fair  value  of  tangible  net  assets  acquired  amounted  to
approximately $5,249,000.

Commencing  March 2007 (with  provisions for  acceleration in certain  liquidity
events),  the  owner  of the  contingent  obligation  associated  with  the  JTK
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $2,109,000.  The
maximum cash obligation associated with a contingent payment is $3,380,000, with
the Company retaining the right to pay any remaining amount in cash or shares of
the Company.

Other 2000 Acquisitions

During  2000,  the Company made several  additional  acquisitions.  The purchase
prices  of these  acquisitions  totaled  $2,629,000  in cash  and also  included
contingent obligations based upon future operating results. Goodwill established
with these  purchases  relating to the excess purchase price over the fair value
of tangible net assets acquired amounted to approximately $2,854,000.

The contingent  obligations associated with these acquisitions became payable at
various times beginning  August 2001.  Payments  totaling  $120,000 were paid in
2001. If the contingent  obligations  had been payable at December 31, 2001, the
contingent payments would have totaled approximately $792,000.

                                       18
<PAGE>


3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Other 2000 Acquisitions (continued)

All of the acquisitions have been accounted for as purchases,  and the financial
position  and  results of  operations  are  included in the  combined  financial
statements from their respective date of purchase. Substantially all of the cash
payments and share  issuances  required to be made in the future relating to the
contingent obligations will result in additional goodwill at the time of payment
or issuance.  Generally,  cash payments made in connection with the acquisitions
were financed by long-term debt or redeemable  preferred  share  issuances.  The
purchase price  allocations  were finalized  within one year of the  acquisition
date.

4. Long-Term Debt

A summary of long-term debt is as follows:
<TABLE>
<CAPTION>

                                                                               December 31
                                                                        2001                 2000
                                                                -----------------------------------------
<S>                                                             <C>                 <C>

Term note, final payment April 1, 2002 with interest at prime
   plus 2% (6.75% at December 31, 2001)
                                                                    $ 13,333           $      53,333
Debentures, due August 4, 2002 with interest at 7%
                                                                   1,250,000               1,250,000
Debentures, due December 1, 2003 with interest at 10.5%
                                                                   1,910,000               1,910,000
Debenture, due in quarterly installments through January 31,
   2003 with interest at 8%                                          403,564                 698,846
Debentures, due in 2004 with interest at 8%                          770,000                 770,000
Bank of America revolving credit agreement                        39,500,000              48,500,000
Less loan origination costs                                         (525,419)               (754,148)
                                                                -----------------------------------------
                                                                  43,321,478              52,428,031
Less current portion                                               6,520,456                 335,282
                                                                -----------------------------------------
                                                                 $36,801,022             $52,092,749
                                                                =========================================

</TABLE>

                                       19
<PAGE>


4. Long-Term Debt (continued)

The 10.5%  Debentures  are  secured by certain  current  and future  assets of a
subsidiary  of the  Company.  Interest  is payable  monthly on the first of each
month.  The Company may pre-pay this  debenture at any time prior to maturity at
103%  of the  face  value  plus  accrued  and  unpaid  interest  to the  date of
redemption.  Additionally, the 10.5% Debentures may be converted by the holders,
at any time before  redemption or maturity,  into the  Company's  equity at fair
market value at the date of conversion.

The 8% Debenture is secured by certain current and future assets of a subsidiary
of the Company.  Principal  and  interest  are paid in 20 quarterly  consecutive
equal  installments  of $86,000  until  maturity.  The  Company  may pre-pay the
principal balance at any time without penalty.

For the remaining debentures, accrued interest is payable quarterly, annually or
at maturity  based on the terms of the  respective  agreements.  The Company may
pre-pay  these  debentures  at any time  prior to  maturity  at face  value plus
accrued and unpaid interest to the date of redemption.

In August 1999 the Company  entered into a new  revolving  credit  facility with
Bank of America and First Union  National  Bank ("Bank of America")  for a total
commitment  of  $50,000,000.  In March 2000,  the  commitment  was  increased to
$60,000,000   with  the  addition  of  Wachovia  Bank,  N.A.  The  total  amount
outstanding  under this  facility at December 31, 2001 and 2000 was  $39,500,000
and  $48,500,000,  respectively.  Approximately  $29,600,000 of the  outstanding
amount was used during 1999 to pre-pay the  outstanding  balance on a term loan.
This  pre-payment  resulted in the  recognition  of a  $1,381,000  extraordinary
charge related to unamortized loan origination costs and pre-payment penalties.

Based on the  Company's  current  outstanding  balance under the Bank of America
revolving credit facility,  quarterly  installments are due starting in November
2002,  with a final payment due February  2004.  The interest rate is determined
either as a function of LIBOR (30, 60, 90 and 120 days) or a base rate published
by Bank of  America  (resembling  the  prime  rate).  The  interest  rate on the
outstanding  balance  at  December  31,  2001  and  2000  was  5.2%  and  10.3%,
respectively.

                                       20
<PAGE>


4. Long-Term Debt (continued)

In addition to the interest expense related to the outstanding debt, the Company
also pays a  commitment  fee  ranging  from 25 to 75 basis  points on any unused
portion of the Bank of America  facility.  The rate used in determining this fee
ranged from 50 to 75 basis points in 2001, and was 75 basis points in 2000.

The scheduled maturities of debt are as follows:

                                                   Long-Term
                                                      Debt
                                             ---------------------

                          2002                  $     6,520,456
                          2003                       21,743,941
                          2004                       15,582,500
                          2005                                -
                          2006                                -
                                             ---------------------
                                                    $43,846,897
                                             =====================

Total interest paid was  $4,330,000, $5,332,000 and $3,126,000 in 2001, 2000 and
1999, respectively.


                                       21
<PAGE>


5. Income Taxes

The provision  for income taxes for the taxpaying  entities of the Company is as
follows:

                       2001              2000                 1999
                ------------------------------------------------------------

  Current:
     Federal        $1,182,000         $ 628,000             $298,000
     State             174,000           337,000               45,000
     Foreign                 -                 -              239,000

  Deferred:
     Federal            48,000          (132,000)              54,000
     State             (14,000)          (18,000)               8,000
                -----------------------------------------------------------
                    $1,390,000         $ 815,000             $644,000
                ===========================================================

The following table summarizes the principal  elements which cause the effective
tax rate to vary from the statutory corporate rate for the Company's  tax-paying
entities:

                                                         2001
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------

   Income tax on income before income taxes    $   995,000            34.0%
   Effect of state taxes                           122,000             4.2%
   Effect of permanent items                       273,000             9.3%
                                        ---------------------------------------
   Income tax expense                           $1,390,000            47.5%
                                        =======================================


                                       22
<PAGE>


5. Income Taxes (continued)

                                                         2000
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------


   Income tax on income before income taxes      $249,000             34.0%
   Effect of state taxes                           25,000              3.4%
   Effect of permanent items                      303,000             41.3%
                                        ---------------------------------------
   Income tax expense                            $577,000             78.7%
                                        =======================================

                                                         1999
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------

    Income tax on income before income taxes     $193,000             34.0%
    Effect of state taxes                          35,000              6.2%
    Effect of permanent items                     246,000             43.4%
    Effect of other items                         113,000             19.9%
    Effect of foreign taxes                        57,000             10.0%
                                        ---------------------------------------
    Income tax expense                           $644,000            113.5%
                                        =======================================

In addition to the foregoing,  Hobbs Group, LLC recorded $238,000 in tax expense
in 2000 relating to amounts payable to certain  states.  Total income taxes paid
in 2001, 2000 and 1999 were $1,256,000, $1,258,000 and $303,000, respectively.


                                       23
<PAGE>


6. Employee Benefit Plans

At December  31, 2001 and 2000,  the  Company had one 401(k)  Savings  Plan (the
"401(k)  Plan"),  a qualified cash and deferred profit sharing plan covering all
employees meeting certain  eligibility  requirements.  At December 31, 1999, the
Company had five such plans.  The Company  provides a matching  contribution  of
100%  of  the  participants'  contributions  up to a  maximum  of  4.5%  of  the
participants' annual compensation.

Certain key executive  employees of the Company are eligible to  participate  in
the Hobbs Group, LLC Executive Officers Non-Qualified Deferred Compensation Plan
(the  "Deferred   Compensation  Plan").  The  Deferred   Compensation  Plan  was
established to provide unfunded non-qualified deferred compensation for a select
group  of  management   and  other  highly   compensated   employees.   Eligible
participants may elect to defer no more than 6% of their  compensation in excess
of the  compensation  limitations  of the  Internal  Revenue  Code.  The Company
provides  a dollar for  dollar  matching  contribution  provided  that  combined
matching  contributions under the 401(k) Plan and the Deferred Compensation Plan
do not exceed 5% of the participants' annual compensation.

Expenses recognized by the Company relating to the 401(k) Plans and the Deferred
Compensation  Plan were  approximately  $1,332,000,  $1,051,000 and $907,000 for
2001, 2000, and 1999, respectively.

The Company also provides for other post retirement benefits other than pensions
under a  terminated  plan for 7 employees  of the Company  that are fully vested
under this plan.  The total  liability  for these post  retirement  benefits was
$586,000 at December 31, 2001 and $500,000 at December 31, 2000.


                                       24
<PAGE>


7. Preferred Equity

Redeemable Preferred Shares

During March 1999,  the Company issued 363,196  preferred  membership  interests
("Redeemable  Preferred  Shares")  at a  purchase  price of  $41.30  per  share,
resulting in gross proceeds of $14,999,995. As of December 31, 2001, the holders
of the Redeemable Preferred Shares are entitled to voting privileges  equivalent
to approximately 98,670 Voting Common Shares which, when combined with the total
Voting Common Shares represents 22.1% of the voting rights of the Company. These
preferred shares are redeemable no earlier than March 30, 2004 at the request of
at least a majority of the preferred  shareholders.  The Company is obligated to
redeem  these  shares not less than 180 days from the date of the  request,  but
such  obligation is subordinate to the Company's  debt  obligation  with Bank of
America. The redemption price, which is to be paid in cash, shall be the greater
of the fair market value per share as of the date of the request or the original
purchase price per share plus a 20% annual compound rate of return. In the event
of a  liquidation,  dissolution  or winding up of the  Company,  the  holders of
preferred  shares  shall be  entitled  to be paid first out of the assets of the
Company at an amount equal to the redemption price defined above. The holders of
preferred  shares also have conversion  rights with respect to the conversion of
preferred  shares into voting  shares.  The number of voting  shares a holder of
preferred  shares is entitled to receive is the applicable  conversion  rate, as
defined in the LLC Agreement,  multiplied by the number of preferred  shares. In
the event of default (noncompliance) as defined in the "Preferred Share Purchase
Agreement" dated March 23, 1999, the preferred  shareholders may remove three of
the five management  directors,  and replace these vacancies with individuals of
their choice. Directors shall then use their best efforts to remedy the event of
noncompliance.

As of March 30 for each of the stated years,  the minimum  aggregate  redemption
amounts are as follows:

                2002                           $25,920,000
                2003                            31,104,000
                2004                            37,325,000


                                       25
<PAGE>


7. Preferred Equity (continued)

Special Common Shares

Special Common Shares are entitled to normal  distributions  in accordance  with
the LLC  Agreement  and do not have the  right to vote on any  matter  except as
required by the Act. Under certain  circumstances,  the capital  account balance
attributable  to each  Special  Common  Share will be reduced by a maximum of $5
upon liquidation.  On October 24, 1997, 50,000 Special Common Shares were issued
to  Bank of  America  (formerly  NationsCredit)  representing  $500,000  of loan
origination costs.

During 2001, 42,133 of the Special Common Shares were redeemed at $27 per share.
In addition, Bank of America transferred ownership of the remaining 7,867 shares
to two former employees of Bank of America.  Commencing  October 2002, these two
individuals  have the right to require the Company to purchase the 7,867 Special
Common  Shares  at  the  fair  value  (as  defined)  of  the  Company's  equity.
Additionally,  commencing October 2003, the Company has the option to repurchase
the Special Common Shares at 110% of the fair value of the Company's equity.

8. Shareholders' Equity (Deficit)

Under the Company's LLC Agreement, as of December 31, 2001, Hobbs Group, LLC had
three classes of membership  interests classified as shareholders' equity in the
accompanying  financial  statements.  The classes are divided between voting and
nonvoting  classes.  Voting shares are shares directly held by certain  employee
Directors of the Company. Voting shares have the right to vote on all matters on
which  the  members  are  entitled  to  vote  pursuant  to the  Act  and the LLC
Agreement.  The income tax consequences for the shareholders  related to each of
the  classes of  membership  equity vary based on the  initial  capital  account
balances at time of issuance.

                                       26
<PAGE>


8. Shareholders' Equity (Deficit) (continued)

Common Shares

Common Shares are shares entitled to normal distributions in accordance with the
LLC Agreement,  and have been purchased for cash or property at the then current
fair market value.  The initial  capital account balance of the Common Shares is
equal to the purchase price paid.

Class A Junior Common Shares

Class A  Junior  Common  Shares  ("Class  A  Shares")  are  entitled  to  normal
distributions in accordance with the LLC Agreement.  The initial capital account
balance of the Class A Shares is zero.  During 2001,  52,852 Class A Shares were
transferred  from  a  Director  of  the  Company  with  voting  privileges  to a
non-Director without voting privileges pursuant to the LLC Agreement.

Class B Junior Common Shares

Class B  Junior  Common  Shares  ("Class  B  Shares")  are  entitled  to  normal
distributions in accordance with the LLC Agreement.  The initial capital account
balance of the Class B Shares upon issuance is zero.  During 2001, 2,273 Class B
Shares were transferred from a Director of the Company with voting privileges to
a non-Director without voting privileges pursuant to the LLC Agreement.

Hobbs Group, Inc. and Hobbs Group (Canada)

Hobbs  Group,  Inc.  (a Texas  corporation)  has 1,000  shares  of common  stock
outstanding  with a par value of $1 per share and Hobbs  Group  (Canada)  has 29
shares of common stock outstanding with a par value of $1 per share.

                                       27
<PAGE>


8. Shareholders' Equity (Deficit) (continued)

A summary of the activity for each class of  membership  interest as reported in
the  accompanying  financial  statements as of December 31, 2001,  2000 and 1999
follows:

<TABLE>
<CAPTION>

                                                                          Common Shares
                                             ------------------------------------------------------------------------
                                                           Voting                             Non-Voting
                                                  Shares            Value             Shares            Value
                                             ------------------------------------------------------------------------
<S>                                               <C>            <C>                 <C>             <C>

Balance at January 1, 1999                            36,799       $ 367,990            558,280        $5,582,800
   Issued during 1999                                      -               -             24,082           994,587
   Redeemed during 1999 ($41.30/share)               (36,799)       (367,990)           (21,418)         (214,180)
                                             ------------------------------------------------------------------------
Balance at December 31, 1999                               -               -            560,944         6,363,207
   Issued during 2000                                      -               -             12,433           575,026
   Redeemed during 2000 ($27.02/share)                     -               -             (2,100)          (21,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 2000                               -               -            571,277         6,917,233
   Redeemed during 2001 ($27/share)                        -               -            (40,000)         (400,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 2001                               -      $        -            531,277        $6,517,233
                                             ========================================================================

                                                                   Class A Junior Common Shares
                                             ------------------------------------------------------------------------
                                                           Voting                            Non-Voting
                                                  Shares            Value             Shares            Value
                                             ------------------------------------------------------------------------

Balance at January 1, 1999                         379,666        $3,796,660            129,500        $1,295,000
   Issued during 1999                                    -                 -             87,297         3,605,366

   Redeemed during 1999 ($41.30/share)             (38,901)         (389,010)            (6,500)          (65,000)

   Forfeited during 1999                                 -                 -             (5,000)          (50,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 1999                       340,765         3,407,650            205,297         4,785,366
   Issued during 2000                                    -                 -             20,340           937,600

   Redeemed during 2000 ($32.38/share)                   -                 -             (6,211)         (100,015)

   Forfeited during 2000                                 -                 -             (3,300)         (136,290)
                                             ------------------------------------------------------------------------
Balance at December 31, 2000                       340,765         3,407,650            216,126         5,486,661
   Issued during 2001                                    -                 -             12,818           502,005
   Transferred during 2001                         (52,852)         (528,520)            52,852           528,520

   Redeemed during 2001 ($28/share)                      -                 -               (606)          (25,027)
                                             ------------------------------------------------------------------------
Balance at December 31, 2001                       287,913        $2,879,130            281,190        $6,492,159
                                             ========================================================================

</TABLE>
                                       28
<PAGE>


8. Shareholders' Equity (Deficit) (continued)
<TABLE>
<CAPTION>

                                                           Class B Junior Common Shares
                                        -------------------------------------------------------------------
                                                       Voting                         Non-Voting
                                             Shares             Value           Shares          Value
                                        -------------------------------------------------------------------
<S>                                          <C>            <C>                  <C>         <C>

Balance at January 1, 1999                          -        $         -                -     $          -
   Issued during 1999                          21,064             31,575           48,500           72,693
                                        -------------------------------------------------------------------
Balance at December 31, 1999                   21,064             31,575           48,500           72,693
   Issued during 2000                               -                  -           49,500          107,415
   Forfeited during 2000                            -                  -           (9,100)         (15,996)
                                        -------------------------------------------------------------------
Balance at December 31, 2000                   21,064             31,575           88,900          164,112
   Issued during 2001                          40,177          1,165,133           10,000           25,000
   Transferred during 2001                     (2,273)            (3,410)           2,273            3,410
                                        -------------------------------------------------------------------
Balance at December 31, 2001                   58,968          1,193,298          101,173          192,522
                                        -------------------------------------------------------------------
Total all classes at December 31, 2001        346,881         $4,072,428          913,640      $13,201,914
                                        ===================================================================
</TABLE>

A summary of the  impact of the  preceding  activity  on  compensation  expense,
acquisition  costs and equity  issuance  costs  related to  membership  interest
issuances is as follows:

                  Year        Compensation     Acquisition       Equity
                                Expense           Costs      Issuance Costs
             -----------------------------------------------------------------

                  1999          $2,623,000      $1,130,000      $200,000
                  2000             539,000         500,000             -
                  2001             889,000               -             -

Share  issuances and forfeitures for Class A Shares and Class B Shares relate to
compensation for key employees,  except for 26,150 Class A Shares issued in 1999
which relate to acquisition and equity issuance costs.

No member of the Company is obligated  personally  for any debt,  obligation  or
liability  of the  Company or of any other  member,  solely by reason of being a
member of the  Company.  No member  has any  fiduciary  or other duty to another
member with  respect to the business and affairs of the Company and no member is
liable to the Company or any other member for acting in good faith reliance upon
the provisions of the Company's LLC Agreement.  No member has any responsibility
to restore any negative balance in its capital account or to contribute to or in
respect  of  the  liabilities  or  obligations  of  the  Company  or  to  return
distributions made by the Company.

                                       29
<PAGE>


9. Equity Compensation

The Company grants Class A Shares and Class B Shares to certain key employees as
compensation.  Generally,  each class of shares vests over a period ranging from
two to four years and is subject to forfeiture upon termination of service.  The
base price for all Class B Shares granted in 2001 was $41.00 per share,  in 2000
the range was $40.00 to $46.25 per share and in 1999 was $41.30.  The base price
for Class A Shares granted is zero.

At December 31, 2001,  9,949 of the Class A Shares remain  subject to forfeiture
with a weighted  average  remaining  contractual  life of 2.6 years,  and 90,458
Class B Shares remain subject to forfeiture  with a weighted  average  remaining
contractual life of 2.8 years.

The fair value  method  utilized  to account  for the Class A Shares and Class B
Shares  granted in 2001,  2000, and 1999  approximates  the Minimum Value method
prescribed  by SFAS No. 123 with the  following  weighted  average  assumptions:
risk-free  interest rate of 4.46%;  expected  vesting  period of 4 years;  and a
dividend yield of 0%.

10. Related Party Transactions

At  December  31,  2001 and 2000,  the  Company  had loans  receivable  due from
officers of the Company totaling $90,000 and $39,000, respectively. Additionally
at December 31, 2001, the Company had $119,000 due from other employees.


                                       30
<PAGE>


11. Commitments and Contingencies

The Company is involved in various legal  actions  incident to the nature of its
business.  The Company maintains a program of commercial insurance to lessen its
exposure  to  such  actions.  Management  is of the  opinion  that  none  of the
litigation  will have a material effect on the Company's  financial  position or
operating results.

The Company has entered into various agreements to lease office space and office
equipment using operating leases expiring on various dates through October 2007.
Total  rental  expense  for all  operating  leases  for 2001,  2000 and 1999 was
$3,364,000,  $2,941,000  and  $2,180,000,  respectively.  Future  minimum  lease
payments for all non-cancelable operating leases with initial or remaining terms
in excess of one year are as follows:

        2002                                             $2,922,000
        2003                                              2,297,000
        2004                                              1,761,000
        2005                                              1,067,000
        2006 and thereafter                                 446,000
                                                    ---------------
                                                         $8,493,000
                                                    ===============

Amounts in the above schedule are shown gross of any sub-leases.

                                       31
<PAGE>



                                Hobbs Group, LLC

                          Combined Financial Statements


                     Quarters ended March 31, 2002 and 2001
                                   (Unaudited)



                                    Contents

Combined Balance Sheets....................................................33-34
Combined Statements of Operations.............................................35
Combined Statements of Cash Flows.............................................36
Notes to Combined Financial Statements.....................................37-39


                                       32
<PAGE>



                                Hobbs Group, LLC

                             Combined Balance Sheets


<TABLE>
<CAPTION>

                                                                   (Unaudited)
                                                                    3/31/2002            12/31/2001
                                                                  ---------------------------------
<S>                                                               <C>                 <C>

Assets
Current assets:
   Cash and cash equivalents                                        $    5,433,795     $    6,155,350
   Cash and cash equivalents held in a fiduciary capacity               16,948,310         23,899,571
   Premiums and commissions receivable, less allowance for
     doubtful accounts - (2002 - $609,000; 2001 - $589,000)             46,818,263         61,027,107
   Accounts receivable                                                     748,194            987,813
   Prepaid assets                                                        1,109,716            986,015
   Income taxes receivable                                                       -                  -
                                                                  -----------------------------------
Total current assets                                                    71,058,278         93,055,856




Investments                                                                 68,843             68,843
Furniture, equipment and leasehold improvements, less
   accumulated depreciation - (2002 - $4,482,000; 2001 -
   $4,166,000)                                                           2,388,864          2,567,818
Goodwill and other intangible assets, less accumulated
   amortization - (2002 - $16,845,000; 2001 - $16,838,000)              63,348,986         63,355,545
Other assets                                                               502,916            555,852

                                                                  -----------------------------------
Total assets                                                          $137,367,887       $159,603,914
                                                                  ===================================
</TABLE>

                                       33
<PAGE>

<TABLE>
<CAPTION>

                                                                   (Unaudited)
                                                                    3/31/2002            12/31/2001
                                                                  ---------------------------------
<S>                                                               <C>                 <C>
Liabilities and shareholders' deficit
Current liabilities:
   Premiums due to insurance companies                              $   52,764,915     $   69,016,144
   Commissions expense payable                                           2,237,513          3,441,127
   Accounts payable and accrued expenses                                 7,993,311         12,989,980
   Income taxes payable                                                    183,091             39,292
   Current portion of long-term debt                                    10,704,348          6,520,456
   Unearned commission income                                            2,402,629          2,439,365

                                                                  -----------------------------------
 Total current liabilities                                              76,285,807         94,446,364

Long-term debt, less current portion                                    29,586,764         36,801,022
Other long-term liabilities                                              1,891,067          2,536,830
                                                                  -----------------------------------
Total liabilities                                                      107,763,638        133,784,216

Minority interests                                                         472,728            436,697

Commitments and contingencies

Redeemable preferred shares;  no par value:
   Issued and outstanding shares - (2002 -
     363,196; 2001 - 363,196)                                           29,588,327         25,819,567
Special common shares;  no par value:
   Issued and outstanding shares - (2002 - 7,867;
     2001 - 7,867)                                                         629,360            550,690


Shareholders' deficit:
   Voting common shares; no par value:
     Issued and outstanding shares - (2002 - 359,640; 2001 -
       346,881)                                                          4,072,428          4,072,428
   Nonvoting common shares, no par value:
     Issued and outstanding shares - (2002 - 940,569; 2001 -
       913,640)                                                         13,406,943         13,201,914
   Texas and Canada common shares, $1 par value:
     Issued and outstanding shares - (2002 - 1,029; 2001 -
       1,029)                                                                1,029              1,029
   Additional paid-in-capital                                                1,000              1,000
   Accumulated other comprehensive income                                    3,279             13,276
   Deferred compensation                                                (1,242,724)        (1,384,339)
   Retained earnings (deficit)                                         (17,328,121)       (16,892,564)

                                                                  ------------------------------------
   Total shareholders' deficit                                          (1,086,166)          (987,256)
                                                                  ------------------------------------
Total liabilities and shareholders' deficit                           $137,367,887       $159,603,914
                                                                  ====================================

</TABLE>

See accompanying notes.


                                       34
<PAGE>


                                Hobbs Group, LLC

                        Combined Statements of Operations

                                                  (Unaudited)
                                             Quarter ended March 31,
                                            2002                2001
                                    ----------------------------------------

Revenues:
   Net commissions and fees                $24,607,326         $21,490,779
   Interest income                             138,330             315,045
   Other                                        52,272              76,821
                                    ----------------------------------------
                                            24,797,928          21,882,645

Operating expenses:
   Employee compensation and benefits       13,994,421          13,175,159
   Travel and entertainment expense          1,128,780           1,061,641
   Management, legal and accounting services   670,517             565,926
   Office equipment leases and supplies        475,704             461,184
   Rent and utilities                        1,318,234           1,154,724
   Other                                       927,077             715,778

                                     ----------------------------------------
                                            18,514,733          17,134,412
                                     ----------------------------------------
                                             6,283,195           4,748,233

Other expenses:
   Interest expense                            815,016           1,280,121
   Depreciation                                316,255             261,998
   Amortization of goodwill
     and other intangible assets                 6,175           1,274,270

                                     ----------------------------------------
Income before income taxes and
  minority interests                         5,145,749           1,931,844
Income tax expense                             174,703             153,229
                                     ----------------------------------------
Income before minority interests             4,971,046           1,778,615
Minority interests                              36,031              59,752
                                     ----------------------------------------
Net income                                  $4,935,015          $1,718,863
                                     ========================================



See accompanying notes.


                                       35
<PAGE>



                                Hobbs Group, LLC

                        Combined Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                        (Unaudited)
                                                                   Quarter ended March 31,
                                                                  2002                2001
                                                           ----------------------------------------
<S>                                                            <C>                 <C>
Operating activities
Net income                                                      $   4,935,015       $   1,718,863
Adjustments to reconcile net income to net cash provided
   by operating activities:
     Depreciation and amortization                                    322,430           1,449,560
     Minority interests - net of distributions                         36,031              59,752
     Expenses related to share issuance                               141,615              79,374
     Amortization of debt issuance costs                               57,182              60,957
     Changes in operating assets and liabilities:
       Premiums and commissions receivable                         14,208,843           2,906,203
       Prepaid assets                                                (123,701)           (208,719)
       Accounts receivable                                            239,620              35,763
       Premiums due to insurance companies                        (16,251,230)         (8,522,631)
       Commissions expense payable                                 (1,203,613)            490,949
       Accounts payable and accrued expenses                       (5,172,920)            234,542
       Other assets and other liabilities                            (114,736)           (307,892)

                                                           ----------------------------------------
Net cash used in operating activities                              (2,925,464)         (2,003,279)

Investing activities
Purchase of furniture, equipment and leasehold
   improvements                                                      (137,301)           (130,905)

                                                           ----------------------------------------
Net cash used in investing activities                                (137,301)           (130,905)

Financing activities
Proceeds from issuance of long-term debt                                   -            4,000,000
Repayments of long-term debt                                       (3,087,548)         (4,581,642)
Proceeds from issuance of common shares                                     -              60,000
Distributions to shareholders                                      (1,522,503)            (70,733)
                                                           ----------------------------------------
Net cash used in financing activities                              (4,610,051)           (592,375)

Net decrease in cash and cash equivalents                          (7,672,816)         (2,726,559)
Cash and cash equivalents at beginning of period                   30,054,921          25,890,717
                                                           ----------------------------------------
Cash and cash equivalents at end of period                      $  22,382,105         $23,164,158
                                                           ========================================

</TABLE>



See accompanying notes.


                                       36
<PAGE>


                                Hobbs Group, LLC

          Notes to Combined Quarter Ended Interim Financial Statements
                                 March 31, 2002
                                   (Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited combined financial statements of Hobbs Group, LLC and
its  majority-owned  subsidiaries,  Hobbs Group, Inc. (a Texas  corporation) and
Hobbs Group (Canada)  Insurance Brokers Ltd. (the Company) have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information.  Accordingly,  they  do not  include  all of  the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been  included.  Operating  results for the three month  period  ended March 31,
2002, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.

NOTE B - INTANGIBLE ASSETS

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards No. 141, "Business  Combinations  (Statement 141)
and No. 142, "Goodwill and Other Intangible  Assets" (Statement 142).  Statement
141 requires  that the purchase  method of  accounting  be used for all business
combinations initiated after June 30, 2001. Statement 141 also included guidance
on the initial  recognition  and  measurement  of goodwill and other  intangible
assets arising from business  combinations  completed after June 30, 2001. Under
Statement  142,  goodwill  is no  longer  amortized,  but is  subject  to annual
impairment  tests.  Intangible  assets  with  finite  lives will  continue to be
amortized over their useful lives.

The Company adopted Statement 142 effective January 1, 2002.

The  Company  will test  goodwill  for  impairment  using the  two-step  process
prescribed  in  Statement  142.  The  first  step  is  a  screen  for  potential
impairment, while the second step measures the amount of the impairment, if any.
The Company does not anticipate  these tests will have a material  impact on the
earnings or financial  position of the Company as a result of the acquisition of
the Company by Hilb, Rogal and Hamilton Company (see Note C).

                                       37
<PAGE>


NOTE B--INTANGIBLE ASSETS  - Continued

The following  table  provides a  reconciliation  of the March 31, 2002 and 2001
reported net income to adjusted net income had  Statement 142 been applied as of
January 1, 2001:

                                            For the Three Months Ended March 31,
                                                  2002             2001
                                                  ----             ----
       Net income - as reported                $4,935,015        $1,718,863
       Goodwill amortization, net of tax          -               1,255,209

                                               ---------------------------------
       Adjusted net income                     $4,935,015        $2,974,072
                                               =================================


Intangible assets consist of the following:
<TABLE>
<CAPTION>
                                              As of March 31, 2002              As of December 31, 2001
                                              --------------------              -----------------------
<S>                                           <C>               <C>             <C>              <C>
                                            Gross Carrying     Accumulated      Gross Carrying   Accumulated
                                                Amount         Amortization         Amount       Amortization
      Amortizable intangible assets:
         Expirations                              $122,244         $36,539          $122,244         $33,489
         Non-compete agreement                      50,408          50,408            50,408          47,283
         Other intangible assets                 1,290,000       1,290,000         1,290,000       1,290,000

      Indefinite-lived intangible
         assets:
         Goodwill, net                         $63,263,281                       $63,263,665
</TABLE>
Aggregate  amortization  expense for the three  months  ended March 31, 2002 and
2001 was $6,175 and $1,274,000, respectively.

                Estimated amortization expense:
                    For year ended December 31, 2002                     $14,451
                    For year ended December 31, 2003                      11,326
                    For year ended December 31, 2004                      11,326
                    For year ended December 31, 2005                      11,326
                    For year ended December 31, 2006                      11,326

The changes in the net  carrying  amount of goodwill  for the three months ended
March 31, 2002 are as follows:

                Balance as of December 31, 2001                     $63,263,665
                Accumulated Amortization adjustment                        (384)
                                                                ----------------
                Balance as of March 31, 2002                        $63,263,281
                                                                ================

                                       38
<PAGE>

NOTE C - SIGNIFICANT CHANGES AND EVENTS

On May 10, 2002,  the Company  signed a  definitive  agreement to be acquired by
Hilb,  Rogal and Hamilton,  Inc.  (HRH);  a Virginia based  insurance  brokerage
company.  The  transaction  closed on July 1, 2002.  At  closing,  HRH paid $142
million in a combination of cash and stock for the Company.  An additional  $102
million will be paid contingent  upon the Company  attaining  certain  financial
performance goals within the next two years.  Also, HRH assumed certain existing
earnouts from the Company's prior  acquisitions,  estimated to approximate a net
present value of $30 million. The closing payment of $142 million included HRH's
assumption,  and subsequent retirement of, approximately $55 million in debt and
merger related expenses.

NOTE D - COMPREHENSIVE INCOME

The following table identifies the components of comprehensive  net income,  net
of tax, for the periods ended March 31, 2002 and 2001, respectively.

                                                      2002           2001
                                                      ----           ----
         Net income                                $4,935,015    $1,718,863
         Foreign currency translation                  (9,997)      (66,659)
                                                -------------- -------------
             Comprehensive income, net of tax      $4,925,018    $1,652,204
                                                ============== =============

At March 31, 2002 and December 31, 2001, the sole component of accumulated other
comprehensive income is foreign currency translation.

NOTE E - CONTINGENCIES

The Company is involved in various legal  actions  incident to the nature of its
business.  The Company maintains a program of commercial insurance to lessen its
exposure  to  such  actions.  Management  is of the  opinion  that  none  of the
litigation  will have a material effect on the Company's  financial  position or
operating results.




                                       39
<PAGE>


         (b)      Pro Forma Financial Information.

             HILB, ROGAL AND HAMILTON COMPANY, INC. AND SUBSIDIARIES
                PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                                   (Unaudited)

         The following unaudited Pro Forma Condensed  Combined Balance  Sheet as
of March 31, 2002 and the unaudited Pro Forma Condensed  Combined  Statements of
Income for the three months ended March 31, 2002 and the year ended December 31,
2001 (the "Pro  Forma  Financial  Statements")  are  based  upon the  respective
financial  statements of the Company and of Hobbs. The acquisition of Hobbs will
be accounted for under the purchase  method of accounting in accordance with the
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations."  Under the purchase  method of accounting,  the purchase price is
allocated  to the  assets  acquired  and  liabilities  assumed  based  on  their
estimated  fair  values.   The  estimated  fair  values   contained  herein  are
preliminary  in nature,  and may not be indicative of the final  purchase  price
allocation,  which will be based on an  assessment of fair value to be performed
by an independent  appraiser.  Such preliminary  estimates of fair values of the
assets and liabilities of Hobbs have been  consolidated with the recorded values
of the  assets  and  liabilities  of the  Company  in the  Pro  Forma  Financial
Statements.  Since the purchase  accounting  information is preliminary,  it has
been solely  prepared for the purpose of  developing  such  unaudited  pro forma
combined  condensed  financial  information.  SFAS No. 142,  "Goodwill and Other
Intangible Assets", provides that goodwill resulting from a business combination
completed  subsequent  to June 30,  2001 will not be  amortized  but  instead is
required to be tested for impairment at least annually.

         The  consolidated  financial  statements  of the  Company for the three
months ended March 31, 2002 were filed with the  Company's  Quarterly  Report on
Form  10-Q for the  three  months  ended  March  31,  2002 on May 9,  2002.  The
consolidated financial statements of the Company for the year ended December 31,
2001 were filed with the Company's Annual Report on Form 10-K for the year ended
December  31, 2001 on March 29,  2002.  The  financial  statements  of Hobbs are
included  in this  current  report.  See "Item  7(a),  Financial  Statements  of
Businesses Acquired."

         The Pro Forma Condensed  Combined Balance Sheet as of March 31, 2002 is
presented as if the  Acquisition  had occurred on March 31, 2002.  The Pro Forma
Condensed  Combined  Statements  of Income for the three  months ended March 31,
2002 and the year ended  December 31, 2001 are  presented as if the  Acquisition
had occurred on January 1, 2001.

         The Pro  Forma  Financial  Statements  are  presented  for  comparative
purposes only and are not  necessarily  indicative of what the actual  financial
position  of the Company  would have been at March 31, 2002 had the  Acquisition
occurred at that date or of what the actual  results of the  Company  would have
been if the  Acquisition  had occurred on January 1, 2001 nor  indicative of the
results of  operations in future  periods.  The Pro Forma  Financial  Statements
should be read in conjunction  with, and are qualified in their entirety by, the
respective  historical financial statements and notes thereto of the Company and
of Hobbs for the  three  months  ended  March  31,  2002 and for the year  ended
December 31, 2001.

         The Pro Forma  Financial  Statements  presented  do not reflect  future
events that may occur after the  Acquisition has been  consummated.  The Company
believes  that  operating  expense

                                       40
<PAGE>
synergies of the combined  operations  of the Company and Hobbs will be realized
post-Acquisition.   However,  for  the  purposes  of  the  Pro  Forma  Financial
Statements  presented  herein,  these synergies have not been reflected  because
their realization cannot be assured.

                                       41
<PAGE>

HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2002
(Unaudited)
<TABLE>
<CAPTION>

                                                Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
<S>                                           <C>             <C>               <C>                   <C>

ASSETS
CURRENT ASSETS
  Cash and cash equivalents                     $56,143,796     $22,382,105       ($62,357,825) (1b)    $81,362,172
                                                                                    (3,000,000) (1d)
                                                                                   (51,805,904) (1e)
                                                                                   120,000,000  (3)
  Investments                                      2,887,117                                              2,887,117
  Receivables, net                               115,466,210     47,566,457                             163,032,667
  Prepaid expenses and other current assets        6,946,695      1,109,716                               8,056,411
                                                -------------------------------------------------------------------

    TOTAL CURRENT ASSETS                         181,443,818     71,058,278          2,836,271          255,338,367

INVESTMENTS                                        1,343,080         68,843                               1,411,923

PROPERTY & EQUIPMENT, NET                         18,546,207      2,388,864                              20,935,071

GOODWILL, NET                                    250,147,951     63,260,760        (63,260,760) (2)     342,345,131
                                                                                    92,197,180  (2)
INTANGIBLE ASSETS, NET                            22,428,864         88,226            (88,226) (2)      77,428,864
                                                                                    55,000,000  (2)
OTHER ASSETS                                      10,046,576        502,916                              10,549,492
                                                 ------------------------------------------------------------------
TOTAL ASSETS                                    $483,956,496   $137,367,887       $ 86,684,465         $708,008,848
                                                 ==================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Premiums payable to insurance companies       $142,866,676    $52,764,915                             195,631,591
  Accounts payable                                 7,865,284      4,039,267         11,656,923  (2)      12,687,602
                                                                                   (10,873,872) (1e, 1f)
  Accrued Expenses                                18,634,000      8,777,277          4,157,510  (2)      31,568,787
  Premiums deposits and credits due customers     27,020,959                                             27,020,959
  Current portion of long-term debt                6,166,779     10,704,348        (10,704,348) (2)       6,166,779
                                                --------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                    202,553,698     76,285,807         (5,763,787)         273,075,718

LONG-TERM DEBT                                   108,260,236     29,586,764        (29,586,764) (2)     228,260,236
                                                                                   120,000,000  (3)
OTHER LONG-TERM LIABILITIES                       12,156,835      1,891,067                              14,047,902
                                                --------------------------------------------------------------------
TOTAL LIABILITIES                                322,970,769    107,763,638         84,649,449          515,383,856

MINORITY INTEREST                                                   472,728           (472,728) (2)               0

REDEEMABLE PREFERRED SHARES                              -       29,588,327        (29,588,327) (4)               0

SPECIAL COMMON SHARES                                    -          629,360           (629,360) (4)               0

SHAREHOLDERS' EQUITY (DEFICIT)
  Common Stock                                    56,857,748     17,480,400        (17,480,400) (4)     88,497,013
                                                                                    31,639,265  (1a)
  Additional paid in capital                                          1,000             (1,000) (4)               0
  Retained earnings                              105,238,634    (17,328,121)        28,985,044  (4)     105,238,634
                                                                                   (11,656,923) (2)
  Deferred compensation                                          (1,242,724)         1,242,724  (4)               0
  Accumulated other comprehensive income (loss)   (1,110,655)         3,279             (3,279) (4)      (1,110,655)
                                                --------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)             160,985,727     (1,086,166)        32,725,431          192,624,992
                                                --------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT)                                     $483,956,496   $137,367,887       $ 86,684,465         $708,008,848
                                                ====================================================================

</TABLE>

See notes to the pro forma  condensed combined  financial  statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       42
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Three Months Ended March 31, 2002
(Unaudited)
<TABLE>
<CAPTION>
                                                Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
<S>                                           <C>             <C>               <C>                   <C>

REVENUES
  Commissions and fees                           $98,648,085    $24,607,326                            $123,255,411
  Investment income                                  513,848        138,330                                 652,178
  Other                                              691,863         52,272                                 744,135
                                                --------------------------------------------------------------------
                                                  99,853,796     24,797,928                 -           124,651,724

OPERATING EXPENSES
  Compensation and employee benefits              53,259,020     13,994,421                              67,253,441
  Other operating expenses                        18,549,156      4,836,567         $ (183,540) (6)      23,202,183
  Amortization of intangibles                        521,618          6,175          1,368,825  (5)       1,896,618
  Interest expense                                 1,883,374        815,016            814,984  (8)       3,513,374
                                                ---------------------------------------------------------------------
                                                  74,213,168     19,652,179          2,000,269           95,865,616
                                                ---------------------------------------------------------------------

INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                 25,640,628      5,145,749         (2,000,269)          28,786,108
Income Taxes                                      10,457,391        174,703          1,330,199  (7)      11,962,293

                                                ---------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST                   15,183,237      4,971,046         (3,330,468)           16,823,815
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Minority interest                                          0         36,031            (36,031)                   0
                                                ---------------------------------------------------------------------
NET INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE                             $15,183,237    $ 4,935,015       $ (3,294,437)        $ 16,823,815
                                                =====================================================================
NET INCOME BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE PER SHARE:
  BASIC                                                $0.54                                                  $0.58
                                                =====================================================================
  ASSUMING DILUTION                                    $0.48                                                  $0.52
                                                =====================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:

  BASIC                                           28,187,723                           719,729           28,907,452
                                                =====================================================================
  ASSUMING DILUTION                               32,203,151                           719,729           32,922,880
                                                =====================================================================
</TABLE>

See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       43
<PAGE>

HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2001
(Unaudited)
<TABLE>
<CAPTION>
                                                Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
<S>                                           <C>             <C>               <C>                   <C>
REVENUES
  Commissions and fees                          $323,078,357    $94,232,835                            $417,311,192
  Investment income                                2,584,600        833,802                               3,418,402
  Other                                            4,604,383        158,030                               4,762,413
                                                --------------------------------------------------------------------
                                                 330,267,340     95,224,667                 -           425,492,007


OPERATING EXPENSES
  Compensation and employee benefits             182,397,310     55,614,459                             238,011,769
  Other operating expenses                        68,210,873     17,851,417         $ (629,632) (6)      85,432,658
  Amortization of intangibles                     13,867,645      5,298,460            201,540  (5)      19,367,645
  Interest expense                                 9,061,585      4,316,309          2,271,691  (8)      15,649,585
                                                --------------------------------------------------------------------
                                                 273,537,413     83,080,645          1,843,599          358,461,657
                                                --------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST                                 56,729,927     12,144,022         (1,843,599)          67,030,350

Income Taxes                                      24,381,412      1,390,191          3,703,731 (7)       29,475,334
                                                --------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST                   32,348,515     10,753,831         (5,547,330)          37,555,016

Minority interest                                          0        594,882           (594,882)                   0
                                               ---------------------------------------------------------------------
NET INCOME                                       $32,348,515   $ 10,158,949       $ (4,952,448)        $ 37,555,016
                                                ====================================================================

NET INCOME PER SHARE:

  BASIC                                                $1.18                                                  $1.33
                                                ====================================================================
  ASSUMING DILUTION                                    $1.07                                                  $1.21
                                                ====================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:

  BASIC                                           27,411,472                           719,729           28,131,201
                                                ====================================================================
  ASSUMING DILUTION                               31,160,149                           719,729           31,879,878
                                                ====================================================================
</TABLE>

See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       44
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Notes to Pro Forma Financial Statements

The unaudited pro forma condensed  consolidated  balance sheet and unaudited pro
forma  consolidated  statements of income  reflect the acquistion of Hobbs under
the purchase  method of  accounting.  Under the  purchase  method of account the
preliminary  purchase  price  is  allocated  to  the  assets  acquired  and  the
liabilities assumed based on their estimated fair values.

      1  This pro forma adjustment reflects the issuance of Common Stock and
         Cash in connection  with the  acquisition of Hobbs by the Company
         resulting in:
<TABLE>
<CAPTION>

                                                                                    Preliminary Value
<S>                                                                               <C>                  <C>

         a.       The  issuance of 719,729  shares of Common Stock at a price of
                  $43.96 per share. The assumed Common Stock  issuance  price of
                  $43.96 per share  represents  the average  closing Common Stock
                  price on the NYSE  calculated  in  accordance  with  EITF 99-12.  $   31,639,265

         b.       The cash  payment  of the  purchase  price.                           62,357,825

         c.       The  assumption  of  tangible  net worth  deficit  of Hobbs is
                  assumed  to  be  zero.                                                         0

         d.       Estimated  transaction  costs  of  $3,000,000.                         3,000,000

         e.       Payment of certain indebtedness ($40,932,032 at July 1, 2002),
                  transaction costs, severance and other related merger liabilities
                  incurred by Hobbs                                                     51,805,904

         f.       Assumed merger liabilities of Hobbs not paid at closing                  783,050
                                                                                    --------------
                                                                                    $  149,586,044
                                                                                    ==============

      2  The  unallocated  excess of purchase price over net assets acquired and
         estimated   identifiable   intangible  assets  has  been  preliminarily
         allocated to goodwill. The Company is in the process of valuing the net
         assets acquired, including the identification of intangibles other than
         goodwill.   Accordingly,   the  purchase   accounting   information  is
         preliminary.  The final  allocation  of  purchase  price to  intangible
         assets other than goodwill could result in increased  amortization  and
         decreased  income and earnings per share in subsequent  period The value
         preliminarily assigned to goodwill is calculated as follows:

         Total Preliminary Purchase Price                                           $  149,586,044

         Book value of Hobbs                                                           (29,131,521)
         Record  transaction costs,  severance and other merger related
         liabilities  incurred by Hobbs                                                 11,656,923
                                                                                    --------------
         Adjusted  book  value  of  Hobbs                                           $  (17,474,598)

         Adjustments:

         Eliminate certain indebtedness,  transaction costs, severance and other
         related merger liabilities incurred by Hobbs paid or assumed by the Company
         (excluding $640,940 of debt incurred subsequent to March 31, 2002)            (51,948,034)
         Adjust minority interest to contractual  buy-out                                 (472,728)
         Additional amounts due shareholders under tangible net worth provisions
         of  the  contract                                                               4,157,510
         Eliminate   historical   intangible  assets                                    63,348,986
                                                                                    --------------
           Total Adjustments                                                            15,085,734
         Identifiable  intangible assets                                                55,000,000
                                                                                    --------------
         Goodwill                                                                    $  92,197,180
                                                                                    ==============
                                       45
<PAGE>
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Notes to Pro Forma Financial Statements

      3  This pro forma  adjustment  reflects the new  $160,000,000  Senior Term
         Loan B under the existing  amended bank credit facility used for funding
         the acquistion. This new term loan was also used to refinance a portion
         of existing bank debt of the Company of  $40,000,000.  The facility will
         mature five years from closing  with pricing set at LIBOR + 275bps.  Net
         new borrowings:                                                              $120,000,000

      4  This pro forma adjustment  eliminates  historical  preferred  equity and
         shareholders'  equity  (deficit)  of Hobbs.

                                                                                      March 31, 2002     December 31, 2001
      5  This pro  forma  adjustment  reflects  the  elimination  of  historical
         amortization  of  Hobbs  and  the  amortization  of  other identifiable      $      6,175    $  5,298,460
         intangibles  acquired at the time of the Acquisition ($55,000,000) over
         a period of 10 years.                                                        $  1,375,000    $  5,500,000

      6  This  pro  forma  adjustment  reflects the  elimination  of  historical
         depreciation  expense of Hobbs and  recording of  depreciation  expense
         based upon the fair values of property, plant and equipment acquired in
         the Acquisition.

      7  This  pro  forma  adjustment  reflects the income tax effect of the pro
         forma  adjustments at an effective tax rate of 40.75%,  reduced for the
         tax  impact  of  nondeductible  intangible  asset  amortization.   This
         adjustment  also eliminates  historical  Hobbs taxes and adjusts Hobbs'
         taxes to the Company's effective tax rate.

      8  This  pro  forma adjustment  eliminates  historical interest expense of
         Hobbs and records  interest  expense  under the new debt  structure  as
         follows:  Interest on debt incurred in the  acquisition,  at an assumed
         interest rate of 4.63%, the London Interbank  Offered Rate ("LIBOR") at
         the acquistion date plus 2.75%. The adjustment also includes additional
         loan fee  amortization.  A change of .125% in the assumed interest rate
         would increase or decrease  interest  expense annually by approximately
         March 31, 2002 December 31, 2001 $200,000.                                    $ 1,630,000     $ 6,588,000

      9  Contingent   Consideration:   The  transaction  is  structured  with  a
         two-year earn-out provision of as much as $76,875,000,  and $25,000,000
         of contingent  installment  payments to be  determined  based on future
         earnings  pursuant to the terms of the purchase  agreement.  The Hobbs'
         two year earn-out  provision is due after years 1 and 2 with a combined
         payment  not to  exceed  a  maximum  of  $76,875,000.  The  $25,000,000
         contingent  installment  consists of two payments of $12.5 million each
         which are due after years 1 and 2,if minimum EBITDA targets are met. In
         addition,  the  Company  has  agreed to assume and  satisfy  certain of
         Hobbs' existing earn-outs and deferred compensation liabilities with an
         agreed upon value of $30,000,000.

     10  Effective   January   1,   2002,   the  Company  changed  its method of
         accounting for commissions on premiums billed and collected directly by
         insurance carriers on middle market property and casualty business. For
         the three months ended March 31,2002,  the cumulative effect adjustment
         was  $3.9  million,  net of  tax.  No pro  forma  adjustment  has  been
         presented for the year ended December 31, 2001 to reflect the effect of
         the  retroactive  application as it is not practical for the Company to
         compute  prior period pro forma amounts due to the lack of prior period
         data.

</TABLE>



                                       46
<PAGE>


         (c)      Exhibits.

                  Exhibit No.  Description
                  -----------  -----------

                      2.1      Purchase  Agreement,  dated May 10, 2002, by
                               and among the Company, Hobbs, LLC ("Hobbs"),
                               the  members of Hobbs  (other than Hobbs IRA
                               Corp.  ("HIRAC"))  and the  shareholders  of
                               HIRAC.

                      23.1     Consent of Ernst & Young LLP.

                      99.1     Second    Amended   and   Restated    Credit
                               Agreement,  dated as of July 1, 2002,  among
                               the Company, as Borrower;  the lenders named
                               therein; Wachovia Bank, National Association
                               (formerly  known  as  First  Union  National
                               Bank), as  administrative  agent;  PNC Bank,
                               National   Association,   as   documentation
                               agent; and Bank of America Securities,  LLC,
                               as syndication agent.

                      99.2     Press release dated July 1, 2002.

                      99.3     Senior Executive  Employment  Agreement with
                               Thomas A. Golub entered into May 10, 2002.





                                       47
<PAGE>







                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.


                                           HILB, ROGAL AND HAMILTON COMPANY
                                             (Registrant)



Date:  July 16,2002                       By: /s/Carolyn Jones
                                              ---------------------------------
                                              Carolyn Jones
                                              Senior Vice President and
                                              Chief Financial Officer



                                       48
<PAGE>


                                  Exhibit Index


               Exhibit No.                  Description
               -----------                  -----------

                  2.1      Purchase Agreement,  dated May 10, 2002, by and among
                           the Company,  Hobbs,  LLC  ("Hobbs"),  the members of
                           Hobbs (other than Hobbs IRA Corp.  ("HIRAC")) and the
                           shareholders of HIRAC.

                  23.1     Consent of Ernst & Young LLP.

                  99.1     Second Amended and Restated Credit  Agreement,  dated
                           as of July 1, 2002,  among the Company,  as Borrower;
                           the lenders named therein;  Wachovia  Bank,  National
                           Association  (formerly  known as First Union National
                           Bank), as  administrative  agent; PNC Bank,  National
                           Association,  as  documentation  agent;  and  Bank of
                           America Securities, LLC, as syndication agent.

                  99.2     Press release dated July 1, 2002.

                  99.3     Senior Executive  Employment Agreement with Thomas A.
                           Golub entered into May 10, 2002.
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{"company-data": {"conformed-name": "HILB ROGAL & HAMILTON CO /VA/", "cik": "0000814898", "assigned-sic": "6411", "irs-number": "541194795", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-15981", "film-number": "02704164"}, "business-address": {"street1": "THE HILB, ROGAL AND HAMILTON BUILDING", "street2": "4951 LAKE BROOK DRIVE, SUITE 500", "city": "GLEN ALLEN", "state": "VA", "zip": "23060", "phone": "8047476500"}, "mail-address": {"street1": "P O BOX 1220", "city": "GLEN ALLEN", "state": "VA", "zip": "23060"}}
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                          Date of Report: July 1, 2002
                        (Date of earliest event reported)

                        HILB, ROGAL AND HAMILTON COMPANY
             (Exact Name of Registrant as Specified in its Charter)

         Virginia                     0-15981                   54-1194795
(State or Other Jurisdiction   (Commission File Number)        (IRS Employer
     of Incorporation)                                       Identification No.)

             4951 Lake Brook Drive, Suite 500
                    Glen Allen, Virginia                  23060
         (Address of Principal Executive Offices)      (Zip Code)

               Registrant's telephone number, including area code:
                                 (804) 747-6500

================================================================================
Item 2.         Acquisition or Disposition of Assets.

         On July 1, 2002,  Hilb,  Rogal and  Hamilton  Company  (the  "Company")
acquired  (i) all of the issued and  outstanding  membership  interest  units of
Hobbs Group, LLC ("Hobbs") other than those owned by Hobbs IRA Corp.  ("HIRAC"),
and (ii) all of the issued and outstanding capital stock of HIRAC (collectively,
the "Acquisition")  pursuant to a Purchase Agreement (the "Purchase Agreement"),
dated May 10, 2002, by and among the Company, Hobbs, the members of Hobbs (other
than HIRAC) and the shareholders of HIRAC.  HIRAC was created by Hobbs to permit
certain  of its  investors  and  employees  to own  interests  in Hobbs  through
individual retirement accounts.

         Hobbs,  which is  based in  Atlanta,  Georgia,  is one of the  nation's
premier  independent  insurance brokers serving upper middle-market and top-tier
clients and provides property and casualty insurance brokerage, risk management,
executive  compensation  and  employee  benefits  services.  As a result  of the
Acquisition,  each of Hobbs and HIRAC became a  wholly-owned  subsidiary  of the
Company.

         The  purchase  price  that  the  Company  paid in  connection  with the
Acquisition consists of (i) approximately $114.2 million in cash, which includes
the Company's  assumption and retirement of certain debt of Hobbs,  and (ii) the
issuance to the members of Hobbs  (other  than  HIRAC) and the  shareholders  of
HIRAC of an aggregate of 719,729  shares of the Company's  common stock ("Common
Stock"). In addition,  the Company has agreed to pay up to approximately  $101.9
million  in cash and  shares  of Common  Stock  contingent  on Hobbs'  achieving
certain  financial  performance goals within the next two years. The Company has
further  agreed to assume and satisfy  certain  existing  earn-out  and deferred
compensation  obligations of Hobbs from Hobbs' prior  acquisitions  estimated to
approximate a net present value of $30 million.

         The  various  components  of the  purchase  price  were  determined  by
arms-length negotiations between the parties. Based upon a value for the 719,729
shares of Common Stock of $31.6  million,  the aggregate  purchase price paid by
the Company to the members of Hobbs (other than HIRAC) and the  shareholders  of
HIRAC at the  closing  of the  Acquisition  was  approximately  $146.6  million,
excluding  potential earn-out and other future payments.  For information on the
estimated  aggregate  acquisition  cost  to  be  recorded  by  the  Company  for
accounting  purposes,  see  footnote  1 to  the  Pro  Forma  Condensed  Combined
Financial  Statements set forth in "Item 7(b), Pro Forma Financial  Information"
below.

         In connection  with the  consummation of the  Acquisition,  the Company
agreed to increase the size of the Board of Directors from 13 to 14 and to elect
Thomas A. Golub,  who serves as President and Chief Executive  Officer of Hobbs,
as a director and Executive Vice President of the Company.

         As of the close of business on July 1, 2002, the total number of shares
of Common Stock issued and  outstanding  was  29,311,009.  The 719,729 shares of
Common  Stock  acquired  by the  members  of Hobbs  (other  than  HIRAC) and the
shareholders of HIRAC at the closing of the Acquisition represent  approximately
2.45% of the issued and outstanding shares of Common Stock as of that date.

         In addition, on July 1, 2002, the Company entered into a Second Amended
and Restated Credit Agreement (the "Amended Credit Agreement"), dated as of July
1, 2002,  among the Company,  as Borrower;  the lenders named therein;  Wachovia
Bank,  National  Association  (formerly  known as First Union National Bank), as
administrative  agent; PNC Bank, National  Association,  as documentation agent;
and Bank of America  Securities,  LLC, as syndication  agent. The Amended Credit
Agreement amends and restates an Amended and Restated Credit Agreement, dated as
of April 6, 2001, among the parties, and provides for a credit facility of up to
an aggregate of $260.0 million. In particular,  the Amended Credit Agreement (i)
maintains the  availability to the Company of a revolving credit facility in the
aggregate principal amount of $100.0 million and (ii) increases the availability
to the Company of a term loan  facility  from an aggregate  principal  amount of
$60.0 million to an aggregate  principal  amount of $160.0 million.  Pursuant to
the  Amended  Credit  Agreement,  the  increased  term  loan  facility  was made
available (i) to finance the $114.2 million cash payment in connection  with the
Acquisition and (ii) for working capital and general corporate purposes.

         The Amended Credit Agreement  contains certain covenants that restrict,
or  may  have  the  effect  of   restricting,   the  payment  of   dividends  or
distributions,  and the  purchase  or  redemption  by the Company of its capital
stock.  Management  does not  believe  that the  restrictions  contained  in the
Amended Credit Agreement will, in the foreseeable  future,  adversely affect the
Company's  ability to pay cash dividends at the current dividend rate.  However,
there can be no assurance in this regard.

Item 7.         Financial Statements, Pro Forma Financial Information and
                Exhibits.

         (a)    Financial Statements of Businesses Acquired.

         The following  financial  statements of Hobbs and its  subsidiaries are
included in this report:

         (i) Report of Independent Auditors

             Combined Balance Sheets as of December 31, 2001 and 2000

             Combined Statements  of  Operations  for the Years Ended  December
                31, 2001, 2000 and 1999

             Combined Statements of Changes in  Shareholders'  Equity  (Deficit)
                for the Years Ended December 31, 2001, 2000 and 1999

             Combined  Statements of Cash Flows for the Years Ended December 31,
                2001, 2000 and 1999
Notes to Combined Financial Statements

         (ii) Combined  Balance  Sheets as  of  March 31, 2002  (unaudited)  and
                 December 31, 2001

              Combined Statements of Operations for the Quarters Ended March 31,
                 2002 and 2001 (unaudited)

              Combined Statements of Cash Flows for the Quarters Ended March 31,
                 2002 and 2001 (unaudited)

              Notes to Combined Interim Financial Statements (unaudited)
COMBINED FINANCIAL STATEMENTS
Hobbs Group, LLC
Years ended December 31, 2001, 2000 and 1999
with Report of Independent Auditors
Hobbs Group, LLC

                          Combined Financial Statements

                  Years ended December 31, 2001, 2000 and 1999

                                    Contents

Report of Independent Auditors.................................................1

Combined Financial Statements

Combined Balance Sheets........................................................2
Combined Statements of Operations..............................................4
Combined Statements of Changes in Shareholders' Equity (Deficit)...............5
Combined Statements of Cash Flows..............................................7
Notes to Combined Financial Statements.........................................8
Report of Independent Auditors

Board of Directors
Hobbs Group, LLC

We have audited the accompanying combined balance sheets as of December 31, 2001
and 2000, of the entities listed in Note 1, and the related combined  statements
of operations, changes in shareholders' equity (deficit) and cash flows for each
of the three  years in the period  ended  December  31,  2001.  These  financial
statements   are  the   responsibility   of  the  Companies'   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the combined financial position at December 31, 2001 and
2000,  of the  entities  listed  in Note 1, and the  combined  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.

                                                        /s/ Ernst & Young LLP

Atlanta, Georgia
February 15, 2002

                                       1
Hobbs Group, LLC

                             Combined Balance Sheets
December 31
                                                                        2001                  2000
                                                                --------------------------------------------
Assets
Current assets:
   Cash and cash equivalents                                        $    6,155,350         $   3,134,814
   Cash and cash equivalents held in a fiduciary capacity               23,899,571            22,755,903
   Premiums and commissions receivable, less allowance for
     doubtful accounts - (2001 - $589,000; 2000 - $401,000)             61,027,107            33,143,246
   Accounts receivable                                                     987,813               685,849
   Prepaid assets                                                          986,015             1,097,149
   Income taxes receivable                                                       -                76,157
                                                                --------------------------------------------
Total current assets                                                    93,055,856            60,893,118

Investments                                                                 68,843                68,843
Furniture, equipment and leasehold improvements, less
   accumulated depreciation - (2001 - $4,166,000; 2000 -
   $2,966,000)                                                           2,567,818             3,041,971
Goodwill and other intangible assets, less accumulated
   amortization - (2001 - $16,838,000; 2000 - $11,573,000)              63,355,545            67,203,160
Other assets                                                               555,852               434,754
                                                                --------------------------------------------
Total assets                                                          $159,603,914          $131,641,846
                                                                ============================================
2
December 31
                                                                        2001                  2000
                                                                --------------------------------------------
Liabilities and shareholders' deficit
Current liabilities:
   Premiums due to insurance companies                              $   69,016,144        $   49,122,915
   Commissions expense payable                                           3,441,127             1,376,679
   Accounts payable and accrued expenses                                12,989,980             4,712,177
   Income taxes payable                                                     39,292                     -
   Current portion of long-term debt                                     6,520,456               335,282
   Unearned commission income                                            2,439,365             1,966,723
                                                                --------------------------------------------
Total current liabilities                                               94,446,364            57,513,776

Long-term debt, less current portion                                    36,801,022            52,092,749
Other long-term liabilities                                              2,536,830             1,167,193
                                                                --------------------------------------------
Total liabilities                                                      133,784,216           110,773,718

Minority interests                                                         436,697               150,843

Commitments and contingencies

Redeemable preferred shares; no par value:
   Issued and outstanding shares - (2001 -
     363,196; 2000 - 363,196)                                           25,819,567            20,243,573
Special common shares; no par value:
   Issued and outstanding shares - (2001 - 7,867;
     2000 - 50,000)                                                        550,690             1,750,000

Shareholders' deficit:
   Voting common shares; no par value:
     Issued and outstanding shares - (2001 - 346,881; 2000 -
       361,829)                                                          4,072,428             3,439,225
   Nonvoting common shares, no par value:
     Issued and outstanding shares - (2001 - 913,640; 2000 -
       876,303)                                                         13,201,914            12,568,006
   Texas and Canada common shares, $1 par value:
     Issued and outstanding shares - (2001 - 1,029; 2000 -
       1,029)                                                                1,029                 1,029
   Additional paid-in-capital                                                1,000                 1,000
   Accumulated other comprehensive income                                   13,276                84,709
   Deferred compensation                                                (1,384,339)             (581,258)
   Retained earnings (deficit)                                         (16,892,564)          (16,788,999)
                                                                --------------------------------------------
Total shareholders' deficit                                               (987,256)           (1,276,288)
                                                                --------------------------------------------
Total liabilities and shareholders' deficit                           $159,603,914          $131,641,846
                                                                ============================================
See accompanying notes.

                                       3
Hobbs Group, LLC

                        Combined Statements of Operations
Year ended December 31
                                                                  2001                2000                 1999
                                                           -------------------------------------------------------------
Revenues:
   Net commissions and fees                                       $94,232,835         $72,281,363         $55,718,035
   Interest income                                                    833,802           1,130,075           1,110,224
   Other                                                              158,030             200,099             779,156
                                                           -------------------------------------------------------------
                                                                   95,224,667          73,611,537          57,607,415

Operating expenses:
   Employee compensation and benefits                              55,614,459          41,209,700          34,153,970
   Travel and entertainment expense                                 4,108,033           4,776,456           3,595,931
   Management, legal and accounting services                        1,727,702           2,979,412           3,780,214
   Office equipment leases and supplies                             2,073,261           2,030,691           1,710,525
   Rent and utilities                                               5,293,256           4,566,795           3,489,084
   Other                                                            3,448,907           3,667,847           3,276,997
                                                           -------------------------------------------------------------
                                                                   72,265,618          59,230,901          50,006,721
                                                           -------------------------------------------------------------
                                                                   22,959,049          14,380,636           7,600,694

Other expenses:
   Interest expense                                                 4,316,309           5,848,182           3,520,700
   Depreciation                                                     1,200,258           1,179,019             926,135
   Amortization of goodwill and other intangible
     assets                                                         5,298,460           5,280,064           3,692,618
                                                           -------------------------------------------------------------
Income (loss) before income taxes, extraordinary item and
   minority interests                                              12,144,022           2,073,371            (538,759)
Income tax expense                                                  1,390,191             815,035             643,640
                                                           -------------------------------------------------------------
Income (loss) before extraordinary item and minority
   interests                                                       10,753,831           1,258,336          (1,182,399)
Extraordinary item - loss on extinguishment of debt                         -                   -           1,380,862
                                                           -------------------------------------------------------------
Income (loss) before minority interests                            10,753,831           1,258,336          (2,563,261)
Minority interests                                                    594,882             242,405             378,202
                                                           -------------------------------------------------------------
Net income (loss)                                                 $10,158,949        $  1,015,931         $(2,941,463)
                                                           =============================================================
See accompanying notes.

                                       4
Hobbs Group, LLC
        Combined Statements of Changes in Shareholders' Equity (Deficit)
Accumulated                                        Total
                                                       Additional        Other                           Retained    Shareholders'
                                       Common Shares Paid-In-Capital Comprehensive       Deferred        Earnings   Equity (Deficit)
                                                                     Income (Loss)     Compensation     (Deficit)
                                       ---------------------------------------------------------------------------------------------
Balance at January 1, 1999               $11,043,479     $1,000       $    9,276       $        -     $ (1,733,382)    $  9,320,373
   Comprehensive loss net of tax:
     Net loss                                      -          -                -                -       (2,941,463)      (2,941,463)
     Foreign currency translation                  -          -          118,191                -                -          118,191
                                                                                                                     --------------
   Comprehensive loss                                                                                                    (2,823,272)
   Issuance of common shares               4,704,220          -                -                -                -        4,704,220
   Redemption and forfeiture of
     common shares                        (1,086,180)         -                -                -       (3,214,923)      (4,301,103)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (105,327)        (105,327)
   Accretion of redeemable preferred
     shares                                        -          -                -                -       (2,249,999)      (2,249,999)
   Distributions declared to
     shareholders                                  -          -                -                -       (1,660,643)      (1,660,643)
                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 1999              14,661,519      1,000          127,467                -      (11,905,737)       2,884,249
   Comprehensive income net of tax:
     Net income                                    -          -                -                -        1,015,931        1,015,931
     Foreign currency translation                  -          -          (42,758)               -                -          (42,758)
                                                                                                                     ---------------
   Comprehensive income                                                                                                     973,173
   Issuance of common shares               1,620,041          -                -                -                -        1,620,041
   Deferred compensation:
     Shares restricted - vesting                   -          -                -         (915,270)               -         (915,270)
     Amortization                                  -          -                -          334,012                -          334,012
                                                                                    -----------------                ---------------
   Deferred compensation                                                                 (581,258)                         (581,258)
   Redemption and forfeiture of
     common shares                          (273,300)         -                -                -         (136,840)        (410,140)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (140,437)        (140,437)
   Accretion of redeemable preferred
     shares and special common shares
                                                   -          -                -                -       (4,699,998)      (4,699,998)
   Distributions declared to
     shareholders                                  -          -                -                -         (921,918)        (921,918)
                                       ---------------------------------------------------------------------------------------------
Balance at December 31, 2000              16,008,260      1,000           84,709         (581,258)     (16,788,999)      (1,276,288)
5
Accumulated                                        Total
                                                       Additional        Other                           Retained    Shareholders'
                                       Common Shares Paid-In-Capital Comprehensive       Deferred        Earnings   Equity (Deficit)
                                                                     Income (Loss)     Compensation     (Deficit)
                                       --------------------------------------------------------------------------------------------
Comprehensive loss net of tax:
     Net income                                    -          -                -                -       10,158,949       10,158,949
     Foreign currency translation                  -          -          (71,433)               -                -          (71,433)
                                                                                                                     ---------------
   Comprehensive income                            -          -                -                -                -       10,087,516
   Issuance of common shares               1,692,138          -                -                -                -        1,692,138
   Deferred compensation:
     Shares restricted - vesting                   -          -                -       (1,390,133)               -       (1,390,133)
     Amortization                                  -          -                -          587,052                -          587,052
                                                                                    -----------------                ---------------
   Deferred compensation                           -          -                -         (803,081)               -         (803,081)
   Redemption and forfeiture of
     common shares                          (425,027)         -                -                -         (671,941)      (1,096,968)
   Redeemable preferred shares
     issuance cost amortization                    -          -                -                -         (140,437)        (140,437)
   Accretion of redeemable preferred
     shares and special common shares
                                                   -          -                -                -       (5,710,902)      (5,710,902)
   Redemption of special common
     shares                                        -          -                -                -          337,064          337,064
   Distributions declared to
     shareholders                                  -          -                -                -       (4,076,298)      (4,076,298)
                                       ---------------------------------------------------------------------------------------------
   Balance at December 31, 2001          $17,275,371     $1,000      $    13,276      $(1,384,339)    $(16,892,564)   $    (987,256)
                                       =============================================================================================

See accompanying notes.
6
Hobbs Group, LLC

                        Combined Statements of Cash Flows
Year ended December 31
                                                                     2001               2000                1999
                                                           -------------------------------------------------------------
Operating activities
Net income (loss)                                               $  10,158,949       $   1,015,931        $ (2,941,463)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation and amortization                                  6,498,718           6,459,083           4,618,753
     Extraordinary item - loss on extinguishment of debt                   -                   -            1,380,862
     Minority interests - net of distributions                        285,854               1,959              90,310
     Expenses related to share issuance                               587,052             386,490           2,629,638
     Amortization of debt issuance costs                              211,762             210,266             135,126
     Gain on disposition of business                                       -                   -             (502,242)
     Changes in operating assets and liabilities:
       Premiums and commissions receivable                        (27,883,861)         (9,730,476)          4,007,154
       Prepaid assets                                                  46,633            (306,852)            477,214
       Accounts receivable                                           (301,964)            350,830            (641,543)
       Premiums due to insurance companies                         19,893,229          15,927,939          (1,752,545)
       Commissions expense payable                                  2,064,448            (655,934)          1,474,165
       Accounts payable and accrued expenses                        7,148,923          (1,147,866)            573,669
       Other assets and other liabilities                           1,198,892          (2,187,909)            308,789
                                                           -------------------------------------------------------------
Net cash provided by operating activities                          19,908,635          10,323,461           9,857,887

Investing activities
Purchase of businesses, net of cash acquired                         (191,032)         (7,755,528)        (24,348,776)
Disposition of business                                                37,296                  -            1,253,000
Purchase of investments                                                    -                   -                    -
Purchase of furniture, equipment and leasehold
   improvements                                                      (726,105)         (1,665,274)         (1,049,117)
                                                           -------------------------------------------------------------
Net cash used in investing activities                                (879,841)         (9,420,802)        (24,144,893)

Financing activities
Proceeds from issuance of long-term debt                            4,000,000           4,764,872          46,704,761
Repayments of long-term debt                                      (13,335,282)         (5,266,757)        (28,409,437)
Proceeds from issuance of redeemable preferred shares                      -                   -           14,297,812
Proceeds from issuance of common shares                                    -                   -              744,556
Redemption of common shares                                        (1,080,000)           (107,020)         (4,301,103)
Redemption of special common shares                                (1,137,591)                 -                    -
Distributions to shareholders                                      (3,311,717)           (732,087)         (1,158,613)
                                                           -------------------------------------------------------------
Net cash (used in) provided by financing activities               (14,864,590)         (1,340,992)         27,877,976

Net increase (decrease) in cash and cash equivalents                4,164,204            (438,333)         13,590,970
Cash and cash equivalents at beginning of period                   25,890,717          26,329,050          12,738,080
                                                           -------------------------------------------------------------
Cash and cash equivalents at end of period                      $  30,054,921         $25,890,717         $26,329,050
                                                           =============================================================
See accompanying notes.

                                       7
Hobbs Group, LLC

                     Notes to Combined Financial Statements

                                December 31, 2001

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The combined  financial  statements include the accounts of Hobbs Group, LLC and
its  majority-owned  subsidiaries,  Hobbs Group, Inc. (a Texas  corporation) and
Hobbs Group (Canada) Insurance Brokers Ltd. (hereafter  collectively referred to
as the  "Company").  The  Company is engaged in the  insurance  brokerage,  risk
management  and  benefits  consulting  business.  All  significant  intercompany
accounts and transactions have been eliminated in combination.

Hobbs  Group,  LLC is a limited  liability  company  formed  under the  Delaware
Limited Liability Company Act (the "Act") in 1997. Hobbs Group, Inc. is owned by
an employee of that  corporation,  but  controlled  by Hobbs Group,  LLC through
contractual  agreements.  A majority of the voting stock of Hobbs Group (Canada)
Insurance  Brokers Ltd.  ("Hobbs Group (Canada)") is held by a director of Hobbs
Group (Canada).  By written agreement,  a subsidiary of Hobbs Group, LLC has the
right,  among other  things,  to  reacquire  the shares of the director at their
original  cost to the  director and has  retained  operating  control over Hobbs
Group (Canada).

On March 30, 1999, the Company  approved a Second  Amended and Restated  Limited
Liability  Company  Agreement  ("the LLC  Agreement")  which  supersedes the two
previous  agreements  dated  October  20, 1997 and  October  24,  1997.  The LLC
Agreement established five classes of membership interests,  including preferred
shares, with varying voting and economic rights.

Use of Estimates

Preparation of the combined  financial  statements  requires  management to make
estimates  and  assumptions  that  affect the amounts  reported in the  combined
financial  statements and accompanying  notes.  Actual results could differ from
those estimates.

                                       8
1. Basis of Presentation and Significant Accounting Policies (continued)

Cash and Cash Equivalents

All highly  liquid  investments  with  maturities  of three  months or less when
purchased are classified as cash equivalents.

Fiduciary Funds

In its capacity as an insurance  broker,  the Company may collect  premiums from
insureds  and,  after  deducting  its  commissions,  remit the  premiums  to the
respective  insurance  underwriters.  Premiums  which are due from  insureds are
reported as assets and as a corresponding  liability to the insurance  carriers.
Premiums received from insureds but not remitted to the carriers are included in
cash and cash equivalents held in a fiduciary capacity.

Furniture, Equipment and Leasehold Improvements

Furniture,   equipment  and  leasehold   improvements   are  recorded  at  cost.
Depreciation  is  computed  principally  by the  straight-line  method  over the
estimated useful lives (generally three to seven years) of the assets.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets primarily  represent the excess of the cost
over the fair value of net assets acquired.  Generally,  the Company records any
contingent  payments to be made in connection with an acquisition at the date of
the contingent  payment.  Generally,  these assets are being amortized using the
straight-line method over a fifteen-year life.

The  carrying  value of  goodwill  and other  intangible  assets is  continually
evaluated  for  impairment.  If the  undiscounted  cash  flows  estimated  to be
generated by these assets are less than the carrying amounts, an impairment loss
is  recognized.  As of  December  31,  2001,  the  Company  has not  recorded an
impairment loss.

                                       9
1. Basis of Presentation and Significant Accounting Policies (continued)

Income Taxes

Generally,  federal or state income  taxes are not payable by Hobbs Group,  LLC,
because as a limited  liability  company  income taxes are the  liability of the
members,  and  their  respective  pro rata  share of net  income  or net loss is
included in the members' tax returns. The Company has certain entities which are
C-corporations  under the Internal Revenue Code and,  accordingly,  file and pay
federal and state income  taxes.  Income taxes for these  entities are accounted
for using the provisions of Statement of Financial  Accounting  Standards (SFAS)
No. 109, Accounting for Income Taxes. Accordingly,  for these entities, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using current
enacted tax rates.

Long-Term Debt

In  connection  with  obtaining  certain  long-term  financing,  the Company has
incurred  certain loan origination  costs. The loan origination  costs are being
amortized using the effective interest method over the term of the debt.

Revenue Recognition

Commissions are reported net of sub-broker  commissions and are recognized as of
the later of the billing date or effective  date of the insurance  policy except
for  commissions on installment  premiums which are recognized  periodically  as
billed. Any subsequent commission  adjustments,  including policy cancellations,
are  recognized  upon  notification  from  the  insurance  carriers.  Contingent
commissions  represent a profit-sharing  commission from the insurance  carrier,
the amount of which depends on, among other  things,  the  profitability  of the
business  produced by the  agent/broker.  Contingent  commissions are recognized
when received. Fee income is recognized when services are rendered.

Interest income from investments is recognized on the accrual basis.

                                       10
1. Basis of Presentation and Significant Accounting Policies (continued)

Equity Compensation

The  Company  has  elected  to follow  APB 25,  Accounting  for Stock  Issued to
Employees and related  Interpretations in accounting for its equity compensation
and adopted the  disclosure-only  provisions  of SFAS No.  123,  Accounting  for
Stock-Based Compensation.

The Company has issued  equity  capital  securities to key employees for no cash
consideration  which  contain a base price (the value that does not inure to the
holder  of  the  security).   For  these  equity  capital  securities   granted,
compensation  expense is recognized  based on the fair value on the  measurement
date. The measurement  date is the first date both the number of shares that the
employee  is  entitled to receive the shares and the fair value of the shares is
known. Compensation expense is recognized over the vesting period.  Accordingly,
the  Company  has  established  a  deferred  compensation  account to record the
unvested compensation expense. The fair value of these equity capital securities
was  determined  to be from $2.50 per share to $29 per share in 2001,  $2.17 per
share in 2000 and $1.50 per share in 1999.

The Company has also issued equity capital  securities for no cash consideration
which do not  contain a base  price  ("zero-based  capital  securities")  to key
employees and business  advisors.  The Company recognizes  compensation  expense
based on the fair value of the zero-based  capital  securities issued to the key
employees at the date of grant,  and is recognized over the vesting period.  The
unvested  compensation expense is recorded in the deferred compensation account.
The Company records loan  origination fees and equity issuance fees based on the
fair value of the zero-based  capital  securities issued to business advisors at
the date of grant. The fair value of the zero-based  capital  securities granted
in 1999 was determined to be $41.30 per share based on the proceeds  received by
the Company for the redeemable  preferred shares. In 2000, the fair value ranged
from the  $40.00  per share to $46.20 per share  based on the  valuation  of the
Company at the time shares were awarded.  Using the same valuation  technique in
2001,  the fair value  ranged  from  $35.00 per share to $40.00 per share at the
time these shares were awarded.

                                       11
1. Basis of Presentation and Significant Accounting Policies (continued)

Common Share Redemptions

The Company has redeemed certain common shares at amounts in accordance with the
LLC  Agreement.  Common  shares are  reduced  at the stated  value of the shares
redeemed using a specific  identification  method.  Redemption amounts differing
from the stated value are reflected in retained earnings.

Redeemable Preferred Shares and Special Common Shares

In connection with the issuance of the redeemable  preferred shares, the Company
has incurred certain issuance costs. The issuance costs are being amortized into
retained earnings using the straight-line method over a five-year period.

The redeemable  preferred  shares are carried at the current  redemption  amount
less unamortized issuance costs of $316,000 at December 31, 2001 and $457,000 at
December  31,  2000.  The  special  common  shares are  carried  at the  current
redemption  amount.  Adjustments  in the  redemption  amount for the  redeemable
preferred  shares and special common shares are reflected in retained  earnings.
Redemption  amounts  differing  from the stated value are  reflected in retained
earnings.

Foreign Currency Translation

In general,  foreign  revenues and expenses are  translated at average  exchange
rates. Foreign assets and liabilities are translated at year-end exchange rates.
Net  foreign   exchange  gains  and  losses  on  translation   are  reported  in
shareholders' equity.

                                       12
1. Basis of Presentation and Significant Accounting Policies (continued)

Pending Accounting Pronouncements

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards  No.141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible  Assets.  Statement 141 requires that the purchase
method of accounting be used for all business combinations  initiated after June
30, 2001.  Statement 141 also includes  guidance on the initial  recognition and
measurement  of goodwill  and other  intangible  assets  arising  from  business
combinations  completed  after  June  30,  2001.  Statement  142  prohibits  the
amortization  of goodwill and intangible  assets with  indefinite  useful lives.
Statement  142 requires  that these assets be reviewed for  impairment  at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives.

The Company will apply Statement 142 beginning in the first quarter of 2002. The
Company will test goodwill for impairment using the two-step process  prescribed
in Statement 142. The first step is a screen for potential impairment, while the
second step measures the amount of the  impairment,  if any. The Company expects
to perform the first of the required impairment tests of goodwill and indefinite
lived intangible  assets as of January 1, 2002. Any impairment  charge resulting
from these  transitional  impairment  tests will be reflected as the  cumulative
effect of a change in  accounting  principle  in 2002.  The  Company has not yet
determined  what the effect of these tests will be on the earnings and financial
position of the Company.

Reclassifications

Certain  reclassifications  have been made to prior year  balances to conform to
the current year presentation.

                                       13
2. Fair Values

Cash  and  cash  equivalents,  premiums  and  commissions  receivable,  accounts
receivable,  premiums due to insurance  companies,  accounts payable and accrued
expenses, and long-term debt are considered financial instruments.  The carrying
amount for all these items approximates their fair value.

The fair values used to determine the carrying  amount of  redeemable  preferred
shares,  special common  shares,  and the equity  capital  securities  issued as
compensation  to  key  employees  and  business  advisors  was  determined  by a
valuation  consulting  organization that owns  approximately 3% of the Company's
Voting and Nonvoting Common Shares. The fair value of (the Class B Junior Common
Shares) was determined using an option valuation model.

3. Acquisitions, Formations and Dispositions of Subsidiaries

AVA Insurance Agency

On February 1, 1998,  the Company  purchased  certain assets and the business of
AVA Insurance Agency, Inc. ("AVA") for $1,900,000.  A contingent payment, not to
exceed  $1,000,000,  will be payable to AVA should the purchased business exceed
certain financial thresholds over a five-year period.

Westport

On April  1,  1998,  the  Company  acquired  51% of the  outstanding  membership
interests  of  Westport  Worldwide,  LLC  ("Westport").  On November  16,  1999,
Westport's  49%  minority  shareholders  exchanged  their  minority  stake for a
contingent payment based upon future operating results of Westport.  No goodwill
was recorded related to this step acquisition.

                                       14
3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

EBG

On November  17, 1999,  Westport  purchased  certain  assets and the business of
Executive Benefits Group, Inc. and EBG Insurance Agency, Inc. (together, "EBG").
This executive  benefits  consulting  business was purchased for  $16,320,000 in
cash and a contingent  payment  based upon future  operating  results.  Goodwill
established  with this purchase  relating to the excess  purchase price over the
fair  value  of  tangible  net  assets   acquired   amounted  to   approximately
$16,853,000.

Commencing  March 2006 (with  provisions for  acceleration in certain  liquidity
events), the owners of the contingent  obligations associated with the purchases
of Westport and EBG have the right to have the  contingent  payments  calculated
and paid based upon a pre-agreed  formula. If this right had been exercisable at
December 31, 2001,  the  contingent  payments  would have totaled  approximately
$13,119,000.  The  maximum  cash  obligation  associated  with these  contingent
payments  is  $13,800,000,  with  the  Company  retaining  the  right to pay the
remaining amount in cash and/or shares of the Company.

OFJ

On December 1, 1998, the Company, through a series of transactions,  purchased a
66.625%  ownership  interest in  Hobbs/OFJ  Acquisition  Corp ("OFJ  Acquisition
Corp."), which in turn owns 100% of O'Neill, Finnegan & Jordan Insurance Agency,
Inc. ("OFJ"), a benefits consulting organization.

Commencing December 2003, the non-Company  stockholders of OFJ Acquisition Corp.
have  the  right  to  require  OFJ  Acquisition  Corp.  to  purchase  their  OFJ
Acquisition  Corp.  stock  based  on  a  pre-agreed  formula.  Additionally,  in
connection with certain liquidity  events,  OFJ Acquisition Corp. has either the
obligation or the option to exchange the non-Company OFJ Acquisition Corp. stock
for the Company's  equity based on a pre-agreed  formula.  If the put option was
exercised or the exchange  right was triggered on December 31, 2001, the cost to
the  Company to make the  purchase  or  exchange  would have been  approximately
$10,759,000.

                                       15
3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Campbell

On February 1, 1999,  OFJ  purchased  certain  assets and the employee  benefits
consulting business of David J. Campbell for $533,000. Goodwill established with
this  purchase  relating  to the  excess  purchase  price over the fair value of
tangible net assets acquired amounted to approximately $533,000.

Commencing  February  2003,  Mr.  Campbell has the right to receive a contingent
payment  based upon the future  operating  results  of his former  business  and
calculated using a pre-agreed formula. The contingent payments will be paid over
a three-year period.  This contingent amount was calculated to be $1,233,000 and
was recorded  during 2001 as goodwill as the  contingency was determined to be a
liability to Mr. Campbell beyond a reasonable doubt.

Kirklin

On March 31,  1999,  the Company  purchased  certain  assets and the business of
Kirklin  and  Company,   Inc.  ("Kirklin")  for  $1,953,000  in  cash.  Goodwill
established in conjunction with this purchase relating to the excess of purchase
price  over  the  fair  value  of  tangible  net  assets  acquired  amounted  to
approximately $2,039,000.

Mills

On April 15, 1999, the Company, through a series of transactions, purchased 100%
of the  stock of  Timothy  S.  Mills  Insurance  Services,  Inc.  ("Mills")  for
$4,189,000 and a contingent  obligation based upon future operating results. The
purchase price included cash payments of $3,169,000, two subordinated promissory
notes totaling $770,000 and 6,054 Nonvoting Common Shares.  Goodwill established
in conjunction with this purchase relating to the excess purchase price over the
fair  value of the  tangible  net  assets  acquired  amounted  to  approximately
$3,812,000.

                                       16
3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Mills (continued)

Commencing  June 2004 (with  provision  for  acceleration  in certain  liquidity
events),  the  owner of the  contingent  obligation  associated  with the  Mills
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $1,200,000.  The
maximum cash obligation  associated with a contingent payment is $730,000,  with
any remaining amount to be paid in shares of the Company.

Linden

On August 4, 1999, the Company, through a series of transactions, purchased 100%
of the stock of The Linden  Company  ("Linden")  for $5,139,000 and a contingent
obligation based upon future operating results. The purchase price included cash
payments  of  $2,889,000  and  two   subordinated   promissory   notes  totaling
$2,250,000.  Goodwill  established in conjunction with this purchase relating to
the excess  purchase  price over the fair value of tangible net assets  acquired
amounted to approximately $4,967,000.

Commencing  December 2002 (with provisions for acceleration in certain liquidity
events),  the owner of the  contingent  obligation  associated  with the  Linden
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $1,767,000.  The
maximum cash obligation associated with a contingent payment is $1,100,000, with
the Company retaining the right to pay any remaining amount in cash or shares of
the Company.

Integrated Risk

On September 1, 1999, the Company purchased the remaining 49% ownership interest
of  Integrated  Risk  Solutions  Insurance  Services,  LLC  ("Integrated  Risk")
previously owned by its joint venture partner for $421,000 in cash.  During 2000
and 2001,  the Company  made  additional  contingent  payments  of $300,000  and
$104,000,  respectively,  to its former joint  venture  partner  pursuant to the
purchase agreement.  Goodwill  established as a result of this purchase amounted
to  approximately  $276,000,  $300,000  and  $104,000 in 1999,  2000,  and 2001,
respectively.

                                       17
3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Pro-Form

On June 30, 1999, the Company disposed of its 51% majority ownership of Pro-Form
Insurance Services,  Inc. for $1,253,000 in cash. The transaction  resulted in a
gain totaling $502,000 and is recorded in other revenues.

JTK

On April 1, 2000, the Company  purchased certain assets and the business of JTK,
LLC ("JTK"), a benefits consulting organization,  for $4,570,000 in cash, 10,811
Nonvoting Common Shares and a contingent  obligation based upon future operating
results. Goodwill established with this purchase relating to the excess purchase
price  over  the  fair  value  of  tangible  net  assets  acquired  amounted  to
approximately $5,249,000.

Commencing  March 2007 (with  provisions for  acceleration in certain  liquidity
events),  the  owner  of the  contingent  obligation  associated  with  the  JTK
transaction  has the right to have the  contingent  payment  calculated and paid
based upon a pre-agreed  formula. If this right had been exercisable at December
31, 2001, the contingent payment would have been approximately  $2,109,000.  The
maximum cash obligation associated with a contingent payment is $3,380,000, with
the Company retaining the right to pay any remaining amount in cash or shares of
the Company.

Other 2000 Acquisitions

During  2000,  the Company made several  additional  acquisitions.  The purchase
prices  of these  acquisitions  totaled  $2,629,000  in cash  and also  included
contingent obligations based upon future operating results. Goodwill established
with these  purchases  relating to the excess purchase price over the fair value
of tangible net assets acquired amounted to approximately $2,854,000.

The contingent  obligations associated with these acquisitions became payable at
various times beginning  August 2001.  Payments  totaling  $120,000 were paid in
2001. If the contingent  obligations  had been payable at December 31, 2001, the
contingent payments would have totaled approximately $792,000.

                                       18
3. Acquisitions, Formations and Dispositions of Subsidiaries (continued)

Other 2000 Acquisitions (continued)

All of the acquisitions have been accounted for as purchases,  and the financial
position  and  results of  operations  are  included in the  combined  financial
statements from their respective date of purchase. Substantially all of the cash
payments and share  issuances  required to be made in the future relating to the
contingent obligations will result in additional goodwill at the time of payment
or issuance.  Generally,  cash payments made in connection with the acquisitions
were financed by long-term debt or redeemable  preferred  share  issuances.  The
purchase price  allocations  were finalized  within one year of the  acquisition
date.

4. Long-Term Debt

A summary of long-term debt is as follows:
December 31
                                                                        2001                 2000
                                                                -----------------------------------------
Term note, final payment April 1, 2002 with interest at prime
   plus 2% (6.75% at December 31, 2001)
                                                                    $ 13,333           $      53,333
Debentures, due August 4, 2002 with interest at 7%
                                                                   1,250,000               1,250,000
Debentures, due December 1, 2003 with interest at 10.5%
                                                                   1,910,000               1,910,000
Debenture, due in quarterly installments through January 31,
   2003 with interest at 8%                                          403,564                 698,846
Debentures, due in 2004 with interest at 8%                          770,000                 770,000
Bank of America revolving credit agreement                        39,500,000              48,500,000
Less loan origination costs                                         (525,419)               (754,148)
                                                                -----------------------------------------
                                                                  43,321,478              52,428,031
Less current portion                                               6,520,456                 335,282
                                                                -----------------------------------------
                                                                 $36,801,022             $52,092,749
                                                                =========================================
19
4. Long-Term Debt (continued)

The 10.5%  Debentures  are  secured by certain  current  and future  assets of a
subsidiary  of the  Company.  Interest  is payable  monthly on the first of each
month.  The Company may pre-pay this  debenture at any time prior to maturity at
103%  of the  face  value  plus  accrued  and  unpaid  interest  to the  date of
redemption.  Additionally, the 10.5% Debentures may be converted by the holders,
at any time before  redemption or maturity,  into the  Company's  equity at fair
market value at the date of conversion.

The 8% Debenture is secured by certain current and future assets of a subsidiary
of the Company.  Principal  and  interest  are paid in 20 quarterly  consecutive
equal  installments  of $86,000  until  maturity.  The  Company  may pre-pay the
principal balance at any time without penalty.

For the remaining debentures, accrued interest is payable quarterly, annually or
at maturity  based on the terms of the  respective  agreements.  The Company may
pre-pay  these  debentures  at any time  prior to  maturity  at face  value plus
accrued and unpaid interest to the date of redemption.

In August 1999 the Company  entered into a new  revolving  credit  facility with
Bank of America and First Union  National  Bank ("Bank of America")  for a total
commitment  of  $50,000,000.  In March 2000,  the  commitment  was  increased to
$60,000,000   with  the  addition  of  Wachovia  Bank,  N.A.  The  total  amount
outstanding  under this  facility at December 31, 2001 and 2000 was  $39,500,000
and  $48,500,000,  respectively.  Approximately  $29,600,000 of the  outstanding
amount was used during 1999 to pre-pay the  outstanding  balance on a term loan.
This  pre-payment  resulted in the  recognition  of a  $1,381,000  extraordinary
charge related to unamortized loan origination costs and pre-payment penalties.

Based on the  Company's  current  outstanding  balance under the Bank of America
revolving credit facility,  quarterly  installments are due starting in November
2002,  with a final payment due February  2004.  The interest rate is determined
either as a function of LIBOR (30, 60, 90 and 120 days) or a base rate published
by Bank of  America  (resembling  the  prime  rate).  The  interest  rate on the
outstanding  balance  at  December  31,  2001  and  2000  was  5.2%  and  10.3%,
respectively.

                                       20
4. Long-Term Debt (continued)

In addition to the interest expense related to the outstanding debt, the Company
also pays a  commitment  fee  ranging  from 25 to 75 basis  points on any unused
portion of the Bank of America  facility.  The rate used in determining this fee
ranged from 50 to 75 basis points in 2001, and was 75 basis points in 2000.

The scheduled maturities of debt are as follows:

                                                   Long-Term
                                                      Debt
                                             ---------------------

                          2002                  $     6,520,456
                          2003                       21,743,941
                          2004                       15,582,500
                          2005                                -
                          2006                                -
                                             ---------------------
                                                    $43,846,897
                                             =====================

Total interest paid was  $4,330,000, $5,332,000 and $3,126,000 in 2001, 2000 and
1999, respectively.

                                       21
5. Income Taxes

The provision  for income taxes for the taxpaying  entities of the Company is as
follows:

                       2001              2000                 1999
                ------------------------------------------------------------

  Current:
     Federal        $1,182,000         $ 628,000             $298,000
     State             174,000           337,000               45,000
     Foreign                 -                 -              239,000

  Deferred:
     Federal            48,000          (132,000)              54,000
     State             (14,000)          (18,000)               8,000
                -----------------------------------------------------------
                    $1,390,000         $ 815,000             $644,000
                ===========================================================

The following table summarizes the principal  elements which cause the effective
tax rate to vary from the statutory corporate rate for the Company's  tax-paying
entities:

                                                         2001
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------

   Income tax on income before income taxes    $   995,000            34.0%
   Effect of state taxes                           122,000             4.2%
   Effect of permanent items                       273,000             9.3%
                                        ---------------------------------------
   Income tax expense                           $1,390,000            47.5%
                                        =======================================

                                       22
5. Income Taxes (continued)

                                                         2000
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------

   Income tax on income before income taxes      $249,000             34.0%
   Effect of state taxes                           25,000              3.4%
   Effect of permanent items                      303,000             41.3%
                                        ---------------------------------------
   Income tax expense                            $577,000             78.7%
                                        =======================================

                                                         1999
                                        ---------------------------------------
                                        ---------------------------------------
                                                              Percent of Income
                                              Income Tax        Before Income
                                               Expense              Taxes
                                        ---------------------------------------

    Income tax on income before income taxes     $193,000             34.0%
    Effect of state taxes                          35,000              6.2%
    Effect of permanent items                     246,000             43.4%
    Effect of other items                         113,000             19.9%
    Effect of foreign taxes                        57,000             10.0%
                                        ---------------------------------------
    Income tax expense                           $644,000            113.5%
                                        =======================================

In addition to the foregoing,  Hobbs Group, LLC recorded $238,000 in tax expense
in 2000 relating to amounts payable to certain  states.  Total income taxes paid
in 2001, 2000 and 1999 were $1,256,000, $1,258,000 and $303,000, respectively.

                                       23
6. Employee Benefit Plans

At December  31, 2001 and 2000,  the  Company had one 401(k)  Savings  Plan (the
"401(k)  Plan"),  a qualified cash and deferred profit sharing plan covering all
employees meeting certain  eligibility  requirements.  At December 31, 1999, the
Company had five such plans.  The Company  provides a matching  contribution  of
100%  of  the  participants'  contributions  up to a  maximum  of  4.5%  of  the
participants' annual compensation.

Certain key executive  employees of the Company are eligible to  participate  in
the Hobbs Group, LLC Executive Officers Non-Qualified Deferred Compensation Plan
(the  "Deferred   Compensation  Plan").  The  Deferred   Compensation  Plan  was
established to provide unfunded non-qualified deferred compensation for a select
group  of  management   and  other  highly   compensated   employees.   Eligible
participants may elect to defer no more than 6% of their  compensation in excess
of the  compensation  limitations  of the  Internal  Revenue  Code.  The Company
provides  a dollar for  dollar  matching  contribution  provided  that  combined
matching  contributions under the 401(k) Plan and the Deferred Compensation Plan
do not exceed 5% of the participants' annual compensation.

Expenses recognized by the Company relating to the 401(k) Plans and the Deferred
Compensation  Plan were  approximately  $1,332,000,  $1,051,000 and $907,000 for
2001, 2000, and 1999, respectively.

The Company also provides for other post retirement benefits other than pensions
under a  terminated  plan for 7 employees  of the Company  that are fully vested
under this plan.  The total  liability  for these post  retirement  benefits was
$586,000 at December 31, 2001 and $500,000 at December 31, 2000.

                                       24
7. Preferred Equity

Redeemable Preferred Shares

During March 1999,  the Company issued 363,196  preferred  membership  interests
("Redeemable  Preferred  Shares")  at a  purchase  price of  $41.30  per  share,
resulting in gross proceeds of $14,999,995. As of December 31, 2001, the holders
of the Redeemable Preferred Shares are entitled to voting privileges  equivalent
to approximately 98,670 Voting Common Shares which, when combined with the total
Voting Common Shares represents 22.1% of the voting rights of the Company. These
preferred shares are redeemable no earlier than March 30, 2004 at the request of
at least a majority of the preferred  shareholders.  The Company is obligated to
redeem  these  shares not less than 180 days from the date of the  request,  but
such  obligation is subordinate to the Company's  debt  obligation  with Bank of
America. The redemption price, which is to be paid in cash, shall be the greater
of the fair market value per share as of the date of the request or the original
purchase price per share plus a 20% annual compound rate of return. In the event
of a  liquidation,  dissolution  or winding up of the  Company,  the  holders of
preferred  shares  shall be  entitled  to be paid first out of the assets of the
Company at an amount equal to the redemption price defined above. The holders of
preferred  shares also have conversion  rights with respect to the conversion of
preferred  shares into voting  shares.  The number of voting  shares a holder of
preferred  shares is entitled to receive is the applicable  conversion  rate, as
defined in the LLC Agreement,  multiplied by the number of preferred  shares. In
the event of default (noncompliance) as defined in the "Preferred Share Purchase
Agreement" dated March 23, 1999, the preferred  shareholders may remove three of
the five management  directors,  and replace these vacancies with individuals of
their choice. Directors shall then use their best efforts to remedy the event of
noncompliance.

As of March 30 for each of the stated years,  the minimum  aggregate  redemption
amounts are as follows:

                2002                           $25,920,000
                2003                            31,104,000
                2004                            37,325,000

                                       25
7. Preferred Equity (continued)

Special Common Shares

Special Common Shares are entitled to normal  distributions  in accordance  with
the LLC  Agreement  and do not have the  right to vote on any  matter  except as
required by the Act. Under certain  circumstances,  the capital  account balance
attributable  to each  Special  Common  Share will be reduced by a maximum of $5
upon liquidation.  On October 24, 1997, 50,000 Special Common Shares were issued
to  Bank of  America  (formerly  NationsCredit)  representing  $500,000  of loan
origination costs.

During 2001, 42,133 of the Special Common Shares were redeemed at $27 per share.
In addition, Bank of America transferred ownership of the remaining 7,867 shares
to two former employees of Bank of America.  Commencing  October 2002, these two
individuals  have the right to require the Company to purchase the 7,867 Special
Common  Shares  at  the  fair  value  (as  defined)  of  the  Company's  equity.
Additionally,  commencing October 2003, the Company has the option to repurchase
the Special Common Shares at 110% of the fair value of the Company's equity.

8. Shareholders' Equity (Deficit)

Under the Company's LLC Agreement, as of December 31, 2001, Hobbs Group, LLC had
three classes of membership  interests classified as shareholders' equity in the
accompanying  financial  statements.  The classes are divided between voting and
nonvoting  classes.  Voting shares are shares directly held by certain  employee
Directors of the Company. Voting shares have the right to vote on all matters on
which  the  members  are  entitled  to  vote  pursuant  to the  Act  and the LLC
Agreement.  The income tax consequences for the shareholders  related to each of
the  classes of  membership  equity vary based on the  initial  capital  account
balances at time of issuance.

                                       26
8. Shareholders' Equity (Deficit) (continued)

Common Shares

Common Shares are shares entitled to normal distributions in accordance with the
LLC Agreement,  and have been purchased for cash or property at the then current
fair market value.  The initial  capital account balance of the Common Shares is
equal to the purchase price paid.

Class A Junior Common Shares

Class A  Junior  Common  Shares  ("Class  A  Shares")  are  entitled  to  normal
distributions in accordance with the LLC Agreement.  The initial capital account
balance of the Class A Shares is zero.  During 2001,  52,852 Class A Shares were
transferred  from  a  Director  of  the  Company  with  voting  privileges  to a
non-Director without voting privileges pursuant to the LLC Agreement.

Class B Junior Common Shares

Class B  Junior  Common  Shares  ("Class  B  Shares")  are  entitled  to  normal
distributions in accordance with the LLC Agreement.  The initial capital account
balance of the Class B Shares upon issuance is zero.  During 2001, 2,273 Class B
Shares were transferred from a Director of the Company with voting privileges to
a non-Director without voting privileges pursuant to the LLC Agreement.

Hobbs Group, Inc. and Hobbs Group (Canada)

Hobbs  Group,  Inc.  (a Texas  corporation)  has 1,000  shares  of common  stock
outstanding  with a par value of $1 per share and Hobbs  Group  (Canada)  has 29
shares of common stock outstanding with a par value of $1 per share.

                                       27
8. Shareholders' Equity (Deficit) (continued)

A summary of the activity for each class of  membership  interest as reported in
the  accompanying  financial  statements as of December 31, 2001,  2000 and 1999
follows:
Common Shares
                                             ------------------------------------------------------------------------
                                                           Voting                             Non-Voting
                                                  Shares            Value             Shares            Value
                                             ------------------------------------------------------------------------
Balance at January 1, 1999                            36,799       $ 367,990            558,280        $5,582,800
   Issued during 1999                                      -               -             24,082           994,587
   Redeemed during 1999 ($41.30/share)               (36,799)       (367,990)           (21,418)         (214,180)
                                             ------------------------------------------------------------------------
Balance at December 31, 1999                               -               -            560,944         6,363,207
   Issued during 2000                                      -               -             12,433           575,026
   Redeemed during 2000 ($27.02/share)                     -               -             (2,100)          (21,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 2000                               -               -            571,277         6,917,233
   Redeemed during 2001 ($27/share)                        -               -            (40,000)         (400,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 2001                               -      $        -            531,277        $6,517,233
                                             ========================================================================

                                                                   Class A Junior Common Shares
                                             ------------------------------------------------------------------------
                                                           Voting                            Non-Voting
                                                  Shares            Value             Shares            Value
                                             ------------------------------------------------------------------------

Balance at January 1, 1999                         379,666        $3,796,660            129,500        $1,295,000
   Issued during 1999                                    -                 -             87,297         3,605,366

   Redeemed during 1999 ($41.30/share)             (38,901)         (389,010)            (6,500)          (65,000)

   Forfeited during 1999                                 -                 -             (5,000)          (50,000)
                                             ------------------------------------------------------------------------
Balance at December 31, 1999                       340,765         3,407,650            205,297         4,785,366
   Issued during 2000                                    -                 -             20,340           937,600

   Redeemed during 2000 ($32.38/share)                   -                 -             (6,211)         (100,015)

   Forfeited during 2000                                 -                 -             (3,300)         (136,290)
                                             ------------------------------------------------------------------------
Balance at December 31, 2000                       340,765         3,407,650            216,126         5,486,661
   Issued during 2001                                    -                 -             12,818           502,005
   Transferred during 2001                         (52,852)         (528,520)            52,852           528,520

   Redeemed during 2001 ($28/share)                      -                 -               (606)          (25,027)
                                             ------------------------------------------------------------------------
Balance at December 31, 2001                       287,913        $2,879,130            281,190        $6,492,159
                                             ========================================================================
28
8. Shareholders' Equity (Deficit) (continued)
Class B Junior Common Shares
                                        -------------------------------------------------------------------
                                                       Voting                         Non-Voting
                                             Shares             Value           Shares          Value
                                        -------------------------------------------------------------------
Balance at January 1, 1999                          -        $         -                -     $          -
   Issued during 1999                          21,064             31,575           48,500           72,693
                                        -------------------------------------------------------------------
Balance at December 31, 1999                   21,064             31,575           48,500           72,693
   Issued during 2000                               -                  -           49,500          107,415
   Forfeited during 2000                            -                  -           (9,100)         (15,996)
                                        -------------------------------------------------------------------
Balance at December 31, 2000                   21,064             31,575           88,900          164,112
   Issued during 2001                          40,177          1,165,133           10,000           25,000
   Transferred during 2001                     (2,273)            (3,410)           2,273            3,410
                                        -------------------------------------------------------------------
Balance at December 31, 2001                   58,968          1,193,298          101,173          192,522
                                        -------------------------------------------------------------------
Total all classes at December 31, 2001        346,881         $4,072,428          913,640      $13,201,914
                                        ===================================================================
A summary of the  impact of the  preceding  activity  on  compensation  expense,
acquisition  costs and equity  issuance  costs  related to  membership  interest
issuances is as follows:

                  Year        Compensation     Acquisition       Equity
                                Expense           Costs      Issuance Costs
             -----------------------------------------------------------------

                  1999          $2,623,000      $1,130,000      $200,000
                  2000             539,000         500,000             -
                  2001             889,000               -             -

Share  issuances and forfeitures for Class A Shares and Class B Shares relate to
compensation for key employees,  except for 26,150 Class A Shares issued in 1999
which relate to acquisition and equity issuance costs.

No member of the Company is obligated  personally  for any debt,  obligation  or
liability  of the  Company or of any other  member,  solely by reason of being a
member of the  Company.  No member  has any  fiduciary  or other duty to another
member with  respect to the business and affairs of the Company and no member is
liable to the Company or any other member for acting in good faith reliance upon
the provisions of the Company's LLC Agreement.  No member has any responsibility
to restore any negative balance in its capital account or to contribute to or in
respect  of  the  liabilities  or  obligations  of  the  Company  or  to  return
distributions made by the Company.

                                       29
9. Equity Compensation

The Company grants Class A Shares and Class B Shares to certain key employees as
compensation.  Generally,  each class of shares vests over a period ranging from
two to four years and is subject to forfeiture upon termination of service.  The
base price for all Class B Shares granted in 2001 was $41.00 per share,  in 2000
the range was $40.00 to $46.25 per share and in 1999 was $41.30.  The base price
for Class A Shares granted is zero.

At December 31, 2001,  9,949 of the Class A Shares remain  subject to forfeiture
with a weighted  average  remaining  contractual  life of 2.6 years,  and 90,458
Class B Shares remain subject to forfeiture  with a weighted  average  remaining
contractual life of 2.8 years.

The fair value  method  utilized  to account  for the Class A Shares and Class B
Shares  granted in 2001,  2000, and 1999  approximates  the Minimum Value method
prescribed  by SFAS No. 123 with the  following  weighted  average  assumptions:
risk-free  interest rate of 4.46%;  expected  vesting  period of 4 years;  and a
dividend yield of 0%.

10. Related Party Transactions

At  December  31,  2001 and 2000,  the  Company  had loans  receivable  due from
officers of the Company totaling $90,000 and $39,000, respectively. Additionally
at December 31, 2001, the Company had $119,000 due from other employees.

                                       30
11. Commitments and Contingencies

The Company is involved in various legal  actions  incident to the nature of its
business.  The Company maintains a program of commercial insurance to lessen its
exposure  to  such  actions.  Management  is of the  opinion  that  none  of the
litigation  will have a material effect on the Company's  financial  position or
operating results.

The Company has entered into various agreements to lease office space and office
equipment using operating leases expiring on various dates through October 2007.
Total  rental  expense  for all  operating  leases  for 2001,  2000 and 1999 was
$3,364,000,  $2,941,000  and  $2,180,000,  respectively.  Future  minimum  lease
payments for all non-cancelable operating leases with initial or remaining terms
in excess of one year are as follows:

        2002                                             $2,922,000
        2003                                              2,297,000
        2004                                              1,761,000
        2005                                              1,067,000
        2006 and thereafter                                 446,000
                                                    ---------------
                                                         $8,493,000
                                                    ===============

Amounts in the above schedule are shown gross of any sub-leases.

                                       31
Hobbs Group, LLC

                          Combined Financial Statements

                     Quarters ended March 31, 2002 and 2001
                                   (Unaudited)

                                    Contents

Combined Balance Sheets....................................................33-34
Combined Statements of Operations.............................................35
Combined Statements of Cash Flows.............................................36
Notes to Combined Financial Statements.....................................37-39

                                       32
Hobbs Group, LLC

                             Combined Balance Sheets
(Unaudited)
                                                                    3/31/2002            12/31/2001
                                                                  ---------------------------------
Assets
Current assets:
   Cash and cash equivalents                                        $    5,433,795     $    6,155,350
   Cash and cash equivalents held in a fiduciary capacity               16,948,310         23,899,571
   Premiums and commissions receivable, less allowance for
     doubtful accounts - (2002 - $609,000; 2001 - $589,000)             46,818,263         61,027,107
   Accounts receivable                                                     748,194            987,813
   Prepaid assets                                                        1,109,716            986,015
   Income taxes receivable                                                       -                  -
                                                                  -----------------------------------
Total current assets                                                    71,058,278         93,055,856

Investments                                                                 68,843             68,843
Furniture, equipment and leasehold improvements, less
   accumulated depreciation - (2002 - $4,482,000; 2001 -
   $4,166,000)                                                           2,388,864          2,567,818
Goodwill and other intangible assets, less accumulated
   amortization - (2002 - $16,845,000; 2001 - $16,838,000)              63,348,986         63,355,545
Other assets                                                               502,916            555,852

                                                                  -----------------------------------
Total assets                                                          $137,367,887       $159,603,914
                                                                  ===================================
33
(Unaudited)
                                                                    3/31/2002            12/31/2001
                                                                  ---------------------------------
Liabilities and shareholders' deficit
Current liabilities:
   Premiums due to insurance companies                              $   52,764,915     $   69,016,144
   Commissions expense payable                                           2,237,513          3,441,127
   Accounts payable and accrued expenses                                 7,993,311         12,989,980
   Income taxes payable                                                    183,091             39,292
   Current portion of long-term debt                                    10,704,348          6,520,456
   Unearned commission income                                            2,402,629          2,439,365

                                                                  -----------------------------------
 Total current liabilities                                              76,285,807         94,446,364

Long-term debt, less current portion                                    29,586,764         36,801,022
Other long-term liabilities                                              1,891,067          2,536,830
                                                                  -----------------------------------
Total liabilities                                                      107,763,638        133,784,216

Minority interests                                                         472,728            436,697

Commitments and contingencies

Redeemable preferred shares;  no par value:
   Issued and outstanding shares - (2002 -
     363,196; 2001 - 363,196)                                           29,588,327         25,819,567
Special common shares;  no par value:
   Issued and outstanding shares - (2002 - 7,867;
     2001 - 7,867)                                                         629,360            550,690

Shareholders' deficit:
   Voting common shares; no par value:
     Issued and outstanding shares - (2002 - 359,640; 2001 -
       346,881)                                                          4,072,428          4,072,428
   Nonvoting common shares, no par value:
     Issued and outstanding shares - (2002 - 940,569; 2001 -
       913,640)                                                         13,406,943         13,201,914
   Texas and Canada common shares, $1 par value:
     Issued and outstanding shares - (2002 - 1,029; 2001 -
       1,029)                                                                1,029              1,029
   Additional paid-in-capital                                                1,000              1,000
   Accumulated other comprehensive income                                    3,279             13,276
   Deferred compensation                                                (1,242,724)        (1,384,339)
   Retained earnings (deficit)                                         (17,328,121)       (16,892,564)

                                                                  ------------------------------------
   Total shareholders' deficit                                          (1,086,166)          (987,256)
                                                                  ------------------------------------
Total liabilities and shareholders' deficit                           $137,367,887       $159,603,914
                                                                  ====================================
See accompanying notes.

                                       34
Hobbs Group, LLC

                        Combined Statements of Operations

                                                  (Unaudited)
                                             Quarter ended March 31,
                                            2002                2001
                                    ----------------------------------------

Revenues:
   Net commissions and fees                $24,607,326         $21,490,779
   Interest income                             138,330             315,045
   Other                                        52,272              76,821
                                    ----------------------------------------
                                            24,797,928          21,882,645

Operating expenses:
   Employee compensation and benefits       13,994,421          13,175,159
   Travel and entertainment expense          1,128,780           1,061,641
   Management, legal and accounting services   670,517             565,926
   Office equipment leases and supplies        475,704             461,184
   Rent and utilities                        1,318,234           1,154,724
   Other                                       927,077             715,778

                                     ----------------------------------------
                                            18,514,733          17,134,412
                                     ----------------------------------------
                                             6,283,195           4,748,233

Other expenses:
   Interest expense                            815,016           1,280,121
   Depreciation                                316,255             261,998
   Amortization of goodwill
     and other intangible assets                 6,175           1,274,270

                                     ----------------------------------------
Income before income taxes and
  minority interests                         5,145,749           1,931,844
Income tax expense                             174,703             153,229
                                     ----------------------------------------
Income before minority interests             4,971,046           1,778,615
Minority interests                              36,031              59,752
                                     ----------------------------------------
Net income                                  $4,935,015          $1,718,863
                                     ========================================

See accompanying notes.

                                       35
Hobbs Group, LLC

                        Combined Statements of Cash Flows
(Unaudited)
                                                                   Quarter ended March 31,
                                                                  2002                2001
                                                           ----------------------------------------
Operating activities
Net income                                                      $   4,935,015       $   1,718,863
Adjustments to reconcile net income to net cash provided
   by operating activities:
     Depreciation and amortization                                    322,430           1,449,560
     Minority interests - net of distributions                         36,031              59,752
     Expenses related to share issuance                               141,615              79,374
     Amortization of debt issuance costs                               57,182              60,957
     Changes in operating assets and liabilities:
       Premiums and commissions receivable                         14,208,843           2,906,203
       Prepaid assets                                                (123,701)           (208,719)
       Accounts receivable                                            239,620              35,763
       Premiums due to insurance companies                        (16,251,230)         (8,522,631)
       Commissions expense payable                                 (1,203,613)            490,949
       Accounts payable and accrued expenses                       (5,172,920)            234,542
       Other assets and other liabilities                            (114,736)           (307,892)

                                                           ----------------------------------------
Net cash used in operating activities                              (2,925,464)         (2,003,279)

Investing activities
Purchase of furniture, equipment and leasehold
   improvements                                                      (137,301)           (130,905)

                                                           ----------------------------------------
Net cash used in investing activities                                (137,301)           (130,905)

Financing activities
Proceeds from issuance of long-term debt                                   -            4,000,000
Repayments of long-term debt                                       (3,087,548)         (4,581,642)
Proceeds from issuance of common shares                                     -              60,000
Distributions to shareholders                                      (1,522,503)            (70,733)
                                                           ----------------------------------------
Net cash used in financing activities                              (4,610,051)           (592,375)

Net decrease in cash and cash equivalents                          (7,672,816)         (2,726,559)
Cash and cash equivalents at beginning of period                   30,054,921          25,890,717
                                                           ----------------------------------------
Cash and cash equivalents at end of period                      $  22,382,105         $23,164,158
                                                           ========================================
See accompanying notes.

                                       36
Hobbs Group, LLC

          Notes to Combined Quarter Ended Interim Financial Statements
                                 March 31, 2002
                                   (Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited combined financial statements of Hobbs Group, LLC and
its  majority-owned  subsidiaries,  Hobbs Group, Inc. (a Texas  corporation) and
Hobbs Group (Canada)  Insurance Brokers Ltd. (the Company) have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information.  Accordingly,  they  do not  include  all of  the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been  included.  Operating  results for the three month  period  ended March 31,
2002, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.

NOTE B - INTANGIBLE ASSETS

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards No. 141, "Business  Combinations  (Statement 141)
and No. 142, "Goodwill and Other Intangible  Assets" (Statement 142).  Statement
141 requires  that the purchase  method of  accounting  be used for all business
combinations initiated after June 30, 2001. Statement 141 also included guidance
on the initial  recognition  and  measurement  of goodwill and other  intangible
assets arising from business  combinations  completed after June 30, 2001. Under
Statement  142,  goodwill  is no  longer  amortized,  but is  subject  to annual
impairment  tests.  Intangible  assets  with  finite  lives will  continue to be
amortized over their useful lives.

The Company adopted Statement 142 effective January 1, 2002.

The  Company  will test  goodwill  for  impairment  using the  two-step  process
prescribed  in  Statement  142.  The  first  step  is  a  screen  for  potential
impairment, while the second step measures the amount of the impairment, if any.
The Company does not anticipate  these tests will have a material  impact on the
earnings or financial  position of the Company as a result of the acquisition of
the Company by Hilb, Rogal and Hamilton Company (see Note C).

                                       37
NOTE B--INTANGIBLE ASSETS  - Continued

The following  table  provides a  reconciliation  of the March 31, 2002 and 2001
reported net income to adjusted net income had  Statement 142 been applied as of
January 1, 2001:

                                            For the Three Months Ended March 31,
                                                  2002             2001
                                                  ----             ----
       Net income - as reported                $4,935,015        $1,718,863
       Goodwill amortization, net of tax          -               1,255,209

                                               ---------------------------------
       Adjusted net income                     $4,935,015        $2,974,072
                                               =================================

Intangible assets consist of the following:
As of March 31, 2002              As of December 31, 2001
                                              --------------------              -----------------------
Gross Carrying     Accumulated      Gross Carrying   Accumulated
                                                Amount         Amortization         Amount       Amortization
      Amortizable intangible assets:
         Expirations                              $122,244         $36,539          $122,244         $33,489
         Non-compete agreement                      50,408          50,408            50,408          47,283
         Other intangible assets                 1,290,000       1,290,000         1,290,000       1,290,000

      Indefinite-lived intangible
         assets:
         Goodwill, net                         $63,263,281                       $63,263,665
Aggregate  amortization  expense for the three  months  ended March 31, 2002 and
2001 was $6,175 and $1,274,000, respectively.

                Estimated amortization expense:
                    For year ended December 31, 2002                     $14,451
                    For year ended December 31, 2003                      11,326
                    For year ended December 31, 2004                      11,326
                    For year ended December 31, 2005                      11,326
                    For year ended December 31, 2006                      11,326

The changes in the net  carrying  amount of goodwill  for the three months ended
March 31, 2002 are as follows:

                Balance as of December 31, 2001                     $63,263,665
                Accumulated Amortization adjustment                        (384)
                                                                ----------------
                Balance as of March 31, 2002                        $63,263,281
                                                                ================

                                       38
NOTE C - SIGNIFICANT CHANGES AND EVENTS

On May 10, 2002,  the Company  signed a  definitive  agreement to be acquired by
Hilb,  Rogal and Hamilton,  Inc.  (HRH);  a Virginia based  insurance  brokerage
company.  The  transaction  closed on July 1, 2002.  At  closing,  HRH paid $142
million in a combination of cash and stock for the Company.  An additional  $102
million will be paid contingent  upon the Company  attaining  certain  financial
performance goals within the next two years.  Also, HRH assumed certain existing
earnouts from the Company's prior  acquisitions,  estimated to approximate a net
present value of $30 million. The closing payment of $142 million included HRH's
assumption,  and subsequent retirement of, approximately $55 million in debt and
merger related expenses.

NOTE D - COMPREHENSIVE INCOME

The following table identifies the components of comprehensive  net income,  net
of tax, for the periods ended March 31, 2002 and 2001, respectively.

                                                      2002           2001
                                                      ----           ----
         Net income                                $4,935,015    $1,718,863
         Foreign currency translation                  (9,997)      (66,659)
                                                -------------- -------------
             Comprehensive income, net of tax      $4,925,018    $1,652,204
                                                ============== =============

At March 31, 2002 and December 31, 2001, the sole component of accumulated other
comprehensive income is foreign currency translation.

NOTE E - CONTINGENCIES

The Company is involved in various legal  actions  incident to the nature of its
business.  The Company maintains a program of commercial insurance to lessen its
exposure  to  such  actions.  Management  is of the  opinion  that  none  of the
litigation  will have a material effect on the Company's  financial  position or
operating results.

                                       39
(b)      Pro Forma Financial Information.

             HILB, ROGAL AND HAMILTON COMPANY, INC. AND SUBSIDIARIES
                PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                                   (Unaudited)

         The following unaudited Pro Forma Condensed  Combined Balance  Sheet as
of March 31, 2002 and the unaudited Pro Forma Condensed  Combined  Statements of
Income for the three months ended March 31, 2002 and the year ended December 31,
2001 (the "Pro  Forma  Financial  Statements")  are  based  upon the  respective
financial  statements of the Company and of Hobbs. The acquisition of Hobbs will
be accounted for under the purchase  method of accounting in accordance with the
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations."  Under the purchase  method of accounting,  the purchase price is
allocated  to the  assets  acquired  and  liabilities  assumed  based  on  their
estimated  fair  values.   The  estimated  fair  values   contained  herein  are
preliminary  in nature,  and may not be indicative of the final  purchase  price
allocation,  which will be based on an  assessment of fair value to be performed
by an independent  appraiser.  Such preliminary  estimates of fair values of the
assets and liabilities of Hobbs have been  consolidated with the recorded values
of the  assets  and  liabilities  of the  Company  in the  Pro  Forma  Financial
Statements.  Since the purchase  accounting  information is preliminary,  it has
been solely  prepared for the purpose of  developing  such  unaudited  pro forma
combined  condensed  financial  information.  SFAS No. 142,  "Goodwill and Other
Intangible Assets", provides that goodwill resulting from a business combination
completed  subsequent  to June 30,  2001 will not be  amortized  but  instead is
required to be tested for impairment at least annually.

         The  consolidated  financial  statements  of the  Company for the three
months ended March 31, 2002 were filed with the  Company's  Quarterly  Report on
Form  10-Q for the  three  months  ended  March  31,  2002 on May 9,  2002.  The
consolidated financial statements of the Company for the year ended December 31,
2001 were filed with the Company's Annual Report on Form 10-K for the year ended
December  31, 2001 on March 29,  2002.  The  financial  statements  of Hobbs are
included  in this  current  report.  See "Item  7(a),  Financial  Statements  of
Businesses Acquired."

         The Pro Forma Condensed  Combined Balance Sheet as of March 31, 2002 is
presented as if the  Acquisition  had occurred on March 31, 2002.  The Pro Forma
Condensed  Combined  Statements  of Income for the three  months ended March 31,
2002 and the year ended  December 31, 2001 are  presented as if the  Acquisition
had occurred on January 1, 2001.

         The Pro  Forma  Financial  Statements  are  presented  for  comparative
purposes only and are not  necessarily  indicative of what the actual  financial
position  of the Company  would have been at March 31, 2002 had the  Acquisition
occurred at that date or of what the actual  results of the  Company  would have
been if the  Acquisition  had occurred on January 1, 2001 nor  indicative of the
results of  operations in future  periods.  The Pro Forma  Financial  Statements
should be read in conjunction  with, and are qualified in their entirety by, the
respective  historical financial statements and notes thereto of the Company and
of Hobbs for the  three  months  ended  March  31,  2002 and for the year  ended
December 31, 2001.

         The Pro Forma  Financial  Statements  presented  do not reflect  future
events that may occur after the  Acquisition has been  consummated.  The Company
believes  that  operating  expense

                                       40
synergies of the combined  operations  of the Company and Hobbs will be realized
post-Acquisition.   However,  for  the  purposes  of  the  Pro  Forma  Financial
Statements  presented  herein,  these synergies have not been reflected  because
their realization cannot be assured.

                                       41
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2002
(Unaudited)
Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                     $56,143,796     $22,382,105       ($62,357,825) (1b)    $81,362,172
                                                                                    (3,000,000) (1d)
                                                                                   (51,805,904) (1e)
                                                                                   120,000,000  (3)
  Investments                                      2,887,117                                              2,887,117
  Receivables, net                               115,466,210     47,566,457                             163,032,667
  Prepaid expenses and other current assets        6,946,695      1,109,716                               8,056,411
                                                -------------------------------------------------------------------

    TOTAL CURRENT ASSETS                         181,443,818     71,058,278          2,836,271          255,338,367

INVESTMENTS                                        1,343,080         68,843                               1,411,923

PROPERTY & EQUIPMENT, NET                         18,546,207      2,388,864                              20,935,071

GOODWILL, NET                                    250,147,951     63,260,760        (63,260,760) (2)     342,345,131
                                                                                    92,197,180  (2)
INTANGIBLE ASSETS, NET                            22,428,864         88,226            (88,226) (2)      77,428,864
                                                                                    55,000,000  (2)
OTHER ASSETS                                      10,046,576        502,916                              10,549,492
                                                 ------------------------------------------------------------------
TOTAL ASSETS                                    $483,956,496   $137,367,887       $ 86,684,465         $708,008,848
                                                 ==================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Premiums payable to insurance companies       $142,866,676    $52,764,915                             195,631,591
  Accounts payable                                 7,865,284      4,039,267         11,656,923  (2)      12,687,602
                                                                                   (10,873,872) (1e, 1f)
  Accrued Expenses                                18,634,000      8,777,277          4,157,510  (2)      31,568,787
  Premiums deposits and credits due customers     27,020,959                                             27,020,959
  Current portion of long-term debt                6,166,779     10,704,348        (10,704,348) (2)       6,166,779
                                                --------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES                    202,553,698     76,285,807         (5,763,787)         273,075,718

LONG-TERM DEBT                                   108,260,236     29,586,764        (29,586,764) (2)     228,260,236
                                                                                   120,000,000  (3)
OTHER LONG-TERM LIABILITIES                       12,156,835      1,891,067                              14,047,902
                                                --------------------------------------------------------------------
TOTAL LIABILITIES                                322,970,769    107,763,638         84,649,449          515,383,856

MINORITY INTEREST                                                   472,728           (472,728) (2)               0

REDEEMABLE PREFERRED SHARES                              -       29,588,327        (29,588,327) (4)               0

SPECIAL COMMON SHARES                                    -          629,360           (629,360) (4)               0

SHAREHOLDERS' EQUITY (DEFICIT)
  Common Stock                                    56,857,748     17,480,400        (17,480,400) (4)     88,497,013
                                                                                    31,639,265  (1a)
  Additional paid in capital                                          1,000             (1,000) (4)               0
  Retained earnings                              105,238,634    (17,328,121)        28,985,044  (4)     105,238,634
                                                                                   (11,656,923) (2)
  Deferred compensation                                          (1,242,724)         1,242,724  (4)               0
  Accumulated other comprehensive income (loss)   (1,110,655)         3,279             (3,279) (4)      (1,110,655)
                                                --------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)             160,985,727     (1,086,166)        32,725,431          192,624,992
                                                --------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT)                                     $483,956,496   $137,367,887       $ 86,684,465         $708,008,848
                                                ====================================================================
See notes to the pro forma  condensed combined  financial  statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       42
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Three Months Ended March 31, 2002
(Unaudited)
Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
REVENUES
  Commissions and fees                           $98,648,085    $24,607,326                            $123,255,411
  Investment income                                  513,848        138,330                                 652,178
  Other                                              691,863         52,272                                 744,135
                                                --------------------------------------------------------------------
                                                  99,853,796     24,797,928                 -           124,651,724

OPERATING EXPENSES
  Compensation and employee benefits              53,259,020     13,994,421                              67,253,441
  Other operating expenses                        18,549,156      4,836,567         $ (183,540) (6)      23,202,183
  Amortization of intangibles                        521,618          6,175          1,368,825  (5)       1,896,618
  Interest expense                                 1,883,374        815,016            814,984  (8)       3,513,374
                                                ---------------------------------------------------------------------
                                                  74,213,168     19,652,179          2,000,269           95,865,616
                                                ---------------------------------------------------------------------

INCOME BEFORE INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                 25,640,628      5,145,749         (2,000,269)          28,786,108
Income Taxes                                      10,457,391        174,703          1,330,199  (7)      11,962,293

                                                ---------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST                   15,183,237      4,971,046         (3,330,468)           16,823,815
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Minority interest                                          0         36,031            (36,031)                   0
                                                ---------------------------------------------------------------------
NET INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE                             $15,183,237    $ 4,935,015       $ (3,294,437)        $ 16,823,815
                                                =====================================================================
NET INCOME BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE PER SHARE:
  BASIC                                                $0.54                                                  $0.58
                                                =====================================================================
  ASSUMING DILUTION                                    $0.48                                                  $0.52
                                                =====================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:

  BASIC                                           28,187,723                           719,729           28,907,452
                                                =====================================================================
  ASSUMING DILUTION                               32,203,151                           719,729           32,922,880
                                                =====================================================================
See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       43
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2001
(Unaudited)
Hilb, Rogal and
                                                Hamilton
                                                Company         Hobbs           Pro Forma
                                                Historical      Historical      Adjustments             Pro Forma
REVENUES
  Commissions and fees                          $323,078,357    $94,232,835                            $417,311,192
  Investment income                                2,584,600        833,802                               3,418,402
  Other                                            4,604,383        158,030                               4,762,413
                                                --------------------------------------------------------------------
                                                 330,267,340     95,224,667                 -           425,492,007

OPERATING EXPENSES
  Compensation and employee benefits             182,397,310     55,614,459                             238,011,769
  Other operating expenses                        68,210,873     17,851,417         $ (629,632) (6)      85,432,658
  Amortization of intangibles                     13,867,645      5,298,460            201,540  (5)      19,367,645
  Interest expense                                 9,061,585      4,316,309          2,271,691  (8)      15,649,585
                                                --------------------------------------------------------------------
                                                 273,537,413     83,080,645          1,843,599          358,461,657
                                                --------------------------------------------------------------------

INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST                                 56,729,927     12,144,022         (1,843,599)          67,030,350

Income Taxes                                      24,381,412      1,390,191          3,703,731 (7)       29,475,334
                                                --------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST                   32,348,515     10,753,831         (5,547,330)          37,555,016

Minority interest                                          0        594,882           (594,882)                   0
                                               ---------------------------------------------------------------------
NET INCOME                                       $32,348,515   $ 10,158,949       $ (4,952,448)        $ 37,555,016
                                                ====================================================================

NET INCOME PER SHARE:

  BASIC                                                $1.18                                                  $1.33
                                                ====================================================================
  ASSUMING DILUTION                                    $1.07                                                  $1.21
                                                ====================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:

  BASIC                                           27,411,472                           719,729           28,131,201
                                                ====================================================================
  ASSUMING DILUTION                               31,160,149                           719,729           31,879,878
                                                ====================================================================
See notes to the pro forma condensed combined financial statements. Bracketed
numbers to the right of the "Pro Forma Adjustments" column refer to such notes.

                                       44
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Notes to Pro Forma Financial Statements

The unaudited pro forma condensed  consolidated  balance sheet and unaudited pro
forma  consolidated  statements of income  reflect the acquistion of Hobbs under
the purchase  method of  accounting.  Under the  purchase  method of account the
preliminary  purchase  price  is  allocated  to  the  assets  acquired  and  the
liabilities assumed based on their estimated fair values.

      1  This pro forma adjustment reflects the issuance of Common Stock and
         Cash in connection  with the  acquisition of Hobbs by the Company
         resulting in:
Preliminary Value
a.       The  issuance of 719,729  shares of Common Stock at a price of
                  $43.96 per share. The assumed Common Stock  issuance  price of
                  $43.96 per share  represents  the average  closing Common Stock
                  price on the NYSE  calculated  in  accordance  with  EITF 99-12.  $   31,639,265

         b.       The cash  payment  of the  purchase  price.                           62,357,825

         c.       The  assumption  of  tangible  net worth  deficit  of Hobbs is
                  assumed  to  be  zero.                                                         0

         d.       Estimated  transaction  costs  of  $3,000,000.                         3,000,000

         e.       Payment of certain indebtedness ($40,932,032 at July 1, 2002),
                  transaction costs, severance and other related merger liabilities
                  incurred by Hobbs                                                     51,805,904

         f.       Assumed merger liabilities of Hobbs not paid at closing                  783,050
                                                                                    --------------
                                                                                    $  149,586,044
                                                                                    ==============

      2  The  unallocated  excess of purchase price over net assets acquired and
         estimated   identifiable   intangible  assets  has  been  preliminarily
         allocated to goodwill. The Company is in the process of valuing the net
         assets acquired, including the identification of intangibles other than
         goodwill.   Accordingly,   the  purchase   accounting   information  is
         preliminary.  The final  allocation  of  purchase  price to  intangible
         assets other than goodwill could result in increased  amortization  and
         decreased  income and earnings per share in subsequent  period The value
         preliminarily assigned to goodwill is calculated as follows:

         Total Preliminary Purchase Price                                           $  149,586,044

         Book value of Hobbs                                                           (29,131,521)
         Record  transaction costs,  severance and other merger related
         liabilities  incurred by Hobbs                                                 11,656,923
                                                                                    --------------
         Adjusted  book  value  of  Hobbs                                           $  (17,474,598)

         Adjustments:

         Eliminate certain indebtedness,  transaction costs, severance and other
         related merger liabilities incurred by Hobbs paid or assumed by the Company
         (excluding $640,940 of debt incurred subsequent to March 31, 2002)            (51,948,034)
         Adjust minority interest to contractual  buy-out                                 (472,728)
         Additional amounts due shareholders under tangible net worth provisions
         of  the  contract                                                               4,157,510
         Eliminate   historical   intangible  assets                                    63,348,986
                                                                                    --------------
           Total Adjustments                                                            15,085,734
         Identifiable  intangible assets                                                55,000,000
                                                                                    --------------
         Goodwill                                                                    $  92,197,180
                                                                                    ==============
                                       45
HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Notes to Pro Forma Financial Statements

      3  This pro forma  adjustment  reflects the new  $160,000,000  Senior Term
         Loan B under the existing  amended bank credit facility used for funding
         the acquistion. This new term loan was also used to refinance a portion
         of existing bank debt of the Company of  $40,000,000.  The facility will
         mature five years from closing  with pricing set at LIBOR + 275bps.  Net
         new borrowings:                                                              $120,000,000

      4  This pro forma adjustment  eliminates  historical  preferred  equity and
         shareholders'  equity  (deficit)  of Hobbs.

                                                                                      March 31, 2002     December 31, 2001
      5  This pro  forma  adjustment  reflects  the  elimination  of  historical
         amortization  of  Hobbs  and  the  amortization  of  other identifiable      $      6,175    $  5,298,460
         intangibles  acquired at the time of the Acquisition ($55,000,000) over
         a period of 10 years.                                                        $  1,375,000    $  5,500,000

      6  This  pro  forma  adjustment  reflects the  elimination  of  historical
         depreciation  expense of Hobbs and  recording of  depreciation  expense
         based upon the fair values of property, plant and equipment acquired in
         the Acquisition.

      7  This  pro  forma  adjustment  reflects the income tax effect of the pro
         forma  adjustments at an effective tax rate of 40.75%,  reduced for the
         tax  impact  of  nondeductible  intangible  asset  amortization.   This
         adjustment  also eliminates  historical  Hobbs taxes and adjusts Hobbs'
         taxes to the Company's effective tax rate.

      8  This  pro  forma adjustment  eliminates  historical interest expense of
         Hobbs and records  interest  expense  under the new debt  structure  as
         follows:  Interest on debt incurred in the  acquisition,  at an assumed
         interest rate of 4.63%, the London Interbank  Offered Rate ("LIBOR") at
         the acquistion date plus 2.75%. The adjustment also includes additional
         loan fee  amortization.  A change of .125% in the assumed interest rate
         would increase or decrease  interest  expense annually by approximately
         March 31, 2002 December 31, 2001 $200,000.                                    $ 1,630,000     $ 6,588,000

      9  Contingent   Consideration:   The  transaction  is  structured  with  a
         two-year earn-out provision of as much as $76,875,000,  and $25,000,000
         of contingent  installment  payments to be  determined  based on future
         earnings  pursuant to the terms of the purchase  agreement.  The Hobbs'
         two year earn-out  provision is due after years 1 and 2 with a combined
         payment  not to  exceed  a  maximum  of  $76,875,000.  The  $25,000,000
         contingent  installment  consists of two payments of $12.5 million each
         which are due after years 1 and 2,if minimum EBITDA targets are met. In
         addition,  the  Company  has  agreed to assume and  satisfy  certain of
         Hobbs' existing earn-outs and deferred compensation liabilities with an
         agreed upon value of $30,000,000.

     10  Effective   January   1,   2002,   the  Company  changed  its method of
         accounting for commissions on premiums billed and collected directly by
         insurance carriers on middle market property and casualty business. For
         the three months ended March 31,2002,  the cumulative effect adjustment
         was  $3.9  million,  net of  tax.  No pro  forma  adjustment  has  been
         presented for the year ended December 31, 2001 to reflect the effect of
         the  retroactive  application as it is not practical for the Company to
         compute  prior period pro forma amounts due to the lack of prior period
         data.
46
(c)      Exhibits.

                  Exhibit No.  Description
                  -----------  -----------

                      2.1      Purchase  Agreement,  dated May 10, 2002, by
                               and among the Company, Hobbs, LLC ("Hobbs"),
                               the  members of Hobbs  (other than Hobbs IRA
                               Corp.  ("HIRAC"))  and the  shareholders  of
                               HIRAC.

                      23.1     Consent of Ernst & Young LLP.

                      99.1     Second    Amended   and   Restated    Credit
                               Agreement,  dated as of July 1, 2002,  among
                               the Company, as Borrower;  the lenders named
                               therein; Wachovia Bank, National Association
                               (formerly  known  as  First  Union  National
                               Bank), as  administrative  agent;  PNC Bank,
                               National   Association,   as   documentation
                               agent; and Bank of America Securities,  LLC,
                               as syndication agent.

                      99.2     Press release dated July 1, 2002.

                      99.3     Senior Executive  Employment  Agreement with
                               Thomas A. Golub entered into May 10, 2002.

                                       47
SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

                                           HILB, ROGAL AND HAMILTON COMPANY
                                             (Registrant)

Date:  July 16,2002                       By: /s/Carolyn Jones
                                              ---------------------------------
                                              Carolyn Jones
                                              Senior Vice President and
                                              Chief Financial Officer

                                       48
Exhibit Index

               Exhibit No.                  Description
               -----------                  -----------

                  2.1      Purchase Agreement,  dated May 10, 2002, by and among
                           the Company,  Hobbs,  LLC  ("Hobbs"),  the members of
                           Hobbs (other than Hobbs IRA Corp.  ("HIRAC")) and the
                           shareholders of HIRAC.

                  23.1     Consent of Ernst & Young LLP.

                  99.1     Second Amended and Restated Credit  Agreement,  dated
                           as of July 1, 2002,  among the Company,  as Borrower;
                           the lenders named therein;  Wachovia  Bank,  National
                           Association  (formerly  known as First Union National
                           Bank), as  administrative  agent; PNC Bank,  National
                           Association,  as  documentation  agent;  and  Bank of
                           America Securities, LLC, as syndication agent.

                  99.2     Press release dated July 1, 2002.

                  99.3     Senior Executive  Employment Agreement with Thomas A.
                           Golub entered into May 10, 2002.