UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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PROTECTIVE INSURANCE CORPORATION
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BALDWIN & LYONS, INC.
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BALDWIN & LYONS, INC.
PROTECTIVE INSURANCE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 20177, 2019
TO THE SHAREHOLDERS OF BALDWIN & LYONS, INC.:PROTECTIVE INSURANCE CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual Meeting"“Annual Meeting”) of Baldwin & Lyons, Inc.Protective Insurance Corporation (the "Corporation"“Corporation”) will be held Tuesday, May 9, 20177, 2019 at 10:00 a.m., Eastern Time, at our corporate headquarters at 111 Congressional Boulevard, Suite 500, Carmel, IN 46032 for the following purposes:
| 1. | To elect eleven (11)nine (9) directors; |
| 2. | To ratify the appointment of Ernst & Young LLP as independent auditor for the Corporation for 2017;2019; |
| 3. | To approve the Baldwin & Lyons, Inc. Annual Incentive Plan; |
4. | To approve the Baldwin & Lyons, Inc. Long-Term Incentive Plan; |
5. | To approve, in an advisory vote, the Corporation'sCorporation’s named executive officer compensation; |
6. | To approve the frequency of future shareholder advisory votes to approve the Corporation's executive compensation; and |
7.4. | To transact such other business as may properly come before the meeting and any adjournment thereof. |
The Board of Directors has fixed the close of business on March 20, 2017,18, 2019, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to mark, date and sign the enclosed proxy and return it promptly so your vote can be recorded. If you are present at the meeting and desire to do so, you may revoke your proxy and vote in person.
Shares of Class B common stock are not voting shares and therefore proxies are not being solicited inwith regard to the Class B shares.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on May 9, 20177, 2019
In accordance with the rules of the Securities and Exchange Commission, the Corporation is advising its shareholders of the availability on the Internet of the Corporation'sCorporation’s proxy materials related to the Annual Meeting. These rules allow companies to provide access to proxy materials in one of two ways. Because the Corporation has elected to utilize the "full“full set delivery"delivery” option, the Corporation is delivering to its Class B shareholders paper copies of all of the proxy materials, as well as providing access to those proxy materials on a publicly accessible website. The notice of annual meeting of shareholders, proxy statement, form of proxy card and Annual Report on Form 10-K for the year ended December 31, 2018 are available at www.baldwinandlyons.comhttp://ir.protectiveinsurance.com.
Date: April 7, 20175, 2019
By Order of the Board of
Directors
/s/ Jeremy F. GoldsteinSally B. Wignall
Jeremy F. GoldsteinSally B. Wignall
Senior Vice President and Secretary
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSONPERSON.
BALDWINTable of Contents
GENERAL INFORMATION - 1
INFORMATION ABOUT VOTING AND THE MEETING - 1
Record Date and Voting Securities - 1
Voting - 1
Expenses of Solicitation - 2
PROPOSAL #1 - ELECTION OF DIRECTORS - 2
DIRECTOR COMPENSATION - 5
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS - 7
Board and Committee Membership and Meetings - 7
Committees of the Board of Directors - 9
Leadership Structure - 11
Board of Directors and Risk Management - 12
Code of Conduct - 12
Compensation Committee Interlocks and Insider Participation - 12
Certain Relationships and Related Transactions - 12
Director Independence - 13
PROPOSAL #2 - RATIFICATION OF THE APPOINTMENT OF ERNST & LYONS, INC.YOUNG LLP AS INDEPENDENT AUDITOR FOR THE CORPORATION FOR 2019 - 13
Independent Auditor Fees - 14
AUDIT COMMITTEE REPORT - 15
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS - 16
Executive Compensation Philosophy, Strategy & Objectives - 16
Executive Compensation Administration - 18
Components of Executive Compensation for 2018 - 19
Components of Executive Compensation for 2019 - 25
Other Compensation Matters - 26
Compensation Committee Report - 28
SUMMARY COMPENSATION TABLE - 29
Grants of Plan-Based Awards Table - 33
Option Exercises and Stock Vesting Table - 34
Outstanding Equity Awards at Fiscal Year End - 35
Equity Compensation Plan Information - 36
Potential Payments upon Termination or Change in Control - 36
Chief Executive Officer Pay Ratio - 43
PROPOSAL #3 - ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION - 44
EQUITY OWNERSHIP AND SHAREHOLDER INFORMATION - 45
Beneficial Owners of More than 5% of the Class A Common Stock - 45
Common Stock Beneficially Owned by Directors and Management - 46
Section 16(a) Beneficial Ownership Reporting Compliance - 47
Shareholder Communication - 47
Submission of Shareholder Proposals - 47
Other Matters - 48
PROTECTIVE INSURANCE CORPORATION
PROXY STATEMENT
Use of Proxies
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the "Board"“Board”) of Baldwin & Lyons, Inc.Protective Insurance Corporation (the "Corporation"“Corporation,” “we,” “us,” “our”) of proxies to be voted at the Annual Meeting of Shareholders to be held on Tuesday, May 9, 20177, 2019 (the "Annual Meeting"“Annual Meeting”)at 10:00 a.m., Eastern Time, at our corporate headquarters at 111 Congressional Boulevard, Suite 500, Carmel, IN 46032 in accordance with the foregoing notice. The Proxy Statement and accompanying proxy card were first mailed to shareholders on or about April 7, 2017.5, 2019.
In accordance with the rules of the Securities and Exchange Commission (the "SEC"“SEC”), in addition to mailing a full set of the proxy materials to itsour shareholders, the Corporation iswe are also providing access to itsour proxy materials on a publicly accessible website. The notice of annual meeting of shareholders, Proxy Statement, form of proxy card and Annual Report on Form 10-K for the year ended December 31, 2018 are available at www.baldwinandlyons.com
http://ir.protectiveinsurance.com. The mailing address of the Corporation'sour principal office is 111 Congressional Boulevard, Carmel, IN 46032.
Any proxy may be revoked by the person giving it at any time before it is voted by delivering to theour Corporate Secretary of the Corporation at the Corporation'sour principal office a written notice of revocation or a duly executed proxy bearing a later date. Shares represented by a proxy, properly executed and returned to the Corporation,us, and not revoked, will be voted at the Annual Meeting.
Shares will be voted according to the directions of the shareholder as specified on the proxy. If you sign, date, and return your proxy card but do not provide instructions, the proxy will be voted FOR the election of the eleven (11)nine (9) directors named as nominees in this Proxy Statement, FOR the appointment of Ernst & Young LLP as the Corporation'sour independent auditor for 2017, FOR the approval of the Baldwin & Lyons, Inc. Annual Incentive Plan, FOR the approval of the Baldwin & Lyons, Inc. Long-Term Incentive Plan,2019, and FOR the approval of the Corporation'sour named executive officer compensation, and FOR future shareholder advisory votes on the Corporation's executive compensation to be held every ONE YEAR period.compensation. Any other matters that may properly come before the meeting will be acted upon by the persons named in the accompanying proxy card in accordance with their discretion.
Information about Voting and the Meeting
Record Date and Voting Securities The close of business on March 20, 2017,18, 2019 has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. As of March 20, 2017, the Corporation18, 2019, we had 2,623,1092,615,339 shares of Class A common stock outstanding and entitled to vote. Each share of Class A common stock is entitled to one vote. The vote can be exercised in person or by proxy. There areWe have no other outstanding securities of the Corporation entitled to vote. There will be no cumulative voting for the election of directors.
Shares of Class B common stock are not voting shares and therefore proxies are not being solicited inwith regard to the Class B shares.
Vote Required
In order to constitute a quorum for the Annual Meeting, a majority of the votes entitled to be cast at the Annual Meeting must be present either in person or by proxy. Abstentions and broker non-votes will be considered as present for determining a quorum.
It is possible that a proxy would indicate that not all shares represented by it are being voted for specific proposals. For example, a broker cannot vote shares held in street name on certain proposals when the owner of those shares has not provided instructions on how he or she would like them to be voted, which are called "broker“broker non-votes."” The election of directors the proposals regarding the Corporation's Annual Incentive Plan and the Corporation's Long-Term Incentive Plan and the proposalsproposal relating to the approval of the Corporation's executive officer compensation and the frequency of future shareholder advisory votes onour named executive officer compensation fall into this category. Accordingly, if you hold your shares in street name and wish your shares to be voted on Proposals 1 3, 4, 5 or 6,3, you must give your broker voting instructions.
For Proposal 1, director nominees will be elected by the plurality of the votes cast by the shares entitled to vote in the election at the Annual Meeting (i.e., the nominees receiving the highest number of votes cast in each category will be elected). The election of directors will not be affected if you choose to not vote your shares or if you withhold authority to vote your shares, and will not be affected by broker non-votes.
Proposals 2, the ratification of the appointment of the Corporation's independent auditors for 2017, and Proposal 5, the approval of the Corporation's executive officer compensation, will be approved if more shares are voted "FOR" each proposal than "AGAINST." Neither abstentions nor broker non-votes will affect the outcome of these proposals.
In the case of Proposal 6, the advisory vote on the frequency of future shareholder advisory votes on executive officer compensation, the voting standard under Indiana law is more votes "FOR" than "AGAINST." However, the Board will consider the frequency receiving the most votes as representing the Corporation's shareholders' preference on how frequently to hold future advisory votes on executive officer compensation.
Proposal 3, the approval of the Corporation's Annual Incentive Plan, and Proposal 4, the approval of the Corporation's Long-Term Incentive Plan, will be approved if such proposal receives the affirmative vote of a majority of the votes cast, which for these proposals means if more shares are voted "FOR" the respective proposal than the number of shares voted "AGAINST" or "ABSTAIN." Abstentions will have the same effect as a vote against these proposals, but broker non-votes will not affect the outcome of these proposals.
You may revoke your proxy at any time prior to the Annual Meeting. If you provide more than one proxy, the proxy having the latest date will revoke any earlier proxy. If you attend the Annual Meeting and you are a shareholder of record, you will be given the opportunity to revoke your proxy and vote in person. If you are a beneficial owner, you must have a legal proxy from your bank, broker or nominee in order to vote in person at the Annual Meeting.
All expenses of the solicitation of proxies will be paid by the Corporation. Officers,us. Our officers, directors andor other employees, of the Corporation, acting without additional compensation, may solicit proxies by telephone or by special calls. The CorporationWe will also reimburse brokers and other persons holding stock in their names or in the names of their nominees for their expenses in forwarding proxies and proxy materials to the beneficial owners of the Corporation'sour stock.
Beneficial Owners of More than 5% of the Class A Common Stock
The following table contains information concerning persons who, to the knowledge of the Corporation, beneficially owned on March 20, 2017, more than 5% of the outstanding voting securities of the Corporation:
Name and Address of Beneficial Owner
| Number of Class A Shares
And Nature of
Beneficial Ownership (1)
| Percent of Class A Shares
|
Shapiro Family Interests
(in the aggregate) (2)
799 Central Avenue
Highland Park, Illinois 60035
Nathan Shapiro (3)
Robert Shapiro
Norton Shapiro
Steven A. Shapiro
| 1,281,035
��
1,140,950
865,259
762,509
777,344
| 48.8%
43.5%
33.0%
29.1%
29.6%
|
(1) | Shares as to which the beneficial owner has, or may be deemed to have, sole voting and investment powers as to Class A shares, except as otherwise noted. |
(2) | Information with respect to the Shapiro family interests was obtained from Amendment No. 13 to Schedule 13D dated December 23, 1986, and Forms 4 and 5 as filed by such persons with the Securities and Exchange Commission and delivered to the Corporation, and additional information was provided by Nathan Shapiro. The amounts shown for the individuals are included in the amount shown for the Shapiro family interests in the aggregate. Nathan, Robert and Norton Shapiro are brothers, and Steven Shapiro is the son of Nathan Shapiro and nephew of Robert and Norton Shapiro. The Class A shares reported in the above table for the Shapiro family interests include 353,250 shares (13.47%) held of record by the Shapiro Family Limited Partnership – Gift Shares, for which Nathan, Robert and Norton are each limited partners and beneficiaries, as well as 178,500 shares (6.80%) held of record by Gelbart Fur Dressers, 41,250 shares (l.57%) held of record by Jay Ell Company and 178,125 shares (6.79%) held of record by Diversified Enterprises, all three of which are Illinois partnerships of which Nathan, Robert and Norton Shapiro are the general partners and 3,884 shares (.15%) held of record by Emlin Cosmetics, Inc., an Illinois corporation of which Nathan, Robert and Norton Shapiro are owners and as to which they share voting and investment powers. These shares, totaling 755,009 Class A shares (28.78%), are included in the listing for individual beneficial ownership of each of the Shapiro Family members listed above. |
(3) | Includes 44,859 Class A shares held by New Horizons, Inc., a corporation of which Nathan Shapiro is the controlling shareholder; 21,375 Class A shares held by Illinois Diversified, a general partnership to which beneficial ownership is held by Nathan Shapiro; and 173,062 Class A shares held by NS Associates, Inc., a corporation of which Nathan Shapiro is the controlling shareholder. |
Proposal #1 – Election of Directors
The Board of Directors recommends a vote "FOR" the election of the below Directors and Nominees.
Directors and Nominees
The Board currently consists of thirteennine directors serving one-year terms until the next annual meeting of shareholders and until the director'sdirector’s successor is elected and has qualified. The Nominating and Governance Committee of the Board has determined not to nominate twoall of the Corporation'sour current directors Thomas H. Patrick and Arshad R. Zakaria, for reelection. The Board has decided to reduce the size of the Board from thirteen to eleven, effective as of the date ofreelection at the Annual Meeting, pursuant to the Corporation's Code of Bylaws.Meeting. Based upon the recommendation of the Nominating and Governance Committee, the Board has nominated elevennine directors to be elected to the Board to hold office until the 2018 Annual Meeting2020 annual meeting of the shareholders and until their respective successors are elected and qualified. Proxies cannot be voted for a greater number of persons than the eleven director nominees.
All of the nominees are currently directors of the Corporation.directors. Each of the nominees for director has consented to being named as a nominee in this Proxy Statement and has indicated a willingness to serve if elected. However, if any such person is unable or unwilling to accept nomination or election, it is the intention of the persons named in the accompanying proxy card to nominate such other person as director as they may in their discretion determine, in which event the shares will be voted for such other person. If for any reason a nominee should become unable or unwilling to accept nomination or election, the proxy holders intend to vote the proxy for the election of such other person as the Board, upon the recommendation of the Nominating and Governance Committee, may select. Alternatively, the Board may reduce the number of directors to eliminate the vacancy.
There is noThe only family relationship between any director nominee or any of the Corporation'sour executive officers except foris that of Nathan Robert and NortonRobert Shapiro, who are brothers, and Steven Shapiro, who is the son of Nathan Shapiro and nephew of Robert and Norton Shapiro.brothers. A majority of the nominees are independent directors within the meaning of applicable Nasdaq Stock Market LLC ("NASDAQ"(“Nasdaq”) listing standards, as noted in the table on page 8.10. There are no arrangements between any director nominee and any other person in connection with being selected to serve on the Board.
The following summaries set forth the name and age of each director and nominee, all offices held with us, the Corporation, the nominee'snominee’s principal occupation, a brief account of his or her business experience during the past five years, as well asincluding other public company directorships, as well as the key qualifications, experiences, attributes or skills that led to the conclusion that he or she should serve as a director.
Director nominees will be elected by the plurality of the votes cast by the shares entitled to vote in the election at the Annual Meeting (i.e., the nominees receiving the highest number of votes cast in each category will be elected). The election of directors will not be affected if you choose to not vote your shares or if you withhold authority to vote your shares and will not be affected by broker non-votes. Proxies cannot be voted for a greater number of persons than the nine director nominees.
The Board of Directors recommends a vote “FOR” the election of the below Director nominees.
STEVEN J. BENSINGER
| Age 64
| Director Since 2018
|
Mr. Bensinger has served as one of our directors since February 2018. Mr. Bensinger has served as a Partner and Senior Advisor with TigerRisk Partners LLC, a privately held firm providing advisory services to the insurance industry, since October 2015. He also served as a Senior Managing Director at FTI Consulting in its Global Insurance Services Practice from February 2012 to October 2015. From January 2010 to June 2011, he worked at The Hanover Insurance Group as Executive Vice President and Chief Financial Officer. From September 2002 to October 2008, Mr. Bensinger worked at American International Group, Inc. (AIG), where he held a number of senior executive positions, including both Chief Financial Officer and Vice Chairman, Financial Services. Mr. Bensinger has also held senior positions with Combined Specialty Group, Inc. (Aon), Chartwell Re Corporation, Skandia America Corporation and Coopers & Lybrand. Mr. Bensinger is a Certified Public Accountant and a Certified Global Management Accountant. He has served as a director of Kinsale Capital Group, Inc. since 2015 and has served on the board of governors of The Doctors Company since 2014. We believe Mr. Bensinger's more than 30 years of experience in the insurance industry and his financial and business acumen, which have provided him with significant expertise in our area of business, provide him with the background necessary to serve as an effective Board member.
| STUART D. BILTON | Age 7072 | Director Since 1987 |
Mr. Bilton was appointed as our Lead Director in June 2018. He served as Chairman and Chief Executive Officer of Aston Asset Management, LLC, a diversified investment management firm from 2006 until his retirement in 2015. He also served as Chief Executive Officer and President of the Aston Funds, a family of mutual funds and was Chairman of Aston Funds from 2007 to 2013. Mr. Bilton held executive level positions with ABN AMRO Asset Management (US), Inc. from 2001 until 2006. We believe Mr. Bilton'sBilton’s extensive experience in investment management and his more than 30 years of service as a Board member to the Corporation provide him with the background necessary to serve as an effectiveof our Board member.
W. RANDALL BIRCHFIELD | Age 53 | Director Since 2016 |
Mr. Birchfield was elected director and appointed as the Corporation's Chief Executive Officer in May 2016 and as President of the Corporation in August 2016. Mr. Birchfield joined the Corporation in 2013 and served as the Corporation's Executive Vice President of Sales and Underwriting from April 2014 until May 2016. Prior to joining the Corporation, Mr. Birchfield served in a variety of capacities within the property and casualty insurance industry with Allstate Insurance Company, Farmers Insurance Company, American International Group and Progressive Insurance Company, most recently as Vice President – Auto Line Management at Allstate Insurance Company from 2011 until September 2013. Mr. Birchfield's extensive experience in the insurance industry and his 4 years of service to the Corporation provide him with the background necessary to serve as an effective Board member.
| OTTO N. FRENZEL IV | Age 5759 | Director Since 2008 |
Mr. Frenzel has served as Chairman of Kauffman Engineering, Inc., an Indiana-based manufacturer of electrical equipment, since 2001, and he was formerly Chairman of Symphony Bank in Indianapolis from 2005 until 2008. We believe Mr. Frenzel'sFrenzel’s extensive experience in banking and corporate management, along with his 9more than 10 years of service as a Board member to the Corporation, provide him with the background necessary to serve as an effectiveof our Board, member.
PHILIP V. MOYLES, JR. | Age 52 | Director Since 2016 |
Mr. Moyles has served as the Managing Principal, Chief Executive Officer and director of Vanbridge Holdings LLC, an insurance intermediary, capital advisory and insurance and reinsurance management firm, since 2008. Prior to joining Vanbridge Holdings LLC, Mr. Moyles was an Executive Vice President and Chief Executive Officer of the Americas for Marsh LLC (Marsh & McLennan Companies) and served on the Marsh LLC Board of Directors. Mr. Moyles has 30 years of experience in the insurance industry which provides him with the background necessary to serve as an effective Board member.
JOHN M. O'MARA | Age 89 | Director Since 1981 |
Mr. O'Mara served as a financial consultant, principally for portfolio companies of Citi Group Venture Capital from May 1993 to November 2009. Since then he has been a financial consultant and private investor. He was a director of The Midland Company until its sale in April, 2008. Mr. O'Mara's extensive experience in investment management, management and directorship with other public companies and his 36 years of service as a Board member to the Corporation provide him with the background necessary to serve as an effective Board member.
JOHN A. PIGOTTLORIANN V. LOWERY- BIGGERS | Age 8552 | Director Since 19972017 |
Ms. Lowery-Biggers serves as the Chief Executive Officer of Bella Vaughn, Inc., a global diamond and design company. Previously, she served as President of Field Operations, Senior Vice President and Chief Marketing Officer of The Navigators Group, Inc. from October 2009 until October 2016 and as President of North American Operations at Society of Lloyd's (“Lloyd’s”) from 2008 until 2009. Prior to his retirementjoining Lloyd's, Ms. Lowery-Biggers held the positions of Managing Director and National Practice Leader for Risk Management and Financial Products for Wells Fargo Insurance Services and served as Vice Chairman of the Wells Fargo Captive, and as the Managing Director and Practice Leader for Enterprise Risk Management, Alternative Risk Finance and Risk Solutions at Marsh and McLennan. Ms. Lowery-Biggers currently serves as a director of Copper Point Mutual Insurance Co. Inc. and Brown and Riding Insurance, Inc. We believe Ms. Lowery-Biggers’ more than 25 years of experience in 1996, the insurance industry and her business acumen, which have provided her with significant expertise in our area of business, provide her with the background necessary to serve as an effective Board member.
| DAVID W. MICHELSON | Age 61 | Director Since 2018 |
Mr. PigottMichelson has served in various capacities at Anixter, Inc., including Director, Vice Chairman,as one of our directors since May 2018. Mr. Michelson served as a Senior Advisor for National Interstate Corporation ("National Interstate") from May 2016 until May 2018. Mr. Michelson served as National Interstate's President and Chief Executive Officer from January 2008 until May 2016 and as a Director from April 2009 until November 2016. Mr. Michelson served in various other capacities at National Interstate from 1992 through 2007, including roles as Vice President, Senior Vice President, Executive Vice President, and Chief Operating Officer. In addition, Mr. Pigott'sMichelson served as Board Chairman for National Interstate Insurance Company from April 2009 until May 2016. Prior to joining National Interstate, Mr. Michelson held roles at Liberty National Fire Insurance Company, Reliance Insurance Company and Progressive Corporation. We believe Mr. Michelson’s years of experience in management and consulting with other public and private companiesthe insurance industry and his 20 yearsfinancial and business acumen, which have provided him with significant expertise in our area of service as a Board member to the Corporationbusiness, provide him with the background necessary to serve as an effective Board member.
KENNETHJOHN D. SACKSNICHOLS, JR. | Age 5159 | Director Since 20072017 |
Mr. Sacks hasNichols was appointed as our Interim Chief Executive Officer and Chairman of the Board of Directors in October 2018. Mr. Nichols served as Co-ChiefChief Executive Officer since September 2011, and as Managing Principal and Chairman since 2003, of JMB Insurance Agency, Inc., an insurance brokerage company located in Chicago. PriorAXIS Re, a leading reinsurer to his affiliation with JMB Insurance Agency, Inc., Mr. Sacks was engaged in real estate portfolio management with JMB Realty Corporation in Chicago and Merrill Lynch Hubbard in New York. Mr. Sack's executive management experience in theglobal property and casualty insurance industry, alongcompanies, from 2012 until February 2017. Prior to joining AXIS Re, Mr. Nichols served as President of RenaissanceRe Ventures Ltd. from 2001 until 2010, where he was responsible for business development and management of joint ventures and venture capital business. Prior to joining RenaissanceRe, Mr. Nichols held various positions with his 10Hartford Steam Boiler and Monarch Capital, and also worked for the accounting firm Matson, Driscoll & Damico. Mr. Nichols is also a director of Delaware North Companies and National General Holdings Corp. We believe Mr. Nichols’ more than 20 years of experience in the insurance industry, his service as a Board member to the Corporation,Interim Chief Executive Officer and Chairman, and his financial and business acumen, which have provided him with significant expertise in our area of business, provide him with the background necessary to serve as an effective Board member.
| JAMES A. PORCARI III | Age 61 | Director Since 2017 |
Mr. Porcari is the founder and managing partner of Insurance Resources International, LLC (“IRI”), consultants to the automobile insurance industry and companies supporting the insurance industry. Prior to founding IRI in 2010, Mr. Porcari was President of Personal Lines Claims (US) for American International Group, Inc. (“AIG”) from 2002 to 2009. From 2007 until 2009, Mr. Porcari served in additional functions as both Chair of the Executive Committee of AIG Worldwide Investigative Resources (AIGWIR), the AIG worldwide special investigations organization, and as one of three members of the corporate steering committee for the AIG global claims review. Prior to joining AIG, Mr. Porcari held various leadership positions with several insurers, including GMAC/Integon, USF&G, Transport Group, and Progressive Corporation. Mr. Porcari is also a director of National Truck Protection, Collision Diagnostic Services, Livegenic, and Homesite Insurance. We believe Mr. Porcari’s more than 25 years of experience in the insurance industry and his business acumen, which have provided him with significant expertise in our area of business, provide him with the background necessary to serve as an effective Board member.
| NATHAN SHAPIRO | Age 8082 | Director Since 1979 |
Mr. Shapiro served as the President of SF Investments, Inc., a broker/dealer in securities, from 1970 until 2009 and continues to serve as an investment advisor representative affiliated with New Vernon Wealth Management, Inc., successor to SF Investments, Inc. Since December 1977, Mr. Shapiro has also served as President of New Horizons, Inc., management consultants. Mr. Shapiro'sShapiro’s extensive experience in investment management, particularly within the property and casualty insurance industry, his management and directorship with other public and private companies and his 3840 years of service as a Board member to the Corporationof our Board provide him with the background necessary to serve as an effective Board member.
NORTON SHAPIRO | Age 84 | Director Since 1983 |
Prior to his retirement in 1999, Mr. Shapiro served as Executive Vice President of National Superior Fur Dressing & Dyeing Co., Inc., a corporation engaged in the processing, cleaning and dressing of furs. Mr. Shapiro's experience in management and directorship with other companies and his 34 years of service as a Board member to the Corporation provide him with the background necessary to serve as an effective Board member.- 4 -
| ROBERT SHAPIRO | Age 7880 | Director Since 1997 |
Mr. Shapiro has served as President and Chief Executive Officer of Emlin Cosmetics, Inc., a corporation engaged in the manufacture and distribution of cosmetic products, since 1964. Mr. Shapiro'sShapiro’s experience in management and directorship with other companiesand his more than 20 years of service as a Board member to the Corporationof our Board provide him with the background necessary to serve as an effective Board member.
STEVEN A. SHAPIRO | Age 52 | Director Since 2007 |
Mr. Shapiro was named Executive Chairman of the Corporation in October 2015 and became employed by the Corporation in June 2016. Mr. Shapiro has 10 years of service as a Board member of the Corporation, serving as Lead Director from 2010 to 2015. He has served as Vice President of SF Investments, a broker/dealer in securities since 1991 and has been a member of New Vernon Investment Management, LLC, the General Partner in a series of investment limited partnerships, including the New Vernon Insurance Fund, since 1999. Mr. Shapiro served on the Board of Directors of First Mercury Financial Corporation until its sale in February 2011. Mr. Shapiro's extensive experience in investment management, with emphasis on the property and casualty insurance industry, as well as management and director experience with other public and private companies provide him with the background necessary to serve as an effective Board member.
Directors' FeesDirector CompensationDirectors who are employed by the Corporation do not receive directors' fees. The following table sets forth information regarding the compensation earned by each of our non-employee directors during 2018. Non-employee director compensation is determined annually by the Corporation's directorsBoard acting on the recommendation of the Nominating and Governance Committee. Directors who were notare also employees during 2016.receive no additional compensation for service as a director. The compensation paid to Mr. Steven Shapiro for his service as Executive Chairman during 2016 and for his service to as a director prior to becoming an employee in June 2016, as well as the compensation paid toNichols, Mr. Birchfield, and Mr. DeVitoSteven Shapiro during 20162018 is set forth in the Summary Compensation Table beginning on page 27.
The following table does not include compensation paid to Mr. Gary Miller, who served as a director until his retirement from the Board and his other positions with the Corporation in May 2016. Prior to his retirement, Mr. Miller served as Deputy Chairman and was an employee of the Corporation. During 2016, Mr. Miller received $412,676 in salary, $14,208 related to dividends for restricted shares that vested in February 2016, and $30,945 in other compensation consisting of perquisites and 401(k) contribution.29.
| | | | | |
| | | | | |
| | Fees Earned or Paid in Cash | Stock Awards | All Other Compensation | Total |
| Name | ($) | ($) (b) | ($) | ($) |
| Stuart D. Bilton | 56,250 | 40,000 | 1,789 | 98,039 |
| Jeffrey S. Cohen (c) | 20,000 | 20,000 | 1,789 | 41,789 |
| Otto N. Frenzel IV | 61,000 | 40,000 | 1,789 | 102,789 |
| John M. O'Mara | 50,000 | 40,000 | 1,789 | 91,789 |
| Phillip V. Moyles (d) | 30,000 | 40,000 | 0 | 70,000 |
| Thomas H. Patrick | 40,000 | 40,000 | 1,789 | 81,789 |
| John A. Pigott | 50,000 | 40,000 | 1,789 | 91,789 |
| Kenneth D. Sacks | 56,250 | 40,000 | 1,789 | 98,039 |
| Nathan Shapiro | 50,000 | 40,000 | 1,789 | 91,789 |
| Norton Shapiro | 40,000 | 40,000 | 1,789 | 81,789 |
| Robert Shapiro | 50,000 | 40,000 | 1,789 | 91,789 |
| Arshad R. Zakaria | 40,000 | 20,000 | 1,789 | 61,789 |
| | | | | |
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) |
| Steven J. Bensinger | 30,000 | | 49,874 | | 445 | | 80,319 | |
| Stuart D. Bilton | 47,500 | | 40,000 | | 1,802 | | 89,302 | |
| Otto N. Frenzel IV | 49,500 | | 40,000 | | 1,802 | | 91,302 | |
| LoriAnn Lowery-Biggers | 42,500 | | 40,000 | | 1,370 | | 83,870 | |
| David W. Michelson (a) | 20,000 | | 40,000 | | 0 | | 60,000 | |
| Philip V. Moyles, Jr. (b) | 20,000 | | 0 | | 1,802 | | 21,802 | |
| John A. Pigott (c) | 20,000 | | 0 | | 1,802 | | 21,802 | |
| James A. Porcari, III | 45,000 | | 40,000 | | 1,802 | | 86,802 | |
| Kenneth D. Sacks (d) | 40,000 | | 40,000 | | 1,802 | | 81,802 | |
| Nathan Shapiro | 40,000 | | 40,000 | | 1,802 | | 81,802 | |
| Norton Shapiro | 40,000 | | 40,000 | | 1,802 | | 81,802 | |
| Robert Shapiro | 40,000 | | 40,000 | | 1,802 | | 81,802 | |
| (a) | Reflects the grant date fair value of stock awards issued to each non-employee director during 2016, in accordance with Accounting Standards Codification Topic 718, "Compensation - Stock Compensation" ("ASC Topic 718"). Each non-employee director received 1,607 shares of restricted stock on teh date of the Corporation's annual meeting of shareholders (May 10, 2016). The grant date fair value for the 2016 restricted stock awards is calculated by multiplying the closing price of the Corporation's Class B common stock on NASDAQ on the date of grant by the number of shares in the restricted stock award. As of December 31, 2016, each non-employee director had 1,607 shares of restricted stock outstanding. |
(b) | Mr. Cohen resigned from the Board in May 2016. |
(c) | Mr. MoylesMichelson was elected to the Board in May 2016.2018. |
| (b) | Mr. Moyles served on the Board until May 2018. |
| (c) | Mr. Pigott served on the Board until May 2018. |
| (d) | Mr. Sacks served on the Board until July 2018. |
The provisions of the directors' compensation plan which was- 5 -
2018 Fees Earned or Paid in effect during 2016 are as follows:
Cash
:| ● | Board meeting attendance fee of $10,000 for each regular or in-person meeting of the Board. Directors are encouraged to attend in person, but may attend via teleconference or videoconference. This fee is reduced to zero in the case of telephonic attendance or non-attendance.non-attendance and no additional fees are paid for special meetings which are held telephonically. This fee is paid quarterly in the quarter following meeting attendance. |
| ● | The Chairman of the Audit Committee and the Lead Director each receives an additional $3,500 per quarter. |
| ● | The Chairmen of the Nominating and Governance and Compensation Committees each receivesreceive an additional $2,500 per quarter. |
| ● | No additional fees are paid for committee membership or committee meetings which are held telephonically or in conjunction with a regular Board meeting. Committee members will receive $2,500 for attendance at non-telephonic committee meetings held at other times. The Compensation Committee held a non-telephonic meeting in March 2018 for which the committee members received a $2,500 attendance fee. |
| ● | Reimbursement for customary and usual travel expenses. |
Stock
2018 Stock Awards - An annual retainer in the amount of $40,000 is paid to each non-employee director in the form of restricted stock. Each annual restricted stock grant is made on the date of the Corporation's annual meeting. Restricted shares fully vest one year from the date of grant. For 2016, each non-employee director received a grant of 1,607 shares of restricted stock on May 10, 2016, all of which will vest on May 10, 2017.our Class B common stock. The amount shown in the table above represents the approximate grant date fair value of this grantstock awards issued to each non-employee director during 2018, in accordance with Accounting Standards Codification Topic 718, “Compensation — Stock Compensation” (“ASC Topic 718”).
The number of restricted shares awarded is determined by dividing the annual retainer amount by the closing price of our Class B common stock on Nasdaq on the date of grant. Unless otherwise noted, each non-employee director received 1,735 shares of restricted stock on the date of our annual meeting of shareholders (May 8, 2018), which shares fully vest on May 10, 2016.8, 2019. In addition, Mr. Bensinger received 408 shares of restricted stock on February 9, 2018, which shares fully vested on May 9, 2018, representing a pro-rated portion of his 2017-2018 annual retainer equal to $9,874 divided by the closing price of our Class B common stock on May 9, 2017, the date of the annual directors’ grant. No other shares of restricted stock or other equity awards were held by our directors as of December 31, 2018.
All Other Compensation - Restricted stock is treated as outstanding for purposes of dividend accruals from the date of grant and accrued dividends are paid to directors upon the vesting of the restricted shares. The amount shown as All Other Compensation in the table above represents dividends paid to each applicable director during 2016,in May 2018, at a total of $1.01$1.09 per share, upon the vesting of restricted stock granted in May 2015.2017.
In November 2018, upon the recommendation of the Nominating and Governance Committee, the Board approved an updated compensation plan for our non-employee directors based on an evaluation of our current Board compensation in comparison to the companies identified as our comparator group in the Executive Compensation Discussion and Analysis on page 19. The Nominating and Governance Committee recommended increasing total compensation to be closer to the mean compensation offered by our comparator group while maintaining a balance of approximately 50% cash compensation and 50% equity compensation. Beginning in January 2019, our non-employee directors will receive the following compensation for their service as directors:
| ● | Board meeting attendance fee of $15,000 for each regular or in-person meeting of the Board. |
| ● | An annual retainer in the amount of $60,000 paid in the form of restricted shares of our Class B common stock. |
| ● | The Lead Director and Chairman receive an additional $5,000 per quarter. |
| ● | The Chairman of the Audit Committee receives an additional $3,750 per quarter. |
| ● | The Chairmen of the Nominating and Governance and Compensation Committees each receive an additional $2,500 per quarter. |
| ● | No additional fees are paid for committee membership or committee meetings which are held telephonically or in conjunction with a regular Board meeting. Committee members will receive $2,500 for attendance at non-telephonic committee meetings held at other times. |
| ● | Reimbursement for customary and usual travel expenses. |
Corporate Governance and Board of Directors
Board and Committee Membership and Meetings In 2016,2018, each incumbent director attended at least 75 percent of the total number of meetings of the Board and the committees on which he serves, withor she served that were held during the exception of Mr. Patrick, who attended 50% of theperiod for which he or she was a director or committee member. In addition to formal meetings, of the Board and Mr. Cohen, who attended 2 of 3 Board meetings held prior to his resignation in May 2016. In addition, allcommittees also carry on their business through frequent telephone conversations and informal contacts among their members. All board members are also expected to attend the annual meeting of shareholders, and all directors thenelected at the 2018 annual meeting of shareholders were in office attended in 2016.attendance.
There areWe currently have four standing committees of the Board – the Audit Committee, the Compensation Committee, the Investment Committee and the Nominating and Governance Committee. The following table provides membership information for each of the current standing committees of the Board as of March 31, 20171, 2019 and the number of meetings ofthat the full Board and each committee held in 2016.
| Name | Board of Directors | Audit Committee | Compensation Committee | Nominating and Governance Committee | Investment Committee |
| W. Randall Birchfield | | | | | |
| Stuart D. Bilton (a) | | | | | |
| Otto N. Frenzel IV | | | | | |
| Philip V. Moyles, Jr. | | | | | |
| John M. O'Mara | | | | | |
| Thomas H. Patrick | | | | | |
| John A. Pigott | | | | | |
| Kenneth D. Sacks | | | | | |
| Nathan Shapiro | | | | | |
| Norton Shapiro | | | | | |
| Robert Shapiro | | | | | |
| Steven A. Shapiro | | | | | |
| Arshad R. Zakaria | | | | | |
| Number of Meeting in 2016 (b) | 6 | 5 | 6 | 2 | 5 |
An Independent Director within the meaning of applicable NASDAQ listing standards.
Executive Chairman
Member
Committee Chairman
Appointed to Committee in February 2017.
(a) Concurrent with his appointment to the Audit Committee in February 2017, Mr. Bilton was removed
from the Compensation Committee after the February 2017 Board meeting.
(b) In addition to formal meetings, the Board and committees also carry on their business through
frequent telephone conversations and informal contacts among their members.
2018.
| Name | Board of Directors | Audit Committee | Compensation Committee | Nominating and Governance Committee | Investment Committee |
| Steven J. Bensinger (a) | ✓ | | | | ■ |
| Stuart D. Bilton (b) | ✓ | ■ | | ■ | ■ |
| Otto N. Frenzel IV (c) | ✓ | ■ | | ☒ | |
| LoriAnn V. Lowery-Biggers (d) | ✓ | | ■ | ■ | |
| David W. Michelson (e) | ✓ | ☒ | ■ | | |
| John D. Nichols, Jr. (f) | | | | | ■ |
| James A. Porcari, III (g) | ✓ | | ☒ | ■ | |
| Nathan Shapiro | | | | | ☒ |
| Robert Shapiro | | | | | ■ |
| Number of Meetings in 2018 | 12 | 6 | 9 | 10 | 4 |
| ✓ | An Independent Director within the meaning of applicable Nasdaq listing standards. |
| ■ | Member |
| ☒ | Committee Chairman |
| (a) | Mr. Bensinger served on the Audit Committee from February 2018 to December 2018 and was Chairman of the Audit Committee from October 2018 to December 2018. Mr. Bensinger served on the Compensation Committee from August 2018 to November 2018 and was appointed to the Investment Committee in May 2018. |
| (b) | Mr. Bilton was appointed as Lead Director in June 2018. Mr. Bilton served on the Audit Committee until May 2018 and served as Chairman of the Nominating and Governance Committee until August 2018. Mr. Bilton was reappointed to the Audit Committee in December 2018. |
| (c) | Mr. Frenzel served as Chairman of the Audit Committee until March 2018. Mr. Frenzel was appointed as Chairman of the Nominating and Governance Committee in August 2018. |
| (d) | Ms. Lowery-Biggers was appointed to the Nominating and Governance Committee in May 2018. |
| (e) | Mr. Michelson was appointed as a member of the Audit Committee in May 2018 and was appointed as Chairman of the Audit Committee in December 2018. Mr. Michelson was appointed to the Compensation Committee in August 2018. |
| (f) | Mr. Nichols was appointed as Chairman of the Audit Committee in March 2018. Concurrent with his appointment as Interim Chief Executive Officer in October 2018, Mr. Nichols ceased to be a member of the Audit Committee. |
| (g) | Mr. Porcari was appointed as Chairman of the Compensation Committee in August 2018 and was appointed to the Nominating and Governance Committee in August 2018. |
Committees of the Board of Directors Audit Committee
Current members of the Audit Committee are identified in the table above. All members of the Audit Committee are independent as defined in both the Nasdaq listing standards and the SEC rules applicable to audit committee members. The Board has determined that the Chairman of the Audit Committee, David W. Michelson, is an audit committee financial expert, as defined in the SEC rules.
The Audit Committee has a charter, a copy of which may be found in the corporate governance section of our website at ir.protectiveinsurance.com/govdocs. The principal duties of the Audit Committee include oversight of our external auditor and financial reporting practices, review of related person transactions, whistleblower compliance, and monitoring our internal audit processes and controls.
Compensation Committee
All members of the Compensation Committee, as identified in the table on page 8, are independent as defined in both the Nasdaq listing standards and the SEC rules applicable to compensation committee members.
The Compensation Committee has a charter, a copy of which may be found in the corporate governance section of our website at ir.protectiveinsurance.com/govdocs. As set forth in the charter, our executive compensation program is administered by the Compensation Committee. This committee also oversees the administration of our employee benefits plans and establishes policies relating to the compensation of executive officers. The Compensation Committee reviews all aspects of executive compensation and evaluates the performance of our executive officers, including our named executive officers, as set forth on page 16. In addition, the Compensation Committee reviews, manages and administers our annual incentive and stock-based compensation plans. The Compensation Committee approves which executive officers are to receive equity awards as a portion of their compensation and their aggregate compensation, which determines the number of underlying shares and terms of the equity awards. For a more detailed description of our executive officer compensation policies and procedures, including the role of management and the Compensation Committee’s compensation consultant in setting executive officer compensation, see the Executive Compensation Discussion and Analysis beginning on page 15.
Investment Committee
The Investment Committee sets policy regarding the allocation, quality, risk and duration of our investment portfolios and the positioning of such portfolios in the context of our overall enterprise risk management program. The Investment Committee has a charter, a copy of which may be found in the corporate governance section of our website at ir.protectiveinsurance.com/govdocs. Pursuant to its charter, the Investment Committee assists the Board in reviewing our investment policies, strategies, transactions and performance. The Investment Committee also assesses the use of various investment strategies to achieve and support our operational goals, approves the hiring of all portfolio investment managers, and evaluates the performance of each investment manager. The Investment Committee administers our stock repurchase program, which was reinstated in August 2017. Current members of the Investment Committee are identified in the table on page 8.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for developing and implementing policies and practices relating to corporate governance and assisting the Board in developing criteria for open Board positions and making recommendations to the Board regarding such candidates. The Committee also makes recommendations to the Board with respect to compensation of non-employee directors. All current members of the Nominating and Governance Committee, identified in the table on page 8, are independent within the meaning of the Nasdaq listing standards.
The Nominating and Governance Committee has a charter, a copy of which may be found in the corporate governance section of our website at ir.protectiveinsurance.com/govdocs. In accordance with the charter, the Nominating and Governance Committee is responsible for evaluating the requisite skills and characteristics of members of the Board and, annually, recommending to the Board the nominees for election as directors. The Nominating and Governance Committee adheres to a Board candidate selection policy and considers candidates with the following qualifications (although they are not necessarily limited to candidates with such qualifications) and no one factor is considered more important than any other factor:
| ● | Chief executive officers or senior executives, particularly those with a deep understanding of insurance company operations, with investment expertise, with expertise in a specific area useful to the Corporation, or who have held senior positions in a publicly traded insurance company; |
| ● | Individuals who meet the current criteria of the SEC and Nasdaq to be considered as independent directors; |
| ● | Individuals with upstanding character, integrity, and ethical standards who fit with the culture of the current Board; and |
| ● | Diversity with respect to gender, ethnicity, age, geographic location and experience. |
The Board does not have a written policy regarding diversity, although, as noted above, diversity is one factor that the Nominating and Governance Committee considers when recommending director nominees to the Board.
Although the Board does not have a retirement age for directors, the Committee will not consider any candidate for an initial term when the candidate is older than 65 years of age.
Any director candidate nominated by a shareholder, together with any information about the candidate’s qualifications, will be evaluated by the Nominating and Governance Committee using the same factors as set forth above. A shareholder wishing to nominate a candidate for the Board should send a written nomination to our Corporate Secretary at our principal offices. The nomination should include a detailed resume providing specificity as to the qualifications of the nominee, including, but not limited to, those specified above. To be considered, a nomination must be received not less than 90 days nor more 120 days prior to the first anniversary of the preceding year’s annual meeting of shareholders. In the case of the 2020 annual meeting of shareholders, the deadline is no earlier than January 8, 2020 and no later than February 7, 2020. All recommendations must be accompanied by a written consent of the nominee to be nominated for election to our Board.
The Nominating and Governance Committee recommended each of the nominees included for election in this Proxy Statement.
Ad Hoc Committees
In addition to the committees discussed above, from time to time, the Board, in its discretion, may form other committees. In October 2018, the Board formed a special committee to conduct a review of strategic alternatives. The Board approved a charter for this special committee in November 2018. The members of the special committee are LoriAnn V. Lowery-Biggers, David W. Michelson, John D. Nichols, Jr., Nathan Shapiro, and Robert Shapiro. The special committee held seven meetings in 2018, in addition to informal discussions, and reports to the full Board in connection with Board meetings.
The Board does not have a policy as to whether the role of the Chief Executive Officer (“CEO”) and the office of Chairman should be separate. In 2018, the Board continuously evaluated what roles would be in the best interest of the Corporation and our shareholders based on the changes in executive leadership that occurred throughout 2018, as outlined below.
Mr. Steven Shapiro served as Executive Chairman of the Board of Directors from October 2015 until June 2018. In determining that Mr. Shapiro was the appropriate person to serve in the role of Executive Chairman, the Board relied on several factors, including Mr. Shapiro’s service on our Board since 2007 and his service as the Lead Director from 2010 until his appointment as Executive Chairman.
Upon Mr. Steven Shapiro’s resignation in June 2018, the Board determined that the role of Executive Chairman would be retired. Instead, the Board determined that the Corporation and the Board would benefit from having distinct leadership roles that represented both management and independent Board members. As a result, in June 2018, the Board created the role of Lead Director, which as defined in our Code of By-Laws, must be selected from among the independent directors. The role of the Lead Director is to ensure that the Board is able to carry out its responsibilities effectively and independently of both management and shareholders. Mr. Stuart Bilton was appointed as our Lead Director in June 2018.
After the retirement of the Executive Chairman position in June 2018, the Board retained the flexibility to utilize the Chairman role. In October 2018, in connection with his appointment as Interim Chief Executive Officer, Mr. Nichols was appointed to the additional role of Chairman of the Board. Although the roles of Chairman and CEO are currently combined, it is intended that this will cease to be the case upon the selection of a permanent CEO. Mr. Nichols has agreed to continue to serve as Chairman after a permanent CEO candidate is selected to ensure an effective executive transition and allow the Corporation and the permanent CEO to benefit from the continuity of support from Mr. Nichols and the Board.
Regardless of whether the roles of Chairman and CEO are separated, the Board believes that appropriate mechanisms are in place to ensure that we maintain standards of corporate governance that ensure the continued accountability of the CEO to the Board. These mechanisms include:
| ● | The majority of directors are independent. |
| ● | The Audit, Compensation, and Nominating and Governance Committees are comprised of and chaired by non-employee directors who meet the independence requirements under the Nasdaq listing standards and other governing laws and regulations. |
| ● | The independent directors meet in regular executive sessions, without management present, to discuss the effectiveness of our management team, the quality of the Board meetings and any other issues or concerns. |
Board of Directors and Risk Management As a part of its oversight function, the Board monitors how management operates the Corporation, in part via its committee structure. The Board receives regular updates and reports from management, including from our Chief Risk Officer, allowing the Board to evaluate strategies and consider the risks involved in all of our insurance and investment activities. The Board has no single risk management committee but, rather, each committee considers risk issues associated with its specific role as discussed in this Proxy Statement.
The Board has adopted a Code of Business Conduct, which is applicable to all directors, officers at the vice president level and above as well as certain other employees with control over accounting data. The Code of Business Conduct is available on our website at ir.protectiveinsurance.com/govdocs.
Compensation Committee Interlocks and Insider Participation No person who served as a member of the Compensation Committee during 2018 has served as an officer or employee of the Corporation. No interlocking relationship exists between any member of our Compensation Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. Mr. Moyles, who served on the Compensation Committee until May 2018, had a material indirect interest in a related person transaction under Item 404 of Regulation S-K during 2018, as described below.
Certain Relationships and Related Transactions Through our insurance subsidiaries, we have made investments in limited partnerships in which NV Capital Holdings II, LLC and affiliates (“NVCH”) serve as general partner and/or investment manager. Nathan Shapiro and Steven Shapiro, along with their family members, each own membership interests in NVCH. Mr. Steven Shapiro served as our Executive Chairman and as a director until June 2018, and Mr. Nathan Shapiro is a current director and a nominee for reelection as a director. Messrs. Nathan Shapiro and Steven Shapiro, along with their family members, do not have a controlling interest in NVCH, and there is no agreement that these individuals will act in concert with one another with respect to their membership interests in NVCH. A total of $13,000,000 has been invested in limited partnerships managed by NVCH. These investments had an aggregate market value of approximately $32,028,000 at December 31, 2018. During 2018, we incurred an aggregate of $639,000 in management fees and no performance-based fees for management of these limited partnerships. We have been informed that the fee rates applied to our investment in partnerships managed by NVCH affiliates are the same as, or lower than, the fee rates charged to unaffiliated customers for similar investments.
We utilize New Vernon Wealth Management, LLC and affiliates (“NVWM”) for the management of portions of our fixed income and equity security portfolios with a total market value of approximately $17,065,000 at December 31, 2018, as well as for investment advisory services. One-third of the membership interests of NVWM are held by NVCH and one-third are held by Mr. Steven Shapiro, along with his family members. There is no agreement that these individuals and entities will act in concert with one another with respect to their membership interests in NVWM. Mr. Steven Shapiro also serves as NVWM’s Manager, Vice President, and Chief Investment Officer. Fees paid to NVWM for the management of these portfolios and for advice and counseling on our investment portfolios totaled $103,000 during 2018. We have been informed that the fee rates applied to our investments managed by NVWM are lower than the fee rates charged to unaffiliated customers for similar investments.
Philip V. Moyles, Jr., who served as one of our directors until May 2018, is the Managing Principal and CEO of Vanbridge Holdings LLC (“Vanbridge”), which is an insurance intermediary, capital advisor, and insurance and reinsurance management firm. Vanbridge was acquired by EPIC Insurance Brokers & Consultants in September 2018. In 2015, we entered into a consulting agreement with Vanbridge pursuant to which we paid Vanbridge an annual consulting fee of $300,000; this agreement expired in October 2018. In addition, under the terms of an ongoing agency agreement we entered into with Vanbridge in March 2016, Vanbridge serves as an insurance broker that places insurance business with us and earns commissions on such business. In 2018, Vanbridge earned $193,000 in commissions from business placed with us pursuant to the agency agreement. The commission rates paid to Vanbridge under the agency agreement are consistent with the commission rates we pay to similar agents and brokers. In November 2017, we entered into an arrangement with Vanbridge wherein Vanbridge served as the broker for insurance company owned life insurance we purchased. Vanbridge earned approximately $350,000 in 2018 for the placement of the insurance and is eligible to earn approximately $38,000 in administration fees from our policy annually.
Pursuant to its written charter, the Audit Committee is responsible for the review, approval, and annual ratification of related person transactions. In accordance with the Audit Committee’s policies and procedures regarding the review of related person transactions, in determining whether to approve or ratify a transaction, the Audit Committee will take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the related person’s interest in the transaction, and our expected benefits from the transaction. No director is permitted to participate in any discussion or approval of any transaction in which he or she or any family member has a direct or indirect interest, except that the director is required to provide all material information concerning the transaction to the Audit Committee.
The Audit Committee has reviewed and approved each of the transactions set forth above in accordance with its policies and procedures outlined above.
In addition to the relationships described above, in determining director independence, the Board also considered Mr. Bensinger's position as a Partner and Senior Advisor with TigerRisk Partners, LLC ("TigerRisk"). TigerRisk serves as a reinsurance broker for us and receives a commission based on the amount of premium we cede under reinsurance arrangements brokered by TigerRisk. We have also engaged TigerRisk Capital Strategies, LLC (“TCMA”) to act as an advisor in the exploration and evaluation of potential strategic partnerships or transactions. Other than interests as a partner of TigerRisk, Mr. Bensinger does not receive any compensation from TigerRisk or TCMA in connection with either the reinsurance brokerage services or advisory services they respectively provide to us. The aggregate commissions and payments we paid to TigerRisk and TCMA in any of the past three years did not exceed 5% or more of TigerRisk's 2018 consolidated gross revenue. The Audit Committee determined that Mr. Bensinger does not have a material direct or indirect interest in the transactions described above and that these relationships would not interfere with Mr. Bensinger's exercise of independent judgement in carrying out his responsibilities as a member of our Board.
Proposal #2 - Ratification of the Appointment of Ernst & Young LLP as Independent Auditor for the Corporation for 2019 The Board has appointed Ernst & Young LLP as independent auditor to audit our financial statements for 2019. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting on May 7, 2019. They will be provided an opportunity to make a statement should they desire to do so and will be available to respond to appropriate inquiries from the shareholders. Ernst & Young LLP has acted as our independent auditor since 1970.
The Audit Committee believes that the continuance of Ernst & Young LLP as our independent auditor is in the best interests of the Corporation and our shareholders. As a result, the Audit Committee has selected Ernst & Young LLP to continue in that capacity for 2019 and is submitting this matter to shareholders for their ratification as a matter of good corporate governance. In the event this proposal is not approved, the Audit Committee will consider whether to select another independent auditor.
The ratification of the appointment of our independent auditors for 2019 will be approved if more shares are voted “FOR” each proposal than “AGAINST.” Neither abstentions nor broker non-votes will affect the outcome of this proposal.
The Board of Directors recommends a vote “FOR” ratification of the selection of Ernst & Young LLP as our independent auditor for 2019.
Audit Fees
Fees for audit services performed by Ernst & Young LLP totaled $1,586,000 for the year ended December 31, 2018 and totaled $1,301,300 for the year ended December 31, 2017. These totals are inclusive of fees associated with the annual audit, reviews of quarterly reports on Forms 10-Q, statutory audits and loss reserve certifications required by regulatory authorities for each of the insurance company subsidiaries and the review of our internal controls as required by Section 404 of the Sarbanes-Oxley Act.
Audit-Related Fees
No fees for audit-related services were paid to Ernst & Young LLP for the years ended December 31, 2018 and December 31, 2017.
Tax Fees
No fees were paid to Ernst & Young LLP for tax services in 2018 and 2017.
All Other Fees
No fees were billed by Ernst & Young LLP for professional services rendered during the fiscal years ended December 31, 2018 and 2017 other than those specified above.
The Audit Committee pre-approves audit engagement terms and fees prior to the commencement of any audit work, other than that which may be necessary for the independent auditor to prepare the proposed audit approach, scope and fee estimates. The independent auditor submits a written proposal that details all audit and audit-related services. Revisions to the written proposal, if necessary, are also submitted in writing. Audit fees, including the internal control attestation required by the Sarbanes-Oxley Act, are fixed and contained in the proposal. We received a proposal for the audit engagement for 2018 and the Audit Committee reviewed the nature and dollar value of services provided under the engagement. Future revisions, if any, will be reviewed and pre-approved by the Audit Committee.
All services described above under the captions “Audit Fees” were pre-approved by the Audit Committee pursuant to SEC Regulation S-X, Rule 2-01(c)(7)(i).
In accordance with its written charter adopted by the Board of Directors, the Audit Committee assists the Board of Directors in fulfilling its responsibilities to oversee the accounting, auditing and financial reporting practices of the Corporation. During calendar year 2018, the Audit Committee conducted six (6) meetings. The Audit Committee discussed and reviewed the interim financial information contained in the Corporation’s Quarterly Reports on Form 10-Q with management and the independent auditor prior to filing with the Securities and Exchange Commission.
In fulfilling its oversight responsibilities, the Audit Committee has received from the independent auditor the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) regarding the independent auditor’s communications with the Audit Committee concerning independence and has discussed with the auditor any relationships that may impact its objectivity and independence and satisfied itself as to the auditor’s independence. The Audit Committee also discussed with management, the director of internal audit and the independent auditor the quality and adequacy of the Corporation’s internal controls and the internal audit function’s organization, responsibilities, budget and staffing. The Audit Committee also reviewed both with the independent auditor and the director of internal audit their audit plans, audit scope and identification of audit risks. The Audit Committee has discussed and reviewed with the independent auditor the matters required to be discussed by the applicable rules of the PCAOB and, both with and without management present, discussed and reviewed the results of the independent auditor’s examination of the financial statements.
The Audit Committee has reviewed and discussed the Corporation’s audited financial statements as of and for the year ended December 31, 2018 with management and the independent auditor. Management has the responsibility for the preparation of the Corporation’s financial statements and the independent auditor has the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the independent auditor, the Audit Committee recommended to the Board that the Corporation’s audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2018 for filing with the Securities and Exchange Commission. The Audit Committee also recommended the reappointment, subject to shareholder approval, of the Corporation’s independent auditor, Ernst & Young LLP, and the Board concurred in the recommendation.
Audit Committee
Current members of the Audit Committee are identified in the table above. All members of the Audit Committee are independent as defined in both the NASDAQ listing standards and the Securities and Exchange Commission standards applicable to audit committee members. The Board has determined that the Chairman of the Audit Committee, Otto N. Frenzel IV, is an audit committee financial expert, as defined in the SEC rules.
The Audit Committee has a charter, a copy of which may be found in the corporate governance section of the Corporation's website at www.baldwinandlyons.com. The principal duties of the Audit Committee include oversight of the Corporation's external auditor and financial reporting practices, review of related person transactions, whistleblower compliance, and monitoring of the Corporation's internal audit processes and controls.
Compensation Committee
All members of the Compensation Committee, as identified in the table on page 8, are independent as defined in both the NASDAQ listing standards and the Securities and Exchange Commission standards applicable to compensation committee members.
The Compensation Committee has a charter, a copy of which may be found in the corporate governance section of the Corporation's website at www.baldwinandlyons.com. As set forth in the charter, the Corporation's executive compensation program is administered by the Compensation Committee. This Committee also oversees the administration of the Corporation's employee benefits plans and establishes policies relating to the compensation of executive officers. The Committee reviews all aspects of executive compensation and evaluates the performance of the Corporation's executive officers, including the named executive officers of the Corporation, as set forth on page 15. In addition, the Committee reviews, manages and administers the Corporation's annual incentive and stock-based compensation plans, as well as the 2013 Book Value Appreciation Rights ("BVAR") Plan. The Compensation Committee approves which executive officers are to receive restricted stock as a portion of their compensation and the underlying compensation which determines the number and terms of the restricted stock. In the case of the BVAR Plan, the Committee approves which executive officers and employees are granted rights and the number and terms of the rights. For a more detailed description of the Corporation's executive officer compensation policies and procedures, including the role of management and the Compensation Committee's compensation consultant in setting executive officer compensation, see the Executive Compensation Discussion and Analysis beginning on page 15.
Compensation Committee Interlocks and Insider Participation
No person who served as a member of the Compensation Committee during 2016 has served as an officer or employee of the Corporation. No interlocking relationship exists between any member of the Corporation's Compensation Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. Messrs. Patrick, Zakaria and Pigott each had a material indirect interest in related person transactions, in accordance with Item 404 of Regulation S-K, during 2016. See "Transactions with Management and Others" beginning on page 39 for a description of the related person transactions.
Investment Committee
The Investment Committee sets policy regarding the allocation, quality, risk and duration of the Corporation's investment portfolios and the positioning of such portfolios in the context of the Corporation's enterprise risk management program. The Investment Committee approves the hiring of all portfolio investment managers and evaluates the performance of each investment manager no less frequently than quarterly. Current members of the Investment Committee are identified in the table on page 8.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for developing and implementing policies and practices relating to corporate governance and assisting the Board in developing criteria for open Board positions and making recommendations to the Board regarding such candidates. The Committee also makes recommendations to the Board with respect to compensation of non-employee members of the Board of Directors. All current members of the Nominating and Governance Committee, identified in the table on page 9, are independent within the meaning of the NASDAQ listing standards.
The Nominating and Governance Committee has a charter, a copy of which may be found in the corporate governance section of the Corporation's website at www.baldwinandlyons.com. In accordance with the charter, the Nominating and Governance Committee is responsible for evaluating the requisite skills and characteristics of members of the Board of Directors and, annually, recommending to the Board of Directors the nominees for election as directors. The Nominating and Governance Committee considers candidates with the following qualifications (though they are not necessarily limited to candidates with such qualifications) and no one factor is considered more important than any other factor:
● | Chief executive officers or senior executives, particularly those with experience in property and casualty insurance, finance, investments, marketing and operations. |
● | Individuals who meet the current criteria of the SEC and NASDAQ to be considered as independent directors. |
The Board does not have a stated policy regarding diversity, although diversity is one factor that the Nominating and Governance Committee considers when recommending directors for shareholder approval.
Any director candidate nominated by a shareholder, together with any information about the candidate's qualifications, will be evaluated by the Nominating and Governance Committee using the same factors as set forth above. A shareholder wishing to nominate a candidate for the Board of Directors should send a written nomination to the Corporate Secretary at the principal offices of the Corporation. The nomination should include a detailed resume providing specificity as to the qualifications of the nominee, including, but not limited to, those specified above. To be considered, a nomination must be received not less than 90 days nor more 120 days prior to the first anniversary of the preceding year's annual meeting of shareholders. In the case of the 2018 annual meeting, the deadline is no earlier than January 9, 2018 and no later than February 8, 2018. All recommendations must be accompanied by a written consent of the nominee to be nominated for election to the Corporation's Board of Directors.
The Nominating and Governance Committee selected each of the nominees included for election in this Proxy Statement.
In addition to the committees discussed above, from time to time, the Board, in its discretion, may form other committees. In May 2016, the Board formed a special committee of independent directors to conduct a comprehensive governance review, with the assistance of independent legal counsel. The members of the special committee were Otto N. Frenzel, IV (Chair), Stuart D. Bilton, and Kenneth D. Sacks. The special committee held 5 meetings during 2016, and the governance review was completed in November 2016
Board of Directors and Risk Management
As a part of its oversight function, the Board monitors how management operates the Corporation, in part via its committee structure. The Board receives regular updates and reports from management, including from the Corporation's Chief Risk Officer, allowing the Board to evaluate strategies and consider the risks involved in all of the Corporation's insurance and investment activities. The Board has no single risk management committee but, rather, each committee considers risk issues associated with its specific role as discussed in this Proxy Statement.
Executive Chairman
Mr. Steven Shapiro has served as Executive Chairman of the Board of Directors since October 2015. In determining that Mr. Shapiro was the appropriate person to serve in the role of Executive Chairman, the Board relied on several important factors. Mr. Shapiro has served on the Corporation's Board since 2007 and served as the Lead Director from 2010 until his appointment as Executive Chairman. He has played an active role in the Corporation's strategic planning, and his advice and counsel are beneficial to the Board and to other members of management.
The Board does not have a policy as to whether the role of the Chief Executive Officer ("CEO") and the office of Executive Chairman should be separate. Thus, while the Board has determined that Mr. Steven Shapiro will serve in the role of Executive Chairman of the Board and Mr. Birchfield will serve in the role of CEO, the Board has the right to determine, in the future, if combining the roles would be in the best interest of the Corporation and its shareholders.
With the roles of Executive Chairman and CEO currently separated, the Board believes that appropriate mechanisms are in place to ensure that the Corporation maintains the highest standards of corporate governance which further ensures the continued accountability of the CEO to the Board. These mechanisms include:
The majority of directors are independent.
The Audit, Compensation, and Nominating and Governance Committees are comprised of and chaired by non-employee Directors who meet the independence requirements under the NASDAQ listing standards and other governing laws and regulations.
Mr. Steven Shapiro, a strong and influential presence on the Board, plays an integral role in the Board's execution of its responsibilities in his role as Executive Chairman. His responsibilities as Executive Chairman and his advisory role to Mr. Birchfield will provide the necessary checks and balances to hold both the CEO and the Board accountable in their respective roles.
The non-employee directors will continue to meet in regular executive sessions, without management present, to discuss the effectiveness of the Corporation's management, the quality of the Board meetings and any other issues or concerns.
Common Stock Beneficially Owned by Directors and Management
Except as otherwise noted, the following table sets forth the number of shares of the Corporation's Class A and Class B common stock beneficially owned as of March 20, 2017 by each of the Corporation's current directors and director nominees; each of the Corporation's current named executive officers, as listed in the Summary Compensation Table on page 26; and all of the Corporation's current directors and executive officers as a group.
| | Class A Shares | Class B Shares |
| Name (a) | Number (b) | | Percent | | Number (b) | | Percent (c) | |
| Stuart D. Bilton | 0 | | 0.0% | | 46,894 | | * | |
| W. Randall Birchfield | 0 | | 0.0% | | 15,040 | | * | |
| Michael J. Case | 0 | | 0.0% | | 10,239 | | * | |
| Otto N. Frenzel, IV | 3,132 | | 0.1% | | 25,728 | | * | |
| Philip V. Moyles, Jr. | 0 | | 0/0% | | 1,607 | | * | |
| John M. O'Mara (d) | 34,125 | | 1.3% | | 88,769 | | * | |
| Thomas H. Patrick (e) | 88,875 | | 3.4% | | 260,783 | | 2.1% | |
| Kenneth D. Sacks | 0 | | 0.0% | | 26,212 | | * | |
| Nathan Shapiro (g) | 1,140,950 | | 43.5% | | 2,517,244 | | 20.2% | |
| Norton Shapiro (g) | 762,509 | | 29.1% | | 1,811,651 | | 14.5% | |
| Robert Shapiro (g) | 865,259 | | 33.0% | | 1,853,609 | | 14.9% | |
| Steven A. Shapiro (g) | 777,344 | | 29.6% | | 1,815,076 | | 14.5% | |
| Matthew A. Thompson | 0 | | 0.0% | | 2,151 | | * | |
| William C. Vens | 0 | | 0.0% | | 15,000 | | * | |
| Arshad R. Zakaria | 82,824 | | 3.2% | | 92,410 | | * | |
| All directors and named executive officers (h) | 1,495,053 | | 57.0% | | 3,247,173 | | 25.9% | |
(a) | Unless otherwise indicated, shares disclosed are those as to which the beneficial owner has sole voting and investment power with respect to Class A shares or sole investment power with respect to Class B shares and includes the beneficial interests of spouses and minor children who share the same residence as the named individual. |
(b) | A total of 2,623,109 Class A shares and 12,481,081 Class B shares were issued and outstanding, including restricted shares not yet vested, as of March 20, 2017. |
(c) | Ownership percentages marked as * represent less that 1% of the Class B shares. |
(d) | Includes 13,194 Class A shares owned by Mr. O'Mara's wife and 6,869 Class A shares held in trust for his wife and children, with Mr. O'Mara serving as trustee. Mr. O'Mara disclaims any beneficial interest in these shares. |
(e) | Includes 236,862 Class B shares owned by a private family foundation in which Mr. Patrick is an officer and director. Mr. Patrick disclaims any beneficial interest in these shares. |
(f) | Includes 4,000 Class B shares held in trust for Mr. Pigott's wife, with his wife serving as trustee. Mr. Pigott disclaims any beneficial interest in these shares. |
(g) | See "Beneficial Owners of More than 5% of the Class A Common Stock" for additional information on Class A shares. The shares reported in the above table for Nathan, Norton, Robert and Steven Shapiro include 755,009 Class A and 1,799,375 Class B shares owned by the Shapiro Family Limited Partnership as well as three partnerships: Gelbart Fur Dressers, Jay Ell Company and Diversified Enterprises; 44,859 Class A shares and 29,000 Class B shares held by New Horizons, Inc., a corporation of which beneficial ownership is held by Nathan Shapiro; 21,375 Class A shares and 85,500 Class B shares held by Illinois Diversified, a general partnership as to which Nathan Shapiro ; and 173,062 Class A shares and 495,625 Class B shares held by NS Associates, Inc., a corporation of which Nathan Shapiro is the controlling shareholder.and Emlin Cosmetics, Inc. Nathan, Robert, Norton and Steven Shapiro are beneficial owners and/or share investment power with respect to the shares owned of record by these entities and, accordingly, these shares are included in the listing for individual beneficial ownership of each of the Shapiro Family members.
|
(h) | Total ownership by the Corporation's current named executive officers, and directors as a group equals 31.3% of the aggregate of all Class A and Class B shares outstanding on the record date. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires certain executive officers, directors and ten percent (10.0%) beneficial owners to file initial reports of ownership and reports of changes in ownership of the Corporation's securities with the Securities and Exchange Commission. Copies of those reports must be furnished to the Corporation. Based solely on a review of the Section 16(a) reports furnished to the Corporation with respect to 2016 transactions and written representations from the affected executive officers and directors, the Corporation notes that the February 5, 2016 Form 4s reporting the acquisition of restricted stock on February 5, 2016 were filed late for Mr. Birchfield, Mr. Case, Mr. Corydon, Mr. DeVito, and Mr. Miller. Similarly, the Form 3s for Mr. Case, Mr. Michael Edwards, and Mr. Thompson were filed late. We believe that all other Section 16(a) filing requirements applicable to the Corporation's executive officers and directors during 2016 were satisfied.
Proposal #2 - Ratification of the Appointment of Ernst & Young LLP as Independent Auditor for the Corporation for 2017
Independent Auditor
Subject to ratification by the shareholders, the Board of Directors has appointed Ernst & Young LLP as independent auditor to audit the financial statements of the Corporation for 2017. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting on May 9, 2017. They will be provided an opportunity to make a statement should they desire to do so and will be available to respond to appropriate inquiries from the shareholders. Ernst & Young LLP has acted as the Corporation's independent auditor since 1970.
The Audit Committee believes that the continuance of Ernst & Young LLP as the Corporation's independent auditor is in the best interests of the Corporation and its shareholders. As a result, the Audit Committee has selected Ernst & Young LLP to continue in that capacity for 2017 and is submitting this matter to shareholders for their ratification as a matter of good corporate governance. In the event this proposal is not approved, the Audit Committee will consider whether to select another independent auditor.
The Board of Directors recommends a vote "FOR" ratification of the selection of Ernst & Young LLP as independent auditor for 2017.
Independent Auditor Fees
Audit Fees
Fees for audit services performed by Ernst & Young LLP totaled $1,357,491 for the year ended December 31, 2016 and totaled $834,100 for the year ended December 31, 2015. These totals are inclusive of fees associated with the annual audit, reviews of quarterly reports on Forms 10-Q, statutory audits and loss reserve certifications required by regulatory authorities for each of the insurance company subsidiaries and the review of the internal controls of the Corporation as required by Section 404 of the Sarbanes-Oxley Act.
Audit-Related Fees
Fees for audit-related services paid to Ernst & Young LLP are expected to total less than $4,500 for the year ended December 31, 2016 and totaled $4,500 for the year ended December 31, 2015, which included certification of certain reports required by regulatory authorities.
Tax Fees
No fees were paid to Ernst & Young LLP for tax services in 2016 and 2015.
All Other Fees
No fees were billed by Ernst & Young LLP for professional services rendered during the fiscal years ended December 31, 2016 and 2015 other than those specified above.
The Audit Committee pre-approves audit engagement terms and fees prior to the commencement of any audit work, other than that which may be necessary for the independent auditor to prepare the proposed audit approach, scope and fee estimates. The independent auditor submits a written proposal that details all audit and audit-related services. Revisions to the written proposal, if necessary, are also submitted in writing. Audit fees, including the internal control attestation required by the Sarbanes-Oxley Act, are fixed and contained in the proposal. The Corporation received a proposal for the audit engagement for 2016 and the Audit Committee reviewed the nature and dollar value of services provided under the engagement. Future revisions, if any, will be reviewed and pre-approved by the Audit Committee.
All services described above under the captions "Audit Fees", "Audit-Related Fees" and "Tax Fees" were pre-approved by the Audit Committee pursuant to SEC Regulation S-X, Rule 2-01(c)(7)(i).
Audit Committee Report
In accordance with its written charter adopted by the Board, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation. During calendar year 2016, the Audit Committee conducted five (5) regular formal meetings. The full Audit Committee discussed and reviewed the interim financial information contained in the Corporation's Quarterly Report Forms 10-Q with the CEO, the CFO and the independent auditors prior to filing with the Securities and Exchange Commission.
In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent auditors a formal written statement and the letter required by applicable requirements of the Public Company Accounting Oversight Board (the "PCAOB") describing all relationships between the auditors and the Corporation that might bear on the auditor's independence and discussed with the auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors' independence. The Audit Committee also discussed with management, the director of internal audit and the independent auditors the quality and adequacy of the Corporation's internal controls and the internal audit function's organization, responsibilities, budget and staffing. The Audit Committee also reviewed both with the independent auditors and the director of internal audit their audit plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent auditors all communications required by the applicable rules of the PCAOB and, both with and without management present, discussed and reviewed the results of the independent auditor's examination of the financial statements.
The Audit Committee reviewed the audited financial statements of the Corporation as of and for the year ended December 31, 2016, with management and the independent auditors. Management has the responsibility for the preparation of the Corporation's financial statements and the independent auditor has the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the Corporation's audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the Securities and Exchange Commission. The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent auditor, Ernst & Young LLP, and the Board of Directors concurred in the recommendation.
Audit Committee
Otto N. Frenzel IV, ChairmanDavid W. Michelson, Chair
Stuart D. Bilton
John A. PigottOtto N. Frenzel IV
John M. O'Mara
Executive Compensation Discussion and Analysis
Introduction
The following discussion provides an overview of the philosophy, objectives, administration and material elements of, and decisions relating to, the Corporation's Executive Compensation Programour executive compensation program for 2016,2018, as well as changes determined for 2017.2019. The Compensation Committee of the Board (referred to hereafter in this Executive Compensation Discussion and Analysis as the "Committee"“Committee”) oversees the total compensation program for the Corporation'sour executive officers. This Executive Compensation Discussion and Analysis and the information following in the Summary Compensation Table includesinclude a series of tables and narrative disclosures containing data about the compensation earned in 20162018 by the following individuals, who encompass the Corporation'sare our named executive officers ("NEOs"(“NEOs”) for 2016:
Name2018:Title
Steven A. Shapiro Executive Chairman
W. Randall Birchfield Chief Executive Officer and President
William C. Vens Chief Financial Officer
Michael J. Case Executive Vice President and Chief Operating Officer
Matthew A. Thompson Executive Vice President of Sales and Marketing
Joseph J. DeVitoName | Title |
| |
John D. Nichols, Jr.
| Chairman and Interim Chief Executive Officer |
William C. Vens
| Chief Financial Officer |
Jeremy F. Goldstein
| Executive Vice President of Claims |
Patrick S. Schmiedt
| Chief Underwriting Officer |
Matthew A. Thompson
| Executive Vice President of Sales and Marketing |
W. Randall Birchfield
| Former Chief Executive Officer, President and Chief Operating Officer |
Steven A. Shapiro
| Former Executive Chairman |
Michael J. Case
| Former Executive Vice President and Chief Operating Officer |
G. Patrick Corydon FormerWe experienced several changes in our executive leadership team in 2018. On February 15, 2018, Mr. Case departed from his positions as Chief FinancialOperating Officer and Executive Vice President
Douglas W. Collins Former Interim of the Corporation. In connection with Mr. Case’s departure, Mr. Birchfield assumed the additional role of Chief Financial Officer
The Corporation experienced several changes inOperating Officer. On June 5, 2018, Mr. Steven Shapiro resigned from his role as Executive Chairman and as a member of our Board of Directors (the “Board”). As discussed further under “Leadership Structure” on page 11, after Mr. Shapiro’s resignation, the executive leadership team in 2016. In May 2016,Board determined that the Executive Chairman role would be eliminated. On October 17, 2018, Mr. DeVito retiredBirchfield resigned from his role as Chief Executive Officer, President, and Chief Operating Officer.Officer and as a member of our Board. In connection with Mr. DeVito'sBirchfield’s departure, Mr. BirchfieldNichols was appointed to serve as Interim Chief Executive Officer and President and Mr. Case was appointedChairman of the Board. The Board determined at that time not to serve asfill the role of Chief Operating Officer and Executive Viceor President. In May, 2016, Mr. Corydon retired as Chief Financial Officer and Executive Vice President. In connection with Mr. Corydon's departure, Mr. Collins was appointed as Interim Chief Financial Officer from May 2016 until August 2016 when Mr. Vens was appointed to serve as Chief Financial Officer. In October 2016, Mr. Collins employment with the Corporation was terminated.
Mr. Steven Shapiro was appointed Executive Chairman in October 2015, serving as an advisor to executive management through his role as a director. In connection with Mr. Gary Miller's departure from his position as Deputy Chairman in May 2016, the Board determined that the position of Deputy Chairman would be eliminated. Mr. Shapiro assumed a more active role in developing and guiding the Corporation's strategic planning and growth initiatives, and consistent with his increased role, Mr. Shapiro became an employee of the Corporation in June 2016.
Executive Compensation Philosophy, Strategy & Objectives The Corporation'sOur compensation philosophy and objectives are directly related to itsour business strategy and objectives. The Committee endeavors to ensure that the philosophy and operation of the Corporation'sour compensation program reinforces itsour culture and values,values; creates a balance between risk and reward,reward; attracts, motivates, and retains executivesexecutives; and aligns their interests with those of the Corporation'sour shareholders. The Committee, on behalf of the full Board, of Directors, believes that the Corporation'sour compensation programs should:
Create compensation which is targeted at a level that will allow the Corporation to attract, retain, and motivate top executive talent.
| ● | Create compensation which is targeted at a level that will allow us to attract, retain, and motivate top executive talent; |
Ensure that an appropriate relationship exists between compensation and the creation of shareholder value.
| ● | Ensure that an appropriate relationship exists between compensation and the creation of shareholder value; |
Align with operational results, business growth, and financial goals.
| ● | Align with operational results, profitable growth, and financial goals to encourage achievement of our strategic objectives; |
Support long-term decision-making and, accordingly, long-term increase in shareholder value.
| ● | Support long-term decision-making, business sustainability and, accordingly, long-term increase in shareholder value; |
Encourage strategic growth of the Corporation's core business to support financial growth.
| ● | Ensure that compensation is reflective of the underwriting results achieved by members of our executive team; and |
Ensure that compensation is reflective of operational results of the executive team.| ● | Include standard employee benefitsavailable to all employees and utilize perquisites only to the extent there is a vital business rationale for doing so. |
Include benefits and perquisites to the extent there is valid business rationale for doing so.
The Committee believes thatdesigned the executive compensation program in place for 2016 supported2018 to support these objectives. The Corporation'sOur executive compensation program received approval from 90%approximately 94% of the voting shareholdersvotes cast at theour May 2016 Annual Meeting2018 annual meeting, and no changes were made to theour executive compensation program as a result of that shareholder vote.
Our 2018 executive compensation program was a continuation of the updated pay strategy that the Committee implemented in 2016 and 2017. The Committee has developed an updatedcontinued to evaluate and adjust its pay strategy utilized,to ensure that, in part, forpractice, the compensation adjustments made in connection withstructure fulfills the executive leadership transition in 2016 and which will be further implemented in 2017. The Committee believes this strategy allows for the achievement of the Corporation's compensation philosophy, as enumeratedgoals identified above and supports execution of the Corporation'sour business strategy. These guiding principles have been implemented through the Corporation'sapplied to our pay strategy for 2018 as follows:
| ● | Base salaries are set in recognition of the Corporation'sour efficient management structure, requiring fewer executive officers, and to ensure continued attraction and retention of executive talent. |
| ● | Annual incentiveIncentive opportunities which are distributed as a combination of cash and the Corporation's equity securities, were expanded in 2017 for all executive officers, with a greater emphasis on longer-termbalanced to emphasize long-term equity awards so as not to encourage engaging in short-term profitgrowth opportunities at the expense of long-term decision-makingprofitability and total long-term shareholder value. |
| ● | Annual incentive opportunities include a significant performance-based component, both in the form of short-term annual cash incentive awards as well as a substantial emphasis on "at-risk,"and long-term equity-based long-term incentives. |
| ● | Perquisites have been furtherare limited to focus on cost reduction and operational efficiencies. |
Compensation and Risk Taking ConsiderationsAssessment
The formulaic bonus hurdlesPerformance targets utilized by the Committee under its Executivethe Protective Insurance Corporation Annual Incentive Plan (the "Executive Plan"“Annual Incentive Plan” or “AIP”) for 2016, as described below, were based solely on pre-tax operating income. Operating income hurdlesand the Protective Insurance Corporation Long-Term Incentive Plan (the “Long-Term Plan”) were selected by the Committee in conjunction with the full Board'sBoard’s review and approval of the operating budgetplan for 2016,2018, as developed by management. The individualIn creating performance portion of the bonus opportunity under the Executive Plan, for certain NEOs, may include targets, for premium linked to underwriting profit. In the creation of operating income hurdles, careful consideration is given to current and anticipated market conditions.conditions that may affect our ability to achieve our strategic growth initiatives or otherwise impact our results.
The Committee believes that the proportion of compensation based on the Corporation's operating incomeour gross premiums earned, our combined ratio, and individual performance is balanced in such a way as to motivate the NEOs to fulfill the corporate mission and vision, including specific and focused performance objectives, while not encouraging unnecessary or excessive risk taking. A portion of NEOs'the NEOs’ performance-based compensation is paid in the form of restricted shares, which does not encourage unnecessary or excessive risk taking because such restricted shares generally vest over a three-year period of time and are forfeitable, thereby focusing the executives on the Corporation'sour long-term interests.
Further, the Committee believes that having a proportion of NEO compensation for 2018 based on our cumulative operating income over a three-year performance period minimizes the impact of year-to-year fluctuations in income due to market conditions, while still ensuring that our executive management team is continually focused on value creation for the Corporation and our shareholders. The cumulative operating income targets utilized by the Committee under the Long-Term Plan were selected in conjunction with the full Board’s review and approval of the 2018-2020 strategic plan, as developed by management. This portion of the NEOs’ performance-based compensation is paid in the form of unrestricted shares, awarded at the end of a three-year performance period, thereby focusing the executives on our long-term performance and strategy.
The Committee has determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Corporation.
Executive Compensation Administration The Role of the Committee The Committee is responsible for approving all components of the compensation of the NEOs of the Corporation. The Board has determined that the Corporation's executive officers shall consist of the Executive Chairman, the Chief Executive Officer ("CEO"), the Chief Operating Officer ("COO"), the Chief Financial Officer ("CFO"), and the Executive Vice President of Sales and Marketing; all of whom were NEOs in 2016.our NEOs. The Committee administers all executive officer compensation plans, programs, and guidelines and approves the compensation paid to the Corporation'sour executive officers. The Role of Executive Management TheAs a matter of standard practice, the CEO sets operational goals for each executive officerNEO other than himself and the Executive Chairman. Both the Executive Chairman andhimself. The CEO evaluateevaluates each executive officer'sofficer’s performance and make recommendations regarding compensation to the Committee for each executive officer other than themselves. Neither the Executive Chairman nor thehimself. The CEO hasdoes not have final decision makingdecision-making authority regarding his own level of compensation, nor that of any of the other executive officers. However, the CEO does, when requested by the Committee, provide the following to assist the Committee, which makes its own ultimate determinations:| ● | Background information regarding the Corporation'sour operating results and financial objectives; |
| ● | The CEO'sCEO’s evaluation of the performance of the other executive officers, excluding himselfhimself; and the Executive Chairman; and |
| ● | Recommendations for completed year compensation awards and future base salary and target incentive plan adjustments for the other executive officers, excluding himself and the Executive Chairman.himself. |
The Role of the Committee'sCommittee’s Advisors Pearl Meyer & Partners
The Committee has the authority to engage an executive compensation consultant or other advisor as necessary to assist in fulfilling its duties to the Corporation's shareholders. In 2016, the Committee engaged Pearl Meyer & Partners ("PM&P"), an independent executive compensation consulting firm, to update an executive compensation review PM&P conducted in 2013 by providing a review of executive officer evaluations, analysis of the Corporation's 1, 3, and 5-year total shareholder return relative to peers, analysis of executive leadership transitions and compensation, and analysis of 10-year compensation levels and growth. PM&P reported directly to the Committee.
McLagan-Ward Group
The executive leadership transition in 2016 prompted the Committee to reevaluate the compensation structure utilized at the onset of 2016 to align the compensation of the executive officers to the strategic goals of the Board and the Corporation, as well as shareholders. The Committee engaged the McLagan-Ward Group ("Ward"(“Ward”) to provide a review and analysis of the Corporation'sour executive compensation program, including annual short-term and long-term incentive plans, to assist in determining our comparator group, and to deliver observations and recommendations to better align the plans with the Corporation'sour compensation philosophy, as well as with current trends and best practices in the market.industry. As part of their review, Ward personnel communicated with management from time to time to gather information. Ward participated in Committee discussions at the Committee'sCommittee’s request, including executive sessions where no executive officers or other employees of the Corporation were present. In 2018, the Committee utilized Ward to assist with analyzing severance and restrictive covenant agreements.
Compensation Consultant Independence
Neither PM&P nor Ward provideddid not provide any services to the Corporationus other than those detailed above. The Committee determined that no conflicts of interest exist with respect to either PM&P or Ward serving as an advisor to the Committee. In making this determination, the Committee considered various factors, including those set forth in the SEC'sSEC’s rules. In addition, the Committee reviewed certifications made by each of our executive officers and directors that he or she did not have a business or personal relationship with PM&P or Ward or any of the individuals working on our engagements.engagement.
Pay Positioning and Comparator Group
In setting compensation during 2016,2018, the Committee compared base salaries, annual cash and equity-based incentive opportunities, and total compensation packages for the NEOs to a comparator group of public property and casualty insurance competitors. The comparator group covers a wide span in terms of direct written premium size. While the Corporation'sour direct written premium is in the lower quartile of the comparator group, the Corporation'sour other operating measures support total compensation comparison between the companies in the comparator group.
The Committee determined which companies should be in the comparator group with the assistance of Ward and set the comparator group as follows:
| Amerisafe, Inc. | Heritage Insurance Holdings, Inc. |
| Atlas Financial Holdings, Inc. | James River Group Holdings, Ltd. |
| Donegal Group Inc. | National Interstate Corporation |
| EMC Insurance Group Inc. | NMI Holdings, Inc. |
| Employers Holdings, Inc. | Safety Insurance Group, Inc. |
Federated NationalFedNat Holding Company | United Insurance Holdings Corp. |
| Hallmark Financial Services, Inc. | Universal Insurance Holdings, Inc. |
| HCI Group, Inc. | |
The Committee has designed our executive compensation program to target total compensation (salary plus incentive and/or long-term equity awards) near the median for comparable positions within the comparator group. High-performing individuals who demonstrate superior performance over a long period of time may have paytotal compensation positioned above the median.
Competitive market data is only one of several factors utilized by the Committee to assist in setting executive compensation levels. The Committee does not use market data as part of a formula to determine compensation or as a fixed target.
Components of Executive Compensation for 20162018 The principal components of the Corporation's 2016our 2018 executive compensation program for executive officers, including the NEOs, were: | 2. | Annual incentivesIncentive Plan awards |
| 3. | Long-term incentivesequity incentive awards |
| 4. | Employee benefits and perquisites |
Each of these elements is discussed more fully below.
The Committee annually reviews and, if considered appropriate, adjusts each executive officer'sofficer’s base salary. The Committee considers several factors when determining if a base salary adjustment is warranted and how much of an adjustment is appropriate. These factors include the Corporation'sour performance against business objectives, changes in individual levels of responsibility, individual performance for the previous year, market data regarding similar positions in our comparator group, knowledge of our unique business and industryrelationships, and general economic conditions. While the Committee considers these factors to guide its decisions, it does not rely on them exclusively. The Committee typically exercises significant business judgment based on a thorough assessment of compensation levels and alignment with the Corporation'sour compensation philosophy and pay strategy.
The following chart sets forth the Committee determined that base salaries for the then-current NEOs would be increased an average of 3.6%for 2018:
| | | | | | | | | | |
| | | 2017 Salary | | | 2018 Salary | | | % Change | |
| Mr. Nichols | | $ | - | | | $ | 600,000 | | | | - | |
| Mr. Vens | | | 366,500 | | | | 366,500 | | | | 0.00 | % |
| Mr. Goldstein | | | 390,000 | | | | 401,700 | | | | 3.00 | % |
| Mr. Schmiedt | | | 275,000 | | | | 357,639 | | | | 30.05 | % |
| Mr. Thompson | | | 475,000 | | | | 475,000 | | | | 0.00 | % |
| Mr. Birchfield | | | 600,000 | | | | 600,000 | | | | 0.00 | % |
| Mr. Shapiro | | | 500,000 | | | | 500,000 | | | | 0.00 | % |
| Mr. Case | | | 525,000 | | | | 525,000 | | | | 0.00 | % |
The Committee recognized that we did not meet our performance objectives in light2017, and, as a result, the Committee did not approve any salary adjustments for Messrs. Vens, Thompson, Birchfield, Shapiro or Case for 2018. In November 2018, the Board determined that, based on their current duties and responsibilities, Messrs. Goldstein and Schmiedt are executive officers of the underwriting resultsCorporation. The salaries of Messrs. Goldstein and progressSchmiedt were not adjusted by the Committee upon such determination by the Board. The compensation of Messrs. Goldstein and Schmiedt was reviewed in February 2018, consistent with respectthe annual compensation review conducted for all employees, and Mr. Birchfield approved a 3% salary increase for both Mr. Goldstein and Mr. Schmiedt to the Corporation's five-year strategic plan achieved during 2015.
be effective as of January 1, 2018. As a result, Mr. Goldstein’s salary for 2018 was increased to $401,700, and Mr. Schmiedt’s salary was increased to $283,250. In September 2018, Mr. Schmiedt was promoted to the position of the executive leadership transition,Chief Underwriting Officer. In connection with his new role, Mr. Birchfield approved an additional 26% salary increase from $283,249 to $357,639 for Mr. Schmiedt and an increase in Mr. Schmiedt’ s target AIP and Long-Term Incentive Plan (“LTIP”) award opportunities, as discussed further below. In November 2018, the Committee established or made adjustments to theset Mr. Nichols’ annual base salaries of certain NEOs in 2016, taking into consideration several factors including changes in individual levels of responsibility, the individual's ability to lead the Corporation through a period of significant transition, establishment of business and strategic objectives, market data regarding similar positions in our comparator group, and knowledge of the Corporations unique business and relationship:salary at $600,000.
● | Consistent with Mr. Steven Shapiro's increased role as Executive Chairman, when Mr. Shapiro became an employee of the Corporation in June 2016, the Committee approved an annual base salary of $500,000 for his service as Executive Chairman. |
● | Mr. Birchfield served as the Corporation's Executive Vice President until May 17, 2016, when he was appointed CEO and elected as a director. In August 2016, Mr. Birchfield was appointed to the additional role of President. In connection with his appointment as CEO and President in August 2016, the Committee approved an increase in the annual base salary of Mr. Birchfield to $600,000, effective as of May 17, 2016. |
● | Mr. Vens served as the Corporation's Vice President of Strategy and Planning prior to his appointment as Chief Financial Officer on August 30, 2016. In connection with his appointment as Chief Financial Officer, the Committee approved an increase in Mr. Vens' annual base salary to $350,000, effective August 30, 2016. |
● | Mr. Case was appointed Chief Operating Officer and Executive Vice President in May 2016. In August 2016, the Committee approved an increase in Mr. Case's annual base salary to $415,000, which base salary was effective as of May 17, 2016, in connection with his appointment to these new roles. |
● | In connection with Mr. Thompson's promotion to Executive Vice President of Sales and Marketing, the Committee approved an increase in Mr. Thompson's base salary to $450,000, effective as of June 6, 2016. |
● | Mr. Collins served as the Corporation's Assistant Vice President and Director of Accounting and Finance until May 17, 2016, when he was appointed as Interim Chief Financial Officer. In connection with his appointment, the Committee approved an increase in his annual base salary to $274,500, effective as of May 17, 2016. Upon Mr. Vens' appointment as Chief Financial Officer on August 30, 2016, Mr. Collins continued with the Corporation as Vice President of Finance and Accounting and Director of its main subsidiaries Protective Insurance Company, Sagamore Insurance Company, and Protective Specialty Insurance Company until October 31, 2016. |
Annual Incentives for 20162018
The Corporation's executive officers,AIP bonusOur employees, including each of our NEOs with the NEOs,exception of Mr. Nichols, participated in the Corporation's ExecutiveAnnual Incentive Plan for 2016. A more detailed description of the Executive Plan was included, starting on Page 21, of the Proxy Statement for2018. Under the Annual Meeting of Shareholders for the meeting held May 4, 2010, a copy of which may be obtained on the Corporation's website at www.baldwinandlyons.com or from the SEC's EDGAR web site (www.sec.gov/edgar).
Under the ExecutiveIncentive Plan, each participant, including each of theour NEOs, was provided with a target annual incentiveAIP bonus opportunity or target bonus, according to the pay strategy discussed above. AsTarget AIP bonus opportunities were set based upon a review of non-equity awards paid at companies in our comparator group and after taking into consideration the proportionate share of each NEO’s equity versus non-equity compensation opportunities. The earned AIP bonus is determined by applying a performance matrix factor measuring the combined results of (1) our 2018 growth in gross premiums earned and (2) our 2018 combined ratio (the “performance matrix”). Our combined ratio is calculated as the ratio of: (A) the sum of losses and loss expenses incurred, plus other operating expenses, less commissions and other income, to (B) net premiums earned. This was a change from 2017, which measured the combined results of growth in net premiums earned and our combined ratio, because the Committee believes that growth in gross premiums earned more adequately captures our business growth and minimizes the impact to executive compensation caused by changes in our reinsurance structure. This change also aligned the NEOs’ incentive targets with our strategic growth and underwriting profitability targets.
Our performance matrix factor can range from 0.0 to 2.00 each year which, when applied to the target AIP opportunity, can result in an award payout between 25% and 200% of the executive leadership transition,target AIP opportunity. Our performance matrix factor is 1.00 if we achieve the growth in gross premiums earned and combined ratio targets established by the Board in our annual plan, and there is no payout if the performance matrix results in a factor of less than 0.25. For 2018, our achievement of a 10% growth in gross premiums earned (when compared to 2017 gross premiums earned) and a combined ratio of 98% would have resulted in a performance matrix factor of 1.00.
The performance matrix factor increases (or decreases) by .007 for every 10 basis points that actual 2018 growth in gross premiums earned is above (or below) our plan target. The performance matrix factor increases (or decreases) by .02 for every 10 basis points that our actual 2018 combined ratio differs from our plan target set forth above. The performance matrix incentivizes profitable growth, with fluctuations in our combined ratio compared to plan target having a larger impact on the performance matrix factor than gross premiums earned. For the NEOs, after the application of our performance matrix factor, 33% of the target AIP opportunity may be subject to further adjustment based on the Committee’s determination of the NEO’s individual financial and operational results, but in no case may the Committee setadjust the followingNEO’s award above 100% of the target AIP opportunity.
All AIP bonuses are paid in cash at the end of the applicable annual incentiveperformance period, except that 25% of Mr. Birchfield’s eligible AIP bonus was historically paid in unrestricted shares of our Class B common stock, as valued on the date of award, which shares were issued under the Long-Term Plan.
The target AIP bonus opportunities for the following NEOs underfor 2018 were as follows:
| | | | | | | | | | | | | |
| | | AIP Award Cash Target | | | AIP Award Stock Target | | | AIP Award Target Total | | | AIP Award Maximum | |
| Mr. Nichols | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Mr. Vens | | | 200,000 | | | | 0 | | | | 200,000 | | | | 400,000 | |
| Mr. Goldstein | | | 102,835 | | | | 0 | | | | 102,835 | | | | 205,670 | |
| Mr. Schmiedt | | | 62,886 | | | | 0 | | | | 62,886 | | | | 125,772 | |
| Mr. Thompson | | | 125,000 | | | | 0 | | | | 125,000 | | | | 250,000 | |
| Mr. Birchfield | | | 750,000 | | | | 250,000 | | | | 1,000,000 | | | | 2,000,000 | |
| Mr. Shapiro | | | 300,000 | | | | 0 | | | | 300,000 | | | | 600,000 | |
| Mr. Case | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
The target AIP bonus opportunites for Messrs. Goldstein and Schmiedt were approved by Mr. Birchfield in February 2018 as part of their annual compensation review. These target AIP bonus opportunities were not adjusted by the Executive Plan:
● | A target incentive opportunity of $500,000 was established for Mr. Shapiro, which target bonus was pro-rated in 2016 from June 1 through December 31. |
Committee upon their being named as executive officers in November 2018. Mr. Birchfield approved a target AIP bonus opportunity of 25.6% of base salary for Mr. Goldstein and 18.2% of base salary for Mr. Schmiedt. In connection with Mr. Schmiedt’s promotion to Chief Underwriting Officer in September 2018, Mr. Birchfield approved an increase to Mr. Schmiedt’s target AIP opportunity to 25% of his then-current salary, with his total bonus opportunity pro-rated based on the number of days that Mr. Schmiedt was at each respective bonus level during the calendar year.
● | The Committee increased the target annual incentive opportunity for Mr. Birchfield under the Executive Plan from $262,500 set in February 2016 to $800,000 set in August 2016. Per the terms of the Executive Plan, the increased portion of Mr. Birchfield's target bonus was pro-rated in 2016 from May 17 through December 31. |
● | The Committee increased the target annual incentive opportunity for Mr. Vens under the Executive Plan for 2016 to $400,000 for 2016. Per the terms of the Executive Incentive Plan, Mr. Vens' target bonus was pro-rated in 2016 from August 24 through December 31.
|
● | The Committee increased the target annual incentive opportunity for Mr. Case under the Executive Plan from $226,825 set in February 2016 to $465,000 set in August 2016. Per the terms of the Executive Plan, the increased portion of Mr. Case's target bonus was pro-rated in 2016 from May 17 through December 31. |
● | The Committee increased the target annual incentive opportunity for Mr. Thompson's under the Executive Plan to $125,000, effective as of June 6, 2016. Per the terms of the Executive Plan, the increased portion of Mr. Thompson's target bonus was pro-rated in 2016 from June 6 through December 31. |
● | The Committee increased the target annual incentive opportunity for Mr. Collins under the Executive Plan to $70,000, effective May 17, 2016. On October 30, 2016, Mr. Collins entered into a severance agreement with the Corporation. The severance agreement, among other things, entitled Mr. Collins to receive a pro-rated share of his annual target bonus, equaling $43,333.
|
In addition, Mr. DeVito served asFor 2018, our growth in gross premium earned and our 2018 combined ratio, when combined to formulate the Corporation's Chief Executive Officer, Chief Operating Officer, President and a director until May, 17, 2016. The Executive Plan provides that when a separation occurs during a bonus year, the Committee may, but is not obligated to, provide a pro-rated bonus to the executive for the current bonus year. The Committee made no election for the payment of a portion of Mr. DeVito's 2016 bonus of $1,050,000. In accordance with the terms of the Restricted Stock Plan, as Mr. DeVito retired from the Corporation after reaching age 50 and having completed at least 20 years of service to the Corporation, Mr. DeVito fully vested in all awarded but unvested awards, accounting for 33,218 shares. Alsoperformance matrix factor in accordance with the terms of the Restricted Stock Plan, the Corporation pays each participant for the dividends that accrue on such shares during the vesting period. Mr. DeVito received $36,366 in connection with the shares that vested in May 2016 upon his resignation.
Similarly, Mr. Corydon served as the Corporation's Chief Financial Officer and Executive Vice President until May, 17, 2016. The Committee made no election for the payment of a portion of Mr. Corydon's 2016 bonus of $534,681. In accordance with the terms of the Restricted Stock Plan, as Mr. Corydon retired from the Corporation after reaching age 50 and having completed at least 20 years of service to the Corporation, Mr. Corydon fully vested in all awarded but unvested awards, accounting for 17,055 shares. Also in accordance with the terms of the Restricted Stock Plan, Mr. Corydon received $18,790 in connection with the shares that vested in May 2016 upon his resignation.
Annual incentive bonuses for 2016 were determined using a preset formula-based bonus program consisting of two components: 50% was dependent upon a Board approved hurdle based upon pre-tax operating income and 50% was dependent on an evaluation of each NEO's individual performance and changes in executive responsibilities.
For the operating income component, the Committee established a "hurdle" determined based on the Corporation's budgeted pre-tax operating income for 2016, as approved by the Board of Directors. This formulaic portion of the executive's bonus was determined by comparing the actual pre-tax operating income for the year against the hurdle amount. This portion of the bonus will increase or decrease as actual pre-tax operating income is higher or lower than the hurdle. A range was established with 75% of the hurdle, referred to as the "threshold" and 150% of the hurdle, referred to as "superior performance". The formula portion multiplies (or reduces) at twice the percentage of deviance from the target, subject to the threshold and maximum payout limits. Therefore, if operating income falls below the threshold, this portion of the bonus is correspondingly reduced. If operating income equals or exceeds superior performance, the maximum portion of the bonus would be double the target, as illustrated below.
Threshold - 75% of Target Target Operating Income Superior - 150% of Target
BelowThreshold | | |
Bonus = 0 2 for 1 2 for 1
Hurdle portion of bonus = 50% Hurdle portion of bonus = 100% Hurdle portion of bonus = 200% maximum
In the third quarter of 2016, the Corporation made reserve adjustments based on adverse loss development in prior accident years. As discussed in the Corporation's earnings release for the nine months ended September 30, 3016 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, these reserve adjustments impacted the quarterly and, ultimately, annual operating results. As a result, the Corporation's 2016 actual pre-tax operating income was 58.23% compared to the hurdle, which according to the formulamatrix discussed above, would eliminate anyresulted in no payout under the formulaic portion of the AIP bonus. The Committee considered the impact of this development on executive compensation and determined that relief against the impact of the reservechose not to make any discretionary adjustments should be granted. For 2016, actual pre-tax operating profit was 87.9% of the hurdle after consideration for the reserve adjustments, which, when applied to the formula, resultedformulaic result. Therefore, no currently employed NEOs were awarded any AIP bonuses for 2018.
Messrs. Birchfield and Shapiro forfeited their respective AIP opportunities for 2018 upon their resignation from the Corporation in 2018. As described in “Potential Payments upon Termination or Change in Control” on page 36. Mr. Case received a payment of 75.8% of the formulaicpro-rated portion of his target AIP bonus amount.
The individual performance component of the Plan is designedopportunity for 2018 in recognition of the fact that significant contributions by certain executives to the long-term success of the Corporation may be achieved regardless of the attainment of operating income targets. The Compensation Committee, upon recommendationconnection with his departure from the CEO, develops performance goals for each executive in conjunction with the creation of the corporate strategic plan and, while individual performance goals vary among the executives depending on their specific responsibilities, these goals are inter-dependent with the focus of positioning the Corporation to achieve its long-term objectives.Corporation.
For 2016, the individual performance assessment for the current NEOs reflected the individual's contributions in setting strategic initiatives, designing and implementing a reorganization of the management team, operational effectiveness and leadership, and effective transition into his new role. For 2016, this evaluation resulted in each of the NEOs being awarded 100% of the portion of their target bonus based on individual performance. Upon combining the 50% formulaic portion with the 50% discretionary portion, each NEO was awarded 88% of their target bonus opportunity under the Executive Plan for 2016, further subject to the pro-rated calculations discussed above.
All bonuses earned under the Executive Plan are paid to the NEOs, two-thirds in cash and one-third in the form of restricted shares Class B common stock which will vest over a three year period, in accordance with the Executive Plan. Amounts presented in the Summary Compensation Table reflect this distribution, with the cash payouts shown in the Bonus column and the grant date fair value of the equity component shown in the Stock Awards column for 2016. The cash payouts were included in the Bonus column for 2016 due to the change in the pre-tax operating income hurdle amount after the end of the third quarter, which resulted in payouts in excess of what would have been received under the initial pre-tax operating income hurdle amount, and due to the discretion exercised by the Committee with respect to the individual performance portion of the award.
Class B common shares paid as part of the Executive Plan are subject to risk of forfeiture upon termination of employment for any reason other than death, disability or retirement prior to vesting. Vesting occurs ratably on the first, second and third anniversaries of the grant, which typically occurs in February following the completion of the calendar year to which the bonus applies. Additional information regarding these restrictions is presented in the equity award tables elsewhere in this Proxy Statement.
Other Bonuses in 20162018
In addition to the bonuses earned under the Executive Plan,AIP opportunities described above, in August 2016,2018, the Committee approved a one-time cash bonus of $200,000 for Mr. Birchfield in connection with his execution of $200,000his employment agreement, subject to partial repayment if his employment was terminated by us for cause or by him without good reason, as described in recognition of the additional duties and responsibilities Mr. Birchfield discharged during the executive leadership transition period from May 2016 to August 2016. “Potential Payments upon Termination or Change in Control” on page 38.
In August 2016,November 2018, the Committee also approved a one-time cash bonus of $40,000 for Mr. Case of $103,750Goldstein in recognition of the additional duties and responsibilities Mr. Case dischargedhis efforts during the executive leadershipmanagement transition period from May 2016 to August 2016.in October 2018
In December 2016,addition, Messrs. Birchfield, Case,Goldstein and ThompsonSchmiedt each received a bonus of $25,000 and Mr. Vens received a bonus of $16,528 pursuant to the Corporation'sour holiday bonus program provided to all employees.employees other than those individuals who are executive officers of the Corporation as of January 1st of the applicable calendar year in which the bonus is paid. The holiday bonus is paid based on a formula of base salary and length of service to the Corporation which, for employees who were hired prior to 2017, is subject to a maximum of $25,000. Mr. Goldstein received a holiday bonus amount of $25,000. The Compensation Committee determined that$25,000 and Mr. Shapiro would not be eligible for the holidaySchmiedt received a bonus program.of $17,361. No holiday bonus is paid to any individual who is not an employee of the Corporation on the date the bonus is paid.
On August 5, 2016,
Long-term Incentives for 2018
For 2018, the Committee approved grants of several types of equity awards to our NEOs under the Long-Term Plan. As described in further detail below, the two primary equity-based incentives that our NEOs are eligible to earn are an annual LTIP award and a Value Creation Incentive Plan (“VCIP”) award based on our performance over a three-year period (2018-2020). In March 2018, the Committee set the target and maximum LTIP and VCIP award opportunities for Messrs. Vens, Thompson, Birchfield, Shapiro and Case for 2018, as set forth in the following table. In February 2018, Mr. Birchfield set the target and maximum LTIP award opportunities for Messrs. Goldstein and Schmiedt for 2018, and in September 2018, Mr. Birchfield approved an increased LTIP award opportunity for Mr. Schmiedt in connection with his promotion to Chief Underwriting Officer. The table below sets forth the final target and maximum LTIP award opportunities for Messrs. Goldstein and Schmiedt for 2018.
| | | | | | | | | | | | | |
| | | LTIP Award Target | | | LTIP Award Maximum | | | VCIP Award Target | | | VCIP Award Maximum | |
| Mr. Nichols | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Mr. Vens | | | 100,000 | | | | 200,000 | | | | 100,000 | | | | 200,000 | |
| Mr. Goldstein | | | 72,708 | | | | 145,415 | | | | 0 | | | | 0 | |
| Mr. Schmiedt | | | 44,785 | | | | 89,570 | | | | 0 | | | | 0 | |
| Mr. Thompson | | | 62,500 | | | | 125,000 | | | | 62,500 | | | | 125,000 | |
| Mr. Birchfield | | | 400,000 | | | | 800,000 | | | | 400,000 | | | | 800,000 | |
| Mr. Shapiro | | | 0 | | | | 0 | | | | 200,000 | | | | 400,000 | |
| Mr. Case | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
LTIP for 2018
The annual LTIP award is based on performance over a one-year performance period, and any earned LTIP awards are paid in restricted sharesof our Class B common stock at the end of such performance period. If earned, the LTIP awards for Messrs. Vens, Thompson, executed a retention and non-competition agreementBirchfield would have vested one year from the date of issue. Because Messrs. Goldstein and Schmiedt were not executive officers at the time the LTIP awards were granted, consistent with the Corporation, which providedtreatment of LTIP awards for non-NEO members of senior management, Messrs. Goldstein’s and Schmiedt’s LTIP awards, if earned, would have vested annually in three equal installments beginning one year from the date of issue. Mr. Birchfield forfeited his 2018 LTIP award upon his resignation from the Corporation.
The value of the earned LTIP awards is determined by applying the same performance matrix factor utilized for the AIP bonus, as discussed above. This performance matrix factor is applied to each individual’s target LTIP award opportunity, resulting in an equity award valued at 25% to 200% of the target LTIP award opportunity for each participant if at least threshold performance is achieved. As with the AIP bonus, there is no LTIP award payout if the performance matrix results in a severance payment upon termination without causefactor of less than 0.25. The number of restricted shares of Class B common stock, if any, issued to our NEOs would then be determined by dividing the dollar amount of any earned LTIP award, calculated as described above, by the closing price of our Class B common stock on the date the shares are issued. Consistent with the AIP bonus discussed above, the formulaic portion of the annual LTIP award for 2018 did not result in exchangeany payout of the annual LTIP awards for agreeingany participant, including the applicable NEOs.
For Messrs. Vens and Thompson, and for Mr. Birchfield prior to a one-year covenanthis resignation, after the application of the performance matrix, 33% of the target LTIP award opportunity was subject to adjustment based on the Committee’s determination of the participant’s individual financial results, but in no case could the Committee adjust the participant’s award above 100% of the target LTIP award opportunity. The Committee chose not to compete,make any discretionary adjustments to the formulaic result for Messrs. Vens or Thompson. Therefore, no NEOs earned an annual LTIP award for 2018.
VCIP for 2018
In 2018, Messrs. Vens, Thompson, Birchfield, and Shapiro were provided with a two-year non-solicitation restrictiontarget VCIP award opportunity, as set forth in the table above, which provides an incentive to achieve higher operating income results over a three-year period. Any earned VCIP awards for both customerssuch NEOs will be paid in unrestricted shares of our Class B common stock at the end of the three-year performance period consisting of January 1, 2018 through December 31, 2020, and, Corporation employees,if earned, the payout date will be no later than March 15, 2021. Messrs. Birchfield and continuingShapiro forfeited their 2018 VCIP awards upon the termination of their employment with the Corporation.
Our actual cumulative operating income over the performance period, relative to complyan operating income goal for the period set by the Committee in March 2018 based on our 2018-2020 strategic plan, will result in an equity award valued at 25% to 200% of the target VCIP award opportunity for each participant if at least threshold performance is achieved. A range has been established, with customary confidentialitythe achievement of 75% of target cumulative operating income serving as the threshold at which 25% of the target VCIP award opportunity is paid and non-disparagement provisions. our achievement of 137% of target cumulative operating income resulting in payment of 200% of the target VCIP award opportunity. If cumulative operating income falls below the threshold, the VCIP award is reduced to zero. If cumulative operating income is between the threshold and target or target and maximum, the amounts of the earned VCIP awards will be determined using linear interpolation. For purposes of the 2018 VCIP calculation, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. After the amount of the award that is earned based on our cumulative operating income is determined per the above range, 33% of the target VCIP award opportunity may be subject to adjustment based on the Committee’s determination of the NEO’s individual financial results, but in no case may the Committee adjust the NEO’s award above 100% of the target VCIP award opportunity.
The performance period applicable to the VCIP awards granted in 2018 will not conclude until December 31, 2020; therefore, no VCIP awards were earned by any NEO in 2018. Given our cumulative operating income for 2017 and 2018, no VCIP awards are expected to be paid for either the 2017-2019 or 2018-2020 performance periods. No new VCIP award opportunities will be utilized as an element of executive compensation for 2019.
Other Long-Term Performance Incentives
In addition to the annual LTIP and VCIP awards described above, the Committee approved an additional long-term equity-based performance incentive for Mr. Birchfield in connection with the execution of his employment agreement on August 16, 2018. Under this agreement,performance incentive, Mr. Birchfield was eligible to receive up to 97,500 shares of our Class B common stock based on our achievement of a value creation target over the three-year period from July 1, 2018 through December 31, 2021, which was the term of his assistanceemployment agreement. Our achievement of value creation would be calculated as (a) the total dollar value increase in our book value per share over the three-year performance period plus (b) cumulative dividends per share paid during the executive leadership transition, and in recognition of his established relationships withthree-year performance period. Our actual results over the Corporation's client base and industry, Mr. Thompson receivedperformance period, relative to a retention bonus invalue creation target for the amount of $112,500. The retention award may be recoupedperiod set by the CorporationCommittee in the event that Mr. Thompson resigns from his position priorAugust 2018, would have resulted in an equity award valued at 25% to August 5, 2017. This retention and non-competition agreement replaced a prior non-competition agreement executed by Mr. Thompson in 2014.
On August 31, 2016, Mr. Collins executed a retention and non-competition agreement with the Corporation, which provided for a severance payment upon termination without cause in exchange for agreeing to a one-year covenant not to compete, a two-year non-solicitation restriction for both customers and Corporation employees, and continuing to comply with customary confidentiality and non-disparagement provisions. In connection with the execution of this agreement and his assistance during the transition100% of the CFO duties,target performance award opportunity if at least threshold performance had been achieved. As discussed in “Potential Payments upon Termination or Change in Control” on page 36 Upon his resignation in October 2018, Mr. Collins received a retention bonus in the amount of $68,625. The retention bonus was to be recouped by the Corporation in the event the Mr. Collins resigned from his position prior to August 31, 2017. In connection with Mr. Collins' termination from the Corporation, he was entitled to retain his retention bonus.Birchfield forfeited this award.
Long-term Incentives for 2016
Time-Vested Restricted Stock Awards
In recent years,2018, the Corporation has utilized "book value appreciation rights" (BVARs) as the sole form of long-term incentives for executive officers and virtually all other salaried personnel. A detailed description of the Corporation's Book Value Appreciation Rights Plan (the "BVAR Plan") was included, starting on Page 21, of the Proxy Statement for the Annual Meeting of Shareholders for the meeting held May 7, 2013, a copy of which may be obtained on the Corporation's website at www.baldwinandlyons.com or from the SEC's EDGAR web site (www.sec.gov/edgar). The value of BVARs is not impacted by fluctuations in the market value of the Corporation's commonCommittee granted time-vested restricted stock but, rather, solely by changes in the Corporation's book value, and settlements consist solely of cash. No equity securities are issuedawards to certain NEOs in connection with thistheir execution of an employment agreement, as described below in “– Other Compensation Matters – Employment Agreements” on page 26. Such awards were granted in the form of compensation.restricted shares of our Class B common stock that vest according to the vesting schedule detailed in the applicable employment agreement. The following time-vested restricted stock awards were granted in 2018:
BVARs provide deferred compensation to a high percentage of salaried employees, including select NEOs, formulaically based on the increase in the Corporation's book value, with certain adjustments for dividends paid to shareholders, over a five-year period. This program results in compensation which is directly linked to the Corporation's performance and increases in the book value of the Corporation, closely aligning value realized from BVARs with total shareholder value creation.| ● | Mr. Nichols received 85,000 restricted shares of our Class B common stock on November 13, 2018, which, subject to the terms of his employment agreement, will vest according to the following schedule: 42,500 shares will vest as of October 17, 2019; 21,250 shares will vest as of October 17, 2020; and 21,250 will vest as of October 17, 2021. |
| ● | Mr. Birchfield received 52,500 restricted shares of our Class B common stock on August 16, 2018, which, subject to the terms of his employment agreement, were scheduled to vest equally over twelve quarters, beginning in September 2018. Upon his resignation from the Corporation on October 17, 2018, Mr. Birchfield forfeited all unvested shares of restricted stock remaining under this award. |
Changes in the value of BVARs for the NEOs for the three-year period ended December 31, 2016, resulting from changes in the Corporation's book value, are shown in the Non-Equity Incentive Compensation column of the Summary Compensation Table. This presentation is appropriate since the BVARs are not based upon changes in the market value of equity securities and are not settled with any form of equity security.
BVARs vest ratably over a three-year period and vested rights cannot be exercised prior to January 1 of the calendar year in which they expire (five years from grant), except in the case of death, disability or retirement from the property and casualty industry, as defined in the BVAR Plan. In addition, termination of employment for reasons other than death, disability or retirement results in the forfeiture of all vested and unvested BVARs. In connection with their resignations, Mr. DeVito forfeited 55,000 BVAR units in 2016 and Mr. Corydon forfeited 30,000 BVAR units in 2016.
BVARs, when granted, have historically been widely distributed to virtually all salaried employees in amounts proportional to their job responsibilities and annual base salaries. No new BVARs were awarded in 2016 and no other long-term equity incentives were granted in 2016.
Employee Benefits and Perquisites
The Corporation offers itsWe offer our executive officers standard employee benefits, including the ability to participate in the Corporation'sour group life, health, dental and disability insurance, as well as the Corporation'sour 401(k) Plan, to the same extent offered to all employees of the Corporation. The Corporation matchesour employees. We match contributions made by the executive officers to the 401(k) Plan consistent with the matching contribution for all participants ofin the 401(k) Plan.
The Committee also approved arrangements providinga bi-weekly stipend intended to offset our executive officers with the use of a Corporation-ownedofficers’ expenses related to their personal automobile, including maintenance costs, insurance coverage and a partialportion of fuel allowance.expenses, as set forth in footnote (d) of the Summary Compensation Table on page 29. In addition, during the term of Mr. Nichols’ employment agreement, he is entitled to reimbursement for up to $5,000 per month in commuting expenses incurred by him and/or his immediate family, he is provided with an apartment near our corporate headquarters at our sole expense and he is entitled to reimbursement for the cost of an annual physical. Components of Executive Compensation for 20172019 Subject to shareholder approval of the Baldwin & Lyons, Inc. Annual Incentive Plan ("AIP") and Baldwin & Lyons, Inc. Long-Term Incentive Plan ("LTIP") described in detail in Proposal #3 and Proposal #4 in this Proxy Statement, theThe principal components of the Corporation's 2017our 2019 executive compensation program for executive officers, including the NEOs, are:
| 2. | Awards under the AIPAnnual cash incentive awards |
| 3. | Long-term equity incentivesincentive awards |
| 4. | Value-creation incentives ("VCIP") |
5. | Employee benefits and perquisites |
Base Salary for 20172019
AsThe Committee reviews the appropriateness of base salaries considering several factors, including: operational results achieved, changes in individual levels of responsibility, the individual’s ability to lead us through transition and achieve profitable growth, establishment of business and strategic objectives, market data regarding similar positions in our comparator group, and knowledge of our unique business and relationships. Among other things, the Committee recognized that we did not meet our performance objectives in 2018, and as a result, the Committee did not approve any salary adjustments for our NEOs for 2019.
Short-Term Cash and Long-Term Equity-Based Incentives for 2019
For 2019, the Committee awarded Short-Term Incentive (“STIP”) and LTIP opportunities to each of our current NEOs all had new base salariesother than Mr. Nichols and established in 2016 in connection with their appointmentsa target STIP award opportunity and a target LTIP award opportunity for 2019 for each such NEO. The Committee did not provide any STIP or LTIP award opportunities for Mr. Nichols due to new roles, the Committee has determined that base salaries for Messrs. Shapiro, Birchfield, Vens, and Thompson will not be adjusted for 2017 at this time. Mr. Case will receive a 26.5% salary increase for 2017 consistent with the evolving scopeinterim nature of his role as Chief OperatingExecutive Officer and the operational initiativestime-vested restricted stock award he will be tasked with undertaking.received in November 2018, as described above. The performance objectives of both the STIP and LTIP award opportunities are identical; however, the STIP is payable in cash and the LTIP is an equity-based award.
Incentives for 2017
For 2017, the Committee has determined to forgo the annual incentive that has been paid in previous years. Instead, NEOs, and other participants as dictated by the Committee, will be eligible for three types of performance-based incentive awards: a predominately cash-based AIP award, an equity-based long-term award subject to one-year vesting, and an equity-based VCIP award for cumulative increase in operating income over a three-year performance period. The details of each plan are discussed below.
As discussed above, upon a mid-year reviewFor each NEO, 80% of the Corporation's compensation composition in 2016, utilization of long-term incentives through the use of actual equity will be favored over the use of BVARs. The proposed Baldwin & Lyons, Inc. Long-Term Incentive Plan allows for future BVAR grants but no such awards are planned for 2017.
AIP for 2017
Under the proposed AIP, each participant, including each of the NEOs, is provided with a target AIP opportunity according toSTIP award and the updated pay strategy discussed above. The determination of the final bonus amountLTIP award will be determined by applying a performance matrix consisting of a measurement of the combined results of the Corporation's 2017 growth in net premium earned and the 2017 Combined Ratio (the "Corporation performance matrix"). The combined ratio is calculated as ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. This Corporation performance matrix will be applied to each individual's target bonus amount resulting in a payout of 0% to 200% of the target AIP amount for each participant. For the NEOs, after the application of the Corporationcorporate performance matrix,component described below and 20% of each of the STIP award and the LTIP award will be determined by the NEO’s performance related to personal objectives. The corporate performance portion of the STIP and LTIP awards will be determined based on our achievement of 2019 underwriting income compared to the plan target approved by the Board in February 2019. The Committee believes that use of underwriting income will reward the NEOs for those aspects of our operations over which the NEOs have control and exclude the impact of investment results on executive compensation. Underwriting income will be calculated as:
| Income (loss) before federal income taxes (benefits) |
| | Less: Net realized gains (losses) on investments | | |
| | Less: Net unrealized gains (losses) - equity securities and limited partnerships |
| | Less: Net investment income | | | | |
| = Underwriting Income |
If at least threshold performance is achieved, each NEO may earn between 25% and 125% of the target AIP opportunity is subject to further adjustmentcorporate performance component of his STIP and LTIP award opportunities, depending on the amount of underwriting income earned during the performance period.
Each NEO’s personal performance objectives will be determined based on his achievement of personal goals that align with departmental and corporate objectives for 2019. These objectives were developed by the Committee's determinationNEO and the CEO in February 2019. It is possible for the NEO to earn the 20% personal component of the participant's objective financial results; but inSTIP and LTIP awards even if the threshold level of underwriting income is not achieved and no case shall the Committee adjust the NEO's award above 100%amount of the target amount.STIP or LTIP award would be earned for the corporate performance component.
All bonusesIf earned, under the AIPSTIP award will be paid in cash at the end of the 2017 annual performance period, but no later than March 15, 2018. Notwithstanding the above, 25% of the bonusin early 2020. If earned, under the AIP by the CEO will be paid in unrestricted shares of the Corporation's Class B common stock, as valued on the date of award, which shares will be issued under the LTIP (if approved by shareholders).
The 2017 AIP awards are subject to shareholder approval of the Annual Incentive Plan. A more detailed description of the AIP is included starting on page 31 of this Proxy Statement.
LTIP for 2017
Under the proposed Long-Term Incentive Plan ("LTIP"), each participant, including each of the NEOs, will be provided with a target LTIP opportunity according to the updated pay strategy discussed above. The determination of the final value of the equity award will be determined by applying the same Corporation performance matrix utilized for the AIP, as discussed above. This Corporation performance matrix will be applied to each individual's target LTIP bonus amount, resulting in an equity award with a grant date fair value equal to 0% to 200% of the target LTIP amount for each participant. For the NEOs, after the application of the Corporation performance matrix, 25% of the target LTIP opportunity is subject to further adjustment based on the Committee's determination of the participant's objective financial results; but in no case shall the Committee adjust the participant's award above 100% of the target amount.
All LTIP awards for the NEOs will be paid in restricted shares of the Corporation'sour Class B common stock at the endin early 2020. One-third of the 2017 annual performance period, but no later than March 15, 2018. The restrictedsuch shares will vest on March 15, 2019.
The 2017 equity awards are subject to shareholder approval of the LTIP. A more detailed description of the Baldwin & Lyons, Inc. Long-Term Incentive Plan is included starting on page 34 of this Proxy Statement.
VCIP for 2017
The proposed Value Creation Incentive Plan ("VCIP") provides an incentive to the NEOs aligned with operating resultsannually over a three-year period. Each NEO is provided with a target VCIP share opportunity which will be determined by a measurement of the Corporation's cumulative operating income from January 1, 2017 through December 31, 2019 relative to an operating income goal for the period set by the Committee in March 2017. For the purpose of VCIP calculation, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. The Corporation's achievement of the cumulative operating income target will result in an award valued at 25% to 200% of the target VCIP amount for each participant. The VCIP award amount will be determined by applying the actual cumulative operating income against the VCIP payout range of 25% to 200%, with interpolation between the potential award amounts. Twenty-five percent of the target VCIP opportunity is subject to adjustment based on the Committee's determination of the participant's objective financial results, but in no case shall the Committee adjust the participant's award above 100% of the VCIP target amount.
All VCIP awards for the NEOs are paid in unrestricted shares of the Corporation's Class B common stock at the end of the three-year performance period but no later than March 15, 2020.beginning one year from the date of issue.
The 2017 VCIP awards are subject to shareholder approval of the LTIP. A more detailed description of the Baldwin & Lyons, Inc. Long-Term Incentive Plan is included starting on page 35 of this Proxy Statement.
Employee Benefits and Perquisites for 20172019
The Committee terminated the practice of providing executive officers withdisfavors the use of perquisites as a Corporation-owned automobile, including maintenance costs, insurance coverage and a partial fuel allowance at the endsignificant element of 2016.executive compensation. For 2017,2019, executive officers are provided a bi-weekly cash stipend to cover transportation expenses.expenses; however, Mr. Nichols has chosen not to receive such stipend in 2019. During 2019 while continuing to serve as Interim CEO, Mr. Nichols will continue to be entitled to reimbursement for up to $5,000 per month in commuting expenses incurred by him and/or his immediate family, we will continue to provide him with an apartment near our corporate headquarters at our sole expense and he will continue to be entitled to reimbursement for the cost of an annual physical.
Other Compensation Matters All employees of the Corporationour employees are employed on an at-will basis, and either the employee or the Corporation is free to terminate any employment relationship at any time. The Corporation has
In connection with his appointment as Interim Chief Executive Officer, we entered into retention and non-competition agreementsan employment agreement with Mr. ThompsonNichols on November 13, 2018. Under the employment agreement, Mr. Nichols will serve as Interim Chief Executive Officer through October 17, 2019, unless earlier terminated by us at any time with or without cause. Mr. Nichols has agreed that prior to April 17, 2019, he will not terminate his employment without the written consent of the Board. After April 17, 2019, Mr. Nichols may terminate his employment upon providing us sixty days’ advance notice. Mr. Nichols may remain employed by the Corporation during a transition period, not to exceed six months, following our hiring of a successor Chief Executive Officer. In addition, Mr. Nichols has agreed to serve as Chairman of the Board for a period of three years. The employment agreement specifies various payments to be made to Mr. Nichols during the term of the employment agreement. The employment agreement also provides for severance to be paid to Mr. Nichols if we terminate him for any reason prior to April 17, 2019 and provides for the acceleration of certain or all of his unvested equity awards upon his termination for any reason other than for cause or upon a change in control. The employment agreement also includes provisions requiring Mr. Nichols to maintain our confidential information and subjects Mr. Nichols to non-competition and non-solicitation provisions during the term of the agreement and for twelve months thereafter. For more information regarding this employment agreement, including the possible payouts upon termination, see “Potential Payments upon Termination or Change in Control” on page 38.
On August 16, 2018, we entered into an employment agreement with Mr. Birchfield. This Agreement superseded the severance, confidentiality, non-competition, and non-solicitation agreement between us and Mr. CollinsBirchfield dated May 10, 2018. The employment agreement called for Mr. Birchfield to serve as Chief Executive Officer through December 31, 2021, with automatic one-year extensions unless either party gave notification not less than 180 days prior to the expiration of the term or the agreement was terminated earlier in accordance with its terms. The employment agreement includes provisions requiring Mr. Birchfield to maintain the confidentiality of our confidential information and subjects Mr. Birchfield to non-competition and non-solicitation provisions for twelve months following his date of resignation. In connection with the execution of the employment agreement, Mr. Birchfield received a cash bonus of $200,000, which was subject to full or partial repayment by Mr. Birchfield if his employment was terminated by us for cause or by him for good reason prior to August 16, 2020. In addition, Mr. Birchfield received 52,500 restricted shares of our Class B common stock, which shares were scheduled to vest equally over twelve quarters beginning September 30, 2018. Mr. Birchfield was also eligible to receive up to 97,500 shares of our Class B common stock based on the achievement of certain performance targets over the period of July 1, 2018 through December 31, 2021.
On October 17, 2018, in connection with Mr. Birchfield’s resignation from the Corporation, we entered into a separation and general release agreement with Mr. Birchfield. Pursuant to this agreement, in exchange for providing a standard release to the Corporation and his acknowledgement that provide, or provided, forthe restrictive covenants set forth in his employment agreement will continue to remain in full force and effect, we agreed to waive any right we would otherwise have to recoup a pro-rata portion of Mr. Birchfield’s $200,000 cash bonus paid in August 2018. In connection with his resignation, Mr. Birchfield forfeited his right to the unvested portion of his time-vested restricted shares and his eligibility to receive any of the 97,500 performance shares granted in August 2018.
We entered into a confidentiality, non-competition and non-solicitation agreement with Mr. Goldstein in May 2018, Mr. Thompson in June 2018, and Mr. Schmiedt in July 2018 and a severance, benefits. These retentionconfidentiality, non-competition and non-competitionnon-solicitation agreement with Mr. Case in February 2018. These agreements provide for a severance payment upon termination without cause in exchange for the NEO agreeing to a one-yeartwo-year covenant not to compete, a two-year non-solicitation restriction for both our customers and Corporation employees and continuing to comply with customary confidentiality and non-disparagement provisions. In addition, a general release must be executed upon separation from employment in order for the severance payments to begin. Upon execution ofFor more information regarding these agreements Mr.with Messrs. Goldstein, Thompson and Mr. Collins receivedSchmiedt, including the possible payouts upon termination, see “Potential Payments upon Termination or Change in Control” on page 36. Pursuant to his agreement and a retention bonus in the amountseverance pay, release and waiver of $112,500 and $68,625 respectively. The retention award may be recouped by the Corporation in the event the employee resigns from his position within twelve months of date the agreement was executed by the employee. The Corporationrights entered into a severance agreement with Mr. Collins, pursuant to which he received an aggregate amount of $274,500,Case in February 2018, Mr. Case received: (i) one year’s salary, payable over a one-year period, and(ii) a lump sum amount of $43,333,$34,658, representing a pro-rated share of his annual target AIP bonus under the Executive Plan, uponopportunity for 2018, and (iii) a one-year continuation of employee benefits in connection with his terminationdeparture from the Corporation effective October 31, 2016. Mr. Collins was also entitled to retain his retention bonus described above.February 15, 2018.
Other Matters
The Corporation hasWe have no post-retirement benefit policies, nor any pension or retirement plans, other than itsour 401(k) Plan, which is generally available to all employees and which carries no post-employment obligations for the Corporation.With the passage of the U.S. Tax Cuts and Jobs Acts of 2017, Section 162(m) of the Internal Revenue Code limits(the “Code”) was amended to repeal the Corporation's ability to takeperformance-based compensation exemption from the deduction limit, effective for taxable years beginning after December 31, 2017. As a tax deduction for certainresult, compensation paid in 2018 and later years to our NEOs in excess of $1 million will not be deductible unless it qualifies for transitional relief applicable to each of the NEOs listed in the Summary Compensation Table below. However,certain binding, written performance-based compensation arrangements that were in place as defined in the Code, is fully deductible if the programs are approved by shareholders and meet certain other requirements.of November 2, 2017. The Committee has considered the impact of Section 162(m), and the regulations thereunder, on the deductibility of executive compensation by the Corporation and has determinedcontinues to believe that to the extent practical, bonus and deferred compensation plans should be submitted to shareholders for approval to allow for deductibility of compensation paid under these plans. The Committee will continue to monitor the regulations and any possible impact they may have on the Corporation, and to take appropriate steps when, and if, any measures are necessary as it determines in the best interests of the Corporation. To maintain flexibility in compensating the Corporation's executive officers, the Committee may from time to time pay, compensation that is not deductible if it believes that doing so is in the best interests of the Corporation and our shareholders are served if its shareholders.discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may have resulted in the past, and are expected to result in the future, in non-deductible compensation expenses to the Corporation.
Page 25
Compensation Committee Report
The Compensation Committee has reviewed and discussed the above Executive Compensation Discussion and Analysis with management and, based on this review and discussion, has recommended to the Board of Directors that the Executive Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Corporation'sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2018.
Kenneth D. Sacks,James A. Porcari III, ChairmanStuart D. Bilton
Philip | LoriAnn V. Moyles, Jr.
Thomas H. Patrick
Arshad ZakariaLowery-Biggers | David W. Michelson
Summary Compensation Table | | | | | | | | | | | |
| | Name and Principal Position (a) | Year | Salary | Bonus (b) | Stock Awards (c) | Option Awards | Non-Equity Incentive Compen-sation (d) | Non-Qualified Deferred Compen-sation Earnings | All Other Compen-sation (e) | Total |
| | Steven A. Shapiro | 2016 | 275,000 | 171,403 | 85,573 | 0 | 0 | 0 | 46,789 | 578,765 |
| | Executive Chairman | | | | | | | | | |
| | William R. Birchfield | 2016 | 530,594 | 586,680 | 175,274 | 0 | 28,303 | 0 | 39,448 | 1,360,299 |
| | CEO and President | 2015 | 411,000 | 227,264 | 113,636 | 0 | 5,652 | 0 | 38,156 | 795,708 |
| | | 2014 | 355,330 | 130,395 | 65,200 | 0 | 20,295 | 0 | 10,350 | 581,570 |
| | William C. Vens | 2016 | 292,801 | 124,399 | 53,855 | 0 | 0 | 0 | 37,778 | 508,833 |
| | CFO | | | | | | | | | |
| | Michael J. Case | 2016 | 404,954 | 357,885 | 114,396 | 0 | 9,263 | 0 | 37,109 | 923,607 |
| | Exec. Vice President | 2015 | 303,765 | 195,447 | 97,727 | 0 | 5,588 | 0 | 43,737 | 646,263 |
| | and COO | | | | | | | | | |
| | Matthew A. Thompson | 2016 | 356,615 | 128,311 | 51,204 | 0 | 9,263 | 0 | 41,176 | 586,569 |
| | Exec. Vice President | | | | | | | | | |
| | Joseph J. DeVito | 2016 | 573,375 | 0 | 0 | 0 | 0 | 0 | 80,309 | 653,684 |
| | Former CEO, COO | 2015 | 1,100,000 | 892,391 | 446,209 | 0 | 40,733 | 0 | 56,208 | 2,535,541 |
| | and President (j) | 2014 | 1,050,000 | 631,644 | 315,831 | 0 | 141,658 | 0 | 56,002 | 2,195,135 |
| | G. Patrick Corydon | 2016 | 327,478 | 0 | 0 | 0 | 0 | 0 | 50,540 | 378,018 |
| | Former CFO and | 2015 | 639,630 | 456,813 | 228,413 | 0 | 22,218 | 0 | 40,071 | 1,387,145 |
| | Exec. V.P. (k) | 2014 | 618,000 | 320,121 | 160,065 | 0 | 77,268 | 0 | 38,282 | 1,213,736 |
| | Doug Collins | 2016 | 191,317 | 68,625 | 0 | 0 | 0 | 0 | 119,729 | 379,671 |
| | Former Interim CFO (f) | | | | | | | | | |
| | | | | | | | | | | |
| Name and Principal Position | Year | Salary | Bonus (a) | Stock Awards (b) | Option Awards | Non-Equity Incentive Compen-sation (c) | Non-Qualified Deferred Compen-sation Earnings | | All Other Compen-sation (d) | | Total | |
| John D. Nichols, Jr. | 2018 | $ | 99,231 | $ | 0 | $ | 1,932,942 | $ | 0 | $ | 0 | $ | 0 | | $ | 77,674 | | $ | 2,109,847 | |
| Interim CEO and Chairman | | | | | | | | | | | | | | | | | | | |
|
| William C. Vens | 2018 | | 366,500 | | 0 | | 200,000 | | 0 | | 0 | | 0 | | | 42,640 | | | 609,140 | |
| CFO | 2017 | | 366,500 | | 40,000 | | 200,000 | | 0 | | 0 | | 0 | | | 41,026 | | | 647,526 | |
2016
| |
| 292,801 | | 124,399 | | 53,855 | | 0 | | 0 | | 0 | | | 37,778 | | | 508,833 | |
| Jeremy F. Goldstein | 2018 | | 401,700 | | 65,000 | | 72,708 | | 0 | | 0 | | 0 | | | 34,175 | | | 573,583 | |
| Executive Vice President | | | | | | | | | | | | | | | | | | | | |
| Patrick S. Schmiedt | 2018 | | 302,961 | | 17,361 | | 44,785 | | 0 | | 0 | | 0 | | | 37,173 | | | 402,280 | |
| Chief Underwriting Officer | | | | | | | | | | | | | | | | | | | | |
| Matthew A. Thompson | 2018 | | 475,000 | | 0 | | 125,000 | | 0 | | 0 | | 0 | | | 40,770 | | | 640,770 | |
| Executive Vice President | 2017 | | 475,000 | | 162,500 | | 125,000 | | 0 | | 12,000 | | 0 | | | 39,196 | | | 813,696 | |
2016
| | | 356,615 | | 128,311 | | 51,204 | | 0 | | 9,263 | | 0 | | | 41,176 | | | 586,569 | |
| W. Randall Birchfield | 2018 | | 503,077 | | 16,667 | | 4,605,000 | | 0 | | 0 | | 0 | | | 228,781 | | | 5,353,525 | |
| Former CEO, President, | 2017 | | 600,000 | | 400,000 | | 1,050,000 | | 0 | | 40,000 | | 0 | | | 44,620 | | | 2,134,620 | |
| and COO | 2016 | | 530,594 | | 586,680 | | 175,274 | | 0 | | 28,303 | | 0 | | | 39,448 | | | 1,360,299 | |
| Steven A. Shapiro | 2018 | | 234,615 | | 0 | | 200,000 | | 0 | | 0 | | 0 | | | 1,295 | | | 435,910 | |
| Former Executive | 2017 | | 500,000 | | 200,000 | | 200,000 | | 0 | | 0 | | 0 | | | 10,600 | | | 910,600 | |
| Chairman | 2016 | | 275,000 | | 171,403 | | 85,573 | | 0 | | 0 | | 0 | | | 46,789 | | | 578,765 | |
| Michael J. Case | 2018 | | 88,654 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 617,290 | | | 705,944 | |
| Former Executive | 2017 | | 525,000 | | 41,000 | | 325,000 | | 0 | | 12,000 | | 0 | | | 42,480 | | | 945,480 | |
| Vice President & COO | 2016 | | 404,954 | | 357,885 | | 114,396 | | 0 | | 9,263 | | 0 | | | 37,109 | | | 923,607 | |
| (a) | Several individuals qualified as NEOs for 2016 due toFor 2018, the management transitions during the year. In May 2016, Mr. DeVito resigned as Chief Executive Officer, President, and Chief Operating Officer. In connection with Mr. DeVito's departure, Mr. Birchfield was appointed to serve as Chief Executive Officer and President and Mr. Case was appointed to serve as Chief Operating Officer and Executive Vice President. In May, 2016, Mr. Corydon resigned as Chief Financial Officer and Executive Vice President. In connection with Mr. Corydon's departure, Mr. Collins was appointed and Interim Chief Financial Officer from May 2016 until August 2016 when Mr. Vens was appointed to serve as Chief Financial Officer. Mr. Thompson was promoted to Executive Vice Presidentamount in June 2016. |
(b) | For 2016, the Bonus amounts includecolumn for Mr. Goldstein reflects the following: |
| | | Total Bonus | Executive Plan Bonus | Holiday Bonus | Discretionary Bonus |
| Mr. Shapiro | | $ 171,403 | $ 171,403 | $ 0 | $ 0 |
| Mr. Birchfield | | 586,680 | 361,680 | 25,000 | 200,000 |
| Mr. Vens | | 124,399 | 107,871 | 16,528 | 0 |
| Mr. Case | | 357,885 | 229,135 | 25,000 | 103,750 |
| Mr. Thompson | | 128,311 | 103,311 | 25,000 | 0 |
| Mr. Collins | | 68,625 | 68,625 | 0 | 0 |
● | Executive Plan awards represent discretionary$40,000 cash bonuses awarded to the NEOs for 2016 performance and paid in 2017 under Executive Plan, as described under Executive Compensation Discussion and Analysis—Components of Executive Compensation for 2016—Annual Incentives for 2016 in this Proxy Statement. |
● | Holiday bonuses were paid in December 2016 pursuant to a holiday bonus program applicable to all of the Corporation's employees. No holiday bonus is paid to any individual who is not an employee of the Corporation on the date the bonus is paid. The Compensation Committee determined that Mr. Shapiro would not be eligible for the Holiday Bonus. |
● | For Mr. Birchfield and Mr. Case, a one-time bonus of $200,000 and $103,750, respectively, was granted by the Compensation Committee in August 2016November 2018 in recognition of their leadership throughhis efforts during the executive leadershipmanagement transition period, as more fully described in Executive Compensation DiscussionOctober 2018 and Analysis – Compensationa $25,000 holiday bonus granted in December 2018. For 2018, the amount in the Bonus column for 2016 – Other BonusesMr. Schmiedt reflects a $17,361 holiday bonus granted in 2016 in this Proxy Statement. |
● | December 2018. For 2015 and 2014,2018, the amounts representBonus amount shown for Mr. Birchfield reflects the portion of his $200,000 retention bonus awarded in August 2018 in connection with the annual incentive bonusesexecution of his employment agreement that was earned underprior to his resignation. As described in “Potential Payments upon Termination or Change in Control” the Executive PlanBoard chose not to exercise its ability to recoup a portion of the bonus upon Mr. Birchfield’s resignation in October 2018 in exchange for the execution of a standard release agreement. |
For 2017, the amounts in the Bonus column reflect discretionary bonuses that were granted by the Compensation Committee in February 2018. For 2017, the Bonus amount for Mr. Thompson also includes a $112,500 retention bonus that was awarded in 2016 and fully satisfied in August 2017.
For 2016, Bonus amounts represent the portion of the annual incentive bonuses earned under the Executive Plan for the respective year and paid in cash in the following year, as well as holiday bonuses paid to each NEO, and a one-time bonus of $200,000 and $103,750 paid to Mr. Birchfield and Mr. Case, respectively, in August 2016 in recognition of their leadership through our executive leadership transition period. A detailed description of our Executive Plan was included starting on Page 21 of the Proxy Statement for the Annual Meeting of Shareholders for the meeting held May 4, 2010, a copy of which may be obtained on our website at www.protectiveinsurance.com or from the SEC’s EDGAR web site (www.sec.gov/edgar).
| (b) | For Mr. Nichols, the amount shown above in the following year. |
(c) | Stock awards representAwards column represents the grant date fair value of the portion85,000 shares of restricted stock that Mr. Nichols received in connection with the annual incentive bonuses earned under the Executive Plan and paid in the formexecution of the Corporation's Class B common stock. These shares are subject to risk of forfeiture and vest over three years from the date of grant,his employment agreement on November 13, 2018, as more fully described in Executive“Executive Compensation Discussion and Analysis in this Proxy Statement.– Components of Executive Compensation for 2018 – Long-Term Incentives for 2018,” plus the grant date fair value of the 1,735 shares of restricted stock that Mr. Nichols received on May 8, 2018 as compensation for his services as a director prior to being named our Interim CEO, which shares shall vest on May 8, 2019. |
For 2018, the amount shown for Mr. Birchfield represents the grant date fair value of the equity retention award of 52,500 shares of restricted stock and the performance-based equity award of 97,500 shares that were granted in connection with the execution of his employment agreement on August 23, 2018, as more fully described in “Executive Compensation Discussion and Analysis – Components of Executive Compensation for 2018 - Long-Term Incentives for 2018.” The grant date fair value of the performance-based equity award was computed based on the target level of performance being achieved, which was the level of performance that was deemed probable on the grant date. 4,375 shares of the equity retention award vested on September 30, 2018, but all remaining shares under the equity retention award and all shares of the performance-based equity award were forfeited upon Mr. Birchfield’s resignation in October 2018.
For all other NEOs, the amounts shown above in the Stock Awards column for 2017 and 2018 reflect the grant date fair value of the LTIP and VCIP awards granted in 2017 and 2018 pursuant to our Long-Term Plan in accordance with ASC Topic 718. The grant date fair value of these performance-based awards was computed based on the target level of performance being achieved, which was the level of performance that was deemed probable on the grant date. Based on our actual performance, no LTIP awards were earned for 2017 or 2018 and no VCIP awards are expected to be earned for the 2017-2019 or 2018-2020 performance periods.
The table below sets forth the grant date fair value of the LTIP and VCIP awards granted in 2018 at the target level of performance and the maximum level of performance.
| | | | | | | | | | |
| | | LTIP Award Target | | LTIP Award Maximum | | VCIP Award Target | | VCIP Award Maximum | |
| Mr. Nichols | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Mr. Vens | | | 100,000 | | | 200,000 | | | 100,000 | | | 200,000 | |
| Mr. Goldstein | | | 72,708 | | | 145,415 | | | 0 | | | 0 | |
| Mr. Schmiedt | | | 44,785 | | | 89,570 | | | 0 | | | 0 | |
| Mr. Thompson | | | 62,500 | | | 125,000 | | | 62,500 | | | 125,000 | |
| Mr. Birchfield | | | 400,000 | | | 800,000 | | | 400,000 | | | 800,000 | |
| Mr. Shapiro | | | 0 | | | 0 | | | 200,000 | | | 400,000 | |
| Mr. Case | | | 0 | | | 0 | | | 0 | | | 0 | |
For 2016, the amounts in the Stock Awards column represent the grant date fair value of the portion of the annual incentive bonuses earned under the Executive Plan in the respective year and paid in the form of our Class B common stock. These shares are subject to risk of forfeiture and vest over three years from the date of grant.
(d)(c) | Amounts shown in this column for 2016 and 2017 represent the change in vested and unvested value of book value appreciation rights (BVARs) which are based on increases or decreases in the Corporation'sour book value per share during the year. The actual compensation realized, if any, is settled in cash andrealized only upon satisfaction of holding period restrictions, which were satisfied as more fully described elsewhereof December 31, 2017 and settled in this Proxy Statement. Compensation from BVARs is subject to complete forfeiture should employment terminate prior to satisfaction of holding period requirements and, thus, amounts reportedcash in this column may not ultimately be paid by the Corporation to the NEO. In connection with their resignations, Mr. DeVito forfeited 55,000 BVAR units in 2016 and Mr. Corydon forfeited 30,000 BVAR units in 2016.2018. |
(e)(d) | All Other Compensation for 20162018 includes the following: |
| | | | | | | |
| | | | 401(K) Plan | | | |
| | | | Contribution | Dividends | Perquisites (1) | |
| | Mr. Shapiro (2) | | $ 0 | $ 1,789 | $ 0 | |
| | Mr. Birchfield | | 21,200 | 933 | 17,315 | |
| | Mr. Vens | | 21,200 | 0 | 16,578 | |
| | Mr. Case | | 21,200 | 0 | 15,909 | |
| | Mr. Thompson | | 21,200 | 0 | 19,976 | |
| | Mr. DeVito | | 10,600 | 63,477 | 6,232 | |
| | Mr. Corydon | | 10,600 | 35,121 | 4,819 | |
| | Mr. Collins (3) | | 10,600 | 0 | 15,092 | |
| | | | | | | |
| | | | | 401(K) Plan | | Dividends | | Perquisites | | Other | |
| | | Total | | Contribution | | | (1) |
| | (2) |
| | (3) |
|
| Mr. Nichols | | $ | 77,674 | | $ | 923 | | $ | 23,800 | | $ | 4,149 | | $ | 48,802 | |
| Mr. Vens | | | 42,640 | | | 22,000 | | | 814 | | | 19,826 | | | 0 | |
| Mr. Goldstein | | | 34,175 | | | 22,000 | | | 0 | | | 12,175 | | | 0 | |
| Mr. Schmiedt | | | 37,173 | | | 22,000 | | | 0 | | | 15,173 | | | 0 | |
| Mr. Thompson | | | 40,770 | | | 22,000 | | | 774 | | | 17,996 | | | 0 | |
| Mr. Birchfield | | | 228,781 | | | 19,816 | | | 9,009 | | | 16,623 | | | 183,333 | |
| Mr. Shapiro | | | 1,295 | | | 0 | | | 1,295 | | | 0 | | | 0 | |
| Mr. Case | | | 617,290 | | | 5,504 | | | 11,119 | | | 3,050 | | | 597,617 | |
| (1) | Perquisites consistFor Mr. Nichols, represents dividends earned on the 85,000 shares of restricted stock that Mr. Nichols received in connection with the execution of his employment agreement which were paid to Mr. Nichols in December 2018. For all other NEOs, represents dividends accrued on restricted performance shares prior to vesting and which were paid to certain NEOs in February 2018 upon the vesting of the total cost to the Corporation of automobiles provided to select NEOs, without reduction for business use and including any gain or loss realized on the disposal of the automobiles. For Mr. DeVito, perquisites includes $650 for tax preparation assistance.subject shares. |
| (2) | With the exception of Mr. Nichols, perquisites consist of the total vehicle allowance paid to the NEOs. Perquisites for Mr. Nichols consist of the cost of an apartment for Mr. Nichols’ use near our headquarters and commuting expenses incurred by Mr. Nichols and his family. |
| (3) | For Mr. Shapiro, total All Other Compensation includes $45,000Nichols, represents $47,000 in cash compensation that Mr. ShapiroNichols received for his services as a director of the Corporation from January 20162018 through September 2018 and $1,802 in dividends on shares of restricted stock Mr. Nichols received in May 2016. Once2017 for his services as a director, which shares vested in May 2018. For Mr. Shapiro became an employeeBirchfield, represents the portion of his retention bonus that was awarded in August 2018 in connection with the execution of his employment agreement that the Board chose not to exercise its ability to recoup a portion of the Corporationbonus upon Mr. Birchfield’s resignation in October 2018 in exchange for the execution of a standard release agreement, as described in “Potential Payments upon Termination or Change in Control.” For Mr. Case, represents $464,423 in post-employment compensation received by Mr. Case under his severance, confidentiality, non-competition and non-solicitation agreement, $26,174 in COBRA benefits paid by us on June 1, 2016, he ceased collecting any feesMr. Case’s behalf, plus $107,020 representing the value of the 4,603 restricted shares that vested upon Mr. Case’s separation on February 15, 2018, as described in “Potential Payments upon Termination or compensationChange in Control.” |
TOTAL DIRECT COMPENSATION EARNED IN 2018 The table below sets forth what our NEOs have actually been paid to date related to 2017 and 2018 performance and provides a comparison to the Summary Compensation Table above, which includes the grant date fair value of LTIP and VICP grants in the Stock Awards column. The table below illustrates:
| 1. | That no LTIP and VCIP stock grants were or are expected to be paid, as the LTIP grants were ultimately forfeited due to our 2017 and 2018 results and no VCIP awards are expected to be paid for his role as a director.the 2017-2019 and 2018-2020 performance periods; |
(3)2. | For Mr. Collins, total All Other Compensation includes $50,704Our NEOs were paid less in salary2017 and $43,000 in bonus that Mr. Collins received pursuant to a severance agreement entered into with the Corporation on October 31, 2016, as more fully described in the Executive Compensation Discussion2018, when we did not meet our performance objectives; and Analysis – Employment Agreements in this Proxy Statement. |
| 3. | Mr. Nichols’ stock grant is structured to incentivize our stock price performance through his continued service as Chairman of the Board, even after he is no longer serving as our Interim CEO, as vesting of his 85,000 restricted shares of our Class B common stock will not occur until October 2019 (42,500 shares) through October 2021 (with 21,250 shares vesting in both October 2020 and October 2021). |
| Name | Year | | Salary | | Bonus | | Stock Awards | | Non-Equity Incentive Compensation | | All Other Compensation | | Total | |
| John D. Nichols, Jr. | 2018 | | $ | 99,231 | | $ | 0 | | $ | 1,932,942 | | $ | 0 | | $ | 77,674 | | $ | 2,109,847 | |
| Jeremy F. Goldstein | 2018 | | | 401,700 | | | 65,000 | | | 0 | | | 0 | | | 34,175 | | | 456,234 | |
| Patrick S. Schmiedt | 2018 | | | 302,961 | | | 17,361 | | | 0 | | | 0 | | | 37,173 | | | 357,495 | |
| Matthew A. Thompson | 2018 | | | 475,000 | | | 0 | | | 0 | | | 0 | | | 40,770 | | | 515,770 | |
| 2017 | | | | 475,000 | | | 162,500 | | | 0 | | | 12,000 | | | 39,196 | | | 688,696 | |
| William C. Vens | 2018 | | | 366,500 | | | 0 | | | 0 | | | 0 | | | 42,640 | | | 409,140 | |
| 2017 | | | | 366,500 | | | 40,000 | | | 0 | | | 0 | | | 41,026 | | | 447,526 | |
| W. Randall Birchfield | 2018 | | | 503,077 | | | 16,667 | | | 100.975 | | | 0 | | | 228,781 | | | 849,500 | |
| 2017 | | | | 600,000 | | | 400,000 | | | 0 | | | 40,000 | | | 44,620 | | | 1,084,620 | |
| Michael J. Case | 2018 | | | 88,654 | | | 0 | | | 0 | | | 0 | | | 617,290 | | | 705,944 | |
| 2017 | | | | 525,000 | | | 41,000 | | | 0 | | | 12,000 | | | 42,480 | | | 620,480 | |
| Steven A. Shapiro | 2018 | | | 234,615 | | | 0 | | | 0 | | | 0 | | | 1,295 | | | 235,910 | |
| 2017 | | | | 500,000 | | | 200,000 | | | 0 | | | 0 | | | 10,600 | | | 710,600 | |
Grants of Plan-Based Awards Table
| | Estimated Future Payouts Under Equity Incentive Plan Awards | All | Grant Date | | | |
|
|
| | Other | FV of | | | |
|
| | Stock | Stock and | |
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards |
|
|
| | Grant | Threshold | Target (a) | Maximum | Awards | Option | |
| Threshold | Target | Maximum | Threshold | Target | Maximum |
|
|
| Name | Date | ($) | ($) | ($) | (#) | Awards |
Type of Award (a) |
Grant Date (b) |
($) |
($) (c) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Closing Stock Price on Grant Date ($/SH) | Grant Date FV of Stock and Option
Awards |
| John D. Nichols, Jr. | | Other (d) | 5/8/2018 | | 1,735 | 23.05 | $ | 39,992 |
| Other (e) | 11/13/2018 | | 85,000 | 22.27 | | 1,892,950 |
| William C. Vens | | AIP | 3/23/2018 | 0 | 200,000 | 400,000 | | | | |
| LTIP | 3/23/2018 | | 0 | 100,000 | 200,000 | | | 100,000 |
| VCIP | 3/23/2018 | | 0 | 100,000 | 200,000 | | | 100,000 |
| Jeremy F. Goldstein | | AIP | 2/15/2018 | 0 | 102,835 | 205,670 | | | | |
| LTIP | 2/15/2018 | | 18,177 | 72,708 | 145,415 | | | 72,708 |
| Patrick S. Schmiedt | | AIP | 2/15/2018 | 0 | 62,886 | 125,772 | | | | |
| LTIP | 2/15/2018 | | 8,497 | 33,990 | 67,980 | | | 33,990 |
| LTIP | 9/10/2018 | | 2,699 | 10,795 | 21,590 | | | 10,795 |
| Matthew A. Thompson | | AIP | 3/23/2018 | 0 | 125,000 | 250,000 | | | | |
| LTIP | 3/23/2018 | | 0 | 62,500 | 125,000 | | | 62,500 |
| VCIP | 3/23/2018 | | 0 | 62,500 | 125,000 | | | 62,500 |
| W. Randall Birchfield | | AIP | 3/23/2018 | 0 | 750,000 | 1,500,000 | 0 | 250,000 | 500,000 | | | 250,000 |
| LTIP | 3/23/2018 | | 0 | 400,000 | 800,000 | | | 400,000 |
| VCIP | 3/23/2018 | | 0 | 400,000 | 800,000 | | | 400,000 |
| Other (f) | 8/23/2018 | | (#) 97,500
| | | 23.70 | | 2,310,750 |
| Other (g) | 8/23/2018 | | 52,500 | 23.70 | | 1,244,250 |
| Steven A. Shapiro | 6/1/2016 | n/a | 166,667 | 250,000 | 0 | 85,573 | AIP | 3/23/2018 | 0 | 300,000 | 600,000 | | | | |
| W. Randall Birchfield | 8/24/2016 | n/a | 266,667 | 400,000 | 0 | 175,274 | |
| William C. Vens | 8/24/2016 | n/a | 133,333 | 200,000 | 0 | 53,855 | |
| Michael J. Case | 8/24/2016 | n/a | 155,000 | 232,500 | 0 | 114,396 | |
| Matthew A. Thompson | 6/6/2016 | n/a | 41,667 | 62,500 | 0 | 51,204 | |
| Joseph J. DeVito (d) | 2/5/2016 | n/a | 350,000 | 525,000 | 0 | 0 | |
| G. Patrick Corydon (d) | 2/5/2016 | n/a | 178,227 | 267,341 | 0 | 0 | |
| Douglas W. Collins (e) | 8/9/2016 | n/a | 23,333 | 35,000 | 0 | 0 | |
| Steven A. Shapiro | | VCIP | 3/23/2018 | | 200,000 | 400,000 | | | 200,000 |
| (a) | Represents the date the Compensation Committee approved the threshold, target and maximum payouts for each NEO under the Executive Plan for the 2016 performance period. The Compensation Committee approved awards under the Executive Plan for the 2016 performance period on February 8, 2017 (the "Award Date"). Represents one-third of each NEO's annual target incentive bonus for 2016 under the Corporation's Executive Plan, with two-thirds of the bonus amount paid as a cash award. As described in Executive“Executive Compensation Discussion and Analysis – Components of Executive Compensation for 2016 – Annual Incentives for 2016, due to2018,” the Compensation Committee's exerciseCommittee approved three main types of discretion regarding the total amount paid to each NEO under the Executive Planincentive awards for 2016, the actual cash amount paid to each NEO under the Executive Plan for 2016 performance is included in the "Bonus" column of the Summary Compensation Table.our NEOs: |
(b)i. | Amounts reflectAIP – refers to annual cash incentive awards granted under the valueAnnual Incentive Plan. Mr. Birchfield is the only NEO for whom the Compensation Committee approved an equity portion of potential payouts for the 2016 performance period to be receivedAIP bonus. The equity portion of Mr. Birchfield’s AIP award would have been payable in restricted shares ofunrestricted Class B common stock based on our achievement of performance goals during the 2018 performance period. |
| ii. | LTIP – refers to annual equity awards granted under the ExecutiveLong-Term Plan. LTIP awards are payable in restricted Class B common stock based on our achievement of performance goals during the 2018 performance period and, if earned, would have vested one year from the date of issue for Messrs. Vens, Thompson and Birchfield and annually in equal portion over three years, beginning one year from the date of issue, for Messrs. Goldstein and Schmiedt. |
| iii. | VCIP – refers to value creation equity awards granted under the Long-Term Plan. VCIP awards are payable in unrestricted Class B common stock based on our achievement of performance goals during the 2018-2020 performance period. |
As Mr. Case had separated from the Corporation prior to the grant of plan-based awards for the NEOs for 2018, he is not represented in this table.
| (b) | For AIP, LTIP, and VCIP awards, represents that date on which the applicable threshold, target and maximum payouts for each NEO’s awards were established. |
| (c) | Unless otherwise noted, amounts reflect the grant date fair value of awards granted in 2018. The Threshold, Targettarget, maximum, and Maximumwhere applicable, threshold opportunities for the LTIP and VCIP awards are set for an annualthe performance period and the amounts set forth above do not reflect any portion of the awardare denominated in cash but payable in restricted shares that may be reduced due to pro-rating over the performance period.only as Class B common stock. The number of shares to be received is determined based on the fair market valueclosing price of the Corporation'sour Class B common stock at the time the shares are issued following the close of the performance year. The numberperiod. As described in “Executive Compensation Discussion and Analysis – Components of shares of Class B common stock issued to the NEOs on February 8, 2017Executive Compensation for 2016 performance was as follows: |
● | Mr. Shapiro – 3,596 shares |
● | Mr. Birchfield – 7,364 shares |
● | Mr. Thompson – 2,151 shares |
These shares vest ratably on February 8, 2018, 2019 and 2020, and are subject to forfeiture in the event of termination of employment for any reason other than death, disability or retirement, as defined in the Executive Plan. The value of these shares issued to the NEOs for 2016 performance pursuant to the Executive Plan is included in the "Stock Awards" column of the Summary Compensation Table.
(c) | The Executive Plan provides that when a separation occurs during the year, the Compensation Committee may, but it not obligated to, provide a pro-rated award to the executive for such year. The Compensation Committee did not make an election for the payment of a pro-rated award to either Mr. DeVito or Mr. Corydon upon their retirements from the Corporation. As a result,2018,” no cash award was paid and no restricted shares of Class B common stock were issued to Mr. DeVito or Mr. Corydonthe NEOs in 2019 for the 2016 performance period.2018 performance. |
| (d) | PursuantReflects the annual restricted stock award granted to Mr. Nichols as compensation for his service as a director prior to being named Interim CEO. |
| (e) | Reflects the equity award granted to Mr. Nichols pursuant to his separationemployment agreement Mr. Collins received a pro-rated shareas described in “Executive Compensation Discussion and Analysis – Components of his annual target bonus underExecutive Compensation for 2018 – Long-Term Incentives for 2018.” |
| (f) | Reflects the Executive Plan equaling $43,333 paid in cash. This amount is included in the "Bonus" columnnumber of shares of the Summaryperformance-based equity award Mr. Birchfield was eligible to earn pursuant to his employment agreement as described in “Executive Compensation Table. No restricted sharesDiscussion and Analysis – Components of Class B common stock were issuedExecutive Compensation for 2018.” Mr. Birchfield forfeited this award upon his resignation in October 2018. |
| (g) | Reflects the equity retention award provided to Mr. CollinsBirchfield pursuant to his employment agreement as described in “Executive Compensation Discussion and Analysis – Components of Executive Compensation for 2018.” Mr. Birchfield forfeited the Executive Plan for the 2016 performance period.shares that remained unvested under this award upon his resignation in October 2018. |
Option Exercises and Stock Vesting Table
| | | |
| | Option Awards | Stock Awards |
| | Number of | Value | Number of | Value |
| | Shares | Realized | Shares | Realized |
| | Acquired on | Upon | Acquired on | Upon |
| Name | Exercise (#) | Exercise ($) | Vesting (#) (a) | Vesting ($) |
| Steven A. Shapiro (b) | 0 | 0 | 1,771 | 44,116 |
| W. Randall Birchfield | 0 | 0 | 933 | 21,786 |
| William C. Vens | 0 | 0 | 0 | 0 |
| Michael J. Case | 0 | 0 | 0 | 0 |
| Matthew A. Thompson | 0 | 0 | 0 | 0 |
| Joseph J. DeVito (c) | 0 | 0 | 46,944 | 1,142,315 |
| G. Patrick Corydon (d) | 0 | 0 | 24,916 | 605,495 |
| Douglas W. Collins | 0 | 0 | 0 | 0 |
| | | | | |
| | | Option Awards | Stock Awards | |
| | | Number of | | Value | Number of | | Value | |
| | | Shares | | Realized | Shares | | Realized | |
| | | Acquired on | | Upon | Acquired on | | Upon | |
| Name | | Exercise (#) | | Exercise ($) | Vesting (#) (a) | | Vesting ($) | |
| John D. Nichols, Jr. (b) | | | 0 | | $ | 0 | | 1,653 | | $ | 37,440 | |
| William C. Vens | | | 0 | | | 0 | | 754 | | | 17,304 | |
| Jeremy F. Goldstein | | | 0 | | | 0 | | 0 | | | 0 | |
| Patrick S. Schmiedt | | | 0 | | | 0 | | 0 | | | 0 | |
| Matthew A. Thompson | | | 0 | | | 0 | | 717 | | | 16,455 | |
| W. Randall Birchfield (c) | | | 0 | | | 0 | | 8,455 | | | 194,611 | |
| Steven A. Shapiro | | | 0 | | | 0 | | 1,199 | | | 27,517 | |
| Michael J. Case (d) | | | 0 | | | 0 | | 7,603 | | | 212,659 | |
| (a) | Unless noted below, total ofrepresents restricted shares previously awarded as a portion of the Corporation'sunder our Executive Plan for calendar years 2013 (granted2015 (awarded in February 2014)2016), 2014 (granted February 2015) and for Messrs. DeVito and Corydon, 2015 (granted2016 (awarded in February 2016). These shares vest one-third on each of the first, second and third anniversaries of the respective grant dates. Except as noted below, all shares shown in the table above2017), which vested in February 2016.2018. |
| (b) | Represents the number of shares of restricted stock granted to Mr. Shapiro onNichols in May 12, 201515, 2017 as compensation for his service as a director, which shares vested on May 12, 2016.9, 2018. |
| (c) | ForRepresents 4,080 shares awarded to Mr. DeVito, shares acquired include 13,726 sharesBirchfield under our Executive Plan for calendar years 2015 (awarded in February 2016), and 2016 (awarded in February 2017), which vested in February 2016 and 33,2182018, plus 4,375 shares awarded under his equity retention award, which vested upon his retirement from the Corporation in May 2016.on September 30, 2018. |
| (d) | ForRepresents 3,000 shares awarded to Mr. Corydon, shares acquired include 7,861 sharesCase under our Executive Plan for calendar years 2015 (awarded in February 2016), and 2016 (awarded in February 2017), which vested in February 2016 and 17,0552018, plus 4,603 shares awarded under our Executive Plan which vested upon his retirementseparation from the Corporation in May 2016.February 2018. |
Outstanding Equity Awards at Fiscal Year End No option awards are outstanding as of December 31, 20162018 and, accordingly, columns of this table relating to option awards have not been presented. Stock awards outstanding as of December 31, 20162018 are as follows:
| | | Stock Awards |
| | Stock Awards | Number of Shares or Units of Stock that Have Not Vested (#) (a) | Market Value of Shares or Units of Stock that Have Not Vested ($) (b) | Equity Plan Awards: Number of Unearned Shares or Units that Have Not Vested (#) (c) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Units that Have Not Vested ($) |
| | Number of Shares or Units or Stock That Have Not Vested (#) (a) | Market Value of Shares or Units of Stocks That Have Not Vested ($) (b) | Equity Incentive Plan Awards: Number of Unearned Shares or Units That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Units Not Vested ($) |
| |
| |
| Name |
| John D. Nichols, Jr. (d) | | 86,735 | 1,444,138 | n/a | n/a |
| William C. Vens | | 1,509 | 25,125 | n/a | n/a |
| Jeremy F. Goldstein | | 0 | 0 | n/a | n/a |
| Patrick S. Schmiedt | | 0 | 0 | n/a | n/a |
| Matthew A. Thompson | | 1,434 | 23,876 | n/a | n/a |
| W. Randall Birchfield | | 0 | 0 | n/a | n/a |
| Steven A. Shapiro | 3,596 | 90,619 | n/a | n/a | 0 | 0 | n/a | n/a |
| W. Randall Birchfield | 11,548 | 291,010 | n/a | n/a | |
| William C. Vens | 2,263 | 57,028 | n/a | n/a | |
| Michael J. Case | 7,603 | 191,596 | n/a | n/a | 0 | 0 | n/a | n/a |
| Matthew A. Thompson | 2,151 | 54,205 | n/a | n/a | |
| Joseph J. DeVito | 0 | n/a | n/a | |
| G. Patrick Corydon | 0 | n/a | n/a | |
| Douglas W. Collins | 0 | n/a | n/a | |
| (a) | UnvestedFor Messrs. Vens and Thompson, represents unvested shares awarded as a portion of the Corporation'sunder our Executive Plan for calendar years 2013, (granted in February 2014), 2014 (granted in February 2015), 2015 (granted in February 2016), andyear 2016 (granted(awarded in February 2017). These shares vest one-third on eachOne half of the first, secondshares vested in February 2019 and third anniversaries of the respective Grant Datesone half will vest in February 2020 and are subject to forfeiture in the event of resignation or termination of employment for any reason other than death, disability or retirement.cause. |
Unvested shares presented above will vest according to the below schedule:
| | Stock Awards |
| Name | Vesting February 2018 | Vesting February 2019 | Vesting February 2020 | Total Unvested Shares |
| Steven A. Shapiro | 1,199 | 1,199 | 1,198 | 3,596 |
| W. Randall Birchfield | 5,014 | 4,080 | 2,454 | 11,548 |
| William C. Vens | 754 | 754 | 755 | 2,263 |
| Michael J. Case | 3,000 | 3,000 | 1,603 | 7,603 |
| Matthew A. Thompson | 717 | 717 | 717 | 2,151 |
| (b) | Valued using the closing market valueprice of the Corporation'sCorporation’s Class B common stock on December 30, 2016.31, 2018 of $16.65. |
| (c) | This table does not include the VCIP award for the 2017-2019 or the 2018-2020 performance periods because (a) these award opportunities are denominated in dollars and (b) the payout, if any, earned by the named executive officers will be made in stock based on achievement of the cumulative operating income measures over the performance period. No payout is expected for the 2017-2019 or the 2018-2020 performance periods. The table does not include the LTIP award granted in 2018 because the performance period concluded during fiscal year 2018 and no shares were earned based upon actual performance. For additional information about the VCIP award, see footnote (b) to the Summary Compensation Table and the Grants of Plan-Based Awards Table above. |
| (d) | Represents 1,735 unvested restricted shares Mr. Nichols received for his services as a director of the Corporation from January 2018 through September 2018, which will vest on May 8, 2019, and 85,000 unvested restricted shares granted to Mr. Nichols under our Long-Term Plan pursuant to his employment agreement as described in “Executive Compensation Discussion and Analysis – Components of Executive Compensation for 2018 – Long-Term Incentives for 2018,” which shares are subject to forfeiture under the terms of the agreement and will vest according to the following schedule: 42,500 shares will vest as of October 17, 2019; 21,250 shares will vest as of October 17, 2020; and 21,250 will vest as of October 17, 2021. |
Equity Compensation Plan Information The following table sets forth information regarding outstanding grants and shares available for grant under our existing equity compensation plans, including the Baldwin & Lyons, Inc. Restricted Stock Compensation Plan (the “Restricted Stock Plan”) and the Long-Term Incentive Plan. All information is as of December 31, 2018.
Plan Category | (1) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#) |
(2) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) |
(3) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans [excluding Securities reflected in column (1)] (#) |
Equity compensation plans approved by security holders (a) | 0(b) | - | 869,936 (c) |
Equity compensation plans not approved by security holders (d) | 0 | - | 0 |
| Total | 0 | - | 869,936 |
| (a) | Includes the Restricted Stock Plan and Long-Term Plan. |
| (b) | We had 107,028 shares of unvested restricted stock outstanding as of December 31, 2018, which are not included in column (1). |
| (c) | Includes 0 shares available for future issuance under the Restricted Stock Plan and 869,936 shares available for future issuance under the Long-Term Plan. |
| (d) | We do not maintain any equity compensation plans that have not been approved by our shareholders. |
Potential Payments upon Termination or Change in Control All employees of the Corporation are employed on an at-will basis, and either the employee or the Corporation is free to terminate any employment relationship at any time. Of the Corporation's current NEOs, only Mr. Thompson has entered into a retention and non-competition agreement, which agreement provides for a severance payment upon his termination without cause. Had Mr. Thompson been terminated without cause on December 30, 2016 (the last business day of 2016), he would have received a severance payment of $652,083 pursuant to his retention and non-competition agreement. Upon a separation from the Corporation for any other reason, Mr. Thompson is not entitled to any severance compensation pursuant to such agreement. For a further discussion of Mr. Thompson's retention and non-competition agreement, see Executive Compensation Discussion and Analysis—Other Compensation Matters—Employment Agreements above.
Annual Incentive Plan and Equity Plans
Under the terms of the ExecutiveAnnual Incentive Plan, if a NEO’s employment terminates for any reason, other than death or disability, prior to the date that an award is paid, all of the NEO’s rights to the award will be forfeited, unless otherwise provided in another written agreement between us and the NEO. In the event of a NEO’s death or disability during a performance period, the NEO must remain employed by the Corporation until after the completion of an entire calendar year in order to(or his beneficiary) will be entitled to receive a bonus underpro-rated payment of the Executive Plan for such year. However, ifaward. In the event of a NEO ceases employment by reason ofNEO’s death or disability or retirement (each as defined in the Executive Plan) prior tofollowing the end of a calendar year,performance period, but before awards are paid, the Compensation Committee may,NEO (or his beneficiary) will be paid the award that would have otherwise been payable if he remained employed through the payment date. If a change in its discretion, awardcontrol (as defined in the Annual Incentive Plan) occurs during a pro-rated bonus to such NEO underperformance period, awards will be determined based on our performance as of the Executive Plan.date of the change in control. Awards will be paid no later than 2 ½ months following the date of the change in control.
Under the terms of the Restricted Stock Plan, upon (a) termination by the NEO for "Good Reason"good reason or "without Cause"by us without cause (each as defined in the Restricted Stock Plan), upon(b) non-renewal of all agreements between us and the NEO, and the Corporation, or upon(c) separation by reason of death, Disabilitydisability (as defined in the Restricted Stock Plan) or retirement after reaching the age of 50 and completing at least 20 years of service with the Corporation,us, all of the NEO'sNEO’s outstanding awards under the Restricted Stock Plan will fully vest. In the event of a "Changechange in Control"control (as defined in the Restricted Stock Plan), the unvested restricted stock held by the NEO would fully vest, unless the Corporation'sour successor entity assumes the outstanding awards or provides equivalent substitute awards. See the "Market Value of Shares or Units of Stock That Have Not Vested" column of the "Outstanding Equity Awards at Fiscal Year End" table for the fair market value of the shares of restricted stock that would have fully vested upon the termination scenarios set forth above or upon a Change in Control described above if such termination or Change in Control had occurred on December 30, 2016 (the last business day of the year). Upon a separation from the Corporationus for any reason other than as described above, the NEO would forfeit all outstanding restricted stock awards.
As discussed elsewhere in this Proxy Statement, Messrs. DeVito, Corydon and Collins separated from the Corporation during 2016. For a description of the amounts received by Messrs. DeVito and Corydon in connection with their retirements, see Executive Compensation Discussion and Analysis–Components of Executive Compensation for 2016–Annual Incentives for 2016 above. For a description of the amounts received by Mr. Collins in connection with his termination, see Executive Compensation Discussion and Analysis–Other Compensation Matters–Employment Agreements above.
Proposal #3 - Approval of the Baldwin & Lyons, Inc. Annual Incentive Plan
Introduction
On the recommendation of the Compensation Committee, the Board adopted the Baldwin & Lyons, Inc. Annual Incentive Plan (the "AIP") on March 20, 2017, subject to approval by our shareholders. Approval of the AIP requires more votes cast "FOR" the proposal than votes cast "AGAINST" or "ABSTAIN" by the shares present, in person or by proxy, and entitled to vote at the Annual Meeting. Shareholder approval is necessary to provide the Compensation Committee with the flexibility to grant awards that qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code (the "Code"). If the AIP is not approved by the Corporation's shareholders, any award opportunities that were previously granted under the AIP, as discussed in the Executive Compensation Discussion and Analysis - Components of Executive Compensation for 2017 section on page 24, will be null and void.
Code Section 162(m) places a $1 million limit on the amount that the Corporation may deduct in any one year for compensation paid to the Chief Executive Officer and each of its other three most highlycompensated executive officers (excluding the Chief Financial Officer). If awards under the AIP constitute qualified performancebased compensation, the awards may not be subject to the deductibility limitation of Code Section 162(m). While the Compensation Committee intends to design awards under the AIP to be eligible for deductibility under Code Section 162(m), there is no guarantee that the exemption will be available for awards in any particular circumstance. To maintain flexibility in compensating our executive officers, the Compensation Committee may from time to time pay compensation that is not deductible if it believes that doing so is in the best interests of the Corporation and shareholders.
This description is not intended to be a complete description of the AIP and is qualified by reference to the plan document, a copy of which is attached hereto as Appendix A.
Summary of Plan
Purposes. The overall purpose of the AIP is to attract and retain employees by providing a competitive bonus program that rewards outstanding performance and motivates and rewards eligible employees by making a portion of their compensation dependent on the achievement of certain corporate, business unit and/or individual performance goals.
Administration. The AIP will be administered by the Compensation Committee. Subject toUnder the terms of the
AIP,Long-Term Plan, the
Compensation Committee will have full power and authority to administer, construe and interpret the AIP; designate the employees who will participatetreatment of awards in the
AIP; determine the terms and conditions of awards (including the sizecase of the
award, payment terms and vesting conditions); amend any outstanding awards and instrumentsNEO’s termination, resignation, death or
agreements relating to an award; correct any defect, supply any omission, or reconcile any inconsistency in the AIP, any award or any instrument or agreement relating to an Award; and make any and all factual and legal determinations which it determines necessary or advisable for AIP administration. All determinations of the Compensation Committee are final, binding and conclusive upon all persons.
Eligibility and Participation. Each employee of the Corporation, a parent or any related entitydisability will be eligible to participate in the AIP. The Compensation Committee shall determine which employees will participate in the AIP.
Awards. Within ninety days after the beginning of each fiscal year, the Compensation Committee will establish performance goals that may be based on any combination of Corporation and individual performance measures. Performance goals will be determined annuallygoverned by the Compensation Committee from among those performance measures listed below (see "Performance Goals" below). Final awards will be based on the level of achievement of the performance measuresapplicable award agreement executed between us and the predetermined award payout levels.
Performance Goals. The AIP includes the following performance measures for awards intended to be qualified performance-based compensation. The performance measures will be comprised of specified levels of one or more of the following performance criteria, as the Compensation Committee deems appropriate: (a) net earnings or net income (before or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; (e) gross profit or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital, equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); (i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements in capital structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added measurements; (o) share price (including, but not limited to, growth measures and total shareholder return); (p) expense targets; (q) margins; (r) operating efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) completion of acquisitions or business expansion; and; (w) combined ratio, in each case, unless otherwise specified by the Compensation Committee determined in accordance with generally accepted accounting principles consistently applied on a business unit, subsidiary or consolidated basis or any combination thereof. The performance goals may be described in terms of objectives that are related to the individual participant or objectives that are Corporation-wide or related to a subsidiary, division or business unit. Performance goals may be measured on an absolute or cumulative basis, or on the basis of percentage of improvement over time.
Adjustments to Performance Goals. The Compensation Committee may, in its discretion, adjust or modify the performance goals and award opportunities under the AIP (either up or down) based on the following events: (i) asset write-downs; (ii) significant litigation or claim judgments or settlements; (iii) changes in tax laws, accounting standards or principles, or other laws or regulatory rules affecting reporting results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in applicable accounting rules; (vi) acquisitions or divestitures; (vii) objectively determinable unusual or nonrecurring events; and (viii) a change in the Corporation's fiscal year.
Payments. All awards will be payable in cash no later than 2 1/2 months following the end of a performance period between but after the Compensation Committee certifies in writing that the performance goals and any other relevant terms of the awards have been satisfied. The maximum amount payable to a participant under the AIP for any calendar year will be $5 million.
Termination of Employment. Generally, a participant must be actively employed on the date an award is paid in order to receive payment. If a participant's employment terminates for any reason (other than death or disability) prior to the date that an award is paid, all of the participant's rights to the award shall be forfeited.NEO. In the event of a participant's deathtermination without cause or disability during a performance period, the participant (or his or her beneficiary) will be entitled to receiveNEO’s resignation for good reason following a pro-rated paymentchange of the award. In the event of a participant's death or disability following the end of a performance period, but before awards are paid, the participant (or his or her beneficiary) will be paid the award that would otherwise be payable if he or she remained actively employed through the payment date.
Change of Control. If a Change of Control,control (each as defined in the AIP, occurs during aLong-Term Plan), any restrictions imposed on restricted stock will be deemed to have expired and, with respect to all outstanding performance awards, the Compensation Committee (i) will determine the greater of: (x) the payout at the target number of performance awards, and (y) the payout based upon the actual performance level attained as of the last day of the calendar quarter immediately prior to the date of the termination without cause or the resignation for good reason; and (ii) will pay to the NEO the greater of such amounts, pro-rated based upon the number of complete and partial calendar months within the performance period awards will be determined based on the Corporation's performancewhich have elapsed as of the date of the Change of Control. Awards will be paid no later than 2 1/2 months following the date of the Change of Control.
Recoupment of Awards. Any awards and payments under the AIP are subject to claw-back or recoupment as permitted or required by applicable law or Corporation policy, as amended from time to time.
Duration of the AIP. The AIP will remain in effect until terminated by the Board or the Compensation Committee.
Amendment and Termination of the AIP. The Board or the Compensation Committee may, at any time, amend, suspend or terminate the AIP. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any participant to awards allocated prior to such amendment, suspension or termination. No amendment, suspension orNEO’s termination may reduce the rights of a participant to a payment with respect to an earned award without his or her consent.
New Plan Benefits
As discussed above, benefits under the AIP will be made at the discretion of the Compensation Committee, and performance goals may vary from performance period to performance period and from participant to participant.
The Board of Directors recommends a vote "FOR" the approval of the Baldwin & Lyons, Inc. Annual Incentive Plan.
Proposal #4 – Approval of the Baldwin & Lyons, Ind. Long-Term Incentive Plan
Introduction
On the recommendation of the Compensation Committee, the Board has approved the Baldwin & Lyons, Inc. Long-Term Incentive Plan (the "LTIP"), subject to approval by shareholders. Approval of the LTIP requires more votes cast "FOR" the proposal than votes cast "AGAINST" or "ABSTAIN" by the shares present, in person or by proxy, and entitled to vote at the Annual Meeting of Shareholders. Stockholder approval of the LTIP is required under the NASDAQ rules. In addition, stockholder approval is necessary to provide the Compensation Committee with the flexibility to grant certain awards that qualify as "performance-based compensation" under Section 162(m) of the Code. If approved by our shareholders, the LTIP will replace the Baldwin & Lyons, Inc. Restricted Stock Compensation Plan, or the "Restricted Stock Plan," which was originally approved by our shareholders on May 4, 2010. Upon approval of the LTIP, no new awards will be granted under the Restricted Stock Plan. If the LTIP is not approved by our shareholders, any awards that were previously granted under the LTIP will be null and void.
The LTIP was established to (i) attract, retain and motivate key employees, directors, consultants, and independent contractors; (ii) compensate them for their contributions to the growth and profitability of the Corporation; (iii) to encourage ownership of our common stock in order to align their interests with those of shareholders; and (iv) promote the sustained long-term performance of the Corporation and the creation of stockholder value.
The following is a summary of the key features of the LTIP and is qualified in its entirety by reference to the complete text of the LTIP as set forth as APPENDIX B to this Proxy Statement.
Shareholders are urged to read the actual text of the LTIP.
Why Shareholders Should Approve this Proposal
The LTIP is key to the Corporation's pay for performance philosophy. The Board and the Compensation Committee believe that the effective use of performance-based incentive compensation, including equity-based awards, can incentivize key employees to maximize our growth and overall success, as well as align their interests with those of shareholders to create long-term, sustainable value.
As of March 20, 2017, there were 840,596 shares of Class B common stock available for issuance under the Restricted Stock Plan and 45,378 granted but unvested shares of restricted stock outstanding.
The LTIP is instrumental in attracting, retaining and motivating top talent. Attracting, retaining and motivating talented executives, employees and directors is essential to executing our business strategy. Equity-based awards are highly valued by employees, and management believes that they provide valuable incentives to remain with the Corporation.
The LTIP permits multiple award types. The LTIP permits the issuance of the following awards: (i) stock options; (ii) stock appreciation rights ("SARs"); (iii) restricted stock and restricted stock units ("RSUs"); (iv) performance shares and units; and (v) other stock or cash awards, subject to the share limits set forth in the LTIP. All shares issued under the LTIP reference the Corporation's Class B common stock; no Class A shares may be issued pursuant to the LTIP. These varied award types will enable the Compensation Committee to tailor awards in light of evolving compensation strategies, as well as the accounting, tax and other standards applicable at the time of grant.
Highlights of Key Governance Practices Under the LTIP
The Board believes that the LTIP is consistent with principles of good corporate governance. The LTIP includes the following practices and provisions:
No "evergreen" feature. The LTIP has a fixed number of shares available for grant that will not automatically increase because of an "evergreen" feature.
Minimum vesting requirement. Under the LTIP, one-year minimum vesting requirements will apply to at least 95% of the shares that may be granted subject to any type of award.
No discounted options or SARs. Under the LTIP, option or SAR exercise prices must be at least 100% of fair market value on the date an option or SAR is granted.
No repricings or cash buyouts. The LTIP includes a blanket prohibition against repricing, including a prohibition of cash buyouts of out-of-the-money options or SARs granted under the LTIP without stockholder approval, other than in connection with adjustments made due to certain corporate transactions.
No liberal share "recycling." The LTIP includes a prohibition against re-granting shares (i) subject to an option or a stock-settled SAR that were not issued upon the net settlement or net exercise of such option or SAR; (ii) delivered to, or withheld by, the Corporation to pay the exercise price or the withholding taxes due with respect to an option or SAR; (iii) withheld by the Corporation to cover taxes incurred in connection with other stock-settled awards; or (iv) repurchased in the open market with the proceeds of an option exercise.
A "double trigger" change of control provision. The LTIP requires that participants must experience a termination of employment without cause as designed in the LTIP, within two years following the change of controlor resignation for an award to vest as a result of a change of control of the Corporation (unless, in connection with the change of control, the Corporation's successor refuses to assume or substitute outstanding awards).
No liberal definition of change of control. The LTIP defines a "change of control" of the Corporation to mean (i) a person acquiring ownership of more than 50% of the total fair market value or total voting power of the Class A common stock; (ii) a person acquiring at least 40% of the total gross fair market value of the Corporation's assets, (iii) a person acquiring ownership of 30% or more of the total voting power of the Class A common stock; or (iv) specified changes in the majority of the Board (not including the election of directors whose election or nomination was approved by a majority of the then incumbent Board). A change of control shall not apply with respect to the assumption or reallocation of Class A common stock among the Shapiro family or related entities.
Cap on awards. The maximum number of shares that may be awarded to a participant in a fiscal year is limited.
Administration by an independent committee. The LTIP is administered by the Compensation Committee, which is comprised entirely of independent directors.
Determination of Authorized Shares. In setting the proposed number of authorized shares under the LTIP at 1,000,000, the Board and the Compensation Committee considered the shares available, historical practice, and dilution impact. As of March 20, 2017, the proposed reserve of 1,000,000 shares of Class B common stock under the LTIP represents approximately 6.6% of the Corporation's issued and outstanding shares of Class B common stock, including restricted shares not yet vested.
The Board also considered the shareholder value transfer and dilution policies of our institutional investors and major proxy advisory firms.
Summary of the LTIP
Administration. The LTIP is administered by the Compensation Committee. The Compensation Committee has full power and discretionary authority to construe and interpret the LTIP and any agreement or instrument entered into pursuant to the LTIP, including designating participants and determining the type and size of awards; amending any outstanding awards and any instruments or agreements relating to an award; correcting any defect, supplying any omission, or reconciling any inconsistency in the LTIP, any award or any instrument or agreement relating to an Award; and making any and all factual and legal determinations which it determines to be necessary or advisable for LTIP administration.
Eligibility. Eligibility is limited to employees, outside directors or consultants of the Corporation and its subsidiaries.
Shares Reserved for Issuance; Limits. A total of 1,000,000 shares of common stockgood reason. Payment will be reserved for issuance under the LTIP pending shareholder approval thereof. The LTIP contains the following additional limits:
No more than an aggregate of 1,000,000 Class B shares may be issued as incentive stock options.
The maximum number of shares subject to restricted stock or units that may be granted to an employee or a consultant during any one calendar year is 200,000.
The maximum number of shares subject to performance shares or units that may be granted to an employee or a consultant during any one calendar year is 200,000.
The maximum number of shares subject to either options or SARs that may be granted to an employee or a consultant during any one calendar year is 200,000.
The maximum amount of cash-denominated other awards that may be granted to an employee or a consultant during any one calendar year is $2,000,000.
The maximum number of shares subject to share-denominated other awards that may be granted to an employee or a consultant during any one calendar year is 500,000.
The maximum grant date fair market value of any awards that may be granted to an outside director in any calendar year is $500,000.
Grant of Awards. Award agreements will set forth the specific terms of the award, including vesting schedules and applicable performance goals, if any. The following is a brief description of the various types of awards that may be issued under the LTIP:
Stock Options. A stock option is the right to acquire shares at a fixed exercise price for a fixed period of time. Under the LTIP, the Compensation Committee fixes the term of the options, which term may not exceed ten years from the date of grant. The Compensation Committee may grant either incentive stock options or nonqualified stock options. As described below, incentive stock options entitle the participant, but not the Corporation, to preferential tax treatment. The Compensation Committee determines the rules and procedures for exercising options. The exercise price may be paid in cash, common stock, a combination of cash and common stock, through net settlement (meaning the Corporation withholds common stock otherwise issuable upon exercise to pay the exercise price), or by any other means authorized by the Compensation Committee, including a cashless exercise procedure whereby vested common stock covered by the option is sold by a broker and a portion of the sale proceeds are delivered to the Corporation to pay the exercise price. The exercise price is set by the Compensation Committee but cannot be less than 100% of the fair market value of the Corporation's Class B common stock on the date of grant. Except in connection with a corporate transaction involving the Corporation, the exercise price of outstanding options or SARs may not be reduced without shareholder approval, and no option or SAR may be canceled in exchange for cash, options or SARs with a lower exercise price, or other awards.
Stock Appreciation Rights. SARs are awards that entitle the participant to receive an amount equal to the excess, if any, of the fair market value on the exercise date of the number of common stock for which the SARs is exercised over the grant price. The grant price cannot be less than 100% of the fair market value of the Corporation's common stock on the date of grant. Payment to the participant on exercise may be made in cash or common stock, as determined by the Compensation Committee on or following the date of grant. The Compensation Committee fixes the term of the SARs, which term may not exceed ten years from the date of grant.
Restricted Stock and Restricted Stock Units. Restricted stock is an award ofin shares, where the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions and terms as determined by the Compensation Committee. Restricted stock units entitle a participant to receive one or more shares of common stock in the future upon satisfaction of vesting conditions determined by the Compensation Committee. The Compensation Committee determines whether restricted share units will be settled through the delivery of common stock, cash of equivalent value, or a combination of common stock and cash. The Compensation Committee will determine whether participants holding shares of restricted stock or restricted stock units are entitled to receive dividends and other distributions.
Performance Shares or Performance Units. Performance Shares entitle a participant to receive a target number of shares of common stock (or a cash equivalent) if specified performance targets are achieved during a specified performance period. Performance units entitle a participant to receive a target number of shares (or a cash equivalent) if specified performance targets are achieved during a specified performance period. Actual payments to participants may be more or less than the specified target number of common stock depending on the achievement of the performance targets during the performance period. The performance targets and performance period are determined by the Compensation Committee and set forth in the applicable award agreement. The Compensation Committee will determine whether participants holding performance shares or performance units are entitled to receive dividends and other distributions. In no event will dividends be paid currently with respect to unearned performance awards.
Other Awards. The Compensation Committee also may grant other forms of awards that generally are based on the value of common stock. These other awards may provide for cash payments based in whole or in part on the value or future value of common stock, may provide for the future delivery of common stock to the participant, or may provide for a combination of cash payments and future delivery of common stock.
Section 162(m). The Compensation Committee may determine whether any award is a "performance-based" award for purposes of Section 162(m) of the Code. Any awards designated to be "performance-based compensation" will be conditioned on the achievement of one or more specified performance goals established by the Compensation Committee at the date of grant. The performance goals will be comprised of specified levels of one or more of the following performance criteria, as the Compensation Committee deems appropriate: (a) net earnings or net income (before or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; (e) gross profit or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital, equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); (i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements in capital structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added measurements; (o) share price (including, but not limited to, growth measures and total shareholder return); (p) expense targets; (q) margins; (r) operating efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) completion of acquisitions or business expansion; and; (w) combined ratio, in each case, unless otherwise specified by the Compensation Committee determined in accordance with generally accepted accounting principles consistently applied on a business unit, subsidiary or consolidated basis or any combination thereof.
The performance goals may be described in terms of objectives that are related to the individual participant or objectives that are Corporation-wide or related to a subsidiary, division or business unit. Performance goals may be measured on an absolute or cumulative basis, or on the basis of percentage of improvement over time. Further, performance goals may be measured in terms of Corporation performance (or performance of the applicable subsidiary, division or business unit) or measured relative to selected peer companies or a market index.
The applicable performance goals will be established by the Compensation Committee within 90 days following the commencement of the applicable performance period (or such earlier or later date as permitted or required by Section 162(m)). Each participant will be assigned a target number of shares of common stock or cash value payable if target performance goals are achieved. The Compensation Committee will certify the attainment of the performance goals at the end of the applicable performance period. If a participant's performance exceeds target performance goals, the number of common stock or the cash value payable under the performance-based award may be greater than the target number, but in no event can the amounts exceed the award limits described above. In addition, unless otherwise provided in an award agreement, the Compensation Committee may reduce the number of shares or cash value payable with respect to a performance-based award even if the performance objectives are satisfied.
Adjustment or Changes in Capitalization. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, extraordinary cash dividend, stock split, reverse stock split, spin-off, spilt-off or similar transaction or other change in corporate structure affecting the common stock, adjustments and other substitutions will be made to the LTIP and to awards as the Compensation Committee deems appropriate, including adjustments in the aggregate number, class and kind of securities that may be delivered, in the aggregate or to any participant, in the number, class, kind and option or exercise price of securities subject to outstanding awards as the Compensation Committee may determine to be appropriate; provided, however, that the number of shares of common stock subject to any award will always be a whole number and further provided that in no event may any change be made to an incentive stock option which would constitute a modification within the meaning of Section 424(h)(3) of the Code. Notwithstanding anything in the LTIP to the contrary, an adjustment may not be made in a manner that would result in adverse tax consequences under Section 409A of the Code.
Termination of Service. The Compensation Committee will specify, at or after the time of grant of an award, the effect, if any, that a participant's termination of service or the participant's death or disability will have on the vesting, exercisability, settlement or lapse of restrictions applicable to an award. The treatment may be specified in the award agreement or determined at a subsequent time.
Change of Control. If a participant is terminated without "cause" or resigns for "good reason", as defined in the LTIP, within two years following a change of control, if the successor entity does not assume, replace or substitute any of all of the Corporation, his or her awards will vest. If the Corporation's successor in a change of control refuses to assume awards outstanding under the LTIP or to provide substitute awards of equivalent value, outstanding awards under the LTIPLong-Term Plan, such awards will vesthave their vesting accelerated immediately prior to the change of control unless otherwise determined by the Board.
Employment Agreements with Current Named Executive Officers
All of our employees are employed on an at-will basis, and either the employee or the Corporation is free to terminate any employment relationship at any time. We have entered into employment agreements or confidentiality, non-competition and non-solicitation agreements with each of our current NEOs other than Mr. Vens.
In connection with his appointment as Interim Chief Executive Officer, we entered into an employment agreement with Mr. Nichols on November 13, 2018. Under the employment agreement, Mr. Nichols will serve as Interim Chief Executive Officer through October 17, 2019, unless earlier terminated by us at any time for any reason. Mr. Nichols has agreed that prior to April 17, 2019, he will not terminate his employment without the written consent of the Board. After April 17, 2019, Mr. Nichols may terminate his employment upon providing us 60 days’ advance notice. Mr. Nichols may remain employed by us during a transition period, not to exceed six months, following our hiring of a successor Chief Executive Officer. In addition, Mr. Nichols has agreed to serve as Chairman of the Board determines otherwise. Notfor a period of three years. The employment agreement set Mr. Nichols’ annualized base salary at $600,000 and entitled Mr. Nichols to receive 85,000 restricted shares of our Class B common stock (the “Stock Grant”). During his term as Interim Chief Executive Officer, Mr. Nichols will not be entitled to any fees or other compensation for his services as a member of the Board. The employment agreement entitles Mr. Nichols to participate in all outstandingbenefit plans offered to other senior executives and to our employees generally, entitles Mr. Nichols to reimbursement for the expense of an annual physical and requires us to provide Mr. Nichols with an apartment near our headquarters and up to $5,000 per month in commuting expenses for him and his immediate family. If we terminate Mr. Nichols for any reason prior to April 17, 2019, Mr. Nichols will be paid a total of six months’ base salary (including any base salary earned prior to the termination date). If we terminate Mr. Nichols for cause (as defined in the employment agreement) during the term of the employment agreement, any unvested equity awards needheld on the termination date will be treated similarly uponcanceled. If Mr. Nichols is terminated by us for any other reason, the Stock Grant will continue to vest in accordance with its terms. If a change of control (as defined in the employment agreement) occurs during the term of the Corporation.employment agreement, any unvested equity awards, including the Stock Grant, will become fully vested and payable. The employment agreement includes provisions requiring Mr. Nichols to maintain our confidential information and subjects Mr. Nichols to non-competition and non-solicitation provisions during the term of the employment agreement and for twelve months thereafter.
We entered into a confidentiality, non-competition and Terminationnon-solicitation agreement with Mr. Thompson in June 2018. This agreement provides for severance payments in certain circumstances in exchange for Mr. Thompson agreeing to a one-year covenant not to compete, a two-year non-solicitation restriction for both our customers and employees and continuing to comply with customary confidentiality and non-disparagement provisions. If Mr. Thompson is terminated by us other than for dishonest activities, fraud, gross neglect of duty or misconduct, he will receive a separation payment equal to (i) 12 months of his base salary, (ii) a pro-rated share of his target AIP award for the year in which the separation occurs if AIP targets have been set for such year prior to the separation, (iii) vesting of any awarded but unvested bonus provided under the Long-Term Plan related to performance periods prior to the year in which the separation occurs, and (iv) all costs associated with the continuation of his medical, dental and vision benefits under COBRA for 12 months. If Mr. Thompson resigns for good reason (as defined in the agreement) on or before the two-year anniversary of a change of control (as defined in the agreement), he will receive a change in control payment equal to (i) 24 months of his base salary, and (ii) his target AIP award for the year in which the separation occurs. If Mr. Thompson retires from the Corporation after age 55 with at least 12 years of service with us, he will receive a retirement payment equal to (i) a pro-rated share of his target AIP award for the year in which the separation occurs if AIP targets have been set for such year prior to the separation, and (ii) continued vesting of any awarded but unvested bonus provided under the Long-Term Plan related to performance periods prior to the year in which the retirement occurs.
We entered into a confidentiality, non-competition and non-solicitation agreement with Mr. Goldstein in May 2018 and Mr. Schmiedt in July 2018. These agreements provide for a severance payment upon termination by us other than for dishonest activities, fraud, gross neglect of duty or misconduct or termination by the NEO for good reason (as defined in the agreements, which includes termination of employment on or before the two-year anniversary of a change control (as defined in the agreements)), in exchange for the NEO agreeing to a two-year covenant not to compete, a two-year non-solicitation restriction for both our customers and employees and continuing to comply with customary confidentiality and non-disparagement provisions. The severance payment will equal (i) 24 months of the LTIP. The Board reservesNEO’s base salary, (ii) the right to amend, modify or terminate the LTIP at any time. However, no such amendment, modification or termination may adversely affect outstanding awards under the LTIP in any material way without consent.
Non-Assignability. Awards under the LTIP are not assignable or transferable, other than by will or by the laws of descent and distribution or, except in the case of an incentive stock option, pursuant to a domestic relations order, as the case may be.
Recoupment. All awards granted under the LTIP, any payments made under the LTIP and any gains realized upon exercise or settlement of an award shall be subject to clawback or recoupment as permitted or mandated by applicable law, rules, regulations or any Corporation policy as enacted, adopted or modified from time to time.
Shareholder Rights. A participant will have no rights as a shareholder with respect to common stock covered by an award until the date the participant or his nominee becomes the holder of record of such common stock.
Certain Federal Income Tax Considerations
The following is a brief description of the U.S. federal income tax consequences generally arising with respect to certain awards that may be granted under the LTIP based on current tax laws. The summary does not include any state, local or foreign tax laws. This discussion is intendedNEO’s holiday bonus for the information of shareholders considering how to vote with respect to the proposal to approve the LTIP.
Nonqualified Stock Options and Stock Appreciation Rights. A participant will not recognize taxable income upon the grant of a nonqualified stock option or SAR. The participant generally will recognize ordinary income upon exercise, intwo years, (iii) an amount equal to the excessNEO’s annual incentive bonus, including the AIP and the LTIP award, for the year in which the separation occurs, and (iv) all costs associated with the continuation of the fair market valueNEO’s medical, dental and vision benefits under COBRA for 12 months.
Payouts to Current Named Executive Officers
The following table describes the potential additional payments and benefits under our compensation and benefit plans and arrangements to which our NEOs, excluding Messrs. Birchfield, Shapiro and Case, would be entitled upon termination of employment. The NEOs would also be entitled to generally available benefits under our various plans and arrangements, as discussed after the following table. The following includes the various types of circumstances that would trigger payments and benefits under plans, agreements and arrangements currently in effect, but it is always possible that different arrangements could be negotiated in connection with an actual termination of employment or change in control. Further, the amounts shown are estimates and are based on numerous assumptions, including that the triggering event occurred on December 31, 2018. Therefore, the actual amounts of the common stockpayments and benefits that would be received by the NEOs could be more or less than the amounts set forth below and can only be determined at the time of exercise (includingan actual termination of employment event.
| | | | | | | | | | | | |
| | | | | | | Acceleration or Continuation of Equity Awards (2) | | | | | |
| | | Cash Payment | | AIP Award for Year of Termination (1) | | Medical, Dental
and Vision Coverage (3) | | Total Post-Termination
Payment & Benefit Value | |
| | |
| John D. Nichols, Jr. | | | | | | | | | | | |
Upon a change in control(4) | | $ | 0 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,444,138 | |
Corporation initiated (not for cause) following a change of control(5) | | $ | 200,769 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,644,907 | |
| Good reason termination by employee following a change of control | | $ | 0 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,444,138 | |
Corporation initiated (not for cause)(5) | | $ | 200,769 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,644,907 | |
| Good reason termination by employee | | $ | 0 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,444,138 | |
Retirement(6) | | $ | 0 | | $ | 0 | | $ | 1,415,250 | | $ | 0 | | $ | 1,415,250 | |
| Resignation | | $ | 0 | | $ | 0 | | $ | 1,415,250 | | $ | 0 | | $ | 1,415,250 | |
| Death | | $ | 0 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,444,138 | |
| Disability | | $ | 0 | | $ | 0 | | $ | 1,444,138 | | $ | 0 | | $ | 1,444,138 | |
For cause(5) | | $ | 200,769 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 200,769 | |
| William C. Vens | | | | | | | | | | | | | | | | |
Upon a change in control(4) | | $ | 0 | | $ | 0 | | $ | 325,125 | | $ | 0 | | $ | 325,125 | |
| Corporation initiated (not for cause) or good reason termination by employee following a change of control | | $ | 0 | | $ | 0 | | $ | 225,125 | | $ | 0 | | $ | 225,125 | |
| Corporation initiated (not for cause) | | $ | 0 | | $ | 0 | | $ | 25,175 | | $ | 0 | | $ | 25,175 | |
Retirement(6) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Resignation | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Death | | $ | 0 | | $ | 0 | | $ | 225,125 | | $ | 0 | | $ | 225,125 | |
| Disability | | $ | 0 | | $ | 0 | | $ | 225,125 | | $ | 0 | | $ | 225,125 | |
| For cause | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Matthew A. Thompson | | | | | | | | | | | | | | | | |
Upon a change in control(4) | | $ | 0 | | $ | 0 | | $ | 211,376 | | $ | 0 | | $ | 211,736 | |
Corporation initiated (not for cause) following a change of control (7) | | $ | 600,000 | | $ | 0 | | $ | 148,876 | | $ | 26,585 | | $ | 775,461 | |
Good reason termination by employee following a change
of control (8) | | $ | 1,075,000 | | $ | 0 | | $ | 148,876 | | $ | 0 | | $ | 1,223,876 | |
Corporation initiated (not for cause)(7) | | $ | 600,000 | | $ | 0 | | $ | 148,876 | | $ | 26,585 | | $ | 650,461 | |
| Good reason termination by employee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
Retirement(6) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Resignation | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Death | | $ | 0 | | $ | 0 | | $ | 148,876 | | $ | 0 | | $ | 148,876 | |
| Disability | | $ | 0 | | $ | 0 | | $ | 148,876 | | $ | 0 | | $ | 148,876 | |
| For cause or dishonest activities, fraud, gross neglect of duties or misconduct | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Jeremy F. Goldstein | | | | | | | | | | | | | | | | |
Upon a change in control(4) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
Corporation initiated (not for cause) or good reason termination by employee following a change of control(9) | | $ | 1,028,943 | | $ | 0 | | $ | 0 | | $ | 34,448 | | $ | 1,063,391 | |
Corporation initiated (not for cause) or good reason termination by employee(9) | | $ | 1,028,943 | | $ | 0 | | $ | 0 | | $ | 34,448 | | $ | 1,063,391 | |
Retirement(6) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Resignation | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Death | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Disability | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| For cause or dishonest activities, fraud, gross neglect of duties or misconduct | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Patrick S. Schmiedt | | | | | | | | | | | | | | | | |
Upon a change in control(4) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
Corporation initiated (not for cause) or good reason termination by employee following a change of control(9) | | $ | 857,671 | | $ | 0 | | $ | 0 | | $ | 22,338 | | $ | 880,009 | |
Corporation initiated (not for cause) or good reason termination by employee(9) | | $ | 857,671 | | $ | 0 | | $ | 0 | | $ | 22,338 | | $ | 880,009 | |
Retirement(6) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Resignation | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Death | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Disability | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
For cause or dishonest activities, fraud, gross neglect of duties or misconduct | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| (1) | For all NEOs, if employment is terminated by us without cause during a performance period, the NEO will be paid a pro-rated award under the Annual Incentive Plan if required under the terms of a written agreement between us and the NEO. If a NEO’s employment is terminated due to death or disability during a performance period, the NEO will be paid a pro-rated award under the Annual Incentive Plan. In each case, the pro-rated award is determined based on actual performance during the performance period. No awards were earned based on actual performance during the 2018 performance period. Upon a change in control, awards under the Annual Incentive Plan will be calculated based on our performance as of the date of the change in control. Assuming that a change in control occurred on December 31, 2018, no awards would have been earned under the Annual Incentive Plan based on performance as of such date. |
| (2) | Represents the value of the unvested equity awards granted under the Restricted Stock Plan and the Long-Term Plan held by the NEO that would vest or continue to vest upon the indicated termination, calculated by multiplying the number of shares that would vest or continue to vest by $16.65, the closing price of our Class B common stock on December 31, 2018. |
Under Mr. Nichols’ employment agreement, if we terminate him for cause, his outstanding unvested equity awards will be forfeited, and if his employment terminates for any common stock withheldother reason, his Stock Grant will continue to vest pursuant to his employment agreement and his other outstanding unvested equity awards will be treated as described below for awards granted under the Long-Term Plan.
Under the Restricted Stock Plan, all unvested equity awards will immediately vest (a) upon termination by us without cause, (b) by the Corporation to satisfy tax withholding obligations) overNEO for good reason, (c) upon non-renewal of all agreements between us and the exercise price.
NEO, (d) upon separation by reason of death or disability, (e) upon retirement after the NEO reaches the age of 50 and has completed at least 20 years of service, and (f) upon a change in control unless the successor entity assumes the outstanding awards. Under the Long-Term Plan, upon a termination by us without cause or by the NEO for good reason within two years following a change in control, Incentive Stock Options. A participantany restrictions imposed on restricted stock will not recognize taxable income when an incentive stock option is granted or exercised. However,immediately vest and a pro-rated amount of any outstanding performance awards will vest based on the excessgreater of (i) the payout at the target number of performance awards, and (ii) the payout based upon the actual performance level attained as of the fair market valuelast day of the covered common stock over the exercise price oncalendar quarter immediately prior to the date of exercise is an item of tax preferencethe termination without cause or the resignation for alternative minimum tax purposes. Ifgood reason. Under the participant exercisesLong-Term Plan, any outstanding unvested awards (x) will continue to vest upon the option and holds the acquired common stock for more than two years following the date of option grant and more than one year after the date of exercise, the difference between the sale price and exercise priceNEO’s death or disability, (y) will be taxedforfeited upon the NEO’s resignation or retirement, and (z) will vest automatically upon termination without cause. Under the Long-Term Plan, in the event of a change in control, all outstanding awards will vest unless the successor entity assumes, replaces or substitutes such awards.
| (3) | Estimate based on the average cost per employee to the Corporation for these coverages. |
| (4) | Assumes that the outstanding unvested awards are not assumed, replaced or substituted in connection with a change in control. |
| (5) | Under Mr. Nichols’ employment agreement, if he is terminated for any reason prior to April 17, 2019, he is entitled to six months of base salary (including any base salary earned prior to his termination). The amount in the “Cash Payment” column for Mr. Nichols represents the portion of the six months of his base salary that was not paid as of December 31, 2018 and would be payable in installments in accordance with our regular payroll practices. |
| (6) | None of the NEOs meet the criteria for retirement under the Restricted Stock Plan. Mr. Thompson does not meet the requirement for retirement set forth in his confidentiality, non-competition and non-solicitation agreement. |
| (7) | Represents the amounts payable to Mr. Thompson under his confidentiality, non-competition and non-solicitation agreement if he is terminated by us other than for dishonest activities, fraud, gross neglect of duty or misconduct, and includes (i) 12 months of his base salary, (ii) a pro-rated share of his target AIP award for the year in which the separation occurs, (iii) vesting of any awarded but unvested bonus provided under the Long-Term Plan related to performance periods prior to the year in which the separation occurs, and (iv) all costs associated with the continuation of his medical, dental and vision benefits under COBRA for 12 months, which amounts would be paid over 12 months in accordance with our regular payroll practices. |
| (8) | Represents the amounts payable to Mr. Thompson under his confidentiality, non-competition and non-solicitation agreement if he resigns for good reason on or before the two-year anniversary of a change in control, and includes (i) 24 months of his base salary, and (ii) his target AIP award for the year in which the separation occurs, which amounts would be paid within 30 days of the effect date of a release of claims executed by Mr. Thompson. |
| (9) | Represents the amounts payable to each of Mr. Goldstein and Mr. Schmiedt under his respective confidentiality, non-competition and non-solicitation agreement if he is terminated by us other than for dishonest activities, fraud, gross neglect of duty or misconduct or if he resigns for good reason (which includes termination of employment on or before the two-year anniversary of a change in control), and includes (i) 24 months of his base salary, (ii) his holiday bonus for two years, (iii) an award equal to his annual incentive bonus, including the AIP and the LTIP award, for the year in which the separation occurs, and (iv) all costs associated with the continuation of his medical, dental and vision benefits under COBRA for 12 months, which amounts would be paid over 24 months in accordance with our regular payroll practices. |
The amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include accrued salary, health benefits and distribution of account balances under our 401(k) Plan.
Payouts to Former Named Executive Officers
Mr. Birchfield
On August 16, 2018, we entered into an employment agreement with Mr. Birchfield. This employment agreement superseded the severance, confidentiality, non-competition, and non-solicitation agreement between us and Mr. Birchfield dated May 10, 2018. The employment agreement called for Mr. Birchfield to serve as long-term capital gainChief Executive Officer through December 31, 2021, with automatic one-year extensions unless either party gave notification not less than 180 days prior to the expiration of the term or loss. If the participant sellsagreement was earlier terminated in accordance with its terms. Under the acquired common stock beforeemployment agreement, Mr. Birchfield’s base salary was $600,000, subject to annual review and merit salary increases, and he was eligible to receive awards under our incentive bonus plans, including an annual AIP award in a target amount equal to at least 166.7% of his base salary, an LTIP award with a target annual value of at least $400,000, and a VCIP award with a target annual value of at least $400,000. He was also entitled to participate in all benefit plans offered to other senior executives and to our employees generally. The employment agreement includes provisions requiring Mr. Birchfield to maintain the confidentiality of our confidential information and subjects Mr. Birchfield to non-competition and non-solicitation provisions for twelve months following the end of the two-yearterm of the employment agreement. In connection with the execution of the employment agreement, Mr. Birchfield received a cash bonus of $200,000, which was subject to full or partial repayment by Mr. Birchfield if his employment was terminated by us for cause or by him for good reason (each as defined in the employment agreement) prior to August 13, 2020. In addition, Mr. Birchfield received 52,500 restricted shares of our Class B common stock, which shares were scheduled to vest equally over twelve quarters beginning September 30, 2018. Mr. Birchfield was also eligible to receive up to 97,500 shares of our Class B common stock based on the achievement of certain performance targets over the period of July 1, 2018 through December 31, 2021.
On October 17, 2018, in connection with Mr. Birchfield’s resignation from the Corporation, we entered into a separation and one-year holding periods,general release agreement with Mr. Birchfield. Pursuant to this agreement, in exchange for his general release of claims against the participant generallyCorporation and his acknowledgement that the restrictive covenants set forth in his employment agreement will recognize ordinary income at the timecontinue to remain in full force and effect, we agreed to waive any right we would otherwise have to recoup a pro-rata portion of sale equalMr. Birchfield’s $200,000 cash bonus paid in August 2018. In connection with his resignation, Mr. Birchfield forfeited his right to the fair marketunvested portion of his time-vested restricted shares and his eligibility to receive any of the 97,500 performance shares granted in August 2018, and also forfeited his outstanding LTIP and VCIP awards. Mr. Birchfield also was no longer eligible to receive a payout under the Annual Incentive Plan for 2018.
Mr. Case
In February 2018, we entered into a severance, confidentiality, non-competition and non-solicitation agreement with Mr. Case. Pursuant to that agreement and a severance pay, release and waiver of rights entered into with Mr. Case in February 2018, upon Mr. Case’s separation from the Corporation, he received (i) a lump sum payment of $575,000, payable over a one-year period; (ii) a lump sum amount of $34,658, representing a pro-rated share of his annual target AIP bonus under the Annual Incentive Plan for 2018; and (iii) a one-year continuation of employee benefits.
For a further discussion of Mr. Case’s severance, confidentiality, non-competition and non-solicitation agreement, see “Executive Compensation Discussion and Analysis—Other Compensation Matters—Employment Agreements” above. Under the terms of the Restricted Stock Plan, upon his termination without cause, Mr. Case’s 4,603 shares of restricted stock, representing all of his outstanding awards under the Restricted Stock Plan, fully vested, with a value of the common stock on the exercise date (or the sale price, if less) minus the exercise price$107,020 as of his separation date.
Chief Executive Officer Pay Ratio
As required by Section 953(b) of the option. Any additional gain will be capital gain, long-term ifDodd-Frank Wall Street Reform and Consumer Protection Act, and in accordance with Item 402(u) of Regulation S-K, we are providing the sharesfollowing information about the relationship of the annual total compensation of our employees and the annual total compensation of John D. Nichols, Jr., our Interim Chief Executive Officer (“CEO”). The pay ratio included below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
For 2018, our last completed fiscal year:
| (a) | The annual total compensation for our median employee for 2018 was $62,429. |
| (b) | The annual total compensation of Mr. Nichols, as reported in the Summary Compensation Table included elsewhere within this Proxy Statement was $2,109,847 which, when his salary and perquisites were annualized, equates to a total annual compensation of $2,784,141. |
| (c) | Based on this information, for 2018 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees (“CEO Pay Ratio”) was reasonably estimated to be 45 to 1. |
As permitted under SEC rules, we are heldusing the same median employee for more than one year.our 2018 pay ratio disclosure as we used for our 2017 pay ratio disclosure because we did not experience any meaningful changes in our employee population or employee compensation arrangements during 2018 that we reasonably believe would significantly impact our pay ratio disclosure and warrant calculating a new median employee. We identified our median employee in December 2017. To identify our median employee, as well as the annual total compensation of our median employee, the methodology and the material assumption, adjustments and estimates that we used were as follows:
| (a) | We determined that, as of December 31, 2017, our employee population consisted of approximately 537 individuals. This population consisted of our full-time, part-time, and temporary employees. |
| (b) | We used a consistently applied compensation measure to identify our median employee by comparing the amount of gross earnings paid in 2017. We identified our median employee by consistently applying this compensation measure to all of our employees included in the analysis. For individuals hired after January 1, 2017 that were included in the employee population, we calculated these compensation elements on an annualized basis. We did not make any cost of living adjustments in identifying the median employee. |
| (c) | After we identified our median employee, we combined all of the elements of such employee’s compensation for the 2018 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of the median employee. |
Restricted Stock and Performance Shares. A participant who receives an award of restricted stock or performance shares does not generally recognize taxable income upon the grant of the award. Instead, the participant recognizes ordinary income in the first taxable year in which the participant's interest in the shares becomes either (i) freely transferable or (ii) no longer subject to substantial risk of forfeiture. The amount of taxable income is equal to the fair market value of the shares. A participant may elect to recognize income at the time of the grant of restricted stock in an amount equal to the fair market value of the restricted stock on the date of the award. The Corporation generally will be entitled to a corresponding deduction in the taxable year in which the restrictions lapse (or in the taxable year of the award if, at that time, the participant had filed a timely election to accelerate recognition of income).
Restricted Stock Units and Performance Units. A participant will not recognize taxable income upon the grant of restricted stock units or performance units. The participant will recognize ordinary income at the time the common stock (or cash) is delivered equal to the fair market value of the shares (or cash) received. Any subsequent gain or loss will be long-term capital gain or loss, if the common stock have been held for more than one year.
Tax Effect for the Corporation. The Corporation generally will receive a deduction for any ordinary income recognized by a participant with respect to an award. However, special rules limit the deductibility of compensation paid to the named executive officers (other than the Chief Financial Officer (the "CFO")). Under Section 162(m) of the Code, the annual compensation paid to these executive officers may not be deductible to the extent it exceeds $1,000,000. The Corporation may preserve the deductibility of compensation over $1,000,000 if certain conditions are met. These conditions include shareholder approval of the LTIP, setting limits on the number of common stock that may be issued pursuant to awards, and, for awards other than options and SARs, establishing performance criteria that must be met before the award will be paid or vest. As described above, the LTIP has been designed to permit the Compensation Committee to grant awards that qualify as "performance-based compensation" for purposes of Section 162(m) and to exclude these awards from the $1,000,000 calculation. However, the Compensation Committee may, in its discretion, grant equity awards that will not qualify as "performance-based compensation" and thus may not be deductible.
New Plan Benefits
Future grants under the LTIP will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable.
The Board of Directors Recommends a Vote "FOR" the approval of the Baldwin & Lyons, Inc. Long-Term Incentive Plan.
Proposal
#5#3 - Advisory Vote To Approve
Named Executive Officer Compensation
Section 14A of the Exchange Act enables the Corporation'sour shareholders to vote to approve, on an advisory (non-binding) basis, the compensation of the Corporation'sour named executive officers (the "say-on-pay"“say-on-pay” proposal), as disclosed in this Proxy Statement in accordance with the SEC'sSEC’s compensation disclosure rules. At our May 2018 annual meeting of shareholders, approximately 94% of the votes cast were voted in favor of the compensation paid to our named executive officers. The Compensation Committee believes this affirms that the Corporation'sour shareholders support its approach to executive officer compensation, and no significant changes were made to this approach for 20162018 or 2019 as a result of the vote.
At the 2017 annual meeting, our shareholders approved, on an advisory basis, “every one year” as the frequency for holding future advisory votes on the compensation paid to our named executive officers. Consistent with the vote of our shareholders, at its meeting on August 8, 2017, the Board voted to approve holding advisory votes on the compensation paid to our named executive officers every year. We intend to continue holding such votes annually until the next required vote on the frequency of the advisory vote on the compensation of our executive officers, which will be held at our 2023 annual meeting of shareholders.
As described more fully in the "Executive“Executive Compensation Discussion and Analysis"Analysis” section of this Proxy Statement, and the tables and narrative discussions that follow, the Corporation evaluateswe evaluate executive officer compensation in several different ways, including market survey compensation data, periodically reviewing compensation information for peer companies and receiving advice and recommendations from the Chief Executive Officer (for the other executive officers) and the Compensation Committee.Committee’s independent compensation consultant. This careful evaluation ensures that the Corporation'sour executive officer compensation is competitive yet closely tied to both the Corporation'sCorporation’s and each executive officer's performance.
The Board recognizes
We recognize that there is considerable public discussion regarding appropriate approaches to compensation. However, the Board believes that the Corporation'sour executive officer compensation policies are balanced, appropriately focused on pay for performancepay-for-performance principles, strongly aligned with the long-term interests of the Corporation'sour shareholders, and enable the Corporationus to attract and retain strong and experienced senior executives.
The Board isWe are seeking your approval of the compensation of the Corporation'sour NEOs as described in this Proxy Statement. This say-on-pay proposal gives you the opportunity to express your views on the Corporation'sour executive officer compensation practices. This say-on-pay vote is not intended to approve any specific item of compensation but rather the overall compensation of the Corporation'sour NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, the Board recommends that the Corporation'sour Class A shareholders vote "FOR"“FOR” the following resolution at the annual meeting:Annual Meeting:
"“RESOLVED, that the Corporation'sCorporation’s shareholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Corporation'sCorporation’s Proxy Statement for the 20172019 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Executive Compensation Discussion and Analysis, the compensation tables and the other related disclosures."”
Because your vote is advisory, it will not be binding upon the Corporation, the Compensation Committee or the Board of Directors. While the Compensation Committee will consider the outcome of the vote when making future executive officer compensation decisions, the Committee will make its final decision based on what it considers to be the best interests for the Corporation. The advisory vote to approve the compensation of our executive officers will be approved if more shares are voted “FOR” this proposal than “AGAINST.” Neither abstentions nor broker non-votes will affect the outcome of this proposal.
The Board of Directors recommends Aa vote “FORvote "FOR"” the approval of the Corporation'sour executive officer compensation.
Page 41Equity Ownership and Shareholder Information
Beneficial Owners of More than 5% of the Class A Common Stock The following table contains information concerning persons who, to our knowledge, beneficially owned on February 1, 2019 more than 5% of our outstanding voting securities:
| Name and Address of Beneficial Owner | Number of Class A Shares and Nature of Beneficial Ownership (a) | Percent of Class A Shares |
| Shapiro Family Interests | 1,258,700 | 48.1% |
(in the aggregate) (b) |
| 799 Central Avenue |
| Highland Park, Illinois 60035 |
Nathan Shapiro (c) | 1,137,066 | 43.5% |
Robert Shapiro (d) | 865,259 | 33.1% |
| Norton Shapiro | 758,625 | 29.0% |
John D. Weil (e) | | |
| 4625 Lindell Blvd., Suite #335 | 186,771 | 7.1% |
| St. Louis, Missouri 63108 | | |
| (a) | Shares as to which the beneficial owner has, or may be deemed to have, sole voting and investment powers as to Class A shares, except as otherwise noted. |
| (b) | Information with respect to the Shapiro family interests was obtained from Amendment No. 13 to Schedule 13D dated December 23, 1986, and Forms 4 and 5 as filed by such persons with the Securities and Exchange Commission and delivered to us, and additional information was provided by Nathan Shapiro. The amounts shown for the individuals are included in the amount shown for the Shapiro family interests in the aggregate and included in the total shares for Nathan, Norton, and Robert Shapiro, who are brothers. The Class A shares reported for the Shapiro family interests include (i) 353,250 shares (13.5%) held of record by the Shapiro Family Limited Partnership – Gift Shares, for which Nathan Shapiro is the general partner and Norton and Robert Shapiro are limited partners and beneficiaries; (ii) 178,125 shares (6.8%) held of record by Diversified Enterprises, which is an Illinois partnership of which Nathan and Robert Shapiro are beneficial owners, and (iii) 219,750 shares (8.4%) held by JEG Enterprises, an Illinois partnership for which Nathan and Robert Shapiro are beneficial owners and whose partners include Gebalt Fur Dressers, Jay Ell Company and other entities for which Nathan and Robert Shapiro are partners and beneficiaries. These shares, totaling 751,125 Class A shares (28.7%), are included in the listing for individual beneficial ownership of each of the Shapiro Family members listed above. |
| (c) | Includes 44,859 Class A shares (1.7%) held by New Horizons, Inc., a corporation of which Nathan Shapiro is the controlling shareholder; 21,375 Class A shares (.8%) held by Illinois Diversified, a general partnership to which beneficial ownership is held by Nathan Shapiro; and 173,062 Class A shares (6.6%) held by NS Associates, Inc., a corporation of which Nathan Shapiro is the controlling shareholder. |
| (d) | Includes 3,884 shares (.1%) held of record by Emlin Cosmetics, Inc., an Illinois corporation of which Robert Shapiro has voting and investment powers. |
| (e) | Information with respect to the interests of John D. Weil was obtained from Amendment No. 7 to Schedule 13D, dated March 14, 2019. The shares reported include shares held in the name of family members, including Mr. Weil’s spouse, family trusts and a family limited partnership. Mr. Weil has reported that he has sole voting and dispositive power as to 19,270 Class A shares and shared voting and dispositive power as to 167,501 Class A shares, subject to the limitation that Mr. Weil has disclaimed any beneficial ownership in the Class A shares held by his spouse in a revocable trust for her benefit and Class A shares held by various adult members of his family and extended family. |
Proposal #6 – Advisory VoteCommon Stock Beneficially Owned by Directors and ManagementExcept as otherwise noted, the following table sets forth the number of shares of our Class A and Class B common stock beneficially owned as of March 18, 2019 by each of our current directors and director nominees; each of our named executive officers, as listed in the Summary Compensation Table on the Frequencypage 29; and all of Future Shareholder Votes to Approve the Corporation's Executive Officer Compensationour current directors and executive officers as a group.
| | Class A Shares | Class B Shares |
| Name of Beneficial Owner or Identity of Group (1) | | Percent (2)
| Number (3)
| Percent (2)
|
| Steven J. Bensinger | 0 | | 0.0% | | 8,643 | | * | |
| Stuart D. Bilton | 0 | | 0.0% | | 50,282 | | * | |
| Otto N. Frenzel, IV | 3,132 | | * | | 29,116 | | * | |
| Jeremy F. Goldstein | 0 | | 0.0% | | 0 | | 0.0% | |
| LoriAnn V. Lowery-Biggers | 0 | | 0.0% | | 2,992 | | * | |
| David W. Michelson | 0 | | 0.0% | | 10,135 | | * | |
| John D. Nichols, Jr. | 0 | | 0.0% | | 109,088 | | * | |
| James A. Porcari, III | 0 | | 0.0% | | 7,484 | | * | |
| Nathan Shapiro (4) | 1,137,066 | | 43.5% | | 2,514,132 | | 20.5% | |
| Robert Shapiro (4) | 865,259 | | 33.1% | | 1,857,037 | | 15.2% | |
| Patrick S. Schmiedt | 40 | | * | | 90 | | * | |
| Matthew A. Thompson | 0 | | 0.0% | | 3,359 | | * | |
| William C. Vens | 0 | | 0.0% | | 17,001 | | * | |
| W. Randall Birchfield (5) | 0 | | 0.0% | | 12,881 | | * | |
| Steven A. Shapiro (4) | 773,460 | | 29.6% | | 1,815,076 | | 14.8% | |
| Michael J. Case (6) | 0 | | 0.0% | | 10,239 | | * | |
All current directors and executive officer (7) | 1,254,372 | | 48.0% | | 2,799,745 | | | |
| (1) | Unless otherwise indicated, shares disclosed are those as to which the beneficial owner has sole voting and investment power with respect to Class A shares or sole investment power with respect to Class B shares and includes shares of unvested restricted stock and the beneficial interests of spouses and minor children who share the same residence as the named individual. |
| (2) | Ownership percentages marked as * represent less than 1% of the Class A shares or Class B shares, as applicable. |
| (3) | A total of 2,615,339 Class A shares and 12,234,130 Class B shares were issued and outstanding, including restricted shares not yet vested, as of March 18, 2019. |
| (4) | See “Beneficial Owners of More than 5% of the Class A Common Stock” for additional information on Class A shares. The shares reported in the above table for Nathan, Robert, and Steven Shapiro include (i) 353,250 Class A and 360,875 Class B shares held by the Shapiro Family Limited Partnership – Gift Shares, for which Nathan Shapiro is the general partner and Robert Shapiro is a limited partners and beneficiary; (ii) 178,125 Class A shares and 559,500 Class B shares held of record by Diversified Enterprises, which is an Illinois partnership of which Nathan and Robert Shapiro are beneficial owners, and (iii) 219,750 Class A shares and 879,000 Class B shares held by JEG Enterprises, an Illinois partnership for which Nathan and Robert Shapiro are beneficial owners and whose partners include Gebalt Fur Dressers, Jay Ell Company and other entities for which Nathan and Robert Shapiro are partners and beneficiaries. |
In addition, for Nathan Shapiro, the shares reported include 44,859 Class A shares and 26,000 Class B shares held by New Horizons, Inc., a corporation of which Nathan Shapiro is the controlling shareholder; 21,375 Class A shares and 85,500 Class B shares held by Illinois Diversified, a general partnership to which beneficial ownership is held by Nathan Shapiro; and 173,062 Class A shares and 497,625 Class B shares held by NS Associates, Inc., a corporation of which Nathan Shapiro is the controlling shareholder.
In addition, for Robert Shapiro, the shares reported include 3,884 Class A shares held of record by Emlin Cosmetics, Inc., an Illinois corporation of which Robert Shapiro has voting and investment powers.
| (5) | Share ownership for Mr. Birchfield is as of October 17, 2018, the last day of Mr. Birchfield’s employment with the Corporation. |
| (6) | Share ownership for Mr. Case is as of February 15, 2018, the last day of Mr. Case’s employment with the Corporation. |
| (7) | Total ownership by our current executive officers and Directors as a group equals 27.1% of the aggregate of all Class A and Class B shares outstanding on the record date. |
Section 14A16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act also enables the Corporation's shareholdersof 1934, as amended (the “Exchange Act”) requires certain executive officers, directors and ten percent (10.0%) beneficial owners to indicate how frequently the Corporation should hold future say-on-pay votes. By voting on this Proposal #6, shareholders may indicate whether they would prefer future say-on-pay votes be held once every year, every two years or every three years.
The Corporation is required to hold this say-on-pay frequency vote at least once every six calendar years. When the Corporation conducted its last say-on-pay frequency vote at its 2011 Annual Meetingfile initial reports of Shareholders, its shareholders expressed a strong preference to conduct say-on-pay votes on an annual basis. Consistent with that preference, since that time, the Corporation has continued to hold its say-on-pay vote annually. The Board has not observed any reason why the previously-expressed shareholder preference should not continue to governownership and notes that market practice is for annual say-on-pay votes. The Board also believes that holding a vote every year allows the Corporation's shareholders to provide timely input on the Corporation's executive compensation philosophy, policies and practices and is consistentreports of changes in ownership of our securities with the Corporation's policySecurities and Exchange Commission. Copies of seeking input from, and engaging in discussions with, its shareholdersthose reports must be furnished to us. Based solely on executive compensation and corporate governance matters. The Board also believes that an annual compensation vote will eliminate any confusion as to the implicationsa review of the vote or whetherSection 16(a) reports furnished to us with respect to 2018 transactions and written representations from the vote is referencingaffected executive officers and directors, we note the current compensation year or some previous year. As a result,following: the Board has determinedForm 4 reporting the acquisition of restricted stock on February 9, 2018 was filed late for Mr. Bensinger, the Form 4 reporting the acquisition of restricted stock on May 8, 2018 was filed late for Mr. Michelson, and the Form 3 initial statements of insider ownership were filed late for Messrs. Goldstein and Schmiedt following their appointment as executive officers on November 6, 2018. We believe that all other Section 16(a) filing requirements applicable to recommend that shareholders vote in favor of holding future say-on-pay votes on an annual basis.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting. The option of one year, two years, or three years that receives the highest number of votes cast by shareholders will be considered the shareholders' preferred frequency for the say-on-pay vote. However, because this vote is advisoryour executive officers and not binding on the Board of Directors or the Corporation, the Board may decide that it is in the best interests of the Corporation and its shareholders to hold future say-on-pay votes more or less frequently than the option preferred by the Corporation's shareholders.
The Board of Directors recommends that you vote FOR future shareholder advisory votes to approve the Corporation's Executive Officer Compensation to be held every "ONE YEAR."
Shareholder Communicationdirectors during 2018 were satisfied.
Shareholder Communication The Board of Directors has determined to provide a process by which shareholders may communicate with the Board as a whole, a Board Committeecommittee or individual directors. Shareholders wishing to communicate with either the Board as a whole, a Board Committeecommittee or an individual member may do so by sending a written communication addressed to the Board of Directors of Baldwin & Lyons, Inc.Protective Insurance Corporation or to the desired committee or to an individual director, c/o Corporate Secretary, Baldwin & Lyons, Inc.,Protective Insurance Corporation, 111 Congressional Boulevard, Carmel, IN 46032 or by sending an electronic mail message to boardofdirectors@baldwinandlyons.com.investors@protectiveinsurance.com. All communications will be compiled by theour Corporate Secretary of the Corporation and submitted to the Board of Directors or the addressee not later than the next regular Board meeting.
Submission of Shareholder Proposals In order to submit a shareholder proposal for inclusion in the Corporation'sour proxy statement for the 20182020 Annual Meeting of Shareholders pursuant to Securities and Exchange CommissionSEC Rule 14a-8, the proposal must be received by the Corporation'sour Corporate Secretary at the Corporation'sour principal office on or before December 8, 2017.7, 2019. Such proposals also will need to comply with SEC regulations regarding the inclusion of shareholder proposals in the Corporation'sour proxy materials if the shareholder would like the proposal to be so included.
In order to be considered at the 20182020 Annual Meeting of Shareholders, shareholder proposals must comply with the advance notice and eligibility requirements contained in the Corporation'sour Code of Bylaws.By-laws. The Code of Bylaws provideBy-laws provides that shareholders are required to give us advance notice to the Corporation of any nomination by a shareholder of candidates for election as directors and of any business to be brought by a shareholder before an annual shareholders' meeting. Specifically, the Code of BylawsBy-laws provides that for a shareholder to nominate a person for election to the Board, the shareholder must be entitled to vote for the election of directors at the meeting and must give timely written notice of the nomination to the Corporation'sour Corporate Secretary. The Code of BylawsBy-laws also provides that for business to be properly brought before an annual meeting by a shareholder, the shareholder must have been a shareholder of record at the time of giving us notice, to the Corporation, must be entitled to vote at the annual meeting of shareholders, and must give timely written notice thereof to the Corporation'sour Corporate Secretary. In order to be timely, a shareholder's notice must be delivered to the Corporation'sour principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year'syear’s annual meeting of shareholders. For the 2020 annual meeting of shareholders, notice must be delivered no earlier than January 8, 2020 and no later than February 7, 2020. In the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the shareholder, to be timely, must be delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. The notice must contain specified information about each nominee or the proposed business and the shareholder making the nomination or proposal.
The specific requirements of these advance notice and eligibility provisions are set forth in Sections 3.5 and 3.6 of the Corporation'sour Code of Bylaws,By-laws, a copy of which is available upon request. Such request and any shareholder proposals should be sent to our Secretary at our principal executive offices.
Certain Relationships and Related Transactions
The Corporation, through its insurance subsidiaries, has made investments in limited partnerships in which NV Capital Holdings II, LLC and affiliates ("NVCH") serve as general partner and/or investment manager. Thomas Patrick, Arshad Zakaria, Nathan Shapiro and Steven Shapiro, along with family members, each own membership interests in NVCH. There is no agreement that these individuals will act in concert with one another with respect to their membership interests in NVCH. Messrs. Patrick, Zakaria, Nathan Shapiro and Steven Shapiro are current directors of the Corporation and Mr. Nathan Shapiro and Mr. Steven Shapiro are both nominees for reelection as a director. A total of $23,000,000 has been invested in limited partnerships managed by NVCH. These investments had an aggregate market value of approximately $44,038,000 at December 31, 2016. During 2016, Protective Insurance Company incurred an aggregate of $777,000 in management fees and no performance based fees for management of these limited partnerships. The Corporation has been informed that the fee rates applied to its investment in partnerships managed by NVCH affiliates are the same as, or lower than, the fee rates charged to unaffiliated customers for similar investments.
Protective utilizes New Vernon Wealth Management, LLC and affiliates ("NVWM"), for management of portions of its fixed income and equity security portfolios with a total market value of approximately $41,706,000 at year end 2016 and for investment advisory services. One-third of the membership interests of NVWM are held by NVCH, one-third are held by Mr. Steven Shapiro, along with family members, and one-third are held by Mr. Zakaria's family members. There is no agreement that these individuals will act in concert with one another with respect to their membership interests in NVWM. Mr. Steven Shapiro also serves as NVWM's Manager, Vice President, and Chief Investment officer. Fees paid to NVWM for the management of these portfolios and for advice and counseling on the Corporation's investment portfolios totaled $206,561 during 2016. The Corporation has been informed that the fee rates applied to its investments managed by NVWM are lower than the fee rates charged to unaffiliated customers for similar investments.
Philip V. Moyles, Jr. is the Managing Principal, CEO and a director of Vanbridge Holdings LLC ("Vanbridge"), which is an insurance intermediary, capital advisor, and insurance and reinsurance management firm. Mr. Moyles became a director of the Corporation in February 2016 and is a nominee for reelection as a director. In 2015, the Corporation entered into a consulting agreement with Vanbridge pursuant to which the Corporation pays Vanbridge an annual consulting fee of $300,000. In addition, under the terms of an Agency Agreement entered into with Vanbridge in March 2016, Vanbridge serves as an insurance broker that places insurance business with the Corporation and earns commission on business placed with the Corporation. In 2016, Vanbridge earned $418,910 in commission from business placed with the Corporation pursuant to the Agency Agreement.
John T. Pigott joined the Corporation as an employee in 2015 and in 2016 was appointed Vice President, Customer Service. In 2016, Mr. John T. Pigott earned total compensation of $506,748. Mr. Pigott is the son of John. A. Pigott, a director of the Corporation and a nominee for reelection as a director.
Pursuant to its written charter, the Audit Committee is responsible for the review, approval, and ratification of related person transactions. In accordance with the Audit Committee's policies and procedures related to the review of related person transactions, in determining whether to approve or ratify a transaction, the Audit Committee will take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the related person's interest in the transaction, and the expected benefits of the transaction to the Corporation. No director is permitted to participate in any discussion or approval of any transaction in which he or she or any family member has a direct or indirect interest, except that the director is required to provide all material information concerning the transaction to the Audit Committee.
The Audit Committee has approved each of the transactions set forth above in accordance with its policies and procedures outlined above.
Code of Conduct
The Board of Directors has adopted a Code of Business Conduct, which is applicable to all directors, officers at the vice president level and above as well as certain other employees with control over accounting data. The Code of Business Conduct is available on the Corporation's website at www.baldwinandlyons.com.
The Corporation knowsWe know of no other matters to be presented for action at the meeting.Annual Meeting. If any other matters should properly come before the meeting,Annual Meeting or any adjournment of the meeting,Annual Meeting, those matters will be acted on by the persons named as proxies in the accompanying Proxy.proxy card. The proxies will use their best judgment to vote the shares in the best interests of the Corporation.
The Annual Report on Form 10-K for the year ended December 31, 20162018 contains financial statements for the year ended December 31, 20162018 and other information about the operations of the Corporation.our operations. The Annual Report on Form 10-K is enclosed with this Proxy Statement but is not regarded as proxy soliciting material. In addition, the Compensation Committee Report ofand the Compensation and Employee BenefitsAudit Committee Report included in this Proxy Statement isare not regarded as proxy soliciting material.material and should not be deemed filed with the SEC or incorporated by reference in any of our filings with the SEC.
Each shareholder is urged to mark, date, sign and return the enclosed proxy card in the envelope provided for that purpose. Prompt response is helpful, and we appreciate your cooperation will be appreciated.cooperation.
April 7, 20175, 2019
By Order of the Board of
Directors
/s/ Jeremy F. GoldsteinSally B. Wignall
Jeremy F. GoldsteinSally B. Wignall
Senior Vice President and Secretary
Appendix A
BALDWIN & LYONS, INC. ANNUAL INCENTIVE PLAN
1.Background and Purpose.
1.1 | Purpose. The purpose of the Baldwin & Lyons, Inc. Annual Incentive Plan (the "Plan") is to (i) attract and retain superior employees by providing a competitive bonus program that rewards outstanding performance and (ii) motivate and reward eligible employees by making a portion of their cash compensation dependent on the achievement of certain corporate, business unit and/or individual performance goals.
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Awards under the Plan are intended to qualify as performance-based compensation deductible by the Company under the qualified performance-based compensation exception to Section 162(m) of the Code.
1.2 | Effective Date. The Plan is effective as of February 13, 2017 (the "Effective Date"), subject to approval by the stockholders of the Company at the 2017 annual meeting of stockholders, and shall remain in effect until it has been terminated pursuant to Section 9.6.
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2.Definitions. The following terms shall have the following meanings:
2.1 | "Affiliate" means a Parent or any Related Entity.
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2.2 | "Award" means an award granted pursuant to the Plan, the payment of which shall be contingent on the attainment of Performance Goals with respect to a Performance Period, as determined by the Committee pursuant to Section 6.1.
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2.3 | "Base Salary" means the Participant's annualized rate of base salary on the last day of the Performance Period before (i) deductions for taxes or benefits and (ii) deferrals of compensation pursuant to any Company or Affiliate-sponsored plans.
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2.4 | "Board" means the Board of Directors of the Company, as constituted from time to time.
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2.5 | "Cause" means the termination of a Participant's employment or service with the Company in connection with a termination by the Company or an Affiliate for cause as defined in a then-effective written agreement between the Company, or an Affiliate and the Participant. In the absence of such agreement or policy and definition, "cause" shall have the meaning set forth in the Company Long-Term Incentive Plan.
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2.6 | "Change in Control" shall have the meaning set forth in the Company Long-Term Incentive Plan.
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2.7 | "Code" means the Internal Revenue Code of 1986, as such is amended from time to time, including any applicable regulations, and any reference to a section of the Code shall include any successor provision of the Code.
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2.8 | "Committee" means the Compensation Committee, as appointed by the Board to administer the Plan pursuant to Section 3.1.
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2.9 | "Company" means Baldwin & Lyons, Inc., an Indiana corporation, and any successor thereto.
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2.10 | "Covered Employee" has the meaning set forth in Section 162(m)(3) of the Code.
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2.11 | "Determination Date" means the earlier of: (a) the 90th day of the Performance Period or (b) the date on which 25% of the Performance Period has elapsed. The Determination Date shall be a date on which the outcome of the Performance Goals is substantially uncertain.
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2.12 | "Disability" means, unless otherwise defined in an employment agreement between the Participant and the Company or an Affiliate, a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of at least twelve (12) months; or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of at least twelve (12) months, receiving income replacement benefits for at least three (3) months under an accident and health plan covering a Participant. Notwithstanding the previous two sentences, with respect to an Award that is subject to Section 409A where the payment or settlement of the Award will accelerate upon termination of employment or service as a result of the Participant's Disability, solely for purposes of determining the timing of payment, no such termination will constitute a Disability for purposes of the Plan or any Award Document unless such event also constitutes a "disability" as defined under Section 409A.
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2.13 | "Maximum Award" means as to any Participant for any Plan Year $5,000,000.00. The Maximum Award limit shall be pro-rated for any Award payable with respect to a Performance Period that is shorter than one year.
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2.14 | "Negative Discretion" means the discretion of the Committee to reduce or eliminate the size of an Award in accordance with Section 6.1(c) of the Plan.
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2.15 | "Parent" means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company, if on the date of grant or an Award each corporation, other than the Company, owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain.
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2.16 | "Participant" means as to any Performance Period, the executive officers of the Company or an Affiliate and other employees of the Company (or an Affiliate/the employees of the Company or an Affiliate) who are designated by the Committee to participate in the Plan for that Performance Period.
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2.17 | "Performance Criteria" means, any of the general performance objectives, selected by the Committee from among the performance criteria set forth below, either individually, alternatively or in any combination, applied to the Company as a whole or any Subsidiary, business unit, division, segment, product line, or function or any combination of the foregoing, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable, on an absolute basis or relative to a pre-established target, to determine whether the performance criteria established by the Committee has been achieved. Performance Criteria, may include any of the following:
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(a) | net earnings or net income (before or after taxes); |
(b) | basic or diluted earnings per share (before or after taxes); |
(c) | net revenues or net revenue growth; |
(e) | gross profit or gross profit growth; |
(f) | net operating profit (before or after taxes); |
(g) | return on assets, capital, invested capital, equity or sales; |
(h) | cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); |
(i) | earnings before or after taxes, interest, depreciation and/or amortization; |
(j) | gross or operating margins; |
(k) | improvements in capital structure; |
(l) | budget and expense management; |
(n) | economic value added or other value added measurements; |
(o) | share price (including, but not limited to, growth measures and total shareholder return); |
(s) | working capital targets; |
(v) | completion of acquisitions or business expansion; and |
2.18 | "Performance Goals" means the goals selected by the Committee, in its discretion to be applicable to a Participant, or group of Participants, for any Performance Period. Performance Goals shall be based upon one or more Performance Criteria. Performance Goals may include a threshold level of performance below which no Award will be paid and levels of performance at which specified percentages of the Target Award will be paid and may also include a maximum level of performance above which no additional Award amount will be paid.
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2.19 | "Performance Period" means the period for which performance is calculated, which unless otherwise indicated by the Committee, shall be the Plan Year.
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2.20 | "Plan" means the Baldwin & Lyons, Inc. Annual Incentive Plan, as may be amended from time to time.
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2.21 | "Plan Year" means the Company's fiscal year, which commences on January 1 and ends on December 31. The first Plan Year commenced on January 1, 2017.
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2.22 | "Pro-rated Award" means an amount equal to the Award otherwise payable to the Participant for a Performance Period in which the Participant was actively employed by the Company or an Affiliate for only a portion thereof, multiplied by a fraction, the numerator of which is the number of days the Participant was actively employed by the Company or an Affiliate during the Performance Period and the denominator of which is the number of days in the Performance Period.
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2.23 | "Related Entity" means the corporation or other entity, other than the Company, to which the Participant primarily provides services on the date of grant of an Award, and any corporation or other entity, other than the Company, in an unbroken chain of corporations or other entities beginning with the Company in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, and ending with the corporation or other entity that has a controlling interest in the corporation or other entity to which the Participant primarily provides services on the date of grant of an Award. For a corporation, a controlling interest means ownership of stock possessing at least fifty percent (50%) of total combined voting power of all classes of stock, or at least fifty percent (50%) of the total value of all classes of stock. For a partnership or limited liability company, a controlling interest means ownership of at least fifty percent (50%) of the profits interest or capital interest of the entity. In determining ownership, the rules of Treasury Regulation §§ 1.414(c)-3 and 1.414(c)-4 apply.
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2.24 | "Section 409A" means Section 409A of the Code.
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2.25 | "Shares" means the shares of the Company's Class B common stock.
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2.26 | "Target Award" means the target award payable under the Plan to a Participant for a particular Performance Period, expressed as either a percentage of the Participant's Base Salary or as a fixed amount of cash.
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3.Administration.
3.1 | Administration by the Committee. The Plan shall be administered by the Committee which shall consist of not less than two (2) members of the Board. Each member of the Committee shall qualify as an "outside director" under Section 162(m) of the Code. Members of the Committee shall be appointed by the Board.
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3.2 | Authority of the Committee. Subject to the provisions of the Plan and applicable law, the Committee shall have the power, in addition to other express powers and authorizations conferred on the Committee by the Plan, to: (i) designate Participants; (ii) determine the terms and conditions of any Award, including the size of the Award, payment terms, vesting conditions, Performance Criteria, Performance Goals and waiver of forfeiture restrictions; (iii) determine whether, to what extent, and under what circumstances Awards may be forfeited or suspended; (iv) construe, interpret, administer, reconcile any inconsistency, correct any defect and/or supply any omission in the Plan or any instrument or agreement relating to, or Award granted under, the Plan; (v) establish, amend, suspend, or waive any rules for the administration, interpretation and application of the Plan; (vi) determine the duration and purposes of leaves of absence that may be granted to a Participant without constituting termination of his or her employment or service for Plan purposes; (vii) authorize any person to execute, on behalf of the Company, any agreement or instrument required to carry out the Plan purposes; (viii) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award, or any instrument or agreement relating to an Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect; and (ix) make any other determination, including factual or legal determinations, and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
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3.3 | Decisions Binding. All determinations and decisions made by the Committee pursuant to the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons interested in the Plan or an Award. The Committee shall consider such factors as it deems relevant to making its decisions, determinations and interpretations including, without limitation, the recommendations or advice of any director, officer or employee of the Company or an Affiliate and such agents, attorneys, consultants and accountants as it may select. The Committee's determinations under the Plan need not be the same for all persons. A Participant or other holder of an Award may contest a decision or action by the Committee with respect to such person or Award and only on the grounds that such decision or action was arbitrary or capricious or was unlawful.
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3.4 | Delegation by the Committee. The Committee, in its sole discretion, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however, that the Committee may not delegate its responsibility to (i) make Awards to executive officers; (ii) make Awards which are intended to constitute qualified performance-based compensation under Section 162(m) of the Code; or (iii) certify the satisfaction of the Performance Goals pursuant to Section 6.1 in accordance with Section 162(m) of the Code.
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3.5 | Indemnification Rights. No member of the Committee or any person to whom authority was delegated in accordance with Section 3.4 above (each such person, an "Indemnifiable Person") shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys' fees) that may be imposed upon or incurred by such Indemnifiable Person to the fullest extent permitted under Indiana law in the manner provided in the Company's by-laws as may be amended from time to time. In the performance of their responsibilities with respect to the Plan, such individuals shall be entitled to rely upon information and advice furnished by the Company's officers, agents, attorneys, consultants and accountants and any other party deemed necessary or appropriate, and no such individual shall be liable for any action taken or not taken in reliance upon any such advice. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which an Indemnifiable Person may be entitled, or any power that the Company may have to indemnify them or hold them harmless.
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3.6 | Construction and Interpretation. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, or any Award shall be within the sole and complete discretion of the Committee.
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4.Eligibility and Participation.
4.1 | Eligibility. Employees of the Company, a Parent and any Related Entity are eligible to participate in the Plan.
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4.2 | Participation. The Committee, in its discretion, shall select, no later than the Determination Date, the persons who shall be Participants for the Performance Period. Only eligible individuals who are designated by the Committee to participate in the Plan with respect to a particular Performance Period may participate in the Plan for that Performance Period. An individual who is designated as a Participant for a given Performance Period is not guaranteed or assured of being selected for participation in any subsequent Performance Period.
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4.3 | New Hires; Newly Eligible Participants. A newly hired or newly eligible Participant will be eligible to receive a Pro-rated Award. The amount of any Award paid to such Participant shall not exceed that proportionate amount of the Maximum Award set forth in Section 2.13.
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4.4 | Leaves of Absence. If a Participant is on a leave of absence for a portion of a Performance Period, the Participant will be eligible to receive a Pro-rated Award reflecting participation for the period during which he or she was actively employed and not any period when he or she was on leave.
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5.Terms of Awards.
5.1 | Determination of Target Awards. Prior to, or reasonably promptly following the commencement of each Performance Period, but no later than the Determination Date, the Committee, in its discretion, shall establish the Target Award for each Participant or group of Participants, the payment of which shall be conditioned on the achievement of the Performance Goals for the Performance Period.
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5.2 | Determination of Performance Goals and Performance Formula. Prior to, or reasonably promptly following the commencement of, each Performance Period, but no later than the Determination Date, the Committee, in its discretion, shall establish in writing the Performance Goals for the Performance Period and shall prescribe a formula for determining the percentage of the Target Award which may be payable based upon the level of attainment of the Performance Goals for the Performance Period. The Performance Goals shall be based on one or more Performance Criteria, each of which may carry a different weight, and which may differ from Participant to Participant. The Performance Goals may be set for a group of participants based on one of more Performance Criteria applied to the Company as a whole or any other subgroup as authorized in Section 2.17.
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5.3 | Adjustments. The Committee is authorized, in its discretion, to adjust or modify the calculation of a Performance Goal for a Performance Period in connection with any one or more of the following events:
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(b) | significant litigation or claim judgments or settlements; |
(c) | the effect of changes in tax laws, accounting standards or principles, or other laws or regulatory rules affecting reporting results; |
(d) | any reorganization and restructuring programs; |
(e) | extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable year or period; |
(f) | acquisitions or divestitures; |
(g) | any other specific unusual or nonrecurring events or objectively determinable category thereof; |
(h) | foreign exchange gains and losses; and |
(i) | a change in the Company's fiscal year. |
No adjustment shall be made if the effect would be to cause an Award to fail to qualify as performance-based compensation under Section 162(m) of the Code.
6.Payment of Awards.
6.1 | Determination of Awards; Certification.
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(a) | Following the completion of each Performance Period, the Committee shall determine the extent to which the Performance Goals have been achieved or exceeded. If the minimum Performance Goals established by the Committee are not achieved, then no payment will be made. |
(b) | To the extent that the Performance Goals are achieved, the Committee shall certify in writing, in accordance with the requirements of Section 162(m) of the Code, the extent to which the Performance Goals applicable to each Participant, or group of Participants, have been achieved and shall then determine, in accordance with the prescribed formula, the amount of each Participant's Award. |
(c) | In determining the amount of each Award, the Committee may reduce or eliminate the amount of an Award by applying Negative Discretion if, in its discretion, such reduction or elimination is appropriate. |
(d) | In no event shall the amount of an Award for any Plan Year exceed the Maximum Award. |
6.2 | Form and Timing of Payment. Except as otherwise provided herein, as soon as practicable following the Committee's certification pursuant to Section 6.1 for the applicable Performance Period, each Participant shall receive a lump sum payment of his or her Award, less required withholding. In no event shall such payment be made later than 2 1/2 months following the end of the Performance Period. Payment shall generally be made in cash, provided, however, that, at the discretion of the Committee, the Company may elect to satisfy such payment in Shares in lieu of cash, or in a combination of cash and Shares. The issuance of any Shares shall be contingent on the availability of Shares under the Company Long-Term Incentive Plan (or such successor plan).
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6.3 | Employment Requirement. Except as otherwise provided in Section 7, no Award shall be paid to any Participant who is not actively employed by the Company or an Affiliate on the date that Awards are paid.
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6.4 | Deferral of Awards. The Committee, in its discretion, may permit or require a Participant to defer the payment of an Award that would otherwise be paid under the Plan. Any deferral election shall be subject to such rules and procedures as shall be determined by the Committee in its discretion.
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7.Termination of Employment.
7.1 | Employment Requirement. Except as otherwise provided in Section 7.2 if a Participant's employment terminates for any reason prior to the date that Awards are paid, all of the Participant's rights to an Award for the Performance Period shall be forfeited. However, if a Participant's employment is terminated without Cause during a Performance Period, the Participant will be paid a Pro-rated Award if required under the terms of an Award Agreement or other written agreement between the Company and the Participant. In addition, the Committee, in its discretion, may pay a Pro-rated Award, subject to the Committee's certification that the Participant's Performance Goals for the Performance Period have been met. Such Pro-rated Award will be paid at the same time and in the same manner as Awards are paid to other Participants. Notwithstanding the foregoing, if a Participant's employment is terminated for Cause, the Participant shall in all cases forfeit any Award not already paid.
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7.2 | Termination of Employment Due to Death or Disability. If a Participant's employment is terminated by reason of his or her death or Disability during a Performance Period, the Participant or his or her beneficiary will be paid a Pro-rated Award. If a Participant's employment is terminated by reason of his or her death or Disability following a Performance Period but before the date that Awards are paid, the Participant or his or her beneficiary will be paid the Award that would otherwise be payable if the Participant remained employed through the date that Awards are paid. In the case of a Participant's Disability, the employment termination shall be deemed to have occurred on the date that the Committee determines that the Participant is Disabled. Payment of such Award or Pro-rated Award, as applicable will be made at the same time and in the same manner as Awards are paid to other Participants.
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8.Change in Control.
If a Change in Control occurs during a Performance Period, Awards under the Plan will be calculated based on the Company's performance as of the date of the Change in Control. Awards paid in connection with a Change in Control will be paid no later than 2 1/2 months following the date of the Change in Control.
9.General Provisions.
9.1 | Compliance with Legal Requirements. The Plan and the granting of Awards shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required.
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9.2 | Non-transferability. A person's rights and interests under the Plan, including any Award previously made to such person or any amounts payable under the Plan may not be assigned, pledged, or transferred, except in the event of the Participant's death, to a designated beneficiary in accordance with the Plan, or in the absence of such designation, by will or the laws of descent or distribution.
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9.3 | No Right to Employment. Nothing in the Plan or in any notice of Award shall confer upon any person the right to continue in the employment of the Company or any Affiliate or affect the right of the Company or any Affiliate to terminate the employment of any Participant.
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9.4 | No Right to Award. Unless otherwise expressly set forth in an employment agreement signed by the Company and a Participant, a Participant shall not have any right to any Award under the Plan until such Award has been paid to such Participant and participation in the Plan in one Performance Period does not connote any right to become a Participant in the Plan in any future Performance Period.
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9.5 | Withholding. The Company shall have the right to withhold from any Award, any federal, state or local income and/or payroll taxes required by law to be withheld and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to an Award.
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9.6 | Amendment or Termination of the Plan. The Board or the Committee may, at any time, amend, suspend or terminate the Plan in whole or in part; provided, that, no amendment that requires shareholder approval in order for the Plan to continue to comply with Section 162(m) of the Code shall be effective unless approved by the requisite vote of the shareholders of the Company. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any Participant to Awards allocated prior to such amendment, suspension or termination.
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9.7 | Unfunded Status. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and any Participant, beneficiary or legal representative or any other person. To the extent that a person acquires a right to receive payments under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA).
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9.8 | Governing Law. The Plan shall be construed, administered and enforced in accordance with the laws of Indiana without regard to conflicts of law.
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9.9 | Beneficiaries. To the extent that the Committee permits beneficiary designations, any payment of Awards due under the Plan to a deceased Participant shall be paid to the beneficiary duly designated by the Participant in accordance with the Company's practices. If no such beneficiary has been designated or survives the Participant, payment shall be made by will or the laws of descent or distribution.
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9.10 | Section 162(m) of the Code; Bifurcation of the Plan. It is the intent of the Company that the Plan and the Awards made to Participants who are or may become persons whose compensation is subject to Section 162(m) of the Code satisfy any applicable requirements to be treated as qualified performance-based compensation under Section 162(m) of the Code. The provisions of the Plan may at any time be bifurcated by the Board or the Committee so that certain provisions of the Plan or any Award intended to satisfy the applicable requirements of Section 162(m) of the Code are only applicable to persons whose compensation is subject to Section 162(m) of the Code.
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9.11 | Section 409A of the Code. It is intended that payments under the Plan qualify as short-term deferrals exempt from the requirements of Section 409A of the Code. Notwithstanding anything to the contrary in the Plan: (i) no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant's termination of employment or service with the Company will be made to such Participant until such Participant's termination of employment or service constitutes a "separation from service" under Section 409A of the Code; and (ii) to the extent required in order to comply with Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). In addition, for Plan purposes, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitute deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment. A Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A of the Code.
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9.12 | Expenses. All costs and expenses in connection with the administration of the Plan shall be paid by the Company.
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9.13 | Section Headings. The headings of the Plan have been inserted for convenience of reference only and in the event of any conflict, the text of the Plan, rather than such headings, shall control.
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9.14 | Severability. In the event that any provision of the Plan shall be considered illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been contained therein.
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9.15 | Gender and Number. Except where otherwise indicated by the context, wherever used, the masculine pronoun includes the feminine pronoun; the plural shall include the singular, and the singular shall include the plural.
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9.16 | Non-exclusive. Nothing in the Plan shall limit the authority of the Company, the Board or the Committee to adopt such other compensation arrangements, as it may deem desirable for any Participant.
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9.17 | Notice. Any notice to be given to the Company or the Committee pursuant to the provisions of the Plan shall be in writing and directed to the Secretary of the Company at 111 Congressional Blvd, Suite 500; Carmel, IN 46032.
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9.18 | Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding upon any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the assets of the Company.
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9.19 | Recoupment. Notwithstanding anything in the Plan to the contrary, all Awards granted under the Plan and any payments made under the Plan shall be subject to claw-back or recoupment as permitted or mandated by applicable law, rules, regulations or any Company policy as enacted, adopted or modified from time to time. This Section 9.19 is in addition to, and not in lieu of, any and all other rights of the Board and/or the Company under applicable law and shall apply notwithstanding anything to the contrary in the Plan.
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Appendix B
BALDWIN & LYONS, INC. LONG-TERM INCENTIVE PLAN
Article 1. Establishment, Purpose and Duration
1.1. Establishment of the Plan. Baldwin & Lyons, Inc. hereby establishes the Baldwin & Lyons, Inc. Long-Term Incentive Plan (the "Plan"). Except as otherwise indicated, capitalized terms are defined in Article 16 below.
1.2. Purposes of the Plan. The purposes of the Plan are to (i) attract, retain and motivate key employees, directors, consultants, and independent contractors; (ii) compensate them for their contributions to the growth and profitability of the Company; (iii) to encourage ownership of Shares in order to align their interests with those of shareholders; and (iv) promote the sustained long-term performance of the Company and the creation of shareholder value. The Plan seeks to achieve these purposes by providing for discretionary long term incentive Awards in the form of Options, Restricted Stock, Restricted Stock Units, SARs, Performance Units, Performance Shares and other stock or cash awards.
1.3. Prior Plan. The Plan replaces the Prior Plan. No Awards will be granted under the Prior Plan on or after the Effective Date, but the Prior Plan will remain in effect with respect to outstanding awards granted prior to the Effective Date.
1.4. Duration of the Plan. The Plan shall be effective on the Effective Date. The Plan shall terminate on the day before the tenth anniversary of the Effective Date and may be terminated earlier pursuant to Article 12. Any Awards that are outstanding upon termination of the Plan shall remain in force and effect in accordance with the terms of the Plan and any applicable Award Agreement.
Article 2. Administration
2.1. The Committee. The Plan shall be administered by the Committee. The Committee shall be comprised solely of Directors who are: (a) "non-employee directors" as contemplated by Rule 16b-3 under the Exchange Act; and (b) "outside directors" as contemplated by Section 162(m) of the Code.
2.2. Authority of the Committee. Subject to the terms and conditions of the Plan, the Committee shall have full power and discretionary authority to:
(a) designate the Participants;
(b) determine the size and types of Awards;
(c) approve forms of Award Agreements for use under the Plan;
(d) determine the terms and conditions of each Award, including without limitation, and to the extent applicable, the Exercise Price, the Exercise Period, vesting conditions, Performance Goals, Performance Periods, any vesting acceleration, waiver of forfeiture restrictions, and any other term or condition regarding any Award or its related Shares (including subjecting the Award or its related Shares to compliance with restrictive covenants);
(e) construe and interpret the Plan and any agreement or instrument entered into pursuant to the Plan;
(f) establish, amend or waive rules and regulations for the Plan's administration;
(g) amend the terms and conditions of any outstanding Award and any instrument or agreement relating to an Award (subject to the provisions of Article 12);
(h) delay issuance of Shares or suspend a Participant's right to exercise an Award as deemed necessary to comply with applicable laws;
(i) determine the duration and purposes of leaves of absence that may be granted to a Participant without constituting termination of his or her employment or service for Plan purposes;
(j) authorize any person to execute, on behalf of the Company, any agreement or instrument required to carry out the Plan purposes;
(k) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award, or any instrument or agreement relating to an Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect; and
(l) make any and all determinations which it determines to be necessary or advisable for the Plan administration.
2.3. Delegation. Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the Shares are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of the Company, a Parent or any Related Entity the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Committee herein, and which may be so delegated as a matter of law, except for grants of Awards to persons (i) who are subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, "covered employees" for purposes of Section 162(m) of the Code.
2.4. Decisions Binding. All determinations and decisions made by the Committee pursuant to the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons interested in the Plan or an Award. The Committee shall consider such factors as it deems relevant to making its decisions, determinations and interpretations including, without limitation, the recommendations or advice of any Director, officer or employee of the Company, a Parent or any Related Entity and such agents, attorneys, consultants and accountants as it may select. The Committee's determinations under the Plan need not be the same for all persons. A Participant or other holder of an Award may contest a decision or action by the Committee with respect to such person or Award and only on the grounds that such decision or action was arbitrary or capricious or was unlawful.
2.5. Indemnification. No member of the Committee, the Board or any person to whom authority was delegated in accordance with Section 2.3 above (each such person, an "Indemnifiable Person") shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys' fees) that may be imposed upon or incurred by such Indemnifiable Person to the fullest extent permitted by Indiana law, in the manner provided in the Company's by-laws as may be amended from time to time. In the performance of their responsibilities with respect to the Plan, such individuals shall be entitled to rely upon information and advice furnished by the Company's officers, agents, attorneys, consultants and accountants and any other party deemed necessary or appropriate, and no such individual shall be liable for any action taken or not taken in reliance upon any such advice. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which an Indemnifiable Person may be entitled, or any power that the Company may have to indemnify them or hold them harmless.
2.6. Construction and Interpretation. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole and complete discretion of the Committee.
2.7. Action by the Board. Notwithstanding anything in the Plan to the contrary, any authority or responsibility, which, under the terms of the Plan, may be exercised by the Committee may alternatively be exercised by the Board.
Article 3. Shares Subject to the Plan
3.1. Number of Shares. Subject to adjustments as provided in Section 3.3 below, the maximum aggregate number of Shares that may be issued for all purposes under this Plan shall be 1,000,000 Shares. Shares issued under the Plan may consist, in whole or in part, of authorized and unissued Class B Common Stock, treasury Shares or Shares reacquired by the Company in any manner, or a combination thereof.
3.2. Share Counting. The number of Shares remaining available for issuance shall be reduced by the number of Shares subject to outstanding Awards and, for Awards that are not denominated by Shares, by the number of Shares actually delivered upon settlement or payment of the Award. Notwithstanding anything in the Plan to the contrary, Shares subject to an Award will again be available for grant and issuance pursuant to the Plan to the extent the relevant Awards: (a) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of Shares, (b) are settled in cash in lieu of Shares, or (c) are surrendered pursuant to an Exchange Program. Shares subject to an Award may not again be made available for grant and issuance pursuant to the Plan if such Shares are: (w) subject to an Option or a stock-settled SAR and were not issued upon the net settlement or net exercise of such Option or SAR, (x) delivered to, or withheld by, the Company to pay the Exercise Price or the withholding taxes due with respect to an Option or SAR, (y) withheld by the Company to cover taxes incurred in connection with other stock-settled Awards, or (z) repurchased on the open market with the proceeds of an Option exercise. In addition, to the extent not prohibited by applicable law, rule or regulation, Shares delivered or deliverable in connection with any Substitute Award shall not reduce the number of Shares authorized for grant pursuant to Section 3.1 above.
3.3. Adjustments in Authorized Shares and Awards. In the event of any merger, amalgamation, reorganization, consolidation, recapitalization, stock dividend, bonus issues, extraordinary cash dividend, stock split, reverse stock split, share consolidation or subdivision, spin-off, spilt-off or similar transaction or other change in corporate structure affecting the Shares, such adjustments and other substitutions shall be made to the Plan and to Awards as the Committee deems equitable or appropriate, including, without limitation, such adjustments in the aggregate number, class and kind of securities that may be delivered, in the aggregate or to any Participant, in the number, class, kind and option or Exercise Price of securities subject to outstanding Awards as the Committee may determine to be appropriate; provided, however, that the number of Shares subject to any Award shall always be a whole number and further provided that in no event may any change be made to an ISO which would constitute a modification within the meaning of Section 424(h)(3) of the Code. Moreover, notwithstanding anything in the Plan to the contrary, an adjustment to an Award may not be made in a manner that would result in adverse tax consequences under Section 409A.
Article 4. Eligibility
The Committee may select any Employee, Outside Director or Consultant to receive an Award; provided, however, that ISOs shall only be granted to Employees in accordance with Section 422 of the Code.
Article 5. Restricted Stock Units and Restricted Stock
5.1. Award of Restricted Stock Units and Restricted Stock. The Committee may grant Restricted Stock Units and Restricted Stock to an Employee, Outside Director or Consultant with such terms and provisions that the Committee shall determine.
5.2. Terms of Restricted Stock Units and Restricted Stock. Each Award of RSUs and Restricted Stock shall be subject to an Award Agreement that shall set forth (a) the number or a formula for determining the number of Shares subject to the Award, (b) the terms and conditions regarding the grant, vesting and forfeiture of the RSUs and Restricted Stock and (c) such other terms and conditions as may be appropriate.
5.3. Vesting Conditions. The Committee shall determine the vesting schedule for each Award of RSUs and Restricted Stock. Vesting shall occur, in full or in installments, upon satisfaction of the terms and conditions specified in the Award Agreement. The Committee shall have the right to make the vesting of RSUs and Restricted Stock subject to the continued employment or service of a Participant, passage of time or such performance criteria as deemed appropriate by the Committee, which criteria may be based on financial performance and personal performance evaluations.
5.4. Settlement of Restricted Stock Units; Lapse of Restrictions on Restricted Stock. Earned RSUs and Restricted Stock shall be settled in a lump sum or in installments on or after the date(s) set forth in the Award Agreement. The Committee may settle earned RSUs in cash, Shares, or a combination of both. Distribution may occur or commence when the vesting conditions applicable to a RSU have been satisfied or, if the Committee so provides in an Award Agreement, it may be deferred in accordance with applicable law, to a later date. The Committee may also permit a Participant to defer payment of Shares related to a RSU provided that the terms of the RSU and any deferral satisfy the requirements of applicable law and the deferral is pursuant to a deferred compensation plan offered by the Company or a Subsidiary. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such restrictions have lapsed.
Article 6. Performance Units and Performance Shares
6.1. Award of Performance Units and Performance Shares. The Committee may grant Performance Units and Performance Shares to an Employee, Outside Director or Consultant with such terms and provisions that the Committee shall determine.
6.2. Terms of Performance Units and Performance Shares. Each Award of Performance Units and Performance Shares shall be subject to an Award Agreement that shall set forth (a) the number of Performance Units and Performance Shares granted or a formula for determining the number of Performance Units and Performance Shares subject to the Award, (b) the initial value (if applicable) of the Performance Units and Performance Shares, (c) the Performance Goals and level of attainment that shall determine the number of Performance Units and Performance Shares to be paid out, (d) such terms and conditions regarding the grant, vesting and forfeiture of the Performance Units and Performance Shares and (e) such other terms and conditions as may be appropriate.
6.3. Earning of Performance Units and Performance Shares. After completion of an applicable Performance Period, the holder of Performance Units and Performance Shares shall be entitled to receive a payout with respect to the Performance Units and Performance Shares earned by the Participant over the Performance Period. Payment shall be determined by the Committee based on the extent to which the Performance Goals have been achieved and together with the satisfaction of any other terms and conditions set forth in the Plan and the applicable Award Agreement. No payment shall be made with respect to a Performance Unit and Performance Shares prior to certification by the Committee that the Performance Goals have been achieved.
6.4. Settlement of Performance Units and Performance Shares. Earned Performance Units and Performance Shares shall be settled in a lump sum or in installments after the date(s) set forth in the Award Agreement. The Committee may settle earned Performance Units and Performance Shares in cash or in Shares (or in a combination thereof), which have an aggregate Fair Market Value equal to the value of the earned Performance Units and Performance Shares. Distribution may occur or commence after completion of the applicable Performance Period and the satisfaction of any applicable vesting conditions or, if the Committee so provides in an Award Agreement, it may be deferred, in accordance with applicable law, to a later date. The Committee may also permit a Participant to defer settlement of Shares related to a Performance Unit and Performance Shares to a date or dates after the Performance Unit and Performance Shares is earned provided that the terms of the Performance Unit and Performance Shares and any deferral satisfy the requirements of applicable law and the deferral is pursuant to a deferred compensation plan offered by the Company, a Parent or any Related Entity.
Article 7. Stock Options and Stock Appreciation Rights
7.1. Award of Options and SARs. The Committee may grant Options, SARs or both, to an Employee, Outside Director or Consultant with such terms and provisions that the Committee shall determine.
7.2. Terms of Options and SARs. Each Award of Options or SARs shall be subject to an Award Agreement that shall set forth (a) the term or duration of the Options or SARs, (b) the number of Shares subject to the Options or SARs, (c) the Exercise Price, (d) the Exercise Period and (e) such other terms and conditions as may be appropriate. The Committee may grant Options in the form of ISOs, NQSOs or a combination thereof. Each Award Agreement also shall specify whether the Options are intended to be an ISO or a NQSO.
7.3. Duration of Options and SARs. Each Option or SAR shall expire at such time as the Committee shall determine at the time the Award is granted; provided, however, that no Option or SAR shall be exercisable later than the tenth (10th) anniversary of its date of grant.
7.4. Exercise of and Payment for Options and SARs. Options and SARs shall be exercisable at such times and be subject to such terms and conditions as the Committee shall approve, which need not be the same for each Award or for each Participant. Options and SARs shall be exercised by the delivery of a written notice of exercise to the Company or its designated agent, setting forth the number of Shares to be exercised with respect to the Options or SARs, and, in the case of Options, accompanied by full payment for the Shares.
The Exercise Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent, (b) by tendering, either by actual or constructive delivery, previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Exercise Price, (c) by net Share settlement or similar procedure involving the cancellation of a portion of the Option representing Shares with an aggregate Fair Market Value at the time of exercise equal to the Exercise Price or (d) by any combination thereof. To the extent not prohibited by Section 402 of the Sarbanes-Oxley Act of 2002, the Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise of an Option and provisions for full payment for an Option, the Company shall issue to the Participant an appropriate number of Shares based upon the number of Shares purchased under the Option.
Upon exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount equal to the product of: (a) the excess of (i) the Fair Market Value of a Share on the date of exercise over (ii) the Exercise Price of the SAR, multiplied by (b) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, payment upon the exercise of a SAR may be in cash, in Shares of equivalent value or in a combination thereof. The Committee's determination regarding the form of SAR payout shall be set forth in an applicable Award Agreement.
7.5. Automatic Exercise. The Committee may provide that, in the event that (i) an Option or SAR is not exercised or settled by the last day of the Exercise Period, (ii) the Participant is legally precluded from otherwise exercising such Option or SAR before the last day of the Exercise Period due to legal restrictions or Company policy (including policies on trading in Shares), and (iii) the Exercise Price of such Option or SAR is below the Fair Market Value of a Share on the last day of the Exercise Period, as determined by the Committee, then the Option or SAR may be deemed exercised on such date, with no action required on the part of the Participant, with a spread equal to the Fair Market Value of the Shares subject to the Award on such date minus the Exercise Price for those Shares. The resulting proceeds net of any required tax withholding and any applicable costs shall be paid to the Participant or the Participant's legal representative.
7.6. Restrictions on Repricing, Repurchases, and Discounts. Other than in connection with a transaction described in Section 3.3, without shareholder approval, (i) the Exercise Price of an Option or SAR may not be reduced, directly or indirectly, after the grant of the Award; (ii) an Option or SAR may not be cancelled in exchange for cash, other Awards, or Options or SARs with an Exercise Price that is less than the Exercise Price of the original Option or SAR; and (iii) the Company may not repurchase an Option or SAR for value (in cash, substitutions, cash buyouts, or otherwise) at any time when the Exercise Price of a Stock Option or SAR is above the Fair Market Value of a Share. In no event shall the Exercise Price of an Option or the grant price per Share of a SAR be less than 100% of the Fair Market Value of a Share on the date of grant; provided, however that the Exercise Price of a Substitute Award granted as an Option shall be determined in accordance with Section 409A and may be less than 100% of the Fair Market Value.
7.7 Incentive Stock Options. The Exercise Price of an ISO shall be fixed by the Committee at the time of grant or shall be determined by a method specified by the Committee at the time of grant, but in no event shall the Exercise Price be less than the minimum Exercise Price specified in Section 7.6. No ISO may be issued to any individual who, at the time the ISO is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, unless (i) the Exercise Price determined as of the date of grant is at least 110% of the Fair Market Value on the date of grant of the Shares subject to such ISO and (ii) the ISO is not exercisable more than five years from the date of grant thereof. No Participant shall be granted any ISO which would result in such Participant receiving a grant of ISO that would have an aggregate Fair Market Value in excess of $100,000, determined as of the time of grant, that would be exercisable for the first time by such Participant during any calendar year. Any grants in excess of this limit shall be treated as NQSOs. No ISO may be granted under the Plan after the tenth anniversary of the Effective Date. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, as amended from time to time.
Article 8. Other Awards
Subject to limitations under applicable law, the Committee may grant such other Awards to Employees, Outside Directors and Consultants that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares as deemed by the Committee to be consistent with the purposes of the Plan. The Committee may also grant Shares as a bonus, or may grant other Awards in lieu of obligations of the Company, a Parent or any Related Entity to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements. The terms and conditions applicable to such other Awards shall be determined from time to time by the Committee and set forth in an applicable Award Agreement.
Article 9. General Provisions Applicable to Awards
9.1. Limits on Awards. Subject to any adjustments described in Section 3.3 the following limits shall apply to Awards:
(a) No more than an aggregate of 1,000,000 Shares may be issued under ISOs;
(b) The maximum number of Shares subject to RSUs or Restricted Stock that may be granted to a Participant during any one calendar year is 200,000;
(c) The maximum number of Shares subject to Performance Units or Performance Shares that may be granted to a Participant during any one calendar year is 200,000;
(d) The maximum number of Shares subject to either Options or SARs that may be granted to a Participant during any one calendar year is 200,000;
(e) The maximum amount of cash-denominated Other Awards that may be granted to a Participant during any one calendar year is $2,000,000;
(f) The maximum number of Shares subject to share-denominated Other Awards that may be granted to a Participant during any one calendar year is 200,000 and
(g) The maximum grant date Fair Market Value of any Awards that may be granted to an Outside Director in any calendar year shall be $500,000.
To the extent not prohibited by applicable laws, rules and regulations, any Shares underlying Substitute Awards shall not be counted against the number of Shares remaining for issuance and shall not be subject to the individual limits contained in Section 3.1 or this Section 9.1.
9.2 Restrictions on Performance-Based Awards. The Committee may determine whether any Award, including Performance Units or Performance Shares, under the Plan is intended to meet the requirements for "qualified performance-based compensation" as that term is used in Section 162(m) of the Code. The following provisions shall apply to any Awards intended to satisfy such requirements:
(a) Any such Awards designated to be "qualified performance-based compensation" shall be conditioned on the achievement of one or more Performance Goals to the extent required by Section 162(m) and will be subject to all other conditions and requirements of Section 162(m).
(b) The Performance Goals shall be determined in accordance with generally accepted accounting principles (subject to adjustments and modifications for specified types of events or circumstances approved by the Committee in advance) consistently applied on a Subsidiary, business unit, division, segment, product line, or consolidated basis or any combination thereof. Adjustment events include (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (iv) charges for any reorganization and restructuring programs; (v) unusual or infrequent charges or losses as described in Accounting Standards Codification 225-20-20 or elements of adjusted income in the management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable year; (vi) the impact of acquisitions or divestitures; (vii) foreign exchange gains and losses and (viii) gains or losses on asset sales.
(c) The Performance Goals may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a Subsidiary, business unit, division, segment, product line, or combination thereof and may be measured on an absolute or cumulative basis or on the basis of percentage of improvement over time, and may be measured in terms of Company performance (or performance of the applicable Subsidiary, business unit, division, segment, product line, or combination thereof) or measured relative to selected peer companies or a market index. At the time of grant, the Committee may provide for adjustments to the performance criteria in accordance with Section 162(m). The Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award.
(d) The Participants will be designated, and the applicable Performance Goals will be established, by the Committee not later than 90 days following the commencement of the applicable Performance Period (or such earlier or later date permitted or required by Section 162(m)). Each Participant will be assigned a target amount of Shares or cash payable if Performance Goals are achieved. Any payment of an Award granted with Performance Goals shall be conditioned on the written certification of the Committee in each case that the Performance Goals and any other material conditions were satisfied. The Committee may determine, at the time of grant, that if performance exceeds the specified Performance Goals, the Award may be settled with payment greater than the target Performance Goals, but in no event may such payment exceed the limits set forth in Section 9.1. The Committee retains the right to reduce any such Award notwithstanding the attainment of the Performance Goals.
9.3. Performance Awards Not Subject to Section 162(m). The Committee may also grant performance-based Awards not intended to qualify as "qualified performance-based compensation" under Section 162(m) of the Code. With respect to such Awards, the Committee may establish performance targets and goals based on any criteria it deems appropriate and shall not be required to follow the procedures or schedule specified in Section 9.2.
9.4. Restrictions on Transfers of Awards. Except as may be provided by the Committee, no Award and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution or, except in the case of an ISO, pursuant to a domestic relations order, as the case may be; provided, however, that the Committee may, subject to applicable laws, rules and regulations and such terms and conditions as it shall specify, permit the transfer of an Award, other than an ISO, for no consideration to a permitted transferee. Each Award, and each right under any Award, shall be exercisable, during the Participant's lifetime, only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. No Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company, a Parent or any Related Entity.
9.5. Restrictions on Transfers of Shares. The Committee may impose such restrictions on any Shares acquired pursuant to an Award as it may deem advisable, including, without limitation, restrictions to comply with applicable Federal securities laws, with the requirements of any stock exchange upon which such Shares are then listed and with any blue sky or state securities laws applicable to such Shares.
9.6. Additional Restrictions on Awards and Shares. Either at the time an Award is granted or by subsequent action, the Committee may, but need not, impose such restrictions, conditions or limitations as it determines appropriate on the Award, any Shares issued under an Award, or both, including, without limitation, (a) restrictions under an insider trading policy, (b) any compensation recovery policy or policies established by the Company as such policy or policies may be amended from time to time, (c) share retention guidelines, minimum holding requirements and other restrictions designed to delay or coordinate the timing and manner of sales, (d) restrictions as to the use of a specified brokerage firm for receipt, resales or other transfers of such Shares, (e) restrictions relating to a Participant's activities following termination of employment or service, including but not limited to, competition against the Company, disclosure of Company confidential information, and solicitation of Company employees and/or customers, and (f) other policies that may be implemented by the Board from time to time.
9.7. Minimum Vesting Period. All Awards shall have a vesting period of not less than one year from date of grant, including those Awards that are subject to Performance Goals or other performance-based objectives; provided, however, that Awards that result in the issuance of an aggregate of up to 5% of the Shares available pursuant to Section 3.1 may be granted to any one or more Participants without respect to such minimum vesting provisions. Notwithstanding anything in this Plan to the contrary, Substitute Awards shall not be subject to the minimum vesting provisions of this Section 9.7.
9.8. Shareholder Rights; Dividend Equivalents. Except as provided in the Plan or an Award Agreement, no Participant shall have any Shares subject to an Award and any of the rights of a stockholder unless and until such Participant has satisfied all requirements for exercise or vesting of the Award pursuant to its terms, Shares have actually been issued, restrictions imposed on the Shares, if any, have been removed, and the Shares are entered upon the records of the duly authorized transfer agent of the Company. The recipient of a Award (other than Options and SARs) may be entitled to receive Dividend Equivalents, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested and subject to vesting and forfeiture to the same extent as the underlying Award; provided, however, that Dividend Equivalents shall only become payable if and to the extent the underlying Award vests, regardless of whether or not vesting is contingent upon continued employment, the achievement of Performance Goals, or both.
9.9. Termination of Employment or Service. Each Award Agreement shall set forth the terms relating to the treatment of an Award in the event of a Participant's termination of employment or service, including, without limitation, the extent to which the right to vest, exercise or receive payout of an Award may continue following termination of the Participant's employment or service with the Company, a Parent or any Related Entity, including due to death or Disability, and any forfeiture provisions. Such provisions shall be determined by the Committee in its discretion, shall be included in the Award Agreement applicable to a Participant, need not be uniform among all Awards or among all Participants and may reflect distinctions based on the reasons for termination of employment or service.
9.10. Effect of Change in Status. The Committee shall have the discretion to determine the effect upon an Award, in the case of (i) any individual who is employed with, or engaged by, an entity that ceases to be a Parent or a Related Entity, (ii) any leave of absence approved by the Company, a Parent or any Related Entity, (iii) any change in the Participant's status from an Employee to a Consultant, or vice versa, and (iv) at the request of the Company, a Parent or any Related Entity, any Participant who becomes employed by any partnership, joint venture, corporation or other entity not meeting the requirements of a Parent or any Related Entity.
Article 10. Change of Control
Unless specifically prohibited by the Plan or unless the Committee provides otherwise prior to the Change of Control, upon the occurrence of a Change of Control and a termination of a Participant's employment or service with the Company or a Parent or any Related Entity without Cause, or a Participant's resignation of employment or service with the Company or a Parent or any Related Entity for Good Reason, on or before the occurrence of the two year anniversary of the occurrence of a Change of Control:
(a) Any restrictions imposed on RSUs or Restricted Stock shall be deemed to have expired;
(b) With respect to all outstanding Awards of Performance Units, Performance Shares and other performance-based Awards, the Committee (i) shall determine the greater of (x) the payout at the target number of Performance Units or Performance Shares granted for the entire Performance Period and (y) the payout based upon the actual performance level attained as of the last day of the calendar quarter immediately prior to the date of the Participant's termination without Cause or Participant's resignation for Good Reason, in either case, after giving effect to the accumulation of Dividend Equivalents, and (ii) shall pay to the Participant the greater of such amounts, prorated based upon the number of complete and partial calendar months within the Performance Period which have elapsed as of the date of the Participant's termination without Cause or the Participant's resignation for Good Reason. Payment shall be made in cash or in shares, as determined by the Committee;
(c) Any and all outstanding and unvested Options and SARs shall become immediately exercisable; and
(d) Any restrictions imposed on any and all outstanding and unvested Other Awards shall be deemed to have expired.
Article 11. Corporate Transactions.
11.1. Assumption or Replacement of Awards by Successor. In the event of a Change of Control, any or all outstanding Awards may be assumed or replaced by the successor entity, which assumption or replacement shall be binding on all Participants. In the alternative, the successor entity may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders of the Company (after taking into account the existing provisions of the Awards). In the event such successor entity fails to assume, replace or substitute Awards, as provided above, pursuant to a Change of Control, then notwithstanding any other provision in this Plan to the contrary, such Awards shall have their vesting accelerate as to all Shares subject to such Awards immediately prior to the Change of Control unless otherwise determined by the Board and then such Awards will terminate. In addition, in the event such successor entity refuses to assume, replace or substitute Awards, as provided above, the Committee will notify Participants in writing that such Awards will be exercisable for a period of time determined by the Committee in its discretion, and such Awards will terminate upon the expiration of such period. Awards need not be treated similarly in a Change of Control. Except as provided in Article 10 and in this Section 11.1, the vesting, payment, purchase or distribution of an Award may not be accelerated by reason of a Change of Control.
11.2. Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting a Substitute Award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan.
Article 12. Amendment, Modification and Termination
12.1. Amendment, Modification and Termination. The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment which requires shareholder approval in order for the Plan to comply with Section 422 of the Code, applicable stock exchange listing standards, or any other applicable law, regulation or rule, shall be effective unless such amendment shall be approved by the requisite vote of the shareholders.
12.2. Awards Previously Made. No termination, amendment or modification of the Plan shall adversely affect in any material way any outstanding Award, without the written consent of the Participant holding such Award unless such termination, modification or amendment is required by applicable law.
Article 13. Tax Withholding
The Company, a Parent or a Related Entity, as appropriate, may require any individual entitled to receive a payment of an Award to remit to the Company, prior to payment, an amount sufficient to satisfy any applicable tax withholding requirements. In the case of an Award payable in Shares, the Company, a Parent or a Related Entity, as appropriate, may permit or require a Participant to satisfy, in whole or in part, the obligation to remit taxes by directing the Company to withhold Shares that would otherwise be received by the individual, or may repurchase Shares that were issued to the Participant, to satisfy the minimum statutory withholding rates for any applicable federal, state, local or foreign tax withholding purposes, in accordance with applicable law and pursuant to any rules that the Company may establish from time to time. The Company may establish procedures to allow Participants to satisfy such withholding obligations through a net share settlement procedure or the withholding of Shares subject to the applicable Award. The Company, a Parent or a Related Entity, as appropriate, shall also have the right to deduct from all cash payments made to a Participant (whether or not the payment is made in connection with an Award) any applicable taxes required to be withheld with respect to payments under the Plan.
Article 14. General Provisions
14.1. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural.
14.2. Headings and Severability. The headings of Articles and Sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan. In the event any Plan provision shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining Plan provisions, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
14.3. Successors. All Company obligations with respect to Awards, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.
14.4. No Right to Employment or Engagement. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or engagement at any time, for any reason or no reason in the Company's discretion, nor confer upon any Participant any right to continue in the employ or service of the Company, a Parent or a Related Entity.
14.5. Participation. No Employee shall have the right to be selected to receive an Award, or, having been so selected, to be selected to receive a future Award.
14.6. Requirements of Law. The making of Awards and the issuance of Shares shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise or vesting of any Award, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such Shares is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided in the Plan, the Board or the Committee may require that a holder make such reasonable covenants, agreements, and representations as the Board or the Committee deems advisable in order to comply with any such laws, regulations, or requirements.
Notwithstanding any other provision set forth in the Plan, if required by the then-current Section 16 of the Exchange Act, any "derivative security" or "equity security" offered pursuant to the Plan to any Insider may not be sold or transferred within the minimum time limits specified or required in such rule, except to the extent Rule 16b-3 exempts any such sale or transfer from the restrictions of Section 16 of the Exchange Act. The terms "equity security" and "derivative security" shall have the meanings ascribed to them in the then-current Rule 16a-1 under the Exchange Act.
14.7. Securities Law Compliance. With respect to Insiders, Plan transactions are intended to comply with all applicable conditions of the Federal securities laws. To the extent any Plan provision or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
14.8. Governing Law. To the extent not preempted by Federal law, the Plan, the Award Agreements and all agreements thereunder, shall be construed in accordance with, and subject to, the laws of the State of Indiana applicable to contracts made and to be entirely performed in Indiana and wholly disregarding any choice of law provisions that might otherwise be contrary to this express intent.
14.9. Effect on Other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
14.10. Unfunded Plan. The Plan is intended to be an unfunded plan for incentive compensation. With respect to any payments not yet made to a holder pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the holder any rights that are greater than those of a general creditor of the Company or any affiliate.
14.11. Recoupment. Notwithstanding anything in the Plan to the contrary, all Awards granted under the Plan, any payments made under the Plan and any gains realized upon exercise or settlement of an Award shall be subject to claw-back or recoupment as permitted or mandated by applicable law, rules, regulations or any Company policy as enacted, adopted or modified from time to time. This Section 14.11 is in addition to, and not in lieu of, any and all other rights of the Board and/or the Company under applicable law and shall apply notwithstanding anything to the contrary in the Plan.
14.12. Award Agreement. In the event of any conflict or inconsistency between the Plan and any Award Agreement, the Plan shall govern and the Award Agreement shall be interpreted to minimize or eliminate any such conflict or inconsistency.
Article 15. Compliance with Section 409A of the Code.
The parties intend that Plan payments and benefits comply with Section 409A to the extent it applies or an exemption therefrom, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Section 409A shall be paid prior to the 15th day of the third month of the calendar year immediately following the calendar year in which any applicable restrictions lapse and shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan: (i) no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A and becomes payable by reason of a Participant's termination of employment or service with the Company will be made to such Participant until such Participant's termination of employment or service constitutes a "separation from service" under Section 409A; and (ii) to the extent required in order to comply with Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). In addition, for Plan purposes, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitute deferred compensation subject to Section 409A, shall be construed as a separate identified payment for purposes of Section 409A. For any Plan payment that constitutes "non-qualified deferred compensation" under Section 409A, to the extent required to comply with Section 409A, a Change of Control shall be deemed to have occurred with respect to such payment only if a change in the ownership or effective control of the Company or a change in ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Section 409A. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to any such payment. A Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A.
Article 16. Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth below and, when such meaning is intended, the initial letter of the word is capitalized:
"Award" shall mean, individually or collectively, an Award of Restricted Stock, RSUs, Performance Units, Performance Shares, NQSOs, ISOs, SARs or any other type of Award permitted under Article 8.
"Award Agreement" shall mean any written or electronic agreement or document evidencing any Award granted by the Committee, which may, but need not, be signed or acknowledged by the Company or a Participant as determined by the Committee. Award Agreements shall, in the discretion of the Committee, contain such terms and conditions that are not inconsistent with the terms of the Plan.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the termination of a Participant's employment or service with the Company in connection with: a separation from service by the Company and all Parents and Related Entities for cause as defined in a then-effective written agreement between the Company, a Parent or Related Entity, and the Participant, and in the absence of such agreement or policy and definition, results from any one or more of the following as determined by the Committee in its discretion:
(a) the entry of a final judgment of conviction of the Participant by a trial court for a felony regardless of whether the Participant appeals the judgment, or entry of a plea of nolo contendere by the Participant to a felony;
(b) the issuance of a final award, judgment, or order by an administrative agency, a single arbitrator or panel of arbitrators, governmental body, governmentally-owned corporation, self-regulatory organization, or trial court that prohibits or prevents the Participant from performing any material obligation to the Company, a Parent, or any Related Entity for more than six (6) months regardless of whether the Participant appeals the award, judgment, or order;
(c) the Participant's intentional violation of any law that causes or threatens to cause a material loss to any business of the Company, a Parent, or any Related Entity; provided, however, that the foregoing provision does not apply to a violation subject only to a monetary fine of fifty thousand ($50,000) dollars or less;
(d) the Participant's violation of any law governing any business of the Company, a Parent, or any Related Entity; provided, however, that the foregoing provisions does not apply if the Participant acted (i) in accordance with the written direction or policy of the Board or the board of directors or other governing body of the Parent or a Related Entity to which the Participant primarily provides services; or (ii) in reliance on the written advice of counsel to the Company, a Parent, or a Related Entity requested by the Board or the board of directors or other governing body of the Parent or a Related Entity to which the Participant primarily provides services;
(e) the Participant's failure, other than by reason of death or Disability, to perform satisfactorily on a regular basis a material duty as an Employee or Director;
(f) the Participant's failure, other than by reason of death or Disability, to carry out the reasonable and achievable business directions of the Board or the board of directors or other governing body of the Parent or a Related Entity to which the Participant primarily provides services, or any officer who customarily gives business directions to the Participant, and the failure continues for more than thirty (30) days after the Participant receives from the person or entity that gave the directions written notice specifying the failure and requesting the Participant to cure it;
(g) (i) any act or failure to act by the Participant that the Participant intends to cause or threaten to cause a material loss to any business of the Company, a Parent, or a Related Entity; (ii) any act or failure to act by the Participant that constitutes gross negligence and causes or threatens to cause a material loss to any business of the Company, a Parent, or a Related Entity; or (iii) multiple acts or failures to act by the Participant that constitute negligence and cause or threaten to cause a material loss to any business of the Company, a Parent, or a Related Entity;
(h) the Participant's intentional interference with any business of the Company, a Parent, or any Related Entity that causes or threatens to cause a material loss to that business;
(i) the Participant's falsification of any information given to a Director or officer or a director or officer of a Parent or any Related Entity; or;
(j) any act by the Participant directed against the Company, a Parent, or any Related Entity of bribery, embezzlement, fraud, misappropriation of assets, or receipt of kickbacks.
Notwithstanding any provisions in the Plan to the contrary, during the thirty (30) day cure periods of subparagraph (f) above, the Participant shall not vest in any Awards.
"Change of Control" shall mean the occurrence of any of the following events.
(a) a Change of Control shall not apply with respect to the assumption or reallocation of Class A Common Stock among the Shapiro family or entities, as disclosed in the definitive proxy statements filed by the Company with the Securities Exchange Commission;
(b) any Person acquires ownership of the Class A Common Stock that, together with Class A Common Stock previously held by the acquirer, constitutes more than fifty percent (50%) of the total Fair Market Value or total voting power of the Company's stock. If any Person is considered to own more than fifty percent (50%) of the total Fair Market Value or total voting power of the Company's stock, the acquisition of additional stock by the same Person does not cause a change in ownership. An increase in the percentage of stock owned by any Person as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock;
(c) any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by that Person) ownership of the Company's stock possessing at least thirty percent (30%) of the total voting power of the stock;
(d) a majority of the members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or
(e) any Person acquires (or has acquired during the twelve (12) month period ending on a date of the most recent acquisition by that Person) assets from a corporation that have a total gross fair market value equal to at least forty percent (40%) of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.
In determining whether a Change of Control occurs, the attribution rules of Code Section 318 apply to determine stock ownership. For purposes of the definition of Change of Control, a "Person" shall mean any person, entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that such term shall not include (a) any member of the Company, a Parent and the Related Entities, (b) a trustee or other fiduciary holding securities under an employee benefit plan of any member of the Company, a Parent and the Related Entities, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) an entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of the Company.
"Class A Common Stock" means the Company's Class A voting common stock.
"Class B Common Stock" means the Company's Class B non-voting common stock.
"Code" shall mean the Internal Revenue Code of 1986, as such is amended from time to time, including any applicable regulations, and any reference to a section of the Code shall include any successor provision of the Code.
"Committee" means the Compensation Committee of the Board.
"Company" means Baldwin & Lyon, Inc., an Indiana corporation, or any successor thereto as provided in Section 14.3.
"Consultant" shall mean any natural person engaged by the Company a Parent or a Related Entity to render services, but who is not an Employee provided, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 under the Securities Act.
"Director" means any individual who is a member of the Board or the board of directors or other governing body of a Related Entity.
"Disability" means, unless otherwise defined in an employment agreement between the Participant and the Company, a Parent or a Related Entity, a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of at least twelve (12) months; or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of at least twelve (12) months, receiving income replacement benefits for at least three (3) months under an accident and health plan covering the Company's, a Parent's, or a Related Entity's employees. Notwithstanding the previous two sentences, with respect to an Award that is subject to Section 409A where the payment or settlement of the Award will accelerate upon termination of employment or service as a result of the Participant's Disability, solely for purposes of determining the timing of payment, no such termination will constitute a Disability for purposes of the Plan or any Award Agreement unless such event also constitutes a "disability" as defined under Section 409A.
"Dividend Equivalent" means, with respect to Shares subject to Awards, a right to an amount equal to dividends declared on an equal number of issued and outstanding Shares.
"Effective Date" means February 13, 2017, subject to the approval of the Plan by the stockholders of the Company at the 2017 annual meeting of stockholders.
"Employee" means each employee of the Company, a Parent or any Related Entity.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
"Exchange Program" means a program pursuant to which outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof).
"Exercise Period" means the period during which a SAR or Option is exercisable, as set forth in the related Award Agreement.
"Exercise Price" means the price at which a Share may be purchased by a Participant pursuant to an Option or SAR, as determined by the Committee and set forth in an Award Agreement. Other than in connection with Substitute Awards, the exercise price per Share shall not be less than 100% of the Fair Market Value of a Share on the date an Option or SAR is granted.
"Fair Market Value" of a Share as of any date means: the closing price of a Share on the date of determination (or the mean of the closing bid and asked prices for the Share if no sales were reported) as reported by the NASDAQ or other domestic stock exchange on which the Shares are listed. If the Shares are not listed on a domestic stock exchange, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Section 409A. If the determination date for the Fair Market Value occurs on a weekend, holiday or other non-Trading Day, the Fair Market Value will be the price as determined above on the immediately preceding Trading Day, unless otherwise determined by the Committee. The determination of Fair Market Value for purposes of tax withholding may be made in the discretion of the Committee subject to applicable laws and is not required to be consistent with the determination of Fair Market Value for other purposes. For purposes of achieving an exemption from Section 409A in the case of affected Participants subject to Section 409A, Fair Market Value shall be determined in a manner consistent with Section 409A.
"Good Reason" means a Participant's separation from service when the following conditions are satisfied:
(a) | The separation from service occurs no later than six (6) months after initial existence of one or more of the following conditions that arise without the Participant's consent: |
(i) | a material diminution in the Participant's base compensation; |
(ii) | a material diminution in the Participant's authority, duties, or responsibilities; |
(iii) | a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Participant reports, including a requirement that the Participant report to an officer or employee instead of reporting directly to the Board or other governing body; |
(iv) | a material change in the geographical location at which the Participant performs services; or |
(v) | any other act or failure to act that constitutes a material breach by the Company, a Parent, or a Related Entity of an employment agreement or other written agreement under which the Participant provides services; and |
(b) | The Participant gives written notice to the Board or other governing body of the entity to which the Participant primarily provides services of the conditions described in subparagraph (a) within ninety (90) days of its initial existence, and upon receipt of the written notice, the Company, Parent, or Related Entity has thirty (30) days to cure it. |
"Indemnifiable Person" shall have the meaning set forth in Section 2.5.
"Incentive Stock Option" or "ISO" means an option to purchase Shares, granted under Article 7, which is designated as an ISO and satisfies the requirements of Section 422 of the Code.
"Insider" means an Employee who is, on the relevant date, an officer, Director or ten percent (10%) beneficial owner of the common shares, as contemplated by Section 16 of the Exchange Act.
"Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 7, which is not intended to be an ISO.
"Option" means an ISO or a NQSO.
"Outside Director" means a member of the Board or the board of directors or other governing body of a Related Entity who is not otherwise an employee of the Company, a Parent or any Related Entity.
"Parent" means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company, if on the date of grant or an Award each corporation, other than the Company, owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain.
"Participant" means an Employee, Outside Director or Consultant who holds an outstanding Award.
"Performance Goals" means, any of the general performance objectives, selected by the Committee and specified in an Award Agreement, from among the performance criteria set forth on Schedule A hereto, either individually, alternatively or in any combination, applied to the Company as a whole or any Subsidiary, business unit, division, segment, product line, or any combination of the foregoing, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable, on an absolute basis or relative to a pre-established target, to determine whether the performance goals established by the Committee with respect to an applicable Award has been achieved.
"Performance Period" means the period of time during which the Performance Goals will be measured to determine what, if any, Performance Units or Performance Shares have been earned. A Performance Period shall, in all cases, be at least twelve (12) months in length.
"Performance Share" means an Award set forth in Article 6.
"Performance Unit" means the right of a Participant to receive cash or Shares, upon achievement of the Performance Goals, in accordance with the Plan.
"Prior Plan" means the Baldwin & Lyons, Inc. Restricted Stock Compensation Plan.
"Related Entity" means the corporation or other entity, other than the Company, to which the Participant primarily provides services on the date of grant of an Award, and any corporation or other entity, other than the Company, in an unbroken chain of corporations or other entities beginning with the Company in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, and ending with the corporation or other entity that has a controlling interest in the corporation or other entity to which the Participant primarily provides services on the date of grant of an Award. For a corporation, a controlling interest means ownership of stock possessing at least fifty percent (50%) of total combined voting power of all classes of stock, or at least fifty percent (50%) of the total value of all classes of stock. For a partnership or limited liability company, a controlling interest means ownership of at least fifty percent (50%) of the profits interest or capital interest of the entity. In determining ownership, the rules of Treasury Regulation §§ 1.414(c)-3 and 1.414(c)-4 apply.
"Restricted Stock" means any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee may impose (including, without limitation, any restriction on the right to vote such Share, and the right to receive any cash dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
"Restricted Stock Unit" or "RSU" means an Award to a Participant covering a number of Shares that at a later date may be settled in cash, or by issuance of those Shares.
"Section 409A" means Section 409A of the Code.
"Share" means a share of Class B Common Stock.
"Stock Appreciation Right" or "SAR" means a right, granted alone or in connection with a related Option, designated as a SAR, to receive a payment on the day the right is exercised, pursuant to Article 7. Each SAR shall be denominated in terms of one Share.
"Subsidiary" means any corporation that is a "subsidiary corporation" of the Company as that term is defined in Section 424(f) of the Code.
"Substitute Awards" shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company, a Parent or any Related Entity or with which the Company, a Parent or any Related Entity combines.
Schedule A to the Baldwin & Lyons, Inc. Long-Term Incentive Plan
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FINANCIAL PERFORMANCE MEASURES |
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(a) net earnings or net income (before or after taxes);
(b) basic or diluted earnings per share (before or after taxes);
(c) net revenue or net revenue growth;
(d) gross revenue;
(e) gross profit or gross profit growth;
(f) net operating profit (before or after taxes);
(g) return on assets, capital, invested capital, equity, or sales;
(h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
(i) earnings before or after taxes, interest, depreciation and/or amortization;
(j) gross or operating margins;
(k) improvements in capital structure;
(l) budget and expense management;
(m) productivity ratios;
(n) economic value added or other value added measurements;
| | (o) share price (including, but not limited to, growth measures and total shareholder return);
(p) expense targets;
(q) margins;
(r) operating efficiency;
(s) working capital targets;
(t) enterprise value;
(u) safety record;
(v) completion of acquisitions or business expansion;
(w) premium, policy, or customer growth
(x) combined ratio
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Label Here
Baldwin & Lyons, Inc.
111 Congressional Blvd.
Carmel, IN 46032
2017 Annual Meeting of Shareholders
Tuesday, May 9, 2017
At the Company HeadquartersProtective Insurance Corporation
111 Congressional Blvd.
Carmel, IN 46032
2019 Annual Meeting of Shareholders
Tuesday, May 7, 2019
Protective Insurance Corporation
111 Congressional Blvd. Carmel, IN 46032
Proxy solicited on behalf of the Board of Directors.
Please promptly vote, sign, date and return this proxy card using the enclosed envelope. Your vote is important.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Sign on reverse side. X
Annual Meeting Proxy Card | |
The undersigned hereby appoints William C. Vens and Jeremy F. Goldstein,Sally B. Wignall, or either of them, with full powers of substitution, as proxies to represent and vote all shares of stock which the undersigned would be entitled to vote at the Annual Meeting of Shareholders of Baldwin & Lyons, Inc.Protective Insurance Corporation to be held on May 9, 2017,7, 2019, and at any adjournment thereof, with all of the powers the undersigned would possess if personally present, as follows:
Proposal 1 – Election of Directors: For Withhold
For All Directors ☐ ☐
Or Individually:
Proposal 1 - Election of Directors:
| | For | Withhold
|
| All Directors
| ☐ | ☐ |
| Or Individually:
|
| |
| (A) | Steven J. Bensinger
| ☐ | ☐ |
| (B) | Stuart D. Bilton☐ ☐
| ☐ | ☐ |
(B) | W. Randall Birchfield ☐ ☐
|
| (C) | Otto N. Frenzel IV
| ☐ | ☐ |
| (D) | LoriAnn Lowery-Biggers
| ☐ | ☐ |
| (E) | David W. Michelson
| ☐ | ☐ |
| (F) | John D. Nichols, Jr.
| ☐ | ☐ |
| (G) | James A. Porcari III
| ☐ | ☐ |
| (H) | Nathan Shapiro
| ☐ | ☐ |
| (I) | Robert Shapiro
| ☐ | ☐ |
(D) Proposal 2 - Ratify the appointment of Ernst & Young LLP as Independent Auditor for the Corporation for 2019:
| Philip V. Moyles, Jr. ☐ ☐
|
(E) For | John M. O'Mara ☐ ☐
Against
| Abstain
|
Proposal 2 – Ratify the appointment of Ernst & Young, LLP as Independent Auditor for the Corporation for 2017:
For
☐
Against
☐
Abstain
☐
Continued on Reverse Side
Proposal 3 – Approval of the Baldwin & Lyons, Inc. Annual Incentive Plan:
For
☐
Against
☐
Abstain
☐
Proposal 4 -- Approval of the Baldwin & Lyons, Inc. Long-Term Incentive Plan:
For
☐
Against
☐
Abstain
☐ Proposal 3 - Advisory approval of the Corporation's executive officer compensation:
| |
| For | Against
| Abstain
|
| ☐ | ☐ | ☐ |
Proposal 5 -- Advisory approval of the Corporation's executive officer compensation:
For
☐
Against
☐
Abstain
☐
Proposal 6 – Approval of the frequency of future shareholder advisory votes to approve the Corporation's executive compensation:
One Year
☐
Two Years
☐
Three Years ��
☐
Abstain
☐
The Board of Directors recommends voting FOR each of the director nominees listed above and FOR Proposals 2 3, 4 and 5. With regard to Proposal 6,3.
This proxy, when properly executed, will be voted in the Boardmanner directed herein by the undersigned shareholder. If no such direction is made, this proxy will be voted FOR the election of Directors recommends voting FOR future shareholder votes on the approvaleach of the Corporation's executive officer compensation to be held every ONE YEAR.
director nominees listed in Proposal 1 and FOR Proposals 2 and 3.
Authorized Signatures — This section must be completed for your vote to be counted.
Date and Sign Below.
Please sign exactly as name(s) appears. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
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Please sign exactly as name(s) appears. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. |
Date (mm/dd/yyyy) — Please print date below
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Signature 1 - Please keep signature within the box
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Signature 2 - Please keep signature within the box
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