Notice of the Annual Meeting of Shareholders
To be held May 22, 199821, 1999
To the Shareholders of
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
OLD REPUBLIC INTERNATIONAL CORPORATION will be held in Room 2300 at the offices
of the Company, 307 North Michigan Avenue, Chicago, Illinois 60601, on Friday,
May 22, 199821, 1999 at 3:00 P.M. Central Daylight Savings Time, for the purpose of
considering and acting upon the following matters:
1. The election of four Class 23 directors;
2. A proposed amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares
of Common Stock, par value $1.00 per share, to 500,000,000;
3. A proposed amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares
of Class B Common Stock, par value $1.00 per share, to
100,000,000;
4. A proposed amendment to the Company's Restated Certificate of
Incorporation to remove the present restriction on the voting
power of the Company's Preferred Stock; and
5. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 20, 199822, 1999 will
be entitled to vote, either in person or by proxy. Shareholders who do not
expect to attend in person are urged to execute and return the accompanying
proxy in the envelope enclosed.
The annual report of the Company for the year 19971998 is being mailed to
all shareholders of record with this Notice and the Proxy Statement.
By order of the Board of Directors.
/s/ Spencer Leroy III
SPENCER LEROY III
Secretary
Chicago, Illinois
March 31, 19981999
Proxy Statement
OLD REPUBLIC INTERNATIONAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 22, 199821, 1999
GENERAL INFORMATION
This proxy statement is being furnished to the shareholders of Old
Republic International Corporation, a Delaware corporation (the "Company"), 307
North Michigan Avenue, Chicago, Illinois 60601, in connection with the
solicitation of proxies by its Board of Directors for use at the annual meeting
of shareholders to be held on May 22, 199821, 1999 and any adjournments thereof. The
approximate date on which this proxy statement and the accompanying proxy are
first being sent to the shareholders is March 31, 1998.1999.
The proxy is revocable at any time before it is voted by written
notification to the persons named therein as proxies, which may be mailed or
delivered to the Company at the above address. All shares represented by
effective proxies will be voted at the meeting and at any adjournments thereof.
If the enclosed proxy is properly executed and returned in time for
voting with a choice specified thereon, the shares represented thereby will be
voted as indicated thereon. If no specification is made, the proxy will be voted
by the proxy committee for the election as directors of the nominees named below
(or substitutes therefor if any nominees are unable or refuse to serve), for the
proposed amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock, for the proposed
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of Class B Common stock, for the proposed amendment
to the Company's Restated Certificate of Incorporation to remove the present
restriction on the voting power of the Company's Preferred Stock, and in
its discretion upon such matters not presently known or determined which may
properly come before the meeting.
The Company has two classes of stock outstanding, Preferred Stock,
1(cent) par value per share ("Preferred Stock"), and Common Stock, $1.00 par
value per share ("Common Stock"). The voting Preferred Stock is composed of
Series G-2 Convertible Preferred Stock ( "Series G Preferred Stock"). On
February 27, 1998 158,36726, 1999, 203,413 shares of Series G Preferred Stock and 92,247,318131,868,948
shares of Common Stock were outstanding and entitled to one vote each on all
matters considered at the meeting. Shareholders of record as of the close of
business on March 20, 199822, 1999 are entitled to notice of and to vote at the meeting.
There are no cumulative voting rights with respect to the election of directors.
PRINCIPAL HOLDERS OF SECURITIES
The following tabulation shows with respect to (I) each person who is
known to be the beneficial owner of more than 5% of any series of the voting
Preferred Stock or the Common Stock of the Company; (ii) each director and
executive officer of the Company; and (iii) all directors and executive
officers, as a group: (a) the total number of shares of Preferred Stock or
Common Stock beneficially owned as of February 27, 199826, 1999 and (b) the percent of
the class of stock so owned as of the same date:
1
Amount and
Nature of Percent
Name Beneficial of
Title of Class of Beneficial Owner Ownership Class(*)
-------------- ------------------- -------------------------- --------
Series G-2 Preferred ........Anthony.......... Anthony F. Colao 54,05781,085 (1) 34.139.9
Peter Lardner 21,78945,679 (1) 13.8
Vincent R. Serrecchia 39,105 (1) 24.722.4
A. C. Zucaro 21,00931,513 (1) 13.215.5
All executive officers and
directors, as a group 135,960158,277 (1) 85.977.8
Common Stock
Shareholders' beneficial
ownership of more than 5% of
the Common Stock (excluding
directors) ...........Old........... Amvescap PLC 13,504,094 (2) 10.2
11 Devonshire Square
London EC2M 4YR
England
Sanford C. Bernstein & Co., Inc. 7,586,152 (2) 5.8
767 Fifth Avenue
New York, New York 10153
Harris Associates L.P. 7,216,232 (2) 5.5
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
Old Republic International Corporation 6,427,168 (2) 7.07,102,553 (3) 5.4
Employees Savings and Stock
Ownership Plan
Messrs. Legg, Sursa and Zucaro as
members of The Administration
Committee
307 North Michigan Avenue
Chicago, Illinois 60601
Sanford C. Bernstein & Co., Inc. 6,186,630 (3) 6.7
767 Firth AvenueThe Prudential Insurance Company 6,913,862 (2) 5.2
of America
751 Broad Street
Newark, New York, New York 10153
Amvescap PLC 5,801,233 (3) 6.3
11 Devonshire Square
London EC2M 4YR
England
Harris Associates L.P. 5,443,372 (3) 5.9
120 S. LaSalle Street
Chicago, Illinois 60603Jersey 07102
Other Shares Percent
Name of Shares Subject to Shares Held by Beneficially of
Common Stock Beneficial Owner Stock Options(*) Employee Plans(*) Owned(*) Total Class*
- - ------------ ---------------- ----------------- ----------------- ------------ -------------- -------
Directors' and Paul D. Adams 68,680 6,627105,270 8,662 (4) 29,475 104,78242,727 156,659 0.1
executive officers' Harrington Bischof -- -- 7,19710,795 (5) 7,19710,795 **
beneficial Anthony F. Colao 41,380 10,64853,175 12,262 (4) 58,96194,685 (6) 110,989160,122 0.1
ownership Jimmy A. Dew 106,150 19,375166,725 25,302 (4) 198,405297,608 (7) 323,930 0.3489,635 0.4
Kurt W. Kreyling -- -- 239,568359,351 (8) 239,568359,351 0.3
Peter Lardner 59,014 16,59076,775 24,515 (4) 113,891179,284 (9) 189,495280,574 0.2
Wilbur S. Legg -- -- 31,81147,716 (10)(11) 31,81147,716 **
Spencer LeRoy III 43,000 2,85578,563 3,205 (4) 6,54712,275 (12) 52,402 **94,043 0.1
John W. Popp -- -- 5,000 5,0008,500 8,500 **
William A. Simpson 134,330 17,417200,100 24,289 (4) 126,897175,369 (13) 278,644399,758 0.3
Arnold L. Steiner -- -- 647,950983,843 (14) 647,950983,843 0.7
David Sursa -- -- 377,104556,049 (11)(15) 377,104556,049 0.4
William G. White, Jr. -- -- 31,008 31,00846,512 46,512 **
A. C. Zucaro 352,300 110,995447,000 101,526 (4) 92,730185,043 (11)(16) 556,025 0.6733,569 0.5
All executive officers
and directors, as a group 804,854 184,507 1,966,544 2,955,905 3.21,127,608 199,761 2,999,757 4,327,126 3.3
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. Common
shares used for calculation purposes include the equivalent common
shares that may be issued upon conversion by the beneficial owner of
Preferred Stock convertible within 60 days.
** Less than one-tenth of one percent.
2
(1) The Company's employees who hold stock options may exercise their
optionoptions for shares of either Common Stock or Series G Preferred Stock.
Each share of Series G Preferred Stock is convertible at any time after
six months from the date of issuance into 0.95 share of Common Stock,
and accordingly, under the rules of the Securities and Exchange
Commission, Messrs. Colao, Lardner, and Zucaro are deemed to be the
beneficial owners of 51,354, 20,69977,030, 43,395 and 19,95829,937 shares, respectively, of
Common Stock issuable upon conversion of their Series G Preferred Stock.
(2) Reflects the number of shares shown in the most recent Schedule 13-G
filings with the Securities and Exchange Commission through February 26,
1999. Shares reported as owned by Amvescap PLC represent shares for
which the firm has shared dispositive power and shared voting control
for all shares owned. Shares reported as owned by Sanford C. Bernstein &
Co., Inc. represent shares for which the firm has sole dispositive power
but shared voting power. It has sole voting power for 2,588,979 shares
and shared voting power for 1,059,913 shares. Shares reported as owned
by Harris Associates L.P. represent shares for which the firm has sole
dispositive powers for 3,076,252 shares and shared dispositive powers
for 4,139,980 shares and shared voting powers for all shares owned.
Shares reported as owned by The Prudential Insurance Company of America
represent shares for which the firm has sole voting and dispositive
power for 1,140,125 shares and shared voting and dispositive power for
5,773,737 shares.
(3) Under the terms of the Old Republic International Corporation Employees
Savings and Stock Ownership Plan ("ESSOP"), a participant is entitled to
vote the Company stock held by the ESSOP the value of which has been
allocated to the participant's account. The Administration Committee
appointed pursuant to the ESSOP is authorized to vote the Company stock
held by the ESSOP until such time as the value of such stock has been
allocated to a participant's account or where a participant fails to
exercise his or her voting rights. The value of a portion of the shares
of the Common Stock has been allocated to the accounts of ESSOP
participants. Additionally, the Administration Committee may be deemed
to have investment power with respect to stock held by the ESSOP. The
Administration Committee is composed of Messrs. Legg, Sursa and Zucaro,
all directors of the Company. Under the rules of the Securities and
Exchange Commission, each of them may be deemed to be the beneficial
owner of such shares of Common Stock by virtue of such shared voting and
investment power.
(3) Reflects the number of shares shown in the most recent Schedule 13-G
filings with the Securities and Exchange Commission through February 27,
1998. Shares reported as owned by Sanford C. Bernstein & Co., Inc.
represent shares for which the firm has sole dispositive power but
shared voting power. It has sole voting power for 2,397,952 shares and
shared voting power for 804,651 shares. Shares reported as owned by
Amvescap PLC represent shares for which the firm has shared dispositive
power and shared voting control for all shares owned. Shares reported as
owned by Harris Associates L.P. represent shares for which the firm has
sole dispositive powers for 2,586,802 shares and shared dispositive
powers for 2,856,570 shares. The firm has shares voting powers for all
shares owned.
(4) Includes only the shares that have been allocated to the employer
matching and employee savings accounts of the director or executive
officer as a participant in the ESSOP. Excludes those shares for which
the director or executive officer may be deemed to have investment and
voting power as a result of being a member of the Administration
Committee of the ESSOP.
(5) Includes 3,0004,500 shares held in trust for Mr. Bischof's benefit.
(6) Includes 51,35477,030 shares that would be issued if Mr. Colao converted his
Series G Preferred Stock to Common Stock.
(7) Includes 39,50159,252 shares owned by Mr. Dew's wife.
(8) Includes 238,095357,142 shares owned by or in trust for Mr. Kreyling's wife of
which Mr. Kreyling disclaims beneficial ownership.
(9) Includes 73,743109,599 shares held in a living trust of which Mr. Lardner's
wife is the trustee for which Mr. Lardner disclaims beneficial ownership
and 20,69943,395 shares that would be issued if Mr. Lardner converted his
Series G Preferred Stock to Common Stock.
(10) Includes 27,61841,427 shares owned jointly by Mr. Legg and his wife and 2,9524,428
shares owned by Mr. Legg's wife of which Mr. Legg disclaims beneficial
ownership.
(11) Messrs. Legg, Sursa and Zucaro are members of the Administration
Committee of the Old Republic International Corporation Salaried
Employees Restated Retirement Plan ("Retirement Plan"). As such, they
are entitled to vote 245,241367,861 shares of Common Stock owned by the
Retirement Plan. Under the rules of the Securities and Exchange
Commission each of them may be deemed to be the beneficial owner of this
Common Stock by virtue of such shared voting power. However, the
foregoing presentation should not be construed as an admission of
beneficial ownership. The members of the Administration Committee
disclaim beneficial ownership of the Common Stock held by the Retirement
Plan and these shares are not reflected in this table as shares
beneficially owned by each of them.
(12) Includes 3,7728,113 shares held in trust for Mr. LeRoy's benefit.
(13) Includes 47,87671,813 shares owned by Mr. Simpson's wife.
(14) Includes 84,005162,127 shares owned by Mr. Steiner directly, or as trustee of a
grantor retained trust, 61,76711,921 shares
owned by Mr. Steiner's wife directly, or as trustee of a grantor retained trust, 302,82124,231 shares held in a trust of
which Mr. Steiner is a co-trustee, 166,930302,624 shares held in trust for Mr.
Steiner's children, 434,300 shares held by a limited liability
corporation of which Mr. Steiner is both an equity owner and 32,407a manager
and 48,640 shares held by a foundation of which Mr. Steiner is a
trustee.
(15) Includes 198,785298,177 shares owned by E.F.S. Investments, Inc., in which Mr.
Sursa and his wife have a beneficial interest.
(16) Includes 19,95829,937 shares that would be issued if Mr. Zucaro converted his
Series G Stock to Common Stock.
3
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and the New York Stock
Exchange.Commission. Based solely on
reports and other information submitted by executive officers, directors and
such other persons required to file, the Company believes that during the year
ended December 31, 19971998 all reports required by Section 16(a) have been properly
filed.
THE BOARD OF DIRECTORS AND ITS STANDING COMMITTEES
The Company's Board of Directors has the responsibility to review the
overall operations of the Company. The Board members are kept informed of the
Company's results of operations and proposed plans and business objectives
through periodic reports sent to them by the Company's management or presented
at Board and Committee meetings. The Board met four times last year, once each
quarter. Each incumbent director attended at least 75% of the aggregate of the
meetings of the Board of Directors and Committees on which each served during
1997.1998.
Directors' Compensation
During 1998, Directors of the Company (other than full time employees)
receivereceived an annual retainer of $12,000 plus $1,000 for each Board or Committee
meeting they attend. Directors of the Company or any of its subsidiaries who are
full time employees do not receive an annual retainer but receive $1,000 for
each meeting they attend of the Board or a Committee of the Company (other than
meetings of the Executive Committee). Effective as of January 1, 1999, the
annual retainer has been increased to $14,400 and the fee per meeting attended
has been increased to $1,200.
Board Committees
The Board of Directors has four principal standing committees.
The Executive Committee is empowered to exercise the authority of the
Board of Directors in the management of the business and affairs of the Company
between the meetings of the Board, except as provided in the By-laws or limited
by the provisions of the General Corporation Law of the State of Delaware. The
Committee, which is currently composed of Messrs. Kreyling, Legg, Steiner, Sursa
and Zucaro, met four times during 19971998 and took action by unanimous written
consent twice. Mr. Zucaro is Chairman of the Committee.
The Company has no standing nominating committee of the Board of
Directors. This function is performed by the Executive Committee of the Board of
Directors itself. The Executive Committee has not established any formal policy
or procedure for considering nominees recommended by shareholders.
The Audit Committee recommends to the Executive Committee the
appointment of the independent certified public accountants for the following
year. The Committee reviews with the accountants the scope of the Company's
annual audit, the annual financial statements of the Company, and the auditors'
comments relative to the adequacy of the Company's system of internal controls
and accounting systems. The Committee, which reports directly to the Executive
Committee, is currently composed of six non-employee directors, Messrs. Bischof,
Legg, Popp, Steiner, Sursa and White. The Committee met twicethree times during 1997.1998.
Mr. Steiner is Chairman of the Committee.
The Pension Committee is empowered with the supervision of the Company's
pension plan and is charged with a fiduciary responsibility to act solely in the
interest of the participants and beneficiaries of the Plan. The Pension
Committee is appointed by the Board of Directors and its members serve at its
pleasure. The Committee, which is currently composed of Messrs. Legg, Sursa and
Zucaro, met once during 1997.1998. Mr. Zucaro is Chairman of the Committee.
4
The Compensation Committee, whose Report follows, is composed of six
non-employee directors and reports directly to the Executive Committee. The
Committee, which is currently composed of Messrs. Bischof, Kreyling, Legg, Popp,
Sursa and White, met twiceonce during 1997.1998. Mr. Sursa is Chairman of the Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has ever served as an
officer or employee of the Company or any of its subsidiaries nor has any
executive officer of the Company served as a director or member of a
compensation committee for any company that employs any director of the Company
or member of the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE MANAGEMENT
COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
of Old Republic International Corporation (the "Company") evaluates and approves
the overall compensation, policies and practices which govern the annual base
salaries of the Company's management, including its Chief Executive Officer
("CEO") and other executive officers, and the Company's incentive programs,
including the Key Employees Performance Recognition Plan ("KEPRP"), the Stock
Option Plan, and the Employees Savings and Stock Ownership Plan ("ESSOP").
The Committee reviews and evaluates the Company's corporate performance
and executive management compensation once each year. In making its evaluations,
the Committee considers a large number of factors including those set forth
under "Compensation Policies" herein, together with other matters such as the
inflation rate, and the Company's past performance, generally over consecutive
five-year time frames. The Committee does not consider such factors based upon
any scientific or other formula nor on any quantitative analysis of the
relationship among such factors. Rather, the Committee's evaluation is best
described as subjective since each Committee member is expected to exercise
common sense and reasonable business judgment in attaching varying degrees of
importance each year to each such factor.
Compensation Policies
The Company's compensation policies and practices, particularly as they
apply to its executive officers, including the CEO, are intended to achieve the
following major objectives:
1. To set base annual salaries (base income) for key executive officers at
amounts which: a) are deemed reasonably competitive in the context of
prevailing salary scales within the insurance industry in particular; and
(b) in the Committee's judgment provide a fixed, reasonable source of
current income during the period of employment. Other sources of executive
compensation discussed in separate sections hereunder are not taken into
account when setting base annual salaries. Among the factors considered in
varying degrees, as previously noted, are business size, level of
responsibility, complexity of operations,long term performance, loyalty,
commitment to Old Republic's long term objectives, and future prospects.
Additionally,the Committee also takes into account prevailing salary
scales in the insurance industry in particular.Itparticular. It monitors trends in
salary levels by reference to published compilations and reports as well as
Company compilations of data contained in the proxy statements of publicly
held insurance organizations whose assets, revenues, and net income are
larger, smaller, or approximately the same as the Company's. These
insurance organizations include but are not limited to those that are a
part of the Peer Group comparisons on page 13 of this Proxy Statement, and
have significant interests in commercial property and liability insurance.
Based on a review and evaluation of all such data, the Committee believes
that the base salaries of the CEO and key executives tend to be within a
range encompassed by the 25th percentile and median salaries of the above
mentioned insurance organizations.
2. To afford personnel an opportunity and incentive to increase their base
income over time through participation in incentive compensation and
related stock option and savings programs. With respect to all such
programs the Committee approves various criteria, the objectives of which
are to:
5
a) Establish tangible means of evaluating the overall financial
performance of the Company or individual profit centers;
b) Align performance criteria with shareholders' interests by
establishing minimum requirements relative to such performance
indicators as return on equity, return or profit margin on revenues,
and increases in earnings;
c) Encourage a long-term commitment to the organization.
In addition, the Committee considers a variety of intangible and other
subjective factors such as each person's likely future contribution to the
Company's successful growth, his or her level and years of experience, the
current state and prospects of the industry or segment(s) thereof, and the
Company's long-term goals and strategies which might from time to time require
temporary investment in personnel resources in the absence of immediate positive
results. Further, the Committee considers the compensation and benefits
previously paid to its executive officers.
In making its performance evaluations, the Committee takes the
shareholders' interests into account from the standpoints of both total market
return for the Common Stock as well as the Company's intrinsic performance as
such and relative to the Company's Peer Group. However, the Committee places
greater emphasis on the latter two factors since total market return is
influenced materially by the vagaries of the securities markets.
The Committee has not adopted any policy with respect to qualifying
compensation paid to executive officers under Section 162(m) of the Internal
Revenue Code.
No executive officer has been paid compensation in excess of the
level referred to in such Section 162(m).
Compensation of the Chief Executive Officer
With specific reference to the CEO's compensation, the Committee takes
into account all of the factors and objectives discussed above. In addition,
special emphasis is also placed on such other considerations as the CEO's vision
and planning for the Company's future and the strategies implemented for their
realization, his leadership qualities and judgment, and his commitment to and
abilities in setting and promoting the character of the organization in the best
interests of its insurance subsidiaries, insurance beneficiaries, and
shareholders. The Committee's evaluation of the CEO's performance takes place
without his presence.
Mr. Zucaro joined the Company in 1976 as Executive Vice President and
Chief Financial Officer. He was promoted to President in 1981, to Chief
Executive Officer in 1990, and to Chairman in 1993 while retaining his offices
as President and Chief Executive Officer. Until 1989, Mr. Zucaro's cash
compensation consisted solely of a base annual salary and a small amount of fees
earned in his capacity as a director of a number of the Company's subsidiaries.
His other compensation was fully deferred pursuant to his participation in the
Company's KEPRP, ESSOP, and stock option plans. Since 1990, his cash
compensation has been enhanced by 50% of the awards granted to him under the
Company's KEPRP pursuant to the revised terms of that plan.
The following table reflects certain key data pertaining to the
Company's performance during the past three years together with the CEO's
compensation during the period. The Company's performance is a significant
factor in the Committee's evaluation of the CEO's and other executives' cash and
deferred compensation. It is only one of the many factors cited under
"Compensation Policies" above, the relative significance of which is left to the
subjective business judgment of the Committee. In comparing this data, it should
be noted that trends in the CEO's compensation to some extent lag, up or down,
trends in the Company's performance, since compensation reviews and salary and
incentive awards are made several months following the end of each calendar
year.
6
Summary of Company Performance Indicators
versus
CEO Compensation
19951996 to 19971998
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Amounts % of Change
----------------------------------------------- -----------------------------------------------------------------------
1998 1997 1996 1995'98 vs '97 '97 vs '96 '96'98 vs '95 '97 vs '95'96
---- ---- ---- ---------- ---------- ----------
Company Performance Indicators (a)
($ in Millions)
Consolidated assets $ 7,019.7 $ 6,923.4 $ 6,656.2 $ 6,593.51.4% 4.0% 1.0% 5.0%5.5%
Common shareholders' equity 2,304.2 2,152.1 1,900.0 1,612.57.1% 13.3% 17.8% 33.5%21.3%
Net revenues 2,171.7 1,962.8 1,803.9 1,695.910.6% 8.8% 6.4% 15.7%20.4%
Net operating income 289.3 281.1 225.0 180.42.9% 24.9% 24.7% 55.8%28.6%
Net income 323.7 298.1 230.3 212.78.6% 29.4% 8.3% 40.2%40.6%
Percent return on equity 15.0% 15.7% 14.3% 16.0%
Per Share Data (c):
(in dollars and cents)
Book value 17.27 15.59 14.57 13.5810.8% 7.0% 7.3% 14.8%18.5%
Net operating income (diluted) 2.08 1.98 1.56 1.29 26.9% 20.9% 53.5%1.55 5.1% 27.7% 34.2%
Net income (diluted) 2.33 2.10 1.59 1.5211.0% 32.1% 4.6% 38.2%
==================================================================================================================================46.5%
===================================================================================================================================
CEO Compensation (b)
(Whole Dollars)
1. Cash compensation
Base salary $ 531,667 $ 516,667 $ 493,333 $ 473,3332.9% 4.7% 4.2% 9.2%7.8%
Incentive 494,354 328,642 367,324 100,00050.4% -10.5% 267.3% 228.6%34.6%
Directors fees & other 31,153 34,634 31,410 26,560-10.1% 10.3% 18.3% 30.4%-0.8%
---------------------------------------------------------------------------------------
Total 1,057,174 879,943 892,067 599,89320.1% -1.4% 48.7% 46.7%18.5%
---------------------------------------------------------------------------------------
2. Deferred incentive compensation 502,454 333,142 371,812 101,80050.8% -10.4% 265.2% 227.3%35.1%
---------------------------------------------------------------------------------------
Incentive stock options:
3. Valued at 5% appreciation: 2,058,210 1,685,250 -- 767,97022.1% --% -- 119.4%%
4. Valued at 10% appreciation: 5,194,530 4,253,250 -- 1,938,21022.1% --% -- 119.4%%
---------------------------------------------------------------------------------------
5. Total cash & deferred compensation, including options, if any, valued at:
6. 5% appreciation (1 +2+3) 3,617,838 2,898,335 1,263,879 1,469,66324.8% 129.3% -14.0% 97.2%186.2%
7. 10% appreciation (1 +2+4) $ 6,754,158 $ 5,466,335 $ 1,263,879 $ 2,639,90323.6% 332.5% -52.1% 107.1%
==================================================================================================================================434.4%
---------------------------------------------------------------------------------------
===================================================================================================================================
(a) Data taken from the Company's audited financial statements and stock
market tables as applicable. Return on equity is calculated by
dividing each year's net income by the common shareholders' equity
balance at the beginning of the year. Net operating income is defined
as net income before fresh start tax credits, extraordinary items,
realized investment gains or losses and accounting changes; both net
operating income and net income per share are shown after deduction of
Preferred Stock dividends, as applicable.
(b) In this table, Deferred Incentive Compensation includes the deferred
portion, which is non-interest bearing, of awards granted under the
Company's KEPRP and the employer matching contribution to the ESSOP;
Incentive Stock Options have been valued alternatively by assuming
that the market value of the Common Stock subject to options will
compound at a 5% and a 10% annual rate (or 63% and 159%, respectively,
in the aggregate) over the 10-year term of the options. Of course, the
actual future value of such options may be higher or lower than these
arbitrary estimates. Also see "Summary Compensation Table".
(c) All per share statistics have been restated to reflect a 50% stock
dividend on the Company's Common Stock approved by the Board of
Directors on March 12, 1998 and made payable May 4, 1998.
Employee Benefit Plans
In addition to determining base salaries, the Committee also
administers the Company's employee benefit plans. The employee benefit plans are
an important part of the Company's compensation structure and provide employees,
including the CEO and other executive officers, with an opportunity and
incentive to increase their base income.
7
Key Employee Performance Recognition Plan ("KEPRP"): Under the Company's KEPRP,
a performance recognition pool is established each year for allocation among
eligible key employees of the Company and its participating subsidiaries,
including the CEO and other executive officers. Employees eligible to share in
this pool are selected annually by the Committee in consultation with the CEO.
However, the CEO does not consult with the Committee with regard to the
performance, eligibility or award for himself. After prior plan participants are
credited with a certain portion, if any, of each year's pool the CEO may
recommend the allocation of the balance of the pool to participants in the plan,
other than himself, or may recommend to carry forward up to 50% of such amount
for up to three years for later allocation. In designating eligible employees
and determining amounts to be allocated, the Committee consults with the CEO and
considers the positions and responsibilities of the employees, the perceived
value of their accomplishments to the Company, their expected future
contributions to Old Republic and other relevant factors. The Committee's
evaluation of all such factors is subjective.
The pool amount is established in accordance with a detailed formula
which takes into account (a) the eligible participating employees' annual
salaries, (b) the current year's earnings of the Company in excess of the prior
year's earnings (excluding income from realized investment gains or losses),
multiplied by a factor determined by the increase in the Company's earnings per
share, and (c) the latest year's return on equity in excess of a minimum target
return on equity equal to two times the mean of the five year average post-tax
yield on 10 year and 30 year U.S. Treasury Securities. Each year's pool is in
turn limited to a percentage of plan participants' aggregate annual base
salaries, ranging from 10% to 150%, depending upon the amount by which the
current year's actual return on equity exceeds the minimum target return on
equity for such year. There is no prescribed limit as to how much of each year's
available pool may be awarded to each participant.
There is an immediate payment in cash of 50% of any award made, as well
as 50% of the multiplier factor applied to the deferred balances of prior years'
participants; the balance of each vests at the rate of 10% per year of
participation. The deferred balance(s) do not bear interest. Pursuant to the
plan, participants become vested in their account balances upon total and
permanent disability or death, or upon the earlier of attaining age 55 or being
employed for 10 years after first becoming eligible. Benefits are payable in
installments, beginning no earlier than age 55 and/or following termination of
employment, death, disability or retirement.
In addition to the KEPRP, the Company also maintains a number of
separate plans for several individual subsidiaries or separate profit centers.
Such plans similarly provide for the achievement of certain financial results
and objectives as to each such subsidiary or profit center.
Stock Option Plan: To encourage growth in shareholder value and a long-term
commitment to the business and promote its success, the Company believes that
key employees, including the CEO and other executive officers, who are in a
position to make a substantial contribution to the long-term success of the
Company should have a stake in its on-going success. As a result, the Company
maintains a non-qualified stock option plan (the "Plan") for key employees of
the Company and its participating subsidiaries. The decision to award stock
options pursuant to the Plan and the factors that contribute to the amount of
such awards are the same factors as those set forth under "Compensation
Policies" herein.
Accordingly, the performance factors the Committee considers include
the achievements of the individual key employee, the overall performance of the
Company and the likelihood of future contributions to the Company's successful
growth by the individual key employee. The relative significance of these and
all other factors with respect to awards granted to the CEO and other executive
officers is determined subjectively by the Committee. The Plan provides for the
issuance of options for up to 5% of the Common Stock issued and outstanding at
any one time. The purchase price per share of Common Stock subject to an option
under the Plan is fixed by the Committee. However, such purchase price may not
be less than the mean high and low sale price or the last reported sale price of
the Company's Common Stock as reported on the New York Stock Exchange on the
date immediately preceding the date the option is granted. Optionees may
exercise their options for shares of either Common Stock or Series G Preferred
Stock. The term of each option may not be for more than 10 years from the date
of grant. Under ordinary circumstances, options may be exercised to the extent
of 10% of the number of shares covered thereby on and after the date of grant
and cumulatively to the extent of an additional 10% on and after each of the
first through ninth years after the date of grant. Under the Plan, and certain
other previously granted options withan employee's
right to exercise an option is accelerated if the Company's Common Stock closes
on the New York Stock Exchange above the vesting acceleration prices, optioneesprice established
by the Committee for the option. If a vesting acceleration occurs, an optionee
may exercise their optionshis or her option to the extent
8
of 10% of the number of shares covered by the option for each year that the
optionee has been employed by the Company or its subsidiaries once the vesting acceleration price is reached.
8
subsidiaries. The vesting
acceleration price is established by the Committee at the time of grant at the
higher of 150% of the market value of the Common Stock at the date of the grant
or 150% of the book value per Common Share as of the most recent year and date.
Under certain options, but not under options granted in accordance with
the Company's 1992 Option Plan, the employee's right to exercise options is
accelerated if the Company is dissolved or liquidated, merged, or consolidated
with another company and the Company is not the surviving corporation, or more
than 50% of the members of the Board of Directors of the Company change in any
one year unless one or more of the new directors was nominated by the Board of
Directors of the Company.
Employees Savings and Stock Ownership Plan ("ESSOP"): The Company's ESSOP allows
eligible employees with one or more years of service with the Company or
participating subsidiaries ("employers") to save a minimum of 1% up to a maximum
of 15% of their total compensation. Employees' savings up to 6% are matched by
employer contributions ranging from 20% to 140% of such savings in accordance
with a formula based upon the percentages saved and the increase in the
Company's average net operating earnings per share for the five years ending
with the calendar year immediately prior to the year for which the contribution
is being made. Under the terms of the ESSOP, employer contributions are invested
exclusively in Preferred or Common Stock of the Company except that employees
over age 55 and with 10 years of service credited under the Plan may diversify a
portion of the employer's contributions out of the Company's Stock and into
alternative investments. These alternative investments are all publicly managed
mutual funds that either focus on short-term securities, intermediate-term
securities or capital appreciation. Likewise, under the terms of the ESSOP,
employee savings may be invested, at the employee's direction, in publicly
managed mutual funds that focus on long term capital appreciation, long term
capital growth, long term growth of capital and income, long term growth through
investments in common stocks of non-U.S. companies, a stock index fund
portfolio, and in short to intermediate term bonds and other fixed income
securities. Further, employee savings may be invested in funds managed by the
ESSOP trustee or ESSOP Administration Committee. One fund provides for a
diversified investment portfolio and the other fund was established for more
speculative , equity oriented investments. A participant becomes vested in the account balance allocated from
employer contributions upon being totally and permanently disabled, dying, or
upon the earlier of attaining age 65 or being employed for 7 years. Vesting also
occurs in increments of 20% a year, beginning after two years of service.
Benefits are payable upon termination of service, death or disability, or
following retirement. At the election of the participant, benefits derived from
employer contributions are payable either in cash or in Common Stock.
RMIC Key Employee Performance Recognition Plan ("KEPRP") and Profit-Sharing Plan
("Profit Sharing Plan"): Mr. Simpson does not participate in the Company's KEPRP
but participates instead in the KEPRP of Republic Mortgage Insurance Company
("RMIC"), as well as in RMIC's Profit Sharing Plan. RMIC's KEPRP is a
performance recognition pool that operates much like the Company's KEPRP. The
pool is established according to a detailed formula which takes into account the
increase in RMIC's earnings and its return on equity, among other factors. The
RMIC Profit Sharing Plan covers substantially all employees of RMIC and its
affiliates. Contributions to the plan are determined annually by RMIC's Board of
Directors, and voluntary contributions of up to 10% of annual income are
permitted. Plan participants' interests vest in increments of 10% of contributed
amounts beginning with 40% after one year and ex tendingextending to 100% after seven
years. Account balances are payable upon death or permanent disability. Normal
retirement is at age 65 and the plan provides for early retirement at age 50
with ten years of service. With the consent of RMIC, retirement may be deferred.
Benefits upon retirement may be received as a monthly annuity, periodic cash
payments, or in a lump-sum distribution, at the participant's election.
Compensation Committee
David Sursa, Chairman
Harrington Bischof
Kurt W. Kreyling
Wilbur S. Legg
John W. Popp
William G. White Jr.
9
The foregoing Report of the Compensation Committee on Executive Management
Compensation shall not be deemed to be incorporated by reference into any filing
of the Company under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates such
information by reference.
Executive Compensation
The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each of the three other executive officers of the Company
for services rendered in all capacities during each of the Company's fiscal
years ended December 31, 1998, 1997 1996 and 1995:1996:
SUMMARY COMPENSATION TABLE
- - ------------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------- ------------------------------------------- ------------
(a) (b) (c) (d) (e) (f)
Securities
Name and Underlying
Principal Option All Other
Position Year Salary(1) Bonus(2) Awards(3) Compensation(4)
- - ----------------- ---- ----------- ----------- --------- ---------------
A.C. Zucaro 1998 $ 557,060 $ 988,708 112,500 $13,860
President 1997 $ 545,541 $ 657,284 100,000 $10,710
President10,710
Chief Executive 1996 518,983 734,648 -- 10,248
Chief Executive 1995 494,133 200,000 50,000 7,560
Officer
Paul D. Adams 1998 280,000 262,512 11,250 10,692
Senior Vice 1997 271,667 195,562 15,000 7,542
Senior VicePresident, 1996 260,833 156,890 -- 7,080
President, 1995 250,000 100,000 5,000 4,373
Chief Financial
Officer & Treasurer
Spencer LeRoy III 1998 299,408 249,574 18,750 10,692
Senior Vice 1997 288,097 189,318 20,000 7,542
Senior VicePresident, Secretary 1996 277,172 113,942 -- 7,080
President, Secretary 1995 266,667 75,000 7,500 3,366
& General Counsel
William A. Simpson 1998 283,850 597,046 45,000 35,533 (5)
Senior Vice 1997 267,183 491,883 50,000 18,599 (6)
Senior Vice(5)
President 1996 247,433 492,256 -- 21,018 (6)
President 1995 242,325 (5) 325,000 25,000 17,777 (6)
- - ------------------------------------------------------------------------------------------------------------------------------
(1) Includes base salary and fees paid for services as a director of the
Company or its subsidiaries.
(2) Includes combined cash and deferred incentive compensation awards granted
under the Company's KEPRP and similar plans maintained for different profit
centers. Awards thereunder are typically made 50% in cash and 50% deferred.
The deferred amounts included in this column are usually not payable before
the person retires at 55 years of age or later; the amount deferred does
not accrue interest and it is included in this column without a present
value discount.Nonediscount. None of the awards shown differed in any respect from the
Company's regular compensation policies and practices.
(3) Number of shares of Common Stock subject to options granted during the year
indicated.
(4) Represents employer matching contribution to the Company's ESSOP and the
amount of premium for the Company's group term life insurance plan
attributed to the compensation of executive officers of the Company. For
1997,1998, the Company's matching contribution for each executive officer except
Mr. Simpson, who received no matching contribution, was
$4,950.$8,100. For 1997,1998, $5,760, $2,592, $2,592, and $1,530 were attributed to the
compensation of Messrs. Zucaro, Adams, LeRoy, and Simpson, respectively,
for group term life insurance premiums paid by the Company under a program
available to for all of its employees. For 1997, $3,8481998, $3,287 was attributed to Mr.
Simpson's compensation for a health reimbursement program RMIC sponsors for
all of its employees and $7,221$6,616 was attributed as compensation for the
usage of a vehicle provided for hihis use by RMIC.
(5) Includes $6,600 paid under an agreement with the Company's subsidiary,
Republic Mortgage Insurance Company ("RMIC"), which required such a payment
for each year through 1995 during which Mr. Simpson was employed by RMIC at
year end.
(6) Includes $16,000, $15,000$16,000 and $15,000 as the vested amount accrued for Mr.
Simpson in the RMIC Profit Sharing Plan for 1998, 1997 1996 and 1995,1996,
respectively.
10
Retirement Plans
The Company maintains the Old Republic International Corporation
Salaried Employees Restated Retirement Plan (the "Company Plan") for its
employees and those of participating subsidiaries. The Company Plan, which is
non-contributory, provides for benefits based upon 1.5% of the participant's
"Final Average Monthly Earnings" (1/60th of the aggregate earnings of the
employee during the period of the five consecutive years of service out of the
last ten consecutive years of service which results in the highest "Final
Average Monthly Earnings") multiplied by the participant's years of service.
Earnings equal base salary and commissions but excludes cash and deferred
incentive compensation awards granted under the Company's KEPRP.
The following table sets forth the estimated annual benefits payable under
the Company Plan to an employee, upon retirement at December 31, 1997,1998, at age 65
after specified years of service:
Highest Average
Annual Earnings of
the 5 Consecutive
Plan Years Out of the Estimated Annual Retirement Income for
Last 10 Plan Years Representative Years of Credited Service*
--------------------- -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------
5 10 15 20 25 30
- -- -- -- -- --
$150,000 $11,250 $22,500 $33,750$200,000 $15,000 $30,000 $45,000 $56,250 $67,500
200,000 15,000 30,000 45,000 60,000 75,000 90,000$60,000 $75,000 $90,000
250,000 18,750 37,500 56,250 75,000 93,750 112,500
300,000 22,500 45,000 67,500 90,000 112,500 135,000
350,000 26,250 52,500 78,750 105,000 131,250 157,000
400,000 30,000 60,000 90,000 120,000 150,000 180,000
450,000 33,750 67,500 101,250 135,000 168,750 202,500
500,000 37,500 75,000 112,500 150,000 187,500 225,000
550,000 41,500 82,500 123,750 165,000 206,250 247,500
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*Amounts shown in the table above which exceed $125,000$130,000 - - the maximum benefit
allowed by law for a qualified plan in 1998 - - would only be payable to a
qualified participant under the Old Republic International Corporation
Executive's Excess Benefit Plan described below.
The amounts shown in the chart are computed on the basis of straight life
annuity amounts and are not subject to offsets for any Social Security payments.
At December 31, 1997,1998, Mr. Zucaro was credited with 2122 years of service, Mr.
Adams was credited with 89 years of service and Mr. LeRoy was credited with 56
years of service, for purposes of the Company Plan. The years of service
credited to Mr. Adams for the purposes of the Company Plan do not include his
years of service with Great West Casualty Company, a subsidiary of the Company.
Mr. Simpson did not participate because employees of RMIC participate in the
RMIC Profit-Sharing Plan instead of the Company Plan. At December 31, 1997,1998, the
highest average annual earnings for purposes of the above computations under the
Company Plan were approximately $474,333$493,667 for Mr. Zucaro, $252,000$261,000 for Mr. Adams
and $267,333$276,667 for Mr. LeRoy. The differences between such amounts and the Annual
Compensation amounts shown for Messrs. Zucaro, Adams and LeRoy in the Summary
Compensation Table on page 10 are threefold: the figures above are averages of
annual base salaries over the past 5 years and do not include either directors'
fees or any form of incentive compensation awards.
The Company also maintains the Old Republic International Corporation
Executive's Excess Benefit Plan to provide certain key executives with pension
benefits in excess of the benefits provided by the Company Plan. The plan is
administered by the Pension Committee of the Board of Directors, which selects
the employees to participate in the plan from those who are participants in the
Company Plan. As of December 31, 1997,1998, Mr. Zucaro and Mr. Adams are the only
executives who will qualify and will have been approved for participation under this plan.
The benefits payable under this plan equal the excess of the amount otherwise
payable under the terms of the Company Plan over the reduced benefits required
by applicable law. Benefits under this plan are payable at the time benefits are
payable under the Company Plan. The plan is a non-qualified deferred
compensation plan.
11
Option Grants in 19971998
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the Company
listed in the Executive Compensation Table during the Company's 19971998 fiscal
year:
Option Grants in 19971998
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Potential
Realizable Value of Assumed
Annual Rates of Stock Price
Appreciation for Option Term
-----------------------------------------------------------
Individual Grants
- - -----------------------------------------------------------------------
% of @ Annual Compounding
Number of Total Growth Rate Of:
--------------------
Securities Options -------------------------------
Underlying Granted to Expira-
Options Employees Exercise tion
Name Granted(1) in 19971998 Price Date 5% 10%
- - ------------------------------ ---------- ---------- ----- ---- -- ----------- --------- ---------- -----------
A. C. Zucaro 100,000 8.6112,500 10.0 $ 26.7529.04 12/31/06 $1,685,250 $4,253,25007 $2,058,210 $5,194,530
Paul D. Adams 15,000 1.3 26.7511,250 1.0 29.04 12/31/06 252,788 637,98807 205,821 519,453
Spencer LeRoy III 20,00018,740 1.7 26.7529.04 12/31/06 337,050 850,65007 343,035 865,755
William A. Simpson 50,000 4.3 26.7545,000 4.0 29.04 12/31/06 842,625 2,126,625
- - -------------------------------------------------------------------------------------------------------------------------07 823,284 2,077,812
=========================================================================================================================
(1) See the Report of the Compensation Committee on Executive Management
Compensation "Stock Option Plan" regarding the vesting of stock options.
Aggregate Options Exercised in 19971998 and Option Values at December 31, 19971998
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 19971998 fiscal year
and the number and value of exercisable and unexercisable options to purchase
shares of Common Stock held at the end of the Company's 19971998 fiscal year by the
executive officers of the Company named in the Executive Compensation Table:
Aggregated Option Exercises in 19971998
and Option Values at December 31, 19971998
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
12/31/9798 12/31/9798
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized(1) Unexercisable(2) Unexercisable (3)Unexercisable (2)
- - ---------------------------- --------------- ----------------- --------------------- ------------------------------------------- -----------------------------
A. C. Zucaro None103,950 $ 0 262,300 / 90,0001,708,093 435,750/ 101,250 $ 6,236,5064,123,476 / $ 939,3750
Paul D. Adams 8,000 241,752 55,180None 0 104,145/ 10,125 1,218,775 / 13,500 1,470,520 / 140,9060
Spencer LeRoy III None 0 30,12566,375/ 55,500 711,938 / 38,625 667,848 / 658,442372,438
William A. Simpson None10,395 147,756 195,600/ 40,500 1,766,995 / 0
94,330 / 40,000 1,995,389 / 417,500
- - ----------------------------------------------------------------------------------------------------------------------========================================================================================================================
(1) Value realized is equal to the difference between the fair market value
per share of Common Stock on the date of exercise and the option
exercise price per share multiplied by the number of shares acquired
upon exercise of an option.
(2) All exercisable options held by executive officers, except 25,750
belonging to Mr. LeRoy, became exercisable as of February 4, 1998 under
the vesting acceleration provisions of the Company's Stock Option Plan.
(3) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of Common Stock at
December 31, 19971998 and the option exercise price per share multiplied by
the number of shares subject to options.
12
Comparative Five-Year Total Market Returns
The following table, prepared on the basis of market and related data
furnished by Standard & Poor's Compustat Services, reflects total market return
data for the most recent five calendar years ended December 31, 1997.1998. For
purposes of the presentation, the information is shown in terms of $100 invested
at the close of trading on the last trading day preceding the first day of the
fifth preceding year. The $100 investment is deemed to have been made either in
Old Republic Common Stock, in the S&P 500 Index of common stocks, or in an
aggregate of the common shares of two Peer Groups of publicly held insurance
businesses selected by Old Republic. In each instance the cumulative total
return assumes reinvestment of cash dividends.
The information utilized to prepare this table has been obtained from sources
believed to be reliable, but no representation is made that it is accurate or
complete in all respects.
Comparison of Five Year Total Market Return
OLD REPUBLIC INTERNATIONAL CORPORATION vs. S&P 500 vs. Peer Group
(For the five years ended December 31, 1997)1998)
ORI $100.00 $ 92.57 $ 88.84 $151.13 $173.86 $245.4495.96 $163.24 $187.79 $265.11 $244.28
S&P 500 100.00 110.08 111.53 153.45 188.68 251.63101.32 139.40 171.40 228.59 293.91
Peer Group 1 100.00 102.83 109.61 154.76 176.16 255.75103.32 146.43 167.80 248.60 288.81
Peer Group 2 100.00 106.31 110.53 159.30 183.62 262.45104.87 150.63 173.95 254.76 301.87
Peer Group 1 consists of the following companies selected by Old Republic
for its 19971998 comparison: Ace Limited, American Financial Group, Inc., American
International Group, Inc., The Chubb Corporation,
CIGNA Corporation, CNA Financial Corporation,
Cincinnati Financial Corporation,
General RE Corp., Ohio Casualty Corporation, Reliance Group
Holdings, Inc. SAFECO Corporation, and The St. Paul Companies, Inc. The
companies in the Peer Group 1 have been approved by the Compensation Committee. Peer
Group 1 was changed for 1997. Cincinnati1998. Ace Limited and American Financial Corporation, General RE Corp. and the Reliance Group,
Holdings, Inc.
were added and Lincoln NationalCIGNA Corporation and USF&G CorporationGeneral RE Corp. were deleted. Lincoln NationalCIGNA
Corporation was deleted because it soldis in process of selling its property and
casualty insurance business. USF&GGeneral RE Corp. was deleted because it reached
an agreement to bewas
acquired by the St. Paul Companies,Berkshire Hathaway, Inc. and will most likely
cease being publicly traded after this acquisition is completed. Peer Group 2 consists of the Peer Group of
companies used by the company for its 1996
comparison.1997 comparison except for the deletion of
General RE Corp. which was acquired prior to the end of 1998.
The foregoing table shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such information by reference.
13
PROPOSAL 1
ELECTION OF DIRECTORS
The following tabulation lists all nominees and continuing directors of
the Company. Four Class 23 directors are to be elected to hold office for a term
of three years and until their successors are elected and qualified. The
nominees are presently Class 23 directors. It is intended that, in the absence of
contrary specifications, votes will be cast pursuant to the enclosed proxies for
the election of such nominees. Should any of the nominees become unable or
unwilling to accept nomination or election, it is intended, in the absence of
contrary specifications, that the proxies will be voted for the balance of those
named and for a substitute nominee or nominees. However, the Company now knows
of no reason to anticipate such an occurrence. All of the nominees have
consented to be named as nominees and to serve as directors if elected.
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- ------------------------
Nominees for Election
- - ---------------------
CLASS 2 (Term expires in 1998)
Jimmy A. Dew 57 Director since 1980; Executive Vice President of
Republic Mortgage Insurance Company, a subsidiary of
the Company, for more than the past five years.
Wilbur S. Legg 75 Director since 1969; Retired; formerly Partner of Lord,
Bissell & Brook, attorneys, Chicago, Illinois. Mr. Legg's
former firm has been retained by the Company as
counselPositions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- -----------------------------------------
Nominees for Election
- - ---------------------
CLASS 3 (Term expires in 1999)
Peter Lardner 67 Director since 1985; Chairman and Chief
Executive Officer of Bituminous Casualty
Corporation, a subsidiary of the Company,
for more than the past five years.
William A. Simpson 57 Director since 1980; Senior Vice President
of the Company and President of Republic
Mortgage Insurance Company, a subsidiary
of the Company, for more than the past
five years.
Arnold L. Steiner 61 Director since 1974; Retired for more than
the past five years; formerly President of
Steiner Bank, Birmingham, Alabama.
A. C. Zucaro 59 Director since 1976;Chairman of the Board,
Chief Executive Officer and President of
the Company and various subsidiaries for
more than the past five years.
- - -------------------------------------------------------------------------------
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- -----------------------------------------
Continuing Members
- - ------------------
CLASS 1 (Term expires in 2000)
Harrington Bischof 64 Director since March, 1997; President of
Pandora Capital Corporation since July,
1996; formerly Senior Advisor Prudential
Securities, Inc. 1991 to June, 1996.
Anthony F. Colao 71 Director since 1987; Senior Vice President
of the Company for more than five years.
Formerly Partner of PricewaterhouseCoopers
LLP. Mr. Colao's former firm has been
retained by the Company as independent
accountants during more than the last two
fiscal years.
John W. Popp 75 Director since 1993; Retired for more than the past five
years; formerly Partner of KPMG Peat Marwick, L.L.P.,
accountants.
David Sursa 72 Director since 1969; Retired, formerly Chairman of the
Board, NBD Bank, N.A., Muncie, Indiana, for more than
the past five years prior to his retirement in 1994.
- - --------------------------------------------------------------------------------------------------------------------------------
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- ------------------------
Continuing Members
- - ------------------
CLASS 3 (Term expires in 1999)
Peter Lardner 66 Director since 1985; Chairman and Chief Executive
Officer of Bituminous Casualty Corporation, a subsidiary
of the Company, for more than the past five years.
William A. Simpson 56 Director since 1980; Senior Vice President of the
Company and President of Republic Mortgage Insurance
Company, a subsidiary of the Company, for more than
the past five years. Director of Salem Trust Bank,
Winston-Salem, North Carolina.
14
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- ------------------------
Continuing Members
- - ------------------
(Class 3 Continued)
Arnold L. Steiner 60 Director since 1974; Retired for more than the past five
years; formerly President of Steiner Bank, Birmingham,
Alabama.
A. C. Zucaro 58 Director since 1976; Chairman of the Board of the
Company and various subsidiaries since 1993; Chief
Executive Officer and President of the Company and
various subsidiaries for more than the past five years.
- - ---------------------------------------------------------------------------------------------------------------------------------
CLASS 1 (Term expires in 2000)
Harrington Bischof 63 Director since March, 1997; President of Pandora
Capital Corporation since July, 1996; formerly Senior
Advisor Prudential Securities, Inc. 1991 to June, 1996.
Anthony F. Colao 70 Director since 1987; Senior Vice President of the
Company since 1987; formerly Partner of Coopers &
Lybrand L.L.P., accountants, for more than five years.
Mr. Colao's former firm has been retained by the
Company as independent accountants during more than
the last two fiscal years.
Kurt W. Kreyling 76 Director since 1974; Retired for more than the last five
years; formerly President and Treasurer of Kreyling
Company, wholesaler of floor coverings, Evansville,
Indiana.
William G. White, Jr. 69 Director since 1993; Retired; formerly President of The
First Federal Savings Bank, Winston-Salem, North
Carolina; Consultant to Southern National Bank,
Winston-Salem, North Carolina; Director of Republic
Mortgage Insurance Company, a subsidiary of the
Company for more than the past five years. Director of
Savers Life Insurance Company, Winston-Salem, North
Carolina.
- - ---------------------------------------------------------------------------------------------------------------------------------
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- -----------------------------------------
Continuing Members
- - ------------------
(Class 1 Continued)
Kurt W. Kreyling 77 Director since 1974; Retired for more than
the past five years; formerly President
and Treasurer of Kreyling Company,
wholesaler of floor coverings, Evansville,
Indiana.
William G. White, Jr. 70 Director since 1993; Retired for more than
the past five years; formerly President of
The First Federal Savings Bank, Winston-
Salem, North Carolina; Consultant to
Southern National Bank, Winston-Salem,
North Carolina; Director of Republic
Mortgage Insurance Company, a subsidiary
of the Company.
- - -------------------------------------------------------------------------------
Positions with Company,
Business Experience, and
Name Age Other Directorships
- - ---- --- -----------------------------------------
Continuing Members
- - ------------------
CLASS 2 (Term expires in 2001)
Jimmy A. Dew 58 Director since 1980; Executive Vice
President of Republic Mortgage Insurance
Company, a subsidiary of the Company, for
more than the past five years.
Wilbur S. Legg 76 Director since 1969; Retired for more than
the past five years; formerly partner of
Lord Bissell & Brook, attorneys, Chicago,
Illinois. Mr. Legg's former firm has been
retained by the Company as counsel during
more than the last two fiscal years.
John W. Popp 76 Director since 1993; Retired for more than
the past five years; formerly Partner of
KPMG Peat Marwick, L.L.P., accountants.
David Sursa 73 Director since 1969; Retired for more than
the past five years; formerly Chairman of
the Board, NBD Bank, N.A.,Muncie, Indiana.
- - -------------------------------------------------------------------------------
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the Class 23 directors that are
listed as nominees. Proxies solicited by the Board of Directors will be voted
for the election of these nominees unless shareholders specify to the contrary
in their proxies.
PROPOSAL NO. 2
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE COMPANY'S AUTHORIZED COMMON STOCK
This proposal is to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
500,000,000 shares.
Background
The Company's Board of Directors has approved and recommends to the
shareholders for their approval and adoption an amendment to Article FOURTH of
the Company's Restated Certificate of Incorporation to increase the
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number of authorized shares of Common Stock, $1.00 par value per share, from
250,000,000 shares to 500,000,000 shares. A copy of the proposed amendment is
attached hereto as Exhibit A.
The Board of Directors declared a 3 for 2 stock split made payable in the
form of a 50% stock dividend on March 12, 1998. In addition, over the past ten
years, the Company has declared and paid 5% stock dividends with respect to its
outstanding Common Stock in 1988, 1989 and 1990. During 1991, a 10% stock
dividend was declared and paid on its Common Stock. During 1992, a 2 for 1 stock
split made in the form of a 100% stock dividend was declared and paid by the
Company on its Common Stock. During 1996, a 3 for 2 stock split made in the form
of a 50% stock dividend was declared and paid by the Company on its Common
Stock.
As of February 27, 1998, 92,247,318 shares of Common Stock were issued and
outstanding; 275,921 shares of Common Stock were reserved for issuance pursuant
to the Company's dividend reinvestment plan; 150,448 shares of Common Stock were
reserved for issuance upon conversion of outstanding Preferred Stock; 4,602,325
shares of Common Stock were reserved for issuance pursuant to the Company's
non-qualified stock option plans; and 97,075,205 shares of Common Stock were
reserved for issuance pursuant to the Company's Common Stock Purchase Rights
Plan. With the payment of the recently declared stock split, on May 4 each of
the above reserves will increase by 50% and there will be an insufficient number
of authorized shares for Company purposes.
Reasons for Amending Article FOURTH
The proposed increase in the authorized Common Stock will provide the
Company with greater flexibility to issue Common Stock for appropriate corporate
purposes. Among the purposes for which such additional authorized stock could be
issued are the acquisition of desirable businesses, properties or securities,
stock splits, stock dividends, the sale of shares for cash, the issuance of
additional shares to various of the pension, retirement, and employees savings
and stock ownership plans adopted by the Company and its subsidiaries and
issuances in connection with stock options. Management expects to continue to
investigate business opportunities and considerations which could require the
issuance of stock. However, the Board of Directors has no present arrangements,
understandings or commitments for the issuance of any additional shares of
Common Stock except for the declared 3 for 2 stock split.
Effect of the Proposed Amendment
The unissued Common Stock authorized by this amendment will be available
for issuance at such times and for such purposes as the Board of Directors may
deem advisable without further action by the shareholders, except as may be
required by law, regulatory authorities or pursuant to the rules of any stock
exchange on which the Company's securities may then be listed.
Any additional shares of Common Stock issued by the Company will have the
same rights and privileges as shares of Common stock now issued and outstanding.
The issuance of additional shares of Common Stock will dilute the voting power
of the outstanding Common and Preferred Stock. Shareholders of the Company do
not have any preemptive rights with respect to any of the presently authorized
but unissued shares of Preferred Stock or Common Stock of the Company, and will
not have any preemptive rights with respect to any additional Common Stock which
might be issued.
To the extent that the authorized Common Stock discourages takeovers that
would result in a change of the Company's management, such changes might be less
likely to occur if the proposed amendment is approved, and such changes would be
more difficult and could take longer to accomplish even if deemed in the best
interests of shareholders. Further, the Board could have more bargaining power
in negotiations with a potential acquirer, which could be used both to negotiate
their retention in office and to negotiate a more favorable price in the event
of a takeover. Thus, an effect of the amendment, if adopted, may be to render
more difficult or delay or discourage a merger or takeover, the assumption of
control by a principal shareholder, and the removal of incumbent management. The
proposed amendment if adopted might have the effect of making more difficult the
accomplishment of a given transaction even if it is favorable to the interests
of the majority of the shareholders. Under Delaware law, however, the Board
would be required to place the shareholders' interests uppermost in their
negotiations with potential acquirers. The Board of Directors does not intend to
issue any Common Stock except on terms which the Board deems to be in the
overall best interests of the Company and all of its existing Preferred and
Common shareholders.
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The Board of Directors is not aware of any plans by others to seek control
of the Company and believes that a takeover attempt would be unlikely under
present circumstances.
If approved by the shareholders, the proposed amendment to Article FOURTH
would become effective upon the filing with the Secretary of State of Delaware
of a Certificate of Amendment to the Company's Restated Certificate of
Incorporation, which filing would take place shortly after the Annual Meeting.
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the amendment to Article
FOURTH of the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock to 500,000,000. Proxies solicited by
the Board of Directors will be voted in favor of this proposed amendment unless
shareholders specify to the contrary in their proxies.
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE COMPANY'S AUTHORIZED CLASS B COMMON STOCK
This proposal is to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Class B Common
Stock to 100,000,000 shares.
Background
The Board of Directors has approved and recommends to the shareholders for
their approval and adoption an amendment to Article FOURTH of the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of Class B Common Stock, par value $1.00 per share, from 50,000,000
shares to 100,000,000 shares. A copy of the proposed amendment is attached
hereto as Exhibit A. Each share of Class B Common Stock is entitled to one-tenth
(1/10) of one vote on all matters voted upon by the shareholders of the Company,
and except as may be otherwise required by law, the holders of shares of Class B
Common Stock would vote with the holders of the Common Stock as a single class.
Additionally, holders of the Class B Common Stock would be entitled to receive
such dividends as may legally be declared by the Board of Directors. However, no
cash dividend could be paid to holders of the Class B Common Stock unless the
Board also declared a cash dividend on the Common Stock at least equal to the
dividend declared on the Class B Common Stock. Dividends could be declared on
the Common Stock in excess of dividends paid, or without paying dividends, on
the Class B Common Stock. Upon liquidation, dissolution or winding up of the
Company and after distribution of preferential amounts to be distributed to
holders of the Preferred Stock, the holders of shares of the Class B Common
Stock would share in the assets of the Company legally available for
distribution on an equal basis with the holders of the Common Stock. In all
other respects, the Class B Common Stock has the same designations, rights, and
preferences as the Common Stock and ranks junior to the currently issued and
outstanding Preferred Stock. Shareholders of the Company would not have any
preemptive rights with respect to the Class B Common Stock. As of February 27,
1998, no shares of Class B Common Stock are issued or outstanding.
Reasons for Amending Article FOURTH
The Board of Directors believes that it is important that sufficient shares
of capital stock of the Company be authorized to give the Company flexibility
for the acquisition of desirable businesses, properties, or securities, stock
splits, stock dividends, the sale of shares for cash, the issuance of shares to
various of the pension, retirement, and employees savings and stock ownership
plans adopted by the Company and its subsidiaries, issuance in connection with
stock options and general corporate purposes. Class B Common Stock is available
to the Company for such purposes without significantly disrupting the current
voting structure of the Company's capital stock.
Effect of the Proposed Amendment
The authorized Class B Common Stock could be used, in the context of a
takeover, to dilute the stock ownership of persons seeking to obtain control of
the Company. Where such issuances do not require further action by
17
shareholders, the power in the Board of Directors to issue shares up to the
number authorized could render more difficult or discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of the Company's securities and the removal of incumbent management, even if
such removal would be beneficial to shareholders generally.
The Board of Directors is not aware of any plans by others to seek control
of the Company and believes that a takeover attempt would be unlikely under
present circumstances.
If approved by the shareholders, the proposed amendment to Article FOURTH
would become effective upon the filing with the Secretary of State of Delaware
of a Certificate of Amendment to the Company's Restated Certificate of
Incorporation, which filing would take place shortly after the Annual Meeting.
Board of Directors Recommendations
The Board of Directors recommends a vote FOR the amendment of Article
FOURTH of the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of Class B Common Stock to 100,000,000. Proxies
solicited by the Board of Directors will be voted in favor of the proposed
amendment unless shareholders specify to the contrary in their proxies.
PROPOSAL NO. 4
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO REMOVE THE VOTING RESTRICTION ON THE COMPANY'S PREFERRED STOCK
This proposal is to amend the Company's Restated Certificate of
Incorporation so as to remove the present restriction on the voting power of
Company's Preferred Stock.
Background
The Company's Board of Directors has approved and recommended to the
shareholders for their approval an amendment to Article FOURTH, Division I,
Preferred Stock, paragraphs 1 and 3, of the Company's Restated Certificate of
Incorporation which would remove the one-vote-per-share limit on the voting
powers of the Company's Preferred Stock. A copy of the proposed amendment is
attached hereto as Exhibit B.
Reasons for the Amending Article FOURTH
Currently the Company's Restated Certificate of Incorporation authorizes
the issuance of up to 75,000,000 shares of Preferred Stock with such voting
power, not to exceed one vote per share, or without voting power, as the Board
may determine. The proposed amendment will provide the Company with greater
flexibility as to the voting powers of any Preferred Stock it issues. Among the
purposes for which Preferred Stock could be issued are the acquisition of
desirable businesses, properties or securities, stock splits, stock dividends,
the sale of shares for cash, the issuance of additional shares to the pension,
retirement, employees savings and stock ownership or stock option plans adopted
by the Company and its subsidiaries, or in conjunction with the Company's
Shareholders' Rights Agreement. The only Preferred Stock currently outstanding
is Series G Preferred Stock. After the distribution of shares under the stock
dividend made payable on May 4, 1998, there will be 237,550 shares of that
series, each share having one vote. Management from time to time investigates
business opportunities and considerations for which the issuance of voting
Preferred Stock may be necessary or desirable. However, the Board of Directors
has no present arrangements, understandings or commitments for the issuance of
any additional shares of voting Preferred Stock.
Effect of the Proposed Amendment
The authorized Preferred Stock is available for issuance at such times and
for such purposes as the Board of Directors may deem advisable without further
action by the shareholders, except as may be required by law, regulatory
authorities or pursuant to the rules of any stock exchange on which the
Company's securities may then be listed.
Under the terms of Article FOURTH of the Company's Restated Certificate of
Incorporation, the Board of Directors of the Company is expressly authorized to
issue all or part of the Preferred Stock from time to time in one or more
18
series, and for such consideration as the Board may determine, with such voting
powers, not to exceed one vote per share, or without voting powers; and to
establish designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations and restrictions with
respect thereto. The proposed amendment will remove the voting power limitation
and permit the Board of Directions to designate a series of Preferred Stock with
such voting power, including, if appropriate, more than one vote per share, as
the Board determines.
Issuance of shares of Preferred Stock with voting powers would dilute the
voting power of the outstanding Common and Preferred Stock. Shareholders of the
Company do not have any preemptive rights with respect to any of the presently
authorized but unissued shares of Preferred Stock or Common Stock of the
Company.
Because the voting and other rights of the authorized but unissued
Preferred Stock would be fixed by the Board of Directors at the time of
issuance, the issuance of such stock with voting powers could have the effect of
impeding persons seeking to effect a merger or otherwise gain control of the
Company. Preferred Stock could be placed privately with purchasers who might be
supportive of management of the Company in the event of a hostile tender offer
and could be issued in series, with voting rights and other rights and other
preferences which could impede or increase the price of a takeover. The greater
the voting power, the more likely such effect would be.
To the extent that voting Preferred Stock might discourage a takeover that
would result in a change of the Company's management, such change might be less
likely or more difficult to occur, even if deemed in the best interests of
shareholders. Further, the Board could have more bargaining power in
negotiations with a potential acquirer, which could be used both to negotiate
their retention in office and to negotiate a more favorable price in the event
of a takeover. Thus, an effect of the amendment, if adopted, may be to permit
the Board to designate a series of Preferred Stock with multiple votes per
share, and as a result render even more difficult or further delay or discourage
a merger or takeover, the assumption of control by a principle shareholder, and
the removal of incumbent management. Under Delaware law, however, the Board is
required to place the shareholders' interests uppermost in their negotiations
with potential acquirers. The Board of Directors does not intend to issue any
voting Preferred Stock except on terms which the Board deems to be in the
overall best interests of the Company and all of its existing Preferred and
Common Shareholders.
The Board of Directors is not aware of any plans by others to seek control
of the Company and believes that a takeover attempt would be unlikely under the
present circumstances.
There is currently outstanding only one series of Preferred Stock. That
series is Series G Preferred Stock. The proposed amendment will have no effect
on the Series G Preferred Stock or on any of the rights and privileges now
possessed by holders of that Preferred Stock.
If approved by the shareholders, the proposed amendments to Article FOURTH
would become effective upon the filing with the Secretary of State of Delaware
of a Certificate of Amendment to the Company's Restated Certificate of
Incorporation, which filing would take place shortly after the Annual Meeting.
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the amendment to Article
FOURTH of the Company's Restated Certificate of Incorporation. Proxies solicited
by the Board of Directors will be voted in favor of this proposed amendment
unless shareholders specify to the contrary in their proxies.
VOTING PROCEDURES
The General Corporation Law of the State of Delaware specifies that in the
absence of contrary requirements in a corporation's Certificate of Incorporation
or By-laws, the votes on matters at Shareholders' Meetings are decided as
follows: (1) Directors are elected by a plurality of the shares present in
person or by proxy at the meeting and who are entitled to vote in the election,
(2) amendments to the Company's Certificate of Incorporation are determined by
the affirmative vote of the majority of shares of the Company's capital stock
that is outstanding and entitled to vote, and (3) all other matters are
determined by the affirmative vote of the majority of the shares present in
person or by proxy at the meeting and who are entitled to vote on the subject
matter.
19
The Company's Restated Certificate of Incorporation and By-laws do not
require any different treatment for matters to be considered at the Company's
Annual Shareholders' Meeting.
The Company's Restated Certificate of Incorporation and its By-laws are
silent on the mechanics of voting. As a result, the General Corporation Law of
the State of Delaware is controlling. Under Delaware law the votes at the
Company's Annual Shareholders' Meeting will be counted by the inspectors of
election required to be appointed at the meeting. The inspectors are charged
with ascertaining the number of shares outstanding, the number of shares
present, whether in person or by proxy, and the validity of all proxies. The
inspectors are entitled to rule on any voting challenges and are responsible for
the tabulation of the voting results.
Under Delaware law, abstentions are counted in determining the quorum
of the meeting and as having voted on any proposal on which an abstention is
voted. Therefore, on those proposals which require a plurality vote of the
shares at the meeting that are entitled to vote, the vote of an abstention has
no effect. However, on those proposals which require an affirmative vote of the
majority of shares present in person or by proxy at the meeting, the vote of an
abstention has the effect of a vote against the proposal.
In the event of a broker non-vote arising from the absence of
authorization by the beneficial owner to vote on a proposal, the shares reported
are counted for the determination of a quorum for the meeting but they are not
counted as having voted on the proposal where there is a non-vote. Therefore, on
those proposals which require a plurality or a majority vote of the shares at
the meeting that are entitled to vote, a non-vote will have no effect. However,
on those proposals which require an affirmative vote of the majority of the
shares outstanding who are entitled to vote, a non-vote has the effect of a vote
against the proposal.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's consolidated financial statements for the year ended
December 31, 19971998 were examined by Coopers & Lybrand L.L.P.,PricewaterhouseCoopers LLP, independent
certified public accountants. No decision has as yet been made with respect to
the selection of independent certified public accountants for fiscal 1998.1999. A
member of Coopers &
Lybrand L.L.P.PricewaterhouseCoopers is expected to attend the annual meeting with
an opportunity to make an appropriate statement if the representative desires to
do so and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 19992000 ANNUAL MEETING
In order for a proposal by a shareholder of the Company to be
included in the Company's proxy statement and form of proxy for the 19992000 Annual
Meeting of Shareholders, the proposal must be received by the Company no later
than December 1, 1998.1999.
OTHER MATTERS
The Company knows of no matters, other than those referred to herein, which
will be presented at the meeting. If, however, any other appropriate business
should properly be presented at the meeting, the proxies named in the enclosed
form of proxy will vote the proxies in accordance with their best judgment.
16
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. In addition to solicitation by mail, the Company has
retained Georgeson & Co. (with respect to street name holders) and D.F. King &
Company, Inc. (with respect to individual shareholders) both of New York City,
to assist in the solicitation of proxies, including delivery of proxy materials.
Fees for this solicitation are expected to be approximately $12,000.$13,000. The Company
intends to reimburse brokerage houses and other custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred in forwarding copies
of solicitation material to beneficial owners of Common Stock held of record by
such persons. In a limited number of instances, regular employees of the Company
may solicit proxies in person or by telephone.
By order of the Board of Directors.
/s/ Spencer Leroy III
SPENCER LEROY III
Secretary
Chicago, Illinois
March 31, 1998
20
Exhibit A
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
of the Corporation be amended in the following manner:
The first paragraph of Article FOURTH is amended to read as
follows:
"FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is Six Hundred Seventy Five
Million (675,000,000) shares, divided in to three classes as follows:
Seventy Five Million (75,000,000) shares of Preferred Stock of the par
value of one cent (1(cent)) per share (Preferred Stock).
Five Hundred Million (500,000,000) shares of Common Stock of the par value
of $1.00 per share (Common Stock).
One Hundred Million (100,000,000) shares of Class B Common Stock of the par
value of $1.00 per share (Class B Common Stock)."
Exhibit B
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
of the Corporation be amended in the following manner:
Article FOURTH, Division I, Preferred Stock, paragraphs 1 and 3 are amended
to read as follows:
DIVISION I
Preferred Stock
1. The Board of Directors is expressly authorized at any time, and from time
to time, to issue shares of Preferred Stock in one or more series, and for
such consideration as the Board may determine, with such voting powers, or
without voting powers, and with such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated in
the resolution or resolutions providing for the issue thereof, and as are
not stated in this Certificate of Incorporation, or any amendment thereto.
All shares of any one series shall be of equal rank and identical in all
respects.
3. Unless and except to the extent otherwise required by law or provided in
the resolution or resolutions of the Board of Directors creating any series
of Preferred Stock pursuant to this Division I, the holders of the
Preferred Stock shall have no voting power with respect to any matter
whatsoever. Subject to the protective conditions or restrictions of any
outstanding series of Preferred Stock, any amendment to this Certificate of
Incorporation which shall increase or decrease the authorized capital stock
of any class or classes may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of the voting stock of the
Corporation.
1999
17