UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Horace Mann Educators Corporation
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO]
Horace Mann
Educated Financial Solutions
HORACE MANN EDUCATORS CORPORATION
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
ANNUAL MEETING--May 25, 2004
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of your Corporation
to be held at 9:00 a.m. Central Daylight Savings Time on Tuesday, May 25, 2004,
at the Renaissance Springfield Hotel, 701 East Adams Street, Springfield,
Illinois.
We will present a report on the current affairs of the Corporation at the
meeting and Shareholders will have an opportunity for questions and comments.
We request that you sign, date and mail your proxy card whether or not you
plan to attend the Annual Meeting.
Prompt return of your proxy card will reduce the cost of further mailings
and other follow-up work. You may revoke your voted proxy at any time prior to
the meeting or vote in person if you attend the meeting.
We look forward to seeing you at the meeting. If you do not plan to attend
and vote by proxy, let us know your thoughts about the Corporation either by
letter or by comment on the proxy card.
Sincerely yours,
/s/ Joseph J. Melone /s/ Louis G. Lower II
Joseph J. Melone Louis G. Lower II
Chairman of the Board President and
Chief Executive Officer
Springfield, Illinois
April 1, 2004
HORACE MANN EDUCATORS CORPORATION
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 2004
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Shareholders of
HORACE MANN EDUCATORS CORPORATION (the "Company") will be held at the
Renaissance Springfield Hotel, 701 East Adams Street, Springfield, Illinois, on
Tuesday, May 25, 2004, at 9:00 a.m., Central Daylight Savings Time, for the
following purposes:
1. To elect seven Directors to hold office until the next Annual Meeting of
Shareholders and until their respective successors have been duly
elected and qualified; and
2. To consider and take action with respect to such other matters as may
properly come before the Annual Meeting or any adjournment or
adjournments thereof.
The Board of Directors has fixed the close of business on March 26, 2004 as
the record date for the determination of Shareholders entitled to notice of,
and to vote at, the Annual Meeting. A list of Shareholders will be available
for inspection for the ten days before the meeting at the Company's executive
offices at 1 Horace Mann Plaza, Springfield, Illinois 62715-0001.
All Shareholders are cordially invited to attend the Annual Meeting. Whether
or not you plan to attend the Annual Meeting, the Board of Directors urges you
to complete, date, sign and return the enclosed proxy card as soon as possible
in the enclosed business reply envelope, which requires no postage if mailed in
the United States of America. You may revoke your voted proxy at any time prior
to its exercise provided that you comply with the procedures set forth in the
Proxy Statement to which this Notice of Annual Meeting of Shareholders is
attached. If you attend the Annual Meeting, you may vote in person if you wish.
By order of the
Board of Directors,
/s/ Ann M. Caparros
Ann M. Caparros
Corporate Secretary
Springfield, Illinois
April 1, 2004
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THE
MEETING DATE IS MAY 25, 2004.
PROXY STATEMENT
HORACE MANN EDUCATORS CORPORATION
Annual Meeting of Shareholders
May 25, 2004
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Horace Mann Educators Corporation (the
"Company") of proxies from holders of the Company's common stock, par value
$.001 per share (the "Common Stock"). The proxies will be voted at the Annual
Meeting of Shareholders to be held on Tuesday, May 25, 2004, at 9:00 a.m.,
Central Daylight Savings Time, at the Renaissance Springfield Hotel, 701 East
Adams Street, Springfield, Illinois, and through any adjournment or
adjournments thereof (the "Annual Meeting").
The mailing address of the Company is 1 Horace Mann Plaza, Springfield,
Illinois 62715-0001 (telephone number (217) 789-2500). The Proxy Statement and
the accompanying proxy card are being first transmitted to Shareholders of the
Company on or about April 5, 2004.
The Board has fixed the close of business on March 26, 2004 as the record
date (the "Record Date") for determining the Shareholders of the Company
entitled to receive notice of, and to vote at, the Annual Meeting. At the close
of business on the Record Date, an aggregate of 42,722,701 shares of Common
Stock were issued and outstanding, each share entitling the holder thereof to
one vote on each matter to be voted upon at the Annual Meeting. The presence,
in person or by proxy, of the holders of a majority of such outstanding shares
is necessary to constitute a quorum for the transaction of business at the
Annual Meeting. Proxies will be solicited by mail. The Company also intends to
make, through bankers, brokers or other persons, a solicitation of beneficial
owners of Common Stock.
At the Annual Meeting, Shareholders of the Company will be asked to elect
seven Directors to hold office until the next Annual Meeting of Shareholders
and until their respective successors have been duly elected and qualified.
Shareholders may also be asked to consider and take action with respect to such
other matters as may properly come before the Annual Meeting or any adjournment
or adjournments thereof.
Copies of the Company's Annual Report on Form 10-K for the year ended
December 31, 2003 were mailed to known Shareholders on or about April 5, 2004.
Solicitation and Revocation
Proxies in the form enclosed are solicited by and on behalf of the Board.
The persons named in the form of proxy have been designated as proxies by the
Board. Such persons are Directors of the Company.
Shares of Common Stock represented at the Annual Meeting by a properly
executed and returned proxy will be voted at the Annual Meeting in accordance
with the instructions noted thereon, or if no instructions are noted, the proxy
will be voted in favor of the proposals set forth in the Notice of Annual
Meeting. A submitted proxy is revocable by a Shareholder at any time prior to
it being voted provided that such Shareholder gives written notice to the
Corporate Secretary at or prior to the Annual Meeting that such Shareholder
intends to vote in person or by submitting a subsequently dated proxy.
Attendance at the Annual Meeting by a Shareholder who has given a proxy shall
not in and of itself constitute a revocation of such proxy.
Proxies will be solicited initially by mail. Further solicitation may be
made by officers and other employees of the Company personally, by phone or
otherwise, but such persons will not be specifically compensated for such
services. Banks, brokers, nominees and other custodians and fiduciaries will be
reimbursed for their reasonable out-of-
1
pocket expenses in forwarding soliciting material to their principals, the
beneficial owners of Common Stock. The costs of soliciting proxies will be
borne by the Company. It is estimated these costs will be nominal.
Shareholder Approval
Shareholders are entitled to one vote per share on all matters submitted for
consideration at the Annual Meeting. The affirmative vote of a majority of the
shares of Common Stock represented in person or by proxy at the Annual Meeting
is required for the election of Directors. Abstentions may not be specified
with regard to the election of Directors.
Please note that under the rules of the New York Stock Exchange brokers who
hold shares in street name for customers have the authority to vote on certain
items when they have not received instructions from beneficial owners. With
respect to the matters to come before the Annual Meeting, if brokers are not
entitled to vote without instructions and therefore cast broker non-votes, that
will not affect the outcome of such matters.
Other Matters
Other than the matters set forth above, the Board has not received any
Shareholder proposal by the deadline prescribed by the Securities and Exchange
Commission rules, and otherwise knows of no matters to be brought before the
Annual Meeting. However, should any other matters properly come before the
meeting, the persons named in the accompanying Form of Proxy will vote or
refrain from voting thereon at their discretion.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide for the Company to have not less than
five nor more than fifteen Directors. The following eight persons currently are
serving as Directors of the Company: William W. Abbott, Mary H. Futrell, Donald
E. Kiernan, Louis G. Lower II, Joseph J. Melone, Jeffrey L. Morby, Shaun F.
O'Malley and Charles A. Parker. The terms of the current Directors expire at
the Annual Meeting. Mr. Kiernan is not standing for re-election and as a result
the size of the Board is being reduced to seven persons.
The proxies solicited by and on behalf of the Board will be voted "FOR" the
election of Mr. Abbott, Dr. Futrell, Mr. Lower, Mr. Melone, Mr. Morby, Mr.
O'Malley and Mr. Parker (the "Board Nominees") unless such authority is
withheld as provided in the proxy. The Company has no reason to believe that
any of the foregoing Board Nominees is not available to serve or will not serve
if elected, although in the unexpected event that any such Board Nominee should
become unavailable to serve as a Director, full discretion is reserved to the
persons named as proxies to vote for such other persons as may be nominated.
Each Director will serve until the next Annual Meeting of Shareholders and
until his or her respective successor is duly elected and qualified.
2
Nominees
The following information, as of March 26, 2004, is provided with respect to
each Board Nominee:
William W. Abbott, 72............. Mr. Abbott has been a Director of the Company since September 1996.
Chairman of the Compensation He is currently self-employed as a business consultant. In 1989,
Committee; Member of the Mr. Abbott retired from 35 years of service at The Proctor & Gamble
Executive and Nominating & Company, as a Senior Vice President in charge of worldwide sales and
Governance Committees of the Board other operations. He currently serves as Chairman of the Board of
Directors of Rotech Healthcare, Inc., a member of the Advisory Boards
of Acorn Products, Inc. and Manco, and a member of the Board of
Overseers of the Duke Cancer Center.
Mary H. Futrell, 63............... Dr. Futrell has been a Director of the Company since February 2001.
Member of the Compensation She is currently Dean of the Graduate School of Education and Human
and Nominating & Governance Development, and Director of the Institute for Curriculum, Standards
Committees of the Board and Technology, The George Washington University, positions she has
held for more than 5 years. In addition, Dr. Futrell is Professor,
Department of Education Leadership, a position she has held since
1999. Dr. Futrell is also President, Education International and past
President, National Education Association and Virginia Education
Association.
Louis G. Lower II, 58............. Mr. Lower joined the Company as Director, President and Chief
President and Chief Executive Executive Officer in February 2000. Prior to that, he served as Chief
Officer; Member of the Executive Officer of Allstate Life Insurance Company, a position he held
Executive and Investment & from January 1990 through January 2000. He currently serves as a
Finance Committees of the Board member of the Boards of Directors of the Life Office Management
Association, Illinois Life Insurance Council, Insurance Marketplace
Standards Association, NEA Foundation for the Improvement of
Education, Abraham Lincoln Presidential Library and Museum and PMI
Mortgage Insurance Co. Mr. Lower has over 25 years of experience in
the insurance industry.
Joseph J. Melone, 72.............. Mr. Melone has been a Director of the Company since February 2001.
Chairman of the Board; Prior to his retirement in 1998, he served as President and Chief
Chairman of the Executive Executive Officer of The Equitable Companies Inc. (1996-1998),
and Nominating & Governance Chairman and Chief Executive Officer of The Equitable Life Assurance
Committees; Member of the Society (1994-1998) and Chairman and Chief Executive Officer of The
Compensation Committee Equitable Variable Life Insurance Company (1990-1998). Prior to
of the Board 1990, Mr. Melone served as President of Prudential Insurance
Company. He currently serves as a member of the Boards of Directors of
Bysis, Inc. and Foster-Wheeler Corporation.
Jeffrey L. Morby, 66.............. Mr. Morby has been a Director of the Company since September 1996.
Member of the Audit He is currently self-employed as a business consultant and investor.
and Investment & Finance Mr. Morby serves as Managing Director of Amarna Corporation, LLC.
Committees of the Board Mr. Morby retired on June 30, 1996 as Vice Chairman of Mellon Bank
Corporation and Mellon Bank, N.A. Mr. Morby currently serves as a
member of the Boards of Directors of Restaurant Insurance Holdings,
Inc., Pittsburgh Cultural Trust, the International Council of the World
Wildlife Fund and the Board of International Advisors of the City of
Wuhan, China.
3
Shaun F. O'Malley, 68................. Mr. O'Malley has been a Director of the Company since September
Chairman of the Audit Committee; 1996. He is currently the Chairman Emeritus of Price Waterhouse LLP,
Member of the Executive and Nominating a title he has held since July 1995. Prior to that, he served as Chairman
& Governance Committees of the Board and Senior Partner of Price Waterhouse LLP. He currently serves as a
member of the Boards of Directors of the Finance Company of
Pennsylvania, Regulus Group, LLC, Federal Home Mortgage
Corporation ("Freddie Mac") and The Philadelphia Contributionship
and as a member of the Board of Trustees of the University of
Pennsylvania.
Charles A. Parker, 69................. Mr. Parker has been a Director of the Company since September 1997.
Chairman of the Investment & Finance He retired in 1995 after 17 years of service at The Continental
Committee; Member of the Audit and Corporation, including service as Executive Vice President, Chief
Executive Committees of the Board Investment Officer and Director. He currently serves as a member of the
Boards of Directors of Amerindo Funds, T.C.W. Convertible Fund and
T.C.W. Galileo Funds Inc. and as a Governor of the Burridge Center for
Research in Security Prices (University of Colorado School of Business).
Executive Officers
Set forth below is certain information, as of March 26, 2004, with respect
to the Executive Officers of the Company and its subsidiaries who are not
Directors of the Company (Louis G. Lower II, President and Chief Executive
Officer, is discussed above):
Peter H. Heckman, 58............... Mr. Heckman joined the Company in April 2000 as Executive Vice
Executive Vice President President and Chief Financial Officer ("CFO"). Prior to that, he served
and Chief Financial Officer as Vice President of Allstate Life Insurance Company from 1988
through April 2000, where he held both senior financial and operating
positions. Mr. Heckman has over 30 years of experience in the insurance
industry.
Douglas W. Reynolds, 50............ Mr. Reynolds joined the Company in November 2001 as Executive Vice
Executive Vice President, President, Property and Casualty. In December 2003, he also assumed
Property & Casualty and Information responsibility for information technology. He previously served as
Technology Regional Vice President of AIG, Inc., a position he held from February
2000 through November 2001, where he was responsible for all
property and casualty business for Southeast Asia and China. Prior to
that, he served as Vice President of Allstate Insurance Company
("Allstate"). From November 1976 through January 2000 he held
various management positions at Allstate in property and casualty,
including underwriting, marketing, non-standard auto, mergers and
acquisitions, while also leading a start-up of a non-standard auto
company. Mr. Reynolds has over 25 years of experience in the insurance
industry.
Bret A. Conklin, 40................ Mr. Conklin joined the Company as Senior Vice President and
Senior Vice President Controller in January 2002. Mr. Conklin has over 15 years of experience
and Controller in the insurance industry, including: serving as Vice President of
Kemper Insurance from January 2000 through January 2002, where he
was responsible for all corporate financial reporting and accounting
operations; serving as Vice President and Controller of the Company
from July 1998 through January 2000; being associated with Pekin
Insurance from September 1992 through June 1998 and serving as its
Vice President and Controller; and 7 years of public accounting
experience with KPMG Peat Marwick specializing in its insurance
industry practice.
4
Dwayne D. Hallman, 41............ Mr. Hallman joined the Company in January 2003 as Senior Vice
Senior Vice President, President, Finance. From September 2000 to December 2002, he served
Finance as the Chief Financial Officer of Acceptance Insurance Companies,
where he was responsible for financial reporting, investor relations, the
treasury and investment management functions and property-casualty
operations. From July 1995 to August 2000, Mr. Hallman served as
Vice President, Finance and Treasurer at Highlands Insurance Group,
where he was responsible for financial reporting, treasury, planning and
office services. Mr. Hallman has over 15 years of experience in the
insurance industry.
Ann M. Caparros, 51.............. Ms. Caparros joined the Company in March 1994 as Vice President,
General Counsel, Chief Compliance General Counsel and Corporate Secretary. Ms. Caparros has over 25
Officer and Corporate Secretary years of experience in the insurance industry.
CODE OF ETHICS
The Company has adopted a Code of Ethics applicable to all employees,
including the Chief Executive Officer, Chief Financial Officer and Controller,
which is available on the Company's website at www.horacemann.com, under
"Investor Relations--Corporate Governance". A printed copy may be obtained by
shareholders upon request, addressed to Investor Relations Department, 1 Horace
Mann Plaza, Springfield, Illinois 62715-0001.
SPECIAL ADVISORY BOARD
The Company maintains a special advisory board composed of leaders of
education associations. The Company meets with the special advisory board on a
regular basis. The educators and education association leaders serving on the
special advisory board receive a fee of $200 plus expenses for each special
advisory board meeting attended. The special advisory board met two times in
2003.
BOARD OF DIRECTORS AND COMMITTEES
There were eight members on the Board as of March 26, 2004. The Board met
five times during 2003. No Director of the Company attended fewer than 75% of
the Board meetings and the committee meetings to which he or she was appointed
and served during 2003. The Chairman of the Board presides over all executive
sessions of the Board, including executive sessions of non-management directors.
The standing committees of the Board consist of the Executive Committee,
Compensation Committee, Nominating & Governance Committee, Investment & Finance
Committee and Audit Committee. Each standing committee is governed by a charter
which defines its role and responsibilities and which is available on the
Company's website at www.horacemann.com, under "Investor Relations--Corporate
Governance".
The Executive Committee exercises certain powers of the Board during
intervals between meetings of the Board and, as requested by the Chief
Executive Officer, acts as a sounding board for discussing strategic and
operating issues between meetings of the Board. The current members of the
Committee are Mr. Melone (Chairman), Mr. Abbott, Mr. Lower, Mr. O'Malley and
Mr. Parker. The Executive Committee did not meet during 2003.
The Compensation Committee reviews, approves and recommends the compensation
of Officers and Directors of the Company. The current members of the Committee
are Mr. Abbott (Chairman), Dr. Futrell and Mr. Melone. The Compensation
Committee met four times during 2003. Each of the Committee members is
independent under the standards of the New York Stock Exchange ("NYSE").
5
The Nominating & Governance Committee oversees succession planning and
executive continuity issues relating to the senior management of the Company,
including the Chief Executive Officer, and also recommends director nominees to
the Board. The Nominating & Governance Committee will consider director
nominees recommended by Shareholders. Nominations may be submitted in writing
to Ann M. Caparros, Corporate Secretary, 1 Horace Mann Plaza, Springfield,
Illinois, 62715-0001 not later than December 31, 2004 in order for such
proposal to be considered for inclusion in the Company's Proxy Statement and
proxy relating to the 2005 Annual Meeting. There are no differences in the
evaluation of nominees recommended by Shareholders. The Committee evaluates
possible nominees to the Board on the basis of the factors it deems relevant,
including the following:
. high standards of personal character, conduct and integrity;
. an understanding of the interests of the Company's shareholders,
customers, employees, suppliers, communities and the general public;
. the intention and ability to act in the interest of all of the Company's
shareholders;
. a position of leadership and substantial accomplishment in his or her
field of endeavor which may include business, government or academia;
. the ability to understand and exercise sound judgment on issues related to
the goals of the Company;
. a willingness and ability to devote the time and effort required to serve
effectively on the Board, including preparation for and attendance at
Board and committee meetings;
. the absence of interests or affiliations that could give rise to a biased
approach to directorship responsibilities and/or a conflict of interest,
and the absence of any significant business relationship with the Company
except for the employment relationship of an inside director; and
. the needs of the Board, including diversity, age, skills and experience.
The Nominating & Governance Committee also develops and recommends to the
Board corporate governance principles applicable to the Company. The current
members of the Committee are Mr. Melone (Chairman), Mr. Abbott, Dr. Futrell and
Mr. O'Malley. The Nominating & Governance Committee met four times during 2003.
Each of the Committee members is independent under the standards of the NYSE.
The Investment & Finance Committee approves investment strategies, monitors
the performance of investments made on behalf of the Company and its
subsidiaries and oversees issues and decisions relating to the Company's
capital structure. The current members of the Committee are Mr. Parker
(Chairman), Mr. Kiernan, Mr. Lower and Mr. Morby. The Investment & Finance
Committee met four times during 2003.
The Audit Committee oversees the financial reporting and internal operating
controls of the Company. It meets with both the Company's Management and the
Company's independent public accountants. The current members of the Committee
are Mr. O'Malley (Chairman), Mr. Kiernan, Mr. Morby and Mr. Parker. The Audit
Committee met eleven times during 2003. The Board has determined that Mr.
O'Malley is a financial expert. In addition, each of the Committee members is
independent under the standards of the NYSE.
Report of the Audit Committee of the Board of Directors
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors acting under a written charter. The Audit
Committee is composed of four Directors, each of whom is independent as defined
by the NYSE listing standards. Management has the primary responsibility for
the Company's financial statements and its reporting process, including the
Company's systems of internal controls. In fulfilling its oversight
responsibilities, the Committee reviewed the audited financial statements in
the Company's Annual Report on Form 10-K with management including a discussion
of the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements.
6
The Audit Committee has discussed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the
United States of America, their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by ISB Standard No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company and its management, taking into account the
potential effect of any non-audit services provided by the independent auditor.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the internal and the independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting. The Audit Committee held eleven meetings during
fiscal year 2003.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 for filing with the
Securities and Exchange Commission. The Audit Committee approved the selection
of the Company's independent auditors.
AUDIT COMMITTEE
SHAUN F. O'MALLEY Chairman
DONALD E. KIERNAN, JEFFREY L. MORBY and CHARLES A. PARKER, Members
Communications with Directors
The Company has established various processes to facilitate shareholder
communications with the Board. Communications to non-management directors as a
group or to the presiding director individually may be submitted via regular
mail addressed to the Board of Directors c/o the General Counsel at 1 Horace
Mann Plaza, Springfield, Illinois 62715-0001. Additionally, communications may
be e-mailed to the Board of Directors c/o the General Counsel at
hmecbofd@horacemann.com. The members of the Board are expected to be present at
the Annual Meeting. The following members of the Board attended last year's
Annual Meeting: Mr. Abbott, Dr. Futrell, Mr. Kiernan, Mr. Lower, Mr. Melone,
Mr. Morby, Mr. O'Malley and Mr. Parker.
Director Compensation
A Director, other than an Officer of the Company, receives an annual
retainer of $25,000 and a fee of $1,000 plus expenses for attendance (whether
in person or by telephone) at each Board and Board Committee meeting (except
the Audit Committee). Members of the Audit Committee receive a fee of $1,500
plus expenses for attendance (whether in person or by telephone) at each Audit
Committee meeting. The Chairman of each Committee (except the Audit Committee)
receives an additional annual retainer of $2,500 for serving in such capacity.
The Chairman of the Audit Committee receives an annual retainer of $7,500 and a
fee of $2,500 plus expenses for attendance (whether in person or by telephone)
at each Audit Committee meeting in addition to the fees received as a Director
described above. The Chairman of the Board receives an annual retainer of
$75,000 in addition to the other fees described above. Directors have the
option to take all or part of such fees in the form of Common Stock Equivalent
Units of the Company, on a deferred compensation basis, with a 25% matching
addition to the sums listed above made by the Company pursuant to the Director
Stock Plan.
7
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, and by
each of the Company's Directors, the Company's CEO and the other four highest
compensated Executive Officers (collectively the "Named Executive Officers")
and by all Directors and Executive Officers of the Company as a group.
Information in the table is as of March 26, 2004, except the number of shares
beneficially owned by the 5% beneficial owners which is as of December 31,
2003, based on information reported by such persons to the Securities and
Exchange Commission. Except as otherwise indicated, to the Company's knowledge
all shares are beneficially owned and investment and voting power is held
solely by the persons named as owners.
Amount of
Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- ---------- --------
Security Ownership of 5% Beneficial Owners
Common Stock. Ariel Capital Management, Inc. (1)............................... 12,760,485 29.9%
Common Stock Mac-Per-Wolf Company (2)......................................... 4,183,700 9.8%
Common Stock T. Rowe Price Associates, Inc. (3)............................... 3,218,700 7.5%
Security Ownership of Directors and Executive Officers
Common Stock William W. Abbott (4)............................................ 40,567 *
Common Stock Mary H. Futrell (5).............................................. 11,079 *
Common Stock Donald E. Kiernan (6)............................................ 29,872 *
Common Stock Louis G. Lower II (7)............................................ 880,400 2.0%
Common Stock Joseph J. Melone (8)............................................. 36,313 *
Common Stock Jeffrey L. Morby (9)............................................. 32,235 *
Common Stock Shaun F. O'Malley (10)........................................... 33,732 *
Common Stock Charles A. Parker (11)........................................... 26,824 *
Common Stock Peter H. Heckman (12)............................................ 262,038 *
Common Stock Daniel M. Jensen (13)............................................ 579 *
Common Stock Douglas W. Reynolds (14)......................................... 121,527 *
Common Stock George J. Zock (15).............................................. 224,174 *
Common Stock All Directors and Executive Officers as a group (15 persons) (16) 1,790,342 4.0%
- --------
* Less than 1%
(1) Ariel Capital Management, Inc. ("ACMI") has a principal place of business
at 200 E. Randolph Drive, Suite 2900, Chicago, IL 60601 and is an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. All securities reported are owned by investment advisory
clients of ACMI, who have the right to dividends and proceeds of any sale
of the subject security. Ariel Fund, a series of Ariel Investment Trust, a
registered investment company, owns more than 5% of the subject security.
The foregoing is based on Amendment No. 8 to Schedule 13G filed by ACMI in
February 2004.
(2) Mac-Per-Wolf Company has a principal place of business at 310 S. Michigan
Avenue, Suite 2600, Chicago, IL 60604 and is a parent holding company. A
subsidiary of Mac-Per-Wolf Company, Perkins, Wolf, McDonnell & Company
LLC, is a broker or dealer registered under section 15 of the Securities
Exchange Act of 1934 and an investment adviser registered under section
203 of the Investment Advisers Act of 1940. Perkins, Wolf, McDonnell &
Company LLC furnishes investment advice to various investment companies
registered under section 8 of the Investment Company Act of 1940 and to
individual and institutional clients (collectively referred to as "Managed
Portfolios"). Janus Small Cap Value Fund, an investment company registered
under the Investment Company Act of 1940 and one of the Managed Portfolios
to which Perkins, Wolf, McDonnell & Company LLC provides investment
advice, owns 2,750,000 shares or 6.4% of the subject security. The
foregoing is based on Amendment No. 3 to Schedule 13G filed by
Mac-Per-Wolf Company, on behalf of its two subsidiaries, PWMCO, LLC and
Perkins, Wolf, McDonnell & Company LLC, in February 2004.
8
(3) T. Rowe Price Associates, Inc. ("Price Associates") has a principal place
of business at 100 E. Pratt Street, Baltimore, MD 21202 and is an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. These securities are owned by various individual and
institutional investors including T. Rowe Price Small-Cap Stock Fund, Inc.
(which owns 2,139,100 shares, representing 5% of the shares outstanding),
for which Price Associates serves as investment adviser with power to
direct investments and/or sole power to vote the securities. For purposes
of the reporting requirements of the Securities Exchange Act of 1934,
Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities. The foregoing is based on Amendment No. 2 to
Schedule 13G filed by Price Associates in February 2004.
(4) Includes 23,389 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 8,300 shares of Common Stock
which are currently exercisable and 1,778 shares which are owned by a
trust of which Mr. Abbott is a trustee.
(5) Includes 7,179 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 3,900 shares of Common Stock
which are currently exercisable.
(6) Includes 19,618 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 8,300 shares of Common Stock
which are currently exercisable.
(7) Includes options to purchase 850,000 shares of Common Stock which are
currently exercisable. Also includes 8,879 shares of Common Stock which
are invested in the Horace Mann Stock Fund of the Horace Mann Supplemental
Retirement and Savings Plan (the "401(k) Plan") and 11,521 Common Stock
Equivalent Units held under the Deferred Compensation Plan.
(8) Includes 26,963 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,350 shares of Common Stock
which are currently exercisable.
(9) Includes 23,935 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 8,300 shares of Common Stock
which are currently exercisable.
(10) Includes 25,032 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 8,300 shares of Common Stock
which are currently exercisable.
(11) Includes 18,524 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 8,300 shares of Common Stock
which are currently exercisable.
(12) Includes options to purchase 256,300 shares of Common Stock which are
currently exercisable. Also includes 5,738 Common Stock Equivalent Units
held under the Deferred Compensation Plan.
(13) Includes 579 Common Stock Equivalent Units held under the Deferred
Compensation Plan. Mr. Jensen resigned from the Company on March 15, 2004.
(14) Includes options to purchase 117,900 shares of Common Stock which are
currently exercisable. Also includes 627 shares of Common Stock which are
invested in the Horace Mann Stock Fund of the 401(k) Plan.
(15) Includes options to purchase 85,100 shares of Common Stock which are
currently exercisable. Also includes 67,538 shares held by his wife, as to
which Mr. Zock shares voting and dispositive power. Mr. Zock resigned as
described in the Section Agreements with Key Employees.
(16) Includes options for the group of Directors and Executive Officers to
purchase 1,450,500 shares of Common Stock which are currently exercisable.
Also includes 144,641 Common Stock Equivalent Units pursuant to the
Director Stock Plan, 19,163 Common Stock Equivalent Units pursuant to the
Deferred Compensation Plan and 10,084 shares of Common Stock which are
invested in the Horace Mann Stock Fund of the 401(k) Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company has established procedures by which Executive Officers and
Directors provide relevant information regarding transactions in Common Stock
to a Company representative and the Company prepares and files the required
ownership reports. Based on a review of those reports and other written
representations, the Company believes that there were no reportable
delinquencies with respect to the reporting requirements under Section 16(a).
9
Related Party Transactions
The Company does not have any contracts or other transactions with related
parties that are required to be reported under the applicable securities laws
and regulations.
Ariel Capital Management, Inc., the Company's largest shareholder with 29.9%
of the Common Stock outstanding, is the investment adviser for two of the
mutual funds offered to the Company's annuity customers. In addition, T. Rowe
Price Associates, Inc., the Company's third largest shareholder with 7.5% of
the Common Stock outstanding, is the investment adviser for two of the mutual
funds offered to the Company's annuity customers.
10
Equity Compensation Plan Information
The following table provides information as of December 31, 2003, regarding
outstanding awards and shares remaining available for future issuance under the
Company's compensation plans under which equity securities are authorized for
issuance (excluding 401(k) plans, ESOPs, and similar tax-qualified plans):
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to Weighted-Average Equity Compensation
be Issued Upon Exercise Exercise Price of Plans (Excluding
of Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights Warrants and Rights Column (a))
Plan Category (a) (b) (c)
- ------------- ----------------------- -------------------- -----------------------
Equity Compensation Plans Approved by
Security Holders:
Stock Incentive Plans(1).............. 4,669,970 $18.96 2,059,182(2)
Directors' Deferred Compensation Plan. 0 0 398,909(3)
--------- ---------
Subtotal.......................... 4,669,970 $18.96 2,458,091
--------- ---------
Equity Compensation Plans Not Approved by
Security Holders:
Employee's Deferred Compensation
Plan(4)............................. 0 0 27,231(5)
--------- ---------
Total............................. 4,669,970 $18.96 2,485,322
========= =========
- --------
(1) Includes the 1999 Horace Mann Educators Corporation Incentive Compensation
Plan, the 2001 Horace Mann Educators Corporation Incentive Compensation
Plan and the 2002 Horace Mann Educators Corporation Incentive Compensation
Plan (the "2002 Incentive Compensation Plan").
(2) Of the shares of Common Stock remaining available for future issuance, a
total of 150,000 shares may be issued as restricted stock or grants of
stock as a bonus under the 2002 Incentive Compensation Plan at December 31,
2003. The 2002 Incentive Compensation Plan allows 5% of shares of Common
Stock authorized under the Plan (3,000,000 shares) to be issued as
restricted stock or bonus shares.
(3) As of December 31, 2003, the shares of Common Stock available for issuance
under the Company's Directors' Deferred Compensation Plan related to Common
Stock units outstanding were valued at $19.49 per share. No exercise price
is associated with the shares of Common Stock issuable under this Plan.
(4) The only non-security holder approved equity plan of the Company is the
Horace Mann Educators Corporation Deferred Compensation Plan (the "DCP").
The DCP permits participants in certain cash incentive programs to defer
compensation in the form of Common Stock equivalents, which can be settled
in cash at the end of the specified deferral period. For purposes of the
DCP, Common Stock equivalents are valued at 100% of the fair market value
of Common Stock on the date of crediting to the participant's deferral
account. Approximately 30 senior executives of the Company have been
eligible to participate in the DCP since its inception in 1998. The DCP
does not reserve a specific number of shares for delivery in settlement of
Common Stock equivalents, but instead provides that shares will be
available to the extent needed for such settlements. Further information on
the DCP appears in the Section Report on Executive Compensation of the
Compensation Committee of the Board of Directors--Deferred Compensation
Plan below.
(5) As of December 31, 2003, the shares of Common Stock available for issuance
under the Company's Employees' Deferred Compensation Plan were valued at
$13.97 per share. No exercise price is associated with the shares of Common
Stock issuable under this Plan.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth all reportable
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and the other four most highly compensated Executive Officers for
services rendered in the capacities described above.
Annual Compensation Long-Term Compensation
------------------- ----------------------------------
Awards Payouts
---------------------- -----------
Restricted All Other
Salary Bonus Stock Stock Compensation
Name and Principal Position Year ($) ($)(3) ($) Options (#) LTIP ($)(4) ($)(5)
- --------------------------- ---- ------- ------- ---------- ----------- ----------- ------------
Louis G. Lower II................ 2003 600,000 195,624 0 0 0 16,064(6)
President & Chief Executive 2002 562,506 279,487 0 0 191,700 16,053
Officer 2001 529,173 0 0 0 317,504 13,662
Peter H. Heckman................. 2003 348,381 89,673 0 0 0 16,064(7)
Executive Vice President & 2002 336,383 139,111 0 70,000 72,900 16,053
Chief Financial Officer 2001 314,588 0 0 0 157,294 13,662
Daniel M. Jensen (1)............. 2003 236,250 70,899 0 0 0 16,053(8)
Executive Vice President & 2002 225,000 91,856 0 50,000 48,600 16,053
Chief Marketing Officer 2001 74,135 150,000 0 150,000 37,068 18,394
Douglas W. Reynolds (2).......... 2003 318,756 76,163 0 0 0 16,053(9)
Executive Vice President-- 2002 300,000 150,000 0 60,000 54,000 54,680
Property & Casualty and 2001 91,923 0 0 150,000 0 4,608
Information Technology
George J. Zock................... 2003 290,004 79,644 0 0 0 20,213(10)
Executive Vice President-- 2002 278,754 114,596 0 110,000 48,600 20,213
Service & Technology 2001 275,004 0 0 0 137,502 17,246
Operations and Financial
Services
- --------
(1) Mr. Jensen was hired effective September 4, 2001.
(2) Mr. Reynolds was hired effective November 12, 2001.
(3) The Awards shown as payment for Mr. Jensen in 2001 and payment for Mr.
Reynolds in 2002 were contractually guaranteed as described in the section
Agreements with Key Employees.
(4) The LTIP Awards for 2001 were paid pursuant to the Horace Mann Educators
Corporation Long-Term Incentive Plan ("LTIP"). Awards for 2002 represent
accruals under the 2002 Incentive Compensation Plan for performance during
the first year of the 2002-2004 performance period. Payment of accrued
amounts requires continued service through the remainder of the
performance period, except in the case of certain terminations including
retirement, death or disability, and payment remains subject to other
terms of the 2002 Incentive Compensation Plan.
(5) Includes Company contributions to the 401(k) Plan and to the Horace Mann
Money Purchase Pension Plan ("MPP Plan") (both defined contribution
plans), the Company's contributions attributable to group term life
insurance premiums and relocation expenses.
(6) For Mr. Lower in 2003: $6,000 was contributed to the 401(k) Plan; $10,000
was contributed to the MPP Plan; and $64 was attributed to group term life
insurance premiums.
(7) For Mr. Heckman in 2003: $6,000 was contributed to the 401(k) Plan;
$10,000 was contributed to the MPP Plan; and $64 was attributed to group
term life insurance premiums.
(8) For Mr. Jensen in 2003: $6,000 was contributed to the 401(k) Plan; $10,000
was contributed to the MPP Plan; and $53 was attributed to group term life
insurance premiums.
12
(9) For Mr. Reynolds in 2003: $6,000 was contributed to the 401(k) Plan;
$10,000 was contributed to the MPP Plan; and $53 was attributed to group
term life insurance premiums.
(10) For Mr. Zock in 2003: $6,000 was contributed to the 401(k) Plan; $14,000
was contributed to the MPP Plan; and $213 was attributed to group term
life insurance premiums.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Fiscal Year End (#) Fiscal Year End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------------- -------------------------
Louis G. Lower II.. 637,500 /362,500 0 / 0
Peter H. Heckman... 193,800 /176,200 0 / 0
Daniel M. Jensen... 117,000 / 83,000 0 / 0
Douglas W. Reynolds 117,900 / 92,100 0 / 0
George J. Zock..... 76,350 /108,850 0 / 0
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Performance Estimated Future Payouts Under
or Other Non-Stock Price-Based Plans (1)
Period Until -----------------------------
Maturation or Threshold Target Maximum
Name Payout ($) ($) ($)
---- ------------- --------- --------- ---------
Louis G. Lower II.. 2002-2004 1,065,000 2,130,000 4,260,000
Peter H. Heckman... 2002-2004 405,000 810,000 1,620,000
Daniel M. Jensen(2) 2002-2004 270,000 540,000 1,080,000
Douglas W. Reynolds 2002-2004 300,000 600,000 1,200,000
George J. Zock(3).. 2002-2004 270,000 540,000 1,080,000
- --------
(1) The Threshold, Target and Maximum amounts shown are amounts that
potentially may be earned over the performance period for achievement of
performance goals relating to earnings per share and return on equity under
the long-term cash incentive awards portion of the 2002 Incentive
Compensation Plan. The goals were established at the beginning of the
three-year performance period. Amounts accrue for performance during the
performance period. However, payment of such accrued amounts requires
continued service through the remainder of the performance period, except
in the case of certain terminations including retirement, death or
disability, and payment remains subject to other terms of the long-term
cash incentive awards portion of the 2002 Incentive Compensation Plan.
(2) Mr. Jensen is not eligible for any awards under the Company's Long-Term
Incentive Plans because Mr. Jensen resigned from the Company on March 15,
2004.
(3) Mr. Zock and the Company entered into a Transition, Retirement and Release
Agreement which is described in the Section Agreements with Key Employees.
Under that agreement, Mr. Zock will be eligible for bonus consideration for
his service in 2002 and 2003.
PENSION AND EXCESS PENSION PLANS
The following pension table illustrates the total benefits available under
the defined benefit pension plans without considering social security offsets.
Years of Covered Service(1)
Covered
Remuneration ($) 20 25 30(2)
---------------- ------- ------- -------
200,000..... 80,000 100,000 105,000
250,000..... 100,000 125,000 131,250
300,000..... 120,000 150,000 157,500
400,000..... 160,000 200,000 210,000
500,000..... 200,000 250,000 262,500
13
- --------
(1) Represents the maximum combined benefits payable from all qualified and
nonqualified defined benefit pension plans based on the pre-August 29, 1989
formula, as defined below, without regard to social security offsets.
(2) As of December 31, 2003, Mr. Zock had 26 years of credited pension service.
No other Named Executive Officer is eligible to participate or is vested in
the defined benefit pension plans.
Compensation for purposes of the defined benefit pension plans includes only
compensation earned while participating in the defined benefit pension plans.
Participants only include those employees hired prior to January 1, 1999. In
general, eligible compensation for Executive Officers includes base salaries
and cash bonuses. Although compensation voluntarily deferred by an employee is
not considered as eligible earnings for pension purposes, a special exception
permits an employee's tax-deferred contributions under the 401(k) Plan to count
as eligible earnings under the defined benefit pension plans. In addition, any
amount selected pursuant to Section 125 of the Internal Revenue Code is also
considered eligible earnings under the defined benefit pension plans.
For participants hired prior to August 29, 1989, annual benefits would be
determined by multiplying an average of the 36 highest consecutive months of
earnings by 2% times years of credited service minus 50% of the social security
income benefit earned while an employee. Accruals for credited service and
earnings ceased as of March 31, 2002. Under the terms of the defined benefit
pension plans, a maximum of 30 years is eligible for credited service.
The CEO's retirement benefits are not determined pursuant to the pension
plans described above and are described in the section Agreements with Key
Employees.
AGREEMENTS WITH KEY EMPLOYEES
Effective February 1, 2000, the Company entered into an employment agreement
with Mr. Lower employing him as the Company's President and Chief Executive
Officer. That agreement is an exhibit to the Company's Annual Report on Form
10-K for 2003. The term of that agreement expired on December 31, 2000 but is
subject to an annual evergreen renewal which extends the agreement an
additional year on each September 1, so long as neither Mr. Lower or the
Company has, prior to September 1, notified the other that the agreement will
not so extend. Its current expiry date is December 31, 2004. The agreement
provides for an annual salary of not less than $500,004 and for Mr. Lower to
participate in the Company's short and long-term bonus plans, with minimum
guaranteed bonuses under each of those plans for payments in 2001 ($400,000 and
$300,000, respectively). Mr. Lower received a stock grant of 10,000 shares of
Common Stock and options to purchase 750,000 shares of Common Stock, vesting
150,000 shares on January 1, 2001 and each successive January 1 through January
1, 2005, so long as he is employed by the Company on each such date. The
Company also agreed to pay the following retirement benefits to Mr. Lower
during his lifetime:
Last Date of Employment Annual Benefit
----------------------- --------------
On or prior to December 31, 2000.... $ 0
January 1, 2001 to December 31, 2001 $ 45,000
January 1, 2002 to December 31, 2002 $ 90,000
January 1, 2003 to December 31, 2003 $135,000
January 1, 2004 or later............ $180,000
The agreement contains provisions regarding reimbursement of Mr. Lower's
costs of moving to Springfield, Illinois, including under certain circumstances
covering any loss on sale of the house he has purchased in Springfield, and
provisions relating to Mr. Lower's death, disability or other termination of
his employment. In addition, the agreement provides that if there is a Change
of Control, as defined therein, and Mr. Lower's employment is within three
years thereof actually or constructively terminated, Mr. Lower will be paid a
lump-sum cash amount equal to the sum of (i) three times the greater of his
highest annual cash compensation from the Company or $1,200,000 and (ii) the
actuarially determined present value of Mr. Lower's retirement benefits
calculated as if he had been employed by the Company until the date which is
three years after the Change in Control. Mr. Lower's other benefits are also
14
continued for three years and there is an excise tax gross-up provision payment
sufficient to negate any effect on him of excise and related taxes attributable
to the benefits received under the agreement.
The Company entered into a letter of employment with Mr. Heckman, Executive
Vice President & Chief Financial Officer, effective April 10, 2000. That
agreement is an exhibit to the Company's Annual Report on Form 10-K for 2001.
The agreement provides for an initial annual salary of $300,000 and for Mr.
Heckman to participate in the Company's short and long-term bonus plans, with
minimum guaranteed bonuses under each of those plans for payments in 2001
($150,000 each). Mr. Heckman received a grant of stock options to purchase
250,000 shares of Common Stock, vesting 50,000 shares on January 1, 2001 and
each successive January 1 through January 1, 2005, so long as he is employed by
the Company on each such date.
The Company entered into a letter of employment with Mr. Jensen, Executive
Vice President and Chief Marketing Officer, effective September 4, 2001. That
agreement is an exhibit to the Company's Annual Report on Form 10-K for 2001.
The agreement provides for an initial annual salary of $225,000 and for Mr.
Jensen to participate in the Company's short and long-term bonus plans, with a
minimum guaranteed bonus under the short-term bonus plan for payment in 2002
($150,000). Mr. Jensen received a total grant of stock options to purchase
150,000 shares of Common Stock, one-fourth vesting on September 17, 2001 and
each successive September 17 through September 17, 2004, so long as he was
employed by the Company on each such date. Mr. Jensen resigned from the Company
on March 15, 2004.
The Company entered into a letter of employment with Mr. Reynolds, Executive
Vice President, Property and Casualty, effective November 12, 2001. That
agreement is an exhibit to the Company's Annual Report on Form 10-K for 2001.
The agreement provides for an initial annual salary of $300,000, a sign-on
bonus of $50,000 paid in 2001 and for Mr. Reynolds to participate in the
Company's short and long-term bonus plans, with a minimum guaranteed bonus
under the short-term bonus plan for payment in 2003 ($150,000). Mr. Reynolds
received a total grant of stock options to purchase 150,000 shares of Common
Stock, one-fourth vesting on November 30, 2001 and each successive November 30
through November 30, 2004, so long as he is employed by the Company on each
such date.
Effective December 31, 2003, the Company entered into a Transition,
Retirement and Release Agreement with Mr. Zock. That agreement is an exhibit to
the Company's Annual Report on Form 10-K for 2003. The agreement provides an
orderly and amicable arrangement with respect to Mr. Zock's performance of
transitional duties preliminary to his retirement from the Company. Mr. Zock is
engaged as a consultant from January 1, 2004 until his retirement date of
November 15, 2005. During this consulting period, Mr. Zock will be paid at a
salary rate of $14,128 per month which will be paid in semi-monthly
installments. In addition, Mr. Zock is eligible for bonus consideration for his
service in 2003.
In addition, the Company has entered into agreements with certain key
employees, including Mr. Heckman and Mr. Reynolds, which provide that if,
within three years after a Change in Control of the Company, the employee is
terminated from employment by the Company, whether actually or constructively,
for any reason other than cause, the employee will receive (i) a one-time cash
payment, (ii) continued insurance coverage for a specified period, (iii) the
present value of such employee's accrued benefits as of the date of termination
under the Company's nonqualified supplemental pension plan(s) (which amount
will be offset against any amount payable under such plan) and (iv) an excise
tax gross up payment sufficient to negate the effect on such employee of excise
and related taxes attributable to the benefits received by the employee under
the agreement. The one-time cash payment would be equal to 2.9 times the
highest annual cash compensation (salary and bonus) received by the employee in
the five preceding years and the specified period during which such employee's
insurance benefits would continue is two years, 11 months.
REPORT ON EXECUTIVE COMPENSATION OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
recommends to the full Board compensation for the Company's Named Executive
Officers (the "Officers"). Officers receive compensation in the form of annual
salary and cash and stock option incentive awards under the 2002 Horace Mann
Educators Corporation Incentive Compensation Plan (the "Plan").
15
Salary
While the Committee believes that the Officers should be compensated above
average insurance industry levels in terms of total compensation based on above
average performance, it favors incentive compensation over salary and therefore
seeks to pay salaries that approximate average industry salaries for officers
of similar companies in like positions. In recruiting new candidates to become
Officers, it is on occasion necessary to exceed these guidelines and to pay
higher salaries than would be average for officers of similar companies in like
positions.
In determining industry salaries, the Committee has employed surveys
prepared by the Life Office Management Association and the National Association
of Independent Insurers, as well as sought advice from recruiting and
compensation consultants.
Once an Officer's salary is determined, it is reviewed between one and two
years thereafter. In that review, the Committee considers where the Officer's
salary stands compared to the salaries of officers of similar companies in like
positions and the Officer's performance of his duties, including accomplishing
key corporate goals, managing costs, managing personnel and meeting the
Company's ethical standards.
During 2003, the Committee reviewed the salary of three Officers other than
the Chief Executive Officer (the "CEO").
Cash Incentive Compensation
The Committee employs two types of cash incentive awards--annual incentive
awards which are based on the Company's results for a calendar year and
long-term incentive awards which are based on the Company's results over a
three year period. Such incentive awards tie compensation of the Officers to
attainment of goals that benefit the Shareholders. The awards are designed to
secure the full deductibility of such awards under Section 162(m)(4)(C) of the
Internal Revenue Code. The Plan provides that such awards can be tied to any of
the following measures, either in absolute terms or as compared to the
Company's peers, and as applicable to the Company as a whole or to specific
business units of the Company:
. insurance premium volume and growth in premium volume
. growth in sales
. increase in educator and multi-line customers
. earnings and earnings growth, both absolute and per share
. return on equity
. cash flow
. accumulated annuity value
. investment income
. economic value created for Shareholders
. profit margin
. property and casualty combined ratios
. expense ratios
. return to Shareholders
. financial ratings
. size and growth of agency force
. attainment of personal objectives set by the Committee
An Officer's cash incentive award will typically have two components: one
based on corporate performance and one based on performance of the unit for
which the Officer is responsible, although, for example, the CEO's award is
16
based solely on corporate performance. Measurement of an Officer's performance
for purposes of calculating cash incentive awards must be objectively
determinable under the Plan, based on standards set by the Committee at the
beginning of the evaluation period. In addition, the Plan gives the Committee
the power to adjust targets for performance to account for extraordinary events
that have a material impact on a performance measure during a performance
period.
The Committee strives to have cash incentive awards set so that if the
performance of the Officers meets the expected targets, the Officers' cash
incentive compensation and total compensation will be above the average for
similarly situated officers of other insurance companies, at approximately the
66th percentile.
The Committee determined that for performance in 2003 the corporate
component of the annual cash incentive awards to Officers would be equally
based on attaining the Company's business plan targets for (i) GAAP operating
earnings per share and (ii) insurance premiums written and contract deposits.
Based on 2003 performance, the Committee determined that no amount was payable
on the first measure, but a portion of the cash annual incentive awards for
2003 was paid to Officers, including the CEO, based on achievement of the
second measure.
With regard to long-term cash incentive awards, the Committee established a
three year performance period consisting of 2002 through 2004, with awards
thereunder payable in 2005. The Committee determined that for performance over
the three year period two measures would be used in equal proportion: return on
equity and GAAP operating earnings per share. For the 2003 portion of the three
year award, the threshold return on equity and the GAAP operating earnings per
share targets were not met. The actual long-term cash incentive awards for this
performance period can not be calculated until the end of the three year period.
Stock Options
The Committee believes that making stock options a component of Officer
compensation further aligns their goals with those of the Shareholders. The
Committee established a three year performance measurement period identical to
the long-term cash incentive award, using the same measures, to apply to stock
options. The Committee granted non-vested stock options at the beginning of the
three year period to the Officers other than the CEO; those options vest upon
the earlier of the attainment of the performance measures during the three year
period or the end of four years from the date of grant. The Committee did not
grant such options to the CEO because of the stock options granted to him in
his employment agreement, described in the section Agreements with Key
Employees, and the subsequent grant of options to the CEO. The options have
seven year lives and were granted at market value of the Common Stock on the
date of grant. No stock options were granted to the Officers in 2003.
Deferred Compensation Plan
The Company maintains the Horace Mann Educators Corporation Deferred
Compensation Plan whereby employees who earn long-term cash incentive awards
may defer all or part of those awards on a pretax basis to units that track the
performance of the Common Stock. This is an unfunded plan maintained to provide
a deferred compensation mechanism for highly compensated management employees.
Under certain circumstances, participation in this plan is not voluntary; the
Board has established Common Stock ownership targets for certain members of
management; if such targets have not been met, the necessary portion of any
long-term cash incentive award will be deferred into the plan. The plan is
designed to be exempt from short swing profit liability under Section 16(b) of
the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE
WILLIAM W. ABBOTT, Chairman
MARY H. FUTRELL and JOSEPH J. MELONE, Members
NOTE: The Report of the Audit Committee of the Board of Directors, the
Report on Executive Compensation of the Compensation Committee and the Stock
Price Performance Graph shall not be deemed to be incorporated by reference, in
whole or in part, by any general statement incorporating by reference this
Proxy Statement into any filing under the Securities Act of 1933, as amended,
or under the Securities Exchange Act of 1934, as amended.
17
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return* of Horace Mann Educators
Corporation, the S&P 500 Insurance Index and the S&P 500 Index. The graph
assumes $100 invested on December 31, 1998 in Horace Mann Educators
Corporation, S&P 500 Insurance Index and S&P 500 Index.
HORACE MANN EDUCATORS CORPORATION STOCK PRICE PERFORMANCE
[CHART]
12/98 12/99 12/00 12/01 12/02 12/03
HMEC 100 70 78 79 59 55
S&P 500 Insurance Index 100 107 145 127 101 121
S&P 500 Index 100 121 110 97 76 97
12/98 12/99 12/00 12/01 12/02 12/03
----- ----- ----- ----- ----- -----
HMEC................... $100 $ 70 $ 78 $ 79 $ 59 $ 55
S&P 500 Insurance Index $100 $107 $145 $127 $101 $121
S&P 500 Index.......... $100 $121 $110 $ 97 $ 76 $ 97
--------
*The S&P 500 Index, as published by Standard and Poor's Corporation
("S&P"), and the S&P 500 Insurance Index assume an annual reinvestment
of dividends in calculating total return. Horace Mann Educators
Corporation assumes reinvestment of dividends when paid.
18
OTHER MATTERS
Independent Public Accountants
The independent certified public accountants selected by the Audit Committee
for the Company's fiscal year ending December 31, 2004 are KPMG LLP. KPMG LLP
served in that capacity for the fiscal year ended December 31, 2003. A
representative from the firm is expected to be present at the Annual Meeting.
The representative will be given an opportunity to make a statement to the
Shareholders and is expected to be available to respond to appropriate
questions from Shareholders of the Company.
Audit Fees
The aggregate fees billed for professional services rendered by KPMG LLP for
the audit of the Company's annual financial statements for the year ended
December 31, 2003, the reviews of the financial statements included in the
Company's quarterly reports on Forms 10-Q for the year ended December 31, 2003
and services in connection with the Company's statutory and regulatory filings
for the year ended December 31, 2003 were $831,600. Fees in 2003 included
$16,500 related to the Company's "universal shelf" registration statement. The
aggregate fees billed for professional services rendered by KPMG LLP for the
audit of the Company's annual financial statements for the year ended December
31, 2002, the reviews of the financial statements included in the Company's
quarterly reports on Forms 10-Q for the year ended December 31, 2002 and
services in connection with the Company's statutory and regulatory filings for
the year ended December 31, 2002 were $908,300. Fees in 2002 included $210,900
related to the Company's registration of its Senior Convertible Notes.
Audit-Related Fees
The aggregate fees billed for assurance and related services rendered by
KPMG LLP that are reasonably related to the audit and reviews of the Company's
financial statements for the years ended December 31, 2003 and 2002, exclusive
of the fees disclosed under the section Audit Fees above, were $0 and $0,
respectively.
Tax Fees
The aggregate fees billed for tax compliance, consulting and planning
services rendered by KPMG LLP during the years ended December 31, 2003 and 2002
were $61,800 and $78,500, respectively. These fees were primarily for tax
consulting services provided to the Company.
All Other Fees
The aggregate fees billed for all other services, exclusive of the fees
disclosed above relating to audit, audit-related and tax services, rendered by
KPMG LLP during the years ended December 31, 2003 and 2002, were $25,200 and
$18,400, respectively. In both years, these fees were for assistance with the
Company's employee compliance affirmation process regarding its Code of Ethics,
Code of Conduct and Rules of Market Conduct.
Consideration of Non-audit Services Provided by the Independent Accountant
The Audit Committee has considered whether the non-audit services provided
by KPMG LLP are compatible with maintaining the auditor's independence. The
Audit Committee approves in advance any significant audit and all non-audit
engagements or services between the Company and the independent auditors, other
than "prohibited non-auditing services" as defined by regulatory authorities.
The Audit Committee may delegate to one or more of its members the authority to
approve in advance all significant audit and all non-audit services to be
provided by the independent auditors so long as it is presented to the full
Audit Committee at a later time. Pre-approval is not necessary for de minimis
audit services as long as such is presented to the full Audit Committee at the
next regularly scheduled meeting. The Audit Committee approved all of the above
listed expenses.
19
Copies of Annual Report on Form 10-K
The Company will furnish, without charge, a copy of its most recent Annual
Report on Form 10-K to the Securities and Exchange Commission to each person
solicited hereunder who mails a written request to the Investor Relations
Department, Horace Mann Educators Corporation, 1 Horace Mann Plaza,
Springfield, Illinois, 62715-0001. The Company also will furnish, upon payment
of a reasonable fee to cover reproduction and mailing expenses, a copy of all
exhibits to the Annual Report on Form 10-K. In addition, the Company's Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports are available free of charge through
the Company's internet website, www.horacemann.com, as soon as practicable
after such reports are electronically filed with, or furnished to, the
Securities and Exchange Commission ("SEC"). The EDGAR filings of such reports
are also available at the SEC's website, www.sec.gov.
Shareholder Proposals for 2005 Annual Meeting
Any proposals of Shareholders intended to be presented for inclusion in the
Company's Proxy Statement and Form of Proxy for the next Annual Meeting
scheduled to be held in 2005 must be received in writing by Ann M. Caparros,
Corporate Secretary, 1 Horace Mann Plaza, Springfield, Illinois, 62715-0001 not
later than December 31, 2004 in order for such proposal to be considered for
inclusion in the Company's Proxy Statement and proxy relating to the 2005
Annual Meeting.
Shareholders are urged to complete, sign and date the accompanying proxy
card and return it in the enclosed envelope, to which no postage need be
affixed if mailed in the United States of America.
By order of the Board of Directors,
/s/ Ann M. Caparros
Ann M. Caparros
Corporate Secretary
Springfield, Illinois
April 1, 2004
Again, we call your attention to the enclosed proxy card. PLEASE VOTE, DATE,
SIGN AND RETURN IT PROMPTLY, regardless of whether you plan to attend the
meeting.
20
[LOGO]
Horace Mann
Educated Financial
Solutions
Horace Mann Educators
Corporation
1 Horace Mann Plaza
Springfield, Illinois
62715-0001
217-789-2500
www.horacemann.com HA-C00351 (Mar. 04)
ANNUAL MEETING OF SHAREHOLDERS OF
HORACE MANN EDUCATORS CORPORATION
May 25, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
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1. Election of Directors: 2. To consider and take action with respect to such
other matters as may properly come before the Annual
NOMINEES: Meeting or any adjournment or adjournments thereof.
[_] FOR ALL NOMINEES O William W. Abbott
O Mary H. Futrell PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE
[_] WITHHOLD AUTHORITY O Louis G. Lower II ENCLOSED ENVELOPE PROVIDED TO AMERICAN STOCK
FOR ALL NOMINEES O Joseph J. Melone TRANSFER & TRUST COMPANY, 40 WALL STREET, 46TH
O Jeffrey L. Morby FLOOR, NEW YORK, N.Y. 10005.
[_] FOR ALL EXCEPT O Shaun F. O'Malley
(See instructions below) O Charles A. Parker
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this
method.[_]
- --------------------------------------------------------------------------------
Signature of Shareholder [___________________] Date: [_________] Signature of Shareholder [___________________] Date: [_________]
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
0
HORACE MANN EDUCATORS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 25, 2004
The undersigned Shareholder of Horace Mann Educators Corporation (the
"Company") hereby appoints Joseph J. Melone and Louis G. Lower II or any of
them, with full power of substitution, proxies to vote at the Annual Meeting of
Shareholders of the Company (the "Meeting"), to be held on May 25, 2004 at 9:00
a.m. at the Renaissance Springfield Hotel, 701 East Adams Street, Springfield,
Illinois, and at any adjournment thereof and to vote all shares of Common Stock
of the Company held or owned by the Undersigned as directed on the reverse side
and in their discretion upon such other matters as may come before the Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSAL 1 IF NO
INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO INSTRUCTION IS GIVEN AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON PROPOSAL 2.
(TO BE SIGNED ON OTHER SIDE.)