-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIy8/+eUqfqrUC7tfawSxzGMRndoIThz6oY3mjdKRhLVY3pL9ABS2mR9f+ZdFUTN LsTvVl+HIraKVpIsWVfhYA== 0000009346-00-000005.txt : 20000328 0000009346-00-000005.hdr.sgml : 20000328 ACCESSION NUMBER: 0000009346-00-000005 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000502 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDWIN & LYONS INC CENTRAL INDEX KEY: 0000009346 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 350160330 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-05534 FILM NUMBER: 578885 BUSINESS ADDRESS: STREET 1: 1099 N MERIDIAN ST STREET 2: STE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3176369800 MAIL ADDRESS: STREET 1: 1099 NORTH MERIDIAN ST STREET 2: STE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: BALDWIN H C AGENCY INC DATE OF NAME CHANGE: 19720309 DEF 14A 1 BALDWIN & LYONS, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 2, 2000 TO THE SHAREHOLDERS OF BALDWIN & LYONS, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Baldwin & Lyons, Inc. (the "Corporation") will be held Tuesday, May 2, 2000 at 10:00 a.m., Indianapolis Time, at 1099 North Meridian Street, Indianapolis, Indiana 46204 for the following purposes: 1. To elect twelve (12) directors, 2. To ratify the appointment of Ernst & Young LLP as independent auditors for the Corporation, and 3. To transact such other business as may properly come before the meeting and any adjournment thereof. The Board of Directors has fixed the close of business on March 13, 2000, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you are urged to mark, date and sign the enclosed proxy and return it promptly so your vote can be recorded. If you are present at the meeting and desire to do so, you may revoke your proxy and vote in person. Shares of the Class B Common Stock are not entitled to vote and proxies are not being solicited in regard to the Class B shares. Date: April 1, 2000. By Order of the Board of Directors James E. Kirschner Secretary YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON 1 BALDWIN & LYONS, INC. PROXY STATEMENT GENERAL INFORMATION USE OF PROXIES This Proxy Statement is furnished in connection with the solicitation by Baldwin & Lyons, Inc. (the "Corporation") of proxies to be voted at the Annual Meeting of Shareholders to be held on Tuesday, May 2, 2000, in accordance with the foregoing notice. The Proxy Statement and accompanying proxy card were mailed to shareholders on or about April 1, 2000. The mailing address of the Corporation's principal office is 1099 North Meridian Street, Indianapolis, Indiana 46204. Any proxy may be revoked by the person giving it at any time before it is voted by delivering to the Secretary of the Corporation a written notice of revocation or a duly executed proxy bearing a later date. Shares represented by a proxy, properly executed and returned to the Corporation, and not revoked, will be voted at the Annual Meeting. Shares will be voted according to the directions of the shareholder as specified on the proxy. If no directions are given, the proxy will be voted FOR the election of the twelve directors named as nominees in this Proxy Statement and FOR the appointment of Ernst & Young LLP as independent auditors for the Corporation. Any other matters that may properly come before the meeting will be acted upon by the persons named in the accompanying proxy in accordance with their discretion. RECORD DATE AND VOTING SECURITIES The close of business on March 13, 2000, has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. As of March 13, 2000, the Corporation had 2,321,154 shares of Class A Common Stock outstanding and entitled to vote. Each share of Class A Common Stock is entitled to one vote. The vote can be exercised in person or by proxy. There are no other outstanding securities of the Corporation entitled to vote. There will be no cumulative voting for the election of directors. Shares of Class B Common Stock are not entitled to vote and proxies are not being solicited in regard to the Class B shares. The By-Laws of the Corporation provide that the Board of Directors is to consist of thirteen (13) members. Dr. L. Leslie Waters, a member of the Board of Directors since 1980, recently informed the Corporation that in light of his age and other factors, he would not be able to dedicate sufficient time to the Corporation's business to serve as a director and would therefore not stand for re-election to the Board of Directors. No decision has been made as to when, or if, the vacancy will be filled. It is also possible that the Board of Directors will be reduced to twelve members. PROXIES MAY NOT BE VOTED FOR GREATER THAN TWELVE (12) NOMINEES. EXPENSES OF SOLICITATION All expenses of the solicitation of proxies will be paid by the Corporation. Officers, directors and other employees of the Corporation may solicit proxies by telephone or telegram or by special calls. The Corporation will also reimburse brokers and other persons holding stock in their names or in the names of their nominees for their expenses in forwarding proxies and proxy material to the beneficial owners of the Corporation's stock. 1 2 BENEFICIAL OWNERS OF MORE THAN 5% OF THE CLASS A COMMON STOCK The following table contains information concerning persons who, to the knowledge of the Corporation, beneficially owned on March 13, 2000, more than 5% of the outstanding voting securities of the Corporation:
Number of Class A Shares Name and Address of And Nature of Beneficial Owner (1) Beneficial Ownership Percent of Class A Shares - ------------------------- ------------------------ ------------------------- SHAPIRO FAMILY INTERESTS 999,600 43.06% (in the aggregate) (2) 311 S. Wacker Drive Chicago, Illinois Nathan Shapiro 622,200 26.81% Lester Shapiro 283,200 12.20% Robert Shapiro 406,500 17.51% Norton Shapiro 324,300 13.97% CIBC TRUST COMPANY (Bahamas) Limited 524,718 22.61% Nassau, Bahamas (3) JOHN D. WEIL 509 Olive Street 307,650 13.25% St. Louis, Missouri (4)
[FN] (1) Shares as to which the beneficial owner has, or may be deemed to have, sole voting and investment powers as to Class A shares, except as otherwise noted. (2) Information with respect to the Shapiro family interests was obtained from Amendment No. 13 to Schedule 13D dated December 23, 1986 and Forms 4 and 5 as filed by such persons with the Securities and Exchange Commission and delivered to the Corporation, and additional information was provided by Nathan Shapiro. The amounts shown for the individuals are included in the amount shown for the Shapiro family interests in the aggregate. Nathan, Robert and Norton Shapiro are sons of Lester Shapiro. The shares reported in the above table for the Shapiro family interests include 142,800 Class A (6.10%) shares held by Gelbart Fur Dressers, 33,000 Class A (l.41%) shares held of record by Jay Ell Company and 142,500 Class A shares (6.08%) held of record by Diversified Enterprises, Illinois partnerships of which Nathan, Robert and Norton Shapiro are the general partners and as to which they share voting and investment powers. These shares are also included in the listing for individual beneficial ownership of each of the three. (3) Information regarding current ownership was obtained from the Form 5 filed with the Securities and Exchange Commission and delivered to the Corporation for the year ended December 31, 1993. According to Amendment No. 9 to Schedule 13D, dated October l, 1986, as filed with the Securities and Exchange Commission and delivered to the Corporation, by CIBC Trust Company (Bahamas) Limited, such shares are held in trust for the benefit of members of the Pritzker family of Chicago, Illinois, including lineal descendants of Nicholas J. Pritzker and certain of their current and former spouses. (4) Information with respect to the interests of John D. Weil was obtained from Amendment No. 2 to Schedule 13D, dated September 15, 1987 and Forms 4 and 5 filed with the Securities and Exchange Commission and delivered to the Corporation, and additional information provided by Mr. Weil. The shares reported include all shares held in the name of family members, family custodianships or family trusts of Mr. Weil. Mr. Weil has reported that he has sole voting and investment powers as to 156,450 Class A shares and shared voting and investment powers as to 151,200 Class A shares, subject to the limitation that Mr. Weil has declared that the Schedule 13D shall not be construed as an admission that he is, for purposes of Sections 13(d) or 13(g) of the Securities Exchange Act, the beneficial owner of the securities covered by the Schedule 13D. 2 3 DIRECTORS AND NOMINEES Twelve (12) directors are to be elected to hold office until the 2001 Annual Meeting and until their respective successors are elected and qualified. The Corporation contemplates that all of the nominees will be able to serve. However, if any of the nominees are unable to serve, the persons named as proxies in the accompanying Proxy may vote for another nominee, or nominees according to their best judgment. Dr. L. Leslie Waters, a long time director has indicated that he does not wish to stand for re-election to the Board. The Board would like to thank Dr. Waters for his long and valuable service as a director. In light of Dr. Waters' decision, there will be one vacancy on the Board. It has not yet been decided when, or if, a replacement for Dr. Waters will be appointed. However, the current plan is that one seat on the Board will remain vacant at this time. All of the nominees are now directors of the Corporation. None of the directors are family-related, except Nathan, Robert and Norton Shapiro, who are brothers. Set forth in the following summaries is the age of each director and nominee, all offices held with the Corporation, his principal occupation, a brief account of his business experience during the past five years and his other directorships. STUART D. BILTON (3) Age 53 Director Since 1987 Mr. Bilton is currently the President of Alleghany Asset Management. Inc. as well as the President and Chief Executive Officer of Chicago Trust Company. Mr. Bilton is also the Chairman and Chief Executive Officer of The Alleghany Funds. JOSEPH J. DEVITO Age 48 Director Since 1997 Mr. DeVito is a Vice President of the Corporation and Executive Vice President and a director of Sagamore Insurance Company ("Sagamore"), a wholly-owned subsidiary of the Corporation's wholly-owned subsidiary, Protective Insurance Company ("Protective"). Mr. DeVito has been employed by the Corporation since 1981. OTTO N. FRENZEL III (2) Age 69 Director Since 1979 Mr. Frenzel is the Chairman of the Executive Committee of National City Bank of Indiana and, prior thereto, was the Chairman of the Board of National City Bank of Indiana, a national bank and a subsidiary of National City Corporation. Mr. Frenzel serves on the Board of Directors of the following companies: American United Life Insurance Company; IPALCO Enterprises, Inc.; and Indianapolis Power & Light Company. JAMES W. GOOD Age 56 Director Since 1997 Mr. Good is a Vice President of the Corporation and Executive Vice President and a director of Protective. Mr. Good has been employed by the Corporation since 1964. 3 4 GARY W. MILLER (3) Age 59 Director Since 1977 Mr. Miller was elected Chairman and Chief Executive Officer of the Corporation in 1997 and has been President of the Corporation since 1983. He is also Chairman, President and Chief Executive Officer of the Corporation's wholly-owned subsidiaries, Protective and B & L Insurance, Ltd., and Protective's wholly-owned subsidiary, Sagamore. Mr. Miller has been employed by the Corporation since 1966. JOHN M. O'MARA (2)(3) Age 72 Director Since 1981 Mr. O'Mara is a business consultant and private investor. From 1993 though 1996 he was a financial consultant with Citicorp Venture Capital Ltd. He is also a director of: Glenoit, Inc.; The Midland Company; and Plantronics, Inc. THOMAS H. PATRICK (1)(3) Age 55 Director Since 1983 Mr. Patrick has been Executive Vice President, Special Advisory Services, Office of the Chairman of Merrill Lynch & Co., Inc. since 1993. Mr. Patrick also serves as a director of Comdisco, Inc. JOHN A. PIGOTT (1)(2)(4) Age 68 Director Since 1997 Mr. Pigott is currently retired. Prior to his retirement in 1996, he served in various capacities, including Director, Vice Chairman, President and Chief Executive Officer of Anixter Corp. NATHAN SHAPIRO (1)(2)(3) Age 63 Director Since 1979 Mr. Shapiro is the president of SF Investments, Inc., a broker/dealer in securities located in Chicago, Illinois. Since December, 1977, he has also served as President of SLD Corp., management consultants. Mr. Shapiro also serves as a director of D.V.I., Inc. NORTON SHAPIRO (4) Age 67 Director Since 1983 Mr. Shapiro is currently retired. Prior to his retirement he was Executive Vice President of National Superior Fur Dressing & Dyeing Co., Inc., a corporation engaged in the processing, cleaning and dressing of furs. He had been an officer of that company since 1957. ROBERT SHAPIRO (1) Age 61 Director Since 1997 Mr. Shapiro is the President and Chief Executive Officer of Emlin Cosmetics, Inc. JOHN D. WEIL (1)(3)(4) Age 59 Director Since 1997 Mr. Weil is President of Clayton Management Co. Mr. Weil also serves as a director of: Allied Healthcare Products, Inc.; PICO Holdings, Inc.; Oglebay Norton Co.; Todd Shipyards Corp.; and Southern Investors Service Co., Inc. [FN] (1) Member of the Compensation and Employee Benefits Committee which makes recommendations to the Board of Directors concerning the compensation arrangements for the executive officers of the Corporation; establishes policies relating to salaries and job descriptions; evaluates performance of executive employees; and reviews and administers remuneration and incentive plans and employee benefit programs of the Corporation, other than those administered by the Option Committee. This Committee held two formal meetings during 1999, and also carried on its business through telephone conversations and informal contacts among its members. 4 5 (2) Member of the Audit Committee which reviews with the independent auditors the scope of the audit work performed, any questions arising in the course of such work, and inquiries as to other matters such as internal accounting controls, financial reporting and security and personnel staffing. The Audit Committee held two formal meetings during 1999, and also carried on its business through telephone conversations. (3) Member of the Investment Committee which considers and makes decisions concerning investments made by the Corporation and each of its wholly owned subsidiaries. The Investment Committee held two formal meetings during 1999 and also carried on its business through frequent telephone conversations and informal contacts among its members. (4) Member of the Option Committee which reviews, manages, and administers the Employee Discounted Stock Option and Deferred Director Fee Option Plan and, in the case of the Employee Plan, designates officers and key employees to receive options and the number and terms of the options. The Committee also interprets the terms of all three plans. The Option Committee held two formal meetings during 1999, and also carried on its business through telephone conversations and informal contacts among its members. During 1999, the Board of Directors held four regular meetings, and each director attended more than 75% of the meetings of the Board of Directors and the committees on which he served with the exceptions of Mr. Patrick, who attended two of the four Board of Directors meetings; Mr.O'Mara, who attended one of the two Audit Committee meetings; and Mr. Pigott, who attended one of the two Option Committee meetings. The Board of Directors has no standing nominating committee or committee performing a similar function. DIRECTORS' FEES Members of the Board of Directors who are not employed by the Corporation receive directors' fees in the amount of $4,500 for each quarterly meeting attended in person. Directors attending by teleconference or unable to attend a meeting receive a fee of $3,000. Some of the directors have elected to participate in the Baldwin & Lyons, Inc. Deferred Director Fee Option Plan ("Deferred Fee Plan"), which was approved by shareholders at the 1989 annual meeting. Those directors have deferred receipt of portions of their director fees. Options received under the Deferred Fee Plan become exercisable one year from the date of the grant and are exercisable within ten years of the date of the grant. Exercise prices are either $1.00 or $0.33 per share. The difference in exercise price reflects the effect of the three for one share split which became effective on November 17, 1993. A total of 6,571 discounted stock options were granted in lieu of cash compensation during 1999. From the beginning of the plan to the present, a total of 69,832 options have been granted in lieu of cash compensation under the Deferred Fee Plan. A total of 17,059 options have been exercised since the beginning of the Deferred Fee Plan, including 8,547 options exercised during 1999. Directors who are employed by the Corporation do not receive directors' fees. Members of committees of the Board of Directors receive no additional compensation for their service on committees. Travel and out-of-pocket expenses of members of the Board of Directors incurred in attending Board of Directors meetings and committee meetings are paid by the Corporation. 5 6 COMMON STOCK BENEFICIALLY OWNED BY DIRECTORS AND MANAGEMENT The following table contains information concerning shares of Class A and B Common Stock of the Corporation beneficially owned on March 13, 2000 by all directors and nominees, the five most highly compensated executive officers (the "Named Executive Officers") and by all directors and officers as a group:
Name of Beneficial Owner or Identity of Group (1) Class A Shares Class B Shares - ------------------------- ----------------------- ---------------------- Number Percent Number Percent (8) (2) (7) (8) ---------- ---------- ---------- ---------- Stuart D. Bilton -0- -0- 22,283 .21% G. Patrick Corydon 8,100 .35% 60,233 .56% Joseph J. DeVito 3,750 .16% 77,750 .72% Otto N. Frenzel, III 3,750 .16% 26,138 .24% James W. Good 13,800 .59% 65,200 .60% James E. Kirschner 12,375 .53% 76,833 .71% Gary W. Miller 37,029 1.60% 182,783 1.69% John M. O'Mara(3) 68,250 2.94% 283,923 2.64% Thomas H. Patrick(4) 71,100 3.06% 194,716 1.81% John A. Pigott 2,100 .09% 18,222 .17% Nathan Shapiro(5) 622,200 26.81% 1,804,603 16.79% Norton Shapiro(5) 324,300 13.97% 1,165,500 10.85% Robert Shapiro(5) 406,500 17.51% 1,178,829 10.96% L. Leslie Waters(6) 7,800 .34% 24,900 .23% John D. Weil 307,650 13.23% 1,488,429 13.86% Directors and officers as a 1,252,104 53.94% 4,368,742 39.48% group (15 persons including the above named)
[FN] (1) Unless otherwise indicated, shares disclosed are those as to which the beneficial owner has sole voting and investment powers or sole investment power with respect to Class B shares; and includes the beneficial interest of spouses and minor children who share the same residence as the named individual. (2) A total of 10,737,387 Class B shares were issued and outstanding as of March 13, 2000. (3) Includes 11,100 Class A shares and 44,400 Class B shares owned by Mr. O'Mara's wife; and 45,900 Class A shares and 183,600 Class B shares held in trust for his children, with Mr. O'Mara serving as trustee. Mr. O'Mara disclaims any beneficial interest in the foregoing shares. (4) Includes 29,100 Class A shares and 15,400 Class B shares owned by Mr. Patrick's wife. Mr. Patrick disclaims any beneficial interest in her shares. (5) See "Beneficial Owners of More than 5% of the Common Stock" for Class A shares. The shares reported in the above table for Nathan, Norton and Robert Shapiro include 1,150,800 Class B shares owned by three partnerships: Gelbart Fur Dressers; Jay Ell Company and Diversified Enterprises. Nathan, Robert and Norton Shapiro are general partners of those partnerships and they share investment power. 6 7 (6) Includes 150 Class A shares and 600 Class B shares owned by Dr. Waters' wife. Dr. Waters has determined not to stand for re-election to the Board of Directors. (7) Includes the number of Class B shares which each of the following persons have a right to acquire within 60 days by exercise of stock options: Mr. Miller 78,667; Mr. Nathan Shapiro 10,139; Mr. Patrick 8,649; Messrs. Frenzel and Bilton 8,768 each; Mr. O'Mara 8,553; Mr. DeVito 59,250; Mr. Kirschner 39,333; Mr. Good 57,700; Mr. Corydon 41,858; Messrs. Weil and Robert Shapiro 2,229 each; Mr. Piggott 1,722; and all officers and directors as a group 327,865. (8) For purposes of determining the percentage of the class owned by each named individual, shares subject to options in favor of that individual are deemed outstanding but are not deemed outstanding for computing the percentage of the class held by any other person. All shares subject to options in favor of officers and directors as a group are deemed outstanding for purposes of computing the percentage of the class owned by the officers and directors as a group. EXECUTIVE COMPENSATION AND OTHER INFORMATION JOINT REPORT OF THE COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE AND THE OPTION COMMITTEE The executive compensation program is administered by the Compensation and Employee Benefit Committee of the Board of Directors (the "Committee") in conjunction with the Option Committee (the "Option Committee"). At the present time, three members of the Option Committee are also members of the Committee. The Committee oversees the administration of the Corporation's employee benefits plans, other than those administered by the Option Committee, and establishes policies relating to compensation of employees. The Committee reviews all aspects of executive compensation and evaluates performance of the Corporation's executive officers. The Option Committee reviews, manages, and administers all of the stock option plans of the Corporation and, in the case of the Employee Plan, designates officers and key employees to receive options, and the number and terms of the options. The Committee and the Option Committee functions are coordinated to determine and review the total compensation package for each of the named executive officers of the Corporation. All decisions by the Committee relating to the compensation of the Corporation's executive officers are reviewed by the full Board before they are implemented. The goal of the Corporation's executive compensation policy is to ensure that an appropriate relationship exists between executive pay and the creation of shareholder value, while, at the same time, motivating and retaining key employees. To achieve this goal, the Corporation's executive compensation policies integrate annual base compensation with bonuses based upon corporate performance. The Corporation also utilizes equity-based incentive and deferred compensation to ensure that executives, and management in general, have a continuing stake, as shareholders, in the long-term success of the Corporation. The Committee first seeks to set the CEO's compensation in light of the standards mentioned above and the performance of the Corporation in relation to expectations of the Board. The compensation of other executives is set in reference to the compensation of the CEO. Because of the unique nature of the markets which the Corporation serves, the Committee does not believe that there are individual companies or industry measures to which it can reliably compare the performance of the Corporation over a limited period of time. Thus, while the Committee considers the Corporation's financial results in light of industry standards, prevailing market conditions for the Corporation's products and expectations regarding future performance, corporate performance is evaluated primarily against flexible, internally created goals and expectations which must be adjusted frequently in order to react to the numerous external factors which affect the Corporation. The Committee does not set specific numerical targets or goals, but rather evaluates the performance of the management team annually in relation to opportunities presented to them and challenges addressed by them. This process is largely subjective and is not intended to, and cannot be expected to, result in changes in executive compensation which are in direct proportion 7 8 to increases or decreases in the Corporation's net income, return on equity or any other single quantitative measure or a predetermined combination of quantitative measures during the year. In reviewing the compensation to be paid to the Corporation's executive officers during any given year, the Committee views the results of operations over a several year period. This approach recognizes the cyclical nature of the Corporation's business, the fact that, as a specialty insurance underwriter operating within very narrow markets, the Corporation must, from time-to-time, sacrifice short-term profits for long-term financial growth. In addition, this approach recognizes the stability of the executive management team which has essentially been in place since 1980. Portions of executive officers annual compensation have, in the past, been paid in the form of stock options and equity appreciation rights. The use of stock options and equity appreciation rights results in total compensation which is highly leveraged against, and directly linked to, the Corporation's performance and increases in shareholder value. The linkage results from the relationship of the stock options to the market price of the Corporation's Class B common shares and the relationship of the equity appreciation rights to the book value of the Corporation's shares. In its deliberations regarding calendar year 1999, the Committee considered its long-term approach regarding the goals and performance of the Corporation and the performance and present compensation of each executive officer of the Corporation. The Committee determined to increase salaries of executive officers by an average of 8.8% and annual bonuses by an average of 4.2% when compared to the prior year amounts. In addition, equity appreciation rights were granted to the executive officers and other management personnel during 1999. No stock options were granted to any of the executive officers during 1999. The Committee and the Option Committee believe that the increases approved are consistent with a long-term view of both the performance of the Corporation and of its executive officers. The Committee has considered the possible impact of Section 162(m) of the Internal Revenue Code, and the regulations thereunder, on the deductibility of the executive compensation by the Corporation. At the present time, the Committee believes that the likelihood that Section 162(m) will have a significant impact on the Corporation is negligible. Nonetheless, the Committee plans to continue to monitor the regulations and any possible impact they may have on the Corporation, and to take appropriate steps when, and if, any measures are necessary. COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE Thomas Patrick, John Pigott, Nathan Shapiro, Robert Shapiro, L. Leslie Waters and John Weil. OPTION COMMITTEE John Pigott, Norton Shapiro, L. Leslie Waters and John Weil. 8 9 EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table discloses, for the years ended December 31, 1997, 1998 and 1999, the cash compensation paid by the Corporation, as well as certain other compensation paid or accrued for those years, to each person who served as the Chief Executive Officer of the Corporation during the year and to each of the five most highly compensated executive officers of the Corporation ("Named Executive Officers") in all capacities in which they served.
SUMMARY COMPENSATION TABLE Long Term Compensation -------------------------------- Annual Compensation Awards Payouts ----------------------------- ------------------------ ----------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name and Year Salary Bonus ($) Annual Restricted Securities LTIP All Other Principal Position ($) Comp/ Stock Underlying Payouts Compen- Other Awards Options/ ($) sation ($)1 ($) ($) SARs (#) - ------------------- -------- --------- --------- --------- --------- --------- --------- --------- Gary W. Miller 1999 369,236 375,000 0 0 100,000 0 12,800 President 1998 314,346 330,000 0 0 0 0 12,800 CEO 1997 224,553 300,000 0 0 100,000 0 12,750 James W. Good 1999 284,722 280,000 0 0 75,000 0 12,800 Vice President 1998 243,700 230,000 0 0 0 0 12,800 1997 192,358 200,000 0 0 75,000 0 12,750 Joseph J. DeVito 1999 272,917 280,000 0 0 75,000 0 12,800 Vice President 1998 241,835 230,000 0 0 0 0 12,800 1997 194,014 200,000 0 0 75,000 0 12,750 James E. Kirschner 1999 212,167 100,000 0 0 50,000 0 12,800 Vice President 1998 207,038 195,000 0 0 0 0 12,800 Secretary 1997 188,889 150,000 0 0 50,000 0 12,750 G. Patrick Corydon 1999 214,500 200,000 0 0 50,000 0 12,800 Vice President 1998 206,660 200,000 0 0 0 0 12,800 Treasurer 1997 180,735 165,000 0 0 50,000 0 12,750
[FN] 1 Company contribution to Salary Saving and Profit Sharing Plan (401K) Plan 9 10 CORPORATION PERFORMANCE The following graph shows a five year comparison of cumulative total return for the Corporation's Class B common shares, the NASDAQ Insurance Stock Index and the Russell 2000 Index.
CUMULATIVE TOTAL RETURN BALDWIN & LYONS, INC. (CLASS B COMMON SHARES) EDGAR PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Baldwin & Lyons Nasdaq Insurance Class B Stocks Russell 2000 --------------- ---------------- ------------ December 31, 1994 100.000 100.000 100.000 December 31, 1995 112.296 142.048 126.206 December 31, 1996 129.649 161.922 144.835 December 31, 1997 173.772 237.522 174.557 December 31, 1998 181.454 211.579 168.542 December 31, 1999 165.308 164.286 201.610
10 11 STOCK OPTIONS STOCK OPTION EXERCISES AND HOLDINGS The following table contains information about the exercise of stock options during 1999, by the Named Executive Officers. It also contains information about their unexercised stock options held as of the end of 1999. The Corporation has not granted any stock appreciation rights and none are outstanding. Options shown in the table below represent discounted stock options and fair market value options granted under the Baldwin & Lyons Employee Discounted Stock Option Plan. Each option represents the right for the employee to acquire one Class B common share upon payment in cash of the option exercise price.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST YEAR AND YEAR END OPTION/SAR VALUES (a) (b) (c) (d) (e) Name Shares Value Number of Value of Acquired on Realized Unexercised Unexercised Exercise ($) Options/SARs In-the-Money (#) At Year End Options/SARs (#) At Year End ($)(V) - ------------------------- ------------ ------------ ------------ ------------ Gary W. Miller 10,500 207,156 78,667 (E) 253,500 33,333 (N) 0 James W. Good 4,500 91,875 57,700 (E) 162,663 25,000 (N) 0 Joseph J. DeVito 4,500 94,406 59,250 (E) 195,406 25,000 (N) 0 James E. Kirschner 4,500 90,750 39,333 (E) 126,750 16,667 (N) 0 G. Patrick Corydon 4,500 91,875 41,858 (E) 180,091 16,667 (N) 0
[FN] (E) Exercisable at December 31, 1999. (N) Not exercisable at December 31, 1999. (V) Market value of underlying securities at year end, minus exercise price. 11 12 EQUITY APPRECIATION RIGHTS EQUITY APPRECIATION RIGHT EXERCISES AND HOLDINGS The following table contains information about Equity Appreciation Rights ("Rights") exercised by the Named Executive Officers during 1999. It also contains information about unexercised Rights held by the Named Executive Officers as of the end of 1999. Rights shown in the table below represent Rights issued by the Corporation to each of the Named Executive Officers. Each Right entitles the employee to payment for the appreciation in the book value of one share of the Corporation's common stock from the end of the quarter immediately prior to the date of grant through the end of the quarter immediately prior to the date of exercise. The Rights vest and become exercisable at the rate of one-third per year at the end of the one-year, two-year and three-year periods from the date of grant. Any unexercised Rights terminate ten years from the date of grant. Rights may not be exercised to acquire shares of the Corporation. In addition, the value of Rights does not necessarily coincide with the market value of the Corporation's shares. The value of Rights is linked to the book value of the Corporation's shares, which we believe more closely reflects the internal performance of the Corporation. Rights are generally not subject to certain market factors which may effect, either positively or negatively, the market value for the Corporation's Class A or Class B shares.
AGGREGATED EQUITY APPRECIATION RIGHT EXERCISES IN THE LAST YEAR AND YEAR END EQUITY APPRECIATION RIGHT VALUES (a) (b) (c) (d) (e) Name Number of Value Number of Value of Rights Realized Unexercised Unexercised Exercised ($) Rights At Year In-the-Money (#) End Rights At Year (#) End ($)(V) - ------------------------- ------------ ------------ ------------ ------------ Gary W. Miller 49,624 446,120 125,500 (E) 827,285 75,000 (N) 50,250 James W. Good 0 0 68,750 (E) 413,543 56,250 (N) 37,387 Joseph J. DeVito 0 0 68,750 (E) 413,543 56,250 (N) 37,387 James E. Kirschner 0 0 62,500 (E) 409,355 37,500 (N) 25,125 G. Patrick Corydon 0 0 62,500 (E) 409,355 37,500 (N) 25,125
[FN] (E) Exercisable at December 31, 1999. (N) Not exercisable at December 31, 1999. (V) Book value at year end, minus book value at date of grant. 12 13 OPTION/STOCK/EQUITY APPRECIATION GRANTS The following table contains information about Equity Appreciation Rights ("Rights") granted to the Named Executive Officers during 1999. The table also contains information about the value of those Rights. No stock options were granted in 1999.
OPTION/STOCK APPRECIATIOIN RIGHTS GRANTS IN LAST YEAR Potential Realizable Value 1 at Assumed Annual Rates of Stock Individual Grants Price Appreciation For Option Term 2 ---------------------------------------------------- ------------------------------------ (a) (b) (c) (d) (d1) (e) (f) (g) (h) Name Options/ % of Total Exercise Mkt or Book Expiration 0% ($) 5%($) 10%($) SARs/ Options/EARs Or Base Value on Date EARs,3 Granted to Price Date of Granted Employees in $/Share Grant Fiscal Year $/Share - -------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gary W. Miller 100,000 21.0% 20.66 20.66 12/29/09 0 641,000 641,000 James W. Good 75,000 15.8% 20.66 20.66 12/29/09 0 480,750 480,750 Joseph J. DeVito 75,000 15.8% 20.66 20.66 12/29/09 0 480,750 480,750 James E. Kirschner 50,000 10.5% 20.66 20.66 12/29/09 0 320,500 320,500 G. Patrick Corydon 50,000 10.5% 20.66 20.66 12/29/09 0 320,500 320,500
[FN] 1 Potential realizable value represents the difference between the potential book value of the Rights and the exercise price of the Rights, assuming the indicated compound rates of growth and considering maximum appreciation limitations on the Rights. 2 The dollar amounts in the last two columns are the result of calculations at 5% and 10% compound annual rates and are not intended to forecast future appreciation of the Corporation's common shares. The Corporation did not elect to use an alternative option pricing method for valuation because it is not aware of any formula which it believes will determine with reasonable accuracy a present value based on unknown factors. The potential realizable values in the table include amounts which are the result of the Compensation Committee granting certain executive officers Rights as part of an overall compensation package in 1999. 13 14 TRANSACTION WITH MANAGEMENT AND OTHERS The Corporation and its subsidiaries, Protective and Sagamore, maintain depository relationships with National City Bank, Indiana ("National City"). Otto N. Frenzel III, is Chairman of the Executive Committee of that bank. National City also provides various custodial and safekeeping services to the Corporation, Protective and Sagamore and serves as transfer agent for the Corporation's common shares. The Corporation and its subsidiaries also had investments in various money-market accounts which were managed by unrelated third parties but were purchased through an affiliate of National City. In addition, during 1999, the Corporation, Protective and Sagamore effected purchases, but no sales, of securities aggregating approximately $1,500,000 through the same affiliate of National City. During 1999, the Corporation, Protective and Sagamore made purchases and sales of securities aggregating, respectively, approximately $25,617,000 and $44,896,000 with SF Investments, Inc., a broker-dealer firm. Nathan Shapiro, a director of the Corporation, is President of that firm. The Corporation also paid approximately $141,000 during 1999 to SF Investments, Inc. and its affiliates for advice and counseling on the Corporation's investment portfolio. Protective has entered into an agreement with an associate of SF Investments, Inc. for management of a portion of Protective's equity securities portfolio. During 1999, that associate earned no performance-based compensation and was paid approximately $120,000 for management services. During 1999, the Corporation, Protective and Sagamore made purchases and sales of securities aggregating, respectively, approximately $4,404,000 and $2,878,000 with Merrill Lynch Co., Inc. ("Merrill Lynch"). In addition, the Corporation had an investment of approximately $84,000 in various money-market accounts managed by Merrill Lynch at December 31, 1999. Thomas H. Patrick, a director of the Corporation, is an Executive Vice President of Merrill Lynch. The Corporation, Protective, and Sagamore have agreements with Chicago Trust Company ("CTC") for the management of substantial portions of the Companies' investment portfolios. CTC is paid a management fee based on the average cost of investments managed. During 1999, a total of approximately $352,000 was paid by the Corporation and its subsidiaries to CTC for its management services. Stuart D. Bilton, a director of the Corporation, is President and Chief Executive Officer of CTC. INDEPENDENT AUDITORS The Board of Directors has appointed Ernst & Young LLP as independent auditors to audit the financial statements of the Corporation for 2000. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting. They will be provided an opportunity to make a statement should they desire to do so and to respond to appropriate inquiries from the shareholders. Ernst & Young LLP has acted as the Corporation's independent auditors since 1970. The Board of Directors recommends a vote "FOR" ratification of the selection of Ernst & Young LLP as independent auditors. 14 15 VOTE REQUIRED FOR APPROVAL Shareholders owning a majority of the Class A shares outstanding must be present or represented by proxy in order to constitute a quorum for the transaction of business. Thus, a total of 1,160,578 Class A shares will be required at the meeting for there to be a quorum. In order to elect the directors for the ensuing year and to confirm the appointment of Ernst & Young LLP as the Corporation's independent auditors, a majority of the votes present at the meeting, either in person or by proxy, a quorum being present, will be required. SUBMISSION OF SHAREHOLDER PROPOSALS Shareholder proposals to be presented at the 2001 Annual Meeting of Shareholders must be received by the Corporation at its principal office on or before November 30, 2000 to be considered for inclusion in the Corporation's proxy materials for that meeting. OTHER MATTERS The Corporation knows of no other matters to be presented for action at the meeting. If any other matters should properly come before the meeting, or any adjournment of the meeting, those matters will be acted on by the persons named as proxies in the accompanying Proxy. The proxies will use their best judgment to vote the shares in the best interests of the Corporation. The Annual Report to Shareholders contains financial statements for the year ended December 31, 1999 and other information about the operations of the Corporation. The Annual Report is enclosed with this proxy statement but is not regarded as proxy soliciting material. In addition, the Report of the Compensation and Employee Benefits Committee and the Comparative Cumulative Total Return graph included in is proxy statement is not regarded as proxy soliciting material. Each shareholder is urged to mark, date, sign and return the enclosed proxy card in the envelope provided for that purpose. Prompt response is helpful, and your cooperation will be appreciated. April 1, 2000 By Order of the Board of Directors James E. Kirschner Secretary 15 APPENDIX PROXY BALDWIN & LYONS, INC. 1099 North Meridian Street, Indianapolis, Indiana Annual Meeting of Shareholders -- May 4, 1999 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Gary W. Miller, James Kirschner and G. Patrick Corydon or any of them, with powers of substitution, as proxies to represent and vote all shares of stock which the undersigned would be entitled to vote at the Annual Meeting of Shareholders of Baldwin & Lyons, Inc. to be held on May 2, 2000, and at any adjournment thereof, with all of the powers the undersigned would possess if personally present, as follows: 1. ELECTION OF DIRECTORS WITHHOLD AUTHORITY FOR all nominees listed below to vote for all nominees (except as marked to the [ ] listed below [ ] contrary below) Stuart D. Bilton, Joseph J. DeVito, Otto N. Frenzel III, James W. Good, Gary W. Miller, John M. O'Mara, Thomas H. Patrick, John A. Pigott, Nathan Shapiro, Norton Shapiro, Robert Shapiro, John D. Weil THE PROXY MAY NOT BE VOTED GREATER THAN TWELVE (12) DIRECTORS (INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) (Continued, and to be signed and dated, on the other side.) 2. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP as independent auditors [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. In their discretion, on such other matters as may properly come before the meeting. THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES NAMED IN PROPOSAL 1 AND FOR THE RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED IN PROPOSAL 2. Dated: , 2000 Please sign exactly as your ---------------------- name appears hereon. Address correction requested. -------------------------- (Signature of Shareholder) -------------------------- (Signature of Shareholder) PLEASE SIGN AND RETURN THIS PROXY PROMPTLY. Joint owners should each sign personally. Administrators, trustees, guardians, attorneys or others signing in a representative capacity should indicate the capacity in which they sign. -----END PRIVACY-ENHANCED MESSAGE-----