<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE
14-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
NATIONWIDE FINANCIAL SERVICES, INC.
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------
(5) Total fee paid:
------------------------------------------------
[ ] 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 number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
----------------------------------------------------
<PAGE> 2
Nationwide Logo
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
March 31, 1999
Dear Nationwide Financial Services, Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Nationwide Financial Services, Inc. (the "Company") on May 11, 1999. The meeting
will begin at 1:30 p.m. at the office of the Company at One Nationwide Plaza,
Columbus, Ohio.
The official Notice of Meeting, Proxy Statement and form of proxy are included
with this letter. The matters listed in the Notice of Meeting are described in
detail in the Proxy Statement.
The vote of every stockholder is important. Please sign, date and promptly mail
your proxy. The Board of Directors and management look forward to greeting those
stockholders who are able to attend.
Sincerely,
/S/ Dimon R. McFerson
Dimon R. McFerson
Chairman and Chief Executive
Officer--
Nationwide Insurance Enterprise
<PAGE> 3
Nationwide Logo
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 31, 1999
To the Stockholders of Nationwide Financial Services, Inc.:
The Annual Meeting of Stockholders of Nationwide Financial Services, Inc.
(the "Company") will be held at 1:30 p.m. on May 11, 1999, at One Nationwide
Plaza, Columbus, Ohio for the following purposes:
(1) To elect the Class II Directors to serve until the expiration of
their terms and until their successors are elected; and
(2) To transact such other business as may properly come before the
Annual Meeting.
Please read the Proxy Statement for further information about the
individuals nominated as directors.
At least ten (10) days prior to the Annual Meeting, a complete list of
stockholders entitled to vote at the Annual Meeting shall be open for
examination during the ordinary business hours of the Company in the Secretary's
office.
By Order of the Board of
Directors,
Dennis W. Click
Vice President and Secretary
<PAGE> 4
Nationwide Logo
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
PROXY STATEMENT
GENERAL
This Proxy Statement (the "Proxy Statement") is being furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
of Nationwide Financial Services, Inc. (the "Company") for the Annual Meeting of
Stockholders of the Company to be held on May 11, 1999, at 1:30 p.m. (the
"Annual Meeting"). Only stockholders of record at the close of business on March
12, 1999, are entitled to notice of and to vote at the Annual Meeting. The
Annual Meeting will be held at the office of the Company at One Nationwide
Plaza, Columbus, Ohio.
Returning your completed proxy will not prevent you from voting in person
at the meeting should you be present and wish to do so. A stockholder may revoke
a proxy, prior to the vote being taken at the meeting, by giving written notice
to the Secretary of the Company, by a duly executed proxy bearing a later date
or by voting in person at the meeting.
A copy of the Company's Annual Report for the year ended December 31, 1998,
is first being mailed to the stockholders together with this Proxy Statement on
or about March 31, 1999.
SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone, or by other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made by
the Company with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries, and the Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
VOTING
The Company has two classes of common stock entitled to vote upon matters
submitted to a vote at the Annual Meeting. The Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), is entitled to one vote per share.
The Class B Common Stock, par value $.01 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), is entitled to
ten votes per share. Proposals submitted to a vote of stockholders will be voted
on by the holders of Class A Common Stock and Class B Common Stock voting
together as a single class.
Under the Company's Bylaws and Section 216 of the Delaware Corporation Law,
a majority of the shares of Common Stock, present in person or represented by
proxy, including abstentions and broker non-votes, constitutes a quorum for the
purposes of the Annual Meeting. Directors are elected by a plurality of the
votes cast
1
<PAGE> 5
at the Annual Meeting. In the election of directors, stockholders may cast votes
for, or withhold votes from, any nominee; votes that are withheld will not be
included in the vote and will not affect the outcome.
At the close of business on March 12, 1999, the Company had outstanding
23,783,136 shares of Class A Common Stock and 104,745,000 shares of Class B
Common Stock. As of such date, Nationwide Corporation owned all of the
outstanding shares of Class B Common Stock, which represents approximately 97.8%
of the combined voting control of the Company. Therefore, Nationwide Corporation
controls the corporate actions that require stockholder approval, including,
among other things, the election of the directors. Nationwide Corporation has
advised the Company that it intends to vote its shares in favor of Messrs.
Fuellgraf, McFerson, McWhorter and Shisler.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following tables set forth certain information regarding beneficial
ownership of (i) each person who is known by the Company to be the beneficial
owner of more than five percent of either class of Common Stock, (ii) each
director and nominee for director, (iii) each of the Named Executive Officers
(as defined herein) and (iv) all of the directors and executive officers of the
Company as a group. The Class B Common Stock is convertible into Class A Common
Stock at any time by the holder on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted.
CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- ------------------------------- ----------------
<S> <C> <C>
Massachusetts Financial Services(1)................. 1,850,112 7.77%
500 Boylston Street
Boston, MA 02116
Goldman Sachs Asset Management(2)................... 1,687,300 7.09%
85 Broad Street
New York, NY 10004
Neuberger & Berman, LLC(3).......................... 1,660,800 6.98%
605 Third Street
New York, NY 10158
</TABLE>
- ---------
(1) Based on a Schedule 13G dated February 11, 1999, Massachusetts Financial
Services reported shared voting power with respect to 1,841,112 shares and
sole dispositive power with respect to 1,850,112 shares.
(2) Based on a Schedule 13G dated February 14, 1999, Goldman Sachs Asset
Management reported shared power to vote or direct the vote for 1,141,100
shares and shared dispositive power with respect to 1,687,300 shares.
(3) Based on a Schedule 13G dated February 8, 1999, Neuberger & Berman, LLC
reported sole voting power with respect to 529,850 shares, shared power to
vote or direct the vote for 896,600 shares, and shared dispositive power
with respect to 1,660,800 shares.
SECURITY OWNERSHIP OF MANAGEMENT AS OF JANUARY 31, 1999
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Dimon R. McFerson(2)........................................ 107,050(3) --(1)
Joseph J. Gasper............................................ 53,709(3) --(1)
James G. Brocksmith, Jr..................................... 2,256(3) --(1)
Charles L. Fuellgraf, Jr.(2, 5)............................. 11,713(3) --(1)
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Henry S. Holloway........................................... 5,668(3) --(1)
Lydia Micheaux Marshall..................................... 5,718(3) --(1)
Donald L. McWhorter(2)...................................... 3,335(3) --(1)
David O. Miller............................................. 4,668(3) --(1)
James F. Patterson.......................................... 4,668(3) --(1)
Gerald D. Prothro........................................... 2,335(3) --(1)
Douglas C. Robinette........................................ 3,914(3) --(1)
Arden L. Shisler(2)......................................... 5,668(3) --(1)
Richard A. Karas............................................ 22,438(3) --(1)
Robert J. Woodward, Jr...................................... 21,016(3) --(1)
Directors and Executive Officers as a Group (Total of 31)... 420,739(4) --(1)
</TABLE>
- ---------
(1) Less than one percent.
(2) Indicates the nominees for Class II directors
(3) Total includes options that may be exercised within 60 days for the
following persons: McFerson -- 46,667 shares, Gasper -- 33,333 shares,
Fuellgraf -- 1,333 shares, Holloway -- 1,333 shares, Miller -- 1,333 shares,
Patterson -- 1,333 shares, Shisler -- 1,333 shares, Karas -- 13,333 shares
and Woodward -- 10,667 shares.
(4) Total includes options that may be exercised within 60 days. The aggregate
number of options exercisable within 60 days is 201,167.
(5) Includes 2,000 shares held by spouse.
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
<S> <C> <C>
Nationwide Corporation(1)................................. 104,745,000 100%
One Nationwide Plaza
Columbus, Ohio 43215
</TABLE>
- ---------
(1) As of March 16, 1999, Nationwide Corporation was the beneficial owner of
100% of the Class B Common Stock, which, because of its ten to one voting
control, represents approximately 97.8% of the combined voting control of
the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eleven directors,
divided into three classes. The initial term of the Class II Directors (the
"Class II Directors") will expire at the Annual Meeting to be held in 1999, the
initial term of the Class III Directors (the "Class III Directors") will expire
at the annual meeting of stockholders in 2000 and the current term of the Class
I Directors (the "Class I Directors") will expire at the annual meeting of
stockholders in 2001. Messrs. Brocksmith, Holloway, Patterson and Prothro are
Class I Directors; Messrs. Fuellgraf, McFerson, McWhorter and Shisler are Class
II Directors; and Messrs. Gasper and Miller and Ms. Marshall are Class III
Directors. At each annual meeting of stockholders, directors will be elected for
a three-year term to succeed the directors whose terms are then to expire.
3
<PAGE> 7
The nominees for the Class II Directors and the Class I and Class III
Directors who will continue in office after the Annual Meeting until the
expiration of their terms, together with certain information regarding them, are
as follows:
NOMINEES FOR CLASS II DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
- ---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
Charles L. Fuellgraf, Jr............................... 67 November 1996 II 2002(1)
Dimon R. McFerson...................................... 62 November 1996 II 2002(1)
Donald L. McWhorter.................................... 63 February 1997 II 2002(1)
Arden L. Shisler....................................... 57 November 1996 II 2002(1)
</TABLE>
(1) The date is if elected at the Annual Meeting in 1999.
CLASS III DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
- ---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
Joseph J. Gasper....................................... 55 November 1996 III 2000
Lydia M. Marshall...................................... 50 February 1997 III 2000
David O. Miller........................................ 60 November 1996 III 2000
</TABLE>
CLASS I DIRECTORS
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE DIRECTOR SINCE CLASS WILL EXPIRE
- ---- --- -------------- ----- -----------
<S> <C> <C> <C> <C>
James G. Brocksmith, Jr................................ 58 April 1997 I 2001
Henry S. Holloway...................................... 66 November 1996 I 2001
James F. Patterson..................................... 57 November 1996 I 2001
Gerald D. Prothro...................................... 56 February 1997 I 2001
</TABLE>
DIMON R. MCFERSON has been Chief Executive Officer of the Nationwide
Insurance Enterprise since December 1992. He has been Chairman and Chief
Executive Officer -- Nationwide Insurance Enterprise of the Company since
December 1996 and a director of the Company since November 1996. Mr. McFerson
has been a director of Nationwide Life Insurance Company and Nationwide Mutual
Insurance Company since April 1988 and Chairman and Chief Executive
Officer -- Nationwide Insurance Enterprise of Nationwide Life Insurance Company
and Nationwide Mutual Insurance Company since April 1996. Previously he was
elected Chief Executive Officer of Nationwide Life Insurance Company in December
1992, and President and Chief Executive Officer -- Nationwide Insurance
Enterprise of Nationwide Life Insurance Company in December 1993. He was
President and General Manager of Nationwide Mutual Insurance Company from April
1988 to April 1991; President and Chief Operating Officer of Nationwide Mutual
Insurance from April 1991 to December 1992; and President and Chief Executive
Officer of Nationwide Mutual Insurance from December 1992 to April 1996. Mr.
McFerson has been with the Nationwide Insurance Enterprise for 19 years.
JOSEPH J. GASPER has been President and Chief Operating Officer of the
Company since December 1996 and a director of the Company since November 1996.
Mr. Gasper has been President and Chief Operating Officer of Nationwide Life
Insurance Company and director since April 1996. Previously, he was Executive
Vice President -- Property/Casualty Operations of Nationwide Mutual Insurance
Company from April 1995 to April 1996. He was Senior Vice
President -- Property/Casualty Operations of Nationwide Mutual Insurance Company
from September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous
positions within the Nationwide Insurance Enterprise. Mr. Gasper has been with
the Nationwide Insurance Enterprise for 32 years.
4
<PAGE> 8
JAMES G. BROCKSMITH, JR. has been a director of the Company since April
1997. Mr. Brocksmith retired from KPMG LLP in January 1997, where he was the
Chief Operating Officer and Deputy Chairman. Mr. Brocksmith was employed at KPMG
LLP for 32 years. He has been a director of CIBER, Inc. since July 1998 and a
director of Vistana, Inc. since February 1998.
CHARLES L. FUELLGRAF, JR. has been a director of the Company since November
1996. Mr. Fuellgraf has been Chief Executive Officer of Fuellgraf Electric
Company, an electrical contractor, of Butler, Pennsylvania, and Nashville,
Tennessee, since 1988. He has served on the board of directors of several
companies of the Nationwide Insurance Enterprise since 1969 and will retire from
those positions on April 1, 1999. He is a trustee of Butler Memorial Hospital
Foundation and chairman of the Butler YMCA Trustees.
HENRY S. HOLLOWAY has been a director of the Company since November 1996.
Mr. Holloway has been a farm owner and operator in Darlington, Maryland, since
1959. He served as Chairman of the Board of Nationwide Life Insurance Company,
Nationwide Life and Annuity Insurance Company and Nationwide Corporation and
served on the board of directors of several companies of the Nationwide
Insurance Enterprise until his retirement from these positions on April 2, 1998.
He is a director of the Forest Hill State Bank.
LYDIA M. MARSHALL has been a director of the Company since February 1997.
Ms. Marshall has been a Managing Director of Rockport Capital Incorporated since
September 1997. Previously, she was Executive Vice President, Marketing of the
Student Loan Marketing Association ("Sallie Mae") in Washington D.C., from
November 1993 to September 1997. Previously, she was Senior Vice President,
Marketing of Sallie Mae from January 1991 to November 1993. Prior to that time,
Ms. Marshall held several positions with Sallie Mae and Citicorp. She is Chair
of the Board of CARE (Cooperative for American Relief Everywhere).
DONALD L. MCWHORTER has been a director of the Company since February 1997.
Mr. McWhorter retired from Banc One Corporation in April 1995, after serving as
President and Chief Operating Officer of Banc One Corporation since April 1992.
Previously, he was Chairman and Chief Executive Officer of Banc One Ohio from
July 1989 to April 1992. Prior to that time, Mr. McWhorter held several
positions with Banc One Corporation.
DAVID O. MILLER has been a director of the Company since November 1996. Mr.
Miller has been a farm owner and land and apartment developer since 1962. He is
the President of the Owen Potato Farm Inc. and is a partner of M&M Enterprises
in Licking County, Ohio. He is Chairman of the Board of Nationwide Life
Insurance Company, Nationwide Life and Annuity Insurance Company and Nationwide
Corporation and serves on the board of directors of several companies of the
Nationwide Insurance Enterprise. He is also a director and chairman of the
National Cooperative Business Association.
JAMES F. PATTERSON has been a director of the Company since November 1996.
Mr. Patterson has operated the Patterson Fruit Farm in Chesterland, Ohio, since
1964 and has been the President of Patterson Farms, Inc. since December 1991. He
is Chairman of the Board of Nationwide Mutual Fire Insurance Company. He serves
on the board of directors of several companies of the Nationwide Insurance
Enterprise. He is also a trustee of The Ohio State University and serves on the
board of directors of the University Hospitals Health System in Cleveland, Ohio,
and Geauga Hospital, Inc. in Chardon, Ohio. He is also a director of the
National Cooperative Business Association.
GERALD D. PROTHRO has been a director of the Company since February 1997.
Mr. Prothro has been Managing Director of IKT, Inc. since July 1998. He retired
as Vice President, Corporate Strategy, from International Business Machines
(IBM) Corporation after nearly 30 years of service. Previously, he was Vice
President and Chief Information Officer of IBM from April 1994 to January 1998,
and prior to that, he held several positions with IBM. He is also a director of
National Technological University and a member of the Review and Priority Board
of Lehigh University/Iacocca Institute. He is a trustee of Howard University.
ARDEN L. SHISLER has been a director of the Company since November 1996.
Mr. Shisler has been President and Chief Executive Officer of K & B Transport,
Inc., a trucking firm in Dalton, Ohio, since January 1992. Previously, he was
Chief Operating Officer of K & B Transport, Inc. from April 1986 to January
1992. Prior to that time, Mr. Shisler held several positions with K & B
Transport, Inc. He is Chairman of the Board of Nationwide Mutual Insurance
Company and serves on the board of directors of several companies of the
Nationwide Insurance Enterprise. He is also a director of the National
Cooperative Business Association.
5
<PAGE> 9
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The full Board of Directors met eight times during 1998. During 1998, the
Board of Directors had a standing Audit Committee (the "Audit Committee"), a
Compensation Committee (the "Company Compensation Committee"), a Pricing
Committee (the "Pricing Committee") and an Executive Committee (the "Executive
Committee"). The Board of Directors does not have a standing nominating
committee.
AUDIT COMMITTEE
The Audit Committee consists of three directors, none of whom is an officer
or employee of the Company. Ms. Marshall and Messrs. McWhorter and Prothro are
the members of the committee. The Audit Committee recommends to the Board of
Directors of the Company the selection of independent certified public
accountants to audit annually the books and records of the Company, reviews the
activities and the reports of the independent certified public accountants, and
reports the results of such review to the Board of Directors. The Audit
Committee also considers the adequacy of the Company's internal controls and
internal auditing methods and procedures. The Audit Committee met four times in
1998.
COMPANY COMPENSATION COMMITTEE
The Company Compensation Committee consists of four directors, none of whom
is an officer or employee of the Company, which, as authorized by the Board of
Directors, makes determinations with respect to non-cash compensation to
officers, directors and employees of the Company, including grants, options and
awards under the LTEP (hereinafter defined). Messrs. Brocksmith, Fuellgraf,
McWhorter and Miller are the members of such committee. The Company Compensation
Committee met three times in 1998.
EXECUTIVE COMMITTEE
The Executive Committee consists of six directors, which, to the extent
authorized by the Board of Directors, in the interim between meetings of the
Board of Directors, may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company. Messrs.
Fuellgraf, Holloway, McFerson, Miller, Patterson and Shisler are the members of
such committee. The committee did not meet during 1998.
PRICING COMMITTEE
The Pricing Committee consists of three directors. The Pricing Committee
recommends to the Board of Directors the price of both equity and debt offerings
of the Company. Messrs. Gasper, McFerson and Shisler are the members of the
Pricing Committee. The Pricing Committee met once in 1998.
DIRECTOR ATTENDANCE
During fiscal year 1998, all incumbent directors attended at least 75% of
the aggregate meetings of the Board of Directors and of the committees of the
Board of Directors on which they served.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or its
affiliates receive an annual retainer of $50,000. Pursuant to the Nationwide
Financial Services, Inc. Stock Retainer Plan for Non-Employee Directors, the
annual retainer will be paid (i) $25,000 in cash and (ii) in shares of Class A
Common Stock having an aggregate market value of $25,000 as of the date of
payment. In addition, the Company reimburses directors for reasonable travel
expenses incurred in attending meetings of the Board of Directors and committees
thereof.
In addition, some directors of the Company who are not employees of the
Company or its affiliates may also receive compensation for service on the
boards of directors of Nationwide Life Insurance Company and Nationwide Life and
Annuity Insurance Company. For the fiscal year ended December 31, 1998, Messrs.
Fuellgraf, Holloway, Miller, Patterson and Shisler received $18,856, $3,458,
$23,789, $16,592 and $21,029 respectively, for service to such companies.
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a deferred
compensation program applicable to non-employee members of
6
<PAGE> 10
their boards of directors (the "Directors' Deferred Compensation Program"). Each
director who has been elected to the board of directors at least twice and has
served for at least three years on the board of directors of a participating
company is entitled to monthly payments, following termination of his or her
service on the board of directors, of a monthly amount equal to the monthly
director's fee being received by that director at the time of his or her
retirement from the Board of Directors. The number of monthly payments will
equal the number of months the individual served on the Board of Directors.
Messrs. Fuellgraf, Miller, Patterson and Shisler, non-employee members of the
Board of Directors of the Company, are also non-employee members of the Board of
Directors of Nationwide Life Insurance Company and entitled to such payments.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The Company was incorporated in November of 1996. Pursuant to the Cost
Sharing Agreement (hereinafter defined), the salaries and benefits of certain
officers and employees of the Company and its subsidiaries, including the Named
Executive Officers (hereinafter defined), will be paid by Nationwide Mutual
Insurance Company and reimbursed in accordance with the terms of the Cost
Sharing Agreement. See "Certain Transactions."
The following table provides certain information concerning compensation
received by the Company's Chief Executive Officer and the four other most highly
paid executive officers (the "Named Executive Officers") as of the last fiscal
year, for the last three fiscal years ended December 31, 1998, 1997 and 1996 for
services rendered to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- -------
--------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $ $ $ $ # $ $
- --------------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dimon R. McFerson: 1998 430,970 392,982(4) (5) -- 60,000 204,351(13) 23,278(11)
Chairman and Chief 1997 381,717 111,780(2) (5) 907,147(12) 40,000 207,000(6) 21,751(10)
Executive Officer -- 1996 324,790 71,820(3) (5) -- -- 252,548(9) 14,482(7)
Nationwide Insurance
Enterprise(1)
Joseph J. Gasper: 1998 461,308 330,647(4) (5) -- 40,000 143,520(13) 21,491(11)
President and Chief 1997 358,066 97,250(2) (5) 396,563(12) 30,000 155,600(6) 18,155(10)
Operating Officer 1996 232,959(8) 48,425(3) (5) -- -- 169,763(9) 10,684(7)
Richard A. Karas: 1998 283,847 212,503(4) (5) -- 20,000 90,000(13) 13,174(11)
President 1997 246,058 72,900(2) (5) 167,508(12) 10,000 81,000(6) 13,020(10)
NFS Distributors, Inc. 1996 216,905 52,437(3) (5) -- -- 115,362(9) 9,855(7)
Robert J. Woodward: 1998 236,599 209,607(4) (5) -- 12,000 80,694(13) 10,883(11)
Executive Vice President 1997 223,803 53,694(2) (5) 182,877(12) 10,000 73,219(6) 11,453(10)
Chief Investment Officer(1) 1996 222,784 59,399(3) (5) -- -- 65,100(9) 10,470(7)
Douglas C. Robinette: 1998 232,500 118,683(4) (5) 103,050(12) 3,200 62,489(13) 8,940(11)
Senior Vice President --
Marketing and Product
Management
</TABLE>
- ---------
(1) Figures in the table, other than Restricted Stock, Securities Underlying
Options/SARs and All Other Compensation, represent compensation received by
Mr. McFerson and Mr. Woodward for their service rendered to the Company and
its subsidiaries as allocated pursuant to the Cost Sharing Agreement. See
"Certain Transactions."
(2) Represents the amount received by the Named Executive Officers under the
MIP (hereinafter defined) in 1998 for the 1997 award year.
(3) Represents the amount received by the Named Executive Officers under the
MIP in 1997 for the 1996 award year.
7
<PAGE> 11
(4) Represents the amount received by the Named Executive Officers under the
PIP (hereinafter defined) in 1999 for the 1998 award year.
(5) Aggregate perquisites and other personal benefits are less than the lower
of $50,000 or 10% of combined salary and bonus.
(6) Represents the amount received by the Named Executive Officers under the
EIP (hereinafter defined) in 1998 for the award period 1995 to 1997.
(7) Represents contributions made or credited by the Company in 1996 under the
Savings Plan (hereinafter defined) and the DC Supplemental Plan
(hereinafter defined). The following are the amounts for the Savings Plan
and the DC Supplemental Plan: McFerson $1,575 for the Savings Plan and
$12,907 for the DC Supplemental Plan; Gasper $3,465 for the Savings Plan
and $7,219 for the DC Supplemental Plan; Woodward $3,439 for the Savings
Plan and $7,031 for the DC Supplemental Plan and Karas $4,500 for the
Savings Plan and $5,355 for the DC Supplemental Plan.
(8) Represents compensation received by Mr. Gasper solely for his services
rendered to the Company in 1996 as allocated pursuant to the Cost Sharing
Agreement. Prior to April 1996, Mr. Gasper was the Executive Vice
President--Property/Casualty Operations of Nationwide Mutual Insurance
Company and received compensation from Nationwide Mutual Insurance Company
and its property/casualty insurance subsidiaries for services rendered to
such companies. Such compensation is not reflected in the table.
(9) Represents the amount received by the Named Executive Officers under the
EIP in 1997 for the award period 1994 to 1996, and the SPIP (hereinafter
defined) in 1997 for the award period 1993 to 1996.
(10) Represents contributions made or credited by the Company for 1997 under the
Savings Plan and the DC Supplemental Plan. The following are the amounts
for the Savings Plan and the DC Supplemental Plan: McFerson $2,142 for the
Savings Plan and $19,609 for the DC Supplemental Plan; Gasper $4,760 for
the Savings Plan and $13,395 for the DC Supplemental Plan; Karas $4,760 for
the Savings Plan and $8,260 for the DC Supplemental Plan and Woodward
$3,468 for the Savings Plan and $7,985 for the DC Supplemental Plan.
(11) Represents contributions made or credited by the Company for 1998 under the
Savings Plan and the DC Supplemental Plan. The following are the amounts
for the Savings Plan and the DC Supplement Plan and in the case of Mr.
McFerson, above market interest on deferred compensation; McFerson $2,206
for the Savings Plan and $20,224 for the DC Supplement Plan and $848 for
the above market interest on deferred compensation; Gasper $4,800 for the
Savings Plan and $16,691 for the DC Supplement Plan; Karas $4,800 for the
Savings Plan and $8,374 for the DC Supplement Plan; Woodward $3,497 for the
Savings Plan and $7,386 for the DC Supplement Plan; and Robinette $4,800
for the Savings Plan and $4,140 for the DC Supplement Plan.
(12) The following are the number of shares and value of the restricted stock at
the end of the last fiscal year for: McFerson--38,602 shares, at a value of
$1,995,241; Gasper--16,875 shares, at a value of $872,227; Karas -- 7,128
shares, at a value of $368,424; Woodward 7,782 shares at a value of
$402,232; and Robinette -- 2,400 shares, at a value of $124,050.
(13) Represents the amount received by the Named Executive Officers under the
EIP in 1999 for the award period 1996-1998.
MANAGEMENT INCENTIVE PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Management
Incentive Plan (the "MIP"). Under the MIP, annual payments are made to the Named
Executive Officers and certain other management employees of the participating
companies based on the achievement of measures tied to the performance of the
Nationwide Insurance Enterprise, the relevant operating company, the relevant
business unit and the individual participant over the preceding year.
Performance measures are based on profitability, growth, expense management and
key strategic objectives which are established in advance. Under the MIP, the
participant will be granted a target
8
<PAGE> 12
incentive amount that represents a percentage (from 5% to 15% depending on the
participant's position within the participating company) of the participant's
base salary. The actual amount received by the participant under the MIP will
range from zero to twice the target incentive amount, depending solely on the
achievement of the performance measures. Beginning in 1998 the Named Executive
Officers and certain other officers of the participating companies no longer
participate in the MIP, but rather participate in the PIP (hereinafter defined).
PERFORMANCE INCENTIVE PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the
Performance Incentive Plan (the "PIP"), first implemented in 1998. Under the
PIP, annual payments are made to the Named Executive Officers and certain other
management employees of the participating companies based on the achievement of
measures tied to the performance of the Nationwide Insurance Enterprise, the
relevant operating company, the relevant business unit and the individual
participant over the preceding year. Performance measures are based on a broad
series of key financial results, financial and operational comparison to
external peer comparators, the extent of accomplishment of strategic
initiatives, and other factors and results impacting organization performance,
and further based upon individual employee performance. Under the PIP, the
participant will be granted a target incentive amount that represents a
percentage (from 20% to 50% depending on the participant's position within the
participating company) of the participant's base salary. The actual amount
received by the participant under the PIP will range from zero to no maximum
factor of the participant's base salary, depending solely on the achievement of
the performance measures.
EXECUTIVE INCENTIVE PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Executive
Incentive Plan (the "EIP"). Under the EIP, annual payments are made to the Named
Executive Officers and certain other officers of the participating companies
based on the achievement of measures tied to the performance of the Nationwide
Mutual Insurance Company and its subsidiaries and affiliates (the "Nationwide
Insurance Enterprise") and the relevant operating company over the preceding
three years. Performance measures are based on profitability and growth
objectives which are established in advance by the Board of Directors of the
participating company. Under the EIP, the participant will be granted a target
incentive amount that represents a percentage (from 10% to 30% depending on the
participant's position within the participating company) of the participant's
base salary. The actual amount received by the participant will range from zero
to twice the target incentive amount, depending solely on the achievement of the
performance measures.
SUSTAINED PERFORMANCE INCENTIVE PLAN
Prior to 1997, Nationwide Mutual Insurance Company and certain of its
subsidiaries and affiliates, including Nationwide Life Insurance Company,
maintained the Sustained Performance Incentive Plan (the "SPIP"). Under the
SPIP, payments were made to the Named Executive Officers and other senior
officers of the participating companies in each odd-numbered calendar year based
on the achievement of measures tied to the performance of the Nationwide
Insurance Enterprise over the preceding four years. Performance measures were
based on profitability, growth and strategic objectives for the Nationwide
Insurance Enterprise which were established in advance by the Boards of
Directors of the participating companies. Under the SPIP, participants were
granted target incentive amounts that represented a percentage (10% to 20%
depending on the participant's position within the participating company) of the
sum of the participant's base salary for the last two years of the performance
cycle. The actual amount received by the participant ranged from zero to twice
the target incentive amount, depending solely on the achievement of the
performance measures.
Nationwide Mutual Insurance Company and the participating subsidiaries and
affiliates terminated the SPIP at the close of calendar year 1996. A payment
under the SPIP was made in 1997, covering performance measured for the period
from 1993 to 1996. Such payment was made in cash as provided in the SPIP. To
facilitate the termination of the SPIP, the performance measurement period for
1995 to 1998 was closed at the end of calendar year 1996. Payments made in 1997
for such performance measurement period were made in shares of restricted
9
<PAGE> 13
stock of the Company under the Company's 1996 Long-Term Equity Compensation
Plan. Messrs. McFerson, Gasper, Karas and Woodward received 23,602, 6,875, 3,128
and 4,282 shares of restricted stock, respectively.
LONG-TERM EQUITY COMPENSATION PLAN
The purpose of the Long-Term Equity Compensation Plan (the "LTEP") is to
benefit the stockholders of the Company by encouraging high levels of
performance by selected officers, directors and employees of the Company and
certain of its affiliates, attracting and retaining the services of such
individuals and aligning the interests of such individuals with those of the
stockholders.
The LTEP provides for the grant of any or all of the following types of
awards: (i) stock options, including incentive stock options and non-qualified
stock options, for shares of Class A Common Stock; (ii) stock appreciation
rights ("SARs"), either in tandem with stock options or freestanding; (iii)
restricted stock; and (iv) performance awards. Any stock option granted in the
form of an incentive stock option must satisfy the applicable requirements of
Section 422 of the IRC. Awards may be made to the same person on more than one
occasion and may be granted singly, in combination or in tandem as determined by
the Company Compensation Committee.
The LTEP grants the Company Compensation Committee, which administers the
LTEP, flexibility in creating the terms and restrictions deemed appropriate for
particular awards as facts and circumstances warrant. The LTEP is intended to
constitute a nonqualified, unfunded, unsecured plan for incentive and deferred
compensation and is not intended to be subject to any requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Awards
under the LTEP which are performance-based are intended to qualify as
"performance-based compensation" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended ("IRC").
No awards may be granted under the LTEP after December 11, 2006, and the
LTEP may be terminated by the Board of Directors of the Company prior to such
date. In the event of expiration or earlier termination of the LTEP, the LTEP
will remain in effect until such time as all awards granted thereunder have been
satisfied or have expired.
DEFERRED COMPENSATION PROGRAM
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a deferred
compensation program (the "Officers' Deferred Compensation Program") pursuant to
which officers of participating companies may elect to defer payment of amounts
otherwise payable to them. An eligible officer is permitted to enter into a
deferral agreement pursuant to which such officer may annually elect to defer a
portion of his or her salary or incentive compensation earned under the PIP, MIP
or EIP during the following year. Any such election is effective prospectively.
Amounts deferred under the Officers' Deferred Compensation Program will
generally be payable in annual installments beginning in January of the calendar
year following the calendar year in which the officer terminates employment.
Amounts deferred under the Officers' Deferred Compensation Program are credited
with interest. The interest rate is based on the fixed rate option in the
Savings Plan.
SAVINGS PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Nationwide
Insurance Enterprise Savings Plan (the "Savings Plan"), a qualified
profit-sharing plan including a qualified cash or deferred arrangement covering
eligible employees of participating companies within the Nationwide Insurance
Enterprise. Under the Savings Plan, participants who are not residents of Puerto
Rico may elect to contribute between 1% and 22% of their compensation to
accounts established on their behalf under the Savings Plan in the form of
voluntary salary reductions on a pretax basis and participants who are residents
of Puerto Rico may make contributions on an after-tax basis. The participating
companies are obligated to make matching employer contributions, for the benefit
of their participating employees, at the rate of 70% of the first 2% of
compensation deferred or contributed to the Savings Plan by each employee, and
40% of the next 4% of compensation deferred or contributed by each employee to
the Savings
10
<PAGE> 14
Plan. All amounts contributed to the Savings Plan are held in a separate account
for each participant and are invested in one or more funds made available under
the Savings Plan and selected by the participant. Normally, a participant
receives the value of his or her account upon termination of employment,
although a participant may withdraw all or a part of the amounts credited to his
or her accounts during employment under certain circumstances including
attainment of age 59 1/2, or receive a loan of a portion of his or her account
balance. Under the Savings Plan, a participant is immediately vested in all
amounts credited to his or her account as a result of salary deferrals (and
earnings on those deferrals) or after-tax contributions (and earnings on those
contributions), as applicable. A participant is vested in amounts attributable
to employer matching contributions (and earnings on those contributions) over a
period of five years.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain an unfunded,
nonqualified defined contribution supplemental benefit plan, the Nationwide
Insurance Enterprise Supplemental Defined Contribution Plan (the "DC
Supplemental Plan"), which provides benefits, equal to employer matching
contributions that would have been made under the Savings Plan for the
participants, in the absence of the IRC Section 401(a)(17) limitation on
compensation that can be considered and the IRC Section 402(g) limitation on
amounts that can be deferred under the Savings Plan reduced by actual employer
matching contributions made to the Savings Plan. Participants are limited to
those elected officers earning in excess of $160,000 annually. Benefits under
the DC Supplemental Plan vest at the same time as employer matching
contributions vest under the Savings Plan.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table shows, as to the Named Executive Officers in the
Summary Compensation Table, certain information concerning stock options granted
during the 1998 fiscal year under the LTEP.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
---------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES OR BASE PRICE EXPIRATION PRESENT VALUE
NAME # (1) IN FISCAL YEAR $/SH DATE $ (2)
---- --------------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Dimon R. McFerson......... 60,000 18.7% $ 39.375 February 10, 2008 $924,600
Joseph J. Gasper.......... 40,000 12.4% 39.375 February 10, 2008 616,400
Richard A. Karas.......... 20,000 6.2% 39.375 February 10, 2008 308,200
Robert J. Woodward, Jr.... 12,000 3.7% 39.375 February 10, 2008 184,920
Douglas C. Robinette...... 3,200 1.0% 42.9375 May 12, 2008 51,136
</TABLE>
- ---------------
(1) One-third of the options granted become exercisable each year on the
anniversary of the grant date. Options may be accelerated upon a change of
control or certain other events of termination of employment.
(2) The estimated grant date present value dollar amounts in this column are the
result of calculations made using the Black-Scholes model, a theoretical
method for estimating the present value of stock options based on a complex
set of assumptions. The material assumptions and adjustments incorporated in
the Black-Scholes model used to estimate the value of these options include
the following:
- An exercise price on the options equal to the fair market value of the
underlying stock on the date of the grant, as listed in the table.
- The rate available at the time the grant was made on zero-coupon U.S.
Government issues with a remaining term equal to the expected life. The
risk-free rate was 5.49% for the February 10, 1998 grants and 5.63% for
the May 12, 1998 grant.
- Dividends at a rate of $0.24 per share for the February 10, 1998 grants
and $0.32 for the May 12, 1998 grant, representing the annualized
dividends paid on shares of common stock at the date of grant.
11
<PAGE> 15
- An option term before exercise of 5 years, which represents the typical
period that options are held prior to exercise.
- Volatility of the stock price of 36.6% for the February 10, 1998 grants,
reflecting the daily stock price volatility for the approximate eleven
month period from the initial public offering to the grant date, and
34.8% for the May 12, 1998 grant, reflecting the daily stock price
volatility for the one-year period prior to the grant date.
- No adjustments were made for vesting requirements, non-transferability,
or risk of forfeiture.
OPTIONS/SARS EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during 1998
and unexercised options and SARs held as of fiscal year-end December 31, 1998,
under the LTEP.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS AT
UNDERLYING UNEXERCISED FY-END ($)
OPTIONS AT FY-END # EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- ---- ------------------------- -----------------
<S> <C> <C>
Dimon R. McFerson.................................. 13,333/86,667 375,824/1,490,426
Joseph J. Gasper................................... 10,000/60,000 281,875/1,056,250
Richard A. Karas................................... 3,333/26,667 93,949/434,176
Robert J. Woodward, Jr............................. 3,333/18,667 93,949/335,676
Douglas C. Robinette............................... 0/3,200 0/28,000
</TABLE>
LONG-TERM INCENTIVE PLANS ("LTIP") -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
OTHER PERIOD ---------------------------------------
UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT ($) ($) ($)
---- ---------------- --------- -------- --------
<S> <C> <C> <C> <C>
Dimon R. McFerson......................... 1998-2000 36,351 196,491 392,982
Joseph J. Gasper.......................... 1998-2000 25,530 138,000 276,000
Richard A. Karas.......................... 1998-2000 15,000 45,000 90,000
Robert J. Woodward, Jr.................... 1998-2000 11,962 64,659 129,318
Douglas C. Robinette...................... 1998-2000 11,500 34,500 69,000
</TABLE>
The LTIP Table above reflects participation of each Named Executive Officer
in the EIP for the performance cycle of January 1, 1998 through December 31,
2000. For Messrs. McFerson, Gasper and Woodward, payment is based upon the
executive's base salary at the end of the three-year performance cycle, a
predetermined percentage of that salary, and the achievement of specified levels
of Return on Equity of the Company, and Trade Combined Ratio and Net Written
Premium Growth of the Nationwide Insurance Enterprise over the three-year
period. The threshold amount will be earned if approximately 93% of the targeted
Return on Equity of the Company and a minimal specified level of a combination
of the Trade Combined Ratio and Net Written Premium Growth of the Nationwide
Insurance Enterprise are achieved for the three-year period. The target amount
will be earned if 100% of the targeted Return on Equity of the Company and a
targeted specified level of a combination of the Trade Combined Ratio and Net
Written Premium Growth of the Nationwide Insurance Enterprise is achieved for
the three-year period. The maximum amount will be earned if approximately 123%
of the targeted Return on Equity of the Company and a maximum specified level of
a combination of the Trade Combined Ratio and Net Written Premium Growth of the
Enterprise are achieved for the three-year period. For Messrs. Karas and
Robinette, payment is based upon the same factors except that the performance
measurement criteria used is only the Return
12
<PAGE> 16
on Equity of the Company. Base salary levels as of December 31, 1998, were used
to calculate the estimated dollar value of the future payments. No payment will
be made if the minimal performance results are not achieved.
PENSION PLANS
RETIREMENT PLAN
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain a qualified
defined-benefit plan, the Nationwide Insurance Enterprise Retirement Plan (the
"Retirement Plan"). In general, a participant's annual retirement benefit under
the Retirement Plan will be equal to the sum of (i) 1.25% of the participant's
Final Average Compensation times years of service (to a maximum of 35 years) and
(ii) 0.50% of the participant's Final Average Compensation in excess of Social
Security Covered Compensation times years of service (to a maximum of 35 years).
Final Average Compensation, for the portion of the participant's benefit which
is attributable to service on or after January 1, 1996, is the average of the
highest five consecutive covered compensation amounts of the participant in the
participant's last 10 years of service. For the portion of a participant's
benefit attributable to service prior to January 1, 1996, Final Average
Compensation is the average of the highest three consecutive covered
compensation amounts of the participant in the participant's last 10 years of
service. Covered compensation, for purposes of determining Final Average
Compensation under either method, is calculated on a calendar-year basis and
includes compensation from any member of the Nationwide Insurance Enterprise.
With respect to Messrs. Gasper, Karas and Robinette, because each such officer's
compensation is allocated solely to the Company and its subsidiaries, covered
compensation includes the compensation listed under the headings Salary, Bonus
and LTIP Payouts shown in the Summary Compensation Table. Covered compensation
for Messrs. McFerson and Woodward includes the amount set forth under the
headings Salary, Bonus and LTIP shown in the Summary Compensation Table and
additional compensation amounts received for services rendered to other
companies of the Nationwide Insurance Enterprise. Social Security Covered
Compensation means the average of the Social Security wage bases in effect
during the 35-year period ending with the last day of the year the participant
attains Social Security retirement age. The portion of a participant's benefit
attributable to years of service credited prior to 1996 is also subject to
post-retirement increases following the commencement of benefits or the
participant's attainment of age 65, whichever is later.
A participant becomes fully vested after the completion of five years of
vesting service. The Retirement Plan generally provides for payments to or on
behalf of each vested participant upon such participant's retirement on his or
her normal retirement date or later, although provision is made for payment of
early retirement benefits on a reduced basis commencing at age 55 for those
participants with 15 or more years of vesting service or at age 62 for those
with 5 or more years of vesting service. The normal retirement date under the
Retirement Plan is the later of the date the participant attains age 65 or
completes five years of vesting service. Death benefits are payable to a
participant's spouse or, under certain circumstances, the named beneficiary, of
a participant who dies with a vested benefit under the Retirement Plan or while
an employee. The Retirement Plan also provides for the funding of retiree
medical benefits under Section 401(h) of the IRC.
EXCESS AND SUPPLEMENTAL PLANS
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain an unfunded,
nonqualified defined-benefit excess benefit plan, the Nationwide Insurance
Enterprise Excess Benefit Plan (the "Excess Plan") and an unfunded, nonqualified
defined-benefit supplemental benefit plan pursuant to which certain participants
may receive a supplemental retirement benefit, the Nationwide Insurance
Enterprise Supplemental Retirement Plan (the "Supplemental Plan"). Any
participant whose benefits are limited under the Retirement Plan by reason of
limitations under Section 415 of the IRC on the maximum benefit that may be paid
under the Retirement Plan will receive, under the Excess Plan, that portion of
the benefit that he or she would have been entitled to receive under the
Retirement Plan in the absence of such limitations. Officers who earn in excess
of $160,000 annually, have at least 5 years of vesting service and whose
benefits under the Retirement Plan are limited by reason of certain other
limitations under the IRC, may receive benefits under the Supplemental Plan.
Benefits under the Supplemental Plan will be the sum of (i) 1.25% of the
13
<PAGE> 17
participant's Final Average Compensation times years of service (up to a maximum
of 40 years) and (ii) 0.75% of the participant's Final Average Compensation in
excess of Social Security Covered Compensation times years of service (up to a
maximum of 40 years) reduced by benefits accrued under the Retirement Plan and
the Excess Plan. The benefits under the Supplemental Plan, for individuals
participating in that plan on January 1, 1999, and the Excess Plan vest at the
same time as benefits vest under the Retirement Plan. Benefits for all other
participants in the Supplemental Plan vest over a period of 5 years of
participation in that plan.
The chart below indicates the estimated maximum annual retirement benefits
that a hypothetical participant would be entitled to receive under the
Retirement Plan including payments made under the Excess and Supplemental Plans
as a result of limitations imposed by the IRC, computed on a straight-life
annuity basis, if retirement occurred at age 65 and the number of credited years
of service and Final Average Compensation equaled the amounts indicated. For
purposes of the chart, it is assumed that the Final Average Compensation is the
same whether measured over the three-year averaging period that applies to
service accumulated prior to 1996 or the five-year period that applies to
service accumulated after 1995. In actual operation, the total benefit received
under the Retirement Plan (including payments made under the Excess and
Supplemental Plans) would be the total of the benefit determined based on years
of service earned under each method.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE --------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 30,478 $ 40,637 $ 50,797 $ 60,956 $ 71,115
$150,000 37,040 49,387 61,734 74,081 86,428
$175,000 48,998 65,331 81,664 97,996 114,329
$200,000 56,498 75,331 94,164 112,996 131,829
$225,000 63,998 85,331 106,664 127,996 149,329
$250,000 71,498 95,331 119,164 142,996 166,829
$300,000 86,498 115,331 144,164 172,996 201,829
$350,000 101,498 135,331 169,164 202,996 236,829
$400,000 116,498 155,331 194,164 232,996 271,829
$450,000 131,498 175,331 219,164 262,996 306,829
$500,000 146,498 195,331 244,164 292,996 341,829
$600,000 176,498 235,331 294,164 352,996 411,829
$700,000 206,498 275,331 344,164 412,996 481,829
$800,000 236,498 315,331 394,164 472,996 551,829
$900,000 266,498 355,331 444,164 532,996 621,829
</TABLE>
All Named Executive Officers have a portion of their benefit calculated
based on the post-1995 definition of Final Average Compensation. As of December
31, 1995, the number of credited years of service under the Retirement Plan for
Messrs. McFerson, Gasper, Karas, Woodward and Robinette, was 23 years, 29.5
years, 31.5 years, 31.67 years and 11.42 years, respectively. Mr. McFerson's
credited years of service include, pursuant to an agreement with Nationwide
Mutual Insurance Company, 8.17 years in excess of those actually earned through
employment by the Nationwide Insurance Enterprise. The benefit attributable to
those additional years will be paid by Nationwide Mutual Insurance Company (not
the Retirement Plan) and is reduced by the benefit payable under the retirement
plan of Mr. McFerson's previous employer. Pursuant to an agreement with
Nationwide Mutual Insurance Company, Mr. Robinette's service with all enterprise
companies prior to January 1, 1996 will be treated as service with Nationwide
Mutual Insurance Company. The additional benefit to Mr. Robinette, if any, will
be paid by Nationwide Mutual Insurance Company, not the Retirement Plan. Each of
the Named Executive Officers earned additional years of service in 1996, 1997
and 1998, and their benefit for such years and all future years will be
calculated under the new definition of Final Average Compensation. Covered
compensation paid by the Company for the fiscal year ended December 31, 1998,
for Messrs. McFerson, Gasper, Karas, Woodward and Robinette was $747,670,
$716,035, $438,131, $362,677 and $297,966 respectively.
14
<PAGE> 18
COMPENSATION COMMITTEE JOINT REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
Approximately twenty percent of the Company is publicly traded. Nationwide
Mutual Insurance Company through a wholly-owned subsidiary, owns approximately
eighty percent of the outstanding shares of the Company. Because Nationwide Life
Insurance Company is the principal operating subsidiary of the Company, the
Nationwide Life Insurance Company Compensation Committee (the "Nationwide Life
Compensation Committee") established all components of 1998 compensation for the
Company's executive officers, with the exception of stock-based incentive grants
made by the Company Compensation Committee under the LTEP.
Dimon R. McFerson, the Company's Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise, serves also in the same capacity for
Nationwide Life Insurance Company. Robert J. Woodward Jr., the Company's
Executive Vice President--Chief Investment Officer, serves also in the same
capacity for Nationwide Life Insurance Company. Pursuant to the Cost Sharing
Agreement, compensation for Mr. McFerson and Mr. Woodward is allocated among the
companies in the Nationwide Insurance Enterprise for whom services are
performed. The amounts are paid by Nationwide Mutual Insurance Company and
reimbursed by the other companies in accordance with the terms of the Cost
Sharing Agreement. The 1998 compensation for Mr. McFerson and Mr. Woodward
reported in the compensation tables and discussed in this report is the amount
allocated to the Company and its subsidiaries under the Cost Sharing Agreement
and is solely for services rendered to the Company and its subsidiaries.
Compensation for the other executives named in the compensation tables was not
allocated and is their aggregate 1998 compensation for services rendered to the
Company and its subsidiaries.
The Nationwide Life Compensation Committee and the Company Compensation
Committee are both comprised solely of non-employee directors.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Nationwide Life Compensation Committee and the Company Compensation
Committee (collectively referred to herein as the "Compensation Committees")
believe that the compensation program for the Company's executive officers
should support the Company and the Nationwide Insurance Enterprise vision and
business strategies. In addition, compensation should be determined within a
competitive framework based on overall financial results, business unit results,
teamwork, and individual contributions that help build value for the Company's
stockholders. The primary objectives of the compensation program are to:
- Provide a direct link between pay and performance;
- Allocate a larger percentage of executive compensation to pay that is
at-risk in order to positively influence behavior and support
accountability;
- Attract, retain and motivate top-caliber employees required for new
business directions;
- Offer total compensation opportunities that are fully competitive with
the appropriate external markets in design and pay level; and
- Emphasize the need to focus on stockholder value, in addition to
providing competitive value to customers.
As part of the overall compensation philosophy, the Compensation Committees
have determined that total compensation and each of the elements that comprise
total compensation (base salary, annual incentives, long-term incentives) should
be targeted at the 50th percentile of the market. The Compensation Committees
believe that differences in individual performance should result in
significantly different levels of compensation. Therefore, individual pay
delivered may be higher or lower than the 50th percentile of the market,
depending on individual performance.
Competitive market data is provided to the Compensation Committees by
independent compensation consultants. This data compares the Company's and the
Nationwide Insurance Enterprise's compensation
15
<PAGE> 19
practices to various groups of comparator companies. These comparator companies
compete with the Company and with the Nationwide Insurance Enterprise for
customers, capital, and employees, and are comparable to the Company or
Nationwide Insurance Enterprise in size, scope, and business focus. This group
includes both multi-line insurers and diversified financial organizations.
The companies chosen for the compensation comparator group are not
necessarily the same companies that comprise the peer group in the Performance
Graph below included in this Proxy Statement. The compensation comparator group
includes more companies than those in the peer group because it provides the
Compensation Committees a broader data base for comparison purposes.
ELEMENTS OF 1998 EXECUTIVE COMPENSATION
The key elements of the Company's executive compensation program are base
salary, annual incentives and long-term compensation. The following discussion
relates to the Company's executive officers other than Mr. McFerson whose
compensation is discussed separately in the Compensation of the Chief Executive
Officer.
BASE SALARIES
Base salaries offer security to executives and allow the Company to attract
competent executive talent and maintain a stable management team. They also
allow executives to be rewarded for individual performance, and encourage the
development of executives. Pay for individual performance rewards executives for
achieving goals that may not be immediately evident in common financial
measurements.
Base salaries for executive officers are initially determined by evaluating
executives' levels of responsibility, prior experience, breadth of knowledge,
internal equity, and external pay practices.
In determining increases to base salaries for 1998, the Nationwide Life
Compensation Committee considered relevant external market data, as described
above in Compensation Philosophy and Objectives. However, increases to base
salaries were driven primarily by individual performance that was evaluated
based on levels of individual contribution to the Company and the Nationwide
Insurance Enterprise. When evaluating individual performance, the Nationwide
Life Compensation Committee considered, among other things, the executive's
efforts in promoting Company and Nationwide Insurance Enterprise values;
continuing educational and management training; improving product quality;
developing relationships with customers, suppliers, and employees; and
demonstrating leadership abilities among coworkers. No specific formula was used
in evaluating individual performance, and the weighting given to each factor
with respect to each executive officer was within the individual discretion and
judgment of each member of the Nationwide Life Compensation Committee. Base
salaries for the executive officers, including promotion increases, were
increased in 1998 by an average of 10.6%, a rate comparable to the median base
salary increases provided at comparator companies. Executive officer salaries
were established at a level that is consistent with the goals stated in
Compensation Philosophy and Objectives.
ANNUAL INCENTIVE COMPENSATION
The PIP promotes the pay-for-performance philosophy of the Compensation
Committees by providing executives with direct financial rewards in the form of
annual cash incentives. Awards for 1998 were based on the performance of Return
on Equity, Premium Growth, and other key financial measures, financial and
operational comparison to external peer competitors, the extent of
accomplishment of strategic initiatives, and other factors and results impacting
performance for both the Company and Return on Equity, Revenue Growth and
Expense Management of the Nationwide Insurance Enterprise, and further based
upon individual employee performance.
Each year, the Nationwide Life Compensation Committee establishes many
specific performance measures used for the PIP. Participants are provided a
target incentive opportunity that represents a percentage of their base salary.
In 1998, individual targets ranged from twenty to forty-five percent of base
salary. Individual payouts under the PIP may range from zero to no maximum
factor of the individual's target incentive amount, depending on the achievement
of the performance measures. For 1998, the excellent results achieved for the
Return on Equity, the Premium Growth, and other financial and strategic
performance measures of the Company and of the
16
<PAGE> 20
Nationwide Insurance Enterprise resulted in a payout of 180 percent of target
for Mr. Gasper; and an average of 173 percent of target for Mr. Karas, Mr.
Woodward and Mr. Robinette. These amounts are reflected in the Bonus column in
the Summary Compensation Table.
LONG-TERM INCENTIVE COMPENSATION
In keeping with the philosophy of the Compensation Committees to provide a
total compensation package that favors at-risk components of pay, long-term
incentives comprise a significant portion of an executive's total compensation
package. When determining long-term incentive award sizes, the Compensation
Committees consider the executives' levels of responsibility, position within
the Company or Nationwide Insurance Enterprise, prior experience, historical
award data, various performance criteria, and compensation practices at
comparator companies.
The Compensation Committees utilize the two long-term incentive plans
described below. While each plan has a different objective, the plans work
together in order to achieve a balance among operational and strategic goals,
market pay orientation, and alignment of executive interests with that of
stockholders.
EXECUTIVE INCENTIVE PLAN
Under the EIP, participants receive cash awards based on the achievement of
measures tied to the performance of the Company and the Nationwide Insurance
Enterprise over a three-year period. New performance cycles start annually. The
EIP participants are granted a target incentive amount that represents a
percentage (from 5% to 25%) of their base salary. Individual payouts may range
from zero to 200 percent of the individual's target incentive amount, depending
solely on the achievement of the performance measures.
The EIP award paid for 1998 was based on the three-year award period from
1996 to 1998. Performance was measured by the Return on Equity of the Company,
and the Trade Combined Ratio and the Net Written Premium Growth of Nationwide
Insurance Enterprise. For the 1996-1998 award period, the outstanding results
achieved for the Return on Equity of the Company and the Trade Combined Ratio
and the Net Written Premium Growth of the Nationwide Insurance Enterprise
resulted in a payout of 156 percent of target for Mr. Gasper and Mr. Woodward,
and 200 percent of target for Mr. Karas and Mr. Robinette. The amounts are
reflected in the LTIP payout column in the Summary Compensation Table.
Award opportunities under the EIP, which were approved by the Nationwide
Life Compensation Committee for the 1998-2000 award period, are reflected in the
LTIP Award Table. The executive officers received target incentive amounts
representing 15% to 35% of base salary. The performance measures are the same as
those measured for the 1996-1998 award period. These opportunities were
determined consistent with the plan design described above, and the goals stated
in Compensation Philosophy and Objectives.
LONG-TERM EQUITY COMPENSATION PLAN
The LTEP authorizes grants of stock options, stock appreciation rights,
restricted stock, and performance awards. The objectives of the LTEP are to
encourage high levels of performance by selected officers, directors and
employees of the Company and certain of its affiliates, to attract and retain
the services of such individuals, and to align the interests of such individuals
with those of the stockholders.
During February 1998 and May 1998, the Company Compensation Committee made
grants to executive officers and others under the LTEP. Award sizes were
determined based on competitive equity grant practices using the median
practices at comparator companies and the individual's impact on the Company's
performance and were determined consistent with the goals stated in Compensation
Philosophy and Objectives. The grant was awarded in non-qualified stock options
that have an exercise price equal to the fair market value of the Common Stock
on the date of the option grant. Such options become exercisable in equal
installments over a three-year term, and expire ten years after the date of
grant.
17
<PAGE> 21
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Dimon R. McFerson serves as the Company's Chairman and Chief Executive
Officer -- Nationwide Insurance Enterprise, as well as in the same capacity for
Nationwide Life Insurance Company. Except for grants made under the LTEP in
February 1998 by the Company Compensation Committee, all components of Mr.
McFerson's compensation for 1998 were established by the Nationwide Life
Compensation Committee.
As discussed above in the Introduction, a portion of Mr. McFerson's annual
compensation is allocated to the Company for services rendered to the Company,
based on the time Mr. McFerson devotes to his responsibilities with the Company.
The compensation reported for Mr. McFerson in the compensation tables and
discussed in this report represents amounts paid for Mr. McFerson's services as
Chairman and Chief Executive Officer -- Nationwide Insurance Enterprise of the
Company and its subsidiaries.
Mr. McFerson's 1998 compensation was determined pursuant to the same
philosophy and objectives described earlier in this report and used for all
executive officers. In determining the compensation of Mr. McFerson for 1998,
the Nationwide Life Compensation Committee reviewed the strong Company and
Nationwide Insurance Enterprise financial results for 1997, Mr. McFerson's
superior leadership of the Nationwide Insurance Enterprise since 1992, his
extensive experience in the industry, and his successful efforts in the Company.
The portion of Mr. McFerson's base salary compensation allocated to the Company
totaled $430,970 in 1998, an increase of 12.9 percent over 1997. This increase
reflects both an adjustment in Mr. McFerson's annual base salary rate, and an
increase in the cost allocation. In 1998, Mr. McFerson's annual base salary rate
was increased by 5.6 percent. This increase positioned Mr. McFerson's base
salary compensation at approximately the 50th percentile of the comparator
companies.
The portion of Mr. McFerson's annual incentive award allocated to the
Company earned in 1998 under the PIP was $392,982. This award was 91.2 percent
of his allocated base salary compensation, and reflected 180 percent of his
target incentive. This payment was determined by the level of achievement of
specified financial, operational and strategic goals as assessed by the
Nationwide Life Insurance Company Board of Directors in their annual performance
evaluation of Mr. McFerson.
With regard to long-term incentive compensation, the portion of Mr.
McFerson's EIP award allocated to the Company was $204,351, reflecting
performance over the 1996-1998 award period. This award was 47.4 percent of his
allocated base salary compensation, and reflected 156 percent of his target
incentive. This payment was determined by the strong results achieved for the
Return on Equity of the Company and the Trade Combined Ratio and the Net Written
Premium of the Nationwide Insurance Enterprise.
Under the LTEP, the Company Compensation Committee granted Mr. McFerson
60,000 stock option shares. In making this grant, the Company Compensation
Committee took into account competitive levels of long-term compensation for
Chief Executive Officers of major diversified insurance and financial services
organizations with similar size and scope, as well as Mr. McFerson's role in the
continued strategic positioning of the Company. In addition, the Company
Compensation Committee reflected the Company's desire to have top officers build
a significant personal level of stock ownership in the Company, so as to better
align their interests with those of other stockholders.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the IRC provides that executive compensation in excess of
$1 million will not be deductible for purposes of corporate income taxes unless
it is performance-based compensation and is paid pursuant to a plan meeting
certain requirements of the IRC. The Compensation Committees intend to continue
increased reliance on performance-based compensation programs. Such programs
will be designed to fulfill, in the best possible manner, future corporate
business objectives. To the extent consistent with this goal, the Compensation
Committees currently anticipate that such programs will also be designed to
satisfy the requirements of Section 162(m) of the IRC with respect to the
deductibility of compensation paid. However, the Compensation Committees may
award compensation that is not fully deductible if the Compensation Committees
determine that such award is consistent with their philosophy and in the best
interests of the Company and its stockholders.
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<PAGE> 22
NATIONWIDE FINANCIAL SERVICES COMPENSATION COMMITTEE
David O. Miller, Chairman
James G. Brocksmith, Jr.
Charles L. Fuellgraf, Jr.
Donald L. McWhorter
NATIONWIDE LIFE INSURANCE COMPANY COMPENSATION COMMITTEE
Willard J. Engel, Chairman
Fred C. Finney
Yvonne L. Montgomery
Robert L. Stewart
PERFORMANCE GRAPH
The following graph shows a comparison of the Company's cumulative total
shareholder return since its initial public offering on March 6, 1997 with the
S&P 500 Composite Index and with an index of peer companies selected by the
Company.
One company in the peer group used by the Company in its 1997 proxy
statement -- SunAmerica, Inc. -- was acquired by American International Group,
Inc. during 1997. As a result, SunAmerica, Inc. ceased to trade publicly after
December 31, 1998. The Company has formed a new peer group removing SunAmerica,
Inc. and including an expanded group of insurance and financial services
companies that are considered to be significant competitors.
Companies included in the peer groups are as follows:
<TABLE>
<CAPTION>
OLD PEER GROUP NEW PEER GROUP
- -------------- --------------
<S> <C>
American General Corporation AFLAC, Incorporated
The Equitable Companies, Inc. Allmerica Financial Corporation
Hartford Life, Inc. American General Corporation
Lincoln National Corporation The Equitable Companies, Inc.
SunAmerica, Inc. Hartford Life, Inc.
Jefferson-Pilot Corporation
Lincoln National Corporation
Protective Life Corporation
Reliastar Financial Corp.
T. Rowe Price Associates, Inc.
</TABLE>
The graph plots the changes in the value of an initial $100 investment over
the indicated time periods assuming reinvestment of dividends. Returns for the
S&P 500 index and the peer company indices have been weighted according to their
respective total market capitalization.
19
<PAGE> 23
COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
NATIONWIDE FINANCIAL
SERVICES INC. NEW PEER GROUP OLD PEER GROUP S&P 500
-------------------- -------------- -------------- -------
<S> <C> <C> <C> <C>
3/6/97 100 100 100 100
12/97 155 135 141 123
12/98 223 179 197 158
</TABLE>
The Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this graph
by reference, and shall not otherwise be deemed filed under such Acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the
preceding graph. The Company will not make or endorse any predictions as to
future stock performance.
20
<PAGE> 24
CERTAIN TRANSACTIONS
The Company, Nationwide Mutual Insurance Company and Nationwide Corporation
entered into an Intercompany Agreement, certain provisions of which are
summarized below (the "Intercompany Agreement"). As used herein, "Nationwide
Mutual Insurance Company" means Nationwide Mutual Insurance Company collectively
with its subsidiaries and affiliates (other than the Company and its
subsidiaries).
Nationwide Mutual Insurance Company Consent to Certain Events. The
Intercompany Agreement provides that until Nationwide Mutual Insurance Company
ceases to control at least 50% of the combined voting power of the outstanding
voting stock of the Company, the prior written consent of Nationwide Mutual
Insurance Company will be required for: (i) any consolidation or merger of the
Company or any of its subsidiaries with any person (other than with a
wholly-owned subsidiary); (ii) any sale, lease, exchange or other disposition or
acquisition of assets by the Company or any of its subsidiaries (other than
transactions to which the Company and its subsidiaries are the only parties), or
any series of related dispositions or acquisitions, involving consideration in
excess of $250 million; (iii) any change in the authorized capital stock of the
Company or the creation of any additional class or series of capital stock of
the Company; (iv) any issuance by the Company or any subsidiary of the Company
of any equity securities or rights, warrants or options to purchase such equity
securities, except (a) up to 2.6 million shares of Class A Common Stock pursuant
to employee and director stock option, profit-sharing and other benefit plans of
the Company and its subsidiaries and any options exercisable therefor, (b)
shares of Class A Common Stock issued upon the conversion of any Class B Common
Stock, (c) the issuance of shares of capital stock of a wholly-owned subsidiary
of the Company to the Company or another wholly-owned subsidiary of the Company
and (d) in the public offering of Class A Common Stock in March 1997; (v) the
dissolution, liquidation or winding up of the Company; (vi) the amendment of the
Certificate of Incorporation and certain provisions of the Bylaws affecting
corporate governance; (vii) the election, removal or filling of a vacancy in the
office of the Chairman or Chief Executive Officer or President of the Company;
(viii) the declaration of dividends on any class or series of capital stock of
the Company, except dividends not in excess of the most recent regular cash
dividend or any dividend per share not in excess of 15% of the then current per
share market price of the Class A Common Stock; (ix) capital expenditures or
series of related capital expenditures of the Company or any of its subsidiaries
in excess of $250 million during any period of 12 consecutive months; (x) the
creation, incurrence or guaranty by the Company or any of its subsidiaries of
indebtedness for borrowed money in excess of $100 million, except in connection
with the Capital Securities and the Senior Notes; and (xi) any change in the
number of directors on the Board of Directors of the Company, the determination
of members of the Board of Directors or any committee thereof and the filling of
newly created memberships and vacancies on the Board of Directors or any
committee thereof.
License to Use Nationwide Name and Service Marks. Pursuant to the
Intercompany Agreement, Nationwide Mutual Insurance Company granted to the
Company and certain of its subsidiaries a non-exclusive, nonassignable,
revocable license to use the "Nationwide" trade name and certain other service
marks specifically identified in the Intercompany Agreement (collectively, the
"Service Marks") solely for the purpose of identifying and advertising the
Company's long-term savings and retirement business and activities related to
such business.
Equity Purchase Rights. The Company has agreed that, to the extent
permitted by the New York Stock Exchange (the "NYSE") and so long as Nationwide
Mutual Insurance Company controls at least 50% of the combined voting power of
the outstanding voting stock of the Company, Nationwide Corporation may purchase
its pro rata share (based on its then current percentage voting interest in the
Company) of any voting equity securities to be issued by the Company (excluding
any such securities offered pursuant to employee stock options or other benefit
plans, dividend reinvestment plans and other offerings other than for cash).
Registration Rights. The Company has granted to Nationwide Corporation
certain demand and "piggyback" registration rights with respect to shares of
Common Stock owned by it. Nationwide Corporation has the right to request up to
two demand registrations in each calendar year, but not more than four in any
five-year period. Nationwide Corporation will also have the right, which it may
exercise at any time and from time to time, to include the shares of Common
Stock held by it in any registration of common equity securities of the
21
<PAGE> 25
Company, initiated by the Company on its own behalf or on behalf of any other
stockholders of the Company. These rights are subject to certain "blackout"
provisions. Such registration rights are transferable by Nationwide Corporation.
Nationwide Mutual Insurance Company Agents. In the Intercompany Agreement,
Nationwide Mutual Insurance Company has agreed to allow the Company to
distribute its variable annuity, fixed annuity and individual universal,
variable and traditional life insurance products through Nationwide Mutual
Insurance Company insurance agents. Such right is exclusive to the Company,
subject to the limited right of certain other members of the Nationwide
Insurance Enterprise to sell such products through the agency force, for at
least five years following the Equity Offerings.
FEDERAL INCOME TAXES
The Company is included in the consolidated United States federal income
tax return for which Nationwide Mutual Insurance Company is the common parent
and the Company's tax liability will be included in the consolidated federal
income tax liability of Nationwide Mutual Insurance Company. The Company also
may be included in certain state and local tax returns of Nationwide Mutual
Insurance Company or its subsidiaries.
The Company is a party to an agreement, with Nationwide Mutual Insurance
Company and the other companies in the consolidated returns of Nationwide Mutual
Insurance Company, to determine the manner in which their respective tax
liabilities will be determined (the "Tax Sharing Agreement") for 1996 and
subsequent years, as long as the Company is included in the consolidated federal
income tax return for Nationwide Mutual Insurance Company. It will also be
effective for any year in which the Company is included in a consolidated or
combined state or local tax return. Under the Tax Sharing Agreement, the Company
will pay to Nationwide Mutual Insurance Company amounts equal to the taxes that
the Company would otherwise have to pay if the Company were to file a separate
federal income, or a separate state or local income or franchise, tax return
(including any amounts determined to be due as a result of a redetermination of
the tax liability of the consolidated or combined group of which Nationwide
Mutual Insurance Company is the common parent arising from any audit or
otherwise). The Company will be responsible for all taxes, including
assessments, if any, for prior years with respect to all other taxes payable by
the Company or any of its subsidiaries, and for all other federal, state and
local taxes that may be imposed upon the Company and that are not addressed in
the Tax Sharing Agreement.
By virtue of its control of the Company and the terms of the Tax Sharing
Agreement, Nationwide Mutual Insurance Company effectively controls all of the
Company's tax decisions. Under the Tax Sharing Agreement, Nationwide Mutual
Insurance Company will have sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company, to file all returns
on behalf of the Company and to determine the amount of the Company's liability
to (or entitlement to payment from) Nationwide Mutual Insurance Company under
the Tax Sharing Agreement. This arrangement may result in conflicts of interest
between the Company and Nationwide Mutual Insurance Company. For example, under
the Tax Sharing Agreement, Nationwide Mutual Insurance Company may choose to
consent, compromise or settle any adjustment or deficiency proposed by the
relevant tax authority in a manner that may be beneficial to Nationwide Mutual
Insurance Company and detrimental to the Company. Under the Tax Sharing
Agreement, however, Nationwide Mutual Insurance Company is obligated to act in
good faith with regard to all persons included in the applicable returns.
The Tax Sharing Agreement may not be amended without the prior written
consent of the Company.
LEGAL SERVICES
The attorneys in the Office of General Counsel of Nationwide Mutual
Insurance Company also operate as the law firm of Dietrich, Reynolds & Koogler,
LLP. Pursuant to a partnership agreement, the firm limits its representation to
the members of the Nationwide Insurance Enterprise. The partnership was formed
to assure compliance with Ohio law that prohibits corporations from practicing
law. Through a retainer arrangement, an annual retainer fee is paid by each
member of the Nationwide Insurance Enterprise based upon an estimate of time
spent by each attorney working on legal matters related to the respective member
during the previous year.
22
<PAGE> 26
Thomas W. Dietrich, Mark B. Koogler and Lucinda A. Reynolds are the senior
partners in such firm, and all attorneys and other employees of the firm are
salaried employees of Nationwide Mutual Insurance Company. The firm applies all
of its retainer fees toward office overhead under a rental and office expense
agreement with Nationwide Mutual Insurance Company. For the years ended December
31, 1998, 1997, and 1996 the Company paid the firm $2.5, $2.6 and $2.0 million
respectively, for legal services rendered to the Company which amounts were
immediately remitted to Nationwide Mutual Insurance Company.
LEASE
Pursuant to an arrangement between Nationwide Mutual Insurance Company and
certain of its subsidiaries, the Company leases approximately 573,000 square
feet of office space at One Nationwide Plaza, Two Nationwide Plaza and Three
Nationwide Plaza, Columbus, Ohio, at a current market rate of $19.12 per square
foot, with limited exceptions. Under the arrangement, the Company determines the
amount of office space necessary to conduct its operations and leases such space
from Nationwide Mutual Insurance Company, subject to availability. For the years
ended December 31, 1998 and 1997, the Company made payments to Nationwide Mutual
Insurance Company and its subsidiaries totaling $10.9 million, $9.1 and $10.0
million, respectively, under such arrangement.
MODIFIED COINSURANCE AGREEMENTS
Effective as of January 1, 1996, Nationwide Life Insurance Company entered
into a 100% modified coinsurance agreement with Employers Life Insurance Company
of Wausau. Under the agreement, Nationwide Life Insurance Company cedes to
Employers Life Insurance Company of Wausau, and Employers Life Insurance Company
assumes, Nationwide Life Insurance Company's non-variable group and wholesale
life insurance business and group and franchise health insurance business and
any ceded or assumed reinsurance applicable to such group business. For the year
ended December 31, 1998 and 1997, Nationwide Life Insurance Company ceded $106.3
million and $199.8 million, respectively, of premium to Employers Life Insurance
Company of Wausau.
Effective as of January 1, 1996, Nationwide Life Insurance Company also
entered into a 100% modified coinsurance agreement with Nationwide Mutual
Insurance Company. Under the agreement, Nationwide Life Insurance Company cedes
to Nationwide Mutual Insurance Company, and Nationwide Mutual Insurance Company
assumes, Nationwide Life Insurance Company's individual accident and health
insurance business and any ceded or assumed reinsurance applicable to such
business. For the year ended December 31, 1998 and 1997, Nationwide Life
Insurance Company ceded $90.1 million and $91.4 million, respectively, of
premium to Nationwide Mutual Insurance Company.
COST SHARING AGREEMENT
Pursuant to a Cost Sharing Agreement (the "Cost Sharing Agreement") among
Nationwide Mutual Insurance Company and certain of its direct and indirect
subsidiaries, including the Company, Nationwide Mutual Insurance Company
provides certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those subsidiaries.
Expenses covered by such agreement are subject to allocation among Nationwide
Mutual Insurance Company and such subsidiaries. Under such agreement, for the
years ended December 31, 1998 and 1997, the Company made payments to Nationwide
Mutual Insurance Company totaling $95 million and $86 million, respectively.
Under the Cost Sharing Agreement, expenses are allocated in accordance with NAIC
guidelines and are based on standard allocation techniques and procedures
acceptable under general cost accounting practices.
CASH MANAGEMENT AGREEMENTS
Nationwide Mutual Insurance Company has entered into an Investment Agency
Agreement with Nationwide Cash Management Company ("NCMC"), an affiliate of the
Company. NCMC makes, holds and administers short-term investments (those
maturing in one year or less) for Nationwide Mutual Insurance Company and
certain of its affiliates, including Nationwide Life Insurance Company and
certain of the Company's other
23
<PAGE> 27
subsidiaries. Under the agreements, expenses of NCMC are allocated pro rata
among the participants based upon the participant's ownership percentage of
total assets held by NCMC. For the year ending December 31, 1998, the Company
paid NCMC fees and expenses totaling $83,951 under such agreements.
REPURCHASE AGREEMENT
Nationwide Life Insurance Company and certain of the Company's other
subsidiaries are parties to Master Repurchase Agreements pursuant to which
securities or other financial instruments are transferred between parties
against the transfer of funds by the transferee upon the demand of either party.
PROPOSALS BY STOCKHOLDERS FOR THE 2000 ANNUAL MEETING
The Company's Bylaws provide that in order to submit any business to or
nominate any person for election to the Board of Directors, a stockholder must
give written notice to the Secretary of the Company (containing certain
information specified in the Bylaws) not less than 60 days and not more than 90
days prior to the first anniversary date of the Company's Proxy Statement in
connection with the last annual meeting.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows
the Company to use discretionary voting authority to vote on matters coming
before an annual meeting of stockholders, if the Company does not have notice of
the matter at least 45 days before the anniversary of the date on which the
Company first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an advance notice provision in the
Company's Bylaws. The Company's Bylaws contain such an advance notice provision
as described above. For the Company's Annual Meeting expected to be held on May
10, 2000, stockholders must submit such written notice to the Secretary of the
Company not earlier than January 3, 2000 and not later than January 31, 2000.
These requirements are separate and apart from and in addition to the
Securities and Exchange Commission's requirements that a stockholder must meet
in order to have a stockholder proposal included in the Company's Proxy
Statement under Rule 14a-8 of the Securities Exchange Act of 1934, as amended.
For purposes of the Company's 2000 Annual Meeting, any stockholder who wishes to
submit a proposal for inclusion in the Company's Proxy Statement must submit
such proposal to the Secretary of the Company on or before December 2, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG LLP served as independent accountants for 1998.
Representatives of the firm are expected to be present at the Annual Meeting,
with the opportunity to make a statement should they desire to do so, and will
be available to respond to appropriate questions from the stockholders.
OTHER MATTERS
The Board of Directors knows of no further business other than that
described herein that will be presented for consideration at the Annual Meeting.
If, however, other business shall properly come before the meeting, the persons
named in the enclosed form of proxy will vote the shares represented by such
proxy in accordance with their best judgment.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, including financial statements and financial statement
schedules, but excluding exhibits, will be made available without charge to the
stockholders upon written request to John F. Delaloye, Assistant Secretary, One
Nationwide Plaza, Columbus, Ohio 43215.
March 31, 1999
<PAGE> 28
PROXY
NATIONWIDE FINANCIAL SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 11, 1999
The undersigned hereby constitutes and appoints Joseph J. Gasper, Lydia
Micheaux Marshall and David O. Miller, each or any of them, proxies of the
undersigned, with full power of substitution, to vote all the shares of
Nationwide Financial Services, Inc. (the "Company") which the undersigned may
be entitled to vote at the Annual Meeting of Stockholders of the Company, to be
held at One Nationwide Plaza, Columbus, Ohio, on May 11, 1999, at 1:30 P.M.,
local time, and at any adjournment thereof, as follows:
(Continued, and to be marked, dated and signed on the reverse side)
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
ANNUAL MEETING
OF
NATIONWIDE FINANCIAL SERVICES, INC.
MAY 11, 1999
1:30 P.M.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
AGENDA
- ELECTION OF DIRECTORS
- OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING
<PAGE> 29
___
| | Please mark your |
| X | votes as in this | 0945
|___| example. |____
A vote FOR is recommended by the Board of Directors.
FOR WITHHELD
1. Election of Election of Class II Directors--NOMINEES:
Directors [ ] [ ] Charles L. Fuellgraf, Jr.
Dimon R. McFerson
For, except vote withheld from Donald L. McWhorter
the following nominee(s): Arden L. Shisler
______________________________
This proxy will be voted as
specified. If a choice is not
specified, the proxy will be
voted FOR each director listed.
The undersigned hereby acknow-
ledges receipt of the notice of
Annual Meeting and the Proxy
Statement, each dated March 31,
1999.
This proxy should be dated and
signed by the stockholder
exactly as his or her name
appears herein and returned
promptly in the enclosed
envelope. Persons signing in
a fiduciary capacity should so
indicate.
_______________________________
_______________________________
SIGNATURE(S) DATE
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-- FOLD AND DETACH HERE --
