[USF&G LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of USF&G Corporation will be held at the
Sheraton Inner Harbor Hotel, 300 South Charles Street, Baltimore, Maryland, on
Wednesday, May 17, 1995, at 9:00 a.m., for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon such other business as may properly come
before the meeting.
If you do not expect to attend the meeting, you are requested to sign, date
and promptly return the enclosed proxy.
By Order of the Board of
Directors
JOHN F. HOFFEN, JR.
Secretary
Baltimore, Maryland
March 30, 1995
USF&G Corporation, 100 Light Street, Baltimore, Maryland 21202
<PAGE>
USF&G CORPORATION
100 LIGHT STREET
BALTIMORE, MARYLAND 21202
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS--MAY 17, 1995
This Proxy Statement and the accompanying Notice of Annual Meeting of
Shareholders and proxy card are being furnished to shareholders of USF&G
Corporation (the "Corporation") in connection with the solicitation by the Board
of Directors of proxies to be voted at the Annual Meeting of Shareholders. These
proxy materials are being furnished on or about March 30, 1995 to all
shareholders of record as of March 10, 1995.
The only matter to be presented to the Corporation's shareholders at the
Annual Meeting is the election of the Board of Directors for the ensuing year.
Directors are elected by a plurality of the votes cast with a quorum present.
Abstentions and broker non-votes do not affect the plurality vote required for
the election of directors. Only holders of record of shares of Common Stock on
March 10, 1995 will be entitled to vote at the meeting, and each share will have
one vote. At the close of business on March 10, 1995, there were 101,187,664
shares of the Common Stock of the Corporation outstanding and entitled to vote
at the meeting.
The expense of printing and mailing proxy materials will be borne by the
Corporation. The solicitation of proxies will generally be by mail and by
directors, officers and employees of the Corporation. In addition, the
Corporation has retained Georgeson & Co., Inc. ("Georgeson") to assist in the
solicitation of proxies. Georgeson will receive a fee of approximately $12,000
and will be reimbursed for expenses incurred in connection with its services. In
some instances solicitations may be made by telephone or facsimile, the costs of
which will be borne by the Corporation. The Corporation may also reimburse
brokers, custodians, nominees and other fiduciaries for reasonable out-of-pocket
and clerical expenses in forwarding proxy materials to their principals.
A shareholder who has given a proxy has the power to revoke the proxy at any
time before it is exercised. Such right of revocation is not limited by or
subject to compliance with any formal procedure.
It is the practice of the Corporation to take reasonable steps to ensure
that shareholders are afforded privacy in the proxy voting process. Proxies are
tabulated by third parties who may not disclose the votes of individual
shareholders to any officer, director or employee of the Corporation. This
policy is waived with respect to shareholders who provide written comments or
questions with their proxies or in the event of a proxy contest where
non-management groups have access to voting results.
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ELECTION OF DIRECTORS
Thirteen (13) directors are to be elected. Unless contrary instructions are
given, it is intended that the votes represented by the proxies will be cast for
the election of the persons listed below as directors. All of the proposed
nominees are currently directors of the Corporation who were elected at the last
meeting of shareholders, other than Mr. R. James Woolsey, who is being proposed
as a nominee for the first time. Directors will be elected for a term of one
year or until their successors are chosen and qualified.
The table below presents information concerning persons to be nominated for
election as directors of the Corporation, including their current membership on
committees of the Board of Directors of the Corporation, time served as a
director of the Corporation (or its predecessor), principal occupations or
affiliations during the last five years, and certain other directorships held.
<TABLE>
<S> <C>
H. FURLONG BALDWIN................ Member-Executive, Finance, and Nominating Committees.
Director since 1968.
Chairman of the Board and Chief Executive Officer of
Mercantile Bankshares Corporation. Mr. Baldwin, age
63, is also a director of Mercantile Bankshares
Corporation, GRC International, Inc., Baltimore Gas &
Electric Company and Conrail, Inc.
MICHAEL J. BIRCK.................. Member-Audit and Compensation Committees. Director since
1993.
President and Chief Executive Officer of Tellabs, Inc.,
a designer and manufacturer of voice and data
equipment. Mr. Birck, age 57, is also a director of
Tellabs, Inc. and Duplex Products, Inc.
NORMAN P. BLAKE, JR. ............. Member-Executive Committee. Director since 1990.
Chairman of the Board, President and Chief Executive
Officer of the Corporation and of United States
Fidelity and Guaranty Company ("USF&G Company"), the
Corporation's principal subsidiary, since November
1990; formerly Chairman of the Board and Chief
Executive Officer of Heller International Corporation,
a commercial finance corporation; formerly Executive
Vice President of General Electric Credit Corporation
(1981-1984). Mr. Blake, age 53, is also a director of
Owens-Corning Fiberglas Corporation and Enron
Corporation.
GEORGE L. BUNTING, JR. ........... Member-Executive, Compensation, and Nominating
Committees. Director since 1978.
President and Chief Executive Officer of Bunting
Management Group, a private financial management
company; formerly Chairman of the Board of Noxell
Corporation, a consumer products manufacturer. Mr.
Bunting, age 54, is also a director of Bell
Atlantic-Maryland, Inc., Crown Central Petroleum
Corporation, Mercantile Bankshares Corporation and PHH
Corporation.
ROBERT E. DAVIS................... Member-Audit, Compensation and Nominating Committees.
Director since 1990.
Managing Director of Axess Corporation, a manufacturer
of specialty chemicals, film, and quality control
instrumentation, since March 1991; formerly President
and Chief Operating Officer of Sequa Corporation, a
manufacturer of aerospace and industrial products,
specialty chemicals, machinery and metal coatings. Mr.
Davis, age 63, is also a director of H&R Block, Inc.
and Rheometric Scientific, Inc.
</TABLE>
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<TABLE>
<S> <C>
DALE F. FREY...................... Member-Executive, Audit, and Finance Committees.
Director since 1991.
Vice President of General Electric Company; Chairman of
the Board and President of General Electric Investment
Corporation and GE Investment Management Incorporated.
Mr. Frey, age 62, is also a director of General
Electric Financial Services, Inc., Praxair, Inc., and
Double Tree Hotel Corporation.
ROBERT E. GREGORY, JR. ........... Member-Executive, Audit, and Compensation Committees.
Director since 1988.
Chairman and Chief Executive Officer of London Fog
Corporation; formerly Chairman and Chief Executive
Officer of The Gitano Group, Inc., an apparel
marketer; formerly President of VF Corporation, an
apparel manufacturer and distributor. Mr. Gregory, age
52, is also a director of Globe Manufacturing, Inc.
ROBERT J. HURST................... Member-Executive and Nominating Committees. Director
since 1988.
Mr. Hurst, age 49, is a management committee partner of
Goldman, Sachs & Co., an investment banking firm, and
a director of Sigma-Aldrich Corporation and VF
Corporation.
WILBUR G. LEWELLEN................ Member-Compensation and Finance Committees. Director
since 1992.
Dr. Lewellen, age 57, is the Herman C. Krannert
Distinguished Professor of Management at the Graduate
School of Management at Purdue University.
HENRY A. ROSENBERG, JR. .......... Member-Audit and Compensation Committees. Director since
1977.
Chairman of the Board and Chief Executive Officer of
Crown Central Petroleum Corporation. Mr. Rosenberg,
age 65, is also a director of Crown Central Petroleum
Corporation and Signet Banking Corporation.
LARRY P. SCRIGGINS................ Member-Finance and Nominating Committees. Director since
1979.
Mr. Scriggins, age 58, is a partner of the law firm of
Piper & Marbury.
ANNE MARIE WHITTEMORE............. Member-Finance and Nominating Committees. Director since
1993.
Ms. Whittemore is a partner in the law firm of McGuire,
Woods, Battle & Boothe. Ms. Whittemore, age 48, is a
director of Owens & Minor, Inc., James River
Corporation and T. Rowe Price Fixed Income Funds.
R. JAMES WOOLSEY.................. Mr. Woolsey, age 53, is a partner of the law firm of
Shea & Gardner; formerly Director of Central
Intelligence; formerly Ambassador and U.S.
Representative to the Negotiation on Conventional
Armed Forces in Europe, Vienna, Austria.
</TABLE>
The Board of Directors amended the Corporation's By-Laws in February 1995 to
provide for the appointment of one or more advisory directors. Advisory
directors are elected by the Board of Directors and serve at the pleasure of the
Board. They may attend meetings of the Board as determined by the Board or its
Chairman, but sit solely in an advisory capacity and have no voting or other
authority or responsibilities of directors. Mr. Randolph Screen, who is Chairman
of USF&G Company's National Agency Council, was elected as an advisory director
in February 1995. Mr. Screen is a principal with the insurance agency of Beall,
Garner, Screen and Geare, Inc., Johnstown, Pennsylvania.
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STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table shows the number of shares of the Corporation's Common
Stock beneficially owned by (i) each person known to the Corporation to
beneficially own more than 5% of the outstanding Common Stock, (ii) each
director, and (iii) each executive named in the Summary Compensation Table shown
below under the caption "Compensation of Executive Officers and Directors". None
of the beneficial holdings of Common Stock listed below represents in excess of
1% of the total issued and outstanding shares, except the shares beneficially
owned by Trustees of General Electric Pension Trust and other entities advised
by affiliates of General Electric Company, which shares represent 7.8% of the
total issued and outstanding shares. The information set forth below has been
calculated as of March 17, 1995. The number of shares beneficially owned is
determined under rules of the Securities and Exchange Commission (the "SEC") and
the information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as to
which the individual has the sole or shared voting or investment power and also
any shares which the individual has the right to acquire within 60 days through
the exercise of any stock option or other right. Unless otherwise indicated,
each person has sole investment and voting power (or shares such powers with his
or her spouse) with respect to the shares set forth in the following table:
<TABLE><CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP
- -------------------------------------------------------- --------------------
<S> <C>
Trustees of General Electric Pension Trust and other
entities advised by affiliates of General Electric
Company............................................... 8,545,030(a)
c/o General Electric Investment Corporation
3003 Summer Street
Stamford, CT 06904
H. Furlong Baldwin...................................... 8,000(b)(c)
Michael J. Birck........................................ 7,000(c)
Norman P. Blake, Jr..................................... 541,176(d)
George L. Bunting, Jr................................... 15,900(c)
Robert E. Davis......................................... 500(c)
Dale F. Frey............................................ 4,000(e)
Gary C. Dunton.......................................... 46,453(f)
Robert E. Gregory, Jr................................... 5,000(c)
Dan L. Hale............................................. 132,244(g)
Robert J. Hurst......................................... 9,325(c)(h)
Wilbur G. Lewellen...................................... 3,800(c)
John A. MacColl......................................... 74,817(i)
Henry A. Rosenberg, Jr.................................. 48,804(c)(j)
Larry P. Scriggins...................................... 2,191(c)
John C. Sweeney......................................... 17,367(k)
Anne Marie Whittemore................................... 500(c)
R. James Woolsey........................................ 250
All Directors and Executive Officers as a Group (23
persons).............................................. 984,972(l)
</TABLE>
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NOTES
<TABLE>
<C> <S>
(a) Includes 8,316,008 shares of Common Stock issuable upon conversion of 1,000,000 shares
of $10.25 Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock"). The purchase agreement pursuant to which these shares were sold provides that
so long as GE Investment Private Placement Partners I, Limited Partnership (the "GE
Partnership") is the
</TABLE>
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<TABLE>
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beneficial owner of any shares of Series B Preferred Stock or
shares of Common Stock issued upon conversion of the Series B Preferred Stock, the
Corporation will nominate and recommend as a candidate for election to the Board of
Directors a person designated by the general partner of the GE Partnership who is
reasonably acceptable to the then current Board of Directors of the Corporation. If the
GE Partnership is no longer the beneficial owner of any such shares, then upon the
expiration of the term of the director who had been so designated, this right to
designate a nominee will be held by 50% or more of the shares of Series B Preferred
Stock then held by certain designated holders. Mr. Frey was designated to serve as a
director by the general partner of the GE Partnership pursuant to these provisions.
(b) Excludes shares held in various fiduciary capacities by the trust department of
Mercantile-Safe Deposit and Trust Company, of which Mr. Baldwin is a director and
executive officer.
(c) Under the 1993 Stock Plan for Non-Employee Directors, non-employee directors receive a
portion of their annual retainer fees and certain retirement benefits in the form of
shares of Common Stock of the Corporation. The shareholdings listed in the table do not
include the following fully vested Common Stock units: Mr. Baldwin, 19,975; Mr. Birck,
1,519; Mr. Bunting, 8,424; Mr. Davis, 6,210; Mr. Gregory, 5,420; Mr. Hurst, 5,851; Mr.
Lewellen, 1,100; Mr. Rosenberg, 16,200; Mr. Scriggins, 13,541; Ms. Whittemore, 1,276.
(d) Includes 486,111 shares subject to outstanding stock options which are exercisable
within 60 days . Includes 1,750 shares owned by minor children who share the same
household as Mr. Blake.
(e) Excludes shares held by General Electric Pension Trust and related entities as
reflected in Note (a) above.
(f) Includes 34,999 shares subject to outstanding stock options which are exercisable
within 60 days.
(g) Includes 128,244 shares subject to outstanding stock options which are exercisable
within 60 days.
(h) Includes shares held by the Robert and Fern Hurst Foundation, of which Mr. Hurst is a
Trustee. Mr. Hurst disclaims beneficial ownership of these shares.
(i) Includes 65,817 shares subject to outstanding stock options which are exercisable
within 60 days.
(j) Includes 33,698 shares owned by American Trading and Production Corporation, of which
Mr. Rosenberg is a director and substantial stockholder.
(k) Includes 16,167 shares subject to outstanding stock options which are exercisable
within 60 days.
(l) Subject to the Notes set forth above. Includes 789,838 shares subject to outstanding
stock options which are exercisable within 60 days. Excludes a total of 79,516 fully
vested Common Stock units held by directors pursuant to the 1993 Stock Plan for
Non-Employee Directors.
</TABLE>
BOARD AND BOARD COMMITTEE MEETINGS
The Board of Directors held eight meetings in 1994. All directors attended
at least 75% of the aggregate number of the 1994 meetings of the Board and of
the Committees on which they served, except for Mr. Rosenberg, who attended 70%
of such meetings. The Board of Directors has established an Audit Committee,
Finance Committee, Executive Committee, Nominating Committee and Compensation
Committee.
The Audit Committee assists the directors in fulfilling their
responsibilities to shareholders and others relating to the corporate accounting
and financial reporting practices of the Corporation and the quality and
integrity of the financial reports of the Corporation. The Audit Committee
recommends the selection of independent accountants, reviews the independent
accountants' and internal auditors' assessments of the adequacy of the
Corporation's internal control system, reviews the scope and results of the
internal and external audit process and performs other functions consistent with
its responsibilities. The Audit Committee met six times in 1994.
The Finance Committee assists the directors in fulfilling their
responsibilities relating to the financial activities of the Corporation. The
Finance Committee reviews financial and investment policies, capital structure,
financial aspects of acquisitions and divestitures, and such other fiscal
matters as may be appropriate. The Finance Committee met three times in 1994.
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The Executive Committee is responsible for exercising the authority of the Board
of Directors, to the extent permitted by law, in the intervals between meetings
of the Board when an emergency issue or scheduling makes it difficult to convene
all directors. The Executive Committee met six times in 1994.
The Nominating Committee identifies and presents qualified persons for
election or re-election to the Board of Directors. It advises the Board on
director-related matters such as number, composition, compensation, committee
assignments, and other related areas assigned by the Board or its Chairman. The
Nominating Committee also reviews succession plans for executive officers. The
Nominating Committee will consider nominees for election to the Board of
Directors suggested by shareholders. Recommendations by shareholders should be
forwarded to the Secretary of the Corporation and should identify the nominee by
name and provide pertinent information concerning his or her background and
experience. The Nominating Committee met three times in 1994.
The Compensation Committee reviews and determines the salaries for executive
and other senior officers, reviews various incentive compensation plans and
determines the terms under which and to whom stock options are granted,
including the number of shares and the option price to be paid. The Compensation
Committee is also responsible for reviewing significant personnel compensation
policies and benefit programs. The Compensation Committee met six times in 1994.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table reflects the compensation for the year 1994 of each of
the five highest paid persons who were executive officers at any time during
1994.
<TABLE><CAPTION>
LONG-TERM COMPENSATION
----------------------
NUMBER OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND PRINCIPAL ---------------------- OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY BONUS(A) OTHER GRANTED PAYOUTS(B) COMPENSATION(C)
- ------------------------ ---- ---------- ---------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Norman P. Blake, Jr..... 1994 $ 755,770 $1,138,592 -- 115,855 -- $ 145,530
President and 1993 1,007,675 1,364,083 -- 412,500(d) -- 2,087,578(d)
Chief Executive Officer 1992 1,018,463 575,000 -- 155,000 -- 129,308
USF&G Corporation
Dan L. Hale............. 1994 375,692 376,496 -- 33,000 -- 40,299
Executive Vice 1993 338,654 327,285 -- 33,000 -- 34,385
President- 1992 306,734 150,000 -- 51,868 -- 31,714
Chief Financial Officer
USF&G Corporation
Gary C. Dunton.......... 1994 328,328 168,100 $137,650(e) 30,000 -- 25,826
Executive Vice 1993 315,001 240,200 -- 50,000 -- 119,857
President 1992 20,596 125,000 -- -- -- --
USF&G Company
John C. Sweeney......... 1994 285,000 151,300 -- 18,500 -- 29,230
Senior Vice President 1993 245,400 102,800 -- -- -- 12,689
and Chief Investment 1992 40,874 103,800 -- 20,000 -- --
Officer
USF&G Corporation
John A. MacColl......... 1994 276,554 218,100 -- 14,500 -- 16,821
Senior Vice President- 1993 266,116 188,981 -- 15,000 -- 16,779
Human Resources 1992 258,635 87,000 -- 30,276 -- 16,788
and General Counsel
USF&G Corporation
</TABLE>
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NOTES
<TABLE>
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(a) Includes bonuses earned under the Corporation's three year Long Term Cash Incentive
Plan of $427,882, $188,696, and $103,900, respectively, to Messrs. Blake, Hale and
MacColl for 1994, and $713,283, $152,285 and $90,981, respectively, to Messrs. Blake,
Hale and MacColl for 1993.
</TABLE>
6
(Notes continued on following page)
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(Notes continued from preceding page)
<TABLE>
<C> <S>
See Note (b) below. Also includes first year sign-on bonuses
of $103,800 in 1992 for Mr. Sweeney and $225,200 for Mr. Dunton, $125,000 of which was
payable in 1992 and $100,200 of which was payable in 1993.
(b) In 1991, the Corporation established a Long Term Cash Incentive Plan which provides for
cash payments at the end of successive three-year cycles. However, under SEC reporting
rules, payments under this plan are reported as annual bonus payments since awards
accrue based upon one year financial goals and are subject to forfeiture only if the
employment relationship is terminated prior to the end of the three-year cycle. See
Note (a) above. Beginning with the three-year cycle which started January 1, 1994, this
cash incentive plan was replaced with the Long-Term Incentive Program, which is a stock
based plan under which payments are based upon three-year cumulative operating income
targets. See "Long-Term Incentive Awards in 1994" below.
(c) Includes matching contributions made by the Corporation during 1994 to the
Corporation's Capital Accumulation Plan (a 401(k) plan) of $3,018, $4,620, $4,620,
$4,620 and $2,778, respectively, for Messrs. Blake, Hale, Dunton, Sweeney and MacColl.
Also includes premiums paid for split dollar life insurance policies for Messrs. Blake,
Hale, Dunton, Sweeney and MacColl, which in 1994 were $142,512, $35,679, $21,206,
$24,610 and $14,043, respectively. A relocation payment of $93,940 in 1993 is included
with respect to Mr. Dunton.
(d) In November 1993, the Corporation entered into an agreement with Mr. Blake pursuant to
which he extended his term of employment for three years beyond the two years then
remaining on his employment contract. Mr. Blake also agreed to waive a portion of his
base salary. In connection with these arrangements he was granted 300,000 stock options
and a deferred cash award of $1,950,000, subject to adjustment or forfeiture in certain
circumstances. This deferred cash award is reflected in "All Other Compensation" for
1993. See "Employment Agreements" and "Compensation Committee Report."
(e) Award of 9,454 shares of restricted stock to reimburse Mr. Dunton for the tax cost of
his relocation. The value of this award was determined by multiplying the number of
shares granted by the closing price of the Corporation's Common Stock on the date of
grant. These shares will become fully vested in 1995 and had a value of $128,811 on
December 31, 1994, based on the closing price of the Common Stock on the last business
day of the year. Dividends are payable on such restricted shares during the one-year
vesting period. None of the other named executive officers have been granted or hold
shares of restricted stock.
</TABLE>
STOCK OPTION GRANTS IN 1994
The following table provides information on option grants in 1994 to the
named executive officers.
<TABLE><CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS GRANTED EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME IN 1994(A) FISCAL YEAR SHARE DATE VALUE(B)
- ---------------------------------- --------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Norman P. Blake, Jr............... 115,855 5.16% $ 14.38 02/29/04 $832,997
Dan L. Hale....................... 33,000 1.47 14.38 02/29/04 237,290
Gary C. Dunton.................... 30,000 1.34 14.38 02/29/04 215,700
John C. Sweeney................... 18,500 0.82 14.38 02/29/04 133,015
John A. MacColl................... 14,500 0.65 14.38 02/29/04 104,255
</TABLE>
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NOTES
<TABLE>
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(a) Options are exercisable for shares of the Corporation's Common Stock. One-third of the
options are exercisable after one year, two-thirds are exercisable after two years, and
all of the granted options are exercisable after three years. All options vest
immediately if any person acquires 30% or more of the outstanding shares, if the
Corporation's shareholders approve a merger, consolidation or sale of substantially all
of the Corporation's assets, or if any shares are acquired pursuant to
</TABLE>
(Notes continued on following page)
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(Notes continued from preceding page)
<TABLE>
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a tender offer (so called "fundamental changes"). All of the options granted were granted at exercise
prices equal to the fair market value of the Corporation's Common Stock on the date of grant.
(b) Based on the Black-Scholes option pricing model assuming expected volatility equal to
three-year average volatility of .36, expected dividend yield equal to average
three-year dividend yield of 1.41%, risk free interest rate of 7.85%, an option term of
ten years, and 3% discount for risk of forfeiture during the respective vesting
periods. The actual value, if any, an executive may realize will depend upon the excess
of the stock price over the exercise price on the date the option is exercised;
accordingly, there is no assurance that the executive will realize the values set forth
above.
</TABLE>
AGGREGATE OPTION EXERCISES IN 1994 AND YEAR-END VALUES
The following table provides information on option exercises in 1994 by the
named executive officers and the value of such officers' unexercised options.
<TABLE><CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 12/31/94 AT 12/31/94 (B)
ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE 1994(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman P. Blake, Jr............ -- -- 371,247 587,108 $ 1,412,694 $ 495,506
Dan L. Hale.................... -- -- 86,277 85,470 308,670 124,425
Gary C. Dunton................. -- -- -- 80,000 -- --
John C. Sweeney................ -- -- 10,000 28,500 10,050 10,050
John A. MacColl................ 3,000 $ 12,750 45,191 43,544 136,621 77,927
</TABLE>
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NOTES
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(a) The value realized on the exercise of stock options was determined by taking the
difference between the option price and the fair market value of the Common Stock on
the date of exercise.
(b) The value of in-the-money options was determined by taking the difference between
$13.625 per share, which was the closing price of the Common Stock on the last business
day of the year, and the exercise price of each option.
</TABLE>
LONG-TERM INCENTIVE AWARDS IN 1994
<TABLE><CAPTION>
PERFORMANCE
PERIOD ESTIMATED FUTURE PAYOUT(A)
UNTIL ------------------------------
NAME PAYOUT THRESHOLD TARGET MAXIMUM
- ---------------------------------------------------- ----------- --------- ------ -------
<S> <C> <C> <C> <C>
Norman P. Blake, Jr................................. 3 Years 15,207 30,413 57,024
Dan L. Hale......................................... 3 Years 6,215 12,430 23,307
Gary C. Dunton...................................... 3 Years 5,477 10,953 20,536
John C. Sweeney..................................... 3 Years 3,469 6,937 13,006
John A. MacColl..................................... 3 Years 3,256 6,511 12,208
</TABLE>
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NOTE:
<TABLE>
<C> <S>
(a) Number of share units awarded depends upon adjusted three year cumulative operating
income for the period 1994--1996, and may be zero, if the minimum target is not
reached, or, if such threshold is reached, between the threshold and maximum shown.
</TABLE>
The Long-Term Incentive Program ("LTIP") is a program established in 1994 by
the Compensation Committee of the Board of Directors and approved by the
shareholders which provides for granting
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<PAGE>
of performance awards that are payable in Common Stock. Awards are payable based
upon performance goals established by the Compensation Committee at the
beginning of each successive and overlapping three year performance period.
Performance goals consist of an adjusted three year cumulative net income
target. The actual award is determined at the end of each three year cycle based
upon actual corporate performance. If actual performance falls below 85% of the
targeted performance, then no awards will be paid out for that three year cycle.
The maximum award may be paid if actual performance equals or exceeds 115% of
the three year target performance. Participants will only receive the designated
units, which are payable in shares of the Corporation's Common Stock, at the end
of the three year cycle. The actual award received at the end of the three year
cycle may be reduced, but not increased, for the participants listed in the
table, due to individual performance, business unit performance, or overall
corporate performance.
PENSION PLANS
The Corporation has a non-contributory, defined benefit pension plan which
provides employees of the Corporation and designated subsidiaries with
retirement benefits beginning at the normal retirement age of 65. The
Corporation also maintains a supplemental retirement plan for senior executives
which provides benefits that would otherwise be paid to them under the pension
plan but for certain limitations imposed by the Internal Revenue Code. The
following table shows the estimated benefits that would be payable at normal
retirement age under the pension plan and the supplemental retirement plan if an
individual had the specified years of service with the Corporation or designated
subsidiaries and levels of average compensation covered by the plans.
<TABLE><CAPTION>
ESTIMATED ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED
AVERAGE --------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------ -------- -------- -------- -------- --------
<C> <S> <C> <C> <C> <C> <C>
$150,000 ............ $ 32,000 $ 43,000 $ 54,000 $ 65,000 $ 75,000
175,000 ............ 38,000 51,000 63,000 76,000 88,000
200,000 ............ 44,000 58,000 73,000 87,000 102,000
225,000 ............ 49,000 66,000 82,000 98,000 115,000
250,000 ............ 55,000 73,000 91,000 110,000 128,000
300,000 ............ 66,000 88,000 110,000 132,000 154,000
350,000 ............ 77,000 103,000 129,000 155,000 180,000
400,000 ............ 89,000 118,000 148,000 177,000 207,000
450,000 ............ 100,000 133,000 166,000 200,000 233,000
500,000 ............ 111,000 148,000 185,000 222,000 259,000
600,000 ............ 134,000 178,000 223,000 267,000 312,000
</TABLE>
Compensation for purposes of computing benefits under these plans is
generally the average, over the entire period of an employee's service with the
Corporation and its designated subsidiaries, of salary and annual incentive
bonuses. Benefits are computed on the basis of a straight life annuity and are
not subject to any deduction or offset for Social Security or other benefits.
Mr. Blake is effectively covered under a separate plan, described below. For
purposes of calculating average annual compensation under these plans, 1994
compensation is as reported under the "Annual Compensation--Salary" and "Bonus"
columns in the Summary Compensation Table, except that sign-on bonuses and
payments under the Long Term Cash Incentive Plan reported under the "Bonus"
column are excluded. Accordingly, 1994 compensation for calculating benefits for
Messrs. Hale, Dunton, Sweeney and MacColl is $563,492, $496,428, $436,300, and
$390,754, respectively. The estimated credited years of service for each of such
individuals is as follows: Mr. Hale, four years; Mr. Dunton, two years; Mr.
Sweeney, two years; and Mr. MacColl, six years.
A supplemental retirement contract with Mr. Blake provides a retirement
benefit which, when combined with benefits from the Corporation's pension plan
and his prior employer's pension plan,
9
<PAGE>
equals a life annuity beginning at age 65 of 60% of his highest consecutive
three years' average annual covered compensation. Prior to November 26, 1993,
covered compensation was equal to his salary plus annual incentive bonus.
Although Mr. Blake voluntarily agreed to waive a substantial portion of his base
salary payable after that date as described elsewhere in this proxy statement,
salary for purposes of the supplemental retirement contract will be determined
without regard to that waiver. The Long Term Cash Incentive Plan is excluded for
purposes of calculating pension benefits. Estimated annual retirement benefits
payable to Mr. Blake at age 65 would be $1,082,435 based upon 1994 covered
compensation of $1,804,059, and $1,298,923 if average annual covered
compensation increased to $2,164,871. If Mr. Blake voluntarily terminates
employment or is terminated for serious cause, in either case before November
26, 1995, no benefits will be paid under this supplemental retirement contract,
although he would be entitled to an annual benefit estimated to be $15,600
payable in the form of a life annuity at age 65, under the Corporation's defined
benefit pension plan described above.
Pursuant to Mr. Dunton's employment agreement, the Corporation has agreed to
purchase an annuity which would provide him with a retirement benefit of $20,000
per year if he does not vest in the Corporation's defined benefit pension plan.
This obligation will terminate at the time of vesting.
EMPLOYMENT AGREEMENTS
In connection with Mr. Blake's employment by the Corporation in November
1990 as Chief Executive Officer, the Corporation entered into an initial
employment agreement for a five-year term under which Mr. Blake was employed at
a salary of $909,500, $973,175 and $1,041,285, respectively, for the first three
years, with subsequent increases at the discretion of the Board of Directors.
Under this agreement, Mr. Blake received a fixed bonus, "make-whole" payments,
and a stock option award in 1990. Subsequent bonus awards and option grants are
reviewed and approved by the Compensation Committee and the Board of Directors.
In November 1993, Mr. Blake entered into a new employment agreement which
extended his term of employment for an additional three year term. At the same
time Mr. Blake also agreed to waive salary in excess of $750,000 and $800,000,
respectively, for the final two years of his initial employment agreement. The
new employment agreement, which extends through December 31, 1998, provides for
base salary of $850,000 in the first year of the new term and $900,000 and
$950,000, respectively, in the second and final years. In the event Mr. Blake's
employment is terminated by the Corporation for reasons other than serious
cause, he is nevertheless entitled to be paid his salary for the remainder of
the extended term and receive benefits under all incentive, profit sharing,
certain bonus and other executive and employee benefit plans. Provisions
concerning health and other insurance and similar benefits as well as
non-competition arrangements are included in both the initial and the new
employment contracts. All other benefits, including bonuses, stock option
grants, insurance and retirement benefits, will be determined without regard to
the waiver of a portion of his salary and will be based on the pre-reduced
salary with such increases as the Board deems appropriate in light of increases
awarded to other executive officers generally and Mr. Blake's individual
performance.
Also, in November 1993, Mr. Blake was awarded 300,000 stock options, 150,000
of which were awarded at an exercise price which was then $3.25 per share above
the fair market value of the Corporation's Common Stock and 150,000 of which
were awarded at an exercise price equal to such fair market value. The latter
options were granted in tandem with a deferred cash award of $1,950,000, which
was determined by multiplying 150,000 by $13.00, which was then the fair market
value of the Corporation's Common Stock. The deferred cash award is subject to
adjustment so that in combination with the award of 150,000 stock options at an
exercise price of $13.00 per share, Mr. Blake received an award which was
substantially equivalent to an award of 150,000 shares of restricted stock. The
stock options and deferred cash award described above are subject to complete
forfeiture and do not vest until December 31, 1998, which is the end of the
extended term of employment, except in the event of Mr.
10
<PAGE>
Blake's death, permanent disability, termination by the Corporation without
serious cause or certain fundamental changes described above under the caption
"Stock Option Grants in 1994."
The Corporation also entered into a letter of employment with Mr. Dunton in
connection with his agreement to join the Corporation in December 1992. The
letter sets forth his annual salary, sign-on, relocation and other bonuses and
1993 stock options, all of which are reflected in the Summary Compensation
Table. The letter also provides for the purchase of an annuity to fund the
retirement benefit described above under the heading "Pension Plans," in the
event Mr. Dunton does not vest in the Corporation's defined benefit plan.
DIRECTORS' FEES
Directors who are not officers of the Corporation or its affiliates are paid
$800 per committee meeting attended and $1,000 for attending board meetings. The
annual retainer has been established as follows: directors of the Corporation,
$23,000; Chairperson of the Audit Committee, $7,500; Chairperson of the
Compensation, Nominating and Finance Committees, $5,000 each; other members of
the Audit, Finance, Nominating and Compensation Committees, $3,000; and any
member of the Executive Committee not serving as a Chairperson of any other
committee, $3,000.
Under the 1993 Stock Plan for Non-Employee Directors (the "Stock Plan"),
directors receive shares of Common Stock in lieu of one-half of the regular
$23,000 retainer, except that directors may elect to receive the entire cash
retainer in lieu of stock units in 1993 and 1994. The number of shares credited
per year is the lesser of 1,000 or the number of shares equal to $23,000 divided
by the fair market value of the Corporation's Common Stock on the award date.
Directors may elect to defer receipt of these shares, in which event they will
be credited with an equal number of stock units which are payable in shares at a
later date.
The Stock Plan also provides a retirement benefit payable to directors in
stock. The retirement benefit vests incrementally over ten years and the number
of shares payable upon retirement after full vesting is equal to $50,000 divided
by the fair market value of the stock on the date the director is first elected
to the Board. Directors who elected to waive their right to participate in a
prior retirement arrangement will instead receive upon retirement a number of
shares valued at the actuarial equivalent of the benefit otherwise payable under
the prior arrangement.
Directors may also elect to defer receipt of cash fees and retainers.
Deferred amounts may be paid in shares of Common Stock or cash. Cash amounts
deferred are credited with interest at a short term U.S. Treasury rate.
The above description of amounts payable to directors does not apply to the
Corporation's advisory director, who is a non-voting advisor to the Board. The
advisory director is paid a fee of $1,000 for each meeting of the Board
attended, but no retainer fee.
The Corporation has entered into a two year consulting agreement with Wills
& Associates, Inc., a consulting firm owned by Mr. George Wills, who retired
from the Board in May 1994. Total fees paid to Wills & Associates, Inc. were
$27,000 in 1994.
11
<PAGE>
COMPENSATION COMMITTEE REPORT
COMPENSATION PHILOSOPHY
It is the philosophy of the Corporation to link executive compensation to
sustained improvements in corporate performance and increases in shareholder
value as measured by the Corporation's stock price. The following objectives
have been adopted by the Compensation Committee as guidelines for compensation
decisions:
Provide a competitive total compensation package that enables the
Corporation to attract and retain the key executive talent needed to
accomplish its corporate goals.
Integrate compensation programs with the Corporation's annual and
long-term business objectives and strategy, and focus executive behavior on
the fulfillment of those objectives.
Provide variable compensation opportunities that are directly linked
with the performance of the Corporation and that align executive
remuneration with the interests of the shareholders.
In addition, the Compensation Committee also considers the impact of Section
162(m) of the Internal Revenue Code of 1986 (the "Code"), which in certain
circumstances disallows compensation deductions in excess of $1,000,000. This
disallowance provision does not apply to performance-based compensation,
commissions, and certain other forms of compensation. The Compensation Committee
has determined that the Corporation's incentive compensation plans should
comply, to the extent practicable, with the Code's requirements for
performance-based compensation to ensure that the Corporation will be entitled
to full deductibility of all compensation paid under those plans.
COMPENSATION PROGRAM
The Compensation Committee is responsible for reviewing the Corporation's
compensation program to ensure that pay levels and incentive opportunities are
competitive and reflect the performance of the Corporation. The components of
the compensation program for executives are described below.
Base Salary--The factors considered in determining the appropriate
salary are level of responsibility, prior experience and accomplishments,
and the relative importance of the job in terms of achieving corporate
objectives. Each executive's salary is reviewed annually. Adjustments may be
recommended based upon individual performance, inflationary and competitive
factors, and overall corporate results.
Annual Incentive Compensation--Cash bonuses are paid annually based upon
individual performance and relevant corporate performance measures such as
operating and net income, and loss and expense ratios for the
property/casualty insurance segment. These performance measures vary
depending upon the executive and the related line of business. Bonuses are
paid only if the Corporation has met certain performance targets established
by the Compensation Committee at the beginning of the year. Target awards
are established for each position as a percentage of base salary, and
performance is assessed at the end of the year. For the executives named in
the Summary Compensation Table, adjusted net operating income was the
principal corporate performance measure used to determine bonus amounts. The
Compensation Committee has established targets of 30% to 35% of base salary
for possible bonus amounts for senior vice presidents and 40% for possible
bonus amounts for executive vice presidents. These amounts are subject to
adjustment depending upon actual corporate performance relative to the
targets established at the beginning of the year and on individual
performance measured against certain objectives tailored to the individual
at the beginning of the year. The adjustment may reduce the award to as low
as zero or increase it to as high as one and one-half times the target
level.
12
<PAGE>
Stock Options--Stock options granted under the Corporation's stock
incentive plans for management, all of which have previously been approved
by shareholders, provide incentive to executives by giving them a strong
economic interest in maximizing stock price appreciation, thereby better
aligning their interests with the Corporation's shareholders. Accordingly,
each executive's total compensation is highly dependent upon stock
performance. Option exercise prices are set at 100% of fair market value on
the date of grant and the options expire after 10 years. The annual options
granted by the Committee vest over a period of three years in order to
encourage management continuity and better tie compensation to long-term
stock value. Executives are generally granted stock options annually. The
value of stock options granted to executive officers is fixed at a
percentage of salary, with the value of the options established by using the
Black-Scholes option valuation model, using the assumptions specified in the
footnotes to the table in this Proxy Statement entitled "Stock Option Grants
in 1994". This percentage is between 25% and 35% of salary for senior vice
presidents and 50% of salary for executive vice presidents. These
percentages are subject to adjustment to as low as zero or as high as one
and one-half of the target, depending upon the executive's prior year's
performance and potential for future contribution.
Long-Term Incentive Plans--Under the Corporation's existing Long Term
Cash Incentive Plan, executives are entitled to a cash payment at the end of
successive three year periods if the Corporation has achieved specified
annual net operating income targets established by the Compensation
Committee. The actual amount payable depends upon corporate net operating
income relative to the net operating income targets established by the
Committee, subject to caps on the maximum amount payable. A target amount to
be paid to each plan participant is established as a percentage of the
participant's salary. For the executives named in the Summary Compensation
Table, that target ranges from 35% to 50% of salary. Beginning with the
three year cycle starting in 1994 and ending in 1996, awards under the
existing Long Term Cash Incentive Plan were replaced with awards under the
new Long-Term Incentive Program ("LTIP") which was approved by shareholders
last year. The LTIP ties compensation to three-year cumulative operating
income targets established at the beginning of each cycle. Compensation
payable under the new LTIP is payable only at the end of each three-year
cycle and then only in shares of Common Stock.
The Compensation Committee attempts to establish base salary levels
consistent with the median base salary for executives in similar positions
within a peer group of approximately twenty-five public and non-public insurance
companies. Total compensation, however, is weighted more heavily toward
incentive compensation by attempting to establish annual bonuses, stock options
and long-term compensation at levels within the top quartile of this peer
industry group, based on benchmarking studies conducted during 1994. The
increased weighting toward incentive and stock-based compensation reinforces the
connection between shareholder interests and executive pay.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Blake joined the Corporation on November 27, 1990. The selection by the
Board of Mr. Blake was made in light of the Corporation's circumstances,
requiring significant redirection and restructuring of the Corporation, and in
light of Mr. Blake's experience, record and reputation in the financial services
industry.
At the time Mr. Blake joined the Corporation, the Board approved a five-year
employment contract, which established his annual salary at the amount which he
was receiving prior to joining the Corporation, subject to specified increases.
During 1993, the Committee initiated a three year extension of Mr. Blake's
employment term. The Committee sought to ensure that Mr. Blake would continue in
his current capacity at the end of his initial employment contract. Mr. Blake is
nationally recognized for his efforts in leading corporate restructurings and
the Committee believed it was important to the long-term
13
<PAGE>
success of the Corporation to assure continuity of management beyond Mr. Blake's
initial contract term.
The Committee also sought to further emphasize stock based compensation and
reduce annual cash payments as components of Mr. Blake's total compensation.
Accordingly, the Committee awarded Mr. Blake 300,000 stock options, 150,000 of
which were awarded at an exercise price which was then $3.25 per share above the
fair market value of the Corporation's Common Stock and 150,000 of which were
awarded at an exercise price equal to such fair market value. The latter options
were granted in tandem with a deferred cash award, the amount and payment of
which is based on the value of the shares subject to that option in order to
provide an incentive which is substantially equivalent to an award of 150,000
shares of restricted stock. In determining the number of stock options and
restricted share equivalents to be awarded to Mr. Blake, the Compensation
Committee considered, among other things, the present value of the salary
reductions, the present value of the deferred cash award, the importance of
retaining Mr. Blake's services for an additional three years, and Mr. Blake's
risk of total forfeiture if he voluntarily terminates his employment with the
Corporation prior to December 31, 1998.
The options and deferred cash award described above are subject to complete
forfeiture and generally do not vest until December 31, 1998, which is the end
of the extended term of employment. At the same time, Mr. Blake agreed to a
substantial waiver of his salary. As a result of the waiver, Mr. Blake's annual
base salary, which was $1,041,285 for the year ending November 26, 1993, was
reduced to $750,000 and $800,000 for the years ending November 26, 1994 and
1995, respectively. The Committee believes that these arrangements will ensure
the desired management continuity and align Mr. Blake's total compensation more
closely to shareholder interests by increasing his stock based compensation as a
proportion of his total compensation. Since Mr. Blake's cash bonus, annual stock
option awards and other compensation are based on targeted percentages of his
salary, and in order to provide such benefits on a basis which is equitable and
consistent with the Corporation's prior contractual commitment to Mr. Blake,
these grants will continue to be based on his pre-reduction salary arrangements
("salary of record"). Mr. Blake's salary of record was $1,093,349 for 1994.
The Compensation Committee established Mr. Blake's target annual cash bonus
for 1994 at 50% of his salary of record, subject to reduction to as little as
zero or increase to as much as 75% of base salary. The Compensation Committee
awarded Mr. Blake a cash bonus of $710,710 for 1994, representing approximately
65% of his salary of record. In determining Mr. Blake's 1994 annual bonus, the
Compensation Committee reviewed the Corporation's performance and Mr. Blake's
individual performance against a detailed set of performance objectives which
were approved by the Committee in early 1994. These objectives set forth five
principal categories of responsibility and objectives under each category, as
briefly described below:
Financial Performance. This responsibility consisted of achieving targeted
financial objectives without compromising the financial integrity or long term
profit performance of the Corporation. Targets were set for property/casualty
written premium of $2.3 billion, life company direct sales of $185 million,
adjusted consolidated operating income of $120 million, consolidated net income
of $195 million and earnings per share (after dividends) of $1.67.
Strategies and Business Development. This responsibility consisted of
developing and implementing business strategies with the objective of enhancing
shareholder value and the prospects for sustained profitability. Targets related
to, among other things, review of Commercial Lines small business strategy,
review of international strategies for the Fidelity/Surety and assumed
reinsurance businesses, integration of selected Fidelity/Surety and Commercial
Lines products, consideration of acquisition opportunities, expansion of
designated product lines and development of designated new products and
distribution channels.
14
<PAGE>
Strategic Resource Development. This responsibility consisted of developing
critical resources to support overall business strategies, and was divided into
the categories of financial resources and information systems. Financial
resource targets related to refinancing the Corporation's bank credit facility,
converting the $5.00 Series C Cumulative Convertible Preferred Stock into Common
Stock, and reducing reinsurance and administrative expenses. Information systems
targets included implementing the agency interface system application for
Personal Lines and various re-engineering and system architectural objectives.
Organizational Development. This responsibility consisted of reviewing the
management and organizational structure of the Corporation, including a complete
review of the entire organizational structure, development of succession plans
for key employees and continued implementation of key field operations
initiatives.
Investor, Regulatory, and Public Relations. This responsibility consisted of
strengthening relationships with constituencies outside of the Corporation,
particularly investor groups, credit rating agencies, regulators and the
financial press.
The Corporation's actual performance as measured against the targets under
the financial performance responsibility ranged from 101% of the target to 129%.
Evaluations of Mr. Blake's performance of the remaining responsibilities was
less quantitative, but the Compensation Committee determined that Mr. Blake had
met or exceeded each of the other targeted objectives. Although the Compensation
Committee did not assign specific weights to any of the categories or targeted
objectives, it did place greater weight on financial performance and strategic
responsibilities. The Compensation Committee's review and the basis for
determining Mr. Blake's compensation was not limited to an evaluation of these
responsibilities, and the Committee considered other subjective factors relating
to an overall assessment of Mr. Blake's performance and contribution to the
Corporation. The Committee concluded that Mr. Blake's compensation arrangements
are appropriate in light of his continuing performance as chief executive
officer and improvements in the Corporation's profitability.
COMPENSATION COMMITTEE
George L. Bunting, Jr., Chairman
Michael J. Birck
Robert E. Davis
Robert E. Gregory, Jr.
Wilbur G. Lewellen
Henry A. Rosenberg, Jr.
15
<PAGE>
STOCK PERFORMANCE GRAPHS
The graphs below compare cumulative total return of the Corporation's Common
Stock, the S&P 500 Index and the Moody's P&C Insurance Group over a five-year
period beginning December 31, 1989 (in the first graph) and over a four-year
period (in the second graph). Cumulative total return is calculated assuming
reinvestment of dividends. The second graph, showing a four-year period, has
been included to reflect stock price performance since December 31, 1990, in
light of Mr. Blake becoming Chief Executive Officer in November 1990 and the
hiring of a substantially new team of executive officers since that date. This
second graph is presented as a part of the Compensation Committee Report. The
stock price performance on these graphs is not necessarily indicative of future
performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG USF&G, S&P 500 AND MOODY'S P&C INSURANCE GROUP
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
USF&G $100 $29 $29 $50 $61 $57
MOODY'S P&C INSURANCE GROUP $100 $97 $127 $153 $149 $134
S&P 500 $100 $97 $128 $136 $149 $152
COMPARISON OF FOUR-YEAR CUMULATIVE TOTAL RETURN
AMONG USF&G, S&P 500 AND MOODY'S P&C INSURANCE GROUP
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
USF&G $100 $99 $172 $207 $194
MOODY'S P&C INSURANCE GROUP $100 $127 $151 $143 $127
S&P 500 $100 $130 $140 $154 $158
16
<PAGE>
OTHER INFORMATION
CERTAIN BUSINESS RELATIONSHIPS
In the ordinary course of business, USF&G Company has written fire and
casualty insurance for certain companies of which non-employee directors are
officers, and surety bonds on projects that may be financed in whole or in part
by loans made by banks of which non-employee directors are officers. All these
writings involve insurance premiums for which rate filings are made and premium
rates are approved as required by applicable insurance regulations. In addition,
the Corporation, in the ordinary course of business, utilizes bank depositary,
trustee and other banking services provided by banks of which non-employee
directors may be officers or directors.
As disclosed elsewhere in this Proxy Statement, the Trustees of General
Electric Pension Trust and other entities advised by affiliates of General
Electric Company (hereinafter collectively referred to as "GE Investments")
beneficially own 7.8% of the Corporation's Common Stock. A subsidiary of the
Corporation and GE Investments entered into a Co-Investment and Inter-Creditor
Agreement dated December 21, 1993 to originate real estate mortgages. Another
subsidiary of the Corporation and GE Investments entered into a related
Servicing Agreement whereby the Corporation's subsidiary provides mortgage loan
administration services in connection with any loans originated under the
Co-Investment and Inter-Creditor Agreement.
Fidelity and Guaranty Life Insurance Company, a subsidiary of the
Corporation, funded a mortgage loan to GE Investments in the amount of $30
million in connection with the acquisition of an office building in Washington,
D.C. The principal balance of the loan at December 31, 1994 is $30 million. The
interest rate is 7.57% compounded annually, with only interest payments payable
during the first three years and thereafter principal is amortized over a 25
year term.
The Corporation and GE Investments have jointly invested in a Bermuda-based
company, Renaissance Holdings Limited ("Renaissance"). Renaissance is
principally engaged in the business of underwriting property/ casualty
reinsurance through its wholly owned subsidiary, Renaissance Reinsurance, Ltd.
Kidder, Peabody & Co. Incorporated ("Kidder") performed investment banking
services for the Corporation in 1994. Kidder sold its brokerage and investment
business in December 1994 but remains a subsidiary of General Electric Company.
Robert J. Hurst, a director of the Corporation, is a partner of Goldman,
Sachs & Co., which performed investment banking services for the Corporation in
1994.
Larry P. Scriggins, a director of the Corporation, is a member of the law
firm of Piper & Marbury, which performed legal services for the Corporation in
1994.
Anne M. Whittemore, a director of the Corporation, is a member of the law
firm of McGuire Woods Battle & Boothe, which performed legal services for the
Corporation in 1994.
AUDIT COMMITTEE AND INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Ernst & Young LLP has acted as the Corporation's
independent public accountants for the year ended December 31, 1994 and it is
anticipated they will be selected by the Board of Directors to act as such for
1995. Representatives of Ernst & Young LLP are expected to be present at the
shareholders' meeting and will have an opportunity to make a statement if they
desire and to respond to appropriate questions.
17
<PAGE>
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
All shareholder proposals intended to be presented at the 1996 Annual
Meeting of the Corporation must be received by the Corporation not later than
December 1, 1995 and must otherwise comply with the rules of the Securities and
Exchange Commission for inclusion in the Corporation's proxy statement and form
of proxy relating to that meeting.
OTHER MATTERS
Management knows of no matters to be presented for action at the meeting
other than those described above. However, if any other matters properly come
before the meeting, it is intended that the persons named in the accompanying
form of proxy will vote on such matters in accordance with their judgment of the
best interest of the Corporation.
By Order of the Board of Directors
JOHN F. HOFFEN, JR.
Secretary
Baltimore, Maryland
March 30, 1995
18
<PAGE>
/ X / Please mark your
voting instructions
as in this example.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR election of
directors.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors.
- --------------------------------------------------------------------------------
1. Election of FOR WITHHELD
Directors / / / /
(see reverse)
For, except vote withheld from the following nominee(s):
________________________________________________________
- --------------------------------------------------------------------------------
SIGNATURES(S) ______________________________________ DATE _______________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[USF&G LOGO]
SM
USF&G
I N S U R A N C E
- --------------------------------------------------------------------------------
<PAGE>
USF&G CORPORATION
ANNUAL MEETING OF SHAREHOLDERS--MAY 17, 1995
Proxy Solicited by the Board of Directors
The undersigned hereby appoints Norman P. Blake, Jr. and John A.
P MacColl, or either of them, as proxies, each with power to
appoint his substitute, and hereby authorizes either of them to
R represent and to vote, as designated below, all the shares of
Common Stock of USF&G Corporation held of record by the
O undersigned on March 10, 1995, at the Annual Meeting of
Shareholders to be held on May 17, 1995, or at any adjournment
X thereof.
Y The nominees for Director are: H. Furlong Baldwin, Michael J.
Birck, Norman P. Blake, Jr., George L. Bunting, Jr., Robert E.
Davis, Dale F. Frey, Robert E. Gregory, Jr., Robert J. Hurst,
Wilbur G. Lewellen, Henry A. Rosenberg, Jr., Larry P. Scriggins,
Anne M. Whittemore, R. James Woolsey.
Returned proxy forms will be voted: (1) as specified on the
matters listed on the reverse side of this form; (2) in
accordance with the Directors' recommendations where a choice is
not specified; and (3) in accordance with the judgment of the
proxies on any other matters that properly come before the
meeting. Your shares will not be voted unless your signed proxy
form is returned by you or you otherwise vote at the meeting.
--------------
SEE REVERSE
SIDE
--------------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
USF&G CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 17, 1995
9:00 am
Sheraton Inner Harbor Hotel
300 S. Charles Street
Baltimore, Maryland
- --------------------------------------------------------------------------------
