<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
UNITRIN, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF UNITRIN, INC.]
One East Wacker Drive
Chicago, Illinois 60601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
The Annual Meeting of Shareholders of Unitrin, Inc. will be held on
Wednesday, May 14, 1997, at 10:00 a.m. at The First Chicago Center, One First
National Plaza, Dearborn and Madison Streets (Plaza Level), Chicago, Illinois
60670.
The meeting is called for the following purposes:
1. To elect a Board of Directors.
2. To consider and act upon a proposal to approve the Unitrin, Inc. 1997
Stock Option Plan.
3. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 17, 1997 as
the record date for determining those shareholders who will be entitled to
notice of, and to vote at, the meeting. A list of such shareholders will be
open to examination by any shareholder at the meeting and for a period of ten
days prior to the date of the meeting during ordinary business hours at the
Unitrin, Inc. corporate offices, One East Wacker Drive, Chicago, Illinois
60601.
By Order of the Board of Directors
/s/ Scott Renwick
Scott Renwick
Secretary
April 9, 1997
WHETHER OR NOT YOU ARE ABLE TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO
SIGN AND RETURN THE ENCLOSED PROXY TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED. IF YOU PLAN TO ATTEND THE MEETING, PLEASE CHECK THE BOX PROVIDED
ON THE ACCOMPANYING PROXY.
<PAGE>
[LOGO OF UNITRIN, INC.]
Corporate Offices: One East Wacker Drive, Chicago, Illinois 60601
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the issuer, Unitrin, Inc. ("Company"), for
use at the Annual Meeting of Shareholders of the Company to be held on
Wednesday, May 14, 1997, at 10:00 a.m. at The First Chicago Center, One First
National Plaza, Dearborn and Madison Streets (Plaza Level), Chicago, Illinois,
60670, and at any adjournment thereof.
Shares represented by duly executed proxies in the accompanying form received
before the meeting will be voted at the meeting. Any shareholder giving a proxy
has the power to revoke it at any time before it is voted by filing with the
Secretary of the Company either an instrument revoking the proxy or a duly
executed proxy bearing a later date. Proxies also may be revoked by any
shareholder present at the meeting who expresses a desire to vote in person.
Proxies specifying a choice as to either the election of directors or Proposal
2 will be voted accordingly. If no specification is made, the shares
represented by the proxy will be voted for election of the nominees specified
on page 4 and in favor of Proposal 2. By executing and returning the
accompanying proxy, each shareholder will further authorize the persons named
in such proxy to vote in their discretion as to such other items of business,
if any, that may properly come before the annual meeting. Abstentions will be
treated as shares that are present for purposes of determining the presence of
a quorum. Abstentions will have the effect of a vote against proposals brought
before the meeting, but will not have an effect on the election of the
directors. If a broker indicates on a proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter (a broker non-
vote), those shares will be considered as present for quorum purposes on all
matters. Broker non-votes will have no effect on any matter to be brought
before the meeting, including the election of directors.
The principal solicitation of proxies is being made by mail; however,
additional solicitation may be made through direct communication with certain
shareholders or their representatives by directors, officers and employees of
the Company and its subsidiaries, who will receive no additional compensation
therefor. The Company has retained the services of W.F. Doring & Co., Inc.
("Doring") to aid in the solicitation of proxies. Doring estimates that its
fees and expenses will not exceed $10,000. The total expense of the
solicitation will be borne by the Company and will include, in addition to the
amounts paid to Doring, amounts paid to reimburse banks, brokerage firms and
others for their expenses in forwarding soliciting material. This proxy
statement and the accompanying form of proxy are being mailed to shareholders
on or about April 9, 1997.
VOTING SECURITIES
March 17, 1997 has been fixed as the record date for the determination of
shareholders entitled to notice of, and to vote at, the meeting or any
adjournment thereof. On that date, there were 37,394,075
<PAGE>
shares of the Company's common stock ("Common Stock") issued and outstanding
and entitled to vote. The Company has no other voting securities outstanding.
Each shareholder of record is entitled to one vote per share owned on all
matters submitted to a vote of shareholders.
OWNERSHIP OF COMMON STOCK
The following table shows the beneficial ownership of Common Stock as of
March 17, 1997 (unless otherwise indicated) by: (i) each director, including
directors who are also executive officers; (ii) each other executive officer
named in the Summary Compensation Table on page 9; (iii) all directors and
executive officers as a group; and (iv) each other person known by the Company
to be the beneficial owner of more than five percent of the Common Stock.
Unless otherwise indicated, to the Company's knowledge, the beneficial owner
has both sole voting and sole dispositive powers with respect to the shares
listed opposite his name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS (1)
---- -------------------- ----------
<S> <C> <C>
Directors
James E. Annable 9,000 (2) *
Reuben L. Hedlund 5,000 (2) *
Jerrold V. Jerome--Chairman 199,248 (2) *
George A. Roberts 395,225 (3) 1.1
Fayez S. Sarofim 3,365,897 (4) 8.9
Henry E. Singleton 7,242,260 (5) 19.2
Richard C. Vie--President & CEO 132,359 (2),(3) *
Executive Officers
James W. Burkett 21,102 (2) *
Eric J. Draut 19,094 (2) *
Thomas H. Maloney 22,300 (2) *
Directors and Executive Officers
as a Group (12 persons) 11,445,985 (2) 30.4
Other 5% Owners
George Kozmetsky
2815 San Gabriel Street
Austin, TX 78705 2,574,460 (6) 6.8
</TABLE>
- --------
(1) Based on the number of shares outstanding on the record date, March 17,
1997, plus shares deemed outstanding pursuant to SEC rules. An asterisk in
this column indicates ownership of less than 1% of the outstanding Common
Stock. Each outstanding share of Common Stock includes an attached right
under the Company's shareholder rights plan adopted August 3, 1994. Among
other provisions of the rights plan, if any person or group beneficially
owns 15% or more of the Common Stock without approval of the Board of
Directors, then each shareholder (other than the non-approved acquiror or
its affiliates or transferees) would be entitled to buy Common Stock having
twice the market value of the exercise price of the rights, which the Board
of Directors has set at $125 (subject to certain adjustment provisions).
(2) Shares shown for the named executive officers (and Messrs. Annable and
Hedlund) include shares which they have the right to acquire presently or
within 60 days of the date of this Proxy Statement
2
<PAGE>
through exercise of stock options. The number of such acquirable shares for
each of such persons is as follows: Annable (4,000); Hedlund (4,000); Jerome
(86,000); Vie (98,300); Burkett (12,000); Draut (16,667) and Maloney
(22,000).
(3) Shares shown for Dr. Roberts include 9,915 shares owned by his wife with
respect to which he disclaims beneficial ownership. Shares shown for Mr.
Vie include 2,128 shares held by a trust, the trustee of which is his wife.
Mr. Vie disclaims beneficial ownership of such shares.
(4) Based upon information as of December 31, 1996 contained in an amendment to
a Schedule 13G filed by Mr. Sarofim with the Securities and Exchange
Commission, Mr. Sarofim may be deemed to be the beneficial owner of
3,365,897 shares of Common Stock. Of such shares, Mr. Sarofim reported sole
voting and dispositive powers as to 1,012,335 shares, shared voting power
as to 2,105,969 shares and shared dispositive power as to 2,352,562 shares.
Substantially all of the shares which are not subject to sole voting and
dispositive powers are held in accounts managed by Fayez Sarofim & Co. (of
which Mr. Sarofim is the majority shareholder) or by its wholly-owned
subsidiaries, Sarofim Trust Co. and Sarofim International Management
Company, or are owned directly by such companies for their own accounts.
Fayez Sarofim & Co. maintains policies which preclude Mr. Sarofim from
exercising voting and dispositive powers with respect to Common Stock held
in accounts managed by Fayez Sarofim & Co. and its subsidiaries. Shares
shown include 1,000 shares owned by members of Mr. Sarofim's family with
respect to which he disclaims beneficial ownership. Mr. Sarofim's mailing
address is Two Houston Center, Suite 2907, Houston, Texas 77010.
(5) Dr. Singleton's mailing address is 335 North Maple Drive, Beverly Hills,
California 90210.
(6) Based upon information supplied by Dr. Kozmetsky, as of March 17, 1997, he
may be deemed to be the beneficial owner of 2,574,460 shares of Common
Stock. Of such shares, Dr. Kozmetsky reported sole voting and dispositive
powers as to 2,450,000 shares and shared voting and dispositive powers as
to 94,000 shares which are owned by RGK Foundation, Inc., a non-profit
corporation of which Dr. Kozmetsky is one of seven trustees. Dr. Kozmetsky
disclaims beneficial ownership of all shares held by RGK Foundation and of
30,460 shares owned by his wife which are included as part of his holdings
in this table.
PROPOSAL 1
ELECTION OF DIRECTORS
Seven directors are to be elected at the meeting to serve for a term of one
year or until the election of their successors. If any of the persons named
below refuses or is unable to serve as a director (which is not anticipated),
the persons named in the accompanying proxy reserve full discretion to vote for
any or all other persons as may be nominated. The vote of the holders of a
majority of the Common Stock having voting power present, in person or by
proxy, is required for the election of any nominee as a director.
BUSINESS EXPERIENCE OF NOMINEES
Following is a summary of the business experience during the last five years
of each person nominated to be a director of the Company. References hereafter
in this Proxy Statement to "Allegheny Teledyne" are to Allegheny Teledyne
Incorporated and references to "Argonaut" are to Argonaut Group, Inc.
3
<PAGE>
James E. Annable, 53, has been a director of the Company since November 1993.
He has been Senior Vice President and Chief Economist of The First National
Bank of Chicago and First Chicago NBD Corporation for more than the last five
years.
Reuben L. Hedlund, 60, has been a director of the Company since November
1993. He has been a partner of the Chicago law firm of Hedlund Hanley & John
for more than the last five years.
Jerrold V. Jerome, 67, has been a director of the Company since February 1990
and Chairman of the Board of Directors since February 1994. Mr. Jerome was Vice
Chairman of the Board from March 1992 to February 1994.
George A. Roberts, 78, has been a director of the Company since February
1990. He is also a director of Argonaut and Allegheny Teledyne and was Chairman
of the Board of Directors of Teledyne, Inc. from January 1991 until March 1993.
Fayez S. Sarofim, 68, has been a director of the Company since March 1990. He
has been Chairman of the Board and President of Fayez Sarofim & Co., a
registered investment advisor, for more than five years. He is also a director
of Allegheny Teledyne, Argonaut and Imperial Holly Corporation.
Henry E. Singleton, 80, is a rancher and investor and has been a director of
the Company since February 1990 and was Chairman of the Board of Directors from
August 1990 to February 1994. He is also a director of Argonaut and Allegheny
Teledyne.
Richard C. Vie, 59, has been a director of the Company since March 1990 and
President and Chief Executive Officer since March 1992.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF THE NOMINEES
LISTED ABOVE AS DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The committees of the Board of Directors are the Executive Committee, Audit
Committee, Compensation Committee and Stock Option Committee. The Company does
not have a nominating committee.
The Executive Committee, which met six times in 1996, consists of Dr.
Singleton and Messrs. Jerome and Vie. The Executive Committee may exercise all
powers and authority of the Board of Directors in the management of the
business of the Company except for certain powers which, under Delaware law,
may be exercised only by the full Board of Directors.
The Audit Committee, which met four times in 1996, consists of Dr. Roberts
and Messrs. Hedlund and Sarofim. The Audit Committee reviews the scope of the
audit and non-audit assignments of the Company's independent public accountants
and related fees, the accounting principles applied
4
<PAGE>
by the Company in financial reporting, the scope of internal auditing
procedures and the adequacy of internal controls. The Audit Committee meets
periodically with management, the independent public accountants and the
Company's internal auditors.
The Compensation Committee, which met four times in 1996, consists of Drs.
Singleton and Roberts and Messrs. Annable, Hedlund and Sarofim. The
Compensation Committee sets the compensation of the Company's executives,
including its executive officers.
The Stock Option Committee, which was created in October 1996 and met one
time in 1996, consists of Messrs. Annable and Hedlund. The Stock Option
Committee selects executives and other key employees of the Company and its
subsidiaries to receive stock options pursuant to the Company's 1990 Stock
Option Plan and, if approved by the shareholders, under the 1997 Stock Option
Plan, and otherwise generally administers such plans.
In 1996, the Company's Board of Directors met four times and, except for Dr.
Singleton, each director attended more than 75% of the meetings of the Board of
Directors and committees of the Board on which he served.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive an annual fee of
$30,000 for service on the Board and a fee of $1,500 for each Board Meeting
attended. All directors are reimbursed for travel expenses incurred in
attending Board and committee meetings.
EXECUTIVE OFFICERS
The following summarizes the business experience over the last five years of
the Company's executive officers, other than Messrs. Jerome and Vie whose
business experience is described on page 4. The executive officers serve at the
pleasure of the Board of Directors.
David F. Bengston, 48, has been a Vice President of the Company since April
1992, and was Treasurer from February 1990 until April 1992.
James W. Burkett, 67, has been a Vice President of the Company since February
1994. He has also been a director and President of Trinity Universal Insurance
Company, a subsidiary of the Company, since December 1991.
Eric J. Draut, 39, has been Chief Financial Officer since February 1997,
Treasurer of the Company since April 1992 and was Controller from February 1990
to February 1997.
Thomas H. Maloney, 65, has been Vice President and General Counsel of the
Company since May 1996, and was Secretary from February 1990 to May 1996.
Scott Renwick, 45, has been Secretary of the Company since May 1996 and
Counsel since January 1991.
5
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following report on the compensation of executive officers for 1996 is
submitted jointly by the Compensation Committee and the Stock Option Committee.
Notwithstanding any general statement to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934 that might incorporate this Proxy Statement
into such filings, neither this Report nor the performance graph which follows
on page 8 shall be incorporated by reference into any such filings, nor shall
they be deemed to be soliciting material or deemed filed under such Acts.
JOINT REPORT OF COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE
The Company compensates its executive officers with two principal forms of
compensation: cash compensation and stock options. Cash compensation consists
of base salary and may include annual, discretionary cash bonuses. Executive
officers are eligible to receive stock options under the Unitrin, Inc. 1990
Stock Option Plan and will be eligible to receive stock options under the
Unitrin, Inc. 1997 Stock Option Plan, assuming such Plan is approved by the
shareholders at the 1997 Annual Meeting. Although the type and terms of options
that may be granted under these Plans vary, to date the Company's practice has
been to grant ten-year, non-qualified options with exercise prices equal to the
fair market value of the Common Stock on the date of grant and which become
exercisable in installments over the life of the options.
The Compensation Committee's overall compensation philosophy is premised on
the concept that the Company's success is the result of the coordinated efforts
of all employees working towards common objectives. The process of setting the
cash compensation of the Company's executive officers, including the Chief
Executive Officer, is general and subjective and is not based on formulas or
quantitative measures of corporate performance. In its compensation
deliberations in 1996, the Compensation Committee had available to it data
which summarized the salary and bonus compensation of the chief executive
officers and certain other senior officers of a group of insurance and
diversified financial services companies, some of which are competitors of the
Company. While the Compensation Committee noted these data in establishing the
base salary and bonus compensation of the Company's Chief Executive Officer for
1996, such data were not determinative of his compensation and the Compensation
Committee did not target a specific level within the range of such data for his
1996 compensation. Such data were not referenced in establishing the
compensation of any of the Company's other executive officers, but it was noted
that the compensation levels of the Company's executive officers were below
those of the data presented.
Base annual cash compensation depends on the Compensation Committee's
subjective assessment of the individual officer's work performance with respect
to such officer's normal job responsibilities. The Compensation Committee may
also award discretionary bonuses to the executive officers to reward
significant effort or achievement. Whether a particular officer receives a
bonus for a given year, and the amount of the bonus, depends upon the
Compensation Committee's subjective evaluation of such officer's work
performance during the year. The level of Mr. Jerome's annual cash compensation
reflects his status as a half-time employee of the Company.
The Stock Option Committee endorses the concept that the interests of the
executive officers are more closely aligned with those of the shareholders
through the award of stock options. The number of
6
<PAGE>
stock options granted to executive officers, including the Chief Executive
Officer, is determined by the Stock Option Committee's subjective evaluation of
the particular officer's ability to influence the long-term growth and
profitability of the Company, given his particular job responsibilities. In
light of the Chief Executive Officer's overall, day-to-day responsibility for
the Company's operations and financial results, he would ordinarily be deemed
to have the greatest ability to influence the long-term growth and
profitability of the Company and would therefore generally receive a greater
number of options (and a larger bonus) than the other executive officers. In
determining the number of stock options to grant a particular officer, the
Stock Option Committee also takes into account the number of options already
held by such officer. The Stock Option Committee has no predetermined goal for
a particular level of stock ownership by its executive officers.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public company for compensation in excess of $1 million paid to
its chief executive officer and any of its four other most highly compensated
executive officers. Certain performance-based compensation is specifically
exempt from the deduction limit. All stock options that have been granted to
the Company's executive officers through the end of 1996 either are not subject
to section 162(m) (because they were granted prior to the effective date of
such section) or qualify as performance-based compensation under section
162(m), as interpreted by final regulations promulgated by the Internal Revenue
Service thereunder, and therefore are not subject to the deduction limit under
such section. Further, the Company does not expect that the cash compensation
of any of its executive officers will exceed the $1 million limit during 1997.
Accordingly, the Company has not adopted a policy with respect to qualifying
executive officer compensation under section 162(m).
Compensation Stock Option
Committee of the Board of Committee of the Board of
Directors of Unitrin, Inc. Directors of Unitrin, Inc.
James E. Annable James E. Annable
Reuben L. Hedlund Reuben L. Hedlund
George A. Roberts
Fayez S. Sarofim
Henry E. Singleton
7
<PAGE>
[GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG UNITRIN, INC., EQUITY MARKET INDEX, AND FULL LINE INSURANCE INDEX
<TABLE>
<CAPTION> FULL LINE
Measurement Period UNITRIN, DOW JONES INSURANCE
(Fiscal Year Covered) INC. EQUITY INDEX GROUP
- --------------------- -------- ------------ ---------
<S> <C> <C> <C>
Measurement Pt-
12/31/91 $100 $100 $100
FYE 12/31/92 $123 $109 $119
FYE 12/31/93 $129 $119 $140
FYE 12/31/94 $132 $120 $130
FYE 12/31/95 $154 $166 $202
FYE 12/31/96 $187 $206 $250
</TABLE>
Graph assumes $100 invested on December 31, 1991 in the Company's Common Stock,
Dow Jones Equity Market Index and Dow Jones Full Line Insurance Group, in each
case with dividends reinvested.
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SALARY ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($)(1) OPTIONS (#)(2) COMPENSATION ($)(3)
--------------------------- ---- ------ ------------ -------------- -------------------
<S> <C> <C> <C> <C> <C>
Jerrold V. Jerome(4)................. 1996 268,750 85,000 37,742 300
Chairman of the Board 1995 243,750 60,000 15,000 300
1994 225,000 60,000 20,000 300
Richard C. Vie....................... 1996 612,500 150,000 78,662 300
President and Chief Executive Officer 1995 475,000 100,000 75,000 300
1994 381,250 100,000 75,000 300
James W. Burkett(5).................. 1996 300,000 75,000 26,898 300
Vice President 1995 280,000 50,000 20,000 300
1994 261,250 50,000 20,000 300
Eric J. Draut........................ 1996 126,750 30,000 4,667 300
Treasurer and Chief Financial Officer 1995 114,500 20,000 5,000 300
1994 104,500 20,000 10,000 300
Thomas H. Maloney.................... 1996 164,890 22,000 0 300
Vice President and General Counsel 1995 151,140 22,000 5,000 300
1994 141,890 22,000 5,000 300
</TABLE>
- --------
(1) Cash bonuses are listed for the year earned, but are paid in the following
year.
(2) All options listed were granted pursuant to the Unitrin, Inc. 1990 Stock
Option Plan and all options granted in 1996 were restorative options. (See
footnote (1) to the table on page 10.)
(3) The amounts shown in this column represent Company matching contributions
to the named officers' accounts under the Company's 401K Savings Plan.
(4) The level of Mr. Jerome's annual compensation reflects his status as a
half-time employee of the Company.
(5) Mr. Burkett was elected a Vice President of the Company in February 1994.
Data shown for Mr. Burkett for 1994 is for the entire year.
9
<PAGE>
STOCK OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- --------------------------------------------------------------------------- ----------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO GRANT DATE
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME (#) (1) 1996 ($/SH) (2) DATE ($)(3)
---- ---------- ------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Jerrold V. Jerome....... 22,664 3.56% 54.25 04/30/00 142,176
15,078 2.37% 54.50 04/30/00 94,580
Richard C. Vie.......... 2,072 0.33% 47.50 04/30/00 12,712
1,938 0.30% 49.13 04/30/00 11,791
1,746 0.27% 50.00 04/30/00 10,877
5,892 0.93% 49.75 04/30/00 36,421
8,067 1.27% 48.50 04/30/00 48,548
7,887 1.24% 51.00 04/30/00 48,143
7,905 1.24% 50.75 04/30/00 47,984
7,854 1.23% 51.50 04/30/00 47,988
12,707 2.00% 52.75 04/30/00 77,902
8,178 1.28% 53.00 01/28/02 62,692
4,054 0.64% 54.00 01/28/02 31,414
6,233 0.98% 55.50 05/04/04 60,398
4,129 0.65% 56.25 05/04/04 40,536
James W. Burkett........ 16,504 2.59% 55.50 12/19/01 131,184
3,287 0.52% 55.50 05/04/04 31,851
7,107 1.12% 55.50 05/06/03 63,892
Eric J. Draut........... 228 0.04% 50.00 04/30/00 1,420
306 0.05% 49.50 04/30/00 1,894
423 0.07% 49.25 04/30/00 2,611
3,710 0.58% 53.25 04/30/00 22,882
Thomas H. Maloney....... None
</TABLE>
- --------
(1) All options granted to the named executive officers were restorative
options granted under the Unitrin, Inc. 1990 Stock Option Plan. Restorative
options are granted when an option holder exercises a stock option and
makes payment of the exercise price and/or the resulting tax obligations
using shares of previously-owned Unitrin Common Stock. In such a case, the
option holder is granted a restorative option for the total number of
shares used to make such payment. A restorative option becomes exercisable
in full six months after the date of grant and expires on the same date as
the original option. All options granted in 1996 were non-qualified options
for federal income tax purposes.
(2) Exercise prices were set in all cases at the fair market value of the
Company's Common Stock on the date of grant.
(3) Grant date present values are based on the Black-Scholes option pricing
model, which was applied using the following assumptions: (i) a weighted
average expected volatility of 20%; (ii) a risk free rate of return equal
to the yield on U.S. Treasury obligations with a maturity comparable to the
term
10
<PAGE>
of the particular option; (iii) an expected life for restorative options of
one-half of the term of such options and 7 years for all other options; and
(iv) a dividend yield of 3.46%, representing the average, annualized
dividend yield on the Common Stock for the period from July 1, 1990 through
December 31, 1996. No adjustments were made for the non-transferability of
the options or the risk of their forfeiture. The Company's use of the Black-
Scholes model should not be viewed as a forecast of the future performance
of the Common Stock.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED VALUE OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($)
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (2)
---- -------------- -------------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Jerrold V. Jerome....... 50,000 $1,130,000 69,000/ 93,742 1,455,500/ 869,844
Richard C. Vie.......... 101,500 $1,873,513 44,572/281,590 569,594/3,050,098
James W. Burkett........ 36,000 $ 692,500 0/ 80,898 0/ 755,225
Eric J. Draut........... 6,050 $ 125,400 10,950/ 22,667 210,300/ 274,748
Thomas H. Maloney....... N/A N/A 19,000/ 11,000 437,000/ 159,250
</TABLE>
- --------
(1) The "value realized" represents the difference between the exercise price
of the shares acquired and the market price of such shares on the date or
dates of exercise, without regard to any related tax obligations.
(2) The value of unexercised in-the-money options is calculated by subtracting
the applicable exercise price from $55.75 (the closing price of the Common
Stock on December 31, 1996) and multiplying the resulting difference by the
number of shares covered by the options in question.
PENSION PLANS
The following table shows, for specified levels of average final salary and
years of credited service, the estimated annual benefits payable under the
Company's tax-qualified retirement plan (the "Plan") and a related, non-
qualified, supplemental executive retirement plan (the "supplemental plan").
These benefit estimates assume retirement in 1997 at age 65 or older.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE FINAL -------------------------------------------
ANNUAL SALARY 5 10 15 20 30 +
------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000.......................... $ 7,298 $ 14,596 $ 21,893 $ 29,191 $ 43,787
150,000.......................... 11,423 22,846 34,268 45,691 68,537
200,000.......................... 15,548 31,096 46,643 62,191 93,287
250,000.......................... 19,673 39,346 59,018 78,691 118,037
300,000.......................... 23,798 47,596 71,393 95,191 142,787
350,000.......................... 27,923 55,846 83,768 111,691 167,537
400,000.......................... 32,048 64,096 96,143 128,191 192,287
450,000.......................... 36,173 72,346 108,518 144,691 217,037
500,000.......................... 40,298 80,596 120,893 161,191 241,787
550,000.......................... 44,423 88,846 133,268 177,691 266,537
600,000.......................... 48,548 97,096 145,643 194,191 291,287
650,000.......................... 52,673 105,346 158,018 210,691 316,037
700,000.......................... 56,798 113,596 170,393 227,191 340,787
</TABLE>
11
<PAGE>
The foregoing benefits are illustrated as straight-life annuities and are not
subject to reduction for Social Security or other offset amounts.
The years of credited service in the Plan as of December 31, 1996 for each of
the Company's executive officers named in the Summary Compensation Table is as
follows: Jerome (28), Vie (5), Burkett (4), Draut (5) and Maloney (5). Years of
credited service for Mr. Jerome include years of service under a predecessor
plan sponsored by Teledyne, Inc., the Company's former parent company. The
compensation covered by the Plan is the participant's basic annual salary. Of
the amounts set forth in the Summary Compensation Table on page 9, the current
compensation covered by the Plan and related supplemental plan for each person
named in such table is as follows: Jerome ($275,000); Vie ($675,000); Burkett
($350,000); Draut ($150,000); and Maloney ($190,000).
Messrs. Vie and Maloney formerly participated in a defined benefit retirement
plan sponsored by a subsidiary of the Company. Their participation in that plan
was suspended on January 1, 1992 and no further contributions will be made on
their behalf; however, each of them will be entitled to benefits under the plan
upon retirement based on contributions made through the end of 1991. Assuming
retirement at age 65, Mr. Vie would receive annual benefits of $20,971,
including amounts attributable to the supplemental plan, and Mr. Maloney would
receive annual benefits of $21,467.
CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into individual severance agreements with each of the
Company's executive officers (the "Agreements"). The Agreements provide various
severance benefits to such officers in the event their employment is
involuntarily terminated (other than for cause, disability or death) or
voluntarily terminated, in either case within one year after a change of
control. Such benefits are also payable to such officers in the event their
employment is involuntarily terminated (other than for cause, disability or
death) or voluntarily terminated for certain specified reasons, in either case
in anticipation of a change of control. A change of control is deemed to occur
if, on or before December 31, 1997, any person acquires a majority of the
voting power of the Common Stock, or the individuals who currently comprise the
Company's Board of Directors (or any of the individuals they nominate) cease to
comprise a majority of the Board. Each executive officer would be entitled
under the Agreements to: (i) a lump sum severance payment based on a multiple
of his annualized compensation; (ii) continuation for up to two years of the
life and health insurance benefits that were being provided by the Company to
such officer and his family immediately prior to termination; and (iii)
outplacement services at the Company's expense for up to 52 weeks. Severance
benefits payable under the Agreements are to be grossed-up to the extent that a
recipient would be subject to an excise tax under Section 4999 of the Internal
Revenue Code (including any interest or penalties imposed with respect to such
tax) due to the receipt of such benefits or any other benefits that constitute
"excess parachute payments" for purposes of Section 280G of the Code. The
Agreements contain identical terms and conditions, except that the severance
compensation multiple is 2.99 for Messrs. Jerome and Vie and 2.0 for the other
executive officers. The Agreements are not employment contracts. In addition,
under the terms of the Company's retirement plan and 401K plan, a change of
control (regardless of when the change of control occurs) would result in full
vesting of the accounts of all participants in such plans, including all
executive officers.
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee or the Stock Option
Committee named on page 5 is a former or current officer or employee of the
Company or any of its subsidiaries.
For purposes of the transactions described below, the term "Company" is
deemed to include such of the Company's direct and indirect subsidiaries as may
have been parties to or participants in such transactions.
ALLEGHENY TELEDYNE INCORPORATED
Three of the Company's directors, George A. Roberts, Fayez S. Sarofim and
Henry E. Singleton, are also directors of Allegheny Teledyne. As of December
31, 1996, executive officers and directors of the Company beneficially owned in
the aggregate approximately 10.1% of the outstanding stock of Allegheny
Teledyne.
During 1996, Allegheny Teledyne provided the Company and its subsidiaries
with investment trade execution and other professional services, as well as use
of corporate aircraft, for which the Company incurred charges of approximately
$500,000. The Company earned premiums of approximately $6.1 million in 1996 on
group life insurance written for certain employees of Allegheny Teledyne and
its subsidiaries. The Company charged Allegheny Teledyne approximately $1.0
million in 1996 for data processing services based on actual usage of the
Company's computers.
In connection with the Company's spin-off from Teledyne, Inc. in 1990, the
Company and Teledyne agreed, with certain exceptions, to defend and indemnify
each other against liabilities and expenses arising out of their respective
businesses, including certain tax liabilities.
ARGONAUT GROUP, INC.
Three directors of the Company, George A. Roberts, Fayez S. Sarofim and Henry
E. Singleton, are also directors of Argonaut. As of February 21, 1997,
executive officers and directors of the Company beneficially owned in the
aggregate approximately 28.2% of the outstanding stock of Argonaut. The Company
charged Argonaut approximately $1.6 million in 1996 for data processing
services based on actual usage of the Company's computers.
PROPOSAL 2
APPROVAL OF THE UNITRIN, INC.
1997 STOCK OPTION PLAN
On February 5, 1997, the Board of Directors adopted the Unitrin, Inc. 1997
Stock Option Plan (the "Plan"), subject to shareholder approval. The following
description of the Plan is a summary and does not purport to be fully
descriptive. For a full description of the Plan, a copy of the Plan is attached
to this Proxy Statement as Exhibit A. Options may continue to be granted under
the Unitrin, Inc. 1990 Stock Option Plan until options covering all shares
presently available for issuance under such Plan (approximately 400,000) have
been granted.
13
<PAGE>
GENERAL
The purpose of the Plan is to secure for the Company and its shareholders the
benefits arising from stock ownership by selected key employees (including
employee directors) and other key persons providing services to the Company and
its subsidiaries or affiliates ("Participants"). All options issuable under the
Plan must be granted by December 31, 2006. Effectiveness of the Plan is subject
to approval by the Company's shareholders at the 1997 Annual Meeting. Approval
of the Plan requires the affirmative vote of holders of a majority of the
shares of the Common Stock represented and voting at the 1997 Annual Meeting,
including abstentions to the extent abstentions are counted as voting under
applicable state law. No options issued prior to such approval are exercisable
unless such approval is obtained.
ADMINISTRATION
The Plan will be administered by a committee of the Board of Directors
("Committee") consisting of two or more persons who qualify both as "outside
directors" under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and "non-employee directors" under Rule 16b-3 of the
Securities Exchange Act of 1934, or any successor provisions. The Plan would
authorize the Committee to grant (i) incentive stock options ("ISO") under
Section 422 of the Code, (ii) nonqualified stock options, and (iii) stock
appreciation rights ("SAR's") to Participants (collectively, "Awards"). Subject
to the provisions of the Plan, the Committee shall have authority to construe
and interpret the Plan, to determine eligible Participants, to select the times
at which Awards will be granted, whether an option will be an ISO or non-
qualified option, the size of the Award, the exercise price for the Award and
all other determinations necessary or advisable for the administration of the
Plan.
SHARES SUBJECT TO THE PLAN
The shares offered under the Plan consist of the Company's authorized but
unissued shares or treasury shares of Common Stock and, subject to adjustment
as discussed below, the aggregate amount of such shares which may be subject to
Awards will not exceed two million (2,000,000). The maximum number of shares
for which awards may be granted to an individual Participant under the Plan
shall be one third of such total. Shares of Common Stock issued under the Plan
will be accompanied by rights issuable under the Company's Rights Agreement,
dated as of August 3, 1994, with First Chicago Trust Company of New York,
unless and until certain events occur as described in such Agreement.
TERMS OF OPTIONS
Types of Awards
Options. Under the Plan, the Committee may grant ISO's or non-qualified stock
options. The exercise price for an ISO may not be less than the fair market
value of the Company's Common Stock on the date of grant. ISO's may only be
granted to employees.
Restorative Options. In the case of a Participant who pays the exercise price
or tax withholding obligation of an option by surrendering shares of Common
Stock previously owned by the Participant, the Participant is entitled to
receive another option (a "Restorative Option") of the same type as the
14
<PAGE>
option being exercised for the same number of shares that were so surrendered.
The duration of the Restorative Option will be for the remaining term of the
underlying option, and the exercise price shall be the fair market value of the
Common Stock on the day on which the underlying option was exercised.
Restorative Options may only be granted to employees or other key individuals
performing services for the Company, its subsidiaries or affiliates as
consultants or advisors at the time the underlying option is exercised.
Stock Appreciation Rights. The Committee may also grant tandem SAR's to a
Participant entitling the Participant upon exercise of the SAR to receive an
amount in any combination of cash or stock equal in value to the difference
between the associated option exercise price and the fair market value of the
stock on the date of exercise, in lieu of exercising the associated option.
Other Terms of Awards
Each Award and all rights associated therewith shall expire on such date as
the Committee may determine. The purchase price of a share of Common Stock
covered by an Award shall be determined by the Committee. Each Award shall vest
and be exercisable in such installments as the Committee shall determine and,
unless otherwise provided in an agreement relating to the individual Award,
shall not be exercisable for at least six months after grant. The exercise
price for Awards may be paid in cash, shares of Common Stock already held by
the Participant, or, if authorized by the Committee, through a secured
promissory note in favor of the Company.
Fair Market Value of Common Stock
For purposes of the Plan, the fair market value of a share of Common Stock
shall be determined by reference to the closing price of the Common Stock for
the date on which the Option is granted or exercised as subsequently reported
in The Wall Street Journal, or if no prices are quoted for that day, the last
preceding day on which prices are quoted, as the case may be (or if for any
reason no such price is available, in such manner as the Committee deems
appropriate.) On March 17, 1997, the closing price of the Common Stock as
reported in The Wall Street Journal was $53 3/8 per share.
GRANTS UNDER THE 1997 PLAN
No Awards will be granted under the Plan prior to shareholder approval of the
Plan. Determinations as to who will be selected in the future as Participants
in the Plan and the amounts of their Awards have not been made. Since no such
determinations have yet been made, it is not possible to state the terms of any
individual Awards which may be issued under the Plan or the names or positions
or respective amounts of the allotment to any individual who may participate.
TRANSFERABILITY
Unless otherwise provided in an agreement relating to an Award, no Award may
be transferred, other than by will or the laws of descent and distribution, and
may not be pledged or otherwise encumbered either voluntarily or by operation
of law.
15
<PAGE>
CESSATION OF SERVICES
Unless otherwise provided in an agreement relating to an Award, if a
Participant ceases to provide services to the Company or any of its
subsidiaries or affiliates other than as a result of death, disability,
retirement or for substantial cause, the participant shall have 90 days to
exercise any vested Awards. After such 90 days, all outstanding Awards shall
terminate. If a Participant's services are terminated for substantial cause,
the Participant's Awards shall terminate as of the date of termination of
services.
RETIREMENT, DEATH OR DISABILITY
Following the retirement, death or long-term disability of a Participant
while providing services to the Company, a subsidiary or affiliate, the
Participant shall have one year to exercise the Participant's outstanding
Awards to the extent such Awards are vested at the time of such event, after
which all unexercised Awards of the Participant shall terminate.
ADJUSTMENT PROVISIONS
If there is a stock split, stock dividend or similar change affecting the
Company's Common Stock, appropriate adjustments may be made in the number of
shares that may be issued in the future and the number of shares and price of
all outstanding Awards made before such event.
Upon the dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation of the Company with one or more corporations as a
result of which the Company is not the surviving corporation, or upon a sale of
substantially all the property, or more than eighty percent (80%) of the then
outstanding stock, of the Company to another corporation, the Plan shall
terminate; provided, however, that notwithstanding the foregoing, the Board
shall provide in writing in connection with such transaction for any one or
more of the following alternatives: (i) for each Award theretofore granted to
become immediately exercisable; (ii) for the assumption by the successor
corporation of the Award granted or the substitution by such corporation for
such Award with new Awards covering the stock of the successor corporation, or
a parent or subsidiary thereof; (iii) the continuance of the Plan by such
successor corporation in which event the Plan and Awards shall continue in the
manner and under the terms so provided; or (iv) for the payment in cash or
stock in lieu of and in complete satisfaction of such Awards.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan or amend the terms of the Plan at
any time, subject to the prior approval of the Company's shareholders if
applicable law requires such approval or if such shareholder approval is deemed
desirable by the Committee in order to obtain or preserve certain benefits or
achieve a "safe harbor" status. No amendment, suspension or termination of the
Plan shall in any case modify, amend, alter or impair any rights or obligations
under any Award previously granted under the Plan without the consent of the
Participant.
16
<PAGE>
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. A Participant will not realize taxable income upon
the grant or exercise of an ISO under the Plan. If the Participant does not
dispose of shares issued upon exercise of an ISO within two years from the date
of grant or within one year from the date of exercise, then upon the sale of
such shares, any amount realized in excess of the exercise price is taxed to
the Participant as long-term capital gain, and any loss sustained will be a
long-term capital loss. No deduction would be allowed to the Company for
Federal income tax purposes. The exercise of ISO's gives rise to an adjustment
in computing alternative minimum taxable income that may result in alternative
minimum tax liability for the Participant. If shares of Common Stock acquired
upon the exercise of an ISO are disposed of before the expiration of the two-
year and one-year holding periods described above (a "disqualifying
disposition"), the Participant would realize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of the shares at exercise (or, if less, the amount realized on a sale of such
shares) over the exercise price thereof, and the Company would be entitled to
deduct such amount. Any further gain realized would be taxed as a short-term or
long-term capital gain and would not result in any deduction to the Company. A
disqualifying disposition in the year of exercise will generally avoid the
alternative minimum tax consequences of the exercise of an ISO.
Non-qualified Stock Options and SAR's. No income is realized by the
Participant at the time a non-qualified option or SAR is granted. Upon
exercise, the Participant realizes ordinary income in an amount equal to the
difference between the exercise price and the fair market value of the shares
on the date of exercise, and the Company is entitled to a tax deduction for the
same amount. Upon disposition of the shares, appreciation or depreciation after
the date of exercise is treated as a short-term or long-term capital gain or
loss and will not result in any deduction for the Company.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE UNITRIN, INC. 1997
STOCK OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "FOR" APPROVAL OF PROPOSAL 2. EACH PROXY WILL BE VOTED
FOR THIS PROPOSAL UNLESS SPECIFIED OTHERWISE ON SUCH PROXY.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP has been selected as the Company's independent public
accountants for the year 1997. It is expected that a representative of KPMG
Peat Marwick LLP will be present at the meeting. Such representative may make a
statement if he or she desires to do so and will be available to respond to
appropriate questions.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
The management of the Company knows of no other matters that may come before
the meeting. However, if any matters other than Proposals 1 and 2 should
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy to vote all proxies in accordance with their best judgment.
17
<PAGE>
SHAREHOLDER PROPOSALS IN CONNECTION WITH THE
1998 ANNUAL MEETING OF SHAREHOLDERS
Pursuant to regulations of the Securities and Exchange Commission,
shareholders who intend to submit proposals for inclusion in the Company's
proxy materials for the 1998 annual meeting must do so no later than December
10, 1997. This requirement is independent of certain other notice requirements
of the Company's Amended and Restated By-Laws described below in this
paragraph. Shareholder nominations of persons for selection to the Board of
Directors are not eligible for inclusion in the Company's proxy materials and
may only be made in accordance with the procedure described hereafter. Pursuant
to the Company's Amended and Restated By-Laws, nominations of persons for
selection to the Board of Directors and the proposal of business to be
considered by shareholders may in each case be made at the 1998 annual meeting
by any shareholder of record who gives written notice to the Company of such
nominations or proposals not less than sixty days nor more than 90 days prior
to the first anniversary of the 1997 annual meeting. In the event that the date
of the 1998 annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, then such nominations and proposals
must be delivered to the Company no earlier than 90 days prior to the 1998
annual meeting and no later than the close of business on the later of (i) the
60th day prior to the 1998 annual meeting, or (ii) the 10th day following the
day on which public announcement of the date of the 1998 annual meeting is
first made. All such shareholder proposals and notices should be submitted to
Scott Renwick, Secretary, Unitrin, Inc., One East Wacker Drive, Chicago,
Illinois 60601.
FORM 10-K
SHAREHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING MAY OBTAIN FOR NO CHARGE
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, FOR THE
YEAR ENDED DECEMBER 31, 1996, UPON WRITTEN REQUEST TO SCOTT RENWICK, SECRETARY,
UNITRIN, INC., ONE EAST WACKER DRIVE, CHICAGO, ILLINOIS 60601.
By Order of the Board of Directors
/s/ Scott Renwick
Scott Renwick
Secretary
April 9, 1997
18
<PAGE>
EXHIBIT A
UNITRIN, INC.
1997 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Unitrin, Inc. 1997 Stock Option Plan is to secure for
Unitrin, Inc. and its shareholders the benefits arising from stock ownership by
selected executive and other key employees of Unitrin, Inc. or its subsidiaries
or affiliates and such other persons as the Committee (as defined hereafter)
may from time to time determine.
2. DEFINITIONS
As used herein, the following words or terms have the meanings set forth
below:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"COMMITTEE" means the Stock Option Committee of the Board or any
successor committee. The Committee shall be composed of two or more persons
who qualify both as "outside directors" under Section 162(m) of the Code
and related regulations and "non-employee directors" under Rule 16b-3 of
the Securities Exchange Act of 1934, or any successor provisions.
"COMPANY" means Unitrin, Inc., a Delaware corporation.
"CONSTRUCTIVE OR ACTUAL DELIVERY" means either: (i) presentation to the
Company of a recent brokerage account statement or other written evidence
satisfactory to the Committee evidencing beneficial ownership by the
Participant of shares of Stock other than shares held in 401(k), pension,
IRA or similar accounts, or (ii) physical delivery of certificates
evidencing shares of Stock, properly indorsed for transfer to the Company
or with an appropriately executed stock power.
"DISABILITY" means a physical or mental disability of such a nature that
it would qualify a Participant for benefits under the long-term disability
insurance plan of Unitrin, Inc., or one of its subsidiaries or affiliates.
"EXERCISE PRICE" means the price at which the Stock underlying an Option
granted under this Plan may be purchased upon exercise of the Option.
"FAIR MARKET VALUE," as used to refer to the price of a share of Stock on
a particular day, means the closing price for the Common Stock for that day
as subsequently reported in The Wall Street Journal, or if no prices are
quoted for that day, the last preceding day on which such prices of Stock
are so quoted (or, if for any reason no such price is available, in such
other manner as the Committee may deem appropriate to reflect the fair
market value.)
"ISO" means an Option that satisfies the requirements of Section 422(b)
of the Code and any regulations promulgated thereunder from time to time,
or any successor provisions thereto.
"NON-QUALIFIED OPTION" means an Option that does not satisfy the
requirements for an ISO.
A-1
<PAGE>
"OPTION" means an option, including a Non-Qualified Option, an ISO and a
Restorative Option, granted to a Participant under this Plan to purchase a
designated number of shares of Stock.
"OPTION AGREEMENT" means an agreement between the Company and a
Participant evidencing the terms and conditions of a particular Option.
"PARTICIPANT" means an individual selected by the Committee to receive an
Option under the Plan.
"REPRESENTATIVE" means an executor, administrator, guardian, trustee or
other representative of a Participant who has legal authority to exercise
such Participant's Options or Stock Appreciation Rights on behalf of such
Participant or such Participant's estate.
"RESTORATIVE OPTION" means an Option granted to a Participant under
Section 8 of the Plan.
"RETIREMENT" means the termination of employment with the Company and/or
its subsidiaries or affiliates by a Participant after attaining age 55,
where such Participant does not continue to render services as a
consultant, advisor or director to the Company or any such subsidiaries or
affiliates.
"STOCK" means the Common Stock of the Company.
"STOCK APPRECIATION RIGHT" means a stock appreciation right granted
pursuant to Section 9 of the Plan.
"SUBSTANTIAL CAUSE" means (a) the commission of a criminal act against,
or in derogation of, the interests of the Company or its subsidiaries or
affiliates; (b) knowingly divulging confidential information about the
Company or its subsidiaries or affiliates to a competitor or to the public
or using such information for personal gain; or (c) the performance of any
similar action that the Committee, in its sole discretion, may deem to be
sufficiently injurious to the interests of the Company or its subsidiaries
or affiliates to constitute substantial cause for the termination of
services by a Participant as an employee, director, consultant or advisor.
Nothing in this Plan shall be construed to imply that a Participant's
employment may only be terminated for Substantial Cause.
3. THE COMMITTEE
a) ADMINISTRATION. The Plan shall be administered by the Committee, which
shall have authority: (i) to construe and interpret the Plan and to prescribe,
amend and rescind rules and regulations relating to the Plan, (ii) to make all
determinations as to eligibility pursuant to Section 5 of the Plan, (iii) to
grant Options and Stock Appreciation Rights as more fully described in Section
3(b) below, (iv) to approve and determine the duration of leaves of absence
which may be granted to Participants without constituting a termination of
their employment for the purposes of the Plan, and (v) to make all other
determinations necessary or advisable for the administration of the Plan. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Participants and their Representatives, successors in
interest and beneficiaries. Any action of the Committee with respect to
administration of the Plan shall be taken by a majority vote or written consent
of its members.
b) GRANTING AUTHORITY. Subject to the provisions of the Plan, the Committee
shall have sole authority and discretion to determine the Participants to whom
and the time or times at which Options
A-2
<PAGE>
shall be granted, whether an Option will be an ISO or a Non-Qualified Option,
whether to couple a Stock Appreciation Right with an Option and the terms of
such Right, the number of shares of Stock to be subject to each Option, the
Exercise Price, the number of installments, if any, in which each Option may
vest, and the expiration date of each Option.
4. SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Section 14 hereof, the maximum number of
shares of Stock which may be issued pursuant to the exercise of Options and
Stock Appreciation Rights granted under the Plan shall not exceed two million
(2,000,000) shares in total. The maximum number of shares that may be granted
to an individual Participant under the Plan shall be one-third of such total.
If any Option granted under the Plan shall expire or terminate for any reason
(other than surrender at the time of exercise of a related Stock Appreciation
Right provided for in paragraph 9 hereof), without having been exercised in
full, the unpurchased shares subject thereto shall again be available for
Options to be granted under the Plan. Any shares of Stock that are used by
Constructive or Actual Delivery as full or partial payment for the Exercise
Price of an Option and/or the withholding taxes arising from the exercise of
such Option, or that are withheld from the shares that would otherwise be
issued upon exercise of such Option in full or partial payment of such
withholding taxes, shall in each case be added to the aggregate number of
shares of Stock available for issuance under this Plan.
5. ELIGIBILITY
The following persons shall be eligible to receive grants of Options and
Stock Appreciation Rights under this Plan:
a) all executive and other key employees of the Company or of any
subsidiary or affiliate of the Company who are designated as such by the
Committee in its sole discretion;
b) directors of the Company who are regular employees of the Company or
any such subsidiary or affiliate; and
c) key persons selected by the Committee in its sole discretion who
render services to the Company or its subsidiaries or affiliates as
consultants or advisors, but such persons shall only be eligible to receive
Non-Qualified Options (including Restorative Options issued with respect to
such Options).
6. TERMS OF OPTIONS
A) DURATION. Each Option and all rights associated therewith, shall expire on
such date as the Committee may determine, subject to earlier termination as
provided herein. All Options granted under this Plan shall be granted on or
before December 31, 2006.
B) EXERCISE PRICE. The Exercise Price of the Stock covered by each Option
shall be determined by the Committee.
C) VESTING. Each Option granted under this Plan shall vest and be exercisable
in such installments, if any, during the period prior to its expiration date as
the Committee shall determine, and, unless otherwise specified in an Option
Agreement, no Option shall be exercisable for at least six months after grant
except in the case of the death or Disability of the Participant.
A-3
<PAGE>
D) NON-TRANSFERABILITY. Unless otherwise provided in an Option Agreement, an
Option (and any accompanying Stock Appreciation Right) granted under the Plan
shall, by its terms, be non-transferable by the Participant, either voluntarily
or by operation of law, otherwise than by will or the laws of descent and
distribution, and shall be exercisable during the Participant's lifetime only
by the Participant (or, in the case of the incapacity of the Participant, by
the Participant's Representative) regardless of any community property interest
therein of the spouse of the Participant, or such spouse's successors in
interest. If the spouse of the Participant shall have acquired a community
property interest in such Option (or accompanying Stock Appreciation Right),
the Participant, or the Participant's Representative, may exercise the Option
(or accompanying Stock Appreciation Right) on behalf of the spouse of the
Participant or such spouse's successors in interest.
E) OPTION AGREEMENTS. The terms of each Option granted pursuant to this Plan
shall be evidenced by an Option Agreement in a form approved by the Committee
and signed by both the Company and the Participant, except that a Restorative
Option may be evidenced by a certificate reciting the essential terms of such
Option and signed only by the Company.
7. EXERCISE OF OPTIONS
A) NOTICE BY PARTICIPANT. Each Participant (or such Participant's
Representative) who desires to exercise an Option shall give advance written
notice of such exercise to the Company in such form as may be prescribed from
time to time by the Committee.
B) PAYMENT FOR EXERCISES. The Exercise Price of an Option shall be paid in
full at the time of exercise of such Option: (i) by check payable to the order
of the Company, (ii) by Constructive or Actual Delivery, (iii) by wire transfer
or other means acceptable to the Committee, (iv) if authorized by the
Committee, by a promissory note made by the Participant in favor of the
Company, upon such terms and conditions and secured by such collateral as may
be required by the Committee, or (v) any combination of the foregoing
acceptable to the Committee. Shares of Stock used by Constructive or Actual
Delivery to satisfy the Exercise Price of an Option shall be valued at their
Fair Market Value on the date of exercise.
C) PARTIAL EXERCISES. No Option may be exercised for a fraction of a share
and no partial exercise of any Option may be made for less than fifty (50)
shares.
D) WITHHOLDING TAXES. Upon the exercise of a Non-Qualified Option or a Stock
Appreciation Right, the Company shall have the right to: (i) require such
Participant (or such Participant's Representative) to pay the Company the
amount of any taxes which the Company may be required to withhold with respect
to such exercise, or (ii) deduct from all amounts paid in cash with respect to
the exercise of a Stock Appreciation Right the amount of any taxes which the
Company may be required to withhold with respect to such cash amounts.
A Participant or such Participant's Representative may elect to satisfy all
or any portion of the tax withholding obligations arising from the exercise of
an Option or Stock Appreciation Right either by: (i) Constructive or Actual
Delivery, or (ii) directing the Company to withhold shares that would otherwise
be issued pursuant to such exercise. Shares of Stock used in either of the
foregoing ways to satisfy tax withholding obligations will be valued at their
Fair Market Value on the date of exercise.
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<PAGE>
8. GRANT OF RESTORATIVE OPTIONS
Subject to the remaining provisions of this Section 8, if a Participant
elects to pay some or all of the Exercise Price of an Option (the "Underlying
Option") and/or any related withholding taxes by Constructive or Actual
Delivery (or, in the case of such taxes, by directing the Company to withhold
shares that would otherwise be issued upon exercise of such Underlying Option),
then such Participant shall be granted a Restorative Option to purchase
additional shares of Stock. The number of shares of Stock subject to the
Restorative Option shall be equal to the sum of: (a) any shares used by
Constructive or Actual Delivery to pay the Exercise Price and/or the related
withholding taxes, and (b) any shares withheld in connection with the exercise
in payment of withholding taxes. The Exercise Price of the Restorative Option
shall be equal to one hundred percent (100%) of the Fair Market Value of the
Stock on the date the Underlying Option is exercised. The Restorative Option
shall be fully vested beginning six months after the date of its grant and
shall expire on the expiration date of the Underlying Option. All other terms
of the Restorative Option shall be identical to the terms of the Underlying
Option. No Restorative Option shall be granted: (i) to any Participant who is
not actively employed by the Company or one of its subsidiaries or affiliates
on the date of exercise of the Underlying Option or who is not then rendering
services to the Company or any such subsidiaries or affiliates as a consultant,
advisor or director, or (ii) if, on the date of exercise of the Underlying
Option such Option would be scheduled to expire within six months.
9. STOCK APPRECIATION RIGHTS
If deemed appropriate by the Committee, any Option may be coupled with a
Stock Appreciation Right at the time of the grant of the Option, or the
Committee may grant a Stock Appreciation Right to any Participant at any time
after granting an Option to such Participant but prior to the expiration date
of such associated Option. Such Stock Appreciation Right shall be subject to
such terms and conditions consistent with the Plan as the Committee shall
impose, provided that:
(a) A Stock Appreciation Right shall be exercisable to the extent, and
only to the extent, the associated Option is exercisable and shall be
exercisable only for such period as the Committee may determine (which
period may expire prior to the expiration date of the Option);
(b) A Stock Appreciation Right shall entitle the Participant to surrender
to the Company unexercised the Option to which it is related, or any
portion thereof, and to receive from the Company in exchange therefor that
number of shares (rounded down to the nearest whole number) having an
aggregate value equal to the excess of the Fair Market Value of one share
over the Exercise Price per share specified in such Option, multiplied by
the number of shares subject to the Option, or portion thereof, which is so
surrendered; and
(c) The Committee may elect to settle, or the Stock Appreciation Right
may permit the Participant to elect to receive (subject to approval by the
Committee), any part or all of the Company's obligation arising out of the
exercise of a Stock Appreciation Right by the payment of cash equal to the
aggregate Fair Market Value of that part or all of the shares it would
otherwise be obligated to deliver, provided that in no event shall cash be
payable to an officer or director of the Company upon exercise of a Stock
Appreciation Right: (i) if the Stock Appreciation Right was exercised
during the first six months of its term; or (ii) unless the transaction is
otherwise exempt from the operation of Section 16(b) of the Securities
Exchange Act of 1934.
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<PAGE>
10. HOLDING OF STOCK AFTER EXERCISE OF OPTION
At the discretion of the Committee, any Option Agreement may provide that the
Participant, by accepting such Option, represents and agrees, for the
Participant and the Participant's permitted transferees, that none of the
shares purchased upon exercise of the Option or any accompanying Stock
Appreciation Right will be acquired with a view to any sale, transfer or
distribution of said shares in violation of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, or any
applicable state "blue sky" laws, and the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a written and
signed representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the event of any
violation of the Securities Act of 1933 or state "blue sky" law by such person.
11. CESSATION OF SERVICES
Unless otherwise specified in an Option Agreement or approved in writing by
the Committee, if a Participant ceases to provide services to any of the
Company, its subsidiaries and affiliates as an employee, director, consultant
or advisor, other than as a result of the Participant's Retirement, death or
Disability, the Participant's outstanding Options (and any accompanying Stock
Appreciation Rights) shall, to the extent such Options are already vested, be
exercisable for a period of 90 days after the date such Participant ceases to
provide all such services and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the
Committee shall not be deemed a cessation of services for purposes of this
paragraph, but no Option (or accompanying Stock Appreciation Right) may be
exercised during any such leave of absence, except during the first 90 days
thereof unless otherwise agreed to in writing by the Committee. If a
Participant's services as an employee, director, consultant or advisor are
terminated for Substantial Cause, all of the Participant's outstanding Options
(and accompanying Stock Appreciation Rights) will terminate as of the date of
such termination.
12. RETIREMENT, DEATH OR DISABILITY OF PARTICIPANT
Upon the Retirement of a Participant or upon such Participant's death or
Disability while employed by the Company or one of its subsidiaries or
affiliates or while such Participant was providing services thereto as a
director, consultant or advisor, the Participant's outstanding Options (and any
accompanying Stock Appreciation Rights) shall expire one (1) year after the
date of such Retirement, death or Disability unless by their terms they expire
sooner. During such period after the death of a Participant, such Options (and
any accompanying Stock Appreciation Rights) may, to the extent that they were
vested but unexercised on the date of death, be exercised by the Participant's
Representative.
13. PRIVILEGES OF STOCK OWNERSHIP
No Participant shall have any of the rights or privileges of a shareholder of
the Company in respect of any shares of Stock issuable upon exercise of any
Option or Stock Appreciation Right until certificates representing such shares
shall have been issued and delivered. No shares shall be issued and delivered
upon the exercise of any Option or accompanying Stock Appreciation Rights
unless and
A-6
<PAGE>
until there shall have been full compliance with all applicable requirements of
the Securities Act of 1933 (whether by registration or satisfaction of
exemption conditions), all applicable listing requirements of The Nasdaq Stock
Market or any national securities exchange on which shares of the same class
are then listed and any other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery.
14. ADJUSTMENTS
If the outstanding shares of the Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of shares
of securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares as to which Options (and accompanying
Stock Appreciation Rights) may be granted under this Plan. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in an outstanding Option
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of such Option but with a corresponding adjustment in the
Exercise Price for each share or other unit of any security covered by the
Option.
Upon the dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation of the Company with one or more corporations as a
result of which the Company is not the surviving corporation, or upon a sale of
substantially all the property or more than eighty percent (80%) of the then
outstanding Stock of the Company to another corporation, this Plan shall
terminate; provided, however, that notwithstanding the foregoing, the Board
shall provide in writing in connection with such transaction for any one or
more of the following alternatives (separately or in combinations); (i) for
each Option and any accompanying Stock Appreciation Rights theretofore granted
to become immediately exercisable notwithstanding the provisions of Section
6(c) hereof, (ii) for the assumption by the successor corporation of the
Options and Stock Appreciation Rights theretofore granted or the substitution
by such corporation for such Stock Appreciation Rights theretofore granted or
the substitution by such corporation for such Options and rights of new Options
and rights covering the stock of the successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (iii) for the continuance of the Plan by such successor
corporation in which event the Plan and the Options and any accompanying Stock
Appreciation Rights therefore granted shall continue in the manner and under
the terms so provided; or (iv) for the payment in cash or stock in lieu of and
in complete satisfaction of such Options and rights.
Adjustments under this paragraph shall be made by the Committee, whose
determination as to which adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the plan on any such adjustment.
At the discretion of the Committee, any Option Agreement may contain
provisions to the effect that upon the happening of certain events, including a
change in control (as defined by the Committee in such Option Agreement) of the
Company, any outstanding Options and accompanying Stock Appreciation Rights not
theretofore vested shall immediately become vested and exercisable in their
entirety, notwithstanding any of the other provisions of the Option.
A-7
<PAGE>
15. AMENDMENT AND TERMINATION OF PLAN
The Board may at any time suspend or terminate the Plan or amend or revise
the terms of the Plan. In the event that any provision of applicable law
mandates that any such amendment or revision be approved by the Company's
shareholders, then such amendment or revision shall be submitted to such
shareholders for approval or ratification within a time period that satisfies
such law. In the case of other laws that require shareholder approval of
amendments or revisions as a condition to receiving or preserving certain
benefits (e.g., deductibility of certain compensation under Section 162(m) of
the Code) or achieving a "safe harbor" status, the Board shall have sole
discretion to determine whether or not to submit amendments and revisions to
the Company's shareholders for approval.
Notwithstanding the foregoing, no amendment, suspension or termination of the
Plan shall, without specific action of the Board and the consent of the Option
holder, in any way modify, amend, alter or impair any rights or obligations
under any Option or accompanying Stock Appreciation Right theretofore granted
under the Plan.
16. EFFECTIVE DATE OF PLAN
Effectiveness of the Plan is subject to approval by the holders of the
outstanding Stock of the Company. The Plan shall be deemed approved by the
holders of the outstanding Stock of the Company by the affirmative vote of the
holders of a majority of the shares of Stock of the Company represented and
voting at a duly held meeting at which a quorum is present (including
abstentions to the extent abstentions are counted as voting under applicable
state law). Any Options granted under the Plan prior to obtaining such
shareholder approval shall be granted under the conditions that the Options so
granted: (1) shall not be exercisable prior to such approval, and (2) shall
become null and void if such shareholder approval is not obtained.
A-8
<PAGE>
[UNITRN LOGO] P R O X Y
One East Wacker Drive
Chicago, Illinois 60601 Annual Meeting of Shareholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Jerrold V. Jerome and Richard C. Vie as Proxies,
each with power of substitution, to vote all shares of Unitrin, Inc. common
stock of the undersigned held as of March 17, 1997, at the Annual Meeting of
Shareholders of Unitrin, Inc., to be held at The First Chicago Center, One
First National Plaza, Dearborn and Madison Streets, Chicago, Illinois 60670, at
10:00 a.m. on May 14, 1997, and at any adjournment thereof, upon the following
matters. This card also constitutes voting instructions for all shares, if any,
credited to the account of the undersigned in the Unitrin 401K Savings Plan.
(1) ELECTION OF DIRECTORS. Nominees for director are:
James E. Annable Fayez S. Sarofim
Reuben L. Hedlund Henry E. Singleton
Jerrold V. Jerome Richard C. Vie
George A. Roberts
(2) Proposal to approve the Unitrin, Inc. 1997 Stock Option Plan.
(3) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE SIGN AND DATE THIS CARD ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE
ENVELOPE PROVIDED.
SEE REVERSE
SIDE
<PAGE>
[X] Please mark your votes as in this example. 0599
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS (1) AND (2).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS (1) AND (2).
- --------------------------------------------------------------------------------
1. Election of Directors
FOR [_] WITHHELD [_]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------------------------
2. Unitrin, Inc. 1997 Stock Option Plan
FOR [_] AGAINST [_] ABSTAIN [_]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
[_] Please check this box if you plan to attend the meeting.
Please sign exactly as your name(s)
appears hereon. All joint tenants
should sign. When signing as
attorney, executor, administrator,
trustee or guardian, give full title
as such. If a corporation, sign the
full corporate name by an authorized
officer. If a partnership, sign in
partnership name by authorized
person.
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SIGNATURE(S) DATE
