<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:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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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 13, 1998
The Annual Meeting of Shareholders of Unitrin, Inc. will be held on
Wednesday, May 13, 1998, 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 1998 Bonus Plan for
Senior Executives.
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 16, 1998 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, 1998
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 13, 1998, 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, 1998.
VOTING SECURITIES
March 16, 1998 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
<PAGE>
37,620,161 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 16, 1998 (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 10; (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 12,000 (2) *
Reuben L. Hedlund 7,000 (2) *
Jerrold V. Jerome--Chairman 277,240 (2) *
William E. Johnston, Jr. -0-
George A. Roberts 378,865 (3) 1.0
Fayez S. Sarofim 3,128,094 (4) 8.2
Henry E. Singleton 7,242,260 (5) 19.1
Richard C. Vie--President & CEO 192,296 (2),(3) *
Named Executive Officers
James W. Burkett 28,463 (2) *
Eric J. Draut 18,450 (2) *
Thomas H. Maloney 10,342 (2) *
Directors and All Executive Officers
as a Group (13 persons) 11,323,760 (2) 29.9
Other 5% Owners
George Kozmetsky
2815 San Gabriel Street
Austin, TX 78705 2,230,460 (6) 5.9
</TABLE>
- --------
(1) Based on the number of shares outstanding on the record date, March 16,
1998, plus shares deemed outstanding pursuant to rules of the Securities
and Exchange Commission ("SEC"). 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
<PAGE>
(2) Shares shown for the 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 through exercise of stock
options. The number of such acquirable shares for each of such persons is
as follows: Annable (6,000); Hedlund (6,000); Jerome (137,699); Vie
(101,827); Burkett (17,919); Draut (9,736) and Maloney (2,084).
(3) Shares shown for Dr. Roberts include 10,615 shares owned by his wife with
respect to which he disclaims beneficial ownership. Shares shown for Mr.
Vie include 7,917 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, 1997 contained in an amendment
to a Schedule 13G filed by Mr. Sarofim with the SEC, Mr. Sarofim may be
deemed to be the beneficial owner of 3,128,094 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 1,870,743 shares and shared
dispositive power as to 2,115,759 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 as of December 31, 1997 contained in an amendment
to a Schedule 13G filed by Dr. Kozmetsky with the SEC, he may be deemed to
be the beneficial owner of 2,230,460 shares of Common Stock. Of such
shares, Dr. Kozmetsky reported sole voting and dispositive powers as to
2,050,000 shares and shared voting and dispositive powers as to 150,000
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
Eight 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.
3
<PAGE>
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.
James E. Annable, 54, 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, 61, 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, 68, 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.
William E. Johnston, Jr., 57, has been a director of the Company since
October 1997. Mr. Johnston has been President and Chief Operating Officer of
Morton International, Inc., a manufacturer and marketer of specialty chemicals
and salt, since October 1995. Prior thereto, he was Executive Vice President
for Administration of Morton.
George A. Roberts, 79, is a retired executive and has been a director of the
Company since February 1990. He is also a director of Argonaut and Allegheny
Teledyne.
Fayez S. Sarofim, 69, 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, 81, 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.
Richard C. Vie, 60, has been a director of the Company since March 1990 and
President and Chief Executive Officer for more than the last five years.
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.
4
<PAGE>
The Executive Committee, which met twice in 1997, 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 1997, consists of Messrs.
Johnston and Hedlund and Dr. Roberts. The Audit Committee reviews the scope of
the audit and non-audit assignments of the Company's independent auditors and
related fees, the accounting principles applied 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 auditors and the Company's internal auditors.
The Compensation Committee, which met three times in 1997, consists of Dr.
Roberts and Messrs. Annable, Hedlund and Johnston. The Compensation Committee
sets the cash compensation of the Company's executives, including its
executive officers.
The Stock Option Committee, which met three times in 1997, consists of
Messrs. Annable, Hedlund and Johnston. 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 and 1997 Stock Option
Plans and otherwise generally administers such plans.
In 1997, the Company's Board of Directors met six 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, 49, has been a Vice President of the Company for more
than the last five years.
James W. Burkett, 68, 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.
5
<PAGE>
Eric J. Draut, 40, has been a Vice President of the Company since October
1997, 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, 66, has been Vice President and General Counsel of the
Company since May 1996, and was Secretary from February 1990 to May 1996.
Scott Renwick, 46, has been Secretary of the Company since May 1996 and
Counsel since January 1991.
COMPENSATION OF EXECUTIVE OFFICERS
The following report on the compensation of executive officers for 1997 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 9 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, performance-based bonuses and may include discretionary
bonuses. Executive officers are eligible to receive stock options under the
Unitrin, Inc. 1990 Stock Option Plan and the Unitrin, Inc. 1997 Stock Option
Plan. Although the type and terms of options granted under these Plans may
vary, the Stock Option Committee's current practice is to grant five-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 four,
equal annual installments beginning six months after the date of grant.
Base salaries of the Company's executive officers depend on the Compensation
Committee's subjective assessment of the individual officer's work performance
with respect to such officer's normal job responsibilities. In its
compensation deliberations in 1997, the Compensation Committee had available
to it data which summarized the salary 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 compensation of the Company's Chief Executive Officer for 1997,
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 1997 compensation. Such data were not referenced in establishing the
compensation of any of the Company's other executive officers, but it was
noted
6
<PAGE>
that the salaries of the Company's executive officers were below those of the
data presented. The level of Mr. Jerome's base salary reflects his status as a
half-time employee of the Company.
In August 1997, the Compensation Committee adopted a plan under which the
Company's executive officers became eligible to receive cash bonuses based on
attainment of designated corporate performance criteria (the "1997 Bonus
Plan"). Under the 1997 Bonus Plan, the Company's executive officers were
eligible for cash bonuses of up to 50% of their base salaries (or 68.3%, in
the case of the Chairman and the Chief Executive Officer), consisting of a
formula component and a discretionary component. The formula components for
participants with "line" responsibilities were based on growth in operating
earnings of the business units they oversee. Formula components for
participants with "staff" responsibilities were based on growth in earnings
per share from operations. The formula components for the Chairman and for the
Chief Executive Officer took each of the foregoing factors into account. With
the following exception, the bonuses paid for 1997 to the executive officers
named in the Summary Compensation Table were derived by application of the
foregoing formula components using actual 1997 financial results. In addition
to such formula bonuses, discretionary bonuses of $25,000 each were awarded to
Messrs. Jerome, Vie and Draut based on the Compensation Committee's subjective
evaluation of such officers' work performance during 1997.
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 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 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 of 1986, as amended, 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 1997
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. The 1998 Bonus Plan for
Senior Executives was adopted by the Compensation Committee on February 4,
1998 and, subject to shareholder approval, will replace the 1997 Bonus Plan.
The 1998 Bonus Plan is designed to qualify as a performance-based compensation
program under Section 162(m) in order to preserve the Company's federal income
tax deduction for bonuses paid thereunder. Bonuses paid to the Company's
executive officers under the 1997 Bonus
7
<PAGE>
Plan will not qualify as performance based under section 162(m); however, none
of such officers received cash compensation for 1997 in excess of $1 million.
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
William E. Johnston, Jr. William E. Johnston, Jr.
George A. Roberts
8
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG UNITRIN, INC., EQUITY MARKET INDEX, AND FULL LINE INSURANCE INDEX
<TABLE>
<CAPTION>
Unitrin Dow Jones Equity Market Index Full line Insurance Group
<S> <C> <C> <C>
12/31/92 100 100 100
12/31/93 105 110 118
12/31/94 107 111 110
12/31/95 125 152 170
12/31/96 152 188 210
12/31/97 183 251 291
</TABLE>
Graph assumes $100 invested on December 31, 1992 in the Company's Common
Stock, Dow Jones Equity Market Index and Dow Jones Full Line Insurance Group,
in each case with dividends reinvested.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ------------
SALARY ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($)(1) OPTIONS (#)(2) COMPENSATION ($)(3)
--------------------------- ---- ------ ------------ -------------- -------------------
<S> <C> <C> <C> <C> <C>
Jerrold V. Jerome(4)................. 1997 $275,000 $101,819 103,707 300
Chairman of the Board 1996 268,750 85,000 37,742 300
1995 243,750 60,000 15,000 300
Richard C. Vie....................... 1997 668,750 213,555 495,526 300
President and Chief Executive Officer 1996 612,500 150,000 78,662 300
1995 475,000 100,000 75,000 300
James W. Burkett..................... 1997 338,750 119,680 99,667 300
Vice President 1996 300,000 75,000 26,898 300
1995 280,000 50,000 20,000 300
Thomas H. Maloney.................... 1997 184,660 49,893 44,552 300
Vice President and General Counsel 1996 164,890 22,000 0 300
1995 151,140 22,000 5,000 300
Eric J. Draut........................ 1997 145,000 64,389 56,123 300
Vice President and Chief Financial 1996 126,750 30,000 4,667 300
Officer 1995 114,500 20,000 5,000 300
</TABLE>
- --------
(1) Cash bonuses are listed for the year earned, but are paid in the following
year. All bonuses earned for 1995 and 1996 were discretionary bonuses.
Messrs. Jerome, Vie and Draut received discretionary bonuses of $25,000
each for 1997, which are included in their bonus totals. All other bonus
amounts reflected for 1997 were formula-based bonuses under the 1997 Bonus
Plan for Senior Executives (see "Joint Report of Compensation Committee
and Stock Option Committee" on page 7.)
(2) All options listed were granted pursuant to the Unitrin, Inc. 1990 Stock
Option Plan and include automatic grants of restorative options. (See
footnote (1) to the option grant table on page 13.)
(3) The amounts shown in this column represent Company matching contributions
to the named officers' accounts under the Company's 401K Savings Plan.
(4) The level of Mr. Jerome's annual compensation reflects his status as a
half-time employee of the Company.
10
<PAGE>
STOCK OPTION GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- ----------------------------------------------------------------------- ----------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO GRANT DATE
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME (#) (1) IN 1997 ($/SH) (2) DATE ($)(3)
---- ---------- --------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Jerrold V. Jerome....... 20,000* 1.21% 53.75 05/14/02 140,200
29,437 1.78% 60.13 04/30/00 144,238
15,462 0.94% 60.13 01/28/02 75,762
3,681 0.22% 67.63 01/28/02 20,026
19,906 1.21% 67.63 02/03/03 108,297
15,221 0.92% 67.63 05/04/04 82,808
Richard C. Vie.......... 8,830 0.53% 52.00 02/03/03 37,693
4,521 0.27% 53.00 02/01/05 19,648
8,699 0.53% 53.25 02/03/03 38,026
17,372 1.05% 53.38 02/03/03 76,115
8,136 0.49% 53.50 05/04/04 35,692
8,989 0.54% 53.50 02/01/05 39,434
85,000* 5.15% 53.75 05/14/02 595,850
4,056 0.25% 53.75 05/04/04 17,876
3,314 0.20% 53.94 01/28/02 14,486
1,789 0.11% 54.13 05/04/04 7,949
8,849 0.54% 54.13 02/03/03 39,317
16,659 1.01% 54.75 04/30/00 74,789
8,526 0.52% 55.00 02/03/03 38,494
23,618 1.43% 56.88 04/30/00 109,469
11,669 0.71% 60.00 04/30/00 57,058
7,532 0.46% 60.00 01/28/02 36,829
9,829 0.60% 60.38 05/04/04 48,362
3,763 0.23% 60.38 01/28/02 18,515
34,941 2.12% 60.88 02/01/05 171,504
20,369 1.23% 61.50 05/04/04 101,006
32,713 1.98% 61.50 02/03/03 162,217
3,731 0.23% 61.50 01/28/02 18,501
15,302 0.93% 62.25 04/30/00 76,848
13,937 0.84% 62.50 05/04/04 70,077
7,905 0.48% 62.50 02/03/03 39,747
4,045 0.24% 62.75 02/01/05 20,420
8,111 0.49% 62.75 02/03/03 40,946
1,640 0.10% 62.75 05/04/04 8,279
22,222 1.35% 62.75 01/28/02 112,181
15,668 0.95% 63.69 02/03/03 80,277
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- ----------------------------------------------------------------------- ----------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO GRANT DATE
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME (#) (1) IN 1997 ($/SH) (2) DATE ($)(3)
---- ---------- --------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Richard C. Vie
(continued)............ 21,838 1.32% 64.00 04/30/00 112,756
11,103 0.67% 64.63 04/30/00 57,888
7,166 0.43% 64.63 01/28/02 37,361
7,727 0.47% 65.50 02/03/03 40,717
3,555 0.22% 65.75 05/04/04 18,805
7,695 0.47% 65.75 02/03/03 40,703
6,987 0.42% 67.63 05/04/04 38,012
7,720 0.47% 67.63 02/01/05 42,000
James W. Burkett........ 3,634 0.22% 53.25 05/06/03 15,867
3,357 0.20% 53.25 05/04/04 14,658
3,655 0.22% 53.25 02/01/05 15,959
20,000* 1.21% 53.75 05/14/02 140,200
9,361 0.57% 60.88 02/01/05 45,948
5,499 0.33% 60.88 05/04/04 26,991
6,769 0.41% 60.88 05/06/03 33,225
4,322 0.26% 60.88 12/19/01 21,214
4,601 0.28% 62.13 05/14/02 23,060
3,074 0.19% 62.31 05/04/04 15,610
6,648 0.40% 62.31 05/06/03 33,760
15,439 0.93% 62.31 12/19/01 78,402
6,807 0.41% 65.00 05/04/04 35,595
3,246 0.20% 65.00 05/06/03 16,974
3,265 0.20% 65.00 02/01/05 17,073
Thomas H. Maloney....... 11,626 0.70% 53.00 04/30/00 50,525
5,000* 0.30% 53.75 05/14/02 35,050
3,185 0.19% 56.19 01/28/02 14,585
1,652 0.10% 56.19 05/04/04 7,565
892 0.05% 56.19 02/01/05 4,085
2,360 0.14% 60.88 02/01/05 11,584
1,393 0.08% 60.88 05/04/04 6,837
768 0.05% 60.88 01/28/02 3,770
1,803 0.11% 64.25 04/30/00 9,346
1,124 0.07% 65.38 05/14/02 5,928
960 0.06% 66.00 05/04/04 5,097
8,561 0.52% 66.03 04/30/00 45,606
2,908 0.18% 66.50 01/28/02 15,601
1,507 0.09% 66.50 05/04/04 8,085
813 0.05% 66.50 02/01/05 4,362
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- ----------------------------------------------------------------------- ----------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO GRANT DATE
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME (#) (1) IN 1997 ($/SH) (2) DATE ($)(3)
---- ---------- --------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Eric J. Draut........... 3,292 0.20% 53.13 01/28/02 14,340
2,752 0.17% 53.13 05/06/03 11,988
10,000* 0.61% 53.75 05/14/02 70,100
3,106 0.19% 54.00 04/30/00 13,539
4,473 0.27% 56.75 04/30/00 20,687
892 0.05% 56.75 02/01/05 4,125
3,314 0.20% 56.75 05/04/04 15,327
2,367 0.14% 60.88 02/01/05 11,618
772 0.05% 60.88 01/28/02 3,789
1,712 0.10% 60.88 05/06/03 8,403
2,799 0.17% 60.88 05/04/04 13,739
2,893 0.18% 61.50 04/30/00 14,386
2,309 0.14% 62.25 05/14/02 11,563
2,514 0.15% 63.00 05/06/03 12,778
3,007 0.18% 63.00 01/28/02 15,283
3,061 0.19% 66.50 05/04/04 16,422
823 0.05% 66.50 02/01/05 4,415
4,131 0.25% 66.50 04/30/00 22,163
1,906 0.12% 67.63 05/04/04 10,369
</TABLE>
- --------
(1) All options granted to the named executive officers were granted under the
Unitrin, Inc. 1990 Stock Option Plan and include restorative options.
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 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 option grants reflected in the table above are
restorative options except for those marked with an asterisk. All options
granted in 1997 were non-qualified options for federal income tax
purposes.
A restorative option is intended to enable an option holder to remain in
essentially the same economic position with respect to potential
appreciation of the Common Stock as if he or she had continued to hold the
original option unexercised. As the following table illustrates, the grant
of a restorative option does not result in an increase in the total number
of options and shares held by the option holder.
13
<PAGE>
NET CHANGE IN SHARES AND OPTIONS HELD BY NAMED EXECUTIVE OFFICERS
RESULTING FROM GRANTS OF RESTORATIVE OPTIONS
<TABLE>
<CAPTION>
NET CHANGE
IN TOTAL
TOTAL RESTORATIVE SHARES AND
OPTIONS NET SHARES OPTIONS OPTIONS
NAME EXERCISED RECEIVED (A) GRANTED (B) (C)
---- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Jerrold V. Jerome.............. 110,000 26,293 83,707 0
Richard C. Vie................. 471,221 60,695 410,526 0
James W. Burkett............... 91,544 11,867 79,677 0
Thomas H. Maloney.............. 47,355 7,803 39,552 0
Eric J. Draut.................. 52,696 6,573 46,123 0
</TABLE>
--------
(A) Represents shares received in option exercises after subtracting shares
surrendered to pay the exercise prices and/or related tax withholding
obligations.
(B) Represents options granted to replace shares surrendered in connection
with option exercises.
(C) Represents the difference between (i) the total options exercised, and
(ii) the sum of net shares received and the number of restorative
options granted.
(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 of the particular option; (iii) an expected life for restorative
options of one year and 2.5 years for all other options; and (iv) a
dividend yield of 4.51%, representing the average, annualized dividend
yield on the Common Stock for the period from January 1, 1995 through
December 31, 1997. 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 1997 FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
SHARES ACQUIRED UNDERLYING UNEXERCISED AT FY-END ($)
ON VALUE OPTIONS AT FY-END (#) EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#)(1) REALIZED ($)(2) EXERCISABLE/UNEXERCISABLE (3)
---- --------------- --------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jerrold V. Jerome....... 110,000 $2,975,000 98,891/ 57,558 859,381/ 234,844
Richard C. Vie.......... 471,221 $5,623,388 13,592/336,875 57,766/1,539,072
James W. Burkett........ 91,544 $1,227,721 25,161/ 63,870 58,185/ 367,569
Thomas H. Maloney....... 47,355 $ 807,800 0/ 27,197 0/ 82,317
Eric J. Draut........... 52,696 $ 722,559 0/ 37,044 0/ 274,872
</TABLE>
- --------
(1) Substantially all option exercises by the named executive officers in 1997
were exercises in which the officers surrendered previously acquired
shares of Common Stock as payment for the
14
<PAGE>
exercises. (See footnote (1) to the option grant table on page 13.) The
shares reflected in this column are the gross shares issued in the exercise
transactions, without deduction of the shares surrendered as payment. The
actual net increase in the number of shares held by these officers as a
result of such transactions was as follows: Jerome (26,293); Vie (60,695);
Burkett (11,867); Maloney (7,803); and Draut (6,573).
(2) 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.
(3) The value of unexercised in-the-money options is calculated by subtracting
the applicable exercise price from $64.625 (the closing price of the
Common Stock on December 31, 1997) 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
compensation and years of credited service, the estimated annual benefits
payable under the Company's tax-qualified retirement plan (the "Retirement
Plan") and a related, non-qualified, supplemental executive retirement plan
(the "supplemental plan"). Average final compensation represents the average
annual covered compensation paid for the highest 60 consecutive months in the
120-month period prior to retirement. These benefit estimates assume
retirement in 1998 at age 65 or older.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE FINAL -------------------------------------------
ANNUAL COMPENSATION 5 10 15 20 30+
- ------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000........................... $11,363 $ 22,727 $ 34,090 $ 45,453 $ 68,180
200,000........................... 15,488 30,977 46,465 61,953 92,930
250,000........................... 19,613 39,227 58,840 78,453 117,680
300,000........................... 23,738 47,477 71,215 94,953 142,430
350,000........................... 27,863 55,727 83,590 111,453 167,180
400,000........................... 31,988 63,977 95,965 127,953 191,930
450,000........................... 36,113 72,227 108,340 144,453 216,680
500,000........................... 40,238 80,477 120,715 160,953 241,430
550,000........................... 44,363 88,727 133,090 177,453 266,180
600,000........................... 48,488 96,977 145,465 193,953 290,930
650,000........................... 52,613 105,227 157,840 210,453 315,680
700,000........................... 56,738 113,477 170,215 226,953 340,430
750,000........................... 60,863 121,727 182,590 243,453 365,180
800,000........................... 64,988 129,977 194,965 259,953 389,930
850,000........................... 69,113 138,227 207,340 276,453 414,680
900,000........................... 73,238 146,477 219,715 292,953 439,430
950,000........................... 77,363 154,727 232,090 309,453 464,180
1,000,000........................... 81,488 162,977 244,465 325,953 488,930
</TABLE>
The foregoing benefits are illustrated as straight-life annuities and are
not subject to reduction for Social Security or other offset amounts.
15
<PAGE>
The years of credited service in the Retirement Plan as of December 31, 1997
for each of the Company's executive officers named in the Summary Compensation
Table is as follows: Jerome (29), Vie (6), Burkett (6), Draut (6) and Maloney
(6). 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. Compensation covered by the Retirement Plan is the participant's base
salary and formula bonuses as defined in the Retirement Plan, but does not
include discretionary bonuses and compensation attributable to the exercise of
stock options. For 1997, the covered compensation for the executive officers
named in the Summary Compensation Table on page 10 is the total of their
salary and bonus amounts, excluding the discretionary bonuses specified in
footnote (1) to such table.
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, 1998, any person acquires a majority of the
voting power of the Common Stock, or the individuals who comprised the
Company's Board of Directors on January 19, 1995 (i.e., all of the current
directors except for Mr. Johnston), 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 (specified below) of his annualized salary; (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, up to a
maximum of $12,500. 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. 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. If severance benefits had become payable
on December 31, 1997 as a result of a change of control on that date, no
executive officers would have received such gross-ups except for Mr. Vie, who
would have received a gross-up payment of approximately $878,000.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee (Messrs. Annable, Hedlund,
Johnston and Dr. Roberts) or the Stock Option Committee (Messrs. Annable,
Hedlund and Johnston) is a current or former 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
Two of the Company's directors, George A. Roberts and Fayez S. Sarofim, are
also directors of Allegheny Teledyne. As of February 28, 1998, executive
officers and directors of the Company beneficially owned in the aggregate
approximately 10.0% of the outstanding stock of Allegheny Teledyne.
During 1997, 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 $163,000. The Company earned premiums of approximately $5.8
million in 1997 on group life insurance written for certain employees of
Allegheny Teledyne and its subsidiaries. The Company charged Allegheny
Teledyne approximately $812,000 in 1997 for data processing services based on
actual usage of the Company's computers.
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 28, 1998,
executive officers and directors of the Company beneficially owned in the
aggregate approximately 27.7% of the outstanding stock of Argonaut. During
1997, Argonaut provided the Company with investment trade execution services
for which the Company incurred charges of $129,000. The Company charged
Argonaut approximately $1.9 million in 1997 for data processing services based
on actual usage of the Company's computers.
PROPOSAL 2
APPROVAL OF THE 1998 BONUS PLAN FOR
FOR SENIOR EXECUTIVES
On February 4, 1998, the Compensation Committee of the Board of Directors
adopted the 1998 Bonus Plan for Senior Executives (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,
please refer to a copy of the Plan which is attached to this Proxy Statement
as Exhibit A.
17
<PAGE>
GENERAL
The purpose of the Plan is to motivate and reward eligible executives of the
Company and its subsidiaries for achieving the Company's financial performance
objectives. The Plan is designed to qualify as a performance-based
compensation program under Section 162(m) of the Internal Revenue Code of
1986, as amended, and the regulations and interpretations promulgated
thereunder (the "Code") in order to preserve the Company's federal income tax
deduction for bonuses paid under the Plan.
ADMINISTRATION
The Plan will be administered by a committee (the "Committee") consisting
solely of directors of the Company who qualify as "outside directors" under
Code Section 162(m). The Compensation Committee, currently comprised of
Messrs. Annable, Hedlund, Johnston and Dr. Roberts, will serve as such
Committee unless and until a different committee is appointed by the Company's
Board of Directors.
ELIGIBILITY
The eligible participants of the Plan are the executive officers of the
Company and such other key executives of the Company and its subsidiaries as
the Committee may designate in its discretion. A participant must generally be
employed by the Company or one of its subsidiaries on the last day of a given
year in order to receive payment of a bonus for such year.
DETERMINATION OF BONUSES
Each year, the Committee will establish objective performance criteria for
such year by not later than the latest date permitted under Code Section
162(m). Such criteria may (but need not) differ for each participant in the
Plan, but shall be based on one or more of the following factors, individually
or in combination: (a) net income from operations and/or average increase in
dollars of operating income of the Company or any of its subsidiaries or
operating units, (b) operating earnings per share of the Company, (c) bad debt
experience of the Company's consumer finance business, (d) return on revenues,
assets or equity, (e) increases in revenue or cash flow, (f) reductions in
costs, or (g) the market value of the Company's Common Stock. The award of a
bonus for any given year is conditioned on the attainment of the relevant
performance criteria as certified by the Committee.
The detailed formulas associated with the performance criteria that the
Committee has established for 1998 are not included in this Proxy Statement
based on the Committee's belief that such formulas include confidential
commercial or business information the disclosure of which would adversely
affect the Company. Because performance criteria may vary from year to year
and from participant to participant, benefits under the Plan are not presently
determinable. If the Plan had been in effect during 1997, bonuses totaling
approximately $735,000 would have been paid under the Plan to all eligible
participants, including the Company's executive officers. The bonuses awarded
to the executive officers named in the Summary Compensation Table on page 10
would in each case have been less than the actual 1997 formula bonus amounts
shown for such officers in such table. Non-employee directors are not eligible
to participate in the Plan.
18
<PAGE>
LIMITS ON AWARDS
No bonus awarded under the Plan may exceed 100% of the participant's base
salary. The amount of each participant's base salary that will be used in
computing a bonus for a given year will be fixed at the same time as the
Committee establishes the performance criteria for such year.
AMENDMENT AND TERMINATION
The Committee may amend, terminate or suspend the Plan at any time, but no
such action shall have the effect of invalidating any bonus if the relevant
performance criteria for such bonus have been attained. Plan amendments will
be submitted to the Company's shareholders for approval only to the extent
required by applicable law or to continue to meet the deductibility
requirements of Code Section 162(m).
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE 1998 BONUS PLAN FOR
SENIOR EXECUTIVES IS IN THE BEST INTEREST 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 AUDITORS
KPMG Peat Marwick LLP has been selected as the Company's independent auditor
for the year 1998. 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.
19
<PAGE>
SHAREHOLDER PROPOSALS IN CONNECTION WITH THE
1999 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 1999 annual meeting must do so no later than December
10, 1998. 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 1999 annual meeting
by any shareholder of record who gives written notice to the Company of such
nominations or proposals not less than 60 days nor more than 90 days prior to
the first anniversary of the 1998 annual meeting. In the event that the date of
the 1999 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 1999
annual meeting and no later than the close of business on the later of (i) the
60th day prior to the 1999 annual meeting, or (ii) the 10th day following the
day on which public announcement of the date of the 1999 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, 1997, 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, 1998
20
<PAGE>
EXHIBIT A
UNITRIN, INC.
1998 BONUS PLAN FOR SENIOR EXECUTIVES
1. PURPOSE
The purpose of the Unitrin, Inc. 1998 Bonus Plan for Senior Executives
("Bonus Plan") is to motivate and reward eligible executives of Unitrin, Inc.
(the "Company") and its subsidiaries for achieving the Company's financial
performance objectives. The Bonus Plan is designed to qualify as a
performance-based compensation program under Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations and interpretations
promulgated thereunder (the "Code") in order to preserve the Company's federal
income tax deduction for bonuses paid hereunder. This Bonus Plan shall not be
effective and no bonus shall be paid hereunder unless and until the Bonus Plan
has been approved by the stockholders of the Company. Participation in this
Bonus Plan shall not preclude the Company or any subsidiary from paying any
other bonus or other remuneration to any participant in the Bonus Plan.
2. THE COMMITTEE
The Bonus Plan will be administered by a committee (the "Committee") of at
least two directors of the Company who qualify as "outside directors" under
Code Section 162(m). The Committee shall have the sole authority to administer
and interpret the Bonus Plan, provided that all provisions of the Bonus Plan
shall be interpreted whenever possible in a manner to comply with Code Section
162(m).
3. COVERED INDIVIDUALS
The individuals entitled to participate in this Bonus Plan are the executive
officers of the Company, and such other key executives of the Company and its
subsidiaries as are designated by the Committee from time to time in its sole
discretion.
4. DETERMINATION OF BONUSES
The Committee shall establish objective performance criteria for each
calendar year of the Company not later than the latest date permitted under
Code Section 162(m). Such criteria may differ for each participant in the
Bonus Plan, but shall be based on one or more of the following factors
individually or in combination: (a) net income from operations and/or average
increase in dollars of operating income of the Company or any of its
subsidiaries or operating units, (b) operating earnings per share of the
Company, (c) bad debt experience of the Company's consumer finance business,
(d) return on revenues, assets or equity, (e) increases in revenues or cash
flow, (f) reductions in costs, or (g) the market value of the Company's common
stock. The Committee shall also establish a maximum bonus for each
participant, which shall not exceed 100% of such participant's base salary.
The amount of each participant's base salary that shall be used in computing a
bonus for a given year shall be fixed at the same time as the Committee
establishes the performance criteria for such year. Bonuses shall be awarded
for a given calendar year based on attainment of the established performance
criteria for such year, as certified in writing by the Committee.
21
<PAGE>
5. PAYMENT OF BONUSES
The payment of a bonus for a given year requires that the participant be
employed by the Company or one of its subsidiaries as of the last day of such
calendar year. The Committee may in its discretion make exceptions to this
requirement in the case of retirement, death or disability. All bonuses
awarded will be paid in cash by no later than the last date on which such
bonuses may be deducted by the employer for federal income tax purposes for
the prior calendar year.
6. AMENDMENT, TERMINATION AND SUSPENSION
The Committee reserves the right to amend, terminate or suspend this Bonus
Plan at any time; provided that no such amendment, termination, or suspension
shall alter, terminate, suspend or otherwise invalidate any bonus for a given
year if the relevant performance criteria for such year have been attained.
Bonus Plan amendments will require stockholder approval only to the extent
required by applicable law, or to continue to meet the deductibility
requirements of Code Section 162(m).
7. MISCELLANEOUS
Nothing in this Bonus Plan confers the right on any participant to continue
in the employ of the Company or any of its subsidiaries or to any remuneration
or benefits not set forth in the Bonus Plan. The Bonus Plan is intended to
constitute an "unfunded" plan for incentive compensation. Nothing in this
Bonus Plan shall give any participant any rights greater than those of a
general unsecured creditor of the Company with respect to any bonuses which
have been awarded but not paid.
22
<PAGE>
- --------------------------------------------------------------------------------
[UNITRIN 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 16, 1998, 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 13, 1998, and at any adjournment thereof, upon the fol-
lowing 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 George A. Roberts
Reuben L. Hedlund Fayez S. Sarofim
Jerrold V. Jerome Henry E. Singleton
William E. Johnston, Jr. Richard C. Vie
(2) Proposal to approve the 1998 Bonus Plan for Senior Executives.
(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.
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SEE REVERSE
SIDE
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[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).
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS (1) AND (2).
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1. Election of Directors
FOR [_] WITHHELD [_]
For, except vote withheld from the following nominee(s):
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2. 1998 Bonus Plan for Senior Executives
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
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