<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] 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 sec. 240. 14a-11(c) or sec. 240. 14a-12
</TABLE>
Integon Corporation
- --------------------------------------------------------------------------------
(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.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] 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:
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(3) Filing Party:
(4) Date Filed:
<PAGE> 2
INTEGON CORPORATION
500 WEST FIFTH STREET
WINSTON-SALEM, NORTH CAROLINA 27152
--------------------------------------------------------------
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
--------------------------------------------------------------
To the Stockholders of Integon Corporation:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Integon Corporation will be held at the Integon Towers located at 500 West Fifth
Street in Winston-Salem, North Carolina, on Thursday, the 15th day of May, 1997,
at 9:00 a.m. (Eastern Daylight Time), for the following purposes:
(1) To elect three directors to serve for a term of three years
expiring at the annual meeting to be held in 2000;
(2) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors of the Corporation for
calendar year 1997; and
(3) To consider and act upon any other matters which may properly come
before the meeting or any adjournment thereof.
Only holders of Common Stock of record at the close of business on March
17, 1997 will be entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors,
John B. Yorke
John B. Yorke
Secretary
Winston-Salem, North Carolina
March 28, 1997
A PROXY FOR THE MEETING AND A PROXY STATEMENT ARE ENCLOSED HEREWITH. YOU
ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY, WHICH IS SOLICITED
BY THE COMPANY'S BOARD OF DIRECTORS, AND TO MAIL IT PROMPTLY. STOCKHOLDERS WHO
EXECUTE PROXIES RETAIN THE RIGHT TO REVOKE THEM AT ANY TIME BEFORE THEY ARE
VOTED.
<PAGE> 3
PROXY STATEMENT
The 1997 Annual Meeting of Stockholders of Integon Corporation (the
"Company") will be held on May 15, 1997 for the purposes set forth in the
accompanying Notice of 1997 Annual Meeting of Stockholders. This statement and
the accompanying proxy, which are first being sent to stockholders on or about
March 28, 1997, are furnished in connection with the solicitation by the Board
of Directors of proxies to be used at such meeting and at any adjournment
thereof. If a proxy in the accompanying form is duly executed and returned, the
shares represented thereby will be voted as specified therein, and if no
specification is made, the shares will be voted in accordance with the
recommendations of the Board of Directors. The proxy nevertheless may be revoked
prior to its exercise by delivering written notice of revocation to the
Secretary of the Company, by executing a later dated proxy, or by attending the
meeting and voting in person.
On March 17, 1997, the record date for the annual meeting, the Company had
outstanding 15,736,121 shares of Common Stock, with each share being entitled to
one vote, and 1,437,500 shares of $3.875 Convertible Preferred Stock that are
convertible into 3,772,966 shares of Common Stock. Holders of the $3.875
Convertible Preferred Stock are not entitled to vote with respect to such
shares.
NOMINEES FOR ELECTION AS DIRECTORS
The Board of Directors currently consists of eight (8) members of whom
approximately one-third are to be elected each year for a three-year term. As a
result of Mr. Lambie's resignation one vacancy currently exists on the Board of
Directors in the class of directors to be elected at the 1998 annual meeting.
The Board of Directors has not identified a nominee to fill such vacancy. The
vacancy may be filled by the Board of Directors following the annual meeting to
serve until the 1998 annual meeting.
Mr. Jamison, a director whose term expires at this year's annual meeting,
will not stand for re-election. On February 13, 1997 the Board of Directors
approved a reduction in the number of directors serving on the Company's Board
from eight to seven effective as of the date of the Company's annual meeting. As
a result of the reduction, only one vacancy will exist on the Board of Directors
in the class of directors to be elected at the 1998 annual meeting.
It is intended that the proxies in the accompanying form will be voted at
the 1997 meeting for the election to the Board of Directors of the named
nominees: Derek V. Smith, Frederick B. Whittemore and Ronald N. Zebeck. Messrs.
Smith, Whittemore and Zebeck currently serve as directors.
If any nominee should be unable or unwilling to serve, the shares
represented by proxies solicited by the Board of Directors will be voted for the
election of such other person for the office of director as the Board of
Directors may recommend in place of such nominee, provided that no proxy may be
voted for more than three nominees. Set forth below is information with respect
to Messrs. Smith, Whittemore and Zebeck and the continuing directors on the
Board.
DIRECTORS AND NOMINEES
There is shown below for each continuing director, including Messrs. Smith,
Whittemore and Zebeck, as reported to the Company, the name, age and principal
occupation; the position, if any, with the Company; the period of service as a
director of the Company; other directorships held as of March 15, 1997; and the
principal committees of the Board of Directors, if any, on which the directors,
including nominees, currently serve.
Lester L. Coleman (age 54) has been a director of the Company since August
8, 1995. Mr. Coleman is the Executive Vice President and General Counsel of
Halliburton Company. Halliburton Company is one of the world's largest
diversified energy services, engineering, maintenance and construction
companies. Mr. Coleman held various other positions with Halliburton from July
1983 to May 1993, when he was appointed to his current position. Mr. Coleman is
a member of the Audit Committee and the Compensation and Personnel Committee of
the Company's Board of Directors. Mr. Coleman's term as a director expires in
1999.
1
<PAGE> 4
John C Head III (age 48) has been a director of the Company since July 20,
1989, Chairman of the Board since August 15, 1991 and Chief Executive Officer
since November 25, 1996. Mr. Head is a Managing Member of Head & Company L.L.C.,
an investment banking firm specializing in providing advice to insurance
companies and related concerns. Mr. Head is also a director of PartnerRe Ltd.,
FFTW Funds, Inc., and Kiln Capital plc. Mr. Head is a member of the Technology
Committee of the Company's Board of Directors. Mr. Head's term as a director
expires in 1999.
John B. McKinnon (age 62) has been a director of the Company since March
24, 1992. Mr. McKinnon is currently a private business advisor. He retired from
the Babcock Graduate School of Management at Wake Forest University in
Winston-Salem, North Carolina in May 1995, where he had served as Dean since
July 1989. Mr. McKinnon is also a director of Premark International, Inc., Ruby
Tuesday, Inc., MedCath, Inc., and Morrison Healthcare, Inc. Mr. McKinnon is a
member of the Audit Committee and the Compensation and Personnel Committee of
the Company's Board of Directors. Mr. McKinnon's term as a director expires in
1998.
Derek V. Smith (age 42) has been a director of the Company since November
7, 1996. Mr. Smith is the Executive Vice President and Group Executive of
Equifax Inc. in charge of the Insurance Group and is a director of Equifax Inc.
("Equifax"). Equifax is a provider of information-based solutions and decision
support services that help businesses grant credit, authorize and process credit
card and check transactions, insure lives and property, and control healthcare
costs. Mr. Smith held various positions with Equifax from 1981 to 1993 when he
was appointed to his present position. Mr. Smith is a member of the Audit
Committee and the Technology Committee of the Company's Board of Directors.
Frederick B. Whittemore (age 66) has been a director of the Company since
March 24, 1992. Mr. Whittemore has been an advisory director with Morgan Stanley
& Co., Inc., an investment banking firm, since 1989 and was a managing director
at Morgan Stanley from 1970 to 1989. He also serves as Chairman of several of
Morgan Stanley's mutual funds. Mr. Whittemore is also a director of Chesapeake
Energy Corporation, PartnerRe Ltd., and Southern Pacific Petroleum Corporation.
Mr. Whittemore is a member of the Audit Committee of the Company's Board of
Directors.
Ronald N. Zebeck (age 42) has been a director of the Company since November
7, 1996. Mr. Zebeck is a director, the President and Chief Executive Officer of
Metris Companies Inc., a subsidiary of Fingerhut Companies, Inc. ("Metris").
Metris is an information-based direct marketer of consumer credit products,
extended service plans, and fee based products and services to moderate income
consumers. Before joining Metris, Mr. Zebeck was managing director, GM Card
Operations of General Motors Corporation from 1991 to 1993. Mr. Zebeck is also a
director of MasterCard U.S. and MasterCard Global. Mr. Zebeck is a member of the
Compensation and Personnel Committee and the Technology Committee of the
Company's Board of Directors.
During 1996, the Board of Directors held six meetings and took action by
unanimous consent without a meeting four times. Each director attended at least
75% of the total number of meetings held during 1996 while he was a member of
the Board, including meetings of committees of which the director was a member.
COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board has established three principal committees, whose principal
functions are briefly described below.
The Audit Committee is composed of Messrs. Coleman, McKinnon, Smith and
Whittemore. The Audit Committee's functions include recommending to the Board of
Directors the appointment of independent public accountants, subject to the
approval of the stockholders; approving the scope of the annual audit activities
of the independent auditors; and evaluating policies and procedures relating to
internal controls. The committee met twice during 1996.
The Compensation and Personnel Committee is composed of Messrs. Coleman,
McKinnon and Zebeck. The principal functions of the Compensation and Personnel
Committee include evaluating the performance of the Company's executive officers
and administering the Integon Corporation Amended and Restated Omnibus
2
<PAGE> 5
Long-Term Performance Incentive Compensation Plan, as further amended (the
"Omnibus Plan") and the Integon Corporation 1992 Stock Option Plan, as amended
(the "1992 Stock Option Plan"). The committee held two meetings and took action
by unanimous consent twice during 1996.
The Technology Committee is composed of Messrs. Head, Smith and Zebeck. The
principal function of the Technology Committee is to provide assistance to
management of the Company relating to the Company's technology strategy and the
implementation of significant strategic initiatives. The committee was
established in November 1996 and did not meet during the remainder of the year.
EXECUTIVE OFFICERS
In addition to Mr. Head, the Company's executive officers are as follows:
Steven C. Andrews (age 44) has been the Executive Vice President and Chief
Operating Officer of the Company since October 18, 1994. Mr. Andrews is also a
director and the Executive Vice President and Chief Operating Officer of the
Company's property and casualty insurance subsidiaries and certain of the
Company's other subsidiaries. From March 1987 until October 1994, prior to the
acquisition of Integon National Insurance Company (f/k/a Bankers and Shippers
Insurance Company) by the Company, Mr. Andrews was a director and Executive Vice
President of Bankers and Shippers Insurance Company.
John C. Beattie (age 50) has been the Vice President-Human Resources of the
Company since May 12, 1994. Mr. Beattie is also a director of the Company's
property and casualty insurance subsidiaries. Mr. Beattie was a Senior Vice
President, Human Resources, for Pershing, a division of Donaldson, Lufkin &
Jenrette Securities Corporation, during 1993. From 1986 to 1993, Mr. Beattie
served as a Senior Vice President, Human Resources, for C&F Personal Insurance.
Arthur S. Lyon, Jr. (age 46) has been the Senior Vice President and Chief
Marketing Officer of the Company since February 12, 1992. Mr. Lyon has served as
the Vice President of Marketing for certain of the property and casualty
insurance subsidiaries of the Company's predecessor, which was then named
Integon Corporation ("Old Integon") and of the Company since 1986. Mr. Lyon also
serves as a director of the Company's property and casualty insurance
subsidiaries and certain of the Company's other subsidiaries. Mr. Lyon served as
a director of the Company from February 12, 1992 through February 16, 1995.
Donald F. McKee (age 50) has been the Senior Vice President Finance and
Administration of the Company since May 30, 1995 and became the Chief Financial
Officer of the Company on September 22, 1995. Mr. McKee also serves as a
director and as the Senior Vice President and Chief Financial Officer of the
Company's subsidiaries. Mr. McKee was Vice President of Western Union Financial
Services, Inc. from November 1994 until May 1995; Vice President, Treasurer and
Principal Financial Officer for New Valley Corporation (f/k/a Western Union
Corporation) from January 1991 until November 1994; and from December 1989 until
January 1991, Mr. McKee served as Vice President, Treasurer of Western Union
Corporation. On November 15, 1991, while Mr. McKee was an executive officer of
New Valley Corporation, an involuntary petition for bankruptcy was filed against
the company. The company emerged from bankruptcy in January 1995 and all
creditors were paid principal plus accrued interest on all claims.
Brian T. Sheekey (age 35) has been the Vice President and Controller of the
Company since June 18, 1996. Mr. Sheekey is also a director of the Company's
property and casualty insurance subsidiaries. Mr. Sheekey was Treasurer of
Riscorp, Inc. from January 1995 to June 1996 and from March 1991 until December
1994, Mr. Sheekey served as Controller of Riscorp, Inc.
John B. Yorke (age 42) has been the Vice President, Corporate General
Counsel and Secretary of the Company since December 18, 1995. Mr. Yorke is also
a director and the President of the Company's property and casualty insurance
subsidiaries and serves as a director and President of certain of the Company's
other subsidiaries. Mr. Yorke was Vice President, General Counsel and Secretary
for Worldway Corporation from January 1993 until December 1995, Secretary and
Assistant General Counsel from May 1989, having joined Worldway in January 1987
as Assistant General Counsel.
3
<PAGE> 6
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for services
in all capacities to the Company for the years ended December 31, 1996, December
31, 1995 and December 31, 1994, of those persons who were, (i) the chief
executive officer at any time during 1996 and (ii) the other four most highly
compensated executive officers of the Company at December 31, 1996
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS PAYOUTS
------------- --------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING LTIP ALL OTHER
SALARY BONUS OPTIONS/SAR'S PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) $ (#)(2) ($)(3) ($)(4)
--------------------------- ---- -------- -------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C Head III................... 1996 $ 62,500(5) -- -- -- --
Chairman of the Board and 1995 -- -- -- -- --
Chief Executive Officer 1994 -- -- -- -- --
James T. Lambie(6)................ 1996 325,000 -- 43,901 -- $ 46,315
Director, President and 1995 290,000 $138,000 12,000 $879,135 110,071
Chief Executive Officer 1994 285,833 100,000 12,000 879,135 13,296
Steven C. Andrews(7).............. 1996 220,833 -- 25,786 -- 11,135
Executive Vice President 1995 200,000 90,000 10,000 -- 19,548
and Chief Operating Officer 1994 40,208 165,000 75,000 -- 1,294
Donald F. McKee(8)................ 1996 214,583 -- 25,786 -- 52,208
Senior Vice President, 1995 118,205 110,000 50,000 -- 185,722
Finance and Administration, 1994 -- -- -- -- --
and Chief Financial Officer
John B. Yorke(9).................. 1996 175,000 -- 4,000 -- 113,389
Vice President, Corporate 1995 7,292 20,000 35,000 -- --
General Counsel and Secretary 1994 -- -- -- -- --
Arthur S. Lyon, Jr................ 1996 165,000 -- 8,000 -- 8,773
Senior Vice President and 1995 158,333 60,000 9,000 153,849 31,867
Chief Marketing Officer 1994 153,000 56,000 8,000 153,849 7,958
</TABLE>
- ---------------
(1) Includes amounts deferred under the Integon Employees' Retirement Savings
Plan (the "Retirement Savings Plan") at the election of Messrs. Lambie,
Andrews, McKee and Lyon of $9,000, $9,000, $9,500, and $9,412, respectively
during 1996; $9,000, $9,000, $0 and $9,240, respectively, during 1995;
$9,000, $2,412, $0 and $9,240, respectively, during 1994. Messrs. Head and
Yorke were not eligible to participate in the Retirement Savings Plan in
any period included in the table. Mr. McKee was not eligible to participate
in the Retirement Savings Plan in 1994 and 1995.
(2) The Company did not award any SARs in fiscal years 1996, 1995, and 1994.
(3) The amounts reported for Messrs. Lambie and Lyon represent awards made under
the Integon Corporation Performance Compensation Plan II that vested on
December 31, 1994 and December 31, 1995, respectively, and were paid on
January 31, 1995 and January 15, 1996. No further amounts will be paid
under such plan.
(4) The amounts reported include imputed income for group term life insurance,
matching contributions made pursuant to the Retirement Savings Plan by the
Company, discretionary profit sharing contributions made pursuant to the
Integon Corporation Employee Stock Ownership Plan by the Company and
payments made by the Company as a result of a change in the Company's
vacation program on behalf of the named executive officers as follows:
James T. Lambie for 1996: $1,440, $4,500, $4,125, and $0, for 1995: $1,440,
$4,500, $3,750, and $100,381, for 1994: $1,344, $4,500, $3,375, and $4,077;
Steven C. Andrews for 1996: $510, $4,500, $4,125, and $0, for 1995: $510,
$4,500, $3,750, and $10,788, for 1994:
4
<PAGE> 7
$88, $1,206, $0, and $0; Donald F. McKee for 1996: $288, $3,375, $3,094,
and $0, for 1995: $101, $0, $0, and $0; John B. Yorke for 1996: $918, $0,
$0, and $0; Arthur S. Lyon for 1996: $870, $4,500, $3,403, and $0, for
1995: $306, $3,966, $3,750, and $23,845, for 1994: $306, $4,277, $3,375,
and $0. For Mr. Lambie, the amount for 1996 also includes $36,250 for
accrued but unused vacation that was paid to Mr. Lambie upon his
resignation. For Mr. McKee, the amounts for 1996 and 1995 also include
$45,451, and $185,621, respectively for moving expenses paid by the
Company. For Mr. Yorke, the amount for 1996 also includes $112,471 for
moving expenses paid by the Company. For Mr. Andrews, the amount for 1996
includes $2,000 for Company car adjustment.
(5) Mr. Head became the Chief Executive Officer of the Company on November 25,
1996 after Mr. Lambie's resignation as President and Chief Executive
Officer was announced.
(6) The Company announced Mr. Lambie's resignation on November 25, 1996. Mr.
Lambie began receiving payments under an Agreement dated November 25, 1996
on December 1, 1996.
(7) Mr. Andrews became the Executive Vice President and Chief Operating Officer
of the Company on October 18, 1994 in connection with the Company's
acquisition of Bankers and Shippers Insurance Company.
(8) Mr. McKee became the Senior Vice President Finance and Administration of the
Company on May 30, 1995 and became the Chief Financial Officer on September
22, 1995.
(9) Mr. Yorke became a Vice President and the Corporate General Counsel and
Secretary of the Company on December 18, 1995. The bonus amount reported
for Mr. Yorke in 1995 represents an initial employment bonus. Such bonus
was paid on January 3, 1996.
STOCK OPTION GRANTS
The Company has in effect the 1992 Stock Option Plan in which certain
officers and other employees (including directors who are also officers or
employees) of the Company and its affiliates may participate. The Company also
has in effect the Omnibus Plan in which certain key employees and non-employee
directors of the Company participate. The table below sets forth the stock
options granted to the named executive officers during 1996. None of the options
granted to the named executive officers during 1996 were exercisable during
1996. The Company did not grant SARs to any employees during 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ALTERNATIVE TO
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE GRANT DATE VALUE
---- --------------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
John C Head III................ 0 -- -- -- --
James T. Lambie................ 41,903(1) 13.4% $18.375 5/16/06 $325,000(3)
Steven C. Andrews.............. 25,786(1) 8.2% 18.375 5/16/06 200,000(3)
Donald F. McKee................ 25,786(1) 8.2% 18.375 5/16/06 200,000(3)
John B. Yorke.................. 4,000(2) 1.3% 20.000 2/29/06 26,045(4)
Arthur S. Lyon, Jr............. 8,000(2) 2.6% 20.000 2/29/06 52,090(4)
</TABLE>
- ---------------
(1) Options granted were granted on May 16, 1996 under the Omnibus Plan. All
options granted will become exercisable 9 1/2 years after the date of
grant, unless the vesting of such options is accelerated upon the
attainment of the "performance goals" set for certain "performance cycles"
by the Compensation and Personnel Committee. The options granted during
1996 are eligible for accelerated vesting at the rate of 20% per year
provided that the performance goal set for each calendar year is attained.
If the goal for a particular calendar year is not attained, 40% of the 20%
granted will remain eligible for accelerated vesting for an additional year
provided that the performance goal originally set is attained in the next
year, and the remaining 60% of the 20% will no longer be eligible for
accelerated vesting. The performance goal for 1996 was based on increase in
the price of the Company's Common Stock. The performance goal was
5
<PAGE> 8
not met for 1996; therefore, none of the Options granted during 1996 were
eligible for accelerated vesting during 1996. Subject to the terms of the
applicable option agreement, all options, including options which would
otherwise become exercisable because of the passage of time, will cease to
be exercisable upon termination of an option holder's employment for
"cause" (as defined in the Omnibus Plan). Upon a change in control of the
Company, each stock option granted shall become immediately exercisable as
to all of the shares of stock covered thereby. In addition, upon a change
in ownership (as defined in the Omnibus Plan) each outstanding stock option
shall be converted into the right to receive an amount in cash equal to the
difference between the change in control price and the per share exercise
price of such stock option. The options granted have an exercise price of
$18.375 per share, which was equal to the closing stock price on May 16,
1996.
(2) Options granted were granted on February 29, 1996 under the 1992 Stock
Option Plan. All options granted become exercisable in 20% increments on
each annual anniversary date after the date of the grant. Subject to the
terms of the applicable option agreement, all options, including options
which would otherwise become exercisable because of the passage of time,
will cease to be exercisable upon termination of an option holder's
employment for "cause" (as defined in the 1992 Stock Option Plan) and may,
at the discretion of the Compensation and Personnel Committee cease to be
exercisable in the event of the option holder's bankruptcy. Under certain
circumstances, such as a reorganization or change in control of the
Company, the Compensation and Personnel Committee may accelerate the
exercisability of all or a portion of the outstanding options. The options
granted have an exercise price of $20.00 per share, which was equal to the
closing stock price on February 29, 1996.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on the
following assumptions: exercise price is 100% of the fair market value at
date of grant; exercise term is ten years; no discounts have been taken for
vesting or restrictions; the risk free rate is 6.848% (based on the eight
and one-half year Treasury note yield as of the date the options were
issued); the volatility factor is 32.8306 (based on two months of daily
closing prices); and the dividend yield is 1.959% (based on the preceding
twelve months).
(4) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on the
following assumptions: exercise price is 100% of the fair market value at
date of grant; exercise term is ten years; no discounts have been taken for
vesting or restrictions; the risk free rate is 5.740% (based on the five
year Treasury note yield as of the date the options were issued); the
volatility factor is 32.6246 (based on two months of daily closing prices);
and the dividend yield is 1.8% (based on the preceding twelve months).
6
<PAGE> 9
OPTION EXERCISES AND YEAR-END VALUES
The table below presents information with respect to the exercisable and
unexercisable options to purchase the Company's Common Stock held by the named
executive officers as of December 31, 1996 and the value of such unexercised
options as of December 31, 1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS/SAR'S
AT FY-END AT FY-END
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($)(2)
---- ------------------------- -------------------------
<S> <C> <C>
John C Head III.................................. -- --
James T. Lambie.................................. 201,000/41,903 $420,000/ 0
Steven C. Andrews................................ 32,000/78,786 83,750/128,750
Donald F. McKee.................................. 10,000/65,786 6,250/ 25,000
John B. Yorke.................................... 7,000/32,000 0/ 0
Arthur S. Lyon, Jr............................... 97,800/45,200 221,125/ 59,500
</TABLE>
- ---------------
(1) No options were exercised by the named executive officers in 1996.
(2) Based on the closing price on The New York Stock Exchange -- Composite
Transactions of the Company's Common Stock on December 31, 1996 ($17.75).
LONG-TERM INCENTIVE COMPENSATION
The table below presents information with respect to long-term incentive
compensation awards granted to the named executive officers during 1996 under
the Omnibus Plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR OTHER PERIOD ----------------------------------
OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) OR PAYOUT ($)(2) ($)(2) ($)(2)
- ---- ---------------- ---------------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
John C Head III............. -- -- -- -- --
James T. Lambie............. -- -- -- -- --
Steven C. Andrews........... -- -- -- -- --
Donald F. McKee............. -- -- -- -- --
John B. Yorke............... 8,000 12/31/98 $21,280 $69,333 $138,667
Arthur S. Lyon, Jr.......... 8,000 12/31/98 21,280 69,333 138,667
</TABLE>
- ---------------
(1) Only key employees (other than senior executive officers) are eligible to
receive unit awards under Article 9 of the Omnibus Plan. The maximum value
of a unit award that may be awarded in any calendar year to any participant
is $375,000. Within the first 90 days of each fiscal year and prior to
granting any units, the Compensation and Personnel Committee establishes an
initial dollar value of all units to be awarded in the year and also
establishes multipliers applicable to units to be awarded in such fiscal
years. Multipliers are numbers used to obtain the dollar value for a
particular unit based on annual targeted levels of growth in the Company's
net premiums written and combined operating ratio for each of the three
years in the measurement period for such unit. The measurement period for a
particular unit is the three-year period commencing on the first day of the
fiscal year in which such unit is awarded and ending on the last day of the
second fiscal year following the fiscal year in which such unit is awarded.
At the end of each year in the three-year measurement period, the
applicable annual dollar value of a unit (the dollar value resulting from
multiplying one-third of the initial dollar value of such unit by the
applicable multiplier for such year based on the targets set for the year)
is computed. At the end of the
7
<PAGE> 10
measurement period, the final dollar value of the unit is computed by
adding together the annual dollar value for each of the three years in the
measurement period. A participant who ceases, at any time before the
expiration of the measurement period for a unit award, to be a full-time
employee of the Company shall forfeit all rights to receive any payment for
such award, unless termination of full-time employment results from death,
disability or retirement, in which case the total amount of the annual
dollar value of outstanding unit awards for the elapsed years in the
measurement period and a pro rata portion of the annual dollar value of the
year in which such employment ceases will promptly be paid in cash
following the expiration of the measurement period. In the event of a
proposed dissolution or liquidation of the Company, the Company shall make
payments with respect to outstanding unit awards equal to the sum of the
annual dollar value of such unit awards for each elapsed year in the
measurement period, with no payment for any unexpired year. Upon a change
in control of the Company, participants will be entitled to receive, with
respect to outstanding unit awards, an amount in cash equal to the sum of
the annual dollar value for elapsed years and, for each unexpired year in
the measurement period, one-third of the initial dollar value of the unit
awards.
(2) The annual dollar value in 1996 for unit awards was $0. Accordingly,
Threshold, Target and Maximum represent annual dollar values as determined
for 1997 and 1998.
EMPLOYMENT AND COMPENSATION AGREEMENTS
The Company has entered into a non-qualified, unfunded deferred
compensation agreement with Mr. Lyon as part of his employment arrangement with
the Company. Pursuant to the agreement, a bookkeeping reserve account was
established through salary deferrals. The total amount accrued in the
bookkeeping reserve account as of December 31, 1996 was $4,752. The agreement
with Mr. Lyon provides for the payment of interest on the portion of his salary
deferred to the bookkeeping reserve. The interest rate is reset quarterly and is
equal to the "prime rate" charged by Mellon Bank, N.A., plus one quarter of one
percent. The agreement with Mr. Lyon specifies dates on which payments of the
accrued amounts shall commence. Payments will be made in installments for a ten
year period in an amount equal to one-tenth of the balance in the account. If
Mr. Lyon dies before the specified date, payments equal to one-tenth of the
bookkeeping reserve on the date of death are made to a designated beneficiary,
commencing on the date of death.
If Mr. Lyon is forced to terminate employment due to a permanent total
disability and subsequently dies prior to the date on which the annual payments
are set to begin, death benefit payments will be made to a designated
beneficiary commencing on the date of death. If Mr. Lyon suffers a permanent
total disability ending employment but is still alive on the specified date, the
full annual payments will begin as scheduled. The agreement also provides that
the Company may cease making the designated payments if Mr. Lyon violates the
non-compete clause contained in the agreement, or if the employment relationship
is terminated for cause in connection with a personal admission or conviction of
theft, fraud or embezzlement.
SEVERANCE AGREEMENTS AND POLICY
On November 25, 1996 the Company entered into an agreement (the
"Agreement") with James T. Lambie providing for certain benefits to be paid to
Mr. Lambie in connection with his resignation as a director, the Chief Executive
Officer and President of the Company. In lieu of any amounts that may have been
due to Mr. Lambie under a Severance Agreement dated January 1, 1996 the Company
agreed to pay Mr. Lambie $975,000 in accordance with the terms set forth in the
Agreement. In addition, the Company agreed to accelerate the vesting of all
stock options granted to Mr. Lambie under the 1992 Stock Option Plan. The
Company further agreed to amend a deferred compensation agreement Mr. Lambie had
with the Company to provide for a payment in full of all benefits accrued under
such agreement on September 15, 1997. In addition, the Company agreed to provide
long-term disability insurance coverage to Mr. Lambie for a period of three
years through conversion of an existing policy to an individual policy. The
Company and Mr. Lambie agreed that all other benefits Mr. Lambie may be entitled
to receive would be governed by the benefit plan documents in place at the time
the Agreement was executed. In connection with his resignation and the execution
of the
8
<PAGE> 11
Agreement, and as consideration for such payments, Mr. Lambie entered into a
covenant not to compete with the Company that will expire on September 15, 1998.
Effective February 13, 1997, the Company entered into severance agreements
with each of Messrs. Andrews and McKee, (the agreements superseded the
agreements entered into effective January 1, 1996) providing that if such
executive is discharged by the Company other than for Cause (as defined therein)
before December 31, 1997, the Company shall continue to pay the executive's base
salary for a period of eighteen months at the rate in effect just prior to the
date of termination. The Company also agreed to pay the executive a targeted
bonus amount in cash equal to 100% of the performance award under Article 8 of
the Omnibus Plan that would have been payable for the calendar year in which the
termination occurs, assuming that the performance goal for the year had been
attained at 100%. Such amount would be payable in equal semi-monthly
installments over the eighteen month period following the termination date. In
addition, for the eighteen month period following termination, the Company
agreed that any benefits that may be due to the executive under any benefit
plan, program or policy of the Company intended to benefit employees, except
other severance pay plans, would continue. If the executive's employment is
terminated as a result of a Disability (as defined therein), the Company will
continue to pay the executive's salary for a period of twenty-four months
following the date of the termination, at the rate in effect just prior to the
Disability, less any amounts that may be payable under the Company's disability
plan. In the event of a change in control of the Company (as defined therein),
either the Company or the executive may terminate the executive's employment
within twenty-four months after the change in control, and upon such termination
(unless the termination is for Cause) the executive will receive as severance
pay and in lieu of any further salary for periods subsequent to the date of
termination, an amount in cash equal to the lesser of 1 1/2 times the
executive's base salary and any targeted bonus amount (except to the extent the
targeted bonus amount has already been paid pursuant to the change in control
provisions of the Omnibus Plan) or 2.99 times the executive's "annualized
includible compensation for the base period" minus any parachute payment (as
defined in Section 280G(d)(1) of the Internal Revenue Code) payable one-third at
the time of termination, one-third at the end of the twelve months following the
date of termination, and one-third at the end of the eighteen months following
the date of termination. In addition, upon a change in control, the Company has
agreed to pay the executive the value of the non-compete described below. The
value of the non-compete for Messrs. Andrews and McKee has been determined to be
$846,150 and $663,600, respectively. Such amounts are payable one-third six
months after the date of termination, one-third twelve months after the date of
termination and one-third eighteen months after the date of termination. As
consideration for such payment in the event of a termination in connection with
a change in control, the executive has agreed for a period of eighteen months
following his termination that he will not, as an individual, proprietor,
partner, joint venturer, shareholder (other than in a publicly traded company
provided that the executive does not own more than 3% of the securities of such
company), investor, consultant, advisor, broker, director, officer, agent,
employee, trustee, beneficiary or in any other capacity whatsoever, directly or
indirectly engage in, or participate with any other person or entity to engage
in, any business or activity, whether consisting of a single transaction or a
series of transactions or continuous activity, similar to or competitive with
the primary business or activity in which the Company engages during the term of
the agreement; provided, however, that the Company's sole remedy in the event of
a breach of the executive's agreement is to be released from making payments
under the agreement to the executive. Messrs. Andrews and McKee would have
received $562,500 and $562,500, respectively, plus any benefits that the
executive may be due under any benefit plans, if the agreements had been in
effect and they had been terminated not for Cause at December 31, 1996. If the
termination had been in connection with a change in control, Messrs. Andrews and
McKee would have received a maximum of $1,521,150 and $1,338,600, respectively,
plus any benefit that the executive may be due under any benefit plan.
Effective February 13, 1997, the Company entered into severance agreements
with each of Messrs. Yorke and Lyon providing that if such executive is
discharged by the Company other than for Cause (as defined therein) before
December 31, 1997, the Company shall continue to pay the executive's base salary
for a period of twelve months at the rate in effect just prior to the date of
termination. The Company has also agreed to pay the executive a targeted bonus
amount in cash equal to 100% of the value of the award under the Annual
Incentive Award Plan that would have been payable for the calendar year in which
the termination occurs,
9
<PAGE> 12
assuming that the performance goal for the year had been attained at a level of
100%. Such amount would be payable in equal semi-monthly installments over the
twelve month period following the termination date. In addition, the Company
will continue to pay the executive his base salary for an additional period of
six months in the event that the executive is not employed at the end of the
twelve month period and the executive is using his best efforts to obtain other
employment. If the executive becomes employed during such additional six month
period, the executive will be entitled to continue to receive the difference
between the severance pay and the base salary of the new job, if any, for the
remainder of the six month period. Notwithstanding the foregoing, if the Company
determines that the value of the non-compete described below is greater than
eighteen months of base salary plus the targeted bonus amount for one year, the
Company will pay to the executive the value of the non-compete in lieu of any
base salary and the targeted bonus amount. Further, for the twelve month period
following termination, the Company agreed that any benefit that may be due to
the executive under any benefit plan, program or policy of the Company intended
to benefit employees, except other severance pay plans would continue. If the
executive's employment is terminated as a result of a Disability (as defined
therein), the Company will continue to pay the executive's base salary for a
period of twenty-four months following the date of the termination, at the rate
in effect just prior to the Disability, less any amount that may be payable
under the Company's disability plan. In the event of a change in control of the
Company (as defined therein), either the Company or the executive if the
executive has Good Reason (as defined therein), may terminate the executive's
employment within twenty-four months after the change in control, and upon such
termination (unless the termination is for Cause (as defined therein)), the
executive will receive as severance pay and in lieu of any further salary for
periods subsequent to the date of termination, an amount in cash equal to the
executive's base salary for twelve months at the rate in effect just prior to
the date of termination, such amount being paid in equal semi-monthly payments
over the twelve month period following the date of termination. The Company will
also pay to the executive the targeted bonus amount in equal semi-monthly
payments over the twelve month period following the date of termination.
Further, the Company will pay to the executive for the period ending twelve
months after the date of termination any benefit that may be due to the
executive under any benefit plan, program or policy of the Company, except other
severance pay plans. Further, the Company will pay to the executive an amount in
cash equal to any award under the Omnibus Plan that exceeds the maximum award
that may be paid out under the Omnibus Plan during any performance period. In
addition, the Company will pay the executive up to an additional six months of
base salary in the event that the executive is not employed at the end of the
twelve month period provided that the executive is using his best efforts to
obtain comparable employment. Such payments will be made in equal installments
on a semi-monthly basis for up to six months so long as the executive remains
unemployed and continues to use his best efforts to obtain comparable
employment. If the executive becomes employed during such additional six month
period, he will be entitled to continue to receive the difference between the
severance pay and the base salary of the new job, if any, for the remainder of
the six month period. Notwithstanding the foregoing, if the Company determines
that the value of the non-compete described below is greater than the eighteen
months of base salary plus the targeted bonus amount for one year, the Company
will pay the executive the value of the non-compete in lieu of any base salary
and the targeted bonus amount. As consideration for such payments, the executive
has agreed for a period of eighteen months following the date of termination
that he will not, as an individual, proprietor, partner, joint venturer,
shareholder (other than in a publicly traded company provided that the executive
does not own more than 3% of the securities of such company), investor,
consultant, advisor, broker, director, officer, agent, employee, trustee,
beneficiary or in any other capacity whatsoever, directly or indirectly engage
in, or participate with any other person or entity to engage in, any business or
activity, whether consisting of a single transaction or a series of transactions
or continuous activity, similar to or competitive with the primary business or
activity in which the Company engages during the term of the agreement;
provided, however, that the Company's sole remedy in the event of a breach of
the executive's agreement is to be released from making payments under the
agreement to the executive. Messrs. Yorke and Lyon would have received a maximum
of $350,000 and $338,250, respectively, plus any benefits that the executive may
be due under any benefit plan if the agreements had been in effect and if the
executives had been terminated not for cause or in connection with a change in
control at December 31, 1996, assuming that the value of the non-compete was not
greater than eighteen months of base salary plus the targeted bonus amount.
10
<PAGE> 13
The Company has a severance pay policy covering its full-time regular
employees who are not covered by an employment or other written severance
agreement. The policy does not provide severance pay to any employee whose
employment terminates: (i) voluntarily, including by retirement, (ii) by reason
of death or disability, (iii) as a result of discharge for cause, (iv) in
connection with a sale of the Company's assets, if the purchaser of those assets
offers him or her employment under certain circumstances or (v) in connection
with the discontinuance of an operation of the Company if such operation is
assumed by another employer who offers him or her employment under certain
circumstances; or to any employee who transfers employment to a subsidiary or
affiliate of the Company. Severance pay awards are computed under a schedule
that takes into account years of service, position and base salary. Awards under
the policy are stated in the form of weeks of base salary. Company officers with
a title of Assistant Vice President with less than ten years of service are
entitled to receive a minimum of thirteen weeks of severance pay (regardless of
years of service) plus up to an additional thirteen weeks of severance pay to
the extent the officer remains unemployed, up to a maximum total of twenty-six
weeks of severance pay. If the officer has ten years of service or more, the
officer is entitled to receive severance based on the number of years of service
the officer has with the Company; provided, however, if the number of weeks of
severance does not equal at least twenty-six, and the officer remains unemployed
at the end of his scheduled severance period, the officer will be entitled to
receive additional weeks of severance so that the maximum number of weeks of
severance pay equals twenty-six weeks. Any officer with a title of Vice
President or higher with less than fifteen years of service is entitled to a
minimum of twenty-six weeks of severance pay (regardless of years of service)
plus up to an additional twenty-six weeks of severance pay to the extent the
officer remains unemployed, up to a maximum of fifty-two weeks of severance pay.
If the officer has fifteen years of service or more, the officer is entitled to
receive severance based on the number of years of service the officer has with
the Company; provided, however, if the number of weeks of severance does not
equal at least fifty-two, and the officer remains unemployed at the end of his
scheduled severance period, the officer will be entitled to receive additional
weeks of severance so that the maximum number of weeks of severance pay equals
fifty-two weeks. Position-related awards may be reduced under certain
circumstances by base salary received from a subsequent employer. Severance
awards to officers are generally paid in equal semi-monthly installments. In
addition to severance pay, if the termination of employment is in connection
with a change in control, the policy provides for a payment in cash equal to the
amount of any unit award under Article 9 of the Omnibus Plan that exceeds the
maximum award that may be paid out during any performance period under the
Omnibus Plan. Messrs. Andrews, Head, McKee, Lyon, and Yorke are not eligible for
severance pay under this policy.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not paid any fees or
additional compensation for services as members of the Company's Board or any
committee thereof. Directors, who are not employees of the Company receive an
annual fee of $30,000, all or a portion of which may be paid, at the election of
the director, in cash, Common Stock, three-year deferral restricted stock or
deferral stock options, except that for 1996, Mr. Head, at his election,
received a fee of $1. The Omnibus Plan also provides for an annual award, the
day after the annual meeting of stockholders, of 1,650 shares of Common Stock to
each nonemployee director, or a lesser prorated amount to reflect service on the
Board for less than one full year. If requested, all directors are reimbursed
for travel and other related expenses incurred in attending meetings of the
Board or committees thereof.
COMPENSATION COMMITTEE REPORT
Messrs. McKinnon and Whittemore served on the Compensation and Personnel
Committee of the Board of Directors until November 7, 1996. The Compensation and
Personnel Committee was reconstituted on November 7, 1996 with Messrs. McKinnon,
Coleman and Zebeck as its members.
The Compensation and Personnel Committee of the Board of Directors
furnished the following report on executive compensation:
Pursuant to the recommendations of the Compensation and Personnel Committee
of the Board of Directors, the Company has devised and implemented a
compensation philosophy that seeks to enhance the
11
<PAGE> 14
value of the Company by closely aligning the financial interests of the
Company's senior managers with the interests of the owners of the Company, its
stockholders. In pursuit of this goal, the Compensation and Personnel Committee
members have relied primarily on their judgment, derived from experience in
business and concepts of fair compensation to encourage effective, efficient
management, in establishing the Company's compensation program.
SENIOR EXECUTIVE OFFICERS' COMPENSATION
While the Committee did not use the compensation practices of comparable
companies, it used the following two components to determine the compensation of
the Company's senior executive officers (Messrs. Lambie, Andrews and McKee) in
1996:
- Base salary, which the Committee believes is at the average salary levels
of comparable publicly held companies, recognizing, however, that limited
information is available concerning competitive specialty insurance
companies of comparable size; and
- The Omnibus Plan, which provides for these officers (i) an annual bonus
in the form of cash and restricted Common Stock of the Company or all
restricted Common Stock, if certain performance targets are met and (ii)
grants of stock options equal in value to one hundred percent (100%) of
the base salary of the senior executive using the Black-Scholes option
pricing model to determine the number of options granted.
The senior executive officers eligible to participate in this program do
not participate in the Annual Incentive Award Plan, the 1992 Stock Option Plan,
and are not eligible to receive unit awards granted pursuant to Article 9 of the
Omnibus Plan. The Compensation and Personnel Committee meets during the first
ninety (90) days of each year to determine the performance targets for the
Omnibus Plan and to certify whether the performance targets for the prior year
have been met. The performance targets for 1996 were not met and no annual bonus
was paid. The stock options that were granted during 1996 were eligible for
accelerated vesting if certain performance targets were met. Since such targets
for 1996 were not met, none of the options granted in 1996 are currently
exercisable.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
Company's Chief Executive Officer or any of the four other most highly
compensated executive officers. Qualifying "performance-based" compensation will
not be subject to the deduction limit if certain requirements are met. In most
cases, the Committee intends to structure the compensation for its senior
executive officers so that it qualifies for deductibility under Section 162(m)
to the extent feasible. However, the Committee reserves the authority to
authorize payments, including salary and bonuses, that may not be deductible if
it determines that they are needed to maintain the Company's competitive
position. The Company's Annual Incentive Award Plan does not qualify as
performance-based compensation. The Company's senior executive officers will
only participate in compensation plans designed to meet the Section 162(m)
requirements for performance-based compensation.
INTERIM CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Committee agreed to pay Mr. Head during 1996, as Chief Executive
Officer, an annualized salary of $500,000. Such salary will continue through
December 31, 1997 regardless of the date during 1997 that a new chief executive
officer is appointed by the Board of Directors.
EXECUTIVE OFFICERS' COMPENSATION
The Compensation and Personnel Committee used the following three
components to determine the compensation of the Company's other executive
officers in 1996:
- Base salary, which compensates the executive for performing the daily
duties necessary for the successful operation of the Company, determined
by taking into account the criteria set forth in the Company's Hay Job
Evaluation/Compensation Program. The Hay Job Evaluation/Compensation
Program evaluates each job in the Company based on know-how,
problem-solving and accountability,
12
<PAGE> 15
producing a rank ordering of the positions within the Company. Salary
ranges are then assigned to each position based upon salary surveys
conducted locally, nationally, and within the industry by international
human resources consulting firms, including the Hay Group, to determine
the levels of compensation attributable to similar positions;
- The Annual Incentive Award Plan, which provides for annual cash payments.
Under this plan, an incentive compensation bonus pool is established based
on a percentage of total salaries of the officer group, up to 100% of
salaries. The percentage of those salaries to be placed into the incentive
compensation bonus pool is based on the Company's increase in revenues,
increase in net income, and increase in earnings per share over the prior
year. The determination of an individual's bonus amount is subjective;
however, the Committee does consider the individual officer's performance
as well as the Company's actual growth in net premiums written and
earnings per share in determining the bonus amount; and
- Long-term compensation in the form of units granted under Article 9 of
the Omnibus Plan and stock options. Through the award of units under the
Omnibus Plan, the officer is rewarded for meeting certain growth and
profitability objectives. Through the award of stock options, the Company
aligns the officers' long-range interests with those of its stockholders
by providing the officer with the opportunity to establish a meaningful
stake in the Company. The number of units granted to each participant in
the Omnibus Plan and the number of stock options granted to each officer
is subjective; however an individual's performance, as well as expected
future contributions to the success of the Company, is considered in
determining the amount of individual awards.
The Compensation and Personnel Committee meets during the first ninety (90)
days of each year to determine the performance targets for the Annual Incentive
Award Plan and the performance targets for unit awards under Article 9 of the
Omnibus Plan. Stock Options are also generally granted during the first quarter
of the year. The Committee generally makes stock option grants annually to
communicate the importance of building shareholder value; therefore fewer stock
options are awarded on an annual basis compared to the initial grants that a
participant may receive, which are designed to provide an incentive for the
participant to join and remain in the employment of the Company. The
Compensation and Personnel Committee also certifies whether the performance
targets for the prior year have been met. The performance targets for 1996 were
not met and no bonus was paid under the Annual Incentive Award Plan.
The Company has approved guidelines concerning target levels of stock
ownership for certain officers, as follows: President and Chief Executive
Officer, five times annual base salary; Executive Vice President and Chief
Operating Officer, four times annual base salary; Senior Vice President Finance
and Administration and Chief Financial Officer, four times annual base salary;
other senior vice presidents, two and one-half times annual base salary; and
other senior officers, two times annual base salary. Stock ownership is
calculated taking into account the number of shares beneficially owned by such
officer as well as the net value of any vested stock options.
Executive officers may also participate in the Integon Employee's
Retirement Savings Plan and the Integon Corporation Employee Stock Ownership
Plan, which include Company contributions to the plans. In addition, other
benefit plans generally available to all levels of salaried employees are also
available to the executive officer group of the Company.
John B. McKinnon, Chairman
Lester L. Coleman
Ronald N. Zebeck
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<PAGE> 16
CERTAIN TRANSACTIONS
Transactions with Directors, Officers and Affiliates of Head & Company L.L.C.
Effective as of December 1, 1990, the Company entered into an Investment
Advisory Agreement with Head Asset Management L.L.C. ("Head Asset Management"),
an affiliate of Head & Company L.L.C. and John C Head III, pursuant to which
Head Asset Management manages the Company's investment assets and provides
investment advisory related services to the Company and its subsidiaries. The
fee paid by the Company to Head Asset Management for services rendered pursuant
to the Investment Advisory Agreement is an annual fee at the rate of $1.50 per
$1,000 (15 basis points) on the market value of all invested assets managed by
Head Asset Management in the Company's portfolio. The fee is payable in
quarterly installments in advance. The Investment Advisory Agreement may be
terminated upon 90 days' prior written notice by either party. If such agreement
is terminated, the Company believes that it could obtain similar services on
comparable terms. The Company paid approximately $778,729 in fees under the
Investment Advisory Agreement in 1996.
On March 1, 1996, the Company made an interest-free loan to Mr. Yorke in
the amount of $550,000 in connection with his relocation. The loan was repaid in
full on August 9, 1996.
In July 1996, the Company entered into an Information Products Agreement
with Equifax Services Inc. for certain products and services. Mr. Smith is the
President of Equifax Services Inc. The Company paid approximately $5.0 million
for services rendered by Equifax Services Inc. during 1996. The term of the
agreement is for two years and will expire on June 30, 1998. Either party may
terminate the agreement in the event of a material breach upon 60 days' notice.
14
<PAGE> 17
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies in the Standard & Poor's ("S&P") 500 Stock Index and the Standard &
Poor's Property & Casualty Insurance Index. The graph compares the price
performance of $100 if invested in the Company's Common Stock with the price
performance of $100 if invested in each of the two indexes. The Company's Common
Stock began trading publicly on February 7, 1992; therefore, performance has
been graphed from that date.
COMPARISON OF TOTAL RETURN AMONG S&P 500 STOCK INDEX,
S&P PROPERTY & CASUALTY INDEX AND INTEGON CORPORATION
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTEGON S&P 500 S&P P&C
(FISCAL YEAR COVERED)
<S> <C> <C> <C>
02/07/92 100.00 100.00 100.00
12/31/92 200.00 108.68 123.10
12/31/93 137.12 119.63 120.92
12/31/94 98.68 121.21 126.84
12/31/95 158.69 166.71 171.57
12/31/96 139.09 204.95 209.47
</TABLE>
Source: Standard & Poor's Compustat Services, Inc.
Bloomberg
15
<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership, both direct and
indirect, reported to the Company as of March 15, 1997 (except as otherwise
noted), of Common Stock of the Company including shares as to which a right to
acquire ownership exists (for example, through the exercise of certain stock
options or conversion of the convertible preferred stock issued by the Company).
The information is presented for beneficial owners of more than five percent
(5%) of the Company's Common Stock, for each director and nominee, for each
named executive officer and for the group comprised of all directors, nominees
and executive officers. Other than the directors and executive officers
identified herein, no other director or executive officer owned beneficially
more than one percent (1%) of the outstanding shares of Common Stock and
management knows of no persons other than those identified herein who owned
beneficially more than five percent (5%) of the outstanding shares of Common
Stock as of March 15, 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF BENEFICIAL OWNER OF COMMON STOCK(1) COMMON STOCK
- ------------------- ------------------ -------------
<S> <C> <C>
Steven C. Andrews(2)...................................... 40,000 *
500 West Fifth Street
Winston-Salem, NC 27152
Lester L. Coleman......................................... 3,836 *
3600 Lincoln Plaza
500 North Akard Street
Dallas, TX 75201
John C Head III(3)........................................ 601,802 3.8%
1330 Avenue of the Americas
12th Floor
New York, NY 10019-5402
Madie Ivy(3).............................................. 601,802 3.8%
1330 Avenue of the Americas
12th Floor
New York, NY 10019-5402
Charles H. Jamison........................................ 64,333 *
161 East Chicago Street
Chicago, IL 60611
Jupiter Industries, Inc.(4)............................... 2,482,546 15.8%
Caremark Towers
2215 Sanders Rd., Suite 385
Northbrook, IL 60062
Jupiter Integon Limited Partnership(4).................... 2,469,077 15.7%
Caremark Towers
2215 Sanders Rd., Suite 385
Northbrook, IL 60062
James T. Lambie(2)........................................ 253,036 1.6%
8 West Third Street
Suite 400
Winston-Salem, NC 27101
Arthur S. Lyon, Jr.(2).................................... 123,500 *
500 West Fifth Street
Winston-Salem, NC 27152
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF BENEFICIAL OWNER OF COMMON STOCK(1) COMMON STOCK
- ------------------- ------------------ -------------
<S> <C> <C>
Donald F. McKee(2)........................................ 45,000 *
500 West Fifth Street
Winston-Salem, NC 27152
John B. McKinnon(5)....................................... 18,883 *
2020 Virginia Road
Winston-Salem, NC 27104
Derek V. Smith(6)......................................... 100 *
1525 Windward Concourse
Alpharetta, GA 30202
Thomas W. Smith(7)........................................ 1,610,500 10.2%
323 Railroad Avenue
Greenwich, CT 06830
Tiger Management L.L.C.(8)................................ 1,466,800 9.3%
101 Park Avenue
New York, NY 10178
Thomas N. Tryforos(7)..................................... 1,212,600 7.7%
323 Railroad Avenue
Greenwich, CT 06830
Frederick B. Whittemore................................... 15,836 *
1251 Avenue of the Americas
New York, NY 10020
John B. Yorke(2).......................................... 9,800 *
500 West Fifth Street
Winston-Salem, NC 27152
Ronald N. Zebeck(6)....................................... 0 *
600 South Highway 169, Suite 1800
St. Louis Park, MN 55426
--------- ----
All executive officers and directors as a group (14
persons)................................................ 1,188,926 7.4%
</TABLE>
- ---------------
* Represents less than 1% of the Common Stock.
(1) Except as indicated in the notes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) The amount reported includes options exercisable within 60 days of the
stated date that were granted pursuant to the Company's 1992 Stock Option
Plan for Messrs. Andrews, Lambie, Lyon, McKee and Yorke in the amount of
32,000, 201,000, 123,000, 10,000 and 7,800 respectively.
(3) Mr. Head and Ms. Ivy are married to each other. Includes 22,312 shares of
Common Stock held directly by Mr. Head, 3,551 shares of convertible
preferred stock held directly by Mr. Head (which are convertible into 9,320
shares of Common Stock), 18,182 shares of Common Stock held by Ms. Ivy,
3,452 shares of convertible preferred stock held directly by Ms. Ivy (which
are convertible into 9,060 shares of Common Stock), 502,505 shares of
Common Stock held by a limited partnership of which Mr. Head and Ms. Ivy
are the general partners, 3,258 shares of Common Stock held by a limited
partnership of which Mr. Head and Ms. Ivy are the general partners of the
general partner, 13,812 shares of Common Stock held by a profit sharing
plan in which Mr. Head and Ms. Ivy have an interest, 220 shares of Common
Stock and 200 shares of convertible preferred stock (which are convertible
into 525 shares of Common Stock) for which Ms. Ivy is custodian for their
children, 3,974 shares of Common Stock and 1,086 shares of convertible
preferred stock (which are convertible into 2,850 shares of Common Stock)
owned by trusts for the benefit of their children, 12,970 shares of Common
Stock and 1,072 shares of convertible preferred stock (which are
convertible into 2,814 shares of Common Stock) through corporations in
17
<PAGE> 20
which Mr. Head and Ms. Ivy have an interest. John C Head III, Madie Ivy and
Jupiter Industries, Inc. are parties to an agreement concerning the
nomination and election of directors of the Company. Such agreement is
terminable at will.
(4) Jupiter Integon Limited Partnership ("Jupiter Partnership") is the direct
beneficial owner of 2,469,077 shares of the Common Stock, and Jupiter
Industries, Inc. ("Jupiter"), as the general partner of Jupiter
Partnership, may be deemed to own beneficially such shares. In addition,
Jupiter is the direct beneficial owner of 13,469 shares of the Common
Stock. Jupiter Partnership pledged 320,000 shares of the Common Stock to
Bank of America Illinois pursuant to a Pledge Agreement dated December 9,
1996, among Jupiter Partnership, Jupiter and Bank of America Illinois.
Jupiter, John C Head III and Madie Ivy are parties to an agreement
concerning the nomination and election of directors of the Company. Such
agreement is terminable at will.
(5) Includes 1,000 shares of convertible preferred stock (which are convertible
into 2,625 shares of Common Stock).
(6) Does not include $7,500 worth of Common Stock that each of Mr. Smith and Mr.
Zebeck will be entitled to receive under Article 10 of the Company's
Omnibus Plan on May 6, 1997.
(7) Thomas W. Smith beneficially owns 1,310,500 shares of the Company's Common
Stock in his capacity as general partner of three private investment
limited partnerships of which Mr. Smith and Thomas N. Tryforos are general
partners, an employee profit sharing plan of which Mr. Smith and Mr.
Tryforos are trustees, certain family members of Mr. Smith, trusts for the
benefit of certain family members of Mr. Smith and a private charitable
foundation established by Mr. Smith (the "Managed Accounts"). In addition,
Mr. Smith directly owns 300,000 shares of Common Stock. Mr. Tryforos may be
deemed to beneficially own 1,205,000 shares of Common Stock in his capacity
as an investment manager for the Managed Accounts. In addition, Mr.
Tryforos directly owns 7,600 shares of Common Stock. Mr. Smith has sole
voting and investment power with respect to 405,500 shares of Common Stock.
Each of Messrs. Smith and Tryforos has shared voting and investment power
with respect to 1,205,000 shares of Common Stock.
(8) Each of Tiger Management L.L.C. ("TMLLC"), Tiger Performance L.L.C.
("TPLLC") and Panther Management Company L.P. ("PMCLP") is an investment
advisor under Section 203 of the Investment Advisors Act of 1940. Julian H.
Robertson, Jr. is the ultimate controlling person of TMLLC, TPLLC and
PMCLP. Other persons are known to have the right to receive dividends from,
or proceeds from the sale of, the 1,466,800 shares beneficially owned by
TMLLC. The interest of one such advisee, the Jaquar Fund N.V., a
Netherlands Antilles corporation, is more than a 5% holder of the Common
Stock. PMCLP's 81,900 shares are held for the benefit of Panther Partners,
L.P., an investment company registered under Section 8 of the Investment
Company Act. Information on number of shares owned is taken from the
Schedule 13G filed on behalf of TMLLC, TPLLC, PMCLP and Mr. Robertson, as
received by the Company on February 12, 1997.
(9) The amount reported includes 386,600 options exercisable within 60 days of
the stated date that were granted pursuant to the Company's 1992 Stock
Option Plan and 10,361 shares of convertible preferred stock that are
convertible into 27,194 shares of Common Stock.
SELECTION OF AUDITORS
The directors of the Company have selected the firm of Deloitte & Touche
LLP as the auditors of the Company subject to the approval of the stockholders.
Deloitte & Touche LLP has acted for the Company as auditors since August 1990.
Before the Audit Committee recommended to the full Board the appointment of
Deloitte & Touche LLP, it carefully considered the qualifications of that firm,
including their performance in prior years and their reputation for integrity
and for competence in the fields of accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting to respond to appropriate questions and to make a statement if they
desire to do so.
18
<PAGE> 21
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act ("Section 16(a)") requires the
Company's officers and directors, and persons who may be deemed to own
beneficially more than ten percent of the Common Stock of the Company to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange.
Officers, directors and greater than ten percent beneficial owners are required
by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such Forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for 1996, the Company believes that all its
officers, directors, and greater than ten percent beneficial owners complied
with all filing requirements applicable to them with respect to transactions
during 1996.
VOTE REQUIRED
To be elected as a director, each nominee must receive the favorable vote
of a plurality of the shares represented and entitled to be voted at the
meeting. Stockholders have three choices on the proxy/voting instruction card
(the "proxy card") with respect to the election of directors. By checking the
appropriate box on the proxy card a stockholder may: (i) vote for all director
nominees as a group; (ii) withhold authority to vote for all director nominees
as a group; or (iii) vote for all director nominees as a group except those
nominees identified in the appropriate space. Concerning the ratification of the
appointment of auditors, by checking the appropriate box on the proxy card you
may: (i) vote "FOR" the item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN"
from voting on the item. If no box on the proxy card is checked, the shares will
be voted in accordance with the recommendations of the Board of Directors.
The vote occurring at the meeting will be overseen by an inspector. The
inspector's duties include determining the number of shares represented at the
meeting, counting all votes and ballots and certifying the determination of the
number of shares represented and the outcome of the balloting. The aggregate
number of votes entitled to be cast by all stockholders present in person or
represented by proxy at the meeting, regardless of which voting option listed
above those stockholders exercise, will be counted for purposes of determining
the minimum number of affirmative votes required for the election of directors
and for the ratification of appointment of auditors. Abstentions and "non-votes"
will be counted as present in determining the existence of a quorum. As
directors are elected by a plurality of the shares represented and entitled to
be voted, the election of directors will not be affected by votes that are
withheld. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Company. The Company
expects to solicit proxies solely by mail.
The Board of Directors is not aware of any other matters which may be
presented at the meeting. In the event of a vote on any matters other than those
referred to in the accompanying Notice of 1997 Annual Meeting of Stockholders,
it is intended that proxies in the accompanying form will be voted thereon in
accordance with the judgment of the person or persons voting such proxies.
UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER OF RECORD ON MARCH 17, 1997, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 (EXCLUDING EXHIBITS), AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WILL BE SUPPLIED WITHOUT CHARGE. REQUESTS SHOULD BE
DIRECTED TO INVESTOR RELATIONS, INTEGON CORPORATION, 500 WEST FIFTH STREET,
WINSTON-SALEM, NORTH CAROLINA 27152.
1998 STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy statement, stockholder
proposals for the 1998 Annual Meeting of Stockholders must be received at the
Company's corporate office, 500 West Fifth Street, Winston-Salem, North Carolina
27152 Attention: Corporate Secretary, on or before November 28, 1997.
19
<PAGE> 22
APPENDIX A
7568
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholders(s). 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 (See Reverse)
[ ] FOR [ ] WITHHELD FOR ALL
To withhold authority to vote for any nominee(s), mark the "FOR" box and write
the name of each such nominee on the line provided below.
- -------------------------------------------------------------------------------
2. Appointment of Deloitte & Touche LLP as Company's independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
------------------------------------------
SIGNATURE DATE
-------------------------------------------
SIGNATURE (IF JOINTLY HELD) DATE
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
P R O X Y
INTEGON CORPORATION
WINSTON-SALEM, NORTH CAROLINA PROXY/VOTING INSTRUCTION CARD
- ------------------------------------------------------------------------------
This Proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on May 15, 1997.
The undersigned hereby appoints John C Head III or John B. McKinnon,
the attorneys and agents of the undersigned, each with powers of substitution,
as proxies for the undersigned to vote all Common Stock the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of Integon Corporation
called to be held at the Integon Towers, 500 W. 5th Street, Winston-Salem,
North Carolina at 9:00 A.M., Thursday, May 15, 1997, and at any adjournment
thereof, in the manner indicated on the reverse side of this proxy, and upon
such other business as may lawfully come before the meeting. IF NO DIRECTION
AS TO THE MANNER OF VOTING THE PROXY IS MADE, THE PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND FOR ITEM 2 AS INDICATED ON THE REVERSE SIDE HEREOF.
Election of three (3) Directors,
Nominees: Derek V. Smith, Frederick B. Whittemore and Ronald N. Zebeck
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES (SEE REVERSE SIDE) BUT YOU NEED TO NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
---------------
SEE REVERSE SIDE
---------------
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
