SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
File by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
AVEMCO CORPORATION
(Name of Registrant as Specified in Its Charter)
William P. Condon
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
|_| $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
|_| 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 transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
|_| 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:
- ----------------------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
1
<PAGE>
AVEMCO CORPORATION
Frederick Municipal Airport, 411 Aviation Way
Frederick, Maryland 21701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 1996
TO THE STOCKHOLDERS OF AVEMCO CORPORATION:
Notice is hereby given that the Annual Meeting of Stockholders of AVEMCO
Corporation will be held at the Corporate Headquarters, Frederick Municipal
Airport, 411 Aviation Way, Frederick, Maryland, on Thursday, May 2, 1996, at
8:30 a.m.(EDT), for the following purposes:
1. To elect four directors, three of whom will serve for a term of three
years each, expiring in 1999, and one of whom will serve for a term of
two years, expiring in 1998, or until their successors are elected and
have qualified;
2. To consider and act upon a proposal to ratify the selection of KPMG
Peat Marwick LLP as independent auditors for 1996; and
3. To transact such other business as may properly come before the
meeting, or any adjournments thereof.
By resolution of the Board of Directors, the close of business on March 12,
1996, has been fixed as the record date for the determination of stockholders
entitled to notice of, and to vote at, such meeting and any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas H. Chero
Secretary
March 19, 1996
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING IN PERSON OR
BY PROXY. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE, AND
RETURN THE ENCLOSED PROXY PROMPTLY. THE ENVELOPE FURNISHED NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES.
2
<PAGE>
AVEMCO CORPORATION
411 Aviation Way
Frederick, Maryland 21701
PROXY STATEMENT
For Annual Meeting of Stockholders to be held May 2, 1996
This proxy statement is furnished to the holders of the Common Stock of
AVEMCO Corporation (hereafter called the "Company") in connection with the
solicitation of proxies for use at the 1996 Annual Meeting of Stockholders of
the Company to be held at the time and place and for the purposes set forth in
the foregoing Notice of Annual Meeting of Stockholders. This Proxy Statement and
the related form of proxy are first being mailed to stockholders of the Company
on or about March 19, 1996.
Your proxy is solicited by the Board of Directors of the Company. Any
stockholder giving such proxy has the power to revoke it by written notice
received by the Secretary of the Company before it is exercised. Execution of a
proxy given in response to this solicitation will not affect a stockholder's
right to attend the meeting and to vote in person. Presence at the meeting of a
stockholder who has signed a proxy does not alone revoke a proxy. Any
stockholder giving a proxy may revoke it at any time before it is exercised by
giving notice thereof to the Company in writing. Unless so revoked, the shares
represented by proxies will be voted at the meeting and at any adjournments
thereof. Where a stockholder specifies a choice by means of the ballot provided
with the proxy, the shares will be voted in accordance with such specification.
The cost of soliciting proxies, including the cost of preparing and mailing
the proxy material, will be borne by the Company. The solicitation will be made
primarily by mail and may be made by the directors, officers, and employees of
the Company, personally or by regular or electronic mail, facsimile, or
telephone. In addition, the Company may retain the services of a proxy
soliciting firm to assist in the solicitation. Brokers, custodians, and other
like parties will be requested to send proxy material to beneficial owners of
stock, and the Company will defray reasonable expenses incurred in forwarding
such material.
A majority of the stock issued and outstanding and entitled to vote at the
meeting, present in person or represented by proxy, constitutes a quorum. Shares
represented by proxies received by the Company which have not been revoked will
be counted for purposes of establishing a quorum, regardless of how or whether
such shares are voted on any specific proposal. Votes withheld in connection
with the election of one or more of the nominees for director will not be
counted as votes cast for such individuals. An abstention may be specified on
any proposal except for the election of directors and will have the effect of a
vote against each proposal as to which the abstention is specified. Where
stockholders of record who hold stock as nominees for others do not vote on a
proposal because they did not receive specific voting instructions on the
proposal from the beneficial owners of such shares ("broker non-votes"), such
broker non-votes will not be treated as votes cast on the proposal and will not
be counted for purposes of determining whether the proposal has been approved.
On February 20, 1996, the outstanding stock of the Company entitled to vote
consisted of 8,683,820 shares of Common Stock.
Each share is entitled to one vote.
The details of the Company's operations in 1995 are set forth in the
enclosed Annual Report of the Company, which is not part of this proxy
statement.
3
<PAGE>
SECURITY OWNERSHIP
Principal Shareholders
The following table sets forth information based upon the records of the
Company and filings with the Securities and Exchange Commission with respect to
each beneficial owner of more than 5% of the Company's outstanding voting stock
as of February 20, 1996.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- -------------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Vanguard/PRIMECAP Fund, Inc. 650,000 shares(1) 7.5%
P.O. Box 2600
Valley Forge, PA 19482
Common Stock Markel Corporation and Subsidiaries 600,000 shares(2) 6.9%
4551 Cox Road
Glen Allen, VA 23060
Common Stock Group consisting of: 577,600 shares(3) 6.7%
Century Capital Management, Inc., and
Massachusetts Fiduciary Advisors, Inc.
One Liberty Square
Boston, MA 02109
Common Stock David L. Babson & Co., Inc. 487,900 shares(4) 5.6%
One Memorial Drive
Cambridge, MA 02142
</TABLE>
(1) Vanguard/PRIMECAP Fund, Inc. reported that it has sole voting power and
shared dispositive power over 650,000 shares of Common Stock of the
Company.
(2) Markel Corporation reported that it has sole voting power and
sole dispositive power over 600,000 shares of Common Stock of the Company
through its ownership and control of various subsidiaries of Markel which
hold the stock directly.
(3) Century Capital Management, Inc. and Massachusetts Fiduciary Advisors, Inc.
reported that they are the beneficial owners of 477,600 and 100,000 shares
of Common Stock of the Company, respectively, with sole voting and sole
dispositive powers over their shares. The two entities have reported that
they are members of a "group" owning more than five percent of the
Company's securities.
(4) David L. Babson & Co., Inc. reported that it is an investment advisor with
sole dispositive power over 487,900 shares of Common Stock of the Company
with sole voting power over 342,900 of those shares and shared voting power
over the remaining 145,000 shares.
4
<PAGE>
Security Ownership of Management
The following is a table showing the shares of the Company's Common Stock
beneficially owned as of February 20, 1996, by each director and nominee, each
of the executive officers named below, and directors and officers of the Company
as a group.
<TABLE>
<CAPTION>
Name of Amount Percent Name of Amount Percent
Beneficial Owner Owned of Class Beneficial Owner Owned of Class
- ----------------------- ------- -------- -------------------------- ------- --------
<S> <C> <C> <C> <C> <C>
Michael Collins 8,000 * Thomas J. Schwab(2) 8,751 *
William P. Condon(1)(4) 228,088 2.5 John F. Shettle, Jr.(1)(4) 170,856 1.9
H. Lowell Davis 9,500 * Rachel B. Trinder 200 *
Paul J. Hanna(5) 25,950 * Thomas H. Chero(1) 45,150 *
Arnold H. Johnson 85,800 * Thomas L. Hudson(1) 418 *
Steven A. Markel(3) 5,000 * John R. Yuska(1)(4) 94,916 1.1
* less than 1% All Directors and
Officers as a Group(6) 745,790 8.3
</TABLE>
(1) Includes shares of Common Stock which as of February 20, 1996, were subject
to outstanding stock options exercisable within 60 days, held by the named
executive officers as follows: Condon 95,125, Shettle, Jr. 55,250, Yuska
66,850, Chero 42,700, and Hudson 250.
(2) Includes 814 shares owned by Mr. Schwab's wife.
(3) Mr. Markel's shares do not include 600,000 shares owned by Markel
Corporation and subsidiaries, of which Mr. Markel is Vice Chairman. Mr.
Markel disclaims beneficial ownership of these shares.
(4) Includes shares of Common Stock held by the AVEMCO Corporation Profit
Sharing Trust that each of the following individuals who serve as Trustee
are deemed to own indirectly by virtue of being a beneficiary of the Trust,
calculated on the basis of his proportional beneficial interest in the
Trust, as follows: Condon 33,949, Shettle, Jr. 5,322, Yuska 11,366. The
Trust holds 297,500 shares in the aggregate, over which the three Trustees
share voting and dispositive power.
(5) Includes 450 shares owned by the Hanna Foundation Trust.
(6) Includes 322,000 shares of Common Stock which as of February 20, 1996, were
subject to outstanding stock options exercisable within 60 days.
Section 16 of the Securities Exchange Act
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's officers, directors and persons who own greater than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and New
York Stock Exchange. Based on a review of the Forms 3, 4, and 5 it has received,
and/or on written representations from certain reporting persons that no Form 5
was required for them, the Company believes that during 1995 all Section 16
filing requirements applicable to its officers, directors and 10% beneficial
owners were complied with by such persons.
5
<PAGE>
1. ELECTION OF DIRECTORS
By resolution of the Board of Directors, the number of directors of the
Company has been fixed at nine. Pursuant to the Company's Bylaws, the Board of
Directors is divided into three classes, with the term of office of one class to
expire each year. The terms of four directors, William P. Condon, Arnold H.
Johnson, Thomas J. Schwab, and Clifton F. von Kann, expire in 1996. Therefore,
four places on the Board are to be filled at the 1996 Annual Meeting of
Stockholders. Clifton von Kann, upon expiration of his term, will not stand for
re-election under the mandatory retirement policy for directors adopted by the
Board. Rachel B. Trinder has been nominated by the Board to fill the vacancy.
Each nominee will stand for election for a three-year term of office except
Rachel B. Trinder, who will stand for election for a two-year term in order that
the number of directors in each class whose terms expire annually be as equal in
number as possible, as required by the Company's Bylaws. It is intended that
votes will be cast pursuant to the enclosed proxy (unless authority is
specifically withheld) for election of Messrs. Condon, Johnson, and Schwab as
directors for terms expiring in 1999, and Ms. Trinder as director for a term
expiring in 1998. Each has agreed to serve as a director if elected. If any of
them should become unable or unwilling to serve (an event which the Board of
Directors does not anticipate), it is intended that the enclosed proxy will be
voted for the election of such person, if any, as the Board of Directors may
designate. The affirmative vote of a majority of the outstanding stock of the
Company is required to elect each director.
The following table lists certain information with respect to the Company's
directors and nominees.
<TABLE>
<CAPTION>
Other Positions and Offices With The Company, Principal
Name, Age and Year First Occupation, Business Experience During Past 5 Years and Term
Served as a Director Other Directorships In Public Companies Expires
- ------------------------ ------------------------------------------------------- -------
<S> <C> <C>
William P. Condon (a,c) Chairman of the Board of Directors and Chief Executive 1996
Age: 58 Officer of the Company; Chairman of the Boards of
Director since 1973 various subsidiaries of the Company.
Arnold H. Johnson (a,c) Until retirement in 1982, Chairman of the Board of 1996
Age: 78 Directors and Chief Executive Officer of the Company
Director since 1965 and Chairman of the Boards of its subsidiaries.
Thomas J. Schwab (b,c) Attorney; partner with law firm of Wald, Harkrader and 1996
Age: 68 Ross until 1984; Secretary of the Company until
Director since 1987 April 1987.
Rachel B. Trinder Attorney; partner with law firm of Zuckert, Scoutt & --
Age: 41 Rasenberger LLP since 1985, associate from 1978-1985.
Director since N/A
H. Lowell Davis (a,c,d) Vice Chairman, Chief Financial Officer and Director, 1997
Age: 63 Potomac Electric Power Company.
Director since 1985
Paul J. Hanna (a,c) Until retirement in 1986, Vice Chairman and Director, 1997
Age: 80 GEICO Corporation.
Director since 1980
Steven A. Markel (b,d) Vice Chairman, Markel Corporation; Director: Fairfax 1997
Age: 47 Financial Holdings, Ltd. (Canada); Director: Morden &
Director since 1994 Helwig Group, Inc. (Canada)
Michael Collins (a,b,d) President, Michael Collins Associates (consulting 1998
Age: 65 firm); Trustee: National Geographic Society; Former
Director since 1986 Astronaut; Vice President, Washington Operations of LTV
Aerospace and Defense Company (1980-85)
John F. Shettle, Jr. (c) President and Chief Operating Officer of the Company; 1998
Age: 41 Chairman, Eastern Aviation & Marine Underwriters, Inc.,
Director since 1993 a subsidiary of the Company; Board member and officer
of various other subsidiaries of the Company.
</TABLE>
(a) Member of the Executive Committee
(b) Member of the Audit Committee
(c) Member of the Investment Committee
(d) Member of the Compensation and Stock Option Committee
6
<PAGE>
The Board of Directors of the Company met four times during 1995. In
addition, the Company has the following acting committees of the Board:
o Executive Committee. The Executive Committee has the authority to act during
intervals between meetings of the Board of Directors and to exercise all
powers of the Board except those reserved to the Board by statute, the
Certificate of Incorporation or Bylaws. It also functions to advise the
Board on all matters pertaining to Board nominations and membership. The
Executive Committee will not consider nominations for Board membership from
shareholders. The Committee met two times during 1995.
o Audit Committee. The Audit Committee, composed entirely of outside
directors, serves as a liaison between the Board and the Company's auditors,
to discuss with the auditors before their examination its scope and
approach, and to discuss with them after their examination the results of
the audit. The Committee met three times in 1995.
o Investment Committee. The Investment Committee serves to review the
investment policy and investment guidelines of the Company, and makes
recommendations to the Board of Directors. The Committee met four times
during 1995.
o Compensation and Stock Option Committee. The Compensation and Stock Option
Committee is responsible for recommendations to the Board in decisions
affecting compensation to employees, including salaries of officers and
allocation of awards under the Executive Performance Compensation Plan, and
is responsible for the awarding of stock options under the Company's stock
option plans. The Committee met three times in 1995.
All directors attended at least 75 percent of the meetings of the Board and
Committees of which they were members.
7
<PAGE>
Director Compensation
The Company's current arrangement for compensation of directors is that
those directors who are not employees of the Company, or a subsidiary, receive
an annual retainer of $18,000. For each Board and Executive Committee meeting
attended, non-employee members receive $1,200 ($1,400 for the Chairman of the
Executive Committee). For all other Committee meetings attended, members receive
$900 ($1,000 if Chairman of the Committee). The Company also reimburses
directors for travel expenses incurred in attending meetings.
The Company has a plan whereby non-employee directors may defer their annual
retainer fees until age 70-1/2 or until their service with the Board terminates.
The Company also has a consulting plan for directors, pursuant to which
directors retiring from the Board after age 65 and after at least ten years of
service on the Board may continue to receive between 50% and 100% of the annual
retainer (but not the per meeting fees) they would receive as active directors,
the percentage depending on years of active service as a director. The fee at
the 50% level would be payable for a minimum of 10 years of active service on
the Board, 75% for a minimum of 15 years of active service, and 100% fee for a
minimum of 20 years of active service.
Arnold H. Johnson also serves as consultant to the Company under the terms
of a consulting agreement which provides for payments of an annual consulting
fee of $37,000. All payments under the agreement are deferred for five years
from the time earned, and such deferrals accrue interest at the rate of 8% per
annum. The agreement may be terminated prior to its May 1, 1997, expiration by
either party for cause, upon 90 days' notice.
Compensation Committee Interlocks and Insider Participation
None
The Board of Directors recommends a vote "FOR" nominees Condon, Johnson,
Schwab, and Trinder for election to the Board of Directors. Proxies solicited by
the Board of Directors will be voted for these nominees unless the stockholder
specifies otherwise.
8
<PAGE>
Executive Compensation
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and the four highest-paid executive officers,
as well as all other compensation paid or awarded to each such individual for
the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------- ------------
Name and Securities All Other
Principal Underlying Compen-
Position Year Salary Bonus(1) Options/SARs sation(2)
($) ($) (#) ($)
- --------------------- ---- ------- ------- ------------ ---------
William P. Condon 1995 390,000 92,000 0 6,382
Chairman & Chief 1994 390,000 155,000 7,500 10,237
Executive Officer 1993 390,000 240,000 0 12,066
Age: 58
John F. Shettle, Jr 1995 157,000 43,000 0 5,338
President & Chief 1994 145,500 76,000 5,000 9,193
Operating Officer 1993 131,500 90,000 6,000 8,227
Age: 41
John R. Yuska 1995 128,000 30,000 0 5,896
Senior Vice President 1994 123,000 61,000 3,000 9,409
& Chief Financial 1993 118,000 75,000 4,000 7,304
Officer
Age: 51
Thomas H. Chero 1995 100,000 31,000 0 522
Senior Vice President 1994 95,000 58,000 3,000 9,193
- - Legal & Corporate 1993 91,000 72,000 4,000 5,726
Secretary
Age: 45
Thomas L. Hudson(3) 1995 113,000 13,000 1,000 2,435
Vice President - 1994 55,423 12,000 1,000 0
Business Development 1993 N/A N/A N/A N/A
Age: 47
(1) "Bonus" consists of Performance Compensation awarded for 1995 performance,
but which was paid in early 1996. Similar timing also applies for the
previous two years shown.
(2) "All Other Compensation" consists of the employer contribution to the
defined contribution Profit Sharing Plan and Group Term Life Plan for
Messrs. Condon, Shettle, Jr., Yuska, Chero, and Hudson respectively, as
follows: (i) Profit Sharing: $5,032, $5,032, $5,032, $0, and $1,913; (ii)
Term Life: $1,350, $306, $864, $522, and $522.
(3) Mr. Hudson became employed with the Company on July 1, 1994. The amount
shown for 1994 is the amount paid to him for the partial year's services.
Note: All of the executive officers listed have been with the Company, or a
subsidiary of the Company, for more than five years except Mr. Hudson, who was a
partner with the law firm of Venable, Baetjer and Howard, having been employed
there from 1977 until 1994, when he left to join the Company. Mr. Hudson also
serves as President of the AVEMCO Group's subsidiary, MEDEX Assistance
Corporation.
9
<PAGE>
Option/SAR Grants
The following table sets forth certain information concerning options/SARs
granted during 1995 to the named executives:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
--------------------------------------------- ----------------------
% of Total
Number of Options/SARs
Securities Granted Exercise
Underlying to Employees or Base
Options/SARs in Fiscal Price Expiration
Name Granted(2) Year ($/Sh) Date 5%($) 10%($)
- -------------------- ------------ ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William P. Condon 0 -- -- -- -- --
John F. Shettle, Jr. 0 -- -- -- -- --
John R. Yuska 0 -- -- -- -- --
Thomas H. Chero 0 -- -- -- -- --
Thomas L. Hudson 1,000 11.1 16.4375 12/14/05 10,337 26,197
</TABLE>
(1) Potential realizable value is the net gain realizable based on an
assumption that the price of the Common Stock appreciates at the annual
compounded rate shown from the date of grant until the end of the ten-year
option term. These numbers are calculated based upon the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) Options granted were under the Company's Nonstatutory Stock Option Plan and
vest at the rate of 25% each year, commencing on the one-year anniversary
of the date of grant.
10
<PAGE>
Option/SAR Exercises and Values
The following table summarizes options/SARs exercised during 1995, and
presents the value of unexercised options/SARs held by the named executives at
fiscal year end:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money(1)
Unexercised Options/SARs Options/SARs
Shares Value at Fiscal Year-End (#) at Fiscal Year-End ($)
Acquired on Realized Exercisable(E)/ Exercisable(E)/
Name Exercise (#) ($) Unexercisable(U) Unexercisable(U)
- -------------------- ------------ -------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
William P. Condon -0- -0- 85,125 E 248,864 E
25,625 U 13,258 U
John F. Shettle, Jr. -0- -0- 53,750 E 125,140 E
8,250 U 8,839 U
John R. Yuska -0- -0- 75,725 E 226,336 E
7,075 U 5,566 U
Thomas H. Chero -0- -0- 37,750 E 16,056 E
9,250 U 5,962 U
Thomas L. Hudson -0- -0- 250 E 589 E
1,750 U 1,768 U
</TABLE>
(1) In-the-money option value is the fair market share value at fiscal 1995
year-end ($16.00 per share) less the option exercise price times the number
of shares.
Profit Sharing Plan
The Company has a qualified defined contribution Profit Sharing Plan, which
became effective October 1, 1969, and in which substantially all employees of
the Company and its subsidiaries who have completed a qualifying year of service
may participate. The Company and its subsidiaries contribute each year 5% of
"consolidated net profits before taxes," as defined in the Plan, (but not in
excess of 15% of the compensation paid to participating employees during the
year), to a trust fund. The Company's contribution each year is allocated to
active participants on a pro rata basis based upon W-2 compensation for the year
(excluding compensation from stock option exercises), subject to individual
compensation limits imposed by the federal government ($150,000 for 1995). The
entire amount in the Profit Sharing Plan to the employee's credit is
distributable to the employee upon retirement or to the employee's designee upon
death. Upon withdrawal as a participant prior to retirement, the employee
receives amounts contributed by the employee, if any, adjusted for investment
results on such amounts, plus 20% of the remaining amount to the employee's
credit for each year of employment after the third year of employment, not to
exceed 100% of such amount at the end of the seventh year of employment. The
total Company contribution to the Profit Sharing Plan for the year ended
December 31, 1995, was $420,000. The Company's contribution with respect to the
five named executive officers is shown in the Summary Compensation Table.
11
<PAGE>
Pension Plan
The Company has a noncontributory defined benefit Pension Plan covering
substantially all employees of the Company and its subsidiaries who have
attained age 21 and have completed one year of qualifying service. The Pension
Plan, funded through an insurance company, provides for a retirement benefit at
age 65, which is integrated with Social Security, based upon the employee's
highest five consecutive years average W-2 compensation at the rate of .6% of
such five-year average up to "covered compensation" as defined in the Plan plus
1.1% of such five-year average compensation in excess of "covered compensation",
all multiplied by years of credited service. W-2 compensation used to calculate
an employee's final average compensation was capped by federal law at $150,000
for Plan year 1995, but is indexed for inflation for subsequent plan years.
Compensation attributable to the exercise of stock options is not includable for
benefit determinations. Vesting for Plan benefits is 100% after five years of
service with 0% for less than five years of service.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$ 125,000 $ 18,681 $ 24,907 $ 31,134 $ 37,361 $ 43,588
150,000 22,806 30,407 38,009 45,611 53,213
*175,000 22,806 30,407 38,009 45,611 53,213
*200,000 22,806 30,407 38,009 45,611 53,213
*225,000 22,806 30,407 38,009 45,611 53,213
*250,000 22,806 30,407 38,009 45,611 53,213
*300,000 22,806 30,407 38,009 45,611 53,213
*400,000 22,806 30,407 38,009 45,611 53,213
*450,000 22,806 30,407 38,009 45,611 53,213
*500,000 22,806 30,407 38,009 45,611 53,213
* The 1995 compensation is limited to $150,000 for the benefit determinations.
The Company does not have a nonqualified or other pension plan that would apply
in excess of the remuneration shown.
The pension table shows maximum annual benefits which would be payable for a
person retiring in 1995 at age 65 calculated in accordance with the current Plan
provisions on a straight life annuity basis, with average earnings shown as
"Remuneration".
A retiree's Social Security benefit is integrated into the Plan's step-rate
formula and there is no additional reduction to the amount shown in the table as
a result of Social Security payments. The Plan's "covered compensation" level
for 1995 utilized in the table was $25,926 for a person retiring at age 65.
For 1995, the Company's pension cost was approximately 2.55% of total
compensation of Plan participants covered by the Plan. The amount expended by
the Company for financial reporting purposes for the Pension Plan is excluded
from the Summary Compensation Table because the contribution with respect to a
specified person cannot be readily separated or individually calculated by the
actuary of the Plan.
The compensation of Messrs. Condon, Shettle, Jr., Yuska, Chero, and Hudson
covered by the Pension Plan in 1995 was $546,350, $233,306, $189,864, $158,522,
and $125,522 respectively; however, no compensation in excess of $150,000 is
considered in calculating benefits for 1995 for any of these individuals. These
amounts are based upon W-2 compensation for 1995 as provided for by the Plan,
whereas the Summary Compensation Table includes the executive officers'
performance compensation paid early in 1996 for fiscal 1995 work performed,
which award will not be included in the Plan computation until 1996. As of
December 31, 1995, Messrs. Condon, Shettle, Jr., Yuska, Chero, and Hudson had
credited service under the Plan of 34, 12, 18, 19, and 1 years, respectively.
12
<PAGE>
Performance Compensation Plan
Under the Performance Compensation Plan for officers of the Company and of
its subsidiaries (including executive officers, but excluding the CEO), between
7% and 9% of the Company's annual net earnings (as defined in the Plan), in
excess of a minimum earnings deductible amount (determined by formula in the
Plan), is set aside in a pool each year. No performance compensation may be
awarded under the Plan for any year during which a dividend is not paid to the
shareholders, and no performance compensation is available for award until after
the minimum earnings deductible amount is achieved. Net earnings as defined in
the Plan include the Company's consolidated profit after tax, but before the
allocation of performance compensation under any of the Company's performance
compensation plans (officer, employee, and CEO plans). The minimum earnings
deductible amount is calculated as the product of the weighted average number of
the Company's common stock and common stock equivalents for the Plan year times
the larger of: (i) one-third the average of the Company's consolidated earnings
per share as reported to the shareholders for the immediately preceding three
Plan years, or, (ii) the per share amount calculated in (i), for any Plan year
after 1973, prior to the current Plan year, if greater than the current Plan
year's per share amount. For 1995, 46 officers participated in and received
awards under the Plan.
Stock Option Plans
The Company's Nonstatutory Stock Option (NSO) Plan, adopted in 1990,
authorizes the grant from time to time of NSOs on the Company's Common Stock to
eligible employees, up to a total of 375,000 shares. 1,000 NSOs were granted to
one named executive officer for 1995 performance out of a total of 9,000 NSOs
awarded during the year. As of February 20, 1996, NSOs representing 349,800
shares of Common Stock were outstanding. The Plan is administered by the
Compensation and Stock Option Committee of the Company's Board of Directors,
which Committee determines which employees are to be granted NSOs and the number
of shares covered by the award. Any employee of the Company or a subsidiary who
owns less than 10% of the Company's outstanding Common Stock may be granted an
NSO.
The exercise price of shares covered by NSOs must be 100% of the fair
market value of such shares on the date of grant. The NSO exercise period is
determined by the Committee, but may not exceed ten years from the date of
grant. NSOs are not exercisable during the first year after grant, and the Plan
states that NSOs may provide that only a portion of the shares covered by an NSO
may be exercisable during each year after the first year after grant. Option
vesting is normally over a four-year period (25% per year), but the Committee
may reduce or extend the period from between one and ten years. There are
exceptions to the rules on exercise pertaining to such matters as
reorganization, mergers, and changes of control of the Company.
The Company had an Incentive Stock Option (ISO) Plan which expired in
December 1992 with respect to new grants. ISOs representing 508,725 shares of
Common Stock were outstanding as of February 20, 1996.
Neither the NSO nor the ISO Plan provides for the issuance of SARs, nor
does the Company have a separate SAR Plan. Any reference to "Options/SARs" in
this proxy is to options granted under the stock option plans.
Employment Contracts
1. Executive Officers (other than the Chief Executive Officer). Executive
officers (including those listed on the Summary Compensation Table) are under
written contract with the Company for their employment services. Such contracts
provide for a fixed salary subject to annual review for potential increase. In
addition, such contracts provide that such officers are eligible to participate
in the Performance Compensation Plan and Stock Option Plans described elsewhere
in this proxy. No award is guaranteed under any such plan and such plans may be
modified or terminated by the Board of Directors at any time. While the
employment agreements generally cover terms from one to three years, each of
them is terminable by either the officer or the Company upon 30 to 90 days'
written notice, with or without cause. After the effective date of termination
by either party, no additional compensation is payable regardless of the term.
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In order to be eligible to participate in the Performance Compensation
Plan and Stock Option Plans, executive officers must agree not to compete with
the Company for two years after employment is terminated. This noncompete
applies if employment is terminated by the executive officer for any reason, or
by the Company for cause. The agreements also provide that in the event of a
change of control of the Company, being the acquisition of 40% or more of the
Company's voting stock by another entity and its affiliates, not approved by
two-thirds of the directors who are not affiliated with the party attempting to
change control ("disinterested directors"), the two-year noncompete does not
apply. In the event of such a change in control of the Company, stock option
awards also become fully vested and exercisable as provided for in the Plans.
2. Chief Executive Officer. Mr. Condon is employed under written contract
with the Company which was entered into in 1993 and expires on December 31,
1997. It provides for a fixed base annual salary of $390,000 subject to annual
review for potential increase and/or the addition of other compensation as may
be deemed appropriate by the Board of Directors. In addition, such contract
provides for an annual performance compensation of 2% of net earnings above a
minimum earnings deductible amount calculated as set forth in the agreement. Net
earnings and the minimum earnings deductible amount are calculated for the
purposes of the agreement in the same manner as described in the Performance
Compensation Plan for officers. The contract provides that Mr. Condon's total
compensation from salary and performance compensation for any calendar year is
limited to one million dollars, but it also provides that the Board, in its sole
discretion, may award some or all of the additional performance compensation
that would cause total compensation to exceed one million dollars, whether tax
deductible or not. Mr. Condon also participates in the Company's stock option
plans.
The employment agreement provides for termination by Mr. Condon upon
180 days' notice, with or without cause, or by the Company upon breach by Mr.
Condon of his obligations under the agreement or for cause. In addition, the
Company may terminate his services at any time if it agrees to pay him the base
salary and annual performance compensation he would otherwise have been entitled
to receive had the contract not been terminated. In this event, the
noncompetition provision described below would apply during the remainder of the
term.
The agreement contains a two-year noncompetition provision which the
Board of Directors may elect to invoke subsequent to the expiration of the
Agreement provided it gives at least 12 months' prior notice and agrees to
continue to pay Mr. Condon one-half of his base salary during that two-year
period. The Board may also invoke this provision if Mr. Condon elects to
terminate prior to expiration.
The contract also has a provision that, in the event of a change of
control of the Company of more than 30% of the Company's outstanding voting
stock that is not approved by two-thirds of the disinterested directors (as
described above), Mr. Condon may elect to terminate the contract upon 30 days'
written notice, in which event the two-year noncompete would not apply and Mr.
Condon would receive such salary and performance compensation as he would
otherwise be entitled to receive for the remaining term. In the event of a
change in control of the Company of 40% or more of the Company's voting stock by
another entity and its affiliates that is not approved by two-thirds of the
disinterested directors, stock option awards also become fully vested and
exercisable as provided for in the Plans.
3. Chief Executive Officer and Executive Officers. All employees of the
Company, including executive officers, whether under written employment contract
or not, are eligible to participate in the Company's group life, health,
disability, and retirement programs, including the AVEMCO Corporation Pension
Plan (defined benefit plan) and the AVEMCO Corporation Profit Sharing Plan
(defined contribution plan) according to the terms of those plans. Both
retirement plans are described elsewhere in this proxy statement.
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Report of the Compensation and Stock Option Committee
1. Executive Officers (other than Chief Executive Officer ("CEO"). The cash
compensation of executive officers consists of annual salary and performance
compensation, pursuant to a contract (described elsewhere herein) which each
executive officer has with the Company.
Salaries. The salaries of executive officers are based upon the
officer's current position(s) in the Company and the officer's responsibilities.
Prior experience in the executive's field, as well as with the Company, is also
taken into consideration. The Committee, in establishing salary recommendations,
also looks at prevailing salaries of executive officers of other companies,
particularly insurance companies, having comparable positions, but in making
those comparisons it takes into consideration the fact that the Company's
compensation policy since adoption of the Performance Compensation Plan
(initially adopted as the Executive Bonus Plan in 1974) has been that
performance compensation should constitute a significant portion of total cash
compensation of the Company's executive officers. Accordingly, salaries are
generally set at levels that are substantially less than what total
compensation, including performance compensation, is expected to be.
With respect to annual salary adjustments including those made for
1995, the Committee gives substantial consideration to the recommendations of
the CEO and considers each executive officer's salary in relationship to certain
factors, including the officer's prior year's salary, prior years' salary
increases, changes in the cost of living, changes in responsibilities, and how
such officer was rated by the CEO and by other officers in an annual superior
and peer review evaluation process that has been utilized by the Company for
many years. The Committee does not use any specific corporate performance
measures or weighting, and determination is therefore largely subjective in
nature.
Performance Compensation. The Committee's initial role in setting
performance compensation, which constitutes a significant portion of total cash
compensation, is to recommend to the Board of Directors the percentage of from
7% to 9% of defined net earnings in excess of the Plan's formula earnings
deductible (which earnings deductible was $3,715,260 for 1995) to be used to
create the performance compensation pool. For 1995, the percentage recommended
by the Committee to the Board, and accepted by the Board, was 9%, which resulted
in a performance compensation pool from 1995 earnings of $413,000 for the 46
officer participants. This compares to $698,000 for 48 participants in 1994, at
which time the percentage was also 9%.
In determining the percentage of net earnings comprising the pool each
year, the Committee, pursuant to the terms of the Plan, considers certain
factors including net earnings, return on equity, the Company's Common Stock
dividend and its market price over time, the number of participants in the Plan
(the Plan covers generally all officers of the Company, excluding the CEO, and
its subsidiaries and not just executive officers), the total compensation of
participants, both base and performance, compensation for comparable employees
in other firms, particularly insurance-related firms, market and economic
conditions, cycles of the Company's business, and employee morale. In 1995 the
Board approved a change in the percentage range from 3%-9% to 7%-9%. This change
was effected to update the Plan to conform to the practices of the Compensation
Committee and the Board to approve awards in the 7%-9% range in recent years
due, in particular, to the increase in the number of participants in the Plan
from 6 participants when the Plan was established in 1974 to in excess of 45
participants in more recent years. In determining individual awards and, in
particular, awards to the executive officers from such pool, the Committee
considers a proposal given to it by the CEO for allocating the pool, and also
considers each executive's duties and responsibilities, total compensation,
evaluations by both the CEO and by the executive officer's superiors and peers,
contributions to the financial success of the Company, and years of service.
While the Committee looks at the factors set forth, its determination is largely
subjective in nature.
15
<PAGE>
Stock Options. The Committee administers the Company's stock option
plans. Its policy has been to utilize the benefits it believes accrue to the
Company and its stockholders by the grant of stock options to executive officers
and others. All stock options require that the underlying Common Stock be
purchased at 100% of its market value on the grant date of the options, and no
exercise price of an outstanding option has ever been lowered. The Committee
determines the number of options to be granted each year, taking into
consideration the amount of stock available under the stock option plans, as
well as the general performance criteria described elsewhere with respect to
performance compensation. The CEO's recommendations as to the allocation of
stock options among executive officers, which takes into consideration an
evaluation of each executive's contribution to the Company's overall
performance, as well as the evaluation given to the executive under the annual
superior and peer review process referred to above, are normally accepted by the
Committee. As with performance compensation, while the Committee looks at these
factors, its determination is largely subjective in nature, except that a
numerical superior and peer evaluation score cutoff is used by the Committee,
below which no stock option awards are made. For 1995, awards were principally
targeted toward participants who received fewer awards in the past, particularly
in light of the relatively low level of options remaining in the Plan for award.
Accordingly, only one named executive officer was awarded stock options for
1995.
2. Chief Executive Officer. The cash compensation of the Chief Executive
Officer consists of an annual salary and an annual performance compensation of
2% of net earnings in excess of a minimum earnings level, pursuant to a contract
(previously described) which Mr. Condon has with the Company.
Salary. In recommending Mr. Condon's salary increase, if any, to the Board,
the Committee considers his past salary, past salary increases, salaries of CEOs
of comparable insurance companies, the cost of living, and the Company's net
earnings. As it does in setting the percentage under the Performance
Compensation Plan for executives, the Committee considers the performance of the
Company, in absolute terms and relative to its competitors, how it considers the
CEO has dealt with competitive factors compared with other CEOs in the industry,
and how shareholders have fared. It also considers the CEO's performance in
planning for ways of enhancing the future earnings and value of the Company. The
Committee does not use any specific corporate performance measures or weighting,
but return on equity is given significant consideration. Determination is thus
largely subjective in nature.
For 1995, based upon these factors, the Committee chose not to increase Mr.
Condon's salary above its 1994 level.
Performance Compensation. Pursuant to the terms of the Company's
contract with Mr. Condon, described under "Employment Contracts", Mr. Condon's
performance compensation is determined strictly by formula based upon earnings,
except when total compensation from salary and performance compensation would
exceed one million dollars. Since it did not for 1995, the Committee made no
additional decisions regarding Mr. Condon's performance compensation.
Stock Options. The Committee determines the stock options to be awarded
to Mr. Condon. It considers the same factors that are utilized in its review for
salary increase. While the Committee looks at these factors, its determination
is largely subjective in nature. For 1995, the Committee chose to principally
target awards to participants who received fewer options in the past,
particularly in light of the relatively low level of options remaining in the
Plan for award. Accordingly, no award was made to Mr. Condon for 1995.
16
<PAGE>
3. General Considerations. Salary recommendations for each year are made
prior to the beginning of the year, while performance compensation and stock
options awards are determined at the end of the year and are based on the
financial and other results for that year. Accordingly, changes in salaries do
not necessarily coincide with changes in performance compensation or stock
option awards.
The Committee's approach to executive compensation as described above
has been in effect for many years. The Committee believes that this approach,
which blends the objective determinations, such as formulas and peer and
superior evaluations, with the subjective determinations described above,
provides a flexibility that is in the best interests of the Company and its
shareholders.
The Compensation and Stock Option Committee
Clifton F. von Kann, Chairman
Michael Collins
H. Lowell Davis
Steven A. Markel
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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG AVEMCO CORPORATION, THE S & P 500 INDEX
AND THE S & P PROPERTY-CASUALTY INSURANCE INDEX
Cumulative Total Return
(Dollars)
---------------------------------------------
COMPANY/INDEX 12/90 12/91 12/92 12/93 12/94 12/95
- -------------------------------------------------------------------------
AVEMCO Corp...................100 151 144 118 99 106
S & P 500.....................100 130 140 155 157 215
S & P Property-Casualty Ins...100 125 147 144 151 205
* $100 invested on 12/31/90 in stock or Index including reinvestment of
dividends. Fiscal year ending December 31.
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2. RATIFICATION OF SELECTION OF AUDITORS
Upon recommendation of the Audit Committee and subject to ratification by
the stockholders, the Board of Directors has selected the firm of KPMG Peat
Marwick LLP to examine and audit the business, books of account, and other
records of the Company and its subsidiaries for the year ending December 31,
1996. The affirmative vote of the holders of a majority of the shares of the
Common Stock present in person or represented by proxy at the meeting is
required for such ratification. If not ratified, the selection will be
reconsidered by the Board.
This firm of certified public accountants has acted in such capacity for
the Company and its subsidiaries since 1968 and has reported that neither the
firm nor any of its partners has any direct financial interest or any material
indirect financial interest in the Company or any of its subsidiaries, other
than as independent auditors. A representative of the firm is expected to be
present at the meeting with an opportunity to make a statement if so desired and
to be available to respond to appropriate questions.
The Board of Directors recommends a vote "FOR" Proposal 2. Proxies
solicited by the Board of Directors will be voted for adoption of the Proposal
unless the stockholder specifies otherwise.
3. OTHER MATTERS
As of this date, the Board of Directors knows of no business which will
come before the meeting in addition to the matters referred to above, but if any
other matters properly come before the meeting, the persons named as proxies
will vote on them in accordance with their best judgment, and discretionary
authority to do so is included in the proxy.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1997 Annual
Meeting of Stockholders and to be included in the Company's proxy statement and
form of proxy relating to that meeting must be received by the Company on or
before November 12, 1996. Any such proposal must meet the applicable
requirements of the Securities and Exchange Act of 1934 and the rules and
regulations thereunder.
Stockholders are urged to send in their proxies without delay. Prompt
response is helpful, and your cooperation will be appreciated.
By Order of the Board of Directors
WILLIAM P. CONDON
Chairman of the Board
March 19, 1996
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AVEMCO CORPORATION
Proxy for 1996 Annual Meeting
SOLICITED BY THE BOARD OF DIRECTORS ("the Board")
The undersigned hereby constitutes William P. Condon, John R. Yuska and
Thomas H. Chero, or any one or more of them, as Proxies, with full power of
substitution, to represent the undersigned at the Annual Meeting of Stockholders
of AVEMCO Corporation to be held in Frederick, Maryland, on May 2, 1996, and any
adjournments thereof, and to vote the shares of said Company standing in the
name of the undersigned with all powers the undersigned would possess if
personally present at such meeting, including discretionary authority to act on
any matters properly coming before the Meeting of which the Board is not aware
at the date of the Notice and Proxy Statement relating to the Meeting, receipt
of which is hereby acknowledged.
(continued and to be SIGNED on other side)
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THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE BOARD'S NOMINEES AS DIRECTORS AND
FOR PROPOSAL 2.
I plan to attend
the meeting
|_|
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD (INSTRUCTION: Authority to vote for
Listed to the right AUTHORITY any of the aforementioned persons may
(except as marked to vote for all be withheld by lining through or
to the contrary) nominees listed striking the name.)
to the right
NOMINEES: William P. Condon,
|_| |_| Arnold H. Johnson, Thomas J. Schwab,
Rachel B. Trinder
2. RATIFYING THE SELECTION OF KPMG PEAT MARWICK LLP
AS AUDITORS FOR 1996
FOR AGAINST ABSTAIN
|_| |_| |_|
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR HEREON. JOINT OWNERS
SHOULD EACH SIGN PERSONALLY. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS SUCH.
Dated: , 1996
--------------------------------------------
Signature
--------------------------------------------
Signature (see note above)
IMPORTANT: PLEASE SIGN, DATE AND RETURN
PROMPTLY.
