BALDWIN & LYONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1997
TO THE SHAREHOLDERS OF
BALDWIN & LYONS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Baldwin &
Lyons, Inc. (the "Corporation") will be held Tuesday, May 6, 1997 at 10:00 a.m.,
Indianapolis Time, at 1099 North Meridian Street, Indianapolis, Indiana 46204
for the following purposes:
1. To elect nine (9) directors,
2. To consider and act upon certain amendments to the Baldwin & Lyons,
Inc. Employee Discounted Stock Option Plan,
3. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Corporation, and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 17, 1997,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to
mark, date and sign the enclosed proxy and return it promptly so your vote can
be recorded. If you are present at the meeting and desire to do so, you may
revoke your proxy and vote in person.
Shares of the Class B Common Stock are not entitled to vote and proxies are
not being solicited in regard to the Class B shares.
Date: March 31, 1997.
By Order of the Board of
Directors
/s/ James E. Kirschner
James E. Kirschner
Secretary
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON
BALDWIN & LYONS, INC.
PROXY STATEMENT
General Information
USE OF PROXIES
This Proxy Statement is furnished in connection with the solicitation by
Baldwin & Lyons, Inc. (the "Corporation") of proxies to be voted at the Annual
Meeting of Shareholders to be held on Tuesday, May 6, 1997, in accordance with
the foregoing notice. The Proxy Statement and accompanying proxy card were
mailed to shareholders on or about March 31, 1997.
The mailing address of the Corporation's principal office is 1099 North
Meridian Street, Indianapolis, Indiana 46204.
Any proxy may be revoked by the person giving it at any time before it is
voted by delivering to the Secretary of the Corporation a written notice of
revocation or a duly executed proxy bearing a later date. Shares represented by
a proxy, properly executed and returned to the Corporation, and not revoked,
will be voted at the Annual Meeting.
Shares will be voted in accordance with the directions of the shareholder
as specified on the proxy. In the absence of directions, the proxy will be
voted FOR the election of the nine directors named as nominees in this Proxy
Statement; FOR the proposed modifications to the Baldwin & Lyons, Inc. Employee
Discounted Stock Option Plan; and FOR the appointment of Ernst & Young LLP as
independent auditors for the Corporation. Any other matters that may properly
come before the meeting will be acted upon by the persons named in the
accompanying proxy in accordance with their discretion.
RECORD DATE AND VOTING SECURITIES
The close of business on March 17, 1997, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. As of March 17, 1997, the
Corporation had 2,440,579 shares of Class A Common Stock outstanding and
entitled to vote. Each share of Class A Common Stock is entitled to one vote,
exercisable in person or by proxy. There are no other outstanding securities of
the Corporation entitled to vote, and there will be no cumulative voting for the
election of directors. Shares of Class B Common Stock are not entitled to vote
and proxies are not being solicited in regard to the Class B shares.
The By-Laws of the Corporation specify that the Board of Directors is to
consist of ten (10) members. As a result of the death of John C. Aldin, Chairman
of the Board and Chief Executive Officer on February 21, 1997, only nine of the
originally intended nominees are available to stand for election to the Board of
Directors. No decision has been made as to when, or if, the vacancy will be
filled or if the Board of Directors will be reduced to nine members.
PROXIES MAY NOT BE VOTED FOR GREATER THAN NINE (9) NOMINEES.
EXPENSES OF SOLICITATION
All expenses of the solicitation of proxies will be paid by the
Corporation. Officers, directors and other employees of the Corporation may
also solicit proxies by telephone or telegram or by special calls. The
Corporation will also reimburse brokers and other persons holding stock in their
names or in the names of their nominees for their expenses in forwarding proxies
and proxy material to the beneficial owners of the Corporation's stock.
BENEFICIAL OWNERS OF MORE THAN 5% OF THE CLASS A COMMON STOCK
The following table contains information concerning persons who, to the
knowledge of the Corporation, beneficially owned on March 17, 1997, more than 5%
of the outstanding voting securities of the Corporation:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Name and Address of Number of Class A Shares Percent of Class A Shares
Beneficial Owner (1) and Nature of
Beneficial Ownership
- --------------------------- --------------------------- ---------------------------
<S> <C> <C>
SHAPIRO FAMILY INTERESTS
(in the aggregate) (2) 999,600 40.96%
311 S. Wacker Drive
Chicago, Illinois
Nathan Shapiro 622,200 25.49%
Lester Shapiro 283,200 11.60%
Robert Shapiro 406,500 16.66%
Norton Shapiro 324,300 13.29%
CIBC TRUST COMPANY 524,718 21.50%
(Bahamas) Limited
Nassau, Bahamas (3)
JOHN D. WEIL 307,650 12.61%
509 Olive Street
St. Louis, Missouri (4)
- ------------------------------------------------------------------------------------
<FN>
(1) Shares as to which the beneficial owner has, or may be deemed to have,
sole voting and investment powers as to Class A shares, except as otherwise
noted.
(2) Information with respect to the Shapiro family interests was obtained from
Amendment No. 13 to Schedule 13D dated December 23, 1986 and Forms 4 and 5 as
filed by such persons with the Securities and Exchange Commission and
delivered to the Corporation, and additional information was provided by
Nathan Shapiro. The amounts shown for the individuals are included in the
amount shown for the Shapiro family interests in the aggregate. Nathan,
Robert and Norton Shapiro are sons of Lester Shapiro. The shares reported in
the above table for the Shapiro family interests include 142,800 Class A (5.84%)
shares held by Gelbart Fur Dressers, 33,000 Class A (l.35%) shares held of
record by Jay Ell Company and 142,500 Class A shares (5.83%) held of
record by Diversified Enterprises, Illinois partnerships of which Nathan,
Robert and Norton Shapiro are the general partners and as to which they share
voting and investment powers. These shares are also included in the listing
for individual beneficial ownership of each of the three.
(3) Information regarding current ownership was obtained from the Form 5 filed
with the Securities and Exchange Commission and delivered to the Corporation
for the year ended December 31, 1993. According to Amendment No. 9 to
Schedule 13D, dated October l, 1986, as filed with the Securities and
Exchange Commission and delivered to the Corporation, by CIBC Trust Company
(Bahamas) Limited, such shares are held in trust for the benefit of members of
the Pritzker family of Chicago, Illinois, including lineal descendants of
Nicholas J. Pritzker and certain of their current and former spouses.
(4) Information with respect to the interests of John D. Weil was obtained
from Amendment No. 2 to Schedule 13D, dated September 15, 1987 and Forms 4 and
5 filed with the Securities and Exchange Commission and delivered to the
Corporation, and additional information provided by Mr. Weil. Mr. Weil and
others who may be associated or affiliated with him, held, of record and
beneficially, 307,650 Class A shares. The shares reported include all shares
held in the name of family members, family custodianships or family trusts of
Mr. Weil. Mr. Weil has reported that he has sole voting and investment powers
as to 156,450 Class A shares and shared voting and investment powers as to
151,200 Class A shares, subject to the limitation that Mr. Weil has declared
that the Schedule 13D shall not be construed as an admission that he is, for
purposes of Sections 13(d) or 13(g) of the Securities Exchange Act, the
beneficial owner of the securities covered by the Schedule 13D.
</FN>
</TABLE>
DIRECTORS AND NOMINEES
Nine (9) directors are to be elected to hold office until the 1998 Annual
Meeting and until their respective successors are elected and qualified. The
Corporation contemplates that all of the nominees will be able to serve.
However, if any of the nominees are unable to serve, the persons named as
proxies in the accompanying Proxy may vote for another nominee, or nominees
according to their best judgment.
All of the nominees are now directors of the Corporation. None of the
directors are family-related, except Nathan and Norton Shapiro, who are
brothers. Set forth in the following summaries is the age of each director and
nominee, all offices held with the Corporation, his principal occupation, a
brief account of his business experience during the past five years and his
other directorships.
The By-Laws of the Corporation specify that the Board of Directors is to
consist of ten (10) members. As a result of the death of John C. Aldin, Chairman
of the Board and Chief Executive Officer on February 21, 1997, only nine of the
originally intended nominees are available to stand for election to the Board of
Directors. No decision has been made as to when, or if, the vacancy will be
filled or if the Board of Directors will be reduced to nine members.
Proxies may not be voted for greater than nine (9) directors. It is the
intention of the Corporation to have one (1) vacancy at this time.
GARY W. MILLER (3) Age 56 Director Since 1977
Mr. Miller was elected President of the Corporation in 1983, and prior
thereto he served as Executive Vice President. He is also President and Chief
Executive Officer of the Corporation's wholly-owned subsidiaries, Protective
Insurance Company ("Protective") and B & L Insurance, Ltd. and Protective's
wholly-owned subsidiary, Sagamore Insurance Company ("Sagamore"). Mr. Miller
has been employed by the Corporation since 1966.
STUART D. BILTON (3)(4) Age 50 Director Since 1987
Mr. Bilton became the President and Chief Executive Officer of Chicago Trust
Company in 1995. Prior thereto, he had been Executive Vice President of Chicago
Title & Trust Company since 1986.
OTTO N. FRENZEL III Age 66 Director Since 1979
Mr. Frenzel is the Chairman of the Executive Committee of National City Bank of
Indiana and prior thereto was the Chairman of the Board of National City Bank of
Indiana, a national bank and a subsidiary of National City Corporation. Mr.
Frenzel had held that position since 1992, when Merchants National Corporation,
a bank holding company, merged with National City Corporation. Mr. Frenzel
serves on the Board of Directors of the following companies: National City
Corp.; Indianapolis Water Company; IWC Resources Corp.; Indiana Gas Company,
Inc.; Indiana Energy, Inc.; American United Life Insurance Company; IPALCO
Enterprises, Inc.; and Indianapolis Power & Light Company.
GREGORY T. MUTZ Age 51 Director Since 1979
Mr. Mutz has been the Chairman of the Board of Amli Residential Properties
Trust, a real estate investment trust, since 1994. He also has been the
Chairman of Amli Realty Co., Chicago, Illinois (formerly a partially owned
subsidiary of the Corporation), since 1981; Chairman of Amli Commercial
Property, LLC; President of Mutz & Associates, a management consulting firm,
since 1981; Vice President of Unique Indoor Comfort, Inc., heating and
air-conditioning contractors, since 1977; and Managing General Partner of Mutz
Properties, a real estate and investment partnership, since 1975. Mr. Mutz is
also a director of Amli Residential Properties Trust.
JOHN M. O'MARA (2)(3) Age 69 Director Since 1981
Mr. O'Mara is a business consultant and private investor. From 1993 though 1996
he was a financial consultant with Citicorp Venture Capital Ltd. He also serves
as a director of Condere, Inc., Ghenoit Universal, Inc. and The Garden
Companies, Inc. From 1990 to 1993 he was the Chairman of the Executive
Committee, Quality Care Systems, Inc. He is also a director of The Midland
Company and Plantronics, Inc.
THOMAS H. PATRICK (3)(4) Age 52 Director Since 1983
Mr. Patrick is Executive Vice President, Special Advisory Services, Office of
the Chairman of Merrill Lynch & Co., Inc. From 1989 to 1993 he was Executive
Vice President - Equity Markets Group of Merrill Lynch & Co., Inc. Mr. Patrick
also serves as a director of Comdisco, Inc.
NATHAN SHAPIRO (1)(2)(3)(4)(5) Age 60 Director Since 1979
Nathan Shapiro is a general partner of SF Investments, Inc., a broker-dealer in
securities located in Chicago, Illinois. Since December, 1977, he has also
served as President of SLD Corp., management consultants. Mr. Shapiro also
serves as a director of D.V.I., Inc.
NORTON SHAPIRO (1)(5) Age 64 Director Since 1983
Norton Shapiro is retired and was Executive Vice President of National Superior
Fur Dressing & Dyeing Co., Inc., a corporation engaged in the processing,
cleaning and dressing of furs. He had been an officer of that company since
1957.
L. LESLIE WATERS, Ph.D. (1)(2)(5) Age 84 Director Since 1980
Dr. Waters served from 1964 to 1978 as Professor of Transportation and Business
History in the Graduate School of Business, Indiana University, Bloomington,
Indiana. Since his retirement in 1978, he has held the title of University
Professor Emeritus. He currently serves as a consultant to private industry,
trade associations and government units in the United States and in Europe.
(1) Member of the Compensation and Employee Benefits Committee which makes
recommendations to the Board of Directors concerning the compensation
arrangements for the executive officers of the Corporation;
establishes policies relating to salaries and job descriptions;
evaluates performance of executive employees; and reviews and
administers remuneration and incentive plans and employee benefit
programs of the Corporation, other than those administered by the
Option Committee. This Committee held no formal meeting during 1996
but carried on its business through telephone conversations and
informal contacts among its members.
(2) Member of the Audit Committee which reviews with the independent
auditors the scope of the audit work performed, any questions arising
in the course of such work, and inquiries as to other matters such as
internal accounting controls, financial reporting and security and
personnel staffing. The Audit Committee held one formal meeting
during 1996 and also carried on its business through telephone
conversations and informal contacts among its members.
(3) Member of the Investment Committee which considers and makes decisions
concerning investments made by the Corporation and each of its wholly
owned subsidiaries. The Investment Committee held four formal
meetings during 1996 and also carried on its business through frequent
telephone conversations and informal contacts among its members.
(4) Member of the Executive Committee which assists in examining various
business opportunities for the Corporation and in planning the future
direction of the Corporation. The Executive Committee held no formal
meetings during 1996.
(5) Member of the Option Committee which reviews, manages, and administers
the Employee Discounted Stock Option and Deferred Director Fee Option
Plan and, in the case of the Employee Plan, designates officers and
key employees to receive options and the number and terms of the
options. The Committee also interprets the terms of all three plans.
The Option Committee, which has the same membership as the
Compensation and Employee Benefits Committee held no formal meeting
during 1996, but carried on its business through telephone
conversations and informal contacts among its members.
During 1996, the Board of Directors held four regular meetings, and each
director attended more than 75% of the meetings of the Board of Directors and
the committees on which he served. The Board of Directors has no standing
nominating committee or committee performing a similar function.
DIRECTORS' FEES
Members of the Board of Directors who are not employed by the Corporation
received directors' fees in the amount of $3,000 for each quarterly meeting.
Certain of the directors have elected to participate in the Baldwin & Lyons,
Inc. Deferred Director Fee Option Plan ("Deferred Fee Plan"), which was approved
by shareholders at the 1989 annual meeting, and thereby have deferred receipt of
portions of their director fees. Options received under the plan are
exercisable within ten years of the date of receipt at $0.33 per share,
reflecting the effect of the three for one share split which became effective on
November 17, 1993. A total of 4,278 discounted stock options were granted in
lieu of cash compensation during 1996. From inception-to-date, a total of
52,827 options have been granted in lieu of cash compensation pursuant to the
Deferred Fee Plan, none of which were exercised in 1996. A total of 6,898 have
been exercised since inception of the Deferred Fee Plan. Directors who are
employed by the Corporation do not receive directors' fees. Members of
committees of the Board of Directors receive no additional compensation for
their service on such committees. Travel and out-of-pocket expenses of members
of the Board of Directors incurred in attending Board of Directors meetings and
committee meetings are paid by the Corporation.
COMMON STOCK BENEFICIALLY OWNED BY DIRECTORS AND MANAGEMENT
The following table contains information concerning shares of Class A and B
Common Stock of the Corporation beneficially owned on March 17, 1997 by all
directors and nominees, the five most highly compensated executive officer (the
"Named Executive Officers") and by all directors and officers as a group:
<TABLE>
<CAPTION>
Name of Beneficial Owner Class A Shares Class B Shares
of Identity of Group (1)
----------------------- ------------------------
Number Percent Number Percent
(9) (2)(8) (9)
- ------------------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
John C. Aldin 18,750 0.77% 60,875 0.53%
Gary W. Miller 37,029 1.52% 116,116 1.02%
Otto N. Frenzel, III 3,750 0.15% 23,733 0.21%
Gregory T. Mutz (3) 32,400 1.33% 686 0.01%
John M. O'Mara (4) 68,250 2.80% 281,733 2.47%
Thomas H. Patrick (5) 80,700 3.31% 230,998 2.02%
Nathan Shapiro (6) 622,200 25.49% 1,813,098 15.89%
Norton Shapiro (6) 324,300 13.29% 1,165,500 10.22%
L. Leslie Waters (7) 7,800 0.32% 24,900 0.22%
Stuart D. Bilton -0- -0- 19,878 0.17%
Joseph J. DeVito 3,750 0.33% 27,750 0.24%
James E. Kirschner 12,375 0.51% 43,500 0.38%
James W. Good 13,800 0.57% 15,200 0.13%
Directors and officers as a 914,904 37.49% 2,700,067 23.32%
group (14 persons
including the above
named)
<FN>
(1) Unless otherwise indicated, shares disclosed are those as to which the
beneficial owner has sole voting and investment powers or sole investment power
with respect to Class B shares; and includes the beneficial interest of spouses
and minor children who share the same residence as the named individual.
(2) A total of 11,401,059 Class B shares were issued and outstanding as of
March 17, 1997.
(3) Of the shares listed, Mr. Mutz shares voting and investment power in 15,600
Class A shares owned by Mutz Properties, a partnership of which Mr. Mutz is
the managing general partner; and 9,000 Class A shares owned by the Thomas
Mutz Trust as to which Mr. Mutz shares investment power.
(4) Includes 11,100 Class A shares and 44,400 Class B shares owned by Mr.
O'Mara's wife; and 45,900 Class A shares and 183,600 Class B shares held in
trust for his minor children, with Mr. O'Mara serving as trustee. Mr. O'Mara
disclaims any beneficial interest in the foregoing shares.
(5) Includes 29,100 Class A shares and 15,400 Class B shares owned by Mr.
Patrick's wife; and 9,600 Class A shares and 38,400 Class B shares owned by
his children, as to all of which he disclaims any beneficial interest.
(6) See "Beneficial Owners of More than 5% of the Common Stock" for Class A
shares. The shares reported in the above table for Nathan Shapiro and
Norton Shapiro include 1,150,800 Class B shares owned by Gelbart Fur Dressers
and Jay Ell Company and Diversified Enterprises, partnerships of which Nathan
Shapiro, Norton Shapiro and a third brother are general partners and as to
which they share investment powers.
(7) Includes 150 Class A shares and 600 Class B shares owned by Dr. Waters'
wife.
(8) Includes the number of Class B shares which each of the following persons
have a right to acquire within 60 days by exercise of stock options: Mr. Aldin
44,000; Mr. Miller 30,000; Mr. Mutz 686; Mr. Nathan Shapiro and Mr. Patrick
9,198 each; Messrs. Frenzel, O'Mara and Bilton 8,733 each; Mr. DeVito 16,750,
Mr. Kirschner 13,500, Mr. Good 15,200 and all officers and directors as a
group 178,731.
(9) For purposes of determining the percentage of the class owned by each named
individual, shares subject to options in favor of that individual are deemed
outstanding but are not deemed outstanding for computing the percentage of
the class held by any other person. All shares subject to options in favor
of officers and directors as a group are deemed outstanding for purposes of
computing the percentage of the class owned by the officers and directors as
a group.
<FN>
</TABLE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
JOINT REPORT OF THE COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE AND THE OPTION
COMMITTEE
The executive compensation program is administered by the Compensation and
Employee Benefit Committee of the Board of Directors (the "Committee") in
conjunction with the Option Committee (the "Option Committee") which, at the
present time, is composed of the same individuals. The Committee oversees the
administration of the Corporation's employee benefits plans, other than those
administered by the Option Committee, and establishes policies relating to
compensation of employees. The Committee reviews all aspects of executive
compensation and evaluates performance of the Corporation's executive officers.
The Option Committee reviews, manages, and administers all of the stock option
plans of the Corporation and, in the case of the Employee Plan, designates
officers and key employees to receive options, and the number and terms of the
options. The Committee and the Option Committee functions are coordinated to
determine and review the total compensation package for each of the named
executive officers of the Corporation. All decisions by the Committee relating
to the compensation of the Corporation's executive officers are reviewed by the
full Board before they are implemented.
The goal of the Corporation's executive compensation policy is to ensure that an
appropriate relationship exists between executive pay and the creation of
shareholder value, while at the same time motivating and retaining key
employees. To achieve this goal, the Corporation's executive compensation
policies integrate annual base compensation with bonuses based upon corporate
performance. The Corporation also utilizes equity-based incentive and deferred
compensation to ensure that executives, and management in general, have a
continuing stake, as shareholders, in the long-term success of the Corporation.
In order to most appropriately compensate senior executive officers of the
Corporation, the Committee attempts to compensate each executive officer in the
manner most appropriate to his personal situation.
In consideration of the close interrelationship of all departments in the
operation of the Corporation, the Committee views the management team as a whole
when determining compensation levels. The Committee first seeks to set the CEO's
compensation in light of the standards mentioned above and the performance of
the Corporation in relation to expectations of the Board and the individual
situation of the CEO. The compensation of other executives is set in reference
to the compensation of the CEO. Because of the unique nature of the markets
which the Corporation serves, the Committee does not believe that there are
companies or industry measures to which it can validly compare the performance
of the Corporation over a limited period of time. Thus, while the Committee
considers the Corporation's financial results in light of industry standards,
prevailing market conditions for the Corporation's products and expectations
regarding future performance, corporate performance is evaluated primarily
against flexible, internally created goals and expectations which must be
adjusted frequently in order to react to the numerous external factors which
affect the Corporation. The Committee does not set specific numerical targets or
goals, but rather evaluates the performance of the management team annually in
relation to opportunities presented to them and challenges addressed by them.
This process is largely subjective and is not intended to, and cannot be
expected to, result in changes in executive compensation which are in direct
proportion to increases or decreases in the Corporation's net income, return on
equity or any other single quantitative measure or a predetermined combination
of quantitative measures during the year.
In reviewing the compensation to be paid to the Corporation's executive officers
during any given year, the Committee views the results of operations over a
several year period. This approach recognizes the cyclical nature of the
Corporation's business, the fact that, as a specialty insurance underwriter
operating within very narrow markets, the Corporation must from time-to-time
sacrifice short-term profits for long-term financial growth. In addition, this
approach recognizes the stability of the executive management team which has
essentially been in place since 1980. Portions of executive officers= annual
incentive bonuses have, in the past, been paid in the form of discounted stock
options and portions of salaries have been paid in the form of equity
appreciation rights. No equity appreciation rights were granted during 1996.
Payment of compensation with discounted stock options and equity appreciation
rights results in total compensation which is highly leveraged against, and
directly linked to, the Corporation's performance and increases in shareholder
value. The linkage results from the relationship of the discounted stock
options to the market price of the Corporation's Class B common shares and the
relationship of the equity appreciation rights to the book value of the
Corporation's shares.
In its deliberations regarding calendar year 1996, the Committee considered its
long-term approach regarding the goals and performance of the Corporation and
the performance and compensation of the executive officers of the Corporation as
well as the individual circumstances of each executive officer The Committee
also considered changes in duties occasioned by the realignment of product
groups within the Corporation as well as the past pattern of base salary
increases and the other forms of compensation which have been utilized in the
previous years. Based on the long-term view of the Committee, and without
consideration as to the form of the compensation, the Committee determined to
increase salaries of executive officers by an average of 5.0% and annual bonuses
by an average of 9.2% when compared to the prior year amounts. The Committee and
the Option Committee also granted discounted stock options to executive officers
during 1996, and believe that the increases approved are consistent with a long-
term view of both the performance of the Corporation and of its executive
officers.
The Committee has considered the possible impact of Section 162(m) of the
Internal Revenue Code, and the regulations thereunder, on the deductibility of
the executive compensation by the Corporation. At the present time, the
Committee believes that the likelihood that Section 162(m) will have a minimal,
if any, effect on the Corporation and the effect, should one occur, would be
negligible. Nonetheless, the Committee plans to continue to monitor the
section, the regulations, the situation of the Corporation and any possible
impact they may have on the Corporation, and to take appropriate steps when, and
if, any measures are necessary.
COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE
Nathan Shapiro, Norton Shapiro and L. Leslie Waters
OPTION COMMITTEE
Nathan Shapiro, Norton Shapiro and L. Leslie Waters
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table discloses, for the years ended December 31, 1994, 1995
and 1996, the cash compensation paid by the Corporation, as well as certain
other compensation paid or accrued for those years, to each of the five most
highly compensated executive officers of the Corporation ("Named Executive
Officers") in all capacities in which they served.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- -------------------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Annual Restricted Securities LTIP All Other
Name and Comp/ Stock Underlying Payouts Compen-
Principal Position Year Salary ($) Bonus ($) Other Awards Options/ ($) sation ($)
($) ($) SARs (1)
(#)
- -------------------- ------- ----------- ----------- --------- ---------- ----------- -------- -----------
<S> <C< <C> <C> <C> <C> <C> <C> <C>
John C. Aldin 1996 195,500 290,000 0 0 6,000 0 12,000
CEO 1995 182,278 265,000 0 0 46,000 0 12,000
1994 171,111 250,000 0 0 0 0 12,000
Gary W. Miller 1996 201,872 290,000 0 0 6,000 0 12,000
President 1995 185,625 265,000 0 0 46,000 0 12,000
1994 173,944 250,000 0 0 0 0 12,000
James W. Good 1996 176,847 175,000 0 0 3,500 0 12,000
Vice President 1995 167,728 160,000 0 0 23,500 0 12,000
1994 123,666 140,000 0 0 0 0 10,073
James E. Kirschner 1996 179,550 142,500 0 0 3,000 0 12,000
Vice President 1995 171,361 135,000 0 0 23,000 0 12,000
Secretary 1994 152,735 125,000 0 0 0 0 12,000
Joseph J. DeVito 1996 177,721 175,000 0 0 3,500 0 12,000
Vice President 1995 168,621 160,000 0 0 23,500 0 12,000
1994 126,154 125,000 0 0 0 0 10,341
<FN>
(1) Corporation contribution to Salary Saving and Profit Sharing (401K) Plan.
</FN>
</TABLE>
STOCK OPTIONS
OPTION/STOCK/EQUITY APPRECIATION RIGHTS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options and stock appreciation rights held as of the end of
the fiscal year.
Options shown in the table below represent discounted stock options granted
under the Baldwin & Lyons Employee Discounted Stock Option Plan and equity
appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR/EAR EXERCISES IN THE LAST
YEAR AND YEAR END OPTION/SAR/EAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on Value Eq. App. Rts. at Eq. App. Rts. at
Exercise Realized Year End Year End
Name (#) ($) (#) ($)(V)
- ----------------- ----------- ------------ ------------------ -----------------
<S> <C> <C> <C> <C>
John C. Aldin 0 0 211,020 (E) 1,942,802
0 (N)(1) 0
Gary W. Miller 0 0 171,456 (E) 1,537,220
26,668 (N) 64,803
James W. Good 0 0 86,866 (E) 767,486
13,334 (N) 32,402
James E. Kirschner 0 0 57,666 (E) 563,323
13,334 (N) 32,402
Joseph J. DeVito 0 0 75,916 (E) 715,042
13,334 (N) 32,402
<FN>
(E) Exercisable at December 31, 1996.
(N) Not exercisable at December 31, 1996.
(V) In the case of Discounted Stock Options, market value of underlying
securities at year end, minus exercise price; in the case of
Equity Appreciation Rights, book value at year end, minus book value at
date of grant.
(1) Mr. Aldin had previously been granted 26,668 Equity Appreciation Rights
which were not vested at the time of his death and therefore expired and are not
subject to exercise.
</FN>
</TABLE>
OPTION/STOCK/EQUITY APPRECIATION GRANTS
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of options and equity appreciation
rights during the last fiscal year and the value of those options and equity
appreciation rights. No equity appreciation rights were granted during 1996.
<TABLE>
<CAPTION>
OPTION/STOCK APPRECIATION RIGHTS GRANTS IN LAST YEAR
Potential Realizable Value (1)
at Assumed Annual Rates of Stock
Individual Grants Price Appreciation For Option Term (2)
- ------------------------------------------------------------------------------ ----------------------------------------
(a) (b) (c) (d) (d1) (e) (f) (g) (h)
% of Total Mkt or Book
Options/ Options/EARs Exercise Value on
SARs/ Granted to or Base Date of
EARs (3) Employees Price Grant Expiration
Name Granted Fiscal Year $/Share $/Share Date 0% ($) 5% ($) 10% ($)
- ----------------- --------- ------------ --------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Aldin
Dis. Stk. Opt. 6,000 24.0% $1.00 $18.75 12/23/06 $106,500 $177,251 $285,796
Gary W. Miller
Dis. Stk. Opt. 6,000 24.0% 1.00 18.75 12/23/06 106,500 177,251 285,796
James W. Good
Dis. Stk. Opt. 3,500 14.0% 1.00 18.75 12/23/06 62,125 103,396 166,714
James E. Kirschner
Dis. Stk. Opt. 3,000 12.0% 1.00 18.75 12/23/06 53,250 88,625 142,898
Joseph J. DeVito
Dis. Stk. Opt. 3,500 14.0% 1.00 18.75 12/23/06 62,125 103,396 166,714
<FN>
(1) Potential realizable value, in the case of Discounted Stock Options,
represents the difference between the potential market value of the shares
subject to the options and the exercise price of the options, assuming the
indicated compound rates of growth. In the case of Equity Appreciation Rights,
represents the difference between the book value of the shares subject to the
Equity Appreciation Rights at the end of the quarter immediately preceding the
date of the grant and the book value of the shares at the end of the quarter
immediately preceding the date of exercise of the Equity Appreciation Rights,
assuming the indicated compound rates of growth.
(2) The dollar amounts in the last two columns are the result of calculations at
5% and 10% compound annual rates and are not intended to forecast future
appreciation of the Corporation's common shares or book value of the common
shares. The Corporation did not elect to use an alternative option pricing
method for valuation because it is not aware of any formula which it believes
will determine with reasonable accuracy a present value based on unknown
factors. The potential realizable values in the table include amounts which
are the result of the Compensation Committee granting certain executive officers
Discounted Stock Options and/or Equity Appreciation Rights in lieu of cash as
part of an overall compensation package.
(3) Each Equity Appreciation Right ("Right") entitles the employee to payment
for the appreciation in the book value of one share of the Corporation's common
stock from the end of the quarter immediately prior to the date of grant through
the end of the quarter immediately prior to the date of exercise. The Rights
vest and become exercisable at the rate of one-third per year at the end of the
one-year, two-year and three-year periods from the date of grant. Any
unexercised Rights terminate ten years from the date of grant.
</FN>
</TABLE>
CORPORATION PERFORMANCE
The following graph shows a five year comparison of cumulative total return for
the Corporation=s Class B common shares, the NASDAQ Insurance Stock Index and
the NASDAQ stock market index (U.S.).
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
BALDWIN & LYONS, INC. (CLASS B COMMON)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NASDAQ
Measurement Baldwin & NASDAQ Stock Insurance
Period Lyons, Inc. Market(US) Stocks
- ---------------- ------------- -------------- --------------
<S> <C> <C> <C>
Dec 31, 1991 100 100 100
Dec 31, 1992 140.8 116.4 135.3
Dec 31, 1993 192.1 133.6 144.8
Dec 31, 1994 176.1 130.6 136.3
Dec 31, 1995 202.3 184.7 193.6
Dec 31, 1996 228.5 227.2 220.6
</TABLE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Corporation and its subsidiaries, Protective Insurance Company
("Protective") and Sagamore Insurance Company ("Sagamore"), maintain depository
relationships with National City Bank, Indiana ("National City") of which Otto
N. Frenzel III, is Chairman of the Executive Committee. National City also
provides various custodial and safekeeping services to the Corporation,
Protective and Sagamore and serves as transfer agent for the Corporation's
common shares. The Corporation and its subsidiaries also had investments in
various money-market accounts which were managed by unrelated third parties but
were purchased through an affiliate of National City. In addition, during 1996,
the Corporation, Protective and Sagamore effected purchases, but no sales, of
securities aggregating approximately $7,473,000 through the same affiliate of
National City.
During 1996, the Corporation, Protective and Sagamore effected purchases and
sales of securities aggregating, respectively, approximately $58,218,000 and
$53,363,000 with SF Investments, Inc., a broker-dealer firm of which Nathan
Shapiro is President. The Corporation paid approximately $218,000 during 1996
to SF Investments and SLD Corporation, which are controlled by Mr. Shapiro, for
advice and counseling on the Corporation's investment portfolio and
approximately $350,000 to SF Investments for management of a portion of the
Corporation's equity securities portfolio. Mr. Shapiro is a director of the
Corporation.
The Corporation had an investment of approximately $8,000 in various money-
market accounts managed by Merrill Lynch Co., Inc. at December 31, 1996. Thomas
H. Patrick, a director of the Corporation, is the Executive Vice President of
Merrill Lynch Co., Inc.
The Corporation, Protective, and Sagamore have agreements with Chicago Trust
Company ("CTC") for the management of substantial portions of the Companies'
investment portfolios. CTC is paid a management fee based on the average cost
of investments managed. During 1996, a total of approximately $364,000 was paid
by the Corporation and its subsidiaries to CTC for its management services.
Stuart D. Bilton, a director of the Corporation, is President and Chief
Executive Officer of CTC.
Prior to October 31, 1996, the Corporation owned approximately 38.3% of the
Common Stock of Amli Realty Co. ("Amli"), which is engaged in the business of
land and property acquisition, development, construction, corporate services,
leasing, sales, institutional management, debt and equity financing and property
management. Effective October 31, 1996, Amli was acquired by an unrelated
publicly traded corporation and the Corporation ceased being a shareholder of
Amli. Gregory T. Mutz, a director of the Corporation, was Amli's Chairman of
the Board and directly or through affiliates, controlled approximately 26.2% of
Amli's Common Stock at October 31, 1996. Amli had financed purchases of its
stock by its employees, including Mr. Mutz, at interest rates of 4.0% to 7.25%.
The largest amount of Mr. Mutz's indebtedness to Amli for such purchases
outstanding from January 1, 1996, through October 31, 1996, was $647,546 and at
October 31, 1996, such amount was $647,546. At December 31, 1996, the
Corporation has invested approximately $2,178,000 in four limited partnership
real estate ventures in which Amli serves as a general partner and owns 20,900
shares of beneficial interest of an Amli real estate investment trust.
PROPOSAL TO RESTATE EMPLOYEE DISCOUNTED STOCK OPTION PLAN
The Baldwin & Lyons, Inc. Employee Discounted Stock Option Plan (the "Plan"),
the principal terms of which are set forth in Exhibit A attached hereto, was
adopted by the Board of Directors and was approved by the shareholders of the
Corporation at the 1989 annual meeting of shareholders. The Plan was
subsequently amended by the Board of Directors in 1993 and the amendment was
approved by the shareholder at the 1993 annual meeting of the shareholders. The
Plan constitutes a key element of the Corporation's long-term incentive program
which is intended to attract, retain and motivate executive officers and other
key employees of the Corporation and unify executive officer's and key
employee's interests with those of the shareholders of the Corporation.
Under certain provisions of the federal tax laws, greater flexibility in the
exercise of options granted pursuant to the Plan by the estate of a deceased
Plan participant may be desirable from both the perspective of the Plan
participant=s estate and from the perspective of the Corporation. Due to the
enactment of Section 162(m) of the Internal Revenue Code subsequent to the
adoption of the Plan, under certain circumstances, compensation to Named
Executive Officers in excess of one million dollars ($1,000,000) may not be
deductible to the Corporation. That provision may also deny to the Corporation
a compensation deduction which would otherwise be available upon exercise of
options granted under the Plan by the estate of a deceased Named Executive
Officer. The Plan, as currently written, permits the estate of a deceased Named
Executive Officer to exercise an option for a period of six months from the date
of death, or the option will lapse. By permitting such a brief exercise period,
the estate of a deceased Named Executive Officer may be denied the opportunity
to most effectively plan its tax obligations. In effect, as the result of the
death of a valued employee of the Corporation, options which were granted over a
period of years, as compensation for a number of years of value contribution to
the Corporation, may be required to be realized and recognized in one year, with
the possibility that a portion of the compensation may not be deductible to the
Corporation. The Board of Directors has determined that it is in the best
interests of the Corporation to restate the Plan to permit the exercise of
otherwise exercisable options granted pursuant to the Plan by the estate of a
deceased Plan participant at any time before the April 15th following the second
January 1 following the date of death of the deceased Plan participant.
The proposed amendment would permit greater flexibility to the estate of a Plan
participant, and in the case of the estate of a Named Executive Officer, permit
exercise over a three tax year period. If the estate elects to exercise over a
period of time, the estate can more effectively plan its tax liability while
reducing the possibility that the Corporation will not be permitted to deduct a
portion of the compensation paid to the Named Executive Office as a result of
the provisions of Section 162(m) of the Internal Revenue Code and the rules
adopted thereunder.
The second proposed amendment would be to extend the expiration date of the
Plan. At the present time, the Plan is scheduled to expire on May 31, 1999.
The Board of Directors has determined that it is important that the Plan be
available for grants of options in the future in that the Plan has become an
important part of the overall compensation package of officers and key
employees. The Plan permits the Corporation to provide economic benefit to its
employees without actual cash flow expenditures. In addition, under current tax
law, at the time of the exercise of the option, the employee will recognize
income and the Corporation will be entitled to a compensation deduction for
federal income tax purposes. Thus, the Corporation gains a tax benefit, the
employee has been compensated, and the Corporation has retained all of its
available cash for normal corporate purposes. It is for those reasons that the
Board of Directors has adopted the proposed change to extend the term of the
Plan for an additional five (5) years to 2004.
The final proposed material amendment to the Plan substantially eliminates the
requirement for shareholder approval of Plan amendments in the future. Under
the recent rules adopted by the Securities and Exchange Commission
("Commission"), shareholder approval of certain types of stock option plans, and
amendments thereto, is no longer required to comply with certain exemptive rules
adopted by the Commission relating to "short swing" profits provisions of the
federal securities laws. The Corporation believes that the flexibility provided
by the removal of shareholder approval requirements will allow the Board of
Directors additional latitude to modify the Plan in the future to better
accomplish the purposes for which the Plan was adopted, while still linking
shareholder interests and those of officers and key employees of the
Corporation. In addition to the amendments discussed above, certain minor
modifications are being made to comply with the provisions of the above
referenced exemptive rules adopted by the Commission.
The Corporation believes that shareholder approval of the proposed amendments to
the Plan is necessary to comply with the provisions of the Plan as currently
written and has therefore determined to submit the proposal to the shareholders
for consideration and approval. If the proposed amendments to and Restatement
of the Plan are not approved by shareholders, the Plan will remain as it
currently exists. Attached hereto as Exhibit A is a summary of the provisions of
the Restated Employee Discounted Stock Option Plan.
The Board of Directors recommends a vote "FOR" adoption for the proposed
amendments to the Plan.
INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent auditors
to audit the financial statements of the Corporation for 1997. Representatives
of Ernst & Young LLP are expected to be in attendance at the Annual Meeting and
will be provided an opportunity to make a statement should they desire to do so
and to respond to appropriate inquiries from the shareholders. Ernst & Young
LLP has acted as the Corporation's independent auditors since 1970.
The Board of Directors recommends a vote "FOR" ratification of the selection of
Ernst & Young LLP as independent auditors.
VOTE REQUIRED FOR APPROVAL
Shareholders owning a majority of the Class A shares outstanding must be present
or represented by proxy in order to constitute a quorum for the transaction of
business. Thus, a total of 1,220,290 Class A shares will be required at the
meeting for such a quorum. In order to elect the directors for the ensuing
year, approve the amendments to the Baldwin & Lyons Employee Discounted Stock
Option Plan and to confirm the appointment of Ernst & Young LLP as the
Corporation's independent auditors, a majority of the votes present at the
meeting, either in person or by proxy, a quorum being present, will be required.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the 1998 Annual Meeting of Shareholders
must be received by the Corporation at its principal office on or before
November 30, 1997 to be considered for inclusion in the Corporation's proxy
materials for that meeting.
OTHER MATTERS
The Corporation knows of no other matters to be presented for action at the
meeting. If any other matters should properly come before the meeting or any
adjournment thereof, such matters will be acted upon by the persons named as
proxies in the accompanying Proxy according to their best judgment in the best
interests of the Corporation.
The Annual Report to Shareholders containing financial statements for the year
ended December 31, 1996 and other information concerning the operations of the
Corporation is enclosed herewith but is not regarded as proxy soliciting
material. Similarly, the Report of the Compensation and Employee Benefits
Committee and the Comparative Cumulative Total Return graph included above are
not regarded as proxy soliciting material.
Each shareholder is urged to mark, date, sign and return the enclosed proxy card
in the envelope provided for that purpose. Prompt response is helpful, and your
cooperation will be appreciated.
March 31, 1997
By Order of the Board of
Directors
/s/ James E. Kirschner
James E. Kirschner
Secretary
EXHIBIT A
SUMMARY OF MAJOR TERMS OF RESTATED EMPLOYEE
DISCOUNTED STOCK OPTION PLAN
The Baldwin & Lyons, Inc. Employee Restated Discounted Stock Option Plan
(the "Discounted Option Plan") contemplates the grant of discounted stock
options to officers and certain key employees of the Corporation. The Plan
originally provided that a total of 50,000 Class B common shares would be
subject to grant. In 1993, the Plan was amended to increase to 300,000 the
number of Class B shares subject to grant. As a result of a three for one stock
split in late 1993, a total of 900,000 Class B common shares are subject to the
Plan. As of March 17, 1997, a total of 228,075 options have been granted, 77,675
have been exercised and 671,925 remain available for grant.
PLAN ADMINISTRATION.
The Discounted Option Plan will generally be administered by a committee,
consisting of not less than two directors, who shall be appointed by the Board
of the Corporation. Members of the Option Committee must be Non-Employee
Directors with the meaning of Rule 16b-3(b)(3)(i) adopted by the Securities and
Exchange Commission.
PARTICIPATION.
The Option Committee will determine and designate those managerial,
executive, and key employees of the Corporation and its subsidiaries who will be
eligible for and receive Discounted Options. The Option Committee will
similarly determine the number of shares subject to each option granted to an
employee.
SHARES SUBJECT TO THE PLAN.
The aggregate number of shares which may be granted under the Discounted
Option Plan is 900,000 Class B common shares, 228,075 of which have been
previously granted, leaving 671,925 available for grant in the future.
EFFECTIVE DATE AND TERM OF PLAN.
The Discounted Option Plan became effective on May 2, 1989, upon its
approval by the shareholders. The amendments to the Discounted Option Plan
became effective May 4, 1993, and the Restatement will become effective upon
approval by the shareholders of the Corporation. The term of the Discounted
Option Plan is for a period of ten (10) years from the effective date, which
means the Discounted Plan will expire on May 1, 1999, unless terminated earlier
by the Board of Directors. Under the Restated Plan, the term of the Restated
Plan will be extended to May 1, 2004.
OPTION EXERCISE PRICE.
The exercise price for Discounted Options shall be fixed by the Option
Committee and, absent a specific determination, the Discounted Option exercise
price shall be One Dollar ($1.00) per Class B common share. All options which
were previously granted were at an exercise price of One Dollar ($1.00) per
share on the date of grant.
OPTION EXPIRATION DATE.
The Discounted Options expire, except as specified elsewhere in the plan
for specific situations, on the earliest of: (i) a date which is ten years and
one day after the date on which the Discounted Option was granted; (ii) the date
established by the Option Committee at the time of the grant; (iii) at a date
which is six months after the date on which the employee's employment with the
Corporation or its subsidiary is terminated as a result of: (i) retirement on
the normal retirement date; (ii) early retirement with consent of the Board of
the Corporation; or (iii) disability.
EXERCISE OF OPTIONS.
Discounted Options may not be exercised prior to the completion of six
continuous months of employment by the Corporation or its subsidiaries. A
Discounted Option may be exercised by providing written notice to the Secretary
of the Corporation along with delivery of the purchase price in full, together
with any applicable state or federal withholding taxes arising in connection
with the transaction. All payments must be made in cash.
TERMINATION OF EMPLOYMENT.
Other than as provided above and except as the Option Committee otherwise
determines in a particular case, an employee whose employment terminates for any
reason other than: (i) retirement on the normal retirement date; (ii) early
retirement with consent of the Board of the Corporation; (iii) disability; or
(iv) death, shall have no right to exercise the Discounted Options.
DEATH OF PARTICIPANT.
In case of the death of an employee, any Discounted Options which were
entitled to be exercised on the date of death shall be exercisable by a person
or persons to whom such rights pass by will or the laws of descent and
distribution. Under the current Plan, the estate of the Plan participant has six
months in which to exercise any otherwise exercisable options. If the Restated
Plan is adopted, the estate of the deceased employee may exercise the option at
any time prior to the 15th day of April following the second January 1st to
occur following the date of death of the employee. The estate shall have that
period of time to exercise the options regardless of when it would otherwise
have expired.
TRANSFERABILITY.
Options granted under the Discounted Option Plan are not transferable
except by will or the laws of descent and distribution.
CHANGES IN CAPITALIZATION.
In the event of any change in the outstanding number of Class B common
shares of the Corporation by reason of any stock dividend, split,
recapitalization, merger, consolidation, combination, exchange of shares or
other similar corporate change, the number of shares which shall be subject to
the options issued under this Restated Plan shall be adjusted appropriately.
AMENDMENT AND TERMINATION OF PLAN.
Subject to the provisions of the Restated Plan, the Board may amend,
suspend or terminate the Restated Plan. Under the prior Plan, no such amendment
could, without shareholder approval: (i) increase the total number of shares
for which options may be granted, (ii) materially modify the provisions of the
Discounted Option Plan relating to eligibility to participate in the Discounted
Option Plan, (iii) change the price at which an option may be exercised, or (iv)
extend the maximum period during which a Discounted Option is exercisable or
date upon which the Discounted Option Plan will terminate. Under the Restated
Plan, shareholder approval of amendments to the Restated Plan will effectively
be eliminated.
OPTIONS GRANTED PRIOR TO EFFECTIVE DATE OF PLAN.
Any currently outstanding option granted to employees prior to the
effective date of the Restated Plan, on terms substantially similar to those
contained in the Restated Plan, may be subject to the terms and conditions of
the Restated Plan by the optionholder providing the Corporation notice of
consent to applicability of the Restated Plan. The options will have the same
exercise period as the old options as well as the same exercise price.
FEDERAL TAX CONSEQUENCES.
Under current tax law, at the time of the exercise of the Discounted
Option, the employee recognizes income in an amount equal to the difference
between the exercise price, in the case of the Restated Plan, generally One
Dollar ($1.00) per share and the fair market value on the date of the exercise,
approximately seventeen and 375/1000 Dollars ($17.375) as of March 17, 1997.
The Corporation is entitled to a deduction for federal income tax purposes in an
amount equal to the income recognized by the employee in the year in which the
employee exercises the option. Under current tax law, there is generally no tax
consequence to either the employee or the Corporation at the time of the grant
of the Discounted Option.
PURPOSES OF THE PLAN AND PROPOSED AMENDMENT.
The Board of Directors of the Corporation believes that the adoption of the
Discounted Option Plan had several beneficial effects for the Corporation. The
Board believes that key employees and management personnel were rewarded and
desired to remain with the Corporation in order to participate in the long term
growth and development of the Corporation. The Discounted Option Plan was
intended to promote a close identity of interest between the Corporation's
employees and its shareholders as well as providing a means to attract and
retain outstanding management personnel.
The Discounted Option Plan further permitted the Corporation to provide
economic benefits to its employees without actual cash flow expenditures. Under
current tax law, at the time of the exercise of the Discounted Option, the
employee recognizes income and the Corporation is entitled to a deduction for
federal income tax purposes. Thus, the Corporation gains a tax benefit, the
employee has been compensated, and the Corporation has retained all of its
available cash for normal corporate purposes.
The Board of Directors believes that the proposed restatement to will
permit the Corporation to continue to accomplish all of the purposes listed
above while providing greater flexibility to the estate of valued employees of
the Corporation.
APPENDIX
PROXY BALDWIN & LYONS, INC.
1099 North Meridian Street, Indianapolis, Indiana
Annual Meeting of Shareholders -- May 6, 1997
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Gary W. Miller, James Kirschner and G.
Patrick Corydon or any of them, with powers of substitution, as proxies to
represent and vote all shares of stock which the undersigned would be entitled
to vote at the Annual Meeting of Shareholders of Baldwin & Lyons, Inc. to be
held on May 6, 1997, and at any adjournment thereof, with all of the powers the
undersigned would possess if personally present, as follows:
1. ELECTION OF DIRECTORS
FOR all nominees listed below (except as
marked to the contrary below) [ ]
WITHHOLD AUTHORITY
to vote for all nominees listed below [ ]
Stuart D. Bilton, Otto N. Frenzel, III,
Gary W. Miller, Gregory T. Mutz, John M. O'Mara, Thomas H. Patrick,
Nathan Shapiro, Norton Shapiro, L. Leslie Waters,
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
-----------------------------------------------------------------------------
(Continued, and to be signed and dated, on the other side.)
2. ADOPTION OF THE RESTATEMENT OF THE EMPLOYEE DISCOUNTED STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP as independent auditors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, on such other matters as may properly come before the
meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES NAMED IN PROPOSAL 1 , FOR
THE RESTATEMENT OF THE EMPLOYEE DISCOUNTED STOCK OPTION PLAN IN PROPOSAL 2, AND
FOR THE RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED IN
PROPOSAL 3.
Dated: , 1997
----------------
Address correction requested. Please sign exactly as your name appears
hereon.
--------------------------------------------
(Signature of Shareholder)
--------------------------------------------
(Signature of Shareholder)
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY.
Joint owners should each sign personally.
Administrators, trustees, guardians,
attorneys or others signing in a
representative capacity should indicate
the capacity in which they sign.
