BALDWIN & LYONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
BALDWIN & LYONS, INC.:
TO THE SHAREHOLDERS OF
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Baldwin &
Lyons, Inc. (the "Corporation") will be held Tuesday, May 5, 1998 at 10:00 a.m.,
Indianapolis Time, at 1099 North Meridian Street, Indianapolis, Indiana 46204
for the following purposes:
1. To elect thirteen (13) directors,
2. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Corporation, and
3. 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 16, 1998,
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: April 1, 1998.
By Order of the Board of
Directors
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 5, 1998, in accordance with
the foregoing notice. The Proxy Statement and accompanying proxy card were
mailed to shareholders on or about April 1, 1998.
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 thirteen directors named as nominees in this Proxy
Statement 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 16, 1998, 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 16, 1998, the
Corporation had 2,397,354 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 fourteen (14) members. Gregory T. Mutz, a member of the Board of
Directors since 1979, recently informed the Corporation that in light of other
pressing business matters, he would not be able to dedicate sufficient time to
the Corporation's business to serve as a director and would therefore not be
able to stand for re-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 thirteen members.
PROXIES MAY NOT BE VOTED FOR GREATER THAN THIRTEEN (13) 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 16, 1998, more than 5%
of the outstanding voting securities of the Corporation:
<TABLE>
<CAPTION>
Number of Class A
Name and Address of Shares And Nature of Percent of
Beneficial Owner (1) Beneficial Ownership Class A Shares
- ------------------------- --------------------- --------------
<S> <C> <C>
Shapiro Family Interests
(in the aggregate) (2) 999,600 41.70%
311 S. Wacker Drive
Chicago, Illinois
Nathan Shapiro 622,200 25.95%
Lester Shapiro 283,200 11.81%
Robert Shapiro 406,500 16.96%
Norton Shapiro 324,300 13.53%
CIBC Trust Company
(Bahamas) Limited 524,718 21.89%
Nassau, Bahamas (3)
John D. Weil
509 Olive Street 307,650 12.83%
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 (5.96%) shares held by Gelbart Fur
Dressers, 33,000 Class A (l.38%) shares held of record by Jay Ell Company and
142,500 Class A shares (5.94%) 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. 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
Thirteen (13) directors are to be elected to hold office until the 1999
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. Five of the
nominees were appointed by the Board of Directors to fill vacancies which were
created as a result of an increase in the size of the Board of Directors since
the last annual meeting of shareholders. None of the directors are
family-related, except Nathan, Robert 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 fourteen (14) members. Gregory T. Mutz, a member of the Board of
Directors since 1979, recently informed the Corporation that in light of other
pressing business matters, he would not be able to dedicate sufficient time to
the Corporation's business to serve as a director and would therefore not be
able to stand for re-election to the Board of Directors. As a result of Mr. Mutz
decision, only thirteen 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 thirteen members.
Proxies may not be voted for greater than thirteen (13) directors. It is
the intention of the Corporation to have one (1) vacancy at this time.
STUART D. BILTON (3)(4) Age 51 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.
JOSEPH J. DEVITO Age 47 Director Since 1997
Mr. DeVito is a Vice President of the Corporation and Executive Vice President
and a director of Sagamore Insurance Company ("Sagamore") a wholly-owned
subsidiary of the Corporation's wholly-owned subsidiary, Protective Insurance
Company ("Protective"). Mr. DeVito has been employed by the Corporation since
1981.
OTTO N. FRENZEL III Age 67 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.; Indiana Gas Company, Inc.; Indiana Energy, Inc.; American United Life
Insurance Company; IPALCO Enterprises, Inc.; and Indianapolis Power & Light
Company.
JAMES W. GOOD Age 54 Director Since 1997
Mr. Good is a Vice President of the Corporation and Executive Vice President and
a director of Protective. Mr. Good has been employed by the Corporation since
1964.
GARY W. MILLER (3) Age 57 Director Since 1977
Mr. Miller was elected Chairman and Chief Executive Officer of the Corporation
in 1997 and has been President of the Corporation since 1983. He is also
Chairman, President and Chief Executive Officer of the Corporation's
wholly-owned subsidiaries, Protective and B & L Insurance, Ltd. and Protective's
wholly-owned subsidiary, Sagamore. Mr. Miller has been employed by the
Corporation since 1966.
JOHN M. O'MARA (2)(3) Age 70 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 is also a
director of Condere, Inc.; Glenoit Universal, Inc.; The Garden Companies, Inc.;
The Midland Company; Plantronics, Inc. and Pursell Industries, Inc.
THOMAS H. PATRICK (3)(4) Age 53 Director Since 1983
Mr. Patrick has been Executive Vice President, Special Advisory Services, Office
of the Chairman of Merrill Lynch & Co., Inc. since 1993. Mr. Patrick also serves
as a director of Comdisco, Inc.
JOHN A. PIGOTT Age 66 Director Since 1997
Mr. Pigott is currently retired. Prior to his retirement in 1996, he served in
various capacities, including Director, Vice Chairman, President and Chief
Executive Officer of Anixter, Inc.
NATHAN SHAPIRO (1)(2)(3)(4) Age 61 Director Since 1979
Mr. 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 65 Director Since 1983
Mr. Shapiro is currently retired. Prior to his retirement he 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.
ROBERT SHAPIRO Age 59 Director Since 1997
Mr. Shapiro is the President and Chief Executive Officer of Emlin Cosmetics,
Inc.
L. LESLIE WATERS, Ph.D. (1)(2)(5) Age 85 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.
JOHN D. WEIL Age 57 Director Since 1997
Mr. Weil is President of Clayton Management Co. Mr. Weil also serves as a
director of Allied Healthcare Products, Inc.; Pico Holdings; Cliffs Drilling
Co.; CleveTrust Realty Investors; Oglebay Norton Co.; Todd Shipyards Corp.; and
Southern Investors Service Co., Inc.
[FN]
(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 meetings during 1997, 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 1997 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 two formal meetings during 1997 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 1997.
(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 held no formal meetings
during 1997, but carried on its business through telephone conversations and
informal contacts among its members.
</FN>
During 1997, the Board of Directors held four regular and one special
meeting, and each director attended more than 75% of the meetings of the Board
of Directors and the committees on which he served with the exception of Mr.
Mutz who attended three of the five Board of Directors meetings. 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.
Effective January 1, 1998, quarterly director's fees were increased to $4,500
for each director attending the meeting in person. Directors unable to attend a
meeting in person will receive a fee of $3,000, even if in attendance by
teleconference. 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
Deferred Fee Plan become exercisable one year from the date of the grant and are
exercisable within ten years of the date of the grant. Exercise prices are
either $1.00 or $0.33 per share, reflecting the effect of the three for one
share split which became effective on November 17, 1993. A total of 4,206
discounted stock options were granted in lieu of cash compensation during 1997.
From inception-to-date, a total of 57,033 options have been granted in lieu of
cash compensation pursuant to the Deferred Fee Plan, 1,614 of which were
exercised in 1997. A total of 8,512 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 16, 1998 by all
directors and nominees, the five most highly compensated executive officers (the
"Named Executive Officers") and by all directors and officers as a group:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Name of Beneficial Owner -------------------- --------------------
of Identity of Group (1) Number Percent Number Percent
----------- --------- ----------- ---------
(9) (2)(8) (9)
<S> <C> <C> <C> <C>
John C. Aldin 18,750 .78% 60,875 .54%
Stuart D. Bilton -0- -0- 20,496 .18%
G. Patrick Corydon 8,100 .34% 26,900 .24%
Joseph J. DeVito 3,750 .16% 27,750 .25%
Otto N. Frenzel, III 3,750 .16% 24,351 .22%
James W. Good 13,800 .58% 15,200 .13%
James E. Kirschner 12,375 .52% 43,500 .38%
Gary W. Miller 37,029 1.54% 116,116 1.03%
Gregory T. Mutz (3) 23,400 .98% 862 .01%
John M. O'Mara (4) 68,250 2.85% 282,351 2.50%
Thomas H. Patrick (5) 71,100 2.97% 193,216 1.71%
John A. Pigott -0- -0- 15,000 .13%
Nathan Shapiro (6) 622,200 25.95% 1,810,716 16.04%
Norton Shapiro (6) 324,300 13.53% 1,165,500 10.33%
Robert Shapiro (6) 406,500 16.96% 1,177,042 10.43%
L. Leslie Waters (7) 7,800 .33% 24,900 .22%
John D. Weil 307,650 12.83% 1,486,642 13.18%
Directors and officers 1,292,154 53.90% 4,189,817 36.54%
as a group (17 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 11,302,520 Class B shares were issued and outstanding as of
March 16, 1998.
(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.
(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 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, Norton and Robert
Shapiro include 1,150,800 Class B shares owned by Gelbart Fur Dressers and Jay
Ell Company and Diversified Enterprises, partnerships of which Nathan, Robert
and Norton Shapiro 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 22,500; Mr. Mutz 862; Mr. Nathan Shapiro and Mr. Patrick
9,816 each; Messrs. Frenzel, O'Mara and Bilton 9,351 each; Mr. DeVito 13,750;
Mr. Kirschner 10,500; Mr. Good 15,200; Mr. Corydon 13,025; Messrs. Weil and
Robert Shapiro 442 each; and all officers and directors as a group 165,406.
(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"). At the present
time, the two members of the Option Committee are also members of the Committee.
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.
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. 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 or discounted stock options
were granted during 1997. Payment of compensation with discounted stock options;
market value 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 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 1997, the Committee considered
its long-term approach regarding the goals and performance of the Corporation
and the performance and present compensation of each executive officer of the
Corporation. The Committee also considered changes in duties occasioned by the
realignment of product groups within the Corporation and the death in 1997 of
John C. Aldin. Mr. Aldin had been the Chairman and Chief Executive Officer prior
to his death and those duties were assumed by Gary W. Miller. The Committee
determined to increase salaries of executive officers by an average of 5.6% and
annual bonuses by an average of 8.8% when compared to the prior year amounts.
During 1997 the Committee and the Option Committee also granted stock options to
executive officers and certain others at an exercise price of $25.75 per share,
which was the fair market value of the Corporation's Class B shares on the date
of the grant. The Committee and the Option Committee 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 an effect
on the Corporation is minimal. Further, should there be any effect, it is
anticipated that it 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
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, 1995, 1996
and 1997, the cash compensation paid by the Corporation, as well as certain
other compensation paid or accrued for those years, to each person who served as
the Chief Executive Officer of the Corporation during the year and to each of
the five most highly compensated executive officers of the Corporation ("Named
Executive Officers") in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
---------------------------------- ----------------------- ----------
(a) (b) (c) (d) (e)(1) (f) (g) (h) (i)
Annual Restricted Securities LTIP All Other
Name and Comp/ Stock Underlying Payouts Compensation
Principal Year Salary Bonus Other Awards Options/ ($) ($)(2)
Position ($) ($) ($) SARs
($) (#)
- -------------------- ------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Aldin (3) 1997 37,596 0 1,351,691 0 0 0 0
CEO 1996 193,500 290,000 0 0 6,000 0 12,000
1995 182,278 265,000 0 0 46,000 0 12,000
Gary W. Miller (4) 1997 224,353 300,000 0 0 100,000 0 12,750
President 1996 201,872 290,000 0 0 6,000 0 12,000
1995 185,625 265,000 0 0 46,000 0 12,000
James W. Good 1997 192,358 200,000 0 0 75,000 0 12,750
Vice President 1996 176,847 175,000 0 0 3,500 0 12,000
1995 167,728 160,000 0 0 23,500 0 12,000
Joseph J. DeVito 1997 194,014 200,000 0 0 75,000 0 12,750
Vice President 1996 177,721 175,000 0 0 3,500 0 12,000
1995 168,621 160,000 0 0 23,500 0 12,000
James E. Kirschner 1997 188,889 150,000 0 0 50,000 0 12,750
Vice President 1996 179,550 142,500 0 0 3,000 0 12,000
Secretary 1995 171,361 135,000 0 0 23,000 0 12,000
G. Patrick Corydon 1997 180,735 165,000 0 0 50,000 0 12,750
Vice President 1996 171,042 150,000 0 0 3,500 0 12,000
Treasurer 1995 160,807 135,000 0 0 23,500 0 12,000
<FN>
(1) Value realized upon exercise of discounted stock option and/or equity
appreciation rights
(2) Company contribution to Salary Saving and Profit Sharing Plan (401K) Plan
(3) Mr. Aldin was CEO prior to his death on February 21, 1997.
(4) Mr. Miller was named CEO on June 17, 1997.
</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 Equity Appreciation Rights as
well as discounted stock options and fair market value options granted under the
Baldwin & Lyons Employee Discounted Stock Option Plan. 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.
<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. Eq. App. Rts.
Exercise Realized at Year End at Year End
Name (#) ($) (#) ($)(V)
- -------------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
John C. Aldin 167,020 1,351,691 44,000(E) 1,029,506
0(N) 0
Gary W. Miller 0 0 184,791(E) 2,167,798
113,333(N) 69,067
James W. Good 0 0 93,533(E) 1,086,504
81,667(N) 34,533
Joseph J. DeVito 0 0 82,583(E) 1,008,598
81,667(N) 34,533
James E. Kirschner 0 0 64,333(E) 796,942
56,667(N) 34,533
G. Patrick Corydon 0 0 68,833(E) 843,553
56,667(N) 34,533
<FN>
(E) Exercisable at December 31, 1997.
(N) Not exercisable at December 31, 1997.
(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.
</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 1997.
OPTION/STOCK APPRECIATION RIGHTS GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
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
Stk. Opt. 0 0% NA NA NA NA NA NA
Gary W. Miller
Stk. Opt. 100,000 20.1% 25.75 25.75 12/18/07 0 1,619,000 4,104,000
James W. Good
Stk. Opt. 75,000 15.1% 25.75 25.75 12/18/07 0 1,215,000 3,078,000
Joseph J. DeVito
Stk. Opt. 75,000 15.1% 25.75 25.75 12/18/07 0 1,215,000 3,078,000
James E. Kirschner
Stk. Opt. 50,000 10.1% 25.75 25.75 12/18/07 0 810,000 2,052,000
G. Patrick Corydon
Stk. Opt. 50,000 10.1% 25.75 25.75 12/18/07 0 810,000 2,052,000
<FN>
(1) Potential realizable value 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.
(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. 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
Fair Market Value Options as part of an overall compensation package in
1997.
(3) No Equity Appreciation Rights were granted in 1997.
</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 PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NASDAQ
Measurement Baldwin & NASDAQ Insurance
Period Lyons, Inc. Market (US) Stocks
- ---------------- ------------ ------------ ------------
<S> <C> <C> <C>
December 31, 1992 100.000 100.000 100.000
December 31, 1993 135.448 114.796 106.856
December 31, 1994 125.635 112.214 100.679
December 31, 1995 141.083 158.699 143.014
December 31, 1996 162.885 195.192 163.034
December 31, 1997 218.319 239.527 239.181
</TABLE>
TRANSACTION WITH MANAGEMENT AND OTHERS
The Corporation and its subsidiaries, Protective and 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 1997,
the Corporation, Protective and Sagamore effected purchases, but no sales, of
securities aggregating approximately $8,077,000 through the same affiliate of
National City.
During 1997, the Corporation, Protective and Sagamore effected purchases
and sales of securities aggregating, respectively, approximately $66,683,000 and
$69,857,000 with SF Investments, Inc., a broker-dealer firm of which Nathan
Shapiro, a director of the Corporation, is President. The Corporation also paid
approximately $129,000 during 1997 to SF Investments, Inc. and its affiliates,
for advice and counseling on the Corporation's investment portfolio.
Protective has entered into an agreement with an associate of SF
Investments, Inc. for management of a portion of Protective's equity securities
portfolio. During 1997, that associate received performance-based compensation
of approximately $47,000 for the management services.
During 1997, the Corporation, Protective and Sagamore effected purchases
and sales of securities aggregating, respectively, approximately $5,222,000 and
$2,975,000 with Merrill Lynch Co., Inc. ("Merrill Lynch"). In addition, the
Corporation had an investment of approximately $68,000 in various money-market
accounts managed by Merrill Lynch at December 31, 1997. Thomas H. Patrick, a
director of the Corporation, is an Executive Vice President of Merrill Lynch.
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 1997, a total of approximately
$375,000 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.
At December 31, 1997, the Corporation has invested approximately $2,020,000
in four limited partnership real estate ventures in which Amli Realty Co.
("Amli") serves as a general partner. The Corporation also owns 25,100 shares of
beneficial interest of an Amli real estate investment trust. Gregory T. Mutz, a
director of the Corporation during 1997, who is not standing for election in
1998, is Chairman of the Board of Amli.
INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent auditors
to audit the financial statements of the Corporation for 1998. 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 1,198,678 Class A shares will be required at the
meeting for such a quorum. In order to elect the directors for the ensuing year
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 1999 Annual Meeting of Shareholders
must be received by the Corporation at its principal office on or before
November 30, 1998 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, 1997 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.
April 1, 1998
By Order of the Board of
Directors
James E. Kirschner
Secretary
APPENDIX
PROXY
BALDWIN & LYONS, INC.
1099 North Meridian Street, Indianapolis, Indiana
Annual Meeting of Shareholders -- May 5, 1998
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 5, 1998, and at any adjournment thereof, with all of the powers the
undersigned would possess if personally present, as follows:
1. ELECTION OF DIRECTORS WITHHOLD AUTHORITY
FOR all nominees listed below to vote for all nominees
(except as marked to [ ] listed below [ ]
the contrary below)
Stuart D. Bilton, Joseph J. DeVito, Otto N. Frenzel III, James A. Good,
Gary W. Miller, John M. O'Mara, Thomas H. Patrick, John A. Pigott,
Nathan Shapiro, Norton Shapiro, Robert Shapiro, L. Leslie Waters, John D. Weil
(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. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP as independent auditors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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 AND
FOR THE RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED IN
PROPOSAL 2.
Dated: , 1998 Please sign exactly as your
--------------------- name appears hereon.
Address correction requested.
-------------------------------------
(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.
