BALDWIN & LYONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1999
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 4, 1999 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 15, 1999,
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, 1999.
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.
<PAGE> 1
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 4, 1999, in accordance with
the foregoing notice. The Proxy Statement and accompanying proxy card were
mailed to shareholders on or about April 1, 1999.
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 15, 1999, 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 15, 1999, the
Corporation had 2,382,654 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.
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.
</PAGE> 1
<PAGE> 2
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 15, 1999, more than 5%
of the outstanding voting securities of the Corporation:
<TABLE>
<CAPTION>
Number of Class A Shares
Name and Address of And Nature of
Beneficial Owner (1) Beneficial Ownership Percent of Class A Shares
- ------------------------ ------------------------ -------------------------
<S> <C> <C>
SHAPIRO FAMILY INTERESTS
(in the aggregate) (2) 999,600 41.95%
311 S. Wacker Drive
Chicago, Illinois
Nathan Shapiro 622,200 26.11%
Lester Shapiro 283,200 11.89%
Robert Shapiro 406,500 17.06%
Norton Shapiro 324,300 13.61%
CIBC TRUST COMPANY
(Bahamas) Limited 524,718 22.02%
Nassau, Bahamas (3)
JOHN D. WEIL
509 Olive Street 307,650 12.91%
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>
<PAGE> 2
<PAGE> 3
DIRECTORS AND NOMINEES
Thirteen (13) directors are to be elected to hold office until the 2000
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, 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.
STUART D. BILTON (3) Age 52 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. Mr. Bilton is also the Chairman and Chief
Executive Officer of The Alleghany Funds.
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 (2) Age 68 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 serves on the Board of Directors of the following companies: Indiana Gas
Company, Inc.; Indiana Energy, Inc.; American United Life Insurance Company;
IPALCO Enterprises, Inc.; and Indianapolis Power & Light Company.
JAMES W. GOOD Age 55 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 58 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 71 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: Glenoit Universal, Inc.; The Midland Company; and Plantronics, Inc.
</PAGE> 3
<PAGE> 4
THOMAS H. PATRICK (3) Age 54 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 (2)(4) Age 67 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) Age 62 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)(4) Age 66 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 60 Director Since 1997
Mr. Shapiro is the President and Chief Executive Officer of Emlin Cosmetics,
Inc.
L. LESLIE WATERS, Ph.D. (1)(2)(4) Age 86 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 (3)(4) Age 58 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; 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 one
formal meeting during 1998, and also 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 1998, and also carried on
its business through telephone conversations and informal contacts among
its members.
</PAGE> 4
<PAGE> 5
(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
1998 and also carried on its business through frequent telephone
conversations and informal contacts among its members.
(4) 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 one
formal meeting during 1998, and also carried on its business through
telephone conversations and informal contacts among its members.
</FN>
During 1998, 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 with the exceptions of Mr. Patrick, who
attended two of the four Board of Directors meetings; Mr. O'Mara, who attended
one of the four Investment Committee meetings and was unable to attend the Audit
Committee meeting; and Mr. Frenzel, who was unable to attend the Audit Committee
meeting. 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
receive directors' fees in the amount of $4,500 for each quarterly meeting
attended in person. Directors unable to attend a meeting in person 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 6,228 discounted stock options were granted in
lieu of cash compensation during 1998. From inception-to-date, a total of 63,261
options have been granted in lieu of cash compensation pursuant to the Deferred
Fee Plan, none of which were exercised in 1998. A total of 8,513 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.
</PAGE> 5
<PAGE> 6
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 15, 1999 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>
Name of Beneficial Owner Class A Shares Class B Shares
of Identity of Group (1) Number Percent Number Percent
(8) (2)(7) (8)
- --------------------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Stuart D. Bilton -0- -0- 21,382 .19%
G. Patrick Corydon 8,100 .34% 43,567 .39%
Joseph J. DeVito 3,750 .16% 52,750 .47%
Otto N. Frenzel, III 3,750 .16% 25,237 .23%
James W. Good 13,800 .58% 40,200 .36%
James E. Kirschner 12,375 .52% 60,167 .54%
Gary W. Miller 37,029 1.55% 149,449 1.33%
John M. O'Mara (3) 68,250 2.86% 283,101 2.54%
Thomas H. Patrick (4) 71,100 2.98% 193,974 1.74%
John A. Pigott -0- -0- 15,821 .14%
Nathan Shapiro (5) 622,200 26.11% 1,807,702 16.19%
Norton Shapiro (5) 324,300 13.61% 1,165,500 10.45%
Robert Shapiro (5) 406,500 17.06% 1,177,928 10.56%
L. Leslie Waters (6) 7,800 33.00% 24,900 .22%
John D. Weil 307,650 12.91% 1,487,528 13.33%
Directors and officers as a 1,250,004 52.46% 4,247,606 37.28%
group (15 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 11,153,996 Class B shares were issued and outstanding as of
March 15, 1999.
(3) 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.
(4) 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.
(5) 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.
</PAGE> 6
<PAGE> 7
(6) Includes 150 Class A shares and 600 Class B shares owned by Dr. Waters'
wife.
(7) 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.
Miller 55,833; Mr. Nathan Shapiro 10,702; Mr. Patrick 10,574; Messrs.
Frenzel and Bilton 10,237 each; Mr. O'Mara 10,101; Mr. DeVito 38,750; Mr.
Kirschner 27,167; Mr. Good 37,200; Mr. Corydon 25,192; Messrs. Weil and
Robert Shapiro 1,328 each; Mr. Piggott 821; and all officers and directors
as a group 239,470.
(8) 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 reliably 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
</PAGE> 7
<PAGE> 8
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
compensation have, in the past, been paid in the form of stock options and
equity appreciation rights. The issuance of 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 1998, 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 determined to increase salaries of executive
officers by an average of 12.2% and annual bonuses by an average of 16.7% when
compared to the prior year amounts. No equity appreciation rights or stock
options were granted to any of the executive officers during 1998. 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 significant
impact is negligible. Nonetheless, the Committee plans to continue to monitor
the regulations 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
John A. Pigott, Norton Shapiro, L. Leslie Waters, and John D. Weil
</PAGE> 8
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table discloses, for the years ended December 31, 1996, 1997
and 1998, 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.
<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>
Gary W. Miller 1998 314,346 330,000 0 0 0 0 12,800
President 1997 224,553 300,000 0 0 100,000 0 12,750
1996 201,872 290,000 0 0 6,000 0 12,000
James W. Good 1998 243,700 230,000 0 0 0 0 12,800
Vice President 1997 192,358 200,000 0 0 75,000 0 12,750
1996 176,847 175,000 0 0 3,500 0 12,000
Joseph J. DeVito 1998 241,835 230,000 0 0 0 0 12,800
Vice President 1997 194,014 200,000 0 0 75,000 0 12,750
1996 177,721 175,000 0 0 3,500 0 12,000
James E. Kirschner 1998 207,038 195,000 0 0 0 0 12,800
Vice President 1997 188,889 150,000 0 0 50,000 0 12,750
Secretary 1996 179,550 142,500 0 0 3,000 0 12,000
G. Patrick Corydon 1998 206,660 200,000 0 0 0 0 12,800
Vice President 1997 180,735 165,000 0 0 50,000 0 12,750
Treasurer 1996 171,042 150,000 0 0 3,000 0 12,000
<FN>
1. Company contribution to Salary Saving and Profit Sharing Plan (401K) Plan
</FN>
</TABLE>
<PAGE> 9
<PAGE> 10
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 Russell 2000 Index. In previous years, comparison was made to the
NASDAQ U.S. Stock Market Index, rather than the Russell 2000 Index. Management
believes that the Corporation and its capitalization more nearly matches the
characteristics and market capitalization of the companies which compose the
Russell 2000 rather than the NASDAQ U.S. Stock Market Index. Management
believes that a number of factors, including primarily the concentration of
technology and internet issues contained in the NASDAQ U.S. Stock Market Index
rendered that index less comparable to the Corporation than the Russell 2000.
Had the NASDAQ U.S. Stock Market Index been used in the following performance
graph, the annual valuation points would have been 100, 97.8, 138.3, 206.8 and
293.2.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
BALDWIN & LYONS, INC. (CLASS B COMMON SHARES)
EDGAR PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Baldwin & Lyons Nasdaq Insurance
Class B Stocks Russell 2000
- ---------------------- ---------------- ------------------ ---------------
<S> <C> <C> <C>
December 31, 1993 100.000 100.000 100.000
December 31, 1994 92.190 94.131 96.899
December 31, 1995 103.470 133.711 122.481
December 31, 1996 119.410 152.418 140.698
December 31, 1997 160.060 223.582 169.380
December 31, 1998 167.140 198.781 163.566
</TABLE>
STOCK OPTIONS
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of stock options during the last
fiscal year and unexercised options and stock appreciation rights held as of the
end of the fiscal year. The Corporation has not granted any stock appreciation
rights and none are outstanding.
Options shown in the table below represent discounted stock options and
fair market value options granted under the Baldwin & Lyons Employee Discounted
Stock Option Plan. Each option represents the right for the employee to acquire
one Class B common share upon payment in cash of the option exercise price.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN THE LAST
YEAR AND YEAR END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options/SARs Options/SARs
Exercise Realized At Year End At Year End
Name (#) ($) (#) ($)(V)
- ----------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
Gary W. Miller 7,500 151,250 55,833 (E) 541,379
66,667 (N) 0
James W. Good 3,000 60,500 37,200 (E) 292,752
50,000 (N) 0
Joseph J. DeVito 3,000 60,500 38,750 (E) 329,564
50,000 (N) 0
James E. Kirschner 3,000 60,500 27,167 (E) 252,377
33,333 (N) 0
G. Patrick Corydon 975 19,833 29,692 (E) 312,345
33,333 (N) 0
<FN>
(E) Exercisable at December 31, 1998.
(N) Not exercisable at December 31, 1998.
(V) Market value of underlying securities at year end, minus exercise
price.
</FN>
</TABLE>
</PAGE> 11
<PAGE> 12
EQUITY APPRECIATION RIGHTS
EQUITY APPRECIATION RIGHT EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of Equity Appreciation Rights
("Rights") during the last fiscal year and unexercised Rights held as of the end
of the fiscal year.
Rights shown in the table below represent Rights issued by the Corporation
to each of the Named Executive Officers. Each 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.
Rights may not be exercised to acquire shares of the Corporation. In
addition, the value of Rights does not necessary coincide with the market value
of the Corporation's shares. The value of Rights is linked to the book value of
the Corporation's shares, which, in the opinion of management, more closely
reflects the internal performance of the Corporation. Rights are generally not
subject to certain market factors which may effect, either positively or
negatively, the market value for the Corporation's Class A or Class B shares.
<TABLE>
<CAPTION>
AGGREGATED EQUITY APPRECIATION RIGHT EXERCISES IN THE LAST
YEAR AND YEAR END EQUITY APPRECIATION RIGHT VALUES
(e)
(d) Value of
(b) Number of Unexercised
Number of (c) Unexercised In-the-Money
Rights Value Rights Rights
(a) Exercised Realized At Year End At Year End
Name (#) ($) (#) ($)(V)
- ----------------- ---------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C>
Gary W. Miller 18,000 250,830 150,124 (E) 1,175,613
0 (N) 0
James W. Good 35,000 351,925 50,000 (E) 374,980
0 (N) 0
Joseph J. DeVito 22,500 239,550 50,000 (E) 374,980
0 (N) 0
James E. Kirschner 7,500 104,700 50,000 (E) 374,980
0 (N) 0
G. Patrick Corydon 11,500 140,660 50,000 (E) 374,980
0 (N) 0
<FN>
(E) Exercisable at December 31, 1998.
(N) Not exercisable at December 31, 1998.
(V) Book value at year end, minus book value at date of grant.
</FN>
</TABLE>
</PAGE> 12
<PAGE> 13
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 1998, the Corporation, Protective and Sagamore effected
purchases, but no sales, of securities aggregating approximately $7,205,000
through the same affiliate of National City.
During 1998, the Corporation, Protective and Sagamore effected purchases
and sales of securities aggregating, respectively, approximately $36,658,000
and $34,588,000 with SF Investments, Inc., a broker-dealer firm of which Nathan
Shapiro, a director of the Corporation, is President. The Corporation also paid
approximately $110,000 during 1998 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 1998, that associate earned no performance-based compensation
and was paid approximately $120,000 for management services.
During 1998, the Corporation, Protective and Sagamore effected purchases
and sales of securities aggregating, respectively, approximately $2,052,000 and
$1,439,000 with Merrill Lynch Co., Inc. ("Merrill Lynch"). In addition, the
Corporation had an investment of approximately $80,000 in various money-market
accounts managed by Merrill Lynch at December 31, 1998. 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 1998, a total of approximately
$361,000 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.
INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors to audit the financial statements of the Corporation for 1999.
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.
</PAGE> 13
<PAGE> 14
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 1,191,328 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 SHAREHOLDERS PROPOSALS
Shareholder proposals to be presented at the 2000 Annual Meeting of
Shareholders must be received by the Corporation at its principal office on or
before November 30, 1999 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, 1998 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, 1999
By Order of the Board of
Directors
James E. Kirschner
Secretary
</PAGE> 14
APPENDIX
PROXY
BALDWIN & LYONS, INC.
1099 North Meridian Street, Indianapolis, Indiana
Annual Meeting of Shareholders -- May 4, 1999
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 4, 1999, 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 the [ ] listed below [ ]
contrary below)
Stuart D. Bilton, Joseph J. DeVito, Otto N. Frenzel III, James W. 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: , 1999 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.
