Notice of the Annual Meeting of Shareholders
To be held May 23, 2003
To the Shareholders of
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of OLD
REPUBLIC INTERNATIONAL CORPORATION will be held in Room 2300 at the offices of
the Company, 307 North Michigan Avenue, Chicago, Illinois 60601, on Friday, May
23, 2003 at 3:00 P.M. Central Daylight Savings Time, for the purpose of
considering and acting upon the following matters:
1. The election of four Class 1 directors;
2. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 21, 2003 will be
entitled to vote, either in person or by proxy. Shareholders who do not expect
to attend in person are urged to execute and return the accompanying proxy in
the envelope enclosed.
The annual report of the Company for the year 2002 is being mailed to all
shareholders of record with this Notice and the Proxy Statement.
By order of the Board of Directors.
/s/ Spencer LeRoy III
SPENCER LEROY III
Secretary
Chicago, Illinois
April 1, 2003
Proxy Statement
OLD REPUBLIC INTERNATIONAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 23, 2003
GENERAL INFORMATION
This proxy statement is being furnished to the shareholders of Old Republic
International Corporation, a Delaware corporation (the "Company"), 307 North
Michigan Avenue, Chicago, Illinois 60601, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting of shareholders
to be held on May 23, 2003 and any adjournments thereof. The approximate date on
which this proxy statement and the accompanying proxy are first being sent to
the shareholders is April 1, 2003.
The proxy is revocable at any time before it is voted by written
notification to the persons named therein as proxies, which may be mailed or
delivered to the Company at the above address. All shares represented by
effective proxies will be voted at the meeting and at any adjournments thereof.
If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted as
indicated thereon. If no specification is made, the proxy will be voted by the
proxy committee for the election as directors of the nominees named below (or
substitutes therefor if any nominees are unable or refuse to serve); and in its
discretion upon such matters not presently known or determined which may
properly come before the meeting.
The Company has two classes of stock outstanding, Preferred Stock, 1 cent
par value per share ("Preferred Stock"), and Common Stock, $1.00 par value per
share ("Common Stock"). The voting Preferred Stock is composed of Series G-2 and
G-3 Convertible Preferred Stock ("Series G Preferred Stock"). On February 28,
2003, 5,800 shares of Series G Preferred Stock and 120,618,769 shares of Common
Stock were outstanding and entitled to one vote each on all matters considered
at the meeting. Shareholders of record as of the close of business on March 21,
2003 are entitled to notice of and to vote at the meeting. There are no
cumulative voting rights with respect to the election of directors.
PRINCIPAL HOLDERS OF SECURITIES
The following tabulation shows with respect to (i) each person who is known
to be the beneficial owner of more than 5% of any series of the voting Preferred
Stock or the Common Stock of the Company; (ii) each director and executive
officer of the Company; and (iii) all directors and executive officers, as a
group: (a) the total number of shares of Preferred Stock or Common Stock
beneficially owned as of February 28, 2003 and (b) the percent of the class of
stock so owned as of the same date:
1
Amount and
Nature of Percent
Name of Beneficial of
Title of Class Beneficial Owner Ownership Class(*)
----------------------------------- ---------------------------------------- --------------- ----------
Common Stock
Shareholders' beneficial ownership Old Republic International Corporation 6,456,913 (1) 5.4
of more than 5% of the Common Stock Employees Savings and Stock
(excluding directors) Ownership Plan
Messrs. Legg, Sursa and Zucaro as
members of The Administration Committee
307 North Michigan Avenue
Chicago, Illinois 60601
Other Shares Percent
Name of Shares Subject to Shares Held by Beneficially of
Common Stock Beneficial Owner Stock Options(*) Employee Plans (*) Owned (*) Total Class (*)
----------------- ------------------- ----------------- ------------------- ----------------- ---------- ---------
Directors' and John S. Adams 16,775 4,516 (2) 975 22,266 **
executive Harrington Bischof - - 10,795 (3) 10,795 **
officers' Charles S. Boone 28,650 9,183 (2) 4,800 (4) 40,633 **
beneficial Anthony F. Colao 36,625 - 104,485 141,110 0.1
ownership Jimmy A. Dew 253,000 71,795 (2) 293,755 (5) 618,550 0.5
John M. Dixon - - - - **
James Kellogg 7,380 15,496 (2) 218,300 241,176 0.2
Kurt W. Kreyling - - 359,351 (6) 359,351 0.3
Peter Lardner 8,250 4,057 (2) 150,595 (7) 162,902 0.1
Wilbur S. Legg - - 47,116 (8)(9) 47,116 **
Spencer LeRoy III 91,000 5,048 (2) 30,786 (10) 126,834 0.1
John W. Popp - - 10,000 10,000 **
William A. Simpson 254,750 33,996 (2) 171,761 (11) 460,507 0.4
Arnold L. Steiner - - 944,970 (12) 944,970 0.8
David Sursa - - 486,853 (9)(13) 486,853 0.4
Fredricka Taubitz - - - - **
William G. White, Jr. - - 46,512 46,512 **
A. C. Zucaro 158,000 121,906 (2) 407,543 (9) 687,449 0.5
All executive officers and
directors, as a group (18) 852,430 265,997 3,288,597 4,407,024 3.6
============================================================================================================================
* Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. Common shares used for
calculation purposes include the equivalent common shares that may be
issued upon conversion by the beneficial owner of Preferred Stock
convertible within 60 days.
** Less than one-tenth of one percent.
(1) Under the terms of the Old Republic International Corporation Employees
Savings and Stock Ownership Plan ("ESSOP"), a participant is entitled to
vote the Company stock held by the ESSOP, the value of which has been
allocated to the participant's account. The Administration Committee
appointed pursuant to the ESSOP is authorized to vote the Company stock
held by the ESSOP until such time as the value of such stock has been
allocated to a participant's account or where a participant fails to
exercise his or her voting rights. The value of a portion of the shares of
the Common Stock has been allocated to the accounts of ESSOP participants.
Additionally, the Administration Committee may be deemed to have investment
power with respect to stock held by the ESSOP. The Administration Committee
is composed of Messrs. Legg, Sursa and Zucaro, all directors of the
Company. Under the rules of the Securities and Exchange Commission, each of
them may be deemed to be the beneficial owner of such shares of Common
Stock by virtue of such shared voting and investment power.
(2) Includes only the shares that have been allocated to the employer matching
and employee savings accounts of the director or executive officer as a
participant in the ESSOP. Excludes those shares for which the director or
executive officer may be deemed to have investment and voting power as a
result of being a member of the Administration Committee of the ESSOP.
Includes shares of the Company's stock held in the Bituminous Casualty
Corporation 401K Plan for Mr. Lardner and shares of the Company's stock
held by the RMIC Profit Sharing Plan for Messrs. Dew and Simpson.
(3) Includes 4,500 shares held in trust for Mr. Bischof's benefit.
(4) Includes shares held in trust for which Mr. Boone has dispositive power.
2
(5) Includes 110,022 shares owned by Mr. Dew's wife.
(6) Includes 357,142 shares owned by or in trust for Mr. Kreyling's wife of
which Mr. Kreyling disclaims beneficial ownership.
(7) Includes 95,915 shares held in a living trust of which Mr. Lardner's wife
is the trustee and for which Mr. Lardner disclaims beneficial ownership.
(8) Includes 42,968 shares held in trust for Mr. Legg's benefit and 4,128
shares held in trust for Mrs. Legg's benefit of which Mr. Legg disclaims
beneficial ownership.
(9) Messrs. Legg, Sursa and Zucaro are members of the Administration Committee
of the Old Republic International Corporation Salaried Employees Restated
Retirement Plan ("Retirement Plan"). As such, they are entitled to vote
153,985 shares of Common Stock owned by the Retirement Plan. Under the
rules of the Securities and Exchange Commission, each of them may be deemed
to be the beneficial owner of this Common Stock by virtue of such shared
voting power. However, the foregoing presentation should not be construed
as an admission of beneficial ownership. The members of the Administration
Committee disclaim beneficial ownership of the Common Stock held by the
Retirement Plan and these shares are not reflected in this table, as shares
beneficially owned by each of them.
(10) Includes 8,863 shares held in trust for Mr. LeRoy's benefit.
(11) Includes 71,813 shares owned by Mr. Simpson's wife.
(12) Includes 144,127 shares owned by Mr. Steiner directly, 11,921 shares owned
by Mr. Steiner's wife directly, 24,231 shares held in a trust of which Mr.
Steiner is trustee for his mother, 281,750 shares held in trust for Mr.
Steiner's children, 434,300 shares held by a limited liability corporation
of which Mr. Steiner is both an equity owner and a manager and 48,640
shares held by a foundation of which Mr. Steiner is a trustee.
(13) Includes 289,977 shares owned by E.F.S. Investments, Inc., in which Mr.
Sursa and his wife have a beneficial interest.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely on reports
and other information submitted by executive officers, directors and such other
persons required to file, the Company believes that during the year ended
December 31, 2002 all reports required by Section 16(a) have been properly
filed, except that there was one late filing of a Form 5 for 8,588 shares of the
Company's Common Stock by Mr. Dew. Mr. Dew's late filing concerned the
inheritance of these shares by his wife. Once Mr. Dew realized this oversight
occurred, he promptly made the filing.
THE BOARD OF DIRECTORS AND ITS STANDING COMMITTEES
The Company's Board of Directors has the responsibility to review the
overall operations of the Company. The Board members are kept informed of the
Company's results of operations and proposed plans and business objectives
through periodic reports sent to them by the Company's management or presented
at Board and Committee meetings. The Board met four times last year, once each
quarter. Each incumbent director attended at least 75% of the aggregate of the
meetings of the Board of Directors and Committees on which each served during
2002.
Directors' Compensation
During 2002, Directors of the Company received an annual retainer of
$16,800 plus $1,400 for each Board or Committee meeting they attend. Directors
of the Company or any of its subsidiaries who are full time employees do not
receive an annual retainer but receive $1,400 for each meeting they attend of
the Board or a Committee of the Company, other than meetings of the Executive
Committee. Mr. Colao also received $80,000 under a Consulting Agreement with the
Company during 2002 for transitional services following his retirement.
Board Committees
The Board of Directors has five principal standing committees.
The Executive Committee is empowered to exercise the authority of the Board
of Directors in the management of the business and affairs of the Company
between the meetings of the Board, except as provided in the By-laws or limited
by the provisions of the General Corporation Law of the State of Delaware, as
well as to evaluate the performance of senior executives, and to make
recommendations with regard to executive succession. The Committee, which is
currently composed of Messrs. Kreyling, Legg, Steiner, Sursa and Zucaro, met
four times during 2002 and took action by unanimous written consent twice. Mr.
Zucaro is Chairman of the Committee.
3
The Audit Committee is empowered to oversee the integrity of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, the independent qualifications and performance of the Company's
internal and external auditors and the selection of the Company's independent
external auditors. The Committee also is required to annually produce a report
which is printed below. The Committee operates pursuant to a written charter
approved by the Board of Directors and is subject to an annual performance
evaluation. During 2002, the Committee was composed of six, non-employee
directors, Messrs. Bischof, Legg, Popp, Steiner, Sursa and White. On March 20,
2003, Ms. Fredricka Taubitz was elected, effective May 1, 2003, a director of
the Company and named a Committee member, and Mr. Popp was named Committee
Chairman. Each member is considered independent in the judgment of the Company's
Board of Directors and according to the listing standards of the New York Stock
Exchange ("NYSE"), on which the Company's Common Stock is listed. The Committee
met four times during 2002.
For the year ended December 31, 2002, the Committee selected the accounting
firm of PricewaterhouseCoopers, LLP ("PwC") as independent auditors to examine
the Company's consolidated financial statements. A member of PwC is expected to
attend the Company's Annual Meeting of Shareholders. The firm's members will be
provided with an opportunity to make an appropriate statement, if he or she
desires to do so, and will be available to respond to questions. The fees billed
the Company by PwC for the 2002 audit were:
Financial Information
Systems Design and
Audit Fees Implementation Fees All Other Fees
------------------ ------------------------- ----------------
$1,430,778 - $281,025 (1)
(1) Primarily represents fees for audit-related actuarial reviews of insurance
subsidiaries' claim reserves and audits of employee benefit plans. The
Audit Committee has determined that these other fees charged by PwC are not
incompatible with PwC's independence as the Company's auditors.
PwC has advised the Committee that all persons engaged in the Company's
independent audit were full-time permanent employees of PwC. No decision has, as
of yet, been made with respect to the selection of an independent auditor for
fiscal 2003.
AUDIT COMMITTEE REPORT 2002
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
The Audit Committee of the Board of Directors (the "Committee") oversees
the Company's financial reporting process. As part of its function, it
recommended to the Board of Directors the appointment of PricewaterhouseCoopers,
LLP ("PwC") as the Company's independent auditors for 2002. As part of its
oversight function, the Committee evaluated and reviewed with the auditors the
overall scope of the Company's annual audit, the Company's annual financial
statements and the auditors' comments relative to the adequacy of the Company's
system of internal controls and accounting systems. The Committee also reviewed
and discussed the audited financial statements in the Company's Annual Report
with the Company's management.
Further, the Committee discussed with its auditors such other matters as
are required to be discussed under the generally accepted auditing standards set
forth in the Statement of Auditing Standards Number 61. In addition, the
Committee discussed with its auditors, the auditors' independence from
management and the Company and received written disclosures and a letter from
PwC regarding their independence, as required by the Independence Standards
Board Standard Number 1.
4
Following these reviews and discussions, the Committee recommended to the
Board of Directors and the Board approved the inclusion of the audited financial
statements in the Company's Annual Report on Form 10-K for the year ended 2002
filed with the Securities and Exchange Commission.
Audit Committee
John W. Popp, Chairman
Harrington Bischof
Wilbur S. Legg
Arnold L. Steiner
David Sursa
William G. White, Jr.
The Nominating Committee is empowered to develop and oversee the Company's
policy on the size, composition and qualifications of the Board of Directors.
The Committee is authorized to establish procedures to identify and recommend
qualified candidates for election to the Board. The Committee is also
responsible for developing and establishing corporate governance principles and
procedures for the nomination process. The Committee operates pursuant to a
written charter approved by the Board of Directors and is subject to an annual
performance evaluation. The Committee is composed of five, non-employee
directors, Messrs. Bischof, Kreyling, Legg, Steiner and Sursa, of which Mr.
Bischof is the Chairman. Each member of the Committee is considered independent
in the judgment of the Company's Board of Directors and according to the listing
standards of the NYSE. The Committee met once during 2002.
The Pension Committee is empowered with the supervision of the Company's
pension and Employees Savings and Stock Ownership plans and is charged with a
fiduciary responsibility to act solely in the interest of the participants and
beneficiaries of the Plan. The Pension Committee is appointed by the Board of
Directors and its members serve at its pleasure. The Committee, which is
composed of Messrs. Legg, Sursa and Zucaro, met once during 2002. Mr. Zucaro is
Chairman of the Committee.
The Compensation Committee, is empowered to develop, review and supervise
the employee benefit plans of the Company, to fix the compensation of senior
executive officers, and to evaluate their performance. The Committee also is
required to annually produce a report on executive compensation which is printed
below. The Committee operates pursuant to a written charter approved by the
Board of Directors. During 2002, the Committee was composed of six, non-employee
directors, Messrs. Bischof, Kreyling, Legg, Popp, Sursa and White. On March 20,
2003, Mr. John M. Dixon was elected, effective May 1, 2003, a director of the
Company and named a Committee member. Mr. Sursa is the Committee's Chairman.
Each member of the Committee is considered independent in the judgment of the
Company's Board of Directors and according to the listing standards of the NYSE.
The Committee met three times during 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has ever served as an
officer or employee of the Company or any of its subsidiaries, nor has any
executive officer of the Company served as a director or member of a
compensation committee for any company that employs any director of the Company
or member of the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE MANAGEMENT COMPENSATION
The following Report of the Compensation Committee and the performance
graphs included elsewhere in this proxy statement do not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report or the performance graphs by reference therein.
The Compensation Committee of the Board of Directors (the "Committee") of
Old Republic International Corporation (the "Company") evaluated and approved
the overall compensation, policies and practices for the Company's management,
including its Chief Executive Officer ("CEO") and other executive officers. It,
also, reviewed the Company's incentive programs, including the Key Employees
Performance Recognition Plan ("KEPRP"), the Stock Option Plan (the "Plan"), and
the Employees Savings and Stock Ownership Plan ("ESSOP").
In making its evaluations, the Committee considered a large number of
factors including those set forth under "Compensation Policies" herein, together
with other matters such as the inflation rate, and the Company's past
performance, generally over consecutive five-year time frames. The Committee did
5
not consider such factors based upon any scientific or other formula nor on any
quantitative analysis of the relationship among such factors. Rather, the
Committee's evaluation was subjective since each Committee member exercised
their common sense and reasonable business judgment in attaching varying degrees
of importance to each such factor.
Compensation Policies
The Company's compensation policies and practices, particularly as they
apply to its executive officers, including the CEO, are intended to achieve the
following major objectives:
1. To set annual salaries (base income) for key executive officers at amounts
which: a) are reasonably competitive in the context of prevailing salary
scales; and (b) in the Committee's judgment provide a fixed, reasonable
source of current income during the period of employment. Other sources of
executive compensation discussed in separate sections hereunder are not
taken into account when setting base annual salaries. Among the factors
considered in varying degrees, as previously noted, are business size,
level of responsibility, complexity of operations, long term performance,
loyalty, commitment to Old Republic's long term objectives, and future
prospects. Additionally, the Committee takes into account prevailing salary
scales in the insurance industry, trends in salary levels published in
compilations and reports, and data contained in the proxy statements of
publicly held insurance organizations whose assets, revenues, and net
income are larger, smaller, or approximately the same as the Company's.
These insurance organizations include but are not limited to those that are
a part of the Peer Group comparisons on page 14 of this Proxy Statement.
Based on a review and evaluation of all such data, the Committee believes
that the base salaries of the CEO and key executives are within a range
comparable to the median salaries of the above mentioned insurance
organizations.
2. To afford personnel an opportunity and incentive to increase their base
income over time through participation in incentive compensation and
related stock option and savings programs. With respect to all such
programs the Committee has approved various criteria, the objectives of
which are to: (a) establish tangible means of evaluating the overall
financial performance of the Company or individual profit centers; (b)
align performance criteria with shareholders' interests by establishing
minimum requirements relative to such performance indicators as return on
equity, return or profit margin on revenues, and increases in earnings; and
(c) encourage a long-term commitment to the Company.
In addition, the Committee considers a variety of intangible and other
subjective factors such as each person's likely future contribution to the
Company's successful growth, his or her level and years of experience, the
current state and prospects of the industry or segment(s) thereof, and the
Company's long-term goals and strategies which may from time to time require
temporary investment in personnel resources in the absence of immediate positive
results. Further, the Committee considers the compensation and benefits
previously paid to its executive officers.
In making its performance evaluations, the Committee takes the
shareholders' interests into account from the standpoints of both total market
return for the Common Stock as well as the Company's intrinsic performance as
such and relative to the Company's Peer Group. However, the Committee places
greater emphasis on the latter two factors since total market return is
influenced materially by the vagaries of the securities markets.
The Committee has not adopted any policy with respect to qualifying
compensation paid to executive officers under Section 162(m) of the Internal
Revenue Code.
Compensation of the Chief Executive Officer
With specific reference to the CEO's compensation, the Committee has taken
into account all of the factors and objectives discussed above. In addition,
special emphasis is placed on such other considerations as the CEO's vision and
planning for the Company's future and the strategies implemented for their
realization, his leadership qualities and judgment, and his commitment to and
abilities in setting and promoting the character of the organization in the best
interests of its insurance subsidiaries, insurance beneficiaries, employees, and
shareholders. The Committee's evaluation of the CEO's performance takes place
without his presence.
Mr. Zucaro joined the Company in 1976 as Executive Vice President and Chief
Financial Officer. He was promoted to President in 1981, to Chief Executive
Officer in 1990, and to Chairman in 1993 while retaining his offices as
President and Chief Executive Officer. Until 1989, Mr. Zucaro's cash
compensation consisted solely of a base annual salary and a small amount of fees
earned in his capacity as a director of a number of the Company's subsidiaries.
His other compensation was fully deferred pursuant to his participation in the
Company's KEPRP, ESSOP, and stock option plans. Since 1990, his cash
compensation has been enhanced by 50% of the awards granted to him under the
Company's KEPRP.
6
The following table reflects certain key data pertaining to the Company's
performance during the past three years together with the CEO's compensation
during that period. The Company's performance was a significant factor in the
Committee's evaluation of the CEO's and other executives' cash and deferred
compensation. It, however, was only one of the many factors cited under
"Compensation Policies" above, the relative significance of which was left to
the subjective business judgment of the Committee. In comparing this data, it
was noted that trends in the CEO's compensation lag, up or down, from the trends
in the Company's performance, since compensation reviews and salary and
incentive awards are made several months following the end of each calendar
year.
Summary of Company Performance Indicators
versus
CEO Compensation
2000 to 2002
-----------------------------------------------------------------------------------------------------------------------------
Amounts % of Change
----------------------------------------- -------------------------------------------
2002 2001 2000 2002 vs. 2001 2001 vs. 2000 2002 vs. 2000
------------ ------------ ------------ ------------- ------------- -------------
Company Performance Indicators (a)
($ in Millions)
Consolidated assets $ 8,715.4 $ 7,920.2 $ 7,281.4 10.0% 8.8% 19.7%
Common shareholders' equity 3,155.8 2,783.7 2,438.7 13.4% 14.1% 29.4%
Net revenues 2,756.4 2,373.4 2,070.6 16.1% 14.6% 33.1%
Net operating income 383.8 330.7 275.6 16.1% 20.0% 39.3%
Net income 392.9 346.9 297.5 13.3% 16.6% 32.1%
Percent return on equity 14.1% 14.2% 13.5% -0.7% 5.2% 4.4%
Per Share Data
(in dollars and cents):
Book value at end of year 26.17 23.40 20.62 11.8% 13.5% 26.9%
Net operating income (diluted) 3.16 2.75 2.29 14.9% 20.1% 38.0%
Net income (diluted) $ 3.23 $ 2.88 $ 2.47 12.2% 16.6% 30.8%
============================================================================================================================
CEO Compensation (b)
(Whole Dollars)
1. Cash compensation
a. Base salary $ 590,000 $ 563,333 $ 550,000 4.7% 2.4% 7.3%
b. Incentive 327,058 221,980 150,000 47.3% 48.0% 118.0%
c. Directors fees & other 52,782 56,875 49,915 -7.2% 13.9% 5.7%
----------- ----------- ----------- ------------ ------------ ------------
d. Total Cash Compensation 969,840 842,188 749,915 15.2 % 12.3% 29.3%
2. Deferred incentive compensation 331,585 226,930 152,500 46.1 % 48.8% 117.4%
----------- ----------- ----------- ------------ ------------ ------------
Incentive stock options:
3. Valued at 5% appreciation: 3,384,360 2,713,536 1,134,000 24.7% 139.3% 198.4%
4. Valued at 10% appreciation: 8,541,480 6,848,448 2,862,000 24.7% 139.3% 198.4%
----------- ----------- ----------- ------------ ------------ ------------
5. Total cash & deferred
Compensation, including options,
if any, valued at:
6. 5% appreciation (1d. + 2 + 3) 4,685,785 3,782,654 2,036,415 23.9 % 85.8% 130.1%
7. 10% appreciation (1d. + 2 + 4) $9,842,905 $7,917,566 $3,764,415 24.3% 110.3% 161.5%
----------- ----------- ----------- ------------ ------------ ------------
============================================================================================================================
(a) This data was taken from the Company's audited financial statements and
stock market tables as applicable. Return on equity was calculated by
dividing each year's net income by the common shareholders' equity balance
at the beginning of the year. Net operating income was defined as net
income before extraordinary items, realized investment gains or losses and
accounting changes; both net operating income and net income per share are
shown after deduction of Preferred Stock dividends, as applicable.
(b) In this table, Deferred Incentive Compensation includes the deferred
portion, which is non-interest bearing, of awards granted under the
Company's KEPRP and the employer matching contribution to the ESSOP;
Incentive Stock Options have been valued alternatively by assuming that the
market value of the Common Stock subject to options compounded at a 5% or a
10% annual rate (or 63% and 159%, respectively, in the aggregate) over the
10-year term of the options. The actual future value of such options may,
of course, be higher or lower than these arbitrary formulaic estimates.
(See the Summary Compensation Table on page 10.)
7
Employee Benefit Plans
In addition to determining base salaries, the Committee also administers
the Company's employee benefit plans. The employee benefit plans are an
important part of the Company's compensation structure and provide eligible
employees, including the CEO and other executive officers, with an opportunity
and incentive to increase their base income.
Key Employee Performance Recognition Plan: Under the Company's KEPRP, a
performance recognition pool is established each year for allocation among
eligible key employees of the Company and its participating subsidiaries,
including the CEO and other executive officers. Employees eligible to share in
this pool are selected by the Committee in consultation with the CEO. The
Committee made the sole determination with regard to the CEO's performance,
eligibility and award. After prior plan participants are credited with a certain
portion of the year's pool the CEO recommends the allocation of the balance of
the pool to participants in the plan, other than to himself. Up to 50% of such
amount may be carried forward for up to three years for later allocation. In
designating eligible employees and determining amounts to be allocated, the
Committee consults with the CEO and considers the positions and responsibilities
of the employees, the perceived value of their accomplishments to the Company,
their expected future contributions to Old Republic and other relevant factors.
The Committee's evaluation of all such factors is subjective.
Each year's pool amount is established in accordance with a detailed
formula which takes into account (a) the eligible participating employees'
annual salaries, (b) the current year's earnings in excess of the prior year's
earnings (excluding income from realized investment gains or losses), multiplied
by a factor determined by the increase in the Company's earnings per share, and
(c) the latest year's return on equity in excess of a minimum target return on
equity equal to two times the mean of the five year average post-tax yield on 10
year and 30 year U.S. Treasury Securities. The pool is, in turn, limited to a
percentage of plan participants' aggregate annual base salaries, ranging from
10% to 150%, depending upon the amount by which the current year's actual return
on equity exceeds the minimum target return on equity for the year. There is no
prescribed limit as to how much of the year's available pool may be awarded to
each participant.
There is an immediate payment in cash of 50% of any award made, as well as
50% of the multiplier factor applied to the deferred balances of prior years'
participants; the balance of the award vests at the rate of 10% per year of
participation. The deferred balance(s) do not bear interest. Pursuant to the
plan, participants become vested in their account balances upon total and
permanent disability or death, or upon the earlier of attaining age 55 or being
employed for 10 years after first becoming eligible. Benefits are payable in
installments, beginning no earlier than age 55 and/or following termination of
employment, death, disability or retirement.
In addition to the KEPRP, the Company also maintains a number of separate
plans for several individual subsidiaries or separate profit centers. Such plans
provide for the achievement of certain financial results and objectives as to
each such subsidiary or profit center. Mr. Simpson and Mr. Kellogg do not
participate in the Company's KEPRP but rather participate in the plans for
Republic Mortgage Insurance Company ("RMIC") and Old Republic Risk Management,
Inc, ("ORRM") respectively. Each of these plans operates in the same basic
fashion as the Company's KEPRP. The pools for each plan are established
according to a detailed formula that takes into account the annual increase in
each company's earnings, the return on equity of each company in excess of a
minimum target percentage and a percentage of the annual base salaries of the
employees of these companies that are eligible for participation.
Stock Option Plan: The Company believes that key employees, including the CEO
and other executive officers, who are in a position to make a substantial
contribution to the long-term performance of the Company should have a stake in
its on-going success. To encourage growth in shareholder value and a long-term
commitment to the success of the Company's business, the Company maintains a
non-qualified stock option plan for key employees of the Company and its
participating subsidiaries. The 2002 Old Republic International Corporation
Stock Option Plan (the "Plan") was approved by the Company's shareholders on May
24, 2002, and replaced a similar non-qualified stock option plan that had been
adopted 10 years earlier. The decision to award stock options pursuant to the
Plan and the factors that contribute to the amount of such awards are the same
basic factors as those set forth under "Compensation Policies" herein.
The performance factors the Committee considers include the achievements of
the individual key employee, the overall performance of the Company and the
likelihood of future contributions to the Company's successful growth by the
individual key employee. The relative significance of these and all other
factors with respect to awards granted to the CEO and other executive officers
is determined subjectively by the Committee. The Plan provides for the issuance
of options for up to an aggregate of 6% of the Company's Common Stock issued and
outstanding at year end under this Plan or any other plans of the Company. The
purchase price per share of Common Stock subject to an option under the Plan is
fixed by the Committee. However, such purchase price may not be less than 100%
8
of the fair market value per share of Common Stock on the date the option is
granted. Optionees may exercise their options for shares of either Common Stock
or Series G Preferred Stock. The term of each option may not be for more than 10
years from the date of grant. Under ordinary circumstances, options may be
exercised in accordance with the following vesting schedule: ten percent in the
first year of the grant, thereafter, the options cumulatively vest annually at
the rate of 15%, 20%, 25% and 30% so that at the end of the 5th fiscal year
after the grant they are 100% vested. Under the Company's former plan, except
for the grant made in 2002, which used an amended vesting schedule identical to
the Plan, vesting occurs at an annual rate of 10% per year. Under the Plan, an
employee's right to exercise an option is accelerated if the Company's Common
Stock closes on the NYSE above the vesting acceleration price established by the
Committee for the option. If a vesting acceleration occurs, an optionee may
exercise his or her option for the greater of either: 10% of the number of
shares covered by the option for each year that the optionee has been employed
by the Company or its subsidiaries or the sum of the optionee's already vested
shares plus 50% of the remaining unvested shares. Vesting accelerations for
grants made prior to 2002 accelerate at 10% per year for each year the optionee
has been employed by the Company of its subsidiaries. The vesting acceleration
price is established by the Committee at the time of grant at the higher of 150%
of the market value of the Common Stock at the date of the grant or 100% of the
book value per Common Share as of the most recent year end. For options granted
prior to January 1, 2000, the vesting acceleration price established by the
Committee was the higher of 150% of the market value of the Common Stock at the
date of the grant or 150% of the book value per Common Share as of the most
recent year end.
Employees Savings and Stock Ownership Plan: The Company's ESSOP allows eligible
employees with one or more years of service with the Company or participating
subsidiaries ("employers") to save a minimum of 1% up to a maximum of 15% of
their total compensation subject to an annual maximum compensation of $200,000.
Employees' savings, up to 6%, are matched by employer contributions ranging from
20% to 140% of such savings in accordance with a formula based upon the
percentages saved and the increase in the Company's average net operating
earnings per share for the five years ending with the calendar year immediately
prior to the year for which the contribution is made. The Company's matching
contributions applies to annual compensation up to a maximum of $150,000 under
the terms of the ESSOP. Employer contributions are invested exclusively in the
Stock of the Company except that employees over age 55 and with 10 years of
service credited under the Plan may diversify a portion of the employer's
contributions out of the Company's Stock and into alternative investments based
on their age and years of service with the Company. This diversification ranges
from 25% at age 56 to 100% at age 67. These alternative investment choices are
the same ones in which Employee savings may be invested. Employee savings may be
invested, at the employee's direction, in publicly managed mutual funds that
focus on long term capital appreciation, long term capital growth, long term
growth of capital and income, long term growth through investments in common
stocks of non-U.S. companies, a stock index fund portfolio, and in short,
intermediate term bonds or other fixed income securities. A participant becomes
vested in the account balance allocated from employer contributions upon being
totally and permanently disabled, dying, or upon the earlier of attaining age 65
or being employed for 6 years. Vesting also occurs in increments of 20% a year,
beginning after one year of service. Benefits are payable upon termination of
service, death or disability, or following retirement. At the election of the
participant, benefits derived from employer contributions are payable either in
cash or the Company's Common Stock.
RMIC Profit-Sharing Plan ("Profit Sharing Plan"): Mr. Simpson does not
participate in the Company's ESSOP but instead participated in the RMIC Profit
Sharing Plan . The RMIC Profit Sharing Plan covers substantially all employees
of RMIC and its affiliates. Contributions to the plan are determined annually by
RMIC's Board of Directors, and voluntary contributions of up to 10% of annual
income are permitted. Employees contributions are invested, at the employees'
direction, in a number of publicly managed mutual funds and employees may elect
to purchase the Company's Common Stock as an investment option. RMIC Profit
Sharing Plan participants' interests vest in increments of 10% of contributed
amounts beginning with 40% after one year and extending to 100% after seven
years. Account balances are payable upon death or permanent disability. Normal
retirement is at age 65 and the Profit Sharing Plan provides for early
retirement at age 50 with ten years of service. Benefits upon retirement may be
received as a monthly annuity, periodic cash payments, or in a lump-sum
distribution, at the participant's election.
Compensation Committee
David Sursa, Chairman
Harrington Bischof
Kurt W. Kreyling
Wilbur S. Legg
John W. Popp
William G. White Jr.
9
Executive Compensation
The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each of the three other executive officers of the Company
for services rendered in all capacities during each of the Company's fiscal
years ended December 31, 2002, 2001 and 2000:
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------- -------------
(a) (b) (c) (d) (e) (f)
Securities
Underlying
Name and Option All Other
Principal Positions Year Salary (1) Bonus (2) Awards (3) Compensation (4)
-------------------------- --------- ------------- ------------ ------------ -----------------
A.C. Zucaro 2002 $ 635,021 $ 654,116 170,000 $ 12,288
President & Chief 2001 612,204 443,960 160,000 12,954
Executive Officer 2000 594,846 300,000 150,000 7,569
John S. Adams (5) 2002 188,333 35,270 7,500 8,559
Senior Vice President & 2001 168,542 23,478 5,000 5,845
Chief Financial Officer
Charles S. Boone (5) 2002 163,333 93,254 6,000 5,025
Senior Vice President & 2001 155,208 84,476 5,000 5,424
Treasurer
James Kellogg (6) 2002 244,167 105,000 4,000 13,284
Senior Vice President
Spencer LeRoy III 2002 339,695 235,902 25,000 10,873
Senior Vice President, 2001 330,408 178,318 25,000 10,855
Secretary & General 2000 321,343 150,000 16,000 3,811
Counsel
William A. Simpson 2002 292,700 910,000 50,000 39,698 (7)
Senior Vice President 2001 292,610 1,075,524 67,500 32,854 (7)
2000 $ 322,100 $ 708,384 60,000 $ 31,327 (7)
----------------------------------------------------------------------------------------------------------------------------
(1) Includes base salary and fees paid for services as a director of the
Company or its subsidiaries.
(2) Includes combined cash and deferred incentive compensation awards granted
under the Company's KEPRP and similar plans maintained for different profit
centers. Awards thereunder are made 50% in cash and 50% deferred. The
deferred amounts included in this column are usually not payable before the
person retires at 55 years of age or later; the amount deferred does not
accrue interest and it is included in this column without a present value
discount. None of the awards shown differed in any respect from the
Company's regular compensation policies and practices.
(3) Number of shares of Common Stock subject to options granted during the year
indicated.
(4) Includes the employer matching contribution to the Company's ESSOP, the
amount of premium for the Company's group term life insurance plan
attributed to the compensation of executive officers of the Company and the
value of meals paid for by the Company. For 2002 the Company's matching
contribution for each executive officer was $4,527 except for Mr. Simpson
who elected not to participate in the ESSOP. For 2002, $5,069, $588, $,498,
$ ,1,162, $2,322 and $1,346 were attributed to the compensation of Messrs.
Zucaro, Adams, Boone, Kellogg, LeRoy, and Simpson, respectively, for group
term life insurance premiums paid by the Company under a program available
to all of its employees. For 2002, $6,433 was attributed to Mr. Kellogg's
compensation for usage of a vehicle provided for his use by ORRM. For 2002,
$7,113 was attributed to Mr. Simpson's compensation for a health
reimbursement program RMIC sponsors for all of its employees and $7,084 was
attributed as compensation for the usage of a vehicle provided for his use
by RMIC.
(5) Messrs. John S. Adams and Charles S. Boone became executive officers of the
Company on August 16, 2001.
(6) Mr. James Kellogg became an executive officer of the Company on October 1,
2002.
(7) Includes $17,000 as the vested amount accrued for Mr. Simpson in the RMIC
Profit Sharing Plan for 2000 and 2001 and $20,000 for 2002.
10
Retirement Plans
The Company maintains the Old Republic International Corporation Salaried
Employees Restated Retirement Plan (the "Company Plan") for its employees and
those of participating subsidiaries. The Company Plan, which is noncontributory,
provides for benefits based upon 1.5% of the participant's "Final Average
Monthly Earnings" (1/60th of the aggregate earnings of the employee during the
period of the five consecutive years of service out of the last ten consecutive
years of service which results in the highest "Final Average Monthly Earnings")
multiplied by the participant's years of service. Earnings equal base salary and
commissions but excludes cash and deferred incentive compensation awards granted
under the Company's KEPRP.
The following table sets forth the estimated annual benefits payable under
the Company Plan to an employee, upon retirement at December 31, 2002, at age 65
after specified years of service:
Highest Average Estimated Annual Retirement Income for
Annual Earnings of Representative Years Credited Service*
The 5 Consecutive -------------------------------------------------------------------------------
Plan Years Out of the
Last 10 Plan Years 10 15 20 25 30
----------------------- ------------ ------------ ------------- ------------ -------------
$ 100,000 $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000
150,000 22,500 33,750 45,000 56,250 67,500
200,000 30,000 45,000 60,000 75,000 90,000
250,000 37,500 56,250 75,000 93,750 112,500
300,000 45,000 67,500 90,000 112,500 135,000
350,000 52,500 78,750 105,000 131,250 157,500
400,000 60,000 90,000 120,000 150,000 180,000
450,000 67,500 101,250 135,000 168,750 202,500
500,000 75,000 112,500 150,000 187,500 225,000
550,000 82,500 123,750 165,000 206,250 247,500
600,000 90,000 135,000 180,000 225,000 270,000
$ 650,000 $ 97,500 $ 146,300 $ 195,000 $ 243,750 $ 292,500
=================================================================================================================
*Amounts shown in the table above which exceed $160,000 - - the maximum benefit
allowed by law for a qualified plan in 2002 - - would only be payable to a
qualified participant under the Old Republic International Corporation
Executive's Excess Benefit Plan described below.
The amounts shown in the chart are computed on the basis of straight life
annuity amounts and are not subject to offsets for any Social Security payments.
At December 31, 2002, Mr. Zucaro was credited with 25 years of service, Mr.
Adams was credited with 8 years of service, Mr. Boone was credited with 13 years
of service. Mr. Kellogg was credited with 24 years of service, and Mr. LeRoy was
credited with 9 years of service, for purposes of the Company Plan. The years of
service credited to Mr. Boone do not include his years of service with
Bituminous Casualty Company, a subsidiary of the Company. Mr. Simpson did not
participate because employees of RMIC / Republic Mortgage Insurance Company
(RMIC) participate in the RMIC Profit-Sharing Plan instead of the Company Plan.
At December 31, 2002, the highest average annual earnings for purposes of the
above computations under the Company Plan were approximately $556,000 for Mr.
Zucaro, $162,242 for Mr. Adams, $149,708 for Mr. Boone, $211,600 for Mr. Kellogg
and $316,667 for Mr. LeRoy. The differences between such amounts and the Annual
Compensation amounts shown for Messrs. Zucaro, Adams, Boone, Kellogg and LeRoy
in the Summary Compensation Table on page 10 are threefold: the figures above
are averages of annual base salaries over the past 5 years and do not include
either directors' fees or any form of incentive compensation awards.
11
The Company also maintains the Old Republic International Corporation
Executive's Excess Benefit Plan (the "Excess Benefit Plan") to provide certain
key executives with pension benefits in excess of the benefits provided by the
Company Plan. The Excess Benefit Plan is administered by the Pension Committee
of the Board of Directors, which selects the employees to participate in the
Excess Benefit Plan from those who are participants in the Company Plan. As of
December 31, 2002, Mr. Zucaro was the only executive officer who qualified and
has been approved for participation under this Excess Benefit Plan. RMIC also
has an Executive Excess Benefit Plan (the "RMIC Plan") to provide certain key
executives of RMIC with benefits in excess of the benefits they would be
eligible for if they participated in the Company's Plan. The RMIC Plan is
administered by a Committee of the Board of Directors of RMIC, which selects the
employees to participate in the RMIC Plan from those eligible employees of RMIC.
As of December 31, 2002, Mr. Simpson is the only executive officer of the
Company who qualified and has been approved for participation under the RMIC
Plan. The benefits payable under this RMIC Plan equal the excess of the amount
otherwise payable under the terms of the Company Plan over the reduced benefits
required by applicable law. Benefits under this RMIC Plan are payable at the
time benefits are payable under the Company Plan. Both the Excess Benefit Plan
and the RMIC Plan are non-qualified deferred compensation plans.
Option Grants in 2002
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the Company
listed in the Executive Compensation Table during the Company's 2002 fiscal
year:
Option Grants in 2002
-------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Potential
Realizable Value of Assumed
Annual Rates of Stock Price
Appreciation for Option Term
-----------------------------------
@ Annual Compounding
Individual Grants Growth Rate Of:
----------------------------------------- -----------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted (1) in 2002 Price Date 5% 10%
------------------------- ------------ ----------- ----------- ----------- --------------- --------------
A.C. Zucaro 170,000 14.94 $ 31.60 12/31/10 $ 3,384,360 $ 8,541,480
John S. Adams 7,500 0.65 31.60 12/31/10 149,310 376,830
Charles S. Boone 6,000 0.52 31.60 12/31/10 119,448 301,464
James Kellogg 4,000 0.35 31.60 12/31/10 79,632 200,976
Spencer LeRoy III 25,000 2.18 31.60 12/31/10 497,700 1,256,100
William A. Simpson 50,000 4.36 $ 31.60 12/31/10 $ 995,400 $ 2,512,200
===============================================================================================================================
(1) See the Report of the Compensation Committee on Executive Management
Compensation "Stock Option Plan" regarding the vesting of stock options.
12
Aggregate Options Exercised in 2002 and Option Values at December 31, 2002
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 2002 fiscal year
and the number and value of exercisable and unexercisable options to purchase
shares of Common Stock held at the end of the Company's 2002 fiscal year by the
executive officers of the Company named in the Executive Compensation Table:
Aggregated Option Exercises in 2002
and Option Values at December 31, 2002
------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options at 12/31/02 Options at 12/31/02
Name Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable(2)
---------------------- ------------- --------------- ----------------------------- --------------------------------
A.C. Zucaro 635,000 $11,182,065 (3) 105,250 / 337,250 $ 34,560 / $ 138,240
John S. Adams 3,250 64,328 13,675 / 13,125 163,050 / 75,626
Charles S. Boone 15,500 310,522 24,350 / 13,900 197,455 / 4,320
James Kellogg - - 6,250 / 7,300 53,756 / 3,024
Spencer LeRoy III 16,875 363,117 78,275 / 56,475 680,301 / 77,700
William A. Simpson - - 236,000 / 121,500 $2,247,083 / $ 58,320
==============================================================================================================================
(1) Value realized is equal to the difference between the fair market value per
share of Common Stock on the date of exercise and the option exercise price
per share multiplied by the number of shares acquired upon exercise of an
option.
(2) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of Common Stock at
December 31, 2002 and the option exercise price per share multiplied by the
number of shares subject to options.
(3) Represents the exercise of options granted in 1993, 1995, 1997, 1999 and
2000. Mr. Zucaro has not in fact realized all of this gain since he sold
only some of the shares he obtained exercising these options and retained
the rest.
Equity Compensation Plan Information at December 31, 2002
The following table set forth certain information regarding securities
authorized for issuance under equity compensation plans as of year end 2002. The
Company only has equity compensation plans that were approved by the Company's
shareholders.
Number of Number of securities
securities to be remaining available for
issued upon exercise Weighted-average future issuance under
of outstanding exercise price of equity compensation plans
options, warrants outstanding options, (excluding securities
Plan Category and rights warrants and rights reflected in column (a))
------------------------------------------- ---------------------- --------------------- --------------------------
(a) (b) (c)
Equity compensation plans approved
by security holders................... 4,795,373 $24.68 2,440,553
Equity compensation plans not
approved by security holders.......... - - -
---------------------- --------------------- --------------------------
Total............................ 4,795,373 $24.68 2,440,553
============================================================================================================================
The total number of securities to be issued upon the exercise of
outstanding options, warrants and rights when combined with the remaining number
of securities available for future issuance under all equity compensation plans
of the Company, may not exceed 6% of the Company's issued and outstanding common
stock as of December 31st of the preceding year.
13
Comparative Five-Year Total Market Returns
The following table, prepared on the basis of market and related data
furnished by Standard & Poor's Compustat Services, reflects total market return
data for the most recent five calendar years ended December 31, 2002. For
purposes of the presentation, the information is shown in terms of $100 invested
at the close of trading on the last trading day proceeding the first day of the
fifth preceding year. The $100 investment is deemed to have been made either in
Old Republic Common Stock, in the S&P 500 Index of common stocks, or in an
aggregate of the common shares of the Peer Group of publicly held insurance
businesses selected by Old Republic. In each instance the cumulative total
return assumes reinvestment of cash dividends. The information utilized to
prepare this table has been obtained from sources believed to be reliable, but
no representation is made that it is accurate or complete in all respects.
Comparison of Five Year Total Market Return
OLD REPUBLIC INTERNATIONAL CORPORATION vs. S&P 500 vs. Peer Group
(For the five years ended December 31, 2002)
Dec 97 Dec 98 Dec 99 Dec 00 Dec 01 Dec 02
------- ------- ------- ------- ------- -------
ORI $100.00 $ 92.14 $ 57.58 $139.07 $124.33 $126.93
S&P 500 100.00 128.58 155.63 141.46 124.65 97.10
2002 Peer Group 100.00 90.70 74.07 116.03 106.71 91.71
Peer Group consists of the following publicly held corporations selected by
the Company for its 2002 comparison: Ace Limited, American Financial Group,
Inc., The Chubb Corporation, Cincinnati Financial Corporation, Fidelity National
Financial, Inc., First American Financial Corporation, MGIC Investment
Corporation, Ohio Casualty Corporation, Radian Group Inc., SAFECO Corporation,
The St. Paul Companies, Inc. and XL Capital Ltd. The Peer Group has been
approved by the Compensation Committee and consists of the same companies as
last year's Peer Group.
13
PROPOSAL 1
ELECTION OF DIRECTORS
The following tabulation lists all nominees and continuing directors of the
Company. Four Class 1 directors are to be elected to hold office for a term of
three years and until their successors are elected and qualified. The nominees
are presently Class 1 directors. It is intended that, in the absence of contrary
specifications, votes will be cast pursuant to the enclosed proxies for the
election of such nominees. Should any of the nominees become unable or unwilling
to accept nomination or election, it is intended, in the absence of contrary
specifications, that the proxies will be voted for the balance of those named
and for a substitute nominee or nominees. However, the Company now knows of no
reason to anticipate such an occurrence. All of the nominees have consented to
be named as nominees and to serve as directors if elected. On March 20, 2003,
the Board of Directors, in accordance with the Company's Certificate of
Incorporation and By Laws, added two new members to the Board of Directors
effective as of May 1, 2003. Mr. John M. Dixon was elected a Class 2 director
and Ms. Fredricka Taubitz was elected a Class 3 director. Mr. Dixon and Ms.
Taubitz will stand for election, in due course, with the other members of their
class.
Positions with Company, Business Experience and
Name Age Other Directorships
-------------------------------------- --------- -----------------------------------------------------------
Nominees for Election
---------------------
CLASS 1 (Term expires in 2003)
Harrington Bischof 68 Director since 1997; President of Pandora Capital
Corporation since 1996; formerly Senior Advisor
Prudential Securities, Inc.
Anthony F. Colao 75 Director since 1987; retired; formerly an executive
officer of a subsidiary of the Company, for more than
the past five years. Prior to being an officer, Partner
with the accounting firm of Coopers & Lybrand, now
PricewaterhouseCoopers LLP.
Kurt W. Kreyling 81 Director since 1974; retired for more than the past five
years; formerly President and Treasurer of Kreyling
Company, wholesaler of floor coverings, Evansville,
Indiana.
William G. White, Jr. 74 Director since 1993; retired for more than the past five
years; formerly President of The First Federal Savings
Bank, Winston-Salem, North Carolina; Consultant to
Southern National Bank, Winston-Salem, North Carolina.
--------------------------------------------------------------------------------------------------------------------
Continuing Members
------------------
CLASS 2 (Term expires in 2004)
Jimmy A. Dew 62 Director since 1980; Sales Group Manager of Republic
Mortgage Insurance Company, a subsidiary of the Company,
for more than the past five years.
15
Continuing Members
------------------
(Class 2 Continued)
John M. Dixon 63 Director effective May 1, 2003; retired; director of
Armsted Industries Incorporated, Chicago, Illinois;
formerly Chief Executive Partner with the law firm of
Chapman and Cutler, Chicago, Illinois until his
retirement in 2002.
Wilbur S. Legg 80 Director since 1969; retired for more than the past five
years; formerly partner of Lord Bissell & Brook,
attorneys, Chicago, Illinois. Mr. Legg's former firm has
been retained by the Company as counsel during more than
the last two fiscal years.
John W. Popp 80 Director since 1993; formerly Partner of KPMG LLP,
accountants, from which he has been retired for more than
the past five years.
David Sursa 77 Director since 1969; retired for more than the past five
years; formerly Chairman of the Board, NBD Bank, N.A.,
Muncie, Indiana.
--------------------------------------------------------------------------------------------------------------------
Continuing Members
------------------
CLASS 3 (Term expires in 2005)
Peter Lardner 71 Director since 1985; retired; prior to December 31, 2001,
Chairman of the Board of Bituminous Casualty Corporation,
a subsidiary of the Company, for more than the past five
years.
William A. Simpson 61 Director since 1980; Senior Vice President of the Company
and President of Republic Mortgage Insurance Company, a
subsidiary of the Company, for more than the past five
years.
Arnold L. Steiner 65 Director since 1974; retired for more than the past five
years; formerly President of Steiner Bank, Birmingham,
Alabama.
Fredricka Taubitz 59 Director effective May 1, 2003; retired; director of WFS
Financial, Inc. Irvine, California; ex officio member of
the Business, Finance, Audit and Technology Committee of
the Los Angeles Unified School District; formerly
Executive Vice President and Chief Financial Officer of
Zenith National Insurance Corp.; prior to that, Partner
with the accounting firm of Coopers & Lybrand now
PricewaterhouseCoopers LLP.
A. C. Zucaro 63 Director since 1976; Chairman of the Board, Chief
Executive Officer and President of the Company and
various subsidiaries for more than the past five years.
--------------------------------------------------------------------------------------------------------------------
16
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the Class 1 directors that are
listed as nominees. Proxies solicited by the Board of Directors will be voted
for the election of these nominees unless shareholders specify to the contrary
in their proxies.
VOTING PROCEDURES
The General Corporation Law of the State of Delaware specifies that in the
absence of contrary requirements in a corporation's Certificate of Incorporation
or By-laws, the votes on matters at Shareholders' Meetings are decided as
follows: (1) Directors are elected by a plurality of the shares present in
person or by proxy at the meeting and who are entitled to vote in the election,
(2) amendments to the Company's Certificate of Incorporation are determined by
the affirmative vote of the majority of shares of the Company's capital stock
that is outstanding and entitled to vote, and (3) all other matters are
determined by the affirmative vote of the majority of the shares present in
person or by proxy at the meeting and who are entitled to vote on the subject
matter.
The Company's Certificate of Incorporation and By-laws do not require any
different treatment for matters to be considered at the Company's Annual
Shareholders' Meeting.
The Company's Certificate of Incorporation and its By-laws are silent on
the mechanics of voting. As a result, the General Corporation Law of the State
of Delaware is controlling. Under Delaware law the votes at the Company's Annual
Shareholders' Meeting will be counted by the inspectors of election required to
be appointed at the meeting. The inspectors are charged with ascertaining the
number of shares outstanding, the number of shares present, whether in person or
by proxy, and the validity of all proxies. The inspectors are entitled to rule
on any voting challenges and are responsible for the tabulation of the voting
results.
Under Delaware law, abstentions are counted in determining the quorum of
the meeting and as having voted on any proposal on which an abstention is voted.
Therefore, on those proposals which require a plurality vote of the shares at
the meeting that are entitled to vote, the vote of an abstention has no effect.
However, on those proposals which require an affirmative vote of the majority of
shares present in person or by proxy at the meeting, the vote of an abstention
has the effect of a vote against the proposal.
In the event of a broker non-vote arising from the absence of authorization
by the beneficial owner to vote on a proposal, the shares reported are counted
for the determination of a quorum for the meeting but they are not counted as
having voted on the proposal where there is a non-vote. Therefore, on those
proposals which require a plurality or a majority vote of the shares at the
meeting that are entitled to vote, a non-vote will have no effect. However, on
those proposals which require an affirmative vote of the majority of the shares
outstanding who are entitled to vote, a non-vote has the effect of a vote
against the proposal.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
In order for a proposal by a shareholder of the Company to be included in
the Company's proxy statement and form of proxy for the 2004 Annual Meeting of
Shareholders, the proposal must be received by the Company no later than
December 1, 2003.
OTHER MATTERS
The Company knows of no matters, other than those referred to herein, which
will be presented at the meeting. If, however, any other appropriate business
should properly be presented at the meeting, the proxies named in the enclosed
form of proxy will vote the proxies in accordance with their best judgment.
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. In addition to solicitation by mail, the Company has
retained D. F. King & Company of New York City, to assist in the solicitation of
proxies, including delivery of proxy materials. Fees for this solicitation are
expected to be approximately $5,000. The Company intends to reimburse brokerage
houses and other custodians, nominees and fiduciaries for reasonable
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out-of-pocket expenses incurred in forwarding copies of solicitation material to
beneficial owners of Common Stock held of record by such persons. In a limited
number of instances, regular employees of the Company may solicit proxies in
person or by telephone.
By order of the Board of Directors.
SPENCER LEROY III
Secretary
Chicago, Illinois
April 1, 2003
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