UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Horace Mann Educators Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO]
Horace Mann
Educated Financial Solutions
HORACE MANN EDUCATORS CORPORATION
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
ANNUAL MEETING--May 14, 2002
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of your Corporation
to be held at 9:00 a.m. on Tuesday, May 14, 2002, at the Renaissance Springfield
Hotel, 701 East Adams Street, Springfield, Illinois.
We will present a report on the current affairs of the Corporation at the
meeting and Shareholders will have an opportunity for questions and comments.
We request that you sign, date and mail your proxy card whether or not you
plan to attend the Annual Meeting.
Prompt return of your proxy card will reduce the cost of further mailings
and other follow-up work. You may revoke your voted proxy at any time prior to
the meeting or vote in person if you attend the meeting.
We look forward to seeing you at the meeting. If you do not plan to attend
and vote by proxy, let us know your feelings about the Corporation either by
letter or by comment on the proxy card.
Sincerely yours,
/s/ Joseph J. Melone /s/ Louis G. Lower II
Joseph J. Melone Louis G. Lower II
Chairman of the Board President and
Chief Executive Officer
Springfield, Illinois
April 02, 2002
HORACE MANN EDUCATORS CORPORATION
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2002
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Shareholders of
HORACE MANN EDUCATORS CORPORATION (the "Company") will be held at the
Renaissance Springfield Hotel, 701 East Adams Street, Springfield, Illinois, on
Tuesday, May 14, 2002, at 9:00 a.m., Central Daylight Savings Time, for the
following purposes:
1. To elect nine Directors to hold office until the next Annual Meeting of
Shareholders and until their respective successors have been duly
elected and qualified;
2. To approve the 2002 Incentive Compensation Plan; and
3. To consider and take action with respect to such other matters as may
properly come before the Annual Meeting or any adjournment or
adjournments thereof.
The Board of Directors has fixed the close of business on March 15, 2002 as
the record date for the determination of Shareholders entitled to notice of,
and to vote at, the Annual Meeting. A list of Shareholders will be available
for inspection for the ten days before the meeting at the Company's executive
offices at 1 Horace Mann Plaza, Springfield, Illinois 62715-0001.
All Shareholders are cordially invited to attend the Annual Meeting. Whether
or not you plan to attend the Annual Meeting, the Board of Directors urges you
to complete, date, sign and return the enclosed proxy card as soon as possible
in the enclosed business reply envelope, which requires no postage if mailed in
the United States of America. You may revoke your voted proxy at any time prior
to its exercise provided that you comply with the procedures set forth in the
Proxy Statement to which this Notice of Annual Meeting of Shareholders is
attached. If you attend the Annual Meeting, you may vote in person if you wish.
By order of the
Board of Directors,
/s/ Ann M. Caparros
Ann M. Caparros
Corporate Secretary
Springfield, Illinois
April 02, 2002
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THE
MEETING DATE IS MAY 14, 2002.
PROXY STATEMENT
HORACE MANN EDUCATORS CORPORATION
Annual Meeting of Shareholders
May 14, 2002
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Horace Mann Educators Corporation (the
"Company") of proxies from holders of the Company's common stock, par value
$.001 per share (the "Common Stock"). The proxies will be voted at the Annual
Meeting of Shareholders to be held on Tuesday, May 14, 2002, at 9:00 a.m.,
Central Daylight Savings Time, at the Renaissance Springfield Hotel, 701 East
Adams Street, Springfield, Illinois, and through any adjournment or
adjournments thereof (the "Annual Meeting").
The mailing address of the Company is 1 Horace Mann Plaza, Springfield,
Illinois 62715-0001 (telephone number (217) 789-2500). The Proxy Statement and
the accompanying proxy card are being first transmitted to Shareholders of the
Company on or about April 05, 2002.
The Board has fixed the close of business on March 15, 2002 as the record
date (the "Record Date") for determining the Shareholders of the Company
entitled to receive notice of, and to vote at, the Annual Meeting. At the close
of business on the Record Date, an aggregate of 40,813,579 shares of Common
Stock were issued and outstanding, each share entitling the holder thereof to
one vote on each matter to be voted upon at the Annual Meeting. The presence,
in person or by proxy, of the holders of a majority of such outstanding shares
is necessary to constitute a quorum for the transaction of business at the
Annual Meeting. Proxies will be solicited by mail. The Company also intends to
make, through bankers, brokers or other persons, a solicitation of beneficial
owners of Common Stock.
At the Annual Meeting, Shareholders of the Company will be asked (i) to
elect nine Directors to hold office until the next Annual Meeting of
Shareholders and until their respective successors have been duly elected and
qualified and (ii) to approve the 2002 Incentive Compensation Plan.
Shareholders may also be asked to consider and take action with respect to
such other matters as may properly come before the Annual Meeting or any
adjournment or adjournments thereof.
Copies of the Company's Annual Report to Shareholders and its Annual Report
on Form 10-K for the year ended December 31, 2001 were mailed to known
Shareholders on or about April 05, 2002.
SOLICITATION AND REVOCATION
Proxies in the form enclosed are solicited by and on behalf of the Board of
Directors of the Company. The persons named in the form of proxy have been
designated as proxies by the Board of Directors. Such persons are Directors of
the Company.
Shares of Common Stock represented at the Annual Meeting by a properly
executed and returned proxy will be voted at the Annual Meeting in accordance
with the instructions noted thereon, or if no instructions are noted, the proxy
will be voted in favor of the proposals set forth in the Notice of Annual
Meeting. A submitted proxy is revocable by a Shareholder at any time prior to
it being voted provided that such Shareholder gives written notice to the
Corporate Secretary at or prior to the Annual Meeting that such Shareholder
intends to vote in person or by
1
submitting a subsequently dated proxy. Attendance at the Annual Meeting by a
Shareholder who has given a proxy shall not in and of itself constitute a
revocation of such proxy.
Proxies will be solicited initially by mail. Further solicitation may be
made by officers and other employees of the Company personally, by phone or
otherwise, but such persons will not be specifically compensated for such
services. Banks, brokers, nominees and other custodians and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses in forwarding soliciting
material to their principals, the beneficial owners of Common Stock of the
Company. The costs of soliciting proxies will be borne by the Company. It is
estimated these costs will be nominal.
Shareholder Approval
Shareholders are entitled to one vote per share on all matters submitted for
consideration at the Annual Meeting. The affirmative vote of a plurality of the
shares of Common Stock represented in person or by proxy at the Annual Meeting
is required for the election of Directors. The affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy at the Annual
Meeting and entitled to vote on the matter is required for the approval of the
2002 Incentive Compensation Plan.
Abstentions may not be specified with regard to the election of Directors.
However, abstentions may be specified on the proposal for the approval of the
2002 Incentive Compensation Plan. Such abstentions will be counted as present
for purposes of approving the 2002 Incentive Compensation Plan. Such
abstentions will have the effect of a negative vote. If a Shareholder withholds
authority for proxies to vote for a particular Director nominee, this will not
have the effect of a negative vote because the plurality vote required to elect
a Director need not be a majority of all shares voting or present.
Please note that, under the rules of the New York Stock Exchange, Inc.,
brokers who hold shares in street name for customers have the authority to vote
on certain items when they have not received instructions from beneficial
owners. With respect to the matters to come before the Annual Meeting, if
brokers are not entitled to vote on the matter, such "broker non-vote" will
have no effect on the outcome of the vote on the matter.
Other Matters
Other than the matters set forth above, the Board has received no notice of
any Shareholder proposal by the deadlines applicable under Securities and
Exchange Commission rules, and otherwise knows of no matters to be brought
before the Annual Meeting. However, should any other matters properly come
before the meeting, the persons named in the accompanying Form of Proxy will
vote or refrain from voting thereon in their discretion.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide for the Company to have not less than
five nor more than 15 Directors. The following nine persons currently are
serving as Directors of the Company: William W. Abbott, Mary H. Futrell, Donald
E. Kiernan, Louis G. Lower II, Joseph J. Melone, Jeffrey L. Morby, Shaun F.
O'Malley, Charles A. Parker and William J. Schoen. The terms of the current
Directors expire at the Annual Meeting.
The proxies solicited by and on behalf of the Board of Directors will be
voted "FOR" the election of Mr. Abbott, Dr. Futrell, Mr. Kiernan, Mr. Lower,
Mr. Melone, Mr. Morby, Mr. O'Malley, Mr. Parker and Mr. Schoen (the "Board
Nominees") unless such authority is withheld as provided in the proxy. The
Company has no reason to believe that any of the foregoing Board Nominees is
not available to serve or will not serve if elected, although in the unexpected
event that any such Board Nominee should become unavailable to serve as a
Director, full discretion is reserved to the persons named as proxies to vote
for such other persons as may be nominated. Each Director will serve until the
next Annual Meeting of Shareholders and until his or her respective successor
is duly elected and qualified.
2
Nominees
The following information, as of March 15, 2002, is provided with respect to
each Board Nominee:
William W. Abbott, 70.. Mr. Abbott has been a Director of the Company
Chairman of the since September 1996. He is currently
Compensation Committee; self-employed as a business consultant. In 1989,
Member of the Organization Mr. Abbott retired from 35 years of service at The
and Executive Committees Procter & Gamble Company, as a Senior Vice
of the Board President in charge of worldwide sales and other
operations. He currently serves as a member of the
Boards of Directors of Millenium Ban Corp. and
Acorn Products, Inc. (which he also serves as
Chairman of the Board), a member of the Advisory
Board of Manco, a member of the Board of Overseers
of the Duke Cancer Center, and an Executive
Professor at Florida Gulf Coast University.
Mary H. Futrell, 61.. Member Dr. Futrell has been a Director of the Company
of the Organization, Audit since February 2001. She is currently Dean of the
and Executive Committees Graduate School of Education and Human
of the Board Development, and Director of the Institute for
Curriculum, Standards and Technology, The George
Washington University, positions she has held for
more than 5 years. In addition, Dr. Futrell is
Professor, Department of Education Leadership, a
position she has held since 1999. Dr. Futrell is
also President, Education International and past
President, National Education Association and
Virginia Education Association.
Donald E. Kiernan, 61.. Mr. Kiernan has been a Director of the Company
Member of the since February 1998. Prior to his retirement in
Compensation, Investment & August 2001, he served as Senior Executive Vice
Finance and Audit President and Chief Financial Officer of SBC
Committees of the Board Communications Inc., positions he held since 1999.
From 1993 to 1999, Mr. Kiernan served as Senior
Vice President, Treasurer and Chief Financial
Officer of SBC Communications Inc. He currently
serves as a member of the Boards of Directors of
BioNumerik Pharmaceuticals, Inc., Health
Management Associates, Inc. and Viad Corporation.
Louis G. Lower II, 56.. Mr. Lower joined the Company as Director,
President and Chief President and Chief Executive Officer in February
Executive Officer; Member 2000. Prior to that, he served as Chief Executive
of the Executive, Officer of Allstate Life Insurance Company, a
Organization and position he held from January 1990 through January
Investment & Finance 2000. He currently serves as a member of the
Committees of the Board Boards of Directors of the Life Office Management
Association, Illinois Life Insurance Council,
Insurance Marketplace Standards Association, NEA
Foundation for the Improvement of Education, PMI
Mortgage Insurance Co. and Chicago Botanic Garden.
Mr. Lower has over 25 years of experience in the
insurance industry.
Joseph J. Melone, 70.. Mr. Melone has been a Director of the Company
Chairman of the Board, since February 2001. Prior to his retirement in
Chairman of the Executive 1998, he served as President and Chief Executive
and Organization Officer of The Equitable Companies Inc.
Committees; Member of the (1996-1998), Chairman and Chief Executive Officer
Compensation Committee of of The Equitable Life Assurance Society
the Board (1994-1998) and Chairman and Chief Executive
Officer of The Equitable Variable Life Insurance
Company (1990-1998). Prior to 1990, Mr. Melone
served as President of Prudential Insurance
Company. He currently serves as a member of the
Boards of Directors of Bysis, Inc. and
Foster-Wheeler Corporation.
Jeffrey L. Morby, 64.. Mr. Morby has been a Director of the Company since
Member of the Executive, September 1996. He is currently self-employed as a
Investment & Finance and business consultant and investor. Mr. Morby serves
Audit Committees of the as Chairman of AMARNA Corporation and a general
Board partner of AMARNA Partners. Mr. Morby retired on
June 30, 1996 as Vice Chairman of Mellon Bank
Corporation and Mellon Bank, N.A., positions
3
he held for more than five years. As Vice Chairman
of Mellon Bank, he served on the Boards of
Directors of numerous entities affiliated with
Mellon Bank. Mr. Morby currently serves on the
Boards of Directors of Alung Technologies, Inc.,
Restaurant Insurance Holdings, Inc., Duquesne
University, Pittsburgh Cultural Trust, Pittsburgh
City Theater Company, International Advisors of
the City of Wuhan, China and International Council
of the World Wildlife Fund. Mr. Morby also serves
as Chairman of China Center of the Greater
Pittsburgh Metropolitan Area.
Shaun F. O'Malley, 66.. Mr. O'Malley has been a Director of the Company
Chairman of the Audit since September 1996. He is currently the Chairman
Committee; Member of the Emeritus of Price Waterhouse LLP, a title he has
Organization and held since July 1995. Prior to that, he served as
Investment & Finance Chairman and Senior Partner of Price Waterhouse
Committees of the Board LLP. He currently serves as a member of the Boards
of Directors of the Finance Company of
Pennsylvania, Regulus Group, LLC, Federal Home
Mortgage Corporation (Freddie Mac), and The
Philadelphia Contributionship, and as a member of
the Boards of Trustees of the University of
Pennsylvania and The Curtis Institute of Music and
the Board of Overseers of the Wharton School.
Charles A. Parker, 67.. Mr. Parker has been a Director of the Company
Member of the Executive, since September 1997. He retired in 1995 after 17
Compensation and years of service at The Continental Corporation,
Investment & Finance including service as Executive Vice President,
Committees of the Board Chief Investment Officer and Director. He
currently serves as a member of the Boards of
Directors of Amerindo Funds and T.C.W. Convertible
Fund, as a member of the Business Advisory Council
of the University of Colorado School of Business
and as a Governor of the Burridge Center for
Research in Security Prices (University of
Colorado School of Business).
William J. Schoen, 66.. Mr. Schoen has been a Director of the Company
Chairman of the since September 1996. He is currently the Chairman
Investment & Finance of the Board of Health Management Associates,
Committee; Member of the Inc., a position he has held for more than five
Compensation and Audit years. He serves on the Board of Directors of
Committees of the Board Health Management Associates, Inc. and many of its
subsidiaries.
Executive Officers
Set forth below is certain information, as of March 15, 2002, with respect
to the Executive Officers of the Company and its subsidiaries who are not
Directors of the Company (Louis G. Lower II, President and Chief Executive
Officer, is discussed above):
Peter H. Heckman, 56.. Mr. Heckman joined the Company in April 2000 as
Executive Vice President Executive Vice President and Chief Financial
and Chief Financial Officer Officer ("CFO"). Prior to that, he served as Vice
President of Allstate Life Insurance Company, a
position he held from 1988 through April 2000. Mr.
Heckman has over 25 years of experience in the
insurance industry.
Daniel M. Jensen, 38 .. Mr. Jensen joined the Company in September 2001 as
Executive Vice President Executive Vice President and Chief Marketing
and Chief Marketing Officer Officer ("CMO"). He previously served as Vice
President and CMO of American National Insurance
Company, a position he held from June 2000 through
September 2001. Prior to that, Mr. Jensen served
as Vice President, a position he held from January
1998 to June 2000, and General Agent, a position
he held from October 1993 to December 1997, of
American National Insurance Company. Mr. Jensen
has over 15 years of experience in the insurance
industry.
4
Douglas W. Reynolds, 48.. Mr. Reynolds joined the Company in November 2001
Executive Vice President, as Executive Vice President. He previously served
Property and Casualty as Regional Vice President of AIG, Inc., a
position he held from February 2000 through
November 2001. Prior to that, he served as Vice
President of Allstate Insurance Company from
November 1976 through January 2000. Mr. Reynolds
has over 25 years of experience in the insurance
industry.
George J. Zock, 51.. Mr. Zock was named Executive Vice President in
Executive Vice President, September 1997. Mr. Zock is responsible for
Service & Technology client, technology and financial services. He also
Operations and Financial served as Executive Vice President of insurance
Services operations from September 1997 to November 2001,
Senior Vice President from February 1992 to
September 1997 and Treasurer from September 1989
to April 1997. Mr. Zock has been with the Company
for 28 years.
Bret A. Conklin, 38.. Senior Mr. Conklin joined the Company as Senior Vice
Vice President and President and Controller in January 2002. Mr.
Controller Conklin has 16 years of experience in the
insurance industry, including serving as Vice
President of Kemper Insurance from January 2000
through January 2002, Vice President and
Controller of the Company from July 1998 through
January 2000, being associated with Pekin
Insurance from September 1992 through June 1998
and serving as its Vice President and Controller,
and 7 years of public accounting experience with
KPMG Peat Marwick specializing in its insurance
industry practice.
Ann M. Caparros, 49.. Ms. Caparros joined the Company in March 1994 as
General Counsel, Chief Vice President, General Counsel and Corporate
Compliance Officer and Secretary. Ms. Caparros has 24 years of experience
Corporate Secretary in the insurance industry.
J. Michael Henderson, 60.. Mr. Henderson joined the Company in September 1997
Vice President and as Vice President and Treasurer. From March 1985
Treasurer through September 1997, Mr. Henderson was
associated with Bear Stearns & Co. Inc. and served
as a Managing Director.
Special Advisory Board
The Company maintains a special advisory board composed of leaders of
education associations. The Company meets with the special advisory board on a
regular basis. The educators and education association leaders serving on the
special advisory board receive a fee of $200 plus expenses for each special
advisory board meeting attended. The special advisory board met two times in
2001.
Board of Directors
There were nine members on the Company's Board of Directors as of March 15,
2002. The Board met five times during 2001. No Director of the Company, other
than Dr. Futrell, Mr. Kiernan and Mr. Morby, attended fewer than 75% of the
aggregate of the Board meetings held during 2001 where he or she was a Director
and the committee meetings, to which he or she was appointed and served during
2001.
The standing committees of the Board consist of the Executive Committee,
Compensation Committee, Organization Committee, Investment & Finance Committee
and Audit Committee. Each standing committee has a charter which defines its
role and power.
The Executive Committee exercises certain powers of the Board during
intervals between meetings of the Board and, as requested by the Chief
Executive Officer, acts as a sounding board for discussing strategic and
operating issues between meetings of the Board. The current members of the
Committee are Mr. Melone (Chairman), Mr. Abbott, Dr. Futrell, Mr. Lower, Mr.
Morby and Mr. Parker. The Executive Committee did not meet during 2001.
5
The Compensation Committee reviews, approves and recommends the compensation
of Officers and Directors of the Company. The current members of the Committee
are Mr. Abbott (Chairman), Mr. Kiernan, Mr. Melone, Mr. Parker and Mr. Schoen.
The Compensation Committee met five times during 2001.
The Organization Committee oversees planning relating to the Senior
Management of the Company and Chief Executive Officer succession issues and
also recommends nominees to the Board of Directors. The Organization Committee
will consider nominees recommended by Shareholders. Nominations may be
submitted in writing to Ann M. Caparros, Corporate Secretary. Current members
of the Committee are Mr. Melone (Chairman), Mr. Abbott, Dr. Futrell, Mr. Lower
and Mr. O'Malley. The Organization Committee met two times during 2001.
The Investment & Finance Committee approves investment strategies and
monitors the performance of investments made on behalf of the Company and its
subsidiaries and oversees issues and decisions relating to the Company's
capital structure. Current members of the Committee are Mr. Schoen (Chairman),
Mr. Kiernan, Mr. Lower, Mr. Morby, Mr. O'Malley and Mr. Parker. The Committee
met four times during 2001.
The Audit Committee oversees the financial reporting and internal operating
controls of the Company. It meets with both Management and the Company's
independent public accountants. The current members of the Committee are Mr.
O'Malley (Chairman), Dr. Futrell, Mr. Kiernan, Mr. Morby and Mr. Schoen. The
Committee met eight times during 2001.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. The Audit Committee is composed of five
directors, each of whom is independent as defined by the New York Stock
Exchange listing standards. Management has the primary responsibility for the
Company's financial statements and its reporting process, including the
Company's systems of internal controls. In fulfilling its oversight
responsibilities, the committee reviewed the audited financial statements in
the Annual Report on Form 10-K with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
The Audit Committee has discussed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the
United States of America, their judgements as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by Independence Standards
Board No. 1 (Independence Discussions with Audit Committees) and discussed with
them their independence from the Company and its management.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the internal and the independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls, and the overall quality of the
Company's financial reporting. The Audit Committee held eight meetings during
fiscal year 2001.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2001 for filing with the Securities and
Exchange Commission. The Audit Committee recommended and the Board approved the
selection of the Company's independent auditors.
AUDIT COMMITTEE
SHAUN F. O'MALLEY Chairman
MARY H. FUTRELL, DONALD E. KIERNAN, JEFFREY L. MORBY and WILLIAM J. SCHOEN,
Members
6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, and by
each of the Company's Directors, the Company's CEO and the other four highest
compensated Executive Officers (collectively the "Named Executive Officers"),
and by all Directors and Executive Officers of the Company as a group.
Information in the table is as of March 15, 2002, except the number of shares
beneficially owned by the 5% beneficial owners which is as of December 31,
2001, based on information reported by such persons to the Securities and
Exchange Commission. Except as otherwise indicated, to the Company's knowledge,
all shares are beneficially owned and investment and voting power is held
solely by the persons named as owners.
Amount of
Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
-------------- ---------------- ---------- --------
Security Ownership of 5% Beneficial Owners
Common Stock Ariel Capital Management, Inc. (1)............................... 7,731,635 18.9%
Common Stock T. Rowe Price Associates, Inc. (2)............................... 2,830,000 6.9%
Common Stock Perkins, Wolf, McDonnell & Company (3)........................... 2,582,800 6.3%
Common Stock Mellon Financial Corporation (4)................................. 2,529,113 6.2%
Security Ownership of Directors and Executive Officers
Common Stock William W. Abbott (5)............................................ 32,613 *
Common Stock Mary H. Futrell (6).............................................. 5,482 *
Common Stock Donald E. Kiernan (7)............................................ 20,812 *
Common Stock Louis G. Lower II (8)............................................ 447,298 1.1%
Common Stock Joseph J. Melone (9)............................................. 16,505 *
Common Stock Jeffrey L. Morby (10)............................................ 23,282 *
Common Stock Shaun F. O'Malley (11)........................................... 22,588 *
Common Stock Charles A. Parker (12)........................................... 18,238 *
Common Stock William J. Schoen (13)........................................... 84,964 *
Common Stock Peter H. Heckman (14)............................................ 130,469 *
Common Stock Daniel M. Jensen (15)............................................ 38,052 *
Common Stock George J. Zock (16).............................................. 196,774 *
Common Stock Ann M. Caparros (17)............................................. 26,731 *
Common Stock All Directors and Executive Officers as a group (16 persons) (18) 1,143,672 2.7%
--------
*Less than 1%.
(1) Ariel Capital Management, Inc. ("ACMI") has a principal place of business
at 200 E. Randolph Drive, Suite 2900, Chicago, IL 60601 and is an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. All securities reported are owned by investment advisory
clients of ACMI, no one of which to the knowledge of ACMI owns more than
5% of the class. The foregoing is based on Amendment No. 5 to Schedule 13G
filed by ACMI in January 2002.
(2) T. Rowe Price Associates, Inc. ("Price Associates") has a principal place
of business at 100 E. Pratt Street, Baltimore, MD 21202 and is an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. Price Associates reported that it had sole voting power over
780,800 shares and sole investment power over all of the shares listed in
the table. The foregoing is based on the Schedule 13G filed by Price
Associates in February 2002.
(3) Perkins, Wolf, McDonnell & Company has a principal place of business at 53
W. Jackson Blvd., Suite 722, Chicago, IL 60604 and is a broker or dealer
registered under section 15 of the Securities Exchange Act of 1934 and an
investment adviser registered under section 203 of the Investment Advisers
Act of 1940. The foregoing is based on the Schedule 13G filed by Perkins,
Wolf, McDonnell & Company in February 2002.
7
(4) Mellon Financial Corporation ("MFC") has a principal place of business at
One Mellon Bank Center, 500 Grant Street, Pittsburgh, PA 15258 and is a
parent holding company of Mellon Bank N.A. ("Mellon") and The Dreyfus
Corporation ("TDC"), institutional investors entitled to file Schedule 13G
with the Securities and Exchange Commission. Each of MFC, Mellon, and TDC
were beneficial owners of more than 5% of the outstanding class of Common
Stock, with voting and investment powers as follows: MFC, sole voting
power over 2,039,398 shares, sole investment power over 2,069,813 shares,
and shared voting and investment power over 459,300 shares; Mellon, sole
voting power over 2,023,098 shares, sole investment power over 2,043,088
shares, and shared voting and investment power over 459,300 shares; and
TDC, sole voting power and sole investment power over 1,671,800 shares and
shared voting and investment power over 459,300 shares. The foregoing is
based on the Schedule 13G filed by Mellon Financial Corporation in January
2002.
(5) Includes 16,335 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable and 1,778 shares which are owned by a
trust as to which Mr. Abbott is a trustee.
(6) Includes 2,482 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 3,000 shares of Common Stock
which are currently exercisable.
(7) Includes 11,477 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable.
(8) Includes options to purchase 425,000 shares of Common Stock which are
currently exercisable. Also includes 1,316 shares of Common Stock which
are invested in the Horace Mann Stock Fund of the Horace Mann Supplemental
Retirement and Savings Plan (401(k)) and 10,982 Common Stock Equivalent
Units held under the Deferred Compensation Plan.
(9) Includes 8,505 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 6,000 shares of Common Stock
which are currently exercisable.
(10) Includes 15,882 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable.
(11) Includes 14,788 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable.
(12) Includes 10,838 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable.
(13) Includes 17,364 Common Stock Equivalent Units pursuant to the Director
Stock Plan. Also includes options to purchase 7,400 shares of Common Stock
which are currently exercisable and 60,200 shares owned by trusts as to
which Mr. Schoen is a trustee.
(14) Includes options to purchase 125,000 shares of Common Stock which are
currently exercisable. Also includes 5,469 Common Stock Equivalent Units
held under the Deferred Compensation Plan.
(15) Includes options to purchase 37,500 shares of Common Stock which are
currently exercisable. Also includes 552 Common Stock Equivalent Units
held under the Deferred Compensation Plan.
(16) Includes options to purchase 57,700 shares of Common Stock which are
currently exercisable. Also includes 67,538 shares held by his wife, as to
which Mr. Zock shares voting and dispositive power.
(17) Includes options to purchase 25,450 shares of Common Stock which are
currently exercisable. Also includes 1,268 Common Stock Equivalent Units
pursuant to the Deferred Compensation Plan.
(18) Includes options for the group of Directors and Executive Officers to
purchase 802,850 shares of Common Stock which are currently exercisable.
Also includes 97,671 Common Stock Equivalent Units pursuant to the
Director Stock Plan, 19,133 Common Stock Equivalent Units pursuant to the
Deferred Compensation Plan and 1,508 shares of Common Stock which are
invested in the Horace Mann Stock Fund of the Horace Mann Supplemental
Retirement and Savings Plan (401(k)).
Section 16(a) Beneficial Ownership Reporting Compliance
The Company has established procedures by which Executive Officers and
Directors provide relevant information regarding transactions in Company stock
to a Company representative and the Company prepares and files the
8
required ownership reports. Based on a review of those reports and other
written representations, the Company believes that there was no reportable
delinquency with respect to the reporting requirements under Section 16(a).
Related Party Transactions
The Company does not have any contracts or other transactions with related
parties that are required to be reported under the applicable securities laws
and regulations.
Ariel Capital Management, Inc., HMEC's largest shareholder with 18.9% of the
Common Shares outstanding, is the investment adviser for two of the mutual
funds offered to the Company's annuity customers.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth all reportable
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and the other four most highly compensated Executive Officers for
services rendered in the capacities described above.
Annual Compensation Long-Term Compensation
------------------- --------------------------
Awards Payouts
------------------ -------
Restricted
Stock LTIP All Other
Salary Bonus Awards Options Payouts Compensation
Name and Principal Position Year ($) ($)(4) ($) (#) ($)(5) ($)(6)
--------------------------- ---- ------- ------- ---------- ------- ------- ------------
Louis G. Lower II(1)............... 2001 529,173 0 0 0 317,504 13,662(7)
President & Chief Executive 2000 458,337 400,000 138,400 750,000 300,000 127,844
Officer 1999 0 0 0 250,000 0 0
Peter H. Heckman(2)................
Executive Vice President & Chief 2001 314,588 0 0 0 157,294 13,662(8)
Financial Officer 2000 218,269 150,000 0 300,000 150,000 117,981
Daniel M. Jensen(3)................ 2001 74,135 150,000 0 150,000 37,068 18,394(9)
Executive Vice President & Chief
Marketing Officer
George J. Zock..................... 2001 275,004 0 0 0 137,502 17,246(10)
Executive Vice President--Service 2000 250,008 0 0 35,000 29,163 17,678
& Technology Operations and 1999 239,588 0 0 0 93,835 16,510
Financial Services
Ann M. Caparros.................... 2001 179,368 0 0 0 53,810 15,650(11)
General Counsel, Chief 2000 172,188 0 0 5,700 10,043 15,650
Compliance Officer and 1999 164,719 0 0 0 32,256 14,750
Corporate Secretary
--------
(1) Mr. Lower was hired effective February 1, 2000, pursuant to an employment
agreement executed in December 1999, which included the grant of stock
options in 1999 as described in the section Agreements with Key Employees.
(2) Mr. Heckman was hired effective April 10, 2000.
(3) Mr. Jensen was hired effective September 04, 2001.
(4) The Awards shown for Mr. Lower and Mr. Heckman (paid in 2000) and Mr.
Jensen (paid in 2001) were contractually guaranteed as described in the
section Agreements with Key Employees.
(5) The LTIP Payouts amounts are paid pursuant to the Horace Mann Educators
Corporation Long-Term Incentive Plan except that Awards shown for Mr.
Lower and Mr. Heckman (paid in 2000) were contractually guaranteed as
described in the section Agreements with Key Employees.
(6) Includes Company contributions to the Horace Mann Supplemental Retirement
and Savings ("401(k)") Plan and to the Horace Mann Money Purchase Pension
("MPP") Plan (both defined contribution plans) and Company contributions
attributable to group term life insurance premiums.
(7) For Mr. Lower, in 2001, $5,100 was contributed to the 401(k) Plan; $8,500
was contributed to the MPP Plan; and $62 was attributed to group term life
insurance premiums.
(8) For Mr. Heckman, in 2001, $5,100 was contributed to the 401(k) Plan;
$8,500 was contributed to the MPP Plan; and $62 was attributed to group
term life insurance premiums.
(9) For Mr. Jensen, in 2001; $3,707 was contributed to the MPP Plan; and $16
was attributed to group term life insurance premiums. Also includes
$14,671 for relocation expenses in 2001.
10
(10) For Mr. Zock, in 2001, $5,100 was contributed to the 401(k) Plan; $11,900
was contributed to the MPP Plan; and $246 was attributed to group term
life insurance premiums.
(11) For Ms. Caparros, in 2001, $5,100 was contributed to the 401(k) Plan;
$10,200 was contributed to the MPP Plan; and $350 was attributed to group
term life insurance premiums.
OPTION GRANTS IN LAST FISCAL YEAR
Grant Date
Individual Grants Value
----------------------------------------- -------------
Options
Granted to
Employees Exercise
Options in Fiscal or Base Grant Date
Granted Year Price Expiration Present Value
Name (#) % of Total ($/Sh) Date ($)
---- ------- ---------- -------- ---------- -------------
Louis G. Lower II 250,000(1) 24.6 17.56 2/14/2011 2,259,876(2)
Peter H. Heckman. 50,000(1) 4.9 17.56 2/14/2011 451,975(2)
Daniel M. Jensen. 150,000(1) 14.8 18.06 9/17/2011 969,238(3)
George J. Zock... 35,000(1) 3.4 17.56 2/14/2011 316,383(2)
Ann M. Caparros.. 5,700(1) 0.6 17.56 2/14/2011 51,525(2)
--------
(1) For Mr. Lower, Mr. Heckman, Mr. Zock and Ms. Caparros, the options vest in
four equal annual installments beginning on February 14, 2001. For Mr.
Jensen, the options vest in four equal annual installments beginning on
September 17, 2001.
(2) The Bloomberg standard option valuation model for American options was used
to calculate the present value of the options on the grant date. The
valuation assumed an expected volatility rate of 52%, a risk-free rate of
return of 5.2%, a dividend yield of 2.4% and a delay in exercise based on
vesting. There were no adjustments made for non-transferability or risk of
forfeiture.
(3) The Bloomberg standard option valuation model for American options was used
to calculate the present value of the option on the grant date. The
valuation assumed an expected volatility rate of 34%, a risk-free rate of
return of 4.7%, a dividend yield of 2.4% and a delay in exercise based on
vesting. There were no adjustments made for non-transferability or risk of
forfeiture.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at FY-END (#) FY-END ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Louis G. Lower II 212,500 / 787,500 627,250 / 2,280,250
Peter H. Heckman. 62,500 / 237,500 260,010 / 994,290
Daniel M. Jensen. 37,500 / 112,500 118,500 / 355,500
George J. Zock... 46,400 / 28,800 32,025 / 96,075
Ann M. Caparros.. 23,125 / 5,175 106,216 / 15,647
11
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under
Non-Stock Price-Based Plans(1)
- ------------------------------
Performance or
Other Period
Until Maturation Threshold Target Maximum
Name or Payout (%) (%) (%)
---- ---------------- --------- ------ -------
Louis G. Lower II ...... 2001 0 60 120
Peter H. Heckman ....... 2001 0 50 100
Daniel M. Jensen . . . . 2001 0 50 100
George J. Zock.......... 2001 0 50 100
Ann M. Caparros......... 2001 0 30 60
--------
(1) The Threshold, Target and Maximum numbers are the percentage of the
individual's base salary at the final date of the applicable performance
period.
PENSION AND EXCESS PENSION PLANS
The following pension table illustrates the total benefits available for
Named Executive Officers under the defined benefit retirement plans without
considering social security offsets.
Years of Covered Service
Covered Remuneration($) 15 20 25 30 35
----------------------- ------- ------- ------- ------- -------
125,000 37,500 50,000 62,500 66,250 66,250
150,000 45,000 60,000 75,000 79,500 79,500
175,000 52,500 70,000 87,500 92,750 92,750
200,000 60,000 80,000 100,000 106,000 106,000
225,000 67,500 90,000 112,500 119,250 119,250
250,000 75,000 100,000 125,000 132,500 132,500
300,000 90,000 120,000 150,000 159,000 159,000
400,000 120,000 160,000 200,000 212,000 212,000
450,000 135,000 180,000 225,000 238,500 238,500
500,000 150,000 200,000 250,000 265,000 265,000
600,000 180,000 240,000 300,000 318,000 318,000
700,000 210,000 280,000 350,000 371,000 371,000
800,000 240,000 320,000 400,000 424,000 424,000
900,000 270,000 360,000 450,000 477,000 477,000
1,000,000 300,000 400,000 500,000 530,000 530,000
--------
(1) Represents the maximum combined benefits payable from all qualified and
non-qualified defined benefit pension plans based on the pre-August 29,
1989 formula, as defined below, without regard to social security offsets.
(2) As of December 31, 2001, Mr. Zock had 28 years and Ms. Caparros had 7 years
of credited service.
Compensation for purposes of the defined benefit plans includes only
compensation earned while participating in the defined benefit plans.
Participants only include those employees hired prior to January 01, 1999. In
general, eligible compensation for Executive Officers includes base salaries
and cash bonuses. Although compensation voluntarily deferred by an employee is
not considered as eligible earnings for pension purposes, a special exception
permits an employee's tax-deferred contributions under the 401(k) plan to count
as eligible earnings under the defined benefit plan. In addition, any amount
selected pursuant to Section 125 of the Internal Revenue Code is also
considered eligible earnings under the defined benefit plan.
12
For participants hired prior to August 29, 1989, annual benefits would be
determined by multiplying an average of the 36 highest consecutive months of
earnings by 2% times years of credited service minus 50% of the social security
income benefit earned while an employee. For participants hired after August
29, 1989, benefits would be determined by multiplying an average of the 36
highest consecutive months of earnings by 1.6% times years of credited service.
Accruals for credited service and earnings will cease as of March 31, 2002.
Under the terms of the Plan, a maximum of 30 years is eligible for credited
service.
The CEO's retirement benefits are not determined pursuant to the pension
plans described above and are described in the section Agreements with Key
Employees.
DIRECTOR COMPENSATION
A Director, other than an Officer of the Company, receives an annual
retainer of $25,000 and a fee of $1,000 plus expenses for attendance (whether
in person or by telephone) at each Board and Board Committee meeting. The
Chairman of each Committee receives an additional annual retainer of $2,500 for
serving in such capacity. The Chairman of the Board receives an annual retainer
of $75,000 in addition to the other fees described above. Directors have the
option to take all or part of such fees in the form of Common Stock Equivalent
Units of the Company, on a deferred compensation basis, with a 25% matching
addition to the sums listed above made by the Company pursuant to the Director
Stock Plan. In addition to the foregoing compensation, in May 2001 the Chairman
of the Board was granted 6,000 stock options and each Director was granted
3,000 stock options at market price pursuant to the Horace Mann Educators
Corporation 1991 Stock Incentive Plan.
AGREEMENTS WITH KEY EMPLOYEES
Effective February 1, 2000, the Company entered into an employment agreement
with Mr. Lower employing him as the Company's President and Chief Executive
Officer. That agreement is an exhibit to the Company's Annual Report on Form
10-K for 2001. The term of that agreement expired on December 31, 2000 but is
subject to an annual evergreen renewal which extends the agreement an
additional year on each September 1, so long as neither Mr. Lower or the
Company has, prior to September 1, notified the other that the agreement will
not so extend. Its current expiry date is December 31, 2002. The agreement
provides for an annual salary of not less than $500,004 and for Mr. Lower to
participate in the Company's short and long-term bonus plans, with minimum
guaranteed bonuses under each of those plans for payments in 2001 ($400,000 and
$300,000, respectively). Mr. Lower received a stock grant of 10,000 shares of
Common Stock and options to purchase 750,000 shares of Common Stock, vesting
150,000 shares on January 1, 2001 and each successive January 1 through January
1, 2005 so long as he is employed by the Company on each such date. The Company
also agreed to pay the following retirement benefits to Mr. Lower during his
lifetime:
Last Date of Employment Annual Benefit
----------------------- --------------
On or prior to December 31, 2000................................ $ 0
January 1, 2001 to December 31, 2001 . . . . . . . ............. $ 45,000
January 1, 2002 to December 31, 2002 . . . . . . . ............. $ 90,000
January 1, 2003 to December 31, 2003 . . . . . . . ............. $135,000
January 1, 2004 or later . . . . . . . . . . . . . . . . . . . . $180,000
The agreement contains provisions regarding reimbursement of Mr. Lower's
costs of moving to Springfield, Illinois, including under certain circumstances
covering any loss on the sale of the house he has purchased in Springfield and
provisions relating to Mr. Lower's death, disability or other termination of
his employment. In addition, the agreement provides that if there is a Change
of Control, as defined therein, and Mr. Lower's employment is within three
years thereof actually or constructively terminated, Mr. Lower will be paid a
lump-sum cash amount equal to the sum of (i) three times the greater of his
highest annual cash compensation from the Company or $1,200,000 and (ii) the
actuarially determined present value of Mr. Lower's retirement benefits
calculated as if he had been employed by the Company until the date which is
three years after the Change in Control. Mr. Lower's other benefits are also
continued for three years and there is an excise tax gross-up provision payment
sufficient to negate any effect on him of excise and related taxes attributable
to the benefits received under the agreement.
13
The Company entered into a letter of employment with Mr. Heckman, Executive
Vice President & Chief Financial Officer, effective April 10, 2000. That
agreement is an exhibit to the Company's Annual Report on Form 10-K for 2001.
The agreement provides for an annual salary of not less than $300,000 and for
Mr. Heckman to participate in the Company's short and long-term bonus plans,
with minimum guaranteed bonuses under each of those plans for payments in 2001
($150,000 each). Mr. Heckman received a grant of stock options to purchase
250,000 shares of Common Stock, vesting 50,000 shares on January 1, 2001 and
each successive January 1 through January 1, 2005 so long as he is employed by
the Company on each such date.
The Company entered into a letter of employment with Mr. Jensen, Executive
Vice President and Chief Marketing Officer, effective September 04, 2001. That
agreement is an exhibit to the Company's Annual Report on Form 10-K for 2001.
The agreement provides for an annual salary of $225,000 and for Mr. Jensen to
participate in the Company's short and long-term bonus plans, with a minimum
guaranteed bonus under the short-term bonus plan for payment in 2002
($150,000). Mr. Jensen received a total grant of stock options to purchase
150,000 shares of Common Stock, one-fourth vesting on September 17, 2001 and
each successive September 17 through September 17, 2004 so long as he is
employed by the Company on each such date.
In addition, the Company has entered into agreements with certain key
employees, including each of Mr. Heckman, Mr. Jensen, Mr. Zock and Ms.
Caparros, which provide that if, within three years after a change in control
of the Company, the employee is terminated from employment by the Company,
whether actually or constructively, for any reason other than cause, the
employee will receive (i) a one-time cash payment, (ii) continued insurance
coverage for a specified period, (iii) the present value of such employee's
accrued benefits as of the date of termination under the Company's
non-qualified supplemental pension plan(s) (which amount will be offset against
any amount payable under such plan) and (iv) an excise tax gross-up payment
sufficient to negate the effect on such employee of excise and related taxes
attributable to the benefits received by the employee under the agreement. The
one-time cash payment would be equal to 2.9 times the highest annual cash
compensation (salary and bonus) received by the employee in the five preceding
years, and the specified period during which such employee's insurance benefits
would continue is two years, 11 months.
REPORT ON EXECUTIVE COMPENSATION OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
The Compensation Committee of the Board of Directors (the "Compensation
Committee") reviews compensation of the Company's Named Executive Officers and
recommends actions to the Board regarding the cash compensation (base salary
and cash bonuses) to be paid to the Chief Executive Officer ("CEO") and the
other Named Executive Officers of the Company as well as grants of stock, stock
options, stock appreciation rights and restricted stock awards. Currently, the
components of compensation for the CEO and each Named Executive Officer are
base salary, short-term incentive compensation, long-term incentive
compensation, stock and stock options. Each of these components is discussed in
more detail below.
Base Salary
In determining the base salaries for the Named Executive Officers of the
Company, the primary information considered by the Compensation Committee is
data regarding salaries paid to Executives in similar positions at other
insurance companies. The Compensation Committee has obtained such data from the
Life Office Management Association ("LOMA") Executive Compensation Survey and
the National Association of Independent Insurers ("NAII") Executive
Compensation Survey, specifically: (i) the LOMA Executive Compensation Survey
for U.S. Companies, which for 2001 included data on 120 insurance companies,
(ii) the LOMA Executive Compensation Survey for U.S. Companies with Assets of
Between $1.5 Billion and $5 Billion, which for 2001 included data on 17
insurance companies and (iii) the NAII Executive Compensation Survey for
participating insurance companies which for 2001 included data on 108 insurance
companies (collectively referred to as the "compensation surveys"). The
compensation surveys are used without regard to an analysis of the performance
of the individual companies included in each survey.
14
The Compensation Committee strives to set base salaries for the Company's
Named Executive Officers at average levels for like Executives as indicated in
the compensation surveys, while attempting to have total compensation be at or
above such average levels.
The Compensation Committee considers two additional factors in setting base
salaries. Those factors are the possible need for an adjustment to reflect a
change in the position or responsibilities of the Executive and/or to encourage
the Executive to join the Company and the length of the Executive's industry
experience. Either one of these factors could result in a base salary above the
point determined by reference to the salaries of Executives in similar
positions as indicated in the compensation surveys.
When the Compensation Committee reviews the base salary of Named Executive
Officers, which is done an average of 12 to 24 months after a prior increase,
it makes adjustments to base salary on the basis of its subjective evaluation
of five items. The first four items, all considered in roughly equal weight
are: (i) the officer's performance regarding planning, organizing and
performing assigned tasks; (ii) the officer's performance concerning managing
costs; (iii) the officer's performance concerning managing personnel who report
to the officer; and (iv) the officer's performance in encouraging an ethical
work environment, providing exemplary customer service and providing a work
environment in which employees experience fair treatment and have an equal
opportunity for advancement. The fifth item is a review of the compensation
surveys to compare the CEO or Named Executive Officer's salary to the average
salaries for similar positions as reported in the compensation surveys. If the
CEO or Named Executive Officer is below the average survey salaries, a larger
salary increase may occur. If the CEO or Named Executive Officer is above the
average survey salaries, the Officer may not receive as much of an increase as
the individual would have received as a result of the analysis of only the
first four items or the increase in base salary may be delayed. The fifth item
is considered only if the Compensation Committee determines that a base salary
increase is warranted after analyzing the first four items.
In 2001, the Compensation Committee set an initial base salary for one Named
Executive Officer. In addition, the Compensation Committee reviewed the base
salaries of four Named Executive Officers, including the CEO. The Compensation
Committee reviewed the above factors and considered the CEO's performance in
the prior year and determined to award a salary increase of 10% to the CEO.
Horace Mann Educators Corporation Short-Term Incentive Plan
The Company's Short-Term Incentive Plan ("STIP") is designed to reward all
officers (the "Officers") of the Company for achieving corporate and operating
unit short-term performance objectives. The STIP is intended to provide an
incentive for superior work and to motivate Officers toward even higher
achievement and business results, to tie their goals and interests to those of
the Company and its Shareholders and to enable the Company to attract and
retain highly qualified employees. The STIP is also intended to secure the full
deductibility of annual incentive compensation payable to the Company's Named
Executive Officers whose compensation is required to be reported in the
Company's proxy statement. All compensation payable hereunder to such persons
is intended to qualify as "performance-based" compensation as described in
Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the
"Code").
The STIP provides that awards to Named Executive Officers are to be tied to
performance goals based upon one or more of the following business criteria,
either applied to the Company as a whole or individual operating units, any of
which may be measured either in absolute terms or as compared to goals set by
the Compensation Committee or the performance of other companies: financial
ratings, return on equity, earnings, growth in earnings, earnings per share,
growth in earnings per share, operating earnings, growth in operating earnings,
operating earnings per share, growth in operating earnings per share, insurance
premiums, growth in insurance premiums, total return to Shareholders (stock
price appreciation plus dividends), combined ratio, expense ratio, number of
agents and growth in number of agents. In addition, to the extent consistent
with deductibility of STIP payments under Section 162(m) of the Code,
performance goals may be based upon individual attainment of personal
objectives set by the Chief Executive Officer or the Compensation Committee
including, but not limited to, implementing policies and plans, negotiating
15
transactions and sales, developing long-term business goals and exercising
managerial responsibility. Measurement of the Company's or an Officer's
performance against the performance goals established by the Committee shall be
objectively determinable, as defined in the STIP. The STIP also provides that
the effects of extraordinary events during a performance period which have a
material impact on the relevant performance measures may be eliminated from the
calculation of such performance at the discretion of the Compensation Committee.
The Compensation Committee previously determined the basis on which Named
Executive Officers would be eligible to receive compensation under the STIP
with regard to the performance period of January 1, 2001 through December 31,
2001 by establishing performance goals and an objective method for computing
the amount of STIP payments to the Named Executive Officers if those goals were
attained. The Committee determined that no STIP awards with regard to 2001
would be paid unless the Company's return on equity for 2001 was equal to or
greater than the cost of capital at the beginning of 2001. The Committee also
determined that the corporate portion of each award would be determined on the
basis of two performance goals: GAAP operating earnings per share (50%
weighting) and insurance premiums written and contract deposits (50% weighting)
each as compared to plan.
With regard to 2001, the Compensation Committee concluded that no STIP
awards were payable, except where contractually guaranteed for one Named
Executive Officer, not the Chief Executive Officer .
Horace Mann Educators Corporation Long-Term Incentive Plan
The Company's Long-Term Incentive Plan ("LTIP") is designed to reward
certain officers of the Company for achieving corporate and operating division
long-term performance objectives. The LTIP is intended to motivate
participating Officers toward even higher achievement and business results, to
tie their goals and interests to those of the Company and its Shareholders and
to enable the Company to attract and retain highly qualified executive
employees. The LTIP is also intended to secure the full deductibility of
incentive compensation payable to the Company's Named Executive Officers whose
compensation is required to be reported in the Company's proxy statement. All
compensation payable hereunder to such persons is intended to qualify as
"performance-based compensation" as described in Section 162(m)(4)(C) of the
Code.
The Compensation Committee previously determined that certain officers,
including all of the Named Executive Officers, are eligible to receive
compensation under the LTIP.
The Compensation Committee previously set the following performance goals,
to be weighted equally: annual return on equity for 2001 compared to a minimum
goal exceeding 11% with a target goal of a 13% return on equity; and total
shareholder return from January 1, 2001 to December 31, 2001 as compared with
the S&P Insurance Composite Return for the period.
The annual return on equity for 2001 was 5.8%. The total shareholder return
from January 1, 2001 to December 31, 2001 was 1.42% as compared with the S&P
Insurance Composite Return for the period which was -13.81%.
With regard to the 2001 performance period, the Compensation Committee
concluded that the awards for Named Executive Officers including the Chief
Executive Officer would be calculated on the basis of the foregoing performance
goals.
Horace Mann Educators Corporation Deferred Compensation Plan
Effective December 1, 1997, the Company established the Horace Mann
Educators Corporation Deferred Compensation Plan (the "Deferred Compensation
Plan" or "DCP") whereby employees of the Company who are eligible for the LTIP
described above may defer receipt of all or a part of their STIP bonus
compensation and/or their LTIP bonus compensation on a pretax basis to common
stock equivalent units. Effective February 22, 2000, only the LTIP component
was eligible to be deferred. The DCP is an unfunded plan and is maintained by
the Company primarily for the purpose of providing deferred compensation for a
select group of highly compensated management
16
employees. More particularly, the purposes of the DCP are to align the
interests of certain employees more closely with the interests of other
Shareholders of the Company, to encourage the highest level of certain employee
performance by providing those employees with a direct interest in the
Company's attainment of its financial goals and to help attract and retain
certain qualified employees. In furtherance of the foregoing, the Compensation
Committee determined that a certain level of Common Stock ownership by certain
members of management is desirable. If a certain level of Common Stock
ownership is not achieved (as measured at the end of the year) then a portion
of any LTIP award will be deferred into the DCP.
To the extent an investment or distribution of cash or Common Stock may be
made under the DCP, the DCP is intended to qualify for the exemption from short
swing profits liability under Section 16(b) of the Securities Exchange Act of
1934 provided by Rule 16b-3 of the Securities and Exchange Commission as now in
effect or hereafter amended.
Horace Mann Educators Corporation 2001 Stock Incentive Plan
In order to attract, retain and motivate employees, the Company maintains
the Horace Mann Educators Corporation 2001Stock Incentive Plan (the ''Option
Plan''). Under the Option Plan, Executive Officers, potential employees, other
employees and certain Directors are eligible to receive stock options, stock
appreciation rights and stock awards.
The Option Plan is administered by the Compensation Committee which is
comprised of independent Directors. Subject to the provisions of the Option
Plan, the Compensation Committee determines (and for Named Executive Officers,
recommends to the Board) the type of awards, when and to whom awards will be
granted, the vesting period of the awards and the number of shares covered by
each award.
Stock option awards are granted at the prevailing market value of the
Company's Common Stock and are exercisable for a period of up to 10 years from
the date of grant. Because awards are granted at market value, any realization
of compensation by employees is tied to subsequent increases in the market
price of the Company's Common Stock. The Compensation Committee believes that
this causes the recipient's financial interest with regard to such incentive
compensation to parallel the financial interests of the Shareholders.
The Compensation Committee previously determined that stock options could be
granted in 2002 to the Named Executive Officers (based on performance in 2001)
at the discretion of the Compensation Committee. With regard to 2001
performance, the Compensation Committee concluded that no stock options would
be granted to the Named Executive Officers including the CEO during the first
quarter of 2002, however, the Compensation Committee will consider awards to
the Named Executive Officers, including the CEO, after the Annual Shareholder
Meeting in May 2002.
NOTE: The Report of the Audit Committee of the Board of Directors, the
Report on Executive Compensation of the Compensation Committee and the Stock
Price Performance Graph shall not be deemed to be incorporated by reference, in
whole or in part, by any general statement incorporating by reference this
Proxy Statement into any filing under the Securities Act of 1933, as amended,
or under the Securities Exchange Act of 1934, as amended.
COMPENSATION COMMITTEE
WILLIAM W. ABBOTT, Chairman
DONALD E. KIERNAN, JOSEPH J. MELONE, CHARLES A. PARKER and WILLIAM J. SCHOEN,
Members
17
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return* of Horace Mann Educators
Corporation, the S&P 500 Index and the S&P Insurance Composite Index. The graph
assumes $100 invested on December 31, 1996 in Horace Mann Educators Corporation,
S&P 500 Index and S&P Insurance Composite Index.
HORACE MANN EDUCATORS CORPORATION STOCK PRICE PERFORMANCE
[CHART]
12/96 12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- ----- -----
HMEC................... $100 $142 $144 $101 $112 $114
S&P Insurance Composite $100 $146 $151 $156 $216 $186
S&P 500................ $100 $133 $171 $207 $188 $166
18
The graph below compares cumulative total return* of Horace Mann Educators
Corporation, the S&P 500 Index and the S&P Insurance Composite Index. The graph
assumes $100 invested on November 18, 1991 (the date of the Company's initial
public offering of its Common Stock) in Horace Mann Educators Corporation, S&P
500 Index and S&P Insurance Composite Index.
[CHART]
11/91 12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
HMEC......... $100 $124 $160 $141 $122 $181 $238 $338 $343 $240 $268 $272
S&P Insurance
Composite.. $100 $113 $133 $141 $141 $201 $252 $368 $381 $394 $547 $475
S&P 500...... $100 $109 $117 $129 $130 $179 $220 $294 $378 $457 $416 $367
--------
*The S&P 500 Index, as published by Standard & Poor's Corporation ("S&P"),
assumes daily reinvestment of dividends in calculating total return.
The S&P Insurance Index assumes monthly dividend reinvestment. Horace
Mann Educators Corporation assumes reinvestment of dividends when paid.
19
PROPOSAL NO. 2
APPROVAL OF THE 2002 INCENTIVE COMPENSATION PLAN
General
The Board, on March 6, 2002, approved the Company's 2002 Incentive
Compensation Plan (the "2002 Plan"), subject to Shareholder approval, and has
determined that it is in the best interests of the Company to adopt the 2002
Plan to enhance the ability of the Company to link compensation to performance
on a tax-efficient basis. The text of the proposed 2002 Plan is attached as
Exhibit A.
The Board believes that attracting and retaining executives and other key
employees of high quality has been and will continue to be essential to the
Company's growth and success. To this end, a comprehensive compensation program
which includes different types of incentives for motivating employees and
rewards for outstanding service can contribute to the Company's future success.
In particular, the Company intends to continue to use stock options and
stock-related awards as an important element of compensation for executives and
other employees, because such awards enable the employees to acquire or
increase their proprietary interest in the Company, thereby promoting a closer
identity of interests between them and the Company's Shareholders. In addition,
annual incentive awards and other performance-based awards provide incentives
for achieving specific performance objectives. The Board therefore views the
2002 Plan as a key part of the Company's compensation program.
The 2002 Plan authorizes a broad range of awards, including options,
restricted and deferred stock, performance awards, stock appreciation rights
("SARs") and other types of awards based on the Company's Common Stock
(collectively, "Awards"). These include performance-based awards similar to
those previously granted under the Company's Short-Term Incentive Plan and
Long-Term Incentive Plan. If approved by Shareholders, no further awards would
be authorized for grant under those incentive plans and under the Company's
2001 Stock Incentive Plan and the Company's 1991 Stock Incentive Plan
(previously authorized awards remain in effect, however).
Vote Required for Approval
Approval of the 2002 Plan will require the affirmative vote of the holders
of a majority of the shares of Common Stock present, or represented, and
entitled to vote on the subject matter at the Annual Meeting. The Board
considers the 2002 Plan to be in the best interests of the Company and its
Shareholders and therefore recommends that the Shareholders vote to approve the
2002 Plan at the Annual Meeting.
Reasons for Shareholder Approval
The Board seeks Shareholder approval of the 2002 Plan in order to satisfy
certain legal requirements and to provide tax advantages to the Company and
participants. Specifically, approval of the 2002 Plan will meet a requirement
of the New York Stock Exchange. In addition, the Board seeks to preserve the
Company's ability to claim tax deductions for compensation, to the greatest
extent practicable. Therefore, the Company is seeking Shareholder approval of
the material terms of performance awards to certain executives under the 2002
Plan, in order to meet a key requirement for such awards to qualify as
"performance-based" compensation under Section 162(m) of the Code.
Section 162(m) limits the deductions a publicly-held company can claim for
compensation in excess of $1 million paid to certain executive officers
(generally, the officers who are "named executive officers" in the summary
compensation table in a company's proxy statement). "Performance-based"
compensation is not counted against the $1 million deductibility cap. If the
2002 Plan is approved by Shareholders, performance awards intended by the
Compensation Committee (the "Committee") to qualify as "performance-based"
compensation will be payable only upon achievement of pre-established
performance goals, subject to any additional requirements and terms as the
Committee may establish. Such performance awards can be used to place strong
emphasis on the building of value for all Shareholders. For purposes of Code
Section 162(m), approval of the 2002 Plan will be deemed also to include
approval of the eligibility of executive officers and other eligible persons to
participate, the per-person limitations
20
described below under the caption "Shares Available and Award Limitations," and
the general business criteria upon which performance objectives for performance
awards are based, described below under the caption "Performance-Based Awards."
Because Shareholder approval of general business criteria, without specific
targeted levels of performance, qualifies performance awards for a period of
approximately five years, Shareholder approval of such business criteria will
meet the requirements under Section 162(m) through 2006. Shareholder approval
of the performance goals inherent in stock options and SARs is not subject to a
time limit under Section 162(m).
Shareholder approval will also allow the Committee to designate options as
"incentive stock options," if it chooses, to provide tax advantages to
participants. These advantages are explained below.
Description of the 2002 Plan
The following is a summary description of the material features of the 2002
Plan. This description is qualified in its entirety by reference to the full
text of the 2002 Plan, a copy of which is attached to this Proxy Statement as
Exhibit A.
Shares Available and Award Limitations. The number of shares of Common
Stock reserved and available for Awards under the 2002 Plan will be 3,000,000
shares plus the number of shares reserved under the 2001 Stock Incentive Plan
and 1991 Stock Incentive Plan which have not been and will not be delivered to
participants and become non-forfeitable under those preexisting plans. If
Shareholders approve the 2002 Plan, the total number of shares that would be
available subject to outstanding options and non-vested Awards plus the number
available for future equity awards under the 2002 Plan (the only Plan then
providing for such awards) would be 6,760,000 shares, or 16.6% of the shares
outstanding on March 15, 2002. Of the shares available for future awards, not
more than 5% could be issued in the form of restricted stock or other non-stock
option/non-SAR awards. As discussed below, the number of shares reserved under
the 2002 Plan is subject to adjustment in the event of stock splits, stock
dividends, and other extraordinary events.
Shares subject to forfeited or expired Awards or to Awards settled in cash
or otherwise terminated without issuance of shares to the participant, and
shares withheld by or surrendered to the Company to satisfy withholding tax
obligations or in payment of the exercise price of an Award, will be deemed to
be available for new Awards under the 2002 Plan. The same share counting rules
will apply to awards currently outstanding under the two preexisting plans.
Under the 2002 Plan, shares subject to an Award granted in substitution for an
award of a company or business acquired by the Company or a subsidiary will not
count against the number of shares reserved and available. Shares delivered
under the 2002 Plan may be either newly issued or treasury shares. On March 15,
2002, the closing price of the Company's Common Stock on the composite tape for
New York Stock Exchange-listed securities was $22.18 per share.
In addition, the 2002 Plan includes a limitation on the amount of Awards
that may be granted to any one participant in a given year in order to qualify
Awards as "performance-based" compensation not subject to the limitation on
deductibility under Section 162(m) of the Code. Under this annual per-person
limitation, no participant may in any year be granted share-denominated Awards
under the 2002 Plan relating to more than his or her "Annual Limit" for each
type of Award. The Annual Limit equals 500,000 shares plus the amount of the
participant's unused Annual Limit relating to share-based Awards as of the
close of the previous year, subject to adjustment for splits and other
extraordinary corporate events. In the case of cash-denominated Awards, the
2002 Plan limits performance Awards that may be earned by a participant to the
participant's defined Annual Limit, which for this purpose equals $2.5 million
plus the amount of the participant's unused cash Annual Limit as of the close
of the previous year. The per person limit for cash-denominated performance
Awards does not operate to limit the amount of share-based Awards, and vice
versa.
Adjustments to the number and kind of shares subject to the share
limitations and specified in the share-based Annual Limit are authorized in the
event of a large, special or non-recurring dividend or distribution,
recapitalization, stock split, stock dividend, reorganization, business
combination, or other similar corporate transaction or event
21
affecting the Common Stock. The Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or to changes in applicable laws, regulations, or accounting principles,
except that adjustments to Awards intended to qualify as "performance-based"
generally must conform to requirements imposed by Section 162(m).
Eligibility. Executive officers and other employees of the Company and its
subsidiaries, and non-employee directors, consultants and others who provide
substantial services to the Company and its subsidiaries, are eligible to be
granted Awards under the 2002 Plan. In addition, any person who has been
offered employment by the Company or a subsidiary may be granted Awards, but
such prospective grantee may not receive any payment or exercise any right
relating to the Award until he or she has commenced employment or the providing
of services. As of March 15, 2002, approximately 2,500 persons would be
potentially eligible for Awards under the 2002 Plan. Awards currently
outstanding under the preexisting plans are held by a total of 2,182 employees
of the Company as of March 15, 2002.
Administration. The 2002 Plan is administered by the Committee, except that
the Board may appoint any other committee to administer the Plan and may itself
act to administer the Plan. The Board must perform the functions of the
Committee for purposes of granting Awards to non-employee directors.
(References to the "Committee" here mean the Committee or the full Board
exercising authority with respect to a given Award.) Subject to the terms and
conditions of the 2002 Plan, the Committee is authorized to select
participants, determine the type and number of Awards to be granted and the
number of shares to which Awards will relate or the amount of a performance
award, specify times at which Awards will be exercisable or settled, including
performance conditions that may be required as a condition thereof, set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the 2002 Plan, and make
all other determinations which may be necessary or advisable for the
administration of the 2002 Plan. Nothing in the 2002 Plan precludes the
Committee from authorizing payment of other compensation, including bonuses
based upon performance, to officers and employees, including the Executive
Officers, outside of the Plan. The 2002 Plan provides that Committee members
shall not be personally liable, and shall be fully indemnified, in connection
with any action, determination, or interpretation taken or made in good faith
under the Plan.
Stock Options and SARs. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in
potentially favorable tax treatment to the participant, and non-qualified stock
options, and SARs entitling the participant to receive the excess of the fair
market value of a share on the date of exercise or other specified date over
the grant price of the SAR. The exercise price of an option and the grant price
of a SAR are determined by the Committee, but generally may not be less than
the fair market value of the shares on the date of grant (except as described
below). The maximum term of each option or SAR will be ten years. Subject to
this limit, the times at which each option or SAR will be exercisable and
provisions requiring forfeiture of unexercised options at or following
termination of employment or upon the occurrence of other events generally are
fixed by the Committee. Options may be exercised by payment of the exercise
price in cash, shares or other property (possibly including notes or
obligations to make payment on a deferred basis, or through broker-assisted
cashless exercise procedures) or by surrender of other outstanding Awards
having a fair market value equal to the exercise price. Methods of exercise and
settlement and other terms of SARs will be determined by the Committee. SARs
granted under the 2002 Plan may include limited SARs exercisable for a stated
period of time following a Change of Control of the Company, as discussed below.
Restricted and Deferred Stock. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee, but restricted
stock must vest over a minimum period of one year except in the case of the
participant's death, disability or retirement, a Change of Control of the
Company, or other special circumstances. An Award of restricted stock entitles
the participant to all of the rights of a Shareholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Committee. Deferred stock gives participants
the right to receive shares at the end of a specified deferral period, subject
to forfeiture of the Award in the event of termination of employment under
certain circumstances prior to the
22
end of a specified restricted period (which need not be the same as the
deferral period). Prior to settlement, deferred stock Awards carry no voting or
dividend rights or other rights associated with stock ownership, but dividend
equivalents may be paid on such deferred stock.
Other Stock-Based Awards, Bonus Shares, and Awards in lieu of Cash
Obligations. The 2002 Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares. The Committee will determine the terms
and conditions of such Awards, including the consideration to be paid to
exercise Awards in the nature of purchase rights, the periods during which
Awards will be outstanding, and any forfeiture conditions and restrictions on
Awards. In addition, the Committee is authorized to grant shares as a bonus
free of restrictions, or to grant shares or other Awards in lieu of the
Company's obligations under other plans or compensatory arrangements, subject
to such terms as the Committee may specify.
Performance-Based Awards. The Committee may grant performance-based Awards,
which may be cash-denominated Awards or share-based Awards. Generally,
performance-based Awards require satisfaction of pre-established performance
goals, consisting of one or more business criteria and a targeted performance
level with respect to such criteria as a condition of Awards being granted or
becoming exercisable or settleable under the 2002 Plan, or as a condition to
accelerating the timing of such events. Performance may be measured over a
period of up to one year or a longer period specified by the Committee.
The 2002 Plan authorizes the Committee to grant performance-based Awards
other than annual incentive awards (discussed below) that qualify under Section
162(m) of the Code and therefore are fully tax deductible by the Company. The
business criteria to be used by the Committee in establishing performance goals
applicable to those performance Awards to Named Executives will be selected
from among the following: (1) insurance premiums written, contract deposits,
contract charges earned, or contracts in force; (2) operating income, before or
after taxes, and income before or after interest, depreciation, amortization,
or extraordinary or special items; (3) operating income per common share (basic
or diluted), and operating income from continuing operations per common share
(basic or diluted); (4) return on equity, return on assets (gross or net),
return on investment, or return on capital; (5) cash flow, free cash flow, cash
flow return on investment (discounted or otherwise), net cash provided by
operations, or cash flow in excess of cost of capital; (6) net interest margin
or interest expense after taxes; (7) accumulated value and accumulated value
persistency; (8) net investment income and realized investment gains or losses
(including on a per share basis); (9) economic value created; (10) operating
margin or profit margin; (11) restructuring charges, litigation charges, or
expense ratios; (12) stock price or total Shareholder return; (13) dividends,
including as a percentage of net income; and (14) strategic business criteria,
consisting of one or more objectives based on meeting specified market
penetration, geographic business expansion goals, cost targets, customer
satisfaction, employee satisfaction, management of employment practices and
employee benefits, supervision of litigation and/or information technology, and
goals relating to acquisitions or divestitures of subsidiaries, affiliates or
joint ventures. The Committee may specify that any such criteria will be
measured before or after extraordinary or non-recurring items, before or after
service fees, or before or after payments of Awards under the 2002 Plan. The
Committee may set the levels of performance required in connection with
performance Awards as fixed amounts, goals relative to performance in prior
periods, as goals compared to the performance of one or more comparable
companies or an index covering multiple companies, or in any other way the
Committee may determine.
Annual Incentive Awards. The Committee is authorized to grant annual
incentive awards, settleable in cash or in shares upon achievement of
preestablished performance objectives achieved during a specified period of up
to one year. The performance objectives may be one or more of the performance
objectives available for other performance awards under the 2002 Plan, as
described in the preceding paragraph. The Committee generally must establish
the terms of annual incentive Awards, including, if applicable, the applicable
performance goals and the corresponding amounts payable (subject to per person
limits), and/or the amounts allocable out of the annual incentive pool, other
terms of settlement, and all other terms of these Awards not later than 90 days
after the beginning of the fiscal year.
Other Terms of Awards. Awards may be settled in cash, shares, other Awards
or other property, in the discretion of the Committee. The Committee may
require or permit participants to defer the settlement of all or part of an
23
Award in accordance with such terms and conditions as the Committee may
establish, including payment or crediting of interest or dividend equivalents
on any deferred amounts. The Committee is authorized to place cash, shares or
other property in trusts or make other arrangements to provide for payment of
the Company's obligations under the 2002 Plan. The Committee may condition
Awards on the payment of taxes such as by withholding a portion of the shares
or other property to be distributed (or receiving previously acquired shares or
other property surrendered by the participant) in order to satisfy tax
obligations. Awards granted under the 2002 Plan generally may not be pledged or
otherwise encumbered and are not transferable except by will or by the laws of
descent and distribution, or to a designated beneficiary upon the participant's
death, except that the Committee may permit transfers from an individual to
beneficiaries during the participant's lifetime, primarily for estate planning
purposes.
Awards under the 2002 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in substitution for, exchange for or as a
buyout of other Awards under the 2002 Plan, awards under other Company plans,
or other rights to payment from the Company, and may exchange or buy out
outstanding Awards for cash or other property. The Committee also may grant
Awards in addition to and in tandem with other Awards, awards, or rights as
well. In granting a new Award, the Committee may determine that the
in-the-money value of any surrendered Award may be applied to reduce the
exercise price of any option, grant price of any SAR, or purchase price of any
other Award.
Vesting, Forfeitures, and Acceleration Thereof. The Committee may in its
discretion determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the
post-termination exercise periods of options and similar Awards, and the events
that will result in acceleration of the ability to exercise and the lapse of
restrictions, or the expiration of any deferral period, on any Award. In
addition, the 2002 Plan provides that, in the event of a Change of Control of
the Company, unless otherwise provided by the Committee, a subsequent
termination of employment or service not for cause within the year following
the Change of Control will result in accelerated vesting and exercisability of
the participant's Awards (except that Awards with separate performance
conditions will be governed by the terms of any applicable award agreement).
A "Change of Control" generally includes (A) approval by stockholders of a
merger, reorganization, consolidation, or similar transaction in which the
Company is not the surviving corporation or in which stock would be converted
to cash, securities or other property, other than a merger in which the
ownership percentage of any stockholder is not decreased by 10% or more (except
by virtue of odd lot transactions), (B) Shareholder approval of a liquidation,
dissolution or sale of substantially all assets, (C) any "person" becomes the
owner, directly or indirectly, of more than 50% of the Company, and (D) certain
changes of more than half of the membership of the Board of Directors.
Amendment and Termination of the 2002 Plan. The Board may amend, alter,
suspend, discontinue, or terminate the 2002 Plan or the Committee's authority
to grant Awards thereunder without Shareholder approval unless Shareholder
approval is required by law, regulation, or stock exchange rule. The Board may,
in its discretion, submit other amendments to Shareholders for approval. Under
these provisions, Shareholder approval will not necessarily be required for
amendments which might increase the cost of the 2002 Plan or broaden
eligibility. Outstanding Awards may be amended, but the Committee cannot modify
or waive award terms that are then mandatory under the 2002 Plan. In addition,
without the approval of Shareholders, the Committee will not amend or replace
previously granted options in a transaction that constitutes a "repricing"
within the meaning of the Securities and Exchange Commission's proxy rules.
Unless earlier terminated, the 2002 Plan will terminate at such time that no
shares reserved under the Plan remain available and the Company has no further
rights or obligations with respect to any outstanding Award.
Federal Income Tax Implications of the 2002 Plan
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the 2002
Plan. The grant of an option (including a stock based Award in the
24
nature of a purchase right) or an SAR will create no federal income tax
consequences for the participant or the Company. A participant will not have
taxable income upon exercising an option which is an ISO (except that the
alternative minimum tax may apply). Upon exercising an option which is not an
ISO, the participant must generally recognize ordinary income equal to the
difference between the exercise price and the fair market value of the freely
transferable and nonforfeitable shares acquired on the date of exercise. Upon
exercising an SAR, the participant must generally recognize ordinary income
equal to the cash received.
Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally recognize
ordinary income equal to the lesser of (i) the fair market value of the shares
at the date of exercise of the ISO minus the exercise price or (ii) the amount
realized upon the disposition of the ISO shares minus the exercise price.
Otherwise, a participant's disposition of shares acquired upon the exercise of
an option generally will result in short-term or long-term capital gain or loss
measured by the difference between the sale price and the participant's tax
"basis" in such shares (generally, the tax "basis" is the exercise price plus
any amount previously recognized as ordinary income in connection with the
exercise of the option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with respect
to an ISO if the participant holds the shares for the applicable ISO holding
periods prior to disposition of the shares.
With respect to other Awards granted under the 2002 Plan that result in a
transfer to the participant of cash or shares or other property that is either
not restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property actually
received. With respect to Awards involving shares or other property that is
restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the earliest
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture. In both cases, except as discussed below, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the participant. A participant may elect to be
taxed at the time of receipt of shares (e.g., restricted stock) or other
property rather than upon lapse of restrictions on transferability or the
substantial risk of forfeiture, but if the participant subsequently forfeits
such shares or property he or she would not be entitled to any tax deduction,
including as a capital loss, for the value of the shares or property on which
he or she previously paid tax.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the 2002 Plan, options granted with an exercise price or grant price at
least equal to 100% of fair market value of the underlying shares at the date
of grant will be, and Awards which are conditioned upon achievement of
performance goals may be, intended to qualify as such "performance-based"
compensation. A number of requirements must be met, however, in order for
particular compensation to so qualify. Accordingly, there can be no assurance
that such compensation under the 2002 Plan will be fully deductible under all
circumstances. In addition, other Awards under the 2002 Plan generally will not
so qualify, so that compensation paid to certain executives in connection with
such Awards may, to the extent it and other compensation subject to Section
162(m)'s deductibility cap exceed $1 million in a given year, be subject to the
limitation of Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain types of Awards under the 2002 Plan. This
discussion is intended for the information of Shareholders considering how to
vote at the Annual Meeting and not as tax guidance to participants in the 2002
Plan, as the consequences may vary with
25
the types of Awards made, the identity of the recipients and the method of
payment or settlement. Different tax rules may apply, including in the case of
variations in transactions that are permitted under the 2002 Plan (such as
payment of the exercise price of an option by surrender of previously acquired
shares). The summary does not address the effects of other federal taxes
(including possible "golden parachute" excise taxes) or taxes imposed under
state, local, or foreign tax laws.
New Plan Benefits Under the 2002 Plan
Because future Awards under the 2002 Plan will be granted at the discretion
of the Committee, the type, number, recipients, and other terms of such Awards
cannot be determined at this time. Information regarding the Company's recent
practices with respect to annual, long-term, and stock-based compensation under
other Company plans is presented in the "Summary Compensation Table" and the
"Report on Executive Compensation of the Compensation Committee of the Board of
Directors" elsewhere in this Proxy Statement and in the Company's financial
statements for the year ended December 31, 2001, located in the Annual Report
on Form 10-K which accompanies this Proxy Statement.
The Committee has authorized the annual award opportunities for 2002 and
long-term incentive award opportunities for the 2002-2004 performance period
for the Named Executive Officers under the 2002 Plan, subject to approval of
the 2002 Plan by Shareholders. By doing so, the Committee intends that the
Company will be entitled to a full tax deduction for any award payouts, without
limitation under Section 162(m) of the Internal Revenue Code.
For 2002, the 2002 Plan will be the source of Awards for Named Executive
Officers under the Short-Term Incentive Plan. Such Awards will become payable
if, in 2002, specified corporate performance goals are achieved, relating to
the level of insurance premiums written and contract deposits and to operating
earnings per share, and for some Named Executive Officers if additional goals
relating to combined ratio (a measure of premium income compared to losses and
expenses) and other specified objectives are achieved. No amount will be
payable with respect to a particular objective if a specified threshold
performance level is not reached, and Awards are payable at the "Exceptional"
rate if performance in excess of the target performance is achieved. The table
below shows the amounts payable to Named Executive Officers, expressed as a
percentage of base salary, upon achievement of specified levels of performance
for 2002:
New Plan Benefits
2002 Incentive Compensation Plan
Short-Term Incentive Plan--2002
Payout for Performance at
Specified Level
- ------------------------------
Name and Position Threshold Target Exceptional
----------------- --------- ------ -----------
Louis G. Lower II . . . . . . . . . . . . . . . . . . . . .. 30% 60% 120%
President and Chief Executive Officer
Peter H. Heckman . . . . . . . . . . . . . . . . . . . . ... 25% 50% 100%
Executive Vice President and Chief
Financial Officer
Daniel M. Jensen . . . . . . . . . . . . . . . . . . . . . . 25% 50% 100%
Executive Vice President & Chief
Marketing Officer
George J. Zock . . . . . . . . . . . . . . . . . . . . . . . 25% 50% 100%
Executive Vice President--Service &
Technology Operations and Financial Services
Ann M. Caparros . . . . . . . . . . . . . . . . . . . . . .. 20% 40% 80%
General Counsel, Chief Compliance Officer
and Corporate Secretary
26
For the 2002-2004 performance period, the 2002 Plan will be the source of
Awards for Named Executive Officers under the Company's Long-Term Incentive
Plan. Such Awards will become payable in 2005 if, during the performance
period, specified corporate performance goals are achieved relating to return
on equity and operating earnings per share. No amount will be payable with
respect to a particular objective if a specified threshold performance level is
not reached, and Awards are payable at the "Exceptional" rate if performance in
excess of the target performance is achieved. The table below shows the amounts
payable in 2005 to Named Executive Officers upon achievement of specified
levels of performance for the three year performance period of 2002-2004:
Long-Term Incentive Plan--2002-2004
Period Payout for Performance
at Specified Level
-----------------------------------
Name and Position Threshold Target Exceptional
----------------- ---------- ---------- -----------
Louis G. Lower II . . . . . . . . . . . . . . . . . . . . .. $1,065,000 $2,130,000 $4,260,000
President and Chief Executive Officer
Peter H. Heckman . . . . . . . . . . . . . . . . . . . . ... $ 405,000 $ 810,000 $1,620,000
Executive Vice President and Chief
Financial Officer
Daniel M. Jensen . . . . . . . . . . . . . . . . . . . . . . $ 270,000 $ 540,000 $1,080,000
Executive Vice President & Chief
Marketing Officer
George J. Zock . . . . . . . . . . . . . . . . . . . . . ... $ 270,000 $ 540,000 $1,080,000
Executive Vice President--Service &
Technology Operations and Financial Services
Ann M. Caparros . . . . . . . . . . . . . . . . . . . . . .. $ 150,000 $ 300,000 $ 600,000
General Counsel, Chief Compliance Officer
and Corporate Secretary
No other annual or long-term incentive award opportunities are currently
authorized for the Named Executive Officers under the 2002 Plan. To the extent
required so that Shareholder approval will qualify Awards under the 2002 Plan
as "performance-based" compensation under Code Section 162(m), if Shareholders
do not approve the 2002 Plan the authorized short-term and long-term incentive
Awards will not be paid out.
OTHER MATTERS
Independent Public Accountants
The independent certified public accountants selected by the Board for the
Company's fiscal year ending December 31, 2002 are KPMG LLP. KPMG LLP served in
that capacity for the fiscal year ended December 31, 2001. A representative
from the firm is expected to be present at the Annual Meeting of the Company.
The representative will be given an opportunity to make a statement to the
Shareholders and he or she is expected to be available to respond to
appropriate questions from Shareholders of the Company.
Audit Fees
The aggregate fees billed for professional services rendered by KPMG LLP for
the audit of the Company's annual financial statements for the year ended
December 31, 2001, and the reviews of the condensed financial statements
included in the Company's quarterly reports on Forms 10-Q for the year ended
December 31, 2001, were $615,000.
Financial Information Systems Design and Implementation Fees
The aggregate fees billed for information technology services rendered by
KPMG LLP to the Company during the year ended December 31, 2001 were $0.
27
All Other Fees
The aggregate fees billed for all other services, exclusive of the fees
disclosed above relating to financial statement audit services rendered by KPMG
LLP during the year ended December 31, 2001, were $328,700. These fees consisted
of $117,900 for audit related services, primarily related to statutory
regulatory requirements, and $210,800 for non-audit related services, primarily
related to tax consultation.
Consideration on Non-audit Services Provided by the Independent Accountant
The Audit Committee has considered whether the services provided by KPMG
LLP under other non-audit services are compatible with maintaining the auditor's
independence.
Copies of Annual Report on Form 10-K
The Company will furnish, without charge, a copy of its most recent Annual
Report on Form 10-K to the Securities and Exchange Commission to each person
solicited hereunder who mails a written request to the Investor Relations
Department, Horace Mann Educators Corporation, 1 Horace Mann Plaza, Springfield,
Illinois, 62715-0001. The Company also will furnish, upon payment of a
reasonable fee to cover reproduction and mailing expenses, a copy of all
exhibits to the Annual Report on Form 10-K.
Shareholder Proposals for 2003 Annual Meeting
Any proposals of Shareholders intended to be presented for inclusion in the
Company's Proxy Statement and Form of Proxy for the next Annual Meeting
scheduled to be held in 2003 must be received in writing by Ann M. Caparros,
Corporate Secretary, 1 Horace Mann Plaza, Springfield, Illinois, 62715-0001 not
later than December 31, 2002 in order for such proposal to be considered for
inclusion in the Company's Proxy Statement and proxy relating to the 2003 Annual
Meeting.
Shareholders are urged to complete, sign and date the accompanying proxy
card and return it in the enclosed envelope, to which no postage need be
affixed if mailed in the United States.
By order of the Board of Directors,
/s/ Ann M. Caparros
Ann M. Caparros
Corporate Secretary
Springfield, Illinois
April 02, 2002
Again, we call your attention to the enclosed proxy card. PLEASE VOTE,
DATE, SIGN AND RETURN IT PROMPTLY, regardless of whether you plan to attend the
meeting.
28
EXHIBIT A
HORACE MANN EDUCATORS
CORPORATION
2002 Incentive Compensation Plan
HORACE MANN EDUCATORS CORPORATION
2002 Incentive Compensation Plan
Page
----
1. Purpose.............................................. A-1
2. Definitions.......................................... A-1
3. Administration....................................... A-3
4. Stock Subject to Plan................................ A-4
5. Eligibility; Per-Person Award Limitations............ A-4
6. Specific Terms of Awards............................. A-5
7. Performance Awards, Including Annual Incentive Awards A-8
8. Certain Provisions Applicable to Awards.............. A-10
9. Change of Control.................................... A-11
10. Additional Award Forfeiture Provisions............... A-11
11. General Provisions................................... A-12
HORACE MANN EDUCATORS CORPORATION
2002 Incentive Compensation Plan
1. Purpose. The purpose of this 2002 Incentive Compensation Plan (the
"Plan") is to aid Horace Mann Educators Corporation, a Delaware corporation
(the "Company"), in attracting, retaining, motivating and rewarding employees,
non-employee directors, and other persons who provide substantial services to
the Company or its subsidiaries or affiliates, to provide for equitable and
competitive compensation opportunities, to encourage long-term service, to
recognize individual contributions and reward achievement of Company goals, and
promote the creation of long-term value for shareholders by closely aligning
the interests of Participants with those of shareholders. The Plan authorizes
stock-based and cash-based incentives for Participants.
2. Definitions. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have
the respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award granted to
a Participant under Section 7(c) representing a conditional right to receive
cash, Stock or other Awards or payments, as determined by the Committee,
based on performance in a performance period of one fiscal year or a portion
thereof.
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, Performance Award or Annual Incentive Award,
together with any related right or interest, granted to a Participant under
the Plan.
(c) "Beneficiary" means the individual or entity designated by the
Participant to receive the benefits specified under the Participant's Award
upon such Participant's death. If no such designation is made, or if the
designated individual predeceases the Participant or the entity no longer
exists, then the Beneficiary shall be the Participant's estate.
(d) "Beneficial Owner" has the meaning specified in Rule 13d-3 under the
Exchange Act.
(e) "Board" means the Company's Board of Directors.
(f) "Change of Control" means, unless otherwise defined in an Award
Agreement, any one or more of the following:
(i) Approval by the shareholders of the Company of a merger,
reorganization, consolidation, or similar transaction, in which the
Company is not the continuing or the surviving corporation, or pursuant
to which Shares would be converted into cash, securities or other
property, other than a merger of the Company in which no Company
shareholder's ownership percentage in the surviving corporation
immediately after the merger is less than such shareholder's ownership
percentage in the Company immediately prior to such merger by ten
percent (10%) or more (unless such change results from elimination of an
odd lot that represented less than 0.1% of the outstanding of Stock); or
(2) any sale, lease exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the
assets of the Company; or
(ii) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company which is part of a sale of
assets, merger, or reorganization of the Company or other similar
transaction; or
(iii) Any "person", as such term is defined in Sections 13(d) and
14(d) of the Exchange Act, is or becomes, directly or indirectly, the
"beneficial owner" as defined in Rule 13d-3 under the Exchange Act, of
securities of the Company that represent more than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote generally in the election of directors; or
(iv) The Incumbent Directors (determined using the Effective Date as
the baseline date) cease for any reason to constitute at least a
majority of the directors of the Company then serving.
A-1
(g) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions and
regulations.
(h) "Committee" means a committee of two or more directors designated by
the Board to administer the Plan; provided, however, that, directors
appointed or serving as members of a Board committee designated as the
Committee shall not be employees of the Company or any subsidiary or
affiliate. In appointing members of the Committee, the Board will consider
whether a member is or will be a Qualified Member, but such members are not
required to be Qualified Members at the time of appointment or during their
term of service on the Committee. The full Board may perform any function of
the Committee hereunder, in which case the term "Committee" shall refer to
the Board. Initially, the Compensation Committee of the Board of Directors
will be designated as the "Committee" under the Plan.
(i) "Covered Employee" means an Eligible Person who is a Covered Employee
as specified in Section 11(j).
(j) "Deferred Stock" means a right, granted to a Participant under
Section 6(e), to receive Stock or other Awards or a combination thereof at
the end of a specified deferral period.
(k) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal
in value to all or a specified portion of the dividends paid with respect to
a specified number of shares of Stock.
(l) "Effective Date" means the effective date specified in Section 11(q).
(m) "Eligible Person" has the meaning specified in Section 5.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act or rule (including a
proposed rule) thereunder shall include any successor provisions and rules.
(o) "Fair Market Value" means (i) with respect to any property other than
Stock, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee, and
(ii) with respect to Stock, unless otherwise determined by the Committee, as
of any date, (A) the mean between the highest and lowest trading prices of
the Stock on such date on the New York Stock Exchange Composite Transactions
Tape (or, if no sale of Stock was reported for such date, on the next
preceding date on which a sale of Stock was reported) or (B) if the Stock is
not listed on the New York Stock Exchange, the mean of the highest and
lowest trading prices of Stock on such other national exchange on which the
Stock is principally traded or as reported by the National Market System, or
other similar organization; or (C) in the event that there shall be no
public market for the Stock, the fair market value of the Stock as
determined by the Committee.
(p) "Incentive Stock Option" or "ISO" means any Option designated as an
incentive stock option within the meaning of Code Section 422 or any
successor provision thereto and qualifying thereunder.
(q) "Incumbent Directors" means, as of any specified baseline date,
individuals then serving as members of the Board who were members of the
Board as of the date immediately preceding such baseline date; provided that
any subsequently-appointed or elected member of the Board whose election, or
nomination for election by shareholders of the Company or the Surviving
Corporation, as applicable, was approved by a vote or written consent of a
majority of the directors then comprising the Incumbent Directors shall also
thereafter be considered an Incumbent Director, unless the initial
assumption of office of such subsequently-elected or appointed director was
in connection with (i) an actual or threatened election contest, including a
consent solicitation, relating to the election or removal of one or more
members of the Board, (ii) a "tender offer" (as such term is used in Section
14(d) of the Exchange Act), or (iii) a proposed reorganization transaction.
(r) "Option" means a right, granted to a Participant under Section 6(b),
to purchase Stock or other Awards at a specified price during specified time
periods.
(s) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).
(t) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an
Eligible Person.
A-2
(u) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments, as determined by the Committee, based upon performance
criteria specified by the Committee.
(v) "Preexisting Plans" mean the Company's 2001 Stock Incentive Plan and
1991 Stock Incentive Plan.
(w) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(x) "Restricted Stock" means Stock granted to a Participant under Section
6(d) which is subject to certain restrictions and to a risk of forfeiture.
(y) "Rule 16b3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
(z) "Stock" means the Company's Common Stock, and any other equity
securities of the Company that may be substituted or resubstituted for Stock
pursuant to Section 11(c).
(aa) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject to
and consistent with the provisions of the Plan, to select Eligible Persons to
become Participants; to grant Awards; to determine the type and number of
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award, whether, to
what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such
Award documents need not be identical for each Participant), amendments
thereto, and rules and regulations for the administration of the Plan and
amendments thereto; to construe and interpret the Plan and Award documents and
correct defects, supply omissions or reconcile inconsistencies therein; and to
make all other decisions and determinations as the Committee may deem necessary
or advisable for the administration of the Plan. Decisions of the Committee
with respect to the administration and interpretation of the Plan shall be
final, conclusive, and binding upon all persons interested in the Plan,
including Participants, Beneficiaries, transferees under Section 11(b) and
other persons claiming rights from or through a Participant, and shareholders.
The foregoing notwithstanding, the Board shall perform the functions of the
Committee for purposes of granting Awards under the Plan to non-employee
directors (authority with respect to other aspects of non-employee director
awards is not exclusive to the Board, however).
(b) Manner of Exercise of Committee Authority. At any time that a member of
the Committee is not a Qualified Member, (i) any action of the Committee
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder may be taken by a subcommittee, designated by the Committee or the
Board, composed solely of two or more Qualified Members, and (ii) any action
relating to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company may be
taken either by such a subcommittee or by the Committee but with each such
member who is not a Qualified Member abstaining or recusing himself or herself
from such action, provided that, upon such abstention or recusal, the Committee
remains composed of two or more Qualified Members. Such action, authorized by
such a subcommittee or by the Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
the Plan. The express grant of any specific power to the Committee, and the
taking of any action by the Committee, shall not be construed as limiting any
power or authority of the Committee. The Committee may delegate to officers or
managers of the Company or any subsidiary or affiliate, or committees thereof,
the authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee
may determine, to the fullest extent permitted under Section 157 of the
Delaware General Corporation Law.
A-3
(c) Limitation of Liability. The Committee and each member thereof, and any
person acting pursuant to authority delegated by the Committee, shall be
entitled, in good faith, to rely or act upon any report or other information
furnished by any executive officer, other officer or employee of the Company or
a subsidiary or affiliate, the Company's independent auditors, consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee, any person acting pursuant to authority delegated by the Committee,
and any officer or employee of the Company or a subsidiary or affiliate acting
at the direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action or
determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 11(c), the total number of shares of Stock reserved and
available for delivery in connection with Awards under the Plan shall be (i)
three million plus (ii) the number of shares that, immediately prior to the
Effective Date, remain available for issuance under the Preexisting Plans plus
(iii) the number of shares subject to awards under the Preexisting Plans which
become available in accordance with Section 4(b) after the Effective Date;
provided, however, that the total number of shares with respect to which ISOs
may be granted shall not exceed the number specified under clauses (i) and (ii)
above; and provided further, that the total number of shares which may be
issued and delivered in connection with Awards other than Options and SARs
shall not exceed 5% of the total number of shares reserved under the Plan. Any
shares of Stock delivered under the Plan shall consist of authorized and
unissued shares or treasury shares.
(b) Share Counting Rules. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if
the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Award. Shares subject to an
Award or an award under a Preexisting Plan that is canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of shares
to the Participant will again be available for Awards, and shares withheld in
payment of the exercise price or taxes relating to an Award or Preexisting Plan
award and shares equal to the number surrendered in payment of any exercise
price or taxes relating to an Award or Preexisting Plan award shall be deemed
to constitute shares not delivered to the Participant and shall be deemed to
again be available for Awards under the Plan. In addition, in the case of any
Award granted in substitution for an award of a company or business acquired by
the Company or a subsidiary or affiliate, shares issued or issuable in
connection with such substitute Award shall not be counted against the number
of shares reserved under the Plan, but shall be available under the Plan by
virtue of the Company's assumption of the plan or arrangement of the acquired
company or business. This Section 4(b) shall apply to the number of shares
reserved and available for ISOs only to the extent consistent with applicable
regulations relating to ISOs under the Code.
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. For purposes of the Plan, an "Eligible
Person" means an employee of the Company or any subsidiary or affiliate,
including any executive officer, a non-employee director of the Company, a
consultant or other person who provides substantial services to the Company or
a subsidiary or affiliate, and any person who has been offered employment by
the Company or a subsidiary or affiliate, provided that such prospective
employee may not receive any payment or exercise any right relating to an Award
until such person has commenced employment with the Company or a subsidiary or
affiliate. An employee on leave of absence, including for a disability that has
not resulted in termination of employment, may be considered as still in the
employ of the Company or a subsidiary or affiliate for purposes of eligibility
for participation in the Plan. For purposes of the Plan, a joint venture in
which the Company or a subsidiary has a substantial direct or indirect equity
investment shall be deemed an affiliate, if so determined by the Committee. In
each calendar year during any part of which the Plan is in effect, an Eligible
Person may be granted Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) under Section 6 relating to up to his
or her Annual Limit. A Participant's Annual Limit, in any year during any part
of which the Participant is then eligible under the Plan, shall equal 500,000
shares plus the amount of the Participant's unused Annual Limit relating to the
same type of Award as of the close of the previous year, subject to adjustment
as provided in Section 11(c). In the case of a
A-4
cash-denominated Award for which the limitation set forth in the preceding
sentence would not operate as an effective limitation satisfying Treasury
Regulation 1.162-27(e)(4) (including a cash Performance Award under Section 7),
an Eligible Person may not be granted Awards authorizing the earning during any
calendar year of an amount that exceeds the Participant's Annual Limit, which
for this purpose shall equal $2.5 million plus the amount of the Participant's
unused cash Annual Limit as of the close of the previous year (this limitation
is separate and not affected by the number of Awards granted during such
calendar year subject to the limitation in the preceding sentence). For this
purpose, (i) "earning" means satisfying performance conditions so that an
amount becomes payable, without regard to whether it is to be paid currently or
on a deferred basis or continues to be subject to any service requirement or
other non-performance condition, and (ii) a Participant's Annual Limit is used
to the extent a cash amount or number of shares may be potentially earned or
paid under an Award, regardless of whether such amount or shares are in fact
earned or paid.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section
11(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service by the Participant and terms permitting a Participant to make elections
relating to his or her Award. The Committee shall retain full power and
discretion with respect to any term or condition of an Award that is not
mandatory under the Plan. The Committee shall require the payment of lawful
consideration for an Award to the extent necessary to satisfy the requirements
of the New York Business Corporation Law, and may otherwise require payment of
consideration for an Award except as limited by the Plan.
(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option (including both ISOs and non-qualified Options) shall be
determined by the Committee, provided that such exercise price shall be not
less than the Fair Market Value of a share of Stock on the date of grant of
such Option, subject to Sections 6(f) and 8(a).
(ii) Option Term; Time and Method of Exercise. The Committee shall
determine the term of each Option, which in no event shall exceed a period
of ten years from the date of grant. The Committee shall determine the time
or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of performance
goals and/or future service requirements), the methods by which such
exercise price may be paid or deemed to be paid and the form of such payment
(subject to Section 11(k)), including, without limitation, cash, Stock,
other Awards or awards granted under other plans of the Company or any
subsidiary or affiliate, or other property (including notes and other
contractual obligations of Participants to make payment on a deferred basis,
such as through "cashless exercise" arrangements, to the extent permitted by
applicable law), and the methods by or forms in which Stock will be
delivered or deemed to be delivered in satisfaction of Options to
Participants (including deferred delivery of shares representing the Option
"profit," at the election of the Participant or as mandated by the
Committee, with such deferred shares subject to any vesting, forfeiture or
other terms as the Committee may specify).
(iii) ISOs. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Code Section 422, including but not
limited to the requirement that no ISO shall be granted more than ten years
after the Effective Date.
(c) Stock Appreciation Rights. The Committee is authorized to grant SAR's
to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, in the
A-5
case of a "Limited SAR," the Fair Market Value determined by reference to
the Change of Control price or value, as defined in the applicable Award
agreement) over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine at the date of grant or
thereafter, the time or times at which and the circumstances under which a
SAR may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the method of
exercise, method of settlement, form of consideration payable in settlement,
method by or forms in which Stock will be delivered or deemed to be
delivered to Participants, and whether or not a SAR shall be free-standing
or in tandem or combination with any other Award. Limited SARs that may only
be exercised in connection with a Change of Control or other event as
specified by the Committee may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse separately
or in combination at such times, under such circumstances (including based
on achievement of performance goals and/or future service requirements), in
such installments or otherwise and under such other circumstances as the
Committee may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award document
relating to the Restricted Stock, a Participant granted Restricted Stock
shall have all of the rights of a shareholder, including the right to vote
the Restricted Stock and the right to receive dividends thereon (subject to
any mandatory reinvestment or other requirement imposed by the Committee).
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall
be forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award document, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical
possession of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any dividends paid on a
share of Restricted Stock shall be either (A) paid with respect to such
Restricted Stock at the dividend payment date in cash, in kind, or in a
number of shares of unrestricted Stock having a Fair Market Value equal to
the amount of such dividends, or (B) automatically reinvested in additional
Restricted Stock or held in kind, which shall be subject to the same terms
as applied to the original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with the amount or
value thereof automatically deemed reinvested in shares of Deferred Stock,
other Awards or other investment vehicles, subject to such terms as the
Committee shall determine or permit a Participant to elect. Unless otherwise
determined by the Committee, Stock distributed in connection with a Stock
split or Stock dividend, and other property distributed as a dividend, shall
be subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other property has
been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, which are rights to receive Stock, other Awards, or a combination
thereof at the end of a specified deferral period, subject to the following
terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon expiration
of the deferral period specified for an Award of Deferred Stock by the
Committee (or, if permitted by the Committee, as elected by the Participant).
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In addition, Deferred Stock shall be subject to such restrictions on
transferability, risk of forfeiture and other restrictions, if any, as the
Committee may impose, which restrictions may lapse at the expiration of the
deferral period or at earlier specified times (including based on
achievement of performance goals and/or future service requirements),
separately or in combination, in installments or otherwise, and under such
other circumstances as the Committee may determine at the date of grant or
thereafter. Deferred Stock may be satisfied by delivery of Stock, other
Awards, or a combination thereof (subject to Section 11(k)), as determined
by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable deferral period
or portion thereof to which forfeiture conditions apply (as provided in the
Award document evidencing the Deferred Stock), all Deferred Stock that is at
that time subject to such forfeiture conditions shall be forfeited; provided
that the Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Deferred Stock will lapse in whole or in
part, including in the event of terminations resulting from specified causes.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares of Stock
covered by an Award of Deferred Stock shall be either (A) paid with respect
to such Deferred Stock at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Deferred Stock, either as a
cash deferral or with the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other investment
vehicles having a Fair Market Value equal to the amount of such dividends,
as the Committee shall determine or permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations of the Company or a subsidiary or affiliate to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equivalent to all or a portion of the dividends
paid with respect to a specified number of shares of Stock. Dividend
Equivalents may be awarded on a freestanding basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to
restrictions on transferability, risks of forfeiture and such other terms as
the Committee may specify.
(h) Other StockBased Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock or factors that may influence
the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or business units thereof or any other factors designated by the
Committee, and Awards valued by reference to the book value of Stock or the
value of securities of or the performance of specified subsidiaries or
affiliates or other business units. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature
of a purchase right granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, notes, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in cash or in Stock
or other Awards, may be granted by the Committee in accordance with Section 7.
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7. Performance Awards, Including Annual Incentive Awards.
(a) Performance Awards Generally. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this Section 7.
Performance Awards may be denominated as a cash amount, number of shares of
Stock, or specified number of other Awards (or a combination) which may be
earned upon achievement or satisfaction of performance conditions specified by
the Committee. In addition, the Committee may specify that any other Award
shall constitute a Performance Award by conditioning the right of a Participant
to exercise the Award or have it settled, and the timing thereof, upon
achievement or satisfaction of such performance conditions as may be specified
by the Committee. The Committee may use such business criteria and other
measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce or increase
the amounts payable under any Award subject to performance conditions, except
as limited under Sections 7(b) and 7(c) in the case of a Performance Award
intended to qualify as "performance-based compensation" under Code Section
162(m).
(b) Performance Awards Granted to Covered Employees. If the Committee
determines that a Performance Award to be granted to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee should qualify
as "performance-based compensation" for purposes of Code Section 162(m), the
grant, exercise and/or settlement of such Performance Award shall be contingent
upon achievement of a preestablished performance goal and other terms set forth
in this Section 7(b).
(i) Performance Goal Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 7(b).
The performance goal shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.16227 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon achievement of any
one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, exercise and/or settlement of such
Performance Awards. Performance goals may differ for Performance Awards
granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified subsidiaries
or affiliates, other business units, or lines of business of the Company
shall be used by the Committee in establishing performance goals for such
Performance Awards: (1) insurance premiums written, contract deposits,
contract charges earned, or contracts in force; (2) operating income, before
or after taxes, and income before or after interest, depreciation,
amortization, or extraordinary or special items; (3) operating income per
common share (basic or diluted), and operating income from continuing
operations per common share (basic or diluted); (4) return on equity, return
on assets (gross or net), return on investment, or return on capital; (5)
cash flow, free cash flow, cash flow return on investment (discounted or
otherwise), net cash provided by operations, or cash flow in excess of cost
of capital; (6) net interest margin or interest expense after taxes; (7)
accumulated value and accumulated value persistency; (8) net investment
income and realized investment gains (including on a per share basis); (9)
economic value created; (10) operating margin or profit margin; (11)
restructuring charges, litigation charges, or expense ratios; (12) stock
price or total shareholder return; (13) dividends, including as a percentage
of net income; and (14) strategic business criteria, consisting of one or
more objectives based on meeting specified market penetration, geographic
business expansion goals, cost targets, customer satisfaction, employee
satisfaction, management of employment practices and employee benefits,
supervision of litigation and information technology, and goals relating to
acquisitions or divestitures of subsidiaries, affiliates or joint ventures.
The targeted level or levels of performance with respect to such business
criteria may be established at such levels and in such terms as the
Committee may determine, in its discretion, including in absolute terms, as
a goal relative to performance in prior periods, or as a goal compared to
the performance of one or more comparable companies or an index covering
multiple companies.
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(iii) Performance Period; Timing for Establishing Performance Goals;
Per-Person Limit. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of up to one
year or more than one year, as specified by the Committee. A performance
goal shall be established not later than the earlier of (A) 90 days after
the beginning of any performance period applicable to such Performance Award
or (B) the time 25% of such performance period has elapsed. In all cases,
the maximum Performance Award of any Participant shall be subject to the
limitation set forth in Section 5.
(iv) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Company in connection with Performance Awards. The amount
of such Performance Award pool shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 7(b)(ii) during the given performance period, as specified
by the Committee in accordance with Section 7(b)(iv). The Committee may
specify the amount of the Performance Award pool as a percentage of any of
such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly mathematical
relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may, in its discretion,
increase or reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion to
increase any such amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 7(b). Any settlement which changes
the form of payment from that originally specified shall be implemented in a
manner such that the Performance Award and other related Awards do not,
solely for that reason, fail to qualify as "performance-based compensation"
for purposes of Code Section 162(m). The Committee shall specify the
circumstances in which such Performance Awards shall be paid or forfeited in
the event of termination of employment by the Participant or other event
(including a Change of Control) prior to the end of a performance period or
settlement of such Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. The
Committee may grant an Annual Incentive Award to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee. Such Annual
Incentive Award will be intended to qualify as "performance-based compensation"
for purposes of Code Section 162(m), and therefore its grant, exercise and/or
settlement shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 7(c).
(i) Grant of Annual Incentive Awards. Not later than the earlier of 90
days after the beginning of any performance period applicable to such Annual
Incentive Award or the time 25% of such performance period has elapsed, the
Committee shall determine the Covered Employees who will potentially receive
Annual Incentive Awards, and the amount(s) potentially payable thereunder,
for that performance period. The amount(s) potentially payable shall be
based upon the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 7(b)(ii) in the given
performance period, as specified by the Committee. The Committee may
designate an annual incentive award pool as the means by which Annual
Incentive Awards will be measured, which pool shall conform to the
provisions of Section 7(b)(iv). In such case, the portion of the Annual
Incentive Award pool potentially payable to each Covered Employee shall be
preestablished by the Committee. In all cases, the maximum Annual Incentive
Award of any Participant shall be subject to the limitation set forth in
Section 5.
(ii) Payout of Annual Incentive Awards. After the end of each
performance period, the Committee shall determine the amount, if any, of the
Annual Incentive Award for that performance period payable to each
Participant. The Committee may, in its discretion, determine that the amount
payable to any Participant as a final Annual Incentive Award shall be
reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount. The Committee shall specify
the circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of employment by the Participant or
other event (including a Change of Control) prior to the end of a
performance period or settlement of such Annual Incentive Award.
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(d) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect
of Performance Awards and Annual Incentive Awards, the level of actual
achievement of the specified performance goals relating to Performance Awards
and Annual Incentive Awards, and the amount of any final Performance Award and
Annual Incentive Award shall be recorded in writing in the case of Performance
Awards intended to qualify under Section 162(m). Specifically, the Committee
shall certify in writing, in a manner conforming to applicable regulations
under Section 162(m), prior to settlement of each such Award granted to a
Covered Employee, that the performance objective relating to the Performance
Award and other material terms of the Award upon which settlement of the Award
was conditioned have been satisfied.
8. Certain Provisions Applicable to Awards.
(a) StandAlone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any
other Award or any award granted under another plan of the Company, any
subsidiary or affiliate, or any business entity to be acquired by the Company
or a subsidiary or affiliate, or any other right of a Participant to receive
payment from the Company or any subsidiary or affiliate. Awards granted in
addition to or in tandem with other Awards or awards may be granted either as
of the same time as or a different time from the grant of such other Awards or
awards. Subject to Section 11(k), the Committee may determine that, in granting
a new Award, the in-the-money value of any surrendered Award or award may be
applied to reduce the exercise price of any Option, grant price of any SAR, or
purchase price of any other Award.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee, subject to the express limitations set forth in
Section 6(b)(ii).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan (including Section 11(k)) and any applicable Award document,
payments to be made by the Company or a subsidiary or affiliate upon the
exercise of an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single
payment or transfer, in installments, or on a deferred basis. The settlement of
any Award may be accelerated, and cash paid in lieu of Stock in connection with
such settlement, in the discretion of the Committee or upon occurrence of one
or more specified events (subject to Section 11(k)). Installment or deferred
payments may be required by the Committee (subject to Section 11(e)) or
permitted at the election of the Participant on terms and conditions
established by the Committee. Payments may include, without limitation,
provisions for the payment or crediting of reasonable interest on installment
or deferred payments or the grant or crediting of Dividend Equivalents or other
amounts in respect of installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. With respect to a Participant
who is then subject to the reporting requirements of Section 16(a) of the
Exchange Act in respect of the Company, the Committee shall implement
transactions under the Plan and administer the Plan in a manner that will
ensure that each transaction with respect to such a Participant is exempt from
liability under Rule 16b-3 or otherwise not subject to liability under Section
16(b)), except that this provision shall not limit sales by such a Participant,
and such a Participant may engage in other non-exempt transactions under the
Plan. The Committee may authorize the Company to repurchase any Award or shares
of Stock deliverable or delivered in connection with any Award (subject to
Section 11(k)) in order to avoid a Participant who is subject to Section 16 of
the Exchange Act incurring liability under Section 16(b). Unless otherwise
specified by the Participant, equity securities or derivative securities
acquired under the Plan which are disposed of by a Participant shall be deemed
to be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to
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such limitations, the Committee shall have full authority to decide whether to
make a loan or loans hereunder and to determine the amount, terms, and
provisions of any such loan or loans, including the interest rate, if any, to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the
loan is to be repaid and conditions, if any, under which the loan or loans may
be forgiven.
9. Change of Control.
(a) Effect of "Change of Control" on Non-Performance Based Awards. In the
event of a "Change of Control," the provisions of this Section 9(a) shall apply
to non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under Section
9(b) and the applicable terms of the Award agreement, unless otherwise provided
by the Committee in the Award agreement. In such case, if a Participant has a
termination of employment or service during the period commencing immediately
prior to the Change of Control and ending on the first anniversary of the
Change of Control ("Change of Control Period"), which termination is initiated
by the Company or a subsidiary other than for Cause (as defined below), then:
(i) Any Award subject to forfeiture based on failure to satisfy a
condition requiring continued employment or service shall thereupon become
nonforfeitable;
(ii) Any Award (other than an Award the exercise of which is within the
control of the Participant without penalty, including under subparagraph
(iii) hereof) subject to deferral of settlement shall be settled as promptly
as practicable upon such termination;
(iii) Any unexercised Option or SAR or other Award potentially
exercisable by the Participant, whether or not exercisable by its terms on
the date of such termination, shall thereupon be fully exercisable and may
be exercised, in whole or in part for the greater of three (3) months
following such termination or such longer period as may be provided under
the applicable Option agreement (but only during the stated term of the
Option);
(b) Effect of "Change of Control" on Performance-Based Awards. In the event
of a "Change of Control," with respect to an outstanding Award subject to
achievement of performance goals and conditions, such performance goals and
conditions shall be deemed to be met or exceeded if and to the extent so
provided by the Committee in the Award document governing such Award or other
agreement with the Participant.
(c) "Cause." For purposes of this Section 9, the term "Cause" shall mean,
unless otherwise defined in an Award agreement or employment or
Change-of-Control agreement between the Company or a subsidiary and the
Participant then in effect:
(i) A Participant's conviction of any felony under federal law or the law
of the state in which the act occurred;
(ii) Dishonesty by the Participant in the course of fulfilling his or her
employment duties or service duties to the Company or a subsidiary; or
(iii) Willful and deliberate failure on the part of the Participant to
perform his or her employment or service duties to the Company or a
subsidiary in any material respect, after reasonable notice of the
non-performance and opportunity to correct it.
10. Additional Award Forfeiture Provisions. The Committee may condition a
Participant's right to receive a grant of an Award, to exercise the Award, to
retain Stock acquired in connection with an Award, or to retain the profit or
gain realized by a Participant in connection with an Award, including cash
received upon sale of Stock acquired in connection with an Award, upon
compliance by the Participant with specified conditions relating to
non-competition, confidentiality of information relating to the Company,
non-solicitation of customers, suppliers, and employees of the Company,
cooperation in litigation, non-disparagement of the Company and its officers,
directors and affiliates, and other requirements applicable to the Participant,
including during specified periods following termination of employment or
service to the Company.
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11. General Provisions.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance or
delivery of Stock or payment of other benefits under any Award until completion
of such registration or qualification of such Stock or other required action
under any federal or state law, rule or regulation, listing or other required
action with respect to any stock exchange or automated quotation system upon
which the Stock or other securities of the Company are listed or quoted, or
compliance with any other obligation of the Company, as the Committee may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change of Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change of Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary or affiliate
thereof), or assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or
more transferees during the lifetime of the Participant, and may be exercised
by such transferees in accordance with the terms of such Award, but only if and
to the extent such transfers are permitted by the Committee, subject to any
terms and conditions which the Committee may impose thereon (including
limitations the Committee may deem appropriate in order that offers and sales
under the Plan will meet applicable requirements of registration forms under
the Securities Act of 1933 specified by the Securities and Exchange
Commission). A Beneficiary, transferee, or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms
and conditions of the Plan and any Award document applicable to such
Participant, except as otherwise determined by the Committee, and to any
additional terms and conditions deemed necessary or appropriate by the
Committee.
(c) Adjustments. In the event that any large, special and non-recurring
dividend or other distribution (whether in the form of cash or property other
than Stock), recapitalization, forward or reverse split, Stock dividend,
reorganization, merger, consolidation, spinoff, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by the Committee
to be appropriate under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares
of Stock which may be delivered in connection with Awards granted thereafter,
(ii) the number and kind of shares of Stock by which annual per-person Award
limitations are measured under Section 5, (iii) the number and kind of shares
of Stock subject to or deliverable in respect of outstanding Awards and (iv)
the exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash or
property to the holder of an outstanding Option (subject to Section 11(k)). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals and any hypothetical funding pool relating
thereto) in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company, any
subsidiary or affiliate or other business unit, or the financial statements of
the Company or any subsidiary or affiliate, or in response to changes in
applicable laws, regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or affiliate or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be
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authorized or made if and to the extent that the existence of such authority
(i) would cause Options, SARs, or Performance Awards granted under Section 8 to
Participants designated by the Committee as Covered Employees and intended to
qualify as "performance-based compensation" under Code Section 162(m) and
regulations thereunder to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder, or (ii)
would cause the Committee to be deemed to have authority to change the targets,
within the meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the
performance goals relating to Options or SARs granted to Covered Employees and
intended to qualify as "performance-based compensation" under Code Section
162(m) and regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment relating to an
Award under the Plan, including from a distribution of Stock, or any payroll
or other payment to a Participant, amounts of withholding and other taxes
due or potentially payable in connection with any transaction involving an
Award, and to take such other action as the Committee may deem advisable to
enable the Company and Participants to satisfy obligations for the payment
of withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's withholding obligations, either on a mandatory or elective
basis in the discretion of the Committee. Other provisions of the Plan
notwithstanding, only the minimum amount of Stock deliverable in connection
with an Award necessary to satisfy statutory withholding requirements will
be withheld.
(ii) Required Consent to and Notification of Code Section 83(b)
Election. No election under Section 83(b) of the Code (to include in gross
income in the year of transfer the amounts specified in Code Section 83(b))
or under a similar provision of the laws of a jurisdiction outside the
United States may be made unless expressly permitted by the terms of the
Award document or by action of the Committee in writing prior to the making
of such election. In any case in which a Participant is permitted to make
such an election in connection with an Award, the Participant shall notify
the Company of such election within ten days of filing notice of the
election with the Internal Revenue Service or other governmental authority,
in addition to any filing and notification required pursuant to regulations
issued under Code Section 83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying Disposition Under
Code Section 421(b). If any Participant shall make any disposition of
shares of Stock delivered pursuant to the exercise of an Incentive Stock
Option under the circumstances described in Code Section 421(b) (relating to
certain disqualifying dispositions), such Participant shall notify the
Company of such disposition within ten days thereof.
(e) Changes to the Plan. The Board may amend, suspend or terminate the Plan
or the Committee's authority to grant Awards under the Plan without the consent
of shareholders or Participants; provided, however, that any amendment to the
Plan shall be submitted to the Company's shareholders for approval not later
than the earliest annual meeting for which the record date is after the date of
such Board action if the Board determines that such shareholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other amendments to the Plan to shareholders for approval; and provided
further, that, without the consent of an affected Participant, no such Board
action may materially and adversely affect the rights of such Participant under
any outstanding Award. Without the approval of shareholders, the Committee will
not amend or replace previously granted Options in a transaction that
constitutes a "repricing," as such term is used in Instruction 3 to Item
402(b)(2)(iv) of Regulation S-K, as promulgated by the Securities and Exchange
Commission. With regard to other terms of Awards, the Committee shall have no
authority to waive or modify any such Award term after the Award has been
granted to the extent the waived or modified term would be mandatory under the
Plan for any Award newly granted at the date of the waiver or modification.
(f) Right of Setoff. The Company or any subsidiary or affiliate may, to the
extent permitted by applicable law, deduct from and set off against any amounts
the Company or a subsidiary or affiliate may owe to the Participant from
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time to time, including amounts payable in connection with any Award, owed as
wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be owed by the Participant to the Company, including but not
limited to amounts owed under Section 10, although the Participant shall remain
liable for any part of the Participant's payment obligation not satisfied
through such deduction and setoff. By accepting any Award granted hereunder,
the Participant agrees to any deduction or setoff under this Section 11(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may
be either applicable generally or only in specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash consideration, the Participant
shall be repaid the amount of such cash consideration. No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options and SARs granted to Covered Employees and other Awards designated
as Awards to Covered Employees subject to Section 7 shall constitute qualified
"performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the Committee at the
time of allocation of an Award. Accordingly, the terms of Sections 7(b), (c),
and (d), including the definitions of Covered Employee and other terms used
therein, shall be interpreted in a manner consistent with Code Section 162(m)
and regulations thereunder. The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant will be a
Covered Employee with respect to a fiscal year that has not yet been completed,
the term Covered Employee as used herein shall mean only a person designated by
the Committee as likely to be a Covered Employee with respect to a specified
fiscal year. If any provision of the Plan or any Award document relating to a
Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the applicable performance
objectives.
(k) Certain Limitations Relating to Accounting Treatment of Awards. The
Company intends that stock-denominated Awards (other than SARs) will qualify
for fixed accounting under Accounting Principles Board Opinion 25 ("APB 25"),
with the compensation measurement date for accounting purposes to occur at the
date of grant or the date performance conditions are met if an Award is fully
contingent on achievement of performance goals, unless the Committee
specifically determines otherwise. Therefore, other provisions of the Plan
notwithstanding, in order to preserve this fundamental objective of the Plan,
if any authority granted to the Committee hereunder or any provision of the
Plan or an Award agreement would result, under APB 25, in "variable" accounting
or a measurement date other than the date of grant or the date such performance
conditions are met, if the Committee was not specifically aware of
A-14
such accounting consequence at the time such Award was granted or provision
otherwise became effective, such authority shall be limited and such provision
shall be automatically modified and reformed to the extent necessary to
preserve the accounting treatment of the award intended by the Committee,
subject to Section 11(e) of the Plan.
(l) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan and any Award document shall be
determined in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of laws, and applicable provisions of federal
law.
(m) Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan made to or held by a Participant
who is then resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that
such Award shall conform to laws, regulations, and customs of the country in
which the Participant is then resident or primarily employed, or so that the
value and other benefits of the Award to the Participant, as affected by
foreign tax laws and other restrictions applicable as a result of the
Participant's residence or employment abroad shall be comparable to the value
of such an Award to a Participant who is resident or primarily employed in the
United States. An Award may be modified under this Section 11(m) in a manner
that is inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation or result in
actual liability under Section 16(b) for the Participant whose Award is
modified.
(n) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in
the employ or service of the Company or a subsidiary or affiliate, (ii)
interfering in any way with the right of the Company or a subsidiary or
affiliate to terminate any Eligible Person's or Participant's employment or
service at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award or an
Option is duly exercised. Except as expressly provided in the Plan and an Award
document, neither the Plan nor any Award document shall confer on any person
other than the Company and the Participant any rights or remedies thereunder.
(o) Severability; Entire Agreement. If any of the provisions of this Plan
or any Award document is finally held to be invalid, illegal or unenforceable
(whether in whole or in part), such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such provisions is finally held to be invalid,
illegal, or unenforceable because it exceeds the maximum scope determined to be
acceptable to permit such provision to be enforceable, such provision shall be
deemed to be modified to the minimum extent necessary to modify such scope in
order to make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the
subject matter thereof and supersede all prior agreements, promises, covenants,
arrangements, communications, representations and warranties between them,
whether written or oral with respect to the subject matter thereof.
(p) Preexisting Plans. Upon shareholder approval of the Plan as provided
under Section 11(q), no further grants of Awards will be made under any
Preexisting Plan.
(q) Plan Effective Date and Termination. The Plan shall become effective at
March 6, 2002, provided, however, that the Plan shall be subject to the
approval of the Company's stockholders within one year thereafter by the
affirmative vote of the holders of a majority of the voting securities of the
Company present, or represented, and entitled to vote on the subject matter at
a duly held meeting of shareholders. Any Award authorized or granted prior to
such shareholder approval shall be canceled or forfeited if, upon submission to
shareholders, the Plan is disapproved, and not amounts may be paid out under
any such Award prior to the requisite shareholder approval. Unless earlier
terminated by action of the Board of Directors, the Plan will remain in effect
until such time as no Stock remains available for delivery under the Plan and
the Company has no further rights or obligations under the Plan with respect to
outstanding Awards under the Plan.
A-15
[LOGO]
Horace Mann
Educated Financial Solutions
Horace Mann Educators Corporation
1 Horace Mann Plaza
Springfield, Illinois 62715-0001
217-789-2500
www.horacemann.com HA-C00344 (Mar. 02)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
HORACE MANN EDUCATORS CORPORATION
May 14, 2002
Please Detach and Mail in the Envelope Provided
--------------------------------------------------------------------------------
A [X] Please mark your |
votes as in this |
example. |____
FOR WITHHELD
1. Election of [_] [_] Nominees: William W. Abbott
Directors Mary H. Futrell
Donald E. Kiernan
For, except vote withheld from Louis G. Lower II
the following nominee(s): Joseph J. Melone
Jeffrey L. Morby
Shaun F. O'Malley
------------------------------ Charles A. Parker
William J. Schoen
FOR AGAINST ABSTAIN
2. To approve the Company's 2002 Incentive [_] [_] [_]
Corporation Plan; and
3. To consider and take action with respect to such other matters as may
properly come before the Annual Meeting or any adjournment or adjournments
thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE
ENCLOSED ENVELOPE PROVIDED TO AMERICAN STOCK TRANSFER & TRUST
COMPANY, 59 MAIDEN LANE, NEW YORK, N.Y. 10036.
SIGNATURE(S) _________________________________________DATE _______________, 2002
NOTE: Please sign exactly as your name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
--------------------------------------------------------------------------------
HORACE MANN EDUCATORS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 2002
The undersigned Shareholder of Horace Mann Educators Corporation (the
"Company") hereby appoints Joseph J. Melone and Louis G. Lower II or any of
them, with full power of substitution, proxies to vote at the Annual Meeting of
Shareholders of the Company (the "Meeting"), to be held on May 14, 2002 at 9:00
a.m. at the Renaissance Springfield Hotel, 701 East Adams Street, Springfield,
Illinois, and at any adjournment thereof and to vote all shares of Common Stock
of the Company held or owned by the Undersigned as directed on the reverse side
and in their discretion upon such other matters as may come before the Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 IF NO
INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO INSTRUCTION IS GIVEN AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON PROPOSAL 3.
(TO BE SIGNED ON OTHER SIDE.)