Notice of the Annual Meeting of Shareholders
To be held May 27, 2005
To the Shareholders of
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of OLD
REPUBLIC INTERNATIONAL CORPORATION will be held in Room 2200 at the offices of
the Company, 307 North Michigan Avenue, Chicago, Illinois 60601, on Friday, May
27, 2005 at 3:00 P.M. Central Daylight Savings Time, for the purpose of
considering and acting upon the following matters:
1. The election of four Class 3 directors;
2. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 21, 2005 will be
entitled to vote, either in person or by proxy. Shareholders who do not expect
to attend in person are urged to execute and return the accompanying proxy in
the envelope enclosed.
The annual report of the Company for the year 2004 is being mailed to all
shareholders of record with this Notice and the Proxy Statement.
By order of the Board of Directors.
SPENCER LEROY III
Secretary
Chicago, Illinois
April 1, 2005
Proxy Statement
OLD REPUBLIC INTERNATIONAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 27, 2005
GENERAL INFORMATION
This proxy statement is being furnished to the shareholders of Old Republic
International Corporation, a Delaware corporation (the "Company"), 307 North
Michigan Avenue, Chicago, Illinois 60601, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting of shareholders
to be held on May 27, 2005 and any adjournments thereof. The approximate date on
which this proxy statement and the accompanying proxy are first being sent to
the shareholders is April 1, 2005.
The proxy is revocable at any time before it is voted by written
notification to the persons named therein as proxies, which may be mailed or
delivered to the Company at the above address. All shares represented by
effective proxies will be voted at the meeting and at any adjournments thereof.
If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted as
indicated thereon. If no specification is made, the proxy will be voted by the
proxy committee for the election as directors of the nominees named below (or
substitutes therefor if any nominees are unable or refuse to serve); and in its
discretion upon such matters not presently known or determined which may
properly come before the meeting.
The Company has one class of stock outstanding, Common Stock, $1.00 par
value per share ("Common Stock"). On February 16, 2005, 182,614,298 shares of
Common Stock were outstanding and entitled to one vote each on all matters
considered at the meeting. Shareholders of record as of the close of business on
March 21, 2005 are entitled to notice of and to vote at the meeting. There are
no cumulative voting rights with respect to the election of directors.
PRINCIPAL HOLDERS OF SECURITIES
The following tabulation shows with respect to (i) each person who is known
to be the beneficial owner of more than 5% of the Common Stock of the Company;
(ii) each Director and executive officer of the Company; and (iii) all Directors
and executive officers, as a group: (a) the total number of shares of Common
Stock beneficially owned as of March 1, 2005 and (b) the percent of the class of
stock so owned as of the same date:
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Amount and
Nature of Percent
Name of Beneficial of
Title of Class Beneficial Owner Ownership Class(*)
------------------------------------- ------------------------------------------ --------------- ----------
Common Stock
Shareholders' beneficial ownership of Franklin Mutual Advisors, LLC. 13,065,616 (1) 7.2
more than 5% of the Common Stock 51 John F Kennedy Parkway
(excluding directors) Short Hills, NJ 07078
Franklin Resources, Inc. 9,718,875 (1) 5.3
One Franklin Parkway
San Mateo, California 94403-1906
Inter Capital Company of Chicago as the
trustee of the
Old Republic International Corporation 9,408,066 (2) 5.2
Employees Savings and Stock
Ownership Plan
Messrs. Bischof, Legg, Popp, Steiner and
Zucaro as members of The
Executive Committee
307 North Michigan Avenue
Chicago, Illinois 60601
Other Shares Percent
Name of Shares Subject to Shares Held by Beneficially of
Common Stock Beneficial Owner Stock Options(*) Employee Plans (*) Owned (*) Total Class (*)
----------------- ------------------- ----------------- ------------------- ----------------- ------------ ---------
Directors' and Harrington Bischof - - 16,192(4) 16,192 **
executive Jimmy A. Dew 487,500 114,925 (3) 436,431(5) 1,038,856 0.6
officers' John M. Dixon - - 4,785 4,785 **
beneficial James Kellogg 27,485 25,463 (3) 300,450 353,398 0.2
ownership Peter Lardner 7,500 5,801 (3) 132,943(6) 146,244 0.1
Wilbur S. Legg - - 70,224(7) 70,224 **
Spencer LeRoy III 231,500 8,709 (3) 46,178(8) 286,387 0.2
Karl W. Mueller 3,000 - 1,000 4,000 **
John W. Popp - - 15,332 15,332 **
William A. Simpson 591,000 60,310 (3) 255,856(9) 907,166 0.5
Arnold L. Steiner - - 1,308,446(10) 1,308,446 0.7
Fredricka Taubitz - - 4,000 4,000 **
Charles F. Titterton - - 2,230 2,230 **
Dennis Van Mieghem - - 1,300 1,300 **
William G. White, Jr. - - 69,768 69,768 **
Rande K. Yeager 47,025 11,761 (3) 1,000 59,786 **
A. C. Zucaro 858,750 196,095 (3) 611,314 1,666,159 0.9
All executive officers and
directors, as a group (19) 2,346,710 448,788 3,286,111 6,081,609 3.3
=============================================================================================================================
* Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. Common shares used for
calculation purposes include the equivalent common shares that may be
issued upon conversion by the beneficial owner of Preferred Stock
convertible within 60 days.
** Less than one-tenth of one percent.
(1) Reflects the number of shares shown in the most recent Schedule 13G filings
with the Securities and Exchange Commission through February 15, 2005.
Franklin Mutual Advisers, LLC., a subsidiary of Franklin Resources, Inc.
reports that it has advisory contracts pursuant to which Franklin Mutual
Advisors, LLC is granted investment and voting powers over these securities
and for Rule 13d-3 purposes may be considered the beneficial owner of these
shares. Both entities state that the voting and investments of each are
exercised independently.
(2) Under the terms of the Old Republic International Corporation Employees
Savings and Stock Ownership Plan ("ESSOP"), a participant is entitled to
vote the Company stock held by the ESSOP, the shares of which have been
allocated to the participant's account. The Executive Committee of the
Company, pursuant to the ESSOP, is authorized to vote the Company stock
held by the ESSOP until such time as the shares of such stock has been
allocated to a participant's account or where a participant fails to
exercise his or her voting rights. Additionally, the Executive Committee
may be deemed to have investment power with respect to stock held by the
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ESSOP. The Executive Committee is composed of Messrs. Bischof, Legg, Popp,
Steiner and Zucaro. Under the rules of the Securities and Exchange
Commission, each of them may be deemed to be the beneficial owner of such
shares of Common Stock by virtue of such shared voting and investment
power.
(3) Includes only the shares that have been allocated to the employer matching
and employee savings accounts of the director or executive officer as a
participant in the ESSOP. Excludes those shares for which the director or
executive officer may be deemed to have investment and voting power as a
result of being a member of the Executive Committee. Includes shares of the
Company's stock held in the Bituminous Casualty Corporation 401K Plan for
Mr. Lardner and shares of the Company's stock held by the RMIC Profit
Sharing Plan for Messrs. Dew and Simpson.
(4) Includes 6,750 shares held in trust for Mr. Bischof's benefit.
(5) Includes 167,577 shares owned by Mr. Dew's wife.
(6) Includes 81,897 shares held in a living trust of which Mr. Lardner's wife
is the trustee and for which Mr. Lardner disclaims beneficial ownership.
(7) Includes 64,332 shares held in trust for Mr. Legg's benefit and 5,892
shares held in trust for Mrs. Legg's benefit of which Mr. Legg disclaims
beneficial ownership.
(8) Includes 13,294 shares held in trust for Mr. LeRoy's benefit.
(9) Includes 107,719 shares owned by Mr. Simpson's wife.
(10) Includes 216,190 shares owned by Mr. Steiner directly, 17,881 shares owned
by Mr. Steiner's wife directly, 422,625 shares held in trust for Mr.
Steiner's children, 651,450 shares held by a limited liability corporation
of which Mr. Steiner is both an equity owner and a manager. Excludes 72,961
shares held by the Steiner Foundation for which Mr. Steiner disclaims
beneficial ownership.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Based solely on
reports and other information submitted by executive officers, Directors and
such other persons required to file, the Company believes that during the year
ended December 31, 2004 all reports required by Section 16(a) have been properly
filed.
THE BOARD OF DIRECTORS AND ITS STANDING COMMITTEES
The Company's Board of Directors has the responsibility to review the
overall operations of the Company. The Board members are kept informed of the
Company's results of operations and proposed plans and business objectives
through periodic reports sent to them by the Company's management or presented
at Board and Committee meetings. The Board met four times last year, once each
quarter. Each incumbent director attended at least 75% of the aggregate of the
meetings of the Board of Directors and Committees on which each served during
2004.
Nine of the Company's thirteen current Directors have no material
relationships with the Company, apart from their directorships, and are
independent, as that term is used in Section 303A.02 of the Listing Standards of
the New York Stock Exchange ("NYSE"). All nine meet an additional requirement
for independence imposed by the Company -- that they never have held any
management position with the Company or any of its subsidiaries. The independent
Directors as determined by the Board of Directors, are Messrs. Bischof, Dixon,
Legg, Popp, Steiner, Titterton, Van Mieghem, White and Ms. Taubitz. The
independent Directors have selected from among themselves a Lead Director and
met on a regular basis during 2004 in executive sessions apart from the
non-independent Directors and management. The Lead Director position will rotate
among the independent Directors for terms not exceeding two years each. His or
her successor will be nominated by the Nominating Committee and elected by the
independent Directors. The current Lead Director is Wilbur Legg. Any interested
party wishing to express concerns to the Lead Director or the independent
Directors may do so by writing to:
Old Republic International Corporation
307 North Michigan Avenue
Chicago, Illinois 60601
The Company's Secretary will promptly forward all such correspondence to the
Lead Director.
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Directors' Compensation
Directors of the Company receive an annual retainer of $28,800 plus $2,400
for each Board or Committee meeting they attend. Directors of the Company or any
of its subsidiaries who are full time employees do not receive an annual
retainer but receive $2,400 for each meeting they attend, as members, of the
Board or a Committee of the Company, other than meetings of the Executive
Committee. Mr. Popp as Chairman of the Audit Committee is paid an additional
annual retainer of $15,000.
Board Committees
The Board of Directors has four principal standing committees.
The Executive Committee is empowered to exercise the authority of the Board
of Directors in the management of the business and affairs of the Company
between the meetings of the Board, except as provided in the By-laws or limited
by the provisions of the General Corporation Law of the State of Delaware, as
well as to evaluate the performance of senior executives, and to make
recommendations with regard to executive succession. The Committee is also
responsible for the supervision of the Company's pension and Employees Savings
and Stock Ownership plans and is charged with a fiduciary responsibility to act
solely in the interest of the participants and beneficiaries of the Plans. The
Committee, which is currently composed of Messrs. Bischof, Legg, Popp, Steiner,
and Zucaro, met four times during 2004 and took action by unanimous written
consent twice. Mr. Zucaro is Chairman of the Committee. Mr. Kurt W. Kreyling was
a member of the Committee until his resignation on February 28, 2005. Following
Mr. Kreyling's resignation, Mr. Popp was named a member of the Committee on
March 8, 2005.
The Audit Committee is empowered to oversee the integrity of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, the independent qualifications and performance of the Company's
internal and external auditors and the selection of the Company's independent
external auditors. The Committee also is required to annually produce a report
which is printed below. The Committee operates pursuant to a written charter,
approved by the Board of Directors, a copy of which is attached as Exhibit A,
and is subject to an annual performance evaluation. While information appearing
on the Company's website is not incorporated by reference in this Proxy
statement, the Committee's charter may be viewed on the Company's website at
www.oldrepublic.com. Printed copies are available to shareholders of the Company
upon request. The Committee is composed of eight, non-employee Directors who are
considered by the Board of Directors to be financially literate. The Committee
members are: Messrs. Bischof, Legg, Popp, Steiner, Titterton, Van Mieghem, White
and Ms. Taubitz. The Audit Committee had four regularly scheduled meetings
during 2004, three meetings with the Company's independent auditors prior to the
Company's filing of quarterly reports, and two special meetings with the
Company's Chief Financial Officer and independent auditors. Mr. Popp is the
Committee Chairman. Each member was considered in the judgment of the Company's
Board of Directors to be independent, as that term is used in paragraph
(b)(1)(ii) of the SEC's Rule 10A-3 and Section 303A.02 of the NYSE's Listing
Standards. No member served on the audit committees of three or more unrelated
publicly held companies. Four members of the Committee, Messrs. Popp, Titterton,
Van Mieghem and Ms. Taubitz, each qualify in the judgment of the Board of
Directors as an audit committee financial expert, as that term is used in Item
401(h) of the SEC's Regulation S-K.
For the year ended December 31, 2004, the Committee selected the accounting
firm of PricewaterhouseCoopers LLP ("PwC") as independent auditors to examine
the Company's consolidated financial statements. A member of PwC is expected to
attend the Company's Annual Meeting of Shareholders. The firm's members will be
provided with an opportunity to make an appropriate statement, if he or she
desires to do so, and will be available to respond to questions. The aggregate
fees billed to the Company by PwC for professional services during 2004 and 2003
were:
Type of Fees 2004 2003
------------ -------------- --------------
Audit Fees (a)....................... $ 6,134,994 $ 1,808,879
Audit Related Fees (b)............... 426,348 351,163
Tax Fees............................. 5,105 -
All Other Fees....................... 8,354 8,145
-------------- --------------
Total............................. $ 6,574,801 $ 2,168,187
============== ==============
(a) Included in audit fees is an estimate of $4,000,000 relating to the
Audit of Internal Control over Financial Reporting as required by
section 404 of the Sarbannes Oxley Act.
(b) Includes fees relating to audits of the company's various benefit plans
and actuarial opinions of the Company's loss and loss adjustment expense
reserves required by insurance regulations.
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The term "Audit Fees" refers to fees for professional services rendered by
PwC for the audit of the Company's annual financial statements included in the
Company's Form 10-K and review of financial statements included in the Company's
Forms 10-Q and services that are normally provided by PwC in connection with
audits of statutory financial statements and regulatory filings. "Audit Related
Fees" refers to fees for assurance and related services by PwC that are
reasonably related to the performance of the audit or review of the Company's
financial statements and are not reported under "Audit Fees". They consisted
primarily of fees for actuarial opinions required for regulatory purposes on
insurance subsidiaries' claim reserves, audits of employee benefit plans and
assistance in certain state insurance department examinations. "Tax Fees" refers
to fees for professional services rendered by PwC for tax compliance, tax advice
and tax planning. The term "All Other Fees" refers to fees for products and
services provided by PwC, other than those reported under the preceding
categories, and consisted of a charge for utilizing certain software for the
Company's Canadian operations.
The Charter of the Audit Committee requires that the Audit Committee
pre-approve all non-audit work to be performed by the Company's independent
auditors. In determining whether to approve non-audit services to be performed
by the audit firm, the Audit Committee will consider whether the services in
question facilitate the performance of the audit, improve the Company's
financial reporting process or are otherwise in the Company's or the public's
interest. All (100%) of the Audit-Related Fees, Tax Fees and All Other Fees
billed to the Company in 2004 and 2003 were approved by the Audit Committee
pursuant to the pre-approval waiver requirements of Rule 2-01(c)(7)(i)(C) of the
SEC's Regulation S-X. The Audit Committee has determined that these other
services and products rendered by PwC were not incompatible with PwC's
independence as the Company's auditors.
PwC has advised the Committee that all persons engaged in the Company's
independent audit were full-time permanent employees of PwC. No decision has as
of yet been made with respect to the selection of an independent auditor for
fiscal 2005.
AUDIT COMMITTEE REPORT 2004
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
In accordance with its written Charter, the Audit Committee of the Board
("Committee") assists the Board in fulfilling its responsibility for oversight
of the quality and integrity of the accounting, auditing and financial reporting
practices of the Company.
As part of its function, it recommended to the Board of Directors the
appointment of PricewaterhouseCoopers LLP ("PwC") as the Company's independent
auditors for 2004.
During 2004, the committee discussed the interim financial and other
information contained in each quarterly report to the Securities and Exchange
Commission with the Chief Executive Officer, Chief Financial Officer, Controller
and the independent registered public accounting firm prior to its release.
The Committee meets with the internal and 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.
In fulfilling its oversight responsibilities, the Committee reviewed and
discussed with management and the independent registered public accounting firm
the Company's audited financial statements contained in the Annual Report on
Form 10-K for the year 2004. In addition, the Committee discussed with the
independent registered public accounting firm matters to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Committee has received from the independent registered public
accounting firm, the written disclosures and the letter required by Independence
Standards Board No. 1 (Independence Discussions with Audit Committees) and the
Committee has discussed with PwC the independence of the registered public
accounting firm.
5
Following these discussions and reviews, the Committee recommended to the
Board of Directors and the Board approved the inclusion of the audited financial
statements in the Company's Annual Report on Form 10-K for the year 2004 filed
with the Securities and Exchange Commission.
Audit Committee
John W. Popp, Chairman
Harrington Bischof
Wilbur S. Legg
Arnold L. Steiner
Fredricka Taubitz
Charles F. Titterton
Dennis P. Van Mieghem
William G. White, Jr.
The Nominating Committee is empowered to develop and oversee the Company's
policy on the size, composition and qualifications of the Board of Directors.
The Committee is authorized to establish procedures to identify and recommend
qualified candidates for election to the Board. The Committee is also
responsible for establishing and overseeing compliance with corporate governance
principles and procedures for the nomination process. The Committee operates
pursuant to a written charter approved by the Board of Directors and is subject
to an annual performance evaluation. While information appearing on the
Company's website is not incorporated by reference in this Proxy statement, the
Committee's charter may be viewed on the Company's website at
www.oldrepublic.com. Printed copies are available to shareholders upon request.
The Committee is composed of five, non-employee Directors, Messrs. Bischof,
Dixon, Legg, Steiner, and Titterton, of which Mr. Bischof is the Chairman. Each
member of the Committee is considered independent in the judgment of the
Company's Board of Directors and according to the Listing Standards of the NYSE.
Mr. Kreyling was a member of the Committee until his resignation on February 28,
2005. The Committee met four times during 2004.
OLD REPUBLIC INTERNATIONAL CORPORATION CORPORATE GOVERNANCE OVERVIEW
For several years the Company has been guided by many of the principles of
director independence and qualifications now required by the rules recently
adopted by the SEC and NYSE. Subsequent to the promulgation of these
regulations, the Company codified a number of its existing governance practices
and adopted all additional practices required by the new rules. The Company's
policy defining Director independence is even more stringent than the new
regulations dictate inasmuch as it requires that its independent Directors never
have held any management position with the Company or its subsidiaries. Nine of
its current thirteen Directors meet this criteria for independence. These nine
independent Directors are Messrs. Bischof, Dixon, Legg, Popp, Steiner,
Titterton, Van Mieghem, White and Ms. Taubitz.
The Audit, Compensation and Nominating Committees of the Board are each
standing committees comprised entirely of independent Directors who possess the
professional qualities set forth by the new regulations. The Company's Board of
Directors has a Lead Director who chairs meetings of the independent Directors.
While information appearing on the Company's website is not incorporated by
reference in this Proxy statement, the Company's Corporate Governance
Guidelines, Code of Ethics for the Principal Executive Officer and Senior
Financial Officers and its Code of Business Conduct and Ethics, may be viewed on
line on the Company's website at www.oldrepublic.com. Printed copies are
available to shareholders upon request.
Shareholders of the Company may communicate with the Board of Directors as
a whole or with any individual Director. The communications must be in writing
and sent in care of the Company's Secretary at the Company's office. The
Secretary will forward the communications to the intended recipient as soon as
they are received.
CONSIDERATION AND EVALUATION OF DIRECTOR CANDIDATES
The Company's Board of Directors views its primary mission as (a) rewarding
its shareholders by establishing policies whose objectives are to grow corporate
earnings and shareholders equity over the long term, while increasing the
6
Company's regular dividend payout; and (b) overseeing the Company's businesses
in a sound, conservative manner to assure their profitable growth and the
capacity to honor their just obligations to assureds and beneficiaries of the
Company's insurance contracts.
Currently the Board is composed of thirteen persons of whom nine are
independent. The Company has as a longer term objective a goal of reducing the
size of its Board of Directors from thirteen to between nine and eleven persons
while maintaining or increasing the number of independent Directors.
When the Board of Directors considers new director candidates, it seeks
strong candidates who, ideally, meet all the standards of director independence,
including the Company's and are, or have been, senior executives of large
institutions who have significant business, financial, accounting and/or legal
backgrounds related to the Company's business, markets and/or clients. The Board
will consider any such strong candidate provided he or she possesses the
following personal characteristics: (i) business and professional community
respect for his or her integrity, ethics, principles, insights and analytic
ability; and (ii) ability and initiative to frame insightful questions, to speak
out when appropriate and challenge questionable assumptions and to disagree in a
constructive fashion.
The Company is comprised of three principal insurance segments, each of
which is broadly diversified geographically. Each business is highly regulated
by agencies of the several states and the federal government as to its business
operations and accounting practices. In part as the result of the specialized
nature of its businesses and their regulations, it is the Company's view that at
least two to four years are normally required for a new Director to develop
sufficient knowledge of the business to become a fully productive and effective
contributor to the Company's governance. Reflecting this, each Director must
agree to serve one or more three-year terms on both the Company's Board and the
board of one or more of its subsidiaries and a number of their corresponding
committees. The commitment of a substantial expenditure of time for meeting
preparation, meetings and travel is essential to the performance of a Director's
responsibilities.
Owing to the inherently long-term nature of much of the Company's
businesses, a demonstrated long-term orientation in a candidate's business
dealings is considered very important. A nominee must commit to acquiring, and
retaining during his or her tenure on the Board, a significant ownership in the
Company's common stock. Similarly, no Director may have any conflict of interest
with the Company or any of its subsidiaries which would affect the Director's
judgment in dealing with their affairs.
In addition to the above minimum criteria, the Nominating Committee seeks
additional background qualities or experience such as a certified public
accountancy with responsibilities in audit practice, experience as a senior
financial officer in an insurance or financial institution with revenues in
excess of $100 million, relevant background in insurance or corporate securities
and/or tax law or other qualities resulting from an individual's business
management experience.
The Nominating Committee evaluates and proposes candidates to the Board at
large for approval and slating. It is the policy of the Nominating Committee to
consider director candidates nominated by shareholders. Any name presented for
consideration must be submitted to the Lead Director with a copy to the
Secretary of the Corporation for its records no later than 120 days before the
anniversary of the date of the Company's last previous proxy statement. It
should be accompanied by a brief description of the person's qualifications plus
additional sources of relevant information which will assist the Committee in
its investigation of the person's background and qualifications. All candidates
nominated by the shareholders will be evaluated on the basis of the same minimum
criteria and additional background qualifications and experience enumerated
above. A candidate who does not satisfy the minimum criteria enumerated above
will not be nominated by the Nominating Committee to the Board. Given the
long-term nature of the Company's business, nominees should not be presented if
they are regarded simply as representatives of a particular shareholder or group
of shareholders with a short-term orientation.
The Company does not require its Board of Directors to attend annual
meetings of its shareholders. The meetings are conducted by the Chairman of the
Board, who represents the entire Board for purposes of such meetings.
The Compensation Committee, is empowered to develop, review and supervise
the employee benefit plans of the Company, to fix the compensation of senior
executive officers, and to evaluate their performance. The Committee also is
required to annually produce a report on executive compensation which is printed
7
below and is subject to an annual performance evaluation. The Committee operates
pursuant to a written charter approved by the Board of Directors. While
information appearing on the Company's website is not incorporated by reference
in this Proxy statement, the Committee's charter may be viewed on the Company's
website at www.oldrepublic.com. Printed copies are available to shareholders
upon request. The Committee is composed of seven, non-employee Directors,
Messrs. Bischof, Dixon, Legg, Popp, Steiner, Van Mieghem and White. Until his
resignation on February 28, 2005, Mr. Kreyling was also a member of the
Committee. Mr. Steiner is the Committee's Chairman. Each member of the Committee
is considered independent in the judgment of the Company's Board of Directors
and according to the listing standards of the NYSE. The Committee met twice
during 2004.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has ever served as an
officer or employee of the Company or any of its subsidiaries, nor has any
executive officer of the Company served as a director or member of a
compensation committee for any company that employs any Director of the Company
or member of the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE MANAGEMENT COMPENSATION
The following Report of the Compensation Committee and the performance
graphs included elsewhere in this proxy statement do not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report or the performance graphs by reference therein.
The Compensation Committee of the Board of Directors (the "Committee") of
Old Republic International Corporation (the "Company") evaluated and approved
the overall compensation, policies and practices for the Company's management,
including its Chief Executive Officer ("CEO") and other executive officers, and
the management's range of compensation for other employees of the Company and
its subsidiaries. It, also, reviewed the Company's incentive programs, including
the Key Employees Performance Recognition Plan ("KEPRP"), the Stock Option Plan
(the "Plan"), and the Employees Savings and Stock Ownership Plan ("ESSOP").
In making its evaluations, the Committee considered a large number of
factors including those set forth under "Compensation Policies" herein, together
with other matters such as the inflation rate and the Company's past
performance, generally over consecutive five-year time frames. The Committee did
not consider such factors based upon any scientific or other formula nor on any
quantitative analysis of the relationship among such factors. Rather, the
Committee's evaluation was subjective since each Committee member exercised his
common sense and reasonable business judgment in attaching varying degrees of
importance to each such factor.
Compensation Policies
The Company's compensation policies and practices, particularly as they
apply to its executive officers, including the CEO, are intended to achieve the
following major objectives:
1. To set annual salaries (base income) for key executive officers at amounts
which: a) are reasonably competitive in the context of prevailing salary
scales; and (b) in the Committee's judgment provide a fixed, reasonable
source of current income during the period of employment. Other sources of
executive compensation discussed in separate sections hereunder are not
taken into account when setting base annual salaries. Among the factors
considered in varying degrees, as previously noted, are business size,
level of responsibility, complexity of operations, long term performance,
loyalty, commitment to Old Republic's long term objectives, and future
prospects. Additionally, the Committee takes into account prevailing salary
scales in the insurance industry, trends in salary levels published in
compilations and reports, and data contained in the proxy statements of
publicly held insurance organizations whose assets, revenues, and net
income are larger, smaller, or approximately the same as the Company's.
These insurance organizations include but are not limited to those that are
a part of the Peer Group comparisons on page 17 of this Proxy Statement.
Based on a review and evaluation of all such data, the Committee believes
that the base salaries of the CEO and key executives are within a range
comparable to the median salaries of the above mentioned insurance
organizations.
8
2. To afford personnel an opportunity and incentive to increase their base
income over time through participation in incentive compensation and
related stock option and savings programs. With respect to all such
programs the Committee has approved various criteria, the objectives of
which are to: (a) establish tangible means of evaluating the overall
financial performance of the Company or individual operating centers; (b)
align performance criteria with shareholders' interests by establishing
minimum requirements relative to such performance indicators as return on
equity, return or profit margin on revenues, and increases in earnings; and
(c) encourage a long-term commitment to the Company.
In addition, the Committee considers a variety of intangible and other
subjective factors such as each person's likely future contribution to the
Company's successful growth, his or her level and years of experience, the
current state and prospects of the industry or segment(s) thereof, and the
Company's long-term goals and strategies which may from time to time require
temporary investment in personnel resources in the absence of immediate positive
results. Further, the Committee considers the compensation and benefits
previously paid to its executive officers.
In making its performance evaluations, the Committee takes the
shareholders' interests into account from the standpoints of both total market
return for the Common Stock as well as the Company's intrinsic performance as
such and relative to the Company's Peer Group. However, the Committee places
greater emphasis on the latter two factors since total market return is
influenced materially by the vagaries of the securities markets, over which the
Company, its Board, and management have little control.
The Committee has not adopted any policy with respect to qualifying
compensation paid to executive officers under Section 162(m) of the Internal
Revenue Code.
Compensation of the Chief Executive Officer
With specific reference to the CEO's compensation, the Committee has taken
into account all of the factors and objectives discussed above. In addition,
special emphasis is placed on such other considerations as the CEO's vision and
planning for the Company's future and the strategies implemented for their
realization, his leadership qualities and judgment, and his commitment to and
abilities in setting and promoting the character of the organization in the best
interests of its insurance subsidiaries, insurance beneficiaries, employees, and
shareholders. The Committee's evaluation of the CEO's performance takes place
without his presence.
Mr. Zucaro joined the Company in 1976 as Executive Vice President and Chief
Financial Officer. He was promoted to President in 1981, to Chief Executive
Officer in 1990, and to Chairman in 1993 while retaining his offices as
President and Chief Executive Officer. Until 1989, Mr. Zucaro's cash
compensation consisted solely of a base annual salary and a small amount of fees
earned in his capacity as a director of a number of the Company's subsidiaries.
His other compensation was fully deferred pursuant to his participation in the
Company's KEPRP, ESSOP, and stock option plans. Since 1990, his cash
compensation has been enhanced by 50% of the awards granted to him under the
Company's KEPRP.
The following table reflects certain key data pertaining to the Company's
performance during the past three years together with the CEO's compensation
during that period. The Company's performance was a significant factor in the
Committee's evaluation of the CEO's and other executives' cash and deferred
compensation. It, however, was only one of the many factors cited under
"Compensation Policies" above, the relative significance of which was left to
the subjective business judgment of the Committee. In comparing this data, it
should be noted that trends in the CEO's compensation lag, up or down, from the
trends in the Company's performance, since compensation reviews and salary and
incentive awards are made several months following the end of each calendar
year.
9
Summary of Company Performance Indicators
versus
CEO Compensation
2002 to 2004
-----------------------------------------------------------------------------------------------------------------------------
Amounts % of Change
------------------------------------------ -------------------------------------------
2004 2003 2002 2004 vs. 2003 2003 vs. 2002 2004 vs. 2002
------------- ------------ ------------ ------------- ------------- -------------
Company Performance Indicators (a)
($ in Millions)
Consolidated assets $ 10,570.8 $ 9,712.3 $ 8,715.4 8.8% 11.4% 21.3%
Common shareholders' equity 3,865.6 3,553.6 3,155.8 8.8% 12.6% 22.5%
Net revenues 3,491.6 3,285.8 2,756.4 6.3% 19.2% 26.7%
Net operating income 404.1 447.2 383.8 -9.6% 16.5% 5.3%
Net income $ 435.0 $ 459.8 $ 392.9 -5.4% 17.0% 10.7%
Percent return on equity 12.2% 14.6% 14.1% -16.4% 3.5% -13.5%
Per Share Data
(in dollars and cents):
Book value at end of year $ 21.17 $ 19.57 $ 17.45 8.2% 12.1% 21.3%
Net operating income (diluted) 2.19 2.44 2.11 -10.2% 15.6% 3.8%
Net income (diluted) $ 2.36 $ 2.51 $ 2.16 -6.0% 16.2% 9.3%
==============================================================================================================================
CEO Compensation (b)
(Whole Dollars)
1. Cash compensation
a. Base salary $ 643,333 $ 620,000 $ 590,000 3.8% 5.1% 9.0%
b. Incentive 584,125 510,167 327,058 14.5% 56.0% 78.6%
c. Directors fees & other 65,789 67,061 52,782 -1.9% 27.1% 24.6%
------------ ----------- ----------- ------------ ------------ ------------
d. Total Cash Compensation 1,293,247 1,197,228 969,840 8.0% 23.4% 33.3%
2. Deferred incentive compensation 589,075 515,117 331,585 14.4% 55.3% 77.7%
------------ ----------- ----------- ------------ ------------ ------------
3. Incentive stock options:
a. Valued at 5% appreciation: 4,222,024 3,139,857 3,384,360 34.5% -7.2% 24.8%
b. Valued at 10% appreciation: 10,655,584 7,924,401 8,541,480 34.5% -7.2% 24.8%
------------ ----------- ----------- ------------ ------------ ------------
4. Total cash & deferred
compensation, including options,
if any, valued at:
a. 5% appreciation (1d.+2+3a) 6,104,346 4,852,202 4,685,785 25.8% 3.6% 30.3%
b. 10% appreciation (1d.+2+3b) $12,537,906 $9,636,746 $9,842,905 30.1% -2.1% 27.4%
------------ ----------- ----------- ------------ ------------ ------------
==============================================================================================================================
(a) This data was taken from the Company's audited financial statements and
stock market tables as applicable. Return on equity was calculated by
dividing each year's net income by the common shareholders' equity balance
at the beginning of the year. Net operating income is defined as net income
before extraordinary items, realized investment gains or losses and
accounting changes; both net operating income and net income per share are
shown after deduction of Preferred Stock dividends, as applicable.
(b) In this table, Deferred Incentive Compensation includes the deferred
portion, which is non-interest bearing, of awards granted under the
Company's KEPRP and the employer matching contribution to the ESSOP;
Incentive Stock Options have been valued alternatively by assuming that the
market value of the Common Stock subject to options compounded at a 5% or a
10% annual rate (or 63% and 159%, respectively, in the aggregate) over the
10-year term of the options. The actual future value of such options may,
of course, be higher or lower than these arbitrary formulaic estimates.
(See the Summary Compensation Table on page 13.)
Employee Benefit Plans
In addition to determining base salaries, the Committee also administers
the Company's employee benefit plans. The employee benefit plans are an
important part of the Company's compensation structure and provide eligible
employees, including the CEO and other executive officers, with an opportunity
and incentive to increase their base income.
10
Key Employee Performance Recognition Plans: Effective January 1, 2005, the
Company adopted a new Key Employee Performance Recognition Plan (KEPRP). At the
same time, the Company, while leaving its former plan in place, declared that no
further awards would be made under that plan. Under the Company's KEPRP, which
is similar to the Company's former plan, a performance recognition pool is
established each year for allocation among eligible key employees of the Company
and its participating subsidiaries, including the CEO and other executive
officers. Employees eligible to share in this pool are selected by the Committee
in consultation with the CEO. The Committee makes the sole determination with
regard to the CEO's performance, eligibility and award. After continuing plan
participants are credited with a certain portion of the year's pool, the CEO
recommends the allocation of the balance of the pool to participants in the
plan, other than to himself. Up to 50% of any one year's pool amount may be
carried forward for up to three years for later allocation. In designating
eligible employees and determining amounts to be allocated, the Committee
consults with the CEO and considers the positions and responsibilities of the
employees, the perceived value of their accomplishments to the Company, their
expected future contributions to Old Republic and other relevant factors. The
Committee's evaluation of all such factors is subjective.
Each year's pool amount is established in accordance with a detailed
formula which takes into account (a) the eligible participating employees'
annual salaries, (b) the current year's earnings in excess of the prior year's
earnings (excluding income from realized investment gains or losses), multiplied
by a factor determined by the increase in the Company's earnings per share, and
(c) the latest year's return on equity in excess of a minimum target return on
equity equal to two times the mean of the five-year average post-tax yield on
10-year and 20-year U.S. Treasury Securities. The pool is, in turn, limited to a
percentage of plan participants' aggregate annual base salaries, ranging from
10% to 150%, depending upon the amount by which the current year's actual return
on equity exceeds the minimum target return on equity for the year. There is no
prescribed limit as to how much of the year's available pool may be awarded to
each participant.
There is an immediate payment in cash of 50% of any award made, as well as
50% of the multiplier factor applied to the deferred balances of prior years'
participants; the balance of the award vests at the rate of 10% per year of
participation. The deferred balance(s) do not bear interest. Pursuant to the
plan, participants become vested in their account balances upon total and
permanent disability, death, upon the earlier of attaining age 55 or being
employed for 10 years after first becoming eligible or upon a change of control
of the Company. Benefits are payable in a set number of equal installments,
beginning no earlier than age 55 following termination of employment, death,
disability, retirement or a change of control of the Company. Distributions for
Executive Officers can begin no earlier than six months following their
termination from service.
In addition to the KEPRP, the Company also maintains a number of separate
plans for several individual subsidiaries or separate operating centers. Such
plans provide for the achievement of certain financial results and objectives as
to each such subsidiary or operating center. Messrs. Kellogg, Simpson and Yeager
do not participate in the Company's KEPRP. Rather, they participate in KEPRP
plans applicable to the subsidiaries and operating centers with which they are
principally associated. Each of these plans operates in the same basic fashion
as the Company's KEPRP. The pools for each plan, including the Company's KEPRP,
are established according to detailed formulas that take into account the annual
increase in earnings, the return on equity in excess of a minimum target
percentage, and other factors pertinent to each operating center. Each separate
subsidiary's or operating center's plan has a cash and deferred element, except
for a few separate plans used for transaction - driven businesses, such as title
insurance, which have historically been cash basis plans.
Stock Option Plan: The Company believes that key employees, including the CEO
and other executive officers, who are in a position to make a substantial
contribution to the long-term performance and direction of the Company should
have a stake in its on-going success. To encourage growth in shareholder value
and a long-term commitment to the success of the Company's business, the Company
maintains a non-qualified stock option plan for key employees of the Company and
its participating subsidiaries. The Corporation's Stock Option Plan (the "Plan")
was approved by the Company's shareholders in 2002 and replaced a similar
non-qualified stock option plan that had been adopted 10 years earlier. The
decision to award stock options pursuant to the Plan and the factors that
contribute to the amount of such awards are the same basic factors as those set
forth under "Compensation Policies" herein.
The performance factors the Committee considers include the achievements of
the individual key employee, the overall performance of the Company and the
likelihood of future contributions to the Company's successful growth by the
individual key employee. The relative significance of these and all other
11
factors with respect to awards granted to the CEO and other executive officers
is determined subjectively by the Committee. The Plan provides for the issuance
of options for up to an aggregate of 6% of the Company's Common Stock issued and
outstanding at year end under this Plan or any other plans of the Company.
Accordingly, the total of each year's option grants and the number of previously
granted unexercised options at the date of grant may not exceed 6% of common
stock outstanding at any date of grant.
The purchase price per share of Common Stock subject to an option under the
Plan is fixed by the Committee. However, such purchase price may not be less
than 100% of the fair market value per share of Common Stock on the date the
option is granted. Optionees may exercise their options for shares of either
Common Stock or Series G Preferred Stock. The term of each option may not be for
more than 10 years from the date of grant. Options may be exercised in
accordance with the following vesting schedule: ten percent at the end of the
year of the grant, and thereafter, annually at the rates of 15%, 20%, 25% and
30% so that at the end of the 5th fiscal year after the grant they are 100%
vested. Under the Company's former plan, except for the grant made in 2002,
which used an amended vesting schedule similar to the Plan, vesting occurs at an
annual rate of 10% per year. With respect to options granted prior to 2004, an
employee's right to exercise an option is accelerated if the Company's Common
Stock closes on the NYSE above the vesting acceleration price established by the
Committee for the option. If a vesting acceleration occurs, an optionee may
exercise his or her option for the greater of either: 10% of the number of
shares covered by the option for each year that the optionee has been employed
by the Company or its participating subsidiaries or the sum of the optionee's
already vested shares plus 50% of the remaining unvested shares. Vesting
accelerations for grants made prior to 2002 accelerate at 10% per year for each
year the optionee has been employed by the Company or its subsidiaries. The
vesting acceleration price was established by the Committee at the time of grant
at the higher of 150% of the market value of the Common Stock at the date of the
grant or 100% of the book value per Common Share as of the most recent year end.
For options granted prior to January 1, 2000, the vesting acceleration price
established by the Committee was the higher of 150% of the market value of the
Common Stock at the date of the grant or 150% of the book value per Common Share
as of the most recent year end. The vesting acceleration price provision has
been eliminated for options granted in 2004 and subsequent years.
Employees Savings and Stock Ownership Plan: The Company's ESSOP qualified as a
401(k) plan effective January 1, 2005, but otherwise the provisions of the plan
remain unchanged except that employee contributions are now treated as pre-tax
contributions. The ESSOP allows eligible employees with one or more years of
service with the Company or participating subsidiaries ("employers") to save a
minimum of 1% up to a maximum of 15% of their total compensation subject to an
annual maximum compensation of $200,000. Employees' savings, up to a maximum of
6%, are matched by employer contributions ranging from 20% to 140% of such
savings in accordance with a formula based upon the percentages saved and the
increase in the Company's average net operating earnings per share for the five
years ending with the calendar year immediately prior to the year for which the
contribution is made. The Company's matching contribution applies to annual
compensation up to a maximum of $150,000 under the terms of the ESSOP. Employer
contributions are invested exclusively in the Stock of the Company except that
employees over age 55 and with 10 years of service credited under the Plan may
diversify a portion of the employer's contributions out of the Company's Stock
and into alternative investments based on their age and years of service with
the Company. This diversification ranges from 25% at age 55 to 100% at age 67.
These alternative investment choices are the same ones in which employee savings
may be invested. Employee savings may be invested, at the employee's direction,
in publicly managed mutual funds that focus on long term capital appreciation,
long term capital growth, long term growth of capital and income, long term
growth through investments in common stocks of non-U.S. companies, a stock index
fund portfolio, and in short or intermediate term bonds or other fixed income
securities. A participant becomes vested in the account balance allocated from
employer contributions upon being totally and permanently disabled, dying, or
upon the earlier of attaining age 65 or being employed for 6 years. Vesting also
occurs in increments of 20% a year, beginning after one year of service.
Benefits are payable upon termination of service, death or disability, or
following retirement and subject to minimum distribution requirements set out in
Treasury regulations under the Internal Revenue Code. At the election of the
participant, benefits derived from employer contributions are payable either in
cash or the Company's Common Stock.
RMIC Profit-Sharing Plan ("Profit Sharing Plan"): Mr. Simpson participates in
the RMIC Profit Sharing Plan, a 401(k) qualified plan. The RMIC Profit Sharing
Plan covers substantially all employees of RMIC and its affiliates.
Contributions to the plan are determined annually by RMIC's Board of Directors,
and voluntary contributions of up to 10% of annual income are permitted.
Employees' contributions are invested, at the employees' direction, in a number
of publicly managed mutual funds and employees may elect to purchase the
Company's Common Stock as an investment option. RMIC Profit Sharing Plan
12
participants' interests vest in increments of 10% of contributed amounts
beginning with 40% after one year and extending to 100% after seven years.
Account balances are payable upon death or permanent disability. Normal
retirement is at age 65 and the Profit Sharing Plan provides for early
retirement at age 50 with ten years of service. Benefits upon retirement may be
received as a monthly annuity, periodic cash payments, or in a lump-sum
distribution, at the participant's election.
Compensation Committee
Arnold L. Steiner, Chairman
Harrington Bischof
John M. Dixon
Wilbur S. Legg
John W. Popp
Dennis P. Van Mieghem
William G. White, Jr.
Executive Compensation
The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer, each of the four other most highly compensated executive
officers and the Chief Financial Officer of the Company for services rendered in
all capacities during each of the Company's fiscal years ended December 31,
2004, 2003 and 2002:
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------- -------------
(a) (b) (c) (d) (e) (f)
Securities
Underlying
Name and Option All Other
Principal Positions Year Salary (1) Bonus (2) Awards Compensation (3)
--------------------------- --------- ------------- ------------ ------------ -----------------
A.C. Zucaro 2004 $ 693,203 $ 1,168,250 277,500 $ 20,867
President & Chief 2003 677,700 1,020,334 277,500 14,311
Executive Officer 2002 635,021 654,116 255,000 12,288
James Kellogg 2004 344,067 275,000 20,000 17,354
Senior Vice President 2003 326,667 175,000 7,500 14,701
General Insurance 2002 244,167 105,000 6,000 13,284
Spencer LeRoy III 2004 366,257 307,920 50,000 12,716
Senior Vice President, 2003 352,866 243,098 41,250 10,842
Secretary & General 2002 339,695 235,902 37,500 10,873
Counsel
Karl W. Mueller (4) 2004 81,250 - 30,000 245
Senior Vice President &
Chief Financial Officer
William A. Simpson 2004 308,146 950,000 82,500 41,455 (5)
Senior Vice President 2003 310,858 850,000 82,500 39,535 (5)
Mortgage Guaranty 2002 292,700 910,000 75,000 39,698 (5)
Rande K. Yeager (6) 2004 265,483 900,000 15,000 10,711
Senior Vice President 2003 252,950 675,000 15,000 11,398
Title Insurance
----------------------------------------------------------------------------------------------------------------------------
(1) Includes base salary and fees paid for services as a director of the
Company or its subsidiaries.
(2) Includes combined cash and deferred incentive compensation awards
granted under the Company's KEPRP and similar plans maintained for
different profit centers. Awards thereunder are made 50% in cash and 50%
deferred except for the plan under which Mr. Yeager participates which does
not defer any part of the award granted. The deferred amounts included in
this column are usually not payable before the person retires at 55 years
of age or later; the amount deferred does not accrue interest and it is
included in this column without a present value discount. None of the
awards shown differed in any respect from the Company's regular
compensation policies and practices.
(3) Includes the employer matching contribution to the Company's ESSOP, the
amount of premium for the Company's group term life insurance plan
attributed to the compensation of executive officers of the Company and the
value of meals paid for by the Company. For 2004, the Company's matching
contribution for each executive officer was $4,950 except for Mr. Simpson
13
who elected not to participate in the ESSOP and for Mr. Mueller who had not
yet qualified for participation. For 2004, $9,753, $1,242, $2,322, $1,346
and $1,290 were attributed to the compensation of Messrs. Zucaro, Kellogg,
LeRoy, Simpson and Yeager, respectively, for group term life insurance
premiums paid by the Company under a program available to all of its
employees. As of year end 2004, Mr. Mueller had not yet qualified for
participation under the Company's life insurance program. For 2004, $9,208,
$8,469 and $4,471 were attributed to Messrs. Kellogg's, Simpson's and
Yeager's compensation, respectively, for usage of vehicles provided to
them. For 2004, $5,070 was attributed to Mr. Simpson's compensation for a
health reimbursement program RMIC sponsors for all of its employees.
(4) Mr. Mueller became an executive officer of the Company on October 1, 2004.
(5) Includes $20,000 as the vested amount accrued for Mr. Simpson in the RMIC
Profit Sharing Plan for 2002 and 2003 and $20,500 for 2004.
(6) Mr. Yeager became an executive officer of the Company on March 21, 2003.
Retirement Plans
The Company maintains the Old Republic International Corporation Salaried
Employees Restated Retirement Plan (the "Company Plan") for its employees and
those of participating subsidiaries who have continuously been employed prior to
December 31, 2004. Persons whose employment commenced on or after January 1,
2005 are not eligible for the Company Plan but may participate in the Company's
ESSOP. The Company Plan, which is noncontributory, provides for benefits based
upon 1.5% of the participant's "Final Average Monthly Earnings" (1/60th of the
aggregate earnings of the employee during the period of the five consecutive
years of service out of the last ten consecutive years of service which results
in the highest "Final Average Monthly Earnings") multiplied by the participant's
years of service. Earnings equal base salary and commissions but excludes cash
and deferred incentive compensation awards granted under the Company's KEPRP.
The following table sets forth the estimated annual benefits payable under
the Company Plan to an employee, upon retirement at December 31, 2004, at age 65
after specified years of service:
Highest Average
Annual Earnings of Estimated Annual Retirement Income for
The 5 Consecutive Representative Years Credited Service*
Plan Years Out of the -------------------------------------------------------------------------------
Last 10 Plan Years 10 15 20 25 30
----------------------- ------------ ------------ ------------- ------------ -------------
$ 150,000 $ 22,500 $ 33,750 $ 45,000 $ 56,250 $ 67,500
200,000 30,000 45,000 60,000 75,000 90,000
250,000 37,500 56,250 75,000 93,750 112,500
300,000 45,000 67,500 90,000 112,500 135,000
350,000 52,500 78,750 105,000 131,250 157,500
400,000 60,000 90,000 120,000 150,000 180,000
450,000 67,500 101,250 135,000 168,750 202,500
500,000 75,000 112,500 150,000 187,500 225,000
550,000 82,500 123,750 165,000 206,250 247,500
600,000 90,000 135,000 180,000 225,000 270,000
$ 650,000 $ 97,500 $ 146,300 $ 195,000 $ 243,750 $ 292,500
===========================================================================================================================
*Amounts shown in the table above which exceed $210,000 - - the maximum benefit
allowed by law for a qualified plan in 2005 - - would only be payable to a
qualified participant under the Old Republic International Corporation or RMIC
Executive's Excess Benefit Plan described below.
The amounts shown in the chart are computed on the basis of straight life
annuity amounts and are not subject to offsets for any Social Security payments.
At December 31, 2004, Mr. Zucaro was credited with 27 years of service, Mr.
Kellogg was credited with 26 years of service, and Mr. LeRoy was credited with
11 years of service, for purposes of the Plan. Mr. Mueller is not yet eligible
for participation and Mr. Yeager does not participate in the Plan as employees
of the Old Republic National Title Group participate in the Old Republic
National Title Group (ORNTG) Plan instead of the Company Plan. The ORNTG Plan
operates in the same basic fashion as the Company's Plan except that benefits
are calculated differently. The monthly benefit is 1.20% of the participants
Final Average Monthly Earnings up to the Social Security Integration Level times
the participant's years of credited service limited to a maximum of 30 years. At
December 31, 2004, Mr. Yeager was credited with 16 years of service and his
highest average annual earnings for the purpose of this plan was approximately
$644,046. Mr. Simpson did not participate in the plan because employees of RMIC
/ Republic Mortgage Insurance Company (RMIC) participate in the RMIC
Profit-Sharing Plan instead of the Company Plan.
14
At December 31, 2004, the highest average annual earnings for purposes of
the above computations under the Company Plan were approximately $593,333 for
Mr. Zucaro, $265,233 for Mr. Kellogg and $337,333 for Mr. LeRoy. The differences
between such amounts and the Annual Compensation amounts shown for Messrs.
Zucaro, Kellogg, LeRoy and Yeager in the Summary Compensation Table on page 13
are threefold: the figures above are averages of annual base salaries over the
past 5 years and do not include either directors' fees or any form of incentive
compensation awards.
The Company also maintains the Old Republic International Corporation
Executive's Excess Benefit Plan (the "Excess Benefit Plan") to provide certain
key executives with pension benefits in excess of the benefits provided by the
Company Plan. The Excess Benefit Plan is administered by the Executive Committee
of the Board of Directors, which selects the employees to participate in the
Excess Benefit Plan from those who are participants in the Company Plan. As of
December 31, 2004, Messrs. Zucaro and LeRoy are the only approved executive
officers who qualified for participation under this Excess Benefit Plan. RMIC
also has an Executive Excess Benefit Plan (the "RMIC Plan") to provide certain
key executives of RMIC with benefits in excess of the benefits they would be
eligible for if they participated in the Company's Plan. The RMIC Plan is
administered by a Committee of the Board of Directors of RMIC, which selects the
employees to participate in the RMIC Plan from those eligible employees of RMIC.
As of December 31, 2004, Mr. Simpson is the only executive officer of the
Company who qualified and has been approved for participation under the RMIC
Plan. The benefits payable under this RMIC Plan equal the excess of the amount
otherwise payable under the terms of the Company Plan over the reduced benefits
required by applicable law. Benefits under this RMIC Plan are payable at the
time benefits are payable under the Company Plan. Both the Excess Benefit Plan
and the RMIC Plan are non-qualified deferred compensation plans.
Option Grants in 2004
The following table sets forth certain information regarding options to
purchase shares of Common Stock granted to the executive officers of the Company
listed in the Executive Compensation Table during the Company's 2004 fiscal
year:
Option Grants in 2004
-------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Potential
Realizable Value of Assumed
Annual Rates of Stock Price
Appreciation for Option Term
----------------------------------
@ Annual Compounding
Individual Grants Growth Rate Of:
----------------------------------------- ----------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted (1) in 2004 Price Date 5% 10%
------------------------- ------------ ----------- ----------- ----------- -------------- --------------
A. C. Zucaro 277,500 13.73 $ 24.15 12/31/13 $ 4,222,024 $10,655,584
James Kellogg 20,000 .99 24.15 12/31/13 304,290 767,970
Spencer LeRoy III 50,000 2.47 24.15 12/31/13 760,725 1,919,925
Karl W. Mueller 30,000 1.48 25.03 12/31/13 473,067 1,193,931
William A. Simpson 82,500 4.08 24.15 12/31/13 1,255,196 3,167,876
Rande K. Yeager 15,000 .74 $ 24.15 12/31/13 $ 228,218 $ 575,978
================================================================================================================================
(1) See the Report of the Compensation Committee on Executive Management
Compensation "Stock Option Plan" regarding the vesting of stock options.
15
Aggregate Options Exercised in 2004 and Option Values at December 31, 2004
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 2004 fiscal year
and the number and value of exercisable and unexercisable options to purchase
shares of Common Stock held at the end of the Company's 2004 fiscal year by the
executive officers of the Company named in the Executive Compensation Table:
Aggregated Option Exercises in 2004
and Option Values at December 31, 2004
------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options at 12/31/04 Options at 12/31/04
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
---------------------- -------------- --------------- ----------------------------- --------------------------------
A. C. Zucaro - - 778,125 / 440,625 $5,038,133 / $ 1,196,168
James Kellogg - - 25,715 / 22,110 215,302 / 40,748
Spencer LeRoy III - - 219,313 / 74,063 2,160,125 / 189,113
Karl W. Mueller - - 3,000 / 27,000 810 / 7,290
William A. Simpson - - 565,500 / 135,750 5,955,278 / 380,160
Rande K. Yeager - - 43,538 / 21,713 $ 328,931 / $ 53,727
==============================================================================================================================
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of Common Stock at
December 31, 2004 and the option exercise price per share multiplied by the
number of shares subject to options.
Equity Compensation Plan Information at December 31, 2004
The following table sets forth certain information regarding securities
authorized for issuance under equity compensation plans as of year end 2004. The
Company only has equity compensation plans that were approved by the Company's
shareholders.
Number of Number of securities
securities to be remaining available for
issued upon exercise Weighted-average future issuance under
of outstanding exercise price of equity compensation plans
options, warrants outstanding options, (excluding securities
Plan Category and rights warrants and rights Reflected in column (1))
------------------------------------------ ---------------------- --------------------- ---------------------------
(a) (b) (c)
Equity compensation plans approved
by security holders................... 9,281,954 $18.75 1,671,859
Equity compensation plans not
approved by security holders.......... - - -
---------------------- --------------------- ---------------------------
Total............................ 9,281,954 $18.75 1,671,859
===========================================================================================================================
(1) In no event shall the aggregate number of shares subject to outstanding
options under all Company sponsored plans and grants exceed, at any time,
6% of the Company's outstanding Common Stock as of December 31st of the
preceding year.
Comparative Five-Year Total Market Returns
The following table, prepared on the basis of market and related data
furnished by Standard & Poor's Total Return Service, reflects total market
return data for the most recent five calendar years ended December 31, 2004. For
purposes of the presentation, the information is shown in terms of $100 invested
at the close of trading on the last trading day preceding the first day of the
fifth preceding year. The $100 investment is deemed to have been made either in
Old Republic Common Stock, in the S&P 500 Index of common stocks, or in an
aggregate of the common shares of the Peer Group of publicly held insurance
businesses selected by Old Republic. In each instance the cumulative total
return assumes reinvestment of cash dividends.
16
The information utilized to prepare this table has been obtained from
sources believed to be reliable, but no representation is made that it is
accurate or complete in all respects.
Comparison of Five Year Total Market Return
OLD REPUBLIC INTERNATIONAL CORPORATION vs. S&P 500 vs. Peer Group
(For the five years ended December 31, 2004)
[GRAPHIC OMITTED]
Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04
--------- --------- --------- --------- --------- ---------
ORI $100.00 $241.54 $215.94 $220.46 $313.71 $319.41
S&P 500 100.00 90.90 80.09 62.39 80.29 89.03
2003 Peer Group 100.00 156.66 144.07 123.82 155.05 178.85
Peer Group consists of the following publicly held corporations selected by
the Company for its 2004 comparison: Ace Limited, American Financial Group,
Inc., The Chubb Corporation, Cincinnati Financial Corporation, Fidelity National
Financial, Inc., First American Corporation, MGIC Investment Corporation, Ohio
Casualty Corporation, Radian Group Inc., SAFECO Corporation, St. Paul Travelers
Companies, Inc. and XL Capital Ltd. The Peer Group has been approved by the
Compensation Committee and consists of the same companies as last year's Peer
Group.
PROPOSAL 1
ELECTION OF DIRECTORS
The following tabulation lists all nominees and continuing Directors of the
Company. Four Class 3 Directors are to be elected to hold office for a term of
three years and until their successors are elected and qualified. The nominees
are presently Class 3 Directors. It is intended that, in the absence of contrary
specifications, votes will be cast pursuant to the enclosed proxies for the
election of such nominees. Should any of the nominees become unable or unwilling
to accept nomination or election, it is intended, in the absence of contrary
specifications, that the proxies will be voted for the balance of those named
and for a substitute nominee or nominees. However, the Company now knows of no
reason to anticipate such an occurrence. All of the nominees have consented to
be named as nominees and to serve as directors if elected.
On February 28, 2005, and March 3, 2005, respectively, Messrs. Kurt W.
Kreyling and Anthony F. Colao resigned as directors of the company for personal
and health reasons. Following the resignations of Messrs Kreyling and Colao, Mr.
Lardner, who was a Class 3 Director, was named a Class 1 Director. This was done
in order to more evenly distribute the current directors among the Company's
three classes of directors as is required by the Company's By Laws. On August
12, 2004, the Board of Directors, in accordance with the Company's Certificate
of Incorporation and By Laws, added two new members. Mr. Charles F. Titterton
was elected a Class 1 Director and Mr. Dennis P. Van Mieghem was elected a Class
2 Director. Messrs. Titterton and Van Mieghem will stand for election, in due
course, with the other members of their Class.
17
Positions with Company, Business Experience and
Name Age Other Directorships
-------------------------------------- ----------------- -----------------------------------------------------------
Nominees for Election
---------------------
CLASS 3 (Term expires in 2005)
William A. Simpson 63 Director since 1980; Senior Vice President of the Company
and President of Republic Mortgage Insurance Company, a
subsidiary of the Company, for more than the past five
years.
Arnold L. Steiner 67 Director since 1974; retired for more than the past five
years; formerly President of Steiner Bank, Birmingham,
Alabama.
Fredricka Taubitz 61 Director since 2003; Director of WFS Financial Inc. since
January 2003; until 2000, Executive Vice President and
Chief Financial Officer of Zenith National Insurance Corp.
Until 1985, Partner with the accounting firm of Coopers
& Lybrand, now PricewaterhouseCoopers LLP.
A. C. Zucaro 65 Director since 1976; Chairman of the Board, Chief
Executive Officer and President of the Company and
various subsidiaries for more than the past five years.
----------------------------------------------------------------------------------------------------------------------------
Continuing Members
------------------
CLASS 1 (Term expires in 2006)
Harrington Bischof 70 Director since 1997; President of Pandora Capital
Corporation since 1996; formerly Senior Advisor
Prudential Securities, Inc.
Peter Lardner 73 Director since 1985; retired; prior to 2002, Chairman of
the Board of Bituminous Casualty Corporation, a
subsidiary of the Company.
Charles F. Titterton 63 Director since August 12, 2004; retired; Formerly
Director Insurance Group with Standard & Poor's Corp.
until 2003.
William G. White, Jr. 76 Director since 1993; retired for more than the past five
years; formerly President of The First Federal Savings
Bank, Winston-Salem, North Carolina; Consultant to
Southern National Bank, Winston-Salem, North Carolina.
----------------------------------------------------------------------------------------------------------------------------
Continuing Members
------------------
CLASS 2 (Term expires in 2007)
Jimmy A. Dew 64 Director since 1980; Sales Group Manager of Republic
Mortgage Insurance Company, a subsidiary of the Company,
for more than the past five years.
18
Continuing Members (Cont'd)
---------------------------
CLASS 2 (Term expires in 2007)
John M. Dixon 65 Director since 2003; retired; Director of Amsted
Industries Incorporated, Chicago, Illinois; formerly
Chief Executive Partner with the law firm of Chapman and
Cutler, Chicago, Illinois until his retirement in 2002.
Wilbur S. Legg 82 Director since 1969; retired for more than the past five
years; formerly Partner of Lord Bissell & Brook,
attorneys, Chicago, Illinois. Mr. Legg's former firm has
been retained by the Company as counsel during more than
the last two fiscal years.
John W. Popp 82 Director since 1993; retired; formerly Partner with the
accounting firm of KPMG LLP until 1982.
Dennis P. Van Mieghem 64 Director since August 12, 2004; retired; formerly Partner
with the accounting firm of KPMG LLP until 1998.
-----------------------------------------------------------------------------------------------------------------------------
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the Class 3 Directors that are
listed as nominees. Proxies solicited by the Board of Directors will be voted
for the election of these nominees unless shareholders specify to the contrary
in their proxies.
VOTING PROCEDURES
The General Corporation Law of the State of Delaware specifies that in the
absence of contrary requirements in a corporation's Certificate of Incorporation
or By-laws, the votes on matters at Shareholders' Meetings are decided as
follows: (1) Directors are elected by a plurality of the shares present in
person or by proxy at the meeting and who are entitled to vote in the election,
(2) amendments to the Company's Certificate of Incorporation are determined by
the affirmative vote of the majority of shares of the Company's capital stock
that are outstanding and entitled to vote, and (3) all other matters are
determined by the affirmative vote of the majority of the shares present in
person or by proxy at the meeting and who are entitled to vote on the subject
matter.
The Company's Certificate of Incorporation and By-laws do not require any
different treatment for matters to be considered at the Company's Annual
Shareholders' Meeting.
The Company's Certificate of Incorporation and its By-laws are silent on
the mechanics of voting. As a result, the General Corporation Law of the State
of Delaware is controlling. Under Delaware law the votes at the Company's Annual
Shareholders' Meeting will be counted by the inspectors of election required to
be appointed at the meeting. The inspectors are charged with ascertaining the
number of shares outstanding, the number of shares present, whether in person or
by proxy, and the validity of all proxies. The inspectors are entitled to rule
on any voting challenges and are responsible for the tabulation of the voting
results.
Under Delaware law, abstentions are counted in determining the quorum of
the meeting and as having voted on any proposal on which an abstention is voted.
Therefore, on those proposals which require a plurality vote of the shares at
the meeting that are entitled to vote, the vote of an abstention has no effect.
However, on those proposals which require an affirmative vote of the majority of
shares present in person or by proxy at the meeting, the vote of an abstention
has the effect of a vote against the proposal.
In the event of a broker non-vote arising from the absence of authorization
by the beneficial owner to vote on a proposal, the shares reported are counted
for the determination of a quorum for the meeting but they are not counted as
having voted on the proposal where there is a non-vote. Therefore, on those
proposals which require a plurality or a majority vote of the shares at the
meeting that are entitled to vote, a non-vote will have no effect. However, on
those proposals which require an affirmative vote of the majority of the shares
outstanding who are entitled to vote, a non-vote has the effect of a vote
against the proposal.
19
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
In order for a proposal by a shareholder of the Company to be included in
the Company's proxy statement and form of proxy for the 2006 Annual Meeting of
Shareholders, the proposal must be received by the Company no later than
December 2, 2005.
OTHER MATTERS
The Company knows of no matters, other than those referred to herein, which
will be presented at the meeting. If, however, any other appropriate business
should properly be presented at the meeting, the proxies named in the enclosed
form of proxy will vote the proxies in accordance with their best judgment.
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. In addition to solicitation by mail, the Company has
retained D. F. King & Company of New York City, to assist in the solicitation of
proxies, including delivery of proxy materials. Fees for this solicitation are
expected to be approximately $5,500. The Company intends to reimburse brokerage
houses and other custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in forwarding copies of solicitation material to
beneficial owners of Common Stock held of record by such persons. In a limited
number of instances, regular employees of the Company may solicit proxies in
person or by telephone.
By order of the Board of Directors.
SPENCER LEROY III
Secretary
Chicago, Illinois
April 1, 2005
20
Exhibit A
---------
Audit Committee Charter
COMMITTEE'S PURPOSE
The Audit Committee is appointed by the Board of Directors of Old Republic
International Corporation (the "Corporation"): (A) to assist the Board in
monitoring (1) the integrity of the financial statements of the Corporation, (2)
the Corporation's compliance with legal and regulatory requirements, (3) the
independent auditor's qualifications and independence, and (4) the performance
of the Corporation's internal audit function and independent auditors; and (B)
to prepare the report required by the rules of the Securities and Exchange
Commission (the "Commission") to be included in the Corporation's annual proxy
statement.
COMMITTEE MEMBERSHIP
The Audit Committee shall consist of not less than three members of the Board,
one of whom shall be designated as the chairperson, appointed by the Board upon
the recommendation of the Board's Nominating Committee. Each appointed member
must meet the independence and experience requirements of the New York Stock
Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Commission, and at least
one member must be an "audit committee financial expert" as defined by the
Commission. No Director shall be eligible for appointment to the Audit Committee
if he or she serves on the audit committees of more than two other publicly held
companies.
COMMITTEE MEETINGS
The Audit Committee shall meet as often as it determines, but not less
frequently than once every fiscal quarter. The Audit Committee shall meet
periodically with management, the internal auditors and the independent auditor
in separate executive sessions. The Audit Committee may request any officer or
employee of the Corporation or the Corporation's outside counsel or independent
auditor to attend a meeting of the Audit Committee or to meet with any members
of, or consultants to, the Audit Committee. A majority of the Audit Committee
members present in person or by conference telephone or other conferencing
equipment shall constitute a quorum. The Audit Committee may form subcommittees
consisting of one or more members for any purpose it deems appropriate and may
delegate to such subcommittee(s) such power and authority as the Audit Committee
deems appropriate, other than power or authority which the Audit Committee is
required by law or regulation or listing standard to exercise as a whole.
DUTIES AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint, retain,
compensate, evaluate and terminate the Corporation's independent auditors. The
Audit Committee shall approve all audit engagement fees and terms, shall discuss
with the independent auditor the planning and staffing of the annual audit, and
shall approve all non-audit engagements that may be performed by the independent
auditors. The independent auditors shall report directly to the Audit Committee,
and the Audit Committee shall be directly responsible for the oversight of the
independent auditors, including resolution of disagreements between management
and the independent auditors.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Corporation shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditors and to any
advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee shall
annually review the Audit Committee's own performance.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
As to Financial Statement and Disclosure Matters:
------------------------------------------------
1. Review and discuss with management and the independent auditor the
annual audited financial statements, including footnotes and disclosures
made in management's discussion and analysis, and recommend to the Board
whether the audited financial statements should be included in the
Corporation's Form 10-K.
A-1
2. Review and discuss with management and the independent auditor the
Corporation's quarterly financial statements prior to the filing of its
Form 10-Q.
3. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Corporation's financial statements, including any
changes in the Corporation's selection or application of accounting
principles, any major issues as to the adequacy of the Corporation's
internal controls and any special steps adopted in light of material
control deficiencies.
4. Review and discuss with the independent auditors:
(a) All critical accounting policies and practices that are used.
(b) Any major recommended alternative treatments of financial
information within generally accepted accounting principles that have
been discussed with management, ramifications of the possible use of
such alternative disclosures and treatments, and the treatment
preferred by the independent auditor.
(c) Other material written communications between the independent
auditor and management such as any management letter or schedule of
unadjusted differences.
5. Expect the Chief Executive Officer and/or the Chief Financial Officer to
discuss with the Audit Committee or its Chairman any change in accounting
policies, material charges or credits, and departures in disclosures or
presentation in the Corporation's quarterly earnings release prior to the
issuance of any release so affected.
6. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives and any off-balance sheet structures
on the Corporation's financial statements.
7. Discuss periodically with management the Corporation's major financial
risk exposures and the steps management has taken to monitor and control
such exposures, including the Corporation's risk assessment and risk
management policies.
8. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct
of the audit, including any difficulties encountered in the course of the
audit work, any restrictions on the scope of activities or access to
requested information, and any significant disagreements with management.
9. Review disclosures made to the Audit Committee by the Corporation's CEO
and CFO during their certification process for the Form 10-K and Form 10-Q
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Corporation's
internal controls.
As to Oversight of the Corporation's Relationship with the Independent Auditor:
------------------------------------------------------------------------------
10. Review and evaluate the lead partner of the independent auditor team.
11. At least annually, evaluate the independent auditor's qualifications,
performance and independence. In making its evaluation, the Committee shall
take into account the opinions of management of the Corporation and the
Corporation's internal auditors. The Committee shall further ensure the
rotation of the lead audit partner at least every five years. The Committee
shall decide as to whether the Corporation is obtaining high quality audits
and whether rotation of the independent auditing firm would be appropriate.
12. Recommend to the Board policies for the Corporation's hiring of
employees or former employees of the independent auditor who participated
in any capacity in the audit of the Corporation.
As to Oversight of the Corporation's Internal Audit Function:
------------------------------------------------------------
13. Review the appointment and replacement of the senior internal auditing
executive.
14. Review the significant reports to management prepared by the internal
auditing department and management's responses.
15. Discuss with the independent auditor and management the internal audit
department responsibilities, budget and staffing and any recommended
changes in the planned scope of the internal audit, taking costs and
benefits into account.
As to Compliance Oversight Responsibilities:
-------------------------------------------
16. Obtain reports from management, the Corporation's senior internal
auditing executive and the independent auditor that the Corporation and its
subsidiaries are in compliance with applicable legal and regulatory
A-2
requirements. Review reports and disclosures of insider and affiliated
party transactions. Advise the Board with respect to the Corporation's
policies and procedures regarding compliance.
17. Establish procedures for the receipt, retention and treatment of
complaints received by the Corporation regarding accounting and financial
reporting matters, internal accounting controls or auditing matters, and
for the confidential, anonymous submission by employees of concerns
regarding material accounting or auditing matters.
18. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports which
raise material issues regarding the Corporation's accounting policies,
internal controls and financial statements.
19. Discuss with the Corporation's General Counsel legal matters that may
have a material impact on the financial statements or the Company's
compliance policies.
LIMITATION OF AUDIT COMMITTEE'S ROLE
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Corporation's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations.
A-3