<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
McM CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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 number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
McM CORPORATION
702 Oberlin Road
POST OFFICE BOX 12317
RALEIGH, NORTH CAROLINA 27605
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 21, 1998
TO THE SHAREHOLDERS OF McM CORPORATION:
The Annual Shareholders' Meeting of McM Corporation will be held
Thursday, May 21, 1998, at 10:00 a.m. at the Executive Offices of McM
Corporation, 702 Oberlin Road, Raleigh, North Carolina, for the following
purposes:
A. To fix the number of directors for the coming year at eight.
B. To elect eight directors for one-year terms of office as shown
in the enclosed Proxy Statement.
C. To transact such other business as may properly come before
the meeting.
You are cordially invited to attend this meeting in person, but if you
cannot be present, it is important that you sign, date and promptly return the
enclosed Form of Proxy in the enclosed postage-paid envelope so your vote may be
cast at the meeting.
Shareholders of record at the close of business on April 10, 1998, the
record date, are entitled to notice of and to vote at the Annual Shareholders'
Meeting and any adjournment thereof. Further information regarding the meeting
and the nominees for election as directors of McM Corporation is set forth in
the accompanying Proxy Statement.
By direction of the Board of Directors,
Michael D. Blinson
Senior Vice President/
Corporate Secretary
Date: April 21, 1998
Raleigh, North Carolina
A copy of the Annual Report to Shareholders of McM Corporation for the
year ended December 31, 1997, containing Financial Statements, is enclosed.
<PAGE> 3
McM CORPORATION
PROXY STATEMENT
The following information is provided in connection with the
solicitation of proxies for the Annual Meeting of Shareholders of McM
Corporation (hereafter referred to as "McM" or the "Company") to be held at the
Executive Offices of McM Corporation, 702 Oberlin Road, Raleigh, North Carolina,
at 10:00 a.m. on Thursday, May 21, 1998. The address of McM's principal
executive offices is 702 Oberlin Road, Post Office Box 12317, Raleigh, North
Carolina 27605. This Proxy Statement and the attached Form of Proxy are being
mailed to the shareholders of the Company on or about April 21, 1998.
PROXY SOLICITATION
A Form of Proxy for use at the meeting is enclosed. This Form of Proxy
will be voted in accordance with the specifications made thereon if it is
properly executed and received by the Company prior to the time of the Annual
Meeting. Where a choice has been specified in a proxy for or against the
proposal therein, the proxy will be voted as specified. Each proxy will be voted
FOR each proposal unless a contrary choice is specified.
Directors are elected by a plurality of the votes cast by the shares
entitled to vote at the Annual Meeting. Accordingly, votes "withheld" for
director-nominee(s) will not count against the election of such
director-nominee(s). The vote of a simple majority of the total McM shares
represented at the Annual Meeting, present in person or by proxy, is required to
fix the number of directors. Abstentions and broker non-votes will not be
counted as votes cast and will have no effect on the result of the vote although
both will count toward the presence of a quorum.
This solicitation is being made by the Board of Directors of the
Company, and the cost of this solicitation will be borne by the Company.
A shareholder who signs and returns the enclosed Form of Proxy has the
power to revoke it at any time before it is voted by notifying the Corporate
Secretary of the Company in writing. Likewise, the enclosed proxy may be revoked
by any later dated proxy.
None of the matters expected to be presented at the Annual Meeting give
rise to a dissenting shareholder's right to appraisal.
CAPITAL STOCK
Only shareholders at the close of business on April 10, 1998, (the
"Record Date"), are entitled to vote at the Annual Meeting. On the Record Date
there were
<PAGE> 4
issued and outstanding 4,696,651 shares of common stock having a par value of
$1.00 per share. Each share shall be entitled to one vote.
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
Set forth below is the ownership of the Company's securities by all
persons or groups known to the Company to be the beneficial owner of more than
five percent of any class of the Company's voting securities as of the Record
Date:
Title Amount and Nature Percent
of Name and Address of Beneficial of
Class of Beneficial Owner Ownership Class
----- ------------------- --------- -----
Common McMillen Trust (1) 3,087,500 shares 65.7%
Wilmington Trust Company, directly owned
Trustee
1100 North Market Street
Wilmington, Delaware 19890-0001
Common Jesse Greenfield (2) 364,464 shares 7.8%
34 Boulder View Lane
Boulder, Colorado 80304
- ----------
(1) The McMillen Trust was created in 1925 pursuant to the terms of a deed
of trust from Alonzo B. and Florence O. McMillen. The Trust continues
in existence until the expiration of 21 years after the last to die of
Elizabeth Lee Long, Florence Lee Headley, R. Peyton Woodson III and
Laurence F. Lee, Jr. The McMillen Trust has been directed by the
Chancery Court of the State of Delaware to dispose of its interest in
McM. In April 1993, the Court granted the petition of the Wilmington
Trust Company, Trustee of the McMillen Trust, for a clarification of
existing orders to make clear, among other things, that the timing and
terms of any such disposition or sale shall be determined in the sound
discretion of the Trustee.
The Trustee of the McMillen Trust, subject to certain limitations, is
required to vote the shares which it owns in McM in the way that a
majority in interest of the income beneficiaries may decide. At present
there are six income beneficiaries of the McMillen Trust. All are
lineal descendants of the Trust grantors. The
<PAGE> 5
figures following each name show the relative interests in the Trust of
the income beneficiaries:
a. Mrs. Elizabeth Lee Long (1/9), Denver, Colorado.
b. Mrs. Florence Lee Headley (1/9), Denver, Colorado.
c. Mr. Laurence F. Lee, Jr. (1/9), Jacksonville, Florida. Mr. Lee
is a director of McM. (See Election of Directors)
d. Mrs. Lonnie McMillen Sanchez (1/6), Albuquerque, New Mexico.
Mrs. Sanchez is married to Claude G. Sanchez, Jr., a director
of McM. (See Election of Directors)
e. Mrs. Katherine Faust Roe (1/6), Sante Fe, New Mexico.
f. Mr. R. Peyton Woodson III (1/3), Raleigh, North Carolina. Mr.
Woodson is a director of McM. (See Election of Directors)
(2) Amount shown includes 118,455 shares owned by the Greenfield Children's
Limited Partnership, beneficial ownership of which is disclaimed by Mr.
Greenfield, and 246,009 shares owned by Jesse Greenfield I.R.A.
CORPORATE DEVELOPMENTS
In December 1987, the Chancery Court of Delaware directed the Trustee
of the McMillen Trust to dispose of the Trust's investment in the Company,
subject to the Court's prior approval of the terms of the disposition. The
Court's decision was the result of a petition filed in 1986 by Wilmington Trust
Company, Trustee under the McMillen Trust, which asked the Court for
instructions as to whether it must continue to hold at least 65% of the shares
of the Company as provided in the Trust Agreement.
During 1989, McM engaged the services of PaineWebber Incorporated
("PaineWebber"), an investment banking firm, to act as its financial advisor and
agent in connection with any sale or disposition of McM or its subsidiaries.
On October 24, 1991, McM completed the sale of its subsidiaries,
Occidental Life Insurance Company and Peninsular Life Insurance Company, to
Pennsylvania Life Insurance Company.
On December 31, 1991, the sale of 913,460 shares of British-American
Insurance Company, Ltd. held by McM's wholly-owned subsidiary, Equity Holdings,
Inc., was completed.
<PAGE> 6
On June 22, 1992, the sale of Atlantic Southern Insurance Company,
McM's Puerto Rico life insurance company, to a subsidiary of Life of Jamaica,
Ltd. was completed.
On January 29, 1993, McM announced that it had discontinued efforts to
sell Occidental Fire & Casualty Company of North Carolina and Wilshire Insurance
Company. McM's decision was prompted by current market and economic conditions
as well as other factors which had an adverse effect on the general sale process
being conducted by PaineWebber. However, McM announced that PaineWebber would
continue to serve the McM group as its financial advisor.
In April 1993, the Court granted the petition of the Wilmington Trust
Company, Trustee of the McMillen Trust, for a clarification of existing orders
to make clear, among other things, that the timing and terms of any disposition
or sale shall be determined in the sound discretion of the Trustee.
On February 3, 1997, McM received a copy of an SEC Form 3 filing made
by McM Acquisition Corporation, a North Carolina corporation ("MAC") controlled
by local real estate developer and private investor M. Roland Britt, and by Mr.
Britt himself. The Form 3 indicated that MAC had acquired an option to purchase
all of the McM shares owned by the Trust for $6.20 per share exercisable until
March 1, 1998.
On February 4, 1997, McM received a copy of an SEC Schedule 13D filed
by MAC and Mr. Britt which provided further information in connection with the
option and which attached written agreements dated November 22, 1996, and
January 24, 1997, between the Trust and MAC. These agreements related to a
possible merger between McM and MAC and to the option.
In a separate, independent action, McM agreed on January 31, 1997, to
provide MAC confidential access to the Company's records and information to
enable MAC to conduct due diligence reviews and to pursue appropriate financial
arrangements for a possible acquisition of all of McM's shares. This agreement,
which was to expire May 31, 1997, also granted to MAC an exclusive period during
which McM was to continue its policy in effect at that time of not soliciting
acquisition offers. This agreement was extended until September 28, 1997, at
which time it expired.
On September 22, 1997, a suit purporting to be a shareholders'
derivative action was brought against the Company, its directors, the McMillen
Trust and Wilmington Trust Company as Trustee of the McMillen Trust and MAC (the
"Litigation").
The Litigation was filed in the Guilford County, North Carolina,
Superior Court by two shareholders of McM on behalf of all McM shareholders
except for the McMillen Trust. The Litigation complained, among other
allegations, that because the Trust owns approximately two-thirds of the shares
of the corporation, it effectively exercises control of the corporation. It
challenged the composition of the McM Board of Directors
<PAGE> 7
and the actions of the Board as being controlled by the majority shareholder.
The complaint asked that the Court void the action of the Trustee in connection
with the McMillen Trust's grant of the option to sell its shares to MAC. The
complaint also alleged that the corporation had inappropriately allowed MAC an
exclusive due diligence period.
On December 23, 1997, the Court approved an agreement to terminate
MAC's option and related agreements between the Trust and MAC (the "Release").
The Release was signed by all parties to the pending litigation and contained a
mutual release between the remaining parties and MAC of any claims which could
have arisen from the option and related agreements and dismissed MAC as a
defendant in the Litigation.
On February 20, 1998, the Court approved a settlement of the
Litigation. The settlement agreement, executed by all parties to the Litigation,
provides that the Company, the current directors, the McMillen Trust and
Wilmington Trust Company will use their best efforts to nominate and elect Mr.
Jesse Greenfield to the McM Board of Directors at McM's 1998 annual
shareholders' meeting. The settlement agreement also contains provisions for
nominal monetary concessions by the Plaintiffs and the Company and mutual
releases between all parties.
In connection with McM's continuing efforts to consider all strategies
and alternatives available to maximize shareholder value, the Company has
authorized PaineWebber to explore all reasonable methods to increase the capital
position of McM, including a possible sale of the Company.
ELECTION OF DIRECTORS
The Board proposes the election of eight directors of the Company,
seven of whom are currently directors of the Company, for a term of one year.
Resolution Determining Number of Directors to be Elected
The bylaws of McM provide that the number of members of the Board of
Directors shall be fixed by resolution of the shareholders. Accordingly, the McM
Board of Directors recommends adoption of the following resolution:
RESOLVED, pursuant to Article II, Section 1, of the Bylaws of McM
Corporation, that the number of directors of the Company is hereby
fixed at eight.
Nominees
The eight directors will be elected at the Annual Meeting for a term of
one year or until the election and qualification of their successors. It is not
expected that any
<PAGE> 8
nominee will be unavailable to serve, but if such an event occurs, proxies will
be voted for the election of a substitute nominee. All of the nominees except
Jesse Greenfield are currently directors of the Company and its two property and
casualty subsidiaries. Each of the current directors received at least 98.4% of
the shares voted in the last annual election. Mr. Greenfield has been nominated
for his first term as director this year pursuant to the settlement agreement
reached in the Litigation (See "Corporate Developments").
The following table sets forth the name and age of each nominee, the
nominee's occupation, including positions and offices with the Company, the
period during which he has served as a director, if applicable, together with
the number of shares of common stock beneficially owned, directly or indirectly,
by such nominee, if any, and the percentage of the outstanding shares that any
such ownership represented at the close of business on March 31, 1998.
<TABLE>
<CAPTION>
Nominee's
Name, Principal
Occupation (in Period of Amount and Percent
addition to Director, Consecutive Nature of Class
if applicable) Service of Beneficial Beneficially
and Address Age From Ownership (1) Owned
- ----------------------- --- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
MICHAEL A. DiGREGORIO 51 1995 80 .002
Vice President/Senior
Trust Counsel
Wilmington Trust Company
Wilmington, DE
JESSE GREENFIELD 52 N/A 364,464(2) 7.760
Independent
Investor &
Venture Capitalist
Boulder, CO
GEORGE E. KING 67 1989 97,281(3) 2.071
Chairman Emeritus/Chief
Executive Officer
McM Corporation
Raleigh, NC
LAURENCE F. LEE, JR. 76 1989 779(4) .017
Retired
Jacksonville, FL
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
LAURENCE F. LEE III 47 1988 10(5) -
President
Plan Analysts
Jacksonville, FL
CLAUDE G. SANCHEZ, JR. 43 1989(6) 50(7) .001
Sun Construction & Real
Estate Company
Albuquerque, NM
STEPHEN L. STEPHANO 44 1992 85,496(8) 1.820
President/Chief
Operating Officer
McM Corporation
Raleigh, NC
R. PEYTON WOODSON III 75 1991(9) 39,734(10) .846
President
Enterprise Holdings
Proprietary, Inc.
Raleigh, NC
- ----------
Share ownership of all Directors,
Nominees and Executive
Officers of McM as a
Group (8 persons) . . . . . . . . . . . . . . . . . . . . . 587,894(11) 12.517(11)
</TABLE>
- ----------
(1) Except as otherwise noted, each person has sole investment and
voting power over the common stock indicated as being
beneficially owned by such person.
(2) Amount shown includes 118,455 shares held by the Greenfield
Children's Limited Partnership, the limited partners of which
are Mr. Greenfield's children and the general partner of which
is Mr. Greenfield's brother, beneficial ownership of which is
disclaimed by Mr. Greenfield, and 246,009 shares owned by
Jesse Greenfield I.R.A.
(3) Share amount includes an exercisable option on 21,481 shares
of McM common stock at an option price of $1.38 per share, an
exercisable option on 5,700 shares of McM common stock at an
option price of $2.25 per
<PAGE> 10
share, an exercisable option on 24,300 shares of McM common
stock at an option price of $2.75 per share and an exercisable
option on 1,500 shares of McM common stock at $3.94 per share.
Mr. King owns 44,300 shares jointly with his wife.
(4) Mr. Lee, Jr. is an income beneficiary of the McMillen Trust,
which is the owner of 3,087,500 shares (or 65.7%) of the
Company. The Trust's shares are not included in the total
shown for Mr. Lee, Jr. (See Principal Shareholders). The
number of shares shown is comprised of 500 shares directly
owned by Mr. Lee, Jr. and 279 shares owned jointly with his
wife. Mr. Lee, Jr. is the first cousin of director-nominee R.
Peyton Woodson III and is the father of director-nominee
Laurence F. Lee III.
(5) Mr. Lee III is the son of director-nominee Laurence F. Lee,
Jr. who is an income beneficiary of the McMillen Trust. Mr.
Lee III directly owns 10 shares of McM.
(6) Date on which Mr. Sanchez was elected currently to the Board
of Directors of McM. He previously served on the Board of McM
from May 1985 to April 1988.
(7) Mr. Sanchez is the husband of Lonnie McMillen Sanchez. Mrs.
Sanchez is an income beneficiary of the McMillen Trust. Mrs.
Sanchez directly owns 50 shares of McM.
(8) Share amount includes an exercisable option on 21,481 shares
of McM common stock at an option price of $1.38 per share, an
exercisable option on 5,700 shares of McM common stock at an
option price of $2.25 per share, an exercisable option on
24,300 shares of McM common stock at an option price of $2.75
per share and an exercisable option on 1,500 shares of McM
common stock at an option price of $3.94 per share. Mr.
Stephano owns 23,675 shares jointly with his wife and 8,840
shares directly.
(9) Date on which Mr. Woodson was elected currently to the Board
of Directors of McM. He previously served on the Board from
December 1977 to May 1985.
(10) Mr. Woodson is an income beneficiary of the McMillen Trust,
which is the owner of 3,087,500 shares (or 65.7%) of the
Company. The Trust's shares are not included in the total
shown for Mr. Woodson (See Principal Shareholders). The number
of shares shown is comprised of 725 shares directly owned by
Mr. Woodson, 459 shares owned by Mr. Woodson's wife and 38,550
shares owned by a charitable foundation of which Mr. Woodson
is one of five trustees. Mr. Woodson is the first cousin of
<PAGE> 11
director-nominee Laurence F. Lee, Jr.
(11) This number does not include shares owned by the McMillen
Trust. See Footnotes (4) and (10).
Business Experience of the Nominee Directors
Mr. DiGregorio has served as a director of McM since May 1995. He has
also served for more than seven years as Vice President and Senior Trust Counsel
with Wilmington Trust Company in Wilmington, Delaware, where he manages the
Estate and Legal Services Division. A graduate of Temple University, Mr.
DiGregorio was admitted to the Pennsylvania Bar in 1979, and was then employed
as an Investigator for the United States Department of Labor. Prior to joining
Wilmington Trust, Mr. DiGregorio worked as an Employee Benefits Attorney for the
Fidelity Mutual Group in Radnor, Pennsylvania, and later at the law firm of
Stradley, Ronon, Stevens & Young in Philadelphia, Pennsylvania.
Mr. Greenfield is being nominated for his first term as a director of
McM. Mr. Greenfield has been involved as a private investor and venture
capitalist for many years. In addition, he has worked for thirty years in the
stock brokerage business as an OTC trader/specialist. Prior to his employment in
the brokerage business, he served on the professional staff of Haskins & Sells,
an international public accounting firm.
Mr. King has served as a director of McM since February 1989. Mr. King
has also acted as Chairman of the Board of McM and Chairman of all of its
subsidiaries since February 1989 when he was named President and Chief Executive
Officer. He was elected Chairman Emeritus of McM in August 1996. He served as
President of McM subsidiaries Occidental Life and Peninsular Life Insurance
Companies until McM sold those companies on October 24, 1991. Through December
1988, Mr. King served as Executive Vice President of McM, to which position he
was named in January 1985. Prior to his affiliation with McM, Mr. King was
Deputy Commissioner and Chief Examiner with the North Carolina Department of
Insurance.
Mr. Lee, Jr. has served as a director of McM since February 1989. Mr.
Lee retired as an insurance executive in 1975. He served as President of
Peninsular Life Insurance Company from 1959 to 1964 and as Chairman of the Board
and Chief Executive Officer from 1964 to 1973.
Mr. Lee III has served as a director of McM since January 1988. He is
President and owner of Plan Analysts, a group insurance and estate planning
organization located in Jacksonville, Florida, with which he has been associated
for more than fifteen years.
Mr. Sanchez has served as a director of McM since February 1989. He
previously served as a director of McM from May 1985 to April 1988. He is
currently
<PAGE> 12
affiliated with Sun Construction & Real Estate Company in Albuquerque, New
Mexico. He is the former owner and operator of Lonkita Farms, a thoroughbred
horse racing and breeding operation located in Veguita, New Mexico. Mr. Sanchez
previously served as a director of British-American Insurance Company, Limited,
Nassau, Bahamas.
Mr. Stephano has served as a director of McM since August 1992. In
August 1996, he was elected President of McM. In March 1995, he was elected
Chief Executive Officer of McM subsidiaries Occidental Fire & Casualty Company
of North Carolina and Wilshire Insurance Company after having been named
President of both companies in July 1994. He was named Chief Operating Officer
of McM and its subsidiaries in September 1992. Previously, Mr. Stephano was
named Executive Vice President of McM in January 1988. He had been named Senior
Vice President/Chief Financial Officer of McM in January 1985. Mr. Stephano's
various other previous positions at McM have been Vice President, Chief
Financial Officer and Treasurer beginning in 1983; Vice President and Controller
beginning in January 1983; Controller beginning in 1982. Prior to his employment
with McM, he served on the professional staff of Ernst & Young, an international
public accounting firm.
Mr. Woodson has served as a director of McM since August 1991. He
previously served as a director of McM from December 1977 to May 1985. He is
currently President of Enterprise Holdings Proprietary, Inc., a holding company
for several private ventures. Mr. Woodson held various executive positions
within the McM group of companies throughout his career, including Chairman of
the Board of McM from December 1977 to May 1985.
Directors' Fees
Directors who are not salaried officers of McM or its subsidiaries are
compensated at a rate of $15,000 per year plus $1,000 per diem for each Board or
Board committee meeting attended and $1,000 per diem for travel associated with
such meeting. The directors are also reimbursed for other expenses incurred in
attending the meetings. Similarly, directors involved in special assignments are
compensated at the rate of $1,000 per diem for special assignments and $1,000
per diem for travel associated with such special assignments. As with regular
Board meetings, other expenses incurred by these directors in attending such
special assignments are reimbursed.
In addition, directors who are not salaried officers are compensated at
a rate of $5,000 per year for each subsidiary company Board of Directors on
which they serve. Per diem allowances are the same as those for serving on the
McM Board of Directors except that no per diem allowances are paid if Board
meetings are held concurrently. During 1997, all subsidiary Board meetings were
held concurrently with McM Board meetings. Total fees in the amount of $251,500
were expended for all regular McM and subsidiary Board meetings, Board committee
meetings and special assignments during
<PAGE> 13
1997. Directors who are salaried officers receive no compensation for their
services as directors of McM.
Notwithstanding the foregoing, as part of the settlement of the
Litigation (See "Corporate Developments") Mr. Greenfield, if elected, shall not
be entitled to any directors' fees during his first year of service as director.
He would, however, be reimbursed for expenses incurred in attending board
meetings according to the same policies followed with regard to all other
directors.
Board and Committees of the Board
The Board of Directors met thirteen times in formal session during the
1997 fiscal year. Directors of the Board also met seven times for special
assignments during 1997.
The committees of the McM Board are Audit, Executive, Personnel,
Investment and Compensation. The Company does not have a nominating committee.
Due to the size of the McM Board, all the directors serve on the Personnel,
Executive and Investment Committees. Only directors who are not salaried
officers serve as members of the Audit and Compensation Committees.
The Audit Committee met four times during 1997, with R. Peyton Woodson
III acting as Chairman. The Audit Committee reviews the arrangement, scope and
results of the external audit, considers comments made by the independent
auditors with regard to internal controls and the response of management to such
comments.
The Executive Committee did not meet during 1997. The Executive
Committee has been granted the authority of the Board in the management of the
business affairs of McM when the Board is not in session.
The Personnel Committee met two times during 1997, with Michael A.
DiGregorio acting as Chairman. The Personnel Committee reviews and monitors
compensation plans, including incentive compensation and benefit plans, other
than those addressed by the Compensation Committee. The Personnel Committee is
also responsible for management succession planning.
The Investment Committee met four times during 1997, with Laurence F.
Lee, Jr., acting as Chairman. The Investment Committee formulates investment
strategy and policy and ratifies all investment transactions.
The Compensation Committee met two times during 1997, with Laurence F.
Lee III acting as Chairman. The Compensation Committee, comprised of independent
directors who are not employees of McM or its subsidiaries, is charged with
administering and monitoring the compensation and incentive plans for executive
officers of McM and issues an annual report on compensation policies for
inclusion in McM's proxy statement.
<PAGE> 14
Executive Officers of McM Corporation
The table below sets forth the names and ages of all executive officers
of McM, all positions and offices with McM presently held by each such person,
and the period of service as an officer with McM and subsidiaries.
Period of
Service as
Name Age Offices an Officer
---- --- ------- ----------
George E. King 67 Chairman Emeritus and 12/77
Chief Executive Officer
Stephen L. Stephano 44 President and Chief 1/82
Operating Officer
Mr. King - See "Business Experience of the Directors."
Mr. Stephano - See "Business Experience of the Directors."
EXECUTIVE OFFICERS' SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------- -----------------------------------------
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options LTIP Compensa-
Position Year Salary($) Bonus($) sation($)(3) Award(s)($) (#) Payouts($) tion(4)
- -------- ---- --------- -------- ------------ ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George E. King(1) 1997 274,992 19,350 -- -- -- 0 7,192
Chairman Emeritus/CEO 1996 274,992 90,320 -- -- -- 22,324 7,120
1995 259,995 97,600 -- -- -- 9,324 6,886
Stephen L. Stephano(2) 1997 225,000 15,850 -- -- -- 0 1,219
President/COO 1996 225,000 66,863(5) -- -- -- 15,921 1,126
1995 192,400 72,250(5) -- -- -- 6,301 971
</TABLE>
(1) Effective February 16, 1989, the Company entered into an employment
contract with Mr. King. The contract, as amended effective March 28,
1990, October 18, 1990, December 30, 1991, February 1, 1993, September
1, 1993, March 16, 1995, August 6, 1996, and March 26, 1998, provides
that Mr. King be employed as Chairman Emeritus
<PAGE> 15
and Chief Executive Officer of McM and Chairman of the two operating
subsidiaries and provides for base salary and such additional
discretionary bonuses, stock options or other compensation or increases
in compensation, if any, as may be authorized by the Company. In
addition, should Mr. King's employment be terminated without cause or
should he terminate his employment as a result of the Company requiring
him to relocate his office more than 50 miles from its present
location, he would be entitled to receive a lump sum payment equal to
two years' total annual compensation.
(2) Effective February 1, 1993, the Company entered into an employment
contract with Mr. Stephano. The contract, as amended September 1, 1993,
March 16, 1995, August 6, 1996 and March 26, 1998, provides that Mr.
Stephano be employed as President and Chief Operating Officer of McM
and as President and Chief Executive Officer of the McM subsidiaries
and provides base salary and such additional discretionary bonuses,
stock options or other compensation or increases in compensation, if
any, as may be authorized by the Company. In addition, should Mr.
Stephano's employment be terminated without cause or should he
terminate his employment as a result of the Company requiring him to
relocate his office more than 50 miles from its present location, he
would be entitled to receive a lump sum payment equal to two years'
total annual compensation.
(3) Information regarding personal benefits totaled less than $50,000 or
10% of annual salary and bonus.
(4) The amounts noted represent premiums paid by the Company on behalf of
executive officers for supplemental term life insurance.
(5) Mr. Stephano also received 50,000 shares of phantom stock in 1995 and
in 1996.
RETIREMENT PLAN
Officers of McM, including the named executive officers, participate in
the McM Corporation Retirement Plan. A sample retirement benefit table for the
Retirement Plan is outlined below showing the anticipated annual amount of
normal retirement benefits associated with final average earnings and the number
of years of service for the named executive officers.
<PAGE> 16
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
Participants' Final Years of Service
Average Earnings 15 20 25 30 35
- ------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $34,465 $45,953 $ 57,442 $ 68,930 $ 80,418
150,000 41,965 55,953 69,942 83,930 97,918
175,000 49,465 65,953 82,442 98,930 115,418
200,000 56,965 75,953 94,942 113,930 132,918
225,000 64,465 85,953 107,442 128,930 150,418
250,000 71,965 95,953 119,942 143,930 167,918
</TABLE>
Benefits under the Retirement Plan are determined by multiplying a
participant's final average earnings (the best five consecutive years of the
last ten years) by 1.35% times the years of benefit service, multiplying a
participant's final average earnings in excess of Social Security Average Wages
by .65% times the years of benefit service (not in excess of 35 years) and
adding the two results together.
Under federal law, the amount of compensation which may be considered
for purposes of calculating benefits is limited. That amount will be adjusted
periodically for inflation in increments of $10,000. The 1997 limit is $160,000
and will not change for 1998 benefit calculations. Benefits paid to participants
are reduced in the event of earlier retirement. The estimated credited years of
service for McM's executive officers are 19 years for Mr. King and 17 years for
Mr. Stephano. Benefits shown in the Retirement Plan Table are not subject to any
deduction for social security or other offset amounts.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value at
% of Total Assumed Annual Rate of Stock
Number of Options Price Appreciation for Option Term
Securities Granted to Exercise ----------------------------------
Underlying Employees or Base
Options in Fiscal Price Per Expiration
Name Granted Year Share Date 5% 10%
- -------------- ----------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
George E. 7,500 21.4% $3.94 03/25/07 $18,584 $47,095
King
Stephen L. 7,500 21.4% $3.94 03/25/07 $18,584 $47,095
Stephano
</TABLE>
- ----------
Both Messrs. King and Stephano's stock options become exercisable at a
rate of 20% per year beginning one year from the date of the grant.
<PAGE> 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money Options at
Options at 12/31/97 ($) 12/31/97 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized ($) Unexercisable Unexercisable
---- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
George E. King -0- -0- 47,185/31,796 49,986/19,934
Chairman
Emeritus/CEO
Stephen L. Stephano -0- -0- 47,185/31,796 49,986/19,934
President/COO
</TABLE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
on the cumulative total shareholder return on the Company's common stock against
the cumulative total return of the S&P 500 Composite Index and the Center for
Research in Security Prices Index (CRSP) for NASDAQ Stocks (U.S. Insurance
Companies) Insurance Composite, comprised of 125 listed insurance companies, for
the five-year period beginning December 31, 1992, and ending December 31, 1997.
The values are based on the assumption that the value of the investment in McM
and each comparative index was $100 on December 31, 1992, and that all dividends
are reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG McM CORPORATION, S&P 500 INDEX AND
CRSP INDEX FOR NASDAQ STOCKS (U.S. COMPANIES)
<TABLE>
<CAPTION>
CRSP Index for
Measurement Period McM S&P NASDAQ Stocks
(Fiscal Year Covered) Corp 500 INDEX (U.S. Companies)
- --------------------- ---- --------- ----------------
<S> <C> <C> <C>
Measurement Pt-12/31/92 $100 $100 $100
FYE 12/31/93 $137.5 $109.8 $113.2
FYE 12/31/94 $250.0 $111.3 $120.0
FYE 12/31/95 $525.0 $153.1 $167.8
FYE 12/31/96 $530.8 $188.8 $192.8
FYE 12/31/97 $328.6 $252.0 $231.0
</TABLE>
<PAGE> 18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which consists of
independent directors who are not employees of the Company or its subsidiaries,
has furnished the following report on executive compensation:
The Compensation Committee of the Board of Directors has developed and
implemented executive compensation policies, plans and programs in an effort to
enhance the profitability of the Company and thus shareholder value by closely
aligning the financial interests of McM's executive officers with those of its
shareholders. To accomplish these goals, the Company relies on base salary,
incentive compensation and other long term compensation plans to attract and
retain key executive officers with outstanding abilities and to motivate them to
perform to the full extent of their abilities.
The base salaries are fixed at competitive levels paid to senior
executives with comparable qualifications, experience and responsibilities as
other companies engaged in the same or similar businesses as McM. The Committee
reviews with the McM Board of Directors and recommends, and the Board approves,
with any modifications it deems appropriate, an annual salary plan for the
Company's executive officers (including the Chief Executive Officer). Such
salary plan is based on industry, peer group and national surveys and
performance judgments as to the past and expected future contributions of the
individual senior executives.
The incentive compensation for the current year has been closely tied
to McM's success in achieving the previous year's financial performance goals of
the ongoing property and casualty operations as defined in the McM Corporation
Key Executive Compensation Plan. The incentive compensation provided under the
plan is dependent upon attaining a percentage of target plan income for each
year as defined by the plan. Portions of incentive awards under the plan are
held back to be paid only upon the achievement of earnings performance in future
years.
Mr. King's base salary was not increased during 1997. The decision to
forego an increase was made after a careful evaluation by the Compensation
Committee of several factors, including current operating results. Portions of
incentive awards from prior years that were being held back under the incentive
compensation plan were forfeited by Mr. King because required earnings
performance was not achieved. However, in March 1997, Mr. King received an
incentive award under the incentive compensation plan described above, which
award was based upon property and casualty operating results for fiscal year
1996.
During each fiscal year, the Committee considers the desirability of
granting executive officers' awards under the Company's Employee Incentive Stock
Option Plan, which provides for the granting of stock options. The Committee
believes that stock option grants afford a long-term compensation method because
they closely link the
<PAGE> 19
interests of management with shareholder value and directly join the financial
interest of executive officers with those of McM shareholders. In determining
the grants of stock options to the executive officers, including the Chief
Executive Officer, the Committee considers the accountability, strategic and
operational goals, anticipated performance requirements and contributions of the
executive officers. During 1997, the Committee granted options as to 7,500
shares to each of its executive officers.
During 1994, the McM Board of Directors adopted the McM Corporation
Phantom Stock Plan as recommended by the Compensation Committee. This plan was
specifically developed to provide a strong incentive to accomplish the long term
retention of key executives. In determining eligibility of an executive to
receive awards under this plan, the Compensation Committee considers the
position held by the executive, the value of the executive's services and the
profitability of the Company and its subsidiaries. Vesting of any award under
the plan is based upon a minimum period of service of five years with full
vesting after ten years. Irrespective of this requirement, should a participant
in the plan be terminated involuntarily without cause, a minimum of 20% of
phantom stock would become vested. Recipients of phantom stock awards are
entitled to receive a lump sum cash payment equal to (a) the fair market value
per share of McM common stock at the applicable maturity date, including the
cumulative amount of dividends per share paid between the award date and the
maturity date, as defined by the plan, multiplied by (b) the number of units of
phantom stock held by the recipient that have reached maturity under the terms
of the plan. No phantom stock was awarded in 1997.
The McM Corporation Equity Appreciation Rights Plan (the "EARs Plan")
allows awards of equity appreciation rights to key officers of McM. The
Compensation Committee determines to whom rights are awarded, the number of
rights to be awarded and the terms of such rights. Grantees of rights are
entitled to receive the net appreciation between grant date book value of one
share of McM common stock and the exercise date book value of one share of McM
common stock. Currently, no rights have been awarded under the plan.
Respectfully submitted,
Compensation Committee
Laurence F. Lee III, Acting Chairman
Michael A. DiGregorio
Laurence F. Lee, Jr.
Claude G. Sanchez, Jr.
R. Peyton Woodson III
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Laurence F. Lee, Jr. served as President of Peninsular Life
Insurance Company from 1959 to 1964 and as Chairman of the Board and Chief
Executive Officer from 1964 to 1973. He also served as a director of Occidental
Life Insurance Company from 1950 until 1972. Both of those McM subsidiaries were
sold in 1991. Mr. R. Peyton Woodson III held various executive positions with
the McM group of companies throughout his career, including Chairman of the
Board of McM from December 1977 to May 1985.
INDEPENDENT AUDITORS
The Board of Directors has not selected independent auditors of McM for
the current fiscal year. The Audit Committee of the Board of Directors is
expected to formally complete its selection in the near future. Ernst & Young, a
nationally known firm of certified public accountants, has served as auditors of
McM since its formation.
Representatives of Ernst & Young will be present at the Annual Meeting.
They will be given the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
ACTIONS TO BE TAKEN
The Annual Meeting is called for the purposes set forth in the Notice.
Management does not intend to present, and has not been informed that any other
person intends to present, any matters for action at the Annual Meeting other
than those specifically referred to in the Form of Proxy and this Proxy
Statement. If any other matters are properly brought before the Annual Meeting,
it is the intention of the proxy holders to vote on such matters in accordance
with their judgment.
SHAREHOLDER PROPOSALS
Appropriate proposals of shareholders intended to be presented at the
Company's next annual meeting of shareholders must be received by the Company by
December 22, 1998, for inclusion in its proxy statement and form of proxy
relating to that meeting.
ANNUAL REPORT TO SHAREHOLDERS
The 1997 Annual Report to Shareholders of McM Corporation for the year
ended December 31, 1997, is enclosed. The section entitled "Management's
Discussion and
<PAGE> 21
Analysis of Financial Condition and Results of Operations" is hereby
incorporated herein by reference.
UPON WRITTEN REQUEST OF ANY PERSON ENTITLED TO VOTE AT THE
MEETING, THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR FISCAL YEAR 1997, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934.
REQUESTS SHOULD BE ADDRESSED TO: CORPORATE SECRETARY, McM CORPORATION,
702 OBERLIN ROAD, POST OFFICE BOX 12317, RALEIGH, NORTH CAROLINA 27605.
<PAGE> 22
Appendix A
McM CORPORATION
702 Oberlin Road, Raleigh, North Carolina 27605
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT AND DIRECTORS OF
McM CORPORATION
The undersigned hereby appoints George E. King and Michael D. Blinson, or either
of them, with the full power of substitution, attorneys-in-fact to vote the
number of shares of McM Corporation the undersigned would be entitled to vote
if personally present at the annual shareholders' meeting of McM Corporation to
be held at the Executive Offices of McM Corporation, 702 Oberlin Road, Raleigh,
North Carolina at 10:00 a.m., Eastern Time, May 21, 1998, and any adjournment,
recess or postponement thereof, for the transaction of such business as may
properly come before the meeting and specifically for the matters set forth on
the reverse side.
This proxy, when properly executed and received prior to the meeting, will be
voted in the manner directed herein by the undersigned. You are urged to mark
the boxes you deem appropriate and otherwise complete this proxy according to
your judgment; however, if no direction is given, the proxy will be voted FOR
proposals 1 and 2.
- -------------------------------------------------------------------------------
Please sign, date and return this proxy in the enclosed postage-paid envelope.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please sign exactly as name(s) appear(s) on this proxy. Executors, Trustees,
etc. should give full title. A proxy for shares held in joint ownership must be
signed by each owner. To be voted, your proxy must be received prior to the
meeting.
- -------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
-----------------------------------
McM CORPORATION
-----------------------------------
Mark box at right if an address change has been noted [ ]
on the reverse side of this card.
RECORD DATE SHARES:
1. Resolution to fix the number of Directors at eight.
For Against Abstain
[ ] [ ] [ ]
2. Election of Directors:
Michael A. DiGregorio
Jesse Greenfield
George E. King
Laurence F. Lee, Jr.
Laurence F. Lee III
Claude G. Sanchez, Jr.
Stephen L. Stephano
R. Peyton Woodson III
For All With- For All
Nominees hold Except
[ ] [ ] [ ]
NOTE: If you do not wish your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the name(s) of the nominee(s).
Your shares will be voted for the remaining nominee(s).
3. In their discretion, the attorneys-in-fact are authorized to vote upon such
other matters as may properly come before the meeting.
Please be sure to sign and date this Proxy. Date __________________________
- ------------------------------------- -------------------------------------
Shareholder sign here Co-owner sign here
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