<PAGE>
================================================================================
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
ANCHOR PACIFIC UNDERWRITERS, INC.
- --------------------------------------------------------------------------------
(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)(4) 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:
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(4) Date Filed:
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Notes:
<PAGE>
[Anchor Pacific Letterhead]
March 23, 1998
Dear Shareholder:
The year 1997 represented the tenth year since Anchor Pacific Underwriters
was incorporated and its third year as a publicly owned company. Most
importantly, it was a year in which several positive trends began to emerge. As
a consequence of this improved performance during the past year, the financial
and business prospects for the Company in 1998 are very good.
The Company's 1997 revenues grew 26% to $10,092,532 compared to 1996
revenues of $7,994,484. This increase in revenues resulted from substantial
growth in the Company's third-party health benefits administration business.
Growth in this segment of the Company's business was achieved through internal
growth at Harden & Company Insurance Services, Inc. and Benefit Resources, Inc.
and by expansion into Los Angeles to service new insurance clients.
Opportunities for revenue growth were further enhanced by the Company's
assumption of the operations of Pacific Heritage Administrators in Portland,
Oregon. This expansion, which became effective January 1, 1998, is expected to
add nearly $5,000,000 in new administrative revenue this year.
The expansion into Oregon will provide the Company with a platform from
which to offer services into Washington, Idaho and Nevada. This recent
expansion, along with our strong presence in California and Arizona, leaves the
Company well positioned in its targeted market. We believe this strategy is
consistent with our goal of becoming one of the pre-eminent administrative and
brokerage firms in the Western United States.
Although the final financial results for 1997 were negative, we made
substantial strides in reversing several unfavorable trends. Also, in the
second half of 1997 we were able to expand into important new markets. As a
result, the Company has the opportunity not only to grow revenues substantially
in 1998, but also to reach profitability for the first time in several years.
The Board of Directors and Management will continue to monitor market
conditions carefully and strive to maintain the momentum of the past year.
Sincerely,
/s/ James R. Dunathan
---------------------
James R. Dunathan
President and Chief Executive Officer
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
1800 SUTTER STREET, SUITE 400
CONCORD, CALIFORNIA 94520
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 12, 1998
The Annual Meeting of Shareholders of Anchor Pacific Underwriters, Inc.
(the "Company" or "Anchor") will be held at the Contra Costa Country Club, 801
Golf Club Road, Pleasant Hill, California, on May 12, 1998, at 10:00 a.m. for
the following purposes:
1. To elect ten directors, the names of whom are set forth in the
accompanying Proxy Statement, to serve until the 1999 Annual
Meeting.
2. To amend the Company's 1994 Stock Option Plan to increase the
aggregate number of shares of the Company's common stock that
may be issued pursuant to the exercise of options granted under
the Plan from 700,000 shares to 1,000,000 shares, as adjusted
for changes in capitalization.
3. To ratify the reappointment of Odenberg, Ullakko, Muranishi &
Co. as independent auditors of the Company.
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on March 13,
1998, are entitled to vote at this meeting and any adjournment or postponement
thereof. The meeting will be open to shareholders of record, proxyholders and
others by invitation only. Beneficial owners of shares held by a broker or
nominee must present proof of such ownership to attend the meeting.
A copy of the Company's Annual Report for the fiscal year ended
December 31, 1997, containing financial statements, is included with this
mailing.
By Order of the Board of Directors,
/s/ Earl Wiklund
----------------
Earl Wiklund,
Secretary
Concord, California
March 23, 1998
PLEASE USE THE ENCLOSED STAMPED ENVELOPE TO RETURN YOUR PROXY.
RETURNING YOUR PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL
MEETING. YOUR PROMPT RESPONSE WILL HELP YOUR COMPANY ASSURE A QUORUM AND AVOID
ADDITIONAL EXPENSE FOR PROXY SOLICITATION.
1
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROXY STATEMENT.................................................... 1
Shareholder Proposals for Next Annual Meeting................. 2
Outstanding Voting Securities................................. 2
Principal Shareholders........................................ 2
ELECTION OF DIRECTORS.............................................. 3
Committees and Meetings of the Board of Directors............. 5
Section 16(a) Beneficial Ownership Reporting Compliance....... 6
Stock Ownership Table......................................... 7
Executive Compensation........................................ 9
Employment Agreement with James R. Dunathan................... 10
The 1994 Stock Option Plan (the "1994 Plan").................. 11
Certain Relationships and Transactions........................ 16
DIRECTORS' PROPOSALS............................................... 17
Directors' Proposal to Approve the Amended Company's 1994
Stock Option Plan (the "1994 Plan")...................... 17
Directors' Proposal to Ratify the Appointment of Independent
Auditors................................................. 17
ANNUAL REPORT AND FINANCIAL STATEMENTS............................. 18
</TABLE>
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
1800 SUTTER STREET, SUITE 400
CONCORD, CALIFORNIA 94520
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1998
The enclosed proxy is solicited on behalf of the Board of Directors of
Anchor Pacific Underwriters, Inc. (the "Company" or "Anchor"), a Delaware
corporation, for use at the Annual Meeting of Shareholders to be held at 10:00
a.m. at the Contra Costa Country Club, 801 Golf Club Road, Pleasant Hill,
California, on May 12, 1998, and at any adjournment or postponement thereof.
Only holders of the Company's common stock of record on March 13, 1998, will be
entitled to vote. At the close of business on the record date, there were
approximately 4,709,727 shares of the Company's common stock outstanding.
Holders of common stock are entitled to one vote for each share held,
except each shareholder has cumulative voting rights for the election of
directors under California law applicable to the Company. Cumulative voting
rights entitle each shareholder to cast that number of votes which equals the
number of shares held by such shareholder multiplied by the number of directors
to be elected. Each shareholder may cast all of his or her votes for a single
candidate or distribute such votes among any or all of the candidates as he or
she chooses. No shareholder will be entitled to cumulate votes (in other words,
cast for any candidate a number of votes greater than the number of shares of
stock held by such shareholder) unless such candidate's or candidates' name(s)
have been placed in nomination prior to the voting, and the shareholder has
given notice at the meeting prior to the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such notice, all shareholders
may cumulate their votes for candidates in nomination. An opportunity will be
given at the meeting prior to the voting for any shareholder who desires to do
so to announce his or her intention to cumulate his or her votes. The
proxyholders are given discretionary authority, under the terms of the proxy, to
cumulate votes represented by shares for which they are named in the proxy.
The presence in person or by proxy of a majority of the shares entitled to
vote is necessary to constitute a quorum at the Annual Meeting of Shareholders.
Any person giving a proxy in the form accompanying this Proxy Statement has the
power to revoke it prior to its exercise. A proxy may be revoked by filing with
the Secretary of the Company prior to the meeting, an instrument revoking it or
a duly executed proxy bearing a later date, or by attending the meeting and
electing to vote in person.
The shares represented by a duly executed and unrevoked proxy in the form
accompanying this Proxy Statement will be voted in accordance with the
specifications contained therein, and in the absence of specifications will be
voted FOR the nominees for directors named herein, to amend the Company's 1994
Stock Option Plan to increase the aggregate number of shares of the Company's
common stock that may be issued pursuant to the exercise of options granted
under the Plan from 700,000 shares to 1,000,000 shares, as adjusted for changes
in capitalization, the ratification of the reappointment of Odenberg, Ullakko,
Muranishi & Co. ("Odenberg") as independent auditors of Company, and according
to the discretion of the proxyholders on any other matters that properly come
before the meeting.
This Proxy Statement and the accompanying proxy were first sent to
shareholders on approximately April 14, 1998. The cost of this solicitation is
being borne by Anchor. Anchor may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
personally or by telephone, facsimile or telegram, by certain of Anchor's
directors, officers and regular employees, without additional compensation.
1
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SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Subject to Securities and Exchange Commission ("SEC") regulations,
proposals of shareholders intended to be presented at the 1999 Annual Meeting
must be received by the Secretary of Anchor not later than December 4, 1998, to
be included in the 1999 Proxy Statement.
OUTSTANDING VOTING SECURITIES
Only shareholders of record at the close of business on March 13, 1998, are
entitled to vote at the Annual Meeting. On that day, there were issued and
outstanding 4,709,727 shares of common stock. Each share entitles the holder
thereof to one vote.
PRINCIPAL SHAREHOLDERS
The following table shows the name, address, number of shares held, and
percentage of shares held as of March 13, 1998, by each person or entity known
to Anchor to be the beneficial owner of more than five percent of the Company's
common stock.
<TABLE>
<CAPTION>
==============================================================================
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
- ------------------------------------------------------------------------------
<S> <C> <C>
James R. Dunathan 311,897 1/ 6.47%
1800 Sutter Street, Suite 400
Concord, CA 94520
Steven A. Gonsalves 244,979 2/ 5.08%
5151 Port Chicago Highway
Concord, CA 94520
Donald B. Putnam 587,588 3/ 12.25%
1800 Sutter Street, Suite 500
Concord, CA 94520
James P. Wieking 485,078 4/ 10.17%
1800 Sutter Street, Suite 500
Concord, CA 94520
Earl Wiklund 223,796 5/ 4.69%
1800 Sutter Street, Suite 400
Concord, CA 94520
Guarantee Life Insurance Company 672,444 6/ 14.28%
8001 Indian Hills Drive
Omaha, Nebraska 68114
==============================================================================
</TABLE>
1/ Includes 203,547 shares of common stock, 106,350 shares of common stock
- --
issuable upon the exercise of stock options, and 2,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share. Mr.
Dunathan has sole dispositive power over such shares of common stock.
2/ Includes 132,424 shares of common stock, 17,000 shares of common stock
- --
issuable upon the exercise of stock options, 10,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
85,555 shares of common stock issuable upon exercise of warrants at a purchase
price of $0.90 per share. Mr. Gonsalves shares voting power over 223,104 shares
of common stock with Debra Gonsalves, his
2
<PAGE>
wife. The remaining 21,875 shares of common stock, Mr. Gonsalves shares voting
power with Gonsalves & Santucci, Inc., as President and majority shareholder.
3/ Includes 499,013 shares of common stock, 27,000 shares of common stock
- --
issuable upon the exercise of stock options, 24,242 shares of common stock
issuable upon exercise of certain debentures at a purchase price of $1.65 per
share, 4,000 shares of common stock issuable upon the exercise of warrants at a
purchase price of $1.35 per share, and 33,333 shares of common stock issuable
upon exercise of warrants at a purchase price of $0.90 per share. Mr. Putnam
shares voting power over such shares of common stock with Alexandra Putnam, his
wife, as co-trustee of a revocable living trust.
4/ Includes 426,301 shares of common stock, 27,000 shares of common stock
- --
issuable upon the exercise of stock options, 4,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
27,777 shares of common stock issuable upon exercise of warrants at a purchase
of $0.90 per share. Mr. Wieking has sole dispositive power over such shares of
common stock.
5/ Includes 158,130 shares of common stock, 47,000 shares of common stock
- --
issuable upon the exercise of stock options, 2,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
16,666 shares of common stock issuable upon exercise of warrants at a purchase
price of $0.90 per share. Mr. Wiklund has sole dispositive power over such
shares of common stock.
6/ Guarantee Life Insurance Company has sole dispositive power over such shares
- --
of common stock.
1. ELECTION OF DIRECTORS
As set by the Board of Directors pursuant to the Bylaws of Anchor, the
authorized number of directors to be elected is ten. Directors will hold office
from the time of their election until the next Annual Meeting of Shareholders
and until successors are elected and qualified. The ten nominees receiving the
highest number of affirmative votes of the shares present in person or
represented by proxy and entitled to vote for them, shall be elected as
directors. Only votes cast FOR a nominee will be counted in determining whether
that nominee has been elected as a director. A shareholder may withhold
authority from the proxyholders to vote for the entire slate as nominated or, by
writing the name of an individual nominee in the space provided on the proxy
card, withhold the authority to vote for any individual nominee. Instructions
on the accompanying proxy card to withhold authority to vote for one or more of
the nominees will result in such nominees receiving fewer votes.
The following ten persons have been selected by the Board of Directors as
nominees for election to the Board: James R. Dunathan, Earl Wiklund, Audie J.
Dudum, Steven A. Gonsalves, Lawrence A. Hayes, R. William MacCullough, Donald B.
Putnam, Michael R. Sanford, Gordon M. Silverstein and James P. Wieking. All of
the nominees are incumbent directors. If any of the nominees should decline or
be unable to act as a director, the shares may be voted for such substitute
nominees as the proxyholders may in their discretion determine. Shares
represented by the enclosed proxy will be voted FOR the election of these
nominees, unless authority to vote for one or more nominees is withheld.
The experience and background of each of the nominees are set forth below.
3
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
YEAR FIRST
BECAME A
NAME AGE DIRECTOR POSITIONS WITH ANCHOR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Dunathan 61 1987 President and Chief Executive Officer since 1987
and a Director
Earl Wiklund 50 1987 Senior Vice President, Chief Financial Officer
and Secretary since 1987 and a Director
Audie J. Dudum 65 1987 Chairman of the Board since November 30, 1994 and
a Director
Steven A. Gonsalves 43 1993 Director
Lawrence A. Hayes 43 1996 Director
R. William MacCullough 56 1987 Director
Donald B. Putnam 65 1994 Director
Michael R. Sanford 57 1987 Director
Gordon M. Silverstein 53 1997 Director
James P. Wieking 66 1994 Director
=========================================================================================================
</TABLE>
JAMES R. DUNATHAN. Mr. Dunathan has served as President, Chief Executive
Officer and Director since 1987. He joined Harden & Company Insurance Services,
Inc. ("Harden") a wholly-owned subsidiary of Anchor in 1985 and initiated the
formation of Anchor in late 1986. Mr. Dunathan served as a member of the Board
of Directors of the Professional Insurance Agents Association for 11 years and
as President of such Association from 1975 to 1976. Currently Mr. Dunathan
serves on the Business Leaders Alliance for Contra Costa County, appointed by
the Board of Supervisors. He also serves as a Director of the Barbara Milliff
Center in Concord, California, a non-profit school for children with
developmental disabilities. Mr. Dunathan completed his undergraduate studies at
Ohio State University; and served actively in the U.S. Navy as a naval aviator
while he continued graduate work at the U.S. Armed Forces Institute in Japan.
Mr. Dunathan has over 39 years of experience in the insurance industry, and his
family has been involved in the insurance industry since 1880.
EARL WIKLUND. Mr. Wiklund has been Senior Vice President, Chief Financial
Officer, Secretary and Director since 1987. Mr. Wiklund is also the Chief
Executive Officer of the Company's Harden and Benefit Resources, Inc. ("BRI")
subsidiaries. He has over 26 years of experience in various operational,
administrative and financial management positions. He has served as Treasurer
for the Independent Administrators Association, as member of the Legislative
Committee, as well as member of the Board of Directors of such Association. Mr.
Wiklund graduated from California State University, Sacramento, with a B.S.
degree and received his M.B.A. at St. Mary's College. He also serves as
Chairman of the Company's Audit, Budget & Finance Committee.
AUDIE J. DUDUM. Since 1969, Mr. Dudum has served as President of Ramallah,
Inc., a manufacturer and distributor of linens and domestics with customers
throughout the Western United States and Hawaii. Mr. Dudum has also been
actively involved in the Ramallah Federation, a national organization founded as
a coalition of immigrants from the Middle East to offer financial, educational
and political assistance to such immigrants. For nearly 20 years he has served,
both nationally and regionally, as a board member of the Ramallah Federation and
was its President in 1983. Mr. Dudum attended City College of San Francisco.
4
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STEVEN A. GONSALVES. Mr. Gonsalves has been the President of Gonsalves &
Santucci, Inc. since 1986. Gonsalves & Santucci, Inc. is involved in commercial
and residential concrete construction, steel reinforcing and concrete pumping in
the greater San Francisco Bay Region. In addition, he has been President and
Chief Executive Officer of Reliable Trucking, Inc. since 1989. Mr. Gonsalves
attended Utah State University.
LAWRENCE A. HAYES. Mr. Hayes is a Senior Advisor with Hoefer & Arnett,
Incorporated, an investment banking firm headquartered in San Francisco. Prior
to joining Hoefer & Arnett in 1996 he was a Senior Advisor at Bentley Associates
L.P. from 1995-96, Director in the Financial Services Industry Group of
Prudential Securities from 1987-95, and Senior Vice President overseeing the
Insurance Ratings Group of Standard and Poor's from 1982-87. Mr. Hayes received
a B.S. degree in Business Administration from Northeastern University and holds
an M.B.A. degree from Babson College. Mr. Hayes is a Chartered Financial
Analyst.
R. WILLIAM MACCULLOUGH. Since 1994, Mr. MacCullough has been a Vice
President with the Bank of Oakland. He has over 30 years of experience in the
financial services industry in the San Francisco Bay Area. His career includes
various positions at Bank of America, Barclay's Bank, Meridian National Bank and
the Firemen's Fund Insurance Company. Prior to his current position, he was
Senior Credit Administrator for Fireman's Fund Insurance Company from 1991 to
1994.
DONALD B. PUTNAM. Mr. Putnam is Chairman of the Executive Committee of
Putnam, Knudsen & Wieking, Inc. ("PKW") a wholly-owned subsidiary of Anchor. An
insurance professional with over 39 years of experience, Mr. Putnam has been
actively involved as a director or officer of many California insurance
associations and served as Director of the National Association of Insurance
Brokers (NAIB) and Intersure, an international affiliation of insurance brokers.
He has also served as Chairman of the NAIB-PAC. Mr. Putnam is a Business School
graduate from the University of California, Berkeley.
MICHAEL R. SANFORD. Since 1991, Mr. Sanford has been the President and
Chief Executive Officer of the Bank Oakland. He has over 30 years of experience
in the banking industry. His career includes serving as President and Chief
Executive Officer of Meridian National Bank and director of the Alex Brown
Financial Group.
GORDON M. SILVERSTEIN. Mr. Silverstein is the Founder and President (since
1985) of Triad Financial Insurance Marketing, Inc. ("Triad"), a domestic and
international marketing company specializing in life, group medical and
disability insurance products located in Los Angeles. From 1967, and prior to
forming Triad in 1985, Mr. Silverstein was with Fireman's Fund Insurance Company
and Northwestern Life Insurance Company in regional sales and management
positions. In 1979, he purchased and operated a property and casualty brokerage
which he sold in 1985 to form Triad. Mr. Silverstein attended California State
University at Northridge where he majored in Business.
JAMES P. WIEKING. Mr. Wieking is the Executive Vice President of PKW. He
has been active in the insurance business for 40 years. Mr. Wieking was
formerly the owner of Wieking, Connolly & Associates in Oakland, which merged
with PKW in 1983. Mr. Wieking has been involved in various civic and
professional associations and has served as a board member of the Pacific
Network Group and the Independent Insurance Agents Association. He is a
graduate of the University of California, Berkeley.
The only director of Anchor who holds a directorship in any company (other
than Anchor) with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, is Mr. Sanford, who serves on the
board of directors of the Bank of Oakland. No director or executive officer of
Anchor has a family relationship to another director or executive officer of
Anchor.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held 12 regularly scheduled or special meetings
during the fiscal year ended December 31, 1997 (the "Fiscal Year"). Each
current member of the Board of Directors nominated for election attended at
least 75% of the aggregate of the total number of meetings of the Board of
Directors and of the committees on which he served during the Fiscal Year with
the exception of Lawrence A. Hayes 73%, Audie J. Dudum 61%, Donald B. Putnam 67%
and Michael R. Sanford 73%. The Board of Directors has two standing committees:
(1) the Audit, Budget and Finance Committee ("Audit Committee"); and (2) the
Compensation and
5
<PAGE>
Personnel Committee ("Compensation Committee"). The full Board of Directors
considers and nominates individuals for election as Directors.
Audit, Budget and Finance Committee
The Audit Committee, currently comprised of Earl Wiklund, Chairman, Audie
J. Dudum, James R. Dunathan, R. William MacCullough, Michael Sanford, Mary
Peixoto Myers (ex-officio) and Susan Sula (ex-officio) held 3 meetings during
the Fiscal Year. Members are appointed annually by the full Board. The
functions of the Audit Committee include review of internal controls of Anchor,
accounting compliance generally, and the sufficiency of Anchor's financial
reporting. In connection with these reviews it can meet alone with appropriate
Anchor financial personnel as well as with the independent auditors, who have
free access to the Audit Committee at any time. Anchor's Accounting/Finance
Departments, report directly to the Chairman of the Audit Committee. The Audit
Committee recommends to the Board for its approval and for ratification by the
shareholders the engagement of the Company's independent auditors to examine the
accounts of Anchor. The Audit Committee also annually reviews the independence
of the independent auditors as a factor in these recommendations.
Compensation and Personnel Committee
The Compensation Committee is currently comprised of Steven A. Gonsalves,
Chairman, Audie J. Dudum, James R. Dunathan and Carol Haynosch (ex-officio).
Members are appointed annually by the full Board. The Compensation Committee
reviews, in consultation with management, existing and proposed compensation
plans, programs and arrangements for officers of Anchor. The Compensation
Committee then prepares its recommendation for submission and approval of the
Board of Directors.
Directors' Fees and Expenses
Directors of Anchor do not receive any fees for their service as Board or
Committee members. Anchor reimburses reasonable out-of-pocket expenses incurred
by Directors performing services for Anchor.
Pursuant to a nondiscretionary formula set forth in the 1994 Company's
Stock Option Plan, non-employee Directors receive stock options covering 15,000
shares upon their initial election to the Board (the "Initial Grant"), and
automatically receive supplemental options covering 1,000 shares on each
subsequent re-election (the "Annual Grant"). The Initial Grant and Annual Grant
are cumulatively exercisable to the extent of 25% of the shares subject to the
option on the first, second, third and fourth anniversaries of the date of
grant, becoming 100% exercisable on the fourth anniversary of the date of grant.
Each such option is granted with an exercise price at fair market value on the
date of grant (or 110% of fair market value in the case of an optionee who owns
stock representing more than 10% of the total combined voting power of all
classes of the stock of Anchor). These options expire on the earlier of ten
years from the grant date or thirty months following termination of the
Director's tenure on the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Anchor's directors and executive officers, and any
person who owns more than ten percent of Anchor's common stock, to file with the
SEC initial reports of ownership and reports of changes in ownership of Anchor's
common stock. Directors, executive officers and greater than ten-percent
shareholders are required by SEC regulations to furnish Anchor with copies of
all Section 16(a) forms they file. To Anchor's knowledge, based solely on
review of the copies of such reports furnished to Anchor and written
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all such persons required to file reports were in
compliance with the applicable Section 16(a) filing requirements.
6
<PAGE>
STOCK OWNERSHIP TABLE
The table below indicates the number of shares of Anchor's common stock
beneficially owned as of March 13, 1998, by (a) incumbent directors and the
nominees nominated by the Board of Directors for election as directors; (b)
executive officers who are not also directors; and (c) by all directors and
executive officers as a group. Except as otherwise indicated, each person has
sole investment and voting powers with respect to the shares shown as
beneficially owned. Ownership information is based upon information furnished
by the respective individuals.
<TABLE>
<CAPTION>
DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
========================================================================
COMMON STOCK BENEFICIALLY OWNED PERCENT
NAME AS OF MARCH 13, 1998 OF CLASS
- ------------------------------------------------------------------------
<S> <C> <C>
(a)
Audie J. Dudum 1/ 126,258 2.65%
James R. Dunathan 2/ 311,897 6.47%
Steven A. Gonsalves 3/ 244,979 5.08%
Lawrence A. Hayes 4/ 112,269 2.37%
R. William MacCullough 5/ 181,100 3.82%
Donald B. Putnam 6/ 587,588 12.25%
Michael R. Sanford 7/ 117,590 2.48%
Gordon M. Silverstein 8/ 28,121 0.06%
James P. Wieking 9/ 485,078 10.17%
Earl Wiklund 10/ 223,796 4.69%
(b)
Lynn A. Boyd 11/ 10,000 0.02%
Robert H. Rath 12/ 10,000 0.02%
Raymond P. Petersen 13/ 15,000 0.03%
Christine D. Behrens 14/ 15,000 0.03%
(c)
All directors and executive
officers as a group 2,468,676 50.14%
========================================================================
</TABLE>
1/ Includes 67,036 shares of common stock, 37,000 shares of common stock
- --
issuable upon the exercise of stock options, and 22,222 shares of common stock
issuable upon exercise of warrants at a purchase price of $0.90 per share.
2/ Includes 203,547 shares of common stock, 106,350 shares of common stock
- --
issuable upon the exercise of stock options, and 2,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share.
3/ Includes 132,424 shares of common stock, 17,000 shares of common stock
- --
issuable upon the exercise of stock options, 10,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
85,555 shares of common stock issuable upon exercise of warrants at a purchase
price of $0.90 per share.
4/ Includes 85,158 shares of common stock, 16,000 shares of common stock
- ---
issuable upon the exercise of stock options and 11,111 shares of common stock
issuable upon exercise of warrants at a purchase price of $0.90 per share.
7
<PAGE>
5/ Includes 144,100 shares of common stock and 37,000 shares of common stock
- --
issuable upon the exercise of stock options.
6/ Includes 499,013 shares of common stock, 27,000 shares of common stock
- --
issuable upon the exercise of stock options, 24,242 shares of common stock
issuable upon exercise of certain debentures at a conversion price of $1.65 per
share, 4,000 shares of common stock issuable upon exercise of warrants at a
purchase price of $1.35 per share, and 33,333 shares of common stock issuable
upon exercise of warrants at a purchase price of $0.90 per share.
7/ Includes 80,590 shares of common stock and 37,000 shares of common stock
- --
issuable upon the exercise of stock options.
8/ Includes 16,000 shares of common stock issuable upon the exercise of stock
- --
options and 12,121 shares of common stock issuable upon exercise of certain
debentures at a exercise price of $1.65 per share.
9/ Includes 426,301 shares of common stock, 27,000 shares of common stock
- --
issuable upon the exercise of stock options, 4,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
27,777 shares of common stock issuable upon exercise of warrants at a purchase
price of $0.90 per share.
10/ Includes 158,130 shares of common stock, 47,000 shares of common stock
- ---
issuable upon the exercise of stock options, 2,000 shares of common stock
issuable upon exercise of warrants at a purchase price of $1.35 per share, and
16,666 shares of common stock issuable upon exercise of warrants at a purchase
price of $0.90 per share.
11/ Includes 10,000 shares of common stock issuable upon the exercise of stock
- ---
options.
12/ Includes 10,000 shares of common stock issuable upon the exercise of stock
- ---
options.
13/ Includes 5,000 shares of common stock and 10,000 shares of common stock
- ---
issuable upon the exercise of stock options.
14/ Includes 5,000 shares of common stock and 10,000 shares of common stock
- ---
issuable upon the exercise of stock options.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995, the compensation paid to the executive officers of Anchor and to
the executive officers of its subsidiary, PKW, who performed significant policy
making functions for Anchor, whose aggregate salaries and bonuses exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=======================================================================================
ANNUAL COMPENSATION
- ---------------------------------------------------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) 1/ COMPENSATION ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Dunathan 1997 $132,999 $14,735 2/
President and Chief 1996 137,237 13,871 2/
Executive Officer 1995 137,237 15,596 2/
Earl Wiklund 1997 108,685 -
Senior Vice President, 1996 112,311 -
Chief Financial Officer and 1995 112,861 -
Secretary
Donald B. Putnam 1997 99,999 -
Chairman of the Executive 1996 99,999 -
Committee of PKW 1995 106,105 -
James P. Wieking 1997 109,999 -
Executive Vice President of PKW 1996 125,679 -
1995 125,387 -
- ---------------------------------------------------------------------------------------
=======================================================================================
</TABLE>
1/ Includes compensation earned and received by the named persons, as well as
- -
amounts earned but deferred at the election of such persons pursuant to Anchor's
401(k) Plan.
2/ Represents amount paid to Mr. Dunathan for commissions related to certain of
- -
Mr. Dunathan's insurance brokerage clients.
<TABLE>
<CAPTION>
=============================================================================================================
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS/SARs EXERCISE
UNDERLYING NUMBER OF GRANTED TO EMPLOYEES IN PRICE PER EXPIRATION
NAME OPTIONS/SARs GRANTED 1/ FISCAL YEAR SHARE DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James R. Dunathan 1,000 1.09% $0.90 5/13/07
50,000 54.47% 0.90 8/16/07
Earl Wiklund 1,000 1.09% 0.90 5/13/07
Donald B. Putnam 1,000 1.09% 1.00 5/13/07
James P. Wieking 1,000 1.09% 1.00 5/13/07
Robert H. Rath 10,000 10.94% 0.90 6/26/07
Christine D. Behrens 5,500 6.01% 0.90 1/27/07
============================================================================================================
</TABLE>
9
<PAGE>
1/ Each option has a ten-year term but is subject to earlier termination upon
the optionee's termination of employment, death or disability as provided in the
1994 Stock Option Plan and the optionee's option agreement. The exercise price
may be paid in cash or in shares. Withholding taxes due on exercise may be paid
in cash, with previously owned shares, or by having shares withheld. All
options become exercisable in 25% increments on May 13, 1998, 1999, 2000 and
2001, respectively, except for the 50,000 options granted to Mr. Dunathan which
became exercisable immediately.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES 1/
=========================================================================================================
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS/SARs AT 12/31/97 OPTIONS/SARs AT 12/31/97
NAME (eXERCISABLE) (UNEXERCISABLE) (EXERCISABLE) (UNEXERCISABLE)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James R. Dunathan 104,600 1,750 0 0
Earl Wiklund 45,250 1,750 0 0
Donald B. Putnam 25,250 1,750 0 0
James P. Wieking 25,250 1,750 0 0
Lynn A. Boyd 10,000 0 0 0
Robert H. Rath 0 10,000 0 0
Raymond P. Petersen 10,000 0 0 0
Christine D. Behrens 4,500 5,500 0 0
=========================================================================================================
</TABLE>
1/ No options were exercised during 1997. Anchor's 1994 Sock Option Plan does
not provide for stock appreciation rights ("SARs"). The dollar value reported
in the table was determined by multiplying the average of the high and low bid
prices on the OTC Bulletin Board of Anchor's common stock on December 31, 1997
by the number of shares subject to the options minus the aggregate exercise
price.
EMPLOYMENT AGREEMENT WITH JAMES R. DUNATHAN
Effective August 16, 1997, Anchor entered into a five-year employment
agreement ("Agreement") with James R. Dunathan, President and Chief Executive
Officer of Anchor, which provides for a base salary of $140,000 per year
(subject to increase from time to time based upon personal and Company
performance as determined by the Board of Directors). The Agreement provides
that Mr. Dunathan is entitled to participate in all other employee benefit plans
generally available to Anchor's other executive and managerial employees.
Additionally, he is entitled to receive as incentive compensation an annual
bonus equal to 4% of Anchor's "operating results" (as such term is defined in
the Agreement). Pursuant to the Agreement, in 1997, Mr. Dunathan was granted
options to purchase 50,000 shares of Anchor common stock at an exercise price of
$0.90, at the time of grant. He is also entitled to an automobile allowance,
currently set at $12,000 per year. The Agreement also provides that: (a) in
the event that Mr. Dunathan resigns by giving Anchor six months' prior notice of
resignation, he will be entitled to receive six months base salary; and (b) if
Anchor terminates the Agreement for any reason other than for cause or if Mr.
Dunathan becomes permanently disabled, Anchor will pay to Mr. Dunathan an amount
equal to twelve months salary at Mr. Dunathan's then current rate of
compensation and will continue, for a period of twelve months from termination,
all benefits and allowances (including the automobile allowance) to which Mr.
10
<PAGE>
Dunathan would otherwise be entitled had the Agreement not been terminated,
except that if Mr. Dunathan is permanently disabled, Anchor's obligations to pay
said amounts will be reduced by any disability insurance payments made to Mr.
Dunathan during said twelve-month period.
THE 1994 STOCK OPTION PLAN (THE "1994 PLAN")
STOCK OPTION PLAN. On December 5, 1994, the Board of Directors of Anchor
adopted Anchor Pacific Underwriters, Inc. 1994 Stock Option Plan (the "1994
Plan") in order to attract and retain the best available personnel for positions
of substantial responsibility, to attract and retain qualified individuals to
serve as non-employee directors of Anchor, and to provide additional incentive
to the employees, consultants and non-employee directors of Anchor and its
affiliates, by encouraging them to acquire a proprietary interest in Anchor, and
in general, to promote the success of Anchor's business. The shareholders
approved the 1994 Plan on December 19, 1994.
SHARES SUBJECT TO THE 1994 PLAN. The aggregate number of shares that are
available for issuance pursuant to the exercise of options granted under the
1994 Plan may not exceed 700,000 shares of common stock, as adjusted for changes
in capitalization. Should any option granted under the 1994 Plan expire or
become unexercisable for any reason without having been exercised in full, the
shares subject to the portion of the option not so exercised will become
available for subsequent option grants. The 1994 Plan permits shares which have
been withheld by Anchor from the shares otherwise due upon exercise of the
option (to satisfy applicable withholding taxes) and shares which have been
delivered by the optionee upon exercise of an option (to pay the option exercise
price and/or applicable withholding taxes), to become available under the 1994
Plan for future grants of options.
ADMINISTRATION. The 1994 Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors. The Compensation
Committee reviews, in consultation with management, existing and proposed
compensation plans, including the 1994 Plan. The Compensation Committee makes
compensation recommendations, including stock grants, which are submitted to the
Board of Directors for approval.
The Compensation Committee has full authority, subject to the provisions of
the 1994 Plan, to determine the individuals who are eligible to receive options
under the 1994 Plan, the number of shares to be covered by each granted option,
the date or dates upon which the option is to become exercisable and the maximum
term for which the option is to remain outstanding. The Compensation Committee
also has the authority to determine whether the granted option is to be a
nonstatutory option ("Nonstatutory Option") or an incentive stock option
("Incentive Option") under the federal tax laws and to establish the rules and
regulations for proper plan administration. See "--Federal Tax Consequences",
below. The Compensation Committee also has the authority to cancel outstanding
options granted under the 1994 Plan, with the consent of the optionee, and to
issue replacement options for such canceled options. Only the full Board of
Directors may administer the 1994 Plan with respect to the automatic grant of
options to non-employee directors.
ELIGIBILITY. The Compensation Committee may grant discretionary options
under the 1994 Plan only to employees or consultants of Anchor or its
affiliates. There are currently approximately 254 employees of Anchor and its
subsidiaries who are eligible for the discretionary grant of options. Only non-
employee directors of Anchor are eligible to receive nondiscretionary grants of
options pursuant to the formula provisions contained in Section 5 of the 1994
Plan. There are currently 6 non-employee directors eligible for non-
discretionary options.
EXERCISE PRICE AND EXERCISABILITY. The Compensation Committee has the
authority to determine the term of each option granted under the 1994 Plan. The
maximum period during which any option may remain exercisable may not exceed ten
years, however, an Incentive Option granted to a participant who owns stock
possessing more than 10% of the voting power of Anchor's common stock, may not
have a term longer than five years from the date of grant. Options issued under
the 1994 Plan may either be immediately exercisable for the full number of
shares purchasable thereunder or may become exercisable in cumulative increments
over a period of months or years as determined by the Compensation Committee;
provided, however, that no option may vest at a rate of less than 20% of the
shares subject to the option per year during the five year period from the date
of grant.
The exercise price of options may not be less than 85% of the fair market
value of Anchor's common stock on the date of grant; provided, however, that the
exercise price of options granted to non-employee directors
11
<PAGE>
may not be less than 100% of the fair market value of Anchor's common stock on
the date of grant, and provided further that the exercise price of an option
granted to a participant who owns stock possessing more than 10% of the voting
power of Anchor's common stock may not be less than 110% of the fair market
value of the stock on the date of grant.
The exercise price may be paid in cash or in shares of Anchor common stock
valued at fair market value on the exercise date. Options may also be exercised
through a same-day sale program, pursuant to which a designated brokerage firm
would effect an immediate sale of the shares purchased under the option and pay
to Anchor, out of the sales proceeds available on the settlement date,
sufficient funds to cover the exercise price for the purchased shares plus
applicable withholding taxes. For purposes of establishing the exercise price
and for all other valuation purposes under the 1994 Plan, the fair market value
per share of Anchor common stock on any relevant date will mean, where there is
a public market for Anchor's common stock, the mean of the bid and asked prices
(or the closing price if listed on a stock exchange or The Nasdaq National
Market) of Anchor's common stock for the date of grant, as reported in the Wall
Street Journal (or, if not so reported, as otherwise reported by The Nasdaq
Stock Market, the National Quotation Bureau or Anchor's primary market maker).
If such information is not available for the date of grant, then such
information for the last preceding date for which such information is available
will be considered as the fair market value. If there is no public market for
Anchor's common stock, the fair market value thereof shall be determined by the
Compensation Committee.
Only Nonstatutory Options may be automatically granted to eligible non-
employee directors. Each such option will have a ten year term and will be
cumulatively exercisable to the extent of 25% of the shares subject to the
option on the first, second, third and fourth anniversaries of the date of
grant, becoming 100% exercisable on the fourth anniversary of the date of grant,
except for the first Initial Grant, as defined below, made on June 20, 1995,
which are immediately exercisable.
In order to satisfy applicable withholding taxes that arise upon exercise
of a Nonstatutory Option, optionees may elect to deliver to Anchor, or have
Anchor withhold from the shares otherwise due, a sufficient number of shares
having an aggregate fair market value equal to the tax due, in compliance with
rules and procedures established by the Compensation Committee.
OPTIONS GRANTED TO NON EMPLOYEE DIRECTORS
The formula provisions of the 1994 Plan provide that upon the issuance of a
permit from the California Department of Corporations (the "Permit"), each non-
employee director of Anchor who held options under certain predecessor plans of
Anchor would receive an option to purchase 35,000 shares of Anchor common stock,
each non-employee director who did not hold options under certain predecessor
plans of Anchor world receive an option to purchase 15,000 shares of Anchor
common stock, and thereafter each non-employee director who is first elected or
appointed to the Board of Directors of Anchor will receive an option to purchase
15,000 shares of Anchor common stock (each an "Initial Grant"). Each non-
employee director who is thereafter re-elected to the Board of Directors shall
receive an additional option to purchase 1,000 shares of Anchor common stock (an
"Annual Grant") immediately following the shareholders' meeting at which such
director was elected. Notwithstanding the foregoing, the aggregate amount of
common stock to be subject to all options granted to non-employee directors may
not exceed 50% of the number of shares reserved under the 1994 Plan (as adjusted
for changes in capitalization), plus shares underlying expired or terminated
options which become available for subsequent option grants.
No options were exercised by the directors or executive officers of Anchor
during Anchor's last fiscal year. As of March 13, 1998 there were options to
purchase 648,650 shares of Anchor common stock outstanding. Except with respect
to options to be granted to non-employee directors, the amount of options that
will be granted in the future is not presently determinable.
The following table sets forth options that were granted under the 1994
Plan during 1997. All such options have an exercise price equal to 100% of the
fair market value of Anchor common stock as of the date of grant (except for
options granted to persons who own stock possessing more than 10% of the voting
power of Anchor's common stock, which have an exercise price equal to 110% of
the fair market value as of the date of grant). Options granted in 1997 are
exercisable in 25% increments in 1997, 1998, 1999 and 2000, respectively,
12
<PAGE>
except for the options to acquire 50,000 shares granted to James R. Dunathan,
which are exercisable immediately. All such options have a term of 10 years.
<TABLE>
<CAPTION>
======================================================================================================
1994 PLAN
- ------------------------------------------------------------------------------------------------------
NAME & POSITION EXERCISE PRICE NUMBER OF SHARES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee Directors:
James R. Dunathan
President and Chief Executive Officer $0.90 51,000
Earl Wiklund
Senior Vice President, Chief Financial
Officer and Secretary $0.90 1,000
Donald B. Putnam
Chairman of the Executive Committee of PKW $1.00 1,000
James P. Wieking
Executive Vice President of PKW $1.00 1,000
Non-Employee Directors: $0.90 6,000 (1,000 each to 6 directors)
$1.00 15,000 (to one director)
All Employees (including employees
who are also officers): $0.97 2,500
$0.90 34,900
Consultants: N/A -0-
======================================================================================================
</TABLE>
SHAREHOLDER RIGHTS AND TRANSFERABILITY OF OPTIONS
No optionee is to have any shareholder rights with respect to his or her
option shares until such optionee has exercised the option and paid the exercise
price. Options are not assignable or transferable other than by will or by the
laws of inheritance, and may be exercised, during the optionee's lifetime, only
by the optionee.
TERMINATION OF EMPLOYMENT, CONSULTING OR DIRECTOR STATUS
If an optionee's employment or status as a consultant is terminated due to
the optionee's disability or death, the optionee, or the optionee's estate, as
applicable, may, within twelve months (or such longer period of time as the
Compensation Committee may determine) following the date of such termination,
exercise the option to the extent the option was exercisable at the date of
termination. If termination of employment or consultant status occurs for any
reason other than disability or death, the optionee may, within three months (or
such longer period of time as the Compensation Committee may determine) after
the date of such termination, exercise the option to the extent the optionee was
entitled to exercise the option at the date of termination; provided that if
such termination was for "cause" (as such term is defined in the 1994 Plan),
such optionee may, only within 30 days after the date of such termination,
exercise the option to the extent the optionee was entitled to exercise the
option at the date of termination. The foregoing date of exercise may in no
event be after the expiration of the term of the option. To the extent the
option is not exercised within such periods described above the option will
terminate.
Notwithstanding the above, if an employee-director's tenure on the Board is
terminated for any reason other than death or disability or removal from office,
and at the same time, such employee-director's employment is
13
<PAGE>
terminated for any reason other than death or disability or cause, then such
employee-director may, within two and one-half years following such termination,
exercise the option to the extent such option was exercisable by the employee-
director on the date of such termination; provided the date of exercise is in no
event after the expiration of the term of the option. If an employee-director's
tenure on the Board is terminated for any reason other than death or disability
or removal from office, and if such employee-director remains an employee of
Anchor after his or her tenure on the Board is terminated, then his or her
options shall continue to be governed by the terms of his or her option
agreement and, the provisions described above relating to termination of
employment for reasons other than death, disability or cause will govern the
period in which he or she must exercise the option.
If a non-employee director ceases to be a director of Anchor due to his or
her disability or death, the optionee, or the optionee's estate, as applicable,
may, within twelve months following the date of such death or disability,
exercise the option to the extent the option was exercisable at the date of such
death or disability; provided that the date of exercise may in no event be after
the expiration of the term of the option. If the option is not exercised within
such time period, the option will terminate. If a non-employee director ceases
to be a director of Anchor for any reason other than disability or death, the
optionee may, within two and one-half years after the date of termination of
director status, exercise the option to the extent the optionee was entitled to
exercise the option at the date of termination; provided that if a non-employee
director ceases to be a director of Anchor or any of its affiliates because he
or she is removed from office in accordance with applicable corporate law, such
non-employee director may, only within 30 days after the date of such removal,
exercise the option to the extent the non-employee director was entitled to
exercise the option at the date of termination; provided further that the date
of exercise may in no event be after the expiration of the term of the option.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR OTHER CORPORATE EVENT
Subject to any required action by the shareholders of Anchor, the number of
shares of Anchor common stock covered by each outstanding option, and the number
of shares of Anchor common stock which have been authorized for issuance under
the 1994 Plan but as to which no options have yet been granted, as well as the
price per share of Anchor common stock covered by each such outstanding option,
will be proportionately adjusted for any change in the outstanding shares of
Anchor common stock resulting from a stock split, reverse stock split, stock
dividend, recapitalization, combination or reclassification of the Anchor common
stock, or any other change in the outstanding Anchor common stock as a class
effected without receipt of consideration by Anchor; provided, however, that
conversion of any convertible securities of Anchor will not be deemed to have
been "effected without receipt of consideration." Such adjustment will be made
by the Board of Directors, whose determination in that respect will be final,
binding and conclusive. Upon the dissolution or liquidation of Anchor, options
then outstanding under the 1994 Plan shall terminate. Upon the sale of Anchor,
or a merger or consolidation in which Anchor is not the surviving entity,
outstanding options will terminate shortly before consummation of the
transaction, unless the successor has agreed to assume outstanding options or to
substitute equivalent options to purchase its shares of stock.
AMENDMENT AND TERMINATION OF THE 1994 PLAN
The 1994 Plan will terminate on December 5, 2004, unless sooner terminated
by the Board of Directors. The Board of Directors may amend or terminate the
1994 Plan from time to time as the Board of Directors deems advisable, except
that the formula provisions of Section 5 of the 1994 Plan may not be amended
more than once every six months other than to comply with changes in the
Internal Revenue Code. No such amendment or termination will affect outstanding
options without the consent of the affected optionees.
The Board of Directors may not, without the approval of Anchor's
shareholders (to the extent such shareholder approval is required by Rule 16b-3,
the Internal Revenue Code, or other applicable law), amend the 1994 Plan in a
manner which would (a) materially increase the benefits accruing to
participants under the 1994 Plan; (b) increase the number of shares which may be
issued under the 1994 Plan; or (c) materially modify the requirements as to
eligibility for participation in the 1994 Plan.
14
<PAGE>
FEDERAL TAX CONSEQUENCES
Options granted under the 1994 Plan may be either Incentive Options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
Nonstatutory Options which do not meet such requirements. The federal income
tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by an optionee at the
-----------------
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the excess of the fair market value of
the Anchor common stock received upon the exercise of an Incentive Option over
the exercise price is includable in the employee's alternative minimum taxable
income and may be subject to the alternative minimum tax ("AMT"). For AMT
purposes only, the basis of the Anchor common stock received upon exercise of an
Incentive Option is increased by the amount of such excess.
An optionee will recognize taxable income in the year in which the
purchased shares acquired upon exercise of an Incentive Option are sold or
otherwise disposed of. For federal tax purposes, dispositions are divided into
two categories: (a) qualifying and (b) disqualifying. An optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two years after the grant date of the option and more than one
year after the exercise date. If an optionee fails to satisfy either of these
two holding periods prior to sale or disposition, then a disqualifying
disposition of the purchased shares will result.
Upon a qualifying disposition, an optionee will recognize long-term capital
gain or loss in an amount equal to the difference between the amount realized
upon the sale or other disposition of the purchased shares and the exercise
price paid for the shares except that for AMT purposes, the gain or loss would
be the difference between the amount realized upon the sale or other disposition
of the purchased shares and the employee's basis increased as described above.
If there is a disqualifying disposition of the shares, then the optionee will
generally recognize ordinary income to the extent of the lesser of the
difference between the exercise price and (a) the fair market value of the
Anchor common stock on the date of exercise, or (b) the amount realized on such
disqualifying disposition. Any additional gain recognized upon the disposition
will be capital gain. If the amount realized is less than the exercise price,
the optionee will, in general, recognize a capital loss. If the optionee makes
a disqualifying disposition of the purchased shares, then Anchor will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, to the extent the optionee recognizes ordinary income. In
no other instance will Anchor be allowed a deduction with respect to the
optionee's disposition of the purchased shares.
Nonstatutory Options. No taxable income is recognized by an optionee upon
--------------------
the grant of a Nonstatutory Option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for such shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income. Upon a
subsequent sale of the purchased shares, the optionee will generally recognize
either a capital gain or a capital loss equal to the difference between the
sales proceeds and the fair market value of the shares on the date of exercise.
Anchor is entitled to a business expense deduction equal to the amount of
ordinary income recognized by the optionee on an exercise of a Nonstatutory
Option. The deduction will in general be allowed for the taxable year of Anchor
in which ordinary income is recognized by the optionee.
ACCOUNTING TREATMENT
Under present accounting rules, neither the grant nor the exercise of
options issued at fair market value under the 1994 Plan will result in any
charge to Anchor's earnings. The grant of an option issued at less than fair
market value, on the other hand, would result in a charge to Anchor's earnings
equal to the difference between the fair market value of Anchor's common stock
on the date of grant and the exercise price of the option. Such a charge would
be amortized ratably over the vesting period of the option. In addition, the
number of outstanding options under the 1994 Plan may be a factor in determining
earnings per share on a fully diluted basis.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERESTED TRANSACTIONS WITH MANAGEMENT. There are no material
transactions since January 1, 1997, or any currently proposed transactions, to
which Anchor was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director, executive officer, five percent or more
shareholder, or any associate of any of the foregoing persons had, or will have,
a direct or indirect material interest, except as follows:
During 1996, Anchor raised $225,000 from five members of the Board of
Directors and other qualified investors to supplement its working capital and
capital expenditure requirements through the issuance of 10% Subordinated Bridge
Notes with Warrant to Purchase Shares of Anchor Common Stock ("Bridge Notes").
The basic terms of the Bridge Notes were: (a) 10% interest per annum, paid in
arrears; (b) one year term; (c) for every $10,000 principal amount invested the
purchaser received a warrant to acquire 1,000 shares of Anchor common stock at a
purchase price of $1.75 per share; (d) "piggyback" registration rights for three
years; and (e) subordination provisions that subordinate the Bridge Notes to
Anchor's "Senior Debt" (as defined in the Bridge Notes). The Bridge Notes are
equal in status to the Debentures, issued during 1995 and become due in 1998,
which have not converted and remain outstanding.
In February 1997, Anchor offered the purchasers of said Bridge Notes an
opportunity to either change the terms of the warrants underlying the Bridge
Notes or to participate in the 1997 Offering (discussed below) and exchanging
their Bridge Notes. The basic terms of the two alternatives were: (a) in lieu of
receiving a warrant to acquire 1,000 shares of Anchor common stock at a purchase
price of $1.75 per share for each $10,000 in principal invested, the purchaser
would receive a warrant to acquire 2,000 shares of Anchor common stock at a
purchase price of $1.35 per share; or (b) participate in the 1997 Offering by
exchanging the Bridge Notes and receiving in return (i) interest at the rate of
10% per annum up to the date of conversion; (ii) Anchor common stock in place of
the Bridge Notes at a price equal to $0.90 per share; and (iii) a five year
warrant, equal to the number of shares issued in place of the Bridge Notes, with
the right to purchase Anchor's common stock at a purchase price of $0.90 per
share. The purchasers representing $180,000 of said Bridge Notes chose
alternative (a) above, and the remaining $45,000 chose alternative (b) above.
Subsequently, Anchor and certain holders of the 1997 Offering agreed to extend
the term of such 1997 Offering. As of March 13, 1998, $140,000 of the 1997
Offering remained outstanding.
In 1995, Anchor issued $370,000 of 10% Convertible Subordinated Debentures
(the "Debentures"). Investors holding $270,000 of the Debentures, including
seven members of the Board of Directors, converted their Debentures into 200,000
shares of Anchor's common stock at $1.35 per share. These conversions reduced
Anchor's outstanding indebtedness by $270,000 and, in turn, increased
shareholders' equity by $270,000. As of March 13, 1998, $40,000 of the
Debentures had been repaid in full, and $60,000 remained outstanding under the
terms of the Debentures.
During first quarter 1997, Anchor commenced raising additional funds from
members of the Board of Directors and other qualified investors through a
private offering of Anchor common stock along with warrants to acquire shares of
Anchor common stock (the "1997 Offering"). As of March 13, 1998, Anchor had
raised $305,000. Anchor has utilized a substantial portion of the proceeds from
the 1997 Offering to support current working capital needs. The basic terms of
the 1997 Offering are: (a) up to 555,000 shares of Anchor common stock available
at a purchase price of $0.90 per share; (b) five year warrants to acquire one
share of Anchor common stock for each share of Anchor common stock purchased at
an exercise price of $0.90 per share; (c) "piggyback" registration rights for
three years; and (d) anti-dilution protection for stock splits, stock dividends,
recapitalizations and reorganizations. Purchasers of the 1997 Offering, as of
March 13, 1998, consisted of eight members of the Board of Directors and other
qualified investors.
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2. APPROVAL TO AMEND THE COMPANY'S 1994 STOCK OPTION PLAN (THE "1994 PLAN")
The Board of Directors is seeking shareholder approval to amend the Company's
1994 Stock Option Plan (the "1994 Plan") to increase the aggregate number of
shares of the Company's common stock that may be issued pursuant to the exercise
of options granted under the 1994 Plan from 700,000 shares to 1,000,000 shares,
as adjusted for changes in capitalization. This proposal has been unanimously
approved by the Board of Directors subject to approval by the shareholders of
the Company.
As of the record date of March 13, 1998, the number of shares that were
authorized for issuance under the 1994 plan, the number of shares subject to
options currently outstanding and the number of shares available for future
granting of options are set forth in the table below:
Available
Authorized Outstanding for Grant
---------- ----------- ---------
Shares of common stock 700,000 648,650 51,350
REASONS FOR THE PROPOSED AMENDMENT
The proposed increase in the aggregate number of shares that may be issued
pursuant to the exercise of options granted under the 1994 Plan has been
recommended by the Board to assure that an adequate supply of options is
available for general corporate needs, such as attracting future employees and
providing further incentives to current employees, officers and directors.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENT
If approved by the shareholders, the additional options would be available
for grant at the discretion of the Board of Directors without further
shareholder approval (subject to applicable rules of the National Association of
Securities Dealers, Inc. or any stock exchange on which the Company's securities
may then be listed), without the delay and expense incident to holding a special
meeting of shareholders to consider any specific grant.
The future grant of the additional options for which authorization is
sought would be subject to the same terms and conditions as applies to the grant
of the options which are presently outstanding. The effects of the
authorization of additional options may include dilution of the voting power of
currently outstanding shares of capital stock and reduction of the portion of
dividends and of liquidation proceeds payable to the holders of currently
outstanding shares of capital stock.
The affirmative vote of holders of a majority of the voting power of the
outstanding shares of common stock is required to approve this proposal. THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND
THE COMPANY'S 1994 STOCK OPTION PLAN (THE "1994 PLAN").
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
reappointed Odenberg, Ullakko, Muranishi & Co., ("Odenberg") as independent
auditors to audit the financial statements of the Company for the current fiscal
year.
Representatives of the firm of Odenberg are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS RATIFY THE
REAPPOINTMENT OF ODENBERG AS INDEPENDENT AUDITORS TO AUDIT THE FINANCIAL
STATEMENTS OF ANCHOR FOR THE CURRENT FISCAL YEAR ENDING DECEMBER 31, 1998.
17
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ANNUAL REPORT AND FINANCIAL STATEMENTS
The 1997 Annual Report of Anchor, which includes its audited financial
statements for the fiscal year ended December 31, 1997, has accompanied or
preceded this Proxy Statement.
As of the date of this Proxy Statement, the Board of Directors is not informed
of any matters, other than the election of directors and ratification of the
appointment of Odenberg as independent auditors of Anchor, that may be brought
before the meeting. The persons named in the enclosed form of proxy or their
substitutes will vote with respect to any such matters in accordance with their
best judgment.
18
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
ANNUAL MEETING OF SHAREHOLDERS -- MAY 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints James R. Dunathan and Earl Wiklund and each of them
as proxies for the undersigned, with full power of substitution to represent and
to vote all the stock of the undersigned on the following matters as described
in the Proxy Statement accompanying the Notice of Meeting, receipt of which is
hereby acknowledged, and according to their discretion on all other matters that
may be properly presented for action at the Annual Meeting of Shareholders of
Anchor Pacific Underwriters, Inc. to be held on Tuesday, May 12, 1998, and at
any adjournment(s) or postponement(s) thereof. The above named proxyholders are
hereby granted discretionary authority to cumulate votes represented by the
shares covered by this Proxy in the election of Directors. The undersigned may
revoke this proxy at any time prior to its exercise or may attend the meeting
and vote in person. If properly executed, this proxy shall be voted in
accordance with the instructions given. TO THE EXTENT NO DIRECTIONS ARE GIVEN,
THE PROXYHOLDERS WILL VOTE FOR PROPOSALS 1, 2 AND 3, AND IN THE DISCRETION OF
THE PROXYHOLDERS ON OTHER MATTERS WHICH MAY PROPERLY BE PRESENTED AT THE
MEETING.
1. ELECTION OF
DIRECTORS: [_] FOR all nominees listed below
(except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to
vote for all nominees listed below
James R. Dunathan, Earl Wiklund, Audie J. Dudum, Steven A. Gonsalves, Lawrence
A. Hayes, R. William MacCullough, Donald B. Putnam, Michael R. Sanford, Gordon
M. Silverstein and James P. Wieking.
(Instruction: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list above.)
2. PROPOSAL TO AMEND THE COMPANY'S 1994 STOCK OPTION PLAN (THE "1994 PLAN") to
increase the aggregate number of shares of the Company's common stock that may
be issued pursuant to the exercise of options granted under the 1994 Plan from
700,000 shares to 1,000,000 shares, as adjusted for changes in capitalization.
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL TO RATIFY THE REAPPOINTMENT OF ODENBERG, ULLAKKO, MURANISHI & CO.
as the independent auditors of Anchor.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
MARK HERE FOR ADDRESS [_]
CHANGE AND NOTE BELOW
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE.
Date: _________________________, 1998
__________________________________
__________________________________
Signature(s) of Shareholder(s)
Please sign exactly as the name or names appear in this proxy. If the stock is
issued in the name of two or more persons, all of them should sign the proxy. A
proxy executed by a corporation should be signed in its name by an authorized
officer. Executors, administrators and trustees so indicate when signing.
