<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
TORCHMARK 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF TORCHMARK CORPORATION APPEARS HERE]
March 26, 1999
To the Stockholders of
Torchmark Corporation:
Torchmark's 1999 annual meeting of stockholders will be held in the
auditorium at the executive offices of the Company, 2001 Third Avenue South,
Birmingham, Alabama at 10:00 a.m., Central Daylight Time, on Thursday, April
29, 1999.
The accompanying notice and proxy statement discuss proposals which will be
submitted to a stockholder vote. If you have any questions or comments about
the matters discussed in the proxy statement or about the operations of your
Company, we will be pleased to hear from you.
It is important that your shares be voted at this meeting. Please mark,
sign, and return your proxy or vote over the telephone or the Internet. If you
attend the meeting, you may withdraw your proxy and vote your stock in person
if you desire to do so.
We hope that you will take this opportunity to meet with us to discuss the
results and operations of the Company during 1998.
Sincerely,
/s/ C.B. Hudson
C.B. Hudson
Chairman, President & Chief
Executive Officer
<PAGE>
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1999
----------------------------------------
To the Holders of Common Stock of
Torchmark Corporation
The annual meeting of stockholders of Torchmark Corporation will be held at
the executive offices of the Company, 2001 Third Avenue South, Birmingham,
Alabama 35233 on Thursday, April 29, 1999 at 10:00 a.m., Central Daylight
Time. You will be asked to:
(1) Elect the nominees shown in the proxy statement as directors to
serve for their designated terms or until their successors have been duly
elected and qualified.
(2) Consider the appointment of Deloitte & Touche LLP as independent
auditors.
(3) Transact any other business that properly comes before the meeting.
These matters are more fully discussed in the accompanying proxy statement.
The close of business on Thursday, March 5, 1999 is the date for determining
stockholders who are entitled to notice of and to vote at the annual meeting.
You are requested to mark, date, sign, and return the enclosed form of proxy
in the accompanying envelope, whether or not you expect to attend the annual
meeting in person. You may also choose to vote your shares over the telephone
or the Internet. You may revoke your proxy at any time before it is voted at
the meeting.
The annual meeting may be adjourned from time to time without further notice
other than by an announcement at the meeting or at any adjournment. Any
business described in this notice may be transacted at any adjourned meeting.
By Order of the Board of Directors
/s/Carol A. McCoy
Carol A. McCoy
Associate Counsel & Secretary
Birmingham, Alabama
March 26, 1999
<PAGE>
PROXY STATEMENT
Solicitation of Proxies
The Board of Directors of Torchmark Corporation solicits your proxy for use
at the 1999 annual meeting of stockholders and at any adjournment of the
meeting. The annual meeting will be held at the executive offices of the
Company, 2001 Third Avenue South, Birmingham, Alabama 35233 at 10:00 a.m.,
Central Daylight Time on Thursday, April 29, 1999. C.B. Hudson and Larry M.
Hutchison are named as proxies on the proxy/direction card. They have been
designated as directors' proxies by the Board of Directors.
If the enclosed proxy/direction card is returned, properly executed, and in
time for the meeting, your shares will be voted at the meeting. All proxies
will be voted in accordance with the instructions set forth on the
proxy/direction card. If proxies are executed and returned which do not
specify a vote on the proposals considered, those proxies will be voted FOR
such proposals. You have the right to revoke your proxy by giving written
notice of revocation addressed to the Secretary of the Company at the address
shown above at any time before the proxy is voted.
The card is considered to be voting instructions furnished to the respective
trustees each of the Torchmark Corporation Savings and Investment Plan, the
Waddell & Reed Financial, Inc. 401-K and Savings and Investment Plan, the
Liberty National Life Insurance Company 401(k) Plan and the Profit-Sharing and
Retirement Plan of Liberty National Life Insurance Company with respect to
shares allocated to individual's accounts under these plans. If the account
information is the same, participants in one or more of the plans who are also
shareholders of record will receive a single card representing all shares. If
a plan participant does not return a proxy/direction card to the Company, the
trustees of any plan in which shares are allocated to the participant's
individual account will vote those shares in the same proportion as the total
shares in that plan for which directions have been received.
A simple majority vote of the holders of the issued and outstanding common
stock of the Company represented in person or by proxy at the stockholders
meeting is required to elect directors and approve all other matters put to a
vote of stockholders. Abstentions are considered as shares present and
entitled to vote. Abstentions have the same legal effect as a vote against a
matter presented at the meeting. Any shares for which a broker or nominee does
not have discretionary voting authority under applicable New York Stock
Exchange rules will be considered as shares not entitled to vote and will not
be considered in the tabulation of the votes.
Record Date and Voting Stock
Each stockholder of record at the close of business on March 5, 1999 is
entitled to one vote for each share of common stock held on that date upon
each proposal to be voted on by the stockholders at the meeting. At the close
of business on March 5, 1999, there were 134,667,708 shares of common capital
stock of the Company outstanding (not including 147,593,824 shares held by the
Company and its subsidiaries which are non-voting while so held). There is no
cumulative voting of the common stock.
Principal Stockholders
The table below lists all persons known to be the beneficial owner of more
than five percent of the Company's outstanding common stock as of December 31,
1998.
<TABLE>
<CAPTION>
Percent of
Name and Address Number of Shares(1) Class
---------------- ------------------- ----------
<S> <C> <C>
AMVESCAP PLC 11,020,128 7.86%
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
- - --------
(1) All stock reported is held by holding companies (AVZ, Inc., AIM Management
Group, Inc., AMVESCAP Group Services, Inc., INVESCO, Inc. and INVESCO
North American Holdings, Inc.) and investment advisers (INVESCO Capital
Management, Inc. and INVESCO Funds Group, Inc.), which are subsidiaries of
AMVESCAP PLC. These entities share the voting and the dispositive power
over the shares and have disclaimed beneficial ownership of such stock.
1
<PAGE>
PROPOSAL NUMBER 1
Election of Directors
The Company's By-laws provide that there will be not less than seven nor
more than fifteen directors with the exact number to be fixed by the Board of
Directors. In July, 1998, Mark S. McAndrew was named by the Board of Directors
to serve for the remainder of the term vacated by Keith A.Tucker.
The Board of Directors proposes the election of Mark S. McAndrew and George
J. Records as directors, to hold office for a term of three years, expiring at
the close of the annual meeting of stockholders to be held in 2001 or until
their successors are elected and qualified and of R.K. Richey as a director,
to hold office for a term of one year, expiring at the close of the annual
stockholders meeting in 2000 or until his successor is elected and qualified.
Messrs. McAndrew, Records and Richey's current terms expire in 1999. The term
of office of the other five directors continues until the close of the annual
meeting of stockholders in the year shown in the biographical information
below.
Non-officer directors retire from the Board of Directors at the annual
meeting of stockholders which immediately follows their 75th birthday.
Directors who are officers of the Company retire from active service as
directors at the annual stockholders meeting immediately following their 65th
birthday, except that these directors may be elected annually to additional
one year terms not to continue beyond the annual meeting of stockholders
following the director's 75th birthday. The Chairman of the Executive
Committee serves at the pleasure of the Board on an annual basis until the
annual meeting following his 75th birthday.
If any of the nominees becomes unavailable for election, the directors'
proxies will vote for the election of any other person recommended by the
Board of Directors unless the Board reduces the number of directors.
The Board recommends that the stockholders vote FOR the nominees.
Profiles of Directors and Nominees(/1/)
David L. Boren (age 58) has been a director of the Company since April,
1996. His term expires in 2000. He is a director of Waddell & Reed Financial,
Inc., Phillips Petroleum Corporation, AMR Corporation and Texas Instruments,
Inc. Principal occupation: President of The University of Oklahoma, Norman,
Oklahoma since November, 1994. (United States Senator from Oklahoma, 1979-
1994; Member, Senate Finance Committee).
Joseph M. Farley (age 71) has been a director of the Company since 1980. His
term expires in 2001. He is a director of Waddell & Reed Financial, Inc.
Principal occupation: Of Counsel at Balch & Bingham, Attorneys and Counselors,
Birmingham, Alabama since November, 1992.
Louis T. Hagopian (age 73) has been a director of the Company since 1988.
His term expires in 2000. He is a director of Waddell & Reed Financial, Inc.
Principal occupation: Owner of Meadowbrook Enterprises, Darien, Connecticut,
an advertising and marketing consultancy, since January, 1990. Vice Chairman,
Partnership for a Drug-Free America, New York, New York.
C. B. Hudson (age 53) has been a director since 1986. His term expires in
2001. He is a director of Vesta Insurance Group, Inc. Principal occupation:
Chairman, President and Chief Executive Officer of the Company since March,
1998; Chairman of Liberty, United American and Globe since October, 1991 and
Chief Executive Officer of Liberty since December, 1989, of United American
since November, 1982 and of Globe since February, 1986. (Chairman of Insurance
Operations of the Company, January, 1993-March, 1998; President of Liberty,
January, 1993-December, 1994).
2
<PAGE>
Joseph L. Lanier, Jr. (age 67) has been a director of the Company since
1980. His term expires in 2001. He is a director of Waddell & Reed Financial,
Inc., Dan River Incorporated, Flowers Industries, Inc., Dimon Inc. and
SunTrust Banks, Inc. Principal occupation: Chairman of the Board and Chief
Executive Officer of Dan River Incorporated, Danville, Virginia, a textile
manufacturer, since November, 1989.
Mark S. McAndrew (age 45) has been a director of the Company since July,
1998. Principal occupation: President of United American and Globe since
October, 1991.
Harold T. McCormick (age 70) has been a director since April, 1992. His term
expires in 2000. He is a director of Waddell & Reed Financial, Inc. Principal
occupation: Chairman and Chief Executive Officer of Bay Point Yacht & Country
Club, Panama City, Florida, since March, 1988; Chairman, First Ireland Spirits
Co., Ltd., Abbeyleix, Ireland, since February, 1996.
George J. Records (age 64) has been a director of the Company since April,
1993. He is a director of Waddell & Reed Financial, Inc. Principal occupation:
Chairman of Midland Financial Co., Oklahoma City, Oklahoma, a bank and
financial holding company for retail banking and mortgage operations, since
1982.
R. K. Richey (age 72) has been a director of the Company since 1980. He is a
director of Full House Resorts, Inc., Vesta Insurance Group, Inc., and Waddell
& Reed Financial,Inc. and a Director Emeritus of the United Group of Mutual
Funds (17 funds), Waddell & Reed Funds, Inc. (6 funds) and Target/United
Funds, Inc. (10 funds). Principal occupation: Chairman of the Executive
Committee of the Board of Directors of the Company since March, 1998.
(Chairman of the Company, August, 1986-March, 1998 and Chief Executive Officer
of the Company, December, 1984-March, 1998).
- - --------
(1) Liberty, Globe and United American as used in this proxy statement refer
to Liberty National Life Insurance Company, Globe Life And Accident
Insurance Company and United American Insurance Company, subsidiaries of
the Company.
3
<PAGE>
PROPOSAL NUMBER 2
Approval of Auditors
A proposal to approve the appointment of the firm of Deloitte & Touche LLP
as the principal independent accountants of the Company to audit the financial
statements of the Company and its subsidiaries for the year ending December
31, 1999 will be presented to the stockholders at the annual meeting. KPMG
Peat Marwick LLP served as the principal independent accountants of Torchmark,
auditing the financial statements of the Company and its subsidiaries from
1981 through the fiscal year ended December 31, 1998. In 1998, senior
management of the Company conducted extensive interviews with several
independent accounting firms and held discussions regarding the selection of
principal independent accountants with the members of the Audit Committee of
the Board. After deliberation, senior management recommended to the Audit
Committee that Deloitte & Touche be engaged as the Company's principal
accountants as of January 1, 1999, effective upon the issuance of KPMG's
reports on the consolidated financial statements of Torchmark and its
subsidiaries and the separately issued financial statements of Torchmark's
subsidiaries, unit investment trusts and benefit plans as of and for the year
ending December 31, 1998. Upon review, on October 21, 1998, the Audit
Committee approved the engagement of Deloitte & Touche. Accordingly, the Audit
Committee of the Board recommends the appointment of Deloitte & Touche as the
Company's principal accountants for 1999.
The reports of KPMG on the financial statements of Torchmark for the fiscal
years ending December 31, 1996 and 1997 did not contain any adverse opinion or
disclaimer of opinion. KPMG's reports were not qualified or modified as to
uncertainty, audit scope or accounting principles. During such years and
during the period between December 31, 1997 and the date of the independent
accountants report on the consolidated financial statements of Torchmark for
the three years ended December 31, 1998, there was no disagreement between
KPMG and Torchmark on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
that firm to make reference to the subject matter of such disagreement in
connection with its report on the Company's financial statements.
A representative of KPMG is expected to be present at the meeting and
available to respond to appropriate questions and, although the firm has
indicated that no statement will be made, an opportunity for a statement will
be provided. Representatives of Deloitte & Touche are not expected to be
present at the meeting.
If the stockholders do not approve the appointment of Deloitte & Touche LLP,
the selection of independent auditors will be reconsidered by the Board of
Directors.
The Board recommends that stockholders vote FOR the proposal.
OTHER BUSINESS
The directors are not aware of any other matters which may properly be and
are likely to be brought before the meeting. If any other proper matters are
brought before the meeting, the persons named in the proxy, or in the event no
person is named, C.B. Hudson and Larry M. Hutchison will vote in accordance
with their judgment on these matters.
4
<PAGE>
INFORMATION REGARDING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Executive Officers
The following table shows certain information concerning each person deemed
to be an executive officer of the Company during 1998, except those persons
also serving as directors. Each executive officer is elected by the Board of
Directors of the Company or its subsidiaries annually and serves at the
pleasure of that board. There are no arrangements or understandings between
any executive officer and any other person pursuant to which the officer was
selected.
<TABLE>
<CAPTION>
Principal Occupation
and Business Experience
Name Age for the Past Five Years(1)
---- --- --------------------------
<C> <C> <S>
Bernard Rapoport............ 81 Chairman of the Board and Chief Executive
Officer of American Income since 1975.
(Chairman of the Board and Chief Executive
Officer of American Income Holding, Inc.
1988-1995).
Tony G. Brill............... 56 Vice President of Company since January,
1997. (Managing Partner, KPMG Peat Marwick
LLP, Birmingham, Alabama 1969-December,
1996).
Charles B. Cooper........... 60 President and Chief Operating Officer of
American Income since January, 1977.
</TABLE>
- - --------
(1) American Income Life Insurance Company (American Income) is a wholly-owned
subsidiary of the Company.
5
<PAGE>
Stock Ownership
The following table shows certain information about stock ownership of the
directors, director nominees and executive officers of the Company as of
December 31, 1998.
<TABLE>
<CAPTION>
Company Common Stock
or Options Beneficially
Owned as of
December 31, 1998(1)
-------------------------
Name Directly(2) Indirectly(3)
---- ----------- -------------
<S> <C> <C>
David L. Boren....................................... 11,300 0
Norman, OK
Joseph M. Farley..................................... 129,810 4,800
Birmingham, AL
Louis T. Hagopian.................................... 130,022 0
Darien, CT
C. B. Hudson......................................... 1,859,684 24,051
Plano, TX
Joseph L. Lanier, Jr. ............................... 127,475 18,912
Lanett, AL
Mark S. McAndrew..................................... 204,100 5,489
McKinney, TX
Harold T. McCormick ................................. 36,252 7,200
Panama City, FL
George J. Records.................................... 41,690 0
Oklahoma City, OK
R. K. Richey......................................... 617,982 2,377,176
Horseshoe Bay, TX
Tony G. Brill........................................ 101,456 933
Frisco, TX
Charles B. Cooper.................................... 111,200 0
Waco, TX
Bernard Rapoport..................................... 118,200 0
Waco, TX
All Directors, Nominees and Executive Officers as a
group:(4)............................................ 3,489,171 2,438,561
</TABLE>
- - --------
(1) No directors, director nominees or executive officers other than R. K.
Richey (2.1%) and C.B. Hudson (1.3%) beneficially own 1% or more of the
common stock of the Company.
(2) Includes: for David L. Boren, 10,000 shares; for Joseph Farley, 60,400
shares; for Louis Hagopian, 79,422 shares; for Joseph Lanier, 74,375
shares; for Mark McAndrew, 134,300 shares; for Harold McCormick, 36,252
shares; for George Records, 31,990 shares; for R. K. Richey, 617,982
shares; for C. B. Hudson, 900,304 shares; for Tony Brill, 58,412 shares;
for Charles Cooper, 93,700 shares; for Bernard Rapoport, 111,500 shares
and for all directors, executive officers and nominees as a group,
2,208,637 shares, that are subject to presently exercisable Company stock
options.
(3) Indirect beneficial ownership includes shares (a) owned by the director,
executive officer or spouse as trustee of a trust or executor of an
estate, (b) held in a trust in which the director, executive officer or a
family member living in his home has a beneficial interest, (c) owned by
the spouse or a family member living in the director's, executive
officer's or nominee's home or (d) owned by the director or executive
officer in a personal corporation or limited partnership. Indirect
beneficial ownership also includes 12,051 shares, 5,489 shares, and 591
shares held in the accounts of Messrs. Hudson, McAndrew, and Brill,
respectively, in the Company Savings and Investment Plan. Additionally,
indirect beneficial ownership includes for Mr. Richey 627,962 shares
subject to options held by Richey Capital Partner, Ltd., a family limited
partnership.
Mr. Lanier disclaims beneficial ownership of 16,512 shares owned by his
spouse and 2,400 shares owned by his children. Mr. Farley disclaims 4,800
shares held as trustee of a church endowment fund.
(4) All directors, nominees and executive officers as a group, beneficially
own 4.3% of the common stock of the Company.
6
<PAGE>
During 1998, the Board of Directors met five times. In 1998, all of the
directors attended more than 75% of the meetings of the Board and the
committees on which they served.
Committees of the Board of Directors
The Board of Directors has the following committees: Audit-Messrs. Farley,
Hagopian, and McCormick; Compensation -- Messrs. Farley, Lanier, Hagopian and
Records; Executive -- Messrs. Boren, Farley, Hagopian, Hudson, Lanier,
McCormick, Records and Richey; Finance -- Messrs. Farley, Lanier, McCormick
and Records and Nominating -- Messrs. Boren, Farley, Hagopian, Lanier,
McCormick and Records.
The audit committee recommends the independent auditors to be selected by
the Board; discusses the scope of the proposed audit with the independent
auditors and considers the audit reports; discusses the implementation of the
auditors' recommendations with management; reviews the fees of the independent
auditors for audit and non-audit services; reviews the adequacy of the
Company's system of internal accounting controls; reviews, before publication
or issuance, the annual financial statement and any annual reports to be filed
with the Securities and Exchange Commission and periodically reviews pending
litigation. Additionally, the audit committee meets with the Company's
independent accountants and internal auditors both with and without management
being present. The audit committee met twice in 1998.
The compensation committee determines the compensation of senior management
of the Company and its subsidiaries and affiliates. Additionally, the
compensation committee administers the stock incentive plans of the Company.
The compensation committee met three times in 1998.
The executive committee exercises all the powers of the Board of Directors
in the interim between Board meetings. The executive committee did not meet in
1998.
The finance committee serves as the pricing committee in connection with
capital financing by the Company. The finance committee met once in 1998.
The nominating committee reviews the qualifications of potential candidates
for the Board of Directors from whatever source received, reports its findings
to the Board and proposes nominations for Board membership for approval by the
Board of Directors and for submission to the stockholders for approval.
Recommendations of potential Board candidates may be directed to the
nominating committee in care of the Corporate Secretary of the Company at the
address stated herein. The nominating committee did not meet in 1998.
7
<PAGE>
COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Summary Compensation Table
- - -------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
----------------------------------------- -----------------------------
Awards
-----------------------------
(g)
(e) (f) Securities (i)
(a) (d) Other Annual Restricted Stock underlying All other
Name and (b) (c) Bonus Compensation Award(s) Options/SARs Compensation
Principal Position Year Salary ($)(2) ($)(3) ($)(4) ($)(5) (#)(6) ($)(7)
------------------ ---- ------------- --------- ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
C.B. Hudson 1998 800,000 0 0 259,740 5,772
Chairman, President 1997 800,000 400,000 0 557,181 5,806
and CEO from March 1998 1996 650,000 185,000 0 151,873 5,442
Bernard Rapoport 1998 570,000 0 11,800 0 20,000 9.600
Chairman and CEO 1997 525,000 100,000 10,351 0 44,178 9,600
of American Income 1996 480,000 115,000 9,405 0 104,144 9,000
Mark S. McAndrew 1998 525,000 150,000 1,687,500 62,500 4,800
President of United 1997 475,000 120,000 0 66,782 4,800
American and Globe 1996 425,000 100,000 0 65,090 4,500
Charles B. Cooper 1998 515,000 50,000 527,344 20,000 9,600
President of 1997 475,000 100,000 0 11,326 9,600
American Income 1996 435,000 100,000 0 78,108 9,000
Tony G. Brill(1) 1998 450,000 0 1,687,500 63,258 4,800
Vice President 1997 400,000 85,000 0 116,825 0
1996
R.K. Richey 1998 250,002 0 280,691 0 39,659 95,087
Chairman and CEO 1997 1,000,008 1,000,000 187,526 0 817,481 26,872
until March 1998 1996 1,166,688 0 315,592 0 260,360 25,058
</TABLE>
- - --------
(1) Mr. Brill was paid by Torchmark commencing January 1, 1997. Prior to that
time, he was compensated by an unaffiliated certified public accounting
firm.
(2) Mr. Richey elected to defer his 1998 salary for service as Chairman and
CEO into the Torchmark Corporation Restated Deferred Compensation Plan for
Directors, Advisory Directors, Directors Emeritus and Officers, as amended
(Deferred Compensation Plan).
(3) Messrs. Richey and Hudson elected to defer $816,673 and $200,000,
respectively, of their 1996 bonuses to the Torchmark Corporation 1996
Executive Deferred Compensation Stock Option Plan (TMK Executive Deferral
Plan). Mr. Richey elected to defer $1,000,000 of his 1997 bonus to the
Deferred Compensation Plan. Messrs. Hudson and Brill elected to defer
$400,000 and $100,000, respectively, of their 1998 bonuses pursuant to the
executive deferred compensation stock option provisions of the Torchmark
Corporation 1998 Stock Incentive Plan (1998 Incentive Plan).
(4) Includes perquisites for Mr. Richey--$121,102 in each of 1998, 1997 and
1996 as premium equivalent for group term life insurance; $57,728 in 1996
for 1996 and $57,728 in 1996 for 1997 as premiums for personal life
insurance. Includes for Mr. Rapoport--$11,800, $10,351 and $9,405 paid to
him from the American Income Life Insurance Company Exempt Employees 401K
Profit Sharing Plan (American Income Profit Sharing Plan) in 1998, 1997
and 1996, respectively.
Mr. Richey also received $375,012 in compensation for his services as an
independent contractor in the capacity of Chairman of the Executive
Committee of the Board of Directors of the Company following his March 1998
retirement as Chairman and CEO. This money was deferred into the Torchmark
Corporation 1996 Non-Employee Director Stock Option Plan (1996 Non-Employee
Director Plan).
(5) At year end 1998, Messrs. McAndrew, Cooper and Brill held 40,000, 12,500,
and 40,000 restricted shares, respectively, valued at $1,412,500, $441,406
and $1,412,500 (based on a year-end closing price of $35.3125 per share).
Restricted stock (40,000 shares) awarded on January 1, 1998 to each of
Messrs. McAndrew and Brill vests as follows: 1-1-99 6,400 shares; 1-1-00
6,000 shares; 1-1-01 5,600 shares; 1-1-02 5,200 shares; 1-1-03 4,800
shares; 1-1-04 4,400 shares; 1-1-05 4,000 shares; and 1-1-06 3,600 shares.
Restricted stock (12,500 shares) awarded on January 1, 1998 to Mr. Cooper
vests as follows: 1-1-99 2,000 shares; 1-1-00 1,875 shares; 1-1-01 1,750
shares; 1-1-02 1,625 shares; 1-1-03 1,500 shares; 1-1-04 1,375 shares; 1-
1-05 1,250 shares; and 1-1-06 1,125 shares. Cash dividends on all
restricted stock are paid directly to the
8
<PAGE>
stockholder at the same rate as on unrestricted stock. Messrs. McAndrew,
Cooper and Brill agreed as a condition of their restricted stock awards to
waive receipt of any shares of Waddell & Reed Financial, Inc. (WDR) stock
distributed by Torchmark to its common shareholders in the WDR spin-off on
November 6, 1998.
(6) In December 1998, Messrs. Hudson, Rapoport, McAndrew, Cooper and Brill
received stock option grants of 100,000, 20,000, 62,500, 20,000 and 52,500
shares, respectively, pursuant to the 1998 Incentive Plan. Also, in
December 1998, Messrs. Hudson and Brill elected to receive their 1997
bonuses of $400,000 and $100,000 in the form of stock options on 43,031
shares and 10,758 shares pursuant to the terms of the 1998 Incentive Plan.
On December 30, 1998, Mr. Richey elected to convert all his 1998
compensation as Chairman of the Executive Committee of the Board of
Directors plus accrued interest ($383,121.27) to options on 39,659 shares
pursuant to the terms of the 1996 Non-Employee Director Plan. On November
6, 1998, pursuant to the terms of each existing option plan, adjustments
were made to all outstanding stock options granted prior to that date to
reflect the WDR spin-off based upon each optionee's election to receive
either Adjusted Torchmark Options or a combination of Adjusted Torchmark
Options and WDR Conversion Options granted in WDR Class A common stock.
Accordingly, all shares reflected as underlying options granted prior to
November 6, 1998 have been so adjusted. Additionally, options granted in
1996 were previously adjusted to reflect the 100% stock dividend effected
as a stock split in August 1997.
On January 2, 1997, Mr Brill was granted options under the TMK Incentive
Plan on 116,825 Torchmark shares. On January 31, 1997, Messrs. Hudson and
Richey elected to convert all 1996 bonus amounts plus accrued interest of
$1,151 and $4,703, respectively, held in the TMK Executive Deferral Plan,
subject to subsequently obtained shareholder approval, to stock options of
89,881 and 314,162 Torchmark shares, respectively. In 1997, Messrs. Hudson,
Rapoport, McAndrew, Cooper, and Richey elected to participate in a program
under the TMK Incentive Plan whereby they exercised existing Torchmark
stock options and received restoration options for 467,183, 11,500, 51,300,
8,700, and 313,800 Torchmark shares, respectively. Messrs. Rapoport,
McAndrew and Cooper received options on 3,471, 15,482, and 2,626 WDR Class
A shares as a November 6, 1998 spin-off adjustment to their Torchmark
restoration options. Mr. Rapoport also was awarded options pursuant to the
TMK Incentive Plan on an additional 29,207 Torchmark shares in 1997. Mr.
Hudson was also granted options under the TMK Incentive Plan on 117
additional Torchmark shares in 1997 and on 116,709 Torchmark shares on
January 2, 1998. Mr. Richey transferred his January 31, 1997 Torchmark
stock option for 314,162 Company shares and his 1997 Torchmark restoration
option for 313,800 Company shares to a family limited partnership on
September 29, 1998 and that family limited partnership received options on
94,705 and 94,814 WDR Class A shares as a November 6, 1998 spin-off
adjustment.
In 1996, Messrs. Hudson, Rapoport, McAndrew, Cooper and Richey received
stock option grants in Company common stock pursuant to the Torchmark
Corporation 1987 Stock Incentive Plan (TMK Incentive Plan) on 15,873,
80,000, 50,000, 60,000 and 200,000 Torchmark shares, respectively. Messrs.
Rapoport, McAndrew, Cooper and Richey also received options on 24,144,
15,090, 18,108 and 60,360 WDR Class A shares as a November 6, 1998 spin-off
adjustment to Torchmark stock options granted in 1996.
(7) Includes Company contributions to Torchmark Corporation Savings and
Investment Plan, a funded, qualified defined contribution plan, for each of
Messrs. Hudson and Brill of $4,800 in 1998; for Messrs. Hudson and Richey
of $4,800 in 1997 and of $4,500 in 1996. Includes in 1998, 1997 and 1996,
interest only on prior contributions to the Torchmark Corporation
Supplemental Savings and Investment Plan, an unfunded, non-qualified
defined contribution plan, for Mr. Richey of $19,197.66, $21,951.86 and
$20,557.75 and for Mr. Hudson of $972.11, $1,006.00 and $942.11,
respectively. Includes in 1998 and 1997 for Mr. Richey interest on deferred
compensation in the Deferred Compensation Plan of $75,889.15 and $120.00,
respectively. Includes for Messrs. Rapoport and Cooper, employer company
contributions to the American Income Profit Sharing Plan, a funded,
qualified defined contribution plan, of $9,600.00 in 1998 and 1997 and
$9,000.00 in 1996.
9
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- - ----------------------------------------------------------------------------------------------------------
Potential realizable
value at assumed annual rates
of stock price appreciation
Individual Grants for option term
--------------------------------------------- -----------------------------------
% of
Number of total options Exercise
Securities granted to or
underlying employees base
options in price Expiration
Name granted(#) fiscal year ($/share) Date 5% ($) 10% ($)
(a) (b)(1) (c)(2) (d) (e) 0% ($) (f) (g)
---- ---------- ------------- --------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
All Company Common
Shareholders (3) N/A N/A N/A N/A 0 3,039,122,149 7,701,725,430
C.B. Hudson 116,709 12.6 36.11175 1-4-08 0 2,650,520 6,716,931
43,031 4.7 33.4375 12-16-09 0 1,022,071 2,666,356
100,000 10.8 33.4375 12-18-08 0 2,102,868 5,329,075
CEO gain on 1998 grants
as % of all Company
Common Shareholders
gain N/A N/A N/A N/A N/A 19% 19%
Bernard Rapoport 20,000 2.2 33.4375 12-18-08 0 420,574 1,065,815
6,036 1.0 8.1553 12-18-04 0 30,958 78,453
12,072 2.0 10.4040 12-22-05 0 78,987 200,169
24,144 4.1 11.9331 12-18-06 0 181,193 459,177
3,471 0.6 18.7691 9-27-07 0 40,971 103,828
Mark S. McAndrew 62,500 6.8 33.4375 12-18-08 0 1,314,292 3,330,672
2,414 0.4 8.1553 12-18-04 0 12,381 31,376
15,090 2.6 10.4040 12-22-05 0 98,734 250,212
15,090 2.6 11.9331 12-18-06 0 113,245 286,986
15,482 2.6 18.7691 9-27-07 0 182,746 463,115
Charles B. Cooper 20,000 2.2 33.4375 12-18-08 0 420,574 1,065,815
4,527 0.8 8.1553 12-18-04 0 23,218 58,839
12,072 2.0 10.4040 12-22-05 0 78,987 200,169
18,108 3.1 11.9331 12-18-06 0 135,895 344,383
2,626 0.4 18.7691 9-27-07 0 30,997 78,552
Tony G. Brill 10,758 1.2 33.4375 12-16-09 0 255,227 573,302
52,500 5.7 33.4375 12-18-08 0 1,104,006 2,797,764
R.K. Richey 39,659 N/A 34.7500 12-30-09 0 978,954 2,553,874
14,481 2.5 12.4727 12-09-02 0 113,589 287,857
21,126 3.6 8.1553 12-18-04 0 108,352 274,584
90,540 15.3 10.4040 12-22-05 0 592,405 1,501,270
60,360 10.2 11.9331 12-18-06 .0 452,982 1,147,944
</TABLE>
- - --------
(1) Options expiring on 1-4-08 and 12-18-08 are non-qualified stock options
granted in Torchmark common stock pursuant to the TMK Incentive Plan and
1998 Incentive Plan, respectively, with a ten year and two day term at an
exercise price equal to the closing price of the Company's common stock on
the grant date. These options are not exercisable during the first two
years after the grant date and vest on 50% of the shares two years after
the grant date and on the remaining 50% of the shares three years after
the grant date.
Options expiring on 12-16-09 and 12-30-09 are non-qualified stock options
granted in Torchmark stock with an eleven year term, an exercise price equal
to the closing price of the Company's common stock on the grant date and are
fully vested upon issuance, but only first exercisable as to 1/10 per year
commencing on the first anniversary of the grant date. The options expiring
12-16-09 were granted under the 1998 Incentive Plan and the options expiring
12-30-09 were granted pursuant to a conversion election for an interest-
bearing deferred compensation account in the 1996 Non-Employee Director
Plan.
Options expiring 12-9-02, 12-18-04, 12-22-05, 12-18-06 and 9-27-07 are non-
qualified stock options in WDR Class A common stock which were awarded on
November 6, 1998 as a part of the adjustment process pursuant to the terms
of each existing Torchmark option plan in connection with Torchmark's spin-
off of WDR on November 6, 1998. These WDR options, which were granted under
the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan (WDR 1998
Plan), vest as to 50% of the WDR shares on the second anniversary of the
original grant date of the Torchmark option being adjusted and as to the
remaining 50% of the WDR shares on the third anniversary of the original
grant date of the Torchmark option being adjusted.
10
<PAGE>
(2) Percentages are shown separately for option grants in Torchmark stock
under the TMK Incentive Plan and the 1998 Incentive Plan (expiration dates
of 1-4-08, 12-18-08 and 12-16-09) and in WDR Class A stock under the WDR
1998 Plan (expiration dates of 12-09-02, 12-18-04, 12-22-05, 12-18-06 and
9-27-07 and with percentages for this plan calculated only against the
total number of options on WDR Class A shares granted to Torchmark
employees and Mr. Richey in connection with the WDR spin-off adjustment).
The option with expiration date 12-30-09 was awarded under the 1996 Non-
Employee Director Plan to Mr. Richey for deferrals made in his capacity as
a non-employee director.
(3) Calculated based upon 136,848,975 publicly-held Torchmark common shares
outstanding as of December 31, 1998 (excluding treasury shares and stock
held by subsidiaries which is treated as treasury stock) and the December
31, 1998 stock price of $35.3125.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(d) (e)
(b) (c) Number of Securities Value of unexercised
(a) Shares acquired Value underlying unexercised in-the-money options
Name on exercise (#) Realized ($) options at FY-end (#)(1) at FY-end ($)(2)
----- --------------- ------------ ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C.B. Hudson............. 0 0 891,316 416,687 $ 7,752,531 $2,397,912
Bernard Rapoport........ 0 0 145,151 101,279 $ 2,078,306 $ 799,096
Mark S. McAndrew........ 0 0 174,831 95,045 $ 1,848,740 $ 556,017
Charles B. Cooper....... 0 0 121,979 59,054 $ 1,766,385 $ 564,096
Tony G. Brill........... 0 0 58,412 121,671 $ 806,432 $ 925,055
R.K. Richey............. 0 0 804,489 39,659 $12,301,072 $ 22,308
</TABLE>
- - --------
(1) For Messrs. Hudson and Brill, all exercisable and unexercisable options
are in Torchmark common stock. For Mr. Rapoport, the table reflects
111,500 exercisable Torchmark options, 33,651 exercisable WDR options,
89,207 unexercisable Torchmark options and 12,072 unexercisable WDR
options. For Mr. McAndrew, the table reflects 134,300 exercisable
Torchmark options, 40,531 exercisable WDR options, 87,500 unexercisable
Torchmark options and 7,545 unexercisable WDR options. For Mr. Cooper, the
table reflects 93,700 exercisable Torchmark options, 28,279 exercisable
WDR options, 50,000 unexercisable Torchmark options and 9,054
unexercisable WDR options. For Mr. Richey, the table reflects 617,982
exercisable Torchmark options, 186,507 exercisable WDR options and 39,659
unexercisable Torchmark options.
(2) For Messrs. Hudson and Brill, all dollar amounts shown reflect the value
of Torchmark stock options. For Mr. Rapoport, the table reflects values of
$1,665,224 for exercisable Torchmark options, $413,082 for exercisable WDR
options, $657,196 for unexercisable Torchmark options and $141,899 for
unexercisable WDR options. For Mr. McAndrew, the table reflects $1,445,964
for exercisable Torchmark options, $402,776 for exercisable WDR options,
$467,330 for unexercisable Torchmark options and $88,687 for unexercisable
WDR options. For Mr. Cooper, the table reflects $1,416,372 for exercisable
Torchmark options, $350,013 for exercisable WDR options, $457,671 for
unexercisable Torchmark options and $106,425 for unexercisable WDR
options. For Mr. Richey, the table reflects $9,898,354 for exercisable
Torchmark options, $2,402,718 for exercisable WDR options and $22,308 for
unexercisable Torchmark options.
Pension Plans
Torchmark Corporation Pension Plan. This plan is a non-contributory pension
plan which covers all eligible employees who are 21 years of age or older and
have one or more years of credited service. The benefits at age 65 under the
Pension Plan are determined by multiplying the average of the participant's
earnings in the five consecutive years in which they were highest during the
ten years before the participant's retirement by a percentage equal to 1% for
each of the participant's first 40 years of credited service plus 2% for each
year of credited service up to 20 years after the participant's 45th birthday
and then reducing that result by a Social
11
<PAGE>
Security offset and by other benefits from certain other plans of affiliates.
Earnings for purposes of the Pension Plan include compensation paid by
subsidiaries and affiliates, and do not include commissions, directors' fees,
expense reimbursements, employer contributions to retirement plans, deferred
compensation, or any amounts in excess of $160,000 (as adjusted). Benefits
under the Pension Plan vest 100% at five years. Upon the participant's
retirement, benefits under the plan are payable as an annuity or in a lump
sum. In 1998, covered compensation was $160,000 for Messrs. Hudson, McAndrew,
Brill and Richey under the Pension Plan.
Vested benefits under the non-qualified Torchmark Supplemental Retirement
Plan, in which Messrs. Hudson and Richey have participated, were frozen as of
December 31, 1994 and no additional benefits accrue after that date pursuant
to the supplementary retirement plan. Messrs. McAndrew and Brill do not
participate in any supplementary pension plan.
Messrs. Hudson, McAndrew and Brill have 24 years, 19 years and two years of
credited service under the Pension Plan, respectively. Mr. Richey had 34 years
of credited Service under the Pension Plan at the time of his retirement.
Messrs. Rapoport and Cooper are not covered by any pension plan.
The following table shows the estimated annual benefits payable under the
Pension Plan along with its supplementary retirement plan (which was frozen in
1994) upon retirement of participants with varying final average earnings and
years of service. Primarily because of the termination of the Supplemental
Retirement Plan, the benefits shown below as payable pursuant to the Pension
and Supplemental Retirement Plans may in most cases exceed the actual amounts
paid. The benefits shown are offset as described above and the amounts are
calculated on the basis of payments for the life of a participant who is 65
years of age.
Torchmark Pension and Supplemental Retirement Plans*
<TABLE>
<CAPTION>
Final Years of Credited Service
Average -----------------------------------------------------------------
Earnings 15 20 25 30 35
-------- ------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$1,000,000 450,000 600,000 650,000 700,000 750,000
1,200,000 540,000 720,000 780,000 840,000 900,000
1,400,000 630,000 840,000 910,000 980,000 1,050,000
1,600,000 720,000 960,000 1,040,000 1,120,000 1,200,000
</TABLE>
- - --------
* Benefits paid under a qualified defined benefit plan are limited by law in
1998 to $130,000 per year. The balance of the benefit payments shown above
thus comes from the Supplemental Retirement Plan. Because benefit accruals
under the Supplemental Retirement Plan ceased as of December 31, 1994, each
of Messrs. Hudson and Richey have three years less of credited service
under the Supplemental Retirement Plan than under the Pension Plan.
Payments to Directors
Directors of the Company are currently compensated on the following basis:
(1) Directors who are not officers or employees of the Company or a
subsidiary of the Company (Outside Directors) receive a fee of $1,000 for
each attended Board meeting, a fee of $500 for each attended Board
committee meeting, and an annual retainer of $40,000, payable each January
for the entire year. They do not receive fees for the execution of written
consents in lieu of Board meetings and Board committee meetings. They
receive an allowance for their travel and lodging expenses if they do not
live in the area where the meeting is held.
Each Outside Director is automatically awarded annually non-qualified
stock options on 6,000 shares of Company common stock on the first day of
each calendar year in which stock is traded on the New York Stock Exchange.
The entire Board may, for calendar years commencing with 1996, award non-
qualified stock options on a non-formula basis to all or such individual
Outside Directors as it shall select. Such options may be awarded at such
times and for such number of shares as the Board in its discretion
determines. The price of such options may be fixed by the Board at a
discount not to exceed 25% of the fair market value on the grant date or at
the fair market value of the stock on the grant date.
12
<PAGE>
Commencing with 1997 retainer and meeting and committee fees (assuming
attendance at all scheduled meetings), Outside Directors may annually elect
to make deferrals of such compensation for the following year into the
interest-bearing account of the Non-Employee Director Plan (for amounts
earned prior to 1999) and pursuant to the deferred compensation stock
option provisions of the 1998 Incentive Plan (for amounts earned in 1999
and in subsequent years). They may subsequently elect to convert such
balances to stock options with either fair market value or discounted
exercise prices. In 1998, Messrs. Hagopian, Lanier, McCormick, and Records
chose to make such deferrals of 1998 compensation, which were converted
into options on 10,319, 9,751, 11,114 and 9,721 shares, respectively, in
1998.
(2) Beginning in January, 1993, directors who are officers or employees
of the Company or a subsidiary of the Company waived receipt of all fees
for attending Board meetings. They do not receive fees for the execution of
written consents in lieu of Board meetings. They also do not receive a fee
for attending Board committee meetings or an annual retainer. They are
reimbursed their travel and lodging expenses, if any.
(3) Compensation paid to the director serving as Chairman of the
Executive Committee is determined annually by the Compensation Committee in
their discretion.
Each person who has retired as a director and who is not currently serving
as an advisory director may receive a retirement benefit payable annually, in
an amount equal to $200 a year for each year of service as a director or
advisory director up to 25 years, but not less than $1,200 a year. In
determining this benefit, the number of years of service may include years as
a director of a subsidiary of the Company if the payment for such years by the
Company is in place of a payment which would otherwise be made by the
subsidiary.
Other Transactions
Robert Richey, Vice President of a Company subsidiary and son of R. K.
Richey, received compensation and fringe benefits in 1998 of $126,291.
In 1998, the Company paid Cavendish Services, Ltd. $60,000 for services
relating to foreign currency trading and data services. Director Harold
McCormick holds a limited partnership interest in Cavendish Services, Ltd.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's common stock are required to report their initial ownership of the
Company's common stock and other equity securities and any subsequent changes
in that ownership to the Securities and Exchange Commission and the New York
Stock Exchange and to submit copies of these reports to the Company. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, during the fiscal year ended December 31, 1998, all required
Section 16(a) filings applicable to its executive officers, directors, and
greater than ten percent beneficial owners were timely and correctly made
except that Mark E. Pape filed Form 3 after its due date and included a stock
option inadvertently omitted on his Form 5; Rosemary Montgomery filed a late
Form 4 to report the sale of Torchmark stock and included in Form 5 a Form 4
sale transaction not reported on a timely basis; James L. Sedgwick, who ceased
to be an insider September 30, 1998, included in his Form 5 a Form 4
reportable option exercise not reported on a timely basis; C.B. Hudson amended
his 1997 Form 5 to disclose an unreported stock option grant; 1998 Forms 5 for
David L. Boren, Joseph M. Farley, Joseph L. Lanier, Jr., Louis T. Hagopian,
Harold T. McCormick, George J. Records and R.K. Richey were filed two days
late due to a mailing error; Robert L. Hechler, who ceased to be an insider
March 4, 1998, included in Form 5 a Form 4 sale not reported on a timely basis
and reported three sales on a Form 4 not filed on a timely basis; Henry J.
Herrmann, who ceased to be an insider March 4, 1998, filed two late Forms 4
reporting a total of five sales; and Keith A. Tucker, who ceased to be an
insider March 4, 1998, filed two late Forms 4 reporting a total of eight sales
and included in his Form 5 one additional sale not reported on a timely basis.
13
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation of senior executives of Torchmark and its subsidiaries and
affiliates is determined by the Compensation Committee of the Board of
Directors. The Compensation Committee, comprised entirely of outside
directors, meets to fix annual salaries in advance and bonuses for the current
year of executives earning more than $150,000, to review annual goals and
reward outstanding annual performance of executives, to grant stock options
pursuant to the 1998 Stock Incentive Plan and to determine senior executives
eligible to participate in the executive deferred compensation stock option
program under the 1998 Incentive Plan.
In 1993, the Compensation Committee employed an unaffiliated executive
compensation consulting firm, Towers Perrin, to assist it in reviewing
executive compensation policies and the payment of bonuses to executives. In
1997, the Compensation Committee utilized an unaffiliated executive
compensation consultant from KPMG Peat Marwick LLP to review certain of its
executive compensation policies and practices. The Compensation Committee met
on several occasions in 1998 with the Chairman to discuss the salaries and
bonuses of the five most highly compensated executives, including the
Chairman. Also, the Compensation Committee received written reports discussing
compensation of persons reporting to the five most highly compensated
executives, including the Chairman.
Compensation Principles
The business philosophy of the Company focuses on maintenance and
improvement of insurance operating margins and other operating margins through
the efficient management of assets and control of costs. The Company's
executive compensation program is based on principles which align compensation
with this business philosophy, company values and management initiative. The
program seeks to attract and retain key executives necessary to the long-term
success of the Company, to mesh compensation with both annual and long-term
strategic plans and goals and to reward executives for their efforts in the
continued growth and success of the Company. Annual goals for executive
compensation focus on a number of factors, including but not limited to,
growth in earnings per share, return on equity and pre-tax operating income
for holding company executives and on insurance operating income, underwriting
income and premium growth for the executives of the Company's insurance
subsidiaries.
To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Compensation Committee considers
the anticipated tax treatment to the Company and to the executives of various
payments and benefits. Some types of compensation payments and their
deductibility depend upon the timing of an executive's vesting or exercise of
previously granted rights. Further, interpretations of and changes in the tax
laws and other factors beyond the Compensation Committee's control also affect
the deductibility of compensation. For these and other reasons, the
Compensation Committee will not necessarily and in all circumstances limit
executive compensation to that deductible under Section 162(m). The
Compensation Committee will consider various alternatives to preserving the
deductibility of compensation payments and benefits to the extent reasonably
practicable and to the extent consistent with its other compensation
objectives.
Salary and Bonus System
For some time the Company has used a system of salaries and bonuses to
reward executives of the Company and its subsidiaries for performance relative
to annual goals. These goals vary by operating company based upon that
particular company's current position. Annually, the Company's Chairman,
President and Chief Executive Officer calculates a proposed pool to fund
current year bonuses and subsequent year salaries for all executives whose
combined cash compensation exceeds $150,000 per year. The proposed
salary/bonus pool is determined based upon a formula within a range of
approximately 5% that takes into account prior year salaries and bonuses paid,
estimated and adjusted earnings per share and estimated return on equity,
adjusted for certain minimum tax-effected earnings per share and minimum
return on equity. The amount of the proposed pool is submitted to the
Compensation Committee for its review and approval. The Compensation
Committee, in consultation with the Company's Chairman, President and Chief
Executive Officer, then reviews each subsidiary's performance relative to the
goals and fixes salaries and bonuses for that operating subsidiary's
executives. The degree to which these executives have met their particular
subsidiary's goals in turn determines the amount of the bonus, if any, and
whether senior executive officers of the Company receive salary increases.
Such executives do not receive any cost of living salary adjustments.
14
<PAGE>
Stock Option Program
The Company began awarding stock options to executives and key employees in
1984. The option plan under which options in Company common stock were awarded
in 1998 was adopted in April 1998. It has as its stated purpose attracting and
retaining employees who contribute to the Company's success and enabling those
persons to participate in that long-term success and growth through an equity
interest in the Company. To this end, the Compensation Committee, as
administrator of the 1998 Incentive Plan, grants non-qualified stock options
to officers and key employees at the market value of the Company's common
stock on the date of the grant, the size of the grant being based generally on
the current compensation of such officers or key employees. The five most
highly compensated executive officers are paid salaries and bonuses
commensurate with the level of their responsibilities and therefore they
typically are awarded a larger number of option shares than other employees
with lesser levels of compensation and responsibility. In 1998, for the five
most highly compensated executive officers (excluding Mr. Richey, who received
options only in his capacity as a director), the options granted were in
proportion to current compensation adjusted by a subjective factor ranging
from 3.5% to 32.5%.
Decisions regarding stock option grants are made annually and the number of
options previously awarded to an individual executive officer is not a
substantial consideration in determining the amount of options granted to that
officer in the future. Once an officer has been awarded options and becomes a
part of the stock option program, he or she will typically continue to receive
from year to year stock options related to salary.
Stock options may be exercised using cash or previously-owned stock for
payment or through a simultaneous exercise and sale program. Such stock
options generally become first exercisable to the extent of 50% of the shares
on the second anniversary of the option grant date and on the remaining 50% of
the shares on the third anniversary of the option grant date.
Deferred Compensation Option Program
The Company's 1998 Incentive Plan, adopted in April, 1998, contains
provisions permitting designated executives to receive deferred compensation
stock options. The plan permits eligible executives to defer salary and/or
bonus on an annual basis into an interest-bearing account and subsequently on
a one time basis within a limited time period to elect to convert all or a
portion of their deferred compensation into Company stock options granted at
market value or at a discount not to exceed 25%. The Compensation Committee
did not designate any Company executives to participate in this program in
1998. However, Messrs. Hudson and Brill elected to receive all of their
respective 1998 bonuses in the form of stock options under the regular
provisions of the 1998 Incentive Plan.
Compensation of Chief Executive Officer
C. B. Hudson joined the Company subsidiary Globe in 1974 as its Chief
Actuary and has served as a senior executive officer and director of the
Company's principal insurance subsidiaries since that time. During the period
1982 to 1991, he was elected as Chairman and Chief Executive Officer of United
American, Globe and Liberty, all principal insurance subsidiaries of the
Company. Mr. Hudson was elected to the Torchmark Board of Directors in 1986
and was named Chairman of Insurance Operations of the Company in January 1993.
He assumed the responsibilities of Chairman, President and Chief Executive
Officer of the Company on March 10, 1998. Since 1993, the market value of
Torchmark has increased 71% to over $4.8 billion, and the number of
outstanding shares has been reduced by 6%. The market price per share of
Company stock has increased 82% since 1993. The market capitalization of the
Company during the same period has compounded at 11.3%.
The Compensation Committee gave consideration to these factors as well as to
Mr. Hudson's ability and determination and his vision and leadership in
continuing to enhance the long term value of the Company. Mr. Hudson was
awarded a 1998 discretionary bonus of $400,000 from the pool by the
Compensation Committee, which he chose to receive in the form of Company stock
options.
Mr. Hudson's base salary and any stock options awarded to him are not
directly tied to any one or a group of specific measures of corporate
performance. His base salary is determined by the Compensation Committee
considering his tenure of service with the Company and its subsidiaries and
affiliates, his current job responsibilities, the progression of
responsibilities and positions he has assumed in the Company over the course
of his career and a comparison of salaries paid at peer companies.
15
<PAGE>
Any stock options awarded to Mr. Hudson are also not directly related to
specific measures of corporate performance. Such award is generally based on
his current compensation.
R.K. Richey served as Chief Executive Officer of the Company for the months
of January and February 1998 prior to his retirement. He received a salary of
$250,002 based upon proration of his $1,000,000 annual approved salary. He did
not receive a bonus for his 1998 service as Chief Executive Officer.
Compensation of Other Executives
The other executive officers listed in the Summary Compensation Table in the
Proxy Statement are compensated by salary and a discretionary bonus which may
be impacted by a number of factors, including but not limited to, growth in
earnings per share and return on equity at the Company and growth in insurance
operating income, underwriting income and premium of the various Company
subsidiaries, affiliates or areas of operation for which each is responsible.
The pool of funds available for determining their salaries and bonuses is
calculated based upon the formula described in the discussion of the salary
and bonus system. Determination of any salary increase or bonus award to such
an executive is then recommended by the Chairman, President and Chief
Executive Officer in his discretion based upon an evaluation of a number of
factors, including those listed above, to the Compensation Committee for its
decision.
Mr. Rapoport has served for a number of years as the Chairman of the Board
and Chief Executive Officer of American Income. Mr. Rapoport did not receive a
bonus for 1998.
Mr. McAndrew is the chief operating officer of the Company's subsidiaries
United American and Globe, serving as President of those companies since 1991.
He is responsible for the Company's direct response insurance marketing. Mr.
McAndrew was awarded a $150,000 discretionary bonus by the Compensation
Committee for 1998 which he chose to receive in cash.
Mr. Brill is the Vice President in charge of insurance administration for
Torchmark and all its insurance subsidiaries. He also shares primary
responsibility for the Company's Year 2000 compliance efforts. The
Compensation Committee awarded Mr. Brill a $100,000 discretionary bonus for
1998, which he elected to take in the form of Company stock options.
Mr. Cooper has served as President and Chief Operating Officer of American
Income since 1997. He shares primary responsibility for the Company's Year
2000 compliance efforts. For 1998, the Compensation Committee granted Mr.
Cooper a $50,000 discretionary bonus, which he elected to be paid in cash.
Compensation and Company Performance
As indicated above, the annual aspect of executive compensation for holding
company executives of Torchmark centers on increases in pre-tax operating
income and for executives of the insurance subsidiaries on underwriting
income. Over the last year pre-tax operating income has increased 18% from
$426 million in 1997 to $502 million in 1998. Underwriting income comprised
64% of the Company's pre-tax operating income for 1998. Underwriting income
has increased from $306 million to $319 million in 1998 over 1997.
The above performance resulted in compensation increases to certain of the
Company's executives as a group shown in the Summary Compensation Table on
page 8. Cash compensation paid persons who are listed in
16
<PAGE>
that table other than Mr. Richey, who retired as Chairman and Chief Executive
Officer in March 1998, decreased 14% in 1998 over 1997, because Messrs. Hudson
and Brill elected to receive stock options rather than cash in payment of
their bonuses and Mr. Rapoport did not receive a 1998 bonus.
The long-term portion of the executive compensation program centers on stock
value through the granting of stock options. Over the last three fiscal years
diluted earnings per share from continuing operations excluding realized
investment gains, the related acquisition cost adjustment, and the equity in
Vesta earnings have increased 51% and rose from $1.52 in 1995 to $2.29 in
1998.
Joseph L. Lanier, Jr., Chairman
Joseph M. Farley
Louis T. Hagopian
George J. Records
The foregoing Compensation Committee Report on Executive Compensation shall
not be deemed "filed" with the Securities and Exchange Commission or subject
to the liabilities of Section 18 of the Securities Exchange Act of 1934.
17
<PAGE>
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG TORCHMARK CORPORATION, THE S&P 500 INDEX
AND THE S&P INSURANCE (LIFE/HEALTH) INDEX
Cumulative Total Return
-----------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ----- ----- ----- -----
TORCHMARK CORPORATION 100 80 106 122 208 176
S&P 500 100 101 139 171 229 294
S&P INSURANCE (LIFE/HEALTH) 100 83 119 146 182 192
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
The line graph shown above compares the yearly percentage change in
Torchmark's cumulative total return on its common stock with the cumulative
total returns of the Standard and Poor's 500 Stock Index (S&P 500) and the
Standard and Poor's Insurance (Life/Health) Index (S&P Insurance
(Life/Health)). Torchmark is one of the companies whose stock is included
within both the S&P 500 and the S&P Insurance (Life/Health).
Information for graph produced by Research Data Group, Inc.
18
<PAGE>
MISCELLANEOUS INFORMATION
Proposals of Stockholders
In order for a proposal by a stockholder of the Company to be eligible to be
included in the proxy statement and proxy form for the annual meeting of
stockholders in 2000, the proposal must be received by the Company at its home
office, 2001 Third Avenue South, Birmingham, Alabama 35233, on or before
November 27, 1999. If a stockholder proposal is submitted outside the proposal
process mandated by Securities and Exchange Commission rules, it will be
considered untimely if received after February 9, 2000.
General
The cost of this solicitation of proxies will be paid by the Company. The
Company is requesting that certain banking institutions, brokerage firms,
custodians, trustees, nominees, and fiduciaries forward solicitation material
to the underlying beneficial owners of the shares of the Company they hold of
record. The Company will reimburse all reasonable forwarding expenses.
The Annual Report of the Company for 1998, which accompanies this proxy
statement, includes a copy of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K for the fiscal year ended December 31,
1998 and the financial statements and schedules thereto. Upon request and
payment of copying cost, the exhibits to the Form 10-K will be furnished.
These written requests should be directed to Investor Relations Department,
Torchmark Corporation at its address stated above.
By Order of the Board of Directors
/s/ Carol A. McCoy
Carol A. McCoy
Associate Counsel & Secretary
March 26, 1999
19
<PAGE>
TORCHMARK CORPORATION
Proxy/Direction Card for Annual Meeting on April 29, 1999
P THIS PROXY/DIRECTION IS SOLICITED BY THE BOARD OF DIRECTORS OF THE
COMPANY. The undersigned hereby appoints C. B. Hudson and Larry M.
R Hutchison, jointly and severally with full power of substitution, to vote
all shares of common stock which the undersigned holds of record and is
O entitled to vote at the An-nual Meeting of Shareholders to be held at the
offices of the Company, 2001 Third Avenue South, Birmingham, Alabama on
X the 29th day of April 1999 at 10:00 a.m. (CDT), or any adjournment
thereof. All shares votable by the undersigned including shares held of
Y record by agents or trustees for the undersigned as a participant in the
Dividend Reinvestment Plan (DRP), Torchmark Corporation Sav-ings and
Investment Plan (TTP), Waddell & Reed Financial, Inc. 401-K and Sav-ings
and Investment Plan (WR 401K), Liberty National Life Insurance Company
401K Plan (LNL 401K) and the Profit Sharing and Retirement Plan of Liberty
Na-tional Life Insurance Company (LNL PS&R) will be voted in the manner
specified and in the discretion of the persons named above or such agents
or trustees on such other matters as may properly come before the meeting.
Election of Directors: (change of address/comments)
(01) Mark S. McAndrew and (02) George
J. Records for three year terms and ------------------------------------
(03) R. K. Richey for a one year term
------------------------------------
------------------------------------
------------------------------------
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxy Committee
cannot vote your shares unless you sign and return this card.
SEE REVERSE
SIDE
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Dividend Reinvestment: Torchmark maintains a Dividend Reinvestment Plan for
all holders of its common stock. Under the plan, shareholders may reinvest
all or part of their dividends in additional shares of common stock and may
also make periodic additional cash payments of up to $3,000 toward the
purchase of Torchmark stock. Participation is entirely voluntary. More
information on the plan can be obtained by calling 1-800-446-2617.
Multiple Annual Reports: Securities and Exchange Commission rules require
that an annual report precede or be included with proxy materials. If you
have multiple accounts, you may be receiving more than one annual report,
which is costly to Torchmark and may be inconvenient to you. You may
authorize Torchmark to discontinue mailing extra reports by marking the
appropriate box on the reverse side of the proxy card for selected accounts.
At least one account MUST continue to receive an annual report. Eliminating
these duplicate mailings will not affect receipt of future proxy statements,
proxy cards or dividend checks. To resume the mailing of an annual report to
an account, please call 1-800-446-2617.
Direct Deposit of Dividends: Torchmark is now making direct deposit of cash
dividends available to its shareholders. To obtain information and materials
for participation in this service, please call 1-800-446-2617.
<PAGE>
[ X ] Please mark your 4937
votes as in this
example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS AND
FOR PROPOSAL 2.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of Auditors [ ] [ ] [ ]
Directors
For, except vote withheld from the following nominee(s):
- - -------------------------------------------------------
Eliminate duplicate reports [ ]
Change of Address shown [ ]
on reverse
Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
----------------------------------------
----------------------------------------
SIGNATURE(S) DATE
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
TORCHMARK STOCKHOLDERS CAN NOW VOTE THEIR SHARES OVER THE TELEPHONE OR THE
INTERNET. THIS ELIMINATES THE NEED TO RETURN THE PROXY CARD.
To vote your shares over the telephone or the Internet you must have your proxy
card and Social Security Number available. The three-part Voter Control Number
(including the # signs) that appears in the above box just below the
perforation must be used in order to vote by telephone or over the Internet.
These systems can be accessed 24 hours a day, seven days a week up until the
day of the meeting.
1. To vote over the telephone:
On a touch-tone telephone call 1-800-OK2-VOTE (1-800-652-8683).
2. To vote over the Internet:
Log on to the Internet and go to the web site http//www.vote-by-net.com.
Your vote over the telephone or the Internet registers your vote in the same
manner as if you marked, signed, dated and returned your proxy card.
If you choose to vote your shares over the telephone or the Internet, there is
no need for your to mail back your proxy card.
Your vote is important. Thank you for voting.
