<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
Pioneer Financial Services, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(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>
PIONEER FINANCIAL SERVICES, INC.
1750 EAST GOLF ROAD
SCHAUMBURG, ILLINOIS 60173
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 1996
To the Holders of Common Stock of
Pioneer Financial Services, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Holders of Common
Stock of Pioneer Financial Services, Inc. will be held at the offices of the
Company, 1750 East Golf Road, Schaumburg, Illinois 60173, on Thursday, May 23,
1996, at 4:00 p.m., Central Time, for the purpose of considering and acting
upon the following matters:
1. To elect two Class II directors to the Board of Directors;
2. To approve an amendment of the Company's 1994 Omnibus Stock Incentive
Program;
3. To approve the Company's Employee Stock Purchase Plan;
4. To approve the performance-based business criteria for the Company's
Annual Incentive Plan for the Company's Chief Executive Officer;
5. To approve an amendment of the Company's Certificate of Incorporation to
increase the authorized shares of the Company's Common Stock; and
6. To consider and act upon such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
Stockholders of record as of the close of business on March 25, 1996, shall
be entitled to notice of, and to vote, at the meeting. The stock transfer
books of the Company will not be closed. For ten days prior to the meeting, a
list of stockholders entitled to vote at the meeting (with the address of and
number of shares held by each) shall be kept on file at the offices of the
Company at 1750 East Golf Road, Schaumburg, Illinois 60173, and shall be
available for inspection by any stockholder during the meeting. Stockholders
who do not expect to attend in person are urged to execute and return the
accompanying proxy in the envelope enclosed.
By order of the Board of Directors
A. Clark Waid, III
Secretary
Schaumburg, Illinois
April 19, 1996
<PAGE>
PROXY STATEMENT
----------------
PIONEER FINANCIAL SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1996
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Pioneer
Financial Services, Inc., a Delaware corporation (the "Company"), 1750 East
Golf Road, Schaumburg, Illinois 60173, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting of
stockholders to be held on Thursday, May 23, 1996 and at any adjournments
thereof. The approximate date on which this Proxy Statement and the
accompanying proxy are first being sent to stockholders is April 19, 1996.
The proxy is revocable at any time before it is voted by a subsequently
dated proxy, by written notification to the persons named therein as proxies,
which may be mailed or delivered to the Company at the above address, or by
attendance at the meeting and voting in person. All shares represented by
effective proxies will be voted at the meeting and at any adjournments
thereof.
If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted
as indicated thereon. If no specification is made, the proxy will be voted by
the proxies FOR the election as directors of the nominees named below (or
substitutes therefor, if any nominees are unable or refuse to serve), FOR the
approval of the amendment to the Company's 1994 Omnibus Stock Incentive
Program, FOR the approval of the Company's Employee Stock Purchase Plan, FOR
approval of the performance-based business criteria for the Company's Annual
Incentive Plan for the Company's Chief Executive Officer, FOR approval of the
amendment to the Company's Certificate of Incorporation and, in the discretion
of the proxies, upon such matters not presently known or determined which may
properly come before the meeting.
The Company has two classes of stock outstanding, Common Stock and $2.125
Cumulative Convertible Exchangeable Preferred Stock ("Convertible Preferred
Stock"). On March 25, 1996, 10,112,062 shares of Common Stock were outstanding
and entitled to one vote each on all matters considered at the meeting. On
March 25, 1996, 848,100 shares of Convertible Preferred Stock were
outstanding, none of which were entitled to vote on any matters considered at
the meeting. Holders of Common Stock of record as of the close of business on
March 25, 1996, are entitled to notice of and to vote at the meeting. There
are no cumulative voting rights with respect to the election of directors.
PRINCIPAL HOLDERS OF SECURITIES
The following table shows with respect to each person who is known to be the
beneficial owner of more than 5% of the Common Stock of the Company: (i) the
total number of shares of Common Stock beneficially owned as of March 5, 1996;
and (ii) the percentage of the outstanding Common Stock so owned as of that
date:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- -------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Peter W. Nauert 1,702,635(2) 16.4%
1750 East Golf Road
Schaumburg, Illinois 60173
Common U.S. Bancorp 582,510(3) 5.8%
111 S.W. Fifth Avenue
Portland, Oregon 97204
</TABLE>
<PAGE>
- --------
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(2) Includes (i) 86,000 shares held by Mr. Nauert's children or by Mr. Nauert
as custodian or as trustee for his children and 2,000 shares held of
record by Mr. Nauert's wife, (ii) 215,000 shares which may be acquired
pursuant to presently exercisable stock options, and (iii) 3,392 shares of
Common Stock held in Employee Savings and Stock Ownership Plan accounts.
(3) U.S. Bancorp has sole voting power with respect to 579,210 shares, sole
power to dispose of 549,816 shares and shared power to dispose of 32,694
shares. This information is based upon a Schedule 13G dated February 13,
1996.
The following table shows with respect to each director and nominee for
director of the Company, each of the executive officers named in the Summary
Compensation Table below, and all executive officers and directors as a group:
(i) the total number of shares of Common Stock and Convertible Preferred Stock
beneficially owned as of March 5, 1996 and (ii) the percentage of the
outstanding Common Stock and Convertible Preferred Stock so owned as of that
date:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
OWNERSHIP(1) PERCENT OF CLASS
--------------------------------- ------------------
CONVERTIBLE CONVERTIBLE
COMMON PREFERRED COMMON PREFERRED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK
- ------------------------ --------- ----------- ------ -----------
<S> <C> <C> <C> <C>
Peter W. Nauert........... 1,702,635(2)(3)(4) 0 16.4% 0
William B. Van Vleet...... 54,269(3)(4) 0 * 0
Michael A. Cavataio....... 216,759(3)(5) 7,482(6) 2.1% *
Richard R. Haldeman....... 17,300(3) 0 * 0
Michael K. Keefe.......... 37,200(3) 0 * 0
Karl-Heinz Klaeser........ 61,271(3) 0 * 0
Robert F. Nauert.......... 18,212(3)(4) 0 * 0
Charles R. Scheper........ 81,035(3)(4) 0 * 0
R. Richard Bastian, III... 31,846(3) 0 * 0
Thomas J. Brophy.......... 35,205(3)(4)(7) 400 * *
John W. Gardiner.......... 6,000 0 * 0
Ernest T. Giambra, Jr..... 19,069(3)(4) 0 * 0
Carl Hulbert.............. 25,000(3) 0 * 0
Anthony J. Pino........... 25,907(3)(4) 0 * 0
All directors and
executive officers as a
group (16 persons)....... 2,341,006(3)(4)(5)(7) 7,882(6) 21.6% *
</TABLE>
- --------
* Less than 1.0%
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(2) Includes 86,000 shares held by Mr. Nauert's children or by Mr. Nauert as
custodian or as trustee for his children and 2,000 shares held of record
by Mr. Nauert's wife.
(3) Includes shares of Common Stock which such directors and executive
officers have the right to acquire within 60 days upon the exercise of
stock options as follows: Mr. Peter Nauert, 215,000 shares; Mr. Van Vleet,
50,000 shares; Mr. Cavataio, 116,354 shares; Mr. Haldeman, 14,500; Mr.
Keefe, 33,000 shares; Mr. Klaeser, 55,500 shares; Mr. Robert Nauert,
15,000 shares; Mr. Scheper, 70,000 shares; Mr. Brophy, 25,000 shares; Mr.
Bastian, 27,923 shares; Mr. Hulbert, 25,000 shares; Mr. Giambra, 10,000
shares; Mr. Pino 15,000 shares; executive officers other than named
executive officers, 4,000 shares.
(4) Includes shares of Common Stock held in Employee Savings and Stock
Ownership Plan accounts.
2
<PAGE>
(5) Includes (i) 61,353 shares of Common Stock held directly by Mr. Cavataio,
(ii) 6,301 shares of Common Stock held of record by, or in trust for the
benefit of members of Mr. Cavataio's immediate family and (iii) 9,223
shares of Common Stock issuable upon conversion of 5,768 shares of
Convertible Preferred Stock held by Mr. Cavataio and 1,714 shares of
Convertible Preferred Stock held of record by, or in trust for the benefit
of, members of Mr. Cavataio's immediate family.
(6) Includes 1,714 shares of Convertible Preferred Stock held of record by, or
in trust for the benefit of, members of Mr. Cavataio's immediate family.
(7) Includes 640 shares of Common Stock issuable upon conversion of 400 shares
of Convertible Preferred Stock.
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders, two Class II directors are to be
elected to hold office for a term of three years or until their successors are
elected and qualified, leaving one vacancy in Class II. The Company is
currently engaged in the process of evaluating potential candidates to fill
that vacancy. It is intended that, in the absence of contrary specifications,
votes will be cast pursuant to the enclosed proxies for the election of the
two nominees referred to below. Only two nominees will be elected at the
Annual Meeting. Nominees for director will be elected by a plurality of the
votes cast at the meeting by the holders of shares represented in person or by
proxy. Thus, assuming a quorum is present, the two persons receiving the
greatest number of votes will be elected, and abstentions and broker non-votes
will have no effect. For purposes of the meeting, a quorum means a majority of
the outstanding shares of Common Stock. In determining whether a quorum
exists, all shares represented in person or by proxy will be counted. Should
any of the nominees become unable or unwilling to accept nomination or
election, it is intended, in the absence of contrary specifications, that the
proxies will be voted for the balance of those named and for a substitute
nominee or nominees. However, the Company now knows of no reason to anticipate
such an occurrence. All of the nominees have consented to be named as nominees
and to serve as directors if elected. The following table sets forth the
nominees and continuing directors of the Company.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE,
NAME AGE AND OTHER DIRECTORSHIPS
---- --- -----------------------
<S> <C> <C> <C> <C>
CLASS II (TERM EXPIRES 1999)
John W. Gardiner........ 65 John W. Gardiner was a director, President and Chief Operating Officer
and a member of the Compensation Committee of Life Partners Group
("Life Partners") and a director and Chairman and Chief Executive Officer
of Massachusetts General Life Insurance Company and Philadelphia Life
Insurance Company ("Philadelphia Life"), two subsidiaries of Life
Partners, from March 1990 to his retirement in May 1995. Life Partners,
through its insurance subsidiaries, sells a diverse portfolio of universal
life insurance and annuity products.
Karl-Heinz Klaeser...... 64 Karl-Heinz Klaeser has been a director of the Company since 1986.
Mr. Klaeser has also been a director of Insurance Investors Life
Insurance Company and Life Insurance Company of the Southwest since
1989 and a director of Personal Assurance Company PLC
(United Kingdom) since 1991.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE,
NAME AGE AND OTHER DIRECTORSHIPS
---- --- -----------------------
CONTINUING DIRECTORS
<S> <C> <C> <C> <C>
CLASS III (TERM EXPIRES 1997)
Peter W. Nauert......... 52 Peter W. Nauert has been Chief Executive Officer and a director of the
Company since its incorporation in 1982. He was President of the
Company from 1982 to 1988 and 1991 to 1995, and became Chairman of
the Company in 1988. Since 1975, Mr. Nauert has been Chairman of
Pioneer Life Insurance Company ("Pioneer Life") and a director and
officer of various other subsidiaries of the Company since 1982.
Robert F. Nauert........ 71 Robert F. Nauert has been a director of the Company since November
1991. Mr. Nauert is also a director and officer of various subsidiaries of
the Company. Mr. Nauert is the brother of Peter W. Nauert.
Michael K. Keefe........ 51 Michael K. Keefe has been a director of the Company since March 1994.
Mr. Keefe has been Chief Executive Officer and Chairman of the Board
of Keefe Real Estate, Inc., a family owned real estate brokerage operation
since 1982. Mr. Keefe has also been Chairman of the Board of Southern
Wisconsin Bankshares, Inc. since 1988.
Carl Hulbert............ 73 Carl A. Hulbert was elected director of the Company in March 1995 and
has been a director of a subsidiary of the Company since 1990. Mr.
Hulbert is a management consultant, specializing in the insurance
industry. Mr. Hulbert is a past Insurance Commissioner of the State of
Utah. He has also been a director of numerous insurance companies
during his 49-year business career. Since 1979, Mr. Hulbert has been
President and Chairman of Western Life Insurance Company and director
of Continental Heritage Life Insurance Company, USAA Federal Savings
Bank, U.S. Warranty and Programmed Marketing Insurance Company.
CLASS I (TERM EXPIRES 1998)
Michael A. Cavataio..... 52 Michael A. Cavataio has been a director of the Company since 1986 and
Vice Chairman since December 1995. Mr. Cavataio is a real estate
developer in Northern Illinois and Southern Wisconsin. His business
experience also includes 25 years as an owner and manager of a regional
clothing store chain. He has also been a member of the board of directors
of Today's Bank East since 1987.
William B. Van Vleet.... 71 William B. Van Vleet has served as General Counsel Emeritus of the
Company since May 1995 and a director of the Company since 1982. He
was General Counsel of the Company from 1982 to 1988. From 1986 to
1995 he served as Executive Vice President of the Company. In June
1991, he was again elected General Counsel and served until his
retirement from that position in May 1995. Mr. Van Vleet served as
General Counsel and a director of Pioneer Life from 1948 until 1995.
Mr. Van Vleet also serves as an officer and director of other subsidiaries
of the Company.
R. Richard Bastian, III. 49 R. Richard Bastian, III has been a director of the Company since
December 1994. Mr. Bastian is a management consultant, specializing in
strategic planning and organizational development. Mr. Bastian's career
includes over 28 years in the financial services industry. Mr. Bastian
served as President and Chief Executive Officer of Heritage Bank & Trust
Racine, Wisconsin from January 1994 through July 1994. He served as
Chairman, President and Chief Executive Officer of Bank One, Rockford
from January 1984 through October 1993 and as President and Chief
Executive Officer of its predecessor, First Community Bancorp, an $800
million multi-bank holding company, from February 1989 through May
1993. He has also held management positions at banks in Tulsa and
Philadelphia where his banking career began in 1966.
</TABLE>
4
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
During 1995, the Board of Directors met six times and acted by written
consent six times. During 1995, each director attended at least 75% of the
aggregate number of meetings of the Board and the respective Committees on
which he served while a member thereof.
CERTAIN FILINGS
Directors and officers of the Company file periodic reports regarding
ownership of Company securities with the Securities and Exchange Commission
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder. To the Company's knowledge, based solely
on a 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, 1995, all of its officers, directors and greater than ten
percent beneficial owners complied with all filing requirements applicable to
them except that Messrs. Thomas J. Brophy and Mark S. Fischer were each late
in filing their Form 4s with respect to ten monthly purchases of stock made
through payroll deductions pursuant to the Company's stock purchase plan.
BOARD COMMITTEES
The Board of Directors has six standing committees, the Executive Committee,
the Audit Committee, the Compensation Committee, the Investment Committee, the
Option Committee and the Nominating Committee. The Executive Committee met
seven times, the Audit Committee met three times, the Compensation Committee
met six times, the Investment Committee met nine times, the Option Committee
met seven times and the Nominating Committee met one time in 1995.
The Executive Committee is composed of Peter W. Nauert (Chairman), William
B. Van Vleet, Michael A. Cavataio and Charles R. Scheper. The Executive
Committee is empowered to exercise the powers of the Board of Directors in the
management of the business and affairs of the Company, except as provided in
the Company's Certificate of Incorporation or as limited by the provisions of
the General Corporation Law of Delaware or the resolution of the Board of
Directors regarding the Executive Committee.
The Audit Committee is composed of Karl-Heinz Klaeser (Chairman), R. Richard
Bastian, III, Carl Hulbert, Richard R. Haldeman and Thomas J. Brophy. The
duties of the Committee are to recommend to the Board of Directors the
appointment of the independent accountants for the following year, and to
review the scope of the audit, the independent auditors' report and the
auditors' comments relative to the adequacy of the Company's system of
internal controls, the results of the Company's external audits, and
accounting policies. The Committee also recommends to the Board of Directors
changes in directors' fees.
The Investment Committee is composed of Michael A. Cavataio (Chairman),
Charles R. Scheper, R. Richard Bastian, III and Robert F. Nauert. Philip J.
Fiskow, Senior Vice President and Chief Investment Officer of the Company, and
Val Rajic, Vice President of the Company, also participate as non-voting
attendees at the Investment Committee meetings. The duties of the Committee
are to determine the Company's investment strategies, review the performance
of investments and the recommendations of the Company's investment managers
and decide which investment managers the Company will retain.
The Compensation Committee is composed of Karl-Heinz Klaeser (Chairman),
Michael Keefe (Assistant Chairman) and R. Richard Bastian, III. The duties of
the Committee are to review management compensation levels and provide
recommendations regarding salaries and other compensation for certain of the
Company's officers, including bonuses and awards, grants of stock options, and
new employee benefit or other incentive programs.
The Option Committee is composed of Karl-Heinz Klaeser (Chairman), Richard
R. Haldeman and Michael K. Keefe. The duties of the Committee are to
administer the Company's 1994 Omnibus Stock Incentive Program, the Company's
Employee Stock Purchase Plan and the Company's Career Agent Stock Purchase
Plan.
5
<PAGE>
The Nominating Committee is composed of Peter W. Nauert (Chairman), William
B. Van Vleet and Michael A. Cavataio. The duties of the Committee are to
review and recommend to the Board of Directors potential directors of the
Company.
Under the Company's By-Laws, the Secretary must receive written notice of
stockholder nominations for directors at least 20 days prior to the meeting of
stockholders. Such notice shall set forth all information with respect to each
such nominee as required by the Securities Exchange Act of 1934 and the rules
thereunder. Such notice shall be accompanied by a signed statement of such
nominee consenting to be a nominee and a director, if elected, and confirming
the information contained in the notice.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
Under the supervision of the Compensation Committee of the Board of
Directors, the Company has developed and implemented compensation policies,
plans and programs which seek to enhance the profitability of the Company, and
thus stockholder value, by aligning the financial interests of the Company's
senior executives with those of its stockholders.
In furtherance of these goals, and to attract and retain corporate officers
and other key employees of outstanding abilities and to motivate them to
perform to the full extent of their abilities, compensation for each of the
Named Officers, as well as other senior executives, consists of three major
components: base salary; annual bonus; and in some instances, longer-term
incentive compensation in the form of discretionary stock options.
In addition, to encourage the Company's senior executives to have a
substantial personal equity interest in the Company, the Company has
implemented a program (the "Stock Purchase Matching Option Program"),
described below, pursuant to which, under certain circumstances, senior
executives are automatically granted options to purchase additional shares of
the Company's Common Stock based upon their purchases of shares of the
Company's Common Stock.
The Committee takes into account available information regarding the
compensation practices and policies of other insurance and managed care
companies in determining the level and composition of compensation for Named
Officers and other senior executives. However, the Committee does not base its
decisions on information relating to a specific defined peer group or target a
specific percentile range within such companies in determining compensation
for the Company's senior executives. The Committee applies specific
quantitative formula in making compensation decisions in connection with the
establishment of goals under the annual bonus pool. The Committee also
appreciates the importance of achievements that may be difficult to quantify,
and, accordingly, recognizes qualitative factors, such as the successful
supervision of major corporate projects, demonstrated leadership ability and
contributions to industry and community development.
BASE SALARY
Base salaries for each Named Officer and each other senior executive are
established at levels that the Committee believes appropriate in light of the
individual's level and scope of responsibility, pay levels in the insurance
and managed care industries and the ability of the Company to recruit and
retain senior executives. Salaries for senior executives are reviewed by the
Committee on an annual basis and may be increased at that time based on the
individual's contribution to the Company or changes in competitive levels of
pay. However, the Committee focuses on total annual compensation, including
incentive compensation, rather than on base salary alone, as the appropriate
measure of executive performance and contribution.
1995 ANNUAL BONUS POOL
Commencing in 1992, the Company adopted an annual bonus pool program for
senior executives, including the Named Officers, pursuant to which the Company
each year establishes a bonus pool from which bonuses are distributed based on
the extent to which key objectives for the year are achieved.
6
<PAGE>
The Committee establishes minimum, target and maximum goals for financial
and other performance measures. The size of the bonus pool is based upon the
extent to which these goals are achieved. The bonus pool is then divided among
the participating senior executives according to their salary and level of
responsibility within the Company.
Objectives for the 1995 bonus pool program included both Company and
personal goals. In 1995 the program provided for approximately 50% of the pool
to be distributed based on the extent to which Company goals were achieved;
the balance to be distributed based on the extent to which the individual's
personal goals were achieved. Company goals included objectives based on the
Company's earnings. Personal goals varied depending on the individual's
position, duties and responsibilities, but included, among others, objectives
based on the individual's contribution to Company or division revenues, pre-
tax income, cost and expense ratios, managed care or other savings, income,
investments, sales and recruiting. Partial distributions of such bonuses were
made in 1995.
The portion of the total bonuses reserved for distribution for services in
1995 which was distributed during 1995 to the Named Officers and other
executives under the 1995 bonus pool program reflects the Committee's judgment
of the extent to which such goals were achieved at the time of distribution.
1996 ANNUAL BONUS PLAN FOR SENIOR EXECUTIVES
With the assistance of an independent management consulting firm, the
Committee has developed for 1996 and subsequent years an annual incentive plan
designed to create increased value for the Company's stockholders through the
achievement by the Company's individual business units of pre-determined pre-
tax earnings goals. Each business unit leader will establish additional
specific "line of sight" goals for his or her individual business unit,
designate key business unit executives eligible for participation in the plan
and may establish additional individual goals (relating to the achievement of
the business unit's line of sight goals) for such participants. Line of sight
goals may include, among others, objectives based upon expense-to-premium
ratios and loss ratios, new sales, management of unit costs, revenue, net new
participants, net new sales and expense-to-sales ratios.
The Chief Executive Officer will not be entitled to participate in the plan.
See "Chief Executive Officer" in this Report for a description of the
Company's proposed annual incentive plan for the Company's Chief Executive
Officer.
DISCRETIONARY STOCK OPTIONS
During each fiscal year, the Committee considers the desirability of
granting to senior executives, including the Named Officers, awards under the
Company's Non-Qualified Stock Option Plan or under the Company's 1994 Omnibus
Stock Incentive Program (the "Plan"), which provide avenues for granting
longer-term incentives in the form of a wide variety of stock-related
compensation arrangements. In 1995 the Committee granted both incentive and
non-qualified stock options to various Named Officers and other executives
pursuant to the Plan. Other than formula grants to Directors under the Plan or
grants to which such individuals became entitled as the result of purchases of
Company Common Stock under the Stock Purchase Matching Option Program
described below under the caption "Stock Purchase Matching Option Program",
all of such grants were based on merit. In making such grants the Committee
made a subjective evaluation of each recipient's performance and the degree to
which such grants would further the purposes of the Company's compensation
program, considering, among other things, such executive's total compensation,
the time and size of prior awards to such executive, the executive's level of
responsibility and the executive's demonstrated and expected contributions to
the Company. The Committee believes that its past grants of options have
focused the Company's senior management on building profitability and
stockholder value.
7
<PAGE>
STOCK PURCHASED MATCHING OPTION PROGRAM
In 1993 the Company adopted a program under the Plan to encourage senior
executives of the Company to become stockholders of the Company, thereby more
closely aligning the interests of such executives with those of the
stockholders. Under this program, which is currently being implemented under
the Plan, the Company has established target levels of stock ownership for the
various levels of senior executives. Under certain circumstances, upon the
purchase of shares of the Company's Common Stock, the executive will
automatically receive an option to purchase one share of Common Stock for each
share purchased until he reaches the target level of ownership. After the
target level is reached, the executive will be entitled to receive two options
for each share of Common Stock so purchased.
CHIEF EXECUTIVE OFFICER
Prior to September 1, 1995 the Chief Executive Officer of the Company served
under employment agreements (the "Prior Agreements") with the Company and two
of its subsidiaries. Since September 1, 1995, he has served under an
employment agreement (the "Current Agreement") with the Company, which
establishes a minimum base salary equal to the aggregate minimum base salaries
established under the Prior Agreements. In addition, the Current Agreement
provides for the grant, subject to stockholder approval of the proposed
amendment to the Plan, of options to purchase 500,000 shares of the Company's
Common Stock at the times and prices described below under the caption
"Employment and Other Agreements." The Prior Agreements and the Current
Agreement are more fully described under the caption "Employment and Other
Agreements" below.
Such employment agreements established a minimum base salary, which could be
increased at the discretion of the Board of Directors. The Committee reviews
and recommends to the Board of Directors adjustments to the base salary of the
Chief Executive Officer of the Company, if appropriate, based upon its
subjective evaluation of competitive compensation data, his broad
responsibilities as Chairman and Chief Executive Officer of the Company, the
Committee's assessment of his past performance and its expectation of the
importance of his future contributions. In 1995, the Chief Executive Officer
received the minimum base salary provided for under his employment agreements.
In connection with the determination of the compensation (including options)
payable under the Current Agreement, the Committee retained an independent
management consulting firm which, at the request of the Committee, conducted a
study of the compensation received by the chief executive officers of other
insurance organizations and managed care companies. It was determined that the
responsibilities of the Company's Chief Executive Officer are at least
comparable to those of the chief executive officers studied. Based upon the
study and certain assumptions, the consulting firm determined that the Current
Agreement may potentially yield total compensation that is among the highest
in comparable organizations. The group of companies differs from the group of
companies reflected in the graph set forth under the caption "Stock Price
Performance Graph" and is comprised of companies which are, in many cases,
larger in asset size or engaged in different lines of business.
Based on the study, its evaluation of the Company's performance and
prospects, as well as the responsibilities and performance of the Chief
Executive Officer, the Committee concluded that, in addition to purely
competitive considerations, a number of other considerations supported the
level of compensation payable to the Chief Executive Officer, including: the
critical importance of the Chief Executive Officer to the Company's future
success; the breadth of his responsibilities; his specific contributions to
the operational management of specific business functions and units; the
Company's strong stockholder returns and generally optimistic profit
potential; and the fact that the Chief Executive Officer will receive the
total compensation potentially payable under the Current Agreement only if the
Company successfully meets or exceeds the performance-based criteria upon
which the portion of such compensation other than salary is based.
For purposes of the 1995 annual bonus pool described above, the Chief
Executive Officer's personal objective was to have the Company achieve a
substantial increases in its net income per share and in the market price of
its Common Stock. The Company's net income per share on a fully diluted basis
increased by
8
<PAGE>
approximately 17% in 1995 and the market price of the Company's Common Stock
increased by approximately 100% in 1995. The bonus received by the Chief
Executive Officer in 1995 as a participant in the 1995 bonus pool reflects the
Company's judgment of the extent to which Chief Executive Officer's personal
objectives were achieved at the time of distribution.
With the assistance of an independent management consulting firm, the
Committee has developed an annual incentive compensation plan for the Chief
Executive Officer which provides for the payment of annual bonuses to the
Chief Executive Officer based upon the achievement by the Company of certain
performance criteria relating to return on equity more fully described under
the caption "Proposal to Approve Performance-Based Business Criteria Under the
Company's Annual Incentive Plan for the Company's Chief Executive Officer". In
light of (1) the objectives of the plan, (2) the performance-based business
criteria developed thereunder and the fact that the bonus compensation payable
thereunder is conditioned upon the successful performance of the Company, and
(3) its evaluation of the duties and responsibilities of the Chief Executive
Officer and the significance of his contribution to the success of the
Company, the Committee believes that the proposed plan will provide the Chief
Executive Officer with incentives that reward superior performance with
appropriate and reasonable compensation.
MILLION DOLLAR DEDUCTION LIMITATION
Internal Revenue Code amendments adopted in 1993 impose a limit on the tax
deduction for certain executive compensation payments. Such amendments
generally limit the deductibility for federal income tax purposes of annual
compensation paid by the Company to its Chief Executive Officer and the four
other highest paid executives for amounts greater than $1 million unless
certain conditions are met. Only one of the Company's executives received cash
compensation for 1995 above the $1 million limit. The policy of the Company is
to structure compensation arrangements, where appropriate, so that the Company
will not be denied significant tax deductions for compensation.
The Company believes that if the stockholders of the Company approve the
proposal described under the caption: "Proposal to Approve Performance-Based
Business Criteria for the Company's Annual Incentive Plan for the Company's
Chief Executive Officer" then any bonus paid under such plan will be
deductible for federal income tax purposes.
COMPENSATION COMMITTEE
Karl Heinz-Klaeser
R. Richard Bastian, III
Michael K. Keefe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 17, 1995, Mr. Robert F. Nauert, an officer of a subsidiary
of the Company, served as a non-voting member of the Compensation Committee.
Prior to October 17, 1995, Messrs. Michael A. Cavataio and Richard R. Haldeman
served as members of the Compensation Committee. Mr. Cavataio received
$100,000 from the Company as compensation for investment advisory services
performed for the Company and its subsidiaries in 1995. Mr. Haldeman is a
partner in the law firm of Haldeman & Associates which rendered legal services
to the Company and its subsidiaries in 1995.
9
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth certain information concerning compensation
received for services in all capacities to the Company or its subsidiaries for
the fiscal years ended December 31, 1995, 1994 and 1993, of those persons (the
"Named Officers"), who were, at December 31, 1995 (i) the chief executive
officer, and (ii) the other four most highly compensated executive officers of
the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION(2)
------------------ ---- ---------- -------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter W. Nauert, 1995 $1,000,000 $ 75,000 -0- -0- 550,822 $-0- 33,776
Chairman of the Board 1994 1,000,000 300,000 -0- -0- 42,657 -0- 36,372
and Chief Executive 1993 875,000 419,534 -0- -0- 90,000 -0- 61,253
Officer
Thomas J. Brophy, 1995 300,000 22,500 -0- -0- 109,009 -0- 33,045
President--Health 1994 243,750 33,600 -0- -0- 45,737 -0- 87,331
Insurance Operations(3) 1993 37,500 48,349 -0- -0- -0- -0- 300
Charles R. Scheper, 1995 300,000 22,500 -0- -0- 77,986 -0- 33,032
President--Life 1994 275,000 82,523 -0- -0- 65,362 -0- 35,536
Insurance Operations 1993 225,000 87,218 -0- -0- -0- -0- 10,462
Anthony J. Pino 1995 283,483 27,089 -0- -0- 6,527 -0- 64,212
Executive Vice President 1994 253,936 72,200 -0- -0- 22,171 -0- 55,182
1993 212,500 33,463 -0- -0- -0- -0- 8,253
Ernest T. Giambra, Jr. 1995 262,500 17,688 -0- -0- 974 -0- 7,068
Executive Vice President 1994 237,500 32,700 -0- -0- 50,910 -0- 5,903
and Chief Marketing Of-
ficer(4) 1993 119,318 63,367 -0- -0- -0- -0- 392
</TABLE>
- --------
(1) The bonus amounts are payable pursuant to the Employee Bonus Program
described above under the caption "Compensation Committee Report on
Executive Compensation".
(2) Amounts of All Other Compensation consist of (i) amounts contributed or
accrued for fiscal 1995, 1994 and 1993 under the Company's Employee
Savings and Stock Ownership Plan for Mr. Nauert ($7,624, $10,077 and
$10,029), Mr. Scheper ($7,624, $10,077 and $10,029), and Mr. Pino ($7,624,
$10,077 and $7,513); in fiscal year 1995 for Mr. Brophy ($5,537); and in
fiscal years 1995 and 1994 for Mr. Giambra ($6,372 and $5,120); (ii)
payments for group term life insurance made by the Company in fiscal 1995,
1994 and 1993 for Mr. Nauert ($1,152, $1,295 and $1,224), Mr. Scheper
($408, $459 and $433), Mr. Pino ($696, $609 and $740); Mr. Brophy ($2,508,
$2,025 and $300) and Mr. Giambra ($696, $783 and $392), (iii) relocation
expenses paid by the Company in fiscal 1995 and 1994 for Mr. Pino ($55,892
and $44,496) and for Mr. Brophy in fiscal 1994 ($85,306); and (iv)
Directors fees paid by the Company in fiscal 1995, 1994 and 1993 for Mr.
Nauert ($25,000, $25,000, $50,000); in fiscal years 1995 and 1994 for Mr.
Scheper ($25,000 and $25,000); and in fiscal year 1995 for Mr. Brophy
($25,000).
(3) Mr. Brophy joined the Company in November, 1993.
(4) Mr. Giambra joined the Company in June, 1993.
10
<PAGE>
The following tables summarize option grants during the fiscal year ended
December 31, 1995, to the Named Officers and the value of the options held by
such persons at the end of such fiscal year. None of the Named Officers
exercised any stock options during the fiscal year ended December 31, 1995. The
Company does not maintain any pension plans or any supplementary pension award
plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ---------------------------------------------------------------------------------- ------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES IN FISCAL BASE PRICE EXPIRATION
NAME OPTIONS GRANTED YEAR (PER SHARE) DATE(1) 5% 10%
- ---- --------------- ------------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter W. Nauert 5 0.00% 10.875 03/31/05 34 87
9 0.00% 14.750 06/30/05 83 212
50,793 4.98% 13.875 07/11/05 443,220 1,123,186
100,000 9.81% 15.250 09/01/05 694,400 2,009,000
100,000 9.81% 16.750 09/01/05 544,400 1,859,000
100,000 9.81% 18.500 09/01/05 369,400 1,684,000
100,000 9.81% 20.250 09/01/05 194,400 1,509,000
100,000 9.81% 22.250 09/01/05 0 1,309,000
10 0.00% 14.750 09/30/05 93 235
5 0.00% 18.500 12/31/05 58 147
Charles R. Scheper 608 0.06% 10.875 03/31/05 4,158 10,538
1,923 0.19% 13.000 05/24/05 15,722 39,843
388 0.04% 14.750 06/30/05 3,599 9,121
25,000 2.45% 15.250 09/01/05 173,600 502,250
25,000 2.45% 16.750 09/01/05 136,100 464,750
25,000 2.45% 18.500 09/01/05 92,350 421,000
46 0.00% 14.750 09/30/95 427 1,081
21 0.00% 18.500 12/31/05 244 619
Thomas J. Brophy 19 0.00% 10.375 03/14/05 124 314
25,000 2.45% 10.750 03/17/05 169,025 428,325
98 0.01% 10.875 03/31/05 670 1,699
18 0.00% 11.750 04/20/05 133 337
16 0.00% 13.250 05/16/05 133 338
1,923 0.19% 13.000 05/24/05 15,722 39,843
14 0.00% 14.750 06/16/05 130 329
194 0.02% 14.750 06/30/05 1,800 4,561
5,179 0.51% 13.875 07/11/05 45,192 114,523
15 0.00% 13.875 07/24/05 131 332
15 0.00% 13.750 08/16/05 130 329
1,000 0.10% 13.625 08/24/05 8,569 21,715
25,000 2.45% 15.250 09/01/05 173,600 502,250
25,000 2.45% 16.750 09/01/05 136,100 464,750
25,000 2.45% 18.500 09/01/05 92,350 421,000
13 0.00% 15.125 09/20/05 124 313
207 0.02% 14.750 09/30/05 1,920 4,886
104 0.01% 14.625 10/16/05 957 2,424
92 0.01% 16.500 11/21/05 955 2,419
86 0.01% 18.125 12/22/05 980 2,484
16 0.00% 18.500 12/31/05 186 472
Ernest T. Giambra, Jr. 508 0.05% 10.875 03/31/05 3,474 8,805
448 0.04% 14.750 06/30/05 4,156 10,532
12 0.00% 14.750 09/30/05 111 282
6 0.00% 18.500 12/31/05 70 177
Anthony J. Pino 1,500 0.15% 10.250 02/22/05 9,669 24,504
2,000 0.20% 11.125 03/02/05 13,992 35,460
61 0.01% 10.875 03/31/05 417 1,057
2,700 0.26% 12.875 06/01/05 21,862 55,401
197 0.02% 14.750 06/30/05 1,827 4,631
66 0.01% 14.750 09/30/05 612 1,552
3 0.00% 18.500 12/31/05 35 88
</TABLE>
11
<PAGE>
- --------
(1) The options terminate at the earlier of ten years from the date of grant
or one year from date of termination of employment with the Company.
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
-------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter W. Nauert......... 215,000 493,479 $1,820,000 $787,994
Charles R. Scheper...... 70,000 93,348 519,375 398,394
Thomas J. Brophy........ 25,000 129,746 81,250 645,499
Ernest T. Giambra, Jr. . 10,000 41,884 96,250 385,968
Anthony J. Pino......... 15,000 38,698 168,750 356,889
</TABLE>
- --------
(1) Based on the closing price on the New York Stock Exchange-Composite
Transactions of the Company's Common Stock on that date ($18.50).
DIRECTORS' COMPENSATION
Directors of the Company currently receive fees of $25,000 per year.
Directors who are chairmen of the Company's Executive, Investment, Audit and
Compensation Committees receive additional fees of $25,000 per year. All
directors are reimbursed for travel expenses. In addition, each Director, upon
his initial election as a director, receives options to purchase 25,000 shares
of the Company's Common Stock at an exercise price equal to fair market value
on the date of grant. Further, each member of the Option Committee, upon his
initial election as a member, receives options to purchase 8,000 of the
Company's Common Stock at an exercise price equal to fair market value on the
date of grant.
The Company has adopted a compensation deferral plan (the "Deferral Plan")
for members of the Board of Directors. The Deferral Plan was established in
order to encourage the attraction and retention of qualified Directors by
allowing Directors to irrevocably elect deferral of payment of a certain
portion of the compensation they receive as Directors and thereby defer taxes.
The Deferral Plan provides benefits at retirement, disability or death for
Directors who elect to defer payments under the Deferral Plan. The Deferral
Plan permits Directors to elect investment options at the same time deferrals
are elected. Under the Deferral Plan, the Company makes an unsecured promise
to pay deferred amounts together with investment gains and losses, at a future
time. The deferred amounts are not funded as with a pension or profit sharing
plan. However, under the Deferral Plan a trust has been established with
respect to the amounts allocated to the Deferral Plan.
EMPLOYMENT AND OTHER AGREEMENTS
Effective September 1, 1995, Mr. Nauert entered into an employment agreement
with the Company (the "Current Agreement") which superseded the then existing
employment agreements between Mr. Nauert and the Company and two of its
subsidiaries (the "Prior Agreements") except for the loan provisions described
below.
The Current Agreement provides for a three year term, commencing September
1, 1995, which continues indefinitely until terminated by the Board of
Directors upon three years notice. Under the Current Agreement Mr. Nauert is
entitled to a minimum annual base salary of $1,000,000, which amount is equal
to the aggregate minimum annual salaries which he was entitled to receive
under the Prior Agreements and which can be increased at the discretion of the
Board of Directors, and an annual bonus determined by the Compensation
Committee, based upon the Company's achieving performance standards
established by the Committee.
In addition, under the Current Agreement and subject to stockholder approval
of the proposed amendment of the Company's 1994 Omnibus Stock Incentive
Program described below under the caption "Proposal to
12
<PAGE>
Approve Amendment to the Company's 1994 Omnibus Stock Incentive Program", Mr.
Nauert was granted options to purchase an aggregate of 500,000 shares of the
Company's Common Stock, exercisable as follows: 100,000 on or after the date
of the execution and delivery of the Current Agreement at $15.25 per share;
100,000 on or after September 1, 1996 at $16.75 per share; 100,000 on or after
September 1, 1997 at $18.50 per share; 100,000 on or after September 1, 1998
at $20.25 per share; and 100,000 on or after September 1, 1999 at $22.25 per
share; provided, however, that none of such options are exercisable within six
months of the date of grant and are exercisable only if Mr. Nauert is employed
by the Company or one of its subsidiaries at the time they can first be
exercised.
The Current Agreement is terminable by the Company with or without cause. In
the event of termination with cause, the Current Agreement provides that Mr.
Nauert will receive his then current compensation through the date of
termination. In the event of the termination by the Company without cause or
termination by Mr. Nauert for good reason, Mr. Nauert, in lieu of the
compensation that would have been paid to him during the balance of the three-
year term, will receive the present value, discounted at an annual rate of 8%,
of the salary which would have been payable during a period equal to the
remainder of the term of the agreement, commencing on the date of termination
at the rate of annual base salary payable to Mr. Nauert at the date of
termination. In the event Mr. Nauert's employment is terminated by the Company
without cause or by Mr. Nauert for good reason within 180 days following a
change of control of the Company, and in lieu of the termination payments
described above, the Company would pay Mr. Nauert an amount equal to three
times the average income reflected on the W-2 form or forms issued to Mr.
Nauert by the Company or its subsidiaries for services performed for them for
the five calendar years preceding the year in which such change of control
occurs.
Pursuant to the Current Agreement, Mr. Nauert has agreed not to compete with
the Company for a period of twelve months after the termination of his
employment unless he is terminated without cause or there has been a change in
control of the Company prior to such termination. Mr. Nauert has also agreed
that during the term of his employment he will retain, directly or indirectly,
ownership of not less than one million shares of Common Stock. In addition,
Mr. Nauert has agreed that until his employment is terminated and so long as
the market price of the Common Stock of the Company is less than $12 per
share, he will not sell or transfer his shares of Common Stock (other than
transfers to family members) without first offering such shares to the
Company.
Prior to September 1, 1995, Mr. Nauert served as Chairman and Chief
Executive Officer of the Company and as President and Chief Executive Officer
of two of its subsidiaries under employment agreements which, unless earlier
terminated by either the Company or Mr. Nauert, would have been automatically
renewed on December 31, 1996 and every three years thereafter. Under the three
agreements, Mr. Nauert was paid an aggregate annual salary of $1,000,000,
which amount could have been increased at the discretion of the Board of
Directors, and an annual bonus as determined by the Compensation Committee of
the Board of Directors, based upon achieving Company performance standards
established by such committee.
In addition, pursuant to the Prior Agreement with the Company, the Company
extended to Mr. Nauert a three year term loan in the amount of $1,300,000
which accrues interest at an annual rate of 3.71%. Up to 50% of the principal
amount of this loan may be forgiven if the following goals are achieved. If
the Company has aggregate fully diluted net income per common share of $4.50
during the period from January 1, 1994 to December 31, 1996, then $325,000 in
principal amount of the loan shall be forgiven. If, during this same period,
the Company has aggregate fully diluted net income per common share in excess
of $4.50, then, in addition to the $325,000 previously forgiven, an amount of
the loan equal to the amount by which net income per common share exceeds
$4.50, divided by $3.00 and multiplied by $975,000 shall be forgiven, provided
that in no event shall more than $650,000 of the loan be forgiven. The loan
granted to Mr. Nauert under the Prior Agreements, and the terms thereof,
continue in effect under the Current Agreement.
Effective September 1, 1995, the Company entered into three-year employment
agreements with Messrs. Brophy and Scheper which provide for minimum annual
base salaries of $300,000, which amounts can be
13
<PAGE>
increased at the discretion of the Board of Directors of the Company, and such
annual bonuses as may be determined by the Compensation Committee based upon
the achievement of such Company-wide performance based standards as may be
established by the Committee. The employment agreements are terminable by the
Company with or without cause. In the event of termination with cause, the
agreements provide for the payment of the employee's then current base salary
through the date of termination. In the event of termination by the Company
without cause or termination by the employee for good reason, the employee
would be entitled to receive an amount equal to the present value, discounted
at an annual rate of 8%, of an amount equal to the lesser of (x) the salary
which would have been payable during a period equal to the remainder of the
term of the agreement, commencing on the date of termination at the rate of
annual base salary payable to the employee at the date of termination, or (y)
two times the employee's then current annual base salary. The agreements also
provide for the payment, under certain circumstances, of certain health
insurance benefits until the employee reaches the age of 65 in the event that
the agreement is not terminated by the Company for cause or by the employee
without good reason.
In addition, the agreements provide for the grant to each employee, on terms
substantially similar to those in Mr. Nauert's Current Agreement and subject
to stockholder approval of the amendment to the Company's 1994 Stock Incentive
Program referred to below, of options to purchase an aggregate of 75,000
shares of the Company's Common Stock, exercisable as follows: 25,000 on or
after the date of the execution and delivery of the agreement at $15.25 per
share; 25,000 on or after September 1, 1996 at $16.75 per share; and 25,000 on
or after September 1, 1997 at $18.50 per share.
Effective January 1, 1996, the Company entered into a three-year employment
agreement with Mr. Pino on substantially the same terms as the agreements with
Messrs. Brophy and Scheper except that Mr. Pino's agreement provided for a
minimum annual base salary of $275,000 and did not contain provision for the
grant of options.
Mr. Pino's primary responsibilities as an officer of the Company and its
subsidiaries include the management of the business and operations of
Preferred Health Choice, Inc. ("PHC"), a subsidiary of the Company which is
primarily engaged, through its subsidiaries, in the managed care operations of
the Company. Effective January 1, 1996, the Company entered into an agreement
with Mr. Pino which provides generally for the payment to Mr. Pino, under
certain circumstances, of additional compensation in the event, during Mr.
Pino's term of employment with the Company, of the sale of PHC or a public
offering of PHC's capital stock. Pursuant to the agreement, in the event that
the value of the Company's equity interest in PHC, as represented by such sale
or public offering and subject to certain adjustments, exceeds $16,000,000
(such excess being referred to as the "Increased Value"), Mr. Pino would be
entitled to receive an amount equal to 10% of the Increased Value. Such
additional compensation is payable, at the Company's option, either in shares
of the Company's Common Stock or in cash or other consideration received by
the Company from the proceeds of the transaction giving rise to the payment.
In the event that Mr. Pino becomes entitled to receive such additional
compensation, he would not be entitled to receive the change of control
compensation provided for in his employment agreement.
Effective June 21, 1993, the Company entered into a three-year employment
agreement with Mr. Giambra pursuant to which Mr. Giambra serves as Chief
Marketing Officer of the Company. Pursuant to the agreement, Mr. Giambra
received a sign-on bonus of $25,000, was granted options to purchase 25,000
shares of Common Stock at $8.875 per share, is entitled to receive a minimum
salary of $225,000 during the first year and minimum salary of $250,000 during
each of the second and third years and is entitled to severance compensation
equal to one year's salary in the event he is terminated without cause.
CERTAIN TRANSACTIONS
In 1995, a marketing subsidiary of the Company paid rent of approximately
$78,054 to a partnership in which Mr. Peter Nauert held a 50% interest. The
lease for this property expired during 1995 and was not renewed. The Company
believes that the rates charged to the Company's subsidiary were the same as
those charged to unaffiliated third parties.
14
<PAGE>
In 1995, Mr. Cavataio was engaged by the Company as an investment advisor to
assist in the management of the Company's investment portfolio. Pursuant to
this arrangement, Mr. Cavataio received compensation of $100,000 in 1995.
Commencing July 1, 1995, Mr. Van Vleet was engaged by the Company as a
consultant for a two-year term pursuant to an arrangement under which Mr. Van
Vleet is to receive aggregate compensation (including directors fees) of
$100,000 per year. Pursuant to such arrangement, he was entitled to receive
$50,000 for 1995.
Mr. Haldeman is a partner of Haldeman & Associates which rendered legal
services to the Company and its subsidiaries in 1995.
In July 1994, the Company loaned $75,000 to Mr. Pino to finance moving
expenses. The principal amount of the loan accrues interest at a rate of 7%
per annum and interest and principal are due in July 1998.
Pursuant to a reinsurance agreement, effective December 31, 1994, an
insurance subsidiary of the Company reinsures a percentage of the business
written by Philadelphia Life and sold by a marketing subsidiary of the
Company. As of December 31, 1995, the face amount reinsured under the
agreement by the Company's insurance subsidiary was $268.6 million. Mr.
Gardiner, a nominee for director of the Company, served as a director and
executive officer of Philadelphia Life until his retirement in May, 1995.
Any future transactions between the Company and its officers, directors,
principal stockholders or the affiliates of any of them will be on negotiated
terms no less favorable to the Company than could be obtained from
unaffiliated parties.
15
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock against
the cumulative total return of the Wilshire 5000 index and the Wilshire
Insurance index for the period of five fiscal years commencing December 31,
1990 and ended December 31, 1995. This graph assumes $100 was invested on
December 31, 1990 and that all dividends were reinvested.
The Stock Price Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
FIVE YEAR CUMULATIVE
TOTAL RETURNS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------------
Pioneer Financial 100 100 78 224 146 304
------------------------------------------------------------------------------------
Wilshire 5000 100 134 146 163 163 222
------------------------------------------------------------------------------------
Wilshire Insurance 100 132 164 174 170 239
</TABLE>
PROPOSAL TO APPROVE AMENDMENT OF THE COMPANY'S
1994 OMNIBUS STOCK INCENTIVE PROGRAM
BACKGROUND
The Board of Directors is proposing for stockholder approval an amendment
(the "Amendment") to the Company's 1994 Omnibus Stock Incentive Program (the
"Plan"). The Plan was adopted by the Board of
16
<PAGE>
Directors of the Company in 1994 and approved by the stockholders in the same
year. The Plan provides generally for the grant of stock options, stock
appreciation rights, stock awards and performance units, all as described in
the Plan. The purpose of the Plan is to enable the Company to offer officers
and other key employees of the Company and its subsidiaries performance-based
incentives and other equity interests in the Company, thereby attracting,
retaining and rewarding such employees and strengthening the mutuality of
interests between such employees and the Company stockholders.
THE PROPOSED AMENDMENT
In furtherance of its commitment to more closely align the interests of
management with those of the Company's stockholders by encouraging increased
stock ownership by members of management and consistent with its commitment to
implement compensation plans based in larger part on the performance of the
Company and the creation of increased value to its stockholders, the Board of
Directors has now amended the Plan, subject to stockholder approval, to
increase the maximum number of shares of Common Stock which may be available
for the award of Benefits (as defined in the Plan) to any participant in any
fiscal year from 100,000 shares to 600,000 shares.
The Company believes that the proposed Amendment will enhance the Company's
ability to better utilize stock options and other performance-based incentives
and, in so doing, will permit the Company to keep pace with changing
developments in management compensation and make the Company more competitive
with those companies that offer stock incentives to attract and retain
qualified employees. This amendment does not affect director options.
GRANT OF OPTIONS SUBJECT TO STOCKHOLDER APPROVAL OF THE PROPOSED AMENDMENT
As described under the caption "Employment and Other Agreements", effective
September 1, 1995, the Option Committee has granted, subject to stockholder
approval of the proposed Amendment, options to Messrs. Peter W. Nauert and
Charles R. Scheper which would result in Messrs. Nauert and Scheper receiving
options to purchase more than 100,000 shares of the Company's Common Stock in
1995. See the material contained under the caption "Executive Compensation--
Summary Compensation Table--Securities Underlying Options" for a summary of
the options granted to the Chief Executive Officer and each Named Officer
during 1995.
NEW PLAN BENEFITS
The following table states the benefits which would have been received or
allocated during 1995 under the Company's 1994 Omnibus Stock Incentive Program
if the proposed amendment had been in effect for 1995 with respect to (i) the
Chief Executive Officer and each other Named Officer; (ii) all current
executive officers, as a group; (iii) all current directors who are not
executive officers, as a group; and (iv) all employees, including all current
officers who are not executive officers, as a group.
NEW PLAN BENEFITS
1994 OMNIBUS STOCK INCENTIVE PROGRAM
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
-----------------
<S> <C>
Peter W. Nauert........ 550,822(1)
Charles R. Scheper..... 77,986(2)
Anthony J. Pino........ 6,527
Thomas J. Brophy....... 109,009(2)
Ernest T. Giambra, Jr.. 974
Executive Group........ 842,006(3)
Non Executive Director
Group................. 93,807
Non Executive Officer
Employee Group........ 16,712
</TABLE>
17
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- --------
(1) Includes options to purchase 500,000 shares granted subject to stockholder
approval of the proposed Amendment. See "Employment and Other Agreements."
(2) Includes options to purchase 75,000 shares granted subject to stockholder
approval of the proposed Amendment. See "Employment and Other Agreements."
(3) Includes options granted to Messrs. Nauert, Scheper and Brophy subject to
stockholder approval of the proposed Amendment. See Footnotes (1) and (2)
above.
OTHER INFORMATION
The closing price of the Common Stock reported on the New York Stock
Exchange Composite Transactions listed for March 25, 1996 was $16.625 per
share.
The affirmative vote of holders of a majority of the voting power of all
shares represented at the meeting is required for approval of the proposed
Amendment. Abstentions will count as a vote against the proposal, and broker
non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1994 OMNIBUS STOCK INCENTIVE PROGRAM.
PROPOSAL TO APPROVE THE PIONEER FINANCIAL SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
BACKGROUND
The Board of Directors is proposing for stockholder approval the Pioneer
Financial Services, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"). The Board of Directors believes it is in the best interests
of the Company to encourage stock ownership by employees of the Company.
Accordingly, on December 14, 1995 the Board of Directors adopted, and the
Company has implemented, subject to stockholder approval, the Employee Stock
Purchase Plan. An aggregate of 500,000 shares of the Company's Common Stock
(subject to adjustment for any dividend, stock split or other relevant changes
in the Company's capitalization) (the "Shares") may be sold pursuant to the
Employee Stock Purchase Plan and the Pioneer Financial Services, Inc. Career
Agent Stock Purchase Plan. The text of the Employee Stock Purchase Plan is
attached as Exhibit A to this Proxy Statement.
The following is a summary of the material provisions of the Employee Stock
Purchase Plan:
ADMINISTRATION AND ELIGIBILITY
The Employee Stock Purchase Plan is administered by the Option Committee.
The Option Committee has the authority to make rules and regulations governing
the administration of the Employee Stock Purchase Plan.
All employees of the Company, or its subsidiaries (other than employees who
own 5% or more of the Company's Common Stock), who have reached the age of
majority and who customarily work more than 20 hours per week and more than
five months per year are eligible to participate in the Employee Stock
Purchase Plan. As of March 1, 1996, approximately 2,036 employees were
eligible to participate in the Employee Stock Purchase Plan. It is not
possible to determine how many eligible employees will participate in the
Employee Stock Purchase Plan in the future.
PARTICIPATION AND TERMS
An eligible employee may elect to participate in the Employee Stock Purchase
Plan at any Offering Period (as hereinafter described). The Employee Stock
Purchase Plan provides for two six-month Offering Periods each
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year beginning on the first trading day on or after the first day of January
and July of each year, except that the first Offering Period began on March 1,
1996, and ends on June 30, 1996. To participate in the Employee Stock Purchase
Plan an employee must complete an enrollment and payroll deduction
authorization form provided by the Company which indicates the amounts to be
deducted from his or her salary and applied to the purchase of Common Stock on
the Share Purchase Date (as hereinafter defined). The payroll deduction must
be within limits set by the Company and limits imposed by the Internal Revenue
Code.
A payroll deduction account is established for each participating employee
by the Company and all payroll deductions made on behalf of each employee are
credited to each such employee's respective payroll deduction account. On the
last trading day of each Offering Period or such other date as the Committee
shall designate (the "Share Purchase Date") the amount credited to each
participating employees's Payroll Deduction Account as of the seventh day
immediately preceding the applicable Share Purchase Date is applied to
purchase as many whole Shares as may be purchased with such amount at the
applicable purchase price.
The purchase price for Shares purchased from the Company is 85% of the lower
of the closing prices of shares of Common Stock on the New York Stock Exchange
on the first or last trading day of the applicable Offering Period. The
purchase price on the last trading day for Shares purchased on the open market
is the weighted average price per share of all Shares so purchased on the
Share Purchase Date. Employees may purchase Shares through the Employee Stock
Purchase Plan only by payroll deductions.
AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors of the Company may amend, suspend or terminate the
Employee Stock Purchase Plan at any time; provided, however, that no amendment
shall be effective unless approved within 12 months after the date of the
adoption of such amendment by the affirmative vote of holders of a majority of
the outstanding shares of Common Stock entitled to a majority of the votes
represented by all outstanding shares of Common Stock entitled to vote if such
stockholder approval is required for the Employee Stock Purchase Plan to
continue to comply with the requirements of Securities and Exchange Commission
Regulation Section 240.16b-3 or Section 423 of the Internal Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES
The Employee Stock Purchase Plan is intended to be an "employee stock
purchase plan" as defined in Section 423 of the Internal Revenue Code. As a
result, an employee participant will pay no federal income tax upon enrolling
in the purchase plan or upon purchase of the Shares. A participant may
recognize income and/or gain or loss upon the sale or other disposition of
Shares purchased under the plan, the amount and character of which will depend
on whether the Shares are held for two years from the first day of the
Offering Period.
If the participant sells or otherwise disposes of the Shares within that
two-year period, the participant will recognize ordinary income at the time of
disposition in an amount equal to the excess of the market price of the Shares
on the date of purchase over the purchase price and the Company will be
entitled to a tax deduction for the same amount.
If the participant sells or otherwise disposes of the Shares after holding
the Shares for the two-year period, the participant will recognize ordinary
income at that time in an amount equal to the lesser of (i) the excess of the
market price of the Shares on the first day of the offering period over the
Purchase Price, or (ii) the excess of the market price of the Shares at the
time of disposition over the purchase price. The Company will not be entitled
to any tax deduction with respect to Shares purchased under the plan if the
Shares are held for the requisite two-year period.
The employee may also recognize capital gain or loss at the time of
disposition of the Shares, either short-term or long-term, depending on the
holding period for the Shares.
19
<PAGE>
OTHER INFORMATION
The closing price of the Common Stock reported on the New York Stock
Exchange Composite Transactions listed for March 25, 1996 was $16.625 per
share.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the meeting is required for approval of the Employee
Stock Purchase Plan. Abstentions will count as a vote against the proposal,
and broker non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PIONEER
FINANCIAL SERVICES EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL TO APPROVE PERFORMANCE-BASED BUSINESS CRITERIA
FOR THE COMPANY'S ANNUAL INCENTIVE PLAN FOR THE
COMPANY'S CHIEF EXECUTIVE OFFICER
BACKGROUND
As described under the caption "Compensation Committee Report on Executive
Compensation--Chief Executive Officer," the Compensation Committee of the
Board of Directors, with the assistance of an independent management
consulting firm, has developed an Annual Incentive Plan for the Company's
Chief Executive Officer which provides generally for the payment of annual
bonuses to the Chief Executive Officer based on the achievement by the Company
of certain performance-based business objectives established by the Committee.
Federal law limits the income tax deduction that may be taken for
compensation paid to the chief executive officer of publicly-held corporations
unless certain requirements are satisfied. A $1 million limit is imposed on
the deduction that may be taken for compensation paid to the chief executive
officer in any year unless such compensation is based on the achievement, as
certified by a committee of two or more outside directors, of specific
performance goals established in advance by the committee and paid pursuant to
business criteria approved by stockholders.
DESCRIPTION OF PLAN
The Company has been, and is increasingly, committed to providing incentives
that reward superior performance with superior compensation. The plan is an
integral part of the Company's compensation program, tying the Chief Executive
Officer's annual incentive bonus to the achievement by the Company of specific
return on equity (ROE) goals. Generally, the plan provides for the payment of
bonuses based on the percent of net income after tax, but before the payment
of dividends on the Company's preferred stock, in excess of a specified
minimum ROE percentage established by the Committee.
Compensation paid and performance achieved by similar size organizations in
the insurance and managed care industries were considered in establishing the
compensation and performance goals for the Chief Executive Officer pursuant to
the plan.
The plan is administered by the Compensation Committee, which currently
consists of three outside directors, none of whom has ever been an employee of
the Company or any subsidiary. The Committee has established written objective
goals for 1996 and will establish written objective goals at the beginning of
each succeeding year.
For 1996, the Committee has established the following goal: a bonus will be
paid to the Chief Executive Officer based upon the Company's ROE during 1996
which, in the event the Company achieves an after-tax ROE of 25%, would result
in a maximum bonus of $1,855,200.
20
<PAGE>
Prior to payment of bonus compensation for any year under the plan, the
Committee must certify that such performance-based goals were satisfied.
OTHER INFORMATION
The affirmative vote of a majority of the shares of Common Stock represented
at the meeting is required for approval of the performance-based business
criteria for the Company's Annual Incentive Plan for the Chief Executive
Officer. Abstentions will count as a vote against the proposal, and broker
non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PERFORMANCE-
BASED BUSINESS CRITERIA FOR THE COMPANY'S ANNUAL INCENTIVE PLAN FOR THE
COMPANY'S CHIEF EXECUTIVE OFFICER.
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
THE PROPOSED AMENDMENT
The Board of Directors is proposing for stockholder approval an amendment to
the Company's Certificate of Incorporation which would increase the number of
authorized shares of the Company's Common Stock from 20 million shares to 30
million shares.
Although presently authorized shares of Common Stock are sufficient to meet
the Company's present requirements, the Board of Directors believes that the
proposed amendment will enable the Company to have a sufficient number of
shares of its Common Stock authorized to provide it with the flexibility to
issue additional shares in connection with, among other things, (1)
convertible securities which the Company may issue in the future, (2) the
potential acquisition by the Company of businesses or blocks of business, the
development of new products or other corporate purposes which the Company
believes will enhance its operations, ability to compete, profitability and
stockholder value, or (3) the development of incentive programs designed to
enable it to attract or retain key executives and other employees consistent
with the Company's desire to align the interests of its employees and
stockholders through its commitments to employee ownership and performance-
based incentive compensation. The Board of Directors will determine whether,
when and under what circumstances the issuance of additional shares of Common
Stock is warranted. As of the date of this proxy statement and except for the
operating of the Company's existing benefit plans, the Board of Directors has
not approved any transaction which would require the issuance of additional
shares of Common Stock nor are there presently an understandings, agreements,
plans or commitments obligating the Company to issue additional shares of
Common Stock. While the issuance of additional shares of Common Stock could
dilute the ownership interest of a person seeking to obtain control of the
Company, and thus discourage a change of control of the Company by making it
more difficult or costly, the Company is not aware of anyone seeking to
accumulate shares of Common Stock for such purpose.
If the proposed amendment is approved, any or all of the additional shares
of Common Stock could be issued without further action of the stockholders.
OTHER INFORMATION
The affirmative vote of holders of a majority of the shares of Common Stock
represented at the meeting is required for approval of the proposed amendment.
Abstentions will count as a vote against the proposal, and broker non-votes
will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for the year ended December 31, 1995 were
audited by Ernst & Young LLP independent auditors. Ernst & Young LLP has been
engaged as the Company's independent auditors for fiscal year 1996.
Representatives of Ernst & Young LLP are expected to attend the annual meeting
to make an appropriate statement if they desire and will be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals intended to be presented at the next annual meeting
must be received by the Company for inclusion in its proxy statement and form
of proxy relating to such meeting no later than December 20, 1996.
OTHER MATTERS
The Company is not aware of any matters, other than those referred to
herein, which will be presented at the meeting. If any other appropriate
business should properly be presented at the meeting, the proxies named in the
accompanying form of proxy will vote the proxies in accordance with their best
judgment.
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. In addition to solicitation by mail, arrangements have
been made with brokerage houses and other custodians, nominees, and
fiduciaries to send the proxy material to their principals, and the Company
will reimburse them for their reasonable out-of-pocket expenses in doing so.
Proxies may also be solicited personally or by telephone or in writing by
regular employees of the Company.
TREATMENT OF CERTAIN VOTES
Each stockholder is entitled to one vote on each proposal per share of
Common Stock held as of the record date. In determining whether a quorum
exists at the Annual Meeting for purposes of all matters to be voted on, all
votes "for" or "against," as well as all abstentions (including votes to
withhold authority to vote in certain cases), with respect to the proposal
receiving the most such votes, will be counted. If an individual has signed a
proxy card but failed to indicate a vote "for," "against" or "abstaining" from
a particular proposal, such proxy will be voted in favor of management with
respect to such proposal or in accordance with the discretion granted to the
proxies.
By order of the Board of Directors.
Peter W. Nauert
Chairman and Chief Executive Officer
Schaumburg, Illinois
April 19, 1996
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<PAGE>
EXHIBIT "A"
PIONEER FINANCIAL SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. Pioneer Financial Services, Inc., a Delaware corporation (the
"Company"), hereby adopts this Employee Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to provide an opportunity for the employees of the
Company and any designated subsidiaries to purchase shares of the Common Stock
of the Company through voluntary automatic payroll deductions, thereby
attracting, retaining and rewarding such persons and strengthening the
mutuality of interest between such persons and the Company's stockholders.
2. Shares Subject to Plan. An aggregate of 500,000 shares (the "Shares") of
Common Stock of the Company may be sold pursuant to the Plan and the Pioneer
Financial Services, Inc. Career Agent Stock Purchase Plan. Such Shares may be
authorized but unissued Common Stock, treasury shares or Common Stock
purchased in the open market. If there is any change in the outstanding shares
of Common Stock by reason of a stock dividend or distribution, stock split,
recapitalization, combination or exchange of shares, or a merger,
consolidation or other corporate reorganization in which the Company is the
surviving corporation, the number of Shares available for sale shall be
equitably adjusted by the Committee appointed to administer the Plan to give
proper effect to such change.
3. Administration. The Plan shall be administered by a committee (the
"Committee") which shall be the Option Committee of the Board of Directors or
another committee consisting of not less than two directors of the Company
appointed by the Board of Directors, none of whom shall participate in the
Plan and all of whom shall qualify as disinterested persons within the meaning
of Securities and Exchange Commission Regulation (S) 240.16b-3 or any
successor regulation. The Committee is authorized, subject to the provisions
of the Plan, to establish such rules and regulations as it deems necessary for
the proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Shares made available hereunder as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants and their legal representatives. No member of
the Board, no member of the Committee and no employee of the Company shall be
liable for any act or failure to act hereunder, by any other member or
employee or by any agent to whom duties in connection with the administration
of this Plan have been delegated or, except in circumstances involving his or
her bad faith, gross negligence or fraud, for any act or failure to act by the
member or employee.
4. Eligibility. All regular employees of the Company, and of each qualified
subsidiary of the Company designated for participation by the Board of
Directors, other than:
(a) employees whose customary employment is 20 hours or less per week; or
(b) employees whose customary employment is for not more than 5 months
per year; or
(c) employees described in paragraph 8(a) below; or
(d) employees who have not reached the age of majority in their state of
residence;
shall be eligible to participate in the Plan. For the purposes of this Plan,
the term "qualified subsidiary" means any subsidiary, 50% or more of the total
combined voting power of all classes of stock in which is now owned or
hereafter acquired by the Company or any such qualified subsidiary.
5. Participation. An eligible employee may elect to participate in the Plan
as of any "Enrollment Date". Enrollment Dates shall occur on the first day of
an Offering Period (as defined in paragraph 8). Any such election shall be
made by completing and forwarding to the Company an enrollment and payroll
deduction authorization form prior to such Enrollment Date, authorizing
payroll deductions in such amount as the employee may request but in no event
less than the minimum nor more than the maximum amount as the Committee shall
determine. A participating employee may increase or decrease his payroll
deductions as of any subsequent Enrollment Date by completing and forwarding
to the Company a revised payroll deduction authorization form; provided, that
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changes in payroll deductions shall not be permitted to the extent that they
would result in total payroll deductions below the minimum or above the
maximum amount as is specified by the Committee. An eligible employee may not
initiate, increase or decrease payroll deductions as of any date other than an
Enrollment Date except by withdrawing from the Plan as provided in paragraph
7.
6. Payroll Deduction Accounts. The Company shall establish on its books and
records a "Payroll Deduction Account" for each participating employee, and
shall credit all payroll deductions made on behalf of each employee pursuant
to paragraph 5 to his or her Payroll Deduction Account. No interest shall be
credited to any Payroll Deduction Account.
7. Withdrawals. An employee may withdraw from an Offering Period at any time
by completing and forwarding a written notice to the Company. Upon receipt of
such notice, payroll deductions on behalf of the employee shall be
discontinued commencing with the immediately following payroll period. Unless
the withdrawal form is submitted at least three days before the last trading
day of the month, the amount credited to the employee's Payroll Deduction
Amount will be applied to purchase stock. Except as provided in the previous
sentence, amounts credited to the Payroll Deduction Account of any employee
who withdraws shall be refunded to the employee as soon as practicable after
the withdrawal. The employee may resume participation in the Plan at the next
Enrollment Date, by filing a new election in accordance with paragraph 5 at
least two weeks prior to the Enrollment Date.
8. Offering Periods. The Plan shall be implemented by consecutive six-month
Offering Periods with a new Offering Period commencing on the first trading
day on or after the first day of each January and July during the term of the
Plan, or on such other date as the Committee shall determine, and continuing
thereafter to the end of such period, subject to termination in accordance
with paragraph 17 hereof. Notwithstanding the foregoing, the first Offering
Period hereunder shall commence on March 1, 1996, and shall end June 30, 1996.
"Trading day" shall mean a day on which the New York Stock Exchange is open
for trading. The Committee shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings. The last trading day of each Offering Period prior to the
termination of the Plan (or such other trading date as the Committee shall
determine) shall constitute the purchase dates (the "Share Purchase Dates") on
which each employee for whom a Payroll Deduction Account has been maintained
shall purchase the number of Shares determined under paragraph 9(a).
Notwithstanding the foregoing, the Company shall not permit the exercise of
any right to purchase Shares
(a) to an employee who, immediately after the right is granted, would own
shares possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company or any subsidiary; or
(b) which would permit an employee's rights to purchase shares under this
Plan, or under any other qualified employee stock purchase plan maintained
by the Company or any subsidiary, to accrue at a rate in excess of $25,000
in fair market value (as determined on the first day of the offering
period) for each calendar year.
For the purposes of subparagraph (a), the provisions of Section 424(d) of the
Internal Revenue Code shall apply in determining the stock ownership of an
employee, and the shares which an employee may purchase under outstanding
rights or options shall be treated as shares owned by the employee.
9. Purchase of Shares.
(a) Subject to the limitations set forth in paragraphs 7 and 8, each
employee participating in an offering shall purchase as many whole Shares
(plus any fractional interest in a Share) as may be purchased with the amounts
credited to his or her Payroll Deduction Account seven days prior to the Share
Purchase Date (or such other date as the Committee shall determine) (the
"Cutoff Date"). Employees may purchase Shares only through payroll deductions,
and cash contributions shall not be permitted.
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(b) The "Purchase Price" for Shares purchased under the Plan shall be not
less than the lesser of (i) an amount equal to 85% of the closing price of
shares of Common Stock at the beginning of the Offering Period or (ii) an
amount equal to 85% of the closing price of shares of Common Stock on the
Share Purchase Date. For these purposes, the closing price shall be as
reported on the New York Stock Exchange Composite Transactions list as
reported in the Wall Street Journal, Midwest Edition. The Committee shall have
the authority to establish a different Purchase Price as long as any such
Purchase Price complies with the provisions of Section 423 of the Code.
(c) On each Share Purchase Date, the amount credited to each participating
employee's Payroll Deduction Account as of the immediately preceding Cutoff
Date shall be applied to purchase as many whole Shares (plus any fractional
interest in a Share) as may be purchased with such amount at the applicable
Purchase Price. Any amount remaining in an employee's Payroll Deduction
Account as of the relevant Cutoff Date in excess of the amount that may
properly be applied to the purchase of Shares shall remain credited to
employee's Payroll Deduction Account for the next Offering Period, unless the
Committee directs that the amount be refunded to the employee.
10. Brokerage Accounts or Plan Share Accounts. By enrolling in the Plan,
each participating employee shall be deemed to have authorized the
establishment of a brokerage account on his or her behalf at a securities
brokerage firm selected by the Committee. Alternatively, the Committee may
provide for Plan share accounts for each participating employee to be
established by the Company or by an outside entity selected by the Committee
which is not a brokerage firm. Shares purchased by an employee pursuant to the
Plan shall be held in the employee's brokerage or Plan share account ("Plan
Share Account") in his or her name, or if the employee so indicates on his or
her payroll deduction authorization form, in the employee's name jointly with
a member of the employee's family, with right of survivorship.
11. Rights as Stockholder. An employee shall have no rights as a stockholder
with respect to Shares subject to any rights granted under this Plan until
payment for such Shares has been completed at the close of business on the
relevant Share Purchase Date.
12. Certificates. Certificates for Shares purchased under the Plan will not
be issued automatically. However, certificates for whole Shares purchased
shall be issued as soon as practicable following an employee's written
request. A reasonable charge may be imposed for the issuance of such
certificates. Fractional interests in Shares shall be carried forward in an
employee's Plan Share Account until they equal one whole Share or until the
termination of the employee's participation in the Plan, in which event an
amount in cash equal to the value of such fractional interest shall be paid to
the employee in cash. If a share certificate is issued to an employee, the
employee will be required to notify the Company of his disposition of such
shares, if his disposition occurs within time periods established by the
Company.
13. Termination of Employment. If a participating employee's employment is
terminated for any reason, if an employee dies, if an employee is granted a
leave of absence of more than 90 days duration, or if an employee otherwise
ceases to be eligible to participate in the Plan, payroll deductions on behalf
of the employee shall be discontinued and any amounts then credited to the
employee's Payroll Deduction Account shall be refunded to the employee as soon
as practicable.
14. Rights Not Transferable. Rights granted under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during an employee's lifetime
only by the employee.
15. Employment Rights. Neither participation in the Plan, nor the exercise
of any right granted under the Plan, shall be made a condition of employment,
or of continued employment with the Company or any subsidiary. Participation
in the Plan does not limit the right of the Company or any subsidiary to
terminate a participating employee's employment at any time or give any right
to an employee to remain employed by the Company or any subsidiary in any
particular position or at any particular rate of remuneration.
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16. Application of Funds. All funds received by the Company for Shares sold
by the Company on any Share Purchase Date pursuant to this Plan may be used
for any corporate purpose.
17. Amendments and Termination. The Board of Directors may amend the Plan at
any time, provided that no such amendment shall be effective unless approved
within 12 months after the date of the adoption of such amendment by the
affirmative vote of stockholders holding shares of Common Stock entitled to a
majority of the votes represented by all outstanding shares of Common Stock
entitled to vote if such stockholder approval is required for the Plan to
continue to comply with the requirements of Securities and Exchange Commission
Regulation (S) 240.16b-3 and Section 423 of the Internal Revenue Code. The
Board of Directors may suspend the Plan or discontinue the Plan at any time.
Upon termination of the Plan, all payroll deductions shall cease and all
amounts then credited to the participating employees' Payroll Deduction
Accounts shall be equitably applied to the purchase of whole Shares then
available for sale, and any remaining amounts shall be promptly refunded to
the participating employees.
18. Applicable Laws. This Plan, and all rights granted hereunder, are
intended to meet the requirements of an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code, as from time to time amended, and
the Plan shall be construed and interpreted to accomplish this intent. Sales
of Shares under the Plan are subject to, and shall be accomplished only in
accordance with, the requirements of all applicable securities and other laws.
19. Expenses. Except to the extent provided in paragraph 12, all expenses of
administering the Plan, including expenses incurred in connection with the
purchase of Shares in the open market for sale to participating employees,
shall be borne by the Company and its subsidiaries.
20. Stockholder Approval. The Plan was adopted by the Board of Directors on
December 14, 1995, subject to stockholder approval. The Plan and any action
taken hereunder shall be null and void if stockholder approval is not obtained
at the next annual meeting of stockholders.
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PIONEER FINANCIAL SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING TO BE HELD MAY 23, 1996 AT 4:00 P.M., CENTRAL TIME
The undersigned, hereby appoint(s) Peter W. Nauert and William B. Van Vleet, and
each of them, proxies of the undersigned (with full powers of substitution) to
attend the above Annual Meeting and all adjournments thereof (the "Meeting") and
there to vote all shares of Common Stock of Pioneer Financial Services, Inc.
(the "Company") that the undersigned would be entitled to vote, if personally
present, in regard to all matters which may come before the meeting, including:
The Board of Directors recommends a vote FOR election of directors, FOR approval
of the Amendment to the Company's 1994 Omnibus Stock Incentive Program, FOR
approval of the Company's Employee Stock Purchase Plan, FOR approval of the
performance-based business criteria for the Company's Annual Incentive Plan for
the Company's Chief Executive Officer and FOR approval of the Amendment to the
Company's Certificate of Incorporation.
Election of Class II Directors, Nominees: COMMENTS: (Change of address)
Class II (Term expires 1999) -----------------------------
Karl-Heinz Klaeser -----------------------------
John W. Gardiner -----------------------------
-----------------------------
-----------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes
ON THE REVERSE SIDE. If you do not mark any boxes, your proxy will be voted in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
PROXY
- --------------------------------------------------------------------------------
---------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
---------------
-------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 251 SCHAUMBURG IL
-------------------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
PIONEER FINANCIAL SERVICES INC
1750 E GOLF RD STE 1000
SCHAUMBURG IL 60173-9801
<PAGE>
5789
[X] Please mark your
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, FOR approval of the Amendment to the Company's 1994 Omnibus Stock
Incentive Program, FOR approval of the Company's Employee Stock Purchase
Plan, FOR approval of the performance-based business criteria for the Company's
Annual Incentive Plan for the Company's Chief Executive Officer and FOR approval
of the Amendment to the Company's Certificate of Incorporation.
FOR WITHHELD
1. Election of [_] [_]
Directors
(see reverse)
For, except vote withheld from the following nominee:
- ----------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the [_] [_] [_]
Amendment to the
Company's 1994
Omnibus Stock
Incentive Program.
Change of
Address/Comments
on Reverse Side [_]
FOR AGAINST ABSTAIN
3. Approval of the Company's
Employee Stock Purchase Plan. [_] [_] [_]
4. Approval of the performance-
based business criteria for the
Annual Incentive Plan for the
Company's Chief Executive Officer. [_] [_] [_]
5. Approval of the Amendment of the
Company's Certificate of
Incorporation. [_] [_] [_]
6. In their discretion, upon such other business as may properly
come before the meeting or any adjournment thereof.
Please date and 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.
--------------------------------------
1996
--------------------------------------
SIGNATURE(S) DATE
. FOLD AND DETACH HERE .
HEALTH AND LIFE INSURANCE PRODUCTS
FOR MIDDLE AMERICA
- -------------------------------------------------------------------------------
As a stockholder, you know that Pioneer Financial Services, Inc. provides a
variety of health insurance, life insurance and annuity products in the
individual insurance market.
We take great pride in the fact that hundreds of thousands of American families
rely on PFS companies for health and life insurance protection. We invite you
to contact us to learn more about any of our products that may help protect you
and your family.
Just detach and mail this postage-paid card or call our toll-free product
information line: 1-800-LIFE-654.
- --------------------------------------------------------------------------------
YES. Please send me information on the following products I have checked:
[_] Term Life Insurance
[_] Individually Issued
Medical Insurance
[_] Home Health Care/
Long-Term Care
[_] Other-------------------
------------------------
------------------------
(All products not available in all states.
An agent may call.)
- -----------------------------------
Name----------------------------
Address-------------------------
City----------------------------
State---------- Zip------------
- -----------------------------------
