<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:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] 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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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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 Daylight 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
______________, 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 _____________, 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, 848,900 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.
2
<PAGE>
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
TITLE NAME AND ADDRESS BENEFICIAL PERCENT
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>
________________
(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:
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------------------------------------------------
NAME OF CONVERTIBLE CONVERTIBLE
BENEFICIAL COMMON PREFERRED COMMON PREFERRED
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
(17 persons)............ 2,347,006(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
4
<PAGE>
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.
(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.
5
<PAGE>
NOMINEES FOR ELECTION
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE,
NAME AGE AND OTHER DIRECTORSHIPS
---- --- -----------------------
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.
CONTINUING DIRECTORS
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
6
<PAGE>
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
7
<PAGE>
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 of 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.
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
8
<PAGE>
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.
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.
9
<PAGE>
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.
10
<PAGE>
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.
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
- ---------------------------
11
<PAGE>
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.
STOCK PURCHASE 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
12
<PAGE>
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 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)
13
<PAGE>
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.
14
<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
Annual Restricted Securities
Name and Principal Compensa- Stock Underlying LTIP All Other
Position Year Salary Bonus(1) tion 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 1993 119,318 63,367 -0- -0- -0- -0- 392
Officer (4)
</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.
15
<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 Exercise or
Underlying to Employees Base Price Expiration
Name Options Granted in Fiscal 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
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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>
(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
Underlying Unexercised In-the-Money Options
Options at December 31, 1995 at 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.
17
<PAGE>
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 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.
18
<PAGE>
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 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
19
<PAGE>
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
20
<PAGE>
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.
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.
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.
21
<PAGE>
[Graph appears here]
<TABLE>
<CAPTION>
Pioneer Financial Wilshire 5000 Wilshire Insurance
- ----------------------------------------------------------------
<S> <C> <C> <C>
12/31/90 100.00 100.00 100.00
- ----------------------------------------------------------------
12/31/91 100.00 134.00 132.00
- ----------------------------------------------------------------
12/31/92 78.00 146.00 164.00
- ----------------------------------------------------------------
12/31/93 224.00 163.00 174.00
- ----------------------------------------------------------------
12/20/94 146.00 163.00 170.00
- ----------------------------------------------------------------
12/29/95 304.00 222.00 239.00
- ----------------------------------------------------------------
</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 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.
22
<PAGE>
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 (v) 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 6527
Thomas J. Brophy 109,009(2)
Ernest T. Giambra, Jr. 974
Executive Group 842,006(3)
Non Executive Director 93807
Group
Non Executive Officer 16,712
Employee Group
</TABLE>
(1) Includes options to purchase 500,000 shares granted subject to stockholder
approval of the proposed Amendment. See "Employment and Other Agreements."
23
<PAGE>
(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
24
<PAGE>
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 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 in Section 423 of the Internal Revenue Code.
25
<PAGE>
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.
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,
26
<PAGE>
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.
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.
27
<PAGE>
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.
28
<PAGE>
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 ________, 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.
A. Clark Waid, III
Secretary
Schaumburg, Illinois
____________, 1996
29
<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 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
A-1
<PAGE>
(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 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 initi ate, 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
A-2
<PAGE>
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.
(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
A-3
<PAGE>
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
A-4
<PAGE>
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.
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.
A-5
<PAGE>
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------------
- -----------------------------------
