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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONNING CORPORATION
-------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Dated Filed:
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Conning [logo]
NOTICE OF THE ANNUAL MEETING OF
SHAREHOLDERS OF
CONNING CORPORATION
TO BE HELD MAY 11, 1999
TO THE SHAREHOLDERS OF
CONNING CORPORATION:
The Annual Meeting of the Shareholders of Conning Corporation
will be held at the Ritz-Carlton Hotel, 100 Carondelet Plaza, St.
Louis, Missouri on Tuesday, May 11, 1999, commencing at 10:00 a.m.,
at which meeting only holders of record of the Company's Common
Stock at the close of business on March 31, 1999 will be entitled to
vote, for the following purposes:
1. to elect two directors for a three-year term;
2. to ratify the appointment of KPMG LLP as the Company's
independent accountants for the fiscal year ended December
31, 1999; and
3. to transact such other and further business, if any, as may
properly come before the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Leonard M. Rubenstein
Chairman, President and Chief Executive
Officer
Matthew P. McCauley
Secretary
St. Louis, Missouri
April 6, 1999
EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK,
DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY. A
POSTAGE-PAID RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE>
<PAGE>
Conning [logo]
CONNING CORPORATION
700 MARKET STREET, ST. LOUIS, MISSOURI 63101
PROXY STATEMENT
RELATING TO THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
This proxy statement is furnished to the holders of Common Stock
of Conning Corporation (the "Company" or "Conning") in connection
with the solicitation of proxies for use in connection with the
Annual Meeting of the Shareholders to be held May 11, 1999 at the
Ritz-Carlton Hotel, 100 Carondelet Plaza, St. Louis, Missouri at
10:00 a.m., Central time, and all adjournments and postponements
thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of the Shareholders. The Company is first mailing
this Proxy Statement and the enclosed proxy card to shareholders on
or about April 6, 1999.
Whether or not you expect to be present in person at the
Meeting, you are requested to complete, sign, date, and return the
enclosed form of proxy. If you attend the meeting, you may vote by
ballot. If you do not attend the Meeting, your shares of Common
Stock can be voted only when represented by a properly executed
proxy.
Any person giving such a proxy has the right to revoke it at any
time before it is voted by giving written notice of revocation to
the Secretary of the Company, by duly executing and delivering a
proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
The close of business on March 31, 1999 has been fixed as the
record date for the determination of shareholders entitled to vote
at the Annual Meeting. As of the record date, there were 13,374,500
shares of Common Stock outstanding and entitled to be voted at such
meeting, and approximately 123 holders of record. Shareholders will
be entitled to cast one vote on each matter for each share of Common
Stock held of record on the record date, except in certain
circumstances described under "Voting Matters." A list of
shareholders entitled to vote at the Annual Meeting will be kept at
the Company's principal offices at 700 Market Street, St. Louis,
Missouri 63101 for a period of ten days prior to the Meeting, and
will be available for inspection at the Meeting.
A copy of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1998 accompanies this proxy
statement.
The solicitation of this proxy is made by the Board of Directors
of the Company. The solicitation will be primarily by mail. In
addition, proxies may be solicited by telephone or telefax by
directors, officers or employees of the Company who will receive no
extra compensation for their services. Expenses in connection with
the solicitation of proxies will be paid by the Company.
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ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Company's Board of Directors is divided into three classes,
with one class of directors being elected at each annual meeting of
shareholders. At the Annual Meeting, two directors of the Company
are to be elected for terms expiring at the Annual Meeting in 2002,
or until successor(s) are elected and qualified. Certain information
with respect to Richard A. Liddy and John C. Shaw, the nominees for
election as directors proposed by the Company, and the other
directors whose terms of office as directors will continue after the
Annual Meeting, is set forth below. Mr. Slayton is listed as a
continuing director; however, he will be resigning from that
position at the Annual Meeting. Each director has served in his
principal occupation for the last five years, unless otherwise
indicated. Should Messrs. Liddy or Shaw decline or become unable to
serve (which is not expected), the proxies (except proxies marked to
the contrary) will be voted for such other person as the Board of
Directors of the Company may recommend. Messrs. Liddy and Shaw have
agreed to serve as directors if elected. The Board of Directors
nominates directors and will accept recommendations for director
nominations from shareholders. See "Shareholder Proposals and
Director Nominations." The Board of Directors recommends a vote FOR
the two nominees for election.
NAME, AGE, PRINCIPAL OCCUPATION OR POSITION, AND OTHER DIRECTORSHIPS
TO BE ELECTED AS A DIRECTOR FOR TERM ENDING 2002:
RICHARD A. LIDDY, 63 Mr. Liddy has been a director of the
Company since November 1996. He is Chairman, President, and Chief
Executive Officer of General American Life Insurance Company,
GenAmerica Corporation, and General American Mutual Holding Company.
He is also Chairman of General American Capital Company, a
registered investment company, and Chairman of Paragon Life
Insurance Company, Reinsurance Group of America, Incorporated,
Security Equity Life Insurance Company and Security Mutual Life
Insurance Company of New York, and a director of Ameren Corporation,
Brown Group, Inc., and Ralston Purina Company.
JOHN C. SHAW, 65 Mr. Shaw has been a director of the Company
since June 1997. He currently is Special Assistant to the President
of Claremont Graduate University and is the former Dean of the Peter
F. Drucker Graduate School of Management at Claremont Graduate
University. He also is the founding partner of the Shaw Group LLC, a
management consulting firm specializing in transformation
management. From 1994 to 1997, he served in the Office of Chairman
of Well Point Health Network, Inc., a publicly-traded managed
healthcare company. From 1966 to 1994, he was a partner of Deloitte
& Touche, most recently serving as Vice Chairman. Previously he has
served as national director for Strategic Planning,
Partner-In-Charge of the New York office and a member of the Board
of Directors and Board of Governors for Touche Ross. Mr. Shaw has
taught at Stanford Business School and the Wharton School, lectured
at several national seminars, and authored several books and
articles on modern business techniques.
TO CONTINUE IN OFFICE UNTIL 2000:
LEONARD M. RUBENSTEIN, 53 Mr. Rubenstein, C.F.A, has been a
director of the Company since its formation in August 1995. He is
Chairman, President, and Chief Executive Officer of the Company and
also serves as Chairman, President, and Chief Executive Officer of
Conning Asset Management Company. Mr. Rubenstein assumed the title
of President effective February 12, 1999, coincident with the
retirement of Maurice W. Slayton, the Company's former President.
Prior to his position with Conning, Mr. Rubenstein spent 23 years in
the investment operations of General American Life Insurance Company
("General American"), where he held various positions, including
Executive Vice President--Investments. From 1984 to 1991, Mr.
Rubenstein served as Vice President of General American. He also is
a director of several General American subsidiaries, none of which
is registered with the Securities and Exchange Commission ("SEC")
except Reinsurance Group of America, Incorporated. Mr. Rubenstein is
a past president of the St. Louis Society of Financial Analysts.
2
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MAURICE W. SLAYTON, 60 Mr. Slayton has been a director of the
Company since its formation in August 1995 and was President of the
Company from 1995 until his retirement February 12, 1999. He
continues to serve as President and CEO of Conning & Company, a
subsidiary of the Company. Mr. Slayton joined Conning in 1973. Prior
thereto, he had 12 years of experience with Hartford Steam Boiler
Inspection and Insurance Company and National Life of Vermont in a
number of insurance and investment positions. He is currently a
director of several insurance related entities, none of which is
registered with the SEC except PennCorp Financial Group, Inc. Mr.
Slayton is a member and past president of The Hartford Society of
Financial Analysts.
TO CONTINUE IN OFFICE UNTIL 2001:
JOHN A. FIBIGER, 66 Mr. Fibiger has been a director of the
Company since June 1997. Until April 1997, he was Chairman of
Transamerica Occidental Life Insurance Company as well as a director
of four of its wholly owned life insurance subsidiaries. He is
currently a director of two of such subsidiaries--Transamerica Life
Company of Canada and Transamerica Life Company of New York. Mr.
Fibiger joined Transamerica Life Companies as CFO in 1991. He was
named President of Transamerica Occidental Life Insurance Company,
one of the seven Transamerica Life Companies, in December 1994. A
38-year veteran of the life insurance industry, Mr. Fibiger was Vice
Chairman, President, and Chief Operating Officer of New England
Mutual Life Insurance Company in Boston, and held positions with
Bankers Life Nebraska (now Ameritas) and Lincoln National Life. A
past board member of the Society of Actuaries, Mr. Fibiger was the
first chairman of the Interim Actuarial Standards Board and served
as President of the American Academy of Actuaries. He is a past
member of the Council of the International Actuarial Association.
ARTHUR C. REEDS, III, 55 Mr. Reeds has been a director of the
Company since July 1998. Currently he is serving as a consultant to
the Treasurer of the State of Connecticut working with the State's
pension funds. From 1968 until his retirement in 1997, he was
employed by CIGNA Corporation where he held a series of management
positions in the company's asset management and investment
operations. From 1991 to 1997, he served as Chief Investment Officer
of CIGNA. He also has served in various consulting assignments
focused upon insurance company investments. Mr. Reeds is a member of
several professional financial analysts' organizations and serves on
the investment committee of several nonprofit organizations.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
From June 1997 to July 1998, the Board of Directors was
comprised of Messrs. Liddy, Rubenstein, Slayton, Fibiger and Shaw.
At the July 1998 meeting, the size of the Board was increased to six
directors and Mr. Reeds was elected to the Board. The Board of
Directors met a total of eight times during 1998. Each incumbent
director attended at least 75% of meetings of the Board and
committees on which he served during 1998.
The Board of Directors currently has an Audit Committee and a
Compensation Committee. The Board of Directors does not have a
standing nominating committee. The Audit Committee, of which Messrs.
Fibiger, Liddy, Reeds (starting in July 1998), and Shaw are members,
met three times in 1998. This Committee is responsible for
overseeing the integrity and reliability of the Company's accounting
and financial reporting practices and the effectiveness of its
system of controls. It also recommends a public accounting firm to
be retained for the coming year and reviews the work to be done by
such firm. In October 1998, the General and Executive Compensation
Committees were dissolved and all compensation-related matters were
delegated to one Compensation Committee. The Compensation Committee
is responsible for making all compensation decisions relating to
executive officers and reviews decisions regarding compensation
generally. This Committee is comprised of Messrs. Fibiger, Reeds,
and Shaw and met twice in December 1998. The General Compensation
Committee that existed until October 1998 was comprised of Messrs.
Liddy, Rubenstein, and Slayton and made all compensation decisions
other than executive stock-based compensation. The General
Compensation Committee met once in 1998. The Executive Compensation
Committee that existed until October 1998 was comprised of Messrs.
Fibiger, Reeds (after July 1998), and Shaw. The Executive
Compensation Committee did not meet in 1998.
3
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DIRECTOR COMPENSATION
The Company pays each director who is not employed by the
Company or an affiliate a $10,000 annual retainer, paid in quarterly
installments. The Company also pays each non-employee director
$1,000 for each Board meeting attended in person and $500 for each
telephonic Board meeting attended, plus expenses. In addition, the
Company pays each non-employee director $750 for each committee
meeting attended in person and $375 for each telephonic committee
meeting attended, plus expenses.
Directors of the Company are also eligible to participate in the
Company's 1997 Flexible Stock Plan. In December 1997, the Company
granted stock options to purchase 5,000 shares of Common Stock to
each of Messrs. Fibiger and Shaw. The options have an exercise price
of $13.50 per share, and vest in annual increments over a five year
period, commencing December 19, 1998. The options become fully
exercisable upon the director's retirement. In addition, Mr. Liddy
holds an option to purchase 25,000 shares of Common Stock at an
exercise price of $7.00 per share, which vests in 20% annual
increments commencing December 7, 1997. This option was granted as
part of an option grant to certain officers and directors in 1996.
On October 20, 1998, the Company granted Mr. Reeds an option to
purchase 5,000 shares of Common Stock. The option has an exercise
price of $14.625 per share and vests in annual increments over a
five year period, commencing October 20, 1999. The exercise price of
all options represents the market value of the Company's Common
Stock on the date of grant.
COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain stock ownership
information, as of March 1, 1999, with respect to (i) each person
known to the Company to be the beneficial owner of 5% or more of the
Company's outstanding Common Stock, (ii) each director of the
Company, (iii) each executive officer named in the Summary
Compensation Table, and (iv) all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP<F1> OF CLASS
---------------- ------------- --------
<S> <C> <C>
GREATER THAN 5% SHAREHOLDER:
General American Mutual Holding Company................... 8,304,995<F2> 62.1%
700 Market Street
St. Louis, Missouri 63101
DIRECTORS AND NAMED EXECUTIVE OFFICERS <F3>:
Leonard M. Rubenstein, Chairman, President and Chief
Executive Officer....................................... 230,721<F4> 1.7%
John B. Clinton, Executive Vice President................. 138,070<F5> 1.0%
Michael D. McLellan, Executive Vice President............. 121,844<F6> <F*>
Thomas D. Sargent, Executive Vice President............... 128,444<F7> <F*>
John A. Fibiger, Director................................. 2,334<F8> <F*>
Richard A. Liddy, Director................................ 52,500<F9> <F*>
Arthur C. Reeds, III, Director............................ 1,000<F10> <F*>
John C. Shaw, Director.................................... 1,334<F8> <F*>
Maurice W. Slayton, Director.............................. 175,999<F11> 1.3%
All current directors and executive officers as a group
(12 persons)............................................ 1,085,466<F12> 7.8%
<FN>
- -------
<F*> Represents less than one percent.
<F1> Unless otherwise noted, each person has sole voting and investment power
with respect to all shares listed opposite such person's name. Shares
issuable upon exercise of a person's exercisable stock options are deemed
to be outstanding for purposes of calculating such person's percentage
ownership.
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<F2> Shares beneficially owned by General American Holding Company, a
wholly-owned subsidiary of General American Life Insurance Company, which
is a wholly-owned subsidiary of GenAmerica Corporation, which is a
wholly-owned subsidiary of General American Mutual Holding Company.
<F3> The Stock Ownership table includes stock ownership information for all
persons named in the Summary Compensation Table except Mark E. Hansen,
who beneficially owns no shares of Common Stock. Effective May 1, 1998,
Mr. Hansen no longer served as an executive officer of the Company, but
he is named in the Summary Compensation Table in accordance with
Securities and Exchange Commission rules.
<F4> Includes 187,565 shares of Common Stock subject to stock options that are
exercisable within 60 days, 2,656 shares of restricted stock that are
subject to forfeiture in accordance with the terms of the specific grant
(as to which Mr. Rubenstein has no investment power), and 500 shares that
are owned by Mr. Rubenstein's child (as to which Mr. Rubenstein shares
voting and investment power and disclaims beneficial ownership).
<F5> Includes 25,840 shares of Common Stock subject to stock options that are
exercisable within 60 days and 1,953 shares of restricted stock that are
subject to forfeiture in accordance with the terms of the specific grant
(as to which Mr. Clinton has no investment power).
<F6> Includes 98,402 shares of Common Stock subject to stock options that are
exercisable within 60 days and 3,242 shares of restricted stock that are
subject to forfeiture in accordance with the terms of the specific grant
(as to which Mr. McLellan has no investment power).
<F7> Includes 25,840 shares of Common Stock subject to stock options that are
exercisable within 60 days and 2,188 shares of restricted stock that are
subject to forfeiture in accordance with the terms of the specific grant
(as to which Mr. Sargent has no investment power).
<F8> Includes 334 shares of Common Stock subject to stock options that are
exercisable within 60 days.
<F9> Includes 10,000 shares of Common Stock subject to stock options that are
exercisable within 60 days and 42,500 shares held in a joint account with
Mr. Liddy's wife, an account over which he has shared voting and
investment power. Mr. Liddy is a director and executive officer of
General American Mutual Holding Company and certain of its affiliates. He
disclaims beneficial ownership of the shares beneficially owned by
General American Mutual Holding Company.
<F10> Shares are held in a joint account with Mr. Reeds' wife, an account over
which he has shared voting and investment power.
<F11> Includes 138,475 shares of Common Stock subject to stock options that are
exercisable within 60 days.
<F12> Includes 576,694 shares of Common Stock subject to stock options that are
exercisable within 60 days and 15,742 shares of restricted stock that are
subject to forfeiture in accordance with the terms of the specific grants
(as to which the individuals have no investment power).
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors, executive officers, and persons who
beneficially own more than 10% of the Company's Common Stock, to
file reports of ownership and changes in ownership on Forms 3, 4,
and 5 with the Securities and Exchange Commission, and to provide
copies of such forms to the Company.
Based solely on the Company's review of the copies of such forms
it has received, or written representations from certain reporting
persons, the Company believes that all its directors, executive
officers, and greater than 10% beneficial owners complied with all
filing requirements applicable to them with respect to transactions
during 1998.
5
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COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company has a Compensation Committee, which was established
in October 1998, that is responsible for making all compensation
decisions with respect to the Company's executive officers and for
approving compensation for all of the Company's other employees. The
Compensation Committee is comprised of Messrs. Fibiger, Reeds, and
Shaw, all of whom are outside directors. From October 1997 to
October 1998, the Company had a General Compensation Committee, of
which Messrs. Liddy (beginning in December 1997), Rubenstein, and
Slayton were members, and an Executive Compensation Committee,
comprised of Messrs. Fibiger, Reeds (since July 1998) and Shaw. The
General Compensation Committee was responsible for determining
compensation for the Company's non-executive officers and cash
compensation for executive officers. The Executive Compensation
Committee made all decisions regarding awards of stock-based
compensation to executive officers and reviewed decisions of the
General Compensation Committee regarding total executive officer
compensation.
Decisions regarding salary levels for each year are generally
made at the end of the prior year and decisions regarding bonuses
and long-term incentive compensation for each year are generally
made at the end of that year. As a result, the former General
Compensation Committee set 1998 salaries for executive officers, and
the Executive Compensation Committee approved these salaries, in
December 1997. Bonuses and stock-based awards for executive officers
for 1998 were determined by the current Compensation Committee in
December 1998 and January 1999.
This report describes the Company's executive compensation for
the fiscal year ended December 31, 1998. As of this date, the
Company had eight executive officers, including Leonard M.
Rubenstein (CEO and Chairman), Maurice W. Slayton (President), and
Fred M. Schpero (Senior Vice President and CFO), all of whom served
as executive officers for the entire year. In addition, effective
April 1, 1998, the Company designated the following senior officers
as executive officers: John B. Clinton, Donald L. McDonald, Michael
D. McLellan, Thomas D. Sargent, and Christopher J. Swift. Mark E.
Hansen, formerly an Executive Vice President of the Company, served
as an executive officer until May 1, 1998. Mr. Slayton retired as
President in February 1999. Unless otherwise specified, the term
"executive officers" used throughout this report refers to the eight
persons who were executive officers of the Company as of December
31, 1998.
OVERVIEW
The Company's compensation to executive officers and key
employees is comprised of three principal components--salary, cash
bonus, and long-term incentive compensation. Prior to 1998,
long-term incentive compensation was in the form of stock options
and, in certain instances, private equity fund carried interest
participations. During 1998, the Company incorporated restricted
stock as part of its long-term incentive compensation program. The
Company considers annual and long-term incentive compensation to be
important components of total compensation, as the amount and value
of an individual's bonus and stock-based awards are significantly
dependent upon the Company's financial results and the performance
of the Company's stock. The Company believes this approach aligns
the interests of management and shareholders and encourages
management to focus on the Company's long-term business objectives
and growth. The allocation of carried interest participations in the
Company's private equity funds similarly aligns the economic
interests of fund managers and fund investors.
Although the Company does not have a specific formula as to the
ratio between the various components of executive compensation, as a
general rule the greater an individual's responsibility and
potential contribution to the Company, the higher the percentage of
his total pay that is variable. The Compensation Committee believes
that emphasizing performance-based compensation for executive
officers reinforces the notion that a potentially significant part
of their compensation is "at-risk" and must be earned to be awarded.
Members of the Company's management team also have a significant
stock ownership interest in the Company. The Company's senior
officers (Senior Vice Presidents and above) own approximately 17% of
the Company's Common Stock, including restricted stock and vested
stock options. The Company recently adopted stock ownership
guidelines to encourage senior officers to continue to acquire and
retain an equity stake in the Company.
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The Company was a party to Employment Agreements with certain of
its executive officers and certain other employees which expired on
August 11, 1998. Under each Employment Agreement, the employee was
entitled to receive a minimum annual base salary, subject to
increases pursuant to periodic salary reviews consistent with the
Company's compensation policies, and was entitled to participate in
the Company's bonus and private equity carried interest programs.
See "Executive Compensation--Employment Agreements and Other
Compensation Arrangements."
SALARY
The minimum base salary of the Company's executive officers was
set in their respective Employment Agreements. Mr. Rubenstein's
Employment Agreement, dated August 11, 1995, provided for an initial
base salary of $257,500. Base salaries are reviewed annually,
generally during the fourth quarter of the Company's fiscal year.
Various factors are considered in evaluating salary levels,
including job level, responsibility, knowledge and experience,
productivity, personal contributions, the relationship of fixed to
variable compensation, and available market survey data. Based upon
these factors, Mr. Rubenstein's base salary increased from $257,500
in 1995 to $278,000 in 1997, and salary levels for the Company's
then executive officers as a group increased approximately 4.4% per
annum during this time. In order to place greater emphasis on annual
and long-term incentive compensation, the General Compensation
Committee in December 1997 elected not to increase 1998 salaries for
any of the then executive officers, including Mr. Rubenstein.
In keeping with this philosophy, the Compensation Committee in
December 1998 did not increase 1999 salary levels for most of its
executive officers, including Mr. Rubenstein. This decision was
based primarily on market survey information provided in the fall of
1998 by an independent compensation consultant which indicated that
salary levels for the Company's executive officers were at or near
median levels as compared to market survey data of competitive
positions in the investment and asset management industry.
Mr. Rubenstein's salary for 1998 represents approximately 35% of his
total compensation for the year (comprised of salary, bonus, and the
estimated value of long-term incentive awards). The Committee
believes this compensation reflects an appropriate balance between
fixed and variable pay in light of the Company's performance for
1998. While salary level is a key tool in attracting and retaining
talented executives, the Committee expects that the opportunity to
earn incentive compensation will continue to play an important role
in total executive pay.
BONUS
The Compensation Committee generally approves a bonus pool at
the end of each fiscal year. Substantially all of the Company's
employees, including all of the executive officers, are eligible to
participate in the bonus pool. The amount of the pool is based on a
percentage of the Company's operating income before "amortization of
goodwill and other" and incentive compensation, for the year. The
bonus pool percentage increases as operating income exceeds results
for prior periods. The Company does not have a written bonus plan.
The amount of each participant's bonus is based primarily on a
subjective determination as to the employee's individual performance
and achievements during the year using factors similar to those used
in the salary level decisions, as well as objective measures of the
performance of the employee's business group. Any special
contribution to the Company's performance is an additional factor in
the individual bonus determination. For Mr. Rubenstein, the
Company's overall performance, as measured principally by operating
income before "amortization of goodwill and other" and incentive
compensation, is primarily used to determine his bonus. Although
this general approach is followed in determining each eligible
employee's bonus, determination of the amount of each bonus is
predominantly discretionary and is not subject to a precise formula.
In connection with the adoption of a new long-term incentive
program in December 1998 (see "Long-Term Incentive Compensation"
below), the Compensation Committee enhanced the process for
determining bonus awards. The Committee established four general
criteria for evaluating individual performance--financial
performance, investment performance, franchise enhancement, and
people development--which are then tailored for each participant as
described above. Specific personal goals generally will be set forth
at the beginning of each fiscal year, with attainment of those goals
assessed at the end of the year. The Committee will be responsible
for approving performance goals for the Company's CEO and President.
Bonuses for executive officers are determined by the Compensation
Committee. Although individual bonus allocations are primarily based
on the attainment of personal performance goals, the Company
believes the direct tie between the
7
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amount of the bonus pool and corporate operating income makes
Company performance an integral part of individual bonuses. The
Committee consulted with an outside independent compensation
consultant to assist in evaluating the Company's bonus program.
In January 1999, the Compensation Committee approved the amount
of the 1998 bonus pool and the individual bonuses payable to all
participants, including the executive officers. In determining the
amount of executive officers' bonuses, the Compensation Committee
took into account the Company's financial performance, including the
approximate 32% increase in operating income before "amortization of
goodwill and other" and incentive compensation from 1997 to 1998.
The Committee also took into account business group performance and
an array of personal performance factors indicated above, without
giving specific weight to any single factor. In approving bonuses
for employees and executive officers other than the CEO and
President, the Committee based its evaluation of such criteria on
management recommendations.
The Compensation Committee awarded Mr. Rubenstein a bonus of
$345,000 for 1998, which represents approximately 43% of his total
compensation for the year. In determining the amount of this award,
the Committee considered the corporate performance measures
discussed above, as well as a number of different measures of
individual performance, including Mr. Rubenstein's leadership role
in completing the acquisitions of the businesses of Schroder
Mortgage Associates, L.P. and the Noddings Group during 1998 and the
integration of those businesses into the Company's operations. The
amount of Mr. Rubenstein's bonus includes the cost of certain
pension and post-retirement health benefits that are deducted from
the cash bonus paid to Mr. Rubenstein. See "Executive
Compensation--Compensation Summary."
LONG-TERM INCENTIVE COMPENSATION
The Compensation Committee considers long-term incentive
compensation--in the form of restricted stock, stock options, and,
in certain cases, private equity fund carried interest
participations ("private equity participations")--a significant
component of an officer's total compensation package. Not only does
such compensation encourage talented employees to remain with the
Company, it motivates employees to focus on Company performance,
teamwork, and long-term corporate growth strategies. Stock-based
awards also serve as an important means of aligning the economic
interests of management with the performance of the Company's stock.
In December 1998, the Compensation Committee enhanced its
long-term incentive program. The new program is designed to continue
the demonstrated strengths of the Company's traditional incentive
compensation practices, while incorporating restricted stock and
stock ownership guidelines and providing a more structured process
for determining awards. The amount of stock option awards has
historically been based on a discretionary assessment of
quantitative and non-quantitative criteria at the end of each year,
similar to the process for determining bonuses, taking into account
stock ownership. Under the new program, an officer can earn a
long-term incentive award (i.e., the value of restricted stock,
stock options, and private equity participations) of up to
approximately one-half of total cash compensation for executive
officers, and one-half of bonus for non-executive officers. The
actual amount awarded to any individual is based on the individual's
attainment of specific personal goals established at the beginning
of the year under four general incentive criteria, as well as
business group performance or, in the case of the CEO, President and
CFO, overall Company performance (see "Bonus" above). Although the
Committee has flexibility in determining the exact mix of stock
options and restricted stock to be awarded, the Committee strives to
give equal weight to these two components. The head of the Company's
Private Equity Group, together with top management, is responsible
for allocating private equity participations, subject to approval of
the Compensation Committee. Private equity participations are taken
into account in determining an officer's total long-term incentive
award.
The Company's executive officers, senior officers, and certain
key employees (currently approximately 50 persons) are eligible to
participate in the long-term incentive program. The Compensation
Committee consulted with an independent compensation consultant in
designing this program.
STOCK OPTIONS AND RESTRICTED STOCK. The Company has adopted a
1997 Flexible Stock Plan (the "1997 Plan") that provides for the
award of benefits of various types, including stock options, stock
appreciation rights, restricted stock, performance shares, and other
stock-based awards, as well as cash awards, in order to attract,
retain, motivate, and reward officers, employees, directors, and
certain other individuals, and to encourage stock ownership by such
persons. The 1997 Plan is generally administered by the Company's
Compensation Committee, other than for awards to non-employee
directors, which are administered by the full
8
<PAGE>
<PAGE>
Board. The maximum number of shares of Common Stock that may be
issued under the 1997 Plan is 2,200,000 shares. Prior to the
adoption of the 1997 Plan, the Company had similar plans in place
but does not intend to grant any additional options under those
plans. As of December 31, 1998, the Company has granted restricted
stock and options for 3,271,859 shares under all such plans. A total
of 162,641 shares are available for future issuance under the 1997
Plan. All options have an exercise price greater than or equal to
the market price of the Company's Common Stock on the date of grant.
All options granted after the Company's initial public offering in
December 1997 have a vesting schedule of between three and five
years from the date of grant.
As part of the Company's long-term incentive program adopted in
December 1998, the Compensation Committee approved an annual grant
program whereby a portion of each participant's total long-term
incentive award each year will be payable in stock options and
restricted stock. As indicated above, the actual amount awarded is
dependent on individual, business group, and Company performance
measures. The Committee also considers the cumulative number of
options and restricted shares granted as a whole and on an
individual basis. Pursuant to this program, the Committee approved
the grant of 313,188 stock options, including options to purchase
6,641 shares to Mr. Rubenstein and options to purchase 39,356 shares
to the executive officers as a group. These options have an exercise
price of $16.00 per share and vest over a period of five years. The
Committee also approved the award of 134,653 shares of restricted
stock, including 2,656 shares to Mr. Rubenstein and 15,742 shares to
the executive officers as a group. The restricted stock generally
vests over a period of five years. To facilitate stock ownership by
management, the 1998 stock option and restricted stock awards
require the officers to hold the restricted stock and options for a
period of five years from the original date of grant, except that
sales are permitted to pay any tax liability associated with
incremental vesting of restricted shares and the exercise of
options. See "Executive Compensation--Compensation Summary" and
"Stock Option Awards."
PARTICIPATION IN PRIVATE EQUITY FUNDS. Employees in the
Company's Private Equity Group are responsible for managing the
assets of four private equity funds sponsored by the Company. The
managing general partner of each Fund is generally formed as a
limited liability company or limited partnership, with one of the
Company's subsidiaries serving as general partner. In addition to
management fees, the managing general partner is entitled to receive
a carried interest in each fund representing up to approximately 20%
of specified gains of the fund as determined under the applicable
fund agreement. Traditionally, near the end of each fiscal year, the
head of the Company's Private Equity Group and top management have
allocated among certain employees of the Company participation
percentages in the managing general partner's carried interest of
each of the funds. The allocations are subject to approval of the
Company's Compensation Committee. The carried interest paid to the
managing general partner, if any, is split among the Company's
subsidiary, as general partner, and these employees based on their
individual percentage interests. Private equity participations have
generally been allocated in five tranches, with each tranche subject
to a climbing vesting schedule that varies by fund, generally over a
period of up to seven years. Although the Company determines the
extent to which an officer may participate in the carried interest
paid to a fund's managing general partner, the Company does not
determine the amount of actual distributions. The amount of any
carried interest for each fund is paid by the fund and is solely
dependent upon the performance of the fund. With the exception of
Fund I, there have been no distributions of carried interests to
date.
The Company has historically allocated interests to key
employees both within the Private Equity Group and outside the
group. Generally, two-thirds of the participation percentages are
allocated to individuals within the Private Equity Group. The
factors used in allocating such interests are substantially the same
as those used to determine bonuses, but are significantly weighted
based on an individual's level of involvement in the Private Equity
Group. The Compensation Committee believes that private equity
participations provide an important incentive for members of the
Private Equity Group to manage the funds effectively and to stay
with the Company. In addition, based on the Company's teamwork
philosophy, the Committee believes that senior officers outside the
group play a role, both directly and indirectly in terms of their
contribution to the Conning organization, which in turn contributes
to the success of Conning's private equity funds. The Committee thus
views private equity participations as an additional component of
long-term incentive compensation, and the amount of an officer's
participations are taken into account in determining the relative
amount of stock options and restricted stock that the officer is
eligible to receive.
Allocations for Funds I, II, and III are complete, and Fund I is
closed. In early 1998, the General Compensation Committee made the
second allocation for Fund V, as well as the final allocation for
Fund III and the third allocation for Fund IV. These percentage
participation allocations for the executive officers
9
<PAGE>
<PAGE>
generally were the same for both funds and ranged from 0.25% to
1.75%. Mr. Rubenstein received a percentage interest of 0.35% in
each Fund. In December 1998, the Compensation Committee made the
fourth allocation for Fund IV and the third allocation for Fund V.
These percentage participation allocations for the executive
officers were the same and ranged from 0.2% to 1.8%. Mr. Rubenstein
received a percentage interest of 0.4% in each Fund.
See "Certain Relationships and Related Transactions--Participation
in Private Equity Funds" for more information.
STOCK OWNERSHIP GUIDELINES
In connection with the adoption of the Company's long-term
incentive program in December 1998, the Compensation Committee
established stock ownership guidelines to encourage the Company's
senior officers to retain an equity stake in the Company. The
guidelines are designed to capitalize on the Company's existing
employee stock ownership levels. The minimum value of an officer's
stock ownership is based on a multiple of his total cash
compensation; for executive officers (excluding Mr. Slayton who
retired in February 1999), the multiple is approximately two times
total cash compensation. The guidelines will be phased in over a
period of five years beginning in December 1998 (or the later date
on which an individual becomes a senior officer). Unexercised stock
options do not count toward the attainment of stock ownership
guidelines.
SECTION 162(M)
Section 162(m) of the Internal Revenue Code limits the
deductibility for federal income tax purposes of certain executive
compensation paid by publicly-held companies. Certain types of
compensation are excluded from the limitations. The Company believes
the deductibility limitations under Section 162(m) are not
applicable to stock options, restricted stock, and other awards
granted under the 1997 Plan or predecessor plans. With respect to
other components of compensation, the Company has not taken any
action to exclude annual incentive compensation from the limitations
on deductibility.
Respectfully Submitted:
<TABLE>
COMPENSATION COMMITTEE GENERAL COMPENSATION COMMITTEE EXECUTIVE COMPENSATION COMMITTEE
(10/20/98 to present) (10/24/97 to 10/20/98) (10/24/97 to 10/20/98)
<S> <C> <C>
John A. Fibiger Leonard M. Rubenstein John A. Fibiger
Arthur C. Reeds, III Maurice W. Slayton John C. Shaw
John C. Shaw Richard A. Liddy (since Arthur C. Reeds, III (since
12/19/97) 7/24/98)
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Fibiger,
Reeds, and Shaw. The General Compensation Committee was comprised of
Messrs. Liddy, Rubenstein, and Slayton, and the Executive
Compensation Committee was comprised of Messrs. Fibiger, Reeds
(since July 1998), and Shaw.
Mr. Rubenstein is an executive officer of the Company and Mr.
Slayton served as an executive officer until his resignation in
February 1999. None of Messrs. Fibiger, Liddy, Reeds, or Shaw is or
has been an officer or employee of the Company or any of its
subsidiaries. Mr. Liddy is an officer of General American Mutual
Holding Company, the Company's principal beneficial shareholder, and
certain of its affiliates, including GenAmerica Corporation and
General American Life Insurance Company (the entities in the General
American family of companies are referred to collectively as
"General American"). See "Certain Relationships and Related
Transactions" for information regarding certain transactions
involving Messrs. Rubenstein, Slayton, and Liddy, as well as General
American. Mr. Rubenstein serves as a director (but not on the
compensation committee) of Reinsurance Group of America,
Incorporated ("RGA"), of which Mr. Liddy is Chairman. Mr. Liddy is
not paid any compensation by RGA, but holds options to purchase
shares of RGA stock.
10
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth the compensation paid to or
earned by Mr. Rubenstein, the Chief Executive Officer, Mr. Slayton,
and Mr. Hansen, who resigned as an executive officer effective May
1, 1998, but whose compensation is reported in accordance with SEC
rules. Messrs. Sargent, Clinton, and McLellan became executive
officers on April 1, 1998, and their compensation is reported only
for 1998 in accordance with SEC rules.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION<F1> COMPENSATION<F2>
---------------------------------- ----------------------------------
RESTRICTED
STOCK SECURITIES
NAME AND FISCAL AWARDS UNDERLYING OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY<F3> BONUS<F4> ($)<F5> (# SHS)<F6> COMPENSATION<F7>
------------------ ------ ---------- --------- ---------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Leonard M. Rubenstein 1998 $278,000 $345,000<F8> $42,469 6,641 $41,625
Chairman and Chief 1997 278,000 282,000 0 59,565 39,910
Executive Officer<F9> 1996 270,000 325,000 0 20,000 32,913
Maurice W. Slayton 1998 $268,000 $320,000 0 0 $45,196
President<F9> 1997 268,000 325,000 0 55,999 37,755
1996 260,000 325,000 0 0 12,300
Thomas D. Sargent 1998 $193,000 $325,000 $34,986 5,469 $39,436
Executive Vice President
John B. Clinton 1998 $181,000 $325,000 $31,228 4,883 $31,012
Executive Vice President
Michael D. McLellan 1998 $155,000 $337,500 $51,840 8,105 $34,960
Executive Vice President
Mark E. Hansen<F10> 1998 $122,967 $ 0 0 0 $ 800
Former Executive Vice 1997 243,000 100,000 0 55,999 33,255
President 1996 235,000 275,000 0 0 0
<FN>
- --------
<F1> All compensation reported reflects compensation for the full fiscal year
regardless of when the individual first became an executive officer.
Perquisites and other personal benefits are not included, as they do not
exceed the lesser of $50,000 and 10% of the total of salary and bonus for
any named executive officer.
<F2> Does not include the award of or distributions with respect to
participation interests in private investment funds sponsored by the
Company. See "Certain Relationships and Related
Transactions--Participation in Private Equity Funds."
<F3> Includes amounts deferred at the election of the executive officer under
the General American Life Insurance Company Executive Deferred Savings
Plan, with respect to Messrs. Rubenstein and McLellan, and the Conning &
Company Profit Sharing and 401(k) Savings Plan, with respect to Messrs.
Slayton, Clinton, Sargent, and Hansen. Both of such plans are defined
contribution plans.
<F4> Bonuses are for services performed during the applicable fiscal year and
generally are paid in the first quarter of the following year.
<F5> As of December 31, 1998, the number and value of the aggregate restricted
stock holdings of each of the named executive officers were as follows:
Mr. Rubenstein, 2,656 shares worth $55,112; Mr. Sargent, 2,188 shares
worth $45,401; Mr. Clinton, 1,953 shares worth $40,525; and Mr. McLellan,
3,242 shares worth $67,272. Values are based on the closing price of the
Company's Common Stock on December 31, 1998, and the date of grant, as
applicable, and do not take into account the restricted nature of the
stock.
<F6> See "--Stock Option Awards--Option Grants in Last Fiscal Year."
<F7> For Messrs. Rubenstein and McLellan, amounts represent contributions by
the Company to the General American Executive Deferred Savings Plan and
Augmented Benefit Plan (defined contribution plans). For Messrs. Slayton,
Sargent, Clinton, and Hansen, amounts represent contributions by the
Company to the Conning & Company Profit Sharing and 401(k) Savings Plan
and Augmented Benefit Plan (also defined contribution plans).
<F8> Mr. Rubenstein continues to accrue certain pension and post-retirement
health benefits under General American benefit plans. See "Employment
Agreements and Other Compensation Arrangements." Although the cost of
such benefits was deducted from the bonus paid to Mr. Rubenstein for
1998, 1997, and 1996, such cost has not been deducted from the amounts
shown above. The actual bonus paid to Mr. Rubenstein for 1998, 1997, and
1996 was $306,328, $245,345, and $292,100, respectively.
<PAGE>
<F9> Mr. Slayton resigned as President of the Company effective February 12,
1999, at which time Mr. Rubenstein assumed that position.
<F10> Mr. Hansen resigned from his positions with the Company effective May 1,
1998, and is no longer an executive officer of the Company.
</TABLE>
11
<PAGE>
<PAGE>
STOCK OPTION AWARDS
The Company adopted the 1997 Plan to provide for the award of
benefits of various types, including stock options, stock
appreciation rights ("SARs"), restricted stock, performance shares,
cash awards and other stock-based awards. The following tables show
information regarding awards and exercises of stock options in 1998
and the number and value of unexercised options held by the named
executive officers at December 31, 1998.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM<F4>
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH)<F2> DATE<F3> 5% ($) 10% ($)
---- ----------- ------------ ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leonard M. Rubenstein... 6,641<F1> 1.0% $16.00 12/18/2008 $66,824 $169,345
Maurice W. Slayton...... 0 0 NA NA 0 0
Thomas D. Sargent....... 5,469<F1> 0.8% $16.00 12/18/2008 $55,029 $139,460
John B. Clinton......... 4,883<F1> 0.8% $16.00 12/18/2008 $49,133 $124,517
Michael D. McLellan..... 8,105<F1> 1.3% $16.00 12/18/2008 $81,553 $206,678
Mark E. Hansen.......... 0 0 NA NA 0 0
<FN>
- --------
<F1> Non-qualified stock option that vests at a rate of 25% per year commencing
December 18, 2000, and becomes fully vested on December 18, 2003. An
option becomes fully vested upon the holder's retirement (termination of
employment by the holder after attaining age 65 or after attaining age 55
with 10 years of service). An option is forfeitable if not exercised
within a specified time after the holder's death, disability, or
termination of employment for any reason. The holder may not transfer or
sell any shares acquired upon exercise until five years from the date of
grant; however, each year the holder may sell a sufficient number of
options to pay any income tax liability associated with the exercise of
additional options. In the event of a Change in Control (as defined in the
1997 Plan), the Compensation Committee may provide such protection as it
deems necessary to maintain a participant's rights, including to: (i)
provide for the acceleration of the exercise or realization of any
benefit; (ii) provide for the purchase of a benefit upon the participant's
request for cash equal to the amount that could have been attained upon
the exercise or realization of the benefit had it been currently
exercisable or payable; (iii) make adjustments to the outstanding benefits
as it deems appropriate; or (iv) cause the outstanding benefits to be
assumed, or new benefits substituted therefor, by a surviving corporation.
<F2> All options were granted on December 18, 1998. The exercise price
represents the closing price on that day of the Company's Common Stock (as
reported on The Nasdaq Stock Market(R)).
<F3> All options are subject to earlier expiration upon certain events related
to termination of employment.
<F4> Amounts represent the potential realizable value of each option at the
time of grant, assuming that the price of the underlying shares
appreciates in value from the date of grant to the end of the option term
at annualized rates of 5% and 10%. These assumed appreciation rates are
set by the Securities and Exchange Commission and are therefore not
intended to forecast possible future appreciation, if any, of the
Company's stock price.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END<F2>
ACQUIRED ON REALIZED -------------------------- -------------------------
NAME EXERCISE (#) ($)<F1> EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Leonard M. Rubenstein....... 0 0 187,565/18,641 $2,392,247/$196,545
Maurice W. Slayton.......... 0 0 175,999/0 $2,256,393/$0
Thomas D. Sargent........... 0 0 25,840/5,469 $391,590/$25,978
John B. Clinton............. 0 0 25,840/4,883 $391,590/$23,194
Michael D. McLellan......... 5,000 $58,350 98,402/46,770 $1,270,465/$357,820
Mark E. Hansen.............. 130,000 $1,330,400 45,999/0 $333,493/$0
<FN>
- --------
<F1> Represents the difference between the fair market value of the securities
underlying the options and the exercise price.
<F2> Represents the difference between the December 31, 1998 closing price of
the Company's Common Stock ($20.75) and the exercise price of the option,
multiplied by the number of shares underlying the option.
</TABLE>
12
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
The Company was a party to employment agreements, entered into
in August 1995 (the "Employment Agreements") with all of its then
executive officers (including the named executive officers), and
certain other employees. The Employment Agreements had three-year
terms and terminated on August 11, 1998. Under each Employment
Agreement, the employee was entitled to receive a minimum base
salary (subject to increases pursuant to periodic salary reviews)
and participate in the Company's bonus and private equity fund
carried interest programs. The Company paid certain employees a cash
signing bonus upon execution of the Employment Agreements, a portion
of which was subject to repayment upon termination of the Employment
Agreement for cause or because of the employee's resignation. The
Employment Agreements also contained provisions governing
confidentiality of business information and noncompetition with the
Company.
The Company does not have a defined benefit plan. Mr.
Rubenstein, as a result of his years of service with General
American, is eligible to continue to participate in the General
American Pension Plan and Trust, a qualified defined benefit plan,
and the General American Augmented Plan, a non-qualified defined
benefit plan, as well as General American's post-retirement medical
plan (collectively, the "GA Retirement Plans"). Retirement benefits
under the GA Retirement Plans are based on a participant's final
average compensation and credited years of service. Mr. Rubenstein's
final average compensation has been predetermined and represents his
estimated final average salary and bonus as if he were to remain an
officer of General American from December 31, 1995 (the date on
which his benefits under the qualified plan were frozen) through his
retirement at age 65. Mr. Rubenstein will receive credit for years
of service under the GA Retirement Plans while serving as Chief
Executive Officer of the Company and has agreed to pay for the cost
of the additional retirement benefits, which has been determined to
be approximately 10% of Mr. Rubenstein's assumed annual General
American salary and bonus in any year. The amount of any bonus paid
to Mr. Rubenstein by the Company will be reduced by this cost. Such
amount was approximately $38,672 in 1998. Based on Mr. Rubenstein's
predetermined final average compensation, the annual pension benefit
payable by General American to Mr. Rubenstein upon his retirement
from the Company at age 65 would be $367,000.
Mr. Rubenstein serves on the General American cabinet as an
advisor to General American's top management and, therefore,
participates in the General American Long-Term Incentive Plan. Mr.
Rubenstein's initial participation in this plan predates the
formation of the Company in 1995. Mr. Rubenstein is eligible to
receive cash incentive awards pursuant to the plan based on General
American's achievement of certain consolidated performance targets
over three-year periods. The amount of incentive payments, if any,
represents a percentage of Mr. Rubenstein's salary at the beginning
of the relevant period. The percentage varies depending on the
extent to which General American's performance targets are met or
exceeded. Payment of one-third of any awards are and will be
deferred under the General American Executive Deferred Savings Plan
until Mr. Rubenstein's retirement at age 65. Amounts deferred are
subject to a five-year vesting schedule and certain other
conditions. For the first and second of the three-year periods ended
December 31, 1997 and December 31, 1998, Mr. Rubenstein received
incentive awards of $77,250 and $36,269, respectively (one-third of
which amounts were deferred). All payments under the plan are
contributed by General American.
13
<PAGE>
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative
total return of companies in the Standard & Poor's 500 Stock Index
and the Russell 2000 Financial Services Index, for the period
beginning December 16, 1997 (the date the Company's Common Stock
began trading on The Nasdaq Stock Market(R)) and ending December 31,
1998.
The indices are included for comparative purposes only. They do
not necessarily reflect management's opinion that such indices are
appropriate measures of the relative performance of the Company's
Common Stock, and they are not intended to forecast or be indicative
of future performance of the Common Stock.
[GRAPH]
<TABLE>
<CAPTION>
===============================================================================================================================
INDEX 12/16/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Conning Corporation 100.00 113.56 135.88 132.75 89.55 141.91
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 100.00 100.31 114.31 118.08 106.34 128.98
- -------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Financial Services 100.00 103.08 109.31 102.82 87.30 92.92
===============================================================================================================================
</TABLE>
14
<PAGE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH GENERAL AMERICAN AND AFFILIATES. General
American Mutual Holding Company, a Missouri mutual corporation,
beneficially owns approximately 62.1% of the Company's outstanding
Common Stock. General American Life Insurance Company, an indirect
wholly-owned subsidiary of General American Mutual Holding Company,
is a Missouri life insurance company principally engaged in issuing
individual and group life and health insurance policies and annuity
contracts. The Company's subsidiary, Conning Asset Management
Company, acts as the investment adviser for the general and separate
accounts of General American and certain of its subsidiaries and
affiliates, including the General American Capital Company funds,
COVA Corporation and its subsidiaries ("COVA"), Reinsurance Group of
America, Incorporated and certain of its subsidiaries ("RGA"),
Paragon Life Insurance Company, General Life Insurance Company,
General Life Insurance Company of America, Security Equity Life
Insurance Company and the General American Life Insurance Company
Pension Plan Trust. Conning also acts as the investment adviser for
Security Mutual Life Insurance Company of New York, which has
entered into a strategic alliance with General American. Such
advisory agreements are generally terminable by the client upon 30
to 90 days notice without penalty. The Company is generally
compensated on the basis of fees calculated at a percentage of the
value of the assets under management. The fees are billed and
payable quarterly in arrears. Investment management fees from these
affiliated entities for the year ended December 31, 1998 amounted to
$19.8 million.
General American provides the Company with certain management
and administrative services (including legal, employee benefit,
payroll, personnel, facilities, and information services) at the
Company's request. As consideration for these services, the Company
pays General American a monthly fee based on General American's
cost, computed in accordance with General American's current cost
accounting system. The Company paid General American approximately
$9.2 million for administrative services rendered during 1998. The
Administrative Services Agreement is terminable by General American
on 180 days written notice and by the Company on 90 days written
notice.
Effective July 31, 1996, Conning Asset Management Company
entered into a lease agreement with General American for
approximately 25,000 square feet of office space located at 700
Market Street, St. Louis, Missouri. The lease has a five-year term,
is terminable by the Company upon 30 days notice and calls for
annual lease payments to General American of approximately $600,000.
The Company also subleases from General American, pursuant to a
written sublease, five of its eleven office sites for its various
mortgage loan and real estate offices. The terms of the lease and
all of the foregoing subleases (collectively, the "Leases") were
designed to approximate the cost to General American of owning or
leasing such spaces. The Company made rental payments to General
American under the Leases of approximately $1.2 million during 1998.
The Company believes that the prices and other terms under the
Leases are at least as favorable as those prices and terms being
offered generally in the same marketplaces by unrelated parties for
comparable spaces.
The Company and General American Mutual Holding Company are
parties to a Tax Allocation and Tax Sharing Agreement dated as of
June 12, 1997 (the "Tax Agreement"). The Tax Agreement provides,
among other things, that the tax liability of the General American
Mutual Holding Company federal consolidated tax return group (the
"General American Tax Group") during the period that the Company was
a member of such group (i.e., from June 12, 1997 to December 19,
1997) will be allocated among the members of the group in proportion
to their separately calculated tax liabilities. In addition, General
American Mutual Holding Company will indemnify the Company against
any tax liabilities of the General American Tax Group that are not
attributable to the Company, and the Company will indemnify General
American Mutual Holding Company against any tax liabilities of the
Company.
As of December 31, 1998, General American held unsecured
recourse demand notes from certain shareholders of the Company
totaling approximately $1.4 million, including $218,664, $68,750,
and $65,000 due from Messrs. Rubenstein, McLellan, and Schpero,
respectively. Interest on such notes accrues at 6% per annum and is
payable semi-annually beginning in July 1997. Principal payments on
such notes are due annually and began in January 1998 in the amount
of 25% of the gross bonus earned by the obligor in the immediately
preceding year.
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Mr. Liddy is Chairman, President, and Chief Executive Officer of
General American and is an executive officer and director of certain
of General American's affiliates. Mr. Rubenstein is also a director
of certain of General American's affiliates.
PARTICIPATION IN PRIVATE EQUITY FUNDS. The Company, directly or
indirectly through intermediary partnerships, is the general
partner, with a 1% general partner capital interest, of the
following private equity funds: Conning Insurance Capital Limited
Partnership II and Conning Insurance Capital International Partners
II (together, "Fund II"), Conning Insurance Capital Limited
Partnership III and Conning Insurance Capital International Partners
III (together, "Fund III"), Conning Connecticut Insurance Fund, L.P.
("Fund IV"), and Conning Insurance Capital Limited Partnership V
("Fund V"). At December 31, 1998, the Company's commitment to fund
future required capital contributions was approximately $1.7
million. The Company had established similar relationships with
respect to Conning Insurance Capital Limited Partnership and Conning
Insurance Capital International Partners (together, "Fund I"), which
terminated pursuant to their terms on December 31, 1995. Each Fund
has a term of eight to ten years, subject to certain extensions for
liquidation purposes. Fund I commenced in December 1985 and is now
closed, Fund II commenced in December 1988, Fund III commenced in
December 1993, Fund IV commenced in December 1995, and Fund V
commenced in August 1997. The Company received investment management
fees from the Funds, in the aggregate, of approximately $8.0 million
during 1998. The Company is also entitled to a carried interest, or
performance fee, in each Fund representing up to approximately 20%
of specified gains of the Fund, as determined under the applicable
partnership or limited liability company agreement. The Company,
through its subsidiary, has committed to Conning Connecticut
Investors, L.L.C., a limited liability company of which the Company
is the general partner and managing member, up to approximately $4.0
million for purposes of capitalizing the general partner. The amount
is payable only in the event of insolvency on the part of Conning
Connecticut Investors, L.L.C.
Certain officers of the Company and its subsidiaries receive
participation percentages annually over a five-year period in a
portion of the Company's carried interest in the Funds. These
participations are subject to a climbing vesting schedule that
varies by Fund, generally over a period of up to seven years from
the date of receipt of the participation percentage. At the end of
the five-year period, the Company's percentage of the carried
interest ranges from 25% to 40% of the original amount, depending on
the Fund. At December 31, 1998, the percentage interests held by
Messrs. Rubenstein, Slayton, Sargent, Clinton, McLellan, McDonald,
Schpero, Swift, and Hansen in the general partner of Fund V were
1.3%, 3.5%, 1.35%, 5.1%, 0.7%, 0.825%, 0.7%, 0.25%, and 0.375%,
respectively; the percentage interests held by the same individuals
in the general partner of Fund IV were 1.25%, 4.95%, 2.2%, 6.9%,
0.65%, 1.25%, 0.9%, 0.25%, and 1.4%, respectively. The percentage
interests held by Messrs. Rubenstein, Slayton, Sargent, Clinton,
McLellan, McDonald, Schpero, and Hansen in the general partner of
Fund III were 0.85%, 7.274%, 4.672%, 8.610%, 0.4%, 1.66%, 0.818%,
and 3.186%, respectively; and the percentage interests in the
general partner of Fund II held by Messrs. Slayton, Sargent,
Clinton, McDonald, Schpero, and Hansen were 8.54%, 4.86%, 6.75%,
2.33%, 0.84%, and 5.86%, respectively. As of December 31, 1998,
determination of participation percentages were complete for Funds
I, II and III; Fund IV had one allocation remaining; and Fund V had
two allocations remaining. With the exception of Fund I, there have
been no distributions of carried interests to date and the value, if
any, of carried interest participations cannot be readily
determined. Distributions of the carried interest from Fund I made
to Messrs. Slayton, Sargent, Clinton, McDonald, Schpero, and Hansen
totaled $43,904, $25,003, $34,706, $11,982, $4,340, and $30,148,
respectively, during 1998.
General American and its affiliates other than the Company have
committed or invested a total of $30.0 million in four of the Funds.
General American and its affiliates may participate in the
distributions from the private equity funds on a pro rata basis with
other limited partners in the private equity funds. General American
and certain of its affiliates, which may include the Company, may
invest in new private equity funds in the future as limited
partners.
REGISTRATION RIGHTS. The Company has granted certain rights with
respect to the registration of 6,710,000 of the 8,304,995 shares of
Common Stock beneficially owned by General American (the
"Registrable Securities"). Subject to certain limitations, General
American and permitted assignees have the right at any time after
December 15, 1998 to require the Company to register the sale of
such shares under the Securities Act of 1933 (a "demand
registration"). The number of demand registrations is limited to
two, each of which must be
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requested by holders of Registrable Securities representing at least
10% of the outstanding Common Stock and must include at least 10% of
the Registrable Securities. The Company is not required to effect
more than one demand registration in any twelve-month period. The
holders of Registrable Securities also may include such shares in a
registered offering of securities by the Company for its own account
or the account of any other security holder (a "piggy-back
registration"), subject to certain conditions and restrictions. In
addition to such demand and piggy-back registration rights, after
December 15, 1998, the holders of Registrable Securities
representing at least 10% of the outstanding Common Stock may
require the Company to file up to two registration statements
relating to such Registrable Securities on Form S-3 under the
Securities Act of 1933 when such form is available to the Company (a
"Form S-3 registration"). A registration on Form S-3 must relate to
the offering of securities, including the Registrable Securities, at
an aggregate price to the public of at least $5,000,000. The Company
is not required to effect more than one such registration on Form
S-3 (including any demand registrations registered on Form S-3) in
any twelve-month period. The registration expenses of holders of
Registrable Securities (other than underwriting discounts and
commissions) will be paid by the Company.
The Company also has granted the holders of the 2,070,005 shares
of stock outstanding prior to the IPO not owned by General American
the right to require the Company to file a registration statement on
Form S-3 covering the resale of such shares if a Form S-3 is
available to the Company; provided that (i) the Company would be
under no obligation to maintain the effectiveness of such
registration statement for more than twelve months, and (ii) the
holders of such stock enter into a registration rights agreement at
that time containing such limitations and conditions as the Company
deems appropriate. As of March 1, 1999, Messrs. Rubenstein, Liddy,
Sargent, Clinton, McLellan, and McDonald have such registration
rights with respect to 40,000 shares, 42,500 shares, 99,316 shares,
109,177 shares, 20,000 shares, and 62,705 shares, respectively.
PURCHASE OF SHARES. On July 28, 1998, the Company purchased into
treasury from Mr. Slayton 318,188 shares of stock at $20.10 per
share, which was the average closing price per share for the
Company's Common Stock for the five trading days preceding the
purchase. The total amount of the transaction was $6,395,579.
ITEM II--RATIFICATION OF INDEPENDENT ACCOUNTANTS
KPMG LLP was the Company's independent accounting firm for the
fiscal year ended December 31, 1998. The Board of Directors plans to
select KPMG LLP as independent accountants for the year ending
December 31, 1999. A representative of KPMG LLP is expected to be
present at the 1999 Annual Meeting to respond to appropriate
questions and to make a statement if he or she so desires. If the
appointment is not ratified by the shareholders, the Board of
Directors is not obligated to appoint other independent accountants
but the Board will give consideration to such unfavorable vote.
The Board recommends a vote FOR the ratification of the
selection of KPMG LLP as the Company's independent accountants for
fiscal year 1999.
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VOTING MATTERS
The close of business on March 31, 1999 has been fixed as the
record date for the determination of shareholders entitled to vote
at the Annual Meeting. As of the record date, there were 13,374,500
shares of Common Stock outstanding and entitled to be voted at the
Meeting, and approximately 123 holders of record. Shareholders will
be entitled to cast one vote on each matter for each share of Common
Stock held of record on the record date, except in certain
circumstances described below. The Company's Restated Articles of
Incorporation, as amended (the "Articles"), do not permit cumulative
voting in the election of directors.
The affirmative vote of the holders of a majority of the shares
of the Company's Common Stock entitled to vote that are present in
person or represented by proxy at the 1999 Annual Meeting is
required to elect directors, to ratify the selection of the
independent accountants, and to act on any other matters properly
brought before the Meeting. Shares represented by proxies marked
"withhold authority" with respect to the election of any one or more
nominees for election as director, and proxies marked "abstain" on
other matters (including the ratification of the selection of the
independent accountants), will be counted for the purpose of
determining the number of shares represented by proxy at the Annual
Meeting, except in certain circumstances described below. Such
proxies will thus have the same effect as if the shares represented
thereby were voted against the nominee or nominees and against such
other matters, respectively. If a broker indicates on the proxy that
it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as
present and entitled to vote with respect to that matter. If no
specification is made on a duly executed proxy, the proxy will be
voted FOR the election of the directors nominated by the Board of
Directors, FOR the ratification of the selection of KPMG LLP, and
for exercise of discretion by the persons named as proxies on such
other business as may properly come before the Meeting.
In order to limit the likelihood of a deemed assignment, under
the Investment Advisers Act of 1940 or the Investment Company Act of
1940, of the advisory contracts that the Company's subsidiaries have
with their clients, the Articles limit the voting power of shares of
Common Stock in certain circumstances. The Articles provide that a
person or "group" (which includes affiliates and associates of a
person, as defined in the Articles) that owns (as defined in the
Articles) more than 20% of the voting shares of the Company's issued
and outstanding capital stock ("Voting Stock") shall have the right
to vote not more than 20% of the outstanding shares of Voting Stock
entitled to vote. The remaining shares of Voting Stock owned by such
person or group ("Excludable Shares") shall have no voting rights
and shall not be counted for quorum or shareholder approval
purposes. These provisions do not apply to General American Mutual
Holding Company or its subsidiaries or affiliates, direct or
indirect subsidiaries of the Company, and certain employee plans
established or to be established by the Company. The Company's Board
of Directors may approve the exemption of other persons or groups
from the provisions described above. Although this limitation is
intended to have the effect of decreasing the chance of any
"assignment" from occurring, no assurance can be given that such an
"assignment" will not occur under these or other circumstances. The
Company has the right to inquire of any owner of Voting Stock, or
person who purports to exercise voting rights with respect to such
stock, and the owner will have the obligation to provide such
information to the Company as the Company may reasonably request, as
to the number of shares owned, whether such shares are owned by any
other person and the identity of such person, whether affiliates or
associates of such person own any shares, whether such person is a
member of a "group" owning such shares, or whether such person, or
any of such person's affiliates or associates, has any agreement,
arrangement, or understanding with any other person with respect to
the Voting Stock.
As of March 31, 1999, General American Mutual Holding Company
beneficially owned approximately 62.1% of the shares of Common Stock
entitled to vote at the Annual Meeting. General American has
indicated its intention to vote its shares FOR the election of
Messrs. Liddy and Shaw, the directors nominated by the Board, and
FOR the ratification of the selection of KMPG LLP. These votes would
be sufficient to elect Messrs. Liddy and Shaw and to ratify the
selection of KPMG LLP.
The Company knows of no other matters to come before the Meeting
that are not described in this Proxy Statement. If any other matters
properly come before the Meeting, the proxies solicited hereby will
be voted on such matters in accordance with the judgment of the
persons voting such proxies.
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A list of shareholders entitled to vote at the Annual Meeting
will be kept at the Company's principal offices at 700 Market
Street, St. Louis, Missouri 63101 for a period of ten days prior to
the Meeting, and will be available for inspection at the Meeting.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Shareholder proposals submitted under processes prescribed by
the Securities and Exchange Commission (in Rule 14a-8 of the
Securities Exchange Act) for presentation at the 2000 Annual Meeting
must be received by the Company by December 6, 1999 for inclusion in
the Company's proxy statement and proxy relating to that meeting.
Upon receipt of any such proposal, the Company will determine
whether or not to include such proposal in the proxy statement and
proxy in accordance with regulations governing the solicitation of
proxies. Shareholder proposals submitted outside the processes of
Rule 14a-8 must be submitted to the Company by March 10, 2000.
In order for a shareholder to nominate a candidate for director,
the Company's Bylaws require that timely notice be given to the
Company in advance of the meeting. Ordinarily, such notice must be
given not less than 60 days nor more than 90 days before the first
anniversary of the preceding year's annual meeting; provided, that
if the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, then the
shareholder must give such notice not earlier than 90 days nor later
than 60 days prior to such meeting or 10 days after notice of the
meeting is mailed or other public disclosure of the meeting is made.
In certain cases, notice may be delivered later if the number of
directors to be elected is increased. The shareholder filing the
notice of nomination must describe various matters regarding the
nominee set forth in the Company's Bylaws, including such
shareholder's name, address, occupation, and number of shares held.
In order for a shareholder to bring a proposal before a shareholder
meeting, the Company's Bylaws require that timely notice be given to
the Company in advance of the meeting. Ordinarily, such notice must
be given within the time limits described above for director
nominations. Such notice must include a description of the proposal,
the reasons therefor, and other specified matters. The Board may
reject any proposal that is not made in accordance with these
procedures or that is not a proper subject for shareholder action in
accordance with the provisions of applicable law.
In each case the notice must be given to the Secretary of the
Company, whose address is 700 Market Street, St. Louis, Missouri
63101. Any shareholder desiring a copy of the Company's Restated
Articles of Incorporation or Bylaws will be furnished a copy without
charge upon written request to the Secretary.
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Please mark / X /
your votes as
indicated in
this example
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
---
1. ELECTION OF DIRECTOR
FOR the nominee WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for the nominee
to the contrary) listed to the right Nominees: Richard A. Liddy
and John C. Shaw
/ / / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
- -----------------------------------------------------------------------------
2. RATIFICATION OF SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDED DECEMBER 31, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
If you plan to attend / /
the Annual Meeting,
please check here:
The undersigned hereby acknowledges receipt of the
Notice of the Annual Meeting and accompanying Proxy
Statement dated April 6, 1999.
The proxy will be voted as specified. If no direction is
made, this proxy will be voted FOR Proposals 1 and 2.
Please sign exactly as your name appears to the left. When
signing as an attorney, executor, administrator, trustee
or guardian, please give full title as such. If signing on
behalf of a corporation, please sign in full corporate
name by President or other authorized officer. If signing
on behalf of a partnership, please sign in partnership
name by authorized person.
Dated: ________________________________________, 199____
________________________________________________________
(Signature)
________________________________________________________
(Signature - if held jointly, both holders must sign.)
If address appearing to the left is incorrect, kindly
make correction.
- -----------------------------------------------------------------------------
^ PLEASE DETACH PROXY HERE, SIGN AND MAIL ^
Conning [logo]
April 6, 1999
Dear Shareholder:
We invite you to attend the 1999 Annual Meeting of Shareholders of
Conning Corporation, to be held on Tuesday, May 11, 1999 at the Ritz-Carlton
Hotel, 100 Carondelet Plaza, St. Louis, Missouri at 10:00 a.m., Central time.
It is important that your shares be represented at the Annual Meeting.
Whether or not you plan to attend the Meeting, please review the enclosed
Proxy Statement and sign, date and return the enclosed proxy card promptly
to ensure that your shares will be voted. A postage-paid return envelope is
enclosed for your convenience.
If you plan to attend the Annual Meeting, please check the appropriate
box on the proxy card before mailing it.
Thank you.
<PAGE>
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CONNING CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby appoint Matthew P. McCauley and Fred M.
Schpero, or either of them, the true and lawful attorneys in fact, agents
and proxies of the undersigned to represent the undersigned at the Annual
Meeting of Shareholders of CONNING CORPORATION (the "Company") to be held on
May 11, 1999, commencing at 10:00 a.m., Central time, at the Ritz-Carlton
Hotel, 100 Carondelet Plaza, St. Louis, Missouri, and at any and all
adjournments and postponements of such Annual Meeting, and to vote all the
shares of Common Stock of the Company standing on the books of the Company
in the name of the undersigned as specified and in their discretion on such
other business as may properly come before the Annual Meeting.
(Continued, and to be signed, on the other side)
- -----------------------------------------------------------------------------
^ PLEASE DETACH PROXY HERE, SIGN AND MAIL ^
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APPENDIX
Page 14 of the printed Proxy contains a Performance Graph. The information
contained in the graph appears in the table immediately following the graph.
