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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 1999
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PICO HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-2723335
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
(619) 456-6022
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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JAMES F. MOSIER
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
(619) 456-6022
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
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COPIES TO:
DOUGLAS J. REIN, ESQ.
GRAY CARY WARE & FREIDENRICH LLP
4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CA 92121
TELEPHONE: (619) 677-1400
FACSIMILE: (619) 677-1477
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Effective Date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE (1)
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<S> <C> <C> <C> <C>
Common Stock, ($0.001 par value) 3,362,585 $13.94 $46,874,435 $13,031.00
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</TABLE>
(1) Estimated, pursuant to Rule 457(c), solely for the purpose of
calculating the registration fee based on the average of the high and
low prices for the Common Stock, as reported on the Nasdaq National
Market on January 6, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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The information in the prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
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PROSPECTUS
PICO HOLDINGS, INC.
3,362,585 SHARES OF COMMON STOCK
The shareholders of PICO Holdings, Inc. listed within this prospectus
are selling 3,362,585 shares of PICO common stock under this prospectus. PICO
will not receive any proceeds from the sale of the shares.
PICO's common stock is quoted on the Nasdaq National Market under the
symbol "PICO", however, for the 20 trading days following December 16, 1998, the
Company will trade under the symbol "PICOD." On January 6, 1999, the last sale
price of PICO's common stock as reported on the Nasdaq National Market was
$14.25.
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss of your investment.
See "Risk Factors" beginning on Page 2.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS JANUARY [ ], 1999.
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WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
document the Company files at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and at 75 Park Place, New York, New York 10007.
The Company's common stock is traded on The Nasdaq National Market. Reports and
other information concerning the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W., Washington, D.C. 20006. Such reports and other information
may also be inspected without charge at a Web site maintained by the Commission.
The address of the site is http:\www.sec.gov.
The Commission allows the Company to "incorporate by reference" the
information the Company files with them, which means that the Company can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that the Company files later with the Commission
will automatically update and supersede this information. The Company
incorporates by reference the documents listed below and any future filings the
Company will make with the Commission under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934. This prospectus is part of a
registration statement filed with the Commission.
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed with the Commission on March 31, 1998 and
all amendments thereto.
(2) Form 10-Q for the quarter ended March 31, 1998 and filed with the
Commission on May 15, 1998.
(3) Form 8-K filed with the Commission on May 20, 1998.
(4) Form 8-K filed with the Commission on July 21, 1998.
(5) Form 10-Q for the quarter ended June 30, 1998 and filed with the
Commission on August 12, 1998.
(6) Form 8-K filed with the Commission on October 8, 1998.
(7) Form 8-K filed with the Commission on October 9, 1998.
(8) The definitive proxy statement for the 1998 Annual Meeting of
Stockholders filed with the Commission on October 16, 1998.
(9) Form 10-Q for the Quarter ended September 30, 1998 and filed with
the Commission on November 12, 1998.
(10) Form 8-K filed with the Commission on December 18, 1998.
(11) Form 8-K filed with the Commission on December 21, 1998.
(12) Form 8-K filed with the Commission on December 22, 1998.
The Company will provide without charge to each person to whom this
prospectus is delivered, upon oral or written request, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the information that this prospectus incorporates). Written or telephone
requests should be
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directed to James F. Mosier at PICO Holdings, Inc., 875 Prospect Street, Suite
301, La Jolla, California 92037, telephone number (619) 456-6022.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. PICO has not authorized anyone
else to provide you with different information. The selling shareholders will
not make an offer of these shares in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other that the date on the from of those documents.
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RISK FACTORS
In addition to the other information in this prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business. This prospectus contains forward-looking statements that involve risks
and uncertainties. The statements contained in this prospectus that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Exchange Act, including without limitation statements regarding the
Company's expectations, beliefs, intentions, plans or strategies regarding the
future. All forward looking statements included in this document are based on
information available to the Company on the date thereof, and the Company
assumes no obligation to update any such forward-looking statements.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's results of operations have been subject to significant
fluctuations, particularly on a quarterly basis, and the Company's future
results of operations could fluctuate significantly form quarter to quarter and
from year to year. Causes of such fluctuations may include the inclusion on
consolidation of the Company of operating earnings from newly acquired
investment operations or the exclusion on consolidation of operating earnings
from investment operations that have been disposed of, and the acquisition of
investment operations that, on acquisition, exhibit low operating earnings but
have a high degree of expectation of capital gains due to the Company's ability
to restructure operations or management.
RISKS ASSOCIATED WITH ACQUISITIONS AND INVESTMENTS
The Company invests in businesses which it believes are undervalued or
will benefit from additional capital, restructuring of operations or management
or improved competitiveness through operational efficiencies with existing
Company operations. Due to the Company's limited experience in the operation of
the businesses of its Subsidiaries, which currently constitute a substantial
portion of the Company's operations, there can be no assurance as to the future
operating results of the Company or the recently acquired businesses of the
Company.
The Company will continue to evaluate and make selective investments
for the purpose of enhancing and realizing additional value by means of
shareholder influence and control. This could involve the restructuring of the
financing or management of the entities in which the Company invests and
initiating and facilitating mergers and acquisitions. Any acquisition, depending
on its size, could result in the use of a significant portion of the Company's
available cash or, if such acquisition is made utilizing the Company's
securities, could result in significant dilution to the Company's shareholders,
and could result in the incurrence of significant acquisition related charges to
earnings. Acquisitions by the Company may result in the incurrence or the
assumption of liabilities, including liabilities that are unknown or not fully
known at the time of acquisition, which could have a material adverse effect on
the Company and furthermore, there can be no assurance that the Company will
obtain the anticipated or desired benefits of such transactions. The Company's
shareholders will be relying on the experience and judgment of the Company's
management to locate, select and develop new acquisition and investment
opportunities. There can be no assurance that sufficient opportunities will be
found or that this business strategy will be successful. Failure to successfully
implement this strategy may negatively impact the business and financial
condition, results of operations and cash flows of the Company.
The Company faces significant risks associated with its recent
acquisitions (including the acquisition of NLRC). There can be no assurance that
the Company will realize the desired benefits of
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these transactions. In order to successfully manage these companies, the Company
must, among other things, continue to attract and retain key management and
other personnel. The diversion of the attention of management from the
day-to-day operations of the Company, or difficulties encountered in the
integration process, could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
Market values of equity securities are subject to changes in the stock
market, which may cause the Company's shareholders' equity to fluctuate from
period to period. At times, the Company may come to hold securities of companies
for which no market exists or which may be subject to restrictions on resale. As
a result, periodically, a portion of the Company's assets may not be readily
marketable.
CHANGE IN STRATEGIC DIRECTION
In late 1994, Physicians began the process of changing its strategic
direction from the operation of an MPL insurance business to investing in
businesses which management believes are undervalued or will benefit from
additional capital, restructuring of operations or management or improved
competitiveness through operational efficiencies with existing operations.
Accordingly, in January 1995, Physicians reactivated its investment advisory
subsidiary, Summit; in August 1995 acquired Sequoia and entered new lines of
property and casualty insurance; in August 1995 sold its MPL insurance business;
in September 1995, Physicians purchased 38.2% of GEC; in November 1996,
Physicians acquired control of Citation Insurance Group ("CIG") pursuant to a
merger, and the holding company was renamed PICO Holdings, Inc., in April 1997,
the Company acquired 25.23% ownership of NLRC which owns approximately 1,365,000
acres of deeded land in northern Nevada; in June 1997, the Company sold its
workers' compensation business; and in July and August 1997, the Company
increased its ownership in GEC to 51.2%. On May 8 and June 19, 1998, the Company
and GEC jointly announced their intentions to combine through a plan of
arrangement. There can be no assurance as to the future operating results of the
Company or acquired businesses of the Company.
The Company will continue to make selective investments for the purpose
of enhancing and realizing additional value by means of appropriate levels of
shareholder influence and control. This business strategy has been implemented
gradually during the past three to four years. For this reason and others,
including but not limited to the variability of the securities markets and the
uncertainties associated with trying to predict future results based upon past
performance, the Company's historical financial statements are not indicative of
the possible future results of this new business strategy.
Application of Physician's and the Company's new strategy since 1995
has resulted in a greater concentration of equity investments held by the
Company. Market values of equity securities are subject to changes in the stock
market, which will cause the Company's shareholders' equity to fluctuate from
period to period. At times the Company may hold securities of companies for
which no market exists or which may be subject to restrictions on resale. As a
result, periodically, a portion of the Company's assets may not be readily
marketable, which would restrict the Company's ability to liquidate its
interests in these entities. Such barriers to liquidity could adversely impact
the business, financial condition, results of operations and cash flows of the
Company.
The Company and GEC through NLRC and Vidler have committed a
significant portion of their assets to surface, water, geothermal and mineral
rights. There can be no assurance that the market value of these assets will
increase over time. In addition, there are a number of risks associated with the
successful development of the Company's and GEC's water rights business
including, but not limited to, water price volatility; environmental concerns;
political opposition; uncertainty of future
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demand/revenues; concentration of revenue sources in a limited number of assets;
and dependence on key personnel. There can be no assurance that Vidler and NLRC
will be successful in developing their surface, water, geothermal and mineral
rights assets.
DEPENDENCE ON KEY PERSONNEL
The Company has several key executive officers, the loss of whom could
have a significant adverse effect on the Company. In particular, Ronald Langley,
the Company's Chairman, and John R. Hart, the Company's President and Chief
Executive Officer, play key roles in the Company's and GEC's investment
decisions. Messrs. Langley and Hart have entered into employment agreements with
the Company and a wholly-owned Subsidiary of GEC as of December 31, 1997, all
for a period of four years. Messrs. Langley and Hart are key to the
implementation of the Company's new strategic focus, and the ability of the
Company to implement its current strategy is dependent on its ability to retain
the services of Messrs. Langley and Hart.
RISKS REGARDING PHYSICIANS; CONTINUING MPL LIABILITY
In August 1995, the MPL insurance business and related liability
insurance business of Physicians and its wholly-owned subsidiary, The
Professionals Insurance Company ("PRO") were sold. Physicians and PRO retained
all assets and liabilities related to insurance policies written prior to the
sale of the recurring book of business. Physicians and PRO will continue to
administer claims and loss adjustment expenses under MPL insurance policies
issued or renewed prior to July 16, 1995. Cash flow needed to fund the
day-to-day operations and the payment of claims and claims expenses will be
provided by investment income, lease income, and proceeds from the sale or
maturity of securities.
Under the terms of the Company's MPL policies, these policies have an
extended reporting period for claims. Under Ohio law the statute of limitations
is one year after the cause of action accrues. Also, under Ohio law there is a
four-year statutory time bar; however, this has been construed judicially to be
unconstitutional in situations where the plaintiff could not have reasonably
discovered the injury in that four-year period. Claims of minors must be brought
within one year of the date of majority. As a result, some claims may be
reported a number of years following the expiration of the MPL policy period.
Physicians and PRO have established reserves to cover losses and loss
adjustment expense on claims incurred under the MPL policies issued or renewed
to date including not only those claims reported to date, but also those
incurred but not yet reported. The amounts established and to be established by
Physicians and PRO for loss and loss adjusted expense ("LAE") reserves are
estimates of future costs based on various assumptions and, in accordance with
Ohio law, have been discounted (adjusted to reflect the time value of money).
These estimates are based on actual and industry experience and assumptions and
projections as to claims frequency, severity and inflationary trends and
settlement payments. In accordance with Ohio law, Physicians and PRO annually
obtain a certification from an independent actuary that their respective
reserves for losses and LAE are adequate. Physicians and PRO also obtain a
concurring actuarial opinion. Physicians' and PRO's reserves for losses and LAE
for prior years developed favorably in 1994, and these reserves were decreased
by U.S. $12.7 million in 1994. Reserves also developed favorably in 1995;
however, accretion of reserve discount exceeded the amount of favorable
development and retroactive reinsurance, resulting in a U.S. $3.2 million
increase in liabilities for prior years' claims. As a result of continued
favorable claims experience, reserves for prior years' claims were further
reduced in the first and fourth quarters of 1996. However, based upon actuarial
indications from data through June 30, 1997, Physicians' MPL claims reserves
were increased by U.S. $2
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million during the third quarter of 1997 due to somewhat deteriorated claims
experience during the first six months of 1997. At the same time, favorable
development of Physicians' and PRO's discontinued personal lines reserves
(automobile, homeowner, etc.) allowed reserve reductions of U.S. $750,000 during
the third quarter of 1997. Due to the inherent uncertainties in the reserving
process there is a risk that Physicians' and PRO's reserves for losses and LAE
could prove to be inadequate which could result in a decrease in earnings and
shareholders' equity. Adverse reserve development can reduce statutory policy
holders' surplus or otherwise limit the growth of such policyholders' surplus
and, correspondingly, shareholders' equity.
LOSS RESERVE EXPERIENCE
The inherent uncertainties in estimating loss reserves are greater for
some insurance products than for others, and are dependent on the length of the
reporting tail associated with a given product, the diversity of historical
development patterns among various aggregations of claims, the amount of
historical information available during the estimation process, the degree of
impact that changing regulations and legal precedents may have on open claims,
and the consistency of reinsurance programs over time, among other things.
Because MPL and commercial casualty claims may not be fully paid for several
years or more, estimating reserves for such claims can be more uncertain than
estimating reserves in other lines of insurance. As a result, precise reserve
estimates cannot be made for several years following a current accident year for
which reserves are initially established.
There can be no assurance that the insurance Subsidiaries in the group
have established reserves adequate to meet the ultimate cost of losses arising
from such claims. It has been necessary, and will over time continue to be
necessary, for the insurance companies to review and make appropriate adjustment
to reserves for estimated ultimate losses, LAE, future policy benefits, claims
payables, and annuity and other policyholder funds. To the extent reserves prove
to be inadequate, the insurance companies would have to adjust their reserves
and incur a charge to earnings, which could have a material adverse effect on
the financial results of the Company.
REINSURANCE RISKS
Prior to the June 30, 1997 sale of Citation National Insurance
Company("CNIC"), all of CNIC's existing insurance risks and claims liabilities,
except for those insuring workers' compensation, were transferred to CIC through
reinsurance treaties in order to effect the sale of CNIC and CIC's workers'
compensation business. As with other property and casualty ("P & C") insurers,
CIC's and Sequoia's operating results and financial condition can be adversely
affected by volatile and unpredictable natural and man-made disasters, such as
hurricanes, windstorms, earthquakes, fires, and explosions. CIC and Sequoia
generally seek to reduce their exposure to such events through individual risk
selection and the purchase of reinsurance. CIC's and Sequoia's estimates of
their exposures depend on their views of the possibility of a catastrophic event
in a given area and on the probable maximum loss to the insurance companies
should such an event occur. While CIC and Sequoia attempt to limit their
exposure to acceptable levels, it is possible that an actual catastrophic event
or multiple catastrophic events could significantly exceed the probable maximum
loss previously assumed, resulting in a material adverse effect on the financial
condition and results of operations of the Company.
The future financial results of the insurance Subsidiaries could be
adversely affected by disputes with their respective reinsurers with respect to
coverage and by the solvency of such reinsurers.
RISKS REGARDING SUMMIT GLOBAL MANAGEMENT
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Summit is registered as an investment advisor in California, Florida,
Kansas, Louisiana, Oregon, Virginia and Wisconsin, as well as with the SEC.
Summit must file periodic reports with the SEC and is subject to periodic
examination by the SEC. Summit is subject to Section 206 of the Investment
Advisers Act of 1940, which prohibits material misrepresentations and fraudulent
practices in connection with the rendering of investment advice, and to the
general prohibitions of Section 208 of such Act. If Summit were to violate the
Investment Advisers Act prohibitions, it would risk criminal prosecution, SEC
injunctive actions and the imposition of sanctions ranging from censure to
revocation of registration in an administrative hearing.
The investment adviser business is highly competitive. There are
several thousand investment advisers registered in the states in which Summit
does business, many of which are larger and have greater financial resources
than Summit. There can be no assurance that Summit will be able to compete
effectively in the markets that it serves.
GLOBAL INVESTMENT VOLATILITY
As a result of global diversification, investment decisions already
made and which may be made in the future, particularly with regard to GEC, the
Company's revenues may be adversely affected by economic, political and
governmental conditions in countries where it maintains investments or
operations, such as volatile interest rates or inflation, the imposition of
exchange controls which could restrict the Company's ability to withdraw funds,
political instability and fluctuations in currency exchange rates. Such
investment volatility could have an adverse impact on the Company's business,
financial condition, results of operations and cash flows.
FLUCTUATIONS IN P & C RESERVES
During the past several years, the levels of the reserves for the
Company's insurance Subsidiaries have been very volatile. As a result of its
claims experience and the level of existing reserves with respect to its P & C
insurance business, CIC has had to significantly increase these reserves in a
number of the past several years.
There can be no assurance that significant increases with respect to
the reserves for the P & C business will not be necessary in the future, that
the level of reserves for the Company's insurance Subsidiaries will not be
volatile in the future, or that any such increases or volatility will not have
an adverse effect on the Company's operating results and financial condition.
COMPETITION
There are several hundred P & C insurers licensed in California, many
of which are larger and have greater financial resources than CIC, and Sequoia;
offer more diversified types of insurance coverage; have greater financial
resources and have greater distribution capabilities than the insurance
companies of the group. The presence of these competitors or competitive
developments in the future could adversely affect the Company's business and
results of operations.
A.M. BEST RATINGS
A.M. Best and Company ("Best") has assigned Sequoia a rating of B++
(Very Good) and APL has had a Best rating of B+ (Very Good) since 1983. In June
1997, a wholly-owned subsidiary of the
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Company entered into an agreement to sell APL, which sale is pending regulatory
approval. Upon announcement of the signing of the agreement to sell APL, Best
placed APL's rating under review with developing implications. CIC was recently
upgraded from a B- (Adequate) to a B+ (Very Good) by Best. Physicians and PRO
are currently rated, and have been for a number of years, NR-3 (rating procedure
inapplicable). Best's ratings reflect the assessment of A.M. Best and Company of
the insurer's financial condition, as well as the expertise and experience of
management. Therefore, Best ratings are important to policyholders. Best ratings
are subject to review and change overtime. Failure to maintain or improve their
Best ratings could have a material adverse effect on the ability of the
insurance companies to underwrite new insurance policies, as well as potentially
reduce their ability to maintain or increase market share. Management believes
that many potential customers will not insure with an insurer that carries a
Best rating of less than B+, and that customers who do so will demand lower rate
structures. There can be no assurance that any of the insurance companies'
ratings will be maintained or increased, and a downgrade would likely adversely
affect the Company's business, financial condition, results of operations and
cash flows.
CYCLICAL NATURE OF THE P&C INDUSTRY
The P & C insurance industry has been highly cyclical, and the industry
has been in a cyclical downturn over the last several years due primarily to
competitive pressures on pricing, which has resulted in lower profitability.
Pricing is a function of many factors, including the capacity of the P&C
industry as a whole to underwrite business, an individual company's
policyholders' surplus and returns on the investment portfolio. The level of
surplus in the industry varies with returns on invested capital and regulatory
barriers to withdrawal of surplus. Increases in surplus have generally been
accompanied by increased price competition among P & C insurers. The cyclical
trends in the industry and the industry's profitability can also be affected
significantly by volatile and unpredictable developments, including natural
disasters, fluctuations in interest rates, and other changes in the investment
environment which affect market prices of insurance companies' investments and
the income from those investments. Inflationary pressures affect the size of
losses and judicial decisions affect insurers' liabilities. These trends may
adversely affect the Company's business, financial condition, results of
operations and cash flows.
INSURANCE COMPANY CAPITAL AND SURPLUS TESTING
In the past few years, the National Association of Insurance
Commissioners has developed risk-based capital ("RBC") measurements for both
property and casualty and life and health insurers. The measures provide the
various state regulators with varying levels of authority based on the adequacy
of an insurer's RBC. The insurance companies' RBC results are reported annually
in their statutory Annual Statements to the insurance departments. Failure to
meet one or more RBC level may result in state regulators requiring the
insurance company to submit a business plan demonstrating attainment of the
required RBC level. This may entail the addition of capital, a restructuring of
assets and liabilities, or changes in operations. At or below certain lower RBC
levels, state regulators may supervise the operation of the insurance company
and/or require the liquidation of the insurance company. Failing to meet RBC
levels could adversely affect the Company's business, financial condition,
results of operations and cash flows.
RISKS ASSOCIATED WITH FAILURE TO MANAGE GROWTH
The Company's growth internally and through its numerous acquisitions
has placed, and further expansion would continue to place, significant strain on
its limited personnel, management and other
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resources. The Company's ability to manage any future growth may require it to
attract, train, motivate and manage new employees successfully, to integrate new
employees effectively into its operations and to continue to improve its
operational, financial, management and information systems and controls. The
failure to manage any further growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations.
FAILURE TO QUALIFY FOR EXEMPTION UNDER INVESTMENT COMPANY ACT
The Company at all times intends to conduct its business so as not to
become regulated as an investment company under the Investment Company Act of
1940. However, if the Company were to fail to qualify for exemption from
registration as an investment company, its ability to use leverage would be
substantially reduced, and it would be subject to significant additional
disclosure obligations and restrictions on its operational activities.
POSSIBLE PRICE VOLATILITY OF PICO COMMON STOCK
The trading price of the Company's common stock has historically been,
and is expected to be, subject to fluctuations. The market price of the common
stock may be significantly impacted by quarterly variations in financial
performance, shortfalls in revenue or earnings from levels forecast by
securities analysts, changes in estimates by such analysts, product
introductions by the Company or its competitors, announcements of extraordinary
events such as acquisitions or litigation or general economic conditions.
Statements or changes in opinions, ratings, or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which the
Company does business or relating to the Company specifically could result in an
immediate and adverse effect on the market price of the common stock. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. These fluctuations have had a substantial effect on the
market prices for many companies, often unrelated to the operating performance
of the specific companies. There can be no assurances that the market price of
the Company's common stock will not decline below the levels prevailing on the
Effective Date. Securities class action lawsuits are often brought against
companies following periods of volatility in the market price of their
securities. Any such litigation against the Company could result in substantial
costs and a diversion of resources and management attention.
RENEWALS
Insurance policy renewals have historically accounted for a significant
portion of the Company's net revenue; however, there can be no assurance that
the Company will be able to sustain historic renewal rates for its products in
the future. Risks related to the Company's recent change in business strategies
could also cause fluctuations in operating results and could make comparisons
with historic operating results and balances difficult or not meaningful.
CERTAIN ANTI-TAKEOVER FEATURES
The Company's Articles and Bylaws contain certain provisions that could
deter or prevent certain takeover attempts. In addition, the Company has adopted
the Rights Plan which may also deter or prevent certain takeover attempts. The
foregoing factors, individually or in the aggregate, could materially adversely
affect the Company's operating results and could make comparison of historic
operating results and balances difficult or not meaningful.
RISKS RELATED TO THE RECENTLY ACQUIRED GEC
10
<PAGE> 13
There are risks inherent in the nature of GEC's business as an investment
company. Investment in companies which management regards as undervalued
involves significant risk that even a combination of careful evaluation,
experience and knowledge may not eliminate. Potential investors must rely on the
ability of GEC's management and board of directors to identify and take
advantage of business opportunities, provide advisory services, facilitate
financings and make investments inappropriate businesses.
GEC's ability to achieve an acceptable rate of return on any particular
investment is subject to a number of factors which are beyond its control,
including increased competition and loss of market share, quality of management,
cyclical or uneven financial results, technological obsolescence, foreign
currency risks and regulatory delays.
There is no assurance that GEC's existing or future investments will
achieve acceptable rates of return or that GEC will realize the value of the
funds invested; accordingly, these investments may have to be written down or
sold at their then-prevailing market values.
Investments in both private and public companies may prove illiquid or
realizable only at a discount. Investments in private companies are not as
marketable as investments in public companies. Investments in public companies
are subject to prices determined in the public markets and, therefore, values
can vary dramatically. In particular, the ability of the public markets to
absorb a large block of shares offered for sale can affect GEC's ability to
dispose of an investment in a public company.
FOREIGN INVESTMENTS AND OPERATIONS
As a result of the global diversification of the investment portfolio,
GEC's revenues may be adversely affected by economic, political and governmental
conditions in countries where it maintains investments or operations, such as
volatile interest rates or inflation, the imposition of exchange controls which
could restrict GEC's ability to withdraw funds, political instability and the
currency risks discussed above.
WATER RIGHTS PORTFOLIO
The water rights held by GEC and the transferability of these rights to
other uses and places of use are governed by the laws concerning water rights in
the states of Arizona, Colorado and Nevada. The volumes of water actually
derived from these rights may vary considerably based upon physical availability
and may be further limited by applicable legal restrictions. As a result, the
amounts of acre feet anticipated do not in every case represent a liable, firm
annual yield of water, but in some cases describe the face amount of the water
right claims or management's best estimate of such entitlement. Legal
impediments exist to sale or transfer of some of these water rights which may
affect their commercial value.
ENVIRONMENTAL MATTERS
GEC's operations in the United States are subject to federal, state,
municipal and local regulation under environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters, the
generation, handling, storage, transportation, treatment and disposal of waste,
hazardous substances and other materials and soil and ground water
contamination. A risk of
11
<PAGE> 14
environmental liability is inherent in the real estate ownership, operation or
control and other commercial activities of GEC with respect to current and
future operations.
In the agreements of purchase and sale with respect to the acquisitions
of land and water rights made in the western United States by GEC and its
subsidiaries, the vendors have provided representations and warranties and/or
indemnities in relation to certain environmental liabilities. These provisions
are subject to certain qualifications, thresholds and monetary limits. While
there can be no assurance that GEC and its subsidiaries will be able to recover
the amount of any environmental liability from the vendors pursuant to these
provisions, management of GEC believes that these provisions provide a
reasonable protection for GEC and its subsidiaries against environmental
liabilities.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are not
capable of distinguishing 20th century dates from 21st century dates. As a
result, in less than two years, computer systems and/or software used by many
companies in a very wide variety of applications will experience operating
difficulties unless they are modified or upgraded to adequately process
information involving, related to or dependent upon the century change.
Significant uncertainty exists in the software and information services
industries concerning the scope and magnitude of problems associated with the
century change. In light of the potentially broad effects of the year 2000 on a
wide range of business systems, the Company may be affected.
The Company continues to progress in its efforts to define the scope
and magnitude of the Year 2000 ("Y2K") problem and to execute its plans to
ensure information technology and non-information technology systems are Y2K
ready. There is an evolving plan to achieve compliance that is currently divided
into four phases. As the project has proceeded, overlap of the different phases
has occurred.
The initial phase of planning, inventorying and evaluating all
information technology systems, and non-information technology systems and their
components, for Y2K compliance is approximately 85% - 90% complete. The
remaining systems, which are not deemed "mission critical" to the Company's
operations, should be evaluated by the end of 1998. The evaluation has not
disclosed any significant Y2K processing difficulties or concerns. The focus is
primarily on the insurance operations of the Company because of the custom
applications software used to process insurance policies, policy claims, and
insurance underwriting. After internal review and communication with system
vendors, the majority of the non-insurance information and non-information
technology systems are Y2K compliant and do not require any significant
alterations. The focus of redemption is on the insurance specific applications.
The secondary phase of the project, which primarily includes
implementing corrections to remedy Y2K deficiencies, is approximately 75%
complete. As noted above, the insurance system software has been the primary
focus of such efforts. To renovate the insurance systems to a Y2K ready state,
the Company's internal information systems staff is in the process of re-writing
lines of existing code to function with a four-digit date field. The Company
also replaced existing DOS software with a current Y2K complaint version.
Completion of this phase is estimated to be June 30, 1999.
Testing and validation of each system comprises phase three. As
hardware and software changes are made to the systems, they are tested for
compliance. The Company had validated compliance through internal review and
communication with system vendors. This phase, however, will continue as
insurance specific applications are reprogrammed and tested. Final completion of
phase three is planned
12
<PAGE> 15
for second quarter of 1999. Despite the best efforts by management, problems
will arise requiring the Company to quickly respond while there is still time.
Phase four, when completed, will set forth contingency plans addressing
potential business interruption and failure, is expected to be finalized during
the last half of 1999.
The foregoing factors, individually or in the aggregate, could
materially adversely affect the Company's operating results and could make
comparison of historic operating results and balances difficult or not
meaningful.
13
<PAGE> 16
THE COMPANY
PICO is a holding company principally engaged in five industry
segments: portfolio investing; property and casualty insurance; surface, water,
geothermal and mineral rights; medical malpractice liability ("MPL") insurance;
and other operations. PICO has also been active in life and health insurance
operations through 1997, and is under contract to sell this business. PICO
operates through a number of direct and indirect subsidiaries (with PICO and its
subsidiaries, collectively referred to herein as the "Company"). The Company's
objective is to use its resources to increase shareholder value through
investments in businesses which the Company believes are undervalued or will
benefit from additional capital, restructuring of operations or management, or
improved competitiveness through operational efficiencies with the Company's
existing operations. This business strategy was implemented beginning in 1994
and was not fully in place until 1996. Guinness Peat Group PLC ("GPG"), a
strategic investment company domiciled in London, England owns approximately
17.6% of the Company. GPG is a publicly held company with its shares listed on
the London, Australia and New Zealand stock exchanges.
PICO was incorporated in 1981 and began operations in 1982. Its
principal executive office is located at 875 Prospect Street, Suite 301, La
Jolla, California 92037, and its telephone number is (619) 456-6022.
SUBSIDIARIES
Unless otherwise indicated, each subsidiary is directly or indirectly
wholly-owned by PICO. The Company's operating subsidiaries and their principal
subsidiaries or affiliates are as follows:
CITATION INSURANCE COMPANY ("CIC")
CIC is a California-domiciled insurance company licensed to write
commercial property and casualty insurance in Arizona, California, Colorado,
Nevada, Hawaii, New Mexico and Utah. CIC has also written Workers Compensation
insurance; however, the Company sold that line of business through a transfer to
and sale of its wholly-owned subsidiary, Citation National Insurance Company
("CNIC"), effective June 30, 1997. CNIC wrote no new business in 1997 prior to
its sale.
SUMMIT GLOBAL MANAGEMENT, INC. ("SUMMIT")
Summit is a Registered Investment Advisor that offers investment
management services to clients throughout the United States.
NEVADA LAND AND RESOURCE COMPANY, LLC ("NLRC")
NLRC is the owner of approximately 1,365,000 acres of deeded land in
northern Nevada. On April 23, 1997, PICO acquired 25.23% of NLRC. Global-Nevada
Land Resource Corporation, a wholly-owned subsidiary of Global Equity
Corporation ("GEC") which is approximately 51.17% owned by the Company, acquired
the remaining 74.77% of NLRC. See "Global Equity Corporation" in this section.
PHYSICIANS INSURANCE COMPANY OF OHIO ("PHYSICIANS")
Physicians, an Ohio licensed insurance corporation, operates primarily
as a diversified investment and insurance company. Its operations and those of
its direct and indirect subsidiaries include strategic investing, property and
casualty insurance, the runoff of its former MPL insurance claims reserves, and
other. Through 1997, an indirect subsidiary of Physicians engaged in life and
health insurance. That company, American Physicians Life Insurance Company, is
under contract to be sold. Physicians has been licensed as a property and
casualty insurer by the Ohio Department of Insurance
14
<PAGE> 17
("Ohio Department") since 1976 and is also licensed by the Kentucky Department
of Insurance. Disclosure in this section regarding the business of "Physicians"
includes all operations of its subsidiaries.
PHYSICIANS' SUBSIDIARIES AND AFFILIATED COMPANIES
Sequoia Insurance Company ("Sequoia"). Sequoia is a
California-domiciled insurance company licensed to write insurance coverage for
property and casualty risks within the State of California. Sequoia writes
business through independent agents and brokers covering risks located primarily
within northern and central California. Although multiple line underwriting is
conducted and at one time or another all major lines of property and casualty
insurance except workers' compensation and ocean marine have been written,
Sequoia has, over the past few years, transitioned from writing primarily
personal lines of business (automobile, homeowners, etc.) to commercial lines.
The Professionals Insurance Company ("PRO"). PRO is an Ohio domiciled
insurance company first licensed to write property and casualty insurance in
Ohio in 1979. It is also licensed in Kentucky, West Virginia and Wisconsin.
CLM Insurance Agency, Inc. ("CLM"). CLM, purchased on July 1, 1995, is
an inactive California insurance agency which placed insurance with California
insurers, including Sequoia.
Global Equity Corporation ("GEC"). PICO and its subsidiaries currently
own 100% of GEC, a Canadian international investment company. PICO increased its
ownership interest in GEC from 38.2% prior to July 30, 1997, to 49.9% on July
30, 1997 and to 51.17% in August 1997 and has consolidated the accounts of GEC
with those of the Company for 1997. In December of 1998, the Company acquired
the remaining outstanding shares of GEC. Set forth below as of December 31,
1997, are the names and respective jurisdictions of incorporation of certain
direct and indirect subsidiaries of GEC, all of which are wholly-owned except
for NLRC which is 74.77% owned by Global-Nevada Land Resource Corporation, a
wholly-owned subsidiary of GEC. The remaining 25.23% of NLRC is owned by PICO.
The following list includes, but is not limited to, all subsidiaries the total
assets of which constituted more than 10% of the consolidated assets of GEC as
of December 31, 1997 or the total revenues of which constituted more than 10% of
the consolidated revenues of GEC during fiscal 1997. GEC owns approximately 13%
of PICO as of December 31, 1997.
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation
---------- -------------
<S> <C>
Direct:
Forbes & Walker Securities Limited......................... Canada
Forbes & Walker (USA) Inc.................................. Delaware
Indirect:
Forbes & Walker International Limited...................... Barbados
Vidler Water Company, Inc.................................. Colorado
Nevada Land and Resource Company, LLC...................... Delaware
Global Equity SA........................................... Switzerland
</TABLE>
Subsidiaries of GEC are either holding companies or inactive, with the
exception of the following: Vidler Water Company, Inc. ("Vidler"), and NLRC. The
other subsidiaries may be utilized in the future in furtherance of the
international investment, asset management or corporate finance activities of
GEC.
15
<PAGE> 18
MAJOR BUSINESSES AND PROPERTIES OF GLOBAL EQUITY CORPORATION
Vidler Water Company, Inc.
Effective November 14, 1995, a wholly-owned subsidiary of GEC acquired
all of the outstanding common stock of Vidler. Vidler is a corporation formed
under the laws of the state of Colorado. Vidler is engaged in the water
marketing and transfer business. The business plan calls for Vidler to identify
areas where water supplies are needed in the southwestern United States and then
facilitate the transfer from current ownership to Vidler, and subsequently to
municipalities, water districts, developers and others. This process requires
knowledge and skills in the identification, certification, upgrading, managing,
transfer, marketing and financing of water projects. Vidler has created
opportunity through its ability to aggregate water supplies from disparate
owners and locations and redirect the water to its highest and best use.
As a comprehensive provider of water services, Vidler performs the
following functions:
o Waterasset acquisitions, purchasing appropriate water rights,
upgrading the priority and functionality wherever possible, and
marketing the product to the end-user; and
o Development and operation of water recharge (storage) facilities
directed to municipalities and water districts in the southwestern
United States. Storage provides flexibility. Surplus supplies can
be stored inexpensively and can be sold and delivered to meet peak
demands.
Since its acquisition by GEC, Vidler and its immediate parent company
have purchased water rights and related assets in Colorado, Nevada and Arizona.
Nevada Land and Resource Company, LLC
On April 23, 1997, a wholly-owned subsidiary of GEC acquired a 74.77%
interest in NLRC. The remaining 25.23% interest was acquired by PICO. NLRC's
principal asset consists of approximately 1.365 million acres of deeded land
located in northern Nevada, together with appurtenant water, geothermal and
mineral rights. NLRC is actively engaged in maximizing the property's value in
relation to water rights, mineral rights, geothermal resources, and land
development.
In August 1996, a wholly-owned subsidiary of GEC made an investment in
Conex Continental Inc. ("Conex"). Conex is a corporation formed under the laws
of Ontario, Canada. At Conex's January 7, 1998 Annual Meeting of Shareholders,
the shareholders approved a plan to change the domicile of Conex to the state of
Delaware and management is working to accomplish this change.
Conex
Conex's primary asset is a 60% interest in a joint venture located in
China. This joint venture operates a manufacturing facility in Guiyang City,
Guizhou Province, China and manufactures wheeled and tracked hydraulic
excavators.
Siscom, Inc.
SISCOM is a corporation formed under the laws of the state of Colorado.
SISCOM is a provider of multimedia software solutions to the electronic news
media, Internet providers, and sports industries.
GEC also has a portfolio of investments in other equity securities in
the United States, Europe and Asia. These investments include GEC's investments
in PICO. They also include investments in
16
<PAGE> 19
certain Korean equities which have been heavily impacted by the recent decline
in Korean financial markets. In 1997, GEC wrote down its investment in these
securities to approximately $0.8 million through an approximate $8.0 million
charge to GEC's statement of operations, including a foreign currency loss of
approximately $3.8 million. The preceding amounts were reduced by minority
interests of approximately 48% when consolidated into the Company's financial
statements.
17
<PAGE> 20
SELLING SHAREHOLDERS
The table below sets forth certain information regarding the selling
shareholders. The shares are being registered to permit public sales of the
shares, and the selling shareholders may offer the shares for resale from time
to time. See "Plan of Distribution."
The table below sets forth the names of the selling shareholder and the
number of shares owned by such shareholder.
<TABLE>
<CAPTION>
Selling Shareholder Shares of Common Stock
------------------- ----------------------
<S> <C>
Ronald L. Jensen 1,628,585
Protective Insurance Company 750,000
PSCO Partners Limited Partnership 500,000
Capital Indemnity Corporation 350,000
Pacific Pioneer Insurance Company 40,000
James R. Winn 30,000
Neal Kay 25,000
Marvin D. Gill 19,000
Ernest & Co. 10,000
John A. Lawler 10,000
---------
Total 3,362,585
=========
</TABLE>
Each of the selling shareholders represented to the Company that it was
acquiring the shares for investment and with no present intention of
distributing such shares. In recognition of the fact that investors, even though
purchasing common stock without a view to distribution, may wish to be legally
permitted to sell their shares when they deem the sale to be appropriate, the
Company has filed with the Commission under the Securities Act a Registration
Statement, with respect to the resale of the shares from time to time and has
agreed to prepare and file such amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement effective until
the shares are no longer required to be registered for the sale thereof by the
selling shareholders.
PLAN OF DISTRIBUTION
The Company has been advised that the selling shareholders may sell
shares from time to time in transactions in the Nasdaq National Market, through
negotiated transactions or otherwise, at fixed prices that may be changed, at
prevailing market prices or at negotiated prices.
Sales may be made pursuant to this prospectus to or through
broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the selling shareholders or the purchasers of
common stock for whom such broker-dealer may act as agent or to whom they may
sell as principal, or both (which compensation as to a particular broker-dealer
may be in excess of customary commissions). The selling shareholders and any
broker-dealers or other persons acting on their behalf in connection with the
sale of shares may be deemed to be "underwriters" within the meaning of the
18
<PAGE> 21
Securities Act, and any commissions received by them and any profit realized by
them on the resale of the shares as principals may be deemed to be underwriting
commissions under the Securities Act. No period of time has been fixed within
which the shares may be offered or sold.
The Company will not receive any part of the proceeds of any sales of
shares pursuant to this prospectus. The Company will pay all the expenses of
registering the shares, except for selling expenses incurred by the selling
shareholders in connection with this offering, including any fees and
commissions payable to broker-dealers or other persons, which will be borne by
the selling shareholders.
19
<PAGE> 22
USE OF PROCEEDS
PICO will not receive any proceeds from sales of the shares.
LEGAL MATTERS
The validity of the shares is being passed upon by Gray Cary Ware &
Freidenrich, LLP, San Diego, California.
EXPERTS
The consolidated financial statements for the year ended December 31,
1997 incorporated in this Registration Statement by reference from the Annual
Reports on Form 10-K and Form 10-K/A of PICO have been audited by Deloitte and
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements and consolidated financial
statement schedules of PICO at December 31, 1996, and for each of the two years
in the period ended December 31, 1996, incorporated herein and included in the
Company's Annual Report on Form 10-K and 10-K/A for the year ended December 31,
1997, have been audited by PricewaterhouseCoopers LLP, independent accountants,
as set forth in their reports dated April 7, 1997, accompanying such financial
statements. The financial statements referred to above have been so incorporated
in reliance upon the reports of such firm, which reports are given upon their
authority as experts in accounting and auditing.
The consolidated financial statements for the year ended December 31,
1997 for Global Equity Corporation and incorporated in this Registration
Statement by reference from the Annual Reports on Form 10-K and Form 10-K/A of
PICO Holdings, Inc. have been audited by KPMG LLP, Chartered Accountants, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
20
<PAGE> 23
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this prospectus in connection with the offering
described herein, and, if given or made, such information or representation must
not be relied upon as having been authorized by the company. This prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates, or an offer
to sell, or a solicitation of an offer to buy, in any jurisdiction in which it
is unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Where You Can Find More Information ................................... 1
Risk Factors .......................................................... 1
The Company ........................................................... 13
Selling Shareholders .................................................. 17
Plan of Distribution .................................................. 17
Use of Proceeds ....................................................... 19
Legal Matters ......................................................... 19
Experts ............................................................... 19
</TABLE>
================================================================================
================================================================================
3,362,585 SHARES
COMMON STOCK
----------------------
PROSPECTUS
----------------------
January ___, 1999
================================================================================
21
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the registration of the common stock
hereunder will be substantially as follows:
<TABLE>
<CAPTION>
Item Company Expense
---- ---------------
<S> <C>
SEC Registration Fee............... $ 6,744
Printing and engraving expenses.... $ 1,000
Legal fees and expenses............ $10,000
Accounting Fees and expenses....... $10,000
Miscellaneous...................... $ 7,256
Total $35,000
</TABLE>
- ----------
* Estimated for purposes of this filing.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to provisions of the California General Corporation Law (the
"CGCL"), Registrant's Articles of Incorporation include a provision which
eliminates the personal liability of its directors to Registrant and its
shareholders for monetary damages to the fullest extent permissible under
California law. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interest of Registrant or its shareholders or that involve
the absence of good faith on the part of the director, (iii) for any transaction
from which a director derived an improper benefit, (iv) for acts or omissions
that show a reckless disregard for the director's duty to Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to Registrant or its shareholders, (v) for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to Registrant or its shareholders, (vi) under
Section 310 of the CGCL (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the CGCL (concerning a
director's liability for improper distributions, loans and guarantees). The
provision does not eliminate liability of a director for any acts or omissions
which occurred prior to November 18, 1988, the effective date of Registrant's
amended Articles of Incorporation including such provision, and it does not
eliminate or limit the liability of an officer for any act or omission as an
officer, notwithstanding that the officer is also a director or that his or her
actions, if negligent or improper, have been ratified by the Board of Directors.
Further, the provision has no effect on claims arising under federal or state
securities laws and does not affect the availability of injunctions and other
equitable remedies available to Registrant's shareholders for any violation of a
director's fiduciary duty to Registrant or its shareholders. Although the
validity and scope of the legislation underlying the provision have not yet been
interpreted to any significant extent by the California courts, the provision
may relieve directors of monetary liability to Registrant for grossly negligent
conduct, including conduct in situations involving attempted takeovers of
Registrant.
Registrant's Articles of Incorporation also include a section
authorizing Registrant to indemnify its officers, directors and other agents
through bylaw provisions, agreements with such agents, vote of shareholders or
otherwise in excess of the indemnification permitted by Section 317 of the CGCL,
22
<PAGE> 25
subject only to the limits set forth in Section 204 of the CGCL with respect to
actions for breach of duty to the corporation and its shareholders. The By-Laws
expressly provide that Registrant shall have the right to purchase and maintain
insurance against any liability asserted against or incurred by officers,
directors and other agents, whether or not Registrant would have the power to
indemnify such person against the liability insured against.
The Registrant has obtained directors and officers liability and
company reimbursement insurance pursuant to three policies currently in effect
(the "D & O Policies") with underwriters at Lloyd's, London-SPMI ("Lloyd's"),
Loyds of London and Executive Risk Indemnity, Inc., the limit of coverage is $7
million with a retention of $500,000. Pursuant to the D & O Policies, Lloyd's
will pay on behalf of directors and officers of the Registrant, certain losses
(a "Loss") incurred as a result of a wrongful act (a "Wrongful Act") by such
persons, for which they are not being indemnified by the Registrant. In
addition, Lloyd's will reimburse the Registrant for Losses over $1,000,000
incurred as a result of Registrant's indemnification of an officer or director
in connection with a Wrongful Act. However, the D & O Policies provide that
Lloyd's aggregate liability to the Registrant with respect to a single policy
year shall not exceed $2,000,000. The D & O Policies are subject to customary
exclusions.
The Registrant has entered into agreements with its executive officers
and directors to provide indemnity to such persons to the maximum extent
permitted under applicable law.
Section 317 of the California General Corporation law makes provisions
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
against such liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
2.2* Agreement and Plan of Reorganization, dated as of May 1,
1996, among PICO, Citation Holdings, Inc. and Physicians
and amendment thereto dated August 14, 1996 and related
merger Agreement.
2.3+ Second Amendment to Agreement and Plan of Reorganization
dated November 12, 1996.
2.4# Agreement and Debenture, dated November 14, 1996 and
November 27, 1996, respectively, by and between
Physicians and PC Quote, Inc.
2.5# Purchase and Sale Agreement by, between and among Nevada
Land and Resource Company, LLC, GEC, Western Water
Company and Western Land Joint Venture dated April 9,
1997.
4.2+ First Amendment to Rights Agreement dated April 30,
1996.
4.3+ Second Amendment to Rights Agreement dated November 20,
1996.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP
23.3 Accountants' Consent - KPMG LLP.
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
23.4 Consent of Gray Cary Ware & Freidenrich LLP (Included in
Exhibit 5.1).
24 Power of Attorney (included in the Signature Page
contained in Part II of the Registration Statement).
</TABLE>
- ----------
* Filed as Appendix to the prospectus in Part I of Registration Statement on
Form S-4 (File No. 333-06671).
+ Incorporated by reference to exhibit of same number filed with Form 8-K
dated December 4, 1996.
# Incorporated by reference to exhibit of same number filed with Form 10-K
dated April 15, 1997 as amended April 30, 1997.
24
<PAGE> 27
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
25
<PAGE> 28
D. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
E. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Diego, State of California, on January 8, 1999.
PICO Holdings, Inc.
By: /s/ John R. Hart
---------------------------------
John R. Hart
Chief Executive Officer,
President and Director
(Principal Executive Officer)
POWER OF ATTORNEY
We, the undersigned officers and directors of PICO Holdings, Inc.,
hereby severally constitute John R. Hart and James Mosier our true and lawful
attorneys with full power to sign for us and in our names, in the capacities
indicated below, the registration statement filed herewith and any and all
amendments to said registration statement, and generally to do all such things
in our names and behalf in our capacities as officers and directors to enable
PICO Holdings, Inc. to comply with the provisions of the Securities Act of 1933,
and all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorney to said
registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John R. Hart Chief Executive Officer, President and January 8, 1999
- -------------------------------------- Director (Principal Executive Officer)
John R. Hart
/s/ Gary W. Burchfield Chief Financial Officer and Treasurer January 8, 1999
- -------------------------------------- (Principal Financial and Accounting
Gary W. Burchfield Officer)
/s/ Ronald Langley Chairman of the Board January 8, 1999
- --------------------------------------
Ronald Langley
/s/ Walter Foulkrod, III, Esq. Director January 8, 1999
- --------------------------------------
Walter Foulkrod, III, Esq.
/s/ Richard D. Ruppert, M.D. Director January 8, 1999
- --------------------------------------
Richard D. Ruppert, M.D.
/s/ David A. Williams Director January 8, 1999
- --------------------------------------
David A. Williams
/s/ Carlos C. Campbell Director January 8, 1999
- --------------------------------------
Carlos C. Campbell
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C> <C>
/s/ Robert R. Broadbent Director January 8, 1999
- --------------------------------------
Robert R. Broadbent
/s/ John D. Weil Director January 8, 1999
- --------------------------------------
John D. Weil
</TABLE>
28
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
2.2* Agreement and Plan of Reorganization, dated as of May 1,
1996, among PICO, Citation Holdings, Inc. and Physicians
and amendment thereto dated August 14, 1996 and related
merger Agreement.
2.3+ Second Amendment to Agreement and Plan of Reorganization
dated November 12, 1996.
2.4# Agreement and Debenture, dated November 14, 1996 and
November 27, 1996, respectively, by and between
Physicians and PC Quote, Inc.
2.5# Purchase and Sale Agreement by, between and among Nevada
Land and Resource Company, LLC, GEC, Western Water
Company and Western Land Joint Venture dated April 9,
1997.
4.2+ First Amendment to Rights Agreement dated April 30,
1996.
4.3+ Second Amendment to Rights Agreement dated November 20,
1996.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP
23.3 Accountants' Consent - KPMG LLP.
23.4 Consent of Gray Cary Ware & Freidenrich LLP (Included in
Exhibit 5.1).
24 Power of Attorney (included in the Signature Page
contained in Part II of the Registration Statement).
</TABLE>
- ----------
* Filed as Appendix to the prospectus in Part I of Registration Statement
on Form S-4 (File No. 333-06671).
+ Incorporated by reference to exhibit of same number filed with Form 8-K
dated December 4, 1996.
# Incorporated by reference to exhibit of same number filed with Form
10-K dated April 15, 1997 as amended April 30, 1997.
<PAGE> 1
Exhibit 5.1
January 8, 1999
PICO Holdings, Inc.
875 Prospect Street, Suite 301
La Jolla, California 92037
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We are rendering this opinion in connection with the registration under
the Securities Act of 1933, as amended, of 3,362,585 shares of common stock (the
"Shares") of PICO Holdings, Inc., a California corporation (the "Company"),
which are held by the selling shareholders named in such registration statement.
We have examined all instruments, documents and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies. We have also assumed
that the Shares will be evidenced by appropriate certificates, duly executed and
delivered.
We are admitted to practice only in the State of California and we
express no opinion concerning any law other than the law of the State of
California and the federal law of the United States.
Based on such examination, we are of the opinion that the Shares, when
sold pursuant to the registration statement to which this opinion is an exhibit
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement referred to above and the use of our name wherever it
appears in said registration statement.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
------------------------------------
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
PICO Holdings, Inc. on Form S-3 of our reports dated March 27, 1998, appearing
in the Annual Reports on Form 10-K and Form 10-K/A of PICO Holdings, Inc. for
the year ended December 31, 1997 and to the reference to us under the heading
"Experts" in the prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
San Diego, California
January 7, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our reports dated April 7, 1997 on our audits of the consolidated
financial statements and consolidated financial statement schedules of PICO
Holdings, Inc. as of December 31, 1996 and for each of the two years in the
period then ended included in the Annual Reports on Form 10-K and Form 10-K/A
for the year ended December 31, 1997. We also consent to the reference to our
Firm under the caption "Experts".
PricewaterhouseCoopers LLP
San Diego, California
January 8, 1999
<PAGE> 1
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
KPMG LLP
The Board of Directors
Global Equity Corporation
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of PICO Holdings, Inc. of our report dated March 17, 1998 relating to
the consolidated statement of financial position of Global Equity Corporation as
at December 31, 1997, and the related consolidated statements of operations,
deficit and changes in financial position for the year then ended, which report
appears in the Annual Reports on Form 10-K and Form 10-K/A of PICO Holdings,
Inc. dated March 31, 1998 and to the reference to us under the heading "Experts"
in the prospectus, which is part of this registration statement.
"KPMG LLP"
Chartered Accountants
Toronto, Canada
January 8, 1999
