<PAGE> 1
================================================================================
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
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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.
</TABLE>
PICO HOLDINGS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] 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: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of PICO Holdings, Inc., a California
corporation (the "Company"), will be held at the Museum of Contemporary Art, in
the Coast Room, 700 Prospect Street, La Jolla, California 92037 on Monday, July
19, 1999 at 9:00 a.m. (PDT) for the following purposes:
1. To elect three directors, for which positions the Board of Directors has
nominated John R. Hart, Ronald Langley, and John D. Weil, to serve for
three years until the annual meeting of shareholders in the year 2002 and
until their respective successors have been duly elected and qualified;
and
2. To transact such other business as may be properly brought before the
meeting and any adjournment thereof.
Shareholders of record at the close of business on June 4, 1999 will be entitled
to notice of and to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ Ronald Langley
Ronald Langley
Chairman of the Board
Dated: June 11, 1999
TO ASSURE YOUR REPRESENTATION AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND,
PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY
BY APPROPRIATE WRITTEN NOTICE OR BY VOTING IN PERSON AT THE MEETING. PLEASE NOTE
THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND
YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE MEETING A LETTER FROM THE
BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL OWNERSHIP OF THE SHARES
AND YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 19, 1999
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of PICO Holdings, Inc., a California corporation (the "Company"), to
be voted at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held at the Museum of Contemporary Art, Coast Room, 700 Prospect
Street, La Jolla, California 92037, at 9:00 a.m. (PDT) on Monday, July 19, 1999
and at any postponement or adjournment thereof. The date of this Proxy Statement
is June 11, 1999, the approximate date upon which it was first mailed to
shareholders. The proxy may be revoked by appropriate written notice at any time
before it is exercised or by voting in person at the meeting.
GENERAL INFORMATION
A copy of the Company's Annual Report to Shareholders for 1998 accompanies this
Proxy Statement. The Annual Report and these proxy solicitation materials were
mailed on or about June 11, 1999 to all shareholders entitled to vote at the
meeting.
As of June 4, 1999, the record date for the determination of shareholders
entitled to vote at the Annual Meeting, 13,328,770 shares of Common Stock of the
Company were issued and outstanding. Each share of Common Stock entitles the
holder to one vote on all matters brought before the Annual Meeting, except for
4,380,779 shares held by subsidiaries of the Company, which may not be voted.
In voting for the election of directors, shareholders have cumulative voting
rights. Accordingly, each shareholder may cumulate such voting power as such
shareholder possesses and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares held by the
shareholder, or distribute such shareholder's votes on the same principle among
two or more candidates, as such shareholder sees fit. However, no shareholder is
entitled to cumulate votes (in other words, cast for any candidate a number of
votes greater than the number of shares of stock held by such shareholder)
unless at least one shareholder has given notice, at the Annual Meeting prior to
the voting, of the shareholder's intention to cumulate votes. If any shareholder
has given such notice, all shareholders may cumulate their votes for candidates
in nomination.
The proxy, if returned properly executed and not subsequently revoked by written
notice delivered to the Secretary of the Company or by the shareholder voting in
person at the Annual Meeting, will be voted in accordance with the choice made
by the shareholder thereon. If a choice is not made with respect to the election
of directors and authority to vote for directors is not withheld, the proxy will
be voted for the election of directors as described under "Election of
Directors." If cumulative voting is permitted in the election of directors at
the Annual Meeting, the proxy holders shall have discretion as to the manner in
which votes represented by the proxy are to be cumulated, unless the proxy
indicates the manner in which such votes shall be cumulated.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
election inspectors appointed for the meeting and will determine whether or not
a quorum is present. The election inspectors will treat abstentions, and any
shares as to which a broker or nominee has indicated that it does not have
discretionary authority to vote on a particular matter, as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum.
<PAGE> 4
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 1998, with
respect to the beneficial ownership of the Company's Common Stock entitled to
vote by each person known by the Company to be the beneficial owner of more than
5% of Common Stock, and by each director, each Named Officer (as defined below)
and all executive officers, former chief executive officers, and directors as a
group. Except as otherwise indicated, each person has sole investment and voting
power, subject to community property laws.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND NATURE PERCENTAGE OWNERSHIP OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) VOTING SHARES
------------------------------------ --------------------------- -------------
<S> <C> <C>
Ronald Langley(2)(4) 621,725 6.0%
John R. Hart(3)(4) 616,170 5.9%
Robert R. Broadbent 11,949 *
Carlos C. Campbell -0- *
S. Walter Foulkrod, III, Esq. 2,904 *
Richard D. Ruppert, MD (5) 6,974 *
John D. Weil (6) 529,518 5.1%
David A. Williams 78,693 *
Richard H. Sharpe (7) 67,527 *
Gary W. Burchfield (8) 47,043 *
James F. Mosier (9) 47,303 *
A. Judson Hill (10) 100,000 *
Sheila C. Ferguson (11) 3,986 *
Maxim C. W. Webb (12) 29,409 *
Executive Officers and Directors as a Group (14 2,163,201 20.8%
persons)
</TABLE>
*Less than one percent (1%)
- -------------------------
(1) Sole voting and investment power unless otherwise indicated.
(2) Of these shares, 555,863 represent beneficial ownership of currently
exercisable options. 551 shares are held in the Company's 401(k) Plan.
Mr. Langley has been Chairman and a Director of GEC since September 5,
1995. He has been Chairman, and a Director of the Company since November
20, 1996.
(3) Of these shares, 613,170 represent beneficial ownership of currently
exercisable options. Mr. Hart has been President and CEO and a Director
of GEC since September 5, 1995. He has been President and CEO and a
Director of the Company since November 20, 1996.
2
<PAGE> 5
(4) Mr. Langley and Mr. Hart formerly had stock options, granted in 1995, to
purchase shares of GEC; these shares were converted on December 17, 1998
into economically equivalent stock options to purchase shares of the
Company. Mr. Langley and Mr. Hart each had 1993 call option agreements
with GPG; in August 1998, the Company assumed GPG's obligations with
respect to these 412,846 options. Mr. Langley exercised 57,307 of his
call options in December 1998 and has 149,116 call options remaining. Mr.
Hart has not exercised any call options and has 206,423 call options
remaining.
(5) Dr. Ruppert shares voting and investment power with his wife.
(6) Of these shares, 495,558 are owned by a partnership which Mr. Weil
controls.
(7) Of these shares, 60,119 represent beneficial ownership of currently
exercisable options. In addition, 2,897 shares are held in the Company's
401(k) Plan.
(8) Of these shares, 42,083 represent beneficial ownership of currently
exercisable options. In addition, 805 shares are held in the Company's
401(k) Plan.
(9) Of these shares, 42,083 represent beneficial ownership of currently
exercisable options. In addition, 2,371 shares are held in the Company's
401(k) Plan.
(10) Mr. Hill has beneficial ownership of 100,000 options to buy shares of the
Company. Mr. Hill's options vest monthly over three years in equal
increments beginning November 3, 1998.
(11) Of these shares, 3,702 represent beneficial ownership of currently
exercisable options. In addition, 284 shares are held in the Company's
401(k) Plan.
(12) Of these shares, 29,177 represent beneficial ownership of currently
exercisable options. In addition, 232 shares are held in the Company's
401(k) Plan.
ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of office
of each class ending in successive years. Three directors of the Company are to
be elected for terms ending at the Annual Meeting of Shareholders in the year
2002 or until their respective successors have been duly elected and qualified.
Unless otherwise instructed, the proxy holders named on the enclosed form of
proxy intend to distribute the votes represented by proxies in such proportions
as they deem desirable to elect a maximum of the three nominees named below or
their substitutes. Although it is not contemplated that any nominee will decline
or be unable to serve, if either occurs prior to the Annual Meeting, a
substitute nominee will be selected by the Board of Directors. See "Stock
Ownership of Certain Beneficial Owners and Management" for the number of shares
of Common Stock beneficially owned by these nominees.
As a result of the resignation in April 1998 of a director whose term would have
expired at the Annual Meeting of Shareholders in 2000, there currently exists
one vacancy on the Company's Board of Directors. The Board of Directors has not
nominated an individual for election at the 1999 Annual Meeting of Shareholders
to fill this vacancy. A majority of the directors may nevertheless elect to fill
this vacancy at any time in the future without shareholder approval.
Notwithstanding the vacancy, proxies may not be voted for a greater number of
persons than the number of nominees named.
The following table sets forth information regarding the nominees for election
as directors and the other directors whose terms of office as directors will
continue after the Annual Meeting, including their ages, a brief description of
their business experience, certain directorships held by each of them and the
year in which each became a director of the Company.
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR NAME BUSINESS EXPERIENCE AGE SINCE
------------- ------------------- --- -----
DIRECTORS WITH TERMS ENDING IN 2000:
<S> <C> <C> <C>
S. Walter Foulkrod, III, Esq. Attorney; owner of S. Walter Foulkrod, III & 57 1996
Associates, Attorneys at Law, Harrisburg, PA,
since 1994; President and Chairman of Foulkrod,
Reynolds & Havas, PC, from 1984 to 1994;
Director of Physicians since 1988.
Richard D. Ruppert, MD Physician; President of Medical College of Ohio 68 1996
from 1978 to 1993; President of American
Society of Internal Medicine from 1992 to 1993;
Director of Physicians since 1988.
DIRECTORS WITH TERMS ENDING IN 2001:
Robert R. Broadbent Retail consultant since 1989; Chairman of 77 1996
Higbee Company from 1984 to 1989; President,
CEO, Director and Vice Chairman of the Higbee
Company from 1979 to 1984; President and Chief
Executive Officer of Liberty House - Mainland
from 1976 to 1978; Chairman and CEO of Gimbel's
from 1973 to 1976; Director of Physicians from
1993 to 1995.
Carlos C. Campbell President of C.C. Campbell & Company, Reston, 61 1998
Virginia, since 1985; Director of Resource
America, Inc., Fidelity Mortgage Funding, Inc.,
and Passport Health.
David A. Williams CEO of Beutel Goodman & Co. Ltd. From 1991 to 56 1998
1995; President, Roxborough Holdings Limited,
Toronto, Ontario since 1995; Director of Global
Equity Corporation, Enhanced Marketing
Services, Equisure Financial Network, FRI
Corporation, Krystal Bond Corporation, Octagon
Industries Ltd., Phoenix Duff and Phelps Corp.,
Pinetree Capital Corporation, Micropulse Inc.,
Radiant Energy Corporation, and Signature
Brands Ltd.
NOMINEES STANDING FOR ELECTION FOR TERMS ENDING IN 2002:
John R. Hart President of Quaker Holdings Limited, an 39 1996
investment company, since 1991; Principal with
Detwiler, Ryan & Company, Inc., an investment
bank, from 1982 to 1991; Director of Physicians
since 1993; President and CEO of Physicians
since 1995; President and CEO and Director of
Global Equity Corporation since 1995; Director
of PC Quote, Inc; President and CEO and
Director of the Company since 1996.
Ronald Langley Director and officer of Pacific Southwest 54 1996
Corporation, a strategic investment company,
from 1989 to 1992; Director of Physicians since
1993; Chairman of Physicians since 1995:
Chairman and Director of Global Equity
Corporation since 1995; Chairman of Summit
Global Management, Inc. since 1994; Director of
PC Quote, Inc; Chairman and Director of the
Company since 1996.
John D. Weil President, Clayton Management Company, a 58 1996
strategic investment company; Director of Todd
Shipyards Corporation, Oglebay Norton Company,
Southern Investors Service Company, Inc.,
Allied Health Products, Inc., and Baldwin &
Lyons, Inc.
</TABLE>
4
<PAGE> 7
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Executive Committee, an Audit
Committee, a Compensation Committee, and a Nominating Committee.
The Executive Committee currently consists of Messrs. Langley (Chairman), Hart,
and Weil. The Executive Committee may exercise substantially all the powers
vested in the Board of Directors except for certain actions as prescribed by
California law.
The Audit Committee consists of Messrs. Ruppert (Chairman), Foulkrod, and
Williams, none of whom has been or is an officer or employee of the Company. In
1998, this Committee met six times. The functions of the Audit Committee include
reviewing the accounting principles and practices employed by the Company and
its subsidiaries; meeting with the Company's independent auditors to review
their reports on their audits of the Company's financial statements, their
comments on the internal accounting controls of the Company and the action taken
by management with regard to such comments; and recommending annually to the
Board of Directors the appointment of the Company's independent auditors. The
Audit Committee has the authority, in its discretion, to order interim and
unscheduled audits and to perform such other duties as may be assigned to it
from time to time by the Board of Directors.
The Compensation Committee (the "Compensation Committee") consists of Messrs.
Weil (Chairman), Foulkrod, and Ruppert, none of whom was or is an officer or
employee of the Company. The Compensation Committee met three times in 1998. The
functions of the Compensation Committee include reviewing and approving the
overall executive compensation program for officers of the Company and its
subsidiaries, considering and approving individual executive officer
compensation packages and recommending to the Board of Directors modifications
of the compensation package for the Chief Executive Officer. The Compensation
Committee's goals are to attract and retain key executives critical to the
long-term success of the Company, to reward executives for the long-term success
of the Company and the enhancement of shareholder value, and to integrate
executive compensation with both annual and long-term financial results of the
Company.
The Nominating Committee met one time in 1998. Its members consist of Messrs.
Langley (Chairman), Ruppert, and Hart. The Committee will consider nominees
recommended by shareholders; such recommendations must be submitted in writing
to the Committee.
DIRECTORS' ATTENDANCE
In 1998, there were six meetings of the Board of Directors of the Company. All
of the directors attended 75% or more of the aggregate of their respective Board
of Directors and Committee meetings.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company or its subsidiaries
receive a retainer of $15,000 per year, $1,000 for each Board and Committee
meeting attended in person and $500.00 for each telephonic Board and Committee
meeting attended. There is a limit of $4,000 per day in Board and Committee fees
to any one director.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation for
fiscal year 1998 of the (i) Chief Executive Officer of the Company (ii) the
executive officers of the Company as of December 31, 1998 (Messrs. Langley,
Hart, Sharpe, Burchfield, and Mosier are sometimes hereinafter referred to as
"Named Officers"). Amounts under the caption "Bonus" are amounts earned for
performance during the year including amounts paid after the end of the year.
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- Awards
-----------
Securities
Underlying
NAME AND PRINCIPAL POSITION Options All Other
Year Salary Bonus (Shares) Compensation
---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Chief Executive Officer:
- ------------------------
John R. Hart(1) (2) 1998 $800,000 -0- -0- $22,000(7)
President and Chief 1997 $800,000(3) -0- -0- -0-
Executive Officer 1996 $300,000 $450,000 175,347(4) -0-
Executive Officers(2):
- ----------------------
Ronald Langley(5) 1998 $800,000 -0- -0- $22,000(7)
Chairman of the 1997 $800,000(3) -0- -0- -0-
Board of Directors 1996 $300,000 $450,000 175,347(4) -0-
Richard H. Sharpe(6) 1998 $199,029 -0- -0- $22,000(7)
Chief Operating Officer 1997 $165,317 $ 18,340 -0- $18,734(7)
1996 $139,376 $ 28,000 60,119(4) $14,362(7)
Gary W. Burchfield(8) 1998 $164,640 -0- -0- $20,930(7)
Chief Financial Officer 1997 $135,000 $ 13,500 -0- $15,618(7)
And Treasurer 1996 $102,170 $ 35,000 42,083(4) $10,506(7)
James F. Mosier(9) 1998 $126,910 -0- -0- $18,512(7)
General Counsel 1997 $113,017 $ 12,570 -0- $12,796(7)
and Secretary 1996 $ 82,835 $ 27,000 42,083(4) $ 8,497(7)
</TABLE>
- ----------------------
(1) Mr. Hart became President and CEO of the Company on November 20, 1996.
Prior to that time he was President and CEO of Physicians since July
15, 1995.
(2) Includes compensation received from Physicians prior to the Merger, as
well as compensation received from the Company.
(3) Mr. Langley and Mr. Hart were each compensated $533,328 by the Company
for consulting services in 1997 in the areas of investment banking,
investment portfolio analysis, and analysis of operations. In addition,
Mr. Langley and Mr. Hart entered into consulting agreements with a
subsidiary of Global Equity Corporation for annual compensation of
$266,672 each for consulting services in the areas of investment
banking, investment portfolio analysis, and analysis of operations. On
December 31, 1997, Mr. Langley and Mr. Hart each signed employment
agreements with the Company on terms substantially similar to the
consulting agreements.
(4) Options issued by Physicians prior to the November 1996 Merger under
the Physicians Insurance Company of Ohio 1995 Non-Qualified Stock
Option Plan and assumed by the Company upon the Merger. All options are
fully vested.
6
<PAGE> 9
(5) Mr. Langley became Chairman of the Board of Directors of Physicians on
July 15, 1995. He became Chairman of the Board of Directors of the
Company on November 20, 1996.
(6) Mr. Sharpe became Chief Operating Officer of Physicians on June 3,
1994. He became Chief Operating Officer of the Company on November 20,
1996.
(7) Represents amounts contributed by the Company to the PICO Holdings,
Inc. Employees 401(k) Retirement Plan and Trust. This retirement plan
conforms to the requirements of the Employee Retirement Income Security
Act.
(8) Mr. Burchfield became Chief Financial Officer and Treasurer of
Physicians on November 3, 1995. He became Chief Financial Officer and
Treasurer of the Company on November 20, 1996.
(9) Mr. Mosier became General Counsel and Secretary of Physicians in 1984.
He became General Counsel and Secretary of the Company on November 20,
1996.
OPTION GRANTS IN LAST FISCAL YEAR
Options to purchase 100,000 shares of the Company's Common Stock were granted
during the year ended December 31, 1998 to A. Judson Hill, Executive Vice
President, as shown in Stock Ownership of Certain Beneficial Owners in
Management, footnote 10.
OPTION EXERCISES AND FISCAL 1998 YEAR-END VALUE
The following table provides information concerning options held as of December
31, 1998 by the persons named in the Summary Compensation Table. No options were
exercised in 1998 by such individuals.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money-Options
Options at 12/31/98 At 12/31/98 (1)
------------------- ---------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald Langley(2) 406,747 -0- -0- -0-
John R. Hart(2) 406,747 -0- -0- -0-
Richard H. Sharpe 60,119 -0- -0- -0-
Gary W. Burchfield 42,083 -0- -0- -0-
James F. Mosier 42,083 -0- -0- -0-
</TABLE>
- ----------------------
(1) Based on the closing price of the Company's Common Stock on December 31,
1998 on the Nasdaq National Market of $13.25 per share.
(2) In addition to these options shown above, Mr. Langley and Mr. Hart have a
right to purchase shares of the Company under Call Option Agreements
assumed by the Company in August 1998; see Stock Ownership of Certain
Beneficial Owners and Management, footnote 4.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Weil and Foulkrod, and Dr. Ruppert, serve as members of the Compensation
Committee. Mr. Langley and Mr. Hart have been directors and executive officers
of GEC since September 5, 1995.
7
<PAGE> 10
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Langley and Mr. Hart each entered into employment agreements effective
December 31, 1997 with the Company. Total compensation to Mr. Langley and Mr.
Hart under these employment agreements is $800,000 each on an annual basis.
These employment agreements include a change in control clause providing that if
there is a change of control before December 31, 1999, the Company shall
immediately pay each employee a total lump sum of $2.4 million and an amount
equal to three times the highest annual bonus paid to the employee in the last
three years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Langley and Mr. Hart entered into employment agreements with the Company,
effective December 31, 1997, see Summary Compensation Table, footnote 3. In
addition, Mr. Langley and Mr. Hart are entitled to receive 50% of the first $1
million of the profits of Summit Global Management, Inc. No compensation has
been paid under this arrangement.
REPORT OF THE COMPENSATION COMMITTEE
This report of the Compensation Committee (the "Compensation Committee"), and
the Stock Price Performance Graph set forth below, shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended (the "Securities Act") or under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the Securities Act or the Exchange Act.
COMMITTEE MEMBERS
The three-member Compensation Committee of the Board of Directors is a standing
committee composed entirely of outside Directors. Mr. Weil is the chairman and
Mr. Foulkrod and Dr. Ruppert are the other members.
COMMITTEE FUNCTIONS
The Compensation Committee is responsible for assuring that all of the executive
compensation programs of the Company are developed, implemented, and
administered in a way that supports the Company's fundamental philosophy that a
significant proportion of executive compensation should be effectively linked to
company performance.
The Compensation Committee meets on a regularly scheduled basis. It reviews and
approves the overall executive compensation program which includes both base pay
and incentive compensation. It considers and approves individual executive
officer compensation packages based on recommendations of the Company's Chief
Executive Officer. It recommends, for the approval of the full Board, any
modification to the compensation package of the Company's Chief Executive
Officer.
EXECUTIVE COMPENSATION PHILOSOPHY
The Board of Directors of Physicians retained an independent compensation
expert, William M. Mercer, Incorporated ("Mercer"). In 1996, Mercer conducted an
analysis of marketplace executive compensation levels. The scope of Mercer's
study covered the Company's Chairman and President and Chief Executive Officer.
The objectives of Mercer's study were as follows:
- - Analyze the scope, responsibilities and skill requirements of the jobs
performed by Messrs. Langley and Hart and compare and contrast to
comparable benchmark executive positions found in the marketplace.
- - Develop an appropriate methodology for selecting comparable benchmark jobs,
industry categories and a peer group of companies comparable to the Company
in terms of business focus, industry classification and size; and competing
for senior executives with the skills, expertise and talent demonstrated by
the Company's top two executives.
8
<PAGE> 11
- - For the appropriate benchmark jobs, industry category and peer company
group, collect information on marketplace compensation levels and practices
from compensation surveys and peer company proxy statements. The companies
included in the peer company group are not necessarily those included in
the Nasdaq Insurance Stock Index. Determine the most relevant marketplace
compensation levels and to compare actual Company compensation levels.
- - Develop alternate approaches for structuring the total compensation
package for the Company's top two executives, in terms of compensation
elements to be used, the mix of total pay and how short and long term
incentive compensation might be structured to accurately reflect
performance.
Mercer's study recommended to the Compensation Committee a compensation strategy
with the following objectives:
- - To provide a total compensation package that:
- is competitive with market rates for executives with similar skill, talent
and job requirements.
- is closely linked to the Company's strategy and the role of covered
executives in building shareholder value through growing the book value and,
ultimately, the market value of the Company.
- - To retain critical executive talent by:
- providing a reasonable and competitive level of current income (cash flow).
- providing for loss of future incentive opportunity if an executive
terminates employment before unrealized investment gains are realized.
- - To link executive rewards to shareholder interests by:
- tying incentive awards to growth in book value which ultimately translates
into increased market price per share (as investments are liquidated for
gains, and the Company grows earnings).
- granting additional stock options in the future once current options are
exercised or expire.
The Compensation Committee believes that to accomplish these goals, the
executive compensation program should be based on three distinct components:
base pay, annual incentives, and long-term incentives. The Company obtains
industry and peer group surveys, and consults with independent experts, to
evaluate the Company's executive compensation programs in comparison with those
offered by its comparable competitors.
The Compensation Committee has considered amendments to the Internal Revenue
Code denying deductions for annual compensation to certain executives in excess
of $1 million, subject to certain exceptions. The Company's compensation
structure has been such that it does not believe that it is likely that the $1
million cap will affect the Company in the near future. The Internal Revenue
Service has issued proposed regulations which, among other things, provide for a
transition period of three years for plans previously approved by shareholders.
The Company is studying the proposed regulations, but has not yet determined
what steps may be required or desirable with respect to its existing plans.
EXECUTIVE COMPENSATION PROGRAM
The features of the executive compensation program as recommended by Mercer and
approved by the Compensation Committee are:
BASE COMPENSATION. A fixed rate, to be reviewed annually. Future adjustments
will take into account movement in executive compensation levels, changes in job
responsibilities, and the size of the Company.
9
<PAGE> 12
INCENTIVE AWARDS. Based on growth of book value per share in a fiscal year.
Awards are earned when a pre-determined threshold is surpassed. If book value
per share of the Company exceeds this threshold, the incentive award is equal to
5% of the increase in book value per share multiplied by the number of shares
outstanding at the beginning of the fiscal year. The threshold for 1998 is 19%.
In addition, the Board of Directors of Physicians granted options under the
Physicians Insurance Company of Ohio 1995 Non-Qualified Stock Option Plan. The
options granted under said option plan were designed to reinforce the
relationship between the Company's future performance and the executive's
potential future financial rewards. These options were assumed by PICO Holdings,
Inc. on November 20, 1996. In line with this philosophy of providing incentives
to Executive Officers, the Company agreed to convert the GEC options of said
officers on an economically equivalent basis, to options to purchase shares of
the Company effective with the close of the PICO/GEC Combination.
GOALS OF COMPENSATION COMMITTEE
The Compensation Committee attempts to align executive compensation with the
value achieved by the executives for the Company's shareholders. The Company's
compensation program for executives emphasizes a combination of base salary,
discretionary bonuses, and stock options designed to attract, retain, and
motivate executives who will maximize shareholder value. The Compensation
Committee considers individual and Company performance, as well as compensation
paid by comparable companies.
Executives also participate in other employee benefit programs, including health
insurance, group life insurance, and the Company's 401(k) Plan.
DISCUSSION OF 1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
No bonus was paid with respect to the Company's performance in 1998. In 1997,
the Compensation Committee recommended to the Board of Directors, and the Board
of Directors accepted the recommendation, that it was appropriate for the CEO
and the Chairman to be compensated as employees, rather than as consultants.
Accordingly, effective December 31, 1997, the CEO and Chairman entered into
employment agreements with the Company. The terms of these employment agreements
are substantially similar to the terms of the consulting agreements.
As stated above, the Compensation Committee believes the interest of Company
shareholders is best served by aligning the CEO's short-term compensation, over
and above competitive fixed annual rate of pay, with an increase in the
Company's book value per share which will ultimately be reflected in higher
market values per share. Specifically, a threshold was set at 80% of the S&P
500's annualized total return for the five previous calendar years. For 1998,
this threshold was approximately 19%. Since the increase in the Company's book
value per share in 1998 was approximately 4.5%, and did not exceed the
threshold, no bonus, i.e. short-term incentive, was payable for 1998.
The Compensation Committee awarded long term incentives in 1995 in the form of
175,347 non-qualified stock options at the then current market value. In
addition, the Committee recommended that the CEO's options with GEC, initially
granted in 1995, be converted on an economically equivalent basis to purchase
shares of the Company upon consummation of the GEC/PICO transaction, December
16, 1998. Finally, the Committee recommended and the Board agreed that the
Company assume in August 1998 GPG's obligations to the CEO and Chairman under
November 1993 Call Option Agreements.
The Committee believes that the compensation provided by this combination of
fixed annual compensation, and short-term and long term incentives provides a
mechanism to fairly compensate the CEO while providing the CEO with a strong
incentive to maximize shareholder value.
August 3, 1998 Compensation Committee
John D. Weil, Chairman
S. Walter Foulkrod, III, Esq.
Richard D. Ruppert, MD
10
<PAGE> 13
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the Nasdaq
Insurance Stocks Index, and the Nasdaq Stock Market (U.S. Companies) for the
period January 1, 1994 through December 31, 1998.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PICO HOLDINGS, INC., NASDAQ MARKET INDEX (U.S. COS.)
AND NASDAQ INSURANCE STOCK INDEX
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
PICO Holdings $100.00 28.95 36.84 43.42 67.76 27.59
NASDAQ Market Index (Excluding ADRs) $100.00 97.56 137.12 168.90 206.73 289.90
NASDAQ Insurance Stock Index $100.00 100.57 140.41 159.18 195.00 195.18
</TABLE>
The graph assumes $100 was invested on January 1, 1994 in the Company's Common
Stock, the Nasdaq Stock Market (U.S. Companies) Index, and the Nasdaq Insurance
Stocks Index, and that all dividends were reinvested. The performance of PICO
Holdings, Inc. stock on this graph represents the historical performance of
shares of Citation Insurance Group, which was renamed PICO Holdings, Inc. on
November 20, 1996. It does not represent the historical stock performance of
Physicians Insurance Company of Ohio.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based on a review of the copies of these reports received by the Company and
written representations from certain reporting persons that they have complied
with the relevant filing requirements, the Company believes that all filing
requirements have been complied with on a timely basis for the fiscal year ended
December 31, 1998.
INDEPENDENT AUDITORS OF PICO
Deloitte & Touche LLP was the Company's independent auditing firm for fiscal
year 1998 and has been appointed as the Company's independent auditing firm for
fiscal year 1999. Representatives of Deloitte & Touche LLP are expected to be
present at the meeting, will have the opportunity to make any statements they
desire, and will be available to respond to appropriate questions from
shareholders.
11
<PAGE> 14
SOLICITATION OF PROXIES
The Board of Directors is not aware of any matters other than those specifically
stated in the Notice of Annual Meeting which are to be presented for action at
the meeting. However, should any further matter requiring a vote of the
shareholders arise, it is the intention of the persons named in the proxy to
vote the proxy in accordance with their judgment.
The cost of this solicitation of proxies is being borne by the Company. In
addition to the solicitation of proxies by use of the mails, the Company may use
the services of one or more directors, officers or other regular employees of
the Company (who will receive no additional compensation for their services in
such solicitation) to solicit proxies personally and by telephone. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
to forward solicitation material to the beneficial owners of the stock held of
record by such persons, and the Company will reimburse such firms or persons for
reasonable expenses actually incurred by them in so doing.
SHAREHOLDER NOMINATION OF DIRECTORS
Nominations other than those made by the directors of the Company must be in
writing and be delivered or mailed to the Secretary of the Company not less than
35 days prior to the Annual Meeting. Such nominations must include the
information regarding each nominee required by the Bylaws of the Company.
Nominations not made according to these procedures will be disregarded.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual meeting of
the stockholders of the Company must be received by the Company at its offices
no later than January 7, 2000, and satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Ronald Langley
Ronald Langley
Chairman of the Board
June 11, 1999
12
<PAGE> 15
PROXY PROXY
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints John R. Hart and James F. Mosier, or either of
them acting alone, as proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent, and to vote as designated below, all
the shares of Common Stock of PICO Holdings, Inc. (the "Company") held of record
by the undersigned on June 4, 1999 at the Annual Meeting of Shareholders to be
held at the Museum of Contemporary Art, Coast Room, 700 Prospect Street, La
Jolla, California 92037 on Monday, July 19, 1999 at 9:00 a.m. (PDT), and at any
adjournment thereof.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side)
- -------------------------------------------------------------------------------
13
<PAGE> 16
PICO HOLDINGS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
<TABLE>
<S> <C> <C> <C> <C>
FOR WITHHOLD FOR ALL
1. Election of Three Directors, to Serve for Three-Year ALL ALL EXCEPT 2. In their discretion, the above named
Terms until the Annual Meeting of Shareholders in 2002. Proxies are authorized to vote upon
NOMINEES: John R. Hart, Ronald Langley, John D. Weil [ ] [ ] [ ] each other item of business as may
properly come before the meeting or
any adjournment thereof.
- ------------------------------------------------------------- THIS PROXY, WHEN PROPERLY EXECUTED, WILL
(To withhold authority to vote for an individual nominee, BE VOTED IN THE MANNER DIRECTED HEREIN,
strike a line through the nominee's name in the list above.) IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL LISTED ABOVE.
-------------------------------
(Signature)
-------------------------------
(Signature if held jointly)
Dated:
-------------------------
Please sign exactly as your name(s) appears on your
stock certificate. If such stock is held by joint
tenants, both persons should sign. When signing as
attorney, executor, administrator, trustee or guardian,
please note your title as such. If the stock is
registered in the name of a corporation, please sign in
the corporation's name by the president or any other
authorized officer. If the stock is registered in the
name of a partnership, please sign in the partnership's
name by an authorized person.
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
EVEN IF YOU ARE PLANNING TO ATTEND THE MEETING IN PERSON,
YOU ARE URGED TO SIGN AND MAIL THIS PROXY IN THE RETURN ENVELOPE
SO THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
</TABLE>
14
