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This filing is made pursuant
to Rule 424(b)(5) under
the Securities Act of
1933 in connection with
Registration No. 333-70377
PROSPECTUS
PICO HOLDINGS, INC.
672,517 SHARES OF COMMON STOCK
The shareholders of PICO Holdings, Inc. listed within this prospectus are
selling shares of PICO common stock under this prospectus.
Our common stock is quoted on the Nasdaq National Market under the symbol
"PICO". On January 28, 2000, the last sale price of our common stock as
reported on the Nasdaq National Market was $13.31.
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 February 2, 2000
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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 PICO and our 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 statements regarding our expectations, beliefs,
intentions, plans or strategies regarding the future. All forward-looking
statements included in this document are based on information available to us on
the date thereof, and we assume no obligation to update any such forward-looking
statements.
IF WE DO NOT SUCCESSFULLY LOCATE, SELECT AND MANAGE INVESTMENTS AND ACQUISITIONS
OR IF OUR INVESTMENTS OR ACQUISITIONS OTHERWISE FAIL OR DECLINE IN VALUE, OUR
FINANCIAL CONDITION COULD SUFFER
We invest in businesses that we believe are undervalued or that will
benefit from additional capital, restructuring of operations or improved
competitiveness through operational efficiencies.
Failures and/or declines in the market values of businesses we invest in or
acquire, as well as our failure to successfully locate, select and manage
investment and acquisition opportunities, could have a material adverse effect
on our business, financial condition, results of operations and cash flows. Such
business failures, declines in market values, and/or failure to successfully
locate, select and manage investments and acquisitions could result in inferior
investment returns compared to those which may have been attained had we
successfully located, selected and managed new investments and acquisition
opportunities, or had our investments or acquisitions not failed or declined in
value. We could also lose part or all of our investments in these businesses and
experience reductions in our net income, cash flows, assets and shareholders'
equity.
We will continue to make selective investments, and endeavor to enhance and
realize additional value to these acquired companies through our influence and
control. This could involve the restructuring of the financing or management of
the entities in which we invest and initiating and facilitating mergers and
acquisitions. Any acquisition could result in the use of a significant portion
of our available cash, significant dilution to you, and significant acquisition
related charges. Acquisitions may also result in the assumption of liabilities,
including liabilities that are unknown or not fully known at the time of the
acquisition, which could have a material adverse effect on us.
We do not know of any reliable statistical data that would enable us to
predict the probability of success or failure of our investments or to predict
the availability of suitable investments at the time we have available cash. You
will be relying on the experience and judgment of management to locate, select
and develop new acquisition and investment opportunities. Sufficient
opportunities may not be found and this business strategy may not be successful.
We have made a number of investments in the past that have been highly
successful, such as Fairfield Communities, Inc., which we sold in 1996 and
Resource America, Inc., which we sold in 1997. We have also made investments
that have lost money, such as our approximate $4 million loss from Korean
investments in 1997 and approximately $5 million in investments written down in
1998. We reported net realized investment gains in 1997 of $27.1 million and in
1996 of $21.4 million; however, we reported a net realized investment loss of
$4.4 million for 1998. Our financial statements indicated a net unrealized
investment gain of $10.6 million at December 31, 1996, and a net unrealized
investment loss of $2.6 million and $2.5 million at December 31, 1997 and 1998,
respectively. At September 30, 1999, the Company reported a net unrealized
investment gain of $9.1 million.
Our ability to achieve an acceptable rate of return on any particular
investment is subject to a number of factors which are beyond our 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.
Our investments may not achieve acceptable rates of return and we may not
realize the value of the funds invested; accordingly, these investments may have
to be written down or sold at their then-prevailing market values.
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We may not be able to sell our investments in both private and public
companies when it appears to be advantageous to do so and we may have to sell
these investments 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 our ability to
dispose of an investment in a public company.
To successfully manage newly acquired companies, we 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, or
difficulties encountered in the integration process, could have a material
adverse effect on our business, financial condition, results of operations and
cash flows.
WE MAY MAKE INVESTMENTS AND ACQUISITIONS THAT MAY YIELD LOW OR NEGATIVE RETURNS
FOR AN EXTENDED PERIOD OF TIME, WHICH COULD TEMPORARILY OR PERMANENTLY DEPRESS
OUR RETURN ON INVESTMENTS
We generally make strategic investments and acquisitions that tend to be
long term in nature. We invest in businesses that we believe to be undervalued
or may benefit from additional capital, restructuring of operations or
management or improved competitiveness through operational efficiencies with our
existing operations. We may not be able to develop acceptable revenue streams
and investment returns. We may lose part or all of our investment in these
assets. The negative impacts on cash flows, income, assets and shareholders'
equity may be temporary or permanent. We make investments for the purpose of
enhancing and realizing additional value by means of appropriate levels of
shareholder influence and control. This may involve restructuring of the
financing or management of the entities in which we invest and initiating or
facilitating mergers and acquisitions. These processes can consume considerable
amounts of time and resources. Consequently, costs incurred as a result of these
investments and acquisitions may exceed their revenues and/or increases in their
values for an extended period of time until we are able to develop the potential
of these investments and acquisitions and increase the revenues, profits and/or
values of these investments. Ultimately, however, we may not be able to develop
the potential of these assets that we anticipated.
IF MEDICAL MALPRACTICE INSURANCE CLAIMS TURN OUT TO BE GREATER THAN THE RESERVES
WE ESTABLISH TO PAY THEM, WE MAY NEED TO LIQUIDATE CERTAIN INVESTMENTS IN ORDER
TO SATISFY OUR RESERVE REQUIREMENTS
Under the terms of our medical malpractice liability policies, there is 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 a person
must make a claim within four years; however, the courts have determined that
the period may be longer in situations where the insured 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 medical
malpractice liability policy period.
Physicians Insurance Company of Ohio and The Professionals Insurance
Company have established reserves to cover losses on claims incurred under the
medical malpractice liability policies including not only those claims reported
to date, but also those that may have been incurred but not yet reported. The
reserves for losses are estimates based on various assumptions and, in
accordance with Ohio law, have been discounted 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
Insurance Company of Ohio and The Professionals Insurance Company annually
obtain a certification from an independent actuary that their respective
reserves for losses are adequate. They also obtain a concurring actuarial
opinion. Due to the inherent uncertainties in the reserving process, there is a
risk that Physicians Insurance Company of Ohio's and The Professionals Insurance
Company's reserves for losses could prove to be inadequate. This could result in
a decrease in income and shareholders' equity. If we underestimate our reserves,
they could reach levels which are lower than required by law.
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Reserves are money that we set aside to pay insurance claims. We strive to
establish a balance between maintaining adequate reserves to pay claims while at
the same time using our cash resources to invest in new companies.
IF WE UNDERESTIMATE THE AMOUNT OF INSURANCE CLAIMS, OUR FINANCIAL CONDITION
COULD BE MATERIALLY MISSTATED AND OUR FINANCIAL CONDITION COULD SUFFER
Our insurance subsidiaries may not have established reserves adequate to
meet the ultimate cost of losses arising from claims. It has been, and will
continue to be, necessary for our insurance subsidiaries to review and make
appropriate adjustments to reserves for claims and expenses for settling claims.
Inadequate reserves could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Inadequate reserves
could cause our financial condition to fluctuate from period to period and cause
our financial condition to appear to be better than it actually is for periods
in which insurance claims reserves are understated. In subsequent periods when
we discover the underestimation and pay the additional claims, our cash needs
will be greater than expected and our financial results of operations for that
period will be worse than they would have been had our reserves been accurately
estimated originally.
The inherent uncertainties in estimating loss reserves are greater for some
insurance products than for others, and are dependent on:
- the length of time in reporting claims;
- the diversity of historical losses among 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.
Because medical malpractice liability and commercial casualty claims may
not be completely paid off for several years, estimating reserves for these
types of claims can be more uncertain than estimating reserves for other types
of insurance. As a result, precise reserve estimates cannot be made for several
years following the year for which reserves were initially established.
During the past several years, the levels of the reserves for our insurance
subsidiaries have been very volatile. As a result of our claims experience, we
have had to significantly increase these reserves in the past several years.
Significant increases in the reserves may be necessary in the future, and
the level of reserves for our insurance subsidiaries may be volatile in the
future. These increases or volatility may have an adverse effect on our
business, financial condition, results of operations and cash flows.
THERE HAS BEEN A DOWNTURN IN THE PROPERTY & CASUALTY INSURANCE BUSINESS WHICH,
IN THE SHORT TERM, HINDERS OUR ABILITY TO PROFIT FROM THIS INDUSTRY
The property and casualty insurance industry has been highly cyclical, and
the industry has been in a cyclical downturn over the last several years. This
is due primarily to competitive pressures on pricing, which has resulted in
lower profitability for us. Pricing is a function of many factors, including the
capacity of the property and casualty industry as a whole to underwrite
business, create policyholders' surplus and generate positive returns on their
investment portfolios. 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
property and casualty insurers.
The cyclical trends in the industry and the industry's profitability can
also be affected by volatile and unpredictable developments, including natural
disasters, fluctuations in interest rates, and other changes in the investment
environment which affect market prices of investments and the income generated
from those investments. Inflationary pressures affect the size of losses and
court decisions affect insurers' liabilities. These
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trends may adversely affect our business, financial condition, results of
operations and cash flows by reducing revenues and profit margins, by increasing
ratios of claims and expenses to premiums, and by decreasing cash receipts.
Capital invested in our insurance companies may produce inferior investment
returns during periods of downturns in the insurance cycle due to reduced
profitability.
STATE REGULATORS COULD REQUIRE CHANGES TO THE OPERATIONS OF OUR INSURANCE
SUBSIDIARIES AND/OR TAKE THEM OVER IF WE FAIL TO MAINTAIN ADEQUATE RESERVE
LEVELS
In the past few years, the National Association of Insurance Commissioners
has developed risk-based capital measurements for both property and casualty and
life and health insurers. These measurements prescribe the reserve levels that
insurance companies must maintain. The Commissioners have delegated to the state
regulators varying levels of authority based on the adequacy of an insurer's
reserves. The insurance companies' reserve levels are reported annually in their
statutory annual statements to the insurance departments.
Failure to meet one or more reserve levels may result in state regulators
requiring the insurance company to submit a business plan demonstrating
achievement of the required reserve levels. This may include the addition of
capital, a restructuring of assets and liabilities, or changes in operations. At
or below certain lower reserve levels, state regulators may supervise the
operation of the insurance company and/or require the liquidation of the
insurance company. Such insurance department actions could adversely affect our
business, financial condition, results of operations and cash flows and decrease
the value of our investments in our insurance subsidiaries. If the insurance
departments were to require changes in the operations of our insurance
subsidiaries, we may incur additional expenses and we may lose customers. If the
insurance departments were to require additional capital in our insurance
subsidiaries or a restructuring of our assets and liabilities, our investment
returns could suffer. If the insurance departments were to place our insurance
companies under their supervision, we would lose customers, our revenues may
decrease more rapidly than our expenses, and our investment returns would
suffer. We may even lose part or all of our investments in our insurance
subsidiaries if our insurance subsidiaries are liquidated by the insurance
departments.
WE MAY BE INADEQUATELY PROTECTED AGAINST MAN MADE AND NATURAL CATASTROPHES,
WHICH COULD REDUCE THE AMOUNT OF CAPITAL SURPLUS AVAILABLE FOR INVESTMENT
OPPORTUNITIES
As with other property and casualty insurers, 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. Our insurance subsidiaries generally seek to reduce their
exposure to catastrophic events through individual risk selection and the
purchase of reinsurance. Our insurance subsidiaries' 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 created by that event. While our
insurance subsidiaries attempt to limit their exposure to acceptable levels, it
is possible that an actual catastrophic event or multiple catastrophic events
could significantly exceed the maximum loss anticipated, resulting in a material
adverse effect on our business, financial condition, results of operations and
cash flows. Such events could cause unexpected insurance claims and expenses for
settling claims well in excess of premiums, increasing cash needs, reducing
surplus and reducing assets available for investments. Capital invested in our
insurance companies may produce inferior investment returns as a result of these
additional funding requirements.
We insure ourselves against catastrophic losses by obtaining insurance
through other insurance companies known as reinsurers. The future financial
results of our insurance subsidiaries could be adversely affected by disputes
with their reinsurers with respect to coverage and by the solvency of the
reinsurers.
OUR INSURANCE SUBSIDIARIES COULD BE DOWNGRADED WHICH WOULD NEGATIVELY IMPACT OUR
BUSINESS
Our insurance subsidiaries' ratings may not be maintained or increased, and
a downgrade would likely adversely affect our business, financial condition,
results of operations and cash flows. A.M. Best and Company's ("A.M. Best")
ratings reflect the assessment of A.M. Best of an insurer's financial condition,
as well as the expertise and experience of its management. Therefore, A.M. Best
ratings are important to policyholders. A.M. Best ratings
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are subject to review and change overtime. Failure to maintain or improve our
A.M. Best ratings could have a material adverse effect on the ability of our
insurance subsidiaries 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 an A.M. Best rating of less than B+, and that customers who
do so will demand lower rates.
Our insurance subsidiaries are currently rated as follows:
- Sequoia Insurance Company B++ (Very Good)
- Citation Insurance Company B+ (Very Good)
- Physicians Insurance Company of Ohio NR-3 (rating procedure
inapplicable)
- The Professionals Insurance Company NR-3 (rating procedure
inapplicable)
POLICY HOLDERS MAY NOT RENEW THEIR POLICIES, WHICH WOULD UNEXPECTEDLY REDUCE OUR
REVENUE STREAM
Insurance policy renewals have historically accounted for a significant
portion of our net revenue. We may not be able to sustain historic renewal rates
for our products in the future. A decrease in renewal rates would reduce our
revenues. It would also decrease our cash receipts and the amount of funds
available for investments and acquisitions. If we were not able to reduce
overhead expenses correspondingly, this would adversely affect our business,
financial condition, results of operations and cash flows.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, THEN WE WILL BE SUBJECT
TO A SIGNIFICANT REGULATORY BURDEN
We at all times intend to conduct our business so as to avoid being
regulated as an investment company under the Investment Company Act of 1940.
However, if we were required to register as an investment company, our ability
to use debt would be substantially reduced, and we would be subject to
significant additional disclosure obligations and restrictions on our
operational activities. Because of the additional requirements imposed on an
investment company with regard to the distribution of earnings, operational
activities and the use of debt, in addition to increased expenditures due to
additional reporting responsibilities, our cash available for investments would
be reduced. The additional expenses would reduce income. These factors would
adversely affect our business, financial condition, results of operations and
cash flows.
SUBSTANTIAL REGULATION MAY PREVENT US FROM REALIZING A PROFIT FROM OUR WATER
RIGHTS
The water rights held by us 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, California, 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
reliable, 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 the sale or transfer of some of these water rights,
which in turn may affect their commercial value. If we were unable to transfer
or sell our water rights, we will not be able to make a profit, we will not have
enough cash receipts to cover cash needs, and we may lose some or all of our
value in our water rights investments.
OUR FUTURE WATER REVENUES ARE UNCERTAIN AND DEPEND ON A NUMBER OF FACTORS, WHICH
MAY MAKE OUR REVENUE STREAMS AND PROFITABILITY VOLATILE
We engage in various water rights acquisition, management, development,
sale and lease activities. Accordingly, our long-term future profitability will
be primarily dependent on our ability to develop and sell or lease water and
water rights, and will be affected by various factors, including timing of
acquisitions, transportation arrangements, and changing technology. To the
extent we possess junior or conditional water rights, such rights may be
subordinated to superior water right holders in periods of low flow or drought.
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Our current water rights 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, California, 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. Legal
impediments exist to sale or transfer of some of these water rights which may
affect their commercial value.
In addition to the risk of delays associated with receiving all necessary
regulatory approvals and permits, we may also encounter unforeseen technical
difficulties which could result in construction delays and cost increases with
respect to our water development projects.
OUR WATER ASSETS MAY BECOME CONCENTRATED IN A LIMITED NUMBER OF FACILITIES,
MAKING OUR GROWTH AND PROFITABILITY VULNERABLE TO FLUCTUATIONS IN LOCAL
ECONOMIES AND GOVERNMENTAL REGULATIONS.
We anticipate that in the future, a significant amount of Vidler's
revenues and asset value may be derived from a single asset, the MBT Ranch water
storage facility. Currently, we have obtained only a pilot permit for the
recharge and storage of a limited amount of water at that facility. We have not
yet applied for a recovery permit and have applied for, but not yet received, a
full-scale permit for that facility. There can be no assurance:
- that we will be able to obtain permits for the facility at the
recharge, storage or recovery levels anticipated, or at all;
- that the full-scale storage facility will have the capacity currently
anticipated; or
- that we will be able to contract with third parties for storage of
water on commercially reasonable terms, or at all.
A majority of our water revenue historically has been derived from the
Vidler Tunnel. Although we have recently begun to acquire additional water
assets, we anticipate that our revenues will be derived from a limited number of
water assets for the foreseeable future.
THE PRICE OF WATER IS VOLATILE, WHICH CAN HAVE A SIGNIFICANT EFFECT ON OUR COSTS
OF ACQUIRING WATER AND THE PRICES AT WHICH WE ARE ABLE TO SELL WATER.
Our profitability is significantly affected by changes in the market price
of water. Water prices may in the future fluctuate widely and are affected by
climatic, demographic and technologic factors affecting demand.
ENVIRONMENTAL REGULATIONS MAY DETRACT FROM OUR FUTURE REVENUE STREAMS AND
PROFITABILITY BY LIMITING OUR CUSTOMER BASE.
Water we lease or sell may be subject to regulation as to quality by the
United States Environmental Protection Agency acting pursuant to the federal
Safe Drinking Water Act. While environmental regulations do not directly affect
us, the regulations regarding the quality of water distributed affects our
intended customers and may, therefore, depending on the quality of our water,
impact the price and terms upon which we may in the future sell our water or
water rights.
OUR WATER SALES MAY MEET WITH POLITICAL OPPOSITION IN CERTAIN LOCATIONS, THEREBY
LIMITING OUR GROWTH IN THESE AREAS.
The transfer of water rights from one use to another may affect the
economic base of a community and will, in some instances, be met with local
opposition. Moreover, certain of the end users of our water rights, namely
municipalities, regulate the use of water in order to control or deter growth.
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WE ARE DIRECTLY IMPACTED BY INTERNATIONAL AFFAIRS, WHICH DIRECTLY EXPOSES US TO
THE ADVERSE EFFECTS OF ANY FOREIGN ECONOMIC OR GOVERNMENTAL INSTABILITY
As a result of global investment diversification, our business, financial
condition, results of operations and cash flows may be adversely affected by:
- exposure to fluctuations in exchange rates;
- the imposition of governmental controls;
- the need to comply with a wide variety of foreign and U.S. export
laws;
- political and economic instability;
- trade restrictions;
- changes in tariffs and taxes;
- volatile interest rates;
- changes in certain commodity prices;
- exchange controls which may limit our ability to withdraw money;
- the greater difficulty of administering business overseas; and
- general economic conditions outside the United States.
Changes in any or all of these factors could result in reduced market
values of investments, loss of assets, additional expenses, reduced investment
income, reductions in shareholders' equity due to foreign currency fluctuations
and a reduction in our global diversification.
OUR COMMON STOCK PRICE MAY BE LOW WHEN YOU WANT TO SELL YOUR SHARES
The trading price of our 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;
- our competitors' announcements of extraordinary events; such as
- acquisitions;
- litigation; and
- general economic conditions.
Our results of operations have been subject to significant fluctuations,
particularly on a quarterly basis, and our future results of operations could
fluctuate significantly from quarter to quarter and from year to year. Causes of
such fluctuations may include the inclusion or exclusion of operating earnings
from newly acquired or sold operations. At December 31, 1997, the closing price
of our common stock on the Nasdaq National Market was $32.19 per share, compared
to $12.31 at December 31, 1999. On a quarterly basis between these two dates,
closing prices have ranged from a high of $28.75 at March 31, 1998 to a low
of $12.31 at December 31, 1999.
Statements or changes in opinions, ratings, or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we do
business or relating to us specifically could result in an immediate and adverse
effect on the market price of our common stock.
WE MAY NOT BE ABLE TO RETAIN KEY MANAGEMENT PERSONNEL WE NEED TO SUCCEED, WHICH
COULD ADVERSELY AFFECT OURS ABILITY TO MAKE SOUND INVESTMENT DECISIONS
We have several key executive officers. If they depart, it could have a
significant adverse effect. In particular, Ronald Langley, our Chairman, and
John R. Hart, our President and Chief Executive Officer, play key roles in
investment decisions. Messrs. Langley and Hart have entered into employment
agreements with us dated as of December 31, 1997, for a period of four years.
Messrs. Langley and Hart are key to the implementation of our
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strategic focus, and our ability to successfully develop our current strategy is
dependent upon our ability to retain the services of Messrs. Langley and Hart.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER, PREVENTING YOU FROM RECEIVING A
PREMIUM ON YOUR SHARES
The Board of Directors has authority to issue up to 2 million shares of
preferred stock and to fix the rights, preference, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the shareholders. Your rights as common stock holders will be subject to, and
may be adversely affected by, the rights of the holders of the preferred stock.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock, thereby delaying, deferring or preventing a
change in control of PICO. Furthermore, such preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance thereof could have a material adverse effect on the market value of
the common stock.
WE ARE SUBJECT TO YEAR 2000 RISKS FOR WHICH WE MAY NOT BE PREPARED, WHICH COULD
CREATE INTERNAL ADMINISTRATIVE PROBLEMS REQUIRING COSTLY, INEFFICIENT REMEDIAL
MEASURES
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 one year, computer systems and/or software used by many
companies in a very wide variety of applications may 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, we may be affected.
We continue to progress in our efforts to define the scope and magnitude of
the Year 2000 ("Y2K") problem and to execute our plans to ensure information
technology and non-information technology systems are Y2K compliant.
The initial phase of planning, inventorying and evaluating all information
technology systems, and non-information technology systems and their components,
for Y2K compliance is complete. The evaluation did not disclose any significant
Y2K processing difficulties or concerns. The focus has primarily been on the
insurance operations of Vista because of the custom applications software used
to process insurance policies, policy claims, and insurance underwriting.
Fortunately, the majority of the non-insurance information and non-information
technology systems are deemed Y2K compliant and do not require any significant
alterations. The focus of remediation is on the insurance specific applications.
The second phase of the project, which primarily includes implementing
corrections to remedy Y2K deficiencies, is approximately complete. As noted
above, the insurance systems software has been the primary focus of the efforts.
To renovate the insurance systems to a Y2K ready state, our internal information
systems staff is re-writing lines of existing code to function with a four-digit
date field. We have also replaced existing DOS software with a current Y2K
compliant version.
Phase three pertains to testing and validation of each system. As hardware
and software changes are made to the systems, they are tested for compliance. In
this phase we tested each insurance application as it was reprogrammed. Despite
the best efforts by management, problems will arise requiring us to quickly
respond while there is still time. Phase four developed a contingency plan
addressing potential business interruption and failure.
We have relationships with several banks and other financial institutions
and service providers that provide business information to us on a regular
basis. In addition, we report financial results on a regular basis to state and
federal agencies. While these relationships are important to our business,
should any third party be adversely affected by the Y2K problem, the resulting
risk of business interruption should not be significant to us. However,
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the inability of those parties to complete their Y2K readiness process could
materially impact us in a manner that we have not foreseen.
The likely worst case scenario is a partial failure of some accounting and
reporting functions that could be corrected by manually recording and delivering
the required information.
The foregoing factors, individually or in the aggregate, could materially
adversely affect our operating results and could make comparison of historic
operating results and balances difficult or not meaningful.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file 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. You can obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. Our common stock is traded on The Nasdaq National Market.
Reports and other information concerning us 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 us to "incorporate by reference" the information we
file with them, which means that we 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 we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
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) Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998 filed with the Commission on March 30, 1998 and amended on
January 27, 2000 (File No. 000-18786).
(2) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 filed with the Commission on May 17, 1999 and amended on January
27, 2000 (File No. 033-36383).
(3) Our Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 filed with the commission on August 13, 1999 and amended on
January 27, 2000 (File No. 033-36383).
(4) Our Quarterly Report Form 10-Q for the quarter ended September 30,
1999 filed with the commission on November 15, 1999 and amended
on January 27, 2000 (File No. 033-36383).
We 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 directed to James F. Mosier at PICO Holdings, Inc., 875
Prospect Street, Suite 301, La Jolla, California 92037, telephone number (858)
456-6022.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have 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 front of those documents.
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<PAGE> 12
PICO HOLDINGS, INC.
We are a diversified holding company with operations in wholesale water and
storage through our subsidiary Vidler Water Company, Inc.; real estate and
minerals through its subsidiary Nevada Land and Resource Company, LLC; insurance
through its subsidiaries Sequoia Insurance Company and Citation Insurance
Company; and investment management though its subsidiary Summit Global
Management, Inc. In addition, we have a number of strategic value investments.
Our objective is to use our resources to increase shareholder value through
investments in businesses which we believe are undervalued or will benefit from
additional capital, restructuring of operations or management, or improved
competitiveness through operational efficiencies with our existing operations.
This business strategy was implemented beginning in 1994 and was not fully in
place until 1996.
We were incorporated in 1981 and began operations in 1982 as an insurance
holding company. We were known as Citation Insurance Group prior to the November
20, 1996 reverse merger between a wholly-owned subsidiary and Physicians
Insurance Company of Ohio. Our principal executive office is located at 875
Prospect Street, Suite 301, La Jolla, California 92037, and our telephone number
is (858) 456-6022.
SUBSIDIARIES
Unless otherwise indicated, each subsidiary is directly or indirectly
wholly-owned by us. Our operating subsidiaries and their principal subsidiaries
or affiliates are as follows:
GLOBAL EQUITY CORPORATION
In September 1995, we acquired approximately 38.2% of Global Equity
Corporation. In July 1997, we purchased an additional 11.7% of Global Equity
Corporation from the Mackenzie Fund, increasing our holdings to approximately
49.9%. On August 18, 1997, Global Equity Corporation issued shares through a
secondary public offering and we subscribed additional shares increasing our
ownership of Global Equity Corporation to approximately 51.2%. For a number of
reasons, including the simplification of the structure of the combined
companies, on December 16, 1998, we acquired the remaining 48.8% minority
interest of Global Equity Corporation through a combination in exchange for our
common stock. We refer you to the PICO and Global Equity Corporation Joint
Management Information Circular and Proxy Statement dated October 13, 1998 filed
with the Commission with Form DEFM14A on October 16, 1998 for additional
information regarding the combination with us and Global Equity Corporation
approved by shareholders on November 20, 1998.
Incorporated under the laws of the Province of Ontario, Canada, Global
Equity Corporation operates primarily, both directly and indirectly through its
various subsidiaries, as an international investment and operating company. The
emphasis of Global Equity Corporation's investment strategy is to increase
shareholder value through the long-term appreciation of its assets. Global
Equity Corporation's investment portfolio comprises holdings in public equity
securities, strategic investments and convertible instruments in North American,
Asian and European corporations, as well as a diversified portfolio of surface,
water and mineral rights in the western United States, and oil and gas lease
interests in North America.
VIDLER WATER COMPANY, INC.
Effective November 14, 1995, a wholly-owned subsidiary of Global Equity
Corporation acquired all of the outstanding common stock of Vidler Water
Company, Inc. The purchase price was $5.8 million in cash. Vidler Water Company,
Inc., a corporation formed under the laws of the state of Colorado, changed its
state of domicile to Delaware in 1998. Vidler Water Company, Inc. is engaged in
the water marketing and transfer business. In 1998, a former employee of Vidler
Water Company, Inc. exercised stock options to purchase approximately 1.9% of
Vidler Water Company, Inc.
Vidler Water Company provides long-term reliable water supplies in the
western United States. The company acquires, manages, develops and reallocates
water rights and related storage and distribution assets for municipal
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<PAGE> 13
authorities and private industry. Vidler intends to establish a long-term income
stream through the sale or lease of water rights and underground storage
facilities to public and private end users.
The most significant of Vidler's assets is its Arizona underground water
storage facility located in the Harquahala Valley. The business plan is to build
facilities capable of recharging and storing surplus water in a large aquifer
underlying much of the valley. Harquahala Valley is located approximately 75
miles west of the Phoenix metropolitan area and is approximately 300 square
miles in size. When water is stored in the aquifer, it remains in place until
needed, and can be recovered by groundwater wells.
Vidler began aggregating parcels of land necessary for the underground
water storage operation in late 1996. The aggregated lands are located around
the Central Arizona Project, the aqueduct that delivers 1,500,000 acre-feet of
water per year from the Colorado River to Phoenix and Tucson. This proximity to
the Central Arizona Project is a competitive advantage, as it minimizes the
costs of water conveyance facilities. Vidler estimates its recharge and storage
facility will cost approximately $10 million to build.
Vidler intends to charge fees at the time the water is recharged and also
when it is recovered. Additionally, Vidler intends to charge an annual fee on
the cumulative amount of water stored, but not yet recovered. Potential users of
the facility would include: local governments within Arizona, the Las Vegas
Metropolitan area and California, as well as the Bureau of Reclamation.
The facility itself is being constructed in two phases: a pilot facility
and a large-scale facility. The pilot facility is complete and was constructed
to obtain cost/benefit information regarding three recharge methods and to
obtain general hydrogeologic data necessary to submit a permit for the
full-scale facility. The full-scale facility will be for commercial use. In
1997, Vidler and its consultants began the process of assembling data for
submittal to the Arizona Department of Water Resources to obtain a pilot permit.
The pilot permit was obtained in July 1998. Construction of the pilot facility
was completed in October 1998 and the recharge of water was begun at that time.
One test was conducted at the pilot facility during the late fall of 1998 to
determine the most cost efficient method to recharge water and to collect
general data regarding the hydrogeology of the site. Information from this test
was compiled and submitted in November 1999 to the Arizona Department of Water
Resources as part of Vidler Water Company's full-scale permit process. A second
test was conducted during the fall of 1999 to obtain additional information
regarding the subsurface movement of recharged water.
The permit for the full-scale facility was submitted in November 1999 and
when approved would give Vidler the right to recharge and store 100,000
acre-feet of water per year. Vidler anticipates receiving approval on its
full-scale permit from the Arizona Department of Water Resources during the
second quarter of 2000. Following receipt of the permit, construction of the
full-scale facility will begin. Construction is expected to take approximately 6
months.
To this point, only the pilot facility has been permitted and constructed,
and therefore Vidler has not attempted to store water at commercial levels.
Once permitted and constructed, Vidler's full-scale recharge facility is
anticipated to have the capacity to recharge 100,000 acre-feet per year and
store in excess of 1 million acre-feet of water in the aquifer underlying
Harquahala Valley.
Vidler estimated the aquifer's storage volume primarily from a
hydrogeological report prepared in 1990 for the Central Arizona Water
Conservation District by an independent engineering firm . The report concludes
that there is storage capacity of 3.7 million acre-feet which is in excess of
the 1 million acre-feet indicated by Vidler.
Vidler will have the right to recover the quantity of water it recharged to
the subsurface under both the pilot permit and the submitted full-scale permit.
Having water already stored in the aquifer makes recovery of water easier.
Vidler is not required to recover the same molecules of water that it stored,
only the same quantity of water molecules whether or not they were stored in the
aquifer by Vidler.
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<PAGE> 14
Recharge/recovery capacity is significant because it indicates how fast
water can be stored underground or pumped from the underground. In wet years, it
is important to have a high recharge capacity so that as much available water as
possible may be stored. In dry years, the critical factor is the ability to
recover water as quickly as possible.
In November 1998 Vidler Water Company, Inc. reached an agreement with the
Semitropic Water Storage District to acquire 185,000 acre-feet of underground
water storage and associated rights to recharge and recover water at Semitropic
Water Storage District located near the California Aqueduct northwest of
Bakersfield, California. The strategic location of Semitropic Water Storage
District relative to other water delivery systems and storage facilities will
enable Vidler Water Company, Inc. to complete exchanges and water transfers in
California.
NEVADA LAND AND RESOURCE COMPANY, LLC
On April 23, 1997, we, along with Global Equity Corporation, acquired a
100% membership interest in Nevada Land and Resource Company, LLC. The total
purchase price for Nevada Land and Resource Company, LLC was $48.6 million.
Nevada Land and Resource Company, LLC's principal asset consists of
approximately 1.3 million acres of deeded land located in northern Nevada,
together with appurtenant water and mineral rights. Nevada Land and Resource
Company, LLC is actively engaged in maximizing the property's value in relation
to water rights, mineral rights and land sales, exchanges and development.
Nevada Land and Resource Company, LLC is the largest private landowner in the
state. Nevada Land and Resource Company, LLC anticipates that revenues will be
generated from the asset by land sales, exchanges and development and
exploration of mineral and water rights. Nevada Land and Resource Company, LLC's
mineral exploration strategy is to identify potential gold discoveries (or other
high unit resources), develop them to the point where a meaningful data set can
be established and then to vend the properties to advanced stage exploration or
production companies.
CITATION INSURANCE COMPANY
Citation Insurance Company is a California-domiciled insurance company
licensed to write property and casualty insurance in Arizona, California,
Colorado, Nevada, Hawaii, New Mexico and Utah. Citation Insurance Company
primarily writes commercial property and casualty insurance. Citation Insurance
Company has also written Workers Compensation insurance; however, Citation
Insurance Company sold that line of business through a transfer to and sale of
its wholly-owned subsidiary, Citation National Insurance Company, effective June
30, 1997. Citation National Insurance Company wrote no new business in 1997
prior to its sale.
SEQUOIA INSURANCE COMPANY
Sequoia Insurance Company is a California-domiciled insurance company
licensed to write insurance coverage for property and casualty risks within the
State of California and Nevada. Sequoia Insurance Company writes business
through independent agents and brokers covering risks located primarily within
northern and central California and Nevada. 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 Insurance Company has transitioned from writing primarily personal lines
of business (automobile, homeowners, etc.) to commercial lines.
PHYSICIANS INSURANCE COMPANY OF OHIO
Physicians Insurance Company of Ohio, 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 investment operations, property and casualty insurance, the wind down of
the settlement of insurance claims liabilities arising from Physicians'
terminated medical professional liability insurance business (the "runoff"), and
other. Through December 4, 1998, an indirect subsidiary of Physicians Insurance
Company of Ohio, American Physicians Life Insurance Company, engaged in life and
health insurance. Physicians Insurance Company of Ohio has been licensed as a
property and casualty insurer by the Ohio Department of Insurance since 1976 and
is also licensed by the Kentucky Department of Insurance. During 1995, there was
another overall shift in the strategic
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<PAGE> 15
direction of Physicians Insurance Company of Ohio when it sold its existing
medical professional liability insurance business. Physicians Insurance Company
of Ohio continues to administer and adjust its remaining claims and loss
adjustment expense reserves. Based upon careful analysis of various alternative
scenarios for handling the runoff of the remaining claims reserves, management
determined that the best option was to process the existing claims internally
with existing staff, rather than through a third party administrator or through
an outright sale of the claims and loss adjustment expense reserves. In
addition, although there can be no assurance, it is expected that shareholders'
equity may be better served by retaining the investments necessary to fund the
payment of these claims and loss adjustment expense reserves, managing them
along with the rest of the Company's investment holdings, as opposed to selling
or fully reinsuring these reserves and giving up the corresponding funds.
PHYSICIANS INVESTMENT COMPANY
Physicians Investment Company is a holding company that owned 100% of
American Physicians Life Insurance Company prior to its sale on December 4,
1998. The Company entered into an agreement to sell American Physicians Life
Insurance Company and their wholly-owned subsidiary, Living Benefit
Administrators Agency, Inc. On June 16, 1997, American Physicians Life Insurance
Company offered critical illness insurance through "Survivor Key" policies as
well as other life and health insurance products. Physicians Insurance Company
of Ohio owns approximately 65.1% of Physicians Investment Company. Sequoia
Insurance Company and Citation Insurance Company own approximately 9.1% and
25.8%, respectively.
THE PROFESSIONALS INSURANCE COMPANY
The Professional Insurance Company 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. The Professional
Insurance Company primarily offered medical professional liability insurance to
doctors, dentists and other medical professionals in Ohio until the sale of its
medical professional liability business in 1995.
SUMMIT GLOBAL MANAGEMENT
Summit Global Management is a Securities and Exchange Commission registered
investment advisor that offers investment management services in a number of
states including California, Florida, Kansas, Iowa, Louisiana, Oregon, Virginia
and Wisconsin. Summit provides investment management services to us. Summit
Global Management also offers its services to other individuals and institutions
in the jurisdictions in which it is registered as an investment adviser and in
other states where registration is not required. As a registered investment
adviser, Summit Global Management is subject to regulation by, and files annual
reports with, the Commission and the securities administrators in some of the
jurisdictions in which it is registered to do business.
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 325,717
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C>
Protective Insurance Company 150,000
PSCO Partners Limited Partnership 100,000
Capital Indemnity Corporation 70,000
Pacific Pioneer Insurance Company 8,000
James R. Winn 6,000
Neal Kay 5,000
Marvin D. Gill 3,800
Ernest & Co. 2,000
John A. Lawler 2,000
-------
Total 672,517
=======
</TABLE>
Each of the selling shareholders represented 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, we have filed with the
Commission a registration statement, with respect to the resale of the shares
from time to time and we have 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 by the selling shareholders.
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<PAGE> 17
PLAN OF DISTRIBUTION
We have 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 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.
We have not received any part of the proceeds of any sales of shares
pursuant to this prospectus. We 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.
USE OF PROCEEDS
We 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 of PICO Holdings, Inc. for the two
years ended December 31, 1997 and 1998, and for each of the two years in the
year ended December 31, 1998 incorporated in this prospectus from our annual
report on Form 10-K/A for the year ended December 31, 1998 and financial
statement schedules have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the restatement disclosed in Note
22), 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 for the year ended December 31, 1996, incorporated by
reference herein and included in our annual report on Form 10-K/A for the year
ended December 31, 1998, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their reports dated April 7, 1997,
except as to the information presented in Note 22 to the consolidated financial
statements, for which the date is January 26, 2000 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
restatement disclosed in Note 22), accompanying such financial statements and
financial statement schedules. The financial statements and financial statement
schedules 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 report on Form 10-K of PICO Holdings, Inc. have been
audited by KPMG LLP, chartered accountants, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 18
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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...............11
Risk Factors.......................................2
The Company.......................................12
Selling Shareholders..............................15
Plan of Distribution..............................17
Use of Proceeds...................................17
Legal Matters.....................................17
Experts...........................................17
</TABLE>
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672,517 SHARES
COMMON STOCK
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PROSPECTUS
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FEBRUARY 2, 2000
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