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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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Commission file number 1-11422
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PennCorp Financial Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3543540
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
745 Fifth Avenue, New York, New York 10151
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 832-0700
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Former Name, Former Address and Former Fiscal Year,
If Changes Since Last Report
Indicate by check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
---- ----
Indicate the number of shares outstanding of each of the Issuer's
common stock, as of the latest practicable date.
Class August 12, 1996
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Common Stock, $.01 Par Value 28,401,334
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income -
Three-Month and Six-Month Periods Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Six-Month Period Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Condensed Financial Statements . . . . . . . . . . . . 6
Review by Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . 10
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
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PART I. -- FINANCIAL INFORMATION
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
(UNAUDITED)
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JUNE 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
Held for investment, at amortized cost (market $38,122 and $51,354) $ 38,371 $ 51,366
Available for sale, at market (cost $1,754,552 and $1,649,533) 1,756,966 1,486,985
Equity securities available for sale, at market (cost $14,131 and $14,202) 16,263 15,172
Trading securities, at market 32,406 86,104
Mortgage loans on real estate 20,267 36,563
Policy loans 125,010 125,179
Short term investments 141,451 416,953
Other investments 55,084 43,937
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Total investments 2,185,818 2,262,259
Cash 18,742 27,778
Accrued investment income 31,790 30,992
Accounts and notes receivable 40,770 34,842
Investments in unconsolidated affiliates 110,428 119,390
Present value of insurance in force 314,245 288,664
Deferred policy acquisition costs 224,701 193,903
Costs in excess of net assets acquired 122,077 121,795
Other assets 79,747 70,383
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Total assets $ 3,128,318 $ 3,150,006
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities $ 2,190,674 $ 2,229,047
Notes payable 174,209 307,271
Income taxes, primarily deferred 18,132 24,977
Other liabilities 92,698 92,198
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Total liabilities 2,475,713 2,653,493
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Mandatory redeemable preferred stock:
Series B, $.01 par value, $100 redemption value; authorized, issued and
outstanding 127,500 shares at June 30, 1996 and December 31, 1995 13,980 13,307
Series C, $.01 par value, $100 redemption value; authorized, issued and
outstanding 178,500 shares at June 30, 1996 and December 31, 1995, 17,545 16,700
respectively.
Shareholders' Equity:
Convertible preferred stock, $.01 par value, $50 redemption value;
authorized issued and outstanding 2,300,000 at June 30, 1996 and
December 31, 1995, respectively. 110,513 110,513
Common stock, $.01 par value; authorized 50,000,000 shares; issued
and outstanding 28,093,245 shares at June 30, 1996 and 22,879,708 at
December 31, 1995 281 229
Treasury stock (3,370) (3,370)
Other shareholders' equity 513,656 359,134
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Total shareholders' equity 621,080 466,506
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Total liabilities and shareholders' equity $ 3,128,318 $ 3,150,006
=============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
3
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
Premiums, principally accident and sickness $ 62,759 $ 57,307 $ 127,180 $ 118,063
Interest sensitive product policy charges 22,675 10,419 45,344 21,568
Net investment income 43,081 15,576 84,415 31,192
Other income 4,954 5,366 9,235 6,980
Net gains (losses) from sale of investments 3,955 62 3,428 (379)
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Total revenues 137,424 88,730 269,602 177,424
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BENEFITS AND EXPENSES:
Claims incurred 45,355 29,674 89,681 61,746
Change in liability for future policy benefits and
other policy benefits 10,251 (83) 21,741 2,646
Amortization of present value of insurance in force
and deferred policy acquisition costs 13,405 10,048 28,264 19,468
Amortization of costs in excess of net assets
acquired 1,650 1,448 3,680 2,875
Underwriting and other administrative expenses 24,237 20,342 47,869 39,785
Interest and related debt costs 4,321 4,403 10,378 10,006
--------- ---------- ----------- ----------
Total benefits and expenses 99,219 65,832 201,613 136,526
--------- ---------- ----------- ----------
Income before income taxes and
extraordinary charge 38,205 22,898 67,989 40,898
Income taxes 12,288 7,876 21,918 13,910
--------- ---------- ----------- ----------
Income before extraordinary charge 25,917 15,022 46,071 26,988
Extraordinary charge, net of tax benefit -- -- (816) --
--------- ---------- ----------- ----------
Net income 25,917 15,022 45,255 26,988
Preferred stock dividend requirements 2,709 859 5,400 1,725
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Net income available to common shareholders $ 23,208 $ 14,163 $ 39,855 $ 25,263
========= ========== =========== ==========
Net income per share:
Primary:
Income before extraordinary charge $ 0.80 $ 0.60 $ 1.49 $ 1.14
Extraordinary charge -- -- (0.03) --
--------- ---------- ----------- ----------
Net income $ 0.80 $ 0.60 $ 1.46 $ 1.14
========= ========== =========== ==========
Fully diluted:
Income before extraordinary charge $ 0.73 $ 1.37
Extraordinary charge -- (0.03)
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Net income $ 0.73 $ 1.34
earnings per share ========= ===========
Common shares used in computing primary earnings 29,139 23,721 27,301 22,071
per share ========= ========== =========== ==========
Common shares used in computing fully diluted 34,256 32,419
earnings per share ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
4
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1996 1995
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Net cash flows from operating activities $ 31,936 $ (12,732)
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Cash flows from investing activities:
Purchases of invested assets (665,393) (57,764)
Sales of invested assets 369,328 56,153
Maturities of invested assets 45,515 12,941
Other, primarily short term investments, net 262,413 (22,391)
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Net cash used by investing activities 11,863 (11,061)
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Cash flows from financing activities:
Issuance of common stock 155,759 50,781
Additional borrowings 20,000 1,500
Reduction in notes payable (157,000) (32,000)
Dividends on preferred stock (6,634) (1,464)
Receipts from interest sensitive policies credited to policyholder account
balances 51,695 32,105
Return of policyholder account balances on interest sensitive products (117,352) (20,916)
Other, net 697 (420)
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Net cash provided by financing activities (52,835) 29,586
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Increase (decrease) in cash (9,036) 5,793
Cash at beginning of period 27,778 13,037
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Cash at end of period $ 18,742 $ 18,830
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Supplemental disclosures:
Income taxes paid $ 3,183 $ 4,522
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Interest paid $ 9,418 $ 10,640
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</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
5
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Business and Organization
PennCorp Financial Group, Inc. (the "Company") is an insurance holding
company. The Company commenced operations with the acquisition of Pennsylvania
Life Insurance Company ("PLIC") and Executive Fund Life Insurance ("EFLIC")
(PLIC and EFLIC collectively referred to herein as "Penn Life") and Pacific
Life and Accident Insurance Company ("PLAIC") on August 23, 1990. Through its
wholly-owned life insurance subsidiaries, PLIC, EFLIC, Peninsular Life
Insurance Company ("Peninsular"), Professional Insurance Corporation
("Professional"), Pioneer Security Life Insurance Company ("Pioneer Security")
and its wholly-owned subsidiaries American-Amicable Life Insurance Company of
Texas and Pioneer American Insurance Company (Pioneer Security and its
subsidiaries collectively referred to herein as "AATX"), Salem Life Insurance
Corporation ("SLIC") and its wholly-owned subsidiaries Integon Life Insurance
Corporation ("ILIC"), Georgia International Life Insurance Company and
Occidental Life Insurance Company of North Carolina ("OLIC"), (SLIC and its
wholly-owned subsidiaries collectively referred to herein as "Integon Life")
and PLAIC, the Company offers a broad range of life insurance and accident and
sickness products to individuals through general agents and through a sales
force that is contractually exclusive to certain of the Company's subsidiaries.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. All dollar amounts
presented hereafter, except per share information, are stated in thousands.
(B) Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period.
Accounts that the Company deems to be acutely sensitive to changes in estimates
include deferred policy acquisition costs, future policy benefits, policy and
contract claims and present value of insurance in force. In addition, the
Company must determine requirements for disclosure of contingent assets and
liabilities as of the date of the financial statements based upon estimates. In
all instances, actual results could differ from these estimates.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, none of which are other
than normal recurring accruals, necessary to present fairly the financial
position as of June 30, 1996, and the results of operations and cash flows for
the six-month periods ended June 30, 1996, and 1995. Results of operations for
interim periods are not necessarily indicative of results for the entire year.
(2) COMMON STOCK
On March 5, 1996, the Company consummated the sale of 5,131,300 shares
of common stock ("the March offering"). Net proceeds from the offering were
$155,759 and the effect on the Company's financial position was to increase
common stock by $51 and additional paid in capital by $155,708.
6
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(3) EXTRAORDINARY CHARGE
The Company utilized $137,000 of proceeds from the March offering to
retire certain indebtedness of the Company and its subsidiaries. As a result of
the early retirement of such indebtedness and the resulting write-off of
deferred financing costs, the Company realized an after-tax extraordinary
charge of $816 for the six-month period ended June 30, 1996. If the retirement
of debt and issuance of common stock had occurred at the beginning of the
period, primary earnings per share would have decreased $0.03 and fully
diluted earnings per share would have decreased $0.02.
(4) KNIGHTSBRIDGE
In early 1995, with the authorization of the Company's Board of
Directors, David J. Stone, Chairman of the Board and CEO and Steven W. Fickes,
President and CFO of the Company, organized Knightsbridge Capital Fund I, L.P.
("the Knightsbridge Fund") to raise capital to make equity and equity-linked
investments in companies engaged primarily in the life insurance industry.
Following its creation, the Knightsbridge Fund received subscriptions for
$92,000 in limited partnership interests, including a $15,000 subscription by
the Company. The limited partners of the Knightsbridge Fund also include
affiliates of 10 leading domestic and international banking organizations.
In early 1996, Messrs. Stone and Fickes began discussions with the
Board of Directors of the Company on a means of consolidating their outside
business interests, including the Knightsbridge Fund, under the Company.
Subsequently, Messrs. Stone and Fickes and the members of the Knightsbridge
Committee (a committee of the Board composed of the Company's non-employee
Directors formed to evaluate all transactions submitted to the Company by the
Knightsbridge Fund) and Compensation Committee of the Board of Directors
developed a plan to enable the Company to manage the Knightsbridge Fund and to
provide Messrs. Stone and Fickes with a compensation program that offers them
compensation opportunities with economic interests aligned with shareholders
generally and that provided incentives for each to make a long-term commitment
to the Company.
The Company has agreed to acquire Messrs. Stone's and Fickes'
interests in the Knightsbridge Fund and its manager, Knightsbridge Management,
L.L.C., for $10,000 (in the form of five year note of the Company that is
mandatorily convertible at maturity into 338,983 shares of the Company's common
stock). That transaction requires, among other things, receipt of a fairness
opinion from Smith Barney Inc. and stockholder approval.
In addition, in light of the proposed restructuring of the Company's
relationship with the Knightsbridge Fund, and as a result of the absence of the
timing pressures and structural constraints imposed by I.C.H. Corporation
(collectively, with certain of its subsidiaries, "ICH") in connection with the
acquisition of Southwestern Life Insurance Company ("SWLIC") and Union Bankers
Insurance Company ("UBIC") from ICH in December 1995 and the improvement in the
Company's leverage ratio as a result of its February 1996 Common Stock
offering, the Company intends to enter into negotiations to acquire the
outstanding minority interests in Southwestern Financial Corporation, the
entity formed by the Company and the Knightsbridge Fund to acquire SWLIC and
UBIC. There can be no assurance, however, that such negotiations will be
successful and, if successful, what the price, terms and conditions of such
acquisition will be.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
7
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(5) SOUTHWESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
Through its direct investment in Southwestern Financial Corporation
and Subsidiaries, the Company beneficially owns 74.8% of the economic interest
in Southwestern Financial Corporation and Subsidiaries'.
Financial information for the six-month period ended June 30, 1996 is
provided below (unaudited).
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996
------------
<S> <C>
ASSETS:
Invested assets $ 1,649,449
Insurance assets 310,285
Other assets 127,891
------------
Total assets $ 2,087,625
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Policy liabilities $ 1,723,260
Long-term debt 159,875
Other liabilities 63,217
Mandatory redeemable preferred stock 32,472
Shareholders' equity 108,801
------------
Total liabilities and shareholders' equity $ 2,087,625
============
</TABLE>
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
------------
<S> <C>
REVENUES:
Policy revenues $ 124,816
Net investment income 64,723
Net losses from sale of investments (9)
Other income 7,515
------------
Total revenues 197,045
------------
BENEFITS AND EXPENSES:
Policyholder benefits 128,389
Amortization 12,015
Other operating expenses 29,790
Interest expense 7,010
------------
Total benefits and expenses 177,204
------------
Income before income taxes 19,841
Income tax expense 7,254
------------
Net income 12,587
Preferred stock dividend requirements (1,347)
------------
Net income applicable to common shareholders $ 11,240
============
</TABLE>
8
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(6) SUBSEQUENT EVENTS
On July 24, 1996, the Company acquired United Companies Life Insurance
Company ("UC Life") from United Companies Financial Corporation ("UC
Financial"), (the "UC Life Acquisition"), for $167,600 (excluding estimated
expenses to be incurred of $10,000), consisting of $100,300 in cash paid by the
Company and a $10,000 cash dividend paid by, and certain real estate and other
assets distributed by, UC Life to UC Financial immediately prior to the closing
of the UC Life Acquisition.
In connection with the UC Life Acquisition, UC Financial purchased a
convertible note of the Company in the principal amount of $14,999 and
immediately converted the note into 483,837 shares of common stock. Immediately
following the UC Life Acquisition, the Company contributed $57,300 in cash to
UC Life, which represented the market value of the real estate and other assets
(but excluded the $10,000 cash dividend) distributed by UC Life to UC
Financial.
On August 5, 1996, the Company consummated the sale of 2,875,000
shares of its $3.50 Series II Convertible Preferred Stock (the "$3.50 Series II
offering"). Net proceeds from the offering were $139.0 million. Each share of
$3.50 Series II convertible preferred stock has a liquidation preference of
$50.00 and is convertible at the option of the holder after November 5, 1996
into 1.4327 shares of common stock. Net proceeds from the $3.50 Series II
offering were used to repay funds borrowed under the Company's revolving
credit facility to complete the UC Life Acquisition.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
9
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REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The June 30, 1996 and 1995 financial statements included in this filing
have been reviewed by KPMG Peat Marwick LLP, independent certified public
accountants, in accordance with established professional standards and
procedures for such a review.
The report of KPMG Peat Marwick LLP commenting upon their review is
included on page 11.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
10
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[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Review Report
The Board of Directors and Shareholders
PennCorp Financial Group, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of
PennCorp Financial Group, Inc. and subsidiaries as of June 30, 1996, the
consolidated statements of income for the three and six-month periods ended
June 30, 1996 and 1995, and the consolidated condensed statements of cash flows
for the six-month periods ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PennCorp Financial Group, Inc. as
of December 31, 1995 and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 5, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
financial information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 1995 is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
KPMG PEAT MARWICK LLP
August 9, 1996
Raleigh, North Carolina
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the comparable
discussion filed with the Company's annual filing with the Securities and
Exchange Commission on Form 10-K for the fiscal year ended December 31, 1995
and the Company's 1995 Annual Report to Shareholders.
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and related notes of this Quarterly
Report on Form 10-Q.
Cautionary Statement for purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. The statements below that
relate to future plans, events or performances are forward-looking statements
that involve a number of risks or uncertainties. Among those items that could
adversely affect the Company's financial condition, results of operations and
cash flows are the following: changes in regulations affecting insurance
companies, interest rates, the federal income tax code (to the extent the
Company's product mix includes tax deferred accumulation products), the ratings
assigned to the Company's insurance subsidiaries by independent rating
organizations such as A.M. Best (which the Company believes are particularly
important to the sale of annuity and other accumulation products) and
unanticipated litigation. There can be no assurance that other factors not
currently anticipated by management will not also materially and adversely
affect the Company's results of operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, cash provided by operations
was $31.9 million compared to cash used by operations of $12.7 million for the
six-month period ended June 30, 1995. Integon Life provided $42.5 million in
1996, consisting primarily of investment income. Excluding Integon Life for the
six month period of 1996, cash flow from operations improved by $2.1 million
when compared to the six month period ended June 30, 1995. This improvement was
due primarily to lower interest payments in 1996 of $8.9 million compared to
$10.6 million of interest payments during the first six months of 1995. Claim
payments were $8.5 million higher during the first six months of 1996 which was
offset by $2.9 million of additional collected premium and $6.0 million of
additional investment income.
RESULTS OF OPERATIONS
Policy Revenue. Total policy revenue for the six months ended June 30,
1996 increased 23.6% to $172.5 million from $139.6 million for the comparable
period ended June 30, 1995. Life product revenue increased $37.3 million while
fixed benefit accident and sickness product revenue declined by $4.4 million to
$85.9 million. The significant increase in revenue from life products was due
primarily to the inclusion of $34.8 million in revenue from Integon Life,
excluding OLIC. The decline in policy revenue from accident and sickness
products was primarily attributable to the Company's decision during 1995 to
discontinue new business production of certain disability income products. In
addition, policy revenue from Penn Life and OLIC closed blocks of business
declined approximately $800,000 for the six-month period ended June 30, 1996
when compared to 1995 while policy revenue from foreign operations (primarily
Canada) increased 10.5% or approximately $2.0 million. Policy revenue expressed
in Canadian dollars increased 8.8% or $2.3 million (Canadian). The higher
growth rate in foreign operations revenues reported in U.S. dollars resulted
from the strengthening of the Canadian dollar which advanced against the U.S.
dollar by approximately 1.6 percent.
For the three-month period ended June 30, 1996 total policy revenue
increased 26.2% to $85.4 million from $67.7 million for the comparable
three-month period ended June 30, 1995. The $17.7 million increase included
$17.2 million of additional life product policy revenue from Integon Life,
excluding OLIC. The remainder of the growth in policy revenue was derived from
increased life sales of approximately $2.8 million offset by a decline in fixed
benefit revenue of $2.3 million.
12
<PAGE> 13
Net Investment Income. Net investment income for the six months ended
June 30, 1996 was $84.4 million compared to $31.2 million for the six months
ended June 30, 1995. Of the $53.2 million increase in investment income, $51.6
million of the increase was attributable to the addition of Integon Life,
excluding OLIC. The remainder of the increase was due to a slightly larger
invested asset base and an improvement in the mix of invested assets toward
higher yielding assets. Investment yield based upon weighted average amount of
invested assets outstanding each period, was approximately 7.6% and 7.3% for the
six-month periods ended June 30, 1996 and 1995, respectively.
Investment income for the three-month period ending June 30, 1996
increased substantially to $43.1 million from $15.6 million for the comparable
period in 1995. Substantially all the increase was attributable to Integon with
weighted average yields, excluding Integon Life, remaining level at 7.3% for
both periods.
Other Income. Included in other income for the six- and three-month
periods, ended June 30, 1996, is income resulting from the Company's 74.8%
equity in the undistributed earnings of Southwestern Financial Corporation of
$8.4 million and $4.1 million, respectively (see Note 5 of Notes to
Consolidated Condensed Financial Statements). For the six- and three-month
periods ended June 30, 1995 included in other income is from the Company's 49%
equity in undistributed earnings of Integon Life, excluding OLIC of $3.2
million and $1.5 million, respectively.
In conjunction with the Company's acquisition and investment activities,
management is regularly presented with investment opportunities to invest in
substantially undervalued securities in corporations which will likely
undertake some form of restructuring. In 1995, the Company established a
trading security account for such investments. Included in other income for the
six- and three-month periods ended June 30, 1996, are gains and (losses) of
($219,000) and $295,000 resulting from such activities, compared to $3.1
million of gains for the six- and three-month periods ended June 30, 1995,
respectively.
Claims Incurred. Claims incurred for the six months ended June 30, 1996
increased 45.2% to $89.7 million from $61.7 million for the six-month period
ended June 30, 1995. The increase in claims incurred is attributable to $30.0
million of claims from Integon Life, excluding OLIC offset by a $1.2 decline in
claims incurred from discontinued blocks of Penn Life business.
For the three-month period ended June 30, 1996, claims incurred increased
52.8% to $45.4 million from $29.7 million for the comparable period in 1995.
Of the $15.7 million increase, $15.0 million is attributable to Integon Life,
excluding OLIC. The remainder of the increase is primarily attributable to
higher accident and sickness related claims for Professional offset by declines
in closed blocks of business claim costs.
Underwriting and Other Administrative Expenses. For the six-month period
ended June 30, 1996, underwriting and other administrative expenses increased
20.3% to $47.9 million from $39.8 million for the six months ended June 30,
1995. The increase is primarily attributable to the inclusion of $6.1 million
of expenses from Integon Life, excluding OLIC combined with expenses incurred
with the outsourcing of certain data process in services to The Continuum
Company ("TCC"). The Company entered an agreement with TCC on January 1, 1996
in which TCC will assume responsibility for a substantial portion of the
Company's data processing by March 1997. The Company anticipates that, in the
long term, this agreement will significantly reduce its data processing costs.
During the six-month period ended June 30, 1996, the Company incurred expenses
of $2.0 million related to the TCC agreement.
Underwriting and other administrative expenses increased by $3.9 million
to $24.2 million for the three-month period ended June 30, 1996 when compared
to $20.3 million for the same period of 1995. Approximately $4.2 million was
attributable to Integon Life, excluding OLIC and $1.0 million of additional
expense was resulted from the TCC contract. Offsetting these increases was a
$1.3 million decrease primarily attributable to lower non-deferrable commission
costs at Penn Life.
Interest and Related Debt Costs. For the six-month period ended June 30,
1996, interest and amortization of deferred debt issuance costs increased to
$10.4 million from $10.0 million for the comparable 1995 period. This increase
was the result of the Company's investment in Southwestern Financial
Corporation which added interest costs of $1.7 million. Offsetting the increase
was a $1.3 million decrease in interest costs relating to the Company's
previously outstanding line of credit. The effective interest rates on the
Company's $150 million Senior Subordinated Notes, for the six-month periods
ending June 30, 1996 and 1995, were unchanged at 9.5 percent. Total interest
expense, however, decreased $100,000 for the 1996 three-month period reflecting
a $1.0 million decline of interest expense related to the AATX credit facility.
Income Taxes. The effective tax rate for the six- and three-month periods
ended June 30, 1996 was approximately 33% compared to 34% for the six months
ended June 30, 1995 and 34% for the three months ended June 30, 1995. The
effective tax rates for the current periods are less than the effective tax
rates for the prior periods because of the inclusion in 1996 of undistributed
earnings of an unconsolidated affiliates that are not subject to tax.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various pending or threatened legal actions
arising in the ordinary course of business. Although the outcome of such
actions is not presently determinable, management does not believe that such
matters, individually or in the aggregate, would have a material adverse affect
on the Company's financial position or results of operations if resolved
against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Numbers
-------
<S> <C>
10.1 Form of Registration Rights Agreement relating to up to 2,875,000 shares of $3.50 Series II
Convertible Preferred Securities by and among PennCorp Financial Group, Inc. and Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated as of August 2, 1996.
11.1 Computation of earning per share
15.1 Independent Auditor's Report*
27 Financial Data Schedule
</TABLE>
- ---------------------
* Such exhibit is incorporated by reference to page 11 of this Form 10-Q.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30,
1996.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PennCorp Financial Group, Inc.
---------------------------------------
(The Registrant)
Date: August 14, 1996 By:/s/Steven W. Fickes
------------------------------------
Steven W. Fickes
President and Chief Financial
Officer (Authorized officer and
principal accounting and financial
officer of the Registrant)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Numbers
- -------
<S> <C>
10.1 Form of Registration Rights Agreement relating to up to 2,875,000 shares of $3.50 Series II
Convertible Preferred Securities by and among PennCorp Financial Group, Inc. and Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated as of August 2, 1996.
11.1 Computations of earnings per share
15.1 Independent Auditor's Report *
27 Financial Data Schedule
</TABLE>
* Such exhibit is incorporated by reference to page 11 of this
Form 10-Q
16
<PAGE> 1
EXHIBIT 10.1
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 2, 1996
relating to up to
2,875,000 shares of $ 3.50 Series II
Convertible Preferred Securities
by and among
PennCorp Financial Group, Inc.
and
Smith Barney Inc.,
Donaldson, Lufkin & Jenrette
Securities Corporation
and
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
================================================================================
<PAGE> 2
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 2, 1996 by and between PennCorp Financial Group,
Inc., a Delaware corporation (the "Company"), and Smith Barney Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and (the "Initial Purchasers"), who will purchase 2,500,000
shares (the "Firm Shares") of $3.50 Series II Convertible Preferred Securities
with a liquidation preference of $50.00 per shares (the "Preferred Stock") of
the Company pursuant to the Purchase Agreement dated August 2, 1996 (the
"Purchase Agreement") between the Company and the Initial Purchasers. The
Initial Purchasers may also purchase, upon the terms and conditions set forth
in the Purchase Agreement, up to an additional 375,000 shares (the "Additional
Shares") of Preferred Stock. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in the Purchase Agreement. All defined terms used but not
defined herein shall have the meanings ascribed to them in the Purchase
Agreement (as defined herein).
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Closing Date: The date on which the Shares are first sold by the
Company to the Initial Purchasers pursuant to the Purchase Agreement.
Commission: The Securities and Exchange Commission.
Common Stock: The Common Stock, par value $.01 per share, of the
Company.
Damages Payment Date: With respect to the Shares or the Common
Stock, as applicable, each Dividend Payment Date.
Dividend Payment Date: The record date for each dividend payment
with respect to the Shares or the Common Stock, as applicable, fixed by the
Board of Directors.
Effectiveness Date: The date on which the Shelf Registration
Statement is declared effective by the Commission under the Act.
Effectiveness Target Date: As defined in Section 4.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exempt Resales: Offers and sales of the Shares purchased by the
Purchasers pursuant to the Purchase Agreement on the terms and in the manner
set forth in the Offering Memorandum and Section 2 of the Underwriting
Agreement (i) to persons whom the Initial Purchasers reasonably believe to be
qualified institutional buyers as defined under Rule 144A under the Act, as
such rule may be amended from time to time ("Rule 144A"), in transactions under
Rule 144A, (ii) to a limited number of "accredited investors" (as defined in
Rule 501(a)(1), (2), (3), or (7) under the Act that are institutional investors
and (iii) to certain persons in offshore transactions in reliance upon
Regulation S under the Act.
Holders: As defined in Section 2(b) hereof.
<PAGE> 3
Latest Issuance Date: The latest date on which any of the Shares are
originally issued by the Company pursuant to the terms of the Purchase
Agreement.
NASD: The National Association of Securities Dealers, Inc.
Offering Memorandum: The Offering Memorandum, dated August 2, 1996,
and all supplements thereto, relating to the Shares and prepared by the Company
pursuant to the Purchase Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Preliminary Prospectus: As defined in Section 3(f).
Prospectus: The prospectus included in the Shelf Registration
Statement, as amended or supplemented by any Prospectus Supplement with respect
to the terms of the offering of any portion of the Transfer Restricted
Securities (as defined herein) covered by the Shelf Registration Statement and
by all other amendments and supplements to such prospectus, including any
prospectus included in any post-effective amendments to the Shelf Registration
Statement, and all material which may be incorporated by reference into such
prospectus.
Prospectus Supplement: As defined in Section 5(b).
Record Holder: (i) With respect to any Damages Payment Date relating
to the Shares constituting Transfer Restricted Securities, each Person who is
registered on the books of the Transfer Agent as the holder of Shares on the
record date with respect to the Dividend Payment Date on which such Damages
Payment Date shall occur and (ii) with respect to any Damages Payment Date
relating to the Common Stock constituting Transfer Restricted Securities, each
Person who is a holder of record of such Common Stock on the record date with
respect to the Dividend Payment Date on which such Damages Payment Date shall
occur.
Registration Expenses: As defined in Section 6(a).
Shares: The Firm Shares and the Additional Shares, collectively.
Shelf Registration Statement: As defined in Section 3(a) hereof.
Suspension Period: As defined in Section 3(a).
Transfer Restricted Securities: Each Share and share of Common Stock
of the Company issuable upon conversion of a Share, until each such Share or
share (i) has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement covering it, (ii) is
distributed to the public pursuant to Rule 144 or (iii) sold or transferred
pursuant to Rule 144(k) (or any similar provisions then in force) under the
Securities Act or otherwise.
Underwriter: Any underwriter, placement agent, selling broker,
dealer manager, qualified independent underwriter or similar securities
industry professional.
Underwritten Registration or Underwritten Offering: An offering in
which securities of the Company are sold to an Underwriter or with the
assistance of such Underwriter for reoffering to the public on a firm
commitment basis.
2
<PAGE> 4
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person owns Transfer Restricted Securities.
SECTION 3. SHELF REGISTRATION
(a) The Company shall cause to be filed with the Commission on or
prior to 60 days after the Closing Date, a shelf registration statement
pursuant to Rule 415 under the Act (as may then be amended) (the "Shelf
Registration Statement") on Form S-1 or Form S-3, if the use of such form is
then available and as determined by the Company, to cover resales of Transfer
Restricted Securities by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Holders of such Transfer Restricted Securities
shall have provided the representations required pursuant to Section 3(f)
hereof. The Company shall use its commercially reasonable efforts to cause
such Shelf Registration Statement to be declared effective by the Commission on
or prior to 150 days after the Closing Date. The Company shall use its
commercially reasonable efforts to keep such Shelf Registration Statement
continuously effective for a period ending three years from the effective date
thereof or such shorter period that will terminate when each of the Transfer
Restricted Securities covered by the Shelf Registration Statement shall cease
to be a Transfer Restricted Security. The Company further agrees to use its
commercially reasonable efforts to cause the Shelf Registration Statement to be
effective and usable for resale of the Transfer Restricted Securities during
the period that such Shelf Registration Statement is required to be effective
and usable.
Subject to the immediately following paragraph, upon the occurrence
of any event that would cause the Shelf Registration Statement (i) to contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made or (ii) to
be not effective and usable for resale of Transfer Restricted Securities during
the period that such Shelf Registration Statement is required to be effective
and usable, the Company shall as promptly as practicable file an amendment to
the Shelf Registration Statement, in the case of clause (i), correcting any
such misstatement or omission, and in the case of either clause (i) or (ii),
use its commercially reasonable efforts to cause such amendment to be declared
effective and such Shelf Registration Statement to become usable as soon as
practicable thereafter.
Notwithstanding anything to the contrary in this Section 3, subject
to compliance with Sections 4 and 5(b), if applicable, the Company may prohibit
offers and sales of Transfer Restricted Securities pursuant to the Shelf
Registration Statement at any time if (A) (i) it is in possession of material
non-public information, (ii) the Board of Directors of the Company determines
(based on advice of counsel) that such prohibition is necessary in order to
avoid a requirement to disclose such material non-public information and (iii)
the Board of Directors of the Company determines in good faith that disclosure
of such material non-public information would not be in the best interests of
the Company and its shareholders or (B) the Company has made a public
announcement relating to an acquisition or business combination transaction
including the Company and/or one or more of its subsidiaries (i) that is
material to the Company and its subsidiaries taken as a whole and (ii) the
Board of Directors of the Company determines in good faith that offers and
sales of Transfer Restricted Securities pursuant to the Shelf Registration
Statement prior to the consummation of such transaction (or such earlier date
as the Board of Directors shall determine) is not in the best interests of the
Company and its shareholders or that it would be impracticable at the time to
obtain any financial statements relating to such acquisition or business
3
<PAGE> 5
combination transaction that would be required to be set forth in the Shelf
Registration Statement (the period during which any such prohibition of offers
and sales of Transfer Restricted Securities pursuant to the Shelf Registration
Statement is in effect pursuant to clause (A) or (B) of this subparagraph (a)
is referred to herein as a "Suspension Period"). A Suspension Period shall
commence on and include the date on which the Company provides written notice
to Holders of Transfer Restricted Securities covered by the Shelf Registration
Statement that offers and sales of Transfer Restricted Securities cannot be
made thereunder in accordance with this Section 3 and shall end on the date on
which each Holder of Transfer Restricted Securities covered by the Shelf
Registration Statement either receives copies of a Prospectus Supplement
contemplated by Section 5(b) or is advised in writing by the Company that
offers and sales of Transfer Restricted Securities pursuant to the Shelf
Registration Statement and use of the Prospectus may be resumed; provided,
however, that the Suspension Period shall in no event be longer than 60 days in
the aggregate in any of the one-year periods ending on the first, second or
third anniversaries of the Closing Date, or longer than 30 days in the
aggregate in any calendar quarter within any one-year period.
(b) None of the Company nor any of its security holders (other than
the Holders of Transfer Restricted Securities in such capacity and other
shareholders having registration rights permitting them to participate therein,
as disclosed in the Offering Memorandum) shall have the right to include any of
the Company's securities in the Shelf Registration Statement.
(c) If the Holders of a majority of the Transfer Restricted
Securities outstanding as of the Closing Date so elect (with holders of Common
Stock constituting Transfer Restricted Securities being deemed to be Holders of
the number of Shares converted by them into such Common Stock for purposes of
such calculation), an offering of Transfer Restricted Securities pursuant to
the Shelf Registration Statement may be effected in the form of an Underwritten
Offering; provided, however, that notwithstanding anything contained in this
Agreement to the contrary, the Company shall not be required to undertake more
than one such Underwritten Offering during any consecutive 12-month period.
The Holders of the Transfer Restricted Securities to be registered shall pay
all underwriting discounts and commissions of such Underwriters and the fees
and expenses of any counsel for the Holders.
(d) If any of the Transfer Restricted Securities covered by the
Shelf Registration Statement are to be sold in an Underwritten Offering, the
Underwriter(s) that will administer the offering will be selected by the
Company and shall be a nationally recognized investment bank(s) reasonably
satisfactory to the Holders of a majority of the outstanding Transfer
Restricted Securities (with holders of Common Stock constituting Transfer
Restricted Securities being deemed to be Holders of the number of Shares
converted by them into such Common Stock for purposes of such calculation);
provided, however, that such Underwriter(s) shall be reasonably satisfactory to
the Company.
(e) No Holder of Transfer Restricted Securities may include any of
its Transfer Restricted Securities in any Shelf Registration Statement pursuant
to this Agreement unless such Holder furnishes to the Company in writing,
within 10 business days after receipt of a request therefor, such information
as the Company may reasonably request for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus (a "Preliminary
Prospectus") included therein, including the identity of the beneficial owner
for whom any Holder may be acting as nominee.
SECTION 4. LIQUIDATED DAMAGES
(a) If (i) the Shelf Registration Statement is not filed with the
Commission on or prior to 60 days after the Closing Date, (ii) the Shelf
Registration Statement has not been declared effective by the Commission within
150 days after the Closing Date (the "Effectiveness Target Date"), or (iii) the
Shelf Registration Statement is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) or usable for
resale for a period of time (including any Suspension Period) which shall
exceed 60 days in the
4
<PAGE> 6
aggregate in any of the one-year periods ending on the first, second or third
anniversaries of the Closing Date, or which shall exceed 30 days in the
aggregate in any calendar quarter within any of such one-year periods (each
such event referred to in clauses (i) through (iii), a "Registration Default"),
the Company will pay liquidated damages to each Holder of Transfer Restricted
Securities who has complied with such Holder's obligations under this
Agreement. The amount of liquidated damages payable during any period during
which a Registration Default shall have occurred and be continuing is that
amount which is equal to $0.05 per week per $1,000.00 in liquidation preference
of Preferred Stock, or $0.05 per week per 28.6533 shares of Common Stock
(subject to adjustment in the event of stock splits, stock recombinations,
stock dividends and the like) constituting Transfer Restricted Securities, for
each 90 day period or part thereof until the applicable registration statement
covering such Transfer Restricted Securities is filed and the applicable
registration statement is declared effective, or the Shelf Registration
Statement again becomes effective or usable, as the case may be, up to a
maximum amount of liquidated damages of $0.50 per week per $1,000.00 in
liquidation preference of Preferred Stock or $0.50 per week per 28.6533 shares
of Common Stock (subject to adjustment as set forth above) constituting
Transfer Restricted Securities. All accrued liquidated damages shall be paid
to Record Holders by wire transfer of immediately available funds or by federal
funds check by the Company on the next succeeding Damages Payment Date.
Following the cure of a Registration Default, liquidated damages will cease to
accrue with respect to such Registration Default.
All of the Company's obligations set forth in the preceding paragraph
which are outstanding with respect to any Transfer Restricted Security shall
cease at the time such security ceases to be a Transfer Restricted Security.
The parties hereto agree that the liquidated damages provided in this
Section 4 constitute a reasonable estimate of the damages that will be incurred
by Holders of Transfer Restricted Securities by reason of the failure of the
Shelf Registration Statement to be filed, declared effective or to remain
effective, as the case may be.
SECTION 5. REGISTRATION PROCEDURES
In connection with the Shelf Registration Statement, the Company will
use its commercially reasonable efforts to effect such registration to permit
the sale of the Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution or disposition thereof, and
pursuant thereto the Company will as expeditiously as possible after the
Closing Date:
(a) on or prior to the date 60 days after the Closing Date, prepare
and file with the Commission a Shelf Registration Statement relating to the
registration on Form S-1 or Form S-3, if the use of such form is then available
and as determined by the Company, for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof and shall include all financial statements required to be included or
incorporated by reference therein; cooperate and assist in any filings required
to be made with the NASD and use its commercially reasonable efforts to cause
such Shelf Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the selling
Holders to consummate the disposition of such Transfer Restricted Securities in
the manner specified in the Shelf Registration Statement; provided, however,
that before filing a Shelf Registration Statement or any Prospectus, or any
amendments or supplements thereto, the Company will furnish to the Initial
Purchasers and the Underwriter(s), if any, copies of all such documents
proposed to be filed (except that the Company shall not be required to furnish
any exhibits to such documents including those incorporated by reference,
unless so requested by an Intitial Purchaser or Underwriter in writing), and
the Company will not file any Shelf Registration Statement or amendment thereto
or any Prospectus or any supplement thereto to which (i) the Underwriter(s), if
any, shall reasonably object or (ii) if there are no Underwriters, the Holders
of a majority of the outstanding Transfer Restricted Securities shall
reasonably object (with holders of Common Stock constituting Transfer
5
<PAGE> 7
Restricted Securities being deemed to be Holders of the number of Shares
converted by them into such Common Stock for purposes of such calculation), in
each such case within five business days after the receipt thereof by the
Underwriter(s) or Initial Purchaser(s). A Holder or Underwriter, if any, shall
be deemed to have reasonably objected to such filing if the Shelf Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed to
be filed contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading which misstatement or omission is specifically
identified to the Company in writing within such five business days;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective for the applicable
period set forth in Section 3(a) hereof; cause the Prospectus to be
supplemented by any required supplement thereto (a "Prospectus Supplement"),
and as so supplemented to be filed pursuant to Rule 424(b) under the Act, and
to comply fully with the applicable provisions of Rules 424(b) under the Act in
a timely manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Shelf Registration Statement
during the applicable period in accordance with the intended method or methods
of distribution by the sellers thereof set forth in such Shelf Registration
Statement, Prospectus or Prospectus Supplement;
(c) if requested by the Holders of Transfer Restricted Securities,
or, if the Transfer Restricted Securities are being sold in an Underwritten
Offering, the Underwriter(s) of such Underwritten Offering, promptly
incorporate in the Prospectus, any Prospectus Supplement or post-effective
amendment to the Shelf Registration Statement such information as the
Underwriters and/or the Holders of Transfer Restricted Securities being sold
agree should be included therein relating to the plan of distribution of the
Transfer Restricted Securities, including, without limitation, information with
respect to the number of Shares and/or the number of shares of Common Stock
being sold by the Holders, the purchase price being paid therefor and any other
terms with respect to the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus,
Prospectus Supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be incorporated in such Prospectus,
Prospectus Supplement or post-effective amendment;
(d) advise the Underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, confirm such advice in writing, (i) when the
Prospectus or any Prospectus Supplement or post-effective amendment to the
Shelf Registration Statement has been filed, and, with respect to the Shelf
Registration Statement or any post-effective amendment thereto, when the same
has become effective, (ii) of any request by the Commission for an amendment of
or supplement to the Shelf Registration Statement, any Preliminary Prospectus,
or the Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement or of the suspension of qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iv) if at any time the
representations and warranties of the Company contemplated by paragraph (m)(i)
below cease to be true and correct in all material respects, and (v) or of the
happening of any event, including the filing of any information, documents or
reports pursuant to the Exchange Act, that makes any statement made in the
Shelf Registration Statement or the Prospectus (as then amended or
supplemented) untrue or which requires the making of any additions to or
changes in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Shelf Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company shall use its
commercially reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
6
<PAGE> 8
(e) promptly following the filing of any document that is to be
incorporated by reference into the Shelf Registration Statement or the
Prospectus subsequent to the initial filing of the Shelf Registration
Statement, provide copies of such document (excluding exhibits, unless
requested by a Holder in writing) to the Holders;
(f) furnish to each Holder and each of the Underwriter(s), if any,
without charge, at least one copy of the Shelf Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (excluding
exhibits to documents incorporated by reference therein unless requested by
such Holder or Underwriter);
(g) deliver to each selling Holder and each of the Underwriter(s),
if any, without charge, as many copies of any Preliminary Prospectus and the
Prospectus and any amendments or supplements thereto as such Persons may
reasonably request; the Company consents to the use of any Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto by each
of the selling Holders and each of the Underwriter(s), if any, in connection
with the public offering and the sale of the Transfer Restricted Securities
covered by any Preliminary Prospectus and the Prospectus or any amendments or
supplements thereto in the manner specified therein;
(h) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the Underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or Underwriter(s) may reasonably request
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdiction of the Transfer Restricted Securities in the
manner specified in the Shelf Registration Statement; provided, however, that
the Company shall not be required (i) to register or qualify as a foreign
corporation where it is not now so qualified or (ii) to take any action that
would subject it to the service of process in suits, other than as to matters
and transactions relating to the Shelf Registration Statement, in any
jurisdiction where it is not now so subject;
(i) cooperate with the selling Holders and the Underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be in
such denominations and registered in such names as the Holders or the
Underwriter(s), if any, may request at least two business days prior to any
sale of Transfer Restricted Securities;
(j) use its commercially reasonable efforts to cause the Transfer
Restricted Securities covered by the Shelf Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be reasonably necessary to enable the seller or sellers thereof or the
Underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the provisos contained in clause (h) above;
(k) if any fact or event contemplated by clause (d)(v) above shall
exist or have occurred, prepare a post-effective amendment or supplement to the
Shelf Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, in light
of the circumstances under which they are made;
(l) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of the Shelf Registration Statement and
provide the transfer agent for the Common Stock with printed certificates for
the Transfer Restricted Securities which are in a form eligible for deposit
with The Depository Trust Company;
7
<PAGE> 9
(m) enter into such agreements (including an underwriting agreement
reasonably acceptable to the Company) and take all such other actions in
connection therewith as may reasonably be required in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant to
the Shelf Registration Agreement, in connection with an Underwritten
Registration, and (i) make such representations and warranties to the Holders
and the Underwriter(s), in form, substance and scope as they may reasonably
request and as are customarily made by issuers to Underwriters in primary
Underwritten Offerings and covering matters, including, but not limited to,
those set forth in the Purchase Agreement; (ii) obtain opinions of counsel for
the Company and updates thereof in customary form and covering matters
reasonably requested by the Underwriter(s) of the type customarily covered in
legal opinions to Underwriters in connection with primary Underwritten
Offerings addressed to the Underwriter requesting the same and covering the
matters as may be reasonably requested by such Holders and Underwriters; (iii)
obtain "cold comfort" letters and updates thereof from the Company's
independent certified public accountants, and the independent certified public
accountants of any other corporation or person ("Other Companies") with respect
to which audited financial statements are required to be included or
incorporated by reference in the Shelf Registration Statement, addressed to the
Underwriters requesting the same, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters to
Underwriters in connection with primary Underwritten Offerings; and (iv)
deliver such documents and certificates as may be reasonably requested by the
Holders of the Transfer Restricted Securities being sold or the Underwriter(s)
of such Underwritten Offering to evidence compliance with clause (i) above and
with any customary conditions contained in the underwriting agreement entered
into by the Company pursuant to this clause (m). The above shall be done at or
prior to each closing under such underwriting agreement, as and to the extent
required thereunder;
(n) make available at reasonable times and in a reasonable manner
for inspection by a representative of the Holders of the Transfer Restricted
Securities, any Underwriter participating in any disposition pursuant to such
Shelf Registration Statement and any attorney or accountant retained by such
selling Holders or any of the Underwriters all relevant financial and other
records, pertinent corporate documents and properties of the Company and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, Underwriter, attorney or accountant in
connection with such Shelf Registration Statement prior to its effectiveness;
provided, however, that such representatives, attorneys or accountants shall
agree to keep confidential (which agreement shall be confirmed in writing in
advance to the Company if the Company shall so request) all information,
records or documents made available to such persons which are not otherwise
available to the general public unless disclosure of such records, information
or documents is required by court or administrative order (of which the Company
shall have been given prior notice and an opportunity to defend) after the
exhaustion of all appeals therefrom, and to use such information obtained
pursuant to this provision only in connection with the transaction for which
such information was obtained, and not for any other purpose;
(o) otherwise use its commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement, which consolidated earnings statement shall satisfy the
provisions of Section 11(a) of the Act, for the twelve-month period (i)
commencing at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to Underwriters in a firm commitment Underwritten Offering
or (ii) if not sold to Underwriters in such an offering, beginning with the
first month of the Company's first fiscal quarter commencing after the
effective date of the Shelf Registration Statement;
(p) use its commercially reasonable efforts to obtain the withdrawal
of any order suspending the effectiveness of the Shelf Registration Statement
at the earliest practicable time;
(q) cause all Common Stock issuable upon conversion of the Preferred
Stock to be accepted for listing, subject to official notice of issuance, on
each securities exchange or quotation system on which similar securities issued
by the Company are then listed; and
8
<PAGE> 10
(r) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
Underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD).
Each Holder whose securities are covered by any Shelf Registration
Statement agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading or necessary to cause such
Shelf Registration Statement not to omit a material fact with respect to such
Holder necessary in order to make the statements therein not misleading.
Each Holder agrees by acquisition of such Transfer Restricted
Securities that, upon receipt of any notice from the Company of the existence
of any fact of the kind described in Section 5(d)(v) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings with respect to the
Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time period regarding the
effectiveness of the Shelf Registration Statement set forth in Section 3(a)
hereof shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 5(d)(v)
hereof to and including the date when each selling Holder covered by such Shelf
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof or shall have received
the Advice.
SECTION 6. REGISTRATION EXPENSES
(a) Except as set forth in Section 6(b) hereof, all expenses
incident to the Company's performance of or compliance with this Agreement (the
"Registration Expenses") will be borne by the Company, regardless of whether a
Shelf Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses (including
filings made with the NASD);
(ii) reasonable fees and expenses of compliance with federal
securities or state blue sky laws;
(iii) expenses of printing (including, without limitation, expenses
of printing or engraving certificates for the Transfer Restricted
Securities in a form eligible for deposit with Depository Trust Company
and of printing the Prospectus and any Preliminary Prospectus), messenger
and delivery services and telephone;
(iv) fees and disbursements of counsel for the Company;
(v) fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit
and "cold comfort" letters required by or incidental to the preparation
and filing of a Shelf Registration Statement and Prospectus and the
disposition of Transfer Restricted Securities); and
9
<PAGE> 11
(vi) fees and expenses of listing the Transfer Restricted Securities
on any securities exchange or quotation system in accordance with Section
5(r) hereof.
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, rating agency fees and the fees and expenses of any Person, including
special experts, retained by the Company.
(b) The Holders of Transfer Restricted Securities shall bear the
expense of any broker's commission or Underwriter's discount or commission and
the fees and expenses of any counsel for the Holders. In addition, each Holder
of Transfer Restricted Securities shall pay all Registration Expenses to the
extent required by applicable law. Notwithstanding anything herein to the
contrary, the Company shall not be responsible for fees and expenses of counsel
to any Underwriter(s), whether in connection with the Shelf Registration
Statement, NASD matters or otherwise, except to the extent specifically agreed
in any underwriting agreement for an Underwritten Offering.
SECTION 7. INDEMNIFICATION
(a) (i) The Company agrees to indemnify and hold harmless (i) each
of the Initial Purchasers, (ii) each Holder, and (iii) each person, if any, who
controls any of the Initial Purchasers or any Holder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (any person referred to
in clause (i), (ii) or (iii) may hereinafter be referred to as a Non-Company
Indemnitee), from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or in the Shelf Registration Statement
or the Prospectus or in any amendment or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Preliminary Prospectus or the Prospectus, in light of the
circumstances in which such statements were made) not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of
or are based upon any untrue statement or omission or alleged untrue statement
or omission which has been made therein or omitted therefrom in reliance upon
and in conformity with the information relating to any Non-Company Indemnitee
furnished in writing to the Company by or on behalf of such Non-Company
Indemnitee expressly for use in connection therewith; provided, however, that
the indemnification contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Non-Company
Indemnitee on account of any such loss, claim, damage, liability or expense
arising from the sale of the Transfer Restricted Securities by such Non-Company
Indemnitee to any person, at or prior to the written confirmation of such sale,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus; provided that the Company has delivered the
Prospectus to such Non-Company Indemnitee in requisite quantity on a timely
basis to permit such delivery or sending. The foregoing indemnity agreement
shall be in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Non-Company Indemnitee, such Non-Company Indemnitee shall promptly notify the
parties against whom indemnification is being sought (the "indemnifying
parties"), and such indemnifying parties shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Non-Company Indemnitee shall have the right to employ separate counsel in any
such action, suit or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Non-
Company Indemnitee unless (i) the indemnifying parties have agreed in writing
to pay such fees and expenses, (ii) the indemnifying parties have failed to
assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Non-Company Indemnitee and the indemnifying parties and such Non-Company
Indemnitee shall have been
10
<PAGE> 12
advised by its counsel that representation of such indemnified party and any
indemnifying parties by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
parties shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Non-Company Indemnitee). It is understood,
however, that the indemnifying parties shall, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Non-Company Indemnitees not having actual or
potential differing interests with you or among themselves, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
shall be reimbursed on a monthly basis. The indemnifying parties shall not be
liable for any settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the indemnifying parties agree to indemnify and hold harmless any
Non-Company Indemnitee, to the extent provided in paragraph (a) hereof, from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Holder agrees to indemnify and hold harmless (i) the
Company, (ii) each of the Initial Purchasers, (iii) each other Holder, (iv) any
person controlling (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) the Company, the Initial Purchasers and each other Holder
and (v) the respective directors, officers, employees, representatives, and
agents of each of the parties referred to in clauses (i), (ii), (iii) and (iv),
to the same extent as the foregoing indemnity from the Company to each
Non-Company Indemnitee set forth in paragraph (a) hereof, but only with respect
to information relating to such Holder furnished in writing by or on behalf of
such Holder expressly for use in the Registration Statement, the Prospectus or
any Preliminary Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Company, any of its
directors, any such officer, or any such controlling person based on the
Registration Statement, the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be
sought against any Holder pursuant to this paragraph (c), such Holder shall
have the rights and duties given to the Company by paragraph (b) above (except
that if the Company shall have assumed the defense thereof such Holder shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Holder's expense), and the Company, its directors, any such
officer, and any such controlling person, shall have the rights and duties
given to the Holders by paragraph (b) above. The foregoing indemnity agreement
shall be in addition to any liability which the Holders may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unenforceable although available by its terms to an indemnified party under
paragraphs (a) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as other relevant equitable considerations. The relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party, on the one hand, or the indemnified party,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company, each of the Initial Purchasers and each Holder of
Transfer Restricted Securities agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by a pro rata
allocation or by any other method of allocation that does not take account of
the
11
<PAGE> 13
equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 7, no Holder shall be required
to contribute any amount in excess of the amount by which the total amount
received by such Holder with respect to the sale of Transfer Restricted
Securities exceeds the sum of (A) the amount paid by such Holder for such
Shares plus (B) the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective principal amount of
Shares held by each of the Holders hereunder and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party on a
monthly basis. The indemnity and contribution agreements contained in this
Section 7 and any representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Initial Purchaser or any
person controlling any Initial Purchaser, any Holder, the Company, its
directors or officers or any person controlling the Company, and (ii) any
termination of this Agreement. A successor to any Initial Purchaser, or any
person controlling any Initial Purchaser, or to any Holder, or to the Company,
its directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 7.
SECTION 8. RULE 144A
The Company hereby agrees with each Holder, for so long as any of the
Shares or shares of Common Stock that are Transfer Restricted Securities remain
outstanding and during any such period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, to make available to any Initial
Purchaser or any beneficial owner of the Shares or shares of such Common Stock
in connection with any sale thereof and any prospective purchaser of such
Shares or Common Stock from such Initial Purchaser or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule 144A.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Offering hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements and (c) furnishes the Company in writing information in accordance
with Section 3(f) and agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and any person
controlling the Company within
12
<PAGE> 14
the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the
extent contemplated by Section 7(c).
SECTION 10. MISCELLANEOUS
(a) Remedies. Each Holder of Transfer Restricted Securities, in
addition to being entitled to exercise all rights provided herein, and as
provided in the Purchase Agreement and granted by law, including recovery of
damages, will be entitled to specific performance of such Holder's rights under
this Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after
the date of this Agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Securities in this Agreement or otherwise conflicts in any
material respect with the provisions hereof. The rights granted to the Holders
of Transfer Restricted Securities hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any other agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of a majority of the outstanding Transfer Restricted Securities affected by
such amendment, modification, supplement, waiver or departure (with holders of
Common Stock constituting Transfer Restricted Securities being deemed to be
Holders of the number of Shares converted by them into such Common Stock for
purposes of such calculation). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders of Transfer Restricted Securities whose securities are being
sold pursuant to such Shelf Registration Statement and that does not directly
or indirectly affect the rights of other Holders of Transfer Restricted
Securities shall be valid only with the written consent of Holders of at least
66-2/3% of the Transfer Restricted Securities being sold, in each case
calculated in accordance with the provisions of Section 3(c).
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder of Transfer Restricted Securities, at the
address set forth on the records of the Transfer Agent, with a copy to the
Registrar; and
(ii) if to the Company or an Initial Purchaser, initially at
its address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions
of this Section.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of
13
<PAGE> 15
a Holder of Transfer Restricted Securities unless and to the extent such
successor or assign acquired Transfer Restricted Securities from such Holder;
and provided, further, that nothing herein shall be deemed to permit any
assignment, transfer or any disposition of Transfer Restricted Securities in
violation of the terms of the Purchase Agreement or applicable law. If any
transferee of any Holder shall acquire Transfer Restricted Securities, in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement and by
taking and holding such Transfer Restricted Securities such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW RULES THEREOF.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(j) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the securities sold pursuant to the Purchase Agreement.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
14
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PENNCORP FINANCIAL GROUP, INC.
By:
---------------------------------
Name:
Title:
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
BY: SMITH BARNEY INC.
By:
---------------------------------
Name:
Title:
15
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------- --------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary:
Shares outstanding beginning of period 28,011 22,880 22,880 19,130
Issuance of 5,131 shares on March 5, 1996 -- -- 3,299 2,208
Incremental shares applicable to:
Warrants issued pursuant to August 1990 employment
agreement 496 445 496 434
Options granted pursuant to the Company's Stock
Option Plan 304 291 297 277
Warrants issued pursuant to a Senior Management
Stock Warrant Plan 518 131 519 48
Treasury shares (190) (26) (190) (26)
------ ------ ------ ------
29,139 23,721 27,301 22,071
====== ====== ====== ======
Fully diluted:
Shares outstanding beginning of period 28,011 22,880
Issuance of 3,750 shares on March 16, 1995 -- 3,299
Incremental shares applicable to:
Warrants issued pursuant to August 1990 employment
agreement 499 496
Options granted pursuant to the Company's Stock
Option Plan 306 297
Warrants issued pursuant to a Senior Management
Stock Warrant Plan 542 519
Treasury shares (190) (190)
Conversion of 2,300 shares of Preferred Stock at a rate
of 2.2123 common shares to 1 preferred share 5,088 5,088
------ ------
34,256 32,419
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,756,966
<DEBT-CARRYING-VALUE> 38,371
<DEBT-MARKET-VALUE> 38,122
<EQUITIES> 16,263
<MORTGAGE> 20,267
<REAL-ESTATE> 25,838
<TOTAL-INVEST> 2,185,188
<CASH> 18,742
<RECOVER-REINSURE> 31,946
<DEFERRED-ACQUISITION> 224,701
<TOTAL-ASSETS> 3,128,318
<POLICY-LOSSES> 2,190,674
<UNEARNED-PREMIUMS> 17,603
<POLICY-OTHER> 36,837
<POLICY-HOLDER-FUNDS> 20,889
<NOTES-PAYABLE> 174,209
<COMMON> 281
31,525
110,513
<OTHER-SE> 513,656
<TOTAL-LIABILITY-AND-EQUITY> 3,128,138
127,180
<INVESTMENT-INCOME> 84,415
<INVESTMENT-GAINS> 3,428
<OTHER-INCOME> 9,253
<BENEFITS> 89,681
<UNDERWRITING-AMORTIZATION> 79,813
<UNDERWRITING-OTHER> 10,378
<INCOME-PRETAX> 67,989
<INCOME-TAX> 21,918
<INCOME-CONTINUING> 46,017
<DISCONTINUED> 0
<EXTRAORDINARY> 816
<CHANGES> 0
<NET-INCOME> 45,255
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
