<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: July 17, 1996
PENNCORP FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
1-11422 13-3543540
(Commission File Number) (I.R.S. Employer Identification No.)
745 Fifth Avenue, Suite 500, New York, New York 10151
(Address of Principal Executive Offices) (Zip Code)
(212) 832-0700
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
Item 2. Acquistion or Disposition of Assets.
Acquisition of United Companies Life Insurance Company
In January 1996, Knightsbridge Capital Fund I, L.P. (the "Knightsbridge
Fund"), a private investment fund organized by David J. Stone and Steven W.
Fickes, PennCorp Financial Group, Inc.'s ("PennCorp" or the "Company") two most
senior executive officers, formed an entity which entered into an agreement to
purchase (the "UC Life Acquisition") United Companies Life Insurance Company
("UC Life") from United Companies Financial Corporation ("UC Financial"). In
connection with the Company's proposal to restructure its relationship with the
Knightsbridge Fund, which is described is the Company's Proxy Statement dated
June 11, 1996 relating to the 1996 annual meeting of stockholders, the Company
has agreed to pay $7.5 million to the Knightsbridge Fund for the right to
acquire UC Life, which is the only right of the Knightsbridge Fund with respect
to UC Life. Neither Mr. Stone nor Mr. Fickes nor their respective affiliates
will receive any portion of that payment. The consideration to be paid to UC
Financial in conjunction with the UC Life Acquisition is $164.0 million,
consisting of cash (currently estimated to be $99.0 million) to be paid by the
Company and a $10.0 million cash dividend to be paid by, and certain real estate
and other assets to be distributed by, UC Life to UC Financial immediately prior
to the closing of the acquisition. In addition, the consideration to be paid by
the Company to UC Financial will be increased by an amount in cash equal to UC
Life's net income from January 1, 1996 to the closing of the acquisition.
In connection with the UC Life Acquisition, UC Financial has agreed to
purchase a convertible note of the Company in the principal amount of $15.0
million, and has further agreed to convert the note into common stock, par
value $0.01 per share (the "Common Stock"), of the Company at the closing of
the UC Life Acquisition. Further, the Company will make a capital contribution
to UC Life in cash in an amount equal to the market value of the real estate
and other assets distributed by UC Life to UC Financial.
The principal products sold by UC Life are deferred annuities marketed on
a commission basis, principally through financial institutions and independent
general agents. Those products generally are sold to middle income customers
seeking tax deferred insurance products, primarily to provide savings for
retirement. UC Life added variable annuity products to its annuity line of
business during the fourth quarter of 1995. For the year ended December 31,
1995, UC Life produced $135.5 million in annuity sales and had net income
before income taxes of $12.1 million. A.M. Best Company, an independent
insurance rating organization, has assigned a rating of "A- (Excellent)" to
UC Life.
The UC Life Acquisition will provide the Company with an opportunity to
expand its accumulation product offerings, which management believes to be a
growing portion of the life insurance industry. In addition, UC Life's
distribution system is complementary to one of the Company's subsidiaries that
currently markets third party accumulation products through financial
institutions. Further, the Company believes that the UC Life Acquisition may
offer an opportunity for the Company to sell other of its products to customers
of participating financial institutions throughout the United States.
2
<PAGE> 3
Pro Forma Selected Financial Information
The following unaudited pro forma selected financial information (the "Pro
Forma Financial Information") has been prepared to illustrate the pro forma
effects of (i) the sale of 3,750,000 shares of Common Stock in March 1995 and
the use of the proceeds therefrom, (ii) the sale of 2,300,000 shares of $3.375
Convertible Preferred Stock par value $0.01 per share (the "$3.375 Convertible
Preferred Stock"), in July 1995 and the use of the proceeds therefrom, (iii)
the acquisition of Salem Life Insurance Corporation, Integon Life Insurance
Corporation and Georgia International Life Insurance Corporation (collectively,
"Integon Life") on July 25, 1995, including the financing thereof, (iv) the
acquisition (the "SWF Investment") by Southwestern Financial Corporation
("SWF"), a newly organized corporation formed by the Company and the
Knightsbridge Fund, of Southwestern Life Insurance Company, Constitution Life
Insurance Company, Union Bankers Insurance Company and Marquette National
Insurance Company (collectively, "Southwestern Life and Union Bankers")
consummated on December 14, 1995, including the financing thereof, (v) the sale
of 5,131,300 shares of Common Stock in February 1996 and the use of the
proceeds therefrom, (vi) the UC Life Acquisition, including the financing
thereof, and (viii) the proposed private placement of $125.0 million aggregate
liquidation preference of a new series of convertible preferred stock, par value
$0.01 per share (the "Convertible Preferred Stock"), and the use of proceeds
therefrom (as further described in the press release set forth herein under Item
5 -- Other Events). The pro forma statement of operations for the year ended
December 31, 1995 and for the three months ended March 31, 1996 give effect to
the foregoing transactions as though each had occurred on January 1, 1995. The
pro forma balance sheet as of March 31, 1996 gives effect to the UC Life
Acquisition, and the financing thereof (including the sale of the Convertible
Preferred Stock and the use of proceeds therefrom), as though each such
transaction had occurred on March 31, 1996.
The UC Life Acquisition will be accounted for using the purchase method of
accounting. The total purchase price of the acquisition will be allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values as of the date of acquisition. The allocation of the
aggregate purchase price reflected in the Pro Forma Financial Information is
preliminary and based upon assumed acquisition dates of January 1, 1995 and
March 31, 1996 for the Pro Forma Statement of Operations and the Pro Forma
Balance Sheet, respectively. The final allocation of the purchase price is
contingent upon the final valuation of the acquired assets; however, that
allocation is not expected to differ materially from the preliminary allocation.
The Pro Forma Financial Information is not necessarily indicative of
either future results of operations or the results that might have occurred had
the above-described transactions been consummated on the indicated dates.
3
<PAGE> 4
PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
1995 $3.375
CONVERTIBLE
HISTORICAL ACQUISITION PREFERRED STOCK
----------------------------- OF AND
INTEGON INTEGON COMMON STOCK SWF
COMPANY LIFE(1) UC LIFE LIFE OFFERINGS INVESTMENT
-------- ------- -------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues........................... $301,889 $30,806 $ 8,508
Net investment income..................... 102,291 46,385 123,107 4,170(2a) 2,650(2b)
Net gains (losses) from sale of
investments............................. 595 (2,233) (3,498)
Other income (loss)....................... 17,563 -- -- (3,808)(3) (910)(3)
-------- ------- --------
Total revenues...................... 422,338 74,958 128,117
Benefits and expenses:
Claims incurred........................... 141,876 16,108 9,930
Change in liability for future policy
benefits and other benefits............. 18,126 32,544 79,086
Amortization:
Present value of insurance in force..... 25,498 6,431 -- (2,528)(4a)
Deferred policy acquisition costs....... 22,234 5,224 13,159 (1,670)(5a)
Costs in excess of net assets
acquired.............................. 6,557 -- -- 938(6a)
Underwriting and other administrative
expenses:
Commissions............................. 31,949 5,247 432
General expenses........................ 61,323 14,646 13,410
Interest and amortization of deferred debt
issuance costs.......................... 19,780 2,139 -- (189)(8a) (3,048)(8b) 7,500(8c)
-------- ------- --------
Total benefits and expenses......... 327,343 82,339 116,017
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charge.................. 94,995 (7,381) 12,100
Income tax expense......................... 31,642 (5,506) 4,065 9,654(9) 1,067(9) (1,698)(9)
-------- ------- --------
Net income before undistributed
earnings from unconsolidated
affiliates, and extraordinary
charge(10)......................... 63,353 (1,875) 8,035
Undistributed earnings from unconsolidated
affiliates................................ -- -- -- 23,432(11)
-------- ------- --------
Net income before extraordinary
charge............................. 63,353 (1,875) 8,035
Less dividends and amortization of discount
on preferred stock........................ 6,540 -- -- 1,397(12a) 2,516(12b)
-------- ------- --------
Net income (loss) applicable to
common shareholders before
extraordinary charge............... $56,813 $(1,875) $ 8,035
======== ======= ========
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $56,426
========
PER SHARE DATA:
Net income before extraordinary charge.... $ 2.47
Net income (loss) before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.45
Fully diluted net income before
extraordinary charge.................... 2.36
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.35
Weighted average shares outstanding (in
thousands).............................. 22,985
Weighted average fully diluted shares
outstanding (in thousands).............. 25,566
<CAPTION>
ADJUSTMENTS
------------------------------
1996 UC LIFE
COMMON STOCK ACQUISITION AND
OFFERING THIS OFFERING PRO FORMA
------------ --------------- ---------
<S> <<C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues........................... $341,203
Net investment income..................... 10,643(2c) 289,246
Net gains (losses) from sale of
investments............................. (5,136)
Other income (loss)....................... 12,845
--------
Total revenues...................... 638,158
Benefits and expenses:
Claims incurred........................... 167,914
Change in liability for future policy
benefits and other benefits............. 129,756
Amortization:
Present value of insurance in force..... 20,579(4b) 49,980
Deferred policy acquisition costs....... (11,709)(5b) 27,238
Costs in excess of net assets
acquired.............................. 1,083(6b) 8,578
Underwriting and other administrative
expenses:
Commissions............................. 37,628
General expenses........................ (4,112)(7) 85,267
Interest and amortization of deferred debt
issuance costs.......................... (10,960)(8d) 2,132(8e) 17,354
--------
Total benefits and expenses......... 523,715
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charge.................. 114,443
Income tax expense......................... 3,836(9) 935(9) 43,995
--------
Net income before undistributed
earnings from unconsolidated
affiliates, and extraordinary
charge(10)......................... 70,448
Undistributed earnings from unconsolidated
affiliates................................ 23,432
--------
Net income before extraordinary
charge............................. 93,880
Less dividends and amortization of discount
on preferred stock........................ 7,812 (12c) 18,265
--------
Net income (loss) applicable to
common shareholders before
extraordinary charge............... $ 75,615
========
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $ 78,953
========
PER SHARE DATA:
Net income before extraordinary charge.... $ 2.60
Net income (loss) before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.71
Fully diluted net income before
extraordinary charge.................... 2.44
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.54
Weighted average shares outstanding (in
thousands).............................. 29,100
Weighted average fully diluted shares
outstanding (in thousands).............. 34,188
</TABLE>
See accompanying notes to pro forma selected financial information.
4
<PAGE> 5
PRO FORMA STATEMENT OF OPERATIONS
For the three months ended March 31, 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
1996 UC LIFE
HISTORICAL COMMON ACQUISITION
------------------ STOCK AND THIS
COMPANY UC LIFE OFFERING OFFERING PRO FORMA
-------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues............................. $ 87,090 $ 1,618 $ 88,708
Net investment income....................... 41,334 29,121 2,746(2c) 73,201
Net gains (losses) from sale of
investments............................... (527) 144 (383)
Other income................................ 4,281 -- (4,318)(3) (37)
-------- -------
Total revenues....................... 132,178 30,883 161,489
Benefits and expenses:
Claims incurred............................. 44,326 2,776 47,102
Change in liability for future policy
benefits and other benefits............... 11,490 18,549 30,039
Amortization:
Present value of insurance in force......... 8,118 -- 3,926(4b) 12,044
Deferred policy acquisition costs........... 6,741 3,303 (2,991)(5b) 7,053
Costs in excess of net assets acquired...... 2,030 -- 271(6b) 2,301
Underwriting and other administrative
expenses:
Commissions............................... 7,710 116 7,826
General expenses.......................... 15,922 3,478 (915)(7) 18,485
Interest and amortization of deferred debt
issuance costs............................ 6,057 -- (1,827)(8d) 533(8e) 4,763
-------- -------
Total benefits and expenses.......... 102,394 28,222 129,613
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charges................. 29,784 2,661 31,876
Income tax expense.......................... 9,630 931 630(9) 955(9) 12,146
-------- -------
Net income before undistributed
earnings from unconsolidated
affiliates and extraordinary
charge(10)......................... 20,154 1,730 19,730
Undistributed earnings from unconsolidated
affiliates................................ -- -- 4,318(3) 4,318
-------- -------
Net income before extraordinary
charge............................. 20,154 1,730 24,048
Less dividends and amortization of discount
on preferred stock........................ 2,691 -- 1,953(12c) 4,644
-------- -------
Net income applicable to common
shareholders before extraordinary
charge............................. $ 17,463 $ 1,730 $ 19,404
======== =======
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $ 17,806 $ 19,653
========
PER SHARE DATA:
Net income before extraordinary charge...... $ 0.69 $ 0.66
Net income (loss) before net gains (losses)
from sale of investments and extraordinary
charge, net of tax effects................ 0.70 0.67
Fully diluted net income before
extraordinary
charge.................................... 0.63 0.62
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................... 0.65 0.63
Weighted average shares outstanding (in
thousands)................................ 25,483 29,375
Weighted average fully diluted shares
outstanding (in thousands)................ 30,593 34,464
</TABLE>
5
<PAGE> 6
PRO FORMA BALANCE SHEET
As of March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------
UC LIFE
HISTORICAL ACQUISITION
----------------------- AND THIS
COMPANY UC LIFE OFFERING PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Invested assets............................. $2,238,636 $1,578,327 (6,400)(13) 3,810,563
Insurance assets............................ 529,538 137,981 (15,250)(14) 652,269
Other assets................................ 362,765 7,491 21,665(6b) 391,921
---------- ---------- ----------
Total assets........................... $3,130,939 $1,723,799 $4,854,753
========== ========== ==========
Insurance liabilities....................... $2,202,549 1,501,911 $3,704,460
Long-term debt.............................. 170,271 -- 32,800(8e) 203,071
Other liabilities........................... 104,343 53,903 158,246
Redeemable preferred stock.................. 30,757 -- 30,757
Convertible preferred stock................. 110,513 -- 120,200(12c) 230,713
Common shareholders' equity................. 512,506 167,985 (152,985)(15) 527,506
---------- ---------- ----------
Total liabilities and shareholders'
equity............................... $3,130,939 $1,723,799 $4,854,753
========== ========== ==========
</TABLE>
See accompanying notes to pro forma selected financial information.
6
<PAGE> 7
NOTES TO PRO FORMA SELECTED FINANCIAL INFORMATION
(1) The historical financial information presented for Integon Life reflects
its results for the six months ended June 30, 1995. Historical results of
Integon Life are not available through the acquisition date of July 25,
1995. The Company does not believe that those 25 days of financial results
are material to the Pro Forma Financial Information presented herein.
(2) Investments -- During 1995, the Company expended cash in conjunction with
the acquisition of Integon Life utilizing internally generated funds. For
purposes of these pro forma financial statements the Company assumes that
internally generated funds have been replaced with funds generated as a
result of the 1995 $3.375 Convertible Preferred Stock and Common Stock
offerings.
(2a) The average fair market value of the Integon Life investment portfolio was
less than its average historical cost based upon the blended values as of
January 20, 1995 (the date on which the Company acquired a 49.0% interest
in Integon Life) and July 25, 1995 (the date on which the Company acquired
the remaining 51.0% of Integon Life). Based upon purchase accounting
mark-to-market adjustments, Integon Life's investment yield would increase
approximately 60 basis points resulting in an increase in investment
income of approximately $4.2 million for the six-month period ended prior
to the consummation of the Integon Life acquisition on July 25, 1995.
(2b) In conjunction with the SWF Investment, the Company purchased $31.0
million of preferred stock of SWF and one of its subsidiaries. The
effective yield of that preferred stock is 8.6% resulting in additional
investment income on a pro forma basis of approximately $2.7 million for
the year ended December 31, 1995.
(2c) The average fair market value of the UC Life investment portfolio was less
than its average historical cost. Based upon purchase accounting
mark-to-market adjustments, UC Life's investment yield would increase
approximately 69 basis points resulting in an increase in investment
income of approximately $10.6 million and $2.7 million for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
(3) Other income -- For the year ended December 31, 1995, the Company's
historical financial statements included $4.7 million of income from
undistributed earnings of unconsolidated affiliates, of which $3.8 million
was related to the Company's 49.0% equity interest in the undistributed
earnings of Integon Life for the first six months of 1995 and $910,000 was
related to the SWF Investment for the period from December 14, 1995 to
December 31, 1995. For the three months ended March 31, 1996, the
Company's equity in undistributed earnings of affiliates related to the
SWF Investment was $4.3 million. Each such amount has been eliminated or
reclassified, as appropriate, in the preparation of the Pro Forma
Financial Information.
(4) Present value of insurance in force -- As part of the purchase accounting
adjustments for each of the Company's acquisitions, the Company
establishes an asset for the present value of the insurance in force as of
the date of such acquisition based upon the present value of future
premiums or the emergence of gross profits utilizing the Company's
purchase accounting actuarial lapse and interest rate assumptions.
(4a) As part of the purchase accounting adjustments for the acquisition of
Integon Life, the Company established a present value of insurance in
force asset of $123.8 million. This asset is determined based upon the
present value of expected future gross profits for the business acquired
using actuarial assumptions established by the Company and discounting
such profits at a risk rate of return of 15.0 percent. On a pro forma
basis, the first five years' expected amortization of the present value of
7
<PAGE> 8
insurance in force related to the acquisition of Integon Life, as if such
assets had been established on January 1, 1995, would be as follows:
<TABLE>
<CAPTION>
GROSS INTEREST EXPECTED
AMORTIZATION ACCRETED AMORTIZATION
------------ -------- ------------
<S> <C> <C> <C>
1995...................................... $ 14,942 $7,135 $ 7,807
1996...................................... 15,736 6,632 9,104
1997...................................... 16,547 6,050 10,497
1998...................................... 16,778 5,399 11,379
1999...................................... 16,233 4,718 11,515
</TABLE>
(4b) As part of the pro forma purchase accounting adjustments for the UC Life
Acquisition, the Company established a present value of insurance in force
asset of $74.1 million. This asset is determined based upon the present
value of future gross profits for the business acquired using appropriate
actuarial assumptions established by the Company (as of January 1, 1995)
and discounting such profits at a risk rate of return of 18.0 percent. On
a pro forma basis, the first five years' expected amortization of the
present value of insurance in force related to the UC Life Acquisition, as
if such assets had been established on January 1, 1995, would be as
follows:
<TABLE>
<CAPTION>
GROSS INTEREST EXPECTED
AMORTIZATION ACCRETED AMORTIZATION
------------ -------- ------------
<S> <C> <C> <C>
1995...................................... $ 24,841 $4,262 $ 20,579
1996...................................... 18,869 3,170 15,699
1997...................................... 13,595 2,300 11,295
1998...................................... 9,721 1,638 8,083
1999...................................... 7,033 1,142 5,891
</TABLE>
(5) Deferred policy acquisition costs -- As described in Note 4 above, the
Company establishes a present value of insurance in force asset as of the
acquisition date which approximates the discounted value of anticipated
profits of the business in force as of the acquisition date. As a result
of establishing such an asset, the historical amount for deferred policy
acquisition costs is eliminated.
Subsequent to the date of acquisition, deferred policy acquisition costs
are established and amortized for new business issuance costs.
Differences in historical and pro forma amortization of deferred policy
acquisition costs result from the different accounting bases, including
the establishment of the present value of insurance in force asset, as
described in Note 4.
(5a) On a pro forma basis, the amortization of deferred policy acquisition
costs for Integon Life for the year ended December 31, 1995 amounted to
$3.5 million.
(5b) On a pro forma basis, the amortization of deferred policy acquisition
costs for UC Life for the year ended December 31, 1995 and the three
months ended March 31, 1996 amounted to $1.5 million and $312,000,
respectively.
(6) Costs in excess of net assets acquired -- The Company establishes an asset
for costs in excess of net assets acquired to the extent that the purchase
price of an acquisition exceeds the net assets acquired. It is the
Company's policy to amortize such costs over 20 years on a straight line
basis.
(6a) The aggregate purchase price for Integon Life was approximately $48.6
million (including expenses of approximately $3.2 million), but excluding
assumed indebtedness of $37.7 million, and net assets acquired, based upon
purchase accounting estimates, amounted to $11.1 million, which resulted
in costs in excess of net assets acquired of approximately $37.5 million.
On a pro forma basis this resulted in amortization of costs in excess of
net assets acquired of $938,000 for the six months ended June 30, 1995.
(6b) The aggregate purchase price for UC Life is estimated to be $113.0 million
(including estimated expenses of $10.0 million and estimated earnings
through the anticipated date of consummation of the UC Life Acquisition of
$4.0 million). The estimated fair value of the net assets acquired
amounted to $91.3 million resulting in costs in excess of net assets
acquired of $21.7 million. On a pro forma basis,
8
<PAGE> 9
for the year ended December 31, 1995 and the three months ended March 31,
1996 the amortization of costs in excess of net assets acquired would be
$1.1 million and $271,000, respectively.
(7) On a pro forma basis, the costs associated with UC Life's service
agreement with its current parent, UC Financial, have been eliminated
because that agreement will be cancelled as of the closing date; PennCorp,
with its current cost structure, will be able to perform any such similar
services required by UC Life without an incremental increase in overhead
expenses. Fees charged to UC Life under the service agreement amounted to
$4.1 million and $915,000 for the year ended December 31, 1995 and the
three months ended March 31, 1996, respectively.
(8) Interest and amortization of deferred debt issuance costs -- In
conjunction with each of the Company's acquisitions, the Company has
utilized internally generated funds as well as various forms of financing.
In addition, proceeds from the 1995 $3.375 Convertible Preferred Stock and
Common Stock offerings and the February 1996 Common Stock offering were
utilized to repay amounts outstanding under certain credit agreements.
(8a) Costs related to the Integon Life credit facility on a pro forma basis
would have amounted to $1.9 million for the six months ended June 30,
1995.
(8b) Net proceeds from the sale of 2,300,000 shares of $3.375 Convertible
Preferred Stock offering were $110.5 million. The 1995 Common Stock
offering provided the Company with net proceeds of $51.2 million. The
proceeds from these two offerings were used to (i) consummate the
acquisition of Integon Life, which utilized funds totaling $33.4 million
(including a capital contribution of $15.0 million), (ii) repay $28.5
million outstanding under, and subsequently cancel, the Company's
revolving credit facility, (iii) repurchase for $34.6 million all the
Company's Series A Preferred Stock, par value $0.01 per share ("Series A
Preferred Stock"), (iv) repay $11.2 million due to Integon Life's former
parent company under a subordinated debenture, (v) pay the $15.4 million
cash portion of the purchase price of Occidental Life Insurance Company
of North Carolina (which PennCorp purchased from Pennsylvania Life
Insurance Company and subsequently contributed to Integon Life),
(vi) prepay $20.0 million principal amount of indebtedness under AAHC's
then existing credit facility and (vii) make payments for general
corporate purposes, including interest payments and the cancellation of
certain interest rate swap agreements.
On a pro forma basis, after giving effect to items (ii), (iv) and (vi)
above, the Company's interest and amortization of deferred debt issuance
costs would have been reduced by $3.0 million for the year ended December
31, 1995.
(8c) The Company utilized funds borrowed under a $100.0 million credit facility
to fund a portion of the SWF Investment. The pro forma effective interest
rate assumed under that credit agreement was 7.5% per annum.
(8d) Of the $156.8 million net proceeds of the February 1996 Common Stock
offering, the Company utilized $137.0 million to repay amounts outstanding
under certain of the Company's credit facilities and to pay approximately
$10.0 million to I.C.H. Corporation in lieu of issuing an equivalent
value of Common Stock as part of the SWF Investment.
(8e) In addition to net proceeds available from this offering, the Company
anticipates additional cash requirements to consummate the UC Life
Acquisition of $32.8 million. Those funds will be made available through
the Company's revolving credit facility. The pro forma interest costs
associated with such borrowings would be $2.1 million and $533,000 for the
year ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
(9) Income taxes -- Amounts shown represent the tax effects of the foregoing
adjustments calculated based upon the Company's effective tax rates for
the periods presented.
(10) As a result of the retirement of $137.0 million of certain indebtedness
(see Note (8d) above) the Company recorded an extraordinary charge of
approximately $816,000, net of tax benefits, related to the write off of
deferred financing costs during the three months ended March 31, 1996.
9
<PAGE> 10
(11) The Company accounts for the SWF Investment using the equity method of
accounting. As a result of the acquisition of Southwestern Life and Union
Bankers by SWF, the historical financial basis of accounting has been
adjusted to reflect the fair value of the acquired assets and liabilities
as of the acquisition date. Pro forma results of the adjustments to the
historical financial statements of the acquired companies are summarized
below:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 14, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net earnings*................................................. $ 10,202
Pro forma adjustments to historical results:
Amortization of present value of insurance in force and
deferred acquisition costs............................... 26,613
Elimination of permanent impairment adjustments............. 9,499
Interest expenses........................................... (13,417)
Amortization of costs in excess of net assets acquired...... 10,615
Income taxes................................................ (15,836)
Other adjustments, net...................................... 5,084
--------
32,760
Less preferred stock dividend................................. 2,650
--------
Income applicable to common shareholders.................... $ 30,110
========
PennCorp's economic participation at 74.8%**.................. $ 22,522
PennCorp's equity in undistributed earnings of affiliate for
the period December 14, 1995 through December 31, 1995...... 910
--------
Total PennCorp pro forma equity in undistributed earnings of
affiliate................................................... $ 23,432
========
</TABLE>
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* Excludes loss on securities required to be sold as a condition to
closing the acquisition of Southwestern Life and Union Bankers.
** Excludes exercise of common stock purchase warrants.
(12a) As part of the consideration for the acquisition of Integon Life, the
Company issued two additional series of preferred stock:
(i) 127,500 shares of Series B Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), with an initial stated
value of $100.00 per share, accreting at the rate of 10.4% per
annum until maturity in July 1997.
(ii) 178,500 shares of Series C Preferred Stock, par value $0.01 per
share (the "Series C Preferred Stock"), with an initial stated
value of $100.00 per share, accreting at the rate of 9.3% per
annum until maturity in July 1998. The accreted value of this
series of preferred stock, however, is subject to offset under
certain circumstances.
On a pro forma basis for the period ended July 25, 1995, aggregate
dividends on the Series B Preferred Stock and the Series C Preferred
Stock would have been $1.4 million.
(12b) As described in Note (8b) above, in 1995 the Company used a portion of the
proceeds of the $3.375 Convertible Preferred Stock offering to retire
450,000 shares of Series A Preferred Stock. On a pro forma basis, the net
effect of the issuance of the $3.375 Convertible Preferred Stock and the
retirement of the Series A Preferred Stock would have increased dividends
and amortization of discount on preferred stock by $2.5 million for the
year ended December 31, 1995.
(12c) The Company anticipates issuing 2,500,000 shares of Convertible Preferred
Stock in this offering. Net proceeds are anticipated to be $120.2 million,
which the Company will use to fund a portion of the purchase price of the
UC Life Acquisition, make required capital contributions and pay related
acquisition expenses. On a pro forma basis the dividends on the
Convertible Preferred Stock would be $7.8 million and $2.0 million for the
year ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
(13) As part of the purchase and sale agreement to acquire UC Life, certain of
the assets of UC Life will be distributed to UC Financial and subsequently
replaced with a cash contribution. The net effect of such transactions
would be to reduce the invested assets of UC Life by approximately $6.4
million.
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<PAGE> 11
(14) As described in Note (4b) above, as part of the pro forma purchase
accounting adjustments, historical deferred acquisition costs are
eliminated and a present value of insurance in force asset is established.
Based upon pro forma purchase accounting adjustments it is anticipated
that the present value of the insurance in force asset will be $74.1
million upon consummation of the UC Life Acquisition, which is $15.3
million less than UC Life's historical deferred acquisition costs as of
March 31, 1996.
(15) In connection with the UC Life Acquisition, UC Financial has agreed to
purchase a convertible promissory note of the Company in a principal
amount of $15.0 million, and has further agreed to convert such note into
Common Stock immediately after the consummation of the UC Life
Acquisition. The adjustment reflected on a pro forma basis eliminates the
historical shareholder's equity of UC Life concurrently with the issuance
of additional shares of Common Stock valued at $15.0 million.
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<PAGE> 12
Item 5. Other Events.
The Company has released the following press release:
July 12, 1996
PENNCORP FINANCIAL GROUP, INC. ANNOUNCES
PRIVATE PLACEMENT OF CONVERTIBLE PREFERRED STOCK
New York, N. Y. - PennCorp Financial Group, Inc. (NYSE-PFG) ("PennCorp" or
the "Company") announced today that it intends to commence a private placement
of $125.0 million aggregate liquidation preference of a new series of
Convertible Preferred Stock of the Company. In addition, the Company will
grant to the initial purchasers of the Convertible Preferred Stock an
overallotment option to purchase up to an additional $18,750,000 aggregate
liquidation preference of Convertible Preferred Stock. The net proceeds from
the offering, together with borrowings under the Company's revolving credit
agreement, will be used to fund the cash purchase price for, and to make
required capital contributions currently estimated to be $55.0 million to,
United Companies Life Insurance Company ("UC Life"), which PennCorp has agreed
to acquire from United Companies Financial Corporation ("UC Financial"). The
consideration to be paid for UC Life is $164.0 million, consisting of cash
(currently estimated at $99.0 million), a $10.0 million dividend to be paid,
and certain real estate and other assets to be distributed, by UC Life to UC
Financial concurrently with the closing of the acquisition. The consideration
to be paid to UC Financial will be increased by UC Life's earnings from January
1, 1996 through the acquisition date.
The Company obtained the right to consummate the UC Life acqusition from
Knightsbridge Captial Fund I, L.P., a related investment partnership, which had
entered into an agreement to acquire UC Life in January 1996.
No registration statement for the offering of the Convertible Preferred
Stock has been or will be filed with the Securities and Exchange Commission,
and the securities sold in the offering may not be offered or sold in the
United States by the purchasers thereof absent registration or an applicable
exemption from the registration requirements of the Securities Act of 1933, as
amended.
PennCorp Financial Group, Inc. is an insurance holding company. Through
its subsidiaries, the Company underwrites and markets life and fixed benefit
accident and sickness insurance to the middle market throughout the United
States, Canada, and the Caribbean basin.
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<PAGE> 13
SIGNATURES
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 hereunto duly authorized.
PENNCORP FINANCIAL GROUP, INC.
Date: July 16, 1996 By /s/ JAMES P. McDERMOTT
----------------------------------
James P. McDermott
Senior Vice President
