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SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT [ ] CONFIDENTIAL, FOR
USE OF THE
COMMISSION ONLY
(AS PERMITTED BY
RULE 14A-6(E)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12
PENNCORP FINANCIAL GROUP, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14A-6(i)(1) and 0-11;
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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4) Proposed maximum aggregate value of transaction:
- ---------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration no.:
(3) Filing Party:
(4) Date Filed:
- ---------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
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PENNCORP FINANCIAL GROUP, INC.
590 MADISON AVE., 38TH FLOOR
NEW YORK, NEW YORK 10022
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
---------------------
To the Stockholders of
PennCorp Financial Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of PennCorp Financial Group, Inc. (the "Company") will be held on May
21, 1998 at 10:00 A.M., local time, at 3 Bethesda Metro Center, Bethesda,
Maryland 20814 for the following purposes:
1. To elect three Class III directors to hold office until the 2001
annual meeting of stockholders and/or until their respective successors are
elected and qualified;
2. To ratify the selection of KPMG Peat Marwick LLP ("KPMG") as the
Company's independent auditors for 1998;
3. To approve an amendment to the Company's 1996 Stock Award and Stock
Option Plan; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 8, 1998, as
the record date for determining the stockholders entitled to notice of, and to
vote at, the meeting or any adjournment thereof. A list of such stockholders
will be maintained at the offices of PennCorp Financial Inc., 3 Bethesda Metro
Center, Bethesda, Maryland 20814, during the ten-day period prior to the date of
the meeting and will be available for inspection by stockholders, for any
purpose germane to the meeting, during ordinary business hours.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IN THE EVENT A STOCKHOLDER
DECIDES TO ATTEND THE MEETING, THAT STOCKHOLDER MAY REVOKE A PREVIOUSLY GIVEN
PROXY AND VOTE IN PERSON.
By Order of the Board of Directors,
SCOTT D. SILVERMAN
Secretary
April 22, 1998
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PENNCORP FINANCIAL GROUP, INC.
590 MADISON AVE., 38TH FLOOR
NEW YORK, NEW YORK 10022
212-896-2700
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PROXY STATEMENT
---------------------
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of PennCorp Financial Group, Inc. (the "Company" or
"PennCorp") of proxies to be used at the Annual Meeting of Stockholders to be
held at 3 Bethesda Metro Center, Bethesda, Maryland 20814, on May 21, 1998 at
10:00 A.M., local time, and at any and all adjournments thereof. In addition to
the solicitation of proxies by mail, directors, officers and employees of the
Company may solicit proxies personally, by telephone, telefax or otherwise,
without receiving additional compensation therefor. The expenses of all such
solicitations, including the cost of preparing, printing and mailing this Proxy
Statement, will be borne by the Company. The Company, upon request, will
reimburse brokers, banks and other nominees for their reasonable out-of-pocket
expenses in forwarding proxy materials to beneficial owners of the Company's
Common Stock. This Proxy Statement and the accompanying proxy card are first
being mailed to stockholders of the Company on or about April 22, 1998. The
Company's 1997 Annual Report to Shareholders is being mailed to stockholders
together with this Proxy Statement.
If the enclosed proxy card is validly executed, dated and returned, it will
be voted as directed by the stockholder. If no directions are given, proxies
will be voted (i) FOR election as directors of all of the nominees specified
herein; (ii) FOR the ratification of KPMG as the Company's auditors for 1998;
(iii) FOR the approval of the amendment to the Company's 1996 Stock Award and
Stock Option Plan; and (iv) in accordance with the discretion of the named
attorneys-in-fact on other matters, if any, properly brought before the meeting
or any adjournment thereof. A proxy may be revoked at any time, insofar as the
authority granted thereby has not been exercised at the Annual Meeting, by
filing with the Secretary of the Company a written revocation or a duly executed
proxy card bearing a later date. Any stockholder present at the meeting may vote
personally on all matters brought before the meeting and, in that event, such
stockholder's proxy will not be used at the meeting by holders of the proxy.
Attendance at the Annual Meeting, in and of itself, will not constitute a
revocation of a previously given proxy.
Only stockholders of record as of the close of business on April 8, 1998
(the "Record Date") are entitled to vote at the meeting. Holders of Common Stock
are entitled to one vote for each share held of record. On April 8, 1998, the
Company had outstanding and entitled to vote at the Annual Meeting 28,554,780
shares of Common Stock. A majority of those shares present in person or by proxy
at the Annual Meeting will constitute a quorum to transact business at the
meeting. All directors and executive officers of the Company are expected to
vote, or cause to be voted, all shares of Common Stock over which they exercise
voting control (an aggregate of 1,419,817 shares of Common Stock or
approximately 4.97% of the outstanding shares of Common Stock on the Record
Date) FOR the approval of each of the proposals being submitted at the Annual
Meeting.
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THE PENNCORP ANNUAL MEETING
GENERAL
This Proxy Statement is being furnished to PennCorp common stockholders in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "PennCorp Board") for use at the 1998 Annual Meeting of
Stockholders. Each copy of this Proxy Statement mailed to PennCorp common
stockholders is accompanied by a form of proxy for use at the Annual Meeting.
The Annual Meeting is scheduled to be held on May 21, 1998, at 10:00 a.m., local
time, at 3 Bethesda Metro Center, Bethesda, Maryland 20814.
PENNCORP STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY AND RETURN IT PROMPTLY TO PENNCORP IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, PennCorp common stockholders will be asked to
consider and vote upon the following proposals and to transact such other
business as may properly come before the meeting:
Proposal No. 1 -- Election of Class III Directors. The PennCorp Board has
nominated the persons named elsewhere herein to serve as Class III directors of
the Company, to serve until the 2001 annual meeting of stockholders or until
their earlier death, resignation or retirement. THE PENNCORP BOARD UNANIMOUSLY
RECOMMENDS THAT PENNCORP STOCKHOLDERS VOTE FOR THE NOMINEES SET FORTH HEREIN.
See "PROPOSAL NUMBER 1 -- Election of Class III Directors."
Proposal No. 2 -- Ratification of Appointment of Auditors. The PennCorp
Board proposes the ratification of its appointment of KPMG as the Company's
independent auditors for 1998. THE PENNCORP BOARD UNANIMOUSLY RECOMMENDS THAT
PENNCORP STOCKHOLDERS VOTE FOR THE RATIFICATION OF KPMG. See "PROPOSAL NUMBER
2 -- Ratification Of Appointment Of Auditors."
Proposal No. 3 -- Amendment to the 1996 Stock Award and Stock Option
Plan. The PennCorp Board proposes amending the 1996 Stock Award and Stock Option
Plan (the "Stock Plan"), so that Non-Employee Directors with a Pecuniary
Interest in more than 100,000 shares of the Company's Common Stock may, like
other Non-Employee Directors, receive an annual 7,500 share option and elect to
receive their retainer in stock. THE PENNCORP BOARD UNANIMOUSLY RECOMMENDS THAT
PENNCORP STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE STOCK PLAN. See "PROPOSAL
NUMBER 3 -- Amendment To The 1996 Stock Award And Stock Option Plan."
RECORD DATE; SHARES OUTSTANDING
The close of business on April 8, 1998 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting. On the Record Date, there were 28,554,780 shares of Common Stock
issued and outstanding and held by approximately 182 stockholders of record. All
directors and executive officers of PennCorp are expected to vote, or cause to
be voted, all shares of Common Stock over which they exercise voting control (an
aggregate of 1,419,817 shares of Common Stock or approximately 4.97% of the
outstanding shares of Common Stock on the Record Date) FOR the approval of each
of the proposals being submitted at the Annual Meeting.
VOTING AT THE ANNUAL MEETING
The presence, either in person or by proxy, at the Annual Meeting of the
holders of a majority of the issued and outstanding shares of Common Stock is
necessary to constitute a quorum at the Annual Meeting.
Approval of Proposal No. 1. (Election of Class III Directors) will be
determined by plurality vote. Votes may be cast for or votes may be withheld
from each nominee. Abstentions may not be specified for the
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election of directors. Therefore, because a single slate of director nominees is
being presented, votes that are withheld will be excluded entirely from the vote
and will have no effect on the outcome. Approval of Proposal No. 2 (Ratification
of Appointment of Auditors), and Proposal No. 3 (Amendment to the 1996 Stock
Award and Stock Option Plan), requires the affirmative vote of at least a
majority of the shares of Common Stock present, in person or by proxy, at the
Annual Meeting and entitled to vote.
At the Annual Meeting, abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum. An abstention with
respect to any proposal will have the effect of a vote against that proposal. A
"broker non-vote" will occur with respect to a given proposal when a broker
holding shares of PennCorp Common Stock in street name (i.e., as nominee for the
beneficial owner) returns an executed proxy (or voting directions) indicating
that the broker does not have discretionary authority to vote on a proposal.
Under the rules of the NYSE, brokers who hold shares of PennCorp Common Stock as
nominees will have discretionary authority to vote such shares on Proposal
Number 1 (Election of Class III Directors), and Proposal Number 2 (Ratification
of Appointment of Auditors), but not Proposal Number 3 (Amendment to the 1996
Stock Award and Stock Option Plan). Under Delaware law, a broker non-vote is
counted as present for quorum purposes but is not considered to be entitled to
vote on the specified matter. Therefore, broker non-votes generally have no
effect on the outcome of a vote on a specific matter.
Proxies will be voted as specified by PennCorp common stockholders. If a
PennCorp common stockholder does not return a signed proxy, that stockholder's
shares will not be voted. PennCorp common stockholders are urged to mark the
appropriate boxes on the form of proxy enclosed herewith to indicate how their
shares are to be voted. Each PennCorp stockholder is entitled to cast one vote
per share of PennCorp Common Stock on each matter to be voted upon at the Annual
Meeting. If a PennCorp stockholder returns a signed proxy, but does not indicate
how such stockholder's shares are to be voted, the shares of PennCorp Common
Stock represented by the proxy will be voted FOR the adoption of each proposal.
The proxy also confers discretionary authority on the attorneys-in-fact named in
the accompanying form of proxy to vote the shares of PennCorp Common Stock
represented thereby on any other matter that may properly arise at the Annual
Meeting, including consideration of a motion to adjourn or postpone the Annual
Meeting to another time and/or place.
Returning a signed proxy will not affect a PennCorp common stockholder's
right to attend the Annual Meeting and vote in person. Any PennCorp stockholder
who executes and returns a proxy may revoke such proxy at any time before it is
voted by (i) filing with the Corporate Secretary of PennCorp, at or before the
Annual Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same shares and
delivering it to the Corporate Secretary of PennCorp at or before the Annual
Meeting or (iii) attending the Annual Meeting and voting in person by ballot.
Attendance at the Annual Meeting will not, in and of itself, constitute
revocation of a proxy.
As of the date of this Proxy Statement, the PennCorp Board does not know of
any other matters to be presented for action by PennCorp stockholders at the
Annual Meeting. If, however, any other matters not now known are properly
brought before the Annual Meeting, the attorneys-in-fact named in the
accompanying proxy will vote upon such matters according to their discretion and
best judgment.
SOLICITATION OF PROXIES
In addition to solicitations by mail, solicitations may also be made by
personal interview, facsimile transmission, telegram and telephone. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals, and PennCorp
will reimburse them for their customary expenses in so doing.
DISSENTERS' APPRAISAL RIGHTS
Under Delaware law, PennCorp stockholders will not be entitled to any
appraisal rights in connection with any of the matters being submitted for
approval at the Annual Meeting.
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CERTAIN TRANSACTIONS
THE PENNCORP/KNIGHTSBRIDGE RELATIONSHIP
General
In 1995, with the authorization of the PennCorp Board, David J. Stone and
Steven W. Fickes, the Company's two most senior officers, organized
Knightsbridge Capital Fund I, L.P. (the "Knightsbridge Fund") to raise capital,
to be managed by them and to make equity and equity-linked investments in
companies engaged primarily in the life insurance industry. During the second
half of 1995, the PennCorp Board and Messrs. Stone and Fickes, on behalf of the
Knightsbridge Fund, agreed to establish a joint venture to pursue life insurance
acquisitions and investments. In September 1995, the PennCorp Board appointed a
special committee of directors (the "Knightsbridge Committee"), one of the
responsibilities of which was to evaluate all transactions submitted to the
Company by the Knightsbridge Fund and to determine whether a particular
transaction would be pursued solely by the Company (a "PennCorp Transaction"),
pursued jointly with the Knightsbridge Fund (a "Shared Transaction"), or not
pursued by the Company, in which case the Knightsbridge Fund would be permitted
to pursue the transaction for its own account (a "Knightsbridge Transaction").
TRANSACTIONS INVOLVING THE KNIGHTSBRIDGE FUND AND PENNCORP
The SW Financial Investment. On December 14, 1995, pursuant to a Shared
Transaction approved by the PennCorp Board, Southwestern Financial Corporation
("SW Financial"), a newly organized corporation formed by the Company, the
Knightsbridge Fund and Messrs. Stone and Fickes, purchased (the "SW Financial
Investment") Southwestern Life Insurance Company ("Southwestern Life") and Union
Bankers Insurance Company ("Union Bankers") and certain related assets from
I.C.H. Corporation and certain of its subsidiaries (collectively, "ICH") for
$260,000,000. Southwestern Life and Union Bankers market and underwrite life
insurance, annuities and accident and sickness insurance products on primarily
an individual basis.
SW Financial paid ICH $260,000,000 to acquire Southwestern Life and Union
Bankers. PennCorp and its subsidiaries invested an aggregate of $120,000,000 in
cash to purchase voting common stock, nonvoting common stock, common stock
warrants and preferred stock of SW Financial and preferred stock of one of SW
Financial's subsidiaries. Immediately after the consummation of the SW Financial
Investment, and without giving effect to the conversion of SW Financial's
convertible debentures, PennCorp beneficially owned 75.4%, and the Knightsbridge
Fund and Messrs. Stone and Fickes, collectively, beneficially owned 33.5%, of SW
Financial's common stock. In addition to its $89,000,000 common stock investment
in SW Financial, PennCorp also purchased $21,000,000 initial liquidation value
of SW Financial's Series A Preferred Stock and certain of PennCorp insurance
subsidiaries purchased $10,000,000 liquidation value of 5.5% Mandatorily
Redeemable Preferred Stock, par value $0.01 per share (the "5.5% Preferred
Stock") of Southwestern Life Companies ("SWLC"), the immediate parent company of
Southwestern Life and Union Bankers. On August 5, 1997, the Company purchased
all of the outstanding SW Financial convertible debentures from the liquidating
trust established for the benefit of former creditors of ICH.
On January 11, 1996, a stockholder derivative lawsuit styled Tozour Energy
Systems Retirement Plan v. David J. Stone et al. and PennCorp Financial Group,
Inc., C.A. No. 14775, was filed against the Company and each of its directors,
individually, in the Court of Chancery for the State of Delaware. On January 25,
1996, a second shareholder derivative suit, styled Lois Miller v. David J. Stone
et al. and PennCorp Financial Group, Inc., C.A. No. 14795, was filed against the
Company and each of its directors, individually, in the Delaware Chancery Court.
The complaint in the Miller suit has not been served on the Company or the other
defendants. The suits allege that the SW Financial Investment involved the
usurpation of a corporate opportunity and a waste of the Company's assets by
Messrs. Stone and Fickes, and that the directors of the Company in approving
that transaction, failed to act in good faith and breached their fiduciary
duties, including the duty of loyalty to the Company and its stockholders,
having favored the interests of Messrs. Stone and Fickes over the Company and
its stockholders. The Tozour and Miller lawsuits seek
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judgments against each of the defendants for the amount of damages sustained or
to be sustained by the Company as a result of the breaches of fiduciary duty
alleged in the complaints, the imposition of a constructive trust for the
benefit of the Company on profits or benefits obtained by any defendant through
the alleged breaches of fiduciary duty, attorneys' fees and costs, and such
other relief as the court determines to be just, proper or equitable. The
parties to the lawsuits have entered into an Amended Stipulation and Agreement
of Compromise and Settlement (the "Amended Proposed Settlement"), which contains
the terms and conditions described below under "The Knightsbridge Restructuring
Plan and Related Litigation Settlement." A hearing on the Amended Proposed
Settlement has been scheduled before the Delaware Chancery Court on May 12,
1998.
The Acordia Transaction. On September 1, 1997, a group of equity investors
including the Knightsbridge Fund and Wand Partners L.L.C. (which is controlled
by Bruce W. Schnitzer, a director of the Company), acquired the insurance
brokerage operations of Acordia, Inc., a subsidiary of Anthem Insurance
Companies. Acordia, Inc. is an insurance broker specializing in the marketing of
commercial property and casualty insurance programs and other types of insurance
products.
In connection with the Acordia transaction, certain of the Company's
insurance subsidiaries purchased $25,000,000 principal amount of senior
subordinated notes of ACO Acquisition Corp., the entity formed to acquire the
Acordia insurance brokerage operations, and the Company purchased $20,000,000
liquidation preference of preferred stock of ACO Brokerage Holdings Corporation,
the parent of ACO Acquisition Corp. The ACO Acquisition Corp. senior
subordinated notes bear interest at the rate of 12.5% per annum, payable
semiannually in cash. The terms of the senior subordinated notes were negotiated
between representatives of the equity sponsor group and an unaffiliated
financial institution in an arms length transaction. The ACO Brokerage Holdings
Corporation preferred stock bears dividends at the rate of 17.0% per annum,
which may be paid in cash or, at the election of the issuer, in additional
shares of preferred stock. The terms of the ACO Brokerage Holdings Corporation
preferred stock were negotiated between the Company and representatives of the
equity sponsor group and bear terms that the Company believes are consistent
with those that a third party investor would require for such an investment. The
Company received approximately $1,100,000 in fees from ACO Brokerage Holdings
Corporation and ACO Acquisition Corp. for its commitment to purchase the
subordinated notes and preferred stock of the Acordia companies.
The Knightsbridge Fund invested $20,000,000 in the common stock of ACO
Brokerage Holdings Corporation and beneficially owned at the completion of the
Acordia transaction 27.3% of its total common stock outstanding. Pursuant to the
Knightsbridge Fund's limited partnership agreement, Messrs. Stone and Fickes,
through Knightsbridge Capital, L.L.C. ("Knightsbridge Capital"), the general
partner of the Knightsbridge Fund, contributed $200,000 to the Knightsbridge
Fund's $20,000,000 investment in ACO Brokerage Holdings Corporation. In
addition, Messrs. Stone and Fickes, collectively, invested $5,000,000 in the
common stock of ACO Brokerage Holdings Corporation in satisfaction of the
general partner's co-investment obligation under the Knightsbridge Fund limited
partnership agreement. Knightsbridge Management, L.L.C. ("Knightsbridge
Management"), the manager of the Knightsbridge Fund, received transaction and
commitment fees aggregating approximately $1,700,000 from ACO Brokerage Holdings
Corporation and ACO Acquisition Corp. in connection with the consummation of the
Acordia transaction. Messrs. Stone and Fickes received aggregate commitment fees
of $228,571 from ACO Brokerage Holdings Corporation in connection with their
co-investment in the Acordia transaction. To fund their co-investment in the
Acordia transaction, Messrs. Stone and Fickes borrowed an aggregate of
$5,200,000 under a bank line of credit guaranteed by the Company. Each of
Messrs. Stone and Fickes pledged their 250,000 shares of common stock of SW
Financial, their ownership interest in the common stock of ACO Brokerage
Holdings Corporation and their 27.5% interest in the net distributable income of
Knightsbridge Management, to secure the Company's guarantee of all loans drawn
under the line of credit. See "INDEBTEDNESS OF EXECUTIVE OFFICERS."
In light of the then pending Knightsbridge restructuring described below,
the Company and Messrs. Stone and Fickes entered into a contingent repurchase
arrangement pursuant to which, if the stockholders of the Company approved the
purchase of The Fickes and Stone Knightsbridge Interests (as hereinafter
defined), the Company was obligated to buy, and Messrs Stone and Fickes were
obligated to sell, at cost, the $5,000,000 common stock co-investment in ACO
Brokerage Holdings Corporation, and the Company was
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obligated to reimburse Messrs. Stone and Fickes for their $200,000 capital
contribution to the Knightsbridge Fund, together with interest thereon at the
IRS's mid-term rate (at the date of acquisition) from September 1, 1997 through
the date of payment. Messrs. Stone and Fickes agreed to pay to the Company the
commitment fee they received in the Acordia transaction, plus interest thereon,
upon the consummation of the purchase of The Fickes and Stone Knightsbridge
Interests. On January 5, 1998, the Company purchased The Fickes and Stone
Knightsbridge Interests and consummated the transactions contemplated by the
contingent repurchase arrangement. Additionally the bank line of credit was
repaid, and the Company's guarantee obligations extinguished.
PAYMENTS INVOLVING KNIGHTSBRIDGE MANAGEMENT
In 1995, PennCorp paid Knightsbridge Management its pro rata portion (based
on its 16.3% limited partnership interest in the Knightsbridge Fund) of the
annual management fee due under the Knightsbridge Fund limited partnership
agreement. PennCorp also paid substantially all its $2,600,000 service fee to
Knightsbridge Management, pro rated from June 5, 1995. Moreover, after the
completion of the SW Financial Investment, and in recognition of that
transaction and other contributions to PennCorp, the PennCorp Board approved,
upon recommendation of the Compensation Committee of the PennCorp Board, the
payment of incentive bonuses to Messrs. Stone and Fickes and the other personnel
of PennCorp made available to Knightsbridge Management aggregating approximately
$2,565,000. On October 31, 1997, executive officers (other than Messrs. Stone
and Fickes) and certain other officers and employees of the Company were awarded
an aggregate of 50,200 shares of PennCorp Common Stock, which shares were
purchased by Knightsbridge Management.
In December 1995, Knightsbridge Management received a fee of $3,900,000
from SW Financial upon completion of the acquisition of Southwestern Life and
Union Bankers. Based on their respective fully diluted equity investments in SW
Financial (calculated without regard to SW Financial's convertible debentures,
which were issued to a third party), the Company's funding obligation to
Knightsbridge Management for 1996 was reduced by $1,300,000 (50.0% of the
Company's share of the $3,900,000 fee obligation based on its two-thirds
interest in the SW Financial Investment) and the limited partners' 1996
management fee to Knightsbridge Management was reduced, in the aggregate, by
$650,000 (50.0% of the Knightsbridge Fund's share of the $3,900,000 fee
obligation based on its one-third interest in the SW Financial Investment). In
addition, the Company recorded $530,000 of income in 1995 related to its 45.0%
interest in Knightsbridge Management's 1995 net distributable income.
In January 1996, the Knightsbridge Fund entered into an agreement to
purchase United Life & Annuity Insurance Company ("UC Life") from United
Companies Financial Corporation. As part of the Knightsbridge restructuring
transactions which are described herein, the Company purchased the right to
consummate the UC Life acquisition from the Knightsbridge Fund's limited
partners for approximately $7,575,000 in cash (or approximately $6,375,000 after
giving effect to the Company's portion of that payment), which was the only
right of the Knightsbridge Fund with respect to UC Life. Neither Mr. Stone nor
Mr. Fickes nor their respective affiliates received, nor will they receive after
giving effect to the consummation of the acquisition of The Fickes and Stone
Knightsbridge Interests by the Company, any portion of that payment. The Company
completed the UC Life acquisition on July 24, 1996. Knightsbridge Management
accrued a fee of $2,548,000 from the Company in connection with the consummation
of that transaction.
For the years ended December 31, 1997, 1996 and 1995, the Company paid or
accrued approximately $2,385,000, $2,548,000 and $3,900,000 in transaction fees
and expenses to Knightsbridge Management related to the Washington National
Insurance Company, UC Life and SW Financial transactions, respectively. During
1997 and 1996, certain of the Company's affiliates and subsidiaries paid
management fees to Knightsbridge Management amounting to $5,325,000 and
$3,333,000, respectively. SW Financial and UC Life incurred Knightsbridge
Management investment advisory fees totaling approximately $4,358,000,
$2,426,000 and $0 during 1997, 1996 and 1995, respectively. In addition, the
Company received a $1,000,000 stand-by commitment fee from SW Financial in 1996
for contingent financing on a real estate transaction. SW Financial did not draw
upon the commitment.
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THE KNIGHTSBRIDGE RESTRUCTURING PLAN AND RELATED LITIGATION SETTLEMENT
In February 1996, Messrs. Stone and Fickes began discussions with the
PennCorp Board on a means of consolidating their outside business interests,
including the Knightsbridge Fund, under PennCorp. Subsequently, Messrs. Stone
and Fickes and the members of the Knightsbridge and Compensation Committees of
the Board of Directors developed a plan to enable PennCorp 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 stockholders generally and that provides incentives for each to
make a full-time commitment to PennCorp.
The components of the Knightsbridge restructuring plan were as follows:
- The adoption of compensation arrangements pursuant to which Messrs. Stone
and Fickes entered into five-year employment agreements with PennCorp.
- The acquisition by PennCorp of the interests of Messrs. Stone and Fickes
in the Knightsbridge Fund, Knightsbridge Management, Knightsbridge
Capital and Knightsbridge Consultants L.L.C. ("Knightsbridge
Consultants"), the asset management subsidiary of Knightsbridge
Management (collectively, "The Fickes and Stone Knightsbridge
Interests").
- The acquisition by PennCorp from the Knightsbridge Fund and Messrs. Stone
and Fickes of their respective holdings of common stock and common stock
warrants of SW Financial (collectively, the "SW Financial Controlling
Interest").
On December 31, 1997, PennCorp's stockholders approved the purchase of The
Fickes and Stone Knightsbridge Interests and the SW Financial Controlling
Interest.
Acquisition of The Fickes and Stone Knightsbridge Interests. On January 5,
1998 PennCorp acquired The Fickes and Stone Knightsbridge Interests in exchange
for PennCorp's agreement to make annual cash payments ranging from $330,000 to
$301,000 to each of Messrs. Stone and Fickes commencing on the date of
consummation of the purchase of The Fickes and Stone Knightsbridge Interests and
on each April 15 thereafter, commencing April 15, 1998 and ending on April 15,
2001 and to deliver to each of Messrs. Stone and Fickes on April 15, 2001,
173,160 shares of PennCorp Common Stock (subject to adjustment for stock splits,
reverse stock splits and similar transactions). In addition, Messrs. Stone and
Fickes (i) retained their right to receive, under the circumstances specified in
the Knightsbridge Fund's limited partnership agreement, their portion of the
general partner's 20% share of the profits earned by the limited partners of the
Knightsbridge Fund on the fund's $23,000,000 investment in SW Financial and on
the Knightsbridge Fund's $1,000,000 investment in Portsmouth Financial Group,
Inc. ("Portsmouth"), which owns a viatical settlement company and which was the
Knightsbridge Fund's only other investment as of April 15, 1996, the effective
date of the Knightsbridge restructuring plan, (ii) withdrew the balance in their
capital accounts in Knightsbridge Management as of December 31, 1995 and, in
addition, received in cash approximately $135,000 in the aggregate, which
equalled their share of Knightsbridge Management's net distributable income from
January 1, 1996 through April 15, 1996 and (iii) retained their common equity
interests in Portsmouth, which were originally purchased for approximately
$2,150,000 as part of their co-investment requirement as members of the general
partner of the Knightsbridge Fund. SW Financial has agreed to make up to a
$10,000,000 preferred equity investment in Portsmouth. To date, SW Financial has
made an aggregate investment of $5,750,000 in Portsmouth. As part of the Amended
Proposed Settlement, Messrs. Stone and Fickes have agreed that if there is a
definitive agreement entered into during the twelve months ending November 25,
1998 for the sale of Portsmouth, they will pay over to PennCorp any
consideration which they receive upon such sale with respect to their personal
investment in Portsmouth in excess of $3,450,000 in the aggregate (115% of
$3,000,000, which amount was originally intended to be paid by Portsmouth to
repurchase the investment in Portsmouth of Messrs. Stone and Fickes).
Acquisition of the SW Financial Controlling Interest. On January 2, 1998,
the Company purchased the SW Financial Controlling Interest. The amount of the
final purchase price is dependent upon approval of the Amended Proposed
Settlement. The parties have agreed that if the Amended Proposed Settlement is
7
<PAGE> 10
approved, Messrs. Stone and Fickes will cancel their SW Financial common stock
warrants for no consideration and the Company will acquire the SW Financial
Controlling Interest from the Knightsbridge Fund and Messrs. Stone and Fickes
for approximately $73,777,000 in cash (not including expenses) (the "Base
Purchase Price"). In addition, if, during the 12 months ending November 25,
1998, the Company enters into a definitive agreement to sell SW Financial
(directly or in connection with a sale of the Company or its assets
substantially as a whole), or its constituent parts, the Company will pay the
holders of the SW Financial Controlling Interest, including Messrs. Stone and
Fickes, a one-time "price protection" payment under the circumstances described
below. However, if the Amended Proposed Settlement is not approved, Messrs.
Stone and Fickes will retain their SW Financial warrants and the Company will
purchase the SW Financial Controlling Interest for approximately $77,444,000
(the "Revised Base Purchase Price"). In addition, if, during the 12 months
ending November 25, 1998, the Company enters into a definitive agreement to sell
SW Financial (directly or in connection with a sale of the Company or its assets
substantially as a whole), or its constituent parts, the Company will pay the
holders of the SW Financial Controlling Interest, including Messrs. Stone and
Fickes, a one-time "price protection" payment under the circumstances described
below.
If during the 12 months ending November 25, 1998 the Company enters into a
definitive agreement to sell SW Financial as a whole, the amount to be paid to
the holders of the SW Financial Controlling Interest (including Messrs. Stone
and Fickes) for the purchase price protection right will be calculated based
upon amounts received by the Company for its SW Financial common stock in excess
of $298,718,000, which is approximately 115% of $259,755,000 (the equity value
of SW Financial implied by the Base Purchase Price), multiplied by 31.10% if the
Amended Proposed Settlement is approved or multiplied by 32.79% if the Amended
Proposed Settlement is not approved. If during the 12 months ending November 25,
1998 the Company enters into a definitive agreement to sell constituent parts of
SW Financial, the holders of the SW Financial Controlling Interest will receive
31.10% of the proceeds in excess of 115% of the portion of the Base Purchase
Price allocable to the constituent part being sold if the Amended Proposed
Settlement is approved or 32.79% of the proceeds in excess of 115% of the
portion of the implied equity value of SW Financial allocable to the constituent
part being sold if the Amended Proposed Settlement is not approved. If during
the 12 months ending November 25, 1998 the Company enters into a definitive
agreement to sell SW Financial in connection with a sale of the Company, the
amount to be paid to the holders of the SW Financial Controlling Interest
(including Messrs. Stone and Fickes) for the purchase price protection right
will be calculated based upon the product of (i) (x) 2,092,023 ($67,500,000, the
purchase price of the SW Financial Controlling Interest if the original proposed
settlement had been approved, divided by $32.25, the price of the PennCorp
Common Stock at March 31, 1997, the time the consummation of the purchase of the
SW Financial Controlling Interest had been anticipated to occur) if the Amended
Proposed Settlement is approved or (y) 2,156,186 ($69,537,000, the purchase
price of the SW Financial Controlling Interest if the original proposed
settlement had not been approved, divided by $32.25) if the Amended Proposed
Settlement is not approved, and (ii) the per share consideration for the sale of
the Company in excess of $37.09, which represents 115% of $32.25, less (iii)(x)
$6,277,000 (which represents the difference between the Base Purchase Price and
the purchase price of the SW Financial Controlling Interest had the original
proposed settlement been approved) if the Amended Proposed Settlement is
approved or (y) $7,907,000 (which represents the difference between the Revised
Base Purchase Price and the purchase price of the SW Financial Controlling
Interest had the original proposed settlement been approved) if the Amended
Proposed Settlement is not approved.
If the Amended Proposed Settlement is approved, Messrs. Stone and Fickes
will share $20,369,000 (or approximately 27.6%) of the Base Purchase Price, plus
any payment made in respect of the purchase price protection right. Of their
$20,369,000 portion of the Base Purchase Price, approximately $12,880,000 will
be paid to them by the Company in respect of their $7,000,000 personal
investment in SW Financial and approximately $7,489,000 will be paid to them by
the Knightsbridge Fund in accordance with its agreement of limited partnership.
If the Amended Proposed Settlement is not approved, Messrs. Stone and Fickes
will share $24,775,000 (or approximately 32.0%) of the Revised Base Purchase
Price, and will receive their proportionate share of any payment made in respect
of the purchase price protection right. Of their $24,775,000 portion of the
Revised Base Purchase Price, approximately $17,471,000 will be paid to them by
the Company in
8
<PAGE> 11
respect of their $7,000,000 personal investment in SW Financial (including their
SW Financial warrants) and approximately $7,305,000 will be paid to them by the
Knightsbridge Fund in accordance with its agreement of limited partnership. From
these amounts, Messrs. Stone and Fickes have agreed to pay Mr. Greenberg
$728,765 if the Amended Proposed Settlement is approved and $732,392 if the
Amended Proposed Settlement is not approved.
On January 2, 1998, the Company made all payments to Messrs. Stone and
Fickes and the Knightsbridge Fund based on the assumed approval of the Amended
Proposed Settlement.
Proposed Settlement of Shareholder Litigation. As discussed above, on
January 11 and January 25, 1996, shareholder derivative suits relating to the SW
Financial Investment were initiated against the Company and the members of the
PennCorp Board. The defendants in the Tozour case have filed a motion seeking
its dismissal on the ground that the plaintiff failed to comply with the
requirements of Delaware law before instituting a derivative suit, and intend to
defend the lawsuit vigorously. Because the defendants have not been served with
the Miller complaint, no action has been taken in that case, although the
defendants would also defend it vigorously. The defendants believe, however,
that it would not be in the best interests of PennCorp and its shareholders to
expend considerable management and director time and to incur substantial
expenses to litigate these actions. Consequently, PennCorp's legal advisors have
met or spoken by telephone with the plaintiffs' counsel on several occasions to
discuss the terms of a potential settlement.
On December 1, 1997, the defendants and the plaintiffs' counsel agreed in
principle to the terms of a settlement proposal, which superseded and replaced
an earlier stipulation of settlement entered into on March 28, 1997. The
PennCorp Board concluded that it would be appropriate to amend the original
proposed settlement and adjust the amount paid to the Knightsbridge Fund for the
SW Financial Controlling Interest in order to compensate the limited partners
for, among other things, the unexpected and substantial delay in the
consummation of the purchase of the SW Financial Controlling Interest. The
Amended Proposed Settlement consists of the following principal elements: (i)
Messrs. Stone and Fickes will cancel the 335,564 SW Financial common stock
warrants they hold for no consideration enabling PennCorp to purchase the SW
Financial Controlling Interest for $73,770,000, reducing the price to be paid by
PennCorp for the SW Financial Controlling Interest by approximately $3,667,000,
(ii) the PennCorp Board will proceed with the purchase of The Fickes and Stone
Knightsbridge Interests, having received a fairness opinion of a nationally
recognized investment banking firm with respect to the price to be paid for The
Fickes and Stone Knightsbridge Interests, (iii) the PennCorp Board will proceed
with the acquisition of the SW Financial Controlling Interest, having received a
fairness opinion of a nationally recognized investment banking firm with respect
to the price to be paid for the SW Financial Controlling Interest, (iv) the
PennCorp Board will submit the purchases of The Fickes and Stone Knightsbridge
Interests and the SW Financial Controlling Interest to a shareholder vote of a
majority of the PennCorp stockholders present at a meeting and entitled to vote,
and stockholders must approve both transactions, (v) Messrs. Stone and Fickes
will abstain from voting on the proposals to approve the purchase of The Fickes
and Stone Knightsbridge Interests and the SW Financial Controlling Interest, and
(vi) the plaintiffs' counsel will be entitled to conduct confirmatory discovery.
The Amended Proposed Settlement also recognizes PennCorp's obligation to provide
a one-time "price protection payment" associated with a disposition of the SW
Financial Controlling Interest by PennCorp during the 12-month period ending
November 25, 1998 and Messrs. Stone's and Fickes' obligation to grant PennCorp a
price protection right in the event of a sale of their Portsmouth investment as
described in "-- Acquisition of The Fickes and Stone Knightsbridge Interests."
Shareholders approved the purchase of The Fickes and Stone Knightsbridge
Interests and the SW Financial Controlling Interest on December 31, 1997,
plaintiffs' counsel have concluded their confirmatory discovery, and a hearing
on the Amended Proposed Settlement is scheduled before the Delaware Chancery
Court on May 12, 1998.
9
<PAGE> 12
INDEBTEDNESS OF EXECUTIVE OFFICERS
On September 8, 1997, the Company loaned each of Messrs. McDermott,
Silverman and Prager, executive officers of the Company, $310,380, to finance
their purchase of 10,000 shares each of the Company's Common Stock, and Charles
Lubochinski, an executive officer of the Company, $163,630 to finance his
purchase of 5,000 shares of the Company's Common Stock. Each of the above loans
is due and payable (absent the earlier occurrence of certain specified
contingencies) on September 8, 2002, bears interest at the rate of 6.23% per
annum and is secured by a pledge of the shares of Common Stock purchased with
the loan proceeds. These loans were made on a non-recourse basis. As of March
31, 1998, Messrs. McDermott, Silverman and Prager owed $321,134 in unpaid
principal and accrued interest, and Mr. Lubochinski owed $169,300 in unpaid
principal and accrued interest.
On September 8, 1997, Knightsbridge Management loaned each of Messrs. Stone
and Fickes, executive officers and directors of the Company, $1,510,000 to
finance their purchase of 50,000 shares each of the Company's Common Stock. The
loans accrued interest at the rate of 6.23% per annum and were secured by a
pledge of the shares of Common Stock purchased with the loan proceeds. Messrs.
Stone and Fickes have repaid these loans in full.
The Company also guaranteed a bank line of credit of up to $10,000,000 in
the aggregate to permit Messrs. Fickes and Stone to make their side-by-side
investments required as members of the general partner of the Knightsbridge
Fund. The Company's guarantee was secured by a pledge by Messrs. Stone and
Fickes of 250,000 shares of Southwestern Financial Corporation, 2,600 shares of
ACO Brokerage Holdings Common Stock, and each of their 27.5% interest in
Knightsbridge Management's net distributable income. In conjunction with the
consummation of the Knightsbridge restructuring, Messrs. Stone and Fickes repaid
their lines of credit and the guarantees were terminated on January 5, 1998.
On September 30, 1997, the Company loaned Mr. Silverman $100,000. The loan
bears interest at the rate of 6.34% per annum, is due and payable on September
30, 2002, and is secured by a second mortgage on Mr. Silverman's residence. As
of March 31, 1998, the outstanding principal and accrued interest on Mr.
Silverman's loan was $103,144. On January 27, 1995, the Company loaned $30,000
to Mr. McDermott, which loan bears interest at the rate of 7.2% per annum and is
due and payable on demand. As of March 31, 1998, the outstanding principal and
accrued interest on Mr. McDermott's loan was $36,853. The above loans to Messrs.
Silverman and McDermott were made as part of their respective relocation to the
Bethesda, Maryland office of the Company.
On March 5, 1998, Knightsbridge Management loaned each of Messrs.
McDermott, Silverman, Prager and Lubochinski $146,250 and Elizabeth Malone, an
executive officer of the Company, $32,175, to be used to pay tax obligations on
stock awards made to each of them on October 31, 1997. These loans bear interest
at rate of 5.39% per annum and are due and payable on March 5, 2001, with
interest payable in arrears starting on March 5, 1999. The unpaid principal and
accrued interest as of March 31, 1998 was $146,790 for Messrs. McDermott,
Silverman, Prager and Lubochinski and $32,294 for Ms. Malone.
The largest aggregate amount outstanding at any time with respect to the
loans (including the guarantee on the bank line of credit) for Messrs. Stone and
Fickes were $6,240,670 and $4,210,866, respectively. The largest aggregate
amount outstanding at any time through March 31, 1998 with respect to the loans
set forth above for Mr. McDermott was $504,777; Mr. Prager was $467,924; Mr.
Lubochinski was $316,090; Mr. Silverman was $571,068 and Ms. Malone was $32,294.
OTHER RELATIONSHIPS
Maurice W. Slayton, a director of the Company, is the President, Chief
Executive Officer and a Director of Conning & Company ("Conning") and President
of Conning Corporation, the parent of Conning. Conning provides portfolio
management and related services for a portion of the investment assets of the
Company's insurance subsidiaries. In 1997, Conning earned aggregate fees,
including reimbursement of actual out-of-pocket expenses, in the approximate
amount of $1,083,005 for investment management services.
10
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
1997 SENIOR EXECUTIVE COMPENSATION
Each of Messrs. Stone and Fickes were compensated in 1997 pursuant to the
terms of their employment agreements.
Base Salary. Effective as of April 15, 1996, each of Messrs. Stone and
Fickes began receiving an annual base salary of $750,000, which represents
approximately the 67th percentile for the average of the 1995 salaries paid to
the top two executives at the comparison companies selected by the Compensation
Committee's compensation consultant. The Compensation Committee selected the
67th percentile based on its belief that Messrs. Stone and Fickes are critical
to the Company's continuing success and should receive above average
compensation. The Compensation Committee recently reviewed Messrs. Stone's and
Fickes' annual base salaries to determine whether an increase is appropriate
based on competitive industry practices. As a result of such review, Messrs.
Stone's and Fickes' annual base salaries were increased to $800,000 effective
January 1, 1998.
Annual Bonus Opportunity. Messrs. Stone and Fickes participate in the
Company's 1996 Senior Executive Annual Incentive Award Plan (the "Incentive
Plan"), pursuant to which each is eligible to receive an annual cash bonus if
the Company meets or exceeds pre-established performance goals, which for 1997
were based on a targeted growth rate in annual compounded earnings per share
(calculated on a fully-diluted basis without regard to investment gains or
losses) ("EPS"). The target bonus amount for a 1997 EPS increase of 15% over
1996 EPS was set at $800,000, which reflected the 67th percentile for the
average of the 1995 bonuses for the two most senior executives at the comparison
companies selected by the Compensation Committee's compensation consultant.
Based on 1997 results, Messrs. Stone and Fickes did not receive an award under
the Incentive Plan.
Stock Option Awards. In connection with their employment agreements, each
of Messrs. Stone and Fickes received a grant of options in April 1996 to
purchase up to 559,000 shares of Common Stock under the Stock Plan. Of those
options, (i) 250,000 options have an exercise price of $28.875 per share (fair
market value based on the closing price of the Common Stock on the New York
Stock Exchange ("NYSE") on April 15, 1996, the effective date of their
employment agreements), (ii) 103,000 options have an exercise price of $31.762
per share (110% of fair market value as of April 15, 1996), (iii) 103,000
options have an exercise price of $34.939 per share (121% of fair market value
as of April 15, 1996) and (iv) 103,000 options have an exercise price of $38.404
per share (133% of fair market value as of April 15, 1996). All such options
vest in four equal annual installments on each April 15, beginning April 15,
1997, and expire on April 15, 2001. Given the grant of options to Messrs. Stone
and Fickes in 1996 in connection with their employment agreements, no new stock
awards or stock option grants were made to Messrs. Stone and Fickes in 1997
other than replacement options to purchase 225,000 shares and 285,000 shares,
respectively, following the exercise of previously granted warrants. As part of
the exercise of such warrants, Messrs. Stone and Fickes agreed to a four-year
non-compete restriction which would cause Messrs. Stone and Fickes to forfeit
the shares received pursuant to the exercise of their warrants for engaging in
activity which is competitive with the Company. In consideration for agreeing to
such restriction, Messrs. Stone and Fickes were issued 28,169 and 35,727
additional shares of restricted stock, respectively.
Compensation Philosophy. The Compensation Committee's philosophy is to
identify executive compensation with the interests of stockholders and promote
and support the Company's entrepreneurial character by providing the opportunity
for senior management to earn significant compensation if significant value is
created for stockholders. The Compensation Committee believes that executive
officers should share in the risks and rewards experienced by, and therefore
share the perspectives of, stockholders. Accordingly, ownership of the Company's
stock is encouraged and the members of the Compensation Committee believe that
those executives most able to affect changes in stockholder value should receive
compensation weighted toward incentives, such as stock options, that offer the
opportunity for significant economic gain based on the performance of the
Company's stock over a several year horizon, balanced with appropriate base
salary and
11
<PAGE> 14
annual bonus opportunities, which reward short-term performance. Consistent with
this philosophy, the Company granted stock options and loaned money to certain
of the senior executive officers in 1997 which loans were used by such officers
to purchase shares of the Company's common stock. See "INDEBTEDNESS OF EXECUTIVE
OFFICERS."
Section 162(m). It is the Company's policy to take all reasonable steps to
obtain the maximum deduction available for compensation paid to its executives.
Compensation Committee:
Kenneth Roman, Chairman
Bruce W. Schnitzer
David C. Smith
Allan D. Greenberg
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Compensation Committee consisted of Messrs. Roman, Schnitzer,
Smith and Greenberg. (The Compensation Committee currently consists of Messrs.
Roman, Greenberg and Player.) Mr. Greenberg became a member of the Compensation
Committee on September 21, 1995. In 1997, ADG Insurance Advisors, Inc., of which
Mr. Greenberg is Chairman, earned aggregate consulting fees, excluding
reimbursement of actual out-of-pocket expenses, of $222,000 for services in
connection with the Company's acquisition, reinsurance and other activities. Mr.
Greenberg formerly owned a 5% interest in Knightsbridge Capital. Messrs. Stone
and Fickes have purchased Mr. Greenberg's interest in Knightsbridge Capital in
connection with the restructuring of the relationships between the Company and
the Knightsbridge Fund.
Bruce W. Schnitzer, a director of the Company, is a managing member of Wand
Partners L.L.C. ("Wand Partners"), and an owner of Wand Partners Inc., a private
investment firm. Two limited partnerships controlled by Wand Partners and Wand
(Acordia) Partners L.L.C. invested an aggregate of $28,000,000 in the common
stock of ACO Brokerage Holdings Corporation as part of the Acordia transaction.
Wand Partners Inc. received aggregate commitment and financial advisory fees of
approximately $2,000,000 from ACO Brokerage Holdings Corporation in connection
with that transaction. In addition, the Company is a limited partner in a
partnership controlled by Wand Partners (the "Wand Fund"), and invested (through
one of its subsidiaries) $2,000,000 in ACO Brokerage Holdings Corporation
through the Wand Fund. The general partner of the Wand Fund is entitled to
receive 20% of the profits earned by its limited partners, including the
Company, on their investment in ACO Brokerage Holdings Corporation, after they
have been repaid their capital contributions to the partnership, assuming a 9%
preferred rate of return has been achieved on their capital. The Wand Fund has
agreed to offer the Company's $2,000,000 limited partnership interest in ACO
Brokerage Holdings Corporation to its other limited partners, so that the
Company's common stock investment in ACO Brokerage Holdings Corporation will be
limited to its $5,000,000 co-investment. The Company has assumed a "promote"
agreement between Messrs. Stone and Fickes and Wand Partners pursuant to which
Wand Partners will be entitled to receive 20% of the profits earned with respect
to $2,000,000 of the $5,000,000 co-investment. For further information regarding
the Acordia Transaction, see "-- The PennCorp/Knightsbridge
Relationship -- Transactions Involving the Knightsbridge Fund and
PennCorp -- The Acordia Transaction."
As of December 31, 1997, the Company invested a total of $7,500,000 in
transactions sponsored by Wand Partners (including the $2,000,000 investment in
ACO Brokerage Holdings Corporation). The Company has committed to invest up to
an additional $13,000,000 in future transactions sponsored by the Wand Fund. In
addition, the Company has purchased approximately $5,480,000 in limited
partnership interests in other limited partnerships affiliated with Wand
Partners. The Company accrued fees of approximately $163,645 to Wand Partners
and related entities for 1996 and $444,000 for the period from January 1, 1997
through December 31, 1997. As of January 1, 1998, the Company's annual
commitment fee obligation to Wand Partners and related entities is approximately
$451,000 per annum, subject to offset under certain circumstances.
12
<PAGE> 15
STOCK PERFORMANCE GRAPH
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) S&P 500 S&P LIFE PENNCORP
<S> <C> <C> <C>
12/31/92 100.00 100.00 100.00
12/31/93 110.01 101.29 113.94
12/31/94 111.51 84.08 76.40
12/31/95 153.27 120.41 172.14
12/31/96 188.36 147.22 211.36
12/31/97 251.13 187.42 210.75
</TABLE>
The above graph compares the performance of the Company's Common Stock with
that of the S&P 500 Composite Index and the S&P Life Insurance Index over a
measurement period beginning on December 31, 1992. Total stockholder return is
calculated using the change in the stock price or index levels from the
beginning of the measurement period, adjusted for the reinvestment of dividends
on a quarterly basis. The comparison of total return on investment assumes that
$100 was invested on December 31, 1992 in each of the Company, the S&P 500
Composite Index, and the S&P Life Insurance Index, with the latter two
investments weighted on the basis of market capitalization.
13
<PAGE> 16
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1995, 1996 and 1997, the cash compensation as well as certain other compensation
paid to or earned by the Company's Chief Executive Officer and the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") for those years.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
-------------------------- OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS ANNUAL STOCK UNDERLYING COMPENSATION
POSITION YEAR ($) ($) COMPENSATION(6) AWARDS($)(7) OPTIONS(#) ($)(8)
------------------ ---- ------- --------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David J. Stone -- 1997 750,000 -- 60,168 908,450 225,000 11,869
Chairman of the Board 1996 687,495 860,000 -- -- 559,000 11,869
and Chief Executive 1995 408,340 1,150,000 -- -- -- 11,784
Officer(1)
Steven W. Fickes -- 1997 750,000 -- -- 1,152,196 285,000 11,869
President and Chief 1996 687,495 860,000 -- -- 559,000 11,869
Financial Officer(2) 1995 408,340 1,000,000 -- -- 60,000 11,784
James P. McDermott -- 1997 225,000 18,750 -- 46,666 10,000 11,869
Senior Vice
President(3) 1996 187,500 150,000 -- -- 50,000 11,869
1995 150,000 150,000 -- -- -- 11,784
Michael J. Prager -- 1997 225,000 18,750 -- 83,915 10,000 11,869
Senior Vice President 1996 187,500 150,000 -- -- 50,000 11,869
and Senior Financial 1995 150,000 180,000 -- -- -- 265,153
Officer(4)
Scott D. Silverman -- 1997 225,000 18,750 -- 42,248 10,000 66,120
Senior Vice President, 1996 187,500 150,000 -- -- 50,000 55,725
General Counsel and 1995 118,750 230,000 -- -- -- 9,133
Secretary(5)
</TABLE>
- ---------------
(1) All compensation shown under Annual Compensation for 1996 and 1997 was paid
pursuant to Mr. Stone's Employment Agreement. See "-- Employment
Agreements."
(2) All compensation shown under Annual Compensation for 1996 and 1997 was paid
pursuant to Mr. Fickes' Employment Agreement. See "-- Employment
Agreements."
(3) Mr. McDermott became an executive officer of the Company in September 1995.
The table above reflects all of Mr. McDermott's 1995 compensation.
(4) Mr. Prager became an executive officer of the Company in September 1995. The
table above reflects all of Mr. Prager's 1995 compensation.
(5) Mr. Silverman became an executive officer of the Company in January 1994.
(6) The amount reflected for 1997 includes reimbursement of $45,225 for
automobile and driver and $14,943 for personal financial and tax counseling
services paid under the terms of Mr. Stone's Employment Agreement.
(7) Represents value, based on closing price of $32.25 on grant date of March
31, 1997, as reported by NYSE, of shares of restricted stock of 28,169,
35,727, 1,447, 2,602 and 1,310 shares for Messrs. Stone, Fickes, McDermott,
Prager and Silverman, respectively made in consideration of Named Executive
Officers' agreement to a four year non-compete restriction on stock received
upon exercise of stock options or warrants granted under the Company's 1992
Stock Option or 1992 Senior Management Warrant Award Program and the
restricted stock award indicated herein. See -- "Aggregated Option Exercises
in Last Fiscal Year and Fiscal Year-End Option Values." The Named Executive
Officers are entitled to dividends on their restricted stock in the form of
additional restricted stock. At December 31, 1997, the aggregate number of
restricted stock held by Messrs. Stone, Fickes, McDermott, Prager and
Silverman (including accrued dividends) was 141,466, 179,425, 7,266, 13,068
and 6,581, respectively. The aggregate value at December 31, 1997, of the
restricted stock held by Messrs. Stone, Fickes, McDermott, Prager and
Silverman was $5,048,639, $6,403,319, $259,309, $466,371, and $234,863,
respectively.
(8) Except as noted below, represents (a) matching and (b) profit sharing
contributions made to the Company's 401(k) retirement and profit sharing
plan for 1997: (Mr. Stone: $4,750 and $7,119, respectively; Mr. Fickes:
$4,750 and $7,119, respectively; Mr. McDermott: $4,750 and $7,119,
respectively; Mr. Prager: $4,750 and $7,119, respectively; and Mr.
Silverman: $2,816 and $7,119, respectively.) In the case of Mr. Silverman,
the amount reflected for 1997 also includes reimbursement of relocation
expenses of $56,185.
14
<PAGE> 17
The following table shows options and warrants granted to the Named
Executive Officers during the fiscal year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS GRANTED EMPLOYEES PRICE EXPIRATION PRESENT VALUE
NAME (#) IN FISCAL YEAR ($/SH) DATE ($)(2)(3)
---- --------------- -------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
David J. Stone(1).............. 225,000 30.9 32.25 04/15/99 1,549,125
Steven W. Fickes(1)............ 285,000 39.2 32.25 04/15/99 1,962,225
James P. McDermott(1).......... 10,000 1.37 32.25 04/15/99 68,850
Michael J. Prager(1)........... 10,000 1.37 32.25 04/15/99 68,850
Scott D. Silverman(1).......... 10,000 1.37 32.25 04/15/99 68,850
</TABLE>
- ---------------
(1) Represents option grants on March 31, 1997 under the terms of the Stock Plan
to replace previously granted options or warrants exercised on March 31,
1997. The options automatically vest upon a "change of control." In the
event of the death, or termination of a participant's employment by the
Company other than for "cause", all unexercisable stock options held as of
the date of the death or termination of employment shall become immediately
exercisable and all exercisable options shall remain exercisable until: (i)
ninety-days following the participant's death or termination of employment,
or (ii) the date the option expires, whichever is earlier. In the event of
the termination of a participant's employment for "cause", all exercisable
and unexercisable stock options shall be forfeited.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
stock options. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised, so that there is no assurance the value realized by
an executive will be at or near the value estimated by the Black-Scholes
model. Assumptions used in calculating grant date present value under the
Black-Scholes model include stock price volatility at grant date, risk-free
rate of return at grant date, annual dividend yield at grant date, option
term from grant date and closing stock price at grant date. See Note 3
below.
(3) The following assumptions were used to calculate the Grant Date Present
Value using the Black-Scholes option pricing model: stock price volatility
at grant date of 29.35%; risk-free rate of return at grant date of 5.32%;
annual dividend yield of .62%; term of 24.5 months from grant date; and
closing stock price at grant date of $32.25 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE YEAR-END (#) FISCAL YEAR-END ($)(3)
ON EXERCISE REALIZED --------------------------- ---------------------------
(#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Stone........... 112,674 3,633,750 139,750 644,250 546,195 2,412,132
Steven W. Fickes......... 142,907 4,608,750 139,750 704,250 546,195 2,618,412
James P. McDermott....... 5,786 186,603 12,500 47,500 45,288 170,245
Michael J. Prager........ 10,407 335,625 12,500 47,500 45,288 170,245
Scott D. Silverman....... 5,241 169,025 12,500 47,500 45,288 170,245
</TABLE>
- ---------------
(1) Shares received pursuant to cashless stock-for-stock exercise of options or
warrants granted to Named Executive Officers pursuant to Company's 1992
Stock Option Plan or 1992 Senior Management Warrant Award Program. The Named
Executive Officers have agreed to have these shares subject to a four year
non-compete restriction for which they received an additional restricted
stock grant, which restricted stock is reflected under the Restricted Stock
Award column of the Executive Compensation table set forth above. See
"-- EXECUTIVE COMPENSATION -- Summary of Executive Compensation."
(2) Based on the closing price of the Common Stock of $32.25 per share on March
31, 1997, as reported by NYSE.
(3) Based on the closing price of the Common Stock of $35.688 per share on
December 31, 1997, as reported by the NYSE.
15
<PAGE> 18
EMPLOYMENT AGREEMENTS
In June 1996, but effective as of April 15, 1996, each of Messrs. Stone and
Fickes entered into a five-year employment agreement with the Company. These
agreements reflect a three-part compensation program:
Base Salary -- $750,000 per year (subject to annual review for possible
increase).
Annual Incentive Bonus -- Base minimum annual target bonus opportunity of
$800,000 per year if the Company meets or exceeds pre-established performance
goals, which for 1996 and 1997 was based on a targeted growth rate in annual
compounded earnings per share of 15%.
Initial Stock Option Awards
(i) 250,000 options with an exercise price of $28.875 per share;
(ii) 103,000 options with an exercise price of $31.762 per share;
(iii) 103,000 options with an exercise price of $34.939 per share; and
(iv) 103,000 options with an exercise price of $38.404 per share.
All the initial options granted in accordance with the employment agreements
will vest and become exercisable, except as otherwise described in this
paragraph, in four equal installments on each April 15, commencing April 15,
1997, and will expire on April 15, 2001. In the event of the death or disability
(as defined) of the executive, all unexercisable options immediately will vest
and become exercisable and all the vested and unexercisable options held by the
executive on the date of death or termination of employment will remain
exercisable until the end of the option term or the end of the one-year period
following such death or the termination of employment, whichever is earlier. In
the event of the termination of the executive's employment by the Company
without "cause", by the executive for "good reason" or by the Company or the
executive following a "change of control" (in each case, as defined), all
unexercisable options immediately will vest and become exercisable and all
vested and unexercisable options held by the executive on the date of the
termination of employment will remain exercisable until the end of the option
term. In the event of the termination of employment by the Company for "cause",
the executive will forfeit all previously unexercised and unexercisable stock
options granted pursuant to the employment agreement. In the event of a
termination of employment by the executive other than for "good reason", all
vested and exercisable options held by the executive on the date of such
termination of employment will remain exercisable until the earlier of the end
of the option term or the end of the six-month period following the termination
of employment. The foregoing discussion addresses the consequences of
termination of employment with respect only to the options initially granted
under the employment agreement.
The employment agreements for Messrs. Stone and Fickes also provide that if
employment is terminated due to death, the executive's estate will receive any
annual salary or similar amounts (but not bonus) earned but not paid prior to
the date of death, plus any additional death benefits provided under the
Company's other benefit plans and programs. In the event of the termination of
employment due to disability, in addition to any other benefits provided under
the Company's otherwise applicable plans and programs and the right to continue
to participate in the Company's employee benefit plans until reaching age 65,
the executive will receive (i) any salary or similar amounts (not bonus) earned
but not paid prior to the date of termination of employment, plus (ii) in
periodic installments until the last day of the month in which the employee
reaches age 65, an annual amount equal to 60% of the executive's base salary in
effect on the date of the termination of employment, less the amount of any
disability benefits (other than those attributable to the executive's
contributions) provided under the Company's disability plan, plus (iii) a pro
rated bonus for the year in which termination of employment occurs based on an
amount equal to the product of the average percentage of the executive's base
salary paid to the executive as an incentive bonus for the two calendar years
immediately preceding the termination of employment. In the event of termination
of employment without cause or for good reason, in addition to continuing to
participate in the employee benefit plans of the Company until the earlier of
the end of the period for which payments are made under the agreement or the
date the executive receives equivalent coverage and benefits from a subsequent
employer, the executive will receive (i) any salary or similar amounts (but not
bonus) earned but not paid prior to the date of termination of employment, plus
16
<PAGE> 19
(ii) a lump sum payment equal to the executive's base salary, at the annualized
rate in effect on the date of termination of employment, for the longer of the
end of the term of the employment agreement or 24 months (unless termination of
employment follows a change in control, such amount to be discounted using a
discount rate based on the applicable long-term federal rate published by the
Internal Revenue Service (the "IRS") for the month in which termination of
employment occurs), plus (iii) an amount equal to the same percentage of the
executive's base salary as the average of the annual incentive bonuses paid to
the executive for the two calendar years immediately preceding the date of
termination of employment was as a percentage of base salary in each such year.
In the event of a termination of employment following a change of control, the
executive will receive the same benefits as for termination without cause, or if
the executive resigns without good reason, the executive will be entitled to
receive only base salary and similar amounts (but not bonus) earned but not paid
prior to the termination of employment.
The employment agreements also provide that Messrs. Stone and Fickes will
not engage in any "competitive activity" (as defined) during the term of the
agreements or, in the event of a voluntary termination of employment by the
executive, for a six-month period following the termination of employment. In
addition, during the term of the agreements or, in the event of a voluntary
termination of employment by the executive, for a one-year period following the
termination of employment, the executive will not, directly or indirectly,
solicit, negotiate with or enter into discussions with the shareholders or
representatives of any business with which the Company has engaged in
discussions to acquire, merge, or enter into a joint venture during the 12-month
period immediately preceding the date of the termination of employment.
Moreover, the executive will agree not to solicit (i) the Company's employees
for 18 months following the termination of employment and (ii) the Company's
agents, brokers or policyholders for 36 months following the termination of
employment.
Following the approval by the Company's shareholders of the purchase by the
Company of The Fickes and Stone Knightsbridge Interests and the SW Financial
Controlling Interest, Messrs. Stone and Fickes amended their employment
agreements to provide that they shall not directly or indirectly engage in any
Fund Competitive Activity (as that term is defined in amendment number 2 to the
employment agreement) during (i) the term of employment, (ii) in the event of a
voluntary termination of employment prior to the date on which the aggregate
Investments (as defined in the Knightsbridge Fund Partnership Agreement) made by
the Knightsbridge Fund in Portfolio Companies (as defined in the Knightsbridge
Fund Partnership Agreement) equals or exceeds $92 million (the Fully Invested
Date"), the one-year period following the date of the executive's termination of
employment, or (iii) in the event of a voluntary termination of employment on or
after the Fully Invested Date, the nine-month period following the Fully
Invested Date or the six-month period following the date of the executive's
termination of employment, whichever is longer.
In November, 1997, the Company entered into Executive Retention Agreements
("Retention Agreement") with Messrs. McDermott, Lubochinski, Prager, and
Silverman (each an "Executive"). Under the terms of the Retention Agreement, in
the event an Executive's employment with the Company or successor is terminated
by the Executive for "Good Reason" (as defined in the Retention Agreement)
within three years following a "Change in Control" or a "Potential Change of
Control" (each as defined in the Retention Agreement) or by the Company or
successor without "Cause" (as defined in the Retention Agreement), the Executive
will be entitled to: (A) an amount equal to the sum of (i) the Executive's
accrued and unpaid salary, vacation and personal days as of the termination
date, (ii) accrued and unpaid bonus, if any, for the Company's prior fiscal year
and (iii) pro-rata annual bonus for the fiscal year in which the termination
occurred; and (B) termination pay equal to two times the Executive's Annual Pay
(as defined). In addition, all unexercisable stock options that are held by the
Executive shall become immediately exercisable and all restrictions on
restricted stock held by the Executive shall lapse, and such stock shall be
fully vested. The Executive shall also be entitled to a lump sum payment equal
to the Executive's unvested accrued benefit under any Company sponsored tax
qualified retirement plan and group health, dental and life insurance plan
coverage at Company's cost, for the Executive and his dependents for a period of
the earlier of three years after termination of employment or when the Executive
becomes covered under another employer plan providing similar benefits.
17
<PAGE> 20
The Executive shall continue (i) at the Company's election, as a full-time
employee for up to six months following notice of termination ("Transition
Period") and (ii) as a part-time casual employee of the Company for a period of
one year following the later of notice of termination or the end of the
Transition Period (the "Consulting Period"). During the Transition Period, the
Executive shall continue to receive the same compensation and benefits as he did
prior to termination, and shall receive a lump sum payment equal to the Annual
Pay for services rendered during the Consulting Period. The Executive may also
be entitled to a gross-up payment if any of the amounts payable to the Executive
are subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1976, as amended.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Except as otherwise noted below, the following table sets forth, as of
April 8, 1998, the ownership of the outstanding shares of Common Stock held by
persons known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, by all directors of the Company, by the Named Executive
Officers, and by the executive officers and directors of the Company as a group,
and the percentage of the Common Stock represented thereby. Except as otherwise
noted below, the Company believes that each director, Named Executive Officer,
executive officer and over 5% stockholder shown below has sole voting and sole
investment power with respect to all shares beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ -------------------- ----------------
<S> <C> <C>
The Mutuelles AXA(1)
100-101 Terrasse Boieldieu............ 3,316,460 11.7
92042 Paris La Defense France
Princeton Services, Inc.(2)
800 Scudder Mill...................... 2,141,100 7.4
Plainsboro, New Jersey 08536
Morgan Stanley, Dean Witter, Discover &
Co.(3)
1585 Broadway......................... 1,710,512 5.93
New York, New York 10036
Massachusetts Financial Services
Company(4)
500 Boylston Street................... 1,905,871 6.6
Boston, MA 02116
Legg Mason, Inc.(5)
100 Light Street...................... 1,519,059 5.26
Baltimore, MD 21202
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------ -------------------- ----------------
<S> <C> <C>
Steven W. Fickes(6)..................... 869,645 2.98
Lewis L. Glucksman(7)................... 1,000 *
Allan D. Greenberg(8)................... 403,753 1.40
James P. McDermott(9)................... 41,699 *
Thomas A. Player(10).................... 8,642 *
Michael J. Prager(11)................... 47,618 *
Kenneth Roman(12)....................... 9,439 *
Bruce W. Schnitzer(13).................. 44,190 *
Scott D. Silverman(14).................. 42,581 *
Maurice W. Slayton(15).................. 7,424 *
David C. Smith(16)...................... 9,815 *
David J. Stone(17)...................... 1,435,578 4.92
All directors and executive officers as
a group(18)........................... 2,966,541 9.85
</TABLE>
- ------------------------
* Represents less than 1%.
(1) The Mutuelles AXA (consisting of AXA Assurances I.A.R.D. Mutuelle; AXA
Assurances Vie Mutuelle; Alpha Assurances Vie Mutuelle; and AXA Courtage
Assurance Mutuelle (formerly known as Uni Europe Assurance Mutuelle), as a
group) and AXA-UAP parent holding company for AXA Sun Life & Provincial
Holdings PLC (U.K.) and The Equitable Companies Incorporation. Each of the
Mutuelles AXA and AXA-UAP, disclaim beneficial ownership of the shares
shown above. The principal business office of (i) Alpha Assurances Vie
Mutuelle is 100-101 Terrasse Boieldieu 92042 Paris La Defense France; (ii)
AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle is 21, rue
de Chateaudun 75009 Paris France; (iii) AXA Courtage Assurance Mutuelle is
26, rue Louis le Grand 75002 Paris France; and (iv) AXA-UAP is 23, avenue
Matignon 75008 Paris France. The Equitable Companies Incorporated is a
parent holding company for The Equitable Life Assurance Society of the
United States, an insurance company, a registered investment adviser and
broker-dealer, Alliance Capital Management L.P., a registered investment
adviser, Donaldson, Lufkin & Jenrette Securities Corporation, a registered
investment adviser and broker-dealer and Wood, Struthers & Winthrop
Management Corporation, a registered investment adviser. The principal
business office of The Equitable Companies Incorporated is 787 Seventh
Avenue, New York, New York 10019. Each of the foregoing subsidiaries of The
Equitable Companies Incorporated operates under independent management and
makes independent decisions. As of December 31, 1997 based on Schedule
13G/A filed with Securities and Exchange Commission ("SEC") on February 17,
1998, (i) AXA Sun Life & Provincial Holdings PLC has sole voting and
dispositive power over 150,700 shares of Common Stock; (ii) The Equitable
Life Assurance Society of the United States has sole voting and dispositive
power over 14,500 shares of Common Stock; (iii) Alliance Capital
Management, L.P. is deemed to have sole power to vote over 1,574,157 shares
of Common Stock; shared power to vote over 958,848 shares of Common Stock
and deemed to have sole power to dispose over 2,910,280 shares of Common
Stock, including 185,255 shares of Common Stock issuable upon the
conversion of the Company's $3.375 Convertible Preferred Stock; (iv)
Donaldson, Lufkin & Jenrette Securities has sole voting power to vote and
dispose of 72,996 shares of Common Stock, and shared power to dispose over
96,984 shares of Common Stock; and (v) Wood, Struthers & Winthrop
Management Corporation has sole power to vote over 37,000 shares of Common
Stock and sole power to dispose over 71,000 shares of Common Stock. The
shares held by Alliance Capital Management, L.P. and Wood, Struthers &
Winthrop Management Corp. were acquired solely for investment purposes on
behalf of client discretionary investment advisory accounts. The shares
held by AXA Sun Life & Provincial Holdings, PLC, The Equitable Life
Assurance Society of the United States and Donaldson, Lufkin & Jenrette
Securities Corporation were acquired solely for investment purposes.
(2) The following information was provided by Princeton Services, Inc.("PSI"),
as parent holding company for Merrill Lynch Asset Management L.P., d/b/a
Merrill Lynch Asset Management ("MLAM"), an investment advisor registered
under the Investment Advisors Act of 1940 and Merrill Lynch Capital Fund,
Inc. ("Merrill Lynch Fund"), an investment company regulated under the
Investment Company act of 1940 for which MLAM acts as investment adviser.
As of December 31, 1997, based on Schedule 13G/A filed with SEC on February
4, 1998, (i) PSI may be deemed to share voting and dispositive power over
2,141,100 shares of Common Stock; (ii) MLAM has shared voting power and
shared dispositive power over 2,141,100 shares of Common Stock and (ii)
Merrill Lynch Fund has shared voting and dispositive power over 2,000,000
shares of Common Stock. The principal business office of PSI, MLAM and
Merrill Lynch Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(3) The following information was provided by Morgan Stanley, Dean Witter,
Discover & Co. ("Morgan Stanley") for Morgan Stanley and MS Asset
Management Limited, both of which are investment advisers registered under
the Investment Advisors Act of 1940. As of December 31, 1997 based on
Schedule 13G filed with the SEC on February 12, 1998, Morgan Stanley has
(i) shared voting power as to 1,624,912 shares of Common Stock; and (ii)
shared dispositive over 1,710,512 shares of Common Stock. Morgan Stanley
Asset Management Limited has (i) shared voting power as to 1,597,795 shares
of Common Stock, and (ii) shared dispositive power as to 1,683,395 shares
of Common Stock. The principal office of Morgan Stanley is 1585 Broadway,
New York, NY 10036 and the principal office of MS Asset Management Limited
is 25 Cabot Square, Canary Wharf, London, E14 4QA England.
19
<PAGE> 22
(4) The following information was provided by Massachusetts Financial Services
Company ("MFSC"). MFSC is an investment adviser registered under the
Investment Advisors Act of 1940. As of December 31, 1997, based on 13G/A
filed by MFSC with the SEC on February 12, 1998, MFSC has (i) sole voting
power over 1,890,971 shares of Common Stock, and (ii) sole dispositive
power as to 1,905,871 shares of Common Stock. The principal office of MFSC
is 500 Boylston Street, Boston, MA 02116.
(5) The following information was provided by Legg Mason, Inc. ("Legg Mason").
As of December 31, 1997, based on 13G filed by Legg Mason, as parent
holding company, with the SEC on February 12, 1998, Legg Mason has (i) sole
voting power as to 1,300,000 shares of Common Stock and (ii) sole
dispositive power as to 1,519,059 shares of Common Stock. Shares are held
by Legg Mason Special Investment Trust, Inc. with Legg Mason Fund Adviser,
Inc. having power to dispose of 1,300,000 shares. The remainder of shares
are held by various clients of Legg Mason Capital Management, Inc., Legg
Mason Trust Company and Legg Mason Wood Walker, Inc., which have power to
dispose thereof. The principal business office of Legg Mason is 100 Light
Street, Baltimore, Maryland 21202.
(6) Consists of (i) 192,726 shares of Common Stock owned of record by Mr.
Fickes, (ii) 179,425 shares of restricted Common Stock, (iii) 279,500
shares of Common Stock that may be purchased pursuant to presently
exercisable stock options awarded to Mr. Fickes pursuant to his Employment
Agreement effective April 15, 1996, (iv) 173,160 shares of Common Stock
which will be issued to Mr. Fickes on April 15, 2001, in consideration of
Mr. Fickes' interest in Knightsbridge Capital, L.L.C. and related entities,
(v) 43,106 shares of Common Stock held of record by Mr. Fickes' wife and
(vi) 1,728 shares of Common Stock held of record by Mr. Fickes' children.
Mr. Fickes disclaims beneficial ownership of Common Stock not held of
record by him.
(7) Consists of 1,000 shares of Common Stock owned of record as of April 14,
1998 by Mr. Glucksman.
(8) Consists of (i) 168,753 shares of Common Stock owned of record by Mr.
Greenberg, (ii) 225,000 shares of Common Stock that may be purchased
pursuant to a presently exercisable Management Warrant and (iii) 10,000
shares of Common Stock owned of record by a trust for the benefit of Mr.
Greenberg's minor children over which Mr. Greenberg's wife has sole voting
power. Mr. Greenberg disclaims beneficial ownership of Common Stock not
held of record by him.
(9) Consists of (i) 21,933 shares of Common Stock owned of record by Mr.
McDermott, (ii) 7,266 shares of restricted Common Stock, and (iii) 12,500
shares of Common Stock subject to a presently exercisable stock option.
(10) Consists of (i) 6,128 shares of Common Stock owned of record by Mr. Player,
(ii) 1,987 shares of restricted Common Stock, and (iii) 527 shares of
Common Stock owned by Mr. Player's wife. Mr. Player disclaims beneficial
ownership of Common Stock not held of record by him.
(11) Consists of (i) 22,050 shares of Common Stock owned of record by Mr.
Prager, (ii) 13,068 shares of restricted Common Stock, and (iii) 12,500
shares of Common Stock subject to a presently exercisable stock option.
(12) Consists of (i) 7,987 shares of Common Stock owned of record by Mr. Roman
and (ii) 1,452 shares of restricted Common Stock.
(13) Consists of (i) 23,497 shares of Common Stock owned of record by Mr.
Schnitzer, (ii) 18,706 shares owned of record by Magical Corporation, of
which Mr. Schnitzer is the sole owner and (iii) 1,987 shares of restricted
Common Stock.
(14) Consists of (i) 23,500 shares of Common Stock owned of record jointly by
Mr. Silverman and his wife, (ii) 6,581 shares of restricted Common Stock,
and (iii) 12,500 shares of Common Stock subject to a presently exercisable
stock option.
(15) Consists of (i) 5,437 shares of Common Stock owned of record by Mr. Slayton
and (ii) 1,987 shares of restricted Common Stock.
(16) Consists of 7,987 shares of Common Stock owned of record jointly by Mr.
Smith and his wife and (ii) 1,828 shares of restricted Common Stock.
(17) Consists of (i) 520,647 shares of Common Stock held of record by Mr. Stone,
(ii) 141,466 shares of restricted Common Stock, (iii) 279,500 shares of
Common Stock that may be purchased pursuant to presently exercisable stock
options awarded to Mr. Stone pursuant to his Employment Agreement effective
April 15, 1996, (iv) 173,160 shares of Common Stock which will be issued to
Mr. Stone on April 15, 2001 in consideration for Mr. Stone's interest in
Knightsbridge Capital, L.L.C. and related entities, and (v) 320,805 shares
of Common Stock held of record by Mr. Stone's wife. Mr. Stone disclaims
beneficial ownership of Common Stock not held of record by him.
(18) Assumes the exercise of warrants or options to purchase 835,250 shares of
Common Stock and includes 364,154 shares of restricted Common Stock which
do not (absent certain contingencies) vest until March 31, 2001 or March
31, 2000 in the case of restricted stock held by Messrs. Player, Roman,
Schnitzer, Slayton and Smith, and includes 346,320 shares which will be
issued to Messrs. Fickes and Stone on April 15, 2001. See Notes 6 to 17.
PROPOSAL NUMBER 1
ELECTION OF CLASS III DIRECTORS
Under the Company's Certificate of Incorporation, which provides for a
"classified" board of directors, three directors will be elected at the meeting
as Class III directors, each to hold office for a three-year term expiring at
the 2001 annual meeting of stockholders and/or until such director's successor
shall be elected and qualified. See "THE PENNCORP ANNUAL MEETING -- Voting at
the Annual Meeting."
Unless authority to vote for one or more of the nominees for Class III
Director is withheld, shares represented by proxies will be voted FOR the
election of the nominees named below. If at the time of the
20
<PAGE> 23
meeting any of the nominees should be unwilling or unable to serve, the
discretionary authority provided in the proxy will be exercised to vote for a
substitute or substitutes, as the Board of Directors recommends. The Board has
no reason to believe that any of the nominees will be unwilling or unavailable
to serve as a director.
The persons named below have been nominated for election as Class III
directors. Each nominee other than Mr. Stone who presently serves as a Class I
director, presently serves as a Class III director of the Company. The Board of
Directors nominated David J. Stone, currently a Class I director, to serve as a
Class III director. Mr. Stone will resign as a Class I director upon his
election as a Class III director. The Board of Directors has agreed to elect Mr.
David C. Smith, currently a Class III director, to fill Mr. Stone's vacancy as a
Class I director for the unexpired term. These changes reflect the Nominating
Committee's and the Board's desire to extend Mr. Smith's current term for one
additional year. Also listed below are each of the currently serving Class I,
Class II and Class III directors of the Company.
CLASS III DIRECTORS NOMINEES
LEWIS L. GLUCKSMAN, Age 72
Director
Mr. Glucksman became a director of the Company and Chairman of the
Executive Committee of the Board on April 14, 1998. Mr. Glucksman, formerly Vice
Chairman of Smith Barney Inc., retired in March 1998. He currently serves as a
senior advisor to the management of Salomon Smith Barney. Prior to becoming Vice
Chairman, Mr. Glucksman held various positions at Smith Barney, including
heading the Corporate Finance Department, Capital Markets, and Smith Barney
Europe, Ltd. Prior to joining Smith Barney, Mr. Glucksman was the Chairman of
Glucksman & Company, a private investment banking firm which he founded in 1984.
From 1963 through 1984, he was associated with Lehman Brothers and its
successor, Lehman Brothers Kuhn Loeb, Inc. in a number of positions, including
President and Chairman. In addition, from 1976 through 1984, Mr. Glucksman
served as a Commissioner of the Port Authority of New York and New Jersey. Mr.
Glucksman has served on various corporate boards, and is currently a director of
Risk Capital Holdings, an independent company affiliated with Marsh & McLennan
Company, Inc. and a member of the Board of Trustees of New York University. Mr.
Glucksman has over 48 years experience in finance related businesses.
BRUCE W. SCHNITZER, Age 53
Director
Mr. Schnitzer has been a director of the Company since August 1990. Since
1985, Mr. Schnitzer has served as Chairman of the Board of Wand Partners Inc.
(or predecessor investment activities), a private investment firm located in New
York, New York. Mr. Schnitzer also serves as a director of the following U.S.
companies with publicly quoted securities: AMRESCO Inc. (a manager of real
estate assets) and Nestor, Inc. (a technology company). From 1983 to 1985, Mr.
Schnitzer served as President and Chief Executive Officer of Marsh & McLennan,
Incorporated, an insurance brokerage firm. See "EXECUTIVE
COMPENSATION -- Compensation Committee Interlocks and Insider Participation."
DAVID J. STONE, Age 55
Chairman of the Board,
Chief Executive Officer and Director
Mr. Stone has served as Chairman of the Board and as a director of the
Company since its formation in 1989, as Chief Executive Officer since July 1,
1995, as President from July 1, 1995 until March 21, 1996 and as Chief Marketing
Officer from August 1990 until May 1993. Mr. Stone also serves as Chairman of
the Board and President of David J. Stone & Company, a New York based merchant
banking firm specializing in leveraged acquisitions organized in 1978. Mr. Stone
has more than 22 years experience in finance related business. During 1995,
1996, and 1997, Mr. Stone was a member and served as a manager of Knightsbridge
Capital, which is the General Partner of the Knightsbridge Fund. The Company is
a 16.3% limited partner in
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<PAGE> 24
the Knightsbridge Fund. The Company purchased Mr. Stone's interests in
Knightsbridge Capital on January 5, 1998. See "CERTAIN TRANSACTIONS -- The
Knightsbridge Restructuring Plan and Related Litigation Settlement."
CLASS III DIRECTOR
DAVID C. SMITH, Age 56
Director
Mr. Smith has been a director of the Company since September 1994. Since
1993 he has been a management consultant. Mr. Smith was with KPMG from 1964
until his retirement in 1993, having served as Vice Chairman-Tax from 1987 until
1993. He also served on the Board of Directors and the Management Committee of
KPMG. Mr. Smith is a member of the American Institute of Certified Public
Accountants. He currently serves on the Board of Governors of Citizens'
Scholarship Foundation of America.
CLASS I DIRECTORS (TERM EXPIRES IN 1999)
STEVEN W. FICKES, Age 43
President, Chief Financial Officer and Director
Mr. Fickes has served as Chief Financial Officer and as a director of the
Company since August 1990, as President since March 21, 1996, and as Vice
Chairman of the Board from August 1990 until March 21, 1996. From 1982 to July
1988, Mr. Fickes held various positions with Tillinghast, an international
actuarial consulting firm, most recently serving as the principal in charge of
its Washington, D.C. office, and from July 1988 to August 1990 was President of
a private consulting firm. Mr. Fickes is a Fellow of the Society of Actuaries
and a member of the American Academy of Actuaries. Mr. Fickes has more than 20
years experience in the insurance industry. During 1995, 1996 and 1997, Mr.
Fickes was a member and served as a manager of Knightsbridge Capital. The
Company purchased Mr. Fickes' interests in Knightsbridge Capital on January 5,
1998. See "CERTAIN TRANSACTIONS -- The Knightsbridge Restructuring Plan and
Related Litigation Settlement."
THOMAS A. PLAYER, Age 58
Director
Mr. Player has been a director of the Company since August 1990. From June
1974 to June 1995, Mr. Player served as a founding partner of Neely & Player,
P.C., a law firm located in Atlanta, Georgia. In June 1995, Mr. Player became a
senior partner in the law firm of Morris, Manning & Martin, an Atlanta based
commercial law firm having offices in Washington, D.C. Mr. Player currently
serves as a director for Amerisure, Inc. Mr. Player is the author of a paper for
the Organization of Economic Cooperation and Development concerning insurer
reorganization. Mr. Player has over 30 years experience in the insurance
industry.
CLASS II DIRECTORS (TERM EXPIRES IN 2000)
ALLAN D. GREENBERG, Age 53
Director
Mr. Greenberg has served as Vice Chairman of the Board and as a director of
the Company since August 1990. Mr. Greenberg also serves as Chairman of the
Board of ADG Insurance Advisors Inc. ("ADG"), a private consulting firm
specializing in life insurance actuarial and acquisition services. From 1981 to
1988, Mr. Greenberg was Vice President, Chief Actuary and a director of Geneve
Capital Group, Inc., and from 1984 to 1988 he also served as Executive Vice
President of Standard Security Life Insurance Company of New York. Mr. Greenberg
is a Fellow of the Society of Actuaries, a Fellow of the Canadian Institute of
Actuaries and a Member of the American Academy of Actuaries. Mr. Greenberg has
more than 28 years experience in the insurance industry. ADG provided consulting
services to the Company prior to January 1, 1998. See "EXECUTIVE
COMPENSATION -- Compensation Committee Interlocks and Insider Participation."
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<PAGE> 25
KENNETH ROMAN, Age 67
Director
Mr. Roman has been a director of the Company since April 1993. From 1988 to
1989, Mr. Roman served as Chairman and Chief Executive of The Ogilvy Group and,
from 1985 to 1989, as Chairman of Ogilvy & Mather Worldwide. He was Executive
Vice President of American Express from 1989 to 1991. He currently serves as a
Director of Compaq Computer Corporation, Brunswick Corporation and Coty, Inc. In
addition, Mr. Roman is a Vice Chairman of The New York Botanical Garden and an
Overseer of Memorial Sloan-Kettering Cancer Center.
MAURICE W. SLAYTON, Age 59
Director
Mr. Slayton has been a director of the Company since August 1990. He is
President, Chief Executive Officer and a Director of Conning & Company
("Conning"). Mr. Slayton has over 20 years of experience at Conning. Since
joining Conning, Mr. Slayton co-founded the asset management group and has
worked in and actively developed all aspects of Conning's business, including
industry research, securities research, management consulting, financial
advisory services, and private equity funds. Mr. Slayton also serves on the
Board of Directors for Arlberg Holding Company, Inc., GAN National Insurance
Company, GAN North American Insurance Company, Cox Insurance Holdings, Plc and
MedSpan, Inc. Conning provides investment management services to certain of the
Company's insurance subsidiaries. See "CERTAIN TRANSACTIONS -- Other
Relationships."
EXECUTIVE OFFICERS
In addition to Messrs. Stone and Fickes, who also serve as directors of the
Company, Charles H. Lubochinski, Elizabeth C. Malone, James P. McDermott,
Michael J. Prager and Scott D. Silverman serve as executive officers of the
Company. Such officers are elected by the Board of Directors, each to serve
until his or her successor is elected and has qualified, or until his or her
earlier resignation, removal from office or death.
CHARLES H. LUBOCHINSKI, Age 51
Senior Vice President
Mr. Lubochinski served as a Vice President of the Company from May 18, 1993
until his election as a Senior Vice President on July 11, 1996. From June 1981
to December 1990, Mr. Lubochinski served as Senior Vice President with Geneve
Corporation and affiliates, an insurance holding and financial services company.
From January 1991 to December 1993, Mr. Lubochinski was employed by ADG as
Senior Vice President. Mr. Lubochinski has more than 16 years experience in the
insurance industry.
ELIZABETH C. MALONE, Age 41
Vice President
Ms. Malone joined the Company in February 1996 and was elected a Vice
President of the Company in March 1996. From January 1994 to January 1996, Ms.
Malone was a Vice President of Legg, Mason, Wood, Walker, Inc. From September
1991 to November 1993, Ms. Malone was Manager of Financial Analysis for the
National Association of Insurance Commissioners. During 1991, Ms. Malone was
employed by the Treasurer's Office of Alexander & Alexander Services Inc. From
August 1983 to November 1990, Ms. Malone was a Senior Security Analyst for Alex.
Brown & Sons Incorporated. Ms. Malone has more than 12 years of experience in
the insurance industry.
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<PAGE> 26
JAMES P. McDERMOTT, Age 36
Senior Vice President
Mr. McDermott joined the Company in November 1992 as Vice President and
Controller of the Company's insurance subsidiaries. He was elected Senior Vice
President of the Company in September 1995. From January 1985 until November
1992, Mr. McDermott was employed by KPMG KPMG, serving as a Senior Manager in
the firm's insurance practice prior to joining the Company. Mr. McDermott has
more than 13 years experience in the insurance industry.
MICHAEL J. PRAGER, Age 38
Senior Vice President and Senior Financial Officer
Mr. Prager joined the Company in October 1990 as Senior Vice President and
Chief Actuary of the Company's insurance subsidiaries. He was elected Senior
Vice President and Senior Financial Officer of the Company in September 1995.
From June 1989 to October 1990, Mr. Prager served as a Manager of KPMG KPMG. Mr.
Prager has more than 19 years experience in the insurance industry.
SCOTT D. SILVERMAN, Age 39
Senior Vice President, General Counsel and Secretary
Mr. Silverman joined the Company in March 1992 and was elected Vice
President, General Counsel and Secretary of the Company in January 1994. Mr.
Silverman was elected a Senior Vice President of the Company in September 1995.
From 1990 to March 1992, he served as Vice President -- Legal and Secretary of
Independence Holding Company and from 1988 to March 1992, he served as Vice
President, Counsel and Secretary of Standard Security Life Insurance Company of
New York, a subsidiary of Independence Holding Company. Mr. Silverman has more
than 15 years experience in the insurance industry.
COMMITTEES OF THE BOARD
The Board of Directors has established an Executive Committee currently
composed of Messrs. Glucksman (Chairman), Stone, Fickes and Schnitzer;
Compensation, Stock Award and Stock Option Committees currently composed of
Messrs. Roman (Chairman), Greenberg (Compensation Committee only), and Player;
an Audit Committee currently composed of Messrs. Glucksman (Chairman), Smith and
Player; a Finance Committee currently composed of Messrs. Fickes (Chairman),
Stone and Schnitzer; a Nominating Committee currently composed of Messrs. Roman
(Chairman), Stone, Schnitzer and Fickes; a Knightsbridge Committee currently
composed of Messrs. Player (Chairman), Schnitzer, Slayton, Smith and Roman; and
a Compliance Committee currently composed of Messrs. Player (Chairman),
Greenberg and Roman.
a. The Executive Committee.
The Executive Committee, between meetings of the PennCorp Board has
all the powers and can exercise all the duties of the Board of Directors in
the management of the business of the Company which may lawfully be
delegated to it by the Board of Directors and that are not in conflict with
specific powers conferred by the Board of Directors upon any other
committees of the Board of Directors.
b. Compensation and Stock Award and Stock Option Committee.
The Compensation Committee is responsible for reviewing all
compensation related matters requiring approval of the PennCorp Board and
recommending action to be taken by the Board of Directors on such matters,
including compensation (base salary and bonuses) of senior management of
the Company and its subsidiaries. Members of the Stock Award and Stock
Option Committee administer the Company's current stock option and warrant
plans, which includes making recommendations to the Board of Directors
concerning the timing of awards of options, the number of shares subject to
options, the identity of recipients of options, the price at which such
options are exercisable and the vesting provisions of such options.
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<PAGE> 27
c. Audit Committee.
The principal functions and duties of the Audit Committee are to
determine that appropriate procedures exist and are observed relating to
financial reporting and disclosure to shareholders and regulatory bodies,
and that required accounting practices, policies and procedures and
internal control systems are in place and can be relied upon to assure the
quality and accuracy of all such reports. In addition, the Audit
Committee's responsibilities include the following: selecting and
recommending to the Board of Directors the appointment of independent
public accountants; reviewing and approving the proposed scope of and fees
relating to the independent accountants' annual audit; and reviewing
internal audit activity, including scope, quality of staff and interaction
with independent accountants.
d. Nominating Committee.
The Nominating Committee is responsible for (i) reviewing the
performance of all directors; (ii) nominating persons to serve as directors
of the Company; and (iii) periodically reviewing the needs of the Company
and seeking additional directors as may be required and justified. The
Nominating Committee does not presently intend to consider nominees
proposed by stockholders. Stockholders who desire to nominate directors at
the 1999 annual meeting or at any special meeting called for such purpose
must follow the procedures described under "CERTAIN BYLAW PROVISIONS".
e. Finance Committee.
The principal functions and duties of the Finance Committee are to
monitor the financial affairs of the Company, including reviewing the
Company's investments, evaluating current financial decisions facing
management, including the adequacy of or need for capital, and assisting
management in the preparation of specific recommendations on financial
matters.
f. Compliance Committee.
The principal functions and duties of the Compliance Committee are to
monitor the corporate, regulatory and field compliance affairs of the
Company. This includes: (i) reviewing the adequacy of compliance staff,
including quality and promptness of response to compliance issues; (ii)
reviewing the adequacy and effectiveness of compliance programs and
policies, and proposing changes as appropriate; (iii) analyzing and
reviewing potential material compliance exposures to the corporation, and
management's plans for preventative measures; (iv) reviewing existing
material compliance matters, i.e., consumer complaints, litigation, etc.
and analyzing actions taken by management; and (v) reviewing the Company's
relationships with regulators.
g. Knightsbridge Committee.
In 1995, the Board of Directors created the Knightsbridge Committee to
evaluate all transactions submitted to the Company by the Knightsbridge
Fund. The Knightsbridge Committee's role is to determine whether a given
transaction (i) would be accepted by, and pursued for the account of, the
Company without any participation by the Knightsbridge Fund, (ii) would be
accepted and pursued jointly by the Company and the Knightsbridge Fund in
such proportions as the Company's Board of Directors and the Knightsbridge
Fund agree or (iii) would be rejected by the Company, in which case it may
be pursued by the Knightsbridge Fund for its own account. With the
consummation of the restructuring of the Knightsbridge relationship on
January 5, 1998, the Knightsbridge Committee is not expected to conduct any
further business. See "CERTAIN TRANSACTIONS -- The PennCorp/ Knightsbridge
Relationship."
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BOARD AND COMMITTEE ATTENDANCE
The PennCorp Board met eight times during 1997. In addition, the
Compensation and Stock Award and Stock Option Committees met three times; the
Audit Committee met twelve times; the Nominating Committee met once; the Finance
Committee met two times; the Compliance Committee met once; the Special
Committee (formed for the purpose of negotiating the purchase price for the SW
Financial Controlling Interest) met four times; and the Knightsbridge Committee
met six times. Each of the Company's directors attended at least 75% of the
aggregate number of regular and special meetings of the PennCorp Board and of
the committees on which they served.
DIRECTORS' FEES
Directors of the Company are entitled to reimbursement of their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board of Directors or committees thereof. In addition, each
director of the Company who is not also an officer or salaried employee of the
Company (a "Non-Employee Director") receives an annual fee of $30,000 and a fee
of $2,000 for each meeting of the Board of Directors (except starting in 1998,
no fee is paid for the first four meetings in each calendar year) at which such
director is present. Each Non-Employee Director who is a member of a committee
of the Board of Directors also receives a fee of $1,000 for each meeting of such
committee at which such director is present. Committee chairmen receive an
additional annual fee of $5,000. In addition, in 1997 Mr. Player received a
one-time fee of $50,000 for his work as Chairman of the Knightsbridge Committee,
and Mr. Smith received a fee of $50,000 for his efforts in 1997 as Chairman of
the Audit Committee.
In addition to the foregoing, the 1992 Senior Management Warrant Program
(the "Warrant Plan") granted each Non-Employee Director (other than Mr.
Greenberg) a ten-year warrant to purchase up to 3,000 shares of Common Stock
upon his election to the Board of Directors. The exercise price of such warrants
with respect to each share of underlying Common Stock was equal to the fair
market value of the Common Stock on the date of grant. Each warrant vested and
became exercisable in three equal annual installments commencing on the first
anniversary date after the date of the grant provided that the Non-Employee
Director was serving as a director of the Company on such anniversary date. On
November 5, 1992, each of Messrs. Schnitzer, Slayton and Player were granted
warrants to purchase up to 3,000 shares of Common Stock at an exercise price of
$14.19 per share. On April 1, 1993, Mr. Roman received a warrant to purchase up
to 3,000 shares of Common Stock at an exercise price of $19.06 per share. On
September 1, 1994, Mr. Smith received a warrant to purchase up to 3,000 shares
of Common Stock at an exercise price of $15.63 per share. No further awards will
be made under the Warrant Plan.
Pursuant to an amendment to the Stock Plan approved by the Company's
stockholders on December 31, 1997, Messrs. Schnitzer, Slayton, Player, Roman and
Smith exercised these Warrants for which they received 1977, 1977, 1977, 1444,
and 1819 shares of restricted common stock, respectively. The shares of
restricted stock are subject to forfeiture if any of these Non-Employee
Directors ceases to be a director for any reason other than as a result of a
change of control or ownership of the Company, the failure to be re-elected by
the Company's shareholders or the Non-Employee Director's death or disability
(as defined in the Stock Plan). Each of these Non-Employee Directors were also
granted an option to purchase 3,000 shares of Common Stock at the exercise price
of $32.25 (the closing price of the Common Stock on March 31, 1997, the
effective date of the grant). The option is fully exercisable on December 31,
1998.
On November 5, 1992, Mr. Greenberg received a warrant to purchase up to
225,000 shares of Common Stock under the Warrant Plan. Each of Messrs. Stone and
Fickes received identical warrants. These warrants vest in four equal annual
installments commencing November 5, 1993, provided the directors continue to be
officers or directors of the Company at each anniversary date. All 225,000 of
the warrants granted to each of Messrs. Fickes, Stone and Greenberg are vested.
The initial exercise price for the warrants was $16.10 per share of Common Stock
(representing 110% of the initial public offering price per share of Common
Stock). The 225,000 warrants of Messrs. Stone and Fickes were exercised pursuant
to a cashless stock-for-stock exercise. See "EXECUTIVE
COMPENSATION -- AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES."
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<PAGE> 29
In 1996, each of Messrs. Player, Roman, Schnitzer, Slayton and Smith were
awarded 1,000 shares of Common Stock under the Stock Plan (plus cash to cover
tax liabilities). The Stock Plan provides for the grant of 1,000 shares of stock
to all future Non-Employee Directors elected to the Board of Directors.
Accordingly, Mr. Glucksman was awarded 1,000 shares of Common Stock following
his appointment as a director. In accordance with the amendments to the Stock
Plan approved by shareholders at the 1997 Annual Meeting, Non-Employee Directors
will receive an annual stock option to purchase 7,500 shares of Common Stock.
The first such grant was made effective as of March 31, 1997 at the exercise
price of $32.25. The March 31, 1997 option grant of 7,500 shares is fully
exercisable on December 31, 1998. Future option grants will be made on the date
of each annual stockholders meeting and will be exercisable eighteen months
after the date of the grant at the fair market value (as defined in the Stock
Plan) of PennCorp's Common Stock on the grant date. Additionally, the Stock Plan
generally enables Non-Employee Directors to receive all or a portion of their
annual fees in Common Stock. Certain directors elected to receive Common Stock
in lieu of all or a portion of their annual fee for 1998.
PROPOSAL NUMBER 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected KPMG as the auditors of the Company for
the year 1998. It is anticipated that representatives of KPMG, who also served
as the Company's auditors for 1997, will be present at the Annual Meeting and
will have an opportunity to make a statement if they so desire and to answer any
appropriate questions. Although not required to do so, the Board of Directors
has determined, as a matter of corporate practice, to submit the selection of
the Company's independent auditors to the stockholders of the Company for their
ratification. If the stockholders do not ratify the appointment of KPMG, the
Board of Directors will reconsider its decision to appoint KPMG. Even if the
stockholders ratify the appointment, the Board of Directors will have the
ability to dismiss KPMG as independent auditors and select a new independent
auditor for fiscal year 1998.
The Board of Directors recommends that you vote FOR the approval of
Proposal Number 2.
PROPOSAL NUMBER 3
AMENDMENT TO 1996 STOCK AWARD AND STOCK OPTION PLAN
The Stock Plan provides that in order for Non-Employee Directors to be
eligible for receipt of the 7,500 share annual option grant and to receive all
or a portion of the Non-Employee Director's annual retainer fee in PennCorp
Common Stock, the Non-Employee Director may not have a Pecuniary Interest
(direct or indirect) in more than 100,000 shares of the Company's Common Stock.
Historically, this restriction prevented Allan D. Greenberg, who was a paid
consultant to the Company, and one other former director, who received
compensation from the Company, from receiving the stock based components of the
annual Non-Employee Directors compensation. Currently, Mr. Greenberg (who
beneficially owns 403,753 shares of Common Stock) is the only Non-Employee
Director of the Company who does not qualify for the annual option or the
election to receive stock for all or a portion of his retainer. Since Mr.
Greenberg's consulting arrangement with the Company was terminated effective
January 1, 1998, the PennCorp Board has determined that it is appropriate for
Mr. Greenberg to have the same rights to the annual stock option grants and the
retainer election as all other Non-Employee Directors. Accordingly, the PennCorp
Board has approved an amendment to the Stock Plan which would allow Non-Employee
Directors who have a Pecuniary Interest in more than 100,000 shares, to receive
the annual 7,500 share option grant and to elect to receive all or a portion of
their annual retainer in PennCorp Common Stock.
The Board of Directors recommends that you vote FOR the approval of
Proposal 3.
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<PAGE> 30
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who beneficially own
more than 10% of the Common Stock or other equity securities of the Company, to
file with the Securities and Exchange Commission initial reports of beneficial
ownership (Form 3), reports of changes in beneficial ownership (Form 4) and
annual statements of beneficial ownership (Form 5). Executive officers,
directors and more than 10% beneficial owners are required to provide the
Company with copies of all Section 16(a) reports they file. To the Company's
knowledge, based on a review of the reports furnished to it and written
representations from its executive officers and directors, all Section 16(a)
reporting requirements for the Company's executive officers and directors were
satisfied for 1997.
CERTAIN BYLAW PROVISIONS
The Bylaws establish an advance notice procedure with regard to business
proposed to be submitted by a stockholder at any annual or special meeting of
stockholders of the Company, including the nomination of candidates for election
as directors. The procedure provides that a notice of proposed stockholder
business must be timely given in writing to the Secretary of the Company prior
to the meeting. In all cases, to be timely, notice relating to the 1999 annual
meeting must be received at the principal executive office of the Company not
less than 60 days nor more than 90 days before May 19, 1999.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act, including such person's written consent
to be named in the proxy statement as a nominee and to serve as a director if
elected.
The chairman of a meeting of stockholders may determine that a person is
not nominated in accordance with the nomination procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before such
meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
procedure will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the above mentioned procedures.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to have included in the Company's
proxy statement relating to the 1999 annual meeting of Stockholders must be
received at the Company's executive office not later than March 19, 1999.
Stockholders who intend to nominate directors or to bring other business before
the meeting must also comply with the procedures set forth in the Company's
Bylaws, as described under "Certain Bylaw Provisions." The Company will furnish
copies of the appropriate Bylaw provision upon written request to the Secretary
of the Company at its principal executive office.
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<PAGE> 31
OTHER MATTERS
As of the date of the Proxy Statement, the PennCorp Board knows of no other
business to be presented for action at the meeting or any adjournment thereof.
However, if any other business is properly brought before the meeting or any
adjournment thereof, the proxies solicited hereby confer discretionary authority
in the persons named therein and those persons will vote or act in accordance
with their best judgment with respect to such matter.
By Order of the Board of Directors,
SCOTT D. SILVERMAN
Secretary
April 22, 1998
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<PAGE> 32
PENNCORP FINANCIAL GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 21, 1998
The undersigned hereby constitutes and appoints Scott D. Silverman, James P.
McDermott, and each of them, as their true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the Annual
Meeting of Stockholders of PennCorp Financial Group, Inc. to be held at 3
Bethesda Metro Center, Bethesda, Maryland on Thursday, May 21, 1998 and at
any adjournments thereof, on all matters coming before said meeting.
Election of Directors, Nominees: (change of address/comments)
Lewis L. Glucksman ---------------------------------------
Bruce W. Schnitzer ---------------------------------------
David J. Stone ---------------------------------------
---------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE * * * * * * * *
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK * SEE REVERSE *
ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD * SIDE *
OF DIRECTOR'S RECOMMENDATIONS. * * * * * * * *
<PAGE> 33
[X] Please mark your
votes as in this
example.
This Proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR election of
directors and FOR Proposals 2 and 3.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1 through 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors [ ] [ ]
(See reverse)
For, except vote withheld from the following Nominee(s):
- -----------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of Appointment
of Auditors. [ ] [ ] [ ]
3. Approval of the Amendment to the
1996 Stock Award and Stock
Option Plan. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
The signer hereby revokes all proxies
heretofore given by the signer to vote at
said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
------------------------------------------
------------------------------------------
SIGNATURE(S) DATE
