<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
SCHEDULE 13D
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13D-2(A)
(AMENDMENT NO. __)(1)
PENNCORP FINANCIAL GROUP, INC.
(Name of Issuer)
$3.375 CONVERTIBLE PREFERRED STOCK
$3.50 SERIES II CONVERTIBLE PREFERRED STOCK
(Title of Class of Securities)
708904701
708094206
(CUSIP Number)
JAY R. SCHIFFERLI, ESQ.
KELLEY DRYE & WARREN LLP
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CT 06901-3229
(203) 324-1400
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
DECEMBER 27, 1999
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box |_|
NOTE. Schedules filed in paper format shall include a signed original and
five copies of the Schedule, including all exhibits. SEE Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 8 Pages)
- ------------------------
(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 (the "Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however, see
the notes).
<PAGE>
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CUSIP No. 708094701 13D Page 2 of 9 Pages
708094206
- --------------------------- --------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Forest Investment Management LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|_|
(b)|_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS |_|
IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 248,900 shares of $3.375 Convertible Preferred Stock
BY 175,100 shares of $3.50 Series II Convertible
EACH Preferred Stock
REPORTING ------------------------------------------------------------
PERSON 8 SHARED VOTING POWER
WITH Zero
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
248,900 shares of $3.375 Convertible Preferred Stock
175,100 shares of $3.50 Series II Convertible
Preferred Stock
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
Zero
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
248,900 shares of $3.375 Convertible Preferred Stock (per share
convertible into 2.2124 shares of Common Stock) and 175,100 shares of
$3.50 Series II Preferred Stock (per share convertible into 1.4327
shares of common stock), totaling 801,532 common stock equivalents
(see Item 5).
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW |_|
(11) EXCLUDES CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.6% of $3.375 Convertible Preferred Stock
8.6% of $3.50 Series II Convertible Preferred Stock
2.7% of common stock equivalents
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IA
- --------------------------------------------------------------------------------
<PAGE>
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CUSIP No. 708094701 13D Page 3 of 9 Pages
708094206
- --------------------------- --------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Founders Financial Group, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS |_|
IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 248,900 shares of $3.375 Convertible Preferred Stock
BY 175,100 shares of $3.50 Series II Convertible
EACH Preferred Stock
REPORTING ------------------------------------------------------------
PERSON
WITH 8 SHARED VOTING POWER
Zero
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
248,900 shares of $3.375 Convertible Preferred Stock
175,100 shares of $3.50 Series II Convertible
Preferred Stock
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
Zero
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
248,900 shares of $3.375 Convertible Preferred Stock (per share
convertible into 2.2124 shares of Common Stock) and 175,100 shares of
$3.50 Series II Preferred Stock (per share convertible into 1.4327
shares of common stock), totaling 801,532 common stock equivalents
(see Item 5).
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW |_|
(11) EXCLUDES CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.6% of $3.375 Convertible Preferred Stock
8.6% of $3.50 Series II Convertible Preferred Stock
2.7% of common stock equivalents
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
<PAGE>
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CUSIP No. 708094701 13D Page 4 of 9 Pages
708094206
- --------------------------- --------------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
1 Michael A. Boyd, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS |_|
IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Connecticut
- --------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 248,900 shares of $3.375 Convertible Preferred Stock
BY 175,100 shares of $3.50 Series II Convertible
EACH Preferred Stock
REPORTING
PERSON
WITH
------------------------------------------------------------
8 SHARED VOTING POWER
Zero
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
248,900 shares of $3.375 Convertible Preferred Stock
175,100 shares of $3.50 Series II Convertible
Preferred Stock
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
Zero
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
248,900 shares of $3.375 Convertible Preferred Stock (per share
convertible into 2.2124 shares of Common Stock) and 175,100 shares of
$3.50 Series II Preferred Stock (per share convertible into 1.4327
shares of common stock), totaling 801,532 common stock equivalents
(see Item 5).
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW |_|
(11) EXCLUDES CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.6% of $3.375 Convertible Preferred Stock
8.6% of $3.50 Series II Convertible Preferred Stock
2.7% of common stock equivalents
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------- --------------------------
CUSIP No. 708094701 13D Page 5 of 9 Pages
708094206
- --------------------------- --------------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
1 Michael A. Boyd
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS |_|
IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 248,900 shares of $3.375 Convertible Preferred Stock
BY 175,100 shares of $3.50 Series II Convertible
EACH Preferred Stock
REPORTING
PERSON
WITH
------------------------------------------------------------
8 SHARED VOTING POWER
Zero
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
248,900 shares of $3.375 Convertible Preferred Stock
175,100 shares of $3.50 Series II Convertible
Preferred Stock
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
Zero
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
248,900 shares of $3.375 Convertible Preferred Stock (per share
convertible into 2.2124 shares of Common Stock) and 175,100 shares of
$3.50 Series II Preferred Stock (per share convertible into 1.4327
shares of common stock), totaling 801,532 common stock equivalents
(see Item 5).
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW |_|
(11) EXCLUDES CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.6% of $3.375 Convertible Preferred Stock
8.6% of $3.50 Series II Convertible Preferred Stock
2.7% of common stock equivalents
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER
This statement on Schedule 13D relates to the $3.375 Convertible Preferred
Stock (the "$3.375 Preferred Stock") and the $3.50 Series II Convertible
Preferred Stock (the "$3.50 Preferred Stock" and, with the $3.375 Preferred
Stock, the "Preferred Stock") of PennCorp Financial Group, Inc. ("PennCorp").
Each share of $3.375 Preferred Stock is convertible into 2.2124 shares of
PennCorp's common stock, par value $.01 per share (the "Common Stock") and each
share of $3.50 Preferred Stock is convertible into 1.4327 shares of Common
Stock. PennCorp's principal executive office is located at 717 North Harwood
Street, Suite 2400, Dallas, Texas 75201.
ITEM 2. IDENTITY AND BACKGROUND
(a) This statement is filed by the following persons: (i) Forest
Investment Management LLC, an Investment Advisor registered under the Investment
Advisors Act of 1940, as amended, and a Delaware limited liability company
("Forest"), (ii) Founders Financial Group L.P., a Delaware limited partnership
("Founders"), in its capacity as the owner of a controlling interest in Forest,
(iii) Michael A. Boyd, Inc., a Connecticut corporation ("MAB, Inc."), in its
capacity as the general partner of Founders and (iv) Michael A. Boyd ("Mr.
Boyd"), in his capacity as the sole director and shareholder of MAB, Inc.
(collectively, the "Filing Parties").
(b) The address of the principal business and principal office of each of
the Filing Parties is 53 Forest Avenue, Old Greenwich, Connecticut 06870.
(c) The principal business of Forest is that of an investment manager. The
principal business of Founders is acting as general partner of Forest and other
financial services businesses. The principal business of MAB, Inc. is acting as
general partner of Founders.
(d) None of the Filing Parties has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Filing Parties has, during the last five years, been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Mr. Boyd is a United States citizen.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The source of funds used to purchase the shares of Preferred Stock owned
by the Filing Parties (the "Shares") was working capital. According to recent
records of the Company, the amount of such funds was $2,375,261 for the $3.375
Preferred Stock and $2,093,721 for the $3.50 Preferred Stock.
<PAGE>
ITEM 4. PURPOSE OF TRANSACTION.
The Shares were acquired in the ordinary course of business for investment
purposes. The Filing Parties intention was to review their investment in
PennCorp on a continuing basis and, depending upon price and availability of
securities of PennCorp, subsequent developments affecting PennCorp, PennCorp's
business and prospects, general stock market and economic conditions, tax
considerations and other factors deemed relevant, to consider increasing or
decreasing the size of their investment in PennCorp.
On December 21, 1999, PennCorp and its advisors invited holders of
approximately 74% of its outstanding Preferred Stock (the "Ad Hoc Committee"),
including Forest, to a meeting to hear a presentation regarding a proposed
restructuring of PennCorp (the "Restructuring") and PennCorp's progress on a
proposed plan to sell substantially all of the assets of its operating
subsidiaries (the "Sale Alternative"). Although Forest believed that PennCorp's
goal in calling the meeting was to build a consensus among the members of the Ad
Hoc Committee for the Restructuring, PennCorp instead indicated its intention to
move forward with the Sale Alternative and then consummate a liquidation of
PennCorp in a Chapter 11 bankruptcy. In response to this information, on
December 23, 1999, the Ad Hoc Committee delivered a letter to the board of
directors of PennCorp (the "Board") objecting to this course of action and
calling for the Board's acceptance of a Restructuring of PennCorp pursuant to a
term sheet attached as an exhibit to the letter. The letter and the term sheet
are attached hereto as Exhibit A. Forest believes that the Restructuring on the
terms set forth in the term sheet is the only viable alternative for PennCorp at
this juncture to insure maximum value to PennCorp's stakeholders, including
holders of Preferred Stock, or any value to the holders of the Common Stock.
Forest, as part of the Ad Hoc Committee, intends to take all actions at its
disposal (including litigation) to prevent the consummation of the Sale
Alternative. Each of the filing persons of this Statement may be deemed to be a
member of a group within the meaning of Rule 13d-5(b) with the other members of
the Ad Hoc Committee, but hereby expressly disclaims such membership in a group
and beneficial ownership of the shares held by such other members of the Ad Hoc
Committee.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of December 27, 1999, the Filing Parties beneficially owned an
aggregate amount of 248,900 shares of $3.375 Preferred Stock, which are
convertible into 550,666 shares of Common Stock, and 175,100 shares of $3.50
Preferred Stock, which are convertible into 250,866 shares of Common Stock,
totaling 801,532 shares of Common Stock after conversion of all shares of
Preferred Stock owned by the Filing Parties. Based upon the most recently
available information provided by PennCorp, an aggregate of 29,214,731 shares of
Common Stock are outstanding. Accordingly, as of December 27, 1999, the Filing
Parties beneficially own approximately 2.7% of the outstanding Common Stock on a
diluted basis.
(b) Forest has the power to vote and the power to dispose of the shares of
Preferred Stock, or the underlying Common Stock, it owns and due to Forest's
relationship with Founders, MAB, Inc. and Mr. Boyd, Founders, MAB, Inc. and Mr.
Boyd have the power to cause Forest to exercise or refrain from exercising such
powers.
<PAGE>
(c) No transactions were effected by the Filing Parties in the Preferred
Stock during the 60 days prior to the date of this Schedule 13D.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
See Item 4.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit A: Letter to the Board of Directors of
PennCorp Financial Group, Inc. dated December 23, 1999.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: December 29, 1999 FOREST INVESTMENT MANAGEMENT LLC
By: /s/ Michael A. Boyd
Name: Michael A. Boyd
Title: Chairman
Dated: December 29, 1999 FOUNDERS FINANCIAL GROUP, L.P.
By: /s/ Michael A. Boyd
Name: Michael A. Boyd
Title: Chairman
Dated: December 29, 1999 MICHAEL A. BOYD, INC.
By: /s/ Michael A. Boyd
Name: Michael A. Boyd
Title: President
Dated: December 29, 1999 MICHAEL A. BOYD
By: /s/ Michael A. Boyd
Name: Michael A. Boyd
<PAGE>
December 23, 1999
PennCorp Financial Group, Inc.
717 North Harwood Street
Dallas, Texas 75201
Attention: Board of Directors
To the Board of Directors of PennCorp Financial Group, Inc.:
The undersigned, as members of the Ad Hoc Committee of the Preferred
Stockholders (the "AD HOC COMMITTEE") of PennCorp Financial Group, Inc. (the
"COMPANY"), represent 74% of the Company's outstanding shares of $3.375
Convertible Preferred Stock (the "SERIES I PREFERRED") and $3.50 Convertible
Preferred Stock (the "SERIES II PREFERRED" and together with the Series I
Preferred, the "PREFERRED SHARES"). On December 21, 1999, the Ad Hoc Committee
was invited by the Company to hear a presentation regarding a proposed
restructuring of the Company (the "RESTRUCTURING") and the Company's progress on
a proposed plan to sell substantially all of the assets of its operating
subsidiaries (the "SALE ALTERNATIVE"). Although the Ad Hoc Committee believed
that the Company's goal in calling the meeting was to build a consensus among
the members of the Ad Hoc Committee for the Restructuring, the Company instead
presented its plan to move forward with the Sale Alternative and then consummate
a liquidation of the Company in a Chapter 11 bankruptcy. At the meeting, the
Company stated that the Board of Directors of the Company (the "BOARD") intended
to approve the Sale Alternative at its next meeting on January 6, 2000, and
would cause the Company to execute definitive agreements with two buyers for the
Company's operating subsidiaries.
The Ad Hoc Committee strenuously objects to this course of action
by the Company. The Ad Hoc Committee believes that (i) the proposed sale of
Security Life and Trust and Southwestern Life (the "DALLAS OPERATIONS") severely
undervalues these assets and will significantly impair the ability of the
Company's stakeholders, in particular the holders of the Preferred Shares, to
realize maximum value for their respective interests in the Company, or in the
case of the common stockholders, any value and (ii) an extended Chapter 11
bankruptcy proceeding will have a devastating and irreversible effect on the
value of the Company. Should the Board move forward with the Sale Alternative by
executing definitive purchase agreements with the proposed buyers, the Ad Hoc
Committee will take all steps at its disposal to prevent these transfers
(including litigation) and will seek all possible remedies against the Company,
the Board and its officers.
<PAGE>
The Ad Hoc Committee favors the Restructuring on the terms set forth
on EXHIBIT A attached hereto. These terms are substantially similar to those
previously discussed by certain holders of Preferred Shares and the Company, and
include a sale of the Company's American Amicable subsidiary. At the December 21
meeting, the Company indicated its willingness to support the Restructuring
alternative if the Ad Hoc Committee could deliver binding commitment letters for
the financing of the Restructuring from third party financing sources prior to
the Board's next meeting and a commitment to support the plan from 80% of the
holders of Preferred Stock. Given that this request comes four days before the
Christmas holiday and less than two weeks before the end of the Millennium, it
is impracticable for the Ad Hoc Committee to meet this timetable. However, the
Ad Hoc Committee has had substantially discussions regarding the financing of
the Restructuring with a consortium of lenders consisting of GE Capital
Corporation, Bank One and CIBC and is highly confident that it can arrange the
necessary financing in short order. The Ad Hoc Committee expects to deliver a
highly confident letter from this consortium to the Board on Monday, December
27, 1999, and expects to deliver final financing commitment letters to the
Company shortly thereafter. This is a reasonable timetable to secure the
financing and for the Board to vote on the Restructuring proposal.
The Ad Hoc Committee is committed to expeditiously completing the
Restructuring as described in EXHIBIT A, and strongly encourages the Board to
reject the Sale Alternative and move forward with the Restructuring.
Sincerely yours,
The Ad Hoc Committee of Preferred Shareholders
<PAGE>
AIG - Soundshore Partners Camden Asset Management
By: /s/ Andrew W. Gitlin By: /s/ Cheryl Suzuki
Its: Director Its: Operations
Forest Investment Management Highbridge Capital LLC
By: /s/ Michael A. Boyd By: Highbridge Capital
Its: Chairman Management LLC
By: /s/ Richard Potapchuk
Its: Managing Director
Inverness Management LLC
By: /s/ James Comis Loeb Partners Corp.
Its: ____________________
By: /s/ Robert Grubin
Its: Managing Director
<PAGE>
Paloma Securities LLC
By: /s/ Michael J. Berner Q Investments, LP
Its: Executive Vice President
By: /s/ Geoffrey Raynor
Steadfast Financial LLC Its: Partner
By: /s/ Andrew Foote Vicuna Advisors LLC
Its: ____________________
By: /s/ Josh Welch
W.G. Trading Its: Managing Partner
By: /s/ John Bello /s/ William M. McCormick
Its: Risk Manager William M. McCormick
Paloma Strategic Securities Limited
By: /s/ Michael J. Bermer
Its: Attorney-in-Fact
<PAGE>
PENNCORP FINANCIAL GROUP, INC.
SUMMARY OF TERMS AND CONDITIONS
FOR PROPOSED RECAPITALIZATION
Purpose: To recapitalize PennCorp Financial Group,
Inc. ("PFG" and together with its
subsidiaries, the Company such that the
Company) may, at a minimum, retain its
current A.M. Best rating that is necessary
to maintain its current distribution
systems.
Methodology: Reduction of the Company's obligations with
respect to its outstanding preferred stock
(by reclassification into Units (as
described below) consisting of a new series
of preferred stock and common stock) and
reduction of the Company's obligations with
respect to indebtedness for borrowed money
to a level at which the Company's pro forma
EBITDA after consummation of the
recapitalization and the sale of Pioneer
Security Life Insurance Company and its
subsidiaries (the "Waco Companies") will
provide the coverage ratios necessary to,
at a minimum, retain its current A.M. Best
rating. Based on the Company's projected
EBITDA following the recapitalization, the
maximum debt capacity of the Company
following the recapitalization and the sale
of the Waco Companies is agreed to be $110
million.
Target Consummation Date: May 31, 2000.
Senior Debt: The Company's existing senior credit
facility, including accrued and unpaid
interest, will be repaid.
Subordinated Debt: The Company will offer to purchase all of
the existing $114.6 million principal
amount of 9.25% Senior Subordinated Notes
(the "Notes") at a purchase price equal to
98% of the principal amount thereof, plus
accrued and unpaid interest. The offer to
purchase the Notes would close
simultaneously with the closing of the
recapitalization. Any Notes not tendered
pursuant to the offer to purchase would
remain outstanding following the
recapitalization.
<PAGE>
Reclassification/Conversion
of Preferred Stock: In the event that the approval of at least
two-thirds of the outstanding shares of
common stock and the approval of at least
two-thirds of the outstanding shares of
PFG's $3.375 Convertible Preferred Stock
(the Series I Preferred Stock") and $3.50
Series II Convertible Preferred Stock (the
"Series II Preferred Stock," and together
with the Series I Preferred Stock, the
"Preferred Stock") is obtained, the
recapitalization will be effected by an
amendment to PFG's charter. Pursuant to the
charter amendment, each outstanding share
of Preferred Stock will be reclassified
(the "Preferred Stock Reclassification")
into a unit (a "Preferred Unit") consisting
of (i) a share of new PFG preferred stock
with the terms described below ("New
Preferred Stock") and (ii) 1.0 shares of
post-recapitalization common stock of PFG.
In the event that the approval of at least
two-thirds of the shares of the Preferred
Stock is obtained, but only a majority (but
not two-thirds) of the outstanding shares
of common stock is obtained, the
recapitalization will be effected by a
merger (the "Merger"). Pursuant to the
Merger, each outstanding share of Preferred
Stock will be converted into a Preferred
Unit.
In the case of either the Preferred Stock
Reclassification or the Merger, the shares
of common stock of PFG to be issued to the
existing holders of the Preferred Stock
will represent 73.3% of the post-recapital-
ization common stock of PFG.
Reverse Split/Conversion If the recapitalization is effected by a
of Common Stock: charter amendment, upon the effectiveness
of the amendment each existing share of
PFG's common stock will be reclassified by
means of a one-for-ten reverse stock split
(the "Reverse Stock Split"). Additionally,
on consummation of the recapitalization
each existing holder of PFG common stock
will receive a warrant with the terms
described below (the "Warrants") to
purchase PFG's post-recapitalization common
stock.
If the recapitalization is effected through
the Merger, on consummation of the Merger
each existing share of PFG's common stock
will be converted into a share of post-
<PAGE>
recapitalization common stock of PFG
(representing approximately one-tenth of a
share of pre-recapitalization common stock)
and a Warrant.
In either case, the shares of PFG common
stock held by existing holders of common
stock will represent 26.7% of the
post-recapitalization common stock of PFG.
Sale of the Waco Companies: The Company will cause its subsidiary,
American-Amicable Holdings Corporation
("American-Amicable"), to sell the stock of
the Waco Companies for net cash proceeds of
at least $102 million. This transaction
will be consummated as soon as practicable,
notwithstanding the timing of the
consummation of the recapitalization.
Merger of SLT and SW Life: Prior to the recapitalization, Security
Life and Trust Insurance Company will be
merged with and into Southwestern Life
Insurance Company ("SW Life").
Reinsurance: SW Life will reinsure substantially all of
its existing annuity blocks of business.
New Credit Facility: In connection with the
recapitalization, the Company will enter
into a new $110 million revolving senior
credit facility (the "New Senior
Facility"), of which approximately $90
million would be drawn upon consummation
of the recapitalization.
Extraordinary Dividend: As part of the recapitalization, SW Life
will request approval from the Texas
Department of Insurance for the payment of
an extraordinary dividend of approximately
$75 million (the "Extraordinary Dividend").
Prior to the payment of the Extraordinary
Dividend, the outstanding notes issued by
American-Amicable will be repaid, the
outstanding preferred stock of Southwestern
Financial Corp. will be removed from SW
Life, and the reserves of SW Life will be
strengthened by $10 million. In no event
will the Extraordinary Dividend be paid in
an amount that would cause the Risk Based
Capital Ratio of SW Life to be less than
300%.
Preferred Unit Offering: The Company will make a $35 million
offering of Preferred Units (the "Unit
Offering") to all holders of the Preferred
Stock and Company's common stock. The
holders of the Preferred Stock will have
the right to subscribe for approximately
<PAGE>
73% of the Units subject to the Unit
Offering, and the holders of the common
stock will have the right to subscribe for
approximately 27% of the Units subject to
the Unit Offering. The Unit Offering
will be conducted and will remain open
during the same period as the proxy
solicitation for the charter amendment to
effect the Preferred Stock Reclassification
and the Reverse Stock Split (or the Merger)
and will close simultaneously with such
transactions.
The right to purchase Units offered in
the Units Offering will be detachable and
transferable and will have an
oversubscription privilege for only the
the existing holders of common stock,
pursuant to which such holders will have
the right to oversubscribe for Units not
purchased by other existing holders of
common stock. The holders of Preferred
Stock will not have the right to
oversubscribe, and any Preferred Units
not purchased by holders of Preferred
Stock and common stock will be purchased
by Inverness pursuant to its Standby
Commitment as described below. The purchase
price for each Preferred Unit will be
$12.50 (the "Rights Offering Price").
Standby Underwriting
Commitment: Inverness Management LLC ("Inverness") will
execute and deliver to the Company a
binding agreement pursuant to which
Inverness will commit to fully
underwrite the Unit Offering (the "Standby
Commitment") at a price equal to the Rights
Offering Price. The Company will pay
Inverness an underwriting commitment fee of
$1,361,000 (5% of $27,227,000) on the
Standby Commitment in cash at closing.
Warrants: Number of Shares: The Warrants will be
exercisable, in the aggregate, for
approximately 10% of PFG's
post-recapitalization common stock.
Exercise Price: $30 per share.
Exercise Period: The Warrants will be
immediately exercisable upon issuance and
will remain exercisable for a period of ten
years.
New Preferred Stock: Liquidation Preference: $20.00 per share
(the "Stated Value"), plus accrued and
unpaid dividends.
<PAGE>
Dividends: The New Preferred Stock will
initially earn cumulative dividends at
the rate of 8.0% per annum on the sum of
the Stated Value plus unpaid dividends
which accrued in prior semi-annual periods.
Dividends will not be paid in cash except
as described below.
Reset: Upon a change of control of the
Company, the initial dividend rate will be
reset to the lesser of (A) the rate that in
the opinion of an investment banking
firm reasonably acceptable to the Company
would be necessary to cause each share
of New Preferred Stock to "trade" at
its liquidation preference, or (B) 20% per
annum. After the reset, future dividends
would become payable in cash.
Voting: Each share will be entitled to one
vote and will vote together with shares of
PFG's common stock.
Redemption: The Company will have the right
to redeem the New Preferred Stock, in whole
or in part, after the first anniversary of
issuance thereof at the following
redemption prices: if redeemed after the
first anniversary, but prior to the second
anniversary, then at 107.5% of the
liquidation preference;
if redeemed after the second anniversary,
but prior to the third anniversary, then at
105.0% of the liquidation preference;
if redeemed after the third anniversary,
but prior to the fourth anniversary, then
at 102.5% of the liquidation preference;
and
if redeemed after the fourth anniversary,
then at 100% of the liquidation preference.
Management Incentive Plan/
Executive Compensation: Approximately 7% of the
post-recapitalization common stock of PFG
and $5,000,000 of New Preferred Stock will
be reserved for issuance to the Company's
post-recapitalization officers and
directors. Prior to the closing of the
the recapitalization, the Company will
not increase the compensation of its
officers or directors, except in the
ordinary course of business.
<PAGE>
Proxy Statement/Prospectus: Because the Preferred Stock
Reclassification and the Reverse Stock
Split(1) (or the Merger) will require the
approval of the holders of PFG's common
stock and the Preferred Stock, it will be
necessary to file a proxy statement with
the SEC. This proxy statement will be
combined with a prospectus for the
registration of (i) the New Preferred
Stock to be issued in connection with the
Preferred Stock Reclassification (or the
Merger); (ii) the common stock to be issued
in connection with the Preferred Stock
Reclassification (or the Merger); (iii) the
Warrants to be issued to the existing
holders of PFG's common stock; (iv) the New
Preferred Stock underlying the Units to be
offered in the Unit Offering or pursuant to
the Standby Commitment; and (v) the new
common stock underlying the Units to be
offered in the Unit Offering or pursuant
to the Standby Commitment. See
"Registration/Listing" below. The Company
will distribute the proxy statement/
prospectus to the holders of the common
stock and the Preferred Stock and will
hold a special stockholders meeting to vote
on the Preferred Stock Reclassification
and the Reverse Stock Split(or the Merger).
Also see "Chapter 11 "Prepackaged"
Alternative."
Registration/Listing: Rule 145 under the Securities Act of 1933,
as amended (the "Securities Act"), requires
the New Preferred Stock and the common
stock to be issued in connection with the
Preferred Stock Reclassification (or the
Merger) to be registered under the
Securities Act. In addition, the Company
will register the Warrants to be issued to
the existing holders of PFG's common stock
and the New Preferred Stock and the common
stock underlying the Units to be offered in
the Unit Offering or pursuant to the
Standby Commitment. The Company will apply
for the listing of the New Preferred
Stock and the common stock to be issued in
the Preferred Stock Reclassification (or
the Merger), the Warrants to be issued to
to the existing holders of PFG's common
stock, and the New Preferred Stock and the
common stock underlying the Units to be
offered in the Unit Offering or pursuant to
the Standby Commitment on the NYSE or
NASDAQ, assuming the Company is able to
meet the applicable listing requirements at
such time.
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(1) In the event that it is determined to effect a "quasi-reorganization," the
approval of the holders of the Company's common stock will be required.
<PAGE>
Chapter 11 "Prepackaged"
Alternative: To encourage the common stockholders of
the Company to vote in favor of the
recapitalization, the proxy statement/
prospectus will provide that if neither
the amendment to the charter nor the Merger
is approved by the requisite vote of the
holders of the common stock, the votes of
the holders of the Preferred Stock
accepting the Preferred Stock
Reclassification (or the Merger) will
constitute the votes of the holders of the
Preferred Stock accepting a "prepackaged"
chapter 11 plan of reorganization that
may be filed by the Company, in its sole
discretion, providing for the
implementation of the contemplated
recapitalization modified to provide for
the existing common stock to be cancelled
and the holders of existing common stock
being "crammed down" (i.e., receiving
nothing, including any right to acquire
Warrants or Units pursuant to the Unit
Offering).(2)
Settlement of
Class Action Lawsuit: Not later than the consummation of the
recapitalization (or in the event that the
recapitalization occurs in a "prepackaged"
chapter 11 case, then prior to the
commencement of the chapter 11 case), the
pending class action lawsuit (the "Class
Action Suit") involving certain of the
Company's common stockholders and certain
holders of the Notes would be settled as
contemplated for $1.5 million, plus
interest.
Conditions to the
Effectiveness of Term Sheet: This term sheet will become effective upon
satisfaction of each of the following
conditions (or waiver by the Company and
the holders of Preferred Stock): (i)
approval of the transactions contemplated
by this term sheet by the Board of
Directors of the Company; (ii) the
execution by holders of at least 66-2/3% of
the outstanding shares of Preferred Stock
(voting together as a single class) of a
letter agreement pursuant to which such
holders agree to support and vote in favor
of the transactions contemplated by this
term sheet (and waive any appraisal rights
to which they would be entitled); (iii) the
receipt by the Company of the Standby
Commitment described above under the
heading "Standby Underwriting Commitment";
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(2) In the event that the recapitalization occurs in a "prepackaged" chapter 11
case, the right of holders of common stock to acquire 30% of the Units offered
in the Unit Offering will be eliminated (and any election by a holder of common
stock would be automatically rescinded) and such right will accrue to Inverness
under its Standby Commitment.
<PAGE>
(iv) the receipt by the Company of
preliminary indications of support reasonably
acceptable to the Company and Inverness from
A.M. Best and the Texas Department of
Insurance regarding the transactions
contemplated by this term sheet, which for
purposes of this term sheet will mean, with
respect to A.M. Best, that the Company does
not receive from A.M. Best an indication
that A.M. Best intends to downgrade the
rating of SW Life in connection with the
recapitalization, and will mean, with respect
to the Texas Department of Insurance, that
the Company receives an indication from the
Texas Department of Insurance that the
Extraordinary Dividend will be approved; and
(v) the receipt by the Company of a
commitment letter from a financial
institution reasonably acceptable to the
Company relating to the New Senior Facility.
Conditions to the
Consummation of the
Recapitalization: The consummation of the recapitalization is
subject to the satisfaction (or waiver by the
Company and holders of Preferred Stock) of
each of the following conditions: (i) the New
Senior Facility shall have been funded;
(ii) the Class Action Suit shall have been
settled as contemplated; (iii) the
pre-recapitalization transactions shall
have been completed as contemplated,
including the payment by SW Life of the
Extraordinary Dividend; (iv) the Company
shall have consummated the sale of the Waco
Companies; (v) all regulatory approvals
necessary for the recapitalization and the
transactions contemplated thereby shall have
been received; (vi) the Company shall have
received the proceeds from the Unit Offering
and/or the Standby Commitment; (vii) the
necessary parties shall have executed
definitive binding documentation embodying
all of the transactions contemplated by
and/or related to the recapitalization,
including, without limitation, mutually
agreeable releases in favor of all of the
directors and officers of PFG and its
subsidiaries fully and unconditionally
releasing such directors and officers from
any and all liabilities arising prior to or
in connection with the recapitalization,
with customary exclusions; (viii) the board
of directors of PFG shall not have terminated
the recapitalization in response to a
superior proposal; (ix) the Company shall
have agreed to maintain for a period of six
years following the consummation of the
recapitalization (A) the existing provisions
in its Certificate of Incorporation relating
to exculpation and indemnification of its
current officers and directors (or such
lesser indemnification if the law is more
restrictive) and (B) officers' and directors'
liability insurance covering the current
officers and directors of the Company on
substantially the same terms as the Company's
current policy; provided, however, that the
Company shall not be obligated to maintain
such coverage to the extent such coverage
costs two times the cost of the Company's
current coverage (which in such case the
Company shall only be obligated to provide
as much coverage as can be obtained by
paying two times the cost of the Company's
current coverage); (x) the Company shall
have reimbursed Inverness and the Ad Hoc
Committee of holders of Preferred Stock for
their expenses incurred in connection with
the recapitalization; and (xi) the Company
shall have received the requisite approval
of the holders of the Preferred Stock and its
common stock, or, in the event the
"prepackaged" chapter 11 case is commenced by
the Company, an order confirming the plan of
reorganization that incorporates the
transactions described herein shall have been
entered and such order shall be unstayed and
in effect.
