UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _________)1
Name of Issuer: PennCorp Financial Group, Inc.
Title of Class of Securities: $3.50 Series II Convertible Preferred
Stock
CUSIP Number: 708094206
Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications:
Howard Feitelberg, Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
(345) 945-1400
Date of Event which Requires Filing of this Statement:
December 27, 1999
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box.
Check the following box if a fee is being paid with this statement.
(A fee is not required only if the reporting person: (1) has
a previous statement on file reporting beneficial ownership of more
than five percent of the class of securities described in Item 1; and
(2) has filed no amendment subsequent thereto reporting beneficial
ownership of five percent or less of such class) (See Rule 13d-7).
(Continued on following 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 the disclosures provided in a prior cover page.
The information required the remainder of this cover page should not be
Deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("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).
SEC 1746 (12/91)
CUSIP No. 708094206
1. NAME OF REPORTING PERSON
SS or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Highbridge Capital Corporation - not applicable
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) x (b)
3. SEC USE ONLY
4. SOURCE OF FUNDS*
Highbridge Capital Corporation - WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
6. CITIZENSHIP OR PLACE OF ORGANIZATION:
Highbridge Capital Corporation - Cayman Islands, British West Indies
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER:
63,640 shares of $3.50 Series II Convertible Preferred Stock
8. SHARED VOTING POWER:
0
9. SOLE DISPOSITIVE POWER:
63,640 shares of $3.50 Series II Convertible Preferred Stock
10. SHARED DISPOSITIVE POWER:
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
63,640 shares of $3.50 of Series II Preferred Stock (per share convertible
into 1.4327 shares of common stock).
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.2 of $3.50 Series II Convertible Preferred Stock
0.3111 of the aggregate Common Stock
14. TYPE OF REPORTING PERSON:
Highbridge Capital Corporation - BD
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _________)1
Name of Issuer: PennCorp Financial Group, Inc.
Title of Class of Securities: $3.50 Series II Convertible Preferred Stock
CUSIP Number: 708094206
Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications:
Ronald S. Resnick, Highbridge Capital Management, LLC
767 Fifth Avenue, 23rd Floor, New York, New York 10153
(212) 751-4510
Date of Event which Requires Filing of this Statement:
December 27, 1999
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box.
Check the following box if a fee is being paid with this
statement. (A fee is not required only if the reporting person:
(1) has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto
reporting beneficial ownership of five percent or less of such class)
(See Rule 13d-7).
(Continued on following pages)
SEC 1746 (12/91)
CUSIP No. 708094206
1. NAME OF REPORTING PERSON
SS or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Highbridge Capital Management, LLC - 13-3993048
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) X (b)
3. SEC USE ONLY
4. SOURCE OF FUNDS
Highbridge Capital Management, LLC - not applicable
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
6. CITIZENSHIP OR PLACE OF ORGANIZATION:
Highbridge Capital Management, LLC - State of Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER:
63,640 shares of $3.50 Series II Convertible Preferred Stock
8. SHARED VOTING POWER:
0
9. SOLE DISPOSITIVE POWER:
63,640 shares of $3.50 Series II Convertible Preferred Stock
10. SHARED DISPOSITIVE POWER:
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
63,640 shares of $3.50 of Series II Preferred Stock
(per share convertible into 1.4327 shares of common stock).
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.2 of $3.50 Series II Convertible Preferred Stock
0.3111 of the aggregate Common Stock
14. TYPE OF REPORTING PERSON:
Highbridge Capital Management, LLC - CO
Introduction:
This statement is filed by Highbridge Capital Corporation
("HCC") and Highbridge Capital Management, LLC ("HCM")
(HCC and HCM are sometimes referred to herein collectively
as the "Reporting Persons") with respect to the ownership by
HCC of 63,640 shares of $3.50 Series II Convertible Preferred
Stock (the " $3.50 Preferred Stock") of PennCorp Financial
Group Inc. (the "Issuer"). Each share of $3.50 Preferred
Stock is convertible into 1.4326 shares of the Issuer's
common stock. HCM is the trading manager of HCC.
Item 1. Security and Issuer
This statement on Schedule 13D relates to:
the $3.50 Preferred Stock of PennCorp Financial Group, Inc.
The name and address of the principal executive and business
office of the Issuer is:
717 North Harwood Street, Suite 2400, Dallas, Texas 75201.
Item 2. Identity and Background
(a) Highbridge Capital Corporation
(organized in the Cayman Islands; principal business is
engaging in arbitrage and absolute return investment
strategies in the global equity and corporate debt
securities markets)
Highbridge Capital Management, LLC
(organized in the state of Delaware; principal business
is acting as trading manager of Highbridge Capital Corporation)
Glenn Dubin
Henry Swieca
Howard Feitelberg
Mario Benbassat
Bernard Loze
Julio Mario Santo Domingo
(b) Highbridge Capital Corporation:
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Highbridge Capital Management, LLC:
767 Fifth Avenue, 23rd Floor, New York, NY 10153
Glenn Dubin: 767 Fifth Avenue, 23rd Floor, New York, NY 10153
Henry Swieca: 767 Fifth Avenue, 23rd Floor, New York, NY 10153
Howard Feitelberg: Anchorage Center, 2nd Floor, Harbor Drive, George Town,
Grand Cayman, Cayman Islands, British West Indies
Mario Benbassat: 6, Place Camoletti, 1207 Geneva, Switzerland
Bernard Loze: Loze Associates, 43, Avenue Marceau, 75116 Paris, France
Julio Mario Santo Domingo: Alpha Asset Management, 9 place du bourg de four,
Geneva CH-1204, Switzerland
(c) Glenn Dubin: Co-Chairman - Highbridge Capital Management, LLC
767 Fifth Avenue, New York, NY 10153
Co-Chairman - Dubin & Swieca Companies
767 Fifth Avenue, New York, NY 10153
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Henry Swieca: Co-Chairman - Highbridge Capital Management, LLC
767 Fifth Avenue, New York, NY 10153
Co-Chairman - Dubin & Swieca Companies
767 Fifth Avenue, New York, NY 10153
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Howard Feitelberg: Controller - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Mario Benbassat: General/Managing
Director - Genevalor, Benbassat & Cie
6, Place Camoletti, 1207 Geneva, Switzerland
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
Bernard Loze: Chairman - Loze & Associates
43, Avenue Marceau, 75116 Paris, France
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbour Drive, Georgetown, Grand Cayman
Cayman Islands, British West Indies
Julio Mario Santo Domingo: President - Alpha Asset Management, S.A.
9, place du bourg de four, Geneva CH-1204, Switzerland
Director - Highbridge Capital Corporation
Anchorage Center, 2nd Floor
Harbor Drive, George Town, Grand Cayman
Cayman Islands, British West Indies
(d)-(e)
Neither the Reporting Persons nor any of the persons enumerated
in General Instruction C has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors). Neither the Reporting Persons nor any
of the persons enumerated in General Instruction C has, during
the last five years, been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction which
resulted in 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 violations
with respect to such laws.
(f) Citizenship
Glenn Dubin United States
Henry Swieca United States
Howard Feitelberg Canada
Mario Benbassat Switzerland
Bernard Loze France
Julio Mario Santo Domingo Columbia and Brazil
Item 3. Source and Amount of Funds or Other Consideration
The source of funds used to purchase the shares of Preferred
Stock was working capital. According to recent records of
the Company, the amount of such funds was 38.5989 for the
$3.50 Preferred Stock.
Item 4. Purpose of Transaction
The Shares of Preferred Stock were acquired in the ordinary
course of business for investment purposes.
On December 21, 1999, PennCorp and its advisors invited holders
of approximately 74% of its outstanding Preferred Stock (the "Ad Hoc
Committee"), including the Reporting Persons, 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"). PennCorp
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 99.1. 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.
The Reporting Persons intend 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 or taking other such other action
as they deemed appropriate under the circumstances.
Item 5. Interest in Securities of the Issuer
(a) As of December 27, 1999, the Reporting Persons are
deemed to be the beneficial owners of 63,640 shares of $3.50
Preferred Stock, which are convertible into 91,171 shares of
common stock of the Issuer. Based upon the most recently
available information provided by PennCorp, an aggregate
of 29,305,901 shares of Common Stock are outstanding.
Therefore, Reporting Persons may be deemed to beneficially
own 0.3111% of the outstanding shares of common stock of
the Issuer.
(b) The Reporting Persons have the power to vote and
the power to dispose of the shares of Preferred Stock,
or the underlying Common Stock.
(c) No transactions were effected by the Reporting
Persons 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 99.1: Letter to the Board of Directors of
PennCorp Financial Group, Inc. Dated December 23, 1999.
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.
Highbridge Capital Corporation
By: /s/ Howard Feitelberg
Howard Feitelberg, Controller
January 6, 2000
Date
Highbridge Capital Management, LLC
By: /s/ Ronald S. Resnick
Ronald S. Resnick, Managing Director
January 6, 2000
Date
EXHIBIT 99.1
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.
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
AIG - Soundshore Partners Camden Asset Management
By: ____________________ By: ____________________
Its: ____________________ Its: ____________________
Forest Investment Management Highbridge Capital LLC
By: ____________________ By: ____________________
Its: ____________________ Its: ____________________
Inverness Management LLC Loeb Partners
By: ____________________ By: ____________________
Its: ____________________ Its: ____________________
Paloma Securities LLC Q Investments, LP
By: ____________________ By: ____________________
Its: ____________________ Its: ____________________
Steadfast Financial LLC Vicuna Advisors LLC
By: ____________________ By: ____________________
Its: ____________________ Its: ____________________
W.G. Trading ________________________
William M. McCormick
By: ____________________
Its: ____________________
Paloma Strategic Securities Limited
By: ____________________
Its: ____________________
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.
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-recapitalization common
stock of PFG.
Reverse Split/Conversion
of Common Stock: If the recapitalization is effected by a
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-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 the Company's common stock. The holders
of the Preferred Stock will have the right to subscribe for approximately
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 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.
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 recapitalization, the
Company will not increase the compensation of its officers or directors,
except in the ordinary course of business.
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 Reclassificatin (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 of
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 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.
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 descretion,
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 aquire 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% 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";(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
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 process from the Unit
Offering and/or the Standby Commitment; (vii) the necessary parties shall have
executive 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 or in connection with the recpaitalization, with customary
exclusions; (viii) the board of directiors of PFG shall not have terminated
the recapitlization 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 excising provisions in its
Certificate of Incorporation relating to the 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 recapitaliztion; 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 or reorganization that incorporates the transactions
described herein shall have been entered and such order shall by unstayed
in effect.
/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.
/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.
