SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 2)
---------------------------
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Filed by a Party other than Registrant [ ]
Check the Appropriate Box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SEIBELS BRUCE GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
______________________________________________________________
2. Aggregate number of securities to which transaction applies:
______________________________________________________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________
4. Proposed maximum aggregate value of transaction:
______________________________________________________________
5. Total fee paid:
______________________________________________________________
[x] 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:
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4. Date Filed:
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THE SEIBELS BRUCE GROUP, INC.
1501 LADY STREET
COLUMBIA, SOUTH CAROLINA 29201
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY [22], 1996
TO THE SHAREHOLDERS OF
THE SEIBELS BRUCE GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting") of
THE SEIBELS BRUCE GROUP, INC. (the "Company") will be held at the offices of the
Company at 1501 Lady Street, Columbia, South Carolina 29201 at 11:00 a.m. on
Wednesday, May 22, 1996 for the following purposes:
(1) To consider and act upon a proposal to increase the authorized
common stock of the Company, par value $1.00 per share (the
"Common Stock") from 25,000,000 to 50,000,000 shares and to
amend the Company's Articles of Incorporation accordingly;
(2) To consider and act upon a proposal to approve the issuance of
6,250,000 shares of Common Stock (the "Powers Shares"), the
issuance of options (the "Powers Options") to purchase a
further 6,250,000 shares of Common Stock at an exercise price
per share of the greater of $1.50 or the book value per share
at the date of exercise with respect to 3,125,000 shares and
the greater of $2.00 or the book value per share at the date
of exercise with respect to a further 3,125,000 shares, and
the issuance of the shares of Common Stock underlying the
Powers Options (the "Powers Option Shares") for an aggregate
purchase price of $6,250,000, as contemplated by the Stock
Purchase Agreement, dated as of January 29, 1996, as amended
January 30, 1996 (the "Powers Agreement"), between the Company
and Charles H. Powers, Walker S. Powers, Rex Huggins and Jane
Huggins (collectively, the "Powers"), which approval is
required by the ByLaws of the National Association of
Securities Dealers, Inc. (the "NASD");
(3) To consider and act upon a proposal to grant full and
unlimited voting rights under the South Carolina Control Share
Acquisitions Act to all 12,500,000 shares of Common Stock
purchased or to be purchased by the Powers pursuant to the
Powers Agreement and the Powers Options, in accordance and in
compliance with Title 35, Chapter 2, Article 1, ss. 35-2-109
of the South Carolina Code;
(4) To consider and act upon a proposal to increase the number of
directors of the Company from 11 to 18;
(5) To consider and act upon a proposal to adopt a stock option
plan for non-employee directors of the Company;
(6) To consider and act upon a proposal to adopt a stock option
plan to supersede the 1987 Stock Option Plan, for the
employees of the Company; and
(7) To consider and act upon a proposal to adopt a stock option
plan for independent agents of the Company.
All of the foregoing is more fully set forth in the Proxy Statement
accompanying this Notice.
Shareholders may be entitled to assert dissenters' rights under Chapter
13 of Title 33 of the South Carolina Business Corporation Act of 1988 with
respect to Proposal 3.
The transfer books of the Company will close as of the end of business
on April 11, 1996 (the "Record Date") for purposes of determining shareholders
who are entitled to notice of and to vote at the Meeting, but will not be closed
for any other purpose.
SHAREHOLDERS ARE URGED TO FILL IN AND EXECUTE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED WHEN MAILED IN
THE UNITED STATES. YOUR ATTENDANCE AT THE MEETING IS ENCOURAGED. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN AND EXECUTE THE ENCLOSED PROXY.
IF YOU ATTEND THE MEETING AND DECIDE THAT YOU WANT TO VOTE IN PERSON, YOU MAY
REVOKE YOUR PROXY. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF
ALL OF THE PROPOSALS DESCRIBED HEREIN TO BE CONSIDERED AT THE MEETING.
By Order of the Board of Directors
Priscilla C. Brooks
Corporate Secretary
April ____, 1996
THE SEIBELS BRUCE GROUP, INC.
1501 LADY STREET
COLUMBIA, SOUTH CAROLINA 29201
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD May [22], 1996
INTRODUCTION
General
This Proxy Statement is furnished to the shareholders of the common stock, par
value $1.00 per share (the "Common Stock"), of The Seibels Bruce Group, Inc.
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board of Directors") to be voted at a Special
Meeting of Shareholders (the "Meeting") to be held at the offices of the
Company, 1501 Lady Street, Columbia, South Carolina 29201, at 11:00 a.m. on
Wednesday, May 22, 1996 and at any adjournments thereof. It is anticipated that
this Proxy Statement will be mailed to shareholders on or about April ____,
1996.
A proxy card is enclosed. Any shareholder who executes and delivers a proxy may
revoke it prior to its use by (i) giving written notice of such revocation to
the Corporate Secretary of the Company at P.O. Box 1, Columbia, South Carolina
29202, the Company's mailing address; or (ii) executing and delivering to the
Corporate Secretary of the Company (by mail at P.O. Box 1, Columbia, South
Carolina 29202, or by delivery at 1501 Lady Street, Columbia, South Carolina
29201) a proxy bearing a later date; or (iii) appearing at the Meeting and
voting in person. When proxies in the accompanying form are returned properly
executed, the shares represented by proxies which have not been revoked will be
voted in accordance with the instructions noted thereon. Abstentions and "broker
non-votes" are each included in the determination of the number of shares
present and voting, but are not counted as votes for proposals presented to
shareholders. Abstentions and broker non-votes will have the same effect as a
vote against proposals 1 and 3. (A "broker non-vote" occurs when a nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner.)
Unless otherwise specified, the proxies will be voted in favor of the proposals
set forth below (collectively, the "Proposals")
(1) To consider and act upon a proposal to increase the authorized
common stock of the Company, par value $1.00 per share (the
"Common Stock") from 25,000,000 to 50,000,000 shares and to
amend the Company's Articles of Incorporation accordingly;
(2) To consider and act upon a proposal to approve the issuance of
6,250,000 shares of Common Stock (the "Powers Shares"), the
issuance of options (the "Powers Options") to purchase a
further 6,250,000 shares of Common Stock at an exercise price
per share of the greater of $1.50 or the book value per share
at the date of exercise with respect to 3,125,000 shares and
the greater of $2.00 or the book value per share at the date
of exercise with respect to a further 3,125,000 shares, and
the issuance of the shares of Common Stock underlying the
Powers Options (the "Powers Option Shares") for an aggregate
purchase price of $6,250,000, as contemplated by the Stock
Purchase Agreement, dated as of January 29, 1996, as amended
January 30, 1996 (the "Powers Agreement"), between the Company
and Charles H. Powers, Walker S. Powers, Rex Huggins and Jane
Huggins (collectively, the "Powers"), which approval is
required by the By-Laws of the National Association of
Securities Dealers, Inc. (the "NASD");
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(3) To consider and act upon a proposal to grant full and
unlimited voting rights under the South Carolina Control Share
Acquisitions Act to all 12,500,000 shares of Common Stock
purchased or to be purchased by the Powers pursuant to the
Powers Agreement and the Powers Options, in accordance and in
compliance with Title 35, Chapter 2, Article 1, ss. 35-2-109
of the South Carolina Code;
(4) To consider and act upon a proposal to increase the number of
directors of the Company from 11 to 18;
(5) To consider and act upon a proposal to adopt a stock option
plan for non-employee directors of the Company;
(6) To consider and act upon a proposal to adopt a stock option
plan to supersede the 1987 Stock Option Plan, for the
employees of the Company; and
(7) To consider and act upon a proposal to adopt a stock option
plan for independent agents of the Company.
The Board of Directors recommends that shareholders vote "FOR" or grant
authority to vote "FOR" each of the Proposals. In accordance with South Carolina
law and the Bylaws of the Company, no other matters may properly come before the
Meeting without additional notice from the Company.
Voting
Only holders of record of outstanding shares of Common Stock as of April 11,
1996 (the "Record Date"), will be entitled to notice of and to vote at the
Meeting. On the Record Date, there were 18,407,686 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote except with
respect to Proposal 3, as described below. Unless otherwise indicated, the proxy
will be voted in favor of all of the Proposals. As of December 31, 1995, there
were 16,772,686 shares of Common Stock outstanding as reported in the Company's
1995 Annual Report on Form 10-K, included as an appendix hereto. An additional
1,635,000 shares (the "Avent Shares") were issued on March 29, 1995 pursuant to
a stock purchase agreement entered into with Fred C. Avent and others (the
"Avent Transaction") (referred to collectively as the "Avent Group"). In
addition to the Avent Shares, the Avent Group is entitled to receive options to
purchase an additional 1,635,000 shares of Common Stock (the "Avent Options").
See "RECENT DEVELOPMENTS--The Avent Transaction".
Mr. Saad Alissa and his affiliates (the "Alissa Group"), who collectively own
8,152,200 shares of Common Stock (representing 44.29% of the shares
outstanding), and the directors and executive officers of the Company, who
collectively own 1,282,430 shares of Common Stock (representing 6.97% of the
shares outstanding) have indicated to the Company that they intend to vote for
the Proposals at the Meeting (except to the extent that shares owned by
directors and officers are excluded from voting on Proposal 3, as discussed
below). Therefore, shareholders owning an aggregate of 9,434,630 (51.25%) have
indicated that they intend to vote for the Proposals (other than Proposal 3).
The presence, in person or by proxy, of the holders of a majority of the shares
issued and outstanding and entitled to vote constitutes a quorum for the
Meeting. In addition to quorum requirements, however, approval of Proposal 1
requires the affirmative votes of two-thirds of all outstanding shares, and
approval of Proposal 3 requires the affirmative vote of a majority of all
outstanding shares, excluding "Interested Shares" (as defined below).
For Proposal 1 to be approved, the affirmative vote of the holders of two-thirds
of the outstanding shares of Common Stock is required. Therefore, abstentions
will have the same effect as a vote against Proposal 1.
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For Proposals 2, 4, 5, 6 and 7 to be approved, the affirmative vote of a
majority of the votes cast in person or by proxy at the Meeting is required. All
outstanding shares of Common Stock are eligible to vote on Proposals 2, 4, 5, 6
and 7.
For Proposal 3 to be approved, the affirmative vote of the holders of a majority
of the outstanding shares of the Common Stock (excluding "Interested Shares" as
that term is defined in the South Carolina Control Share Acquisitions Act) is
required. Therefore, abstentions will have the same effect as a vote against
Proposal 3. As more fully discussed under the heading "PROPOSALS RELATING TO THE
POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 -- Grant of Voting Rights under the
South Carolina Control Share Acquisitions Act," a vote is required on Proposal 3
under the provisions of the South Carolina Control Share Acquisitions Act in
order to grant voting rights to the Powers Shares and the Powers Option Shares.
"Interested Shares" are any shares of Common Stock that are owned or the voting
of which may be exercised or directed in the election of directors by the Powers
(and any other persons who may constitute a group with any of the Powers within
the meaning of Rule l3d-5 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), as well as all shares of Common Stock that are owned or
the voting of which may be exercised or directed in the election of directors,
by any officer of the Company or any director who is also an employee of the
Company. Based on information provided to the Company by the Powers, the Powers
(including any person who with the Powers would constitute a group under the
Exchange Act), owned an aggregate amount of 364,206 shares of Common Stock as of
the Record Date. An additional 32,000 shares of Common Stock owned by directors
and officers of the Company constituted Interested Shares as of the Record Date.
See "PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 --
Proposal 3: Powers Agreement -- Grant of Voting Rights under the South Carolina
Control Share Acquisitions Act -- Vote Required." Accordingly, 396,206 shares
constitute Interested Shares, and the remaining 18,011,480 shares of Common
Stock will be eligible to vote on Proposal 3.
THE ACCOMPANYING PROXY FORM IS SOLICITED BY THE BOARD OF DIRECTORS AND IS
REVOCABLE AT ANY TIME PRIOR TO BEING EXERCISED. THE PROXY WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS THEREON. IF A CHOICE IS NOT INDICATED,
HOWEVER, THE PROXY WILL BE VOTED IN FAVOR OF THE DESCRIBED PROPOSALS TO BE
CONSIDERED AT THE MEETING, AND IN THE BEST JUDGMENT OF THE PROXIES CONCERNING
ALL OTHER PROPOSALS CONSIDERED AT THE MEETING.
Risks Associated with the Powers Transaction
The Powers Transaction will cause a substantial reduction in the proportionate
equity interest in the Company of the Company's existing shareholders. The
issuance of the Powers Shares (and the potential future issuance in the case of
the Powers Options), will add a significant number of shares to the shares
already issued and outstanding which may have an adverse effect on the market
price of the Company's shares. The closing prices of the Company's Common Stock
on December 15, 1995 and December 19, 1995, the business dates immediately prior
to and after the date of the announcement of the Powers Transaction (as then
proposed), were $1.1875 and $1.75, respectively. The market price of the
Company's shares of Common Stock may be adversely affected by the registration
of the Powers Shares, the Powers Option Shares, the Avent Shares, the Avent
Option shares, and the shares currently owned by the Alissa Group (the "Alissa
Shares"). The Company expects to file a registration statement with respect to
all of these shares if the Powers Transaction is approved at the meeting.
Assuming no exercise of the Powers Options, the consummation of the Powers
Transaction will increase the number of issued and outstanding shares from
18,407,686 to 24,657,686, representing an increase of 33.95%. Assuming the
exercise of the Powers Options, the number of issued and outstanding shares
would be 30,907,686, an increase of 67.91% over the number of issued and
outstanding shares on March 30, 1996. The foregoing calculations include as
issued the 1,635,000 Avent Shares and assume no exercise of the 1,635,000 Avent
Options issued in connection with the Avent Transaction.
The Powers, by virtue of owning 26.82% of the Company's Common Stock (assuming
no exercise of the Powers Options or the Avent Options) or 41.62% (assuming
exercise of all the Powers Options but no exercise of the Avent Options or other
options), together with a contractual right to nominate two directors for
election to the Board of Directors, will have the ability to significantly
influence the management and affairs of the Company. In addition, the Powers,
together with the Alissa Group, will have the right to nominate a majority of
the Board of Directors, and the Powers, the Alissa Group and the executive
officers and directors of the Company and their affiliates will own an aggregate
of approximately 16,048,836 shares, representing 65.09% of the total shares
outstanding (assuming no exercise of the Powers Options or other options
outstanding) or 22,298,836 shares, representing 72.15% (assuming exercise of the
Powers Options, but no exercise of any other options outstanding). Such a high
level of ownership in the Powers, Alissa Group and management of the Company may
have the effect of preventing, discouraging or delaying a change in control of
the Company and may adversely affect the voting and other rights of other
holders of Common Stock. Although there is no contract, arrangement,
understanding, or other relationship among such persons, the consummation of the
Powers Transaction could make it more difficult for a third party to acquire
control of the Company without the support of the incumbent Board of Directors,
the Alissa Group, or the Powers. See "BACKGROUND OF PROPOSALS RELATING TO THE
POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 -- Summary of Terms of the Powers
Agreement and Powers Options," "ANTITAKEOVER EFFECTS OF THE SHARE ISSUANCE AND
APPROVAL OF PROPOSALS 1, 2, 3 And 4."
The Powers Transaction is the result of the Company's continuing efforts to
strengthen the capital and surplus of the Company and its subsidiaries. The
minimum required capital and surplus for a multiple lines insurance company in
South Carolina, such as the South Carolina Insurance Company ("SCIC"), the
Company's principal insurance subsidiary, is approximately $3,000,000. Due to
its limited capital and surplus, in early 1995, SCIC instituted a plan to
non-review all property business. This elimination of property exposures enabled
SCIC to renegotiate its catastrophic reinsurance contract that previously costs
it $1,300,000 per year. Effective March 15, 1995, all auto liability business
written in North Carolina was ceded to the North Carolina Reinsurance Facility.
On April 13, 1995, SCIC voluntarily agreed with the South Carolina Department of
Insurance (the "Department") to suspend temporarily all new and renewal activity
where SCIC retained net underwriting risk. Because of its limited capital and
surplus, SCIC agreed that it would not resume writing any policy of insurance in
which SCIC bears any risk without approval from the Deparmtnet. The Powers
Transaction will greatly increase the statutory capital and surplus of SCIC and
decrease the chance that a sudden and/or unexpected loss could render SCIC
unexpectedly below the statutory surplus requirements, thereby causing the
Department to take over the company for rehabilitation and/or liquidation. By
increasing its capital and surplus to more than $15,500,000 (pro forma as of
December 31, 1995), SCIC will be in a much stronger financial position and
management believes that it will be better placed to seek approval from the
Department to resume writing policies in which SCIC bears risk, subject to
acceptance by the Department of the Company's business plan, and to such volume
and other limitations as the Department may impose. There is no guarantee,
however, that the Department will allow SCIC to resume writing policies in which
SCIC retains risk.
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Financial Information
The Company's Annual Report on Form l0-K for the year ended December 31, 1995 is
incorporated into this Proxy Statement by reference. Shareholders may also
obtain copies of this Report without charge upon written request addressed to
the Corporate Secretary, The Seibels Bruce Group, Inc., P.O. Box 1, Columbia,
South Carolina 29202. If the person requesting a copy of the Report is not a
shareholder of record, the request must include a representation that he is a
beneficial owner of the Company's Common Stock. Representatives of Arthur
Andersen, LLP, the Company's principal accountants for the current year and for
the most recently completed fiscal year are expected to be present at the
Meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
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TABLE OF CONTENTS
INTRODUCTION......................................................................................................1
General ................................................................................................1
Voting ................................................................................................2
Risks Associated with the Powers Transaction.............................................................3
Financial Information....................................................................................3
TABLE OF CONTENTS.................................................................................................4
BACKGROUND OF PROPOSALS RELATING TO THE
POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4..............................................................8
Background of Powers Transaction.........................................................................8
Introduction....................................................................................8
Recommendation of the Board of Directors........................................................8
The Company's Need for Capital..................................................................8
The Company's Efforts to Obtain Capital.........................................................9
Opinion of Financial Advisor...................................................................10
Analysis of Liquidation Value of the Company...................................................12
Use of Proceeds................................................................................12
General Effect on Existing Shareholders........................................................12
The Powers.....................................................................................13
Unaudited Pro Forma Financial Data......................................................................13
Summary of the Powers Agreement and the Powers Options..................................................15
The Powers Agreement...........................................................................15
Purchase and Sale of the Powers Shares and Options.............................................15
Representations, Warranties and Covenants......................................................15
Registration Rights with Respect to Shares.....................................................15
Conditions to the Powers Agreement.............................................................16
Termination....................................................................................16
Restrictions on Transfer.......................................................................16
Designation of Directors.......................................................................16
Indemnification................................................................................17
The Powers Options.............................................................................17
PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4..........................................17
Proposal 1: Increase in Number of Authorized Shares of Common Stock....................................17
Vote Required..................................................................................18
Proposal 2: Approval of Securities Issuance Pursuant to The Powers Agreement and the Powers
Options........................................................................................18
Vote Required..................................................................................19
Proposal 3: Powers Agreement -- Grant of Voting Rights under the South Carolina Control Share
Acquisitions Act...............................................................................19
The South Carolina Control Share Acquisitions Act ("CSAA").....................................19
Acquisition of Shares by the Powers............................................................20
Vote Required..................................................................................20
Dissenters' Rights with Respect to Proposal 3..................................................21
Proposal 4: Increase In Number of Directors............................................................23
Introduction...................................................................................23
Board Resolution...............................................................................23
Vote Required..................................................................................23
ANTITAKEOVER EFFECTS OF THE SHARE ISSUANCE
AND APPROVAL OF PROPOSALS 1, 2, 3 AND 4.................................................................23
Introduction............................................................................................23
Existing Antitakeover Provisions........................................................................24
South Carolina Control Share Acquisitions Act..................................................24
South Carolina Business Combination Statute....................................................24
Supermajority Voting Requirements..............................................................24
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Classified Board of Directors; Removal of Directors............................................25
BACKGROUND OF PROPOSALS RELATING TO STOCK PLANS FOR DIRECTORS, EMPLOYEES AND
AGENTS: PROPOSALS 5, 6 AND 7...........................................................................25
Background of Stock Plans for Directors, Employees and Agents...........................................25
Benefits to be Received upon Shareholder Approval
of the Plans Contemplated by Proposals 5, 6 and 7..............................................26
PROPOSALS RELATING TO STOCK PLANS FOR DIRECTORS, EMPLOYEES AND AGENTS:
PROPOSALS 5, 6 AND 7....................................................................................27
Proposal 5: Approval of the 1995 Non-employee Directors Stock Option Plan..............................27
Introduction...................................................................................27
Eligibility....................................................................................27
Administration.................................................................................27
Award of Options and Shares....................................................................28
Transferability of Options.....................................................................28
Amendment of the 1995 Directors Plan...........................................................28
Federal Income Tax Consequences of the 1995 Non-Employee Directors Stock Option Plan
.....................................................................................28
Vote Required..................................................................................28
Proposal 6: Approval of the 1996 Employee Stock Option Plan.............................................28
Introduction...................................................................................28
Eligibility....................................................................................29
Administration.................................................................................29
Stock Options..................................................................................29
Restricted Stock...............................................................................30
Incentive Stock................................................................................30
Transferability of Incentive Awards............................................................30
Amendment of the 1996 Plan and Incentive Awards................................................30
Federal Income Tax Consequences of the 1996 Plan...............................................30
Vote Required..................................................................................31
Proposal 7: Approval of the 1995 Stock Option Plan for Independent Agents..............................31
Introduction...................................................................................31
Eligibility....................................................................................31
Administration.................................................................................31
Award of Options...............................................................................32
Transferability of Options.....................................................................32
Amendment or Termination of the 1995 Agents Plan...............................................32
Federal Income Tax Consequences of the 1995 Agents Plan........................................32
Vote Required..................................................................................32
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.................................................................33
Directors' Compensation.................................................................................33
Compensation of Executive Officers......................................................................33
Option Grants...........................................................................................34
Option Exercises and Year-End Holdings..................................................................34
Employment Agreements...................................................................................35
Effective Dates of Employment..................................................................35
Salary ......................................................................................35
Bonus ......................................................................................35
Stock Options..................................................................................35
Covenant Not to Compete........................................................................36
Termination....................................................................................36
Report of the Board of Directors on Executive Compensation..............................................36
Compensation Committee Interlocks and Insider Participation in Compensation Decisions...................36
Stock Performance Chart.................................................................................36
Certain Transactions....................................................................................38
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SECURITY OWNERSHIP OF THE COMPANY................................................................................38
RECENT DEVELOPMENTS..............................................................................................39
Sale of Consolidated American...........................................................................39
The Avent Transaction...................................................................................39
GENERAL ........................................................................................................40
Expenses of Solicitation................................................................................40
Additional Information..................................................................................40
Incorporation by Reference..............................................................................40
ANNEXES AND APPENDIX:
Annex A Stock Purchase Agreement dated as of January 29, 1996 between
Charles H. Powers and Walker S. Powers on the one hand, and
The Seibels Bruce Group, Inc., and amendment thereto (the
"Powers Agreement").
Annex B Stock Option Agreement dated as of January 30, 1996 between
Charles H. Powers, Walker S. Powers and Rex and Jane Huggins
on the one hand, and The Seibels Bruce Group, Inc.
Annex C Opinion of Advest, Inc. dated February 7, 1996.
Annex D Chapter 13 (Dissenters' Rights) of Title 33 of the Code of
Laws of South Carolina.
Annex E 1995 Non-employee Directors Stock Option Plan (the "1995
Directors Plan").
Annex F 1996 Employee Stock Option Plan (the "1996 Plan").
Annex G 1995 Stock Option Plan for Independent Agents (the "1995
Agents Plan").
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BACKGROUND OF PROPOSALS RELATING TO THE
POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4
Background of Powers Transaction
Introduction. Since late 1994, the Company has been pursuing strategic options,
including a significant capital infusion to strengthen the capital and surplus
of its insurance subsidiaries, and to enable its insurance subsidiaries to
re-enter the risk-based insurance business. During 1995, the Company considered
a number of strategies to raise capital, including negotiations with six
prospective investors or purchasers. In November, 1995, the Company entered into
negotiations with Charles H. Powers, and on January 29, 1996, the Company
entered into a Stock Purchase Agreement (the "Powers Agreement") with Charles H.
Powers and Walker S. Powers; the Powers Agreement was amended as of January 30,
1996 to include as parties Rex and Jane Huggins (Charles and Walker S. Powers
and Rex and Jane Huggins are collectively referred to herein as the "Powers").
Pursuant to the Powers Agreement, the Company agreed to issue 6,250,000 shares
of Common Stock (the "Powers Shares") and options to purchase a further
6,250,000 shares of Common Stock at an exercise price per share of the greater
of book value or $1.50 per share with respect to 3,125,000 shares and the
greater of book value or $2.00 per share with respect to a further 3,125,000
shares, to the Powers in consideration for an aggregate purchase price of
$6,250,000 (the "Purchase Price"). In accordance with the Powers Agreement, the
Company prepared (subject to the conditions to the Powers Agreement described
below) certificates representing the Powers Shares, and such certificates,
together with the Powers Option Agreement referred to below, were delivered to
Haigh Porter, Esq., the Powers' attorney (the "Powers' Attorney"), and the
Purchase Price was delivered to the Company, on January 30, 1996, to be held in
escrow pending approval of Proposals 1, 2 and 3 by the Company's shareholders as
described herein ("Shareholder Approval") and the receipt of approvals from the
insurance regulatory authorities of South Carolina in which the Company's
principal insurance subsidiary is domiciled, and Kentucky, in which one of the
Company's insurance subsidiaries is domiciled, ("Insurance Regulatory
Approval"). The Company has agreed under the Powers Agreement to use its best
efforts to obtain Shareholder Approval.
Recommendation of the Board of Directors. At its meeting on January 30, 1996,
the Board unanimously approved the proposed transaction with the Powers (the
"Powers Transaction"), resolved to submit Proposals 1, 2 and 3 to the
shareholders. The Board recommends that the shareholders vote for Proposals 1, 2
and 3 because the Powers Transaction represents, in the Board's view, the
Company's best available option for raising much-needed capital.
The Powers Transaction will greatly increase the statutory capital and surplus
of SCIC and decrease the chance that a sudden and/or unexpected loss could
render SCIC unexpectedly below the statutory surplus requirements, thereby
causing the Department to take over the company for rehabilitation and/or
liquidation. By increasing its capital and surplus to more than $15,500,00 (pro
forma as of December 31, 1995), SCIC will be in a much stronger financial
position and management believes that it will be better placed to seek approval
from the Department to resume writing policies in which SCIC bears risk, subject
to acceptance by the Department of the Company's business plan, and to such
volume and other limitations as the Department may impose.
The Board believes the Powers Transaction is fair to and in the best interests
of the shareholders as a whole because (i) all shares to be purchased by the
Powers are priced at or above book value and existing shareholders are thus
protected against book value dilution; and (ii) the Board believes that the
price to be paid by the Powers compares favorably with the share price of the
Company's peer group, and with the other options considered by the Company
during 1995. Though the Powers Transaction will cause a substantial reduction in
the existing shareholders' proportionate equity interest in the Company, the
Board believes this reduction is outweighed by the enhancement of the Company's
net book value per share and capital and surplus.
The Company's Need for Capital. The Powers Transaction is the result of the
Company's continuing efforts to strengthen the capital and surplus of the
Company and its subsidiaries. The minimum required capital and surplus for a
multiple lines insurance company in South Carolina, such as the South Carolina
Insurance Company ("SCIC"), the Company's principal insurance subsidiary, is
approximately $3,000,000. Due to its limited capital and surplus, in early 1995,
SCIC instituted a plan to non-renew all property business. This elimination of
property exposures enabled SCIC to renegotiate its catastrophic reinsurance
contract that previously cost it $1,300,000 per year. Effective March 15, 1995,
all auto liability business written in North Carolina was ceded to the North
Carolina Reinsurance Facility. On April 13, 1995, SCIC voluntarily agreed with
the South Carolina Department of Insurance (the "Department") to suspend
temporarily all new and renewal activity where SCIC retained net underwriting
risk. During the following weeks and months, management of the Company
maintained close contact with the Department, meeting frequently with the staff
of the Department, to discuss the Company's need for and efforts to raise,
capital and the Company's finances and reserves. Because of its limited capital
and surplus, SCIC agreed that it would not resume writing any policy of
insurance in which SCIC bears any risk without approval from the Department.
The Company's Efforts to Obtain Capital. The Powers Transaction is the
culmination of a process initiated by the Board of Directors to obtain
additional financing for the Company. In late 1994, the Company identified the
desirability of engaging a financial advisor to assist the Company, including
assistance in capital formation. The
-8-
Board considered several advisors, and in January 1995, engaged Advest, Inc.
("Advest") to serve as financial advisor to the Company. Advest was engaged to
assist the Company in the development of a strategic operating and development
plan for the Company and its component entities, and to participate in financial
planning and capital formation projects. The Company, with the assistance of
Advest, considered a large number of potential investment and acquisition
options during 1995.
During 1995, Advest approached approximately 25 companies regarding an
investment in, or purchase of, the Company. In addition, the Company sought
prospective investors, purchasers or partners through its existing contacts in
the insurance industry. These efforts produced six prospects (including the
Powers) (referred to herein as Prospects 1-6) whose interest rose to the level
of negotiating terms and/or conducting due diligence. (In addition, the Company
sought to generate additional capital by the sale of its headquarters building
and the sale of a dormant subsidiary, Consolidated American. See "Recent
Developments -- Sale of Consolidated American.")
Prospect 1 conducted diligence in April, 1995, but thereafter decided not to
proceed with any investment or purchase. Prospect 2 initially proposed to
purchase certain lines of business from SCIC. Although that transaction did not
proceed, Prospect 2 did enter into an agreement with the Company in May 1995 to
provide advice and counsel to the Company, and to assess its opportunities and
values, in exchange for a right of first refusal to match any third party
purchase or investment. Prospect 2 ultimately did not make any concrete proposal
to the Company, and waived its right of first refusal with respect to the Powers
Transaction. Accordingly, the Company did not pursue a transaction with Prospect
2.
In May and June of 1995, management of the Company, the full Board and the
Executive Committee of the Board met with several prospective purchasers or
investors. Advest contacted sixteen parties during June, of which eight were not
interested in pursuing a transaction with the Company, five were indefinite and
three (Prospects 3, 4 and 5) expressed interest. Prospect 3 proposed a
$10,000,000 investment in return for an 80% interest in the Company, thus
valuing the existing shares at only $.15 each, a level which was unacceptable to
the Company. Accordingly, the Company did not pursue a transaction with Prospect
3.
In August, 1995, the Company received proposals from Prospects 4 and 5. The
proposal from Prospect 4 contemplated the acquisition by Prospect 4 of effective
control of the Company through one of two options, one of which would have
involved the contribution by Prospect 4 of all of its operations into the
Company in exchange for 192.3 million newly issued shares of the Company, and
the other of which would have involved a share exchange transaction in which
Prospect 4 would have acquired 40% of the Company, effectively valuing the
Company at $1.00 per share, with a five year option to acquire a further
11,000,000 shares at $1.00 per share in cash or stock. The decision as to which
of these two structures to pursue was entirely in the control of Prospect 4, a
circumstance which was unacceptable to the Company, and the Company therefore
did not pursue the proposal from Prospect 4.
The proposal from Prospect 5 involved three elements: (a) the transfer of
certain loss reserves by SCIC to Prospect 5, (b) the purchase of 5,000,000
shares of the Company's Common Stock for $1.00 per share; and (c) a management
agreement under which management company would assume responsibility for
management of the Company and would earn options to purchase up to 12,000,000
additional shares. The Company was concerned that the valuation of the loss
reserves proposed by Prospect 5 was not adequate, that the proposal did not
involve a sufficient capital infusion to permit SCIC to seek to re-enter the
risk-based insurance business, and that it required the Company to give up
management control (through the management agreement) for a less than 25%
investment. In October the Company made a counteroffer to Prospect 5 to address
these concerns. That counteroffer was not accepted by the end of October, the
deadline imposed by the Company, and the Company therefore did not pursue a
transaction with Prospect 5.
In early November, Prospect 6, Charles H. Powers was introduced to the Company
through two individuals familiar both to Mr. Powers and to the Company: an
insurance agent and the Company's registered lobbyist. The Company's President
met with Mr. Powers on November 6 to discuss a possible transaction, and
reported the results of this preliminary meeting to the Executive Committee on
November 8. Management of the Company subsequently met with Mr. Powers and his
accountant on November 15, and by conference call with the Department on
November 17. The results of these discussions were reported to the full Board at
its meeting on November 20. The transaction, as then proposed, contemplated a
capital infusion of $5,000,000 by Mr. Powers into SCIC, in exchange for debt of
SCIC convertible into 5,000,000 shares of Company Common Stock, and options to
purchase 5,000,000 additional shares at the greater of $1.50 per share for
2,500,000 shares and $2.00 per share for 2,500,000 shares, or the net book value
per share of the Common Stock at the time of exercise. The Board considered the
Powers proposal in detail at its November 20 meeting, including a comparison
with the Prospect 5 proposal, and with the status quo. The Board noted that the
Powers proposal had several advantages over the Prospect 5 proposal, including
(a) leaving the entire loss reserve with SCIC; (b) involving less potential
dilution of the existing shareholders because the Powers Transaction
contemplated the issuance of 10,000,000 (later increased to 12,500,000) rather
than 17,000,000 shares; and (c) leaving management control of the Company with
the Board because the Powers did not seek to enter a management agreement with
the Company, and would have the right only to nominate two directors.
Accordingly, the Board authorized management to proceed with negotiations with
Mr. Powers.
-9-
During the following weeks, management continued its negotiations with Mr.
Powers, which included seeking a larger investment to enhance SCIC's capital and
surplus, and thus improve the Company's position with respect to re-entering the
risk-based business.
At its meeting on December 18, 1995, the Board considered the terms of a draft
letter of intent presented by Mr. Powers, including a proposal by Mr. Powers to
invest $5,500,000 in exchange for 5,500,000 shares and 5,500,000 options. The
Board discussed the terms of the proposal, including with representatives of
management who were present at the meeting, and noted that there were currently
no other proposals available to the Company. Following discussion, the Board
unanimously approved the letter of intent with Mr. Powers and authorized
management to proceed with the transaction, with a contemplated closing in late
January 1996.
During late 1995 and early 1996, management of the Company continued to
negotiate the proposed transaction with Mr. Powers. In these negotiations,
management sought to increase the size of the investment, resulting in the terms
contained in the Powers Agreement, including an aggregate investment by Mr.
Powers, his son, and daughter and son-in-law, of $6,250,000 for 6,250,000 shares
and 6,250,000 options. On January 29, 1996, the Executive Committee, and on
January 30, 1996, the full Board, considered these proposed terms, the condition
of the Company, and its alternatives, and unanimously approved the Powers
Agreement.
Opinion of Financial Advisor. Advest has delivered a written opinion (the
"Fairness Opinion"), dated January 29, 1996 and revised February 7, 1996, that
in its opinion the financial terms of the investment contemplated by the Powers
Transaction, taken as a whole, are fair from a financial point of view to the
Company and its shareholders. A copy of the Fairness Opinion is attached as
Annex C. Advest did not recommend the consideration to be paid by the Powers,
which was the result of negotiation between the Company and the Powers.
In arriving at the Fairness Opinion, Advest, considered (i) whether the Powers
Transaction would cause book value dilution to the existing shareholders'; (ii)
compared the Purchase Price to be paid by the Powers, as a multiple of the
Company's book value and earnings, with a peer group of companies; (iii)
compared the Purchase Price with the market price of the Company's shares; and
(iv) compared the Purchase Price and the terms of the Powers Transaction with
the prices and terms proposed by other potential investors or acquirors with
which the Company had negotiated during 1995.
Dilution. Advest noted that the Powers Transaction would not dilute the existing
shareholders' interest in the book value of the Company (because the book value
per share would increase as a result of the sale of the Powers Shares.)
Peer Group Comparison. Advest also noted that the Purchase Price of $1.00 per
share represented a ratio of price to book value per share of the Company (based
on the Company's book value per share at September 30, 1995, of $.45) of 220%,
and a ratio of price to earnings per share (based on the Company's operating
profit for the six month period ended September 30, 1995 annualized, of $.119
per share) of 8.4%, both of which compared favorably with the comparable ratios
of a peer group of publicly held small to mid-sized troubled property/casualty
insurers, for which the range of share price to book value per share was 13.8%
to 164.7% (average for the peer group 85.6%) and the range of share price to
earnings per share was 4.07% to 10.6% (average for the peer group 6.73%).
Although there was one member of the peer group for which the ratio of share
price to earnings per share was higher than the Powers Transaction, Advest
nonetheless concluded that the Purchase Price to be paid by the Powers compared
favorably to the peer group, given (i) the Company's history of losses (included
a loss reported for 1994 and for the first quarter of 1995) and the consequent
uncertainty with respect to the Company's future earnings, (ii) the average
ratio for the peer group, which was lower than the ratio presented by the Powers
Transaction and (iii) the lower ratios for all other members of the peer group.
The peer group was comprised of MCM Corporation, Citation Insurance Group, North
East Insurance, Pacific Rim Insurance, Motor Club of America, Omni Insurance,
U.S. Capital Corp. and Riverside Group.
Comparison with the Company's Market Price Per Share. Advest compared the
Purchase Price per share of $1.00 to the trading range of the Company's shares
during 1995. Advest noted that, during the 26 week period ended [January 29,
1996], the average weekly closing price of the Company's shares was $1.045, and
the median closing price was $.9375. Advest noted that the Purchase Price
compared favorably to the market price, given that (i) recent increases in the
market price were attributable to the news of the Powers Transaction itself, and
(ii) the Powers Shares would not be registered or freely tradeable immediately
after the closing of the Powers Transaction, a fact which would justify a
discount from market price. Advest believed that the comparison of the Purchase
Price with the market prices of the peer group and of the Company was
appropriate, even though the Powers Transation involved the acquisition by the
Powers of a significant amount of stock, because the Powers Transaction was not
a merger or takeover of the Company by the Powers or even (given the fact that
the Alissa Group would continue to be the Company's largest shareholder and
would continue to nominate one less than a majority of the Board of Dirctors),
the acquisition by the Powers of control of the Company, either of which might
have been expected to involve the payment of a "control premium" over market
price. Nonetheless, Advest also reviewed insurance industry data, including
merger and acquisition data, as contained in Philo Smith & Co. Inc.'s The
Insurance and Financial Review and concluded that the Powers Transaction
compared favorably with those transactions.
Comparison with the Company's Other Proposed Transactions. Advest was also very
familiar with the circumstances of the Company, including its need to increase
capital and surplus, its attempts during 1995 to identify investors or
acquirors, and its negotiations with prospective investors during 1995. In
considering the Powers Transaction, Advest noted that it would provide the
Company with the capital and surplus it has been seeking, on terms more
favorable to the Company and the shareholders as a whole than those proposed by
any of the other prospective investors with whom the Company had held
discussions during 1995. See "The Company's Efforts to obtain Capital."
In connection with the engagement of Advest to render an opinion with respect to
the fairness of the Powers Transaction, the Company paid Advest a fee of
$50,000. From January 1995 through January 1996, the Company paid Advest an
aggregate of $60,000 (excluding the fee described in the preceding sentence) in
connection with its
-10-
financial advisory services. The Company has also reimbursed Advest for certain
of its reasonable out-of-pocket expenses and has agreed to indemnify Advest
against certain liabilities.
Advest is an investment banking and brokerage firm based in New York, and is
frequently involved in the valuation of securities in connection with public
offerings, private placements, mergers, acquisitions, fairness opinions and
other transactions. Advest was selected by the Company to give its opinion with
respect to the fairness of the Powers Transaction on the basis of its
qualifications, including its expertise in mergers and acquisitions and the
valuation of businesses and securities, and its reputation. Prior to the
engagement of Advest as described herein, there was no material relationship
between Advest or its affiliates and the Company or its affiliates.
Analysis of Liquidation Value of the Company. Neither the Board of Directors nor
Advest has conducted a quantitative liquidation analysis of the Company, and the
Board believes that such an analysis is unnecessary.
Use of Proceeds. The Company will receive gross cash proceeds from the sale of
the Powers Shares of $6,250,000, plus an additional $10,937,500 in the event
that the Powers Options are all exercised (assuming an exercise price of $1.50
with respect to 3,125,000 Powers Option Shares and $2.00 with respect to
3,125,000 Powers Option Shares). The Company intends to contribute the entire
net proceeds from the sale of the Powers Shares (expected to be approximately
$6,100,000), to SCIC as a capital contribution. The Company is a legal entity
separate and distinct from its subsidiaries. As a holding company, the primary
sources of cash needed to meet its obligations, including principal and interest
payments with respect to indebtedness, are dividends and other statutorily
permitted payments from its subsidiaries and affiliates. South Carolina
insurance laws and regulations require a domestic insurer such as SCIC to report
any action authorizing distributions to shareholders and material payments from
subsidiaries and affiliates at least thirty days prior to distribution or
payment except in limited circumstances. Additionally, those laws and
regulations provide the Department with the right to disapprove and prohibit
distributions meeting the definition of an "Extraordinary Dividend" under the
statutes and regulations. If the ability of SCIC and the Company's other
insurance subsidiaries to pay dividends or make other payments to the Company is
materially restricted by regulatory requirements, it could affect the Company's
ability to service its debt and/or pay dividends. No assurance can be given that
South Carolina will not adopt statutory provisions more restrictive than those
currently in effect.
General Effect on Existing Shareholders. The Powers Transaction will result in a
substantial increase in the book value of the Company per share of issued and
outstanding Common Stock. As of December 31, 1995, the book value of the Common
Stock was $.61 per share. After giving effect to the sale by the Company of the
6,250,000 Powers Shares (and attributing the entire Purchase Price to the Powers
Shares for purposes of this calculation), the pro forma book value of the Common
Stock at December 31, 1995 would have been $.79 per share (treating the proceeds
of the Avent Transaction as if they had been received by the Company on December
31, 1995). See "BACKGROUND OF PROPOSALS RELATING TO THE POWERS TRANSACTION:
PROPOSALS 1, 2, 3 AND 4 -- Unaudied Pro Forma Financial Data" and "RECENT
DEVELOPMENTS -- The Avent Transaction."
The Powers Transaction will cause a substantial reduction in the proportionate
equity interest in the Company of the Company's existing shareholders. The
issuance of the Powers Shares (and the potential future issuance in the case of
the Powers Options), will add a significant number of shares to the shares
already issued and outstanding, which may have an adverse effect on the market
price of the Company's shares. The closing prices of the Company's Common Stock
on December 15, 1995 and December 19, 1995, the business dates immediately prior
to and after the date of the announcement of the Powers Transaction (as then
proposed), were $1.1875 and $1.75, respectively. The market price of the
Company's shares of Common Stock may be adversely affected by the registration
of the Powers Shares, the Powers Option Shares and the shares currently owned by
the Alissa Group (the "Alissa Shares").
Assuming no exercise of the Powers Options, the consummation of the Powers
Transaction will increase the number of issued and outstanding shares from
18,407,686 to 24,657,686, representing an increase of 33.95%. Assuming the
exercise of the Powers Options, the number of issued and outstanding shares
would be 30,907,686, an increase
-11-
of 67.91% over the number of issued and outstanding shares on March 30, 1996.
The foregoing calculations include as issued the 1,635,000 Avent Shares and
assume no exercise of the 1,635,000 Avent Options issued in connection with the
Avent Transaction.
The Powers, by virtue of owning 26.82% of the Company's Common Stock (assuming
no exercise of the Powers Options or the Avent Options) or 41.62% (assuming
exercise of all the Powers Options but no exercise of the Avent Options or other
options), together with a contractual right to nominate two directors for
election to the Board of Directors, will have the ability to significantly
influence the management and affairs of the Company. In addition, the Powers,
together with the Alissa Group, will have the right to nominate a majority of
the Board of Directors, and the Powers, the Alissa Group and the executive
officers and directors of the Company and their affiliates will own an aggregate
of approximately 16,048,836 shares, representing 65.09% of the total shares
outstanding (assuming no exercise of the Powers Options or other options
outstanding) or 22,298,836 shares, representing 72.15% (assuming exercise of the
Powers Options, but no exercise of any other options outstanding). Such a high
level of ownership in the Powers, Alissa Group and management of the Company may
have the effect of preventing, discouraging or delaying a change in control of
the Company and may adversely affect the voting and other rights of other
holders of Common Stock. Although there is no contract, arrangement,
understanding, or other relationship among such persons, the consummation of the
Powers Transaction could make it more difficult for a third party to acquire
control of the Company without the support of the incumbent Board of Directors,
the Alissa Group, or the Powers. See "BACKGROUND OF PROPOSALS RELATING TO THE
POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 -- Summary of Terms of the Powers
Agreement and Powers Options," "ANTITAKEOVER EFFECTS OF THE SHARE ISSUANCE AND
APPROVAL OF PROPOSALS 1, 2, 3 and 4."
The Powers. Charles H. Powers has lived in Florence, South Carolina, for 40
years. He is the owner and operator of SADISCO(R) Corporation, an automobile
salvage company, based in Florence, South Carolina, with 19 other locations. He
is also Secretary and, with his son Walker, controlling shareholder, of Lull
Industries, Eagan, Minnesota, an equipment manufacturing company. He is also a
Vice President and Treasurer of Holland Grills, in Apex, North Carolina, and
President of PC Inc., in Myrtle Beach, South Carolina, in addition to having
interests in farming and real estate. Mr. Powers was educated at the University
of South Carolina, Georgia Institute of Technology, and Midshipmen's School at
Fort Schuyler, New York. Walker S. Powers is the son, Jane Huggins is the
daughter, and Rex Huggins is the son-in-law, of Mr. Powers.
Walker S. Powers has been a member of the management of SADISCO(R) Corporation
in Florence, South Carolina since 1975, serving as its President, 1993-94. He
attended Francis Marion College.
Charles Powers will receive 5,000,000, Walker Powers will receive 1,000,000, and
Rex and Jane Huggins will receive 250,000 of the Powers Shares and the Powers
Options. In addition, Charles Powers owned 328,206 and Rex and Jane Huggins
owned 36,000 shares of Common Stock as of January 30, 1996.
The Powers have informed the Company that they will fund the share purchase with
cash, primarily from certificates of deposit that matured in December 1995 and
January 1996.
Unaudited Pro Forma Financial Data. Set forth below is consolidated balance
sheet data of the Company as of December 31, 1995. The actual data for the year
ended December 31, 1995 are derived from the Company's audited financial
statements. The unaudited pro forma data assume the proceeds of the issuance of
the 6,250,000 Powers Shares ($6,250,000), less estimated expenses of $150,000,
(net proceeds $6,250,000), plus the proceeds of $1,635,000 from the Avent
Transaction, are added to invested assets and cash. No investment income is
assumed for purposes of the unaudited pro forma consolidated statement of loss
data. Accordingly, the pro forma net income is the same as the actual net
income. Because the pro forma average number of shares outstanding is higher,
the net loss per share is $0.05 on a pro forma basis compared to $0.07 on an
actual basis. No pro forma dividend data is provided, because the Company did
not declare any dividends for the period.
-12-
As of December 31, 1995
(dollars in thousands, except per share amounts)
Pro Forma Consolidated Actual1 Pro Forma
------ ---------
Balance Sheet Data: as Adjusted2,3
- ------------------- -----------
Investments and Cash $50,641 $60,011
Other Assets4 45,403 45,403
Total Assets4 96,044 105,414
------ -------
Losses and claims4 61,031 61,031
Unearned premiums4 2,658 2,658
Balances due other
insurance companies 12,438 12,438
Notes payable5 2,476 2,476
Other liabilities
and deferred items 7,254 7,254
Common stockholders'
equity 10,187 19,557
Total liabilities and stockholder's equity 96,044 105,414
------- -------
Common stockholders'
equity per share $ 0.61 $ 0.79
- ----------------------------
<FN>
1 In the event that Proposal 2 does not receive Shareholder
Approval or Regulatory Approval, or if any other event occurs
which prevents the consummation of the Powers Transaction and
the release of the Powers Shares from escrow to the Powers,
then the shares currently held in escrow will be returned to
the Company and no issuance thereof will be recorded.
2 In the event Proposal 2 receives Shareholder Approval and
Regulatory Approval, the Powers Shares will be released from
escrow and issued to the Powers.
3 Assumes net proceeds of $6,100,000 from the issuance of the
6,250,000 Powers Shares and $3,270,000 from the issuance of
the 1,635,000 Avent Shares, were deposited as of December 31,
1995. No earnings on the investment has been anticipated in
the pro forma.
4 For purposes of determining the total capitalization,
reinsurance recoverable on unpaid losses and prepaid
reinsurance premiums-ceded business have been subtracted from
the liabilities for losses and claims and unearned premiums,
respectively.
5 Notes payable May 1. The Company currently intends to repay
the notes payable in full on the due date from the proceeds of
the Avent Transaction. See "RECENT DEVELOPMENTS -- The Avent
Transaction."
</FN>
-13-
This pro forma information is presented in order to demonstrate applicable
accounting effects relating to the Powers Transaction. It is not necessarily
indicative of the actual results that would have been achieved had the Powers
Transaction occurred as of the indicated date, and is not necessarily indicative
of future results.
Summary of the Powers Agreement and the Powers Options
The Powers Agreement. Certain terms and provisions of the Powers Agreement are
summarized below. Shareholders are urged to review the Powers Agreement, a copy
of which is reproduced as Annex A, in its entirety.
Purchase and Sale of the Powers Shares and Options. Subject to the terms and
conditions contained in the Powers Agreement the Company will issue the Powers
Shares and Powers Options in consideration for the Purchase Price. Following the
receipt of Shareholder Approval and Regulatory Approval, the certificates for
the Powers Shares and the Powers Options will be delivered from escrow by the
Powers' Attorney to the Powers, and the Purchase Price will be released to the
Company. At such time, the Powers Shares and the Powers Options will be
considered issued and outstanding, the Powers will obtain full voting power with
respect to the Powers Shares, and the Powers Options will be exercisable in
accordance with their terms.
Representations, Warranties and Covenants. The Powers Agreement contains various
representations, warranties and covenants by the Company which management
believes are typical of those normally made in such a transaction. The Company's
representations and warranties relate to, among other things, the corporate
organization and qualification of the Company and certain of its subsidiaries,
its authority to enter into the Powers Agreement, the absence of any violations
of law or defaults by reason of its execution of or performance under the Powers
Agreement, the approvals and consents necessary to perform under the Powers
Agreement, its financial statements, the absence of undisclosed liabilities, the
absence of material adverse changes, compliance with applicable laws and the
binding effect of the Powers Agreement. See also "BACKGROUND OF PROPOSALS
RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 -- Summary of the
Powers Agreement and the Powers Options -- Indemnification."
In addition, the Powers Agreement contains similarly typical representations,
warranties and covenants made by the Powers as to, among other things, their
authority to enter into the Powers Agreement, the absence of any violations of
law or defaults by reason of their execution of, or performance under, the
Powers Agreement, required approvals and consents, and the due execution and
binding effect of the Powers Agreement. Furthermore, the Powers have made
additional representations and warranties necessary to comply with Section 5 of
the Securities Act of 1933, as amended (the "Securities Act"). Accordingly, the
Powers Agreement contains representations by the Powers that they are acquiring
the Powers Shares for their own account and not with a view to the distribution
or resale thereof. In addition, the Powers acknowledged that they are capable of
evaluating the merits and risks of purchasing the Powers Shares and the Powers
Options, that the Company has made available to the Powers such information as
the Powers deemed necessary or appropriate to make such an evaluation, and that
the Powers have the financial resources to bear the economic risk of owning the
Powers Shares, the Powers Options and the Powers Option Shares.
Registration Rights with Respect to Shares. The Powers Shares and the Powers
Options have not been registered under the Securities Act and will be acquired
by the Powers in reliance upon certain exemptions which restrict the ability of
the Powers to voluntarily sell, transfer or otherwise dispose of the Powers
Shares and the Powers Option. The Company has agreed to file a registration
statement with respect to the Powers Shares [and the Powers Option Shares] upon
demand by the Powers; if such registration statement is declared effective by
the Securities and Exchange Commission (the "SEC"), the Powers Shares and the
Powers Option Shares would be freely transferable. At any time after the Company
has filed its annual report on Form 10-K for the year ending December 31, 1995,
and before December 31, 1999, the Powers may demand that the Company use its
best efforts to register the Powers Shares. The Powers are collectively entitled
to one such demand registration. Subject to certain limitations, the Powers may
also request to add all or a portion of the Powers Shares and the Powers Option
Shares to any
-14-
registration of Common Stock the Company may file with the SEC. The Powers are
collectively entitled to two such "piggy-back" registrations. In general, any
expenses related to the registration of shares pursuant to these registration
rights will be borne by the Company. The Powers' rights to demand and piggy-back
registration will terminate when the Powers no longer hold at least 20% percent
of the shares issued pursuant to the Powers Agreement (1,250,000 shares).
Conditions to the Powers Agreement. The respective obligations of the Company
and the Powers to complete the purchase and sale of the Powers Shares and the
Powers Options are subject to (i) obtaining Shareholder Approval and (ii)
obtaining Regulatory Approval. The Powers have prepared and submitted to the
Department and the Kentucky Department the requisite filings. The Company has
cooperated with the Powers in supplying information to permit the Powers to make
such filings. It is the Company's understanding that the Powers do not have any
experience in the property and casualty insurance business, but in view of the
fact that the current management of the Company will remain in place, the
Company believes that the Powers' lack of industry experience should have no
material negative effect on the ability to obtain Regulatory Approval.
Termination. In the event that either Shareholder Approval or Regulatory
Approval is not obtained, the Powers shall have the option to terminate the
Powers Agreement within ten (10) days after receipt of notice by the Company of
the disapproval of requests for Shareholder Approval or Regulatory Approval by
delivering to the Company the duly endorsed Certificates for the Powers Shares
and Powers Options and upon receipt of same, the Company shall return the funds
held in escrow with accumulated interest to the Powers and the Powers Agreement
shall become null and void.
Restrictions on Transfer. The Powers may not sell or transfer any of the Powers
Shares, the Powers Options or the Powers Option Shares, other than to certain
affiliates of the Powers or in the following types of transactions: a sale (i)
to the Company or to a third party approved by a majority of the Board of
Directors of the Company (excluding any director designated by the Powers, as
described below); (ii) in an underwritten public offering of Common Stock upon
the exercise of the Powers' registration rights; (iii) in one or more
privately-negotiated transactions exempt from registration under the Securities
Act or into the public market pursuant to Rule 144 under the Securities Act,
provided that the Powers shall not sell in the aggregate in such transactions
shares of Common Stock representing more than 10% of the total outstanding
voting power of the Company to a single purchaser or sell any shares of Common
Stock to a purchaser then having on file with the SEC a current Statement on
Schedule 13D under the Exchange Act reporting beneficial ownership of 10% or
more of the total outstanding voting power of the Company; (iv) to a corporation
of which the Powers own not less than 80% of the voting power entitled to be
cast in the election of directors (a "Controlled Corporation"), provided that
such Controlled Corporation assumes all of the obligations and restrictions
contained in the Powers Agreement and agrees to transfer such shares to the
Powers or another Controlled Corporation of the Powers if it ceases to be
Controlled Corporation of the Powers; (vi) in a merger or consolidation in which
the Company is acquired, or a plan of liquidation of the Company; or (vi) in
response to a tender or exchange offer made by or on behalf of the Company or,
if made by a third party, an offer which is approved by a majority of the Board
of Directors of the Company (excluding any director designated by the Powers, as
described below) by two business days prior to the expiration of such offer.
Designation of Directors. The Powers will be entitled to designate up to two (2)
persons, who are reasonably acceptable to the Company's Board of Directors, to
be included in the slate of nominees recommended by the Board of Directors to
the shareholders for election as directors at a shareholders' meeting. The
Powers will have the right to designate two persons to the Board for election as
Directors as long as the Powers' percentage of ownership of the issued and
outstanding common stock of the Company is at least 10%. If the Powers'
percentage of ownership falls to between 5% and 9.9%, then the Powers shall have
the right to designate one (1) person to the Board for election as a Director.
All rights of the Powers to designate director nominees shall terminate if the
Powers' aggregate percentage of ownership of issued and outstanding Common Stock
shall be less than 5%. In the event that the Powers' ownership percentage falls
below any of the minimum requirements set forth above, the Powers shall use
their best efforts to cause their designee(s) then serving as directors to
resign. If the Powers shall
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thereafter hold in excess of the minimum requirements, they shall again have the
foregoing right to designate director nominees.
The Powers have designated Charles H. Powers and Walker S. Powers as the
directors who may be designated by the Powers (the "Purchaser Designees") to
serve on the Board of Directors. Following Shareholder Approval and Regulatory
Approval, the Powers Agreement contemplates that the Board will appoint them to
the Board to serve until the next meeting of shareholders at which directors are
elected. See "BACKGROUND OF PROPOSALS RELATING TO THE POWERS TRANSACTION:
PROPOSALS 1, 2, 3 AND 4 -- Background of Powers Transaction -- The Powers" and
"PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 --
Proposal 4: Increase in Number of Directors."
Indemnification. The Company has agreed to provide indemnification to the Powers
for liability resulting from any material misrepresentation, breach of warranty
or nonfulfillment of any covenant or agreement on the part of the Company
contained in or made in connection with the Powers Agreement. The Powers have
similarly agreed to indemnify the Company from liability resulting from material
misrepresentations, breach of warranty or nonfulfillment of any covenant or
agreement on the part of the Powers contained in, or made in connection with,
the Powers Agreement.
The Powers Options. Under the terms of the Powers Agreement, the Company is
obligated to issue the Powers Options to the Powers as additional consideration.
The terms and conditions of the Company's issuance of the Powers Options are set
forth in a Stock Option Agreement dated as of January 30, 1996 (the "Powers
Option Agreement"). Upon approval by the shareholders, the Company will issue
options to purchase 6,250,000 shares of Common Stock to the Powers. With respect
to 3,125,000 shares, the exercise price will be the greater of book value per
share at the date of exercise or $1.50 per share, and the expiration date will
be December 31, 1998 (the "1998 Option"). With respect to the remaining
3,125,000 shares, the exercise price will be the greater of book value per share
at the date of exercise or $2.00 per share, and the expiration date will be
December 31, 2000 (the "2000 Option").
The Powers Options will be divided among the Powers as follows: (i) Charles H.
Powers will receive an option for 5,000,000 shares, (ii) Walker S. Powers will
receive an option for 1,000,000 shares, and (iii) Rex and Jane Huggins will
receive an option for 250,000 shares. One-half of each Powers Option will be
exercisable in accordance with the terms and conditions of the 1998 Option, and
one-half of each Powers Option will be exercisable in accordance with the terms
and conditions of the 2000 Option. A copy of the Option Agreement is attached as
Annex B.
PROPOSALS RELATING TO THE POWERS
TRANSACTION: PROPOSALS 1, 2, 3 AND 4
Proposal 1: Increase in Number of Authorized Shares of Common Stock
The Powers Agreement contemplates the issuance of a total of 12,500,000 shares
(including the Powers Option Shares). The Company currently has only 6,100,281
shares available for issuance. Accordingly, an increase in the authorized share
capital of the Company is necessary to enable the Company to consummate the
transactions contemplated by the Powers Agreement. See "BACKGROUND OF PROPOSALS
RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 -- Background of
Powers Transaction and -- Summary of the Powers Agreement and Powers Options".
In addition, the Board of Directors has approved the Option Plans, which
contemplate the issuance of up to 6,500,000 shares upon exercise of the options
covered thereby or upon the award of shares to employees (including 306,175
shares currently reserved under the Company's 1987 Stock Option Plan, which will
be superseded by the 1996 Plan). See "BACKGROUND OF PROPOSALS RELATING TO STOCK
PLANS FOR DIRECTORS, EMPLOYEES AND AGENTS -- Background of Stock Plans for
Directors, Employees and Agents" and
-16-
"PROPOSALS RELATING TO STOCK PLANS FOR DIRECTORS, EMPLOYEES AND AGENTS:
PROPOSALS 5, 6 AND 7." The Avent Transaction also contemplates the issuance of
options to purchase 1,635,000 shares. See "RECENT DEVELOPMENTS -- The Avent
Transaction." In the event that Proposal 1 is not approved, the Board of
Directors reserves the right to issue the options contemplated by the Avent
Transaction and to reduce the total number of shares issuable upon exercise of
options under the Options Plans.
The Board of Directors also believes that it is in the best interests of the
Company to increase the number of shares available for issuance beyond what is
necessary for the consummation of the Powers Transaction and the Option Plans,
in order to provide the Company with flexibility in the future.
If Proposal 1 is approved, then, after giving effect to the issuance of the
Powers Shares, and reserving shares for issuance under the Powers Options, the
Avent Options, the Option Plans, and an outstanding warrant covering 185,858
shares, the Company would have 10,771,456 shares of Common Stock and 5,000,000
shares of Special Stock, without par value, available for future issuance
without shareholder approval (subject to the requirements of Schedule D of the
By-Laws of the NASD (the "NASD Policy")). The remaining shares of capital stock
of the Company may be utilized for a variety of corporate purposes, including
future public and private offerings to raise additional capital or to facilitate
corporate acquisitions. The Company does not currently have any plans to issue
additional shares of Common Stock or shares of Special Stock other than shares
of Common Stock reserved for issuance pursuant to the exercise of outstanding
options and warrants in connection with other employee benefit plans or
shareholder purchase plans of the Company.
Shares of Special Stock up to the 5,000,000 authorized shares may be issued from
time to time in one or more series, and the Board of Directors, without further
approval of shareholders (subject to the NASD Policy), is authorized to fix the
dividend rights and terms, any conversion rights, any voting rights, any
redemption rights and terms, liquidation preferences, sinking funds and other
rights, preferences, privileges and restrictions applicable to each such series
of Special Stock. Additional classes or series of shares of Special Stock could
be given voting and conversion rights which would dilute the voting power and
equity of holders of Common Stock and would have preference over the Common
Stock with respect to dividends and liquidation rights.
One of the effects of the existence of authorized but unissued and unreserved
Common Stock and Special Stock of the Company is to enable the Board of
Directors to issue shares to third parties which could render more difficult and
therefore discourage any attempt to obtain control of the Company by means of an
unsolicited merger, tender offer, proxy contest or otherwise. See "ANTITAKEOVER
EFFECTS OF THE SHARE ISSUANCE AND APPROVAL OF PROPOSALS 1, 2, 3 AND 4".
Vote Required. An affirmative vote by the holders of at least two-thirds of the
outstanding shares of Common Stock of the Company is needed for the adoption of
the amendment to the Articles of Incorporation to increase the number of
authorized shares of Common Stock. The Alissa Group, who collectively own
8,152,200 shares of Common Stock (representing 44.29% of the shares
outstanding), and the directors and executive officers of the Company, who
collectively own 1,282,430 shares of Common Stock (representing 6.97% of the
shares outstanding) have indicated to the Company that they intend to vote for
Proposal 1 at the Meeting. Therefore, shareholders owning an aggregate of
9,434,630 (51.25%) have indicated that they intend to vote for Proposal 1.
Proposal 2: Approval of Securities Issuance Pursuant to The Powers Agreement and
the Powers Options
One of the matters to be considered at the Meeting is the approval of the
issuance of the 6,250,000 Powers Shares and the 6,250,000 Powers Option Shares
pursuant to the Powers Options, for an aggregate consideration of $6,250,000,
which approval is required by the NASD Policy. The NASD Policy sets forth
certain requirements for issuers of securities included in the NASDAQ Stock
Market, such as the Company, which include a policy requiring shareholder
approval of certain corporate transactions. The Company is subject to these
requirements because its Common Stock is traded on the NASDAQ Stock Market.
Under Schedule D to the NASD By-Laws, the issuance by the Company of shares of
Common Stock (or securities convertible into Common Stock) equal to 20% or more
of the outstanding voting power before
-17-
issuance for less than the greater of book or market value requires shareholder
approval. As the Powers Shares will constitute more than 20% of the Company's
outstanding Common Stock, and will be issued for less than the current market
value of the Company's Common Stock, the NASD Policy requires shareholder
approval of the issuance.
Upon approval by the shareholders, the Company will issue options to purchase
6,250,000 shares of Common Stock to the Powers. With respect to 3,125,000
shares, the exercise price will be the greater of book value per share at the
date of exercise or $1.50 per share, and the expiration date will be December
31, 1998 (the "1998 Option"). With respect to the remaining 3,125,000 shares,
the exercise price will be the greater of book value per share at the date of
exercise or $2.00 per share, and the expiration date will be December 31, 2000
(the "2000 Option").
In accordance with the NASD Policy, the issuance of the Powers Shares and the
Powers Option Shares requires approval by the holders of a majority of the votes
cast in person or by proxy on Proposal 2 at the meeting. Pursuant to the Powers
Agreement, the Company has agreed to use its best efforts to obtain the approval
of the shareholders for the issuance of the Powers Shares and the Powers Option
Shares, and the Powers have agreed that the consummation of the Powers
Transaction shall be subject to obtaining such approval.
The Board of Directors has unanimously approved a resolution recommending that
the shareholders vote for Proposal 2 and has directed that it be submitted to a
vote of the shareholders at the Meeting.
Vote Required. The affirmative vote of the holders of a majority of the votes
cast in person or by proxy at the Meeting is required for approval of Proposal
2. The Alissa Group, who collectively own 8,152,200 of Common Stock
(representing 44.29% of the shares outstanding), and the directors and executive
officers of the Company, who collectively own 1,282,430 of Common Stock
(representing 6.97% of the shares outstanding) have indicated to the Company
that they intend to vote for Proposal 2 at the Meeting. Therefore, shareholders
of an aggregate of 9,434,630 (51.25%) have indicated that they intend to vote
for Proposal 2.
Proposal 3: Powers Agreement -- Grant of Voting Rights under the South Carolina
Control Share Acquisitions Act
The third matter relating to the Powers Transaction to be considered at the
Meeting is the granting of voting rights under the South Carolina Control Share
Acquisitions Act to the 12,500,000 shares of Common Stock to be issued to the
Powers pursuant to the Powers Agreement and the Powers Options.
The 12,500,000 shares are not considered issued and outstanding as of the Record
Date, and are not eligible to vote on the Proposals. However, assuming receipt
of Shareholder Approval and Regulatory Approval, following the issuance of the
Powers Shares (and assuming the issuance of no other shares by the Company) the
Powers will have beneficial ownership of voting securities representing
approximately 26.82% of all of the voting securities of the Company (41.62%
assuming exercise of all the Powers Options but no exercise of any other
options). See "SECURITY OWNERSHIP OF THE COMPANY."
The South Carolina Control Share Acquisitions Act ("CSAA"). The CSAA regulates
"control share acquisitions" of voting stock of certain South Carolina
corporations, including the Company. In general, the CSAA operates to prevent an
acquiror of a substantial block of stock (an "acquiring person") from voting
shares deemed "control shares" unless a majority of the disinterested
shareholders vote to grant voting rights for such shares. The term "control
share acquisition" is defined under the CSAA as the acquisition of that amount
of issued and outstanding shares which, when added to all other shares over
which the acquiring person (and any other person who may constitute a group with
such person within the meaning of Rule l3d-5 of the Exchange Act) may exercise
voting power, would entitle the acquiring person immediately after such
acquisition to exercise or direct the exercise of the voting power of a
corporation in the election of directors within any of the following ranges of
voting power: (i) one-fifth or more but less than one-third; (ii) one-third or
more but less than a majority; and (iii) a majority or more. The acquisition of
shares in good faith and not for the purpose of circumventing the CSAA by or
from a person whose voting rights had previously been authorized by shareholder
vote does not constitute a control share acquisition.
"Control shares" acquired in a control share acquisition only have voting rights
to the extent granted, before or after the control share acquisition, by
resolution approved by the holders of a majority of the outstanding voting
securities of the corporation, excluding Interested Shares. All shares acquired
in each control share acquisition, plus any
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additional shares acquired within a 90 day period or acquired pursuant to a plan
to make a control share acquisition, are "control shares" that are deprived of
the right to vote without obtaining shareholder approval.
Acquisition of Shares by the Powers. The acquisition of the shares by the Powers
pursuant to the Purchase Agreement constitutes a "control share acquisition"
under the CSAA and to the extent that the Powers Shares, Option Shares and the
shares already owned by the Powers together equal or exceed 20% of all voting
power of the Common Stock, such shares constitute "control shares."
Vote Required. Approval of the Powers' voting rights under the CSAA requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock (excluding all Interested Shares) represented in person or by proxy
at the Meeting. Therefore, abstentions will have the same effect as a vote
against Proposal 3.
"Interested Shares" are any shares of Common Stock that are owned or the voting
of which may be exercised or directed in the election of directors by the Powers
(and any other persons who may constitute a group with any Purchaser within the
meaning of Rule l3d-5 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), as well as all shares of Common Stock that are owned or the
voting of which may be exercised or directed in the election of directors, by
any officer of the Company or any director who is also an employee of the
Company.
As of the Record Date, 396,206 shares of Common Stock constituted Interested
Shares as defined under the CSAA as set forth in the following table and will
therefore be precluded from voting on Proposal 3. Accordingly, holders of the
remaining 18,011,480 shares of Common Stock are entitled to vote at the Meeting
on Proposal 3, and the affirmative vote of the holders of not less than
9,005,741 of such shares is required to approve Proposal 3. The Company has
agreed under the Powers Agreement to use its best efforts to obtain shareholder
approval of Proposal 3.
The Alissa Group, who collectively own 8,152,200 shares of Common Stock, and
non-employee directors of the Company, who collectively own 1,250,430 shares of
Common Stock have indicated that they intend to vote for Proposal 3. Therefore,
holders of 9,402,630 shares, representing 52.20% of the shares entitled to vote
on Proposal 3, have indicated that they intend to vote for Proposal 3.
INTERESTED SHARES
Shareholder Shares Owned
- ----------------------------------------------- -------------------------------
The Powers:
- -----------
Charles Powers 328,206
R. J. Huggins 36,000
364,206
Employee Directors and Executive Officers:
- -----------------------------------------
Gov. John C. West, Chairman of the Board 32,000 (1)
TOTAL 396,206
=======
- --------------------------
(1) For purposes of the CSAA, Interested Shares include only shares actually
issued and outstanding. Therefore, shares "beneficially owned" but not
issued and outstanding are not included. See "SECURITY OWNERSHIP OF THE
COMPANY."
-19-
If Proposal 3 is approved by the shareholders, the Powers will have full voting
rights for all 12,500,000 shares following the Meeting. If Proposal 3 is not
approved, the Powers would not be able to vote the control shares, and the
Powers shall have the option to terminate the Powers Agreement. See BACKGROUND
OF PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3 AND 4 --
"Summary of the Powers Agreement and the Powers Options -- Termination."
The Board of Directors has unanimously recommended that the shareholders vote in
favor of Proposal 3 and has directed that it be submitted at the Meeting to a
vote of the shareholders, other than the holders of Interested Shares. See
"BACKGROUND OF PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2, 3
AND 4 -- Background of Powers Transaction -- Recommendation of the Board of
Directors."
Dissenters' Rights with Respect to Proposal 3. Any shareholder of the Company
who does not vote in favor of Proposal 3 may elect to receive payment of the
value of his or her shares in the Company in cash in accordance with Chapter 13
of Title 33 of the South Carolina Business Corporation Act of 1988 ("Chapter
13").
Any shareholder contemplating the exercise of his or her right to dissent is
urged to review carefully the provisions of Chapter 13 reprinted as Annex D to
this Proxy Statement. Set forth below, to be read in conjunction with the full
text of Chapter 13, is a summary of the principal steps to be taken if the right
to dissent is to be exercised.
EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF
CHAPTER 13 IN ORDER FOR HOLDERS OF THE COMPANY'S SHARES TO PERFECT DISSENTERS'
RIGHTS.
Written Notice to the Company. Written notice of a shareholder's intent to
demand payment for his or her shares pursuant to Chapter 13 in the event the
shareholders of the Company approve Proposal 3 must be received by the Company
before the shareholders vote on Proposal 3 at the Meeting. Such written notice
should state the number of shares of Common Stock as to which dissenters' rights
are being asserted and should be sent to the attention of the Corporate
Secretary, The Seibels Bruce Group, Inc., P. 0. Box 1, Columbia, S.C. 29202.
DISSENTERS' RIGHTS ARE NOT AVAILABLE UNLESS THIS NOTICE REQUIREMENT IS
FULFILLED.
Differing Record and Beneficial Owners. A shareholder of record may assert
dissenters' rights as to fewer than all shares registered in that shareholder's
name only if the shareholder dissents (in accordance with the provisions of
Chapter 13) with respect to all the shares beneficially owned by any one person
and notifies the Company in writing of the name and address of each person on
whose behalf the record shareholder is asserting dissenters' rights.
A person owning a beneficial interest in the Company's shares (a "Beneficial
Owner") may assert dissenters' rights as to the shares held on such Beneficial
Owner's behalf only if (i) the Beneficial Owner submits to the Company the
record shareholder's written consent to the dissent no later than the time the
Beneficial Owner asserts dissenters' rights, and (ii) the Beneficial Owner
asserts dissenters' rights (in accordance with the provisions of Chapter 13)
with respect to all the Beneficial Owner's shares or all those shares over which
the Beneficial Owner has power to direct the vote.
Voting. Holders of shares who deliver notice of their intent to dissent from
Proposal 3 ("Dissenting Shareholders") must not vote in favor of Proposal 3 but
such shareholders need not vote against it.
Notice to Dissenters. If the shareholders adopt Proposal 3, the Company shall,
within ten days after the granting of voting rights under Proposal 3, deliver
written notice of such action to Dissenting Shareholders (the "Dissenters'
Notice"). The Dissenters' Notice shall (i) state where the payment demand must
be sent and where certificates for certificated shares must be deposited, (ii)
inform holders of uncertificated shares to what extent transfer of the
Dissenting Shareholder's shares is to be restricted after the Company receives
the payment demand, (iii) supply a form for demanding payment that includes the
date of the first announcement to news media or shareholders of the
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terms of the proposed corporate action (the "Announcement Date"), (iv) state the
date by which the Company must receive the payment demand, and (v) be
accompanied by a copy of Chapter 13.
Payment Demand and Deposit of Stock Certificates. The Dissenting Shareholder
must (i) demand payment, (ii) certify that beneficial ownership of his or her
shares was acquired prior to the date set forth in the Dissenters' Notice, and
(iii) deposit the certificates formerly representing his or her shares, all in
accordance with the terms of the Dissenters' Notice in order to preserve
statutory dissenters' rights. A Dissenting Shareholder who demands payment and
deposits stock certificates in accordance with the terms of the Dissenters'
Notice retains all other rights as a shareholder until the rights are canceled
or modified. A Dissenting Shareholder who fails to demand payment or deposit
stock certificates as required by the Dissenters' Notice by the respective dates
set forth therein is not entitled to payment for his or her shares.
Payment by the Company. Upon the consummation of the Powers Agreement, the
Company will be obligated to pay the Dissenting Shareholders who have met all
statutory conditions its estimate of the fair value of the Dissenting
Shareholders' shares plus accrued interest accompanied by certain information
specified in Chapter 13. However, the Company may elect to withhold such payment
from Dissenting Shareholders who acquired beneficial ownership of shares after
the Announcement Date (the "Post Announcement Shareholders"). If the Company
elects to withhold payment from such shareholders, it will send each Post
Announcement Shareholder an offer accompanied by certain information specified
in Chapter 13 to pay the Company's estimate of the fair value of the
shareholder's shares plus accrued interest; provided such holders agree to
accept the payment offered in full satisfaction of their dissenters' demands.
Optional Secondary Payment Demand. Within 30 days after (i) the Company pays the
Dissenting Shareholders the Company's estimate of the fair value of their shares
or (ii) the Company offers to pay the Post Announcement Shareholders its
estimate of the fair value of their shares, each such shareholder may notify the
Company of the shareholder's own estimate of the value of his or her shares (if
it differs from the Company's estimate) and demand payment of the shareholder's
estimate of the fair value of the shares less any payment received from the
Company or reject the offer and demand payment of the shareholder's estimate of
the fair value of the shares as the case may be.
Petition for Determination of Value. If a demand for payment (whether an
original demand or a secondary demand) by a Dissenting Shareholder remains
unsettled 60 days after the receipt of the Company of such demand, the Company
will commence a proceeding in the Circuit Court of Richland County to appraise
the value of the dissenting shares. All Dissenting Shareholders whose claims
remain unsettled at such time will be made parties to those proceedings. A
Dissenting Shareholder will be entitled to judgment for an amount, if any, by
which the court finds the fair value of his or her shares, plus interest,
exceeds any amount paid by the Company. A Post Announcement Shareholder will be
entitled to judgment for the fair value, plus accrued interest, of such holder's
shares.
The court in an appraisal proceeding will determine and assess costs against all
parties in such amounts as the court finds equitable. The court may assess fees
and expenses of counsel and experts against the Company or a Dissenting
Shareholder if the court finds that the party against whom the fees and expenses
are assessed did not comply with the requirements of Chapter 13 or acted
arbitrarily, vexatiously, or not in good faith. In addition, if the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and that the fees for those services should
not be assessed against the Company, the court may award to such counsel
reasonable fees to be paid out of the amounts awarded the dissenters who were
benefitted.
Effect on Dividends and Voting Rights. A Dissenting Shareholder will retain his
or her rights, if any, to vote and receive dividends until the Powers
Transaction is consummated. Upon the consummation of the Powers Transaction, any
shareholder who has given proper notice and made a valid demand will cease to be
a shareholder and will have no rights with respect to his or her shares except
the right to receive payment of the fair value thereof.
-21-
Proposal 4: Increase In Number of Directors
Introduction. There are currently eleven seats authorized on the Company's Board
of Directors. Ten of these seats are currently filled. As part of the Avent
Transaction, the Avent Group is authorized to nominate one director. Under the
Powers Agreement, the Powers may nominate two additional directors to the Board
(the "Powers Directors"). To accommodate the Powers Directors, the Board must be
expanded to thirteen.
Under terms of the Alissa Agreement, the Alissa Group is authorized to nominate
half the directors on the Board minus one (the "Alissa Directors"). There are
currently four Alissa Directors. With the Board expanding to accommodate the
Powers Directors, the Alissa Group will be entitled to nominate additional
directors. To accommodate these additional Alissa Directors, the Board must be
further expanded.
Board Resolution. Under the Company's by-laws, the Board may, at its own
discretion, increase the number of authorized seats on the Board to twenty-one.
Under the South Carolina Business Corporations Act, however, any Board action to
increase the size of the Board by more than 30% must be submitted to shareholder
vote. The Board has passed a resolution to increase the number of directors to
eighteen. As this constitutes an increase of more than 30%, the Board must
submit the matter to shareholder vote.
Vote Required. The affirmative vote of the holders of a majority of the votes
cast in person or by proxy at the Meeting is required for approval of Proposal
4. The Alissa Group, who collectively own 8,152,200 shares of Common Stock
(representing 44.29% of the shares outstanding), and the directors and executive
officer of the company, who collectively own 1,282,430 shares of Common Stock
(representing 6.97% of the shares outstanding) have indicated to the Company
that they intend to vote for Proposal 4 at the Meeting. Therefore, shareholders
of an aggregate of 9,434,630 (51.25%) have indicated that they intend to vote
for Proposal 4.
ANTITAKEOVER EFFECTS OF THE SHARE ISSUANCE
AND APPROVAL OF PROPOSALS 1, 2, 3 AND 4
Introduction
If Proposals 1, 2, 3 and 4 are approved by the shareholders, and the Powers
Transaction is consummated, the Powers and the Alissa Group will beneficially
own approximately 26.82% and 33.06% respectively (assuming no exercise of the
Powers Options) of the outstanding voting shares of the Company. In addition,
the Avent Group would beneficially own 13.61% (assuming exercise of the Avent
Options, but no exercise of any other options). See "SECURITY OWNERSHIP OF THE
COMPANY". In addition, current directors and executive officers of the Company
beneficially own 10.40% (assuming exercise of all options, the grant of which
was made to them prior to January 30, 1996), and may in the future receive
additional voting shares under the Option Plans. See "PROPOSALS RELATING TO
STOCK PLANS FOR DIRECTORS, EMPLOYEES AND AGENTS: PROPOSALS 5, 6 AND 7. Although
there is no contract, arrangement, understanding, or other relationship among
such persons, the consummation of the Powers Transaction could make it more
difficult for a third party to acquire control of the Company without the
support of the incumbent Board of Directors, the Alissa Group, or the Powers.
In addition, as a result of the covenants contained in the Powers Agreement, it
may be difficult for shareholders to remove directors designated by the Powers
from the Board of Directors. In the event that one or both of the two directors
designated by the Powers is removed from the Board of Directors, the Company is
obligated, subject to applicable legal and fiduciary obligations, to appoint a
replacement director designated by the Powers to fill the vacancy created
thereby and to serve until the next annual meeting of shareholders.
-22-
Existing Antitakeover Provisions.
South Carolina Control Share Acquisitions Act. The Company is subject to the
CSAA, which is intended to render it more difficult or to discourage an attempt
to obtain control of the Company by merger, tender offer, proxy contest or
otherwise.
South Carolina Business Combination Statute. South Carolina law regulates
business combinations such as mergers, consolidations and asset purchases where
the business acquired was, or the assets belonged to, a public corporation, such
as the Company, and where the acquiror became an Interested Shareholder (as
defined below) of the public corporation before a majority of the disinterested
members of the Board of Directors of the public corporation approved either (i)
the purchase resulting in such acquiror becoming an Interested Shareholder or
(ii) the business combination. In the context of this law, an "Interested
Shareholder" is any person who directly or indirectly, alone or in concert with
others, beneficially owns or controls 10% or more of the voting stock of the
public corporation, and a "disinterested" board member is a person who is
neither a present nor a former officer or employee of the corporation. The law
is very broad in its scope and is designed to inhibit unfriendly acquisitions.
It does not apply to corporations whose Articles of Incorporation contain a
provision electing not to be covered by the law. The Company's Articles of
Incorporation do not contain such a provision.
The law prohibits business combinations with an unapproved Interested
Shareholder for a period of two years after the date on which the person became
an Interested Shareholder and requires that any business combination with an
unapproved Interested Shareholder after such two-year period be approved by a
majority vote of outstanding shares held by persons other than the Interested
Shareholder or, alternatively, meet certain requirements that other shareholders
receive at least a specified price for their shares. These requirements are not
applicable to the transactions contemplated by the Powers Agreement because the
requisite majority of the disinterested members of the Board of Directors has
approved the transactions contemplated thereby. The law would not restrict
future business combinations between the Company and the Powers because the
disinterested directors have approved the Powers Agreement pursuant to which the
Powers became Interested Shareholders of the Company prior to the date on which
the Powers acquired 10% of the outstanding voting power of the Company.
Supermajority Voting Requirements. Article 9(k) of the Company's Articles of
Incorporation requires a special vote of the shareholders to approve certain
transactions, including, among other things, a merger or the sale, lease or
exchange of substantially all of the assets (as therein defined) of the Company,
with any shareholder owning at least 10% of the Company's equity securities. The
approval of such transactions requires the affirmative vote of at least 80% of
the holders of each class of equity securities of the Company entitled to vote
thereon. The requirement of an 80% shareholder vote does not apply, however, to
transactions approved by at least 75% of all the members of the Board of
Directors. If such approval by the Board of Directors is obtained, the Powers
Transaction generally would require approval by the holders of a majority of the
outstanding shares entitled to vote, or as otherwise established by law.
If Proposals 1, 2 and 3 are approved and the issuance of the Powers Shares to
the Powers is completed, the Powers will own more than 10% of the Common Stock,
and, therefore, any future proposed business combinations between the Company
and the Powers (or any person, entity or group controlling, controlled by or
under common control with the Powers) would require approval in accordance with
Article 9(k) in the percentages set forth above. Similar approval requirements
also apply to such combinations between the Company and the Alissa Group, who
already own more than 10% of the Company stock, and will continue to do so after
the consummation of the Powers Transaction.
The Company's Articles of Incorporation further provide that Article 9(k) may
not be amended, altered or repealed without the approval of the holders of 80%
of the Company's shareholders unless 75% of the Board of Directors approves such
a change, in which case approval by the holders of 66-2/3% of the Common Stock
is required.
-23-
Classified Board of Directors; Removal of Directors. The Company's Articles of
Incorporation provide for the division of the Board of Directors into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the members of the Board of Directors are elected
each year.
Pursuant to the Company's Articles of Incorporation, directors may be removed
without cause by the affirmative vote of the holders of a majority of the shares
entitled to vote in the election of directors at a meeting called for that
purpose at which 80% of the shares entitled to vote are represented. Directors
may be removed for cause by the affirmative vote of the holders of a majority of
the shares entitled to vote in the election of directors at a meeting called for
that purpose at which a majority of the shares issued, outstanding and entitled
to vote are represented. Under South Carolina law, a director of the Company may
not be removed from the Board of Directors if the number of votes sufficient to
elect such director is voted against his removal.
The classified Board and director removal provisions could have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. In addition, the classified Board and
director removal provisions could delay shareholders who do not agree with the
policies of the Board of Directors from removing a majority of the Board for two
years, unless they can obtain the affirmative vote of the holders of a majority
of the shares at a meeting at which eighty percent (80%) of the shares are
present in person or represented by proxy, or they can show cause and obtain the
affirmative vote of the holders of a majority of the shares at a meeting at
which a majority is present or represented.
-24-
BACKGROUND OF PROPOSALS RELATING TO
STOCK PLANS FOR DIRECTORS, EMPLOYEES
AND AGENTS: PROPOSALS 5, 6 AND 7
Background of Stock Plans for Directors, Employees and Agents.
During 1995, the Board of Directors and its Compensation Committee reviewed the
Company's salary levels and salary administration for employees, and the
Company's compensation practices and policies for non-employee directors,
consultants and independent insurance agents. In connection with that review,
the Board of Directors recognized the desirability of granting stock options
and, in certain cases, shares of stock, to further the long term stability and
financial success of the Company by attracting, retaining and compensating
employees, consultants, directors and independent agents of outstanding quality
through the use of such stock incentives. The Board believes that ownership of
stock will stimulate the efforts of employees, consultants, directors, and
agents upon whose efforts the Company is and will be largely dependent for the
successful conduct of its business. It also believes that the stock option plans
proposed by Proposals 5, 6 and 7 (the "Option Plans") will further the growth
and development of the Company by allowing participants to take a proprietary
interest in the Company.
The Option Plans were considered by the Compensation Committee at its meetings
in June and December 1995 and January 30, 1996, and, on the recommendations of
the Compensation Committee, were approved by the Board of Directors at its
meetings in December 1995 and on January 30, 1996. On January 30, 1996, the
closing price per share of the Company's Common Stock was $2.12; on March 29,
1996 the closing price was $2.8125.
In the event that Proposal 1 is not approved, the Board of Directors reserves
the right to issue the options contemplated by the Avent Transaction and to
reduce the total number of shares issuable upon exercise of options under the
Option Plans.
Benefits to be Received upon Shareholder Approval
of the Plans Contemplated by Proposals 5, 6 and 7
The following table sets forth the benefits to be received by the Company's
executive officers and non-executive officer employee group under the 1996 Plan
(Proposal 5) to the extent determinable, on the basis of option grants and share
awards approved by the Board of Directors, subject to approval of the 1996 Plan.
The table does not include any benefits with respect to option grants under the
1995 Directors Plan, as these are not determinable (but will be automatic, in an
amount of options covering 5,000 shares to each eligible Director each year,
subject to the maximum aggregate amount of 1,000,000 shares authorized under the
Plan). The table does not include any benefits under the 1995 Agents Plan, as,
under the terms of that plan, only agents who are neither employees nor
directors of the Company may participate.
-25-
1996 Employee Stock Option Plan
Dollar Value Number of Units
- -------------------------- -------------------------- --------------------------
Name and Position Options ($) Restricted Options (#) Restricted
Stock ($) Stock (#)
- -------------------------- -------------- ----------- ------------- ------------
Ernst N. Csiszar (1) (2) 200,000 0
Chief Executive Officer
John C. West (1) (2) 200,000 0
Chairman of the Board
- -------------------------- -------------- ----------- ------------- ------------
Executive Group (1) (2) 400,000 0
Non-Executive Officer (1) (2) 384,600 59,378
Employee Group
- ------------------------------
(1) All option grants made with an exercise price per share at or above the
closing market price per share on the date of grant.
(2) The employees in this group have agreed to a dollar-for-dollar
reduction in cash compensation on the basis of the market price per
share of the Common Stock, without any discount for restrictions on the
stock, on the grant date (January 3, 1996) multiplied by the number of
shares granted.
PROPOSALS RELATING TO STOCK PLANS FOR
DIRECTORS, EMPLOYEES AND AGENTS:
PROPOSALS 5, 6 AND 7
Proposal 5: Approval of the 1995 Non-employee Directors Stock Option Plan
Introduction. On January 30, 1996, the Board of Directors of the Company
adopted, subject to shareholder approval, the 1995 Non-Employee Directors Stock
Option Plan (the "1995 Directors Plan" or the "Plan"). The 1995 Directors Plan
had been approved in principle by the Board on June 15, 1995. The 1995 Directors
Plan will be effective upon the date of approval by the shareholders of the
Company. The Plan will terminate upon the earlier of (a) the adoption of a
resolution of the Board terminating the Plan, or (b) December 31, 2004. The 1995
Directors Plan authorizes the granting of stock options to purchase an aggregate
maximum of 1,000,000 shares of the Company's Common Stock to eligible members of
the Company's Board of Directors (including those who were eligible members of
the Board on June 15, 1995). The Company presently intends to register the 1995
Directors Plan under the Securities Act of 1933 after stockholder approval of
the plan is received. The principal features of the 1995 Directors Plan are
summarized below. The summary is qualified by reference to the complete text of
the Plan, which is attached as Annex E.
Eligibility. A Director is eligible to receive an option under the 1995
Directors Plan if the Director is not otherwise an employee of the Company or
any subsidiary or affiliate on the date of a grant. Five members of the Board
(and two former members)presently qualify to receive options under the 1995
Directors Plan.
Administration. The 1995 Directors Plan will be administered by a Committee of
the Board consisting of directors who are not eligible to participate in the
Plan. The committee has certain powers vested in it by the terms of the Plan,
including the authority (within the limitations described therein) to interpret
the Plan, to make all determinations necessary for administration of the Plan,
and to adopt and amend rules and regulations relating to the Plan as it may deem
desirable. Any decision of the Committee in the administration of the 1995
Directors Plan will be conclusive and binding. The Chairman of the Board and
Chief Executive Officer of the Company are authorized to take ministerial
actions with respect to the Plan.
Award of Options and Shares. All option grants under the 1995 Directors Plan are
automatic and are nonstatutory. The exercise price of each option granted under
the Plan will be the fair market value of the Common Stock on the date the
option is granted. Each person who was an eligible Director of the Company on
June 15, 1995 automatically will receive an option to purchase 5,000 shares.
Each eligible Director will automatically receive an option to receive 5,000
shares on June 15 of each subsequent year, beginning in 1996. An option may be
exercised on or after the date of grant, provided, however, that no option may
be exercised (i) before the 1995 Directors Plan is approved by the shareholders
of the Company; (ii) after the expiration of ten years from the date the option
is granted; (iii) after six months after an optionee ceases to be a Director of
the Company other than due
-26-
to mandatory retirement, permanent disability or death; or (iv) after five years
after an optionee ceases to be a Director of the Company due to mandatory
retirement, permanent disability or death. If the optionee terminates due to
mandatory retirement or permanent disability and dies within five years, the
option may be exercised until the later of (i) two years after the optionee's
death or (ii) five years after the termination (but not later than ten years
from the date of grant).
Transferability of Options. The rights of an optionee under the 1995 Directors
Plan may not be assigned or transferred other than by will or the laws of
descent and distribution.
Amendment of the 1995 Directors Plan. The Board may revise or amend the 1995
Directors Plan in any respect, provided, however, that without approval of the
Company's shareholders no revision or amendment may increase the number of
shares subject to the Plan, increase the number of shares granted to directors
or extend the period during which options may be granted.
Federal Income Tax Consequences of the 1995 Non-Employee Directors Stock Option
Plan. The 1995 Directors Plan provides for the granting of non-statutory options
which do not qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). A Director who receives
an option under the Directors Plan will not be deemed to have received any
income at the time the option is granted; however, the Director will recognize
ordinary income in the year any part of the option is exercised in an amount
equal to the difference between the exercise price of the shares purchased and
the fair market value of such shares on the exercise date. The Company will be
entitled to a tax deduction in an amount equal to the amount of ordinary income
recognized by the Director. Special rules may apply if the Director pays all or
part of the exercise price on a non-statutory option by tendering shares of the
Company's Common Stock. The foregoing discussion of federal income tax aspects
is only a summary and based upon interpretations of the existing laws,
regulations and rulings which could be materially altered with enactment of any
new tax legislation.
Vote Required. Under Schedule D to the NASD By-Laws, the establishment of a
stock option plan, pursuant to which stock may be acquired by officers or
directors, requires shareholder approval. Approval of the 1995 Directors Plan
requires the affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Meeting (assuming a quorum is present). The Alissa
Group, who collectively own 8,152,200 shares of Common Stock (representing
44.29% of the shares outstanding), and the directors and executive officer of
the Company, who collectively own 1,282,430 shares of Common Stock (representing
6.97% of the shares outstanding) have indicated to the Company that they intend
to vote for Proposal 5 at the Meeting. Therefore, shareholders of an aggreate of
9,434,630 (51.25%) have indicated that they intend to vote for Proposal 5.
Proposal 6: Approval of the 1996 Employee Stock Option Plan
Introduction. On January 30, 1996, the Board of Directors of the Company
approved and adopted the 1996 Employee Stock Option Plan (the "1996 Plan") and
directed that it be submitted to the shareholders for approval. The 1996 Plan
became effective November 1, 1995. Unless sooner terminated by the Board of
Directors, the 1996 Plan will terminate on December 31, 2005. No incentive
awards may be made under the 1996 Plan after termination. The 1996 Plan is
intended to provide a means for employees of, and consultants providing services
for, the Company to increase their personal interest in the Company, thereby
stimulating their efforts on behalf of the Company and its stockholders
(references to the "Company" in this section will include any parent and
subsidiary corporations). The 1996 Plan sets a maximum authorization of
5,000,000 shares of Common Stock that may be issued with respect to options and
awards. The principal features of the 1996 Plan are summarized below. The
summary is qualified by reference to the complete text of the 1996 Plan, which
is attached as Annex F.
-27-
The 1996 Plan authorizes the reservation of 5,000,000 shares of Common Stock for
issuance pursuant to incentive awards. Such incentive awards may be in the form
of stock options, restricted stock or incentive stock (as described below). If
an incentive award is cancelled, terminates or lapses unexercised, any unissued
shares allocable to such incentive award may be subjected again to an incentive
award. Similarly, if shares of restricted stock are reacquired by the Company,
such shares may again be subjected to an incentive award under the 1996 Plan. In
addition, shares subject to options granted under the Company's 1987 Stock
Option Plan which are not issued under that plan because such options are
cancelled, expire or otherwise terminate unexercised may be subjected to an
incentive award and issued under the 1996 Plan. The Committee (see
"Administration") is expressly authorized to make an award to a participant
conditioned upon the surrender for cancellation of an existing incentive award.
Adjustments will be made in the number of shares which may be issued under the
1996 Plan in the event of a future stock dividend, stock split or similar
prorata change in the number of outstanding shares of Common Stock or the future
creation or issuance to shareholders generally of rights, options or warrants
for the purchase of Common Stock. The Company presently intends to register the
1996 Plan under the Securities Act of 1933 after shareholder approval is
received.
Eligibility. All present and future employees of the Company are eligible to
receive incentive awards under the 1996 Plan. As of January 30, 1996, the
Company had approximately 273 employees (7 of whom were officers). Consultants
providing services for the Company will also be eligible to receive incentive
awards.
Administration. The 1996 Plan will be administered by a Committee comprised of
at least three Directors of the Company who are not eligible to participate in
the 1996 Plan or any similar plan of the Company (other than the 1995 Directors
Plan). The Committee will be the Compensation Committee of the Board unless
another committee is appointed by the Board. The Committee has the power and
complete discretion to determine when to grant incentive awards, which employees
will receive incentive awards, whether the award will be an option, restricted
stock or incentive stock, and the number of shares to be allocated to each
incentive award. The Committee may impose conditions on the exercise of options
and upon the transfer of restricted stock received under the 1996 Plan, and upon
the right to receive incentive stock under the 1996 Plan, and may impose such
other restrictions and requirements as it may deem appropriate, including
reserving the right for the Company to reacquire shares issued pursuant to an
incentive award.
Stock Options. Options to purchase shares of Common Stock granted under the 1996
Plan may be "incentive stock options" or "nonstatutory stock options". Incentive
stock options qualify for favorable income tax treatment under Section 422 of
the Code, while nonstatutory stock options do not. The option price of Common
Stock covered by an incentive stock option may not be less than 100% (or, in the
case of an incentive stock option granted to a 10% shareholder, 110%) of the
fair market value of the Common Stock on the date of the option grant. The
option price of Common Stock covered by a nonstatutory option may not be less
than 100% of the fair market value of the Common Stock on the date of grant. The
value of incentive stock options, based on the exercise price, that can be
exercisable by a participant for the first time in any calendar year under the
1996 Plan or any other similar plan maintained by the Company is limited to
$100,000. Options may only be exercised at such times as may be specified by the
Committee, provided, however, that incentive stock options may not be exercised
after the first to occur of (i) ten years (or, in the case of an incentive stock
option granted to a 10% shareholder, five years) from the date on which the
incentive stock option was granted, (ii) three months from the optionee's
termination of employment with the Company for reasons other than death or
disability, or (iii) one year from the optionee's termination of employment on
account of death or disability. If the option so provides, an optionee
exercising an option may pay the purchase price in cash, by delivering or
causing to be withheld from the option shares of Common Stock, or by delivering
an exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds from the
sale or loan of option shares to pay the exercise price. The Plan allows the
grant of "reload" options that will allow an optionee exercising an option by
delivering shares of stock to receive a "reload option" to acquire the same
number of shares that were delivered with an exercise price of current market
value.
-28-
Restricted Stock. Restricted stock issued pursuant to the 1996 Plan is subject
to the following general restrictions: (i) none of such shares may be sold,
transferred, pledged, or otherwise encumbered or disposed of until the
restrictions on such shares shall have lapsed or been removed under the
provisions of the 1996 Plan, and (ii) if a holder of restricted stock ceases to
be employed by the Company, he will forfeit any shares of restricted stock on
which the restrictions have not lapsed or been otherwise removed. The Committee
will establish as to each share of restricted stock issued under the 1996 Plan
the terms and conditions upon which the restrictions on such shares shall lapse.
Such terms and conditions may include, without limitation, the lapsing of such
restrictions at the end of a specified period of time, or as a result of the
disability, death or retirement of the participant. In addition, the Committee
may at any time, in its sole discretion, accelerate the time at which any or all
restrictions will lapse or remove any and all such restrictions.
Incentive Stock. The Committee may establish performance programs with fixed
goals and designate employees as eligible to receive incentive stock if the
goals are achieved. Incentive shares will only be issued in accordance with the
program established by the Committee. More than one performance program may be
established by the Committee and they may operate concurrently or for varied
periods of time and a participant may participate in more than one program at
the same time. A participant who is eligible to receive incentive stock has no
rights as a shareholder until the shares are received.
Transferability of Incentive Awards. No options, or the right to receive
incentive stock, granted under the 1996 Plan, and, during the applicable period
of restriction, no shares of restricted stock, may be sold, transferred,
pledged, or otherwise disposed of, other than by will or by the laws of descent
and distribution. All rights granted to a participant under the 1996 Plan shall
be exercisable during his lifetime only by such participant, or his guardians or
legal representatives. Upon the death of a participant, his personal
representative or beneficiary may exercise his rights under the 1996 Plan.
Amendment of the 1996 Plan and Incentive Awards. The Board of Directors may
amend the 1996 Plan in such respects as it deems advisable, provided that the
shareholders of the Company must approve any amendment that would (i) materially
increase the benefits accruing to participants under the 1996 Plan, (ii)
materially increase the number of shares of Common Stock that may be issued
under the 1996 Plan, or (iii) materially modify the requirements of eligibility
for participation in the 1996 Plan. Incentive awards granted under the 1996 Plan
may be amended with the consent of the recipient so long as the amended award is
consistent with the terms of the 1996 Plan.
Federal Income Tax Consequences of the 1996 Plan. An employee will not incur
federal income tax when he is granted a nonstatutory stock option, an incentive
stock option, or, in most cases and depending on the restrictions imposed,
restricted stock. Upon exercise of a nonstatutory stock option, an employee
generally will recognize ordinary income, which is subject to income tax
withholding by the Company, equal to the difference between the fair market
value of the Common Stock on the date of exercise and the option exercise price.
The Committee has authority under the 1996 Plan to include provisions allowing
the employee to elect to have a portion of the shares he would otherwise acquire
upon exercise of an option withheld to cover his tax liabilities if permissible
under Rule 16b-3 under the Exchange Act. The election will be effective only if
approved by the Committee and made in compliance with other requirements set
forth in the 1996 Plan. When an employee exercises an incentive stock option, he
generally will not recognize income, unless he is subject to the alternative
minimum tax. An employee may deliver shares of Common Stock instead of cash to
acquire shares under an incentive stock option or nonstatutory stock option,
without having to recognize taxable gain (except in some cases with respect to
"incentive stock option stock") on any appreciation in value of the shares
delivered. However, if an employee delivers shares of "incentive stock option
stock" in satisfaction of all, or any part, of the exercise price under an
incentive stock option, and if the applicable holding periods of the "incentive
stock option stock" have not been met, he will be considered to have made a
taxable disposition of the "incentive stock option stock." "Incentive stock
option stock" is stock acquired upon the exercise of incentive stock options. In
general, an employee who has received shares of restricted stock will include in
his gross income as compensation income an amount equal to the fair market value
of the shares of restricted stock at the time the restrictions lapse or are
removed. An employee who receives shares
-29-
of incentive stock will include in his gross income as compensation income an
amount equal to the fair market value of the shares of incentive stock on the
date of transfer to the employee. Such amounts will be included in income in the
tax year in which such event occurs. The income recognized will be subject to
income tax withholding by the Company. The Company usually will be entitled to a
business expense deduction at the time and in the amount that the recipient of
an incentive award recognizes ordinary compensation income in connection
therewith. As stated above, this usually occurs upon exercise of nonstatutory
options, when the restrictions lapse or are removed from restricted stock and
when incentive stock is issued. Generally, the Company's deduction is contingent
upon the Company's meeting withholding tax requirements. No deduction is allowed
in connection with an incentive stock option unless the employee disposes of
Common Stock received upon exercise in violation of the holding period
requirements. This summary of Federal Income Tax Consequences of nonstatutory
stock options, incentive stock options, restricted stock and incentive stock
does not purport to be complete. There may also be state and local income taxes
applicable to these transactions.
Vote Required. In accordance with the NASD Policy, approval of the 1996 Plan
requires the affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Annual Meeting, assuming a quorum is present. Under
Schedule D to the NASD By-Laws, the establishment of a stock option plan,
pursuant to which stock may be acquired by officers or directors, requires
shareholder approval. The Alissa Group, who collectively own 8,152,200 shares of
Common Stock (representing 44.29% of the shares outstanding), and the directors
and executive officer of the Company, who collectively own 1,282,430 shares of
Common Stock (representing 6.97% of the shares outstanding) have indicated to
the Company that they intend to vote for Proposal 6 at the Meeting. Therefore,
shareholders of an aggregate of 9,434,630 (51.25%) have indicated that they
intend to vote for Proposal 6.
Proposal 7: Approval of the 1995 Stock Option Plan for Independent Agents
Introduction. On January 30, 1996, the Board of Directors of the Company
adopted, subject to shareholder approval, the 1995 Stock Option Plan for
Independent Agents (the "1995 Agents Plan"). The 1995 Agents Plan will be
effective upon the date of approval by the shareholders of the Company. The 1995
Agents Plan authorizes the granting of stock options to purchase an aggregate
maximum of 500,000 shares of Common Stock to eligible independent agents of the
Company. The Company presently intends to register the 1995 Agents Plan under
the Securities Act of 1933 after shareholder approval of the 1995 Agents Plan is
received. The principal features of the 1995 Agents Plan are summarized below.
The summary is qualified by reference to the complete text of the 1995 Agents
Plan, which is attached as Annex G.
Eligibility. Principals of any independent agencies who have contracted with the
Company or its subsidiaries, but who are not directly or indirectly beneficial
owners of more than 10% of the Common Stock and who are not directors or
officers of the Company, are eligible to receive stock options under the 1995
Agents Plan.
Administration. The 1995 Agents Plan will be administered by a committee from
among the Company's management appointed by the Board of Directors (referred to
in this section as the "Committee"). The Committee has certain powers vested in
it by the terms of the 1995 Agents Plan, including the authority (within the
limitations described therein) to interpret the 1995 Agents Plan, to make all
determinations necessary for administration of the 1995 Agents Plan, and to
adopt and amend rules and regulations relating to the 1995 Agents Plan as it may
deem desirable. Any decision of the Committee in the administration of the 1995
Agents Plan will be conclusive and binding.
Award of Options. Subject to the provisions of the 1995 Agents Plan, the
Committee shall have the authority and sole discretion to designate those
individuals (from among those eligible) to whom options will be awarded, and
determine the manner and condition of exercise as well as the times at which
options will be awarded. In making
-30-
such determinations the Committee may take into account the nature of the
services rendered by the respective individuals to whom options may be granted,
their present and potential contributions to the Company's success and such
other factors as the Committee, in its sole discretion, deems relevant.
Options may only be exercised if the Optionee has been performing services for
the Company from the grant of the option until exercise. Options shall be
exercisable at such times as may be specified by the Committee, provided,
however, that options may not be exercised after the first to occur of (i) the
expiration date of the option, (ii) the Optionee's termination of performing
services for the Company for reasons other than disability, retirement or death,
(iii) five years from the Optionee's termination of service on account of
disability or retirement, or (iv) five years from the Optionee's death. An
Optionee exercising an option may pay the purchase price in cash or by
delivering, or causing to be withheld from the option, shares of Common Stock.
Transferability of Options. The rights of an Optionee under the 1995 Agents Plan
may not be assigned or transferred except by transfer to a beneficiary upon the
death of the Optionee, and upon the death of the beneficiary, by will or the
laws of descent and distribution.
Amendment or Termination of the 1995 Agents Plan. The Board of Directors may
amend the 1995 Agents Plan in such respects as it deems advisable or terminate
the Plan at any time. No amendment or termination may adversely affect any
outstanding options.
Federal Income Tax Consequences of the 1995 Agents Plan. The 1995 Agents Plan
provides for the granting of non-statutory options which do not qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). An Optionee who receives an option will not be deemed
to have received any income at the time the option is granted. The Optionee will
recognize ordinary income in the year any part of the option is exercised in an
amount equal to the difference between the exercise price of the shares
purchased and the fair market value of such shares on the exercise date. The
Company will be entitled to a tax deduction in an amount equal to the amount of
ordinary income recognized by the Optionee. Special rules may apply if the
Optionee pays all or part of the exercise price on a non-statutory option by
tendering shares of the Company's Common Stock. The foregoing discussion of
federal income tax aspects is only a summary and based upon interpretations of
the existing laws, regulations and rulings which could be materially altered
with enactment of any new tax legislation.
Vote Required. Under Schedule D to the NASD By-Laws, the establishment of a
stock option plan, pursuant to which stock may be acquired by officers or
directors, requires shareholder approval. Although, by its terms, the NASD
Policy does not apply to the 1995 Agents Plan, the Board believes that it is
consistent with the spirit of the NASD Policy and appropriate in the context of
seeking approval of the other Option Plans, to seek shareholder approval of the
1995 Agents Plan. Approval of the 1995 Agents Plan requires the affirmative vote
of the holders of a majority of the shares of Common Stock voting at the Meeting
(assuming a quorum is present). In the event the 1995 Agents Plan is not
approved by the shareholders, the Board reserves the right to establish the 1995
Agents Plan without shareholder approval. The Alissa Group, who collectively own
8,152,200 shares of Common Stock (representing 44.29% of the shares
outstanding), and the directors and executive officer of the Company, who
collectively own 1,282,430 shares of Common Stock (representing 6.97% of the
shares outstanding) have indicated to the Company that they intend to vote for
Proposal 7 at the Meeting. Therefore, shareholders of an aggregate of 9,434,630
(51.25%) have indicated that they intend to vote for Proposal 7.
-31-
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors' Compensation
In 1995, the Company paid quarterly to each Director who was not a full-time
employee of the Company (a "Non- Employee Director") a retainer fee of $175 per
month plus $656.25 for each meeting of the Board at which the Director was
present, a fee of $175 for each meeting of a Board Committee which he attended
on the same day and in the same general location as a Board meeting or by
telephone, and a fee of $262.50 for attending a Committee meeting otherwise. In
addition, at its meeting on June 15, 1995, the Board authorized the issuance of
5,000 shares of Common Stock to each person who was a Non-Employee Director on
that date.
Compensation of Executive Officers
The following table sets forth, for the years ended December 31, 1995, 1994 and
1993, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid or accrued for those years, to each of the
executive officers of the Company and such subsidiaries whose compensation was
in excess of $100,000 (the "Executive Group"), in all capacities in which they
serve.
SUMMARY COMPENSATION TABLE
Restricted Securities
Other Annual Stock Underlying All Other
Name and Salary Bonus Compensation Awards Options Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
- ---------------------------- --------- ----------- --------- ---------------- ----------- ------------- ----------------
John C. West 1995(1) 141,785 0 15,625(2) 0 280,000 0.00
Chairman of the Board 1994 0 0 0 0 0 0.00
Ernst N. Csiszar, President 1995(1) 119,154 0 0.00 0 300,000 0.00
and Chief Executive Officer
John A. Weitzel 1995(1) 33,231(2) 0 0.00 0 100,000 174
Chief Financial Officer
- ---------------------------- --------- ----------- --------- ---------------- ----------- ------------- ----------------
Former Officers
Sterling E. Beale 1995 0 0 0 0 0 347,968(4)
Chairman of the Board and 1994 147,813 2,438 0 0 0 359,206(4)
Chief Executive Officer 1993 182,483 0 0 0 0 2,765
W. Thomas Reichard, III 1995 0 0 0 0 0 0
President 1994 102,476 1,813 0 0 0 252,279(5)
1993 135,659 0 0 0 0 2,199
- --------------------------------
<FN>
(1) Gov. West was appointed an officer of the Company for the first time in
1994; Messrs. Csiszar and Weitzel were appointed officers of the
Company for the first time in 1995.
(2) The amount shown represents the dollar value of the difference between
the price paid by Gov. West for shares upon the exercise of stock
options and the fair market value at the date of exercise.
(3) Mr. Weitzel was employed by the Company effective September 30, 1995.
The salary amount stated is for the three-month period from the date of
employment through December 31, 1995. Prior to the date of employment,
Mr. Weitzel was a consultant to the Company during 1995. With respect
to his consulting services, the Company paid Mr. Weitzel consulting
fees in the amount of $114,000 during 1995.
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(4) The amounts shown for 1995 and 1994 for Mr. Beale include payments of
$193,748 and $355,500, respectively, pursuant to a certain Retirement
Agreement and $150,938 of salary for 1994 which was actually paid in
1995.
(5) The amount shown for 1994 for Mr. Reichard includes payments
aggregating $249,502 pursuant to a certain Separation Agreement and
Mutual Release.
</FN>
Option Grants
During the year ended December 31, 1995, the Company granted 300,000 stock
options to members of the Executive Group pursuant to the Company's 1987 Stock
Option Plan. In addition, the Board of Directors approved the grant of 400,000
stock options to members of the Executive Group pursuant to the 1996 Plan,
subject to shareholder approval of that plan. The following table sets forth the
grants during the year ended December 31, 1995.
Option Grants During the Year Ended December 31, 1995
Potential Realizable value at
assumed rates of stock price
appreciation for option terms ($)
Number of
Securities % of Total
Underlying Options Exercise
Name Options Granted to Price Expiration 0% 5% 10%
Granted (#) Employees ($/Sh) Date (2) (3) (3)
- ------------------------ --------------- ------------- ----------- --------------- ----------- ----------- ------------
Ernst N. Csiszar 100,000(1) 13% 1.625 12/21/00 0 44,895 99,208
Chief Executive 100,000(1) 13% 2.500 12/21/00 0 (42,605) 11,708
Officer 100,000 13% 06/13/00 24,175 53,420
John C. West 100,000(1) 13% 1.625 12/21/00 0 44,895 99,208
100,000(1) 13% 2.500 12/21/00 0 (42,605) 11,708
100,000 13% 0.875 06/13/00 0 24,175 53,420
John A. Weitzel 100,000 13% 0.8125 09/30/00 0 22,428 49,604
<FN>
(1) These grants were authorized by the Board of Directors during 1995
under the 1996 Plan, subject to shareholder approval of the 1996 Plan.
(2) All grants were made with an exercise price per share at or above the
closing market price per share on the date of grant.
(3) Assumed for illustrative purposes only.
</FN>
Option Exercises and Year-End Holdings
During the year ended December 31, 1995, members of the Executive Group
exercised a total of 20,000 stock options. The following table sets forth
certain information with respect to option exercises during the year ended
December 31, 1995, and unexercised stock options held by the Executive Group as
of December 31, 1995.
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Aggregated Option Exercises During the Year
Ended December 31, 1995 and 1995 Year-End Option Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised Options In-The-Money Options at
Acquired On Value at Year-End Year-End ($) Exercisable/
Name Exercise (#) Realized ($) (#) Exercisable/Unexercisable Unexercisable
- -------------------------- ----------------- ----------------- --------------------------------- ----------------------------
Ernst N. Csiszar 0 N/A 200,000/100,000(2) 62,500
Chief Executive Officer
John C. West 20,000 15,625(1) 180,000/100,000(3) 50,000
John A. Weitzel 0 N/A 100,000/0 68,750
- --------------------
<FN>
(1) The amount shown represents the dollar value of the difference between
the purchase price paid by Gov. West for the shares upon exercise of
the stock options and the fair market value of the shares at the date
of purchase.
(2) The amounts shown for Mr. Csiszar include 200,000 option grants
authorized by the Board of Directors during 1995 under the 1996 Plan,
subject to shareholder approval of the 1996 Plan.
(3) The amounts shown for Gov. West include 200,000 option grants
authorized by the Board of Directors during 1995 under the 1996 Plan,
subject to shareholder approval of the 1996 Plan.
</FN>
Employment Agreements
The Company has entered into employment agreements (each, an "Agreement") under
which Ernst N. Csiszar will serve as President and Chief Executive Officer, John
C. West will serve as Chairman and John A. Weitzel will serve as Senior Vice
President and Chief Financial Officer (each, an "Employee"), of the Company for
a term of one (1) year. The terms of each Agreement are substantially identical
(except as detailed below). The following is a summary of the terms of the
Agreements.
Effective Dates of Employment. The one-year terms of Messrs. Csiszar and West
began on January 1, 1996. Mr. Weitzel's one-year term began on September 30,
1995.
Salary. As payment for services rendered by the Employee under the Agreement,
the Company shall pay Messrs. Csiszar and Weitzel $12,000, and Gov. West $7,200,
per month during the term of the Agreement. The Employee shall not receive
additional compensation for service on the Board of Directors of the Company or
any committee thereof.
Bonus. Messrs. Csiszar and West shall receive a bonus based on the operating
earnings of the Company for the calendar year 1996 of up to 150% of base salary.
Stock Options. Messrs. Csiszar and West will receive, effective December 21,
1995, options to purchase 200,000 shares of the Company's stock. The option for
100,000 shares vested on December 21, 1995, and shall be valid for a period of
five (5) years from the date of issue and shall expire on December 20, 2000. The
exercise price for these 100,000 shares shall be the closing price of the
Company's stock on December 21, 1995. The remaining 100,000 shares shall vest on
the earlier of (1) Employee's termination of employment with the Company, or (2)
December 31, 1996. The Options shall be valid for a period of five (5) years
from the date of vesting and the exercise price for these Options shall be $2.50
per share. These Options are awarded under the terms and provisions of the 1996
Plan and subject to the provisions thereof.
-34-
Mr. Weitzel has received effective September 30, 1995, options to purchase
100,000 shares of the Company's stock. The options vested on September 30, 1995,
and shall be valid for a period of five (5) years from the date of issue and
shall expire on September 29, 2000. The exercise price for these 100,000 shares
shall be the closing price of the Company's stock on September 30, 1995.
Relocation Expenses. Mr. Weitzel will be reimbursed by the Company for the
reasonable costs incurred in relocating from Wisconsin to South Carolina,
including real estate commissions and closing costs paid in the sale of his
residence; these costs are not to exceed $35,000. In addition, the Company will
reimburse Mr. Weitzel for up to 6 months of temporary living costs -- apartment
rental and round-trip flight to Wisconsin every 2 weeks -- until his permanent
relocaton.
Covenant Not to Compete. The Employee agrees that for a period of one year after
the date of termination of his employment for any reason except a termination
without cause, the Employee shall not solicit any customers or prospective
customers in any state in which the Company (including its subsidiaries) engages
in business, with whom the Employee became acquainted or gained knowledge of
during the course of his employment, and the Employee shall not engage in any
business which is in any way competitive with the business of the Company. The
Employee further agrees never to disclose any information deemed proprietary by
the Company, including but not limited to, customer lists and trade secrets,
regardless of the Employee's employment status.
Termination. Each party shall have the right to terminate the Agreement at any
time during the term upon thirty (30) days written notice to the other party.
The Company may terminate the Agreement at any time with cause or upon thirty
(30) days written notice without cause; provided, that if the Company terminates
the Agreement without cause the Company will pay the Employee within ten (10)
days after termination, one year's base salary as severance pay. In the event
that during the term of the Agreement, there is a sale of all or substantially
all of the Company's assets or all or substantially all of the Company's stock
and the new owners express their desire for a change in management or reassign
the Employee to a job with the Company with lesser duties or responsibilities,
then the Employee has the right to give written notice of his intent to
terminate the Agreement and shall receive the remaining balance or amount due
under the Agreement as severance.
Report of the Board of Directors on Executive Compensation
The primary elements of the Company's executive compensation program have
historically consisted of a base salary, a bonus opportunity and stock options.
Base salaries are determined, and have at times been increased, by evaluating
the responsibilities of the position held and the experience of the executive
officer. Overall compensation is based on the Compensation Committee's
assessment of prevailing market compensation levels. The foregoing has been
provided by the Company's Compensation Committee.
John P. Seibels (Chairman)
George R. P. Walker, Jr.
Claude E. McCain
Albert H. Cox, Jr.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
None of the members of the Compensation Committee is or was formerly an officer
or employee of the Company or any of its subsidiaries.
Stock Performance Chart
The following chart compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock during the five years
through December 1995 with the cumulative total return on the NASDAQ Stock
Market (U.S. companies) Index and the NASDAQ Fire, Marine and Casualty Insurance
Stock Index.
[CHART OMITTED]
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
The Seibels Bruce Group Inc.
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
-------- -------- -------- -------- -------- --------
The Seibels Bruce Group Inc. 100.0 136.3 46.5 62.0 62.0 37.2
Nasdaq Stock Market (US Companies) 100.0 160.6 186.9 214.5 209.7 296.3
NASDAQ Stocks (SIC 6330-6339 US Companies
Fire, Marine, and Casuality Insurance 100.0 142.7 192.3 198.0 190.7 267.4
-35-
Certain Transactions
In 1981, Seibels, Bruce & Company, a wholly-owned subsidiary of the Company,
entered into a contract for PMSC, a former Company subsidiary, to provide data
processing services to the Company and its subsidiaries. By subsequent
agreements, the original term of the contract has been extended through June 30,
1996. Pursuant to the contract, Seibels, Bruce & Company paid $1,848,533 to PMSC
and its subsidiaries in 1995. Mr. John Seibels, a director of the Company, is
also a director of PMSC.
SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth, as of March 30, 1996, information regarding
ownership of the Company's Common Stock by the directors of the Company, each
executive officer named in the Summary Compensation Table that appears under
"COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS," all directors and such
executive officers as a group and each person known to the Company to be the
beneficial owner of 5% or more of the Common Stock.
Amount and Nature of Beneficial Percent of Class Excluding (Including)
Name of Beneficial Owner (and address, Ownership(1) Issuance of the Powers Shares(2)
with respect to non-directors or officer)
- --------------------------------------- ------------------------------------- --------------------------------------
William M. Barilka 140,000(3) *
Ernst N. Csiszar 300,000(4) 1.60% (1.20%)
Albert H. Cox, Jr. 11,600(3) *
William B. Danzell 0.00 0.00
Claude E. McCain 10,064(3) *
Kenneth W. Pavia 0.00 0.00
John P. Seibels 606,908(3,5) 3.30% (2.46%)
George R.P. Walker, Jr. 506,858(3,6) 2.75% (2.06%)
John C. West 312,000(7) 1.67% (1.25%)
John A. Weitzel 100,000(4) *
All directors and officers as a group 1,987,430(8) 10.40% (7.84%)
- --------------------------------------- ------------------------------------- --------------------------------------
Alissa Group 8,152,200(9) 44.29% (33.06%)
P. O. Box 192
Alkhobar, Saudi Arabia
The Powers 6,614,206(10) 1.98% (26.8(2)%)
P. O. Box 6525
Florence, SC 29502
Avent Group 1,635,000(11) 6.63% (13.61%)
[Address]
- ----------------------------
<FN>
* Less than 1%.
1 Includes shares underlying options authorized for issuance by the Board of
Directors, subject to shareholder approval.
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2 Assuming no exercise of the 6,250,000 Powers Options or the 1,635,000
Avent Options.
3 Non-employee director. Includes 5,000 shares underlying options authorized
for issuance under the 1995 Directors Plan, subject to shareholder
approval of that plan. See "Proposal 5: Approval of the 1995 Non-employee
Directors Stock Option Plan."
4 Includes shares underlying options authorized for issuance under the 1996
Plan, subject to shareholder approval of that plan (with respect to Mr.
Csiszar and Gov. West) , and 100,000 shares underlying options granted
under the Company's 1987 Stock Option Plan. See "Proposal 6: Approval of
the 1996 Employee Stock Option Plan."
5 Excludes 9,012 shares held in the names of members of Mr. Seibels'
immediate family as to which he has neither sole nor shared voting or
dispositive power and as to which he disclaims beneficial ownership.
6 Excludes 45,557 shares held in the names of members of Mr. Walker's
immediate family as to which he has neither sole nor shared voting or
dispositive power and as to which he disclaims beneficial ownership.
7 Includes 280,000 shares underlying options authorized for issuance under
the 1996 Plan, subject to shareholder approval of that plan. See "Proposal
6: Approval of the 1996 Employee Stock Option Plan."
8 Includes 705,000 shares underlying unexercised options and 1,282,430
shares issued and outstanding (representing 6.97% of the Company's issued
and outstanding shares).
9 Based on information contained in Statement on Form 4 for February, 1996:
includes 6,200 shares to which Mr. Alissa has sole voting power, and
4,057,000 and 4,089,000, including shares as to which he has shared voting
power shares beneficially owned (shared voting and dispositive power) by
Abdullatif Ali Alissa Est. (the "Establishment"), Financial Investors
Limited ("FIL") and General Investors Limited ("GIL"). Mr. Alissa has
informed the Company that he is the President of the Establishment; that
FIL is wholly owned by the Establishment; and that GIL is wholly owned by
Mr. Alissa.
10 Includes the 6,250,000 Powers Shares and 364,206 shares owned by the
Powers as of January 30, 1996. Does not include the shares underlying the
Powers Options. If the shares underlying the Powers Options were included
as beneficially owned by the Powers the Powers would beneficially own
12,864,206 shares, representing 41.62% of the class.
11 Excludes 1,635,000 shares underlying the Avent Options. See "RECENT
DEVELOPMENTS -- The Avent Transaction." If these shares were included as
beneficially owned by the Avent Group, the Avent Group would beneficially
own 3,270,000 shares, representing 16.32% of the class (assuming no
issuance of the Powers Shares) or 12.44% of the class (assuming issuance
of the Powers Shares, but exluding shares underlying the Powers Options).
</FN>
RECENT DEVELOPMENTS
Sale of Consolidated American
On February 7, 1996, the Company signed a letter of intent for the sale of
Consolidated American Insurance Company, a dormant subsidiary of SCIC
("Consolidated") to Hogan Holding Corporaton ("HHC"). Consolidated holds
insurance licenses in 13 states. The letter of intent contemplates that HHC will
pay SCIC approximately $6,000,000, subject to adjustments for any change in
Consolidated's financial condition, assets or liabilities occurring between
December 31, 1995 and the date of the closing of the sale. HHC will pay
approximately $5,000,000 in cash to SCIC at the closing and will pay
approximately $950,000 in cash into escrow at the closing, to be released on a
pro rata basis to SCIC as Consolidated is approved to do new business in each of
the thirteen states. The Board believes the sale of Consolidated will benefit
the Company and its shareholders as much-needed capital will flow into SCIC in
exchange for a dormant subsidiary.
The Avent Transaction
On March 29, 1996, the Company closed a transaction (the "Avent Transaction")
with a group including Fred C. Avent, and Pepsico of Florence.
-37-
(referred to collectively as the "Avent Group"). Under agreements dated March
28, 1996, between the Company and the Avent Group, the Company sold 1,635,000
shares of Common Stock (the "Avent Shares") to the Avent Group for a purchase
price of $2.00 per share in a non-public transaction.
As additional consideration for the purchase of the Avent Shares, the Company
has agreed, as soon as practicable, to deliver to the Avent Group options to
purchase an additional 1,635,000 shares of Common Stock (the "Avent Options").
The Avent Options shall be exercisable at the greater of book value per share at
the date of exercise or $2.50 per share. The Avent Options expire on December
31, 2000. The Company contemplates issuing the Avent Options after the meeting.
In addition, the Avent Group has the right to nominate one director for election
to the Board. See "PROPOSALS RELATING TO THE POWERS TRANSACTION: PROPOSALS 1, 2,
3 AND 4 -- Proposal 4: Increase in Number of Directors."
Prior to the issuance of the Avent Shares, there was no affiliation between the
Avent Group and the Company. The Company is unaware of any affiliations between
the Avent Group and either the Powers or the Alissa Group.
GENERAL
Expenses of Solicitation
The cost of soliciting proxies will be borne by the Company. Officers, directors
and employees of the Company may solicit proxies by telephone, telegram or
personal interview.
Additional Information
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York, 10048; and Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400 Chicago,
Illinois 60661. Copies of such material also may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such reports, proxy statements and
other information concerning the Company may be inspected and copied at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006-1506
Incorporation by Reference
The information contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (the "10-K") is incorporated herein by reference. A
copy of the 10-K is available from the Company upon request.
April ___, 1996 Priscilla C. Brooks
Corporate Secretary
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