SCHEDULE 14A
(RULE 14A - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement [ ] CONFIDENTAL, FOR THE USE OF THE
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[ ] Definitive Additional Materials RULE 14a-6(e)14a-6 (e) (2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c)14a-11 (c) or Rule 14a-12
PICO HOLDINGS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON (S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of PICO Holdings, Inc., a California
corporation (the "Company"), will be held at the Museum of Contemporary Art,
Coast Room, 700 Prospect Street, La Jolla, California 92037 on Thursday, July
17, 200315, 2004 at 9:00 a.m. (PDT) for the following purposes:
1. To elect two directors, for which positions the Board of Directors has
nominated S. Walter Foulkrod, III, Esq.Robert R. Broadbent and Richard D. Ruppert, MDCarlos C. Campbell to serve for three
years until the annual meeting of shareholders in the year 20062007 and until
their respective successors have been duly elected and qualified.
2. To approve the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program.
3. To transact such other business as may be properly brought before the
meeting and any adjournment thereof.
Shareholders of record at the close of business on May 19, 200317, 2004 will be entitled
to notice of and to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ Ronald Langley
Ronald Langley
Chairman of the Board
Dated: May 27, 200328, 2004
TO ASSURE YOUR REPRESENTATION AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND,
PLEASE FILL IN, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE AS PROMPTLY AS POSSIBLE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR
RIGHT TO REVOKE SUCH PROXY BY APPROPRIATE WRITTEN NOTICE OR BY VOTING IN PERSON
AT THE MEETING. PLEASE NOTE THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER,
BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE
MEETING A LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR
BENEFICIAL OWNERSHIP OF THE SHARES AND YOU MUST OBTAIN FROM THE RECORD HOLDER A
PROXY ISSUED IN YOUR NAME.
[THIS PAGE INTENTIONALLY LEFT BLANK]
PICO HOLDINGS, INC.
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 17, 200315, 2004
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of PICO Holdings, Inc., a California corporation (the "Company"), to
be voted at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held at the Museum of Contemporary Art, Coast Room, 700 Prospect
Street, La Jolla, California at 9:00 a.m. (PDT) on Thursday, July 17, 200315, 2004 and
at any postponement or adjournment thereof. The proxy may be revoked by
appropriate written notice at any time before it is exercised or by voting in
person at the meeting.
GENERAL INFORMATION
A copy of the Company's Annual Report to Shareholders for 20022003 accompanies this
Proxy Statement. The Annual Report and these proxy solicitation materials are
being mailed on or about May 27, 200328, 2004 to all shareholders entitled to vote at
the meeting.
As of May 19, 2003,17, 2004, the record date for the determination of shareholders
entitled to vote at the Annual Meeting, 12,379,24212,373,534 shares of Common Stock of the
Company were issued and outstanding, excluding 4,422,6814,428,389 treasury shares. Each
share of Common Stock entitles the holder to one vote on all matters brought
before the Annual Meeting, except for the 4,422,6814,428,389 shares held by the Company
and subsidiaries of the Company which may not be voted. Our Bylaws provide that
the presence in person or by proxy of the holders of a majority of the shares
entitled to vote shall constitute a quorum for the transaction of business at
the Annual Meeting of Shareholders.
In voting for the election of directors, shareholders have cumulative voting
rights. Accordingly, each shareholder may cumulate such voting power as such
shareholder possesses and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares held by the
shareholder, or distribute such shareholder's votes on the same principle among
two or more candidates, as such shareholder sees fit. However, no shareholder is
entitled to cumulate votes (in other words, cast for any candidate a number of
votes greater than the number of shares of stock held by such shareholder)
unless at least one shareholder has given notice, at the Annual Meeting prior to
the voting, of the shareholder's intention to cumulate votes. If any shareholder
has given such notice, all shareholders may cumulate their votes for nominated
candidates.
The proxy, if returned properly executed and not subsequently revoked by written
notice delivered to the Secretary of the Company or by the shareholder voting in
person at the Annual Meeting, will be voted in accordance with the choice made
by the shareholder thereon. If a choice is not made with respect to any issue,
the proxy will be voted in favor of the items described in this Proxy Statement.
If cumulative voting is permitted in the election of directors at the Annual
Meeting, the proxy holders shall have discretion as to the manner in which votes
represented by the proxy are to be cumulated, unless the proxy indicates the
manner in which such votes shall be cumulated.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
inspector of election appointed for the meeting who will also determine whether
or not a quorum is present. The inspector of election will treat abstentions,
and any shares as to which a broker or nominee has indicated that it does not
have discretionary authority to vote on a particular matter, as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum for the election of directors, but not for the approval of the Company's
2003 Stock Appreciation Rights Program.directors.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 1, 2003,March 24, 2004, with respect
to the beneficial ownership of the Company's Common Stock entitled to vote by (i) each person
known by the Company to be the beneficial owner of more than 5% of Common Stock,
and by(ii) each director and director nominee, (iii) each Named Officer (as defined in
Executive Compensation and Other Matters), and (iv) all executive officers and
directors as a group. Except as otherwise indicated, each person has sole
investment and voting power, subject to community property laws. Unless
otherwise indicated, the business address for each person is 875 Prospect
Street, Suite 301, La Jolla, CA 92037.
NUMBER OF SHARES
PERCENTAGE
AND NATURE OF PERCENTAGE OWNERSHIP OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) VOTINGOF SHARES
------------------------------------- --------------------------------------------------------------------- ----------------------- -------------------- -------------
Ronald Langley(2) (4) 4,179,561 33.7%3,429,978 27.7%
John R. Hart(3) (4) 4,189,070 33.8%3,353,375 27.1%
Robert R. Broadbent(5) (6) 15,949Broadbent(4) 14,007 *
Carlos C. Campbell(5) (15) 1,500-0- *
S. Walter Foulkrod, III, Esq. (5) 4,4032,903 *
Richard D. Ruppert, MD (5) (7) 7,798(6) 6,298 *
John D. Weil(5) (8) 4,245,796Weil(7) 4,243,332 34.2%
Richard H. Sharpe (9) 143,363 1.1%(8) 8,095 *
Maxim C. W. Webb(10) 66,345Webb(9) 1,875 *
James F. Mosier(11) 68,425W. Raymond Webb -0- *
PICO Equity Investors, L.P. (12)(10) 3,333,333 26.9%
Dimensional Fund Advisors Inc. (13) 794,205 6.4%(11) 731,704 5.9%
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401
Artisan Partners Limited Partnership, Artisan Investment Corporation,
Andrew A. Ziegler,A.Ziegler, and Carlene Murphy Ziegler (14) 1,444,673 11.6%(12) 1,773,173 14.3%
1000 N. Water Street, Suite 1770, Milwaukee, WI 53202
Executive Officers and Directors as a Group (10(12 persons) 6,255,544 50.5%4,398,779 35.5%
- ----------------------------------------
*Less than one percent (1%)
(1) Sole voting and investment power unless otherwise indicated.
(2) Of12,825 of these shares, 603,279 represent beneficial ownership of stock options
exercisable within the next 60 days. 10,013 shares are held in the Company's 401(k) Plan. Mr. Langley
owns a membership interest in PICO Equity Investors Management, LLC, which
has voting control of 3,333,333 shares of the Company.
(3) Of14,342 of these shares, 631,933 represent beneficial ownership of stock options
exercisable within the next 60 days. 11,681 shares are held in the Company's 401(k) Plan. Mr. Hart owns
a membership interest in PICO Equity Investors Management, LLC, which has
voting control of 3,333,333 shares of the Company. The number of shares
shown above does not include 19,940 shares of the Company held in a
deferred compensation plan Rabbi Trust for Mr. Hart.
2
(4) Mr. Langley and Mr. Hart each had 1993 call option agreements with Guinness
Peat Group plc; in August 1998, the Company assumed Guinness Peat Group's
obligations with respect to these 412,846 options. Mr. Langley exercised
57,307 of his call options in December 1998 and has 149,116 call options
remaining. Mr. Hart has not exercised any call options and has 206,423 call
options remaining.
(5) Each nonemployee director of the Company received a grant of 1,500 stock
options pursuant to the PICO Holdings, Inc. 2000 Nonstatutory Stock Option
Plan, which was approved by the Company's shareholders on October 19, 2000.
These options are vested and exercisable.
(6) The number of shares shown above does not include 3,3365,266 shares of the
Company held in a deferred compensation plan Rabbi Trust for Mr. Broadbent.
(7)(5) 1,557 shares of the Company are held in a deferred compensation plan Rabbi
Trust for Mr. Campbell.
(6) Dr. Ruppert shares voting and investment power with his wife. The number of
shares shown above does not include 1,4412,272 shares held in a deferred
compensation plan Rabbi Trust for Dr. Ruppert.
(8)(7) Of these shares, 884,922909,999 are owned by a partnership which Mr. Weil
controls. Mr. Weil owns a membership interest in PICO Equity Investors
Management, LLC, which has voting control of 3,333,333 shares of the
Company. The number of shares shown above does not include 3,2955,227 shares of
the Company held in a deferred compensation plan Rabbi Trust for Mr. Weil.
(9) Of these(8) The number of shares 135,268 represent beneficial ownership of stock options
exercisable within the next 60 days.shown includes 3,586 shares are held in the Company's
401(k) Plan.
(10) Of these(9) The number of shares 64,470 represent beneficial ownership of stock options
exercisable within the next 60 days.shown includes 1,494 shares are held in the Company's
401(k) Plan.
(11) Of these shares, 63,125 represent beneficial ownership of stock exercisable
within the next 60 days. 2,371 shares are held in the Company's 401(k)
Plan.
(12)(10) Pursuant to a rights offering conducted by the Company in March 2000, an
investment partnership named PICO Equity Investors, L.P. acquired on March
28, 2000, 3,333,333 newly issued shares which were not subscribed for in
the rights offering. PICO Equity Investors, L.P. is managed by PICO Equity
Investors Management, LLC. PICO Equity Investors Management, LLC is owned
by Mr. Langley, Mr. Hart and Mr. Weil. PICO Equity Investors Management,
LLC will exercise all voting and investment decisions with respect to these
3,333,333 shares for up to ten years. The interest of PICO Investors
Management, LLC in any profits and losses earned on this investment will be
proportional to the capital contributions made to PICO Equity Investors,
L.P. by the partners, i.e., 1,000/50,001,000. There are no other fees or
other management compensation of any kind payable to Mr. Langley, Mr. Hart,
and Mr. Weil.
(13)(11) The Company received a Form 13-G filing from Dimensional Fund Advisors Inc.
in 20032004 for calendar year 2002.
(14)2003.
(12) The Company received a Form 13-G filing from Artisan Partners Limited
Partnership, Artisan Investment Corporation, Andrew A. Ziegler, and Carlene
Murphy Ziegler in 20032004 for calendar year 2002.
(15) The number of shares shown above does not include 742 shares held in a
deferred compensation plan Rabbi Trust for Mr. Campbell.2003.
1. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of office
of each class ending in successive years. Pursuant to Section 3.2 of the
Company's Bylaws, the total number of directors has been established as seven.
Two directors of the Company are to be elected for terms ending at the Annual
Meeting of Shareholders in the year 20062007 or until their respective successors
have been duly elected and qualified. 3
Pursuant to Nasdaq listing standards, the
Board of Directors has determined that Robert R. Broadbent, Carlos C. Campbell,
S. Walter Foulkrod, III, Esq., Richard D. Ruppert, MD, and John D. Weil are
independent directors as defined by listing standards for the Nasdaq National
Market.
Unless otherwise instructed, the proxy holders named on the enclosed form of
proxy intend to distribute the votes represented by proxies in such proportions
as they deem desirable to elect the two nominees named below or their
substitutes. Although it is not contemplated that any nominee will decline or be
unable to serve, if either occurs prior to the Annual Meeting, a substitute
nominee will be selected byrecommended to the Board of Directors.Directors by the Nominating
Committee. See "Stock Ownership of Certain Beneficial Owners and Management" for
the number of shares of Common Stock beneficially owned by these nominees.
The Nominating Committee has recommended that S. Walter Foulkrod, III, Esq.Robert R. Broadbent and Richard D. Ruppert, MDCarlos C.
Campbell be nominated for election as Directorsdirectors at the Company's Annual Meeting
of Shareholders on July 17, 200315, 2004 for terms ending in 2006.2007. A majority of the
independent directors approved the nomination for election to the Board of
Directors of Robert R. Broadbent and Carlos C. Campbell. The following table
sets forth information regarding the nominees for election as directors and the
other directors whose terms of office as directors will continue after the
Annual Meeting, including their ages, a brief description of their business
experience, certain directorships held by each of them and the year in which
each became a director of the Company.
If a quorum is present and voting, the nominees for election as directors
receiving the highest numbers of votes shall be elected. Abstentions and broker
non-votes have no effect on the vote.
3
THE COMPANY'S BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE NOMINEES FOR
ELECTION LISTED BELOW.
DIRECTOR NAME BUSINESS EXPERIENCE AGE SINCE
- ------------------------------------ -------------------------------------------------------------------- --- -----
NOMINEES STANDING FOR TERMS ENDING IN 2007:
Robert R. Broadbent Retail consultant since 1989; Chairman of Higbee Company from 1984 82 1996
to 1989; President, CEO, Director and Vice Chairman of the Higbee
Company from 1979 to 1984; President and Chief Executive Officer of
Liberty House - Mainland from 1976 to 1978; Chairman and CEO of
Gimbel's from 1973 to 1976; Director of Physicians Insurance Company
of Ohio ("Physicians") from 1993 to 1995.
Carlos C. Campbell President, C. C. Campbell & Co.; Director of Resource America, Inc.; 66 1998
Director of Netwolves, Inc.
DIRECTORS WITH TERMS ENDING IN 2006:
S. Walter Foulkrod, III, Esq. Attorney; owner of one third of the issued and outstanding 61capital 62 1996
capital
stock of Foulkrod Ellis Professional Corporation, Attorneys at Law,
Harrisburg, PA; sole owner of S. Walter Foulkrod, III & Associates,
Attorneys at Law, Harrisburg, PA from 1994 through 2000; President
and Chairman of Foulkrod, Reynolds & Havas, PC, from 1984 to 1994;
Director of Physicians Insurance
Company of Ohio ("Physicians") since 1988.1998.
Richard D. Ruppert, MD Physician; President of Medical College of Ohio from 1978 to 721993; 73 1996
1993;
President of American Society of Internal Medicine from 1992 to
1993; Director of Physicians since 1988.
DIRECTORS WITH TERMS ENDING IN 2004:
Robert R. Broadbent Retail consultant since 1989; Chairman of Higbee Company from 81 1996
1984 to 1989; President, CEO, Director and Vice Chairman of the
Higbee Company from 1979 to 1984; President and Chief Executive
Officer of Liberty House - Mainland from 1976 to 1978; Chairman
and CEO of Gimbel's from 1973 to 1976; Director of Physicians
from 1993 to 1995.
Carlos C. Campbell President, C. C. Campbell & Co.; Director of Resource America, 65 1998
Inc.; Director of Netwolves, Inc.1998.
DIRECTORS WITH TERMS ENDING IN 2005:
John R. Hart President and CEO and Director of the Company since 1996; 43Director 44 1996
President of Quaker Holdings Limited, an investment company,
since 1991; Principal with Detwiler, Ryan & Company, Inc., an
investment bank, from 1982 to 1991; Director
of Physicians since 1993; President and CEO of Physicians since
1995; Director of HyperFeed Technologies, Inc.
Ronald Langley Chairman and Director of the Company since 1996; Director of 5859 1996
Physicians since 1993; Chairman of Physicians since 1995; Chairman
and Director of HyperFeed Technologies, Inc.; Director of
Jungfraubahn Holding AG.
John D. Weil President, Clayton Management Company, an investment company; 6263 1996
Director of Todd Shipyards Corporation, Allied Health Products, Inc., and Baldwin & Lyons, Inc.;
Director of Physicians since 1987.
4
In December 2002, Mr. Weil settled a pending civil action brought against him by
the SEC for alleged violations of the anti-fraud provisions of the federal
securities laws arising in connection with transactions in the securities of
Kaye Group Inc. involving material non-public information. Mr. Weil was not an
officer or director of Kaye Group. The transactions cited by the SEC in its
complaint involved less than one percent of the securities of Kaye Group
beneficially owned by Mr. Weil and less than one-tenth of one percent of Kaye
Group's then outstanding shares. Mr. Weil consented to the entry of a final
judgment of permanent injunction and other relief, including disgorgement of
alleged profits in the amount of $47,000 and civil penalties of like amount, but
did not admit to or deny any of the allegations in the SEC's complaint.
2. APPROVAL OF THE PICO HOLDINGS, INC. 2003 STOCK APPRECIATION RIGHTS
PROGRAM
At the Annual Meeting the shareholders will be asked to approve the PICO
Holdings, Inc. 2003 Stock Appreciation Rights Program (the "SAR Program"). The
Company's Board of Directors approved the SAR Program on April 18, 2003, subject
to approval by the shareholders, to replace the Company's stock option plans and
call option agreements. As discussed more fully below, each stock option holder
(except one employee who currently has 100,000 stock options and who will
receive 20,000 stock appreciation rights) and each call option holder will
surrender their stock options and call options and will receive an equivalent
number of stock appreciation rights, at the same exercises prices for the stock
options and call options. See Report of Compensation Committee.
As discussed in "Equity Compensation Plan Information," the Company previously
granted stock options under several different stock option plans and individual
stock option arrangements. In addition, as discussed in footnote 4 under "Stock
Ownership of Certain Beneficial Owners and Management," the Company is obligated
to sell shares of the Company's stock, presently held as treasury shares, to Mr.
Langley and Mr. Hart under call option agreements assumed by the Company in
August 1998.
SUMMARY OF THE SAR PROGRAM
The following summary of the SAR Program is qualified in its entirety by the
specific language of the SAR Program, a copy of which is attached as Appendix I.
GENERAL
Recently there has been much discussion regarding the cost of stock options to
shareholders with varying opinions on the correct pricing methodology. The
Company believes that stock appreciation rights provide more transparent and
understandable accounting treatment for the Company's stockholders. Approval of
the SAR Program will not change compensation to management.
The purpose of the SAR Program is to advance the interests of the Company and
its shareholders with an easily understood incentive program for directors,
officers, and consultants by providing an incentive for directors, officers,
employees, and consultants to increase shareholders' equity and provide a
mechanism whereby the participants in the SAR Program will be able to
participate in an increase in share price. The SAR Program provides for grants
of stock appreciation rights. Unlike the exercise of a stock option, which
results in the issuance of a new share of the Company's stock, the exercise of a
stock appreciation right will result only in a cash payment to the holder of
that stock appreciation right. No shares of the Company's stock will be issued
when a stock appreciation right is exercised.
The Board of Directors believes that stock appreciation rights have certain
advantages over stock options. Since no new shares of stock are issued when a
stock appreciation right is exercised, stock appreciation rights are not
dilutive to existing shareholders, unlike the exercise of stock options where
new shares of stock are issued. In addition, the accounting treatment for stock
appreciation rights is more transparent to shareholders than for stock options.
The accounting treatment for stock appreciation rights requires that all
in-the-money amounts, based on the difference between the market value of the
underlying stock and the exercise price of the stock appreciation right, be
accrued and charged to net income. If the Company's shareholders approve the
replacement of the Company's stock option plans and call option agreements with
the SAR Program, there will be a charge to net income in the approximate amount
of $3.3 million, based on the closing price of the Company's stock of $13.24 on
December 31, 2002 on the Nasdaq National Market. Liquidity of stock options has
been reduced with the recent enactment of the Sarbanes-Oxley Act of 2002 which
has made cashless exercises of stock options problematic. In addition, legal
restrictions frequently prevent the exercise of stock options due to the stock
option holder's possession of material, nonpublic information. The Company has a
relatively small average daily trading volume, which further impedes the
exercise of stock options.
5
AUTHORIZED STOCK APPRECIATION RIGHTS
A maximum of 2,042,781 stock appreciation rights may be issued under the SAR
Program. If any stock appreciation right expires, lapses or otherwise terminates
for any reason without having been exercised or settled in full, such stock
appreciation right will again become available for issuance under the SAR
Program. Appropriate adjustments will be made to the number of stock
appreciation rights reserved under the SAR Program and the terms of any
outstanding stock appreciation rights in the event of any stock dividend, stock
split, reverse stock split, recapitalization or similar change in the Company's
capital structure.
ADMINISTRATION
The SAR Program will be administered by the Compensation Committee of the Board
of Directors, or, in the absence of such committee, by the Board. Subject to the
provisions of the SAR Program and with the exception of the stock appreciation
rights to be granted as of July 17, 2003 as described below, the Committee will
determine in its discretion the persons to whom and the times at which stock
appreciation rights will be granted, the size of any stock appreciation right,
and all of their terms and conditions. The Committee will have the authority to
interpret the SAR Program and stock appreciation rights granted thereunder, and
any such interpretation by the Committee will be binding.
CALL OPTION AGREEMENTS
In 1993, Guinness Peat Group plc entered into separate, but identical, call
option agreements with Mr. Langley and Mr. Hart. These call option agreements
provided that Guinness Peat Group plc would sell a total of 412,486 shares it
owned to Mr. Langley and Mr. Hart at certain exercise prices. In August 1998,
the Company acquired these shares at their exercise prices and assumed the
obligation to sell these shares to Mr. Langley and Mr. Hart at those same
exercise prices. Mr. Langley and Mr. Hart have both agreed to irrevocably and
unconditionally surrender any and all rights pursuant to the call option
agreements, effective July 17, 2003, contingent upon shareholder approval of
this proposal.
STOCK OPTION PLANS
The Company has granted stock options to directors, officers, employees, and
consultants under the Physicians Insurance Company of Ohio 1995 Non-Qualified
Stock Option Plan, the PICO Holdings, Inc. 2000 Nonstatutory Stock Option Plan,
and several individual stock option arrangements (see "Equity Compensation Plan
Information"). All stock option holders have agreed to irrevocably and
unconditionally surrender any and all rights under these stock option plans
before July 17, 2003.
FEATURES OF SAR PROGRAM
If this proposal is approved by the Company's shareholders, each stock option
holder (except one employee who currently has 100,000 stock options and who will
receive 20,000 stock appreciation rights) and each call option holder will
receive an equivalent number of stock appreciation rights at the same exercise
prices as the current stock options and call options, and the Company will have
no stock options or call option agreements outstanding. The terms of the
proposed SAR Program are as follows:
(1) Each stock option holder (except one employee who currently has 100,000
stock options and who will receive 20,000 stock appreciation rights) and
each call option holder will receive an equivalent number of stock
appreciation rights;
(2) Each stock appreciation right shall take effect July 17, 2003 and shall not
have an expiration date. See Termination or Amendment;
(3) The SAR program shall authorize 2,042,781 stock appreciation rights, which
is the number of stock options and call options presently outstanding;
(4) All stock appreciation rights will be fully vested on July 17, 2003;
(5) Each recipient of stock appreciation rights will be able to exercise, in
any twelve month period beginning on July 17, a maximum of 20% of the
number of stock appreciation rights initially received. However, the
Company's Compensation Committee shall have authority to allow in excess of
20% of an individual's stock appreciation rights to be exercised in any
twelve month period beginning July 17, for good cause shown, in the
Committee's sole discretion. Upon a change of control of the Company, or
upon the death, disability, or retirement of the participant, all stock
appreciation rights shall be exercisable immediately;
6
(6) The exercise price for the stock appreciation rights will be the same as
for the stock options and call options; and
(7) The stock appreciation rights, when exercised, are payable only in cash by
the Company, in an amount equal to the excess of the fair market value of
the Company's stock over the exercise price.
TERMINATION OR AMENDMENT
The SAR Program will continue in effect until the first to occur of (i) its
termination by the Committee or (ii) the date on which all stock appreciation
rights available for issuance under the SAR Program have been issued and the
agreements evidencing stock appreciation rights granted under the SAR Program
have lapsed. The Committee may terminate or amend the SAR Program at any time,
provided that no amendment may be made without stockholder approval if the
Committee deems such approval necessary for compliance with any applicable tax
or securities law or other regulatory requirements, including the requirements
of any stock exchange or market system on which the Common Stock of the Company
is then listed. No termination or amendment may affect any outstanding stock
appreciation right unless expressly provided by the Committee, and, in any
event, may not adversely affect an outstanding stock appreciation right without
the consent of the participant unless necessary to comply with any applicable
law.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide to the U.S. federal
income tax consequences of participation in the SAR Program and does not attempt
to describe all possible federal or other tax consequences of such participation
or tax consequences based on particular circumstances.
A participant generally will recognize no income upon the grant of a stock
appreciation right. Upon the settlement of the stock appreciation right,
participants normally will recognize ordinary income in the year of settlement
in an amount equal to the cash received. If the participant is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The Company generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the participant on the settlement date,
except to the extent such deduction is limited by applicable provisions of the
Internal Revenue Code.
The following table sets forth (i) the numbers of stock appreciation rights that
will be granted to directors, officers, employees, and consultants on July 17,
2003, subject to approval by shareholders of the SAR Program; and (ii) the
numbers of stock appreciation rights that would have been granted on December
31, 2002 to the directors, officers, employees, and consultants if the SAR
Program had been in effect on December 31, 2002.
7
NEW PLAN BENEFITS
STOCK APPRECIATION RIGHTS THAT WOULD
STOCK APPRECIATION RIGHTS GRANTED WOULD HAVE BEEN GRANTED ON
ON JULY 17, 2003, SUBJECT TO DECEMBER 31, 2002 IF THE
SHAREHOLDER APPROVAL OF THE SAR PROGRAM HAD BEEN IN
SAR PROGRAM EFFECT ON THAT DATE
------------------------------------- ------------------------------------
NUMBER OF STOCK NUMBER OF STOCK
NAME AND POSITION APPRECIATION RIGHTS APPRECIATION RIGHTS
----------------- ------------------- -------------------
John R. Hart
President and Chief Executive Officer 838,356 838,356
Ronald Langley
Chairman 752,395 752,395
Richard H. Sharpe
Chief Operating Officer 135,268 135,268
Maxim C. W. Webb
Chief Financial Officer & Treasurer 71,137 71,137
James F. Mosier
General Counsel and Secretary 63,125 63,125
Executive Group 1,860,281 1,860,281
(5 persons)
Non-Executive Director Group 7,500 7,500
(5 persons)
Non-Executive Officer Employee Group 95,000 95,000
(4 persons)
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority of the
shares voted at the Annual Meeting, either in person or by proxy. Abstentions
and broker non-votes will not be counted as present for purposes of determining
the presence of a quorum and will have no effect on the outcome of the vote.
The Board of Directors believes that adoption of the proposed SAR Program is in
the best interests of the Company and its shareholders for the reasons stated
above. THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE SAR PROGRAM.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Executive Committee, an Audit Committee, a Compensation
Committee, and a Nominating Committee.
The Executive Committee currently consists of Messrs. Langley (Chairman), Hart,
and Weil. It did not meet in 2002. The Executive Committee may exercise
substantially all the powers vested in the Board of Directors except for certain
actions as prescribed by California law. The Nominating Committee has chosen not
to reappoint an Executive Committee, effective July 17, 2003. All matters which
previously would have been dealt with by the Executive Committee will be dealt
with thereafter by the full Board of Directors.
8
The Audit Committee consists of Dr. Ruppert (Chairman) and Messrs. Campbell and
Foulkrod, none of whom has been or is an officer or employee of the Company.
Each member of the Committee in the judgment of the Board is independent as that
term is defined in the listing standards for the Nasdaq National Market. In
2002,2003, this Committee met eightnine times. The functions of the Audit Committee
include reviewing the accounting principles and practices employed by the
Company and its subsidiaries; meeting with the Company's independent auditors to
review their reports on their audits of the Company's financial statements,
their comments on the internal accounting controls of the Company and the action
taken by management with regard to such comments; reviewing auditor
independence; issuing an Audit Committee report to shareholders; and recommending annually to the Board of Directors the
appointment of the Company's independent auditors. The Audit Committee has the
authority, in its discretion, to order interim and unscheduled audits and to
perform such other duties as may be assigned to it from time to time by the
Board of Directors.
4
The Compensation Committee consists of Messrs. Weil (Chairman), Campbell, and
Ruppert, noneRuppert. None of whom wasits members is or ishas been an officer or employee of the
Company.Company and the Board of Directors has determined that each member of the
committee is independent as that term is defined in the listing standards for
the Nasdaq National Market. The Compensation Committee did not meetmet one time in 2002.2003. The
functions of the Compensation Committee include reviewing and approving the
overall executive compensation program for officers of the Company and its
subsidiaries, considering and reviewing compensation levels for services as a
member of the Board of Directors, approving individual executive officer
compensation packages and recommending to the Board of Directors modifications
of the compensation package for the Chief Executive Officer. The Compensation
Committee's goals are to attract and retain qualified directors and key
executives critical to the long-term success of the Company, to reward
executives for the long-term success of the Company and the enhancement of
shareholder value, and to integrate executive compensation with both annual and
long-term financial results of the Company.
The Nominating Committee met one time in 2002.2003. Its members consist of Messrs.
Langley (Chairman), Broadbent, and Campbell. Mr. Broadbent and Mr. Campbell are
not and have not been officers or employees of the Company. In the judgment of
the Board of Directors, Mr. Broadbent and Mr. Campbell are independent as that
term is defined in the listing standards for the Nasdaq National Market. Mr.
Langley is an employee of the Company. The Committee will consider nominees
recommended by shareholders; such recommendations must be submitted in writing
to the Committee. A copy of the Nominating Committee's Charter is attached as
Appendix I.
AUDIT COMMITTEE FINANCIAL EXPERT
Pursuant to Section 407 of the Sarbanes-Oxley Act of 2002, the Board of
Directors of the Company has determined that Richard D. Ruppert, MD is qualified
as an audit committee financial expert as defined in Regulation S-K, Section
401(h) of the Securities Exchange Act of 1934. Dr. Ruppert is independent as
that term is defined under Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934.
DIRECTORS' ATTENDANCE
In 2002,2003, there were threefour meetings of the Board of Directors of the Company. All
of the directors attended 75% or more of the aggregate of their respective Board
of Directors and Committee meetings.
DIRECTORS' COMPENSATION
Directors who are not officers or employeesIt is the policy of the Company or its subsidiaries
receive an annual retainer of $30,000. For calendar year 2002, each director who
is not an officer or employee of the Company or its subsidiaries also received a
$1,000 fee for each Board and Committee meeting attended in person, and a $500
fee for each Board and Committee meeting attended by telephone. There was a
limit of $4,000 per day in Board and Committee fees to any one director.
At its April 18, 2003 meeting, the Board of Directors increased compensation to
a feethat each director, in the absence of
$2,000 for all Board and Committee meetingsextenuating circumstances, should attend the Company's Annual Meeting of
Shareholders in person. All directors attended in person or by
telephone, retroactive to January 1, 2003. The Board retained the limitCompany's 2003 Annual Meeting
of $4,000 per day in Board and Committee fees for any one director. At its April
18, 2003 meeting, the Board also approved a fee of $1,000 per day plus expenses
for any director attending an educational activity or seminar on behalfShareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based on a review of the copies of these reports received by the Company and
written representations from certain reporting persons that they have complied
with the relevant filing requirements, the Company believes that all filing
requirements have been complied with on a timely basis for the fiscal year ended
December 31, 2003.
SHAREHOLDER NOMINATION OF DIRECTORS
Nominations other than those made by the directors of the Company must be in
writing and be delivered or mailed to the Secretary of the Company not less than
60 days prior to the Annual Meeting. Such nominations must include the
information regarding each nominee required by the Bylaws of the Company.
Nominations not made according to these procedures will be disregarded; see
Appendix I.
5
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation for the
fiscal year ended December 31, 20022003 of the (i) Chief Executive Officer of the
Company and (ii) the four other most highly compensated executive officers of
the Company as of December 31, 20022003, whose salary and bonus exceeded $100,000.
(Messrs. Langley, Hart, Sharpe, Maxim C. W. Webb, and MosierW. Raymond Webb are
sometimes hereinafter referred to as "Named Officers".). Amounts under the
caption "Bonus" are amounts earned for performance during the fiscal year
indicated including amounts paid after the end of the year.
9
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------COMPENSATION
---------------------- ------------
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES)OPTIONS/SARs COMPENSATION
- -------------------------------------------------------- ---- ------ --------------- --------- ------------ ------------
Chief Executive Officer:
- -----------------------
John R. Hart(1) (2) 2002 $840,000 $730,934 -0- $22,421(7)2003 $ 882,000 $ 467,435 838,356(8) $ 28,000(7)
President and Chief 2002 $ 840,000 $ 730,934 -0- $ 22,421(7)
Executive Officer 2001 $800,000$ 800,000 -0- -0- $21,493(7)$ 21,493(7)
Executive Officer 2000 $800,000 -0- 456,586(8) $20,093(7)
Executive Officers
- ------------------
Ronald Langley(2) (3) 2002 $840,000 $730,934 -0- $22,421(7)2003 $ 882,000 $ 467,435 752,395(8) $ 28,000(7)
Chairman of the 2001 $800,0002002 $ 840,000 $ 730,934 -0- -0- $21,493(7)$ 22,421(7)
Board of Directors 2000 $800,0002001 $ 800,000 -0- 427,932(8) $20,093(7)-0- $ 22,493(7)
Richard H. Sharpe(4) 2002 $262,512 $228,427 -0- $20,077(7)2003 $ 275,640 $ 146,081 135,268(8) $ 25,539(7)
Chief Operating Officer 2002 $ 262,512 $ 228,427 -0- $ 20,077(7)
2001 $250,000$ 250,000 -0- -0- $20,118(7)
2000 $202,199 -0- 75,149(8) $21,814(7)$ 20,118(7)
Maxim C. W. Webb(5) 2002 $178,500 $155,323 -0- $19,602(7)2003 $ 190,999 $ 101,224 71,137(8) $ 24,580(7)
Chief Financial Officer 2002 $ 178,500 $ 155,323 -0- $ 19,602(7)
and Treasurer 2001 $162,500$ 162,500 -0- 20,000(9) $18,088(7)
and Treasurer 2000 $137,500 -0- 40,472(8) $15,462(7)
James F. Mosier(6)
General Counsel 2002 $152,250 $7,612 -0- $17,719(7)
and Secretary 2001 $145,000 -0- -0- $16,522(7)
2000 $138,500 -0- 21,042(8) $17,269(7)$ 18,088(7)
W. Raymond Webb(6) 2003 $ 150,000 $ 39,748 40,000(8) $ 19,044(7)
Vice President, Investments
- ----------------------
(1) Mr. Hart became President and CEO of the Company on November 20, 1996. He
became President and CEO of Physicians Insurance Company of Ohio on July
15, 1995.
(2) On January 1, 2002, Mr. Langley and Mr. Hart each signed employment
agreements with the Company. Each employment agreement providedprovides for annual
compensation of $800,000;$800,000, subject to annual adjustment in January of each
year in the same percentage applicable to the Company's other staff members
in an amount deemed adequate to provide for inflation, cost of living, and
merit increases based on the Consumer Price Index and major compensation
studies; see Report of the Compensation Committee.
(3) Mr. Langley became Chairman of the Board of Directors of Physicians
Insurance Company of Ohio on July 15, 1995. He became Chairman of the Board
of Directors of the Company on November 20, 1996.
(4) Mr. Sharpe became Chief Operating Officer of Physicians Insurance Company
of Ohio on June 3, 1994. He became Chief Operating Officer of the Company
on November 20, 1996.
(5) Mr. Webb became Chief Financial Officer and Treasurer on May 14, 2001.
Prior to that he was Vice President, Investments of the Company.
6
(6) Mr. MosierWebb became General Counsel and Secretary of Physicians Insurance
Company of Ohio in 1984. He became General Counsel and SecretaryVice President, Investments of the Company on November 20, 1996.April 18,
2003. Prior to that he was chief investment analyst.
(7) Represents amounts contributed by the Company to the PICO Holdings, Inc.
Employees 401(k) Retirement Plan and Trust. This retirement plan conforms
to the requirements of the Employee Retirement Income Security Act.
(8) This represents stock optionsappreciation rights granted in 2000on July 17, 2003 pursuant
to the PICO Holdings, Inc. 2000 Nonstatutory2003 Stock Option Plan.Appreciation Rights Program (the "SAR
Program"), a cash-only stock appreciation rights ("SAR") plan, as approved
by the Company's shareholders on July 17, 2003.
(9) This represents a grant of nonstatutory stock options in 2001 in an
individual nonstatutory stock option agreement. 10
All of the Company's
outstanding stock options and call options were unconditionally and
irrevocably surrendered before the SAR Program was approved by the
Company's shareholders on July 17, 2003.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company or its subsidiaries
receive an annual retainer of $30,000. For calendar year 2003, each director who
was not an officer or employee of the Company or its subsidiaries received a
$2,000 fee for each Board and Committee meeting attended in person or by
telephone. There is a limit of $4,000 per day in Board and Committee fees to any
one director. Any director attending an educational activity or seminar on
behalf of the Company receives a fee of $1,000 per day plus expenses.
OPTION GRANTS/STOCK APPRECIATION RIGHTS ("SAR") GRANTS IN THE LAST FISCAL YEAR
None of the Named Officers received stock options in the year ended December 31,
2002.2003. The Company has no outstanding stock options or call options. On July 17,
2003, the Company's shareholders approved the SAR Program; pursuant to that SAR
Program, the Named Officers received grants of stock appreciation rights on July
17, 2003 as follows:
PERCENT OF
TOTAL SARs
GRANTED TO PER SHARE MARKET PRICE OF GRANT DATE
SARs EMPLOYEES IN EXERCISE STOCK ON DATE OF EXPIRATION PRESENT
NAMES GRANTED 2003 PRICE SAR GRANT DATE VALUE(1)
- ----------------- ------- ------------ --------- ---------------- ---------- ----------
John R. Hart 143,140 $ 3.49 $ 13.56 None $1,426,826
63,283 $ 4.74 $ 13.56 None $ 565,653
175,347 $ 13.45 $ 13.56 None $ 748,216
456,586 41% $ 15.00 $ 13.56 None $1,724,233
Ronald Langley 85,833 $ 3.49 $ 13.56 None $ 855,587
63,283 $ 4.74 $ 13.56 None $ 565,653
175,347 $ 13.45 $ 13.56 None $ 748,216
427,932 36% $ 15.00 $ 13.56 None $1,616,025
Richard H. Sharpe 60,119 $ 13.45 $ 13.56 None $ 256,531
75,149 6% $ 15.00 $ 13.56 None $ 283,790
Maxim C. W. Webb 10,665 $ 13.25 $ 13.56 None $ 46,242
60,472 3% $ 15.00 $ 13.56 None $ 228,364
W. Raymond Webb 40,000 2% $ 15.00 $ 13.56 None $ 151,054
- ----------------------
(1) The following weighted-average assumptions were used in calculating the
present value on the date SARs were granted, i.e., July 17, 2003, using the
Black-Scholes option-pricing model: no dividend yield; risk-free interest
rate of 1% for 2003 SAR grants; the expected life of a SAR grant is five
years; and volatility of 36% for SARs granted in 2003.
7
OPTION AND SAR EXERCISES AND FISCAL 20022003 YEAR-END VALUE
The following table provides information concerning stock options held as of
December 31, 20022003 by the Named Officers. No stock options were exercised in 20022003
by such individuals. All outstanding stock options and call options were
irrevocably and unconditionally surrendered by the grantees on or before July
17, 2003. No stock appreciation rights were exercised in 2003 by the Named
Officers.
AGGREGATE OPTIONOPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONSAR
VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY-OPTIONSSARs IN-THE-MONEY SARs
AT 12/31/02(1)03(1) AT 12/31/0203 (1) (2)
------------------------------- -----------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- -------------------- ----------- ------------- ----------- -------------
Ronald Langley(1) 603,279752,395 -0- -0-$ 2,413,112 -0-
John R. Hart(1) 631,933838,356 -0- -0-$ 3,130,310 -0-
Richard H. Sharpe(1) 135,268 -0- -0-$ 183,813 -0-
Maxim C. W. Webb(1) 64,470 6,66771,137 -0- $ 66,316 -0-
James F. Mosier(1) 63,125W. Raymond Webb(1) 40,000 -0- -0-$ 26,800 -0-
- ---------------------------------------------
(1) This applies to stock optionsappreciation rights in the SAR Program approved by
the Company's shareholders on July 17, 2003 and granted by the Company in the PICO Holdings,
Inc. 2000 Nonstatutory Stock Option Plan,on
that date. No stock options granted by the
Company in individual nonstatutory stock option agreements and stockor call options granted pursuant to the Physicians Insurance Company of Ohio 1995
Non-Qualified Stock Option Plan which were assumed by the Company in 1996.outstanding after July 17,
2003.
(2) Based on the closing price of the Company's Common Stock on December 31,
20022003 on the Nasdaq National Market of $13.24$15.67 per share.
EQUITY COMPENSATION PLAN INFORMATION
(A) (B) (C)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
------------- -------------------------- ------------------- -----------------------------
Equity compensation plans approved
by security holders. 1,177,458 $15.00 None
Equity compensation plans not
approved by security holders. (1)
(2) (3) (4) (5) 509,784 $13.59 None
---------
Total 1,687,242 None
- ------------------------
(1) The Physicians Insurance Company of Ohio 1995 Non-Qualified Stock Option
Plan was approved by Physicians' Board of Directors effective August 24,
1995. All options granted under this stock option plan are fully vested and
they all expire on August 24, 2005. When PICO Holdings, Inc. became the
sole shareholder of Physicians on November 20, 1996, PICO Holdings, Inc.
assumed those stock options. The exercise price for all options in this
plan is $13.45 per option.
11
(2) An officer of the Company was granted 10,665 stock options by the Company's
Board of Directors, effective January 1, 1999. These stock options expire
on January 1, 2009. All are vested and the exercise price is $13.25 per
option.
(3) An officer of the Company was granted 20,000 stock options by the Company's
Board of Directors, effective August 6, 2001. The exercise price is $15.00
per option and they expire on August 6, 2021. 13,333 of these options are
vested; the remaining 6,667 options will vest on August 6, 2003.
(4) An employee of the Company was granted 16,223 stock options by the
Company's Board of Directors, effective August 2, 2001. The exercise price
is $15.00 per option and they expire on August 2, 2021. 10,816 of these
options are vested; the remaining 5,407 will vest on August 2, 2003.
(5) An employee of the Company was granted 10,000 stock options by the
Company's Board of Directors, effective August 8, 2001. The exercise price
is $15.00 per option and they expire on August 8, 2021. 6,666 of these
options are vested; the remaining 3,334 will vest on August 8, 2003.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS
Mr. Langley and Mr. Hart entered into new employment agreements effective
January 1, 2002 with the Company for an additional four years for a base salary
of $800,000 each annually, subject to adjustment in January of each year. This
cash compensation was based on an amount approximately equal to 80% of peer
group salary levelslevels. The current employment agreements provide that if the
employee is terminated without cause on or after January 1, 2003 and prior to
December 31, 2005, the employee shall be paid a lump sum of $2.4 million minus
the amount paid to the employee as base salary after January 1, 2003 to the date
of termination. In addition, the employee shall be paid the pro rata portion of
any annual incentive award payable to the employee for the year in 1996.which the
employee was terminated.
These employment agreements also include a change in control clause providing
that if there was a change in control before January 1, 2004, the Company was
required to immediately pay each employee a total lump sum of $2.4 million and
an amount equal to three times the highest annual bonus paid to the employee in
the last three years. These change in control clause;clauses expired on January 1,
2004; see Report of the Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a rights offering conducted by the Company in March 2000, an
investment partnership named PICO Equity Investors, L.P. acquired on March 28,
2000, 3,333,333 newly issued shares which were not subscribed for in the rights
offering. PICO Equity Investors, L.P. is managed by PICO Equity Investors
Management, LLC. PICO Equity Investors Management, LLC is owned by Mr. Langley,
Mr. Hart and Mr. Weil. PICO Equity Investors Management, LLC will exercise all
voting and investment decisions with respect to these 3,333,333 shares for up to
ten years. The interest of PICO Investors Management, LLC in any profits and
losses earned on this investment will be proportional to the capital
contributions made to PICO Equity Investors, L.P. by the partners, i.e.,
1,000/50,001,000. There are no other fees or other management compensation of
any kind payable to Mr. Langley, Mr. Hart, and Mr. Weil.
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Messrs. Weil and Campbell, and Dr. Ruppert, serve as members of the Compensation
Committee. None of these individuals is, or has been, an employee or officer of
the Company.
REPORT OF THE COMPENSATION COMMITTEE
COMMITTEE MEMBERS
The three-member Compensation Committee of the Board of Directors is a standing
committee. None of its members is or has been an officer or employee of the
Company. Mr. Weil is the chairman and Mr. Campbell and Dr. Ruppert are the
other members.
COMMITTEE FUNCTIONS
The Compensation Committee is responsible for assuring that all of the executive
compensation programs of the Company are developed, implemented, and
administered in a way that supports the Company's fundamental philosophy that a
significant portion of executive compensation should be effectively linked to
Company performance.
The Compensation Committee meets on a regularly scheduled basis. It reviews and
approves the overall executive compensation program which includes both base pay
and incentive compensation. It considers and approves individual executive
officer compensation packages based on recommendations of the Company's Chief
Executive Officer. It recommends, for the approval of the full Board, any
modification to the compensation package of the Company's Chief Executive
Officer.
The Compensation Committee also reviews the level of compensation paid to
nonemployee members of the Company's Board of Directors and makes
recommendations to the Board of Directors to modify the level of nonemployee
directors' compensation when appropriate.
12
EXECUTIVE COMPENSATION PHILOSOPHY
The Board of Directors of the Company's predecessor retained an independent
compensation expert, William M. Mercer, Incorporated ("Mercer"). In 1996, Mercer
conducted an analysis of marketplace executive compensation levels. The scope of
Mercer's study covered the Company's Chairman and President and Chief Executive
Officer. The objectives of Mercer's study were as follows:
- - Analyze the scope, responsibilities and skill requirements of the jobs
performed by Messrs. Langley and Hart and compare and contrast to
comparable benchmark executive positions found in the marketplace.
- - Develop an appropriate methodology for selecting comparable benchmark jobs,
industry categories and a peer group of companies comparable to the Company
in terms of business focus, industry classification and size; and
competition for senior executives with the skills, expertise and talent
demonstrated by the Company's top two executives.
- - For the appropriate benchmark jobs, industry category and peer company
group, collect information on marketplace compensation levels and practices
from compensation surveys and peer company proxy statements. The companies
included in the peer company group are not necessarily those included in
the Nasdaq Insurance Stock Index used to determine the most relevant
marketplace compensation levels and to compare actual Company compensation
levels.
- - Develop alternate approaches for structuring the total compensation package
for the Company's top two executives, in terms of compensation elements to
be used, the mix of total pay and how short and long-term incentive
compensation might be structured to accurately reflect performance.
Mercer's study recommended to the Compensation Committee a compensation strategy
with the following objectives:
- - To provide a total compensation package that:
- is competitive with market rates for executives with similar skill,
talent and job requirements.
9
- is closely linked to the Company's strategy and the role of covered
executives in building shareholder value through growing the book
value and, ultimately, the market value of the Company.
- - To retain critical executive talent by:
- providing a reasonable and competitive level of current income (cash
flow).
- providing for loss of future incentive opportunity if an executive
terminates employment before unrealized investment gains are realized.
- - To link executive rewards to shareholder interests by:
- tying incentive awards to growth in book value and increased market
price per share.
The Compensation Committee believes that to accomplish these goals, the
executive compensation program should be based on three distinct components:
base pay, annual incentives, and long-term incentives. The Company obtains
industry and peer group surveys, and consults with independent experts, to
evaluate the Company's executive compensation programs in comparison with those
offered by its comparable competitors.
The Company has utilized stock option grants at various times beginning in 1995 to
incentivize directors, officers, consultants, and certain employees. The primary
purpose of these options plans was to encourage the option holders to increase
shareholders equity, by providing a mechanism whereby the option holders could
participate in increased shareholders equity.
13
However, the Compensation Committee believesreached the conclusion that the stock
options previously granted by the Company arewere no longer as favorable to the
Company or as desirable to the option holders as stock appreciation rights, due
to a number of factors. These factors are: (1) the accounting treatment for
stock appreciation rights is more transparent to shareholders than for stock
options; (2) the Company has a relatively small average daily trading volume,
which could act to discourage option holders from exercising options at what the
option holder might deem to be an appropriate time; (3) option holders are
frequently subject to legal restrictions preventing the exercise of stock
options due to the possession of material, non-public information by an option
holder; (4) there is substantial doubt about the continued availability of
same-day, "cashless" exercises due to the enactment of the Sarbanes-Oxley Act of
2002. The end result is that due to the above factors, the stock options
previously granted by the Company have not provided the liquidity to option
holders that was envisioned when those stock options were granted by the
Company; and (5) since no new shares of stock are issued when a stock
appreciation right is exercised, stock appreciation rights are not dilutive to
existing shareholders, unlike the exercise of stock options where new shares of
stock are issued.
After review and consideration of several alternatives, and after consultations
with the Company's professional advisors, the Compensation Committee recommended
and the Board of Directors approved the PICO Holdings, Inc. 2003 Stock
Appreciation Rights Program (the "SAR Program"), subject to approval by. The Company's shareholders
approved the Company's shareholders.SAR Program on July 17, 2003. The Compensation Committee believes
that the SAR Program which is described in detail in "2. Approval of the PICO Holdings, Inc.
2003 Stock Appreciation Rights Program", will provide a comparable incentive while providing
increased liquidity to participants in the SAR Program. Under the SAR Program as
recommended by the Compensation Committee and approved by the Board of DirectorsCompany's shareholders on April 18,July 17, 2003, all outstanding stock
options and call options previously granted by the Company will bewere irrevocably and
unconditionally surrendered
before July 17, 2003. The call option agreements presently held by Mr. Langley
and Mr. Hart will also be irrevocably and unconditionally surrendered, effective
July 17, 2003, contingent upon shareholder approval of "2. Approval of PICO
Holdings, Inc. 2003 Stock Appreciation Rights Program". If such approval from
the shareholders is received, each currentsurrendered. Each former option holder (except one employee who
currently hashad 100,000 stock options and who will receivereceived 20,000 stock appreciation rights) and
each current call option holder will receivereceived on July 17, 2003 an equivalent number of stock
appreciation rights. Each stock appreciation right will havehas the same exercise price
as the stock options and call options. The stock appreciation rights will have no
expiration date. All stock appreciation rights will bewere fully vested on July 17,
2003. Only 20% of each participant's initial number of stock appreciation rights
may be exercised in any twelve month period beginning on July 17, 2003 and each successive July
17;period; however, the Compensation Committee
can authorize the holder of a stock appreciation right to exercise more than 20%
in a twelve month period for good cause shown, in the Committee's sole
discretion. Upon exercise of a stock appreciation right, the participant will
receive in cash from the Company an amount equal to the excess of the fair
market value of the Company's stock over the exercise price.
The Compensation Committee believes that stock appreciation rights will provide an
incentive to participants to increase the Company's shareholders equity while
providing liquidity to the participants in the SAR Program.
10
The Compensation Committee has considered the provisions of Section 162(m) of
the Internal Revenue Code and related income tax regulations which restrict the
deductibility of certain compensation paid to the Company's Chief Executive
Officer and each of the four most highly compensated officers holding office at
the end of any year, to the extent such compensation paid to any of these
officers exceeds $1,000,000 in any year and fails to qualify for an exemption
from the restriction. In view of the Company's compensation structure, the
Committee believes it is unlikely that this will impact the Company in the near
future. The Compensation Committee will continue to monitor this.
EXECUTIVE COMPENSATION PROGRAM
The features of the executive compensation program as recommended by Mercer and
approved by the Compensation Committee are:
BASE COMPENSATION. A fixed rate, to be reviewed annually. Future adjustments
will take into account movement in executive compensation levels, changes in job
responsibilities, and the size of the Company. The base compensation was
established based on 80% of peer group cash compensation levels in 1996.levels.
INCENTIVE AWARDS. Based on growth of book value per share in a fiscal year.
Awards are earned when a pre-determined threshold is surpassed. If book value
per share of the Company exceeds this threshold, the incentive award is equal to
5% of the increase in book value per share multiplied by the number of shares
outstanding at the beginning of the fiscal year. The threshold for 20022003 was
approximately -0.58%-0.46%.
14
In addition, the Board of Directors of Physicians granted options under the
Physicians Insurance Company of Ohio 1995 Non-Qualified Stock Option Plan. The
options granted under said option plan were designed to reinforce the
relationship between the Company's future performance and the executive's
potential future financial rewards. These options were assumed by PICO Holdings,
Inc. on November 20, 1996. In line with this philosophy of providing incentives
to executive officers, the Company agreed to convert the Global Equity options
of said officers on an economically equivalent basis, to options to purchase
shares of the Company effective with the close of the PICO/Global Equity
Combination. On April 7, 2000, PICO granted, subject to approval by the
Company's shareholders obtained on October 19, 2000, non-qualified common stock
options to employees and nonemployee directors of the Company. As previously
stated, the Compensation Committee recommended to the Board of Directors that
the Company's current stock options and call options be replaced with stock
appreciation rights.
GOALS OF COMPENSATION COMMITTEE
The Compensation Committee attempts to align executive compensation with the
value achieved by the executives for the Company's shareholders. The Company's
compensation program for executives emphasizes a combination of base salary,
discretionary bonuses, and long-term incentives designed to attract, retain, and
motivate executives who will maximize shareholder value. The Compensation
Committee considers individual and Company performance, as well as compensation
paid by comparable companies.
Executives also participate in other employee benefit programs, including health
insurance, group life insurance, and the Company's 401(k) Plan.
DISCUSSION OF 20022003 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
As stated above, the Compensation Committee believes the interest of the
Company's shareholders is best served by aligning the CEO's short-term
compensation, over and above a competitive fixed annual rate of pay, which was
based on 80% of peer group cash compensation levels in 1996, with an increase in
the Company's book value per share and higher market value per share.
Specifically, a threshold was set at 80% of the S&P 500's annualized total
return for the five previous calendar years, including 2002.2003. For 2002,2003, this
threshold was approximately -0.58%-0.46%. Since the Company's book value per share
increased by 7.04%4.26% in 20022003 prior to the accrual of bonus incentive compensation,
a bonus of $730,934$467,435 will be paid for calendar year 2002.2003.
The Committee believes that the compensation provided by this combination of
fixed annual compensation and short-term and long-term incentives provides a
mechanism to fairly compensate the CEO while providing the CEO with a strong
incentive to maximize shareholder value.
Mr. Langley and Mr. Hart each entered into new employment agreements effective
January 1, 2002 with the Company for an additional four years. These employment
agreements are substantially similar to the 1997 employment agreements. Total
compensation to Mr. Langley and Mr. Hart under these employment agreements is
$800,000 each on an annual basis, subject to adjustment in January of each year.
The $800,000 base salary in each employment agreement is subject to annual
adjustment in January of each year in the same percentage applicable to the
Company's other staff members in an amount deemed adequate to provide for
inflation, cost of living, and merit increases based on the Consumer Price Index
and major compensation studies.
The current employment agreements provide that if the employee is terminated
without cause on or after January 1, 2003 and prior to December 31, 2005, the
employee shall be paid a lump sum of $2.4 million minus the amount paid to the
employee as base salary after January 1, 2003 to the date of termination. In
addition, the employee shall be paid the pro rata portion of any annual
incentive award payable to the employee for the year in which the employee was
terminated.
11
These employment agreements also include a change in control clause providing
that if there iswas a change ofin control before January 1, 2004, the Company iswas
required to immediately pay each employee a total lump sum of $2.4 million and
an amount equal to three times the highest annual bonus paid to the employee in
the last three years. The new employment agreements contain the same bonus, i.e.,
short-term incentive provision, as the 1997 employment agreements.
April 21, 2003These change in control provisions expired on January 1,
2004.
Compensation Committee
John D. Weil, Chairman
Carlos C. Campbell
Richard D. Ruppert, MD
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Messrs. Weil and Campbell, and Dr. Ruppert, serve as members of the Compensation
Committee. None of these individuals is, or has been, an employee of the
Company.
15
REPORT OF THE AUDIT COMMITTEE
The Audit Committee ("Committee") is comprised of three directors, each of whom,
in the judgment of the Board is "independent" as that term is defined in the
listing standards for the Nasdaq National Market. The Committee operates pursuant to a written Charter adopted by the Board.
The members of the Committee as of December 31, 20022003 are listed at the end of
this report. The Audit Committee has discussed with the Board the level of
financial expertise of its members and the Board has determined that the
Committee as a whole, possesses the requisite expertise in the interpretation of financial
statements. A copyPursuant to Section 407 of the Committee's CharterSarbanes-Oxley Act of 2002, the Board
of Directors of the Company has determined that Richard D. Ruppert, MD is
attached to this proxy statementqualified as Appendix II.an audit committee financial expert as defined in Regulation S-K,
Section 401(h) of the Securities Exchange Act of 1934.
Management is responsible for the Company's internal controls, the financial
reporting process and the representations set forth in the statements regarding
the financial condition of the Company. The independent auditor toof the Company
is responsible for both auditing the financial statements presented by
management and verifying that such statements are produced in accordance with
generally accepted accounting principles. The Committee is responsible for those
matters set forth in its Charter. In this regard, the Committee meets separately
with management, including the Chief Financial Officer, and the auditor.
In the foregoing context, the Committee has reviewed with the auditor both the
engagement letter and its fees. The Committee has also discussed with the
auditor, with and without management present, the auditor's evaluations of the
Company's internal accounting controls and the Company's financial reporting
systems, policies, procedures and processes. The Committee has received
assurances from the auditor regarding both their adequacy and quality. The
Committee also discussed with
the auditor other matters required by the Statement on Auditing Standards No.
61, Communication with Audit Committees, as amended by SAS No. 90, Audit
Committee Communications. The Committee has also reviewed and discussed the
Company's audited financial statements with management.
In 2002,2003, the Committee paid particular attention to the implementation dates and
the requirements of the Sarbanes-Oxley Act of 2002.
The auditor provided to the Committee the written disclosures and the letter
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. The Committee discussed the auditor's
independence with both management and the auditor.
Based upon the independent representations of management and the auditor, the
Committee's review of such representations and the report of the auditor to the
Committee, the Committee's review of the audited financial statements of the
Company and its discussions with management and the auditor, the Committee
recommended to the Board that the audited financial statements be included in
the Company's annual report on Form 10-K for the fiscal year ended December 31,
2002.2003.
The undersigned members of the Audit Committee have submitted this Report of the
Audit Committee:
Richard D. Ruppert, MD, Chairman
Carlos C. Campbell
S. Walter Foulkrod, III, Esq.
AUDIT12
FEES PAID TO DELOITTE & TOUCHE LLP
Aggregate fees billed to the Company for the fiscal yearyears ended December 31,
2002 and December 31, 2003 by the Company's principal accounting firm, Deloitte
& Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates were as follows:
2002 2003
-------- --------
Audit Fees (a) $558,022 $469,733
Tax Fees (b) $325,000 $323,514
Audit-Related Fees (c) $ 9,764 $ 10,914
All Other Fees -0- -0-
(a) Fees for audit services billed in 2002 consisted of:
- Audit of the Company's annual financial statements
- Reviews of the Company's quarterly financial statements
- Statutory and regulatory audits and consents
Fees $350,000
Financial Information Systems Designfor audit services billed in 2003 consisted of:
- Audit of the Company's annual financial statements
- Reviews of the Company's quarterly financial statements
- Statutory and Implementationregulatory audits, consents and other services
related to Securities and Exchange Commission matters
(b) Fees -0-
All Other Fees(1) $500,000
---------------
(1) This amount includes $175,000 for statutory audit compliance fees
and $325,000 for tax services includingbilled in 2002 and 2003 consisted of tax
compliance fees.and tax planning and advice:
- Fees for tax compliance services totaled $160,086 and
$233,983 in 2002 and 2003, respectively. Tax compliance
services are services rendered based upon facts already in
existence or transactions that have already occurred to
document, compute, and obtain government approval for
amounts to be included in tax filings and consisted of:
i. Federal, state and local income tax return assistance
ii. Assistance with tax return filings in certain foreign
jurisdictions
iii. Assistance with tax audits and appeals
- Fees for tax planning and advice services totaled $164,914
and $89,531 in 2002 and 2003, respectively. Tax planning and
advice are services rendered with respect to proposed
transactions or that alter a transaction to obtain a
particular tax result. Such services consisted of :
i. Tax advice related to structuring certain proposed
mergers, acquisitions and disposals
ii. Tax advice related to the alteration of employee
benefit plans
iii. Tax advice related to an intra-group restructuring
(c) This represents audit-related fees for the PICO Holdings, Inc.
Employees 401(k) Retirement Plan and Trust.
The Audit Committee has considered the role of Deloitte & Touche in providing tax,
statutory compliance and other non-audit services to the Company and has
concluded that such services are compatible with Deloitte & Touche's
independence as the Company's auditor.
16auditors.
INDEPENDENT AUDITOR
Deloitte & Touche LLP was the Company's independent auditing firm for fiscal
year 2003. Representatives of Deloitte & Touche LLP are expected to be present
at the meeting, will have the opportunity to make any statements they desire,
and will be available to respond to appropriate questions from shareholders.
The Audit Committee has not selected or appointed an independent auditing firm
for the fiscal year ending December 31, 2004. The Audit Committee customarily
makes this selection and appointment in the third quarter.
13
PRE-APPROVAL POLICY
Pursuant to Sections 201 and 202 of the Sarbanes-Oxley Act of 2002, the Audit
Committee has recommended and the Board of Directors has approved pre-approval
guidelines for all audit and non-audit services to be provided by the Company's
independent auditing firm. These pre-approval guidelines are:
(1) At the earliest possible date, management shall inform the Audit Committee
of each audit or non-audit service which management desires the Company's
independent auditing firm to perform.
(2) Management shall promptly provide to the Audit Committee detailed
information about the particular services to be provided by the Company's
independent auditing firm.
(3) The supporting documentation provided to the Audit Committee by management
shall be sufficiently detailed so that the Audit Committee knows precisely
what services it is being asked to pre-approve.
(4) As permitted by Section 202(3), the Audit Committee hereby delegates
pre-approval authority to the Chairman of the Audit Committee. All such
pre-approvals shall be presented to the full Audit Committee at the Audit
Committee's next scheduled meeting.
(5) Approval by the Audit Committee of all non-audit services shall be
disclosed by the Company in its 10-Q and 10-K filings, as required by
Section 202(2).
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the Nasdaq
Insurance Stocks Index, and the Nasdaq Stock Market (U.S. Companies) for the
period January 1,December 31, 1998 through December 31, 2002.
COMPARISON 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PICO HOLDINGS, INC., NASDAQ INSURANCE STOCK INDEX, AND RUSSELL 2000 INDEX
[GRAPH OMITTED]2003.
[STOCK PRICE PERFORMANCE GRAPH]
Dec-97
Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 ------Dec-03
------- ------ ------ ------ ------ ------
PICO Holdings 100.00 41.17 38.25 38.64 38.83 41.1492.92 93.87 94.34 99.93 118.26
NASDAQ Insurance Stock Index 100.00 102.07 110.37 130.80 142.97 142.92108.12 128.14 140.07 140.02 172.82
Russell 2000 Index 100.00 97.75 118.39 115.00 117.94 93.96121.11 117.64 120.65 96.12 141.2
+++ PICO --- NASDAQ Insurance Stock Index ==== Russell 2000 Index
Assumes $100 invested on Jan. 1, 1998
Fiscal Year Ending Dec. 31, 2002
The graph assumes $100 was invested on January 1,December 31, 1998 in the Company's Common
Stock, the Nasdaq Stock Market (U.S. Companies) Index, and the Nasdaq Insurance
Stocks Index, and that all dividends were reinvested. The performance of PICO
Holdings, Inc. stock on this graph represents the historical performance of
shares of Citation Insurance Group, which was renamed PICO Holdings, Inc. on
November 20, 1996. It does not represent the historical stock performance of
Physicians Insurance Company of Ohio.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)14
CODE OF ETHICS
The Company has adopted a Code of Ethics applicable to all directors, officers,
and employees. A copy may be obtained without charge by writing to the Secretary
of the Securities Exchange ActCompany.
PROCESS FOR SHAREHOLDERS TO COMMUNICATE WITH BOARD OF DIRECTORS
The Board of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10%Directors of the Company's Common Stock to file initial reports of ownership and reports of
changes in ownershipCompany has established the following process
whereby shareholders may communicate with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulationsBoard of Directors. Any
shareholder wishing to furnishcommunicate with the Board of Directors as a whole, or
with a specific director or directors, may send a letter or communication to the
Secretary of the Company. The Secretary will immediately forward said letter or
communication to the Board of Directors, or to the directors or director
specified. If no director is specified, the Secretary of the Company with copies of
all Section 16(a) forms filed by such persons.
Based on a reviewwill
immediately forward said letter or communication to the Chairman of the copiesBoard of
these reports received by the Company and
written representations from certain reporting persons that they have complied
with the relevant filing requirements, the Company believes that all filing
requirements have been complied with on a timely basis for the fiscal year ended
December 31, 2002.
INDEPENDENT AUDITOR
Deloitte & Touche LLP was the Company's independent auditing firm for fiscal
year 2002. Representatives of Deloitte & Touche LLP are expected to be present
at the meeting, will have the opportunity to make any statements they desire,
and will be available to respond to appropriate questions from shareholders.
17
Directors.
SOLICITATION OF PROXIES
The Board of Directors is not aware of any matters other than those specifically
stated in the Notice of Annual Meeting which are to be presented for action at
the meeting. However, should any further matter requiring a vote of the
shareholders arise, it is the intention of the persons named in the proxy to
vote the proxy in accordance with their judgment.
The cost of this solicitation of proxies is being borne by the Company. In
addition to the solicitation of proxies by use of the mail, the Company may use
the services of one or more directors, officers or other regular employees of
the Company (who will receive no additional compensation for their services in
such solicitation) to solicit proxies personally and by telephone. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
to forward solicitation material to the beneficial owners of the stock held of
record by such persons, and the Company will reimburse such firms or persons for
reasonable expenses actually incurred by them in so doing.
SHAREHOLDER NOMINATION OF DIRECTORS
Nominations other than those made by the directors of the Company must be in
writing and be delivered or mailed to the Secretary of the Company not less than
60 days prior to the Annual Meeting. Such nominations must include the
information regarding each nominee required by the Bylaws of the Company.
Nominations not made according to these procedures will be disregarded.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual meeting of
the stockholders of the Company must be received by the Company at its offices
no later than March 9, 2004,January 28, 2005, and satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's Proxy Statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
May 27, 2003
1828, 2004
15
Appendix I
PICO HOLDINGS, INC.
2003 STOCK APPRECIATION RIGHTS PROGRAM
1.00 PURPOSE
This Plan is intended to promote the Group's and its shareholders' interests by
implementing a compensation program thatNOMINATING COMMITTEE
CHARTER
The Nominating Committee of PICO Holdings, Inc. will enable the Group to attract and to
retain the services of outstanding Employees and Consultants upon whose
judgment, interest and special efforts the successful conduct of the Group's
business is largely dependent.
2.00 DEFINITIONS
When usedmeet at least one (1)
time per year, in this Plan, the following terms have the meanings given to them in
this section unless another meaning is expressly provided elsewhere in this
document or clearly required by the context. When applying these definitions,
the form of any term or word will include any of its other forms.
2.01 ACT. The Securities Exchange Act of 1934, as amended.
2.02 ANNUAL MEETING. The annual meetingadvance of the Company's shareholders.
2.03 AWARD. Any Stock Appreciation Right issued underAnnual Meeting of Shareholders. The
purpose of the Plan.
2.04 AWARD AGREEMENT. The written agreement betweenNominating Committee will be to identify, review, evaluate, and
select candidates to be nominated for election to the Company and each
Participant that describes the terms and conditions of each Award.
2.05 BENEFICIARY. The person a Participant designates to receive (or
exercise) any Plan benefits (or rights) that are unpaid (or unexercised) when he
or she dies. A Beneficiary may be designated only by following the procedures
described in Section 10.02; neither the Company nor the Committee is required to
infer a Beneficiary from any other source.
2.06 BOARD. The Company's Board of
Directors.
2.07 CAUSE. UnlessThe Nominating Committee does not believe the identification, review,
evaluation, and selection of candidates can be reduced to a precise formula and
involves a degree of subjectivity. However, in identifying, reviewing,
evaluating and selecting candidates, the Nominating Committee will consider the
following factors:
(a) Business Experience
(b) Academic credentials
(c) Inter-personal skills
(d) Ability to understand the Company's business
(e) Understanding of the responsibilities of being a Director of a
publicly held company
(f) Corporate experience
(g) Experience as a Director on other Boards of Directors
(h) Potential for contributing to the Company's success
The Nominating Committee will consider candidates recommended by
shareholders. Such nominations from shareholders must be submitted in writing to
the Company's Secretary along with the candidate's resume and any other
information the proposing shareholder would like to put before the Committee.
The Secretary shall immediately send such material to the Committee's Chairman.
Such candidates nominated by shareholders shall be evaluated by the Committee
specifies otherwise inusing the Award Agreement,
with respect to any Participant, [1] willful failure to substantially perform
his or her duties (for reasons other than physical or mental illness) after
reasonable notice tosame standards as for a Committee-nominated candidate.
If the ParticipantNominating Committee is not comprised entirely of that failure; [2] misconduct that
materially injuresindependent
Directors, the Company, the Group or any Group Member; [3] conviction
of, or entering into a plea of nolo contendere to, a felony or to a misdemeanor
originally charged as a felony; or [4] breach of any written covenant or
agreement with the Company, the Group or any Group Member.
2.08 CHANGE IN CONTROL. The occurrence of any of the following events:
[1] The members of the Board on the Effective Date ("Incumbent
Directors") cease for any reason other than death to constitute at
leastCommittee's recommended candidates shall be approved by a
majority of the members of the Board, provided that any
director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the
then Incumbent Directors also will be treated as an Incumbent
Director; orindependent Directors.
[2] Any "person," including a "group" [as such terms are used in Act
ss.ss.13(d) and 14(d)(2), but excluding the Company, any other Group
Member, any employee benefit plan of the Company or any Group Member]
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company
representing more than 50 percent of the combined voting power of the
Company's then outstanding securities; or
[3] The adoption or authorization by the shareholders of the Company
of a definitive agreement or a series of related agreements [A] for
the merger or other business combination of the Company with or into
another entity of which the shareholders of the Company immediately
before the effective date of the merger or other business combination
own less than 50 percent of the voting power of the surviving business
entity immediately after the effective date of the merger or other
business combination or [B] for the sale or other disposition of all
or substantially all of the assets of the Company to another entity in
which the shareholders of the Company immediately before the effective
date of such merger or other business combination own less than 50
percent of the voting power immediately after the sale or disposition;
or
[4] The adoption by the shareholders of the Company of a plan relating
to the liquidation or dissolution of the Company into another entity
in which shareholders of the Company immediately before the effective
date of such merger or other business combination own less than 50
percent of the voting power immediately after the liquidation or
dissolution.
2.09 CHANGE IN CONTROL PRICE. The higher of [1] the highest price per share
of Stock offered in conjunction with any transaction resulting in a Change in
Control (as determined in good faith by the Committee if any part of the offered
price is payable other than in cash) or, in the case of a Change in Control
occurring solely by reason of events not related to a transfer of Stock, the
highest Fair Market Value of a share of Stock on any of the 30 consecutive
trading days ending on the last trading day before the Change in Control occurs
or [2] the Fair Market Value as of the date of the Change in Control.
2.10 CODE. The Internal Revenue Code of 1986, as amended, and any
regulations issued under the Code and any applicable regulations or rulings
issued under the Code.
2.11 COMMITTEE. The Board's Compensation Committee.
2.12 COMPANY. PICO Holdings, Inc., a California corporation, and any
successors to it.
2.13 CONSULTANT. Any person who, on an applicable Grant Date, is rendering
consulting services to the Company, the Group or any Group Member or who is a
non-employee director of the Company or any other Group Member.
2.14 DISABILITY. The Participant's inability to perform his or her normal
duties due to a physical or mental infirmity.
2[THIS PAGE INTENTIONALLY LEFT BLANK]
2.15 EFFECTIVE DATE. The date this Plan is approved by the Board or, if
later, the date the Plan is approved by the Company's shareholders.
2.16 EMPLOYEE. Any person who, on an applicable Grant Date, is a common law
employee of the Company, the Group or any Group Member.
2.17 EXERCISE PRICE. The price at which a Participant may exercise an Award.
2.18 FAIR MARKET VALUE. The value of one share of Stock on any relevant
date, determined under the following rules:
[1] If the Stock is traded on an exchange, the reported "closing
price" on the relevant date, if it is a trading day, otherwise on the
next trading day;
[2] If the Stock is traded over-the-counter with no reported closing
price, the mean between the lowest bid and the highest asked prices on
that quotation system on the relevant date if it is a trading day,
otherwise on the next trading day; or
[3] If neither Section 2.18[1] nor Section 2.18[2] applies, the Fair
Market Value as determined by the Committee in good faith.
2.19 GRANT DATE. The date an Award is granted to a Participant.
2.20 GROUP. A controlled group of corporations or of a commonly controlled
group of trades or businesses [as defined in Code ss.ss.414(b) and (c), as
modified by Code ss.415(h)] or of an affiliated service group [as defined in
Code ss.414(m)] or other organization described in Code ss.414(o) that includes
the Company.
2.21 GROUP MEMBER. Each entity that is a member of the Group.
2.22 PARTICIPANT. Any Employee or Consultant to whom an Award has been
granted and which has not been exercised or has not expired under the terms
of the Award Agreement or as provided in Section 7.00.
2.23 PLAN. The PICO Holdings, Inc. 2003 Stock Appreciation Rights Program.
2.24 PLAN YEAR. The Company's fiscal year.
2.25 RETIREMENT. Unless, the Committee specifies otherwise in the Award
Agreement, the date a Participant Terminates on or after the earlier of [A]
reaching age 65 or [B] reaching age 55 and completing at least 7 years of
service [as defined in the Company's tax-qualified Code ss.401(k) plan as in
effect on the Effective Date, whether or not the Participant is participating
in, or eligible to participate in, that plan].
2.26 STOCK. A common share, par value $0.001 per share, issued by the
Company.
2.27 STOCK APPRECIATION RIGHT (OR "SAR"). An Award granted under Section
6.00.
3[THIS PAGE INTENTIONALLY LEFT BLANK]
2.28 TERMINATION. Unless the Committee specifies otherwise in the Award
Agreement, cessation of the employee-employer or consulting relationship between
a Participant and all Group Members for any reason. However, a Participant will
not have Terminated merely because his or her status changes, without
interruption, from an Employee to a Consultant or from a Consultant to an
Employee.
3.00 PARTICIPATION
3.01 PARTICIPANTS.
[1] Consistent with the terms of the Plan and subject to Section 3.02,
the Committee will [A] decide which Employees and Consultants may
become Participants; [B] decide which Participants will be granted
Awards; and [C] specify the type of Award to be granted and the terms
upon which an Award will be granted.
[2] The Committee may establish different terms and conditions [A] for
each Award; [B] for each Participant receiving an Award; and [C] for
the same Participants for each Award the Participant receives, whether
or not those Awards are granted at different times.
3.02 CONDITIONS OF PARTICIPATION. Each Participant receiving an Award agrees
[1] to sign an Award Agreement; [2] to be bound by the terms of the Award
Agreement and the Plan; and [3] to comply with other conditions imposed by the
Committee.
4.00 ADMINISTRATION
4.01 COMMITTEE DUTIES. The Committee is responsible for administering the
Plan and has all powers appropriate and necessary to that purpose. Consistent
with the Plan's objectives, the Committee may adopt, amend and rescind rules and
regulations relating to the Plan, to the extent appropriate to protect the
Group's (or any Group Member's) interests and has complete discretion to make
all other decisions (including whether a Participant has incurred a Disability)
necessary or advisable for the administration and interpretation of the Plan.
Any action by the Committee will be final, binding and conclusive for all
purposes and upon all persons.
4.02 DELEGATION OF MINISTERIAL DUTIES. In its sole discretion, the Committee
may delegate any ministerial duties associated with the Plan to any person
(including Employees) that it deems appropriate.
4.03 AWARD AGREEMENT. At the time any Award is made, the Committee will
prepare and deliver an Award Agreement to each affected Participant. The Award
Agreement:
[1] Will describe [A] when and how the Award may be exercised; [B] the
effect of exercising the Award; and [C] the Exercise Price associated
with each Award.
4
[2] To the extent different from the terms of the Plan, will describe
[A] any conditions that must be met before the Award may be exercised;
[B] any objective restrictions or conditions that must be met before
the Award may be exercised; [c] when and how an Award may be
exercised; and [D] any other applicable terms and conditions affecting
the Award.
5.00 STOCK SUBJECT TO PLAN
5.01 NUMBER OF SHARES OF STOCK. Subject to Section 5.03, the number of
shares of Stock subject to Awards under the Plan may not be larger than
2,042,781.
5.02 CANCELLED, TERMINATED OR FORFEITED AWARDS. Any Stock subject to an
Award that, for any reason, is cancelled, terminated or otherwise settled
without the issuance of cash may again be granted under the Plan.
5.03 ADJUSTMENT IN CAPITALIZATION. If, after the Effective Date, there is a
Stock dividend or Stock split, recapitalization (including payment of an
extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to shareholders, exchange of shares or other similar
corporate change affecting Stock, the Committee will appropriately adjust [1]
the aggregate number of shares of Stock available for Awards under Section 5.01
or subject to outstanding Awards (as well as any share-based limits imposed
under this Plan); [2] the respective Exercise Price, number of shares and other
limitations applicable to outstanding or subsequently issued Awards; and [3]
any other factors, limits or terms affecting any outstanding or subsequently
issued Awards.
6.00 STOCK APPRECIATION RIGHTS
6.01 SAR GRANTS. Subject to the terms of the Plan, the Committee may grant
SARs to Participants at any time during the term of this Plan.
6.02 EXERCISE PRICE. The Committee will specify the Exercise Price in the
Award Agreement.
6.03 EXERCISE OF SARS. SARs will be exercisable subject to the terms
specified in the Award Agreement.
6.04 SETTLING SARS.
[1] A Participant exercising an SAR will receive a settlement
amount equal to [A] the difference between [I] the Fair Market Value of
a share of Stock on the exercise date and [II] the Exercise Price,
multiplied by [B] the number of shares of Stock with respect to which
the SAR is exercised.
[2] The value of any SAR being exercised will be settled in cash.
6.05 REESTABLISHING THE EXERCISE PRICE. In its sole discretion, the
Committee may reduce the Exercise Price associated with any SAR at any time
before the affected SAR is exercised.
5
7.00 TERMINATION
7.01 RETIREMENT. Subject to Section 7.03, unless otherwise specified in the
Award Agreement, all Awards that are outstanding (whether or not then
exercisable) when a Participant Retires may be exercised at any time before the
earlier of [1] the expiration date specified in the Award Agreement or [2] six
months beginning on the Retirement date (or any shorter period specified in the
Award Agreement).
7.02 DEATH OR DISABILITY. Unless otherwise specified in the Award
Agreement, all Awards that are outstanding (whether or not then exercisable)
when a Participant Terminates because of death or Disability may be exercised by
the Participant or the Participant's Beneficiary at any time before the earlier
of [1] the expiration date specified in the Award Agreement or [2] 12 months
beginning on the date of death or Termination because of Disability (or any
shorter period specified in the Award Agreement).
7.03 TERMINATION FOR CAUSE. Unless otherwise specified in the Award
Agreement, all Awards that are outstanding (whether or not then exercisable) if
a Participant is Terminated for Cause will be forfeited even if the date of
Termination for Cause is after the Participant qualifies for Retirement.
7.04 TERMINATION FOR ANY OTHER REASON. Unless otherwise specified in the
Award Agreement or subsequently, any Awards that are outstanding when a
Participant Terminates for any reason not described in Sections 7.01 through
7.03 and which are then exercisable, or which the Committee has, in its sole
discretion, decided to make exercisable, may be exercised at any time before the
earlier of [1] the expiration date specified in the Award Agreement or [2] 90
days beginning on the date the Participant Terminates.
8.00 CHANGE IN CONTROL
8.01 ACCELERATION AND SETTLEMENT. Subject to Section 8.02, on the date of
any Change in Control, all SARs will be deemed to be exercisable and will be
liquidated in a single lump sum cash payment equal to the Change in Control
Price multiplied by the number of Awards to be liquidated.
8.02 EFFECT OF CODE SS.280G. If the provisions of Section 8.01 generate a
benefit that is a "parachute payment" as defined in Code ss.280G and if the
value of that parachute payment, when combined with other parachute payments
accrued to a Participant on account of the same Change in Control, would
generate the penalties arising under Code ss.ss.280G and 4999, the parachute
payment arising under this section will be reduced (but not below zero) to the
extent needed to avoid those penalties but only if the value of the after-tax
amount accruing to the Participant because of that reduction is larger than the
after-tax amount that would accrue to the Participant without any reduction.
6
9.00 AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
The Board or the Committee may terminate, suspend or amend the Plan at any
time without shareholder approval except to the extent that shareholder approval
is required to satisfy applicable requirements imposed by [1] Rule 16b-3 under
the Act, or any successor rule or regulation; [2] applicable requirements of the
Code; or [3] any securities exchange, market or other quotation system on or
through which the Company's securities are listed or traded. Also, no Plan
amendment may [4] result in the loss of a Committee member's status as a
"non-employee director" as defined in Rule 16b-3 under the Act, or any successor
rule or regulation, with respect to any employee benefit plan of the Company;
[5] cause the Plan to fail to meet requirements imposed by Rule 16b-3; or [6]
without the consent of the affected Participant adversely affect any Award
issued before the amendment, modification or termination.
10.00 MISCELLANEOUS
10.01 ASSIGNABILITY/DEFERRAL OF GAIN.
[1] Except as described in this section and Section 10.01[2], an Award
may not be transferred except by will or the laws of descent and
distribution and, during the Participant's lifetime, may be exercised
only by the Participant or the Participant's guardian or legal
representative. However, with the permission of the Committee, a
Participant or a specified group of Participants may transfer Awards to
a revocable inter vivos trust of which the Participant is the settlor
or may transfer Awards to any member of the Participant's immediate
family, any trust, whether revocable or irrevocable, established solely
for the benefit of the Participant's immediate family, any partnership
or limited liability company whose only partners or members are members
of the Participant's immediate family or an organization described in
Code ss.501(c)(3) ("Permissible Transferees"). Any Award transferred to
a Permissible Transferee will continue to be subject to all of the
terms and conditions that applied to the Award before the transfer and
to any other rules prescribed by the Committee. A Permissible
Transferee [other than an organization described in Code ss.501(c)(3)]
may retransfer an Award but only by operation of a will or the laws of
descent and distribution and then only to another Permissible
Transferee.
[2] Subject to rules, procedures and limitations adopted by the
Committee, a Participant who is an Employee on the exercise date (but
not a Beneficiary, a Consultant or a Permissible Transferee as defined
in Section 10.01[1]) may elect to defer the gain associated with the
exercise of an Award into and subject to the terms of any nonqualified
deferred compensation program [A] maintained by the Company, the Group
or any Group Member and [B] designated by the Committee. Any gain
attributable to an Award to be deferred under this section will be
credited to an investment fund established under the nonqualified
deferred compensation plan as directed by the deferring Participant and
will be distributed in any form permitted by that nonqualified deferred
compensation plan.
7
10.02 BENEFICIARY DESIGNATION. Each Participant may name a Beneficiary or
Beneficiaries (who may be named contingently or successively) to receive or to
exercise any Award that is unpaid or unexercised at the Participant's death.
Each designation made will revoke all prior designations made by the same
Participant, must be made on a form prescribed by the Committee and will be
effective only when filed in writing with the Committee. If a Participant has
not made an effective Beneficiary designation, the deceased Participant's
Beneficiary will be his or her surviving spouse or, if none, the deceased
Participant's estate. The identity of a Participant's designated Beneficiary
will be based only on the information included in the latest beneficiary
designation form completed by the Participant and will not be inferred from any
other evidence.
10.03 NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the Plan may be
construed as [1] interfering with or limiting the right of the Company, the
Group or any Group Member to Terminate any Participant at any time; [2]
conferring on any Participant any right to continue as an Employee or a
Consultant; [3] guaranteeing that any Employee or Consultant will be selected to
be a Participant; or [4] guaranteeing that any Participant will receive any
future Awards.
10.04 TAX WITHHOLDING.
[1] The appropriate Group Member will withhold from other amounts owed
to the Participant, or require a Participant to remit to that Group
Member, an amount sufficient to satisfy federal, state and local
withholding tax requirements on any Award, exercise or cancellation of
an Award or purchase of Stock. If these amounts are not to be withheld
from other payments due to the Participant (or if there are no other
payments due to the Participant), the Company will defer payment of
cash until the earlier of [A] 30 days after the date the Award is
settled or [B] the date the Participant remits the required amount.
[2] If the Participant has not remitted the required amount within 30
days after the date the Award is settled, the Company will permanently
withhold from the value of the Awards to be distributed the minimum
amount required to be withheld to comply with applicable federal, state
and local income, wage and employment taxes and distribute the balance
to the Participant.
[3] In its sole discretion, which may be withheld for any reason or for
no reason, the Committee may permit a Participant to elect, subject to
conditions the Committee establishes, to reimburse the Company for this
tax withholding obligation through one or more of the following methods
[A] by having cash otherwise distributable under the Plan withheld by
the Company (but only to the extent of the minimum amount that must be
withheld to comply with applicable state, federal and local income,
employment and wage tax laws); [B] by delivering to the Company
previously acquired shares of Stock that the Participant has owned for
at least six months; [C] by remitting cash to the Company; or [D] by
remitting a personal check immediately payable to the Company.
10.05 INDEMNIFICATION. Each individual who is or was a member of the Committee
or of the Board will be indemnified and held harmless by the Company against and
from any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be made a
8
party or in which he or she may be involved by reason of any action taken or
failure to take action under the Plan as a Committee member and against and from
any and all amounts paid, with the Company's approval, by him or her in
settlement of any matter related to or arising from the Plan as a Committee
member or paid by him or her in satisfaction of any judgment in any action, suit
or proceeding relating to or arising from the Plan against him or her as a
Committee member, but only if he or she gives the Company an opportunity, at its
own expense, to handle and defend the matter before he or she undertakes to
handle and defend it in his or her own behalf. The right of indemnification
described in this section is not exclusive and is independent of any other
rights of indemnification to which the individual may be entitled under the
Company's organizational documents, by contract, as a matter of law or
otherwise.
10.06 NO LIMITATION ON COMPENSATION. Nothing in the Plan is to be construed
to limit the right of any Group Member to establish other plans or to pay
compensation to its Employees or Consultants, in cash or property, in a manner
not expressly authorized under the Plan.
10.07 REQUIREMENTS OF LAW. The grant of Awards will be subject to all
applicable laws, rules and regulations and to all required approvals of any
governmental agencies or national securities exchange, market or other quotation
system.
10.08 TERM OF PLAN. The Plan will be effective upon its adoption by the
Board and approval by the affirmative vote of the holders of a majority of the
shares of voting Stock present in person or represented by proxy at the first
Annual Meeting occurring after the Board approves the Plan.
10.09 GOVERNING LAW. The Plan, and all agreements hereunder, will be
construed in accordance with and governed by the laws (other than laws governing
conflicts of laws) of the State of California.
10.10 NO IMPACT ON BENEFITS. Plan Awards are incentives designed to promote
the objectives described in Section 1.00. Also, Awards are not compensation for
purposes of calculating a Participant's rights under any employee benefit plan.
9
Appendix II
Audit Committee Charter
This charter shall be reviewed, updated and approved annually by the board of
directors.
Role and Independence
The audit committee of the board of directors assists the board in fulfilling
its responsibility for oversight of the quality and integrity of the accounting,
auditing and reporting practices of PICO Holdings, Inc. (the "Company") and
other such duties as directed by the board. The membership of the committee
shall consist of at least three directors who are generally knowledgeable in
financial and auditing matters, including at least one member with accounting or
related financial management expertise. Each member shall be free of any
relationship that, in the opinion of the board, would interfere with his or her
individual exercise of independent judgment, and shall meet the director
independence requirements for serving on audit committees as set forth in the
corporate governance standards of the NASDAQ. The committee is expected to
maintain free and open communication (including private executive sessions at
least annually) with the independent accountants and the management of the
Company. In discharging this oversight role, the committee is empowered to
investigate any matter brought to its attention, with full power to retain
outside counsel or other experts for this purpose.
The board of directors shall appoint one member of the audit committee as
chairperson. He or she shall be responsible for leadership of the committee,
including preparing the agenda, presiding over the meetings, making committee
assignments and reporting to the board of directors. The chairperson will also
maintain regular liaison with the CEO, CFO, and the lead independent audit
partner.
Responsibilities
The audit committee's primary responsibilities include:
- Recommending to the board the independent accountant to be selected or
retained to audit the financial statements of the Company. In so
doing, the committee will request from the auditor a written
affirmation that the auditor is in fact independent, discuss with the
auditor any relationships that may impact the auditor's independence,
and recommend to the board any actions necessary to oversee the
auditor's independence.
- Overseeing the independent auditor relationship by discussing with the
auditor the nature and rigor of the audit process, receiving and
reviewing
audit reports, and providing the auditor full access to the
committee (and the board) to report on any and all appropriate
matters.
- Providing guidance and oversight to the internal control audit
activities of the Company including reviewing the organization, plans
and results of such activity.
- Reviewing the audited financial statements and discussing them with
management and the independent auditor. These discussions shall
include consideration of the quality of the Company's accounting
principles as applied in its financial reporting, including review of
estimates, reserves and accruals, review of judgmental areas, review
of audit adjustments whether or not recorded and such other inquiries
as may be appropriate. Based on the review, the committee shall make
its recommendation to the board as to the inclusion of the company's
audited financial statements in the company's annual report on Form
10-K.
- Reviewing with management and the independent auditor the quarterly
financial information prior to the company's filing of Form 10-Q. This
review may be performed by the committee or its chairperson.
- Discussing with management and the external auditors the quality and
adequacy of the Company's internal controls.
- Discussing with management the status of pending litigation, taxation
matters and other areas of oversight to the legal and compliance area
as may be appropriate.
- Reporting audit committee activities to the full board and issuing
annually a report to be included in the proxy statement (including
appropriate oversight conclusions) for submission to the shareholders.
+
000000 0000000000 0 0000
PICO HOLDINGS, INC.
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3
ADD 4
Holder Account Number
ADD 5
ADD 6
C 1234567890 J N T
[BAR CODE]
[BAR CODE]
[ ] Mark this box with an X if you have made
changes to your name or address details
above.
- --------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- --------------------------------------------------------------------------------
[A]A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND
TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD
01 - S. Walter Foulkrod, III, Esq.Robert R. Broadbent [ ] [ ]
02 - Richard D. Ruppert, MDCarlos C. Campbell [ ] [ ]
[B] ISSUES
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
2. To approve the PICO Holdings, Inc.
2003 Stock Appreciation Rights Program. [ ] [ ] [ ]
3. To transact such other business as may be
properly brought before the meeting and
any adjournment thereof.
[C]B AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign exactly as name appears on this card. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
within the box within the box
- ----------------------------------- ----------------------------------- -------------------------
/ /
- ----------------------------------- ----------------------------------- -------------------------[ ] [ ] [ ]/[ ]/[ ]
[ ] 1UPX HHH PPPP 0035791 +
[ ] 1 U P X H H H P P P P 0020792 +
001CD40001 00A24B00C4CA
- --------------------------------------------------------------------------------
PROXY - PICO HOLDINGS, INC.
- --------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John R. Hart and James F. Mosier, or either of
them acting alone, as proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent, and to vote as designated below, all
the shares of Common Stock of PICO Holdings, Inc. (the "Company") held of record
by the undersigned on May 19, 200317, 2004 at the Annual Meeting of Shareholders of the
Company to be held at the Museum of Contemporary Art, Coast Room, 700 Prospect
Street, La Jolla, California 92037 on July 17, 200315, 2004 at 9:00 a.m. (PDT), and at
any adjournment thereof.
(The Board of Directors recommends a vote FOR items 1 and 2)Item 1.)
1. Election of two Directors for terms of three years ending in 2006.2007. The
nominees are S. Walter Foulkrod, III, Esq.Robert R. Broadbent and Richard D. Ruppert, MD.Carlos C. Campbell.
2. To approve the PICO Holdings, Inc. 2003 Stock Appreciation Rights Program.
3. To transact such other business as may be properly brought before the
meeting and any adjournment thereof.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS PROXY
WILL BE VOTED FOR ITEMS 1 AND 2.ITEM 1.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
SEE REVERSE SIDE
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
Have this proxy card in hand when you call.
- ------------------------------------------------------------ -----------------------------------------
[Phone] To vote using the Telephone (withinTO VOTE USING THE TELEPHONE (WITHIN U.S. and Canada) [Mouse] To vote using the Internet
- ------------------------------------------------------------ -----------------------------------------AND CANADA) TO VOTE USING THE INTERNET
- - Call toll free 1-XXX-XXX-XXXX1-877-785-2638 in the United States or - Go to the following web site:
or Canada any time on a touch tone telephone. WWW.COMPUTERSHARE.COM/US/PROXY
There is NO WWW.COMPUTERSHARE.COM/US/PROXY CHARGE to you for the call.
- - EnterFollow the HOLDER ACCOUNT NUMBER (EXCLUDING THE LETTERsimple instructions provided by the - Enter the information requested
recorded message. on your computer screen "C") and PROXY ACCESS NUMBER located below. and follow the
simple instructions.
C0123456789 12345
- - Follow the simple recorded instructions.
Option 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal separately, press 0 and
follow the simple recorded instructions.
HOLDER ACCOUNT NUMBER C0123456789 PROXY ACCESS NUMBER 12345
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY
CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 12:1:00 MIDNIGHT,A.M.,
CENTRAL TIME, ON JULY 15, 2003.2004.
THANK YOU FOR VOTING
00A25B00C4DB