ATLANTIC AMERICAN CORPORATION
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319-3000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Atlantic
American Corporation (the "Company") will be held at the offices of the Company
at 4370 Peachtree Road, N.E., Atlanta, Georgia at 9:00 A.M., Eastern Standard
Time, on May 4, 1999 for the following purposes:
(1) To elect ten (10) directors of the Company for the ensuing year;
(2) To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the year 1999; and
(3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on March 8, 1999, will be
entitled to notice of and to vote at the meeting, or any postponements or
adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. NO POSTAGE IS REQUIRED WHEN MAILED IN THE
UNITED STATES.
By Order of the Board of Directors
/s/
---------------------------------------
Janie L. Ryan
Corporate Secretary
March 26, 1999
Atlanta, Georgia
ATLANTIC AMERICAN CORPORATION
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319-3000
_______________
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1999
_______________
GENERAL
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Atlantic American Corporation (the "Company") for
use at the Annual Meeting of Shareholders (the "Meeting") to be held at the time
and place and for the purposes specified in the accompanying Notice of Annual
Meeting of Shareholders and at any postponements or adjournments thereof. When
the enclosed proxy is properly executed and returned, the shares which it
represents will be voted at the Meeting in accordance with the instructions
thereon. In the absence of any such instructions, the shares represented thereby
will be voted in favor of the nominees for directors listed under the caption
"Election of Directors" and the ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountants for 1999.
Management does not know of any other business to be brought before the Meeting
not described herein, but it is intended that as to such other business, a vote
may be cast pursuant to the proxy in accordance with the judgment of the person
or persons acting thereunder. This proxy statement and the accompanying form of
proxy are first being mailed to the shareholders of the Company on or about
March 26, 1999.
Any shareholder who executes and delivers a proxy may revoke it at any time
prior to its use by (i) giving written notice of such revocation to the
Secretary of the Company at 4370 Peachtree Road, N.E., Atlanta, Georgia
30319-3000; (ii) executing and delivering a proxy bearing a later date to the
Secretary of the Company at 4370 Peachtree Road, N.E., Atlanta, Georgia
30319-3000; or (iii) attending the Meeting and voting in person.
Only holders of record of issued and outstanding shares of $1.00 par value
common stock of the Company ("Common Stock") as of March 8, 1999 (the "Record
Date") will be entitled to notice of and to vote at the Meeting. On the Record
Date, there were 19,101,106 shares of Common Stock outstanding. Each share of
Common Stock is entitled to one vote.
ANNUAL REPORT
The Annual Report of the Company for the year ended December 31, 1998, including
financial statements, is enclosed with this Proxy Statement. The Company's
Annual Report on Form 10-K, filed with the Securities and Exchange Commission,
provides certain additional information. Shareholders may obtain a copy of the
Form 10-K without charge upon written request addressed to: Corporate Secretary,
Atlantic American Corporation, 4370 Peachtree Road, N.E., Atlanta, Georgia
30319-3000. If the person requesting a copy of the Form 10-K is not a
shareholder of record, the request must include a representation that the person
is a beneficial owner of the Company's Common Stock.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. Officers, directors
and employees of the Company may solicit proxies by telephone, telegram or
personal interview. No contract or arrangement exists for engaging specially
paid employees or solicitors in connection with the solicitation of proxies for
the Meeting. Arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy materials to
their principals, and the Company will reimburse them for their expenses in so
doing.
VOTE REQUIRED
A majority of the outstanding shares of Common Stock must be present in person
or by proxy at the Meeting in order to have the quorum necessary for the
transaction of business. Abstentions and broker "non-votes" will be counted as
present in determining whether the quorum requirement is satisfied. Directors
are elected by the affirmative vote of a plurality of the shares of Common Stock
present in person or by proxy and actually voting at a meeting at which a quorum
is present. In order for shareholders to approve all other matters to be
presented at the Meeting, the votes cast favoring the proposal must exceed the
votes cast opposing the proposal. Abstentions and non-votes will have no effect
on the voting with respect to any proposal as to which there is an abstention or
non-vote. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal pursuant to discretionary authority or instructions
from the beneficial owner, but does not vote on another proposal because the
nominee has not received instruction from the beneficial owner and does not have
discretionary power.
1
1. ELECTION OF DIRECTORS
One of the purposes of the Meeting is to elect ten directors to serve until the
next annual meeting of the shareholders and until their successors have been
elected and qualified or until their earlier resignation or removal. In the
event any of the nominees should be unavailable to serve as a director, which
contingency is not presently anticipated, proxies will be voted for the election
of such other persons as may be designated by the present Board of Directors.
Nominees for election to the Board of Directors are considered and recommended
by the Executive Committee of the Board of Directors to the shareholders. The
Company has no procedure whereby nominees are solicited or accepted from
shareholders.
All of the nominees for election to the Board of Directors are currently
directors of the Company.
The following information is set forth with respect to the ten nominees for
director to be elected at the Meeting:
- ------------------------------- ----------- -----------------------------------
Name Age Position with the Company
- ------------------------------- ----------- -----------------------------------
J. Mack Robinson 75 Chairman of the Board
Hilton H. Howell, Jr. 37 Director, President and
Chief Executive Officer
Edward E. Elson 65 Director
Samuel E. Hudgins 70 Director
D. Raymond Riddle 65 Director
Harriett J. Robinson 68 Director
Scott G. Thompson 54 Director
Mark C. West 39 Director
William H. Whaley, M.D. 59 Director
Dom H. Wyant 72 Director
- ------------------------------- ----------- -----------------------------------
Mr. Robinson has served as Director and Chairman of the Board since 1974 and
served as President and Chief Executive Officer of the Company from September
1988 to May 1995. In addition, Mr. Robinson is also a Director of Bull Run
Corporation and Gray Communications Systems, Inc.
Mr. Howell has been President and Chief Executive Officer of the Company since
May 1995, and prior thereto served as Executive Vice President of the Company
from October 1992 to May 1995. He has been a Director of the Company since
October 1992. Mr. Howell is the son-in-law of Mr. and Mrs. Robinson. He is also
a Director of Bull Run Corporation and Gray Communications Systems, Inc.
Mr. Elson is the former Ambassador of the United States of America to the
Kingdom of Denmark, serving from 1993 through 1998. He has been director of the
Company since October 1998, and previously served as a director from 1986 to
1993.
Mr. Hudgins has been an independent consultant since September 1997 and was a
Principal in Percival, Hudgins & Company, LLC, investment bankers, from April
1992 to September 1997. He has been a Director of the Company since 1986 and
also serves as a Director of The Wachovia Funds and The Wachovia Municipal Funds
of Wachovia Corporation.
Mr. Riddle is the retired Chairman and Chief Executive Officer of National
Service Industries, Inc., a diversified holding company, a position he held from
September 1994 to February 1996, and prior thereto served as the President and
Chief Executive Officer of National Service Industries, Inc. since January 1993.
Prior thereto, he was President of Wachovia Bank of Georgia, N.A., the President
of Wachovia Corporation of Georgia and Executive Vice President of Wachovia
Corporation. He has been a Director of the Company since 1976, and also serves
as a Director of AMC, Inc., Atlanta Gas Light Company, Equifax Inc., and Gables
Residential Trust, Inc.
Mrs. Robinson, the wife of J. Mack Robinson, has been a Director of the Company
since 1989. She is also a Director of Gray Communications Systems, Inc.
Mr. Thompson has been the President and Chief Financial Officer of American
Southern Insurance Company, a subsidiary of the Company, since 1984. He has been
a Director of the Company since February 1996.
Mr. West has been President of First Republic Company d/b/a Genoa Companies
since 1988 and Chairman and Chief Executive Officer of Genoa Companies since
1990. He has been a Director of the Company since July 1997.
Dr. Whaley has been a physician in private practice for more than five years. He
has been a Director of the Company since July 1992.
Mr. Wyant is a retired partner of the law firm of Jones, Day, Reavis & Pogue,
which serves as counsel to the Company. He served as a Partner with said firm
from 1989 through 1994, and as Of Counsel from 1995 through 1997. He has been a
Director of the Company since 1985, and also serves as a Director of Thomaston
Mills, Inc.
2
The Board of Directors recommends a vote FOR the election of each of the
nominees for Director.
Committees Of The Board Of Directors
The Board of Directors of the Company has three (3) standing committees: the
Executive Committee, the Stock Option and Compensation Committee and the Audit
Committee. The Company has no Nominating Committee. The Executive Committee is
composed of Messrs. Robinson, Howell, Hudgins and Whaley, and its function is to
act in the place and stead of the Board to the extent permitted by law on
matters which require Board action between meetings of the Board of Directors.
The Executive Committee of the Company met or acted by written consent four
times during 1998.
The Stock Option and Compensation Committee is composed of Messrs. Riddle,
Whaley and West. The Stock Option and Compensation Committee's function is to
establish the number of stock options to be granted to officers and key
employees and the annual salaries and bonus amounts payable to officers of the
Company. The Stock Option and Compensation Committee met or acted by written
consent two times during 1998.
The Audit Committee is composed of Messrs. Riddle, West, Wyant, and Mrs.
Robinson. The Audit Committee's functions include reviewing with the Company's
independent public accountants, their reports and audits, and reporting their
findings to the full Board. The Audit Committee held one meeting in 1998.
The Board of Directors met or acted by written consent four times in 1998. Each
of the directors named above, except for Mr. Elson, attended at least 75%
percent of the meetings of the Board and its committees of which he or she was a
member during 1998.
Compensation Of Directors
The Company's policy is to pay all Directors an annual retainer fee of $5,600,
to pay fees to Directors at the rate of $600 for each Board meeting attended and
$200 for each committee meeting attended, and to reimburse Directors for actual
expenses incurred in connection with attending meetings of the Board of
Directors and Committees of the Board. In addition, pursuant to the Company's
1996 Director Stock Option Plan (the "Director Plan"), all Directors who are not
employees or officers of the Company or any of its subsidiaries are entitled to
receive an initial grant of options to purchase 5,000 shares of Common Stock
upon first becoming a Director and annual grants of options to purchase 1,000
shares of Common Stock.
3
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth Common Stock ownership information as of March 8,
1999 by: (i) each person who is known to the Company to own beneficially more
than 5% of the outstanding shares of Common Stock of the Company, (ii) each
director, (iii) each executive officer named in the Summary Compensation Table,
and (iv) all of the Company's directors and executive officers as a group.
- -------------------------------------------------------------------------------
Amount and Nature
Name of Individual of Beneficial Percent
or Identity of Group Ownership(1) of Class
- -------------------------------------------------------------------------------
J. Mack Robinson..................... 13,469,661 (2) 70.22%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Harriett J. Robinson ................ 8,050,053 (3) 42.13%
3500 Tuxedo Road, N.W.
Atlanta, Georgia 30305
Hilton H. Howell, Jr................. 291,411 (4) 1.51%
Edward E. Elson...................... 5,000 (5) *
Samuel E. Hudgins.................... 7,000 (6) *
D. Raymond Riddle.................... 11,750 (6) *
Scott G. Thompson.................... 82,250 (7) *
Mark C. West......................... 136,942 (8) *
William H. Whaley, M.D............... 24,500 (9) *
Dom H. Wyant......................... 7,000 (5) *
Edward L. Rand, Jr................... 24,896 (10) *
All Directors and Executive Officers
as a Group (11 persons)............. 14,055,410 (11) 71.79%
- -------------------------------------------------------------------------------
*Represents less than 1% of class.
(1) All such shares are owned of record and beneficially unless otherwise
stated.
(2) Includes 3,381,202 shares owned by Gulf Capital Services, Ltd., 4370
Peachtree Road, N.E., Atlanta, Georgia 30319; 936,702 shares owned by
Delta Life Insurance Company; and 294,000 shares owned by Delta Fire &
Casualty Company; all of which are companies controlled by Mr. Robinson;
70,000 shares subject to presently exercisable options held by Mr.
Robinson; and 3,985 shares held pursuant to the Company's 401(k) Plan. Also
includes all shares held by Mr. Robinson's wife (see note 3 below).
(3) Harriett J. Robinson is the wife of J. Mack Robinson. Includes 7,831,748
shares of common stock held by Mrs. Robinson as trustee for her children,
as to which she disclaims beneficial ownership. Also includes 7,000 shares
issuable upon exercise of options granted under the Director Plan
exercisable within 60 days, and 6,720 shares held jointly with grandson.
Does not include shares held by Mr. Robinson (see Note 2 above).
(4) Includes 245,000 shares subject to presently exercisable stock options held
by Mr. Howell; 10,766 shares held pursuant to the Company's 401(k) Plan;
1,025 shares owned by Mr. Howell's wife, and 6,720 shares held in joint
ownership by Mr. Howell's son and Harriett J. Robinson, as to which he
disclaims any beneficial ownership.
(5) Includes 5,000 shares issuable upon exercise of options granted under the
Director Plan, exercisable within 60 days.
(6) Includes 7,000 shares issuable upon exercise of options granted under the
Director Plan, exercisable within 60 days.
(7) Includes 81,250 shares subject to presently exercisable options.
(8) Includes 2,000 shares held by spouse as trustee for daughter and 6,000
shares issuable upon exercise of options granted under the Director Plan,
exercisable within 60 days. Also includes 66,142 shares owned by The West
Foundation, Inc. for which Mr. West is an officer and director and 5,000
shares owned by the George West Mental Health Foundation, for which Mr.
West is the President. Mr. West disclaims any beneficial ownership of
these foundations.
(9) Includes 7,000 shares issuable upon exercise of options granted under the
Director Plan exercisable within 60 days and 4,500 shares owned by spouse
as custodian for daughter.
(10) Includes 24,500 shares subject to presently exercisable options held by Mr.
Rand and 396 shares held pursuant to the Company's 401(k) Plan.
(11) Includes 461,750 shares subject to presently exercisable options held by
all directors and executive officers as a group. Also includes shares held
pursuant to the Company's 401(k) Plan described in notes 2, 4, and 10
above.
4
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of a
registered class of the Company's equity securities are required to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes of ownership of Common Stock and other equity securities of the
Company, and to furnish the Company with copies of such reports. To the
Company's knowledge, all of these filing requirements were satisfied during the
year ended December 31, 1998. In making this disclosure, the Company has relied
on written representations of its directors and officers and copies of the
reports that have been filed with the Securities and Exchange Commission.
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Corporation for the fiscal
years ended December 31, 1998, 1997 and 1996, of those persons who were: (i)
chief executive officer and (ii) the only other executive officers of the
Corporation, at December 31, 1998, whose salary and bonus exceeded $100,000
("the Named Officers"):
Summary Compensation Table
Long-Term
Compensation
Annual ---------------
Compensation Awards
Name and ----------------- -------------- All Other
Principal Position Year Salary(s) Bonus(s) Options/SARs(#) Compensation(s)
- --------------------------------------------------------------------------------
Hilton H. Howell, Jr. 1998 $255,000 $98,000 200,000 (1) $12,800 (2)
President and CEO 1997 225,000 89,250 100,000 13,100
1996 180,000 67,500 -0- 13,100
J. Mack Robinson 1998 140,000 35,000 100,000 8,000 (3)
Chairman of the 1997 138,902 35,000 -0- 12,500
Board 1996 138,902 34,726 -0- 13,100
Edward L. Rand, Jr. 1998 103,512 29,700 31,000 (4) 1,716 (5)
Vice President and
Treasurer
(1) Includes options to purchase 100,000 shares previously granted in 1997
and repriced during 1998. See "Ten-Year Option/SAR Repricings".
(2) Consists of (i) contributions to Mr. Howell's account under the Company's
401(k) Plan of $4,800 in 1998; and (ii) fees paid for serving as a director
of the Company of $8,000 in 1998.
(3) Consists of fees paid for serving as a director of the Company in 1998.
(4) Includes options to purchase 6,000 shares previously granted in 1997 and
repriced during 1998. See "Ten-Year Option/SAR Repricings".
(5) Consists of contributions to Mr. Rand's account under the Company's 401(k)
Plan in 1998.
5
Option/SAR Grants In Last Fiscal Year
The following table provides information related to options granted to the named
executive officers during fiscal 1998.
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
- ---------------------------------------------------------------------------------- ----------------------------
Number of
Securities % of Total
Underlying Options/
Options/ SARs
SARs Granted to Exercise or
Granted Employees in Base Price
Name (#) Fiscal Year ($/Sh) Expiration Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------
Hilton H. Howell, Jr. 100,000 (2) 23.09% $3.734 10/27/2003 $103,200 $228,000
100,000 (3) 23.09% $3.750 10/31/2002 $78,900 $171,700
J. Mack Robinson 100,000 (2) 23.09% $3.734 10/27/2003 $103,200 $228,000
Edward L. Rand, Jr. 10,000 (2) 2.31% $3.734 10/27/2003 $10,320 $22,800
15,000 (4) 3.46% $3.750 05/05/2003 $15,750 $34,350
6,000 (3) 1.39% $3.750 10/31/2002 $4,734 $10,302
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
The assumed annual rates of stock price appreciation are specified by the
rules of the Securities and Exchange Commission for illustrative purposes
only and are not intended as projections of the future performance of the
Company's Common Stock.
(2) Options became exercisable with respect to 50% of the shares covered thereby
on October 27, 1998, the date of grant; options for an additional 25% of the
shares become exercisable on October 27, 1999; and options for the remaining
25% become exercisable on October 27, 2000. The exercise price is equal to
the market value of the stock at the close of business of the date of grant.
(3) Represents options granted in 1997 and repriced in 1998. Options became
exercisable with respect to 50% of the shares covered thereby on October 31,
1997, the original date of grant; options for an additional 25% of the
shares became exercisable on October 31, 1998 and options for the remaining
25% become exercisable on October 31, 1999. The current exercise price is
equal to the market value of the stock at the close of business on the date
of repricing. See "Ten-Year Option/SAR Repricings".
(4) Represents options originally granted in May, 1998 and repriced in December,
1998. Options became exercisable with respect to 50% of the shares covered
thereby on May 5, 1998, the original date of grant; options for an
additional 25% of the shares become exercisable on May 5, 1999; and options
for the remaining 25% become exercisable on May 5, 2000. The current
exercise price was equal to the market value of the stock at the close of
business on the date of repricing. See "Ten-Year Option/SAR Repricings".
Aggregated Option/SAR Exercises In Last Fiscal Year
and FY-End Option/SAR Values
The following table provides information related to the number and value of
options held by the named executive officers at fiscal year-end.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Shares Options/SARs at Year-end(#) at Year-End ($)
Acquired on --------------------------- ---------------------------
Name Exercise (#) Value Realized ($) Exercisable / Unexercisable Exercisable / Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Hilton H. Howell, Jr. 0 0 245,000 / 75,000 $438,925 / $85,175
J. Mack Robinson 0 0 70,000 / 50,000 $104,550 / $57,050
Edward L. Rand, Jr. 0 0 24,500 / 16,500 $33,269 / $20,516
(1) Value is calculated on the difference between the option exercise price
and the closing price for the Company's Common Stock as reported by the
Nasdaq Stock Market on December 31, 1998, which was $4.875, multiplied by
the number of shares of Common Stock underlying the option.
6
Ten-Year Option/SAR Repricings
During December 1998, the Stock Option and Compensation Committee determined to
amend the exercise price of certain currently outstanding options to purchase
shares of Common Stock held by various employees of the Company. All such
options that were repriced had originally been issued pursuant to the Company's
1992 Incentive Plan and were exchanged for new options with a lower exercisable
price under the same plan. The following table provides certain information
relating to all repricings of options held by any executive officer during the
last ten completed fiscal years. Further explanation concerning these repricings
is included in the Report of the Stock Option and Compensation Committee on
Executive Compensation hereinbelow.
Number of
Securities Length of
Underlying Market Price Exercise Price Original Option
Options/SARs of Stock at at Time of New Term Remaining at
Repriced or Time of Repricing or Exercise Date of Repricing
Name Date Amended (#) Repricing or Amendment ($) Price ($) or Amendment
Amendment ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Hilton H. Howell, Jr. 12/14/98 100,000 $3.75 $4.25 $3.75 3 years, 10 months
Edward L. Rand, Jr. 12/14/98 6,000 $3.75 $4.25 $3.75 3 years, 10 months
12/14/98 15,000 $3.75 $4.4375 $3.75 4 years, 5 months
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return*
Atlantic American Corporation, Russell 2000 Index and Peer Group
(Performance Results Through 12/31/98)
Atlantic American Russell 2000
Corporation Index Peer Group
------------------ ------------ ----------
1993 $100.00 $100.00 $100.00
1994 $128.57 $98.02 $98.95
1995 $132.14 $125.89 $132.24
1996 $175.03 $146.59 $146.74
1997 $289.31 $179.13 $223.87
1998 $278.57 $174.23 $197.35
Peer Group: Nasdaq Insurance Companies
7
EXECUTIVE COMPENSATION
Report of the Stock Option and Compensation Committee on Executive Compensation
Compensation Philosophy
The Committee believes that compensation of executives should be designed to
motivate such persons to perform at their potential over both the short and the
long term. The Committee believes that equity-based incentives should benefit
the Company by increasing the retention of executives while aligning the
long-term interests with those of the Company's shareholders. Compensation
determinations are primarily based on the performance of the Company and the
individual executive officer. The Committee also believes that compensation
packages for executives must be structured to take into account the nature and
the growth of the Company's lines of business in appropriate circumstances.
Cash Compensation. The compensation packages for the executive officers consist
- ------------------
of three components: base salaries, cash bonuses and equity incentives.
The Chairman annually reviews executive officer compensation and recommends to
the Committee proposed salaries and bonuses for himself and for each of the
other executive officers. Factors considered by the Chairman and the Committee
are based upon the growth of the Company with regard to net income, total
assets, premiums and shareholders' equity. All of these factors were considered
in establishing salary levels for each of the executive officers, as were their
individual duties and the growth and effectiveness of each in performing those
duties. In connection with Mr. Rand's promotion to Vice President and Treasurer
in 1998, the Chairman and the Chief Executive Officer recommended, and the
Committee approved, a cash compensation package that was designed both to
achieve the objectives of the Committee's compensation philosophy described
above and to be competitive with those offered by similarly situated companies.
The Committee also recommended a modest increase in the 1998 base compensation
for the Chairman, whose salary had not been increased during the preceding two
years. Upon the Chairman's recommendation, the Committee awarded cash bonuses
during the fourth quarter of 1998 of 25% of base salary for Mr. Rand and Mr.
Robinson, and a cash bonus for the Chief Executive Officer as described below.
The bonuses reflect an evaluation of the individual performance of the officers,
as well as the performance of the Company as a whole during 1998.
Equity-Based Compensation. The Committee uses equity-based compensation in the
- ---------------------------
form of stock options to motivate executives to perform to improve the Company's
short- and long-term prospects and to align the interests of the Company's
executives with those of the shareholders. In 1998, the Committee granted stock
options to purchase 25,000 shares to Mr. Rand, and 100,000 shares to the
Chairman, at prevailing market prices. The factors used in determining the size
of the individual grant were the same as those considered with respect to cash
bonuses. The grant vested with respect to one-half of the shares purchasable
thereunder on the date of grant with the remainder vesting in equal increments
on each of the first and second anniversaries of the date of grant. The vesting
schedule is designed to encourage both short-term and long-term performance. In
addition, the Committee amended the exercise price to certain outstanding
options as described below.
Chief Executive Officer. Mr. Howell's compensation is generally evaluated on the
- ------------------------
same basis as the Company's other executive officers. The Committee approved an
increase of 13% in Mr. Howell's base salary, as well as a cash bonus of $98,000,
which represented 38% of base salary, and represented an increase of 10% over
his bonus for 1997. In 1998, the Committee granted stock options to purchase
100,000 shares to Mr. Howell at prevailing market prices.
Report on Repricing of Options. On December 14, 1998, the Committee approved
- -------------------------------
reducing the exercise price of certain options granted prior to such date to a
price equal to the current market price of the Common Stock. The Committee's
philosophy in granting stock options is to align the Company's officers' and
employees' interests with those of the shareholders and to provide an incentive
to achieve long-term appreciation in shareholder value. By December 1998, due
primarily to the significant decline in the United States stock markets, the
price of the Common Stock had fallen below the exercise prices for a number of
options that were granted by the Company during 1997 and 1998. As a result, the
Committee believed that the value of certain of the options previously granted
to key employees (including two of the executive officers) under the Company's
1992 Incentive Plan had eroded to such an extent that the intended incentive for
such employees was no longer meaningful, and it was therefore in the best
interest of the Company and the shareholders to amend the exercise price of such
options. The Committee believes that by repricing the options previously granted
under the Company's 1992 Incentive Plan, the Company has restored the incentive
for those employees. In each case, the options granted in replacement of
previously granted options were made with an exercise price equal to the fair
market value of the Common Stock on December 14, 1998. The number of shares
subject to exercise, the vesting periods and the terms remain unchanged by the
replacement options.
D. Raymond Riddle
Mark C. West
William H. Whaley
8
2. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
One of the purposes of the Meeting is to ratify the selection by the Board of
Directors of Arthur Andersen LLP, independent public accountants, to audit the
books, records, and accounts of the Company and its subsidiaries for the year
ending December 31, 1999. This firm has audited the financial statements of the
Company since 1974.
A representative from Arthur Andersen LLP is expected to be present at the
Meeting and will have the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases space for its principal offices, as well as the principal
offices of certain of its subsidiaries, in an office building located at 4370
Peachtree Road, N.E., Atlanta, Georgia, from Delta Life Insurance Company, a
corporation owned by Mr. Robinson and members of his immediate family, under
leases expiring May 31, 2002 and July 2005. Under the terms of the lease, the
Company occupies approximately 54,637 square feet of office space as well as
covered parking garage facilities at an annual rental of approximately $611,000,
plus a pro rata share of all real estate taxes, general maintenance, and service
expenses and insurance costs with respect to the office building and other
facilities, which are made available to the Company at no additional rent. The
terms of the lease are believed by management of the Company to be comparable to
terms which could be obtained by the Company from unrelated parties for
comparable rental property.
Effective December 31, 1995, an aggregate of $13.4 million in principal amount
of 8% and 9 1/2% demand notes issued by the Company were canceled in exchange
for the issuance by the Company of an aggregate of 134,000 shares of a new
series of preferred stock (the "Series B Preferred Stock"), which has a stated
value of $100 per share and accrues interest at 9% per year. At December 31,
1998, the Company had accrued but unpaid dividends on the Series B Preferred
Stock totaling $3,600,000. All shares of Series B Preferred Stock are owned
directly or indirectly by affiliates of Mr. Robinson, Mrs. Robinson or Mr.
Howell.
In addition, Mr. Robinson and members of his immediate family held an aggregate
of 30,000 shares of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), with a stated value of $100 per share, on which
dividends were paid at the rate of 10 1/2% per year. During 1998, the Company
elected to call for redemption all the outstanding shares of Series A Preferred
Stock. Pursuant to the terms of the Series A Preferred Stock, upon being called
for redemption the holders had the option to convert any or all of such shares
into shares of the Company's Common Stock at a specified conversion rate. As of
December 31, 1998, 10,000 shares of Series A Preferred Stock were redeemed for
an aggregate redemption price of $1,000,000 and 20,000 shares were converted
into an aggregate of 469,760 shares of Common Stock.
Certain of the Company's subsidiaries have made loans, in an aggregate principal
amount of approximately $6.4 million, to Leath Furniture, LLC ("Leath"), which
is owned by Gulf Capital Services, Ltd. ("Gulf Capital"). The loans are secured
by mortgages on certain properties owned by Leath. The loans bear interest at 9
1/4% per annum, are payable in monthly installments, and mature on December 1,
2016. During 1998, Leath made principal and interest payments on such notes to
the Company's subsidiaries in the aggregate amount of $731,000, Gulf Capital is
a partnership in which Mr. Robinson is the general partner and certain of his
affiliates are the limited partners.
Certain of the Company's subsidiaries previously acquired ownership interests in
Leath, the majority interest of which is owned by Gulf Capital. During 1998,
Gulf Capital purchased all of the interests in Leath held by the Company's
subsidiaries for an aggregate of $285,000. Prior to purchase, the value of the
Company's interests in Leath was reflected at zero value on the Company's books.
Mr. Wyant, a director of the Company, is a retired Partner of the law firm of
Jones, Day, Reavis & Pogue, which firm serves as counsel to the Company.
The Company has entered into a consulting agreement with Dr. Whaley, pursuant to
which Dr. Whaley provides certain medical consulting and advisory services to
the Company's subsidiaries. Pursuant to the agreement, which expires December
31, 1999, Dr. Whaley receives $10,000 per year for such services.
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OTHER BUSINESS
Management of the Company knows of no other matters than those stated above
which are to be brought before the meeting. However, if any such other matters
should be presented for consideration and voting, it is the intention of the
persons named in the proxies to vote thereon in accordance with their best
judgment.
SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the next annual meeting must be
received by the Company no later than December 2, 1999, in order to be
considered for inclusion in the proxy statement and proxy for the 2000 annual
meeting. Any such proposal should be addressed to the Company's president and
mailed to 4370 Peachtree Road, N.E., Atlanta, Georgia 30319-3000. In accordance
with the rules of the Securities and Exchange Commission, the Company may
exercise discretionary authority to vote proxies with respect to any shareholder
proposal to be presented at the Company's 2000 annual meeting but not included
in the Company's proxy statement for such meeting if the shareholder has not
given notice to the Company by February 10, 2000.
10