As Filed with the Securities and Exchange Commission on June 30, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HIGHLANDS INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 6331 75-2370945
State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification Number)
Organization) Code Number)
10370 RICHMOND AVENUE STEPHEN J. GREENBERG, ESQ.
HOUSTON, TEXAS 77042 1000 LENOX DRIVE
(713) 952-9555 LAWRENCEVILLE, NEW JERSEY 08648
(Address, Including Zip Code, (609) 896-1921
and Telephone Number, (Name, Address, Including Zip Code
Including Area Code, of Registrant's and Telephone Number, Including
Principal Executive Offices) Area Code, of Agent For Service)
Copies to:
STEVEN D. RUBIN, ESQ.
WEIL, GOTSHAL & MANGES LLP
700 LOUISIANA, SUITE 1600
HOUSTON, TEXAS 77002
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
CALCULATION OF REGISTRATION FEE
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Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount To Be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock................. 1,656,780 shares $20.00(a) $33,135,600.00(a) $10,041.09(a)
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(a) Based on the average of the high and low prices of the Common Stock on the
New York Stock Exchange on June 26, 1997 and estimated solely for the
purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
HOFS02...:\92\56292\0006\1294\REG5307K.05J
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1,656,780 SHARES
HIGHLANDS INSURANCE GROUP, INC.
COMMON STOCK
This Prospectus relates to 1,656,780 shares of common stock, par value
$.01 per share ("Common Stock"), of Highlands Insurance Group, Inc., a Delaware
corporation (the "Company"). Such shares (the "Shares") are being registered
under the Securities Act of 1933, as amended (the "Securities Act"), on behalf
of the holders thereof (the "Selling Stockholders") in order to permit the
public sale or other distribution of the Shares. See "Selling Stockholders and
Plan of Distribution."
The shares of Common Stock to which this Prospectus relates may be sold
from time to time by the Selling Stockholders through underwriters or dealers,
through brokers or other agents, or directly to one or more purchasers, at
market prices prevailing at the time of sale or at prices otherwise negotiated.
The Company will receive no portion of the proceeds of the sale of such shares
of Common Stock and will bear the expense incident to the registration of such
shares. See "Selling Stockholders and Plan of Distribution."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "HIC."
SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July , 1997.
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NO DEALER, SALESMAN OR INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE SHARES OF COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................. 1
INFORMATION INCORPORATED BY REFERENCE.................................. 2
THE COMPANY............................................................ 3
RISK FACTORS........................................................... 4
USE OF PROCEEDS........................................................ 10
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION.......................... 10
LEGAL MATTERS.......................................................... 12
EXPERTS................................................................ 12
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") (which term includes any amendments thereto) under the Securities
Act with respect to the Common Stock offered hereby. This Prospectus, which is a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto, to
which reference is hereby made for further information with respect to the
Company and the Common Stock to which this Prospectus relates. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement for a more complete
description of the matter involved and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto filed by
the Company with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
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Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). So long as the Company is
subject to the periodic reporting requirements of the Exchange Act, it will
continue to furnish the reports and other information required thereby to the
Commission. Reports and other information filed by the Company pursuant to the
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2551. The
Common Stock is listed on the NYSE. Information filed by the Company with the
NYSE may be inspected at the offices of the NYSE at 20 Broad Street, New York,
New York 10005. Such material may also be accessed electronically by means of
the Commissions home page on the Internet (http://www.sec.gov).
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(3) The Company's Current Reports on Form 8-K dated January 24, 1997,
February 14, 1997, February 25, 1997, March 31, 1997, April 30, 1997, April 30,
1997, May 7, 1997, Form 8-K/A dated April 30, 1997 and Form 8-K/A No. 2 dated
April 30, 1997;
(4) the description of the Common Stock contained in the Company's
Registration Statement on Form 10 filed on October 27, 1995, as such
Registration Statement may be amended from time to time for purposes of
updating, changing or modifying such description; and
(5) All other reports filed by the Company since December 31, 1996,
pursuant to Section 13(a) or 15(d) of the Exchange Act.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering, shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of such documents.
Any statement contained in a document or other information incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
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The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, upon the
written or oral request of such person, a copy of any and all of the documents
or other information referred to above which have been or may be incorporated by
reference in this Prospectus, except that exhibits to such documents will not be
provided unless they are specifically incorporated by reference into such
documents. Requests for copies of any such document should be directed to
Highlands Insurance Group, Inc., 10370 Richmond Avenue, Houston, Texas 77042,
Attention:
Secretary.
THE COMPANY
GENERAL
Highlands Insurance Group, Inc. (the "Company") is an insurance holding
company that through its insurance subsidiaries (collectively, the "Insurance
Subsidiaries") is primarily engaged in the property and casualty insurance
business. Until January 23, 1996, the Company was a wholly-owned subsidiary of
Halliburton Company ("Halliburton"). On such date, the shares of the Company's
Common Stock were distributed to holders of record of common stock of
Halliburton on January 4, 1996 in the form of a dividend (the "Distribution").
Pursuant to the Distribution, one share of Common Stock was distributed for each
ten shares of Halliburton common stock owned by the Halliburton stockholders. On
April 30, 1997, the Company consummated its acquisition of American Reliance,
Inc. (then named Vik Brothers Insurance, Inc. ("VBI")). Immediately after such
merger, VBI was renamed American Reliance, Inc. ("American Reliance").
In connection with the acquisition of American Reliance, the Company
entered into a $65 million Credit Agreement, dated April 30, 1997 (the "Credit
Agreement"), with The Chase Manhattan Bank, as administrative agent for the
lenders party thereto. The Credit Agreement, which contains customary terms and
restrictions, currently provides for an interest rate of LIBOR plus 100 basis
points with the full principal amount thereunder due on April 30, 2002.
Prior to its acquisition of American Reliance, the Company conducted its
insurance operations primarily through Highlands Insurance Company
("Highlands"), as well as through other insurance subsidiaries (collectively
with Highlands, the "Highlands Companies"). After the acquisition of American
Reliance, the Company now conducts its insurance operations through the
Highlands Companies and through American Reliance's insurance subsidiaries
(collectively with American Reliance, the "American Reliance Companies").
Unless the context otherwise requires, references herein and in any
Prospectus Supplement to the "Company" shall mean Highlands Insurance Group,
Inc. and its subsidiaries.
The Company is a Delaware corporation with its principal executive offices
located at 10370 Richmond Avenue, Houston, Texas 77042, where its telephone
number is (713) 952-9555.
HIGHLANDS COMPANIES
The principal product lines of Highlands Companies are workers'
compensation insurance (representing 38% of gross premiums written in 1996),
general liability insurance (representing 20% of gross
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premiums written in 1996), commercial automobile liability insurance
(representing 15% of gross premiums written in 1996) and ocean and inland marine
insurance (representing 11% of gross premiums written in 1996) and certain
others, principally surety bonds and commercial property insurance, which
represented in the aggregate 16% of gross premiums written in 1996. The
principal customers of the Highlands Companies are Halliburton and its
affiliates, relatively large third party and smaller complex commercial
accounts, medium to small third party commercial accounts and commercial marine
accounts.
AMERICAN RELIANCE COMPANIES
The American Reliance Companies primarily write commercial property and
casualty insurance policies for small to medium-sized businesses, and also write
certain personal lines. The American Reliance Companies' commercial insurance
policyholders, primarily located in suburban and rural areas, consist of
customers in the habitational sector (such as apartments, condominiums, motels
and hotels), retailers, wholesalers, service businesses, funeral homes, lumber
yards, woodworking operations, office buildings, religious institutions,
franchise and family-style restaurants, artisan contractors, municipalities,
golf courses and auto dealers. The American Reliance Companies' personal lines
focus on homeowners multiple peril and fire coverages and standard and
nonstandard automobile insurance. For the year ended December 31, 1996,
commercial lines business represented 70% of the American Reliance Companies'
direct written premiums, and the remaining 30% was personal lines insurance. The
American Reliance Companies hold licenses to operate in 44 states and the
District of Columbia and actively write commercial business in 30 states and the
District of Columbia and personal lines business in 12 states, through a network
of approximately 3,400 independent agents.
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the information set forth below as well as the other information set
forth, or incorporated by reference, in this Prospectus.
HISTORY OF LOSSES
The Company became an independent public company on January 23, 1996 and
thus has a relatively short operating history as such. The Company reported net
losses in the years ended December 31, 1992 and 1993 and reported modest net
income in the year ended December 31, 1994. The Company reported net losses of
$120.7 million and $5.3 million for the years ended December 31, 1995 and 1996,
respectively. American Reliance reported a net loss of $64.3 million for the
year ended December 31, 1996. There can be no assurance that the Company will
not continue to operate at a loss or, if profitably, as to the level of
profitability or its ability to continue operating profitably.
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ADEQUACY OF LOSS RESERVES
The Company establishes reserves to cover its estimated ultimate liability
for loss and loss adjustment expense with respect to reported and unreported
claims incurred as of the end of each accounting period (net of estimated
related salvage and subrogation claims and recoverable reinsurance). These
reserves do not represent an exact calculation of liability, but rather are
managerial estimations involving actuarial and statistical projections as to the
expected cost of the ultimate settlement and administration of claims, based on
known facts and circumstances, estimates of future trends in claims, claim
severity and other variable factors such as judicial and administrative
interpretations and inflation. For certain types of losses, including
environmental and asbestos related losses, there is typically a significant
lapse of time between the occurrence of an insured loss, the reporting of the
loss to the insurer or reinsurer and payment of the loss with respect to the
Company's assumed reinsurance and general liability insurance lines. This makes
it difficult to estimate reserves accurately. As the Company acquires new or
additional information concerning its loss and loss adjustment expense,
adjustments in the Company's loss and loss adjustment expense reserves may be
required. The effect of any such change, net of reinsurance, is charged or
credited to income for the period in which the change is determined.
The Company recorded charges from adverse loss reserve development of
$143.6 million and $22.9 million to pre-tax earnings for the years ended
December 31, 1995 and 1996, respectively. American Reliance recorded a similar
charge of $25.5 million to pre-tax earnings for the year ended December 31,
1996. Although the Company believes its loss and loss adjustment expense
reserves are adequate, estimation of loss and loss adjustment expense reserves
is an inherently uncertain undertaking and actual loss and loss adjustment
expense may deviate, perhaps substantially, from reserves reflected in the
Company's financial statements. To the extent these reserves later prove not to
be adequate, the Company would be required to increase such reserves and incur a
charge to earnings, which could have a material adverse effect on the financial
results of the Company.
REINSURANCE
In certain product lines, the Company relies heavily on the use of
reinsurance to limit the risk retained under policies written by it. The
availability and cost of reinsurance are subject to prevailing market conditions
which are beyond the control of the Company and which may affect the Company's
level of business and profitability. The Company is subject to credit risk with
respect to its reinsurers, as the ceding of risk to a reinsurer does not relieve
the primary insurer of its liability to the insureds.
The Company's receivables from reinsurers amounted to $556.9 million at
December 31, 1996, or 35.6% of its total assets. The Company's most significant
reinsurance credit exposure is to the underwriting syndicates at Lloyds of
London ("Lloyds"), which amounted to $111.2 million at December 31, 1996.
Although Lloyds has undergone a highly-publicized period of poor underwriting
results in recent years that have raised concerns over its solvency, the Company
has not experienced any defaults in payments from underwriting syndicates at
Lloyds. Lloyds has undertaken to develop and implement a plan to address these
concerns. No assurance can be given, however, that such plan will be
successfully implemented. Because of the significant size of the Company's
credit exposure with respect to Lloyds, the financial condition of Lloyds could
have a material adverse effect on the Company's financial condition and results
of operations. The Company's next two largest reinsurance credit exposures at
December 31, 1996 were $84.2 million with American Re-Insurance Company and
$55.0 million with General Reinsurance Company. American
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Re-Insurance Company and General Reinsurance Company are rated by A.M. Best and
carry "A+" and "A++" ratings, respectively. American Reliance's receivables from
reinsurers amounted to $137.7 million at December 31, 1996, or 15.3% of its
total assets. Of this amount, $119.7 was due from reinsurers rated "A-"
(Excellent) or better by A.M. Best (including $38.7 million from American
Re-Insurance Company ("A+") and $30.3 million from Employers Reinsurance
Corporation ("A++")), $0.6 million from reinsurers rated "B++" or less by A.M.
Best and $17.4 million from reinsurers not rated by A.M. Best.
CATASTROPHE EXPOSURE
The Company, like all property and casualty insurers, may be subject to
claims arising out of catastrophes that may have a significant impact on its
results of operations and financial condition. Catastrophes, such as hurricanes,
earthquakes, winter storms, tornadoes, wind, hail, fires or explosions, are
inherently unpredictable both in terms of their occurrence and their severity.
During the last several years, American Reliance has incurred significant losses
as a result of hurricanes, winter storms and earthquakes. The Company attempts
to limit its exposure to losses from catastrophes by purchasing reinsurance.
While the Company attempts to estimate its probable maximum loss exposure and
limit it to acceptable levels, it is possible that an actual catastrophic event
or multiple catastrophic events could significantly exceed the probable maximum
loss previously assumed for the purpose of purchasing reinsurance, which could
result in a material adverse effect on the Company's results of operations and
financial condition.
SIGNIFICANT RELATIONSHIPS WITH HALLIBURTON
The Company has significant relationships with Halliburton, most
importantly through an Insurance Products and Services Agreement pursuant to
which the Company provides insurance products to Halliburton and its affiliates
on specified terms through December 31, 1999. The volume of insurance written
for Halliburton under the Insurance Products and Services Agreement approximates
levels provided to Halliburton in the past, and accounts for a significant
portion of the Company's insurance business. During 1996, net premiums earned
from business with Halliburton and its affiliates represented approximately
$30.7 million. Should Halliburton choose to terminate its relationship, or not
to renew such insurance, with the Company, such termination or nonrenewal could
have a material adverse effect on the Company's business.
IMPORTANCE OF RATING AGENCIES
The Highlands Companies currently share an "A-" (Excellent) rating from
A.M. Best, whose ratings are based on an analysis of the financial condition and
operating performance of an insurance company. In May 1997, A.M. Best reaffirmed
Highlands' "A-" rating. Following the acquisition of American Reliance by
Highlands, A.M. Best rated the American Reliance Companies as follows:
Northwestern National Casualty Company, NN Insurance Company, Northwestern
National County Mutual Insurance Company -- "B+"; Pacific National Insurance
Company and Pacific Automobile Insurance Company -- "B+"; State Capital
Insurance Company and American Professionals Insurance Company -- "B-"; and LMI
Insurance Company -- "D". LMI is ceasing to write any new and renewal business.
Ratings by A.M. Best are an independent opinion as to a company's
financial strength and ability to meet its obligations to policyholders, and are
not intended to address the merits of, or the risks inherent in, and investment
in the Common Stock. Ratings have become increasingly important in establishing
the
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competitive position of an insurer or a reinsurer. While the Company intends to
continue to operate the businesses of the Insurance Subsidiaries so as to
maintain their current rating, no assurances can be given that in the future
A.M. Best will not reduce such ratings due to factors, including material
losses, that are beyond the Company's control. The Company believes that a
reduction by A.M. Best of its rating of the Highlands Companies below "A-", or
of the principal American Reliance Companies below "B+", could have a material
adverse effect on the Company's business.
INSURANCE REGULATION; HOLDING COMPANY STRUCTURE; RESTRICTION ON DIVIDENDS
FROM SUBSIDIARIES
The Insurance Subsidiaries are subject to extensive regulation by
insurance regulators in the states and countries in which they do business. The
nature and extent of such regulation vary from jurisdiction to jurisdiction, but
typically involve (i) approval requirements for premium rates for certain lines
of insurance, (ii) standards of solvency and minimum capital and surplus
requirements, (iii) limitations on amounts and types of investments, (iv)
restrictions on the size of risks that may be insured by a single company, (v)
approval requirements for policy forms, (vi) methods of accounting and methods
of establishing loss and loss adjustment reserves, (vii) licensing of insurers
and agents, (viii) limitations on the exit of certain classes of business, (ix)
required participation in frequently under-priced underwriting pools, and (x)
filing requirements for annual and other reports with respect to financial
condition and other matters. Such regulations may impede, or impose burdensome
conditions on, rate increases or other actions that the Company might wish to
take to enhance its operating results. In addition, state regulatory examiners
perform periodic examinations of insurance companies. Such regulations are
generally intended to be for the protection of policyholders rather than
investors.
Insurance companies such as the Insurance Subsidiaries are also affected
by a variety of state and federal legislative and regulatory measures and
judicial decisions that can define and extend the risks and benefits for which
insurance is sought and provided. These include redefinition of risk exposure in
areas such as product liability, environmental damages and other areas. In
addition, individual state insurance regulators may prevent premium rates for
some classes of insureds or lines of insurance from reflecting the level of risk
assumed by the insurer. These developments may result in adverse effects on
profitability. No assurance can be given that future legislative, regulatory or
judicial changes will not adversely affect the Company's business.
As a holding company, the Company's ability to meet its debt service
obligations, including the payment of interest and principal on the Credit
Agreement, the Debentures (described below) and the Management Debentures
(described below), and to pay operating expenses will depend primarily on
receipt of sufficient funds from the Insurance Subsidiaries.
The payment of dividends to the Company by each of the Insurance
Subsidiaries is subject to certain limitations under insurance laws of the state
in which such Insurance Subsidiary is domiciled. Although such limitations on
dividends vary from state to state, these limitations are generally based on a
percentage of statutory surplus and/or on insurance company's net income for a
specified prior period, generally ranging from one to three years. In some
instances, dividends may be paid only with prior regulatory approval. These
restrictions and any additional subsequently imposed restrictions may in the
future adversely affect the Company's ability to pay its expenses and any cash
dividends to its stockholders.
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LITIGATION
The Company is a party to various claims and legal actions arising in the
ordinary course of its insurance business. Such legal actions include routine
claim litigation, asbestos and environmental litigation, and non-routine
litigation, such as class action suits and regulatory administrative
proceedings. The Company believes that its reserves for such litigation are
adequate. However, since the outcome of litigation cannot be predicted, there
can be no assurance that the ultimate outcome of any claim or suit, individually
or in the aggregate, will not have a material effect on the Company's financial
position or results of operations.
SIGNIFICANT INFLUENCE OF INVESTORS AND MANAGEMENT
Upon consummation of the Distribution, the Company sold an aggregate of
$60 million in principal amount of the Company's 10% Convertible Subordinated
Debentures due December 31, 2005 (the "Debentures"), together with detachable
Common Stock Subscription Warrants, Series A and Series B (the "Series A
Warrants" and "Series B Warrants," respectively, and, collectively, the
"Warrants") to Insurance Partners, L.P. and Insurance Partners Offshore
(Bermuda), L.P. ("IP" and "IP Bermuda," respectively, and, collectively, the
"Investors") pursuant to the terms of an Investment Agreement dated October 10,
1995 (as amended, the "Investment Agreement"). The Investors assigned the rights
to purchase $2.85 million of the Debentures, together with a proportionate
amount of the Warrants, to Mr. Richard M. Haverland, the Company's Chief
Executive Officer, and certain members of management of the Company (the
"Management Investors"). Additionally, the Company has issued to the Management
Investors an additional $2.85 million in principal amount of the Company's 10%
Convertible Subordinated Debentures, Series 2, due December 31, 2005 (the
"Management Debentures"), together with Common Stock Subscription Warrants
Series A-2 and Series B-2 (the "Management Warrants," and, collectively with the
Management Debentures, the "Management Securities"). The consideration paid by
the Management Investors to the Company for the Management Securities consisted
of an aggregate of $2.85 million in principal amount of individual promissory
notes made by the Management Investors without personal recourse and secured by
the Management Securities.
The Debentures are presently convertible into an aggregate of 3,889,232
shares of Common Stock based on a conversion rate of $16.16 per share, which
would represent approximately 16.5% of the outstanding shares assuming the
Warrants are exercised and the Management Securities are converted or exercised.
The Series A Warrants are presently exercisable for an aggregate of 3,790,200
shares of Common Stock (representing approximately 16.9% of the outstanding
shares assuming conversion of the Debentures, exercise of the Series B Warrants
and conversion or exercise of the Management Securities). Absent certain change
of control events, the Series B Warrants will not become exercisable unless
certain requirements are satisfied after January 1, 1999, at which time the
Series B Warrants would become exercisable initially for an aggregate of 997,200
shares of the Company Common Stock (representing approximately 4.4% of the
outstanding shares assuming conversion of the Debentures, exercise of the Series
A Warrants and conversion or exercise of the Management Securities). The
Management Securities are convertible into, or exercisable for, as the case may
be, 403,762 shares of Common Stock, which would represent approximately 1.8% of
the outstanding shares assuming conversion of the Debentures and exercise of the
Warrants. In the aggregate, the Debentures, Warrants and Management Securities
would be exercisable for a total of approximately 8,904,034 shares of Common
Stock, which would represent approximately 39.7% of the issued shares of Common
Stock on a fully diluted basis. The Exercise Price of the Warrants is presently
$12.71 per share, subject to adjustment in certain circumstances. Prior to the
Distribution, the directors and executive officers
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of the Company were granted options to purchase 433,000 shares of Company Common
Stock at an initial exercise price equal to the Exercise Price of the Warrants.
In addition to the significant equity ownership potential represented by
the Debentures and Warrants, pursuant to the Investment Agreement, Halliburton
elected three persons designated in the Investment Agreement to the Company's
Board of Directors, and, until certain transfers of the Debentures occur, the
Debentures obligate the Company to nominate and recommend the election of the
persons designated by a majority in interest of the holders of the Debentures to
the Board of Directors of the Company so that such designees, if elected, will
constitute at least 28% of the Board of Directors of the Company at all times.
In addition, one of the directors elected pursuant to the Investment Agreement,
Richard M. Haverland, who is an investor in IP and continues to provide
consulting services to Insurance Partners Advisors, L.P., is the Chairman,
President and Chief Executive Officer of the Company.
Because of the relationships described above, the Investors are able to
exert significant influence over the affairs of the Company.
LIMITATIONS ON THE PAYMENT OF DIVIDENDS
The Company currently does not intend to pay dividends on the Common
Stock. Its dividend policy, however, will be reconsidered from time to time by
the Board of Directors of the Company. The Company's ability to pay dividends in
the future will depend upon its financial performance and other factors not now
determinable. The Debentures and the Credit Agreement contain covenants
restricting the payment of dividends in excess of specified amounts, and any
future senior indebtedness may contain similar restrictions. In addition to
these restrictions, the ability of the Insurance Subsidiaries to pay dividends
is limited by state insurance regulations. See "Risk Factors-Insurance
Regulation; Holding Company Structure; Restrictions on Dividends from
Subsidiaries."
COMPETITION; INDUSTRY CONDITIONS
The property and casualty insurance business is highly competitive, mainly
on the basis of price and service. The Company estimates that there are more
than 3,000 property and casualty insurers nationwide. Many of the Company's
competitors are large national companies with greater financial and other
resources than the Company. Accordingly, the Company faces intense competition
which could have an adverse effect on the Company's business.
DEPENDENCE ON KEY EMPLOYEES
Richard M. Haverland, the Chairman, President and Chief Executive Officer
of the Company, presently has a three-year employment agreement with the Company
which can be terminated by Mr. Haverland no earlier than January 23, 1999.
Pursuant to Mr. Haverland's employment agreement, he is entitled to continue to
devote a portion of his time to Insurance Partners Advisors, L.P.
Notwithstanding his employment agreement, there can be no assurance that Mr.
Haverland will be in the Company's employ for any fixed period. The Company
believes that the loss of the services of Mr. Haverland or certain other members
of senior management could have a material adverse effect on the future
prospects of the Company.
9
<PAGE>
CERTAIN ANTI-TAKEOVER EFFECTS
The Amended and Restated Certificate of Incorporation and Bylaws of the
Company contain several provisions that may make an attempt to acquire control
of the Company difficult or expensive, including (i) the ability of the board of
directors to authorize the insurance of preferred stock in one or more series
without stockholder approval and to determine the relative rights, preferences
and limitations of such preferred stock, (ii) a classified board of directors
under which directors serve for staggered, three-year terms, and (iii) certain
notice requirements for stockholders proposing director nominations or bringing
other business before an annual or special stockholders meeting.
YEAR 2000
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and is developing a plan
to address the issue. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in major system failure or miscalculations. Because insurance policies with the
year 2000 will be issued a year or more in advance of that date, the Company
will need to resolve this issue prior to the end of 1998 by means of, among
other things, modifications to existing software and conversions to new
software. However, if such modifications and conversions are not completed
timely or are not fully effective, the Year 2000 problem may have a material
adverse effect on the operations of the Company.
FORWARD LOOKING INFORMATION
The statements included in this Prospectus regarding future financial
performance and results and the other statements that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The words "expect,"
"project," "estimate," "predict," "anticipate," "believes" and similar
expressions are also intended to identify forward-looking statements. Such
statements are subject to numerous risks, uncertainties and assumptions,
including but not limited to, the uncertainties relating to industry and market
conditions, natural disasters and other catastrophes, and other risks and
uncertainties described in this Prospectus and in the Company's other filings
with the Securities and Exchange Commission. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares
of Common Stock by the Selling Stockholders hereunder. The Company will pay all
expenses related to the registration of such shares.
10
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The following table sets forth the names of the Selling Stockholders, the
aggregate number of shares of Common Stock beneficially owned by each Selling
Stockholder as of June 30, 1997, and the aggregate number of shares of Common
Stock registered hereby that each Selling Stockholder may offer and sell
pursuant to this Prospectus. Because the Selling Stockholders may sell all or a
portion of the shares of Common Stock registered hereby at any time and from
time to time after the date hereof, no estimate can be made of the number of
shares of Common Stock that each Selling Stockholder may retain upon completion
of the offering to which this Prospectus relates.
<TABLE>
<CAPTION>
Number of
Number of Shares Shares
Name of Selling Stockholders Beneficially Owned Registered
---------------------------- ------------------ ----------
<S> <C> <C>
Erik M. Vik 531,632 531,632
Manoeuvre Ltd 427,321 427,321
American Re-Insurance Company 302,326 302,326
Armco Financial Services Corporation 214,707 214,707
The Scandinavia Company, Inc. 122,654 122,654
Triumph-Connecticut Limited Partnership 58,140 58,140
---------- ----------
TOTAL............................................ 1,656,780 1,656,780
========== ==========
</TABLE>
Any or all of the Shares may be sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest including, without limitation, Bear, Stearns & Co., Inc. or any other
securities or investment firm or broker-dealer. Such sales may be made through
underwriters or dealers, through brokers or other agents, or directly to one or
more purchasers on one or more exchanges or in the over-the-counter market, or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The shares may be sold
by one or more of the following: (a) a block trade in which the broker or dealer
so engaged will attempt to sell the shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in accordance
with the rules of such exchange; and (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In addition, any
securities covered by this Prospectus which qualify for sale pursuant to
Securities Act Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus. From time to time the Selling Stockholders may engage in short
sales, short sales versus the box, puts and calls and other transactions in
securities of the issuer or derivatives thereof, and may sell and deliver the
shares in connection therewith.
In effecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate. Underwriters, dealers,
brokers or other agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and may receive
commissions from the purchasers of the Shares for whom they act as agent. The
Selling Stockholders and agents who execute orders on their behalf may be deemed
to be underwriters as that term is defined in Section 2(11) of the Securities
Act and a portion of any proceeds of sales and discounts, commissions or
11
<PAGE>
other compensation may be deemed to be underwriting compensation for purposes of
the Securities Act. Neither the Company nor the Selling Stockholders can
presently estimate the amount of such compensation. The Company knows of no
existing arrangements between any Selling Stockholder and any other Selling
Stockholder, underwriter, dealer, or broker or other agent relating to the sale
or distribution of the Shares.
Agents for the sale or distribution of the Shares, and underwriters, if
any, may engage in transactions with or perform services for the Company or its
affiliates in the ordinary course of business.
To comply with certain states' securities laws, if applicable, the Shares
may be sold in such states only through brokers or dealers.
The Company will pay the expenses incurred in connection with the
preparation and filing of this Prospectus and the related Registration
Statement.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Weil, Gotshal & Manges LLP, 700 Louisiana, Suite 1600, Houston, Texas 77002.
EXPERTS
The consolidated financial statements and schedules of Highlands Insurance
Group, Inc. as of December 31, 1996, and for the year then ended appearing in
the Highlands Insurance Group, Inc.'s Form 10-K for the year ended December 31,
1996 have been incorporated by reference and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Vik Brothers Insurance, Inc. and
subsidiaries as of December 31, 1996, and for the year then ended, appearing in
Highlands Insurance Group Inc.'s Current Report on Form 8-K/A No. 2 dated April
30, 1997 have been incorporated by reference and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements and schedules of Highlands Insurance
Group, Inc. as of December 31, 1995 and for each of the two years in the period
ended December 31, 1995, appearing in the Highlands Insurance Group, Inc.'s Form
10-K for the year ended December 31, 1996 and incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements of Vik Brothers Insurance, Inc. and
subsidiaries at December 31, 1995, and for each of the two years in the period
ended December 31, 1995, appearing in Highlands Insurance Group, Inc.'s Current
Report on Form 8-K/A No. 2 dated April 30, 1997 and incorporated by reference
the Registration Statement of which this Prospectus is a part, have been audited
by Ernst & Young
12
<PAGE>
LLP, independent auditors, as set forth in their report thereon incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
-----------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
OFFERED SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
-----------------------------
13
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Securities and Exchange Commission Registration Fee.. $10,041.09
Legal Fees and Expenses.............................. 12,000.00
Accountants' Fees and Expenses....................... 7,500.00
-----------
Total............................................. $ 29,541.09
===========
- ---------------
* All amounts are estimated except for the registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law (the "DGCL") allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or to any of its stockholders for monetary damage for a breach
of his fiduciary duty as a director, except in the case where the director
breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Company's Amended and Restated
Certificate of Incorporation contains a provision which, in substance,
eliminates directors' personal liability as set forth above.
Section 145 of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation or business
association against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company's Certificate
of Incorporation contains a provision which, in substance, provides for
indemnification as set forth above.
ITEM 16. EXHIBITS
2.1 -- Agreement and Plan of Merger, dated as of February 13, 1997, among
Highlands Insurance Group, Inc., Highlands Acquisition Corp. and
Vik Brothers Insurance, Inc. (incorporated by reference to the
Company's current report on Form 8-K dated April 30, 1997,
Commission File Number 1-14028)
2.2 -- Amendment Number 1 to Amended and Restated Agreement and Plan of
Merger, dated as of March 10, 1997, among Highlands Insurance
Group, Inc., Highlands Acquisition Corp. and Vik Brothers
Insurance, Inc. (incorporated by reference to the Company's
current report on Form 8-K dated April 30, 1997, Commission File
Number 1-14028)
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Company's
registration statement on Form 10 as filed with the Commission on
January 4, 1996)
II-1
<PAGE>
3.2 -- Form of Amended and Restated Bylaws of the Registrant
(incorporated by reference to the Company's registration statement
on Form 10 as filed with the Commission on January 4, 1996)
4.1 -- Form of Stock Certificate of Common Stock (incorporated by
reference to the Company's registration statement on Form 10 as
filed with the Commission on January 4, 1996) (See also Exhibits
3.1 and 3.2)
4.2 -- Form of 10% Convertible Subordinated Debentures Due December 31,
2005 (incorporated by reference to the Company's registration
statement on Form 10 as filed with the Commission on January 4,
1996)
4.3 -- Form of Amendment to 10% Convertible Subordinated Debentures Due
December 31, 2005 (incorporated by reference to the Company's
current report on Form 8-K/A dated April 30, 1997, Commission File
Number 1-14028)
4.4 -- Form of Common Stock Subscription Warrant, Series A (incorporated
by reference to the Company's registration statement on Form 10 as
filed with the Commission on January 4, 1996)
4.5 -- Form of Amendment to Common Stock Subscription Warrant, Series A
(incorporated by reference to the Company's current report on Form
8-K/A dated April 30, 1997, Commission File Number 1-14028)
4.6 -- Form of Common Stock Subscription Warrant, Series B (incorporated
by reference to the Company's registration statement on Form 10 as
filed with the Commission on January 4, 1996)
4.7 -- Form of Amendment to Common Stock Subscription Warrant, Series B
(incorporated by reference to the Company's current report on Form
8-K/A dated April 30, 1997, Commission File Number 1-14028)
4.8 -- Form of 10% Convertible Subordinated Debentures Due December 31,
2005, Series 2 (incorporated by reference to the Company's
registration statement on Form 10 as filed with the Commission on
January 4, 1996)
4.9 -- Form of Amendment to 10% Convertible Subordinated Debentures Due
December 31, 2005, Series 2 (incorporated by reference to the
Company's current report on Form 8-K/A dated April 30, 1997,
Commission File Number 1-14028)
4.10 -- Form of Common Stock Subscription Warrant Series A-2 (incorporated
by reference to the Company's registration statement on Form 10 as
filed with the Commission on January 4, 1996)
4.11 -- Form of Amendment to Common Stock Subscription Warrant, Series A-2
(incorporated by reference to the Company's registration statement
on Form 10 as filed with the Commission on January 4, 1996)
4.12 -- Form of Common Stock Subscription Warrant, Series B-2
(incorporated by reference to the Company's current report on Form
8-K/A dated April 30, 1997, Commission File Number 1-14028)
4.13 -- Form of Amendment to Common Stock Subscription Warrant, Series B-2
(incorporated by reference to the Company's current report on Form
8-K/A dated April 30, 1997, Commission File Number 1-14028)
4.14 -- Stockholders Agreement, dated as of April 30, 1997, among
Highlands Insurance Group, Inc., Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda) L.P., The Scandinavia
Company, Inc., Erik M. Vik and Manoeuvre Ltd. (incorporated by
reference to the Company's current report on Form 8-K/A dated
April 30, 1997, Commission File Number 1-14028)
4.15 -- Registration Rights Agreement, dated as of April 30, 1997, between
Highlands Insurance Group, Inc. and American Re-Insurance Company
(incorporated by reference to the
II-2
<PAGE>
Company's current report on Form 8-K dated April 30, 1997,
Commission File Number 1-14028)
4.16 -- Registration Rights Agreement, dated as of April 30, 1997, among
Highlands Insurance Group, Inc., The Scandinavia Company, Inc.,
Erik M. Vik, Manoeuvre Ltd., and Triumph-Connecticut Partnership
and Alexander M. Vik (incorporated by reference to the Company's
current report on Form 8-K dated April 30, 1997, Commission File
Number 1-14028)
4.17 -- Registration Rights Agreement, dated as of March 26, 1997, between
Highlands Insurance Group, Inc. and Armco Financial Services
Corporation (incorporated by reference to the Company's current
report on Form 8-K dated April 30, 1997, Commission File Number
1-14028)
5.1+ -- Opinion and consent of Weil, Gotshal & Manges LLP, counsel for the
Company.
23.1+ -- Consent of KPMG Peat Marwick LLP.
23.2+ -- Consent of KPMG Peat Marwick LLP.
23.3+ -- Consent of Arthur Andersen LLP.
23.4+ -- Consent of Ernst & Young LLP.
23.5+ -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1).
24.1+ -- Powers of Attorney of directors and officers of the Registrant.
(See page II-5 of this Registration Statement).
- ------------
+ Filed herewith.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-3
<PAGE>
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed with or
furnished to the Commission by the Company pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that are incorporated by reference in this
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Company's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the provisions described under Item 15 above, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
designates and appoints Richard M. Haverland, Charles J. Bachand, Stephen J.
Greenberg and Stephen L. Kibblehouse, and each of them, as its or his
attorneys-in-fact (the "Attorneys-in-Fact") with full power to act alone, and to
execute in the name and on behalf of the Registrant and each such person,
individually in each capacity stated below, one or more amendments (including
post-effective amendments) to this Registration Statement on Form S-3, which
amendments may make such changes in this Registration Statement on Form S-3 as
any such Attorney-in-Fact deems appropriate, and to file each such amendment to
this Registration Statement on Form S-3 together with all exhibits thereto and
any and all documents in connection therewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas.
Dated: June 30, 1997
Highlands Insurance Group, Inc.
By: /s/ Richard M. Haverland
---------------------------------
Richard M. Haverland,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Richard M. Haverland Chairman, President and June 30, 1997
- ------------------------------ Chief Executive Officer
Richard M. Haverland
/s/ Charles J. Bachand Vice President, Treasurer June 30, 1997
- ------------------------------ and Principal Accounting
Charles J. Bachand Officer
/s/ Robert A. Spass Director June 30, 1997
- ------------------------------
Robert A. Spass
/s/ Bradley E. Cooper Director June 30, 1997
- ------------------------------
Bradley E. Cooper
II-5
<PAGE>
/s/ W. Bernard Pieper Director June 30, 1997
- ----------------------------------
W. Bernard Pieper
/s/ Kenneth S. Crews Director June 30, 1997
- ----------------------------------
Kenneth S. Crews
/s/ Philip J. Hawk Director June 30, 1997
- ----------------------------------
Philip J. Hawk
/s/ Robert W. Shower Director June 30, 1997
- ----------------------------------
Robert W. Shower
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 -- Agreement and Plan of Merger, dated as of February 13, 1997, among Highlands Insurance
Group, Inc., Highlands Acquisition Corp. and Vik Brothers Insurance, Inc. (incorporated by
reference to the Company's current report on Form 8-K dated April 30, 1997, Commission
File Number 1-14028)
2.2 -- Amendment Number 1 to Amended and Restated Agreement and Plan of Merger, dated as of
March 10, 1997, among Highlands Insurance Group, Inc., Highlands Acquisition Corp. and
Vik Brothers Insurance, Inc. (incorporated by reference to the Company's current report on
Form 8-K dated April 30, 1997, Commission File Number 1-14028)
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference
to the Company's registration statement on Form 10 as filed with the Commission on January
4, 1996)
3.2 -- Form of Amended and Restated Bylaws of the Registrant (incorporated by reference to the
Company's registration statement on Form 10 as filed with the Commission on January 4,
1996)
4.1 -- Form of Stock Certificate of Common Stock (incorporated by reference to the Company's
registration statement on Form 10 as filed with the Commission on January 4, 1996) (See also
Exhibits 3.1 and 3.2)
4.2 -- Form of 10% Convertible Subordinated Debentures Due December 31, 2005 (incorporated by
reference to the Company's registration statement on Form 10 as filed with the Commission on
January 4, 1996)
4.3 -- Form of Amendment to 10% Convertible Subordinated Debentures Due December 31, 2005
(incorporated by reference to the Company's current report on Form 8-K/A dated April 30,
1997, Commission File Number 1-14028)
4.4 -- Form of Common Stock Subscription Warrant, Series A (incorporated by reference to the
Company's registration statement on Form 10 as filed with the Commission on January 4,
1996)
4.5 -- Form of Amendment to Common Stock Subscription Warrant, Series A (incorporated by
reference to the Company's current report on Form 8-K/A dated April 30, 1997, Commission
File Number 1-14028)
4.6 -- Form of Common Stock Subscription Warrant, Series B (incorporated by reference to the
Company's registration statement on Form 10 as filed with the Commission on January 4,
1996)
4.7 -- Form of Amendment to Common Stock Subscription Warrant, Series B (incorporated by
reference to the Company's current report on Form 8-K/A dated April 30, 1997, Commission
File Number 1-14028)
4.8 -- Form of 10% Convertible Subordinated Debentures Due December 31, 2005, Series 2
(incorporated by reference to the Company's registration statement on Form 10 as filed with
the Commission on January 4, 1996)
4.9 -- Form of Amendment to 10% Convertible Subordinated Debentures Due December 31, 2005,
Series 2 (incorporated by reference to the Company's current report on Form 8-K/A dated
April 30, 1997, Commission File Number 1-14028)
4.10 -- Form of Common Stock Subscription Warrant Series A-2 (incorporated by reference to the
Company's registration statement on Form 10 as filed with the Commission on January 4,
1996)
4.11 -- Form of Amendment to Common Stock Subscription Warrant, Series A-2 (incorporated by
reference to the Company's registration statement on Form 10 as filed with the Commission on
January 4, 1996)
<PAGE>
4.12 -- Form of Common Stock Subscription Warrant, Series B-2 (incorporated by reference to the
Company's current report on Form 8-K/A dated April 30, 1997, Commission File Number
1-14028)
4.13 -- Form of Amendment to Common Stock Subscription Warrant, Series B-2 (incorporated by
reference to the Company's current report on Form 8-K/A dated April 30, 1997, Commission
File Number 1-14028)
4.14 -- Stockholders Agreement, dated as of April 30, 1997, among Highlands Insurance Group, Inc.,
Insurance Partners, L.P., Insurance Partners Offshore (Bermuda) L.P., The Scandinavia
Company, Inc., Erik M. Vik and Manoeuvre Ltd. (incorporated by reference to the
Company's current report on Form 8-K/A dated April 30, 1997, Commission File Number
1-14028)
4.15 -- Registration Rights Agreement, dated as of April 30, 1997, between Highlands Insurance
Group, Inc. and American Re-Insurance Company (incorporated by reference to the
Company's current report on Form 8-K dated April 30, 1997, Commission File Number
1-14028)
4.16 -- Registration Rights Agreement, dated as of April 30, 1997, among Highlands Insurance
Group, Inc., The Scandinavia Company, Inc., Erik M. Vik, Manoeuvre Ltd., and
Triumph-Connecticut Partnership and Alexander M. Vik (incorporated by reference to the
Company's current report on Form 8-K dated April 30, 1997, Commission File Number
1-14028)
4.17 -- Registration Rights Agreement, dated as of March 26, 1997, between Highlands Insurance
Group, Inc. and Armco Financial Services Corporation (incorporated by reference to the
Company's current report on Form 8-K dated April 30, 1997, Commission File Number
1-14028)
5.1+ -- Opinion and consent of Weil, Gotshal & Manges LLP, counsel for the Company.
23.1+ -- Consent of KPMG Peat Marwick LLP.
23.2+ -- Consent of KPMG Peat Marwick LLP.
23.3+ -- Consent of Arthur Andersen LLP.
23.4+ -- Consent of Ernst & Young LLP.
23.5+ -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1).
24.1+ -- Powers of Attorney of directors and officers of the Registrant. (See page II-5 of this
Registration Statement).
</TABLE>
- ------------
+ Filed herewith.
EXHIBIT 5.1
OPINION AND CONSENT OF WEIL, GOTSHAL & MANGES LLP
June 30, 1997
The Board of Directors
Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042
Gentlemen:
We have acted as counsel to Highlands Insurance Group, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-3, as amended (the "Registration Statement"),
under the Securities Act of 1933, as amended, registering, on behalf of the
stockholders listed therein, 1,656,780 shares of common stock, par value $.01
per share (the "Common Stock"), of the Company, which shares were issued by the
Company to such stockholders in connection with the Company's acquisition of
American Reliance, Inc. (formerly known as Vik Brothers Insurance, Inc.).
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
<PAGE>
The Board of Directors
Highlands Insurance Group
June 30, 1997
Page 2
1. The 1,656,780 shares of Common Stock registered by the
Registration Statement have been duly authorized and validly issued, and are
fully paid and nonassessable.
The opinions expressed herein are limited to the corporate laws of
the State of Delaware and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
The opinions expressed herein are rendered solely for your benefit
in connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be furnished to a third party, filed with a governmental agency, quoted,
cited or otherwise referred to without our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement.
Very truly yours,
/s/Weil, Gotshal & Manges LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Highlands Insurance Group, Inc.:
We hereby consent to the use of our report incorporated herein by reference
dated February 25, 1997, related to the consolidated financial statements of
Highlands Insurance Group, Inc. and subsidiaries as of December 31, 1996, and
for the year then ended and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Houston, Texas
June 26, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Highlands Insurance Group, Inc.:
We hereby consent to the use of our report incorporated herein by reference
dated May 22, 1997, related to the consolidated financial statements of Vik
Brothers Insurance, Inc. and subsidiaries as of December 31, 1996, and for the
year then ended and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
Houston, Texas
June 26, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 8, 1996
included in Highlands Insurance Group, Inc.'s Form 10-K for the year ended
December 31, 1996 and to all references to our firm included in this
registration statement.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Houston, Texas
June 26, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of
Highlands Insurance Group, Inc. for the registration of 1,656,780 shares of its
common stock and to the incorporation by reference therein of our report dated
March 15, 1996 (except for Note 14, as to which the date is March 22, 1996),
with respect to the consolidated financial statements of Vik Brothers Insurance,
Inc. and subsidiaries incorporated by reference in its Current Report on Form
8-K dated June 27, 1997, filed with the Securities and Exchange Commission.
/s/ERNST & YOUNG LLP
June 25, 1997
Raleigh, North Carolina
