PROSPECTUS
HIGHLANDS INSURANCE GROUP, INC.
AGENCY STOCK PURCHASE PLAN
500,000 shares of Common Stock
par value $1.00
---------------------------------------------
The Agency Stock Purchase Plan (the "Plan") described herein offers
eligible agencies of Highlands Insurance Group, Inc.'s subsidiary insurance
companies an opportunity to acquire a proprietary interest in Highlands
Insurance Group, Inc. (the "Company") and share in its long-term profitable
growth.
Shares of Common Stock for the Plan will be made available by the
Company on the terms described herein and may be shares of treasury stock or
authorized but unissued shares. The purchase price for shares of Common Stock
purchased from the Company will be ninety percent (90%) of the closing price of
the Common Stock as reported by the New York Stock Exchange ("NYSE") on the last
trading day of the applicable Subscription Period. The Common Stock is listed on
the NYSE under the symbol "HIC."
There will be no brokerage commissions or service charges upon the
purchase of shares under the Plan. The Company will bear all other costs of
administering the Plan. ChaseMellon Shareholder Services LLC ("ChaseMellon"),
the Company's transfer agent, will be issuing regular statements under the Plan.
It is recommended that this Prospectus be retained for future
reference. _____________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
Price to Proceeds to
Public Commissions Company2
Per Share See Footnote1 None 100%
Total See Footnote1 -0- 100%
- ------------- ----------------- --------------- -------------
<FN>
1 Common Stock is offered to participants in the Plan at a discount of ten
percent (10%) from the closing price on the NYSE on the last trading day of
the applicable Subscription Period. The closing price of Common Stock on
the NYSE on June 1, 1999 was $10.625.
</FN>
<FN>
2 Before deducting expenses payable by the Company estimated at $20,000
</FN>
-------------------------
</TABLE>
The date of this Prospectus is June 3, 1999
<PAGE>
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 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 Commission's 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, 1998;
(2) 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
(3) All reports filed by the Company since December 31, 1998, 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.
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 - Charles Bachand, Vice-President and Chief Financial Officer.
THE COMPANY
Highlands Insurance Group, Inc. is an insurance holding company that
through its subsidiaries is engaged in the property and casualty insurance
business. Until January 23, 1996, the Company was a wholly-owned subsidiary of
Halliburton Company. On that date, the shares of the Company's Common Stock were
distributed to holders of record of common stock of Halliburton Company on
January 4, 1996 in the form of a dividend.
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 1000 Lenox Drive, Lawrenceville, New Jersey 08648, where its
telephone number is (609) 896-1921.
<PAGE>
DESCRIPTION OF THE
AGENCY STOCK PURCHASE PLAN
The following is a description in question and answer form of the
provisions of the Plan offered to selected independent insurance agencies
("Eligible Agencies") of the Company and subsidiary insurance companies. The
Plan was approved by the Company's Board of Directors on March 9, 1998.
Purpose and Advantages of the Plan
1. What is the purpose of the Plan?
This Plan provides an Eligible Agency and its Key Employees, as
defined below, an opportunity to acquire a long-term proprietary interest in the
Company through the purchase of the Company's Common Stock at a discount from
fair market value. In offering this Plan, the Company seeks to foster the common
interests of the Company and its independent agencies and their employees in
achieving long-term profitable growth for the Company. Accordingly, the Company
has created this Plan for the purpose of facilitating the purchase of and
long-term holding of shares of its stock by an Eligible Agency and its Key
Employees and not for such Agency's or Key Employees' short-term gain. It is
expected that an Eligible Agency or Key Employee that purchases shares of stock
under the Plan will hold such shares on a long-term basis, as the Plan is not
intended to benefit an agency or employee which demonstrates a pattern of
immediate resale of shares acquired under the Plan. As discussed in Question &
Answer 6 below regarding eligibility, such a pattern of conduct will cause an
otherwise Eligible Agency to become ineligible for continued participation in
the Plan.
2. What are the advantages of the Plan?
Under the Plan, an agency can purchase the Company's Common Stock at a
10% discount from the fair market value of such shares. Purchases will also be
made without paying any brokerage commissions or service charges.
Administration
3. Who administers the Plan for participants?
The Plan shall be administered by a committee (the "Committee")
consisting of three employees of the Company who are appointed by the Company's
Board of Directors. The Committee may from time to time adopt rules, regulations
and procedures for carrying out the Plan. Any interpretation or construction of
any provision of the Plan by the Committee shall be final and conclusive on all
persons absent contrary action by the Board of Directors.
4. Where can I obtain additional information about the Plan and its
administrators?
Additional information about the Plan and its administrators may be
obtained by contacting George Michaels, Assistant Vice President-Marketing, at
Highlands Insurance Group, Inc., 1000 Lenox Drive, Lawrenceville, New Jersey
08648, telephone number (609) 895-3107.
5. What is the term of the Plan?
The Plan will be in effect from March 9, 1998 through December 31,
1999. There will be four Subscription Periods ("Subscription Periods"). Each
Subscription Period will run from January 1 through June 30 or July 1 through
December 31; except the initial Subscription Period, which will run from May 15,
1998 to June 30, 1998. The Company, in its discretion, may extend the Plan.
ParticipationParticipation
6. Which agencies are eligible to participate?
Selected independent insurance agencies that bring value to the
Company, its affiliates and subsidiaries, directly or indirectly, as determined
by the Company and with whom the Company seeks a long-term relationship are
eligible to participate in the Plan. The Company, in its discretion, may base
eligibility on segmentation, class or any other factor which indicates value to
the Company, directly or indirectly. An Eligible Agency shall be informed of its
eligibility to enroll in the Plan. Continued eligibility will be subject to the
Company's periodic review.
<PAGE>
An Eligible Agency that participates in the Plan may direct that
shares purchased under the Plan from its contribution account, as defined below
in Question & Answer 16, be registered as of the date of purchase in the name of
certain persons associated with the agency. Such persons may only be (i) the
principal or principals of an Eligible Agency that is a proprietorship, (ii) the
general partner or general partners of an Eligible Agency that is a partnership,
(iii) the officers and stockholders of an Eligible Agency that is a corporation,
(iv) employee benefit plans of such entities established for the benefit of any
of the foregoing persons, and (v) key employees designated by the principal or
principals of an Eligible Agency that is a proprietorship, the general partner
or general partners of an Eligible Agency that is a partnership, or the
executive officers of an Eligible Agency that is a corporation. The Company's
determination of which persons are eligible for direct registration under the
Plan will be final, conclusive and binding. All persons enumerated in (i)
through (v) above who are designated by any such Eligible Agency to participate
in the Plan are referred to in this Prospectus as "Key Employees."
A pattern of immediate resale of stock acquired under this Plan by an
Eligible Agency or a Key Employee thereof, will be a factor in the Company's
determination of continued eligibility for the Plan because it shows that an
agency and its Key Employees are not interested in sharing in the long term
profitable growth of the Company. An otherwise Eligible Agency may not
participate in the Plan if the agency is subject to Section 16 of the Securities
and Exchange Act of 1934 in connection with the Company or is a 5% or greater
owner of the Company as defined in Section 13 of said Act. If an Eligible Agency
enrolled in the Plan becomes subject to Section 16 or a 5% owner, then the
Eligible Agency will be deemed to have withdrawn from the Plan and all amounts
in the contribution account, if any, will be refunded in cash.
7. How may an Eligible Agency participate in the Plan?
An Eligible Agency can enroll in the Plan by completing and filing a
Subscription Agreement with the Company. A Subscription Agreement is enclosed
with this Prospectus and additional Subscription Agreements may be obtained at
any time upon request to George Michaels, Assistant Vice President-Marketing, at
Highlands Insurance Group, Inc., 1000 Lenox Drive, Lawrenceville, New Jersey
08648, telephone number (609) 895-3106. In addition, Subscription Agreements
will be sent to each Eligible Agency prior to each Enrollment Period.
8. What does a Subscription Agreement provide?
A Subscription Agreement allows each Eligible Agency to decide and
identify the date on which the agency desires to become enrolled in the Plan and
the amount of the contribution selected for purchases under the Plan.
An Eligible Agency must indicate on the Subscription Agreement how the
shares purchased are to be allocated by specifying the names and addresses of
the Eligible Agency and its Key Employees, where applicable, and the percentage
of the total purchase each is to receive. If an Eligible Agency wants to change
its allocation for any future Subscription Period, the Company must receive a
new Subscription Agreement on or before June 20 or December 20 of the applicable
Subscription Period.
9. When may an Eligible Agency enroll in the Plan?
An Eligible Agency may enroll by submitting a Subscription Agreement
to the Company and making a lump sum payment by June 20th or December 20th.
10. May an Eligible Agency transfer its subscription rights to another
person or agency?
No. No Eligible Agency may assign its subscription or rights to
subscribe to any other person or agency and any such attempted assignment shall
be void. However, an Eligible Agency may permit direct registration of stock in
the name of a Key Employee as described in Question & Answer 6.
Expenses
11. Are there any expenses to participants in connection with purchases
under the Plan?
No. Eligible Agencies will not be obligated to pay any brokerage
commissions or other charges with respect to the purchase of Common Stock under
the Plan.
Purchases
<PAGE>
12. What is the source and number of shares available to be purchased
under the Plan?
Shares purchased under the Plan may be authorized but unissued shares
of Common Stock of the Company or treasury stock reacquired by the Company. The
total number of shares available for purchase under the Plan is 500,000.
13. What is the price of shares of Common Stock purchased under the Plan?
The Subscription Price for each share of Common Stock purchased under
the Plan will be 90% of the fair market value of such shares on the last trading
day of the Subscription Period; provided, however, the price shall never be less
than one dollar ($1.00) per share. "Fair market value" of a share will be the
Closing Price as reported on the NYSE on the last day of the Subscription Period
on which a trade occurs.
14. How may an Eligible Agency pay for shares purchased under the Plan?
The Subscription Price for shares purchased under the Plan is payable
by participants by means of lump sum payment. An Eligible Agency may, by June 20
or December 20 of the applicable Subscription Period, elect to make lump sum
cash payments for the purchase of Common Stock under the Plan. Lump sum cash
payments shall be in increments of $1,000 and may not be less than $1,000 and
not more than $30,000 annually.
15. Are there limitations on the amount of contributions or purchases
which can be made?
Yes. Purchases may be made only in increments of $1,000 and during any
one Subscription Period and for each calendar year of the Plan's term, the total
allowable contributions for purchases for each Eligible Agency and its Key
Employees shall not exceed $30,000. At the close of each Subscription Period,
each agency's contributions will be totaled and any excess contributions above
$30,000 shall be returned without interest to the Eligible Agency within a
reasonable time. If at any time throughout a Subscription Period, an Eligible
Agency's total payments exceed the maximum amount permitted for the agency, the
Company will return the excess amount without interest to the agency within a
reasonable period.
16. How are purchases made under the Plan?
The Company shall maintain on its books a contribution account for
each participating Eligible Agency. All contributions made by an Eligible Agency
during a Subscription Period will be credited to the contribution account for
that Eligible Agency. At the end of each Subscription Period, the amount
credited to each Eligible Agency's contribution account will be divided by the
Subscription Price for such Subscription Period and the Eligible Agency's
contribution account will be credited with the number of whole shares, excluding
fractional shares, which results. The full amount of shares, excluding
fractional shares, will then be sent by ChaseMellon directly to the Eligible
Agency and its Key Employees in accordance with the allocation specified in the
section on stock registration of the most current Subscription Agreement filed
with the Company by the Eligible Agency. The Company will rely on the most
current Subscription Agreement and will not be liable as long as the shares are
allocated in accordance with the stock registration section. If the number of
shares subscribed for during any Subscription Period exceeds the number of
shares available for sale under the Plan, available shares will be allocated to
participating Eligible Agencies in proportion to their Plan Accounts and any
excess contributions shall be returned to the participating Eligible Agencies
without interest. All amounts of contributions by an Eligible Agency that would
otherwise entitle the agency or its Key Employees to a fractional interest in
shares will be returned within a reasonable period of time to the Eligible
Agency without interest.
Reports to Participants
17. What kind of reports will be sent to an Eligible Agency participating
in the Plan?
Each Eligible Agency participant in the Plan and, if applicable, its
Key Employees will receive as promptly as practicable after each purchase of the
participating Eligible Agency's account, a statement of account describing the
amount contributed, the number of shares purchased, the price per share and
total shares of Common Stock accumulated under the Plan. These statements will
provide a continuing record of the dates and cost of purchases and should be
retained for income tax purposes. In addition, each stockholder will also
<PAGE>
receive the Company's annual reports to stockholders, notices of stockholder
meetings and proxy statements and Internal Revenue Service information for
reporting dividends paid.
Certificates for Shares
18. Are stock certificates issued for shares of Common Stock purchased?
Yes. Certificates for Common Stock purchased under the Plan will be
issued and sent directly by ChaseMellon to the Eligible Agencies and Key
Employees that purchase shares under the Plan.
Certificates for fractional shares will not be issued under any
circumstances.
Withdrawal from Plan
19. How and when may an Eligible Agency withdraw from the Plan?
An Eligible Agency may withdraw from the Plan at any time by giving
written notice to the Company of the agency's desire to do so. Termination of
agency status for any reason will be treated as an automatic withdrawal. If an
agency withdraws from the Plan, such agency, if it continues to be an Eligible
Agency, may not re-enroll until after the next full Subscription Period has
elapsed.
20. What happens to any amounts credited to an Eligible Agency's
contribution account at the time of withdrawal?
All amounts credited to an Eligible Agency's contribution account at
the time of withdrawal will be refunded to the participant in cash without
interest.
Other Information
21. What happens if the Company declares a stock split or stock dividend
or changes or exchanges its Common Stock for shares of stock or other securities
of its own or another corporation?
If shares of the Company's Common Stock are changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or another corporation, as in a merger, consolidation or otherwise, or
if the Company declares a stock split or stock dividend, there will be
substituted for or added to each share reserved for sale under the Plan the
number and kind of shares of stock or other securities into or for which the
Company's Common Stock will be so changed or exchanged, or to which each such
share will be entitled.
22. When do agencies participating in the Plan and its Key Employees
become entitled to the rights of a shareholder of the Company?
An agency participating in the Plan or Key Employees who have
purchased shares under the Plan will become entitled to vote, to receive
dividends and to all other rights as a shareholder of the Company with respect
to shares issued under the Plan on the first day following the end of the
Subscription Period during which such shares were purchased.
23. What are the federal income tax consequences of participation in the
Plan?
At the time of purchase, an agency will be treated as having received
ordinary income in an amount equal to the difference between the Subscription
Price paid and the then fair market value of the Common Stock acquired. At the
end of each calendar year, the Company will mail to each agency a Form 1099
reflecting the amount of ordinary income earned under the Plan. The Company is
entitled to a deduction at the same time in a corresponding amount. The agency's
basis in the Common Stock acquired is equal to the purchase price plus the
amount of ordinary income recognized. When an agency disposes of shares of
Common Stock acquired under the Plan, any amount received in excess of the value
of the shares of Common Stock on which the agency was previously taxed will be
treated as short-term, mid-term or long-term capital gain depending upon the
holding period of the shares (which begins on the date after the shares are
acquired). If the amount received is less than that value, the loss will be
treated as short-term, mid-term or long-term capital loss, depending upon the
holding period of the shares.
<PAGE>
If an Eligible Agency that purchases shares has such shares registered
in the name of Key Employees, such shares may be income to such Key Employees,
depending upon the status of the Key Employee and the facts and circumstances of
the registration in the name of the Key Employees.
Each participating agency or Key Employee is advised to consult with a
tax advisor to determine the tax consequences, including state tax consequences,
of a particular transaction in the agency's account or the tax treatment of
registration in the name of a Key Employee.
24. May the Plan be changed or discontinued?
Yes. The Company's Board of Directors has the right to amend, modify,
or terminate the Plan at any time without notice so long as no participating
agency's existing rights are adversely affected as a result of such change,
amendment or modification.
USE OF PROCEEDS
The proceeds to the Company from sales of Common Stock pursuant to the
Plan will be used for general corporate purposes, including investment in and
advances to the Company's subsidiaries.
EXPERTS
The consolidated financial statements and schedules of Highlands
Insurance Group, Inc. as of December 31, 1998 and 1997, and for each of the two
years then ended appearing in the Highlands Insurance Group, Inc.'s Form 10-K
for the year ended December 31, 1998 have been incorporated by reference in this
Prospectus and in the Registration Statement pursuant to a consent filed by KPMG
LLP with the Company's Form 10-K for the year ended December 31, 1998 and in
reliance upon the report of KPMG LLP, independent certified 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.
LEGAL OPINION
The validity of the issuance of the shares of Common Stock offered
hereby has been passed upon for the Company by Schnader Harrison Segal & Lewis
LLP, Philadelphia, Pennsylvania.
<PAGE>
HIGHLANDS INSURANCE GROUP, INC.
AGENCY STOCK PURCHASE PLAN
500,000
Shares of
Common Stock
-------------
PROSPECTUS
-------------
Dated: June 3, 1999
No 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. Neither delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offering in such jurisdiction.
<PAGE>
HIGHLANDS INSURANCE GROUP, INC. AGENCY STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
On behalf of ______________________________________________________
(agency), ________________ (number), I hereby elect to enroll in the Highlands
Insurance Group, Inc. Agency Stock Purchase Plan. I understand a maximum total
contribution of $30,000 applies for each Subscription Period and for each
calendar year. I further understand that Common Stock of the Company will be
purchased in accordance with the Prospectus, a copy of which has been given to
me. I enclose $________ (not less than $1,000 and not greater than $30,000 in
$1,000 increments) by check payable to Highlands Insurance Group, Inc.
Please check the applicable block:
[ ] New Participant
[ ] Continuing Participant
[ ] Withdrawal from the Plan at the end of the current Subscription
Period and receive stock for the current period
[ ] Withdrawal from the Plan immediately and receive all funds held for
the current Subscription Period
_______________________________________________ Fed. ID No.____________________
Agency Name
By:____________________________________________Date___________________________
Signature
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Title
<PAGE>
Registration Instructions:
Stock should be registered as follows.
(a) Agency
$__________________
(b) Key Employees
(1)__________________________________________ $__________________
Name
------------------------------------------
Address
------------------------------------------
Social Security Number
(2)__________________________________________ $_________________
Name
------------------------------------------
Address
------------------------------------------
Social Security Number
(3)__________________________________________ $__________________
Name
------------------------------------------
Address
------------------------------------------
Social Security Number
(4)__________________________________________ $__________________
Name
------------------------------------------
Address
------------------------------------------
Social Security Number
[Use Extra Pages If Necessary]
Total $_________________*
*Must be in increments of $1,000.
This form (with accompanying checks made payable to Highlands Insurance Group,
Inc.) should be sent to Highlands Insurance Group, Inc., 10370 Richmond Avenue,
Houston, Texas 77042, Attention: Darlene Parizot