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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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McM CORPORATION
(NAME OF SUBJECT COMPANY)
McM CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, $1.00 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
552674103
(CUSIP NUMBER OF CLASS OF SECURITIES)
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GEORGE E. KING
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
McM CORPORATION
702 OBERLIN ROAD, SUITE 300
RALEIGH, NORTH CAROLINA 27605
(919) 831-8172
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF
THE PERSON(S) FILING STATEMENT)
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is McM Corporation, a North Carolina
corporation (alternatively, "McM" or the "Company"). The address of the
principal executive office of the Company is 702 Oberlin Road, Raleigh, North
Carolina 27605. The title of the class of equity securities to which this
Statement relates is the issued and outstanding common stock, $1.00 par value
(the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by IAT Reinsurance Syndicate
Ltd., a Bermuda corporation (alternatively, "IAT" or "Purchaser") disclosed in a
Tender Offer Statement on Schedule 14D-1 filed with the Securities and Exchange
Commission (the "Commission") on July 23, 1998 (as the same may be amended from
time to time, the "Schedule 14D-1"), to purchase up to 35% of the Shares at a
price of $3.65 per Share, net to the seller in cash, without interest, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
July 23, 1998, (the "Offer to Purchase") and the related Letter of Transmittal
and any supplement thereto (which collectively constitute the "Offer").
The Offer is being made pursuant to an Offer and Rights Agreement between
the Company and IAT dated July 16, 1998 (the "Offer and Rights Agreement"), the
provisions of which are further described in Item 3(b)(2) hereof. The Offer and
Rights Agreement provides that, upon the terms and subject to the conditions
contained therein, IAT will make the Offer as described herein and the Company
will, among other things, recommend the Offer to the Company's shareholders.
According to the Schedule 14D-1, the address of the principal executive
offices of IAT is Victoria Hall, 11 Victoria Street, Hamilton HM11, Bermuda.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b)(1) The information contained on pages 5 through 17 of the Company's
Proxy Statement, dated April 21, 1998, for the Company's 1998 Annual Meeting of
Shareholders filed with the Commission as Exhibit 1 and incorporated herein by
reference contains information with respect to certain contracts, agreements,
arrangements or understandings between the Company and certain of its directors,
executive officers and affiliates.
Employee Incentive Stock Option Plans
Certain officers of the Company have received incentive stock option awards
to purchase the common stock of the Company under both the 1986 and 1996
Employee Incentive Stock Option Plans of McM Corporation (the "Option Plans"),
both approved by the shareholders of the Company on May 16, 1986, and May 23,
1996, respectively, and filed as Exhibits 2 and 3 and incorporated herein by
reference. Under the Option Plans, a total of 177,962 shares of the Company's
common stock are reserved for issuance pursuant to outstanding options. Of those
shares, 157,962 are attributable to options held by executive officers. Both
Option Plans provide that, upon a Change in Control (defined in the Option
Plans), all options held by an optionee become fully exercisable. Consummation
of the Offer as described herein would constitute a Change in Control under the
Option Plans. IAT has offered to cash out all existing options in consideration
of a cash payment of an amount equal to the difference between the option price
and $3.65. The executive officers of the Company, George E. King and Stephen L.
Stephano, entered into an agreement with IAT on July 16, 1998, whereby they have
agreed, among other things, to cancel all of their options under the Option
Plans for the cash consideration offered by IAT. For those options with an
option price above $3.65, Mr. King and Mr. Stephano have agreed to the
termination of these options with no cash payment in exchange for such
termination. (See discussion of this agreement under heading "Tender Agreement"
below).
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Executive Officers' Employment Agreements
The Company's two executive officers, Mr. King and Mr. Stephano, have
two-year rolling term employment agreements with the Company filed as Exhibits 4
and 5 and incorporated herein by reference. In the event either executive
officer's employment is terminated without cause or the executive is required to
relocate his office more than fifty miles from its present location, the officer
is eligible for a termination benefit of two years' salary. The specific terms
of the employment agreements and other compensation arrangements with Mr. King
and Mr. Stephano are further described in Exhibits 1, 4 and 5.
Employee Stock Purchase Plan of McM Corporation
The 1996 Employee Stock Purchase Plan of McM Corporation (the "ESP Plan")
was approved by the Board of Directors and became effective as of May 23, 1996,
and is filed as Exhibit 6 and incorporated herein by reference. Under the Plan,
eligible employees (including executive officers) may purchase up to an
aggregate of 300,000 shares of the Company's common stock. At the end of the
quarterly offering period, participants can elect to purchase shares of the
Company's common stock at a ten percent discount of the closing price of the
common stock reported on the NASDAQ Stock Exchange on the day before the
applicable purchase date. 31,350 shares have been subscribed to under the ESP
Plan as of July 14, 1998, of which total 16,532 shares are held by executive
officers.
Pursuant to the Offer and Rights Agreement, the Company has terminated the
ESP Plan effective as of July 15, 1998, the day after the last quarterly
purchase under the ESP Plan. Employees may elect to tender the shares held in
their ESP Plan accounts by completing the Instructions included with the Offer
to Purchase.
Key Executive Incentive Compensation Plan
The Company's Key Executive Incentive Compensation Plan (the "Incentive
Plan"), effective January 1, 1993, filed as Exhibit 7 and incorporated herein by
reference, provides incentive compensation for the executive officers of McM,
Mr. King and Mr. Stephano, and is further described in the proxy statement filed
as Exhibit 1 and incorporated herein by reference.
McM Corporation Phantom Stock Plan
The McM Corporation Phantom Stock Plan (the "Phantom Plan"), filed as
Exhibit 8 and incorporated herein by reference, was approved by the Board of
Directors and became effective January 19, 1995. Mr. Stephano has received a
total of 100,000 shares of phantom stock awards under the Phantom Plan. Under
the terms of the Phantom Plan, Mr. Stephano's shares of phantom stock mature as
of the earliest to occur of (a) the two year anniversary of the date of
termination of Mr. Stephano's employment; (b) the date of death or total and
permanent disability of Mr. Stephano; or (c) the date Mr. Stephano reaches age
55. Upon maturity, Mr. Stephano receives the value of the phantom stock as
calculated under the Phantom Plan.
(b)(2) The Offer and Rights Agreement. The following is a summary of the
Offer and Rights Agreement filed as Exhibit 9 and incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Offer
and Rights Agreement.
The Offer. The Offer and Rights Agreement provides for the commencement of
the Offer as promptly as reasonably practicable, but in no event later than five
business days after the initial public announcement of the execution of the
Offer and Rights Agreement. The obligation of Purchaser to accept for payment
Shares tendered pursuant to the Offer is subject to the satisfaction of the
Minimum Condition and certain other conditions that are described herein.
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Designation of Directors. The Offer and Rights Agreement provides that
immediately following the Purchaser's Election Time (as defined below) and from
time to time thereafter, Purchaser shall be entitled to designate a majority of
the Board of Directors. Pursuant to the Offer and Rights Agreement, the Company
agrees, at such time, to promptly take all actions necessary to cause
Purchaser's designees to be elected as directors of the Company, including
increasing the size of the Board or securing the resignations of incumbent
directors or both. The Offer and Rights Agreement also provides that, at such
time, the Company shall use its best efforts to cause persons designated by
Purchaser to constitute a majority of (a) each committee of the Board (some of
whom may be required to be independent as required by applicable law or the
requirements of the rules of the National Association of Securities Dealers,
Inc.), (b) each board of directors of each subsidiary and (c) each committee of
each such board, in each case only to the extent permitted by applicable law. If
any of Purchaser's designees dies, resigns or is removed upon the direction of
Purchaser, the Company agrees in the Offer and Rights Agreement to take all
action necessary to cause such vacancy to be filled by a designee of Purchaser
within 10 business days after the opening of such vacancy. Notwithstanding the
foregoing, the Offer and Rights Agreement provides that until the Purchaser's
Election Time, the Company shall use its best efforts to ensure that all the
members of the Board and each committee of the Board and such boards and
committees of the subsidiaries of the Company as of the date thereof who are not
employees of the Company shall remain members of the Board and of such boards
and committees.
Rights to Purchase Preferred Stock. Pursuant to the Offer and Rights
Agreement, the Company agrees to issue to Purchaser, immediately following the
acceptance for payment and payment by Purchaser for Shares validly tendered and
not withdrawn pursuant to the Offer, rights ("Rights") to purchase from the
Company 60,000 shares of a new issue of Series A preferred stock, par value
$1,000 per share ("Preferred Stock"), at an exercise price of $.01 per share of
Preferred Stock. The Rights are exercisable in whole or in part and at any time
after issuance and prior to June 1, 2008, if, (i) the Trust sells (including
without limitation, pursuant to a merger, consolidation or other business
combination transaction involving the Company) any of the Retained Shares to any
third party other than Purchaser or an assignee of Purchaser, or (ii) if any
person or entity other than Purchaser causes Purchaser's designees to cease to
constitute a majority of the members of the Board of Directors of the Company.
Notwithstanding the foregoing, the Offer and Rights Agreement provides that the
Rights shall not become immediately exercisable if Purchaser's designees fail to
constitute a majority of the members of the Company's Board of Directors due to
the death, resignation or removal by Purchaser of any such designee; provided,
that the Rights shall become exercisable following any such event if, prior to
the time Purchaser's designees again represent a majority of the members of the
Company's board of directors, such board takes any action opposed by a majority
of the remaining designees of Purchaser or, if no such designees remain, the
then current chief executive officer of Purchaser. Pursuant to the Offer and
Rights Agreement, the Company agreed to take all action necessary to fill any
vacancy created by death, resignation or removal by Purchaser of Purchaser's
designees to the board of directors of the Company within 10 business days of
any such event.
The Offer and Rights Agreement also provides that no delay or failure by
Purchaser in exercising the Rights upon an occurrence of an event allowing for
exercise shall operate as a waiver of such right to exercise, nor shall any
partial exercise of the Rights preclude other or further exercise thereof. No
Rights may be exercised for less than a whole share of Preferred Stock, and the
Purchaser may surrender the Rights to the Company for cancellation at any time
before June 1, 2008. The Offer and Rights Agreement also provides that
Purchaser, as holder of Rights, shall not be deemed for any purposes the holder
of any shares of Preferred Stock issuable on the exercise thereof, nor shall the
Offer and Rights Agreement confer on Purchaser, as such holder of Rights, any of
the rights of a shareholder of the Company until the Rights shall have been
exercised and then only to the extent provided in the designation of Preferred
Stock. Pursuant to the Offer and Rights Agreement, each person in whose name any
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly delivered
to the Company with payment of the exercise price (and any applicable taxes and
other governmental charges payable by the exercising holder hereunder);
provided, however, that if the date of such delivery and payment is a date upon
which the stock transfer books of the Company are closed, such
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person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding business day on which the
stock transfer books of the Company are open.
The Offer and Rights Agreement attaches as an exhibit the rights,
preferences, limitations and characteristics (the "Designation") of the
Preferred Stock, which provides for a series of 60,000 shares, which number may
from time to time be increased or decreased (but may not be decreased below the
number then outstanding) by the board of directors of the Company. The
Designation provides that the Preferred Stock will have no dividend or voting
rights (other than voting rights required by the North Carolina Business
Corporation Act), and will not be convertible or exchangeable for shares of
Common Stock or any other class or series of stock (or any other security) of
the Company. The Designation provides that the Preferred Stock shall rank, as to
distribution of assets upon liquidation, dissolution or winding up, senior to
any other class or series of preferred stock of the Company. Moreover, upon the
voluntary or involuntary liquidation, dissolution of winding up of the Company,
the Designation provides that the holders of shares of Preferred Stock shall be
entitled to receive out of the net assets of the Company, before any payment or
distribution shall be made or set apart for payment on the Common Stock or any
other class or series of stock of the Company, the amount of $1,000 per share;
provided, that after such payment, the holders of Preferred Stock, as such,
shall have no right or claim to any of the remaining net assets of the Company.
Subject to the North Carolina Business Corporation Act and required regulatory
approvals, the Designation also provides that the Preferred Stock shall at all
times be redeemable at the option of the holder thereof in cash for $1,000 per
share payable by the Company by official bank or certified check or wire
transfer of immediately available funds. Such redemption shall occur within ten
business days after receiving a written notice of redemption from the holder of
shares of Preferred Stock accompanied by a certificate or certificates for such
shares duly endorsed by the holder thereof with signature guaranteed by a
financial institution.
In the Offer and Rights Agreement, the Company covenants and agrees that it
will (i) cause the Company's Articles of Incorporation to be amended immediately
following Purchaser's purchase of Shares in the Offer to include the designation
of the Preferred Stock and such other matters as may be required by applicable
law in connection with the establishment of the Preferred Stock, (ii) take all
such action as may be necessary to insure that all shares of Preferred Stock
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the exercise price
therefor), be duly and validly authorized, executed, issued and delivered and
fully paid and nonassessable, (iii) take all such action as may be necessary to
comply with any applicable laws, rules, or regulations in connection with the
issuance of any shares upon exercise of Rights, and (iv) pay when due and
payable any and all federal and state transfer taxes and charges that may be
payable in respect of the original issuance or delivery of a Rights Certificate
or of any shares of Preferred Stock issued upon the exercise of Rights;
provided, however, that the Company shall not be required to pay any transfer
tax or charge that may be payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the issuance or delivery of
certificates for shares of Preferred Stock in a name other than of the holder of
the Rights being transferred or exercised.
Conduct of Business. Pursuant to the Offer and Rights Agreement, the
Company has covenanted and agreed that, between the date of the Offer and Rights
Agreement and the election or appointment of Purchaser's designees to serve on
the Company's Board of Directors (the "Purchaser's Election Date"), unless
Purchaser shall otherwise agree in writing, each of the Company and its
Subsidiaries (as defined in the Offer and Rights Agreement) shall conduct its
business only in, and the Company and the Subsidiaries shall not take any action
except in the ordinary course of business and in a manner consistent with past
practice; and the Company shall use its best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and its Subsidiaries and to preserve the current relationships of the
Company and its subsidiaries with customers, suppliers and other persons with
which the Company or any of its subsidiaries have significant business
relations. The Offer and Rights Agreement also provides that, except as
contemplated by the Offer and Rights Agreement, neither the Company nor any
Subsidiary shall, between the date of the Offer and Rights Agreement and the
Purchaser's Election Date, directly or indirectly do, or propose to do, any of
the following: without the prior written consent of the Purchaser (a) amend or
otherwise change its Articles of Incorporation or Bylaws or equivalent
organizational documents; (b) issue, sell, pledge, dispose of,
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grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (i) any shares of capital stock of any class of the Company or
any subsidiary, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any subsidiary or (ii) any assets of the Company or any subsidiary, except
for sales in the ordinary course of business and in a manner consistent with
past practice; (c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock except for the regular quarterly dividend of Wilshire
Insurance Company to Occidental Fire & Casualty Company of North Carolina; (d)
reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock; (e) (i) acquire (including,
without limitation, by merger, consolidation, or acquisition of stock or assets
or any other business combination) any corporation, partnership, other business
organization or any division thereof or any material amount of assets other than
in the ordinary course of business; (ii) incur any indebtedness for borrowed
money except of routine use of the Company's existing line of credit in the
ordinary course of business or issue any debt securities or assume, guarantee or
endorse, pledge in respect of or otherwise as an accommodation become
responsible for the obligations of any person, or make any loans or advances,
except in the ordinary course of business and consistent with past practice;
(iii) enter into any contract or agreement other than contracts or agreements
entered into in the ordinary course of business, consistent with past practice
and which require payments by the Company or its subsidiaries in an aggregate
amount of less than U.S. $250,000; (iv) terminate, cancel or request any
material change in, or agree to any material change in, any material contracts,
except in the ordinary course of business consistent with past practice; (v)
authorize any single capital expenditure (excluding software development
activity) which is in excess of U.S. $100,000 or capital expenditures which are,
in the aggregate, in excess of U.S. $250,000 for the Company and its
subsidiaries taken as a whole; or (vi) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter described in
this clause (e); (f) increase the compensation payable or to become payable to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any subsidiary who
are not officers of the Company, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company or any subsidiary, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee or circulate to any employee any details of any proposal to adopt or
amend any such plan; (g) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable and
collection of accounts receivable); (h) make any tax election or settle or
compromise any material federal, state, local or foreign income tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against on
the Company's consolidated balance sheet included in its Annual Report on Form
10-K for the period ended December 31, 1997, or subsequently incurred in the
ordinary course of business and consistent with past practice; or (j) except for
insurance claims settled in the ordinary course, certain litigation matters and
insurance related claims, settle or compromise any pending or threatened suit,
action or claim that is material or which relates to any of the Transactions; or
(k) announce an intention, enter into any formal or informal agreement, or
otherwise make a commitment, to do any of the foregoing or any action that would
result in any of the conditions to the Offer not being satisfied (other than as
contemplated by the Offer and Rights Agreement).
Access to Information; Confidentiality. Pursuant to the Offer and Rights
Agreement, from the date of the Offer and Rights Agreement to the Purchaser's
Election Time, the Company agreed to, and to cause its Subsidiaries and the
officers, directors, employees, auditors and agents of the Company and its
subsidiaries to, afford the officers, employees and agents of the Purchaser
complete access at all reasonable times to the officers, employees, agents,
properties, offices, and other facilities, books and records of the Company and
each of its subsidiaries and to furnish Purchaser with all financial, operating
and other data and information as
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Purchaser, through its officers, employees or agents, may reasonably request.
The Purchaser agreed in the Offer and Rights Agreement except as required by law
to keep such information confidential in accordance with the Confidentiality
Agreement dated as of April 15, 1998 (the "Confidentiality Agreement"), between
Purchaser and the Company.
No Solicitation of Transactions. The Company has agreed that neither the
Company nor any subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any of its subsidiaries or any business combination with the Company
or any of its subsidiaries or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
Notwithstanding the foregoing, the Offer and Rights Agreement permits the Board
to furnish information to, or enter into discussions or negotiations with, any
person in connection with an unsolicited (from the date of the Offer and Rights
Agreement) proposal in writing by such person to acquire the Company pursuant to
a merger, consolidation, share exchange, business combination or other similar
transaction or to acquire all or substantially all of the assets of the Company
or any of its Subsidiaries, if, and only to the extent that, (a) the Board,
after consultation with independent legal counsel (which may include its
regularly engaged independent legal counsel), determines in good faith that such
action is required for the Board to comply with its fiduciary duties to
shareholders imposed by North Carolina law and (b) prior to furnishing such
information to, or entering into discussions or negotiations with, such person,
the Company uses its reasonable best efforts to obtain from such person an
executed confidentiality agreement on terms no less favorable to the Company
than those contained in the Confidentiality Agreement (or obtained a
confidentiality agreement prior to the date of the Offer and Rights Agreement).
Pursuant to the Offer and Rights Agreement, the Company agreed to immediately
cease and cause to be terminated all existing discussions or negotiations with
any parties conducted prior to the date of the Offer and Rights Agreement with
respect to any of the foregoing. Moreover, the Company agreed (x) to notify
Purchaser promptly if any such proposal or offer, or any inquiry or contact with
any person with respect thereto, is made and (y) not to release any third party
from, or waive any provision of, any confidentiality or, subject to the
fiduciary duties of the Board, standstill agreement to which the Company is or
may become a party.
Treatment of Stock Options; Employee Stock Purchase Rights. Under the
terms of the Company's 1986 Employee Incentive Stock Option Plan and 1996
Employee Incentive Stock Option Plan (collectively, the "Stock Option Plans"),
each outstanding option (an "Option") to purchase Shares becomes exercisable in
full, regardless of the vesting schedule contained in any stock option agreement
or in any of the Stock Option Plans, five business days prior to the
consummation of a change of control ("Change of Control") as defined in the
Stock Option Plans. A Change of Control includes the acquisition by any person
of beneficial ownership, directly or indirectly, of 25% or more of the voting
power of the Company's then outstanding securities. The Stock Option Plans
further provide that, in the event any Option holder is terminated as an
employee of the Company within three months following Change of Control, all
options granted to such employee on or before the date of such termination shall
remain exercisable for a period ending on the earlier of (i) six months
following such termination or (ii) the original expiration date of the Option.
Consummation of the Offer in accordance with the terms described herein would
constitute a Change of Control. Except as described herein, any holders of
Options under the Stock Option Plans wishing to tender such Option Shares in the
Offer may either exercise such options and tender the Shares received in
accordance with the general instructions provided herein or, in lieu of
exercising such Options and tendering such Shares in the offer, elect to cancel
such Options and obtain from the Purchaser, in exchange for such cancellation,
an amount (subject to applicable withholding tax) in cash equal to the product
of (a) the number of Shares previously subject to such Option and (b) the
excess, if any, of the per share consideration payable pursuant to the Offer
over the exercise price per Share previously subject to such Option. Employees
may elect to cancel their Options in return for the cash payment described above
by completing the Instructions included with the Offer to Purchase.
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The Company has terminated the 1996 Employee Stock Purchase Plan (the
"Employee Purchase Plan") effective as of July 15, 1998, the day after the last
quarterly purchase date under the Employee Purchase Plan. Employees may elect to
tender Shares held in their Employee Purchase Plan accounts by completing the
Instructions included with the Offer to Purchase.
Directors' and Officers' Indemnification and Insurance. Following
Purchaser's Election Time, and for a period of six years thereafter, the Offer
and Rights Agreement requires Purchaser to cause the Board of Directors of the
Company to retain provisions in the Articles of Incorporation and Bylaws of the
Company no less favorable with respect to indemnification of officers and
directors than are currently set forth in such documents, unless such
modification shall be required by law. The Offer and Rights Agreement also
provides that the Company, from and after the date of such Agreement and to and
including the date six years after the Purchaser's Election Time, shall use its
best efforts to maintain in effect, if available, the current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Company may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring on or prior to the Purchaser's Election Time.
Notwithstanding the foregoing, in no event shall the Company be required to
expend more than $140,000 per year for such insurance.
Representations and Warranties. The Offer and Rights Agreement contains
various representations and warranties of the parties thereto, including
representations by the Company as to the Company's due incorporation and valid
existence and power and authority with respect to the Transactions, the
enforceability of the Offer and Rights Agreement against the Company, the
absence of conflicts between the Transactions and the organizational documents
or contracts of the Company or applicable law, the brokers engaged by the
Company, the capitalization of the Company, the Company's filings with the
Commission, the consolidated financial statements of the Company and its
subsidiaries, and the absence of certain changes or events concerning the
Company's business.
The Company also represented in the Offer and Rights Agreement that (a) the
Board has unanimously (i) determined that the Offer and Rights Agreement and the
Transactions contemplated thereby, including the Offer, are fair to and in the
best interests of the shareholders of the Company, (ii) approved and adopted the
Offer and Rights Agreement, and (iii) recommended that the shareholders of the
Company accept the Offer.
Conditions to Offer and Rights. The obligation of Purchaser to consummate
the Offer is subject to the satisfaction of the Regulatory Approval Conditions
and the satisfaction or waiver of the Minimum Condition (which may not be waived
below 25% of the voting power of the Company) and the other conditions set forth
in Annex A to the Offer and Rights Agreement. The obligation of the Company
under the Offer and Rights Agreement to issue the Rights is subject to the
fulfillment, at or prior to such issuance, of the Regulatory Approval
Conditions, the accuracy of the representations and warranties of Purchaser in
the Offer and Rights Agreement and Purchaser's acceptance for payment and
payment for Shares validly tendered and not withdrawn pursuant to the Offer.
Termination. The Offer and Rights Agreement may be terminated and the
Offer and other Transactions may be abandoned at any time prior to Purchaser's
Election Time: (a) by mutual written consent duly authorized by the Boards of
Directors of Purchaser and the Company prior to Purchaser's Election Time; (b)
by Purchaser or the Company if (i) the Purchaser's Election Time shall not have
occurred on or before the date 180 days following commencement of the Offer (so
long as the party seeking such termination has not failed to fulfill any
obligation under the Offer and Rights Agreement, which failure has been the
cause of, or resulted in, the failure of the Purchaser's Election Time to occur
on or before such date) or (ii) any court of competent jurisdiction in the
United States or other governmental authority shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer and such order, decree, ruling or other action shall have
become final and nonappealable; (c) by Purchaser, upon approval of its Board of
Directors, if (i) due to an occurrence or circumstance that would result in a
failure to satisfy any condition to the Offer, Purchaser shall have (A) failed
to commence the Offer within 30 days following the date of the Offer and Rights
Agreement, (B) terminated the Offer without having accepted any Shares for
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<PAGE> 9
payment thereunder or (C) failed to pay for Shares pursuant to the Offer within
180 days following the commencement of the Offer; unless such action or inaction
under (A), (B) or (C) shall have been caused by or resulted from the failure of
Purchaser to perform in any material respect any material covenant or agreement
of Purchaser contained in the Offer and Rights Agreement or the material breach
by Purchaser of any material representation or warranty contained in the Offer
and Rights Agreement or (ii) prior to the purchase of Shares pursuant to the
Offer, the Board or any committee thereof shall have withdrawn or modified in a
manner adverse to Purchaser its approval or recommendation of the Offer, the
Offer and Rights Agreement, or any other Transaction or shall have recommended
another merger, consolidation, business combination with, or acquisition of, the
Company or any of its assets or another tender offer or exchange offer for
Shares, or shall have resolved to do any of the foregoing; or (d) by the
Company, upon approval of the Board, if (i) due to an occurrence or circumstance
that would result in a failure to satisfy any condition to the Offer, Purchaser
shall have (A) failed to commence the Offer within 30 days following the date of
the Offer and Rights Agreement, (B) terminated the Offer without having accepted
any Shares for payment thereunder or (C) failed to pay for Shares pursuant to
the Offer within 180 days following the commencement of the Offer, unless such
action or inaction under (A), (B), and (C) shall have been caused by or resulted
from the failure of the Company to perform in any material respect any material
covenant or agreement of it contained in the Offer and Rights Agreement or the
material breach by the Company of any material representation or warranty of it
contained in the Offer and Rights Agreement or (ii) prior to the purchase of
Shares pursuant to the Offer, the Board shall have withdrawn or modified in a
manner adverse to Purchaser its approval or recommendation of the Offer, the
Offer and Rights Agreement, or any other Transaction in order to approve the
execution by the Company of a definitive agreement providing for the acquisition
of the Company or any of its assets by a sale, merger or other business
combination or in order to approve a tender offer or exchange offer for Shares
by a third party, in either case, as the Board determines in good faith that
such action is required for the Board to comply with its fiduciary duties to
shareholders, after consultation with its independent legal counsel and
financial advisers, and is on terms more favorable to the Company's shareholders
than the Offer; provided, however, that such termination under clause (ii) above
shall not be effective until the Company has reimbursed Purchaser for its
Expenses (as hereinafter defined).
In the event of the termination of the Offer and Rights Agreement, pursuant
to the terms in the preceding paragraph, the Offer and Rights Agreement provides
that it shall forthwith become void, and there shall be no liability on the part
of any party thereto, except under the provisions of the Offer and Rights
Agreement related to expenses described below, confidentiality, and certain
other miscellaneous provisions and except for liability of any party for breach
of the Offer and Rights Agreement prior to its termination.
Expenses. The Offer and Rights Agreement provides that in the event that
(a) (i) on or after July 16, 1998, and prior to termination of the Offer and
Rights Agreement, any person (including, without limitation, the Company or any
affiliate thereof, but excluding the Trust, Purchaser or any affiliate of
Purchaser), shall have become the beneficial owner of more than 10% of the then
outstanding Shares and (ii) the Offer and Rights Agreement shall have been
terminated pursuant to the termination section of such agreement and (iii)
within 12 months of such termination a Third Party Acquisition (as defined
hereinafter) shall occur; or (b) (i) on or after July 16, 1998, and prior to
termination of the Offer and Rights Agreement any person shall have commenced,
publicly proposed or communicated to the Company a proposal that is publicly
disclosed for a tender or exchange offer for 25% or more (or which, assuming the
maximum amount of securities that could be purchased, would result in any person
beneficially owning 25% or more of the then outstanding Shares) or otherwise for
the direct or indirect acquisition of the Company or all or substantially all of
its assets for per Share consideration having a value greater than the per Share
consideration provided in the Offer and (ii)(A) the Offer shall have remained
open for at least 20 business days, (B) the Minimum Condition shall not have
been satisfied and (C) the Offer and Rights Agreement shall have been terminated
pursuant to the terms in of termination section of such agreement; or (c) the
Offer and Rights Agreement is terminated pursuant to the termination provisions
described in clause (c)(ii) or (d)(ii) of the second preceding paragraph; or (d)
so long as Purchaser is not in material breach of its obligations under the
Offer and Rights Agreement, if (i) the Offer and Rights Agreement is terminated
as described in clause (c) of the second preceding paragraph due to the material
breach of the Company's obligations under the Offer and Rights Agreement or (ii)
the Offer and Rights Agreement is terminated as described in clause (c) second
preceding
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<PAGE> 10
paragraph because of the failure of representations and warranties of the
Company to be true and correct, which failures in the aggregate have or are
reasonably likely to have any change or effect that is or is reasonably likely
to be materially adverse to the business, operations, condition (financial or
otherwise), assets or liabilities (including, without limitation, contingent
liabilities) of the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect") or because of the failure of the Company to perform in any
material respect any material obligation or to comply in any material respect
with any material agreement or material covenant of the Company to be performed
or complied with by it under the Offer and Rights Agreement, then in any event
set forth in clauses (a), (b), (c) or (d) above, the Offer and Rights Agreement
requires the Company to promptly reimburse Purchaser for all Expenses. The Offer
and Rights Agreement, however, does not require payment of Expenses if the
events described in clause (a) or (b) above are satisfied if (x) the Offer and
Rights Agreement is terminated solely for failure to satisfy any Regulatory
Condition and (y) the failure to satisfy such Regulatory Condition is in no
respect due to the occurrence of any event described in clause (a)(i) or (b)(i)
described above.
"Expenses" is defined in the Offer and Rights Agreement to mean all
out-of-pocket expenses and fees up to $250,000 in the aggregate (including,
without limitation, fees and expenses payable to all banks, investment banking
firms, other financial institutions and other persons and their respective
agents and counsel for structuring the Transactions and all fees of counsel,
accountants, experts and consultants to Purchaser, and all printing and
advertising expenses) actually incurred or accrued by Purchaser or on its behalf
in connection with the transactions contemplated by the Offer and Rights
Agreement and the Trust Purchase Agreement, and/or actually incurred or accrued
by banks, investment banking firms, other financial institutions and other
persons and assumed by Purchaser in connection with the negotiation,
preparation, execution and performance of the Offer and Rights Agreement and the
Trust Purchase Agreement, the structuring of the Transactions and any agreements
relating thereto. In the event that the Company shall fail to pay any Expenses
when due, the term "Expenses" is deemed to include the costs and expenses
actually incurred or accrued by Purchaser (including, without limitation, fees
and expenses of counsel) in connection with the collection under and enforcement
of the expenses provision of the Offer and Rights Agreement, together with
interest on such unpaid Expenses, commencing on the date that such Expenses
became due, at a per annum rate equal to the rate of interest publicly announced
by First Union National Bank, from time to time, in the City of Charlotte, North
Carolina, as such bank's prime rate plus 1.00 percentage point. In addition, in
connection with any other action or proceeding by any party hereto against any
other party hereto alleging a breach of a representation, warranty, covenant or
agreement set forth herein, the prevailing party in such action or proceeding
shall be entitled to recover costs and expenses actually incurred or accrued
(including without limitation, fees and expenses of counsel) in connection with
the prosecution or defense (as the case may be) of such action or proceeding.
"Third Party Acquisition" is defined in the Offer and Rights Agreement to
mean the occurrence of any of the following events: (i) the acquisition of the
Company by merger, consolidation or other business combination transaction by
any person other than Purchaser or any affiliate thereof (a "Third Party"); (ii)
the acquisition by any Third Party of all or substantially all of the assets of
the Company and its subsidiaries, taken as a whole; (iii) the acquisition by a
Third Party of 25% or more of the outstanding Shares whether by tender offer,
exchange offer or otherwise; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; or (v)
the repurchase by the Company or any of its Subsidiaries of 25% or more of the
outstanding Shares.
Except as set forth above, all costs and expenses incurred by Purchaser and
the Company in connection with the Offer and Rights Agreement and the
Transactions are required to be paid by the party incurring such expenses,
whether or not any such Transaction is consummated.
The Trust Purchase Agreement. The following is a summary of the Trust
Purchase Agreement filed as Exhibit 10 and incorporated by reference. Such
summary is qualified in its entirety by reference to the Trust Purchase
Agreement.
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<PAGE> 11
Purchase of Shares. Pursuant to the Trust Purchase Agreement, upon the
purchase of Shares by Purchaser pursuant to the Offer, the Trustee, on behalf of
the Trust, agrees to sell 658,900 Shares to Purchaser for $3.65 per share or an
aggregate purchase price of $2,404,985.00 (the "Purchased Shares").
Restrictions on Transfer. Under the Trust Purchase Agreement, Purchaser's
resale of the Purchased Shares to a third party on or prior to December 31,
2003, would require the written consent of the Trustee, such consent not to be
unreasonably withheld if the Trustee is reasonably satisfied as to the financial
and professional qualities of such third party. In addition, Purchaser grants to
the Trustee a right of first refusal to buy the Purchased Shares and any other
capital stock or rights to acquire capital stock of the Company.
Deposit. The Trust Purchase Agreement provides that, upon the closing of
the purchase of the Purchased Shares, Purchaser will deposit $8,864,390 with the
Trust, an amount in cash equal to $3.65 multiplied by the number of shares owned
by the Trust following the sale of the Purchased Shares (the "Retained Shares").
Such deposit would be invested and reinvested by the Trustee. Any income earned
on the deposit would be the sole property of the Trust and any losses thereon
would be the sole responsibility of the Trust, all subject to the provisions
described below. The Trust Purchase Agreement expressly provides that the
agreement does not constitute any commitment on Purchaser's part to purchase the
Retained Shares, any commitment on the Trust's part to sell the Retained Shares
or any agreement with respect to a price for the Retained Shares, if and when
Purchaser and the Trust might subsequently agree to a purchase and sale of the
Retained Shares.
The Trust Purchase Agreement generally provides that, if following the
making of such deposit, Purchaser makes an offer to purchase the Retained Shares
that is accepted by the Trust, the original deposit (without interest) will be
used as a credit against the purchase price of the Retained Shares, regardless
of the actual amount of funds related to the original deposit held by the Trust
at such time. Pursuant to the Trust Purchase Agreement, if Purchaser makes a
written offer to purchase the Retained Shares at a price in cash of at least
$3.65 per share determined by a nationally recognized independent investment
banking firm to be fair from a financial point of view to the Trust as majority
shareholder of the Company, then (i) if the Trust rejects such offer, the Trust
must refund the entire original deposit (without interest) to Purchaser and may
retain the Retained Shares, and (ii) if the Trust accepts such offer and the
purchase price is greater than the original deposit, Purchaser pays the
difference between (x) the agreed purchase price per share and (y) the original
deposit, plus interest at a rate of 6% per annum from the date the Trust
received such deposit to the closing of the purchase, and the Trust is required
to transfer the Retained Shares to Purchaser.
Pursuant to the Trust Purchase Agreement, if the Trust at any time sells
any Retained Shares to a third party, the Trust would refund to Purchaser a
portion of the original deposit equal to $3.65 for each Retained Share sold by
the Trust, and if the Company at any time enters bankruptcy, the deposit would
become the property of the Trust and the Trust would transfer the Retained
Shares to Purchaser without further consideration.
Other Covenants. Pursuant to the Trust Purchase Agreement, the Trust
agrees not to tender any of the Retained Shares in the Offer. In addition, the
Trust agrees that it will support the issuance of the Rights provided pursuant
to the Offer and Rights Agreement and, if required by law or requested by
Purchaser, will vote all of the Retained Shares in favor of the issuance of such
Rights.
Conditions; Termination. The transactions contemplated by the Trust
Purchase Agreement are conditioned upon (i) the approval of such agreement and
the transactions contemplated thereby by the Delaware Chancery Court and the
North Carolina Commissioner of Insurance, (ii) the expiration of applicable
antitrust waiting periods under the HSR Act, (iii) the acceptance for payment
and payment by Purchaser of Shares pursuant to the Offer and (iv) the accuracy
of the representations and warranties of the parties thereto. In addition,
Purchaser's obligations are conditioned upon the directors, the spouses of the
directors, the Greenfield Children's Limited Partnership, the Jesse Greenfield
IRA and a charitable foundation of which R. Peyton Woodson III (currently a
director of the Company) is a trustee, agreeing to sell or tender to Purchaser
an aggregate of 481,932 Shares at $3.65 per share. The Trust Purchase Agreement
terminates on the earlier of the mutual written consent of the Purchaser and the
Trust and June 1, 2008.
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The Tender Agreement. The following is a summary of the Tender Agreement
filed as Exhibit 11 and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Tender Agreement.
Tender of Shares; Cash-Out of Options. Pursuant to the Tender Agreement,
each Director has agreed, among other things, to tender in the Offer and not
withdraw, or to cause to be tendered and not withdrawn, 481,932 Shares listed on
a schedule to the Tender Agreement and all other Shares beneficially owned by
such Director as of July 16, 1998, or thereafter acquired; provided, that no
such tender is required if such Director would as a result of such tender incur
liability under Section 16(b) of the Exchange Act ("Section 16(b)"). In the
Tender Agreement, each Director also agreed that in the event any Director fails
to tender any Shares due to a prospective Section 16(b) liability, as soon as
the risk of such liability lapses, such Director would tender such Shares in the
Offer or, if Purchaser has accepted Shares for payment pursuant to the Offer,
would sell each such Share to Purchaser for the per Share consideration paid in
the Offer. Each Director also agreed, in accordance with the procedures set
forth in the Offer, to instruct the Company to cancel any options to purchase
Shares held by such Director in return for a per share cash payment, subject to
applicable withholding taxes, equal to the positive difference, if any, between
$3.65 and the exercise price for such share. As of the date hereof, the
Directors as a group hold options to purchase 157,962 Shares.
Board of Directors Matters. In the Tender Agreement, the Directors also
agreed, upon the purchase of Shares and cash-out of options by Purchaser
pursuant to the Offer, and at the request of Purchaser, to resign immediately as
a director of the Company, or at such later time requested by Purchaser. Each
director not asked by Purchaser to resign also agreed immediately to appoint a
slate of directors designated by Purchaser to fill any vacancies created by such
resignations.
Other Covenants. The Directors also agreed in the Tender Agreement not to
purchase any Shares from the Trust and not to sell or place a lien on any of the
Shares to be tendered by them or options to be canceled by them in the Offer
prior to the earlier of the consummation of the Offer or the termination of the
Tender Agreement.
Certificates of Contribution. On June 15, 1998, pursuant to a petition
submitted to, and approved by, the North Carolina Commissioner of Insurance,
Purchaser provided the Company's subsidiary, Occidental Fire & Casualty Company
of North Carolina ("OF&C"), with $5 million in financing in exchange for
certificates of contribution issued by OF&C the form of which is filed as
Exhibit 12 and incorporated herein by reference (the "Certificates of
Contribution"). The Certificates of Contribution bear interest at the rate of 5%
per annum and have a maturity date of December 31, 2000, and contain
acceleration features related to the timing of repayment and increase in
interest rate. The certificates are issued in a series of five certificates of
$1,000,000.00 each. Payment of both principal and interest is subject to the
approval of the North Carolina Commissioner of Insurance. For statutory
accounting purposes, the Certificates of Contribution are reported as surplus,
but are treated as debt under generally accepted accounting principles.
Confidentiality Agreement. The following is a summary of the
Confidentiality Agreement, filed as Exhibit 13 and incorporated herein by
reference. Such summary is qualified in its entirety by reference to the
Confidentiality Agreement.
On April 15, 1998, Purchaser entered into the Confidentiality Agreement
with the Company. In the Confidentiality Agreement, Purchaser agreed, for
itself, its affiliates and representatives, except as required by law, to keep
confidential and to not disclose to any person other than those actively and
directly participating in Purchaser's evaluation of a possible acquisition of
the Company and to not use for any purpose other than in connection with the
consummation of such an acquisition in a manner approved by the Company, all
information about the Company furnished by the Company or its affiliates or
representatives, excluding information which (a) becomes generally available to
the public other than as a result of a disclosure by Purchaser or its
representatives, (b) was available to Purchaser on a non-confidential basis
prior to disclosure by the Company, or (c) becomes available to Purchaser from a
person other than the Company or its representatives who is not otherwise bound
by a confidentiality agreement with the Company or its representatives or is not
otherwise prohibited from transmitting the information to Purchaser
("Proprietary Information"). Purchaser also agreed in the Confidentiality letter
that if requested pursuant to, or required by,
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<PAGE> 13
applicable law or regulation or legal process to disclose any Proprietary
Information, it would provide the Company with prompt notice of such request(s)
to enable the Company to seek an appropriate protective order or other
appropriate remedy and to cooperate with the Company to obtain such protective
order or other remedy. If such order or remedy is not obtained, or the Company
waives compliance with the provisions of the Confidentiality Agreement, the
Purchaser agreed in the Confidentiality Agreement to disclose only that portion
of the Proprietary Information which it is advised by opinion of counsel is
legally required to be disclosed. The Confidentiality Agreement also provides
that, unless otherwise required by law, neither party nor any of such party's
representatives will, without the prior written consent of the other party,
disclose to any person (other than those actively and directly participating in
the proposed acquisition) any information about such proposed acquisition. In
the event the proposed acquisition is not consummated, the Confidentiality
Agreement requires Purchaser to deliver all of the Proprietary Information in
its, its affiliates, or its representatives possession to the Company.
Pursuant to the Confidentiality Agreement, Purchaser also agreed that until
April 15, 1999, neither Purchaser nor any of its affiliates or representatives
will, without the prior written consent of the Company or its Board of
Directors: (a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights to acquire any voting securities of the Company or any
subsidiary thereof, or of any successor to or person in control of the Company,
or any assets of the Company or any subsidiary or division thereof or of any
such successor or controlling person; (b) make, or in any way participate,
directly or indirectly, in any "solicitation" or "proxies" to vote (as such
terms are used in the rules of the SEC), or seek to advise or influence any
person or entity with respect to the voting of any voting securities of the
Company; (c) make any public announcement with respect to, or submit a proposal
for, or offer of (with or without conditions) any extraordinary transaction
involving the Company or its securities or assets; (d) seek or propose to
influence or control the Company's management or policies (or request permission
to do so); (e) solicit, encourage or induce an person employed by the Company to
leave the Company's employ, without the Company's prior written consent; or (f)
form, join or in any way participate in a "group" as defined in Section 13(d)(3)
of the Exchange Act in connection with any of the foregoing.
Except as described above, to the knowledge of the Company, as of the date
hereof there are no material contracts, agreements, arrangements of
understandings, or any actual or potential conflicts of interest between the
Company or its affiliates and the Company, its executive officers, directors or
affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Company Board
The Board met on July 15-16, 1998, to consider the possible transaction
with IAT and to receive a report on the possible transaction from IAT
representatives, the Company's financial advisor, PaineWebber Incorporated
("PaineWebber") and the Company's general counsel. At meetings of the Board held
on July 15-16, 1998, the Board met with its financial advisors and legal
advisors to review the status of the Company's ongoing sales process, the
business, financial condition and prospects of the Company, the terms and
conditions of the Offer and various matters related thereto, including reports
by PaineWebber on the financial condition and performance, strategic
alternatives and potential value of the Company. Based on the proposed terms of
the draft tender offer presented to the Board on July 15-16, 1998, and after
receiving advice from management, PaineWebber and the Company's general counsel,
the Board unanimously determined that the Offer is fair to, and in the best
interests of, the shareholders of the Company.
AT THE JULY 15-16, 1998, MEETING, THE BOARD UNANIMOUSLY DETERMINED THAT THE
OFFER AND OFFER AND RIGHTS AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
A copy of a letter to shareholders communicating the recommendation of the
Board is filed as Exhibit 14 and is incorporated herein by reference.
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(b) Background; Reasons for the Company Board's Recommendation
As a result of the Company's decision to explore capital and strategic
alternatives as announced in its December 29, 1997, press release, PaineWebber
began preparing marketing materials, initiating contacts and developing interest
in the marketplace. On February 13, 1998, the Company entered into another in a
series of engagements with PaineWebber. PaineWebber has served as the Company's
financial advisor since 1989. On April 14, 1998, George E. King, Chairman and
Chief Executive Officer of the Company, discussed with PaineWebber an inquiry he
had received from representatives of IAT. A Confidentiality Agreement, effective
on April 15, 1998, was signed by IAT and the Company.
On April 15, 1998, PaineWebber, Mr. King and Stephen L. Stephano, President
and Chief Operating Officer of the Company, and Edward A. Kerbs of Oceanic Co.,
a financial advisor to IAT, engaged in substantive conversations pertaining to
the Company and IAT's interest in acquiring shares of the Company. These
conversations continued on April 20, 1998, as Mr. King and Mr. Stephano engaged
in extensive discussions regarding the operations of the Company and the
operations of IAT at a meeting arranged by PaineWebber with the controlling
shareholder of IAT in Raleigh, North Carolina. On April 27, 1998, Mr. King was
advised by the controlling shareholder of IAT that IAT was engaged in detailed
discussions with PaineWebber regarding IAT's continuing interest in the Company
and aspects of a possible transaction structure. On April 28, 1998,
representatives of PaineWebber met with the controlling shareholder of IAT to
discuss IAT's continuing interest in acquiring the Company.
On May 18, 1998, Mr. King was advised by Michael A. DiGregorio, Vice
President of the Wilmington Trust Company, Trustee for the Company's majority
shareholder, the McMillen Trust, that the Trustee had furnished a
Confidentiality Agreement to the controlling shareholder of IAT pertaining to a
possible agreement regarding the shares of the Company owned by the Trust.
On May 21, 1998, at the meeting of the Company's Board of Directors,
PaineWebber presented a detailed update of the ongoing activities associated
with the sale process of the Company, including among other prospective
purchasers, IAT.
On June 3, 1998, at a meeting arranged by PaineWebber in New York City, Mr.
King, Mr. Stephano and PaineWebber engaged in detailed discussions with Mr.
Kerbs and IAT's controlling shareholder relating to the possible acquisition of
shares of the Company by IAT. Also discussed was IAT's interest in providing a
$5,000,000 investment in the Company.
On June 4-5, 1998, Mr. King and Mr. Stephano continued detailed discussions
with PaineWebber and with Mr. Kerbs pertaining to IAT's interest in the Company,
including the due diligence necessary for any transaction to proceed further.
Also included in these discussions was a description of a possible proposal by
IAT to acquire shares of the Company held by the McMillen Trust. On June 8-9,
1998, Mr. King, Mr. Stephano and the Company's general counsel met with Mr.
Kerbs at the home office of the Company for the specific purpose of conducting
the necessary due diligence and to continue the detailed discussions commenced
in New York with PaineWebber regarding a possible transaction and the structure
of such transaction.
Also during the June 8-9, 1998, meeting, discussions were held regarding a
capital investment of $5,000,000 in Occidental Fire & Casualty Company of North
Carolina ("OF&C"). On June 11, 1998, a Special Meeting of the Board was held for
the specific purpose of receiving a detailed report from PaineWebber pertaining
to the sale process, including a detailed report pertaining to IAT's possible
proposal and structure of a transaction, and to consider the IAT's commitment of
June 10, 1998, to provide a statutory capital investment of $5,000,000 to OF&C
in the form of five $1,000,000 Certificates of Contribution. The Company's Board
of Directors, at the June 11, 1998, meeting accepted IAT's commitment to invest
$5,000,000 in OF&C and authorized management to proceed with the implementation
of the investment. IAT's commitment to invest $5,000,000 in OF&C was not
contingent on a possible transaction with the Company. On June 12, 1998, Mr.
King and Mr. Stephano and general counsel engaged in extensive discussions with
Mr. Kerbs pertaining to IAT's investing $5,000,000 in the form of five
$1,000,000 Certificates of Contribution in OF&C. The Company and IAT agreed to
proceed with the investment of the $5,000,000
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<PAGE> 15
into OF&C. On June 15, 1998, after approval of the $5,000,000 investment into
OF&C by the North Carolina Department of Insurance ("NCDOI"), OF&C issued the
five Certificates of Contribution ($1,000,000 each) to IAT with the closing and
funding occurring on June 15, 1998.
On June 17, 1998, Mr. King and Mr. Stephano discussed with Mr. Kerbs a
possible meeting with representatives of A.M. Best Company for the purpose of
advising them as to the improvement in the operations of the Company, including
the capital investment of $5,000,000 into OF&C by IAT, and the impact of such
actions on OF&C and its wholly owned subsidiary, Wilshire Insurance Company
("Wilshire"). On June 18, 1998, Mr. King, Mr. Stephano and Mr. Kerbs met with
representatives of A.M. Best Company in Oldwick, New Jersey, and discussed the
improvement in the property and casualty operations, the $5,000,000 capital
investment in OF&C by IAT as well as other factors that could have a positive
impact on the ratings OF&C and Wilshire.
On June 29, 1998, PaineWebber reported to Mr. King, who in turn informed
the Company's Board of Directors, that continuing contact and dialogue was
taking place with all other seriously interested parties that expressed interest
in purchasing the Company, and that PaineWebber was awaiting their reactions
and/or responses. PaineWebber further advised that IAT was proceeding rapidly to
a possible transaction.
On June 30, 1998, Mr. King and Mr. Stephano engaged in discussions with Mr.
DiGregorio regarding a possible transaction between IAT and the Company and a
possible transaction between IAT and the McMillen Trust.
On July 8, 1998, Mr. King gave notice of a Special Meeting of the Board to
be held at the home office of the Company in Raleigh, North Carolina, on July
15-16, 1998, for the specific purpose of addressing all current developments
within the sale process of the Company.
Also on July 8, 1998, Mr. King, Mr. Stephano, general counsel and
PaineWebber discussed with Mr. Kerbs and IAT's counsel a possible transaction,
its structure, scheduling and timing. Also on July 8, 1998, Mr. King, Mr.
Stephano and Mr. Kerbs and IAT's counsel met with representatives of the NCDOI
for the specific purpose of informing them of a possible transaction and
possible scheduling and timing of such transaction. A preliminary draft of the
Form A required in such transaction was submitted to the NCDOI at the meeting.
On July 10, 1998, Mr. King, Mr. Stephano and general counsel continued detailed
discussions with Mr. Kerbs and IAT's counsel.
On July 15-16, 1998, a Special Meeting of the Board was held to consider a
possible transaction with IAT and to address all current developments within the
sale process of the Company. Prior to this meeting, the Company, all members of
the Board, the Company's general counsel and PaineWebber had received from IAT
draft copies of a proposed Purchase Agreement between the Trust and IAT, Offer
and Rights Agreement and Tender Agreement. During the two-day meeting,
PaineWebber reviewed with the Board in detail all other parties that had
expressed interest in purchasing the Company. The review included an analysis of
all proposals presented to PaineWebber. PaineWebber also presented the basis for
its fairness opinion with respect to the proposed transaction of IAT.
At the end of the July 15-16, 1998, special meeting, the Board, having
received a presentation from IAT and carefully considered the possible
transaction, together with the advice of its legal and financial advisors,
unanimously determined that it would be in the best interests of the Company and
its shareholders to approve and recommend the transaction to the shareholders of
the Company. On July 17, 1998, the Company and IAT issued a joint press release
filed as Exhibit 14 and incorporated herein by reference announcing the signing
of an agreement between IAT and the Company and an agreement between IAT and the
McMillen Trust regarding IAT's intentions to acquire up to 49% of the Company's
outstanding shares.
In reaching its determination and recommendations with respect to the
Offer, the Board reviewed in detail the Offer and the various alternative
transactions described by its financial advisors, and deliberated extensively
with its legal and financial advisors regarding the foregoing. At the end of the
July 15-16, 1998, meeting the Board determined by unanimous vote that the Offer
is fair to, and in the best interests of, the Company and its shareholders and
authorized the execution and delivery of the Offer and Offer and Rights
15
<PAGE> 16
Agreement. Numerous factors were taken into account in arriving at this
determination including, among other things, the following:
(i) the terms and conditions of the Offer and the Offer and Rights
Agreement and the course of negotiations thereof;
(ii) the directors' knowledge of the Company's business, financial
condition, current business strategy, strategic alternatives and future
prospects, the nature of the markets in which the Company operates,
including pricing pressures and the trend toward consolidation in such
markets and the Company's position in such markets;
(iii) the Board's belief, based on the level of interest from other
companies with which the Company had discussions concerning possible
business combinations, together with its view that an acquisition of the
Company would be particularly attractive to IAT, that a proposal that could
provide greater value to the Company's shareholders than the Offer would be
unlikely;
(iv) the presentations of the Company's financial advisor,
PaineWebber, at the Board meetings held on July 15-16, 1998, and
PaineWebber's written opinion (the "PaineWebber Opinion") orally presented
to the Board on July 16, 1998, and subsequently confirmed in writing, that,
based upon and subject to the information contained therein, as of the date
of the opinion, the consideration to be received by the shareholders of the
Company in the Offer is fair to such shareholders from a financial point of
view. A copy of the PaineWebber Opinion setting forth the assumptions made
and matters considered and limitations set forth by PaineWebber is attached
as Exhibit 15 and incorporated herein by reference. Shareholders are urged
to read such opinion carefully in its entirety for assumptions made,
matters considered and the limits of the review undertaken by PaineWebber;
(v) the strategic value to the Company of access to investment capital
which would accompany a combination with IAT in light of the Board's belief
that the Company's limited access to the capital markets prevents the
Company from fully realizing its growth strategy and that it is unlikely
that the Company could successfully address such problems in an appropriate
time frame;
(vi) the approval and recommendation of the transaction by the Board
followed the solicitation of offers for an acquisition of the Company in a
targeted auction process;
(vii) the terms and conditions of the transaction do not include
financing conditions, contingencies, hold-backs or escrows to consummate
the transaction;
(viii) the transaction permits the Company to act on an unsolicited
proposal if the Board, in the exercise of its fiduciary obligations (as
determined in good faith by the Board based on the advice of counsel),
determines that such unsolicited proposal is a superior proposal;
(ix) the historical market prices and the recent trading activity of
the Company's shares;
(x) the extensive arms-length negotiations between the Company and IAT
that led to the belief of the Board that $3.65 per share for the shares
represented the highest price per share that could be negotiated with IAT;
(xi) the $3.65 per share price in this transaction represents a 61.6%
premium over the closing sales price of $2.25 per share for the stock as
reported on the NASDAQ stock market on the last trading day prior to the
Board's determination;
(xii) the Board's determination that there is a substantial likelihood
that the transaction will be completed.
The foregoing discussion of information and factors considered and given
weight by the Company Board is not intended to be exhaustive. The Board viewed
its position and recommendations as being based on the totality of the
information presented and considered by it. In reaching its determination to
approve and recommend the transaction, the Board of Directors did not assign any
relative or specific weight to particular factors, and individual directors may
have given differing weights to different factors.
16
<PAGE> 17
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained PaineWebber as its financial advisor. Pursuant to
a letter agreement dated February 13, 1998, between the Company and PaineWebber
(the "Engagement Letter"), the Company has agreed to pay PaineWebber a fairness
opinion fee of $100,000 payable upon delivery of the opinion and an additional
$100,000 as compensation for the fairness opinion if a sale transaction (as
defined in the Engagement Letter) is not consummated. In addition to any
fairness opinion fee, if a sale transaction (as defined in the Engagement
Letter) is consummated the Company shall pay to PaineWebber a transaction fee of
the greater of $500,000 or 1.5% of the sum value of the total shares purchased
pursuant to any sale transaction, payable upon closing of such sale transaction.
The Company has also agreed to reimburse PaineWebber for its reasonable
out-of-pocket expenses in carrying out its duties under the Engagement Letter,
including the reasonable fees and expenses of PaineWebber's outside legal
counsel, if any.
Pursuant to an agreement dated February 13, 1998, between the Company and
PaineWebber, the Company has agreed to indemnify PaineWebber against certain
expenses and liabilities incurred in connection with its engagement.
Except as described above, neither the Company, nor any person acting on
its behalf, has employed, retained or compensated any person to make
solicitations or recommendations to shareholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Other than normal periodic purchases made pursuant to the Company's
employee stock purchase plan, to the Company's best knowledge, no transactions
in Shares have been effected during the past 60 days by the Company or, to the
best knowledge of the Company, any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best knowledge of the Company, the directors and executive
officers of the Company who have ownership of record or beneficial ownership of
Shares have the present intention to tender their Shares pursuant to the terms
of the Offer. Each director executed the Tender Agreement described in Item
3(b)(2) wherein each agreed to tender all Shares beneficially owned by them.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a)(1)-(4) No negotiation is being undertaken or is underway by the Company
in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; or
(iii) a tender offer for or other acquisition of securities by or of the
Company.
(b) There is no transaction, Board resolution, agreement in principle or
signed contract in response to the Offer that relates to or would result in one
or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
North Carolina and California Departments of Insurance
The permissibility of the Offer is contingent upon the receipt of approvals
from the insurance regulators in each domestic and foreign jurisdiction which is
a domicile of any insurance company subsidiary of the Company. The Company as
well as its insurer subsidiaries within the group are domiciled within the state
of North Carolina and subject to the jurisdiction of the NCDOI.
IAT delivered a preliminary draft of a Form A application to the NCDOI on
July 8, 1998. A copy of the preliminary draft was delivered to the Company.
Although the Company is hopeful that the NCDOI will approve the transaction, no
assurances can be made as to the timing or the outcome of the matter.
17
<PAGE> 18
As a result of the volume of premiums written by subsidiary Wilshire
Insurance Company in California, Wilshire is deemed to be commercially domiciled
in the state of California. There may be filings required by the California
Department of Insurance ("CDOI") in connection with the Offer. To the Company's
knowledge, IAT has not yet made any filing with the CDOI.
Delaware Chancery Court Approval
On December 10, 1987, the Trust was ordered by Delaware Chancery Court to
divest itself of its ownership of Shares of the Company and to invest in a more
diversified portfolio. In April 1993, the Court granted the Trustee's petition
for a clarification of its orders to make clear that it is within the sound
discretion of the Trustee to determine the timing and terms of any disposition
of the Trust's Shares, subject to the Court's approval of the Trustee's plan for
disposition of such Shares. Accordingly, the Trustee plans to appear before the
Delaware Chancery Court and present the Trust Purchase Agreement for approval.
Although it is anticipated that the Court will be able to hear and rule upon the
parties' request for approval of the Trust Purchase Agreement on an expedited
basis, there can be no assurance as to either the timing or outcome of any
hearing or ruling on the matter.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following items have been filed as exhibits to this Schedule 14D-9
filed by the Company with the Commission and are available for inspection at the
public reference facilities at the principal office of the Commission at 450
Fifth Street, Washington, D.C. 20549 and for copying upon payment of the
Commission's customary charges:
Exhibit 1 Pages 5-17 of the Company's Proxy Statement, dated April 21,
1998, in connection with the Annual Meeting of Shareholders of
the Company held on May 21, 1998, incorporated herein by
reference
Exhibit 2 1986 Employee Incentive Stock Option Plan of McM Corporation,
effective May 16, 1986 (incorporated by reference to the
Company's Proxy Statement dated April 18, 1986. in connection
with the Annual Meeting of Shareholders of the Company held on
May 16, 1986)
Exhibit 3 1996 Employee Incentive Stock Option Plan of McM Corporation,
effective May 23, 1996 (incorporated by reference to the
Company's proxy statement dated April 25, 1996, in connection
with the Annual Meeting of Shareholders of the Company held on
May 23, 1996)
Exhibit 4 Employment Agreement between the Company and George E. King dated
February 16, 1984, as amended (incorporated by reference to the
Company's Annual Reports on Form 10-K for the years ending
December 31, 1989, 1992, 1993, 1994 and 1996) and the latest
amendment of March 26, 1998, being attached hereto
Exhibit 5 Employment Agreement between the Company and Stephen L. Stephano
dated February 1, 1993, as amended (incorporated by reference to
the Company's Annual Reports on Form 10-K for the years ended
December 31, 1993, 1994 and 1996) and the latest amendment of
March 26, 1998, being attached hereto
Exhibit 6 1996 Employee Stock Purchase Plan of McM Corporation effective
May 23, 1996 (incorporated by reference to the Company's proxy
statement dated April 25, 1996, in connection with the Annual
Meeting of Shareholders of the Company held on May 23, 1996)
Exhibit 7 Key Executive Incentive Compensation Plan effective January 1,
1993 (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)
18
<PAGE> 19
Exhibit 8 McM Corporation Phantom Stock Plan effective January 19, 1995
(incorporated by reference to the company's Annual Report on Form
10-K for the year ended December 31, 1994)
Exhibit 9 Offer and Rights Agreement dated July 16, 1998, between the
Company and IAT
Exhibit 10 Trust Purchase Agreement dated July 16, 1998, between the
McMillen Trust and IAT
Exhibit 11 Tender Agreement dated July 16, 1998, between the individual
directors of the company and IAT
Exhibit 12 Form of five Certificates of Contribution dated June 15, 1998,
between OF&C and IAT
Exhibit 13 Confidentiality Agreement dated April 15, 1998, between IAT and
the Company
Exhibit 14 Letter to shareholders dated July 23, 1996, communicating the
recommendation of the Company's Board
Exhibit 15 Joint Press Release of IAT and the Company dated July 17, 1998
Exhibit 16 Opinion Letter dated as of July 16, 1998, by PaineWebber
Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
McM Corporation, a North Carolina
corporation
By: /s/ GEORGE E. KING
------------------------------------
George E. King, Chairman/CEO
July 23, 1998
Date
19
<PAGE> 1
EXHIBIT 4
EIGHTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS EIGHTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
effective the 26th day of March, 1998, between GEORGE E. KING ("Employee"), and
McM CORPORATION ("McM"), OCCIDENTAL FIRE & CASUALTY COMPANY OF NORTH CAROLINA,
and WILSHIRE INSURANCE COMPANY (the three companies collectively being the
"Employer" or the "McM Group").
W I T N E S S E T H:
WHEREAS, the Employee and the Employer have entered an Employment
Agreement dated as of February 16, 1989, and amended March 28, 1990, October 18,
1990, December 30, 1991, February 1, 1993, September 1, 1993, March 16, 1995,
and August 6, 1996 (collectively, the "Agreement"); and
WHEREAS, the Employee and Employer wish to amend the Agreement in
certain respects and agree that the mutual promises set forth in this Amendment
are full and valid consideration therefor.
NOW THEREFORE, the parties hereto agree as follows:
1. Term of Employment. Paragraph 3 of the Agreement is hereby deleted
in its entirety and in its place is inserted the following:
3. Term. The term of this Agreement shall automatically renew on
a daily rolling basis and continue until two years from the
date the Employer delivers to the Employee written notice of
non-renewal.
2. Relocation of Employer. In the event Employer shall require Employee
to relocate his office more than fifty (50) miles from its present location at
702 Oberlin Road, Raleigh, North Carolina, and Employee terminates his
employment hereunder as a result of such required relocation, Employee shall
receive the lump sum provided for in paragraph 9 hereof (Termination By Employer
Without Cause), the lump sum to be calculated in the manner provided for in such
paragraph.
3. Ratification. Except as modified in this Amendment, the Agreement,
as amended, is ratified and confirmed in all respects.
<PAGE> 2
IN WITNESS WHEREOF, Employer, by action approved and directed by its
Boards of Directors and Employee, on his own behalf, have executed this
Amendment as of the day and year first above written.
EMPLOYEE:
/s/ George E. King (Seal)
------------------------------------
George E. King
EMPLOYER:
Attest: McM CORPORATION, a North Carolina
corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ Stephen L. Stephano
--------------------------------
Its: President and CEO
--------------------------------
[Corporate Seal]
OCCIDENTAL FIRE & CASUALTY
COMPANY OF NORTH CAROLINA, a North
Attest: Carolina corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ Stephen L. Stephano
--------------------------------
Its: President and CEO
[Corporate Seal] --------------------------------
WILSHIRE INSURANCE COMPANY, a North
Attest: Carolina corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ Stephen L. Stephano
--------------------------------
Its: President and CEO
--------------------------------
[Corporate Seal]
<PAGE> 1
EXHIBIT 5
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
effective the 26th day of March, 1998, between STEPHEN L. STEPHANO ("Employee"),
and McM CORPORATION ("McM"), OCCIDENTAL FIRE & CASUALTY COMPANY OF NORTH
CAROLINA, and WILSHIRE INSURANCE COMPANY (the three companies collectively being
the "Employer" or the "McM Group").
W I T N E S S E T H:
WHEREAS, the Employee and the Employer have entered an Employment
Agreement dated as of February 1, 1993, and amended September 1, 1993, March 16,
1995, and August 6, 1996 (collectively, the "Agreement"); and
WHEREAS, the Employee and Employer wish to amend the Agreement in
certain respects and agree that the mutual promises set forth in this Amendment
are full and valid consideration therefor.
NOW THEREFORE, the parties hereto agree as follows:
1. Term of Employment. Paragraph 2 of the Agreement is hereby deleted
in its entirety and in its place is inserted the following:
2. Term. The term of this Agreement shall automatically renew on
a daily rolling basis and continue until two years from the
date the Employer delivers to the Employee written notice of
non-renewal.
2. Relocation of Employer. In the event Employer shall require Employee
to relocate his office more than fifty (50) miles from its present location at
702 Oberlin Road, Raleigh, North Carolina, and Employee terminates his
employment hereunder as a result of such required relocation, Employee shall
receive the lump sum provided for in paragraph 8 hereof (Termination By Employer
Without Cause), the lump sum to be calculated in the manner provided for in such
paragraph.
3. Ratification. Except as modified in this Amendment, the Agreement,
as amended, is ratified and confirmed in all respects.
<PAGE> 2
IN WITNESS WHEREOF, Employer, by action approved and directed by its
Boards of Directors and Employee, on his own behalf, have executed this
Amendment as of the day and year first above written.
EMPLOYEE:
/s/ Stephen L. Stephano (Seal)
------------------------------------
Stephen L. Stephano
EMPLOYER:
Attest: McM CORPORATION, a North Carolina
corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ George E. King
--------------------------------
Its: Chairman
--------------------------------
[Corporate Seal]
OCCIDENTAL FIRE & CASUALTY
COMPANY OF NORTH CAROLINA, a North
Attest: Carolina corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ George E. King
--------------------------------
Its: Chairman
[Corporate Seal] --------------------------------
WILSHIRE INSURANCE COMPANY, a North
Attest: Carolina corporation
/s/ Michael D. Blinson
- -----------------------------------
Corporate Secretary By: /s/ George E. King
--------------------------------
Its: Chairman
--------------------------------
[Corporate Seal]
<PAGE> 1
EXECUTION COPY
OFFER AND RIGHTS AGREEMENT
THIS OFFER AND RIGHTS AGREEMENT (this "Agreement"), made and entered
into this 16th day of July, 1998, is by and among MCM CORPORATION (the
"Company"), a North Carolina corporation with its principal office in Raleigh,
North Carolina, and IAT REINSURANCE SYNDICATE LTD. ("Buyer"), a Bermuda
corporation with its principal office in Bermuda.
BACKGROUND STATEMENT
WHEREAS, Buyer wishes to acquire approximately 49% of the issued and
outstanding shares ("Shares") of common stock, par value $1.00 per share
("Common Stock"), of the Company through a privately-negotiated transaction with
the McMillen Trust (the "Trust"), and through a cash tender offer (the "Offer")
to acquire up to 35% of the issued and outstanding Shares of Common Stock (the
"Shares") for $3.65 per Share (such amount, or any greater amount per share paid
pursuant to the Offer, being hereinafter referred to as the "Per Share Amount")
net to the seller in cash, subject to withholding of taxes, if applicable, upon
the terms and subject to the conditions of this Agreement and the Offer.
WHEREAS, Buyer has invested $5 million in capital for the Company at a
below market interest rate of 5% per annum and plans to commit additional
capital to the Company in the future. The Company acknowledges that the
management of Buyer has expertise in the management and operation of insurance
companies and that the devotion of time and expertise by the management of Buyer
to the Company will cause Buyer to forego significant opportunities in regard to
other investments. Following the consummation of the Offer, Buyer intends to
make available to the Company the services of Peter R. Kellogg, its President
and Chief Executive Officer, in the management and direction of the Company. The
Company acknowledges that Mr. Kellogg has vast experience and background and a
proven record of success in the management and operation of insurance companies.
Mr. Kellogg will devote significant time and effort to the management of the
Company with no employment agreement and no compensation of any kind. Neither
Buyer nor Mr. Kellogg will charge the Company any management or advisory fees.
WHEREAS, in consideration of the Offer and the other benefits described
above, the Company wishes to provide Buyer with rights ("Rights") to purchase
from the Company, for a nominal sum, 60,000 shares of a new issue of preferred
stock of the Company that will have a par value of $1,000 per share, will not
have voting rights, will not pay dividends, will not be convertible into Common
Stock of the Company, and will have the other rights, preferences and
characteristics set forth in this Agreement, including but not limited to the
right to a preference in any liquidation or dissolution of the Company equal to
the par value of such preferred stock before any amount is payable or
distributable with respect to the Common Stock of the Company. The Company
acknowledges that the issuance of such preferred stock to Buyer is
<PAGE> 2
appropriate in order to properly compensate Buyer for the Offer and its capital
and management commitments to the Company.
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer. The
Board has also approved the granting of Rights following consummation of the
Offer and upon the terms and subject to the conditions set forth herein.
WHEREAS, the Wilmington Trust Company (the "Trustee") of the Trust,
which owns approximately 65% of the issued and outstanding Common Stock of the
Company, has agreed pursuant to a Trust Purchase Agreement, dated as of the date
hereof (the "Trust Purchase Agreement"), between the Buyer and the Trustee, to
privately sell to Buyer 658,900 Shares (the "Purchased Trust Shares") of the
Common Stock of the Company at $3.65 per Share and has agreed not to tender any
Shares in the Offer. After the purchase and sale of these Shares, the Trust will
own 2,428,600 shares of Common Stock of the Company (the "Retained Trust
Shares").
WHEREAS, each of the Directors of the Company has agreed, pursuant to a
Tender Agreement dated the date hereof (the "Tender Agreement") to tender the
Shares beneficially owned or hereafter acquired by them in the Offer and to
liquidate for cash pursuant to the Offer all options to purchase shares held by
such Directors.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants, and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE 1.
THE OFFER
SECTION 1.1 THE OFFER. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 7.1 and none of the events or
circumstances set forth in Annex A hereto shall have occurred or be existing,
Buyer shall commence the Offer as promptly as reasonably practicable after the
date hereof, but in no event later than five business days after the first
public announcement of the execution hereof by all of the parties hereto. The
obligation of Buyer to accept for payment and pay for Shares tendered pursuant
to the Offer shall be subject to (i) the condition (the "Minimum Condition")
that there be validly tendered and not withdrawn prior to the expiration of the
Offer, such number of Shares that would represent at least 32% of the voting
power of the Shares outstanding on a fully diluted basis (including, without
limitation, all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights), (ii) the
conditions (the "Regulatory Approval Conditions") that (A) any applicable
waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976,
as
2
<PAGE> 3
amended (the "HSR Act") shall have expired or been terminated, (B) the
transactions contemplated by the Trust Purchase Agreement be approved by the
Court of Chancery of the State of Delaware having jurisdiction over the Trust
and (C) the transactions contemplated by this Agreement and the Trust Purchase
Agreement be approved by the North Carolina Commissioner of Insurance, and (iii)
the satisfaction of the other conditions set forth in Annex A hereto. Buyer
expressly reserves the right to waive any such condition (other than the
Regulatory Approval Conditions), to increase the price per Share payable in the
Offer, and to make any other changes in the terms and conditions of the Offer;
provided, however, that no change may be made which decreases the Per Share
Amount payable in the Offer or which changes the form of consideration to be
paid in the Offer or which reduces the maximum number of Shares to be purchased
in the Offer or which imposes conditions to the Offer in addition to those set
forth in Annex A hereto or which reduces the Minimum Condition below 25% of the
voting power of the Shares outstanding on a fully diluted basis. The Per Share
Amount shall, subject to applicable withholding of taxes, be net to the seller
in cash, upon the terms and subject to the conditions of the Offer. Subject to
the terms and conditions of the Offer (including, without limitation, the
Minimum Condition and the Regulatory Approval Conditions), Buyer shall pay, as
promptly as practicable after expiration of the Offer, for all Shares validly
tendered and not withdrawn.
(b) Pursuant to the Offer, each holder of an outstanding option
("Option") to purchase Shares granted pursuant to the Company's 1986 Employee
Incentive Stock Option Plan and 1996 Employee Incentive Stock Option Plan (the
"Stock Option Plans") shall, in such holders' discretion, have right to elect to
cancel such Option and receive, subject to the satisfaction of the Minimum
Condition, the Regulatory Approval Conditions and the other conditions set forth
in Annex A hereto, a cash payment from Buyer in an amount, subject to applicable
withholding taxes and net to the holder in cash, equal to (x) the product of (i)
the aggregate number of Shares subject to such Option multiplied by (ii) the Per
Share Amount minus (y) the aggregate exercise price for all Shares subject to
such Option. Subject to the terms and conditions of the Offer (including,
without limitation, the Minimum Condition and the Regulatory Approval
Conditions), Buyer shall pay, as promptly as practicable after expiration of the
Offer, for all Options elected to be cancelled by Holders (which elections have
not been withdrawn).
(c) As soon as reasonably practicable on the date of commencement of
the Offer, Buyer shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
and supplements thereto, the "Schedule 14D-1") with respect to the Offer and the
other transactions contemplated by this Agreement ("Transactions"), which shall
have been provided to the Company. The Schedule 14D-1 shall contain or shall
incorporate by reference an offer to purchase (the "Offer to Purchase") and
forms of the related letter of transmittal and any related summary advertisement
(the Schedule 14D-1, the Offer to Purchase and such other documents, together
with all supplements and amendments thereto, being referred to herein
collectively as the "Offer Documents"). Buyer and the Company agree to correct
promptly any information provided by any of them for use in the Offer Documents
which shall have become false or misleading, and the Company and Buyer further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
3
<PAGE> 4
SECTION 1.2 COMPANY ACTION. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on July 15-16, 1998, has unanimously (A) determined that this
Agreement and the Transactions, including the Offer and the issuance of the
Rights, are fair to and in the best interests of the shareholders of the
Company, (B) approved and adopted this Agreement and the Transactions,
including, without limitation, the Offer, the purchase of Shares pursuant to the
Offer and the issuance of the Rights, contemplated hereby, and (C) recommended
that the shareholders of the Company accept the Offer; (ii) PaineWebber
Incorporated ("PaineWebber") has delivered to the Board an opinion to the effect
that the consideration to be received by the holders of Shares (other than Buyer
and its affiliates) pursuant to the Offer is fair to such holders of Shares. The
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Board described in the immediately preceding sentence.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing, subject only to the fiduciary duties
of the Board under applicable law as advised by the Company's counsel, the
recommendation of the Board described in Section 1.2(a)(i)(C) of this Agreement
and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any other applicable federal securities laws. The Company and Buyer
agree to correct promptly any information provided by any of them for use in the
Schedule 14D-9 which shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
(c) The Company shall promptly furnish Buyer with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Buyer with such
additional information, including, without limitation, updated listings and
computer files of shareholders, mailing labels and security position listings,
and such other assistance as Buyer or its agents may reasonably request. Subject
to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Offer, Buyer shall hold in confidence the information
contained in such labels, listings and files, shall use such information only in
connection with the Offer and, if this Agreement shall be terminated in
accordance with Section 7.1, shall deliver to the Company all copies of such
information then in its possession.
4
<PAGE> 5
ARTICLE 2.
THE RIGHTS
SECTION 2.1 ISSUANCE OF RIGHTS. The Company hereby agrees to issue to
Buyer, immediately following the acceptance for payment and payment by Buyer for
Shares validly tendered and not withdrawn in the Offer, Rights to purchase from
the Company, at any time thereafter and prior to the close of business on June
1, 2008, at the registered office of the Company, 60,000 shares of fully paid
and nonassessable shares of Series A preferred stock, $1,000 par value (the
"Preferred Stock") of the Company at the Exercise Price referred to below. The
Rights shall be evidenced by a Rights Certificate substantially in the form of
Exhibit A attached hereto. The Election to Exercise shall be substantially in
the form of Exhibit B attached hereto.
SECTION 2.2 EXERCISE PRICE. The Exercise Price shall be $.01 per share
of Preferred Stock.
SECTION 2.3 PROVISIONS RELATING TO THE HOLDER OF RIGHTS. Buyer as
holder of Rights pursuant to this Agreement shall not be deemed for any purpose
the holder of any shares of Preferred Stock issuable on the exercise of such
Rights, nor shall anything contained herein be construed to confer upon Buyer,
as such holder of Rights, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders, or to receive dividends or subscription rights, or otherwise,
until the Rights evidenced by this Agreement shall have been exercised as
provided herein, and then only to the extent provided in the designation of
Preferred Stock attached hereto as Exhibit C.
SECTION 2.4 EXERCISE IN PART. The Rights granted pursuant to this
Agreement may be exercised in part, with the Exercise Price to be paid for each
Right exercised. In such case, the Company shall issue to Buyer a new Rights
Certificate for the number of Rights not exercised. Rights may be exercised only
for whole shares of Preferred Stock, and fractional shares of Preferred Stock
shall not be issued.
SECTION 2.5 CONDITIONS OF EXERCISE OF RIGHTS. The Rights shall become
immediately exercisable by Buyer, at any time and from time to time, in the
event that, at any time immediately following the acceptance for payment and
payment by Buyer of Shares validly tendered and not withdrawn in the Offer:
(a) The Trust sells (including, without limitation, pursuant to a
merger, consolidation or other business combination transaction involving the
Company) to any third party other than Buyer or an assignee of Buyer, any of the
Retained Trust Shares; or
(b) Any person or entity other than Buyer causes designees of Buyer to
cease to constitute a majority of the members of the board of directors of the
Company.
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Notwithstanding the foregoing, the Rights shall not become immediately
exercisable if Buyer's designees fail to constitute a majority of the members of
the board of directors of the Company due to the death, resignation or removal
upon the direction of Buyer of any such designee; provided, that the Rights
shall become exercisable following any such death, resignation or removal if,
prior to the time Buyer's designees again represent a majority of the members of
the Company's board of directors, such board takes any action opposed by a
majority of the remaining designees of Buyer or, if no such designees remain,
the then current chief executive officer of Buyer. No delay or failure by Buyer
in exercising the Rights upon the occurrence of either of the above events shall
operate as a waiver of such right to exercise, nor shall any partial exercise of
the Rights preclude other or further exercise thereof.
SECTION 2.6 CHARACTERISTICS OF SERIES A PREFERRED STOCK. The rights,
preferences, limitations, and characteristics of the Preferred Stock shall be as
set forth on Exhibit C attached hereto and hereby incorporated by reference.
SECTION 2.7 PROCEDURE FOR EXERCISE OF RIGHTS. Rights will be issued
immediately following the acceptance for payment and payment by Buyer for Shares
validly tendered and not withdrawn in the Offer and may be exercised on any
business day thereafter, and prior to the close of business on June 1, 2008, by
submitting to the Company the Rights Certificate, together with an Election to
Exercise accompanied by payment by certified or official bank check or wire
transfer of immediately available funds payable to the Company of a sum equal to
the Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge that may be payable in respect of
any transfer involved in the transfer or delivery of the Rights Certificate or
the issuance or delivery of certificates for shares of Preferred Stock to a
person other than the holder of the Rights being exercised. Upon receipt of the
foregoing, the Company will thereupon promptly requisition certificates
evidencing such number of shares of Preferred Stock to be purchased (the Company
hereby irrevocably authorizing its transfer agents, indenture trustees,
subsidiaries or others, as the case may be, to comply with all such
requisitions) and, after receipt of such certificates, deliver the same to or
upon the order of the holder of the Rights exercised registered in such name or
names as may be designated by such holder.
SECTION 2.8 CERTAIN COVENANTS BY THE COMPANY. The Company covenants and
agrees that it will (i) cause the Company's Articles of Incorporation to be
amended immediately following Buyer's purchase of Shares in the Offer to include
the designation of the Preferred Stock and such other matters as may be required
by applicable law in connection with the establishment of the Preferred Stock,
(ii) take all such action as may be necessary to insure that all shares of
Preferred Stock delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such shares (subject to payment of the Exercise Price),
be duly and validly authorized, executed, issued and delivered and fully paid
and nonassessable, (iii) take all such action as may be necessary to comply with
any applicable laws, rules, or regulations in connection with the issuance of
any shares upon exercise of Rights, and (iv) pay when due and payable any and
all federal and state transfer taxes and charges that may be payable in respect
of the original issuance or delivery of a Rights Certificate or of any shares of
Preferred Stock issued
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upon the exercise of Rights; provided, however, that the Company shall not be
required to pay any transfer tax or charge that may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares of Preferred Stock in a name
other than of the holder of the Rights being transferred or exercised.
SECTION 2.9 DATE ON WHICH EXERCISE IS EFFECTIVE. Each person in whose
name any certificate for shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly delivered
to the Company with payment of the Exercise Price (and any applicable taxes and
other governmental charges payable by the exercising holder hereunder);
provided, however, that if the date of such delivery and payment is a date upon
which the stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding business day on which the stock transfer
books of the Company are open.
SECTION 2.10 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES.
(a) If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to June 1, 2008, the Company will execute and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company prior to June 1, 2008
(i) evidence to its satisfaction of the destruction, loss or theft of any Rights
Certificate and (ii) such security or indemnity as may be required to save the
Company harmless, then, and in the absence of notice to the Company that such
Rights Certificate has been acquired by a bona fide purchaser, the Company shall
execute and deliver, in lieu of any such destroyed, lost or stolen Rights
Certificate, a new Rights Certificate evidencing the same number of Rights as
did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
SECTION 2.11 BUYER MAY SURRENDER RIGHTS. At any time before June 1,
2008, Buyer may surrender the Rights to the Company for cancellation and upon
such surrender the Rights shall be void and of no effect. Such surrender of the
Rights may be accomplished by delivery to the Company of the Rights Certificate
with the following legend: "The Rights evidenced by this Rights Certificate are
hereby surrendered to the Company for cancellation" with the date of surrender
and the authorized signature of the holder of the Rights.
SECTION 2.12 FRACTIONAL SHARES. No Rights shall be exercised for less
than a whole share of Preferred Stock, and the Company shall not be obligated to
issue certificates representing fractional shares upon exercise of Rights.
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SECTION 2.13 TRANSFER OF RIGHTS. The Rights and the Preferred Stock
shall be freely transferable by Buyer to the extent permitted by law, but Buyer
represents to the Company that it is acquiring the Rights for investment
purposes and not with the intent of making any distribution either of the Rights
or the Preferred Stock.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to the Company as follows:
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of Bermuda, and has full corporate power and
authority to carry on its business as now conducted.
(b) The execution, delivery and performance by Buyer of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
and approved by all requisite shareholder and corporate action. Buyer has the
power, authority and capacity to enter into and perform its obligations under
this Agreement, and to consummate the transactions contemplated herein. This
Agreement has been duly and validly executed by Buyer and is the legal, valid
and binding obligation of Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting the enforcement
of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of its
obligations under, this Agreement by Buyer, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any indenture, mortgage, deed of
trust, lease, note, or other agreement or instrument to which Buyer is a party,
conflict with any provision of the charter documents of Buyer, or violate any
law, order, judgment, decree, rule or regulation of any court or governmental
authority having jurisdiction over Buyer or its property.
(d) The Rights acquired by Buyer pursuant to this Agreement are being
acquired for investment purposes only and not with a view to any public
distribution thereof, and Buyer will not offer to sell or otherwise dispose of
the Rights so acquired by it in violation of any federal or state law applicable
to the sale, resale, or distribution of securities.
(e) Buyer has not retained any broker or finder in connection with the
transactions contemplated herein so as to give rise to any valid claim against
the Company for any fee, sales commissions, finders' fees, financial advisory
fee or other fees or expenses for which the Company shall be liable.
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(f) The Offer Documents will not, at the time the Offer Documents are
filed with the SEC or are first published, sent or given to shareholders of the
Company, as the case may be, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The information supplied by Buyer for
inclusion in the Information Statement (as defined in Section 3.2(f) of this
Agreement) will not, on the date such document (or any amendment or supplement
thereto) is first mailed to shareholders of the Company and, with respect to the
Information Statement, at the time Shares are accepted for payment in the Offer,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading.
Notwithstanding the foregoing, Buyer makes no representation or warranty with
respect to any information supplied by the Company or any of its representatives
which is contained in any of the foregoing documents or the Offer Documents. The
Offer Documents shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Buyer as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of North Carolina, and has full corporate
power and authority to carry on its business as now conducted.
(b) The execution, delivery and performance by the Company of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized and approved by all requisite shareholder and corporate action. The
Company has the power, authority and capacity to enter into and perform its
obligations under this Agreement, and to consummate the transactions
contemplated herein. This Agreement has been duly and validly executed by the
Company and is the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by equitable principles or by bankruptcy, fraudulent conveyance or
insolvency laws affecting the enforcement of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of its
obligations under, this Agreement by the Company, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any indenture, mortgage, deed of
trust, lease, note, or other agreement or instrument to which the Company is a
party, or conflict with any provision of the charter documents of the Company,
or violate any law, order, judgment, decree, rule or regulation of any court or
governmental authority having jurisdiction over the Company or its property.
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<PAGE> 10
(d) The Company has not retained any broker or finder in connection
with the transactions contemplated herein so as to give rise to any valid claim
against Buyer for any fee, sales commissions, finders' fees, financial advisory
fee or other fees or expenses for which Buyer shall be liable, except that the
Company has engaged PaineWebber as its investment banking firm and financial
advisor and may owe a fee in connection with the transactions contemplated
hereby (which fee shall be paid by the Company).
(e) Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of preferred stock (none of which is issued and
outstanding) and 10,000,000 Shares. As of July 15, 1998, (i) 4,706,388 Shares
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no Shares are held by the subsidiaries of the Company, (iii)
3,087,500 Shares are owned of record by the Trust, (iv) 442,962 Shares are
reserved for issuance pursuant to Options granted pursuant to the Stock Option
Plans and (v) 200,000 Shares are reserved for issuance pursuant to the Company's
1996 Non-Employee Director's Stock Option Plan. The Company has terminated its
1996 Employee Stock Purchase Plan (the "Employee Purchase Plan") effective as of
July 15, 1998, the day after the last quarterly purchase date under the Employee
Purchase Plan (and the Company has no obligations or liabilities (contingent or
otherwise) with respect to such plan). Except as set forth in this Section
3.2(e), there are no options, warrants or other rights, agreements, arrangements
or commitments of any character relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. Section 3.2(e) of the
Disclosure Schedule that has been delivered prior to the date hereof by the
Company to Buyer sets forth a list, as of the date hereof, of the names of each
person holding Options under the Stock Option Plans, the number of shares
purchasable thereunder, the exercise price of such Options, and the date such
Options were granted.
(f) Offer Documents; Schedule 14D-9. Neither the Schedule 14D-9, nor
any information supplied by the Company for inclusion in the Offer Documents,
nor the information to be filed by the Company in connection with the Offer
pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information
Statement"), other than information provided by Buyer for inclusion therein,
shall, at the respective times the Schedule 14D-9, the Offer Documents, the
Information Statement or any amendments or supplements thereto are filed with
the SEC or are first published, sent or given to shareholders of the Company, as
the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they are made, not misleading. Neither the Information Statement nor any
information supplied by the Company for inclusion in the Offer Documents shall,
at the date such document (or any amendment or supplement thereto) is first
mailed to shareholders of the Company, and at the time Shares are accepted for
payment in the Offer, be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The Schedule 14D-9 and the
Information Statement shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
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(g) SEC Filings; Financial Statements. (i) The Company has filed all
forms, reports and documents required to be filed by it with the SEC since
December 31, 1995, and has heretofore delivered to Buyer, in the form filed with
the SEC, (A) its Annual Reports on Form 10-K for the fiscal years ended December
31, 1995, 1996, and 1997, respectively, (B) its Quarterly Reports on Form 10-Q
for the period ended March 31, 1997 and March 31, 1998, (C) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since December 31, 1995, and (D) all other forms, reports and other
registration statements (other than Quarterly Reports on Form 10-Q not referred
to in clause (B) above) filed by the Company with the SEC since December 31,
1995 (the forms, reports and other documents referred to in clauses (A), (B),
(C) and (D) above being referred to herein, collectively, as the "SEC Reports").
The SEC Reports (x) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
as the case may be, and the rules and regulations promulgated thereunder and (y)
did not, at the time they were filed (or at the effective date thereof with
respect to registration statements under the Securities Act), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(ii) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis ("GAAP") throughout the periods indicated (except as may be
indicated in the notes thereto) and each fairly presents the consolidated
financial position, results of operations and changes in shareholders equity and
cash flows of the Company and its consolidated subsidiaries as at the respective
dates thereof and for the respective periods indicated therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the aggregate, to have a
material adverse effect on the business, operations, condition (financial or
otherwise), assets or liabilities (including, without limitation, contingent
liabilities) of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect")).
(iii) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its consolidated subsidiaries as at December 31, 1997,
including the notes thereto (the "1997 Balance Sheet"), in Section 3.2(g)(iii)
of the Disclosure Schedule, or in any SEC Report filed by the Company after
December 31, 1997, neither the Company nor any subsidiary of the Company has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with GAAP, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1997, which would not, individually or in the
aggregate, be material in amount.
(iv) The Company has heretofore furnished to Buyer complete and correct
copies of all amendments and modifications (if any) that have not been filed by
the Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
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(h) Absence of Certain Changes or Events. (i) Since March 31, 1998,
except as set forth in Section 3.2(h)(i) of the Disclosure Schedule, or except
as contemplated by this Agreement or disclosed in any SEC Report filed since
March 31, 1998, and prior to the date of this Agreement, the Company and its
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and there has not been (A) any change in
the business, operations, properties, condition, assets or liabilities
(including, without limitation, contingent liabilities) of the Company or any of
its subsidiaries having, individually or in the aggregate, a Material Adverse
Effect, (B) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset of the Company or any of its
subsidiaries and having, individually or in the aggregate, a Material Adverse
Effect, (C) any entry by the Company or any of its subsidiaries into any
commitment or transaction material to the Company and its subsidiaries taken as
a whole, (D) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Company or any of its subsidiaries, except in the ordinary course of
business consistent with past practice, or (E) any entering into, renewal,
modification or extension of, any contract, arrangement or agreement with any
other party having, individually or in the aggregate, a Material Adverse Effect.
(ii) Since December 31, 1997, except as set forth in Section 3.2(h)9ii)
of the Disclosure Schedule or as contemplated by this Agreement or disclosed in
any SEC Report filed since December 31, 1997, and prior to the date of this
Agreement, there has not been (A) any material change by the Company in its
accounting methods, principles or practices, (B) any material revaluation by the
Company of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable), (C) any
failure by the Company to revalue any asset in accordance with GAAP, or (D) any
declaration, setting aside or payment of any dividend or distribution in respect
of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities.
ARTICLE 4.
CONDUCT OF BUSINESS
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY. The Company covenants
and agrees that, between the date of this Agreement and the date Buyer's
designees are appointed to the Board pursuant to Section 5.1, without the prior
written consent of Buyer, the businesses of the Company and its subsidiaries
shall be conducted only in, and the Company and its subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company shall use its best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its subsidiaries and to preserve the current
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement (including, without limitation transactions
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related to the termination of the Employee Purchase Plan), neither the Company
nor any of its subsidiaries shall, between the date of this Agreement and the
date Buyer's designees are appointed to the Board pursuant to Section 5.1
hereof, directly or indirectly do, or propose to do, any of the following
without the prior written consent of Buyer:
(a) amend or otherwise change its Articles of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance
of (i) any shares of capital stock of any class of the Company or any
subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest), of the Company or any subsidiary or (ii) any assets of the
Company or any subsidiary, except for sales in the ordinary course of
business and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock except for the regular quarterly
dividend of Wilshire Insurance Company to Occidental Fire & Casualty
Company of North Carolina;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization
or any division thereof or any material amount of assets other than in
the ordinary course of business; (ii) incur any indebtedness for
borrowed money, except for routine use of the Company's existing line
of credit in the ordinary course of business, or issue any debt
securities or assume, guarantee or endorse, pledge in respect of or
otherwise as an accommodation become responsible for the obligations of
any person, or make any loans or advances, except in the ordinary
course of business and consistent with past practice; (iii) enter into
any contract or agreement other than contracts or agreements entered
into in the ordinary course of business, consistent with past practice
and which require payments by the Company or its subsidiaries in an
aggregate amount of less than U.S. $250,000; (iv) terminate, cancel or
request any material change in, or agree to any material change in, any
material contract, except in the ordinary course of business consistent
with past practice; (v) authorize any single capital expenditure
(excluding software development activity) which is in excess of U.S.
$100,000 or capital expenditures which are, in the aggregate, in excess
of U.S. $250,000 for the Company and its subsidiaries taken as a whole;
or (vi) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this Section
4.1(e);
(f) increase the compensation payable or to become payable to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of
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employees of the Company or any subsidiary who are not officers of the
Company, or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer or
other employee of the Company or any subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee or circulate to any
employee any details of any proposal to adopt or amend any such plan;
(g) take any action, other than reasonable and usual actions
in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable);
(h) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(i) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1997 Balance Sheet or
subsequently incurred in the ordinary course of business and consistent
with past practice; or
(j) except for insurance claims settled in the ordinary
course, the AGA/ORRICO litigation and insurance related claims, settle
or compromise any pending or threatened suit, action or claim that is
material or which relates to any of the Transactions; or
(k) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing
or any action that would result in any of the conditions to the Offer
not being satisfied (other than as contemplated by this Agreement).
ARTICLE 5.
COVENANTS
SECTION 5.1 COMPANY BOARD REPRESENTATION; SECTION 14(F). (a)
Immediately following the time Buyer pays for Shares validly tendered and not
withdrawn in the Offer (the "Buyer's Election Time"), and from time to time
thereafter, Buyer shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Board as shall give Buyer majority
representation on the Board, and the Company shall, at such time, promptly take
all actions necessary to cause Buyer's designees to be elected as directors of
the Company, including increasing the size of the Board or securing the
resignations of incumbent directors or both. At such times, the Company shall
use its best efforts to cause persons designated by Buyer
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to constitute a majority of (i) each committee of the Board (some of whom may be
required to be independent as required by applicable law or the requirements of
the rules of the National Association of Securities Dealers, Inc.), (ii) each
board of directors of each subsidiary and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law. If any of
Buyer's designees dies, resigns or is removed upon the direction of Buyer, the
Company shall take all action necessary to cause such vacancy to be filled by a
designee of Buyer within 10 business days after the opening of such vacancy.
Notwithstanding the foregoing, until the Buyer's Election Time, the Company
shall use its best efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of the subsidiaries of the
Company as of the date hereof who are not employees of the Company shall remain
members of the Board and of such boards and committees.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 5.1 and shall include the
Information Statement containing such information with respect to the Company
and its officers and directors as is required under Section 14(f) and Rule 14f-1
as an annex to the Schedule 14D-9 to fulfill such obligations. Buyer shall
supply to the Company any information with respect to it and its nominees,
officers, directors and affiliates required by such Section 14(f) and Rule
14f-1.
SECTION 5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof to the Buyer's Election Time, the Company shall, and shall cause its
subsidiaries and the officers, directors, employees, auditors and agents of the
Company and its subsidiaries to, afford the officers, employees and agents of
Buyer complete access at all reasonable times to the officers, employees,
agents, properties, offices, and other facilities, books and records of the
Company and each of its subsidiaries, and shall furnish Buyer with all
financial, operating and other data and information as Buyer, through its
officers, employees or agents, may reasonably request.
(b) Except as required by law, all information obtained by Buyer
pursuant to this Section 5.2 shall be kept confidential, by Buyer and by any
other party which is to be afforded access pursuant to Section 5.2(a), in
accordance with the confidentiality agreement (the "Confidentiality Agreement"),
between Buyer and the Company.
SECTION 5.3 NO SOLICITATION OF TRANSACTIONS. Neither the Company nor
any of its subsidiaries shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any of its subsidiaries or any business combination with the Company
or any of its subsidiaries or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in this Section 5.3 shall prohibit the
Board from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of this Agreement) proposal in writing by such person to acquire the Company
pursuant to a merger, consolidation, share exchange, business combination
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or other similar transaction or to acquire all or substantially all of the
assets of the Company or any of its subsidiaries, if, and only to the extent
that, (i) the Board, after consultation with independent legal counsel (which
may include its regularly engaged independent legal counsel), determines in good
faith that such action is required for the Board to comply with its fiduciary
duties to shareholders imposed by North Carolina law and (ii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person the Company uses its reasonable best efforts to obtain from
such person an executed confidentiality agreement on terms no less favorable to
the Company than those contained in the Confidentiality Agreement (or obtained
such a confidentiality agreement prior to the date hereof). The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company shall notify Buyer promptly if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made.
The Company agrees not to release any third party from, or waive any provision
of, any confidentiality or, subject to the fiduciary duties of the Board,
standstill agreement to which the Company is or may become a party.
SECTION 5.4 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a)
Following the Buyer's Election Time, and for a period of six years thereafter,
Buyer shall cause the Board to retain provisions in the Articles of
Incorporation and Bylaws of the Company no less favorable with respect to
indemnification of officers and directors than are currently set forth in such
documents, unless such modification shall be required by law. Any determinations
made pursuant to the provisions of the Articles of Incorporation or Bylaws of
the Company, with respect to the appropriateness of indemnification, shall be
made in good faith.
(b) The Company, from and after the date of this Agreement and to and
including the date six years after the Buyer's Election Time, shall use its best
efforts to maintain in effect, if available, the current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Company may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring on or prior to the Buyer's Election Time; provided,
however, that in no event shall the Company be required to expend pursuant to
this Section 5.4(b) more than an amount per year equal to 200% of current annual
premiums paid by the Company for such insurance (which annual premiums the
Company represents to be approximately $70,000).
(c) In the event the Company or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity after such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Company, as the case may be, or at
Buyer's option, Buyer, shall assume the obligations set forth in this Section
5.4.
SECTION 5.5 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which causes any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect and (ii) any
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<PAGE> 17
failure of the Company or Buyer, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.5 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 5.6. FURTHER ACTION; REASONABLE BEST EFFORTS. Upon the terms
and subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain all consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
subsidiaries as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Offer (including, without limitation, obtaining
the approval of the Chancery Court of the State of Delaware and the North
Carolina Insurance Commission), and (iii) except as contemplated by this
Agreement, use its reasonable best efforts not to take any action, or enter into
any transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement.
SECTION 5.7 PUBLIC ANNOUNCEMENTS. Buyer and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any Transaction and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law or pursuant to the rules of the
National Association of Securities Dealers, Inc.
SECTION 5.8 EMPLOYEE PURCHASE PLAN. The Company agrees to terminate its
Employee Purchase Plan effective as of July 15, 1998.
ARTICLE 6.
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS PRECEDENT TO THE OFFER. The obligation of the
Buyer to accept for payment and pay for Shares validly tendered and not
withdrawn pursuant to the Offer and to cash out Options which holders elect to
cancel pursuant to the Offer shall be subject to the satisfaction of the
Regulatory Approval Conditions and the satisfaction or waiver of the Minimum
Condition and the other conditions set forth in Annex A hereof.
SECTION 6.2 CONDITIONS PRECEDENT TO THE ISSUANCE OF THE RIGHTS. The
obligations of the Company under this Agreement to issue the Rights is subject
to the fulfillment, at or prior to such issuance, of each of the following
conditions:
(a) Buyer and the Trust shall have executed and delivered the Trust
Purchase Agreement and such agreement and the transactions contemplated thereby
shall have been approved
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by the Court of Chancery of the State of Delaware having jurisdiction over the
Trust and by the North Carolina Commissioner of Insurance.
(b) The representations and warranties of Buyer contained herein shall
be true and correct on and as of the issuance date and on and as of the date
hereof with the same effect as though made on and as of the Closing Date.
(c) The waiting period under the HSR Act applicable to the transactions
contemplated by this Agreement and the Trust Purchase Agreement shall have
expired or terminated.
(d) Buyer shall have accepted for payment and paid for Shares validly
tendered and not withdrawn pursuant to the Offer.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Offer
and the other Transactions may be abandoned at any time prior to the Buyer's
Election Time:
(a) By mutual written consent duly authorized by the Boards of
Directors of Buyer and the Company prior to the Buyer's Election Time;
or
(b) By Buyer or the Company if (i) the Buyer's Election Time
shall not have occurred on or before the date 180 days following the
commencement of the Offer, provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Buyer's Election Time to occur on or before such date or (ii) any
court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the Offer and such order, decree, ruling or other action shall have
become final and nonappealable; or
(c) By Buyer, upon approval of its Board of Directors, if (i)
due to an occurrence or circumstance that would result in a failure to
satisfy any condition set forth in Annex A hereto, Buyer shall have (A)
failed to commence the Offer within 30 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to pay for Shares pursuant to the
Offer within 180 days following the commencement of the Offer; unless
such action or inaction under (A), (B) or (C) shall have been caused by
or resulted from the failure of Buyer to perform in any material
respect any material covenant or agreement of Buyer contained in this
Agreement or the material breach by Buyer of any material
representation or warranty contained in this Agreement or (ii) prior to
the purchase of Shares pursuant to the Offer, the Board or any
committee thereof shall have withdrawn or modified in a manner adverse
to Buyer its approval or recommendation of the Offer, this Agreement,
or any other
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<PAGE> 19
Transaction or shall have recommended another merger, consolidation,
business combination with, or acquisition of, the Company or any of its
assets or another tender offer or exchange offer for Shares, or shall
have resolved to do any of the foregoing; or
(d) By the Company, upon approval of the Board, if (i) due to
an occurrence or circumstance that would result in a failure to satisfy
any of the conditions set forth in Annex A hereto, Buyer shall have (A)
failed to commence the Offer within 30 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to pay for Shares pursuant to the
Offer within 180 days following the commencement of the Offer, unless
such action or inaction under (A), (B), and (C) shall have been caused
by or resulted from the failure of the Company to perform in any
material respect any material covenant or agreement of it contained in
this Agreement or the material breach by the Company of any material
representation or warranty of it contained in this Agreement or (ii)
prior to the purchase of Shares pursuant to the Offer, the Board shall
have withdrawn or modified in a manner adverse to Buyer its approval or
recommendation of the Offer, this Agreement, or any other Transaction
in order to approve the execution by the Company of a definitive
agreement providing for the acquisition of the Company or any of its
assets by a sale, merger or other business combination or in order to
approve a tender offer or exchange offer for Shares by a third party,
in either case, as the Board determines in good faith that such action
is required for the Board to comply with its fiduciary duties to
shareholders, after consultation with its independent legal counsel and
financial advisers, and is on terms more favorable to the Company's
shareholders than the Offer; provided, however, that such termination
under this clause (ii) shall not be effective until the Company has
reimbursed Buyer for its Expenses (as defined in Section 7.3(b)).
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void, except for Section 5.2(b), Section 7.3 and Article VIII which shall
survive termination indefinitely, and there shall be no liability on the part of
any party hereto, except as set forth in Section 7.3, and nothing herein shall
relieve any party from liability for any breach hereof.
SECTION 7.3 EXPENSES. (a) In the event that
(i) (A) on or after the date hereof and prior to
the termination of this Agreement, any person (including, without
limitation, the Company or any affiliate thereof, but excluding the
Trust, Buyer or any affiliate of Buyer), shall have become the
beneficial owner of more than 10% of the then outstanding Shares and
(B) this Agreement shall have been terminated pursuant to Section 7.1
and (C) within 12 months of such termination a Third Party Acquisition
(as defined hereinafter) shall occur; or
(ii) (A) on or after the date hereof and prior to
the termination of this Agreement, any person shall have commenced,
publicly proposed or communicated to the Company a proposal that is
publicly disclosed for a tender or exchange offer for 25% or more (or
which, assuming the maximum amount of securities that could be
purchased,
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<PAGE> 20
would result in any person beneficially owning 25% or more of the then
outstanding Shares) or otherwise for the direct or indirect acquisition
of the Company or all or substantially all of its assets for per Share
consideration having a value greater than the Per Share Amount and (B)
(x) the Offer shall have remained open for at least 20 business days,
(y) the Minimum Condition shall not have been satisfied and (z) this
Agreement shall have been terminated pursuant to Section 7.1; or
(iii) this Agreement is terminated pursuant to
Section 7.1(c)(ii) or 7.1(d)(ii); or
(iv) provided that Buyer is not in material
breach of its obligations under this Agreement, this Agreement is
terminated pursuant to Section 7.1(c) due to the occurrence of the
condition set forth in either paragraph (f) or (g) of Annex A;
then, in any such event set forth in clauses (i), (ii), (iii) or (iv) above, the
Company shall promptly reimburse Buyer for all Expenses; provided, however, that
the Company shall not be obligated to reimburse Buyer for any expenses under
clauses (i) or (ii) above if (x) this Agreement is terminated solely for failure
to satisfy any Regulatory Condition and (y) the failure to satisfy such
Regulatory Condition is in no respect due to the occurrence of any event
described in clause (i)(A) or (ii)(A) above.
(b) "Expenses" means all out-of-pocket expenses and fees up to $250,000
in the aggregate (including, without limitation, fees and expenses payable to
all banks, investment banking firms, other financial institutions and other
persons and their respective agents and counsel for structuring the Transactions
and all fees of counsel, accountants, experts and consultants to Buyer, and all
printing and advertising expenses) actually incurred or accrued by Buyer or on
its behalf in connection with the transactions contemplated by this Agreement
and the Trust Purchase Agreement, and/or actually incurred or accrued by banks,
investment banking firms, other financial institutions and other persons and
assumed by Buyer in connection with the negotiation, preparation, execution and
performance of this Agreement and the Trust Purchase Agreement, the structuring
of the Transactions and any agreements relating thereto. In the event that the
Company shall fail to pay any Expenses when due, the term "Expenses" shall be
deemed to include the costs and expenses actually incurred or accrued by Buyer
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 7.3, together with interest
on such unpaid Expenses, commencing on the date that such Expenses became due,
at a per annum rate equal to the rate of interest publicly announced by First
Union National Bank, from time to time, in the City of Charlotte, North
Carolina, as such bank's prime rate plus 1.00 percentage point. In addition, in
connection with any other action or proceeding by any party hereto against any
other party hereto alleging a breach of a representation, warranty, covenant or
agreement set forth herein, the prevailing party in such action or proceeding
shall be entitled to recover costs and expenses actually incurred or accrued
(including, without limitation, fees and expenses of counsel) in connection with
the prosecution or defense (as the case may be) of such action or proceeding.
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(c) Except as set forth in this Section 7.3, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
(d) "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger, consolidation or
other business combination transaction by any person other than Buyer or any
affiliate thereof (a "Third Party"); (ii) the acquisition by any Third Party of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole; (iii) the acquisition by a Third Party of 25% or more of the
outstanding Shares whether by tender offer, exchange offer or otherwise; (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or (v) the repurchase by the Company or
any of its subsidiaries of 25% or more of the outstanding Shares.
SECTION 7.4 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 7.5 WAIVER. At any time prior to the Buyer's Election Time, any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein (other than the Regulatory Approval Conditions, and provided
that the Minimum Condition shall not be reduced below 25% of the voting power of
the fully diluted Shares of the Company). Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE 8.
MISCELLANEOUS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement shall terminate at the Buyer's
Election Time or upon the termination of this Agreement pursuant to Section 7.1.
SECTION 8.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 8.2):
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if to Buyer:
IAT Reinsurance Syndicate Ltd.
c/o Spear Leeds & Kellogg
120 Broadway
New York, New York 10271
Attention: Marguerite Gorman
with a copy to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Attention: Mr. Robin L. Hinson
if to the Company:
McM Corporation
702 Oberlin Road, Box 12317
Raleigh, North Carolina 27605
Attention: George E. King
with a copy to:
Ragsdale, Liggett & Foley, PLLC
Post Office Box 31507
Raleigh, North Carolina 27622
Attention: Mr. Frank R. Liggett III
SECTION 8.3 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 8.4 ENTIRE AGREEMENT, ASSIGNMENT. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes, except as set forth in Section 5.2, all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Buyer may assign all or any of its
rights and obligations
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hereunder to any affiliate of Buyer provided that no such assignment shall
relieve the Buyer of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 8.5 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.4 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 8.6 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 8.7 DESCRIPTIVE HEADINGS, GENDER. Descriptive headings appear
herein for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof. As used herein, the singular shall
include the plural and the plural the singular, and the use of any gender,
including the neutral, shall be applicable to all genders.
SECTION 8.8 GOVERNING LAW. This Agreement and each Right issued
hereunder shall be deemed to be a contract made under the laws of the State of
North Carolina and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state.
SECTION 8.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MCM CORPORATION
By: /s/ George E. King, Chairman/CEO
--------------------------------
IAT REINSURANCE SYNDICATE LTD.
By: /s/ Peter R. Kellogg
--------------------------------
Peter R. Kellogg, President
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ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Buyer shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, or make any payment with respect to Options elected to be cancelled by
holders thereof, and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for Shares tendered or Options elected to
be canceled, if (i) the Minimum Condition shall not have been satisfied, (ii)
any applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the expiration of the Offer, (iii) the transactions
contemplated by the Trust Purchase Agreement shall not have been approved by the
Court of Chancery of the State of Delaware having jurisdiction over the Trust,
(iv) the transactions contemplated by this Agreement and the Trust Purchase
Agreement shall not have been approved by the North Carolina Commissioner of
Insurance, or (v) at any time on or after the date of this Agreement, and prior
to the acceptance for payment of Shares, any of the following conditions shall
exist:
(a) there shall have been instituted or be pending any action
or proceeding brought by any governmental, administrative or regulatory
authority or agency, domestic or foreign, before any court or
governmental, administrative or regulatory authority or agency,
domestic or foreign, (i) challenging or seeking to make illegal,
materially delay or otherwise directly or indirectly restrain or
prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares or Options by
Buyer or any other affiliate of Buyer pursuant to the Offer, or the
consummation of any other Transaction, or seeking to obtain material
damages in connection with any Transaction; (ii) seeking to prohibit or
limit materially the ownership or operation by the Company, Buyer or
any of their subsidiaries of all or any material portion of the
business or assets of the Company, Buyer or any of their subsidiaries,
or to compel the Company, Buyer or any of their subsidiaries to dispose
of or hold separate all or any material portion of the business or
assets of the Company, Buyer or any of their subsidiaries, as a result
of the Transactions; (iii) seeking to impose or confirm limitations on
the ability of Buyer or any other affiliate of Buyer to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Buyer pursuant to
the Offer, or otherwise on all matters properly presented to the
Company's shareholders, including, without limitation, the approval and
adoption of this Agreement and the transactions contemplated hereby; or
(iv) seeking to require divestiture by Buyer or any other affiliate of
Buyer of any Shares;
(b) there shall have been issued any injunction, order or
decree by any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, resulting from any action or
proceeding brought by any person other than any governmental,
administrative or regulatory authority or agency, domestic or foreign,
that (i) restrains or prohibits the making of the Offer or the
consummation of any other Transaction; (ii) prohibits or limits
ownership or operation by the Company or Buyer of all or any material
portion of the business or assets of the Company, taken as a whole,
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<PAGE> 26
Buyer or any of their subsidiaries, or compels the Company, Buyer or
any of their subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Company, Buyer or any
of their subsidiaries, in each case as a result of the Transactions;
(iii) imposes limitations on the ability of Buyer to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Buyer pursuant to
the Offer, or otherwise on all matters properly presented to the
Company's shareholders, including, without limitation, the approval and
adoption of this Agreement and the Transactions; (iv) requires
divestiture by Buyer of any Shares;
(c) there shall have been any action taken, or any statute,
rule, regulation, order or injunction enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to (i) Buyer, the
Company or any subsidiary or affiliate of Buyer or the Company or (ii)
any Transaction, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, in the case of both (i) and (ii) other than the
routine application of the waiting period provisions of the HSR Act to
the Offer, in each case that results in any of the consequences
referred to in clauses (i) through (iv) of paragraph (b) above;
(d) there shall have occurred any change, condition, event or
development that has a Material Adverse Effect with respect to the
Company;
(e) (i) the Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Buyer the approval or
recommendation of the Offer, or this Agreement or approved or
recommended any takeover proposal or any other acquisition of Shares
other than the Offer or (ii) the Board or any committee thereof shall
have resolved to do any of the foregoing;
(f) any representation or warranty of the Company in the
Agreement shall not be true and correct with the effect that such
failure of any such representation or warranty to be true and correct,
when taken together with all other such failures of such
representations and warranties to be true and correct, in the aggregate
has, or is reasonably likely to have, a Material Adverse Effect;
provided, however that, for the purpose of the foregoing condition, in
determining whether any such representation or warranty is true or
correct, any qualification as to materiality or Material Adverse Effect
contained in any such representation and warranty shall be deemed not
to apply;
(g) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or material covenant of the Company to be
performed or complied with by it under the Agreement;
(h) the Agreement shall have been terminated in accordance
with its terms; or
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(i) Buyer and the Company shall have agreed that Buyer shall
terminate the Offer or postpone the acceptance for payment of or
payment for Shares and Options thereunder; which, in the sole judgment
of Buyer, in any such case, and regardless of the circumstances
(including any action or inaction by Buyer or any of its affiliates)
giving rise to any such condition, makes it inadvisable to proceed with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Buyer and may be
asserted by Buyer regardless of the circumstances giving rise to any such
condition or may be waived by Buyer in whole or in part at any time and from
time to time in its sole discretion; provided, however, that Buyer may not waive
the Regulatory Approval Conditions or reduce the Minimum Condition below 25% of
the voting power of the fully diluted Shares of the Company. The failure by
Buyer at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect to
any other facts and circumstances; and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
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EXHIBIT A
[FORM OF RIGHTS CERTIFICATE]
CERTIFICATE NUMBER RIGHTS
------ ---------
RIGHTS CERTIFICATE
MCM CORPORATION
This certifies that IAT Reinsurance Syndicate Ltd., or registered
assignees, is the registered holder of the number of Rights set forth above,
each of which entitles the registered holder thereof, subject to the terms,
provisions and conditions of the Offer and Rights Agreement, dated as of July
16, 1998 (as the same may be amended or supplemented from time to time, the
"Agreement"), between McM Corporation (the "Company") and IAT Reinsurance
Syndicate Ltd., to purchase from the Company, at any time after the acceptance
for payment and payment for Shares validly tendered and not withdrawn pursuant
to the Offer, and prior to the close of business on June 1, 2008, at the
registered office of the Company, one (1) share of Series A Preferred Stock,
$1,000 par value (the "Preferred Stock") of the Company at the Exercise Price
referred to below, upon presentation and surrender of this Rights Certificate
with the form of Election to Purchase duly executed. Capitalized terms used in
this Rights Certificate without definition shall have the meanings given to them
in the Agreement. The Exercise Price shall be $.01 per Right and shall be
payable by official bank or certified check or wire transfer of immediately
available funds.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Agreement, which terms, provisions and conditions are hereby
incorporated by reference made a part hereof.
Subject to the terms of the Agreement, this Rights Certificate, with or
without other Rights Certificates, upon surrender at the registered office of
the Company may be exchanged for another Right Certificate or Rights Certificate
of like tenor evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Agreement, each Right evidenced by
this Rights Certificate may be surrendered by the holder thereof to the Company
for cancellation.
No holder of this Rights Certificate, as such, shall be deemed for any
purpose the holder of any shares of Preferred Stock issuable on the exercise
hereof, nor shall anything contained in the Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights
Exhibit A-1
<PAGE> 29
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings, or other actions affecting shareholders, or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Agreement.
WITNESS signature of the proper offices of the Company and its
corporate seal.
Date: July ___, 1998 McM Corporation
By:
-------------------------------
Title:
-------------------------
ATTEST:
- ---------------------------
Secretary
[CORPORATE SEAL]
Exhibit A-2
<PAGE> 30
EXHIBIT B
[TO BE ATTACHED TO EACH RIGHTS CERTIFICATE]
FORM OF ELECTION TO EXERCISE
(TO BE EXECUTED IF HOLDER DESIRE TO
EXERCISE THIS RIGHTS CERTIFICATE)
MCM CORPORATION
The undersigned hereby irrevocably elects to exercise ___ whole Rights
represented by the attached Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of and delivered to:
-----------------------------
-----------------------------
-----------------------------
(Please print name and address)
Social Security or other taxpayer identification number:
---------------------------
If such number of Rights shall not be all the Rights evidenced by the
attached Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
-----------------------------
-----------------------------
-----------------------------
(Please print name and address)
Social Security or other taxpayer identification number:
---------------------------
Dated: , 19
------------ --
--------------------------------
*Signatures must be guaranteed by an eligible guarantor institution (including
banks, stockbrokers, savings and loan associations, clearing agencies and credit
unions with membership in an approved signature guarantee medallion program).
Exhibit B-1
<PAGE> 31
EXHIBIT C
MCM CORPORATION
SERIES A PREFERRED STOCK
RIGHTS, PREFERENCES, LIMITATIONS AND CHARACTERISTICS
1. Designation and Amount. The shares of this series shall be
designated as "Series A Preferred Stock, $1,000 par value per share"
(hereinafter called this "Series"). Each share of this Series shall be identical
in all respects with the other shares of this Series.
The number of shares in this Series shall initially be 60,000, which
number may from time to time be increased or decreased (but not below the number
then outstanding) by the Board of Directors of the Company. Shares of this
Series purchased or otherwise acquired by the Company shall be cancelled and
shall thereupon be restored to the status of authorized but unissued shares.
2. Dividends. The holders of shares of this Series shall not be
entitled to receive any dividends.
3. Liquidation. Upon the voluntary or involuntary liquidation,
dissolution of winding up of the Company, the holders of shares of this Series
shall be entitled to receive out of the net assets of the Company, before any
payment or distribution shall be made or set apart for payment on the Common
Stock or any other class or series of stock of the Company, the amount of $1,000
per share of this Series. After the payment to the holders of the shares of this
Series of $1,000 per share, the holders of shares of this Series, as such, shall
have no right or claim to any of the remaining net assets of the Company.
Neither the sale, lease or conveyance of all or substantially all of the
property or business of the Company, nor the merger or consolidation of the
Company into or with any other corporation or the merger or consolidation of any
other corporation into or with the Company, shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, for purposes of this
paragraph.
4. Redemption. Subject to the North Carolina Business Corporation
Act and required regulatory approvals, the shares of this Series shall at all
times be redeemable at the option of the holder thereof in cash for $1,000 per
share payable by the Company by official bank or certified check or wire
transfer of immediately available funds. Such redemption shall occur within ten
business days after receiving a written notice of redemption from the holder of
shares of this Series accompanied by a certificate or certificates for such
shares duly endorsed by the holder thereof with signature guaranteed by a
financial institution.
5. Conversion and Exchange. The holders of shares of this Series
shall not have any rights to convert such shares into or to exchange such shares
for shares of Common Stock of the Company or any other class or series of stock
(or any other security) of the Company.
<PAGE> 32
6. Voting Rights. The holders of shares of this Series shall not have a
vote on any matter except as provided to the contrary by the North Carolina
Business Corporation Act.
7. Rank. The shares of this Series shall rank, as to distribution of
assets upon liquidation, dissolution or winding up, senior to any other class or
series of preferred stock of the Company.
Exhibit C-2
<PAGE> 1
EXECUTION COPY
TRUST PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 16th day of July, 1998, is
by and among IAT REINSURANCE SYNDICATE LTD. ("Buyer"), a Bermuda corporation
with its principal office in Bermuda, and WILMINGTON TRUST COMPANY ("Trustee"),
a Delaware corporation with its principal office in Wilmington, Delaware, in its
capacity as Trustee of the McMillen Trust.
BACKGROUND STATEMENT
The McMillen Trust (the "Trust") owns 3,087,500 shares of the issued
and outstanding common stock of McM Corporation ("McM"), a North Carolina
corporation headquartered in Raleigh, North Carolina. Buyer wishes to acquire
approximately 49% of the issued and outstanding shares of McM by buying
approximately 14% of such shares from the Trust and by buying approximately 35%
of such shares in a tender offer (the "Tender Offer") to all persons owning
shares other than the Trust. In consideration of the Trust's entering into this
Agreement and for not participating in the Tender Offer, the Buyer will deposit
with the Trust the sum of $8,864,390.00 (the "Fund"), to be held and invested
and reinvested by the Trust as provided in this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
1. Sale and Purchase of Shares.
(a) Subject to the terms and conditions of this Agreement, the
Trustee shall sell, transfer, convey, assign and deliver to Buyer, and Buyer
shall purchase from the Trustee, 658,900 shares of McM (the "Purchased Shares").
At the Closing (as hereinafter defined), the Trust shall deliver to Buyer the
certificates representing the Purchased Shares, accompanied by stock powers duly
executed and such other documents of transfer as may be required to transfer
legal title to the Purchased Shares to Buyer.
(b) The purchase price for the Purchased Shares shall be $3.65 per
share or a total purchase price of $2,404,985.00 (the "Purchase Price"). The
Purchase Price shall be paid by Buyer to the Trustee at the Closing.
(c) The Closing of the purchase and sale of the Purchased Shares
(the "Closing") will take place at the offices of Ragsdale, Liggett & Foley,
Raleigh, North Carolina, within five business days after all of the conditions
precedent to closing have been satisfied or waived, or at such other place, time
and date as the parties may agree upon in writing (the "Closing Date").
<PAGE> 2
2. Deposit of the Fund.
(a) Buyer agrees to transfer to the Trust the sum of $8,864,390.00
(the "Fund") on the Closing Date. The Fund shall be held by the Trust and
invested and reinvested by the Trustee in accordance with the instrument
creating the Trust as modified by orders of the Court of Chancery of the State
of Delaware. Any income earned on the Fund and any increases in the principal of
the Fund shall be and remain the sole property of the Trust. Buyer shall not be
responsible or liable for any decreases in the value of the Fund as a result of
investments by the Trustee.
(b) After the purchase and sale of the Purchased Shares, the Trust
will own 2,428,600 shares of McM (the "Retained Shares"). If Buyer makes an
offer at any time to purchase the Retained Shares, the parties agree that the
original principal amount of the Fund, or $8,864,390.00, regardless of any
increases or decreases in the value of the Fund or any income earned on the
Fund, shall constitute a credit against the purchase price for the Retained
Shares. Buyer by this Agreement is making no commitment to purchase or make an
offer to purchase the Retained Shares, and the Trust by this Agreement is making
no commitment to sell the Retained Shares. Nor are the parties agreeing to a
purchase price for the Retained Shares if and when an offer to sell or purchase
the Retained Shares shall occur.
(c) If the Trust at any time sells any of the Retained Shares to
any third party other than Buyer or Buyer's assignee, the Trust shall within
five (5) business days after such sale refund to Buyer an amount equal to $3.65
per share for each share of the Retained Shares sold to such third party.
(d) If McM at any time makes a filing for protection or
liquidation under any section of the United States Bankruptcy Code or similar
state law relating to insolvency or receivership, or if the insurance
commissioner of any state institutes receivership or liquidation proceedings
against McM, the Fund shall become the absolute property of the Trust subject to
no restrictions or obligations, and the Trust within five (5) business days of
any such filing or proceeding shall transfer to Buyer all of the Retained Shares
with no further consideration to be paid by Buyer to the Trust for such shares.
The Trust shall deliver to Buyer the certificates representing the Retained
Shares accompanied by stock powers duly executed and such other documents of
transfer as may be required to transfer legal title to the Retained Shares to
Buyer.
3. Representations and Warranties by the Trustee. The Trustee
hereby represents and warrants to Buyer as follows:
(a) The Trustee is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. The
Trustee is the duly qualified and acting trustee pursuant to the terms of a deed
of trust from Alonzo B. and Florence O. McMillen created in 1925. The Trustee is
duly authorized to execute and deliver this Agreement.
(b) The Trustee has good and valid title to the Purchased Shares
free and clear of all restrictions, claims, liens, charges and encumbrances
whatsoever, and the Trustee has full right, power and authority to sell,
transfer and deliver the Purchased Shares owned by the Trust to Buyer and, upon
delivery of the certificate or certificates therefor pursuant to the terms
hereof,
2
<PAGE> 3
and Buyer's acceptance thereof, will have transferred to Buyer good, marketable
and valid title thereto, free and clear of any restrictions, claims, liens,
charges or encumbrances whatsoever.
(c) The execution, delivery and performance by the Trustee of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized and approved by all requisite corporate or other action on the part
of the Trustee. The Trustee has the power, authority, and capacity to enter into
and perform its obligations under this Agreement, and to consummate the
transactions contemplated herein. This Agreement has been duly and validly
executed by the Trustee and is the legal, valid and binding obligation of the
Trustee and the Trust, enforceable in accordance with its terms, except as
enforceability may be limited by equitable principles or by bankruptcy,
fraudulent conveyance or insolvency laws affecting the enforcement of creditors'
rights generally.
(d) Neither the execution and delivery of, nor the performance of
its obligations under, this Agreement by the Trustee, nor the consummation of
the transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any agreement or instrument to
which the Trustee is a party or violate any law, order, judgment, decree, rule
or regulation of any court or governmental authority having jurisdiction over
the Trustee or any of the property of the Trust.
(e) The Trustee has not retained any broker or finder in
connection with the transactions contemplated herein so as to give rise to any
valid claim against Buyer for any fee, sales commissions, finders' fees,
financial advisory fee or other fees or expenses for which Buyer shall be
liable.
4. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to the Trustee as follows:
(a) Buyer is a corporation duly incorporated, validly existing and
in good standing under the laws of Bermuda, and has full corporate power and
authority to carry on its business as now conducted.
(b) The execution, delivery and performance by Buyer of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized and approved by all requisite shareholder and corporate action. Buyer
has the power, authority and capacity to enter into and perform its obligations
under this Agreement, and to consummate the transactions contemplated herein.
This Agreement has been duly and validly executed by Buyer and is the legal,
valid and binding obligation of Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting the enforcement
of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of
its obligations under, this Agreement by Buyer, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any indenture, mortgage, deed of
trust, lease,
3
<PAGE> 4
note, or other agreement or instrument to which Buyer is a party, conflict with
any provision of the charter documents of Buyer, or violate any law, order,
judgment, decree, rule or regulation of any court or governmental authority
having jurisdiction over Buyer or its property.
(d) The Purchased Shares acquired by Buyer pursuant to this
Agreement are being acquired for investment purposes only and not with a view to
any public distribution thereof, and Buyer will not offer to sell or otherwise
dispose of the shares so acquired by it in violation of any federal or state law
applicable to the sale, resale, or distribution of securities.
(e) Buyer has not retained any broker or finder in connection with
the transactions contemplated herein so as to give rise to any valid claim
against the Trustee or the Trust for any fee, sales commissions, finders' fees,
financial advisory fee or other fees or expenses for which the Trustee or the
Trust shall be liable.
5. Certain Covenants.
(a) The Trustee acknowledges that Buyer has already invested
$5,000,000 in capital for McM at a below market interest rate of 5% per annum
and plans to commit additional capital to McM in the future. The Trustee also
acknowledges that the management of Buyer has expertise in the management and
operation of insurance companies and that the devotion of time and expertise by
the management of Buyer to McM will cause Buyer to forego significant
opportunities in regard to other investments. Buyer intends to make available to
McM the services of Peter R. Kellogg, its president and chief executive officer,
in the management and direction of McM. Mr. Kellogg has vast experience and
background and a proven record of success in the management and operation of
insurance companies. Mr. Kellogg will devote significant time and effort to the
management of McM with no employment agreement and no compensation of any kind.
Nor will Buyer or Mr. Kellogg charge McM any management or advisory fees. Buyer
intends to negotiate an agreement with McM that will give Buyer rights to
purchase from McM for a nominal sum 60,000 shares of a new issue of preferred
stock of McM that will have a par value of $1000 per share, will not have a
vote, will not pay a dividend, will not be convertible into common stock of McM,
and will have such other rights, preferences and characteristics to which Buyer
and McM may agree, including but not limited to the right to a preference in any
liquidation or dissolution of McM equal to the par value of such preferred stock
before any amount is payable or distributable with respect to the common stock
of McM. The rights to purchase preferred stock of McM shall be exercisable only
if, at any time, Buyer's designees cease to control the board of directors of
McM or if the Trust sells to any third party other than Buyer or Buyer's
assignee any of the Retained Shares. The Trustee acknowledges that the issuance
of such rights to purchase preferred stock by McM to Buyer is appropriate in
order to properly compensate Buyer for its capital and management commitments to
McM. The Trustee covenants and agrees with Buyer that it will not oppose and
will support the issuance of the rights to purchase preferred stock of McM, and,
if required by law or requested by Buyer, the Trustee will vote all of the
Retained Shares in favor of the issuance of such rights.
(b) The Trustee covenants and agrees that it will not tender any
of the Retained Shares in the Tender Offer.
4
<PAGE> 5
(c) Should Buyer subsequently wish to sell the Purchased Shares to
a third party on or before but not after December 31, 2003, Buyer shall first
obtain the written consent of the Trustee, such consent not to be unreasonably
withheld if the Trustee is reasonably satisfied as to the financial and
professional qualifications of such third party. The certificate(s) for the
Purchased Shares shall bear an appropriate legend with respect to this
requirement. Buyer will grant to the Trustee a right of first refusal to buy the
Purchased Shares and any other capital stock and rights to acquire capital stock
of McM on the same terms and at the same price offered to any third party by
Buyer. If Buyer receives an offer to purchase the Purchased Shares or any other
capital stock or rights to acquire capital stock of McM from a third party which
Buyer is willing to accept, Buyer shall give the Trustee written notice of such
offer describing the terms and the price of such offer. The Buyer shall be free
to transfer such Purchased Shares or other capital stock or rights to such third
party on the terms described in such notice unless Buyer receives written notice
from the Trustee, within 5 business days after the delivery of Buyer's notice
described above, indicating that Trustee is exercising its right of first
refusal. Buyer shall also be free to transfer such Purchased Shares, capital
stock or other rights to such third party on the terms described in Buyer's
notice to the Trustee, if within 15 days after the Trustee indicates to Buyer
its desire to exercise its right of first refusal, the transaction between the
Trustee and Buyer is not closed due to no fault of Buyer.
(d) If Buyer makes an offer in writing to the Trust to purchase
the Retained Shares at a price in cash that has been determined by a nationally
recognized investment banking firm reasonably acceptable to the Trustee to be
fair from a financial point of view to the Trust as majority shareholder of McM
but which in no event shall be less than $3.65 per share, and if the Trustee
declines to accept such offer within twenty business days after such offer is
made, the Trustee shall, within five business days after the expiration of the
period for acceptance of the offer, pay to Buyer an amount equal to the original
principal amount of the Fund. If the Trustee accepts such offer (subject to
approval of Court of Chancery of the State of Delaware having jurisdiction over
the Trust, if required) within such twenty day period and if the price offered
for the Retained Shares is greater than the original principal amount of the
Fund, Buyer shall pay to the Trustee within five business days after expiration
of the period for acceptance of the offer an amount equal to the difference
between the price offered for the Retained Shares and the original principal
amount of the Fund plus interest on the original principal amount of the Fund at
a rate of 6% per annum from the date the Trust received the Fund to and
including the date of payment by Buyer for the Retained Shares, and the Trustee
shall transfer the Retained Shares to Buyer free and clear of all claims, liens,
and encumbrances. If the Trustee accepts such offer within such twenty day
period and if the price offered for the Retained Shares is less than the
original principal amount of the Fund, Buyer shall have no obligation to pay any
additional amount to the Trust for the Retained Shares, the Trustee shall not be
obligated to refund any portion of the Fund to Buyer, and the Trustee shall
transfer the Retained Shares to Buyer free and clear of all claims, liens, and
encumbrances within five business days after expiration of the period for
acceptance of the offer.
(e) If the Buyer does not make an offer to purchase the Retained
Shares, the Trustee shall retain the Fund subject to the provisions of paragraph
2 of this Agreement.
5
<PAGE> 6
6. Conditions Precedent to Obligations of the Trustee. The
obligation of the Trustee under this Agreement to sell the Purchased Shares is
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) This Agreement and the transactions contemplated hereby have
been approved by Court of Chancery of the State of Delaware having jurisdiction
over the Trust and by the North Carolina Commissioner of Insurance.
(b) The representations and warranties of Buyer contained herein
shall be true and correct on and as of the Closing Date and on and as of the
date hereof with the same effect as though made on and as of the Closing Date.
(c) The waiting period under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976 shall have expired or terminated.
(d) Buyer shall have accepted for payment and paid for the shares
of McM validly tendered and not withdrawn pursuant to the Tender Offer.
7. Conditions Precedent to Obligations of Buyer. The obligations
of Buyer under this Agreement to purchase the Purchased Shares and to consummate
the other transactions contemplated by this Agreement are subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) This Agreement and the transactions contemplated hereby have
been approved by Court of Chancery of the State of Delaware having jurisdiction
over the Trust and by the North Carolina Commissioner of Insurance.
(b) Buyer and McM shall have executed and delivered a definitive
agreement in form and substance satisfactory to Buyer with respect to the
issuance of rights to purchase preferred stock as contemplated by paragraph 5 of
this Agreement.
(c) The waiting period under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976 shall have expired or terminated.
(d) The representations and warranties of the Trustee contained
herein shall be true and correct on and as of the Closing Date and on and as of
the date hereof with the same effect as though made on and as of the Closing
Date.
(e) Buyer shall have accepted for payment and paid for the shares
of McM validly tendered and not withdrawn pursuant to the Tender Offer.
(f) The directors of McM, the spouses of the directors of McM, the
Greenfield Children's Limited Partnership, the Jesse Greenfield IRA, and the
charitable foundation of which Mr. Peyton Woodson is a trustee shall have agreed
to sell or tender to Buyer an aggregate of 481,932 shares of common stock of McM
at a price of $3.65 per share.
6
<PAGE> 7
8. Miscellaneous.
(a) This Agreement may be terminated at any time prior to the
Closing by mutual written consent of Buyer and the Trustee. If this Agreement is
terminated in accordance with the foregoing provisions, all further obligations
of the parties hereunder shall terminate. Unless so terminated this Agreement
shall remain in full force and effect to and including the 1st day of June 2008,
at which time this Agreement shall terminate.
(b) The parties hereto shall assume and bear all expenses, costs
and fees incurred or assumed by them in the preparation and execution of this
Agreement and compliance herewith, whether or not the transactions contemplated
hereby are consummated.
(c) This Agreement shall not be assigned by any party without the
prior written consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that Buyer may cause any of its direct
or indirect subsidiaries to take title to the Purchased Shares so long as Buyer
shall guarantee punctual performance in full by such subsidiary of any and all
obligations it may have under this Agreement or any agreement executed in
connection herewith. This Agreement shall inure to the benefit of, and be
binding upon and enforceable against, the successors and permitted assigns of
the respective parties.
(d) This Agreement or any term hereof may be changed, waived,
discharged or terminated only by an agreement in writing signed by both parties.
No waiver by a party of any condition or of any breach of any term, covenant,
representation or warranty contained herein shall be effective unless in
writing, and no waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in any other
instances or a waiver of any other condition or breach of any other term,
covenant, representation or warranty.
(e) All payments to be made pursuant to this Agreement shall be
made by certified or official bank check or by wire transfer of immediately
available funds.
(f) This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, and all of which, together, shall constitute one and the same
instrument. This instrument shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of North Carolina
(without reference to conflict of law provisions).
(g) Subject to the provisions of paragraphs 6(a) and 7(a) above,
and except as otherwise required by applicable law, each party agrees to keep
this Agreement and the transactions contemplated hereby in strictest confidence
and not to disclose the existence or terms of this Agreement to any third party
without the written consent of the other.
(signature page to follow)
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BUYER:
IAT REINSURANCE SYNDICATE LTD.
By: /s/ Peter R. Kellogg
----------------------------------
Title: President
----------------------------------
Printed Name: Peter R. Kellogg, President
---------------------------
WILMINGTON TRUST COMPANY, as Trustee of
the McMillen Trust
By: /s/ Michael A. DiGregorio
-----------------------------------
Michael A. DiGregorio,
Vice President/Senior Trust Counsel
8
<PAGE> 1
EXECUTION COPY
TENDER AGREEMENT
THIS TENDER AGREEMENT (this "Agreement'), made and entered into this
16th day of July, 1998, is by and among IAT REINSURANCE SYNDICATE LTD.
("Buyer"), a Bermuda corporation with its principal office in Bermuda, and the
persons listed on SCHEDULE A hereto (each, individually a "Shareholder" and,
collectively, the "Shareholders").
BACKGROUND STATEMENT
Buyer desires to acquire approximately 49% of the issued and
outstanding shares ("Shares") of common stock, par value $1.00 per share (the
"Common Stock"), of McM Corporation ("McM"), a North Carolina corporation
headquartered in Raleigh, North Carolina, through the acquisition of
approximately 14% of such Shares from the McMillen Trust (the "Trust") and a
tender offer (the "Offer") to purchase up to 35% of such Shares for $3.65 per
share net to the sellers thereof in cash (such amount or any greater per share
amount paid in the Offer, the "Per Share Amount").
Buyer and McM have entered into an Offer and Rights Agreement, dated as
of the date hereof (the "Offer and Rights Agreement"), which provides, among
other things, upon the terms and subject to the conditions thereof, for the
Offer. The Offer and Rights Agreement provides that holders of options
("Options") to purchase Shares ("Option Shares") may elect, in their sole
discretion, to cancel their Options in return for a cash payment from Buyer
equal to the Per Share Amount for each Option Share less the exercise price for
each Option Share.
The Shareholders are each directors of McM. As of the date hereof, the
Shareholders own (beneficially or of record) the number of Shares and Options
set forth opposite such Shareholder's name on SCHEDULE A attached hereto.
As a condition to the willingness of Buyer to enter into the Offer and
Rights Agreement, Buyer has required that the Shareholders agree, and in order
to induce Buyer to enter into the Offer and Rights Agreement, the Shareholders
have agreed, (i) to tender and not withdraw, or to cause to be tendered and not
withdrawn, pursuant to the Offer, all of the Shares listed on Schedule A hereto
and all other Shares now owned (beneficially or of record) by such Shareholders
or which may hereafter be acquired by such Shareholders (the "Tendered Shares")
and (ii) in connection with the Offer, to elect to cancel their Options in
consideration of the cash-out payment from Buyer described above.
<PAGE> 2
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
1. Tender of Shares. Subject to the terms and conditions of this
Agreement, each Shareholder agrees to validly tender and not withdraw, or to
cause to be tendered and not withdrawn, pursuant to the Offer, all of Tendered
Shares; provided, that no such tender shall be required if such Shareholder
would as a result of such tender incur liability under Section 16(b) of the
Securities Exchange Act of 1934, as amended ("Section 16(b)"). Notwithstanding
the foregoing, in the event any Shareholder fails to tender any Tendered Shares
due to Section 16(b) liability, as soon as such liability lapses with respect to
any Tendered Shares, such Shareholder agrees to tender in the Offer, or if Buyer
has accepted for payment Shares pursuant to the Offer, to sell to Buyer for the
Per Share Amount, such Tendered Shares.
2. Cash-Out and Cancellation of Options. Subject to the terms and
conditions of this Agreement, each Shareholder holding Options listed on
SCHEDULE A hereto ("Cash-Out Options") agrees, in accordance with the procedures
set forth in the Offer, to instruct McM to cancel all of his or her Cash-Out
Options in consideration of a cash payment by Buyer for each such Cash-Out
Option in an amount, subject to applicable withholding of taxes, equal to (x)
the product of (i) the aggregate number of Option Shares subject to such
Cash-Out Option times (ii) the Per Share Amount, minus (y) the aggregate
exercise price for all Option Shares subject to such Cash-Out Option. In
consideration of Buyer's Offer and entry into this Agreement, each Shareholder
agrees that each Cash-Out Option with a per share exercise price in excess of
the Per Share Amount ("Under Water Options"), upon Buyer's acceptance for
payment and payment for Shares validly tendered and not withdrawn pursuant to
the Offer, shall be cancelled by McM without payment by Buyer of any additional
consideration therefor.
3. Representations and Warranties by the Shareholders. Each
Shareholder hereby severally represents and warrants to Buyer as follows:
(a) At the time the Tendered Shares are tendered in the Offer,
each Shareholder, either individually or together with his spouse, will have
good and valid title to the Tendered Shares, free and clear of all restrictions,
claims, liens, charges and encumbrances.
(b) Each Shareholder has good and valid title to the Cash-Out
Options (including, without limitation, the Under Water Options), free and clear
of all restrictions, claims, liens, charges and encumbrances other than those
set forth in the 1986 Employee Incentive Stock Option Plan and the 1996 Employee
Incentive Stock Option Plan (together, the "Plans").
(c) Each Shareholder has the power, authority, and capacity to
enter into and perform its obligations under this Agreement, and to consummate
the transactions contemplated herein. This Agreement has been duly and validly
executed by each Shareholder and is the legal, valid and binding obligation of
each Shareholder, enforceable in accordance with its terms, except as
enforceability may be limited by equitable principles or by bankruptcy,
fraudulent conveyance or insolvency laws affecting the enforcement of creditors'
rights generally.
2
<PAGE> 3
(d) Neither the execution and delivery of, nor the performance of
its obligations under, this Agreement by each Shareholder, nor the consummation
of the transactions contemplated herein, will conflict with, violate or result
in a breach of any of the terms or provisions of, or constitute a default (with
the passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any agreement or instrument to
which such Shareholder is a party or violate any law, order, judgment, decree,
rule or regulation of any court or governmental authority having jurisdiction
over each Shareholder or any of the Tendered Shares or Cash-Out Options.
(e) No Shareholder has retained any broker or finder in connection
with the transactions contemplated herein so as to give rise to any valid claim
against Buyer for any fee, sales commissions, finders' fees, financial advisory
fee or other fees or expenses for which Buyer shall be liable.
4. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to each Shareholder as follows:
(a) Buyer is a corporation duly incorporated, validly existing and
in good standing under the laws of Bermuda, and has full corporate power and
authority to carry on its business as now conducted.
(b) The execution, delivery and performance by Buyer of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized and approved by all requisite shareholder and corporate action. Buyer
has the power, authority and capacity to enter into and perform its obligations
under this Agreement, and to consummate the transactions contemplated herein.
This Agreement has been duly and validly executed by Buyer and is the legal,
valid and binding obligation of Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by equitable principles or by
bankruptcy, fraudulent conveyance or insolvency laws affecting the enforcement
of creditors' rights generally.
(c) Neither the execution and delivery of, nor the performance of
its obligations under, this Agreement by Buyer, nor the consummation of the
transactions contemplated herein, will conflict with, violate or result in a
breach of any of the terms or provisions of, or constitute a default (with the
passage of time or giving of notice or both) or give rise to any right of
termination, cancellation or acceleration under any agreement or instrument to
which Buyer is a party, conflict with any provision of the charter documents of
Buyer, or violate any law, order, judgment, decree, rule or regulation of any
court or governmental authority having jurisdiction over Buyer or its property.
(d) The Tendered Shares acquired by Buyer pursuant to this
Agreement are being acquired for investment purposes only and not with a view to
any public distribution thereof, and Buyer will not offer to sell or otherwise
dispose of the shares so acquired by it in violation of any federal or state law
applicable to the sale, resale, or distribution of securities.
(e) Buyer has not retained any broker or finder in connection with
the transactions contemplated herein so as to give rise to any valid claim
against any Shareholder for any fee,
3
<PAGE> 4
sales commissions, finders' fees, financial advisory fee or other fees or
expenses for which any Shareholder shall be liable.
5. Certain Covenants.
(a) Each Shareholder covenants and agrees that it will not buy any
Shares from the Trust.
(b) Each Shareholder covenants and agrees, at the request of Buyer
made at any time after the purchase of the Tendered Shares and the cash-out of
the Cash-Out Options by Buyer pursuant to the Offer, to resign as a director of
McM, effective immediately upon such request or such later time as Buyer shall
designate.
(c) Each Shareholder not requested by Buyer to resign agrees to
appoint to fill the vacancies created by the resignations given pursuant to
clause (b) above, director nominees designated by Buyer, effective immediately
upon Buyer's request or such later time as Buyer shall designate.
(d) Except as contemplated by Sections 1 and 2 of this Agreement,
each Shareholder hereby covenants and agrees that such Shareholder shall not,
and shall not permit any other beneficial owner of his Tendered Shares to, sell,
transfer, tender, exercise, assign, hypothecate or otherwise dispose of, or
create or permit to exist any security interest, lien, claim, pledge, option,
right of first refusal, agreement, limitation on such Shareholder's voting
rights, charge or other encumbrance of any nature whatsoever with respect to
such Tendered Shares or such Cash-Out Options, or agree to do any of the
foregoing, at any time prior to the earlier of (x) the purchase by Buyer of the
Tendered Shares and the cash-out by Buyer of the Cash-Out Options pursuant to
the Offer or (y) the termination of this Agreement.
(e) Each Shareholder agrees on the date hereof to terminate any
election made by such Shareholder under the Company's 1996 Non-Employee
Directors' Stock Plan (the "Directors Plan") to receive Shares in lieu of any
accrued directors' fees otherwise payable in cash, which termination shall be
effective with respect to all accrued fees payable on or after July 1, 1998.
6. Miscellaneous.
(a) This Agreement may be terminated (i) at any time by mutual
written consent of Buyer and the Shareholders or (ii) by Buyer or any
Shareholder, at any time the date 180 days after the date hereof, if Buyer has
not purchased the Tendered Shares and cashed out the Cash-Out Options by such
date. If this Agreement is terminated in accordance with the foregoing
provisions, all further obligations of the parties hereunder shall terminate.
(b) The parties hereto shall assume and bear all expenses, costs
and fees incurred or assumed by them in the preparation and execution of this
Agreement and compliance herewith, whether or not the transactions contemplated
hereby are consummated.
(c) This Agreement shall not be assigned by any party without the
prior written consent of the other party, which consent shall not be
unreasonably withheld; provided, however,
4
<PAGE> 5
that Buyer may cause any of its direct or indirect subsidiaries to take title to
the Tendered Shares so long as Buyer shall guarantee punctual performance in
full by such subsidiary of any and all obligations it may have under this
Agreement or any agreement executed in connection herewith. This Agreement shall
inure to the benefit of, and be binding upon and enforceable against, the
successors, heirs and permitted assigns of the respective parties.
(d) This Agreement or any term hereof may be changed, waived,
discharged or terminated only by an agreement in writing signed by both parties.
No waiver by a party of any condition or of any breach of any term, covenant,
representation or warranty contained herein shall be effective unless in
writing, and no waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in any other
instances or a waiver of any other condition or breach of any other term,
covenant, representation or warranty.
(e) This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, and all of which, together, shall constitute one and the same
instrument. This instrument shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of North Carolina
(without reference to conflict of law provisions).
(f) The parties hereto agree that irreparable damage would occur
in the event any provision of this Agreement was not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
(g) If any term or other provision of this Agreement is invalid ,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provision of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of this
Agreement is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
(h) Except as otherwise required by applicable law, each party
agrees to keep this Agreement and the transactions contemplated hereby in
strictest confidence and not to disclose the existence or terms of this
Agreement to any third party without the written consent of Buyer and McM.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BUYER:
IAT REINSURANCE SYNDICATE LTD.
ATTEST: By: /s/ Peter R. Kellogg
-------------------------------
Title: President
---------------------------
/s/ Marguerite R. Gorman Printed Name: Peter R. Kellogg
- ------------------------------- --------------------
Marguerite R. Gorman, Secretary
SHAREHOLDERS:
/s/ Michael A. DiGregorio
----------------------------------
Michael A. DiGregorio
/s/ Jesse Greenfield
----------------------------------
Jesse Greenfield
/s/ George E. King
----------------------------------
George E. King
/s/ Laurence F. Lee, Jr.
----------------------------------
Laurence F. Lee, Jr.
/s/ Laurence F. Lee III
----------------------------------
Laurence F. Lee III
/s/ Claude G. Sanchez, Jr.
----------------------------------
Claude G. Sanchez, Jr.
/s/ Stephen L. Stephano
----------------------------------
Stephen L. Stephano
/s/ R. Peyton Woodson III
----------------------------------
R. Peyton Woodson III
6
<PAGE> 7
SCHEDULE A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
OPTION CASH-OUT
AMOUNT
EXERCISE (ASSUMING $3.65
SHAREHOLDER(S) SHARES* OPTIONS PRICE PER SHARE AMOUNT)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael A. DiGregorio 80 -- -- $ 0
- -------------------------------------------------------------------------------
Jesse Greenfield 364,464 -- -- $ 0
- -------------------------------------------------------------------------------
George E. King 44,300 21,481 $1.38 $48,761.87
9,500 $2.25 $13,300.00
40,500 $2.75 $36,450.00
7,500 $3.94 --
--------------
$98,511.87
- -------------------------------------------------------------------------------
Laurence F. Lee, Jr. 779 -- -- $ 0
- -------------------------------------------------------------------------------
Laurence F. Lee III 10 -- -- $ 0
- -------------------------------------------------------------------------------
Claude G. Sanchez, Jr. 50 -- -- $ 0
- -------------------------------------------------------------------------------
Stephen L. Stephano 32,515 21,481 $1.38 $48,761.87
9,500 $2.25 $13,300.00
40,500 $2.75 $36,450.00
7,500 $3.94 --
--------------
$98,511.87
- -------------------------------------------------------------------------------
R. Peyton Woodson III 39,734 --
- -------------------------------------------------------------------------------
</TABLE>
* As reported on McM Corporation's Proxy Statement dated April 21, 1998.
7
<PAGE> 1
EXHIBIT 12
OCCIDENTAL FIRE & CASUALTY COMPANY OF NORTH CAROLINA
702 Oberlin Road
Raleigh, North Carolina 27605
CERTIFICATE OF CONTRIBUTION
Certificate No. 1
THIS IS TO CERTIFY THAT IAT REINSURANCE SYNDICATE, LTD., a Bermuda
corporation, hereinafter called "Contributor," has advanced to OCCIDENTAL FIRE &
CASUALTY COMPANY OF NORTH CAROLINA, a North Carolina corporation, hereinafter
called "OF&C," the sum of ONE MILLION DOLLARS ($1,000,000) in cash, lawful money
of the United States, hereinafter called the "Principal Sum."
I
This Certificate of Contribution is issued pursuant to the authority
granted by The Honorable James E. Long, the Commissioner of Insurance of the
State of North Carolina, and is hereby designated "Certificate No. 1 ."
II
The Principal Sum of this Certificate, to wit, ONE MILLION DOLLARS
($1,000,000), shall upon presentation of this Certificate for endorsement of any
partial payment, or upon complete surrender for cancellation in return for final
payment in full, be payable no later than December 31, 2000, by OF&C at its Home
Office, only out of the excess of the admitted assets of OF&C over the sum of:
(1) All liabilities (including, but not limited to claims, losses,
reserves, reinsurance, policyholder dividends, production and
administrative expenses, taxes, loans and advances), but excluding
any amounts for or on account of any outstanding Certificates of
Contribution, including this Certificate; and
<PAGE> 2
(2) An amount (of surplus) equal to the larger of (a) or (b)
hereinafter:
(a) The amount required by the laws of North Carolina at the
time of such repayment for the issuance of a Certificate of
Authority to transact the classes of insurance which it is
then transacting anywhere, or which it is authorized to
transact in North Carolina, or the amount required by the laws
of any other jurisdiction for the retention of its Certificate
of Authority in that jurisdiction, whichever is the largest
amount; or
(b) The amount required in order to maintain capital and
surplus at a level of $500,000 above the Company Action Level
of Risk Based Capital as defined by NAIC-published guidelines.
III
The Principal Sum of this Certificate shall not be payable in whole or
in part, except upon approval of a majority of the Directors of OF&C made and
recorded at a regular or special meeting; provided, however, that the Directors
of OF&C shall be required to vote payment of such Principal Sum, either in whole
or in part, whenever the condition of OF&C is such that it meets the
requirements of Paragraph II; provided, further, that in no event shall the
principal sum be payable in whole or in part except upon approval in writing by
the Commissioner of Insurance.
IV
Interest at the rate of 5.0% per annum,, not compounded, shall be due
and payable quarterly by OF&C, at its Home Office, upon the unpaid balance of
the Principal Sum of this Certificate to the extent, and only to the extent,
that funds of OF&C exist on each such due date to (a) discharge all liabilities
within the meaning of Paragraph II (2) hereinabove plus that amount of surplus
required by the laws of any jurisdiction in which it is licensed to do business
to retain unimpaired its Certificate of Authority there and (b) such amounts
have been approved in writing by the Commissioner of Insurance. If no funds in
whole or in part exist on any such date, such interest for which no funds for
payment exist shall not become due or payable but shall accrue and shall become
due and payable when and to the extent such funds do come into existence
thereafter
<PAGE> 3
and such amounts have been approved in writing by the Commissioner of Insurance.
Any interest both due and payable by the terms of this paragraph shall create a
cause of action in the contributor and be a liability of OF&C.
V
The obligations evidenced by this Certificate shall not be a liability
or claim against OF&C or its funds or assets at any time except to the extent
that the Principal Sum hereof, in whole or in part, shall be due and payable in
accordance with the provisions of Paragraphs II and III hereof and except to the
extent that interest on this Certificate, in whole or in part, shall be due and
payable in accordance with the provisions of Paragraph IV hereof. The
Contributor shall have no right of offset for amounts due under this Certificate
of Contribution with regard to any reinsurance balances due or to become due or
against any other obligations owed OF&C by Contributor.
VI
Should OF&C at any time discontinue the insurance business, then, after
the payment or provisions for payment of all the obligations described in
subdivision (1) of Paragraph II hereof, following the determination of such
facts by the Commissioner of Insurance of the State of North Carolina, any
remaining funds or assets of OF&C shall first be applied to the payment of any
interest accrued hereon, then to the remaining unpaid balance of the Principal
Sum of this Certificate.
VII
Should, at any time during the term of this Certificate, OF&C and/or
its parent, McM Corporation, enter into a definitive agreement to sell or
otherwise participate in a transaction for the transfer of a significant portion
(20% or more) of the stock or assets of OF&C and/or McM Corporation to a party
other than the Contributor, then the maturity of this Certificate shall
<PAGE> 4
accelerate to the date of such definitive agreement, and the interest rate
specified in Paragraph IV shall be modified ab initio to Fifteen Percent (15.0%)
per annum.
VIII
It is understood and agreed that the Contributor has made the foregoing
contribution upon the terms and conditions herein set forth, after having been
furnished with a copy of the approval of the Commissioner of Insurance of the
State of North Carolina authorizing the issuance of this Certificate and having
read the same, and that this Certificate evidences the complete understanding
and agreement between the Contributor and OF&C.
[Signature pages follow.]
<PAGE> 5
IN WITNESS WHEREOF, OF&C has executed this Certificate at Raleigh,
North Carolina, this 15th day of June, 1998.
OCCIDENTAL FIRE & CASUALTY
COMPANY OF NORTH CAROLINA
By: /s/ Stephen L. Stephano
----------------------------------
Attest: President and CEO
/s/ Michael D. Blinson
- ----------------------------------
Secretary
[Corporate Seal]
APPROVED AND ACCEPTED:
IAT REINSURANCE SYNDICATE, LTD.
By: /s/ Peter R. Kellogg
- ----------------------------------
President
Attest:
/s/ Marguerite R. Gorman
- ----------------------------------
Secretary
[Corporate Seal]
<PAGE> 6
Stephen L. Stephano and Michael D. Blinson, the undersigned, do each
hereby certify under penalty of perjury that they are the President and
Secretary of Occidental Fire & Casualty Company of North Carolina; they and each
of them executed this Certificate of Contribution No. 1 pursuant to the
authority granted to them by the Board of Directors of Occidental Fire &
Casualty Company of North Carolina.
Dated this the 15th day of June, 1998, at Raleigh, North Carolina.
/s/ Stephen L. Stephano /s/ Michael D. Blinson
- ---------------------------------- ----------------------------------
President and CEO Secretary
Occidental Fire & Casualty Occidental Fire & Casualty
Company of North Carolina Company of North Carolina
<PAGE> 1
EXHIBIT 13
CONFIDENTIALITY AGREEMENT
Confidential
April 15, 1998
Mr. Peter Kellogg
IAT Reinsurance Syndicate Ltd.
120 Broadway
New York, NY 10271
Dear Mr. Kellogg:
In order to allow you to evaluate the possible acquisition (the "Proposed
Acquisition") of McM Corporation (the "Company"), we will deliver to you, upon
your execution and delivery to us of this letter agreement, certain information
about the properties and operations of the Company. All information about the
Company furnished by us or our affiliates, or our respective directors,
officers, employees, agents or controlling persons (such affiliates and other
persons collectively referred to herein as "Representatives"), whether furnished
before or after the date hereof, and regardless of the manner in which it is
furnished, is referred to in this letter agreement as "Proprietary Information."
Proprietary Information does not include, however, information which (a) is or
becomes generally available to the public other than as a result of a disclosure
by you or your Representatives, (b) was available to you on a non-confidential
basis prior to its disclosure by us or (c) becomes available to you on a
non-confidential basis from a person other than us or our Representatives who is
not otherwise bound by a confidentiality agreement with us or our
Representatives, or is not otherwise prohibited from transmitting the
information to you. As used in this letter, the term "person" shall be broadly
interpreted to include, without limitation, any corporation, company,
partnership and individual.
Unless otherwise agreed to in writing by us, you agree (a), except as required
by law, to keep all Proprietary Information confidential and not to disclose or
reveal any Proprietary Information to any person other than those employed by
you or on your behalf who are actively and directly participating in the
evaluation of the Proposed Acquisition or who otherwise need to know the
Proprietary Information for the purpose of evaluating the Proposed Acquisition
and to cause those persons to observe the terms of the agreement and (b) not to
use Proprietary Information for any purpose other than in connection with the
consummation of the Proposed Acquisition in a manner which we have approved. You
will be responsible for any breach of the terms hereunder by you or the persons
or entities referred to in subparagraph (a) of this paragraph. In the event that
you are requested pursuant to, or required by, applicable law or regulation or
by legal process to disclose any Proprietary Information, you agree that you
will provide us with prompt notice of such request(s) to enable us to seek an
appropriate protective order or other appropriate remedy, or, if appropriate,
waive compliance with the terms of this letter agreement, and you shall
<PAGE> 2
reasonably cooperate with the Company to obtain such protective order or other
remedy. In the event that such protective order or other remedy is not obtained,
or that the Company waives compliance with the provisions hereof, you or such
Representative, as the case may be, may disclose to any tribunal only that
portion of the Proprietary Information which you are advised by opinion of
counsel is legally required to be disclosed.
You hereby acknowledge that you are aware, and that you will advise each of your
Representatives who are informed as to the matters which are the subject of this
letter, that the United States securities laws prohibit any person who has
received from an issuer material, non-public information concerning the matters
which are the subject of this letter from purchasing or selling securities of
such issuer or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.
Unless otherwise required by law, neither party nor any of such party's
Representatives will, without our prior written consent, disclose to any person
(other than those actively and directly participating in the Proposed
Acquisition) any information about the Proposed Acquisition, or the terms,
conditions or other facts relating thereto, including the fact that discussions
are taking place with respect thereto or the status thereof, or the fact that
the Proprietary Information has been made available to you.
In consideration of our furnishing you with Proprietary Information, you also
agree that for a period of one year from the date of this letter agreement,
neither you nor any of your Representatives will, without the prior written
consent of the Company or its Board of Directors:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or
direct or indirect rights to acquire any voting securities of
the Company or any subsidiary thereof, or of any successor to
or person in control of the Company, or any assets of the
Company or any subsidiary or division thereof or of any such
successor or controlling person;
(b) make, or in any way participate, directly or indirectly, in
any "solicitation" or "proxies" to vote (as such terms are
used in the rules of the Securities and Exchange Commission),
or seek to advise or influence any person or entity with
respect to the voting of any voting securities of the Company;
(c) make any public announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any
extraordinary transaction involving the Company or its
securities or assets;
(d) seek or propose to influence or control the Company's
management or policies (or request permission to do so);
<PAGE> 3
(e) solicit, encourage or induce any person employed by the
Company to leave the Company's employ, without the Company's
prior written consent; or
(f) form, join or in any way participate in a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in connection with any of the
foregoing.
You also agree that the Company will be entitled to equitable relief, including
injunction, in the event of any breach of the provisions of this paragraph.
If you determine that you do not wish to proceed with the Proposed Acquisition,
you will promptly advise us of that decision. In that case, or in the event that
the Proposed Acquisition is not consummated by you, you will, upon our request,
promptly deliver to us all of the Proprietary Information, including all copies,
reproductions, summaries, analyses or extracts thereof or based thereon in your
possession or in the possession of any of your Representatives.
Although the Proprietary Information contains information which we believe to be
relevant for the purpose of your evaluation of the Proposed Acquisition, we do
not make any representation or warranty as to the accuracy or completeness of
the Proprietary Information. Neither we, our affiliates, nor any of our
respective officers, directors, employees, agents or controlling persons within
the meaning of Section 20 of the Exchange Act shall have any liability to you or
any of your Representatives relating to or arising from the use of the
Proprietary Information.
Without prejudice to the rights and remedies otherwise available to us, you
agree that money damages would not be a sufficient remedy for any breach of this
letter agreement and, accordingly, we shall be entitled to equitable relief by
way of injunction if you or any of your Representatives breach or threaten to
breach any of the provisions of this letter agreement.
It is further understood and agreed that no failure or delay by us in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
This letter agreement will be construed and enforced in accordance with the laws
of the State of North Carolina applicable to agreements made and to be performed
entirely in such State.
Please confirm your agreement with the foregoing by signing and returning the
enclosed duplicate copy of this letter to PaineWebber Incorporated, 1285 Avenue
of the Americas, 12th Floor, New York, New York 10019, Attention: Bradford I.
Hearsh. Should you have any questions concerning this letter, please contact Mr.
Hearsh at (212) 713-3148.
Very truly yours,
McM CORPORATION
By /s/ George E. King
---------------------------------------
George E. King
Chairman and Chief Executive Officer
Accepted and Agreed to as of the date first written above:
IAT REINSURANCE SYNDICATE LIMITED
By: /s/ Peter R. Kellogg
---------------------------------
Peter Kellogg
<PAGE> 1
EXHIBIT 14
[McM CORPORATION LETTERHEAD]
July 23, 1998
To Our Shareholders:
We are pleased to inform you that on July 16, 1998, McM Corporation
("McM") entered into an Offer and Rights Agreement (the "Agreement") with IAT
Reinsurance Syndicate Ltd. ("IAT"), and IAT has commenced today a tender offer
for up to 35% of the outstanding shares of McM common stock for $3.65 per share
in cash (the "Offer"). Following the completion of the Offer, upon the terms and
subject to conditions of the Agreement, each share tendered will be exchanged
for $3.65 in cash. IAT has also entered into an agreement with the McMillen
Trust, majority shareholder of McM, to purchase 14% of the outstanding shares of
McM. Upon consummation of the Offer, IAT could own up to 49% of McM's
outstanding shares.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER, HAS
DETERMINED THAT THE OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF MCM AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its decision, your Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of PaineWebber, Incorporated, McM's
financial advisor, to the effect that, as of the date of such opinion, the price
offered to the holders of the shares being sold is fair from a financial point
of view. The enclosed Schedule 14D-9 describes the Board's decision and contains
other important information relating to that decision. We urge you to read it
carefully.
Accompanying this letter, in addition to the Schedule 14D-9, is the
Offer to Purchase, together with related materials including a Letter of
Transmittal for use in tendering shares. These documents set forth the terms and
conditions of the Offer and provide instructions as to how you can tender your
shares. We urge you to read the enclosed materials carefully and consider all
the factors set forth therein before making your decision with respect to the
Offer.
Sincerely yours,
/s/ George E. King
---------------------------------------
George E. King
Chairman and Chief Executive Officer
/s/ Stephen L. Stephano
---------------------------------------
Stephen L. Stephano
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 15
RALEIGH, NORTH CAROLINA, JULY 17, 1998 - FOR IMMEDIATE RELEASE
IAT TO ACQUIRE UP TO 49% STAKE IN MCM
McM Corporation, a Raleigh-based insurance holding company ("McM"), and
IAT Reinsurance Syndicate Ltd., a Bermuda-based insurance and investment company
("IAT"), jointly announce the signing of an agreement pursuant to which IAT
intends to acquire up to 49% of McM's outstanding common stock for a cash price
of $3.65 per share. Of the 49% stake IAT intends to acquire, up to 35% will be
acquired in a public cash tender offer and 14% will be acquired from the
McMillen Trust, pursuant to an agreement between IAT and the Trust. The McMillen
Trust currently owns approximately 65% of McM's outstanding shares.
Under the agreement, which has been unanimously approved by McM's Board
of Directors, the tender offer will commence no later than Thursday, July 23,
1998, and will be conditioned on the satisfaction of customary conditions and
certain governmental approvals, including the approval of the North Carolina
Department of Insurance. The tender offer will be made only through offering
documents filed with the Securities and Exchange Commission and mailed to McM
shareholders.
PaineWebber Incorporated has acted as financial advisor to McM in
connection with the transaction.
Company Contact:
George E. King
McM Corporation
919-833-1600
<PAGE> 1
EXHIBIT 16
[PAINEWEBBER INCORPORATED LETTERHEAD]
July 16, 1998
Board of Directors
McM Corporation
702 Oberlin Road
Raleigh, North Carolina 27605
Ladies and Gentlemen:
IAT Reinsurance Syndicate, Ltd. (the "Purchaser") proposes to make a
tender offer (the "Offer") for the shares of the common stock, par value $1.00
per share (the "Shares"), of McM Corporation (the "Company") not owned by the
McMillen Trust (the "Trust") and to enter into an agreement with Wilmington
Trust Company, as trustee for the Trust, to purchase 658,900 shares of common
stock of the Company owned by the Trust (collectively the "Sale Transaction").
Shareholders participating in the Sale Transaction will be entitled to receive
$3.65 per share in cash at closing.
You have asked us whether or not, in our opinion, the proposed cash
consideration to be received by the shareholders participating in the Sale
Transaction is fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December
31, 1997, and the Company's Form 10-Q and the related
unaudited financial information for the three months ended
March 31, 1998;
(2) Reviewed the Purchaser's financial information for the fiscal
year ended December 31, 1997, and the unaudited financial
information for the three months ended March 31, 1998;
(3) Reviewed certain information relating to the business,
earnings, cash flow and assets of the Company, furnished to us
by the Company;
<PAGE> 2
(4) Conducted discussions with members of senior management of the
Company concerning its businesses;
(5) Compared the results of operations of the Company with that of
certain companies which we deemed to be relevant;
(6) Reviewed the historical market prices and trading activity for
the Shares and compared them with that of certain publicly
traded companies which we deemed to be relevant;
(7) Compared the proposed financial terms of the Offer with the
financial terms of certain other mergers and acquisitions
which we deemed to be relevant;
(8) Reviewed a draft of the materials dated July 13, 1998,
relating to the Offer; and
(9) Reviewed such other financial studies and analyses and
performed such other investigations and took into account such
other matters as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not assumed any responsibility to independently verify
such information. We have also relied upon assurances of the management of the
Company that they are unaware of any facts that would make the information
provided to us incomplete or misleading. We have not made any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we been furnished with any such evaluations or
appraisals. We have also assumed, with your consent, that any material
liabilities (contingent or otherwise, known or unknown) of the Company are as
set forth in the consolidated financial statements of the Company. This opinion
does not constitute a recommendation to any shareholder of the Company as to
whether any such shareholder should or should not tender his shares in the
Offer. This opinion does not address the relative merits of the Offer and any
other transactions or business strategies discussed by the Board of Directors of
the Company as alternatives to the Offer or the decision of the Board of
Directors of the Company with respect to the Offer. Our opinion is based on
economic, monetary and market conditions existing on the date hereof.
In rendering this opinion, we have not been engaged to act as an agent
or fiduciary of, and the Company has expressly waived any duties or liabilities
we may otherwise be deemed to have had to, the Company's equity holders or any
other third party.
In the ordinary course of business, PaineWebber Incorporated may trade
in the securities of the Company and the Purchaser for our own account and for
the accounts of our customers and, accordingly, may at any time hold long or
short positions in such securities.
<PAGE> 3
PaineWebber Incorporated is currently acting as financial advisor to
the Company in connection with the Offer and will be receiving a fee in
connection with the rendering of this opinion and upon consummation of the
Offer. In the past, PaineWebber Incorporated and its affiliates have provided
investment banking and other financial services to the Company and have received
fees for rendering these services.
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed $3.65 in cash consideration to be received by the shareholders
participating in the Sale Transaction is fair to such shareholders from a
financial point of view.
This opinion has been prepared for the information of the Board of
Directors of the Company in connection with the Offer and shall not be
reproduced, summarized, described or referred to, provided to any person or
otherwise made public or used for any purpose without the prior written consent
of PaineWebber Incorporated.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
---------------------------------------
<PAGE> 4
McM CORPORATION
702 OBERLIN ROAD
RALEIGH, NORTH CAROLINA 27605
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about July 23, 1998, to
the holders of record of the Shares at the close of business on or about July
16, 1998, as a part of the Company's Solicitation/ Recommendation Statement on
Schedule 14D-9 with respect to the Offer by Purchaser IAT Reinsurance Syndicate
Ltd. (the "Schedule 14D-9"). You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
The terms of the Offer and Rights Agreement, a summary of the events
leading up to the Offer and the execution of the Offer and Rights Agreement and
other information concerning the Offer are contained in the Offer to Purchase,
the related Letter of Transmittal and the Schedule 14D-9, copies of which are
being delivered to the Company's shareholders contemporaneously herewith.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action. Capitalized terms
used herein and not otherwise defined herein shall have the meaning set forth in
the Schedule 14D-9. The information contained in this Information Statement
concerning the Purchaser and the Purchaser Designees has been furnished to the
Company by the Purchaser, and the Company assumes no responsibility for the
accuracy or completeness of such information.
Pursuant to the Offer and Rights Agreement, Purchaser commenced the Offer
on July 23, 1998. The Offer is scheduled to expire at 5:00 p.m., New York City
Time, on Friday, August 21, 1998, unless the Offer is extended.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 16, 1998, there were 4,706,388
Shares outstanding. The Board of Directors currently consists of eight members,
each of whom is elected to a one-year term. Each director holds office until
such director's successor is elected and qualified or until such director's
earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
Pursuant to the Offer and Rights Agreement, promptly upon the purchase by
Purchaser of Shares pursuant to the Offer, and from time to time thereafter,
Purchaser shall be entitled to designate up to such number of directors (the
"Purchaser Designees"), rounded up to the next whole number, on the Company's
Board of Directors as shall give Purchaser majority representation on the Board
of Directors, and the Company shall at such times promptly take all actions
necessary to cause the Purchaser Designees to be elected as directors of the
Company, including increasing the size of the Board of Directors or securing the
resignations of incumbent directors or both. At such times, the Company shall
use its best efforts to cause Purchaser Designees to constitute a majority of
(i) each committee of the Board of Directors, (ii) each board of directors of
each subsidiary of the Company and (iii) each committee of each such board, in
each case only to the extent permitted by applicable law. Notwithstanding the
foregoing, until such time as Purchaser acquires a majority of the then
outstanding Shares on a fully diluted basis, the Company shall use its best
efforts to ensure that all the members of the Board of Directors and each
committee of the Board of Directors and such boards and committees of such
subsidiaries as of the date of the Offer and Rights Agreement who are not
employees of the Company shall remain members of the Board of Directors and of
such boards and committees.
Purchaser has informed the Company that each of the Purchaser Designees
listed below has consented to act as a director.
It is expected that the Purchaser Designees may assume office at any time
following the consummation of the Offer, which purchase cannot be earlier than
August 21, 1998, and that, upon assuming office, the Purchaser Designees will
thereafter constitute at least a majority of the Board of Directors.
I-1
<PAGE> 5
Biographical information concerning each of the Purchaser Designees is
presented on the following page.
PURCHASER DESIGNEES
The following table sets forth the name, age, business or residence
address, principal occupation or employment at the present time and during the
last five years, and the name, principal business and address of any corporation
or other organization in which such employment is conducted or was conducted of
each Purchaser Designee. Except for Messrs. Amaral and Spurling, each of whom is
a citizen of Great Britain, each of Purchaser's Designees is a citizen or
permanent resident of the United States.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
AND MATERIAL OCCUPATIONS FOR PAST
FIVE YEARS, NAME, PRINCIPAL BUSINESS
BUSINESS (B) OR RESIDENCE (R) AND ADDRESS OF PRINCIPAL OFFICE OF
NAME ADDRESS EMPLOYER
- ---- ----------------------------- ------------------------------------
<S> <C> <C> <C>
John D. Amaral, 40........ (b) Victoria Hall Vice President/Account Manager, J&H
11 Victoria Street Marsh & McLennan, a risk management
Hamilton HM11, Bermuda and insurance services firm.
11 Victoria Street
Hamilton HM11, Bermuda
Marguerite R. Gorman, (r) 56 Kilburn Road Secretary of Purchaser; Vice
67...................... Garden City, New York 11530 President, Spear, Leeds & Kellogg, a
broker-dealer.
120 Broadway
New York, New York 10271
Peter R. Kellogg, 55...... (b) 120 Broadway President of Purchaser; Senior
New York, New York 10271 Managing Director, Spear, Leeds &
Kellogg, a broker-dealer.
120 Broadway
New York, New York 10271
Richard D. Spurling, 52... (b) 41 Cedar Avenue Partner, Appleby Spurling & Kempe, a
Hamilton HM12, Bermuda...... law firm.
41 Cedar Avenue
Hamilton HM12, Bermuda
Edward A. Kerbs, 47....... (b) 813 River Road President, Oceanic Company Inc. 3/97
Fair Haven, New Jersey 07704 to present; Managing Director,
Spear, Leeds & Kellogg 2/84-12/96.
813 River Road
Fair Haven, New Jersey 07704
</TABLE>
None of the Purchaser Designees (i) is currently a director of or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge of
the Company, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by Purchaser that none
of the Purchaser Designees has been involved in any transactions with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the
Commission, except as may be disclosed herein or in the Schedule 14D-9. The
Company has been advised by Purchaser that none of the Purchaser Designees other
than Peter R. Kellogg is a director of a publicly held company. Mr. Kellogg is a
director of investment firms Interstate/Johnson Lane, Inc. and The Ziegler
Companies, Inc.
The Purchaser has advised the Company that none of the Purchaser Designees
has, during the last five years, been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or was party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was, or is, subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws.
I-2
<PAGE> 6
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is the ownership of the Company's securities by all persons
or groups known to the Company to be the beneficial owner of more than five
percent of any class of the Company's voting securities as of April 10, 1998:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ----------------------------- ----------------- -------
<S> <C> <C> <C>
Common....................... McMillen Trust(1) 3,087,500 shares 65.7%
Wilmington Trust Company, directly owned
Trustee
1100 North Market Street
Wilmington, Delaware
19890-0001
Common....................... Jesse Greenfield(2) 364,464 shares 7.8%
34 Boulder View Lane
Boulder, Colorado 80304
</TABLE>
- ---------------
(1) The McMillen Trust was created in 1925 pursuant to the terms of a deed of
trust from Alonzo B. and Florence O. McMillen. The Trust continues in
existence until the expiration of 21 years after the last to die of
Elizabeth Lee Long, Florence Lee Headley, R. Peyton Woodson III and Laurence
F. Lee, Jr. The McMillen Trust has been directed by the Chancery Court of
the State of Delaware to dispose of its interest in McM. In April 1993, the
Court granted the petition of the Wilmington Trust Company, Trustee of the
McMillen Trust, for a clarification of existing orders to make clear, among
other things, that the timing and terms of any such disposition or sale
shall be determined in the sound discretion of the Trustee.
The Trustee of the McMillen Trust, subject to certain limitations, is
required to vote the shares which it owns in McM in the way that a majority in
interest of the income beneficiaries may decide. At present there are six income
beneficiaries of the McMillen Trust. All are lineal descendants of the Trust
grantors. The figures following each name show the relative interests in the
Trust of the income beneficiaries:
a. Mrs. Elizabeth Lee Long (1/9), Denver, Colorado.
b. Mrs. Florence Lee Headley (1/9), Denver, Colorado.
c. Mr. Laurence F. Lee, Jr. (1/9), Jacksonville, Florida. Mr. Lee is a
director of McM. (See Election of Directors)
d. Mrs. Lonnie McMillen Sanchez (1/6), Albuquerque, New Mexico. Mrs.
Sanchez is married to Claude G. Sanchez, Jr., a director of McM. (See
Election of Directors)
e. Mrs. Katherine Faust Roe (1/6), Sante Fe, New Mexico.
f. Mr. R. Peyton Woodson III (1/3), Raleigh, North Carolina. Mr. Woodson is
a director of McM. (See Election of Directors)
(2) Amount shown includes 118,455 shares owned by the Greenfield Children's
Limited Partnership, beneficial ownership of which is disclaimed by Mr.
Greenfield, and 246,009 shares owned by Jesse Greenfield I.R.A.
I-3
<PAGE> 7
The following table sets forth the name and age of each director, the
director's occupation, including positions and offices with the Company, the
period during which he has served as a director, together with the number of
shares of common stock beneficially owned, directly or indirectly, by such
director and the percentage of the outstanding shares that any such ownership
represented at the close of business on March 31, 1998.
<TABLE>
<CAPTION>
PERIOD OF AMOUNT AND PERCENT
CONSECUTIVE NATURE OF CLASS
DIRECTOR'S NAME, PRINCIPAL OCCUPATION SERVICE OF BENEFICIAL BENEFICIALLY
(IN ADDITION TO DIRECTOR, IF APPLICABLE) AND ADDRESS AGE FROM OWNERSHIP(1) OWNED
- ---------------------------------------------------- --- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Michael A. DiGregorio.................................. 51 1995 80 .002
Vice President/Senior Trust Counsel
Wilmington Trust Company Wilmington, DE
Jesse Greenfield....................................... 52 1998 364,464(2) 7.760
Independent Investor &
Venture Capitalist
Boulder, CO
George E. King......................................... 67 1989 97,281(3) 2.071
Chairman Emeritus/Chief Executive Officer
McM Corporation
Raleigh, NC
Laurence F. Lee, Jr.................................... 76 1989 779(4) .017
Retired
Jacksonville, FL
Laurence F. Lee III.................................... 47 1988 10(5) --
President
Plan Analysts
Jacksonville, FL
Claude G. Sanchez, Jr.................................. 43 1989(6) 50(7) .001
Sun Construction & Real Estate Company
Albuquerque, NM
Stephen L. Stephano.................................... 44 1992 85,496(8) 1.820
President/Chief Operating Officer
McM Corporation
Raleigh, NC
R. Peyton Woodson III.................................. 75 1991(9) 39,734(10) .846
President
Enterprise Holdings Proprietary, Inc.
Raleigh, NC
Share ownership of all Directors
and Executive Officers of McM as a Group (8 persons).................... 587,894(11) 12.517(11)
</TABLE>
- ---------------
(1) Except as otherwise noted, each person has sole investment and voting power
over the common stock indicated as being beneficially owned by such person.
(2) Amount shown includes 118,455 shares held by the Greenfield Children's
Limited Partnership, the limited partners of which are Mr. Greenfield's
children and the general partner of which is Mr. Greenfield's brother,
beneficial ownership of which is disclaimed by Mr. Greenfield, and 246,009
shares owned by Jesse Greenfield I.R.A.
(3) Share amount includes an exercisable option on 21,481 shares of McM common
stock at an option price of $1.38 per share, an exercisable option on 5,700
shares of McM common stock at an option price of $2.25 per share, an
exercisable option on 24,300 shares of McM common stock at an option price
of $2.75 per share and an exercisable option on 1,500 shares of McM common
stock at $3.94 per share. Mr. King owns 44,300 shares jointly with his
wife.
(4) Mr. Lee, Jr. is an income beneficiary of the McMillen Trust, which is the
owner of 3,087,500 shares (or 65.7%) of the Company. The Trust's shares are
not included in the total shown for Mr. Lee, Jr. (See
I-4
<PAGE> 8
Principal Shareholders). The number of shares shown is comprised of 500
shares directly owned by Mr. Lee, Jr. and 279 shares owned jointly with his
wife. Mr. Lee, Jr. is the first cousin of director R. Peyton Woodson III
and is the father of director Laurence F. Lee III.
(5) Mr. Lee III is the son of director Laurence F. Lee, Jr. who is an income
beneficiary of the McMillen Trust. Mr. Lee III directly owns 10 shares of
McM.
(6) Date on which Mr. Sanchez was elected currently to the Board of Directors
of McM. He previously served on the Board of McM from May 1985 to April
1988.
(7) Mr. Sanchez is the husband of Lonnie McMillen Sanchez. Mrs. Sanchez is an
income beneficiary of the McMillen Trust. Mrs. Sanchez directly owns 50
shares of McM.
(8) Share amount includes an exercisable option on 21,481 shares of McM common
stock at an option price of $1.38 per share, an exercisable option on 5,700
shares of McM common stock at an option price of $2.25 per share, an
exercisable option on 24,300 shares of McM common stock at an option price
of $2.75 per share and an exercisable option on 1,500 shares of McM common
stock at an option price of $3.94 per share. Mr. Stephano owns 23,675
shares jointly with his wife and 8,840 shares directly.
(9) Date on which Mr. Woodson was elected currently to the Board of Directors
of McM. He previously served on the Board from December 1977 to May 1985.
(10) Mr. Woodson is an income beneficiary of the McMillen Trust, which is the
owner of 3,087,500 shares (or 65.7%) of the Company. The Trust's shares are
not included in the total shown for Mr. Woodson (See Principal
Shareholders). The number of shares shown is comprised of 725 shares
directly owned by Mr. Woodson, 459 shares owned by Mr. Woodson's wife and
38,550 shares owned by a charitable foundation of which Mr. Woodson is one
of five trustees. Mr. Woodson is the first cousin of director-nominee
Laurence F. Lee, Jr.
(11) This number does not include shares owned by the McMillen Trust. See
Footnotes (4) and (10).
BUSINESS EXPERIENCE OF THE DIRECTORS
Mr. DiGregorio has served as a director of McM since May 1995. He has also
served for more than seven years as Vice President and Senior Trust Counsel with
Wilmington Trust Company in Wilmington, Delaware, where he manages the Estate
and Legal Services Division. A graduate of Temple University, Mr. DiGregorio was
admitted to the Pennsylvania Bar in 1979, and was then employed as an
Investigator for the United States Department of Labor. Prior to joining
Wilmington Trust, Mr. DiGregorio worked as an Employee Benefits Attorney for the
Fidelity Mutual Group in Radnor, Pennsylvania, and later at the law firm of
Stradley, Ronon, Stevens & Young in Philadelphia, Pennsylvania.
Mr. Greenfield has served as a director of McM since May 1998. Mr.
Greenfield has been involved as a private investor and venture capitalist for
many years. In addition, he has worked for thirty years in the stock brokerage
business as an OTC trader/specialist. Prior to his employment in the brokerage
business, he served on the professional staff of Haskins & Sells, an
international public accounting firm.
Mr. King has served as a director of McM since February 1989. Mr. King has
also acted as Chairman of the Board of McM and Chairman of all of its
subsidiaries since February 1989 when he was named President and Chief Executive
Officer. He was elected Chairman Emeritus of McM in August 1996. He served as
President of McM subsidiaries Occidental Life and Peninsular Life Insurance
Companies until McM sold those companies on October 24, 1991. Through December
1988, Mr. King served as Executive Vice President of McM, to which position he
was named in January 1985. Prior to his affiliation with McM, Mr. King was
Deputy Commissioner and Chief Examiner with the North Carolina Department of
Insurance.
Mr. Lee, Jr. has served as a director of McM since February 1989. Mr. Lee
retired as an insurance executive in 1975. He served as President of Peninsular
Life Insurance Company from 1959 to 1964 and as Chairman of the Board and Chief
Executive Officer from 1964 to 1973.
Mr. Lee III has served as a director of McM since January 1988. He is
President and owner of Plan Analysts, a group insurance and estate planning
organization located in Jacksonville, Florida, with which he has been associated
for more than fifteen years.
I-5
<PAGE> 9
Mr. Sanchez has served as a director of McM since February 1989. He
previously served as a director of McM from May 1985 to April 1988. He is
currently affiliated with Sun Construction & Real Estate Company in Albuquerque,
New Mexico. He is the former owner and operator of Lonkita Farms, a thoroughbred
horse racing and breeding operation located in Veguita, New Mexico. Mr. Sanchez
previously served as a director of British-American Insurance Company, Limited,
Nassau, Bahamas.
Mr. Stephano has served as a director of McM since August 1992. In August
1996, he was elected President of McM. In March 1995, he was elected Chief
Executive Officer of McM subsidiaries Occidental Fire & Casualty Company of
North Carolina and Wilshire Insurance Company after having been named President
of both companies in July 1994. He was named Chief Operating Officer of McM and
its subsidiaries in September 1992. Previously, Mr. Stephano was named Executive
Vice President of McM in January 1988. He had been named Senior Vice
President/Chief Financial Officer of McM in January 1985. Mr. Stephano's various
other previous positions at McM have been Vice President, Chief Financial
Officer and Treasurer beginning in 1983; Vice President and Controller beginning
in January 1983; Controller beginning in 1982. Prior to his employment with McM,
he served on the professional staff of Ernst & Young, an international public
accounting firm.
Mr. Woodson has served as a director of McM since August 1991. He
previously served as a director of McM from December 1977 to May 1985. He is
currently President of Enterprise Holdings Proprietary, Inc., a holding company
for several private ventures. Mr. Woodson held various executive positions
within the McM group of companies throughout his career, including Chairman of
the Board of McM from December 1977 to May 1985.
DIRECTORS' FEES
Directors who are not salaried officers of McM or its subsidiaries are
compensated at a rate of $15,000 per year plus $1,000 per diem for each Board or
Board committee meeting attended and $1,000 per diem for travel associated with
such meeting. The directors are also reimbursed for other expenses incurred in
attending the meetings. Similarly, directors involved in special assignments are
compensated at the rate of $1,000 per diem for special assignments and $1,000
per diem for travel associated with such special assignments. As with regular
Board meetings, other expenses incurred by these directors in attending such
special assignments are reimbursed.
In addition, directors who are not salaried officers are compensated at a
rate of $5,000 per year for each subsidiary company Board of Directors on which
they serve. Per diem allowances are the same as those for serving on the McM
Board of Directors except that no per diem allowances are paid if Board meetings
are held concurrently. During 1997, all subsidiary Board meetings were held
concurrently with McM Board meetings. Total fees in the amount of $251,500 were
expended for all regular McM and subsidiary Board meetings, Board committee
meetings and special assignments during 1997. Directors who are salaried
officers receive no compensation for their services as directors of McM.
Notwithstanding the foregoing, as part of a litigation settlement, Mr.
Greenfield is not entitled to any directors' fees during his first year of
service as director. He is, however, reimbursed for expenses incurred in
attending board meetings according to the same policies followed with regard to
all other directors.
BOARD AND COMMITTEES OF THE BOARD
The Board of Directors met thirteen times in formal session during the 1997
fiscal year. Directors of the Board also met seven times for special assignments
during 1997.
The committees of the McM Board are Audit, Executive, Personnel, Investment
and Compensation. The Company does not have a nominating committee. Due to the
size of the McM Board, all the directors serve on the Personnel, Executive and
Investment Committees. Only directors who are not salaried officers serve as
members of the Audit and Compensation Committees.
The Audit Committee met four times during 1997, with R. Peyton Woodson III
acting as Chairman. The Audit Committee reviews the arrangement, scope and
results of the external audit, considers comments made
I-6
<PAGE> 10
by the independent auditors with regard to internal controls and the response of
management to such comments.
The Executive Committee did not meet during 1997. The Executive Committee
has been granted the authority of the Board in the management of the business
affairs of McM when the Board is not in session.
The Personnel Committee met two times during 1997, with Michael A.
DiGregorio acting as Chairman. The Personnel Committee reviews and monitors
compensation plans, including incentive compensation and benefit plans, other
than those addressed by the Compensation Committee. The Personnel Committee is
also responsible for management succession planning.
The Investment Committee met four times during 1997, with Laurence F. Lee,
Jr., acting as Chairman. The Investment Committee formulates investment strategy
and policy and ratifies all investment transactions.
The Compensation Committee met two times during 1997, with Laurence F. Lee
III acting as Chairman. The Compensation Committee, comprised of independent
directors who are not employees of McM or its subsidiaries, is charged with
administering and monitoring the compensation and incentive plans for executive
officers of McM and issues an annual report on compensation policies for
inclusion in McM's proxy statement.
EXECUTIVE OFFICERS OF MCM CORPORATION
The table below sets forth the names and ages of all executive officers of
McM, all positions and offices with McM presently held by each such person, and
the period of service as an officer with McM and subsidiaries.
<TABLE>
<CAPTION>
PERIOD OF
SERVICE
AS AN
NAME AGE OFFICES OFFICER
- ---- --- ------- ----------
<S> <C> <C> <C>
George E. King........................ 67 Chairman Emeritus and Chief Executive
Officer 12/77
Stephen L. Stephano................... 44 President and Chief Operating Officer 1/82
</TABLE>
Mr. King -- See "Business Experience of the Directors."
Mr. Stephano -- See "Business Experience of the Directors."
EXECUTIVE OFFICERS' SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------ ----------
-------------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(3) AWARD(S)($) (#) PAYOUTS($) COMPENSATION(4)
- ------------------ ---- --------- -------- ------------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George E. King(1).... 1997 274,992 19,350 -- -- -- 0 7,192
Chairman Emeritus/
CEO.............. 1996 274,992 90,320 -- -- -- 22,324 7,120
1995 259,995 97,600 -- -- -- 9,324 6,886
Stephen L.
Stephano(2)........ 1997 225,000 15,850 -- -- -- 0 1,219
President/COO...... 1996 225,000 66,863(5) -- -- -- 15,921 1,126
1995 192,400 72,250(5) -- -- -- 6,301 971
</TABLE>
- ---------------
(1) Effective February 16, 1989, the Company entered into an employment contract
with Mr. King. The contract, as amended effective March 28, 1990, October
18, 1990, December 30, 1991, February 1, 1993, September 1, 1993, March 16,
1995, August 6, 1996, and March 26, 1998, provides that Mr. King be employed
as Chairman Emeritus and Chief Executive Officer of McM and Chairman of the
two operating subsidiaries and provides for base salary and such additional
discretionary bonuses, stock options or other compensation or increases in
compensation, if any, as may be authorized by the Company. In addition,
should Mr. King's employment be terminated without cause or should he
terminate his employment as a result of the Company requiring him to
relocate his office more than 50
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<PAGE> 11
miles from its present location, he would be entitled to receive a lump sum
payment equal to two years' total annual compensation.
(2) Effective February 1, 1993, the Company entered into an employment contract
with Mr. Stephano. The contract, as amended September 1, 1993, March 16,
1995, August 6, 1996 and March 26, 1998, provides that Mr. Stephano be
employed as President and Chief Operating Officer of McM and as President
and Chief Executive Officer of the McM subsidiaries and provides base salary
and such additional discretionary bonuses, stock options or other
compensation or increases in compensation, if any, as may be authorized by
the Company. In addition, should Mr. Stephano's employment be terminated
without cause or should he terminate his employment as a result of the
Company requiring him to relocate his office more than 50 miles from its
present location, he would be entitled to receive a lump sum payment equal
to two years' total annual compensation.
(3) Information regarding personal benefits totaled less than $50,000 or 10% of
annual salary and bonus.
(4) The amounts noted represent premiums paid by the Company on behalf of
executive officers for supplemental term life insurance.
(5) Mr. Stephano also received 50,000 shares of phantom stock in 1995 and in
1996.
RETIREMENT PLAN
Officers of McM, including the named executive officers, participate in the
McM Corporation Retirement Plan. A sample retirement benefit table for the
Retirement Plan is outlined below showing the anticipated annual amount of
normal retirement benefits associated with final average earnings and the number
of years of service for the named executive officers.
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
PARTICIPANTS' FINAL --------------------------------------------------
AVERAGE EARNINGS 15 20 25 30 35
- ------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000...................................... $34,465 $45,953 $ 57,442 $ 68,930 $ 80,418
150,000...................................... 41,965 55,953 69,942 83,930 97,918
175,000...................................... 49,465 65,953 82,442 98,930 115,418
200,000...................................... 56,965 75,953 94,942 113,930 132,918
225,000...................................... 64,465 85,953 107,442 128,930 150,418
250,000...................................... 71,965 95,953 119,942 143,930 167,918
</TABLE>
Benefits under the Retirement Plan are determined by multiplying a
participant's final average earnings (the best five consecutive years of the
last ten years) by 1.35% times the years of benefit service, multiplying a
participant's final average earnings in excess of Social Security Average Wages
by .65% times the years of benefit service (not in excess of 35 years) and
adding the two results together.
Under federal law, the amount of compensation which may be considered for
purposes of calculating benefits is limited. That amount will be adjusted
periodically for inflation in increments of $10,000. The 1997 limit is $160,000
and will not change for 1998 benefit calculations. Benefits paid to participants
are reduced in the event of earlier retirement. The estimated credited years of
service for McM's executive officers are 19 years for Mr. King and 17 years for
Mr. Stephano. Benefits shown in the Retirement Plan Table are not subject to any
deduction for social security or other offset amounts.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
% OF TOTAL VALUE AT
OPTIONS ASSUMED ANNUAL
NUMBER OF GRANTED RATE OF STOCK
SECURITIES TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
George E. King....................... 7,500 21.4% $3.94 03/25/07 $18,584 $47,095
Stephen L. Stephano.................. 7,500 21.4% $3.94 03/25/07 $18,584 $47,095
</TABLE>
- ---------------
Both Messrs. King and Stephano's stock options become exercisable at a rate
of 20% per year beginning one year from the date of the grant.
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<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE MONEY OPTIONS AT
12/31/97($) 12/31/97($)
---------------------- -----------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
George E. King................ -0- -0- 47,185/31,796 49,986/19,934
Chairman Emeritus/CEO
Stephen L. Stephano........... -0- -0- 47,185/31,796 49,986/19,934
President/COO
</TABLE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change on
the cumulative total shareholder return on the Company's common stock against
the cumulative total return of the S&P 500 Composite Index and the Center for
Research in Security Prices Index (CRSP) for NASDAQ Stocks (U.S. Insurance
Companies) Insurance Composite, comprised of 125 listed insurance companies, for
the five-year period beginning December 31, 1992, and ending December 31, 1997.
The values are based on the assumption that the value of the investment in McM
and each comparative index was $100 on December 31, 1992, and that all dividends
are reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MCM CORPORATION, S&P 500 INDEX AND
CRSP INDEX FOR NASDAQ STOCKS (U.S. COMPANIES)
<TABLE>
<CAPTION>
CRSP INDEX
FOR NASDAQ
MEASUREMENT PERIOD S&P 500 STOCKS (U.S.
(FISCAL YEAR COVERED) MCM CORP. INDEX COMPANIES)
<S> <C> <C> <C>
12/31/92 100.0 100.0 100.0
12/31/93 137.5 109.8 113.2
12/31/94 250.0 111.3 120.0
12/31/95 525.0 153.1 167.8
12/31/96 530.8 188.8 192.8
12/31/97 328.6 252.0 231.0
</TABLE>
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<PAGE> 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which consists of
independent directors who are not employees of the Company or its subsidiaries,
has furnished the following report on executive compensation:
The Compensation Committee of the Board of Directors has developed and
implemented executive compensation policies, plans and programs in an effort to
enhance the profitability of the Company and thus shareholder value by closely
aligning the financial interests of McM's executive officers with those of its
shareholders. To accomplish these goals, the Company relies on base salary,
incentive compensation and other long term compensation plans to attract and
retain key executive officers with outstanding abilities and to motivate them to
perform to the full extent of their abilities.
The base salaries are fixed at competitive levels paid to senior executives
with comparable qualifications, experience and responsibilities as other
companies engaged in the same or similar businesses as McM. The Committee
reviews with the McM Board of Directors and recommends, and the Board approves,
with any modifications it deems appropriate, an annual salary plan for the
Company's executive officers (including the Chief Executive Officer). Such
salary plan is based on industry, peer group and national surveys and
performance judgments as to the past and expected future contributions of the
individual senior executives.
The incentive compensation for the current year has been closely tied to
McM's success in achieving the previous year's financial performance goals of
the ongoing property and casualty operations as defined in the McM Corporation
Key Executive Compensation Plan. The incentive compensation provided under the
plan is dependent upon attaining a percentage of target plan income for each
year as defined by the plan. Portions of incentive awards under the plan are
held back to be paid only upon the achievement of earnings performance in future
years.
Mr. King's base salary was not increased during 1997. The decision to
forego an increase was made after a careful evaluation by the Compensation
Committee of several factors, including current operating results. Portions of
incentive awards from prior years that were being held back under the incentive
compensation plan were forfeited by Mr. King because required earnings
performance was not achieved. However, in March 1997, Mr. King received an
incentive award under the incentive compensation plan described above, which
award was based upon property and casualty operating results for fiscal year
1996.
During each fiscal year, the Committee considers the desirability of
granting executive officers' awards under the Company's Employee Incentive Stock
Option Plan, which provides for the granting of stock options. The Committee
believes that stock option grants afford a long-term compensation method because
they closely link the interests of management with shareholder value and
directly join the financial interest of executive officers with those of McM
shareholders. In determining the grants of stock options to the executive
officers, including the Chief Executive Officer, the Committee considers the
accountability, strategic and operational goals, anticipated performance
requirements and contributions of the executive officers. During 1997, the
Committee granted options as to 7,500 shares to each of its executive officers.
During 1994, the McM Board of Directors adopted the McM Corporation Phantom
Stock Plan as recommended by the Compensation Committee. This plan was
specifically developed to provide a strong incentive to accomplish the long term
retention of key executives. In determining eligibility of an executive to
receive awards under this plan, the Compensation Committee considers the
position held by the executive, the value of the executive's services and the
profitability of the Company and its subsidiaries. Vesting of any award under
the plan is based upon a minimum period of service of five years with full
vesting after ten years. Irrespective of this requirement, should a participant
in the plan be terminated involuntarily without cause, a minimum of 20% of
phantom stock would become vested. Recipients of phantom stock awards are
entitled to receive a lump sum cash payment equal to (a) the fair market value
per share of McM common stock at the applicable maturity date, including the
cumulative amount of dividends per share paid between the award date and the
maturity date, as defined by the plan, multiplied by (b) the number of units of
phantom stock held by the recipient that have reached maturity under the terms
of the plan. No phantom stock was awarded in 1997.
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<PAGE> 14
The McM Corporation Equity Appreciation Rights Plan (the "EARs Plan")
allows awards of equity appreciation rights to key officers of McM. The
Compensation Committee determines to whom rights are awarded, the number of
rights to be awarded and the terms of such rights. Grantees of rights are
entitled to receive the net appreciation between grant date book value of one
share of McM common stock and the exercise date book value of one share of McM
common stock. Currently, no rights have been awarded under the plan.
Respectfully submitted,
Compensation Committee
Laurence F. Lee III, Acting Chairman
Michael A. DiGregorio
Laurence F. Lee, Jr.
Claude G. Sanchez, Jr.
R. Peyton Woodson III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Laurence F. Lee, Jr. served as President of Peninsular Life Insurance
Company from 1959 to 1964 and as Chairman of the Board and Chief Executive
Officer from 1964 to 1973. He also served as a director of Occidental Life
Insurance Company from 1950 until 1972. Both of those McM subsidiaries were sold
in 1991. Mr. R. Peyton Woodson III held various executive positions with the McM
group of companies throughout his career, including Chairman of the Board of McM
from December 1977 to May 1985.
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