<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file Number: 001-12099
The Centris Group, Inc.
-----------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0097221
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
650 Town Center Drive, Suite 1600, Costa Mesa, CA 92626
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
(714) 549-1600
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
Number of shares outstanding of each class of the Registrant's Common Stock as
of July 23, 1998:
Common Stock, par value $.01 per share: 12,199,296
Common Stock Purchase Rights: 12,199,296
<PAGE>
INDEX
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
Condensed Consolidated Financial Statements:
Balance Sheets as of June 30, 1998 and
December 31, 1997...........................................3
Income Statements for the Quarters and Six Months Ended
June 30, 1998 and 1997......................................4
Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997......................................5
Notes to Condensed Consolidated Financial Statements..........6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................7
Part II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........15
Item 6. EXHIBITS and REPORTS ON FORM 8-K.............................16
SIGNATURES...............................................................18
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
Condensed Consolidated Financial Statements:
The Centris Group, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION> June 30, 1998 December 31,1997
------------- ----------------
<S> <C> <C>
Investments, at market (amortized cost
$224,979 at June 30,1998, $214,407 at
December 31,1997) $234,445 $223,824
Cash and invested cash 5,537 11,122
Restricted cash and short term investments 29,099 27,947
Accrued investment income 3,489 3,196
Receivables:
Reinsurance losses and reserves 34,116 26,932
Premiums 34,858 26,012
Prepaid reinsurance premiums 11,071 7,799
Deferred policy acquisition costs 4,113 4,495
Other assets 11,653 11,921
-------- --------
Total assets $368,381 $343,248
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Insurance liabilities:
Amounts due insurance companies $ 47,632 $ 36,470
Losses and loss adjustment expenses 130,630 116,801
Unearned premiums 31,854 30,249
Note payable 29,850 32,500
Accounts payable and accrued expenses 2,461 9,638
-------- --------
Total liabilities 242,427 225,658
Stockholders' Equity 125,954 117,590
-------- --------
Total liabilities and stockholders' $368,381 $343,248
equity ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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The Centris Group, Inc.
Condensed Consolidated Income Statements
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
-------------- --------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $43,840 $38,103 $ 85,273 $77,386
Commissions and fees 9,139 8,140 17,833 16,182
Net investment income 3,259 2,712 6,408 5,403
Realized investment gains 1,955 78 2,596 255
------- ------- -------- -------
58,193 49,033 112,110 99,226
Total revenues ------- ------- -------- -------
Operating Expenses:
Losses and loss adjustment expenses
incurred 33,735 27,526 64,116 55,522
Policy acquisition expenses 11,881 11,083 24,047 22,992
General and administrative expenses 5,339 4,447 9,970 8,901
Interest 547 614 1,103 1,228
------- ------- -------- -------
Total operating expenses 51,502 43,670 99,236 88,643
------- ------- -------- -------
Income before income taxes 6,691 5,363 12,874 10,583
Income tax expense 2,190 1,615 4,139 3,175
------- ------- -------- -------
Net income $ 4,501 $ 3,748 $ 8,735 $ 7,408
======= ======= ======== =======
Basic earnings per share $ 0.37 $ 0.32 $ 0.72 $ 0.62
======= ======= ======== =======
Diluted earnings per share $ 0.36 $ 0.31 $ 0.70 $ 0.61
======= ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
The Centris Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash provided by operating activities $ 6,645 $ 4,659
-------- --------
Cash flows from investing activities:
Purchases of fixed maturity investments (18,433) (16,983)
Purchases of equity securities (5,546) (627)
Proceeds from sales of investment securities 25,884 14,310
Net purchases of short term investments (10,613) (937)
Purchases of property and equipment (471) (447)
-------- --------
Cash used in investing activities (9,179) (4,684)
-------- --------
Cash flows from financing activities:
Payment on note payable (2,650) (1,250)
Dividends paid (738) (716)
Exercise of stock options 337 161
-------- --------
Cash (used in) provided by financing activities (3,051) (1,805)
-------- --------
Net (decrease) increase in cash and invested cash (5,585) (1,830)
Cash and invested cash at beginning of period 11,122 11,132
-------- --------
Cash and invested cash at end of period $ 5,537 $ 9,302
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 1,096 $ 1,160
======== ========
Income taxes paid, net $ 4,123 $ 2,580
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
The Centris Group, Inc.
Notes to Condensed Consolidated Financial Statements
1. General
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 1997 included
in the 1997 Annual Report to Stockholders of The Centris Group, Inc. (the
"Company").
2. Other
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information"
will be adopted by the Company for the year ended December 31, 1998.
Historically, the Company has reported segment information which conforms to the
requirements of SFAS 131. Accordingly, adoption of this standard is not
expected to result in a significant change to the Company's financial
disclosures.
3. Stock Split
On February 3, 1998, the Company announced that its Board of Directors had
authorized a two-for-one split of its common stock in the form of a 100% stock
dividend to stockholders of record as of February 18, 1998. Certificates
reflecting the stock split were issued February 27, 1998. All references in the
financial statements to number of shares, per share amounts and market prices of
the Company's common stock have been adjusted retroactively for all periods
presented to reflect this change in capital structure.
6
<PAGE>
4. Income Per Share
Reconciliation of income and outstanding shares and related per share amounts
adjusted to reflect the February 27, 1998 two-for-one stock split, is presented
below (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
Quarter Ended Six months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income(Numerator)
Income available to Common Stockholders
for Basic and Diluted income per share $4,501 $3,748 $8,735 $7,408
Weighted Average Shares (Denominator)
Basic Shares 12,180 11,920 12,174 11,922
Effect of dilutive securities
Common Stock Equivalents 377 240 318 244
--- --- --- ---
Diluted Shares 12,557 12,160 12,492 12,166
====== ====== ====== ======
Per Share Amounts
Basic Income per Share $0.37 $0.32 $0.72 $0.62
Diluted Income per Share $0.36 $0.31 $0.70 $0.61
5. Comprehensive Income
</TABLE>
SFAS No. 130, "Reporting Comprehensive Income" was adopted by the Company
effective January 1, 1998. Comprehensive income represents a measure of all
changes in equity of an enterprise that result from recognized transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. Comprehensive income for the quarterly periods ended June
30, 1998 and 1997 was $3,872,000 and $8,075,000, respectively. Comprehensive
income for the six-month periods ended June 30, 1998 and 1997 was $8,767,000 and
$9,596,000, respectively. The Company's Comprehensive Income is comprised of net
income for the period plus the tax effected increase or decrease in unrealized
gains occurring during the period.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results Of Operations
- ---------------------
Consolidated revenues of The Centris Group, Inc. (the "Company") increased
19% to $58,193,000 for the second quarter ended June 30, 1998 from $49,033,000
in the 1997 second quarter, and increased 13% to $112,110,000 for the first six
months of 1998 from $99,226,000 for the 1997 six month period. Revenue
improvements in the 1998 periods as compared to 1997 result from growth in the
provider excess product line combined with the results of the east coast treaty
branch, acquired from The Hanover Insurance Company in 1997. Net investment
income reflects a 19% increase over the 1997 six month period as a result of
higher levels of invested assets arising from higher production levels in each
business segment. Changes in realized gains in the 1998 periods as compared to
the 1997 periods arise from the continuous evaluation of the investment
portfolio to enhance and maintain yields and total return consistent with the
Company's investment guidelines.
Insurance and reinsurance companies establish reserves for losses incurred, but
not yet paid or reported, in order to match such losses with the related
premiums earned. The process of establishing loss reserves is subject to
uncertainties that are a normal, recurring aspect of the insurance business
which requires the use of informed judgments and estimates. Loss and loss
adjustment expense("LAE") reserve development is reviewed on a regular basis,
incorporating analysis of current trends, market changes in the Company's
business segments and historical experience to analyze the Company's actuarial
assumptions. As additional experience and other data becomes available, the
Company's actuarial estimates may be revised. Such revisions may impact
earnings. Losses and LAE increased 15% to $64,116,000 in the 1998 six month
period from $55,522,000 in the 1997 period and increased 23% to $33,735,000 in
the second quarter of 1998 from $27,526,000 in the 1997 second quarter. These
changes principally result from higher production levels and changes in claim
cost experience in each business segment, combined with the impact of severe
wind, hail and tornado activity during late winter and early spring of 1998 in
the midwestern and southeastern regions of the United States which produced
$1,300,000 and $1,600,000 of catastrophe losses during the second quarter and
six-month periods of 1998, respectively. See segment information contained
herein for additional disclosures. Policy acquisition expenses vary on the
basis of market conditions and mix of business.
Increases in general and administrative expenses between the periods presented
reflect the additional expenses attributable to three acquisitions completed
during 1997. General and administrative expenses remained at 9% of revenues in
all periods presented, reflecting the Company's ongoing emphasis on
productivity.
8
<PAGE>
Consolidated net income increased 20% to $4,501,000 for the second quarter
of 1998 from $3,748,000 in the second quarter of 1997, and increased 18% to
$8,735,000 for the first six months of 1998 as compared to $7,408,000 in the
1997 six month period. Principal elements contributing to these results include
increased production levels, offset by changes in claim cost experience within
each segment and higher levels of realized gains from the investment portfolio.
Income taxes as a percentage of pre-tax income fluctuate depending on the
proportion of tax exempt investment income to total pre-tax income and the
proportion of total income subject to state income taxes. The increase in the
effective income tax rate in the 1998 period as compared to 1997 includes the
tax effect of acquired companies.
The statutory combined ratio is the traditional indicator of the potential
underwriting profitability of an insurance company's business. The Company's
statutory combined ratios were 101.7 and 98.4 for the six-month periods ended
June 30, 1998 and 1997, respectively.
Business Segments
- -----------------
The Company conducts business in two segments:
MEDICAL LINES includes medical stop-loss and provider excess coverages
- -------------
underwritten by USBenefits Insurance Services, Inc. ("USBenefits") on behalf of
The Continental Insurance Company ("Continental"), one of the CNA Insurance
Companies, reinsurance of 50% of such business by USF RE INSURANCE COMPANY ("USF
RE") and commissions from catastrophic accident and health risks underwritten
and managed nationally and internationally by INTERRA Reinsurance Group, Inc.
("INTERRA"). USBenefits is the underwriting manager and marketing organization
for medical lines coverages issued on behalf of Continental and for group life
insurance coverage issued by an affiliate of Continental. Medical stop-loss
coverage is a form of excess insurance that protects employers that self-fund
their employee healthcare plans by capping their exposure from the risk of loss.
Provider excess coverage limits the financial risks which healthcare providers
face from medical plans that prepay the providers fixed amounts per plan
participant (capitated fees) or provide specified rates for services.
USBenefits also markets other employee benefits related products. Medical lines
products are marketed through a network of unaffiliated third party
administrators, insurance agents, brokers and consultants.
PROPERTY/CASUALTY reinsurance and insurance underwriting is conducted by USF RE
- -----------------
and its wholly-owned subsidiary USF Insurance Company ("USFIC"). These
subsidiaries both carry an A (Excellent) rating from A.M. Best Company and USF
RE is assigned a claims paying ability rating of Aq (Good) by Standard & Poor's.
Insurance companies purchase reinsurance in order to control and manage the
risks they accept when they issue policies. USF RE assumes facultative and
treaty reinsurance from unaffiliated insurance
9
<PAGE>
companies, primarily through reinsurance intermediaries. Facultative is
reinsurance of one risk at a time, while reinsurance treaties cover a portion of
all policies written by another insurer in a particular risk category. USF RE
concentrates its casualty writings in commercial auto liability, general
liability and products liability. It also provides a broad range of coverages
for most types of property exposures. USFIC writes surplus lines insurance on
commercial property/casualty risks which are marketed through independent excess
and surplus lines brokers.
The tables set forth below present pre-tax operating information by business
segment and holding company operations (including realized gains) for the
quarters and six month periods ended June 30, 1998 and 1997, respectively.
Medical lines
- -------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
-------------------------------------- --------------------------------------
1998 1997 %Change 1998 1997 %Change
---------- --------- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned $27,279 $25,538 7% $53,119 $50,570 5%
Commissions and fees 8,982 8,140 10% 17,520 16,182 8%
Investment income 1,063 886 20% 2,060 1,751 18%
------- ------- ------- -------
Total revenues 37,324 34,564 8% 72,699 68,503 6%
------- ------- ------- -------
Expenses:
Losses and loss adjustment 20,770 18,224 14% 38,994 36,110 8%
Policy acquisition 9,081 8,963 1% 18,173 17,569 3%
General and administrative 3,404 3,254 5% 6,679 6,593 1%
------- ------- ------- -------
Total expenses 33,255 30,441 9% 63,846 60,272 6%
------- ------- ------- -------
Income before income taxes $ 4,069 $ 4,123 (1)% $ 8,853 $ 8,231 8%
======= ======= ======= =======
</TABLE>
In medical lines, total revenues in the 1998 periods advanced primarily as a
result of increases in premiums earned, which reflects 1998 year-to-date growth
of 4% in the Company's medical stop-loss business and of 71% in its provider
excess line, offset by the planned runoff of certain business acquired as part
of the Company's 1997 purchase of Global Excess Re.
Increases in loss and LAE experience in the 1998 periods reflects the completion
of the runoff of certain business acquired as part of the Company's 1997
purchase of Global
10
<PAGE>
Excess Re plus increases in medical stop loss formula reserves consistent with
current competitive market conditions.
Policy acquisition expenses vary due to the level of production activity, mix of
business and market conditions. Increases in general and administrative expenses
in the 1998 quarter and year-to-date periods primarily result from the 1997
acquisition of INTERRA.
Property/Casualty
- -----------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
--------------------------------------- ---------------------------------------
1998 1997 % Change 1998 1997 % Change
--------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned $16,562 $12,565 32% $32,155 $26,816 20%
Commissions and fees 157 - 313 -
Investment income 2,159 1,812 19% 4,287 3,626 18%
------- ------- ------- -------
Total revenues 18,878 14,377 31% 36,755 30,442 21%
------- ------- ------- -------
Expenses:
Losses and loss adjustment 12,965 9,302 39% 25,122 19,412 29%
Policy acquisition 2,800 2,120 32% 5,874 5,423 8%
General and administrative 1,707 913 87% 2,802 1,811 55%
------- ------- ------- -------
Total expenses 17,472 12,335 42% 33,798 26,646 27%
------- ------- ------- -------
Income before income taxes $ 1,406 $ 2,042 (31)% $ 2,957 $ 3,796 (22)%
======= ======= ======= =======
</TABLE>
Within the property/casualty sector, strong competition in treaty and
facultative lines continues to impact pricing and contract terms. Increased
revenues in the 1998 periods are primarily attributable to business from the
east coast treaty branch (acquired from The Hanover Insurance Company in
September 1997) which was renewed into USF RE.
Changes in losses and LAE between periods reflect a change in the mix of
business to a smaller proportion of property business, which carries a lower
formula loss ratio than casualty business, combined with increased reserving in
casualty lines. Losses and LAE in the 1998 periods also reflect the impact of
severe wind, hail and tornado activity during late winter and early spring of
1998 in the midwestern and southeastern regions of the United States which
produced $1,300,000 and $1,600,000 of catastrophe losses during the second
quarter and six-month periods of 1998, respectively. There were no catastrophic
losses experienced during the 1997 periods. Policy acquisition expenses in 1998
as compared to 1997 vary based upon the mix of business.
11
<PAGE>
Holding Company
- ---------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
-------------------------- ---------------------------
1998 1997 % Change 1998 1997 % Change
------ ------ -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Investment income $ 36 $ 14 157% $ 60 $ 26 131%
Realized gains 1,955 78 -- 2,596 255 918%
------ ----- ------ -------
Total revenues 1,991 92 -- 2,656 281 845%
------ ----- ------ -------
Expenses:
General and administrative 228 280 (19)% 489 497 (2)%
Interest 547 614 (11)% 1,103 1,228 (10)%
------ ----- ------ -------
Total expenses 775 894 -- 1,592 1,725 (8)%
------ ----- ------ -------
Loss before income taxes $1,216 $(802) -- $1,064 $(1,444) --
====== ===== ====== =======
</TABLE>
Changes in realized gains in the 1998 period as compared to the 1997 period
arise from the continuous evaluation of the investment portfolio to enhance and
maintain yields and total return consistent with the Company's investment
guidelines. Declines in general and administrative expenses in the 1998 quarter
reflect an emphasis on cost control. Declines in interest expense in the 1998
period reflect quarterly reductions in the outstanding balance of bank debt
under the Company's Credit Agreement, principal payments on which commenced in
March 1997, and changes in the variable interest rate charged on the outstanding
balance.
Inflation
- ---------
The healthcare marketplace has long been subject to the effects of increases in
costs of services. Inflation in the costs of healthcare tends to generate
increases in premiums for medical lines coverage, resulting in greater revenues.
Inflation can also negatively impact insurance and reinsurance operations by
causing higher claims settlements than may have originally been estimated, while
not necessarily allowing an immediate increase in premiums to a level necessary
to maintain profit margins. Historically the Company has made no explicit
provisions for inflation, but economic trends are considered when setting
underwriting terms and claim reserves. Such reserves are subjected to a
continual internal and external review processes to assess their adequacy and
are adjusted as deemed appropriate. Overall economic trends also affect
interest rates, which in turn affect investment income and the market value of
the Company's investment portfolio.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Primary sources of cash from operations include premium collections, investment
income and commissions and fees. The principal uses of cash from operations are
for premium payments to insurance companies, payments of claims under USF RE's
and USFIC's reinsurance and insurance contracts, debt reduction, and operating
expenses such as salaries, commissions, taxes and general overhead. The
Company's Credit Agreement contains certain covenants, restrictions and dividend
payment limitations with which the Company was in compliance at June 30, 1998.
The Company anticipates that it will continue to generate sufficient cash flow
from operations to cover its short-term (1-18 months) and long-term (18 months
to 3 years) liquidity needs. While the Company currently has no immediate plans
for significant capital outlays, from time to time it contemplates acquisition
opportunities that complement its business operations.
The Company's investment portfolio reflects a current allocation of
approximately 94% in fixed-income investments, both taxable and tax free, with
an "AA" average fixed income portfolio rating, and 6% in equities. All such
securities are carried at quoted market values at the latest balance sheet date.
The portfolio is not exposed to real estate investments, derivatives, high yield
bonds, private placements or mortgage loans.
Year 2000
- ---------
As the year 2000 approaches, the Company recognizes the need to ensure that its
operations will not be adversely affected by year 2000 computer software issues.
The Company has a formal plan in place to evaluate and implement solutions to
year 2000 computer software issues. The evaluation phase of the plan, which was
completed in December 1997, included an analysis of the Company's software
systems, identification of software enhancements required to address year 2000
issues and identification of those vendors and business partners that may impact
Company operations. The Company's significant operational and financial
software systems are provided by third party vendors who the Company has
confirmed have also been focusing on addressing year 2000 issues. The Company
is presently upgrading its software products and expects to complete this phase
of its plan, including testing year 2000 changes, during 1998. The cost of the
year 2000 remediation plan is not considered material to the Company's financial
position. The Company will continue to make investments in its software systems
to ensure year 2000 compliance for all its business processing systems.
13
<PAGE>
Forward Looking Statements
- --------------------------
Some of the statements included within this quarterly report on Form 10-Q,
including but not limited to Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated Financial Statements and
related notes thereto, which are not historical facts may be considered to be
forward looking statements within the meaning of Section 29A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and
therefore are subject to certain risks and uncertainties which could cause the
actual results to differ materially from those suggested by such statements.
Such risks and uncertainties include, but are not limited to the following:
catastrophic losses or a material aggregation of such losses in the Company's
insurance lines; changes in federal or state law affecting an employer's ability
to self-insure or other adverse regulatory changes; the adequacy of the
Company's reinsurance program; general economic conditions in this country or
abroad; adverse developments in the securities markets and their impact on the
Company's investment portfolio; the effects of competitive market pressures
within the medical lines or property/casualty marketplaces; the effect of
changes required by generally accepted accounting practices or statutory
accounting practices; and other risks which are described from time to time in
the company's filings with the Securities and Exchange Commission. The words
"believes", "anticipates", "expects" and similar expressions are intended to
identify forward looking statements.
14
<PAGE>
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's 1997 Annual Meeting of Stockholders ("Annual Meeting") was
held on May 13, 1998 at the Company's offices in Costa Mesa, California. A
total of 11,083,000 shares were voted at the Annual Meeting by proxy,
representing 91.1% of the 12,166,796 shares of the Company's $.01 par value
common stock issued, outstanding and eligible to vote on the record date, March
20, 1998.
(b) The Company's board currently consists of seven directors, each serving for
three years, who are divided into three classes. Two directors are elected at
two Annual Meetings and three directors are elected at a third Annual Meeting.
At this 1998 Annual Meeting, the Company's stockholders elected three of the
Company's seven directors for a term of three years, expiring at the Annual
Meeting of Stockholders in the year 2001. Management nominated long-term
directors David L. Cargile, Charles L. Schultz and Howard S. Singer, and no
individuals were nominated in opposition to management's slate of directors. Set
forth below are the results of the voting for the director nominees as reported
by the Inspector of Elections for the Company's Annual Meeting. There were no
broker non-votes on this proposal.
Name For Withhold
- ------------------ ---------- --------
David L. Cargile 11,066,883 16,150
Charles L. Schultz 11,057,483 25,550
Howard S. Singer 11,066,883 16,150
The directors who are continuing in office are John F. Kooken, L. Steven
Medgyesy, Bernard H. Ross and Roxani M. Gillespie.
(c) The Company's stockholders were asked to consider two other matters as
noted below. The affirmative vote of a majority of the shares of the Company's
common stock present at the Annual Meeting in person or by proxy and entitled to
vote was required for adoption of each such matter. The results of the vote on
each of these proposals as reported by the Inspector of Elections are set forth
below.
(1) A stockholder proposal recommending the Board consider strategic
options, including a sale of the Company.
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
738,097 7,885,778 201,780 -0-
15
<PAGE>
(2) Ratification of the selection by the Board of Directors of KPMG Peat
Marwick LLP to continue to serve as the Company's independent auditors for
the fiscal year ending December 31, 1997.
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
10,076,269 995,174 11,590 -0-
Item 6. EXHIBITS and REPORTS ON FORM 8-K.
(a) The following is a list of exhibits required to be filed as part of
this Form 10-Q by Item 601 of Regulation S-K:
3.1, 4.1 The Company's Restated Certificate of Incorporation, as
amended, as presently in effect. Filed as Exhibits 3.1 and 4.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by this reference.
3.2, 4.2 The Bylaws of the Company, as amended, as presently in effect.
Filed as Exhibits 3.2 and 4.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, and
incorporated herein by this reference.
4.3 Stock Certificate of the Company. Filed as Exhibit 4.3 to the
Company's Quarterly report on Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein by this reference.
4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated May 24, 1990, and incorporated herein
by this reference.
4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 16, 1992,
and incorporated herein by this reference.
4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated April 29, 1994,
and incorporated herein by this reference.
4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated September 28, 1995,
and incorporated herein by this reference.
4.8 Fourth Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated July 23, 1997, and
incorporated herein by this reference.
16
<PAGE>
4.9 Fifth Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 28, 1998,
and incorporated herein by this reference.
10.1* Corrected Centris Group, Inc. Directors 1991 Stock Option
plan, as Amended and Restated.
10.2* Corrected Centris Group, Inc. Directors Stock Option agreement.
11* The Centris Group, Inc. and Subsidiaries Computation of
Earnings Per Share.
15* Independent Auditors' letter regarding unaudited interim
financial information.
27* Financial Data Schedules
(b) During the second quarter of 1998 the Company did not file any Current
Reports on Form 8-K with the Securities and Exchange Commission.
* Describes exhibits filed with this Quarterly Report on Form 10-Q.
_____________
* Describes the exhibits filed with this Quarterly Report on Form 10-Q.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Centris Group, Inc.
Date: July 23, 1998 By: /s/ DAVID L. CARGILE
-------------------------
DAVID L. CARGILE
Chairman of the Board, President
and Chief Executive Officer
Date: July 23, 1998 By: /s/ CHARLES M. CAPORALE
-------------------------
CHARLES M. CAPORALE
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
18
<PAGE>
EXHIBIT 10.1
The Centris Group, Inc.
1991 Directors Stock Option Plan
Amended and Restated
As of July 26, 1995 and March 27, 1996
________________________________
I. General Provisions
1.1 Purposes of the Plan. The Centris Group, Inc. has adopted this
1991 Directors Stock Option Plan, to enable the Company to attract and retain
the services of experienced and knowledgeable Non-employee Directors and to
align further their interests with those of the stockholders of the Company by
providing for or increasing the proprietary interests of the Non-employee
Directors in the Company.
1.2 Plan History. The Centris Group, Inc. 1991 Directors Stock Option
Plan was originally adopted by the Board of Directors of the Company on March 6,
1991 and approved by the Company's stockholders on May 23, 1991. It was amended
and restated by the Board of Directors of the Company on December 18, 1991 and
was submitted to and approved by the Company's stockholders at the 1992 Annual
Meeting of Stockholders held on May 27, 1992. The Plan was further amended and
restated by the Board of Directors of the Company on July 26, 1995 and on March
27, 1996, and will, as so amended, be submitted to the Company's stockholders
for approval at the Company's 1996 Annual Meeting of Stockholders. Further non-
material amendments were adopted by the Board without stockholder action in
January, 1998.
1.3 Definitions. The following terms, when used in this Plan, shall
have the meanings set forth in this Section 1.3:
(a) "Award" means an award of any Stock Option under the Plan.
(b) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(c) "Change in Control" means the following and shall be deemed to
occur if any of the following events occur:
(i) Any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the
Company's then outstanding voting securities;
<PAGE>
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, is approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall, for the purposes of this
Plan, be considered as though such person were a member of the Incumbent
Board;
(iii) The stockholders of the Company approve a merger or
consolidation with any other corporation, other than
(A) A merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of another entity) more
than 50% of the combined voting power of the voting securities of
the Company or such other entity outstanding immediately after such
merger or consolidation, or
(B) A merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no person acquired 50% or more of the combined voting power of the
Company's then outstanding voting securities; or
(iv) The stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
other disposition by the Company of all or substantially all of the
Company's assets.
Notwithstanding the preceding provisions of this Section 1.3(c), a Change in
Control shall not be deemed to have occurred (1) if the "person" described in
the preceding provisions of this Section 1.3(c) is an underwriting or
underwriting syndicate that has acquired the ownership of 50% or more of the
combined voting power of the Company's then outstanding voting securities solely
in connection with a public offering of the Company's securities; (2) if the
"person" described in the preceding provisions of this Section 1.3(c) is an
employee stock ownership plan or other employee benefit plan maintained by the
Company (or any of its affiliated companies) that is qualified under the
provisions of the Employee Retirement Security Act of 1974, as amended; or (3)
if the person described in clause (i) of the preceding provisions of this
subsection (c) would not otherwise be a beneficial owner of 25% or more of the
combined voting power of the Company's then
<PAGE>
outstanding voting securities but for a reduction in the number of outstanding
voting securities resulting from a stock repurchase program or other similar
plan of the Company or from a self tender offer of the Company, which plan or
tender offer commenced on or after the date hereof; provided, however, that the
term "person" shall include such person from and after the first date upon which
(A) such person, since the date of the commencement of such plan or tender
offer, shall have acquired beneficial ownership of, in the aggregate, a number
of voting securities of the Company equal to 1% or more of the voting securities
of the Company then outstanding, and (B) such person, together with all
affiliates and associates of such person, shall beneficially own 25% or more the
voting securities of the Company then outstanding.
(d) "Common Stock" means the common stock of the Company, par value
$0.01 per share.
(e) "Company" means The Centris Group, Inc., a Delaware
corporation, or any successor thereto.
(f) "Fair Market Value" of shares of stock shall be calculated on
the basis of the closing price of stock of that class on the day in question
(or, if such day is not a trading day in the U.S. securities markets, on the
nearest preceding trading day), as reported with respect to the principal market
(or the composite of the markets, if more than one) in which such shares are
then traded; or, if no such closing prices are reported, on the basis of the
mean between the high bid and low asked prices that day on the principal market
or national quotation system on which such shares are then quoted; or, if not so
quoted, as furnished by a professional securities dealer making a market in such
shares selected by the Board or a committee of the Board; or if no such dealer
is available, then the Fair Market Value shall be determined in good faith by
the Board.
(g) "Nonemployee Director" means any member of the Board of
Directors who is not an employee of the Company or of any parent corporation (as
defined in Section 424 of the Internal Revenue Code of 1986, as amended) with
respect to the Company.
(h) "Participant" means any Nonemployee Director who receives an
Award pursuant to the terms of the Plan.
(i) "Plan" means The Centris Group, Inc. 1991 Directors Stock
Option Plan, as set forth herein, as amended from time to time.
(j) "Stock Option" means a right to purchase Common Stock which is
the subject of an Award under this Plan.
1.4 Common Shares Subject to Plan.
<PAGE>
(a) Subject to the provisions of Section 1.4(c) and 4.1, the maximum
number of shares of Common Stock which may be issued pursuant to Awards under
this Plan shall not exceed 300,000 (as adjusted for the February, 1998 100%
stock split) shares.
(b) The shares of Common Stock to be delivered under the Plan shall be
made available, at the discretion of the Board of Directors, either from
authorized but unissued shares of Common Stock, or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased in the
open market.
(c) Shares of Common Stock, subject to the unexercised portion of any
Stock Option granted under this Plan that expires, terminates or is canceled,
will again become available for grant of further Awards under this Plan.
II. Awards of Stock Options
2.1 Award Grants.
(a) Each Nonemployee Director who is serving as a member of the Board
of Directors as of July 26, 1995 shall automatically be granted, effective as of
July 26, 1995, an Award consisting of Stock Options covering 6,000 (as adjusted)
shares of Common Stock.
(b) Each Nonemployee Director who is serving as a member of the Board
of Directors on the third business day following the 1996 Annual Meeting of
Stockholders shall automatically be granted an Award consisting of Stock Options
covering 6,000 (as adjusted) shares of Common Stock, effective as of the date of
such grant.
(c) Each Nonemployee Director who is serving as a member of the Board
of Directors on the third business day following the Annual Meeting of
Stockholders of every calendar year commencing with the 1997 Annual Meeting of
Stockholders shall automatically be granted an Award, effective as of the date
of such grant, consisting of Stock Options covering between 6,000 and 9,000 (as
adjusted) shares of Common Stock, the exact number of Stock Options to be
determined based on the following formula: (i) if the Company's Return On
Equity is 15% or less, the grant shall be for options representing 6,000 (as
adjusted) shares; (ii) if the Return On Equity is more than 15% but less than
18%, the grant shall be for options representing 8,000 (as adjusted) shares; and
(iii) if the Return On Equity is greater than 18%, the grant shall be for
options representing 9,000 (as adjusted) shares.
(d) Each Nonemployee Director who is newly appointed or elected as
such after the third business day following the Annual Meeting of Stockholders
of any calendar year, but prior to the Annual Meeting of Stockholders of the
next calendar year, shall, upon the date of such appointment or election,
automatically be granted an Award consisting of Stock Options covering that
number of shares of Common Stock (exclusive of
<PAGE>
fractional shares) equal to the product of 6,000 multiplied by a fraction the
numerator of which is the number of days until the next Annual Meeting of
Stockholders and the denominator of which is 365.
2.2 Return on Equity. For purposes of this Article II, "Return On Equity"
for any fiscal year shall mean net income for such fiscal year as determined by
generally accepted accounting principles, divided by stockholders' equity as of
December 31 of the prior fiscal year as reported in the Company's audited
consolidated financial statements.
2.3 Award Procedures. All Nonemployee Directors shall receive Awards
under this Plan, which Awards shall be granted automatically as provided in this
Article II. A Nonemployee Director to whom an Award has been made shall be
notified of the Award, and the Company shall promptly cause to be prepared and
executed a written agreement evidencing the Stock Options which are the subject
of such Award.
2.4 Securities Law Requirements. Shares of Common Stock shall not be
offered or issued under this Plan unless the offer, issuance and delivery of
such shares shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended,
the California Corporate Securities Law of 1968, as amended, and the
requirements of any stock exchange upon which the Common Stock may then be
listed. As a condition precedent to the issuance of shares of Common Stock
pursuant to an Award, the Company may require the Participant to take any
reasonable action to comply with such requirements.
III. Stock Options
3.1 Purchase Price. The purchase price of Common Stock issuable upon
exercise of each Stock Option shall be the Fair Market Value, as of the date of
grant of the Stock Option, of the Common Stock subject to such Stock Option.
3.2 Stock Option Term. Unless earlier exercised or terminated pursuant
to the provisions of Sections 3.3 or 3.4 of this Article III, each Stock Option
shall expire and no longer be exercisable on a date which is ten years after the
date of grant.
3.3 Exercise of Stock Options.
(a) Options covering 25% of the shares of Common Stock subject to a
grant of Stock Options shall become exercisable upon the expiration of each full
year of service as a Nonemployee Director of the Company following the date of
grant of such Stock Options, and such Stock Options may thereafter be
exercisable until all of the Stock Options of such grant are exercised or expire
as provided in this Article III.
(b) At the time of the exercise of a Stock Option, the purchase price
shall be paid in full in cash, or in shares of Common Stock valued at their Fair
Market Value as of the exercise date. No fractional shares will be issued
pursuant to the exercise of a
<PAGE>
Stock Option, nor will any cash payment be made in lieu of fractional shares.
Holders of Stock Options may purchase fewer than the total number of shares of
Common Stock granted in a Stock Option, provided that a partial exercise of a
Stock Option may not be for less than 100 shares, unless fewer than 100 shares
remain unexercised in an Award in which case the entire remaining Stock Option
must be exercised at one time.
3.4 Termination of Director Status. In the event that the holder of Stock
Options ceases to be a director of the Company as a result of death, disability
or retirement ("Termination"), and provided that such holder has been a director
of the Company for at least one year at the time of Termination, all Stock
Options granted to a Director, whether or not exercisable on the effective date
of such Termination, shall not expire at that time, but shall thereafter
continue to be exercisable by the Option holder (or, in the event of the death
of the Option holder, by the transferee holder pursuant to a will or in
accordance with the laws of descent and distribution) until expiration of the
applicable option term. In the event the option holder dies within one year of
initial election or appointment to the Board, the options will continue to be
exercisable by will or according to the laws of descent and distribution for a
period of three years following the date of death. If for any reason other than
death an optionee ceases to be a Director within one year of the Director's
initial election or appointment to the Board, any options granted under the
Director Plan and held by such Director shall be canceled as of the date of such
termination.
3.5 Rights With Respect to Common Stock. No Participant and no
beneficiary or other person claiming under or through such Participant will have
any right, title or interest in or to any shares of Common Stock subject to any
Stock Option unless and until such Stock Option is duly exercised pursuant to
the terms of this Plan.
IV. Adjustment Provisions
4.1 Changes in Outstanding Securities. Subject to Section 4.2 below, (i)
if the outstanding shares of Common Stock of the Company are increased,
decreased or exchanged for a different number or kind of shares or other
securities of the Company, or if additional shares or different shares or other
securities of the Company are distributed in respect of such shares of Common
Stock (or any stock or securities received with respect to such Common Stock),
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or other distribution with respect to
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), or (ii) of the value of the outstanding shares of Common
Stock of the Company is reduced by reason of an extraordinary cash dividend, an
appropriate or proportionate adjustment may be made in (x) the maximum number
and kind of shares provided in Section 1.4 of Article I, and (y) the number and
kind of shares or other securities subject to then outstanding Stock Options,
and (z) the purchase or exercise price for each share of Common Stock subject to
an outstanding Stock Option.
4.2 Change of Control. In addition to the adjustments permitted by
Section 4.1 above, upon the occurrence of a Change in Control any outstanding
Stock
<PAGE>
Options not theretofore exercisable shall immediately become exercisable in
their entirety, notwithstanding any of the other provisions of the Plan.
4.3 Termination of Independent Corporate Status. Upon the dissolution or
liquidation of the Company or upon a reorganization, merger or consolidation of
the Company with one or more corporations, as a result of which the Company goes
out of existence or becomes a subsidiary of another corporation, or upon a sale
of substantially all of the property of the Company to another corporation (in
each of such cases a "Corporate Termination Event"), this Plan shall terminate.
Any Stock Option theretofore granted under the Plan and not exercised on or
prior to the Corporate Termination Event shall expire and terminate, unless
provision be made in writing in connection with such Corporate Termination Event
for the assumption of the Stock Option or the substitution for such Stock Option
of a new option covering the stock of a successor corporation, or a parent or
subsidiary thereof or of the Company, with appropriate adjustments as to number
and kind of shares and prices, in which event such Stock Option shall continue
in the manner and under the terms so provided.
4.4 Other Adjustments. Adjustments under this Article IV will be made by
the Board, whose determination as to what adjustments will be made and the
extent thereof will be final, binding and conclusive. No fractional interests
will be issued under the Plan resulting from any such adjustments.
V. Miscellaneous Provisions
5.1 Amendment, Suspension, Termination or Interpretation of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan;
provided, however, that no such action shall:
(i) increase the maximum number of shares specified in Section
1.4(a) of Article I, unless approved by the stockholders of the Company;
(ii) alter, terminate or impair in any manner which is
materially adverse to a Participant any Award previously granted;
(iii) change the nondiscretionary manner in which Awards are made
under Article II; or
(iv) change, more than once in any six-month period, provisions
of the Plan dealing with the amount of any Award, the purchase price of the
Common Stock which is the subject of any Award, the timing of the grant of
any Awards, or the exercisability features of Awards.
<PAGE>
(b) Questions of interpretation of any of the provisions of the Plan
shall be resolved by competent legal counsel for the Company selected by the
Chief Executive Officer of the Company.
5.2 Effective Date and Duration of Plan. This Plan has been approved by
the Board and shall become effective as of March 27, 1996, subject to its
approval by the holders of a majority of the outstanding shares of Common Stock
present in person or by proxy and entitled to vote at the first meeting of the
stockholders of the Company occurring after March 27, 1996. This Plan shall
terminate at such time as the Board, in its discretion, shall determine. No
Award may be granted under the Plan after the date of such termination, but such
termination shall not affect any Award theretofore granted and any shares of
Common Stock subject thereto.
5.3 Director Status. Nothing in this Plan or in any instrument executed
pursuant hereto shall confer upon any Nonemployee Director any right to continue
as a member of the Board of Directors of the Company or any subsidiary thereof.
5.4 No Entitlement to Shares. No Nonemployee Director (individually or as
a member of a group) and no beneficiary or other person claiming under or
through such Nonemployee Director shall have any right, title or interest in or
to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to any Award except as to such shares of Common Stock, if any, as
shall have been issued to such Nonemployee Director. A Nonemployee Director's
rights to any shares of Common Stock issued to the name of such Nonemployee
Director pursuant to an Award under this Plan shall be subject to such
limitations and restrictions as are set forth in or imposed pursuant to this
Plan.
5.5 Withholding of Taxes. The Company may make such provisions as it
deems appropriate for the withholding by the Company pursuant to federal or
state income tax laws of such amounts as the Company determines it is required
to withhold in connection with any Award. The Company may require a Participant
to satisfy any relevant tax requirements before authorizing any issuance of
Common Stock to such Participant or payment of any other benefit hereunder to
such Participant. Any such settlement shall be made in the form of cash, a
certified or bank cashier's check or such other form of consideration as is
satisfactory to the Board.
5.6 Transferability. No Award granted under this Plan shall be assignable
or transferable except (i) by will or by the laws of descent and distribution,
or (ii) subject to the final sentence of this Section 5.6, upon dissolution of
marriage pursuant to a qualified domestic relations order or, in the discretion
of the Committee and under circumstances that would not adversely affect the
interest of the Company, pursuant to a nominal transfer that does not result in
a change in beneficial ownership. During the lifetime of a Participant, an Award
granted to such person shall be exercisable only by the Participant (or the
Participant's permitted transferee) or such person's guardian or legal
representative. Notwithstanding the foregoing, no Award may be assigned or
transferred in any manner inconsistent with Rule 16b-3.
<PAGE>
5.7 Other Plans. Nothing in this Plan is intended to be a substitute for,
or shall preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to directors
generally, which the Company now has or may hereafter lawfully put into effect,
including, without limitation, any retirement, pension, insurance, stock
purchase, incentive compensation or bonus plan.
5.8 Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender, as the context may require.
5.9 Applicable Law. This Plan shall be governed by, interpreted under and
construed and enforced in accordance with the internal laws of the State of
Delaware.
5.10 Successors. The Plan and any agreement with respect to an Award shall
be binding upon the successors and assigns of the Company and upon each
Participant and such Participant's heirs, executors, administrators, personal
representatives, permitted assignees and successors in interest.
<PAGE>
EXHIBIT 10.2
THE CENTRIS GROUP, INC.
The Centris Group, Inc. 1991 Directors Stock Option Plan,
Amended and Restated as of July 26, 1995 and March 27, 1996
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made effective as of May 18,
1998, by and between THE CENTRIS GROUP, INC. (the "Company") and Full Name (the
---------
"Optionee"), pursuant to that certain The Centris Group, Inc. 1991 Directors
Stock Option Plan Amended and Restated as of July 25, 1995 and March 27, 1996
(the "Plan").
1. Stock Option Granted. Subject to the limitations set forth herein and in
--------------------
the Plan, Optionee may purchase all or any part of an aggregate of 6,000
shares of Common Stock of the Company (the "Shares") at an exercise price
of $13.69 per share, payable in cash or in Common Stock of the Company as
set forth in the Plan.
2. Exercise Features. Stock Options granted by this Agreement shall be
-----------------
exercisable pursuant to the terms and conditions of the Plan, which include
but are not limited to the following:
A. Options covering 25% of the shares of Common Stock subject to the
grant of Options under this Agreement shall become exercisable upon
the expiration of each full year of service as a Nonemployee Director
of the Company following the date of grant as set forth above, and
except as noted in paragraph "B" below, these Stock Options shall
remain exercisable under the Plan until all of such Stock Options are
exercised or ten (10) years from the date of this grant, whichever
first occurs.
B. In the event the Option Holder dies within one (1) year of his/her
initial election or appointment to the Board of Directors, the Options
granted under this Agreement will continue to be exercisable by will
or according to the laws of descent and distribution for a period of
three (3) years following the date of death; if, however, for any
reason other than death the Option Holder ceases to be a Nonemployee
Director of the Company within one (1) year of his/her initial
election or appointment, any Options granted under this Agreement
shall be cancelled as of the date of such termination.
3. General. This Agreement shall be governed by and construed in accordance
-------
with the internal laws of the State of Delaware, shall be binding upon the
successors and assigns of the parties hereto and shall be subject to all of
the terms and provisions of the Plan, a copy of which has been delivered to
Optionee, receipt of which is acknowledged by the Optionee's execution
hereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the date first above written.
OPTIONEE: THE CENTRIS GROUP, INC.
Full Name
- --------- David L. Cargile, Chairman of the
Board, President and Chief Executive
Officer
<PAGE>
EXHIBIT 11
The Centris Group, Inc.
Computation of Earnings Per Share
The computation of per share income is based upon the weighted average
number of common and common equivalent shares outstanding during each of the
quarters and six-month periods ended June 30 as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
1998 1997 1998 1997
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income $ 4,501 $ 3,748 $ 8,735 $ 7,408
======= ======= ======= =======
Weighted average shares outstanding during
the period (Basic Shares) 12,180 11,920 12,174 11,922
Common stock equivalent shares 377 240 318 244
------- ------- ------- -------
Common and common stock equivalent shares
outstanding for purposes of calculating
diluted income per share 12,557 12,160 12,492 12,166
Basic income per share $ 0.37 $ 0.32 $ 0.72 $ 0.62
------- ------- ------- -------
Diluted income per share $ 0.36 $ 0.31 $ 0.70 $ 0.61
======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 15
Independent Auditors' Review Report
-----------------------------------
The Board of Directors and Shareholders
The Centris Group, Inc.:
We have reviewed the condensed consolidated balance sheet of The Centris Group,
Inc. and subsidiaries as of June 30, 1998, and the related condensed
consolidated income statements for the quarters and six-month periods ended June
30, 1998 and 1997, and condensed consolidated statements of cash flows for the
six-month periods ended June 30, 1998 and 1997. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Centris Group, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated income
statement, statements of stockholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated February 3, 1998, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
July 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 234,445
<CASH> 34,636
<RECOVER-REINSURE> 34,116
<DEFERRED-ACQUISITION> 4,113
<TOTAL-ASSETS> 368,381
<POLICY-LOSSES> 130,630
<UNEARNED-PREMIUMS> 31,854
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 29,850
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 368,381
85,273
<INVESTMENT-INCOME> 6,408
<INVESTMENT-GAINS> 2,596
<OTHER-INCOME> 17,833
<BENEFITS> 64,116
<UNDERWRITING-AMORTIZATION> 24,047
<UNDERWRITING-OTHER> 11,073
<INCOME-PRETAX> 12,874
<INCOME-TAX> 4,139
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,735
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.70
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
