<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
------------------
THE CENTRIS GROUP, INC.
(Name of Subject Company)
------------------
MERGER SUB OF DELAWARE, INC.
HCC INSURANCE HOLDINGS, INC.
(Bidder)
------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Including the Associated Common Stock Purchase Rights)
(Title of Class of Securities)
------------------
155904105
(CUSIP Number of Class of Securities)
------------------
STEPHEN L. WAY
MERGER SUB OF DELAWARE, INC.
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
TELEPHONE: (713) 690-7300
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
------------------
Copies to:
ARTHUR S. BERNER, ESQ.
WINSTEAD SECHREST & MINICK P.C.
910 TRAVIS STREET, SUITE 2400
HOUSTON, TEXAS 77002
TELEPHONE: (713) 650-2729
------------------
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------------------
<S> <C>
$150,712,863 $30,142.57
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
* Estimated for purposes of calculating the amount of the filing fee only in
accordance with Rule 0-11(d) promulgated under the Securities Exchange Act of
1934, as amended. The amount assumes the purchase at a price per share of
$12.50 in cash of 10,996,576 currently outstanding shares of common stock par
value $.01 per share, (including the associated Common Stock purchase rights)
(the "Shares"), of The Centris Group, Inc. plus Shares which may be acquired
upon the exercise of 1,060,453 outstanding common stock purchase options.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previously Paid: None.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
</TABLE>
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<PAGE> 2
SCHEDULE 14D-1
CUSIP NO. 155904105
1. Name of Reporting Persons: Merger Sub of Delaware, Inc. ("Merger
Subsidiary")
S.S. or I.R.S. Identification Nos. of Above Person: 76-0586804
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions).
(a) [ ]
(b) [ ]
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3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds (See Instructions).
AF, WC
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5. Check if Disclosure of Legal Proceedings is Required pursuant to Items
2(e) or 2(f).
[ ]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization.
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person.*
1,613,035
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8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares.
[ ]
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7.
Approximately 13.22% based on the shares outstanding as of October 11,
1999, plus the Shareholder Option Shares (defined below) .*
- --------------------------------------------------------------------------------
10. Type of Reporting Person (See Instructions).
CO
- --------------------------------------------------------------------------------
* Merger Subsidiary, a wholly owned subsidiary of HCC Insurance Holdings,
Inc. ("HCC"), and certain shareholders of The Centris Group, Inc. (the
"Company") have entered into an Agreement, dated as of October 11, 1999
(the "Shareholder Option Agreement"), pursuant to which such
shareholders have granted to Merger Subsidiary an option to purchase,
for a price of $12.50 per share, an aggregate of up to 1,011,835
outstanding shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), including the associated Common Stock
purchase rights (the "Rights" and collectively with the Common Stock,
the "Shares"), and up to an additional 601,200 shares issuable upon
exercise of such shareholders' outstanding stock options (collectively,
the "Shareholder Option Shares"). This option is exercisable within five
Business Days after an Acquisition Proposal or a Superior Acquisition
Proposal (as such terms are defined in the Agreement and Plan of Merger
dated October 11, 1999 (the "Merger Agreement"), a copy of which is
attached hereto as Exhibit (c)(1)), shall have successfully received and
paid for in excess of 50% of the Fully Diluted Shares (as defined in the
Merger Agreement). Merger Subsidiary's interest in the Shareholder
Option Shares is reflected in Rows 7 and 9 of each of the tables above.
The Shareholder Option Agreement is described more fully in Section 11
("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement;
Stock Option Agreement; Appraisal Rights") of the Offer to Purchase,
dated October 18, 1999, and attached hereto as Exhibit (a)(1) (the
"Offer to Purchase").
<PAGE> 3
SCHEDULE 14D-1
CUSIP NO. 155904105
1. Name of Reporting Persons: HCC Insurance Holdings, Inc.
S.S. or I.R.S. Identification Nos. of Above Person: 76-0336636
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions).
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3. SEC Use Only.
- --------------------------------------------------------------------------------
4. Sources of Funds (See Instructions).
WC, BK
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required pursuant to Items
2(e) or 2(f).
[ ]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization.
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person.*
4,480,332
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8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares.
[ ]
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7.
Approximately 30.85% based on the shares outstanding as of October 11,
1999, plus the Shareholder Option Shares and the Stock Option Shares
(defined below) .*
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10. Type of Reporting Person (See Instructions).
CO
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* As of October 11, 1999, HCC beneficially owned 539,500 shares. HCC and
the Company have entered into an Agreement, dated as of October 11, 1999
(the "Stock Option Agreement"), pursuant to which the Company granted to
HCC an option (the "Company Option") to purchase, for a price of $12.50
per share, an aggregate of up to 19.9% of the Shares outstanding on the
date of exercise. As of October 11, 1999, such option would be
exercisable for 2,295,679 Shares (collectively, the "Stock Option
Shares"). Such Company Option is exercisable only if the Company enters
into, or publicly announces its intention to enter into, an agreement
with respect to an Acquisition Proposal or a Superior Acquisition
Proposal. HCC's interest in the Stock Option Shares is reflected in Rows
7 and 9 of the table above. The Stock Option Agreement is described more
fully in Section 11 ("Purpose of the Offer; Merger Agreement;
Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights")
of the Offer to Purchase. Rows 7 and 9 also reflect the beneficial
ownership of Shares held by Merger Subsidiary, a wholly owned subsidiary
of HCC. See previous page and note to the previous table.
<PAGE> 4
SCHEDULE 14D-1
CUSIP NO. 155904105
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is The Centris Group, Inc., a Delaware
corporation (the "Company"), and the address of its principal executive offices
is 650 Town Center Drive, Suite 1600, Costa Mesa, California 92626.
(b) This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates
to the offer by Merger Subsidiary to purchase all 10,996,576 outstanding shares
of common stock, par value $.01 per share (other than Shares owned by HCC or
held by the Company in its treasury) (the "Common Stock"), including the
associated Common Stock purchase rights issued pursuant to the Rights Agreement,
dated as of May 24, 1990, as amended by and between the Company and the American
Stock Transfer & Trust Company (the "Rights" and collectively with the Common
Stock, the "Shares"), of the Company at $12.50 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase and in the related Letter of Transmittal, copies of which are attached
hereto as Exhibits (a)(1) and (a)(2) (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"). This Statement also
covers the possible acquisition of any Shares obtained upon exercise of any
outstanding Company stock options. The information set forth in the introduction
to the Offer to Purchase (the "Introduction") is incorporated herein by
reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (d) and (g) This Statement is filed by Merger Subsidiary and HCC.
Merger Subsidiary is a wholly owned subsidiary of HCC. Information concerning
the principal business and the addresses of the principal offices of Merger
Subsidiary and HCC is set forth in Section 8 ("Certain Information Concerning
Merger Subsidiary and HCC") of the Offer to Purchase, and is incorporated herein
by reference. The names, business addresses, present principal occupations or
employments, material occupations, positions, offices or employment during the
last five years and citizenship of the directors and executive officers of
Merger Subsidiary and HCC are set forth in Schedule I to the Offer to Purchase
and are incorporated herein by reference.
(e) and (f) None of Merger Subsidiary, HCC or, to the best knowledge of
such corporations, any of the persons listed on Schedule I to the Offer of
Purchase, has during the last five years (i) been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a
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.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in (i) the Introduction, Section 8
("Certain Information Concerning Merger Subsidiary and HCC"), Section 10
("Background of the Offer; Past Contacts, Transactions or Negotiations with the
Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder
Option Agreement; Stock Option Agreement; Appraisal Rights") and Schedule I to
the Offer to Purchase, (ii) the Merger Agreement, (iii) the Shareholder Option
Agreement, (iv) the Stock Option Agreement, and (v) the Confidentiality
Agreement, dated August 22, 1999 (the "Confidentiality Agreement"), between HCC
and the Company, a copy of which is attached as Exhibit (c)(4) hereto, is
incorporated herein by reference.
3
<PAGE> 5
SCHEDULE 14D-1
CUSIP NO. 155904105
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) - (c) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a) - (e) The information set forth in the Introduction and Section 11
("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock
Option Agreement; Appraisal Rights") of the Offer to Purchase is incorporated
herein by reference.
(f) and (g) The information set forth in Section 12 ("Effect of the Offer
on the Market for the Shares; Stock Quotations, Registration Under the Exchange
Act") of the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in (i) the Introduction, Section 8
("Certain Information Concerning Merger Subsidiary and HCC"), Section 10
("Background of the Offer; Past Contacts, Transactions or Negotiations with the
Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder
Option Agreement; Stock Option Agreement; Appraisal Rights"), Schedule I of the
Offer to Purchase, (ii) the Merger Agreement, (iii) the Shareholder Option
Agreement, and (iv) the Stock Option Agreement, respectively, is incorporated
herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in (i) the Introduction, Section 8 ("Certain
Information Concerning Merger Subsidiary and HCC"), Section 10 ("Background of
the Offer; Past Contacts, Transactions or Negotiations with the Company") and
Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option
Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase,
(ii) the Merger Agreement, (iii) the Shareholder Option Agreement, (iv) Stock
Option Agreement, and (v) the Confidentiality Agreement, respectively, is
incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in Section 17 ("Fees and Expenses") of the Offer
to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information concerning
Merger Subsidiary and HCC") of the Offer to Purchase and such information and
the consolidated financial statements of HCC in HCC's Annual Report on Form 10-K
for the year ended December 31, 1998 and Quarterly Report on Form 10-Q for the
six months ended June 30, 1999, respectively, is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in Section 8 ("Certain Information Concerning
Merger Subsidiary and HCC") and Section 11 ("Purpose of the Offer; Merger
Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal
Rights") of the Offer to Purchase is incorporated herein by reference.
4
<PAGE> 6
SCHEDULE 14D-1
CUSIP NO. 155904105
(b) - (d) The information set forth in Section 16 ("Certain Legal Matters;
Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(e) None.
(f) The information set forth in (i) the Offer to Purchase, (ii) the Letter
of Transmittal, (iii) the Merger Agreement, (iv) the Shareholder Option
Agreement, (v) the Stock Option Agreement, and (vi) the Confidentiality
Agreement, respectively, is incorporated herein by reference.
5
<PAGE> 7
SCHEDULE 14D-1
CUSIP NO. 155904105
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<C> <S>
(a)(1) -- Offer to Purchase dated October 18, 1999.
(a)(2) -- Form of Letter of Transmittal.
(a)(3) -- Form of Notice of Guaranteed Delivery.
(a)(4) -- Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.
(a)(5) -- Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and other Nominees.
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Form of summary advertisement dated October 18, 1999.
(b)(1) -- Loan Agreement ($150,000,000 Revolving Loan Facility and
$100,000,000 Short Term Revolving Loan Facility) dated as
of March 8, 1999 among HCC, as Borrower, Wells Fargo Bank
(Texas), National Association, as Agent and Lender,
Nationsbank, N.A., as Documentation Agent and as a Lender
and The Other Lenders Now As Hereafter Parties Thereto
(previously filed as an exhibit to HCC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
(c)(1) -- Agreement and Plan of Merger, dated as of October 11,
1999, among the Company, HCC and Merger Subsidiary.
(c)(2) -- Shareholder Option Agreement, dated as of October 11,
1999, among Merger Subsidiary and the shareholders of the
Company named therein.
(c)(3) -- Stock Option Agreement, dated as of October 11, 1999,
between HCC and the Company.
(c)(4) -- Confidentiality Agreement, dated August 22, 1999, between
HCC and the Company.
(c)(5) -- Rights Agreement, dated as of May 24, 1990, by and
between The Centris Group, Inc. (formerly US Facilities
Corporation) and American Stock Transfer and Trust
Company as successor by assignment to Security Pacific
National Bank (incorporated by reference to an exhibit to
the Company's Current Report on Form 8-K filed on May 24,
1990).
(c)(6) -- First Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 16, 1992).
(c)(7) -- Second Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on April 29, 1994).
(c)(8) -- Third Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on September 28, 1995).
(c)(9) -- Fourth Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 23, 1997).
(c)(10) -- Fifth Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 28, 1998).
(d) -- None.
</TABLE>
6
<PAGE> 8
SCHEDULE 14D-1
CUSIP NO. 155904105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<C> <S>
(e) -- Not applicable.
(f) -- None.
</TABLE>
7
<PAGE> 9
SCHEDULE 14D-1
CUSIP NO. 155904105
SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
MERGER SUB OF DELAWARE, INC.
By: /s/ STEPHEN L. WAY
----------------------------------
Stephen L. Way,
Chairman of the Board and
Chief Executive Officer
HCC INSURANCE HOLDINGS, INC.
By: /s/ STEPHEN L. WAY
----------------------------------
Stephen L. Way,
Chairman of the Board and
Chief Executive Officer
Dated: October 18, 1999
8
<PAGE> 10
SCHEDULE 14D-1
CUSIP NO. 155904105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<C> <S>
(a)(1) -- Offer to Purchase dated October 18, 1999.
(a)(2) -- Form of Letter of Transmittal.
(a)(3) -- Form of Notice of Guaranteed Delivery.
(a)(4) -- Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.
(a)(5) -- Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and other Nominees.
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Form of summary advertisement dated October 18, 1999.
(b)(1) -- Loan Agreement ($150,000,000 Revolving Loan Facility and
$100,000,000 Short Term Revolving Loan Facility) dated as
of March 8, 1999 among HCC, as Borrower, Wells Fargo Bank
(Texas), National Association, as Agent and Lender,
Nationsbank, N.A., as Documentation Agent and as a Lender
and The Other Lenders Now As Hereafter Parties Thereto
(previously filed as an exhibit to HCC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
(c)(1) -- Agreement and Plan of Merger, dated as of October 11,
1999, among the Company, HCC and Merger Subsidiary.
(c)(2) -- Shareholder Option Agreement, dated as of October 11,
1999, among Merger Subsidiary and the shareholders of the
Company named therein.
(c)(3) -- Stock Option Agreement, dated as of October 11, 1999,
between HCC and the Company.
(c)(4) -- Confidentiality Agreement, dated August 22, 1999, between
HCC and the Company.
(c)(5) -- Rights Agreement, dated as of May 24, 1990, by and
between The Centris Group, Inc. (formerly US Facilities
Corporation) and American Stock Transfer and Trust
Company as successor by assignment to Security Pacific
National Bank (incorporated by reference to an exhibit to
the Company's Current Report on Form 8-K filed on May 24,
1990).
(c)(6) -- First Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 16, 1992).
(c)(7) -- Second Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on April 29, 1994).
(c)(8) -- Third Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on September 28, 1995).
(c)(9) -- Fourth Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 23, 1997).
(c)(10) -- Fifth Amendment to Rights Agreement (incorporated by
reference to an exhibit to the Company's Current Report
on Form 8-K filed on January 28, 1998).
</TABLE>
<PAGE> 11
SCHEDULE 14D-1
CUSIP NO. 155904105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<C> <S>
(d) -- None.
(e) -- Not applicable.
(f) -- None.
</TABLE>
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
AT
$12.50 NET PER SHARE
BY
MERGER SUB OF DELAWARE, INC.
A WHOLLY OWNED SUBSIDIARY OF
HCC INSURANCE HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED BY THE EXPIRATION DATE AND NOT WITHDRAWN A NUMBER OF SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE
RIGHTS (THE "SHARES"), OF THE CENTRIS GROUP, INC. (THE "COMPANY") WHICH,
TOGETHER WITH THE SHARES THEN OWNED BY MERGER SUB OF DELAWARE, INC. ("MERGER
SUBSIDIARY") AND HCC INSURANCE HOLDINGS, INC. ("HCC"), WOULD REPRESENT AT LEAST
A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (DEFINED BELOW)
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, HAS
UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER THEIR SHARES.
------------------
Any shareholder desiring to tender Shares should either (i) complete and
sign the Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal (described below) and deliver it with
the certificate(s) representing such tendered Shares and all other required
documents to the Depositary (defined below) or follow the procedure for
book-entry tender of Shares set forth in Section 3 hereof; or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such person if such shareholder desires to tender
such Shares. Any shareholder who desires to tender Shares and whose
certificate(s) representing such Shares are not immediately available, or who
cannot comply with the procedure for book-entry transfer on a timely basis, may
tender such Shares pursuant to the guaranteed delivery procedure set forth in
Section 3 hereof.
Questions and requests for assistance may be directed to Salomon Smith
Barney Inc. (the "Dealer Manager") or to D.F. King & Co. Inc. (the "Information
Agent") at their respective addresses and telephone numbers specified on the
back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal, and the Notice of Guaranteed Delivery may
also be obtained from the Information Agent or from brokers, dealers, commercial
banks, or trust companies.
------------------
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
October 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
INTRODUCTION...................................................... 1
1. Terms of the Offer.......................................... 3
2. Acceptance for Payment and Payment.......................... 4
3. Procedure for Tendering Shares.............................. 5
4. Withdrawal Rights........................................... 7
5. Certain Tax Consequences.................................... 8
6. Price Range of Shares; Dividends............................ 9
7. Certain Information Concerning the Company.................. 9
8. Certain Information Concerning Merger Subsidiary and HCC.... 11
9. Source and Amount of Funds.................................. 12
10. Background of the Offer; Past Contacts, Transactions or
Negotiations with the Company............................... 13
11. Purpose of the Offer; Merger Agreement; Shareholder Option
Agreement; Stock Option Agreement; Appraisal Rights......... 14
12. Effect of the Offer on the Market for the Shares; Stock
Quotations; Registration under the Exchange Act............. 28
13. Dividends and Distributions................................. 29
14. Extension of Tender Period; Termination; Amendment.......... 30
15. Certain Conditions of the Offer............................. 31
16. Certain Legal Matters; Regulatory Approvals................. 33
17. Fees and Expenses........................................... 36
18. Miscellaneous............................................... 36
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF HCC
AND MERGER SUBSIDIARY........................................... I-1
</TABLE>
i
<PAGE> 3
To the Holders of Common Stock of
The Centris Group, Inc.
INTRODUCTION
Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary"),
and a wholly owned subsidiary of HCC Insurance Holdings, Inc. ("HCC"), hereby
offers to purchase all outstanding shares of common stock, par value $.01 per
share (the "Common Stock"), including the associated Common Stock purchase
rights issued pursuant to the Rights Plan (defined below) (the "Rights" and,
together with the Common Stock, the "Shares"), of The Centris Group, Inc., a
Delaware corporation (the "Company"), at $12.50 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in this Offer to
Purchase and in the related Letter of Transmittal (which, together with any
amendments or supplements hereto or thereto, collectively constitute the
"Offer"). Tendering shareholders of the Company (the shareholders of the Company
are referred to herein as the "Shareholders") will not be obligated to pay
brokerage fees or commissions or, except as set forth in the Letter of
Transmittal, transfer taxes on the sale or transfer of Shares pursuant to the
Offer. HCC will pay all charges and expenses of Harris Trust Company of New York
(the "Depositary") and D. F. King & Co., Inc. (the "Information Agent") in
connection with the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (DEFINED BELOW)
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS, HAS UNANIMOUSLY
APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES.
PURSUANT TO THE MERGER AGREEMENT, THE COMPANY HAS REPRESENTED TO HCC THAT
ADVEST, INC. ("FINANCIAL ADVISOR"), THE COMPANY'S FINANCIAL ADVISOR, HAS
DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS OPINION TO THE EFFECT THAT THE
$12.50 PER SHARE TO BE PAID IN THE OFFER AND THE MERGER (DEFINED BELOW) IS FAIR
TO THE COMPANY AND THE SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. THE OPINION
OF THE FINANCIAL ADVISOR IS TO BE SET FORTH IN FULL IN THE COMPANY'S
SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"),
TO BE FILED BY THE COMPANY AND MAILED TO THE SHAREHOLDERS IF NOT MAILED
HEREWITH. THE SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED BY THE
EXPIRATION DATE (DEFINED BELOW) AND NOT WITHDRAWN A NUMBER OF SHARES WHICH,
TOGETHER WITH THE SHARES THEN OWNED BY HCC AND MERGER SUBSIDIARY, WOULD
REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES,
ASSUMING THE EXERCISE OF ALL OUTSTANDING OPTIONS, RIGHTS AND CONVERTIBLE
SECURITIES (IF ANY) (OTHER THAN OPTIONS TO BE CANCELLED PURSUANT TO THE TERMS OF
THE MERGER AGREEMENT AND SHARES TO BE ISSUED PURSUANT TO THE STOCK OPTION
AGREEMENT (DEFINED BELOW)) AND THE ISSUANCE OF ALL SHARES THAT THE COMPANY IS
OBLIGATED TO ISSUE (SUCH TOTAL NUMBER OF OUTSTANDING SHARES BEING HEREINAFTER
REFERRED TO AS THE "FULLY DILUTED SHARES") (THE "MINIMUM CONDITION"). THE OFFER
IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE,
INCLUDING, WITHOUT LIMITATION, THE CONSENT OF CERTAIN STATE INSURANCE REGULATORY
AUTHORITIES AND COMPLIANCE WITH THE REQUIREMENTS OF THE HART-SCOTT-RODINO
ANTITRUST IMPROVEMENTS ACT OF 1976 (THE "HSR ACT"). SEE SECTIONS 15 AND 16
HEREOF WHICH SET FORTH CERTAIN CONDITIONS TO THE OFFER.
The Company has represented to HCC that, as of October 11, 1999, there were
(i) 11,536,076 shares issued and outstanding; (ii) 928,824 shares held by the
Company in its treasury or by any of the Company's subsidiaries; and (iii)
1,060,453 shares reserved for issuance pursuant to outstanding Company Options.
For purposes hereof, "Company Options" are any options granted, whether or not
exercisable, and not exercised or expired, to a current or former employee,
director or independent contractor of the Company or any of its subsidiaries or
any predecessor thereof to purchase Shares pursuant to any stock option, stock
bonus, stock award, or stock purchase plan, program, or arrangement of the
Company or any of its subsidiaries or any predecessor thereof or any other
contract or agreement entered into by the Company or any of its subsidiaries.
The Company has further represented to HCC that there are no other options or
rights held by any other person or entity to acquire Company Shares. Based upon
the foregoing, as of October 11, 1999, the date the Merger Agreement was
executed (the "Execution Date"), there were approximately 12,596,529 Fully
Diluted
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Shares. As of the Execution Date, HCC owned 539,500 Shares. Therefore, if the
Company Options are not exercised and are cancelled as provided for in the
Merger Agreement, the Minimum Condition will be satisfied if, in addition to the
Shares currently held by HCC, 5,228,539 Shares are tendered and accepted for
payment by Merger Subsidiary. In addition, Merger Subsidiary has been granted
the right to purchase under certain circumstances described below an aggregate
of up to 1,011,835 shares at a price of $12.50 per Share pursuant to the
Shareholder Option Agreement (defined below), as more specifically described
below and in Section 11. The Shareholders of the Company granting the option to
Merger Subsidiary have also agreed to tender their Shares pursuant to this Offer
and have given to Merger Subsidiary a proxy to vote such Shares in favor of the
actions contemplated by the Merger Agreement. Thus, 1,551,335 or 13.45% of the
Shares are committed to be tendered pursuant to the Offer or owned by HCC and
HCC would only require a further tender of 4,216,704 or 36.55% of the Shares in
order to satisfy the Minimum Condition. Further, HCC has been granted an option
exercisable at a price of $12.50 per Share to purchase 19.9% of the Shares
outstanding on the date of exercise. As of October 11, 1999, such option would
be exercisable for 2,295,679 shares. See Section 11 hereof.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 11, 1999 (the "Merger Agreement"), among the Company, HCC and
Merger Subsidiary, which has been unanimously approved by the Company's Board of
Directors. The Merger Agreement provides, among other things, that, after
consummation of the Offer, and after satisfaction or waiver of all conditions to
the Merger, Merger Subsidiary will be merged into the Company (the "Merger"),
with the Company continuing as the surviving corporation (the "Surviving
Corporation"). Pursuant to the Merger Agreement, at the effective time of the
Merger (the "Effective Time"), each outstanding Share (other than Shares held by
the Company as treasury stock or owned by HCC, Merger Subsidiary, or any
subsidiary of any of them (which shall be canceled) or by the Shareholders
exercising appraisal rights under Delaware Law (defined below)) will be
converted into the right to receive $12.50 in cash or any higher price paid for
each Share in the Offer, without interest. If the Minimum Condition is satisfied
and Merger Subsidiary purchases Shares pursuant to the Offer, Merger Subsidiary
will have the power to approve the Merger without the affirmative vote of any
other Shareholder. In the event that Merger Subsidiary owns 90% or more of the
Shares then outstanding, the "short-form" merger provisions of the Delaware
General Corporation Law ("Delaware Law") would permit the Merger to occur
without a meeting or a vote of the Shareholders. See Section 11 hereof.
Merger Subsidiary and certain Shareholders (the "Principal Shareholders")
have entered into an Agreement, dated as of the Execution Date (the "Shareholder
Option Agreement"), pursuant to which such Principal Shareholders granted to
Merger Subsidiary an irrevocable option (the "Stock Option") to purchase, in
whole, but not in part, 1,011,835 shares and 601,200 additional Shares which are
currently subject to stock options (collectively, the "Shareholder Option
Shares"), for a price of $12.50 per Share, at any time after the date (i) an
Acquisition Proposal or a Superior Acquisition Proposal (each defined below) has
received tenders of and paid for in excess of 50% of the Fully Diluted Shares,
or (ii) a third party has otherwise acquired in excess of 50% of the Fully
Diluted Shares. The parties to the Shareholder Option Agreement have further
agreed that, once exercisable, the Stock Option must be exercised, if at all,
within five Business Days (as defined in the Exchange Act). The Principal
Shareholders have also agreed to tender their shares pursuant to this Offer and
have given to Merger Subsidiary a proxy to vote such Shares in favor of the
actions contemplated by the Merger Agreement as defined below. The Shareholder
Option Shares represent approximately 12.8% of the Fully Diluted Shares.
If not previously exercised, at the time that Merger Subsidiary has
accepted for payment all Shares validly transferred and not withdrawn pursuant
to the Offer, each outstanding Company Option will be canceled and each option
holder will receive cash from Merger Subsidiary equal to the difference between
the Offer price of $12.50 per Share and the particular option's exercise price.
See Section 11 hereof.
Upon payment by Merger Subsidiary for such number of Shares which satisfies
the Minimum Condition, HCC is entitled, pursuant to the Merger Agreement, to
designate the number of directors, rounded up to the next whole number, on the
Company's Board of Directors that equals the product of (i) the total number of
directors on the Company's Board of Directors (giving effect to the election of
any additional directors pursuant to this sentence); and (ii) the percentage
that the number of Shares owned by HCC or Merger
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<PAGE> 5
Subsidiary (including Shares accepted for payment) bears to the total number of
Shares outstanding, and the Company shall take all necessary action to cause
HCC's designees to be elected or appointed to the Company's Board of Directors,
including, without limitation, increasing the number of directors, or seeking
and accepting resignations of incumbent directors, or both; provided, however,
that prior to the Effective Time, the Company's Board of Directors shall always
have one member who is neither a designee nor an affiliate of HCC or Merger
Subsidiary nor an employee of the Company (an "Independent Director"). No action
proposed to be taken by the Company to (i) amend or terminate the Merger
Agreement; or (ii) waive any action by HCC or Merger Subsidiary shall be
effective without the approval of the Independent Director.
The Company has distributed one Right for each outstanding share of Common
Stock pursuant to the Rights Agreement, dated effective as of May 24, 1990, as
amended, by and between the Company and American Stock Transfer and Trust
Company (the "Rights Plan"). The description of the Rights Plan set forth herein
is qualified in its entirety by reference to the text of such agreement, a copy
of which is incorporated by reference as an exhibit to the Schedule 14D-1 filed
by HCC and Merger Subsidiary in connection with the Offer. The Company has
agreed in the Merger Agreement that it shall take necessary actions under the
Rights Plan, including any required amendments to the Rights Plan, so that the
commencement or consummation of the Offer, the grant or exercise of the options
pursuant to the Stock Option Agreement or the Shareholders Option Agreement will
not cause (i) the Rights to be exercisable; (ii) HCC, or any subsidiary of HCC,
including, Merger Subsidiary to be deemed a "10% Stockholder" (as defined in the
Rights Plan); or (iii) the "10% Stock Ownership Date" (as defined in the Rights
Plan) to occur upon such consummation; provided, however, that the Company shall
not be required to make such amendments to the Rights Plan if HCC has not
performed or complied in all material respects with the Merger Agreement prior
to the consummation of the Offer or the Company obtains, and there is in force
from the Delaware Court of Chancery an order permanently, preliminarily or
temporarily declaring that the making of such amendments to the Rights Plan
would be contrary to the fiduciary duties of the Company's Board of Directors.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions set forth in the Offer, Merger
Subsidiary will accept for payment and purchase, at the time and in the manner
set forth in Section 2 hereof, Shares that are validly tendered by the
Expiration Date (defined below) and not withdrawn as provided in Section 4
hereof. The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on November 30, 1999, unless Merger Subsidiary shall have extended the
period of time for which the Offer is open, in which event the term "Expiration
Date" shall mean the latest time and date at which the Offer, as so extended by
Merger Subsidiary, shall expire. The period of time beginning on the date of
this Offer and ending at 12:00 Midnight New York City time on the Expiration
Date shall be referred to herein as the "Offer Period."
The Offer is subject to certain conditions and waiting periods set forth in
Sections 15 and 16, including (i) satisfaction of the Minimum Condition; (ii)
the expiration or termination of all waiting periods imposed by the HSR Act;
(iii) the consent of certain state insurance regulatory authorities; and (iv)
other conditions set forth in Sections 15 and 16 hereof. If any such condition
is not satisfied, Merger Subsidiary may, except as otherwise described below,
(i) terminate the Offer and return all tendered Shares to tendering
Shareholders; (ii) extend the Offer, subject to the terms set forth in the
Merger Agreement and described below and in Sections 2 and 11 hereof; or (iii)
waive such condition (except the Minimum Condition, the waiting periods under
the HSR Act and insurance regulatory authority consents) and purchase all Shares
validly tendered by the Expiration Date and not withdrawn. For a description of
Merger Subsidiary's right to extend the period of time during which the Offer is
open and to amend, delay or terminate the Offer, see Section 14 hereof. Merger
Subsidiary acknowledges that Rule 14e-1(c) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), requires Merger Subsidiary to pay the
consideration offered or return the Shares tendered promptly after the
termination or withdrawal of the Offer.
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<PAGE> 6
Pursuant to the Merger Agreement, HCC and Merger Subsidiary expressly
reserve the right to waive any of the conditions to the Offer and to make any
change in the terms or conditions of the Offer; provided, however, that without
the prior written consent of the Company, no change may be made which changes
the form of consideration to be paid in the Offer, decreases the price per Share
or the number of Shares being sought in the Offer, imposes conditions to the
Offer in addition to those expressly set forth in the Merger Agreement, changes
or waives the Minimum Condition, extends the Offer (except as set forth in the
Merger Agreement) or makes any other change to any condition to the Offer set
forth in the Merger Agreement which is materially adverse to the holders of
Shares.
Any extension, delay in payment, amendment or termination of the Offer will
be followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next Business Day after the previously scheduled
Expiration Date. Without limiting the manner in which Merger Subsidiary may
choose to make any public announcement, subject to applicable law (including
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act which require that
material changes be promptly disseminated to Shareholders in a manner reasonably
designed to inform them of such changes), Merger Subsidiary shall have no
obligation (except as otherwise required by applicable law) to advertise
publicly or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
Subject to the Merger Agreement, if Merger Subsidiary makes any material
change in the terms of the Offer or the information concerning the Offer, or
waives any condition to the Offer that results in a material change to the
circumstances of the Offer, Merger Subsidiary will disseminate additional tender
offer materials and extend the Offer to the extent required to comply with Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The Securities and Exchange
Commission (the "Commission") has interpreted such rules to prescribe that the
minimum period during which an offer must remain open following material changes
in the terms of the offer or information concerning the offer, other than a
change in price or a change in percentage of securities sought, will depend upon
the facts and circumstances, including the relative materiality of the terms or
information changed. With respect to a change in price or a change in the
percentage of securities sought, a minimum period of ten Business Days may be
required to allow for adequate dissemination to Shareholders and investor
response.
The Company has provided Merger Subsidiary with the Company's shareholder
lists and security position listings for the purpose of disseminating the Offer
to holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Subject to the terms of the Offer, the satisfaction (or waiver to the
extent permitted by the Merger Agreement) of all the conditions to the Offer,
the receipt of all necessary consents of certain state insurance regulatory
authorities and the expiration or termination of all waiting periods imposed by
the HSR Act and any extension of the Offer as described in Sections 11 and 14
hereof, Merger Subsidiary shall accept for payment all Shares validly tendered
and not withdrawn pursuant to the Offer as soon as practicable after the
expiration of the Offer and shall pay for all such Shares promptly after
acceptance. The Merger Agreement also provides that Merger Subsidiary may,
without the consent of the Company, (i) extend the Offer Period until all of the
conditions to Merger Subsidiary's obligation to purchase Shares shall be
satisfied or waived, including, without limitation, any period required (A) by
any rule, regulation, interpretation, or position of the Commission or the staff
thereof applicable to the Offer; or (B) pursuant to the HSR Act; or (C) to
obtain necessary approval of each state insurance regulatory agency required for
consummation of the Offer; (ii) extend the Offer Period for a period of not more
than ten Business Days beyond the expiration thereof, as
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<PAGE> 7
such may be extended pursuant to clause (i) of this sentence; (iii) extend the
Offer Period for an additional period of not more than ten Business Days beyond
that permitted by clauses (i) and (ii) of this sentence if on the date of such
extension, less than 90% of the Fully Diluted Shares have been validly tendered
and not properly withdrawn pursuant to the Offer; and (iv) extend the Offer
Period for any reason for a period of not more than five Business Days beyond
the latest Expiration Date that would be otherwise permitted under clauses (i),
(ii), or (iii) of this sentence. See Section 11 hereof. For a description of
Merger Subsidiary's right to terminate the Offer (subject to the terms of the
Merger Agreement) and not accept for payment or pay for Shares or to delay
acceptance for payment or payment for Shares, see Section 14 hereof.
For purposes of the Offer, Merger Subsidiary shall be deemed to have
accepted for payment tendered Shares when, and if, Merger Subsidiary gives
notice to the Depositary of its acceptance of the tenders of such Shares. In all
cases, upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price with the Depositary, which will act as agent for the tendering
Shareholders for the purpose of receiving payments from Merger Subsidiary and
transmitting such payments to tendering Shareholders.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares (or of a confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Shares into the Depositary's account at the Book-Entry
Transfer Facility (defined in Section 3)); (ii) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) or an Agent's Message
(defined below) in connection with a book-entry transfer; and (iii) any other
required documents. Accordingly, payment may be made to tendering Shareholders
at different times if delivery of the Shares and other required documents occur
at different times. For a description of the procedure for tendering Shares
pursuant to the Offer, see Section 3. Under no circumstances will interest be
paid by Merger Subsidiary on the consideration paid for Shares pursuant to the
Offer, regardless of any delay in making such payment.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Merger Subsidiary may enforce such
agreement against such participant.
If Merger Subsidiary increases the consideration to be paid for Shares
pursuant to the Offer, Merger Subsidiary will pay such increased consideration
for all Shares purchased pursuant to the Offer.
Merger Subsidiary reserves the right to transfer or assign, in whole or
from time to time in part, to one or more of HCC or any of HCC's wholly owned
subsidiaries, the right to purchase Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Merger Subsidiary of its
obligations under the Offer or prejudice the rights of tendering Shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted for more Shares than are tendered,
certificates for such unpurchased or untendered Shares will be returned (or, in
the case of Shares tendered by book-entry transfer, such Shares will be credited
to an account maintained at the Book-Entry Transfer Facility), without expense
to the tendering Shareholder, as promptly as practicable following the
expiration or termination of the Offer.
3. PROCEDURE FOR TENDERING SHARES.
To tender Shares pursuant to the Offer, either (i) a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), or an Agent's
Message in connection with a book-entry transfer of such Shares, and any other
documents required by the Letter of Transmittal must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (a) certificates for such Shares to be tendered must be
received by the Depositary at one of such addresses or (b) such Shares must be
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<PAGE> 8
delivered pursuant to the procedures for book-entry transfer described below
(and a Book-Entry Confirmation received by the Depositary), in each case by the
Expiration Date; or (ii) the guaranteed delivery procedure described below must
be complied with.
The Depositary will establish an account with respect to the Shares at the
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Offer within two Business Days after the date of this Offer to Purchase, and
any financial institution that is a participant in the system of the Book-Entry
Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account in accordance
with the procedures of the Book-Entry Transfer Facility. However, although
delivery of Shares may be effected through book-entry transfer, the Letter of
Transmittal (or facsimile thereof), or an Agent's Message in connection with
such book-entry transfer, and any other required documents must, in any case, be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase by the Expiration Date, or the guaranteed delivery
procedure described below must be complied with. Delivery of the Letter of
Transmittal and any other required documents to the Book-Entry Transfer Facility
does not constitute delivery to the Depositary.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings
association or other entity that is a member of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. (an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed (i)
if the Letter of Transmittal is signed by the registered holder of the Shares
tendered therewith and such holder has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal; or (ii) if such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
If the certificates representing Shares are registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made to, or certificates for unpurchased Shares are to be issued or returned
to, a person other than the registered holder, then the tendered certificates
must be endorsed or accompanied by appropriate stock powers, signed exactly as
the name or names of the registered holder or holders appear on the
certificates, with the signatures on the certificates or stock powers guaranteed
by an Eligible Institution as provided in the Letter of Transmittal. See
Instructions 1 and 5 of the Letter of Transmittal.
If the certificates representing Shares are forwarded separately to the
Depositary, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) must accompany each such delivery.
If a Shareholder desires to tender Shares pursuant to the Offer and cannot
deliver such Shares and all other required documents to the Depositary by the
Expiration Date, or such Shareholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Merger Subsidiary, is
received by the Depositary (as provided below) by the Expiration Date; and
(iii) the certificates for all physically delivered Shares (or a
Book-Entry Confirmation of all Shares delivered electronically), as well as
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) (or, in the case of a book-entry transfer, an Agent's Message) and
any other documents required by the Letter of Transmittal, are received by
the Depositary within three trading days on the New York Stock Exchange
("New York Stock Exchange") after the date of execution of the Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
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THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION
AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
certificates for such Shares, or a Book-Entry Confirmation of the delivery of
such Shares, and the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message), and any other documents
required by the Letter of Transmittal.
Under the federal income tax laws, the Depositary will be required to
withhold 31% of the amount of any payments made to certain Shareholders pursuant
to the Offer. In order to avoid such backup withholding, each tendering
Shareholder must provide the Depositary with such Shareholder's correct taxpayer
identification number and certify that such Shareholder is not subject to such
backup withholding by completing the Substitute Form W-9 included in the Letter
of Transmittal.
By executing a Letter of Transmittal, a tendering Shareholder irrevocably
appoints designees of Merger Subsidiary as such Shareholder's proxies in the
manner set forth in the Letter of Transmittal to the full extent of such
Shareholder's rights with respect to the Shares tendered by such Shareholder and
accepted for payment by Merger Subsidiary (and any and all other Shares or other
securities issued or issuable in respect of such Shares on or after October 18,
1999). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment is effective only upon the acceptance for
payment of such Shares by Merger Subsidiary. Upon such acceptance for payment,
all prior proxies and consents granted by such Shareholder with respect to such
Shares and other securities will, without further action, be revoked, and no
subsequent proxies may be given nor subsequent written consents executed by such
Shareholder (and, if given or executed, will not be deemed to be effective).
Such designees of Merger Subsidiary will be empowered to exercise all voting and
other rights of such Shareholder as they, in their sole discretion, may deem
proper at any annual, special or adjourned meeting of the Company's
Shareholders, by written consent or otherwise. Merger Subsidiary reserves the
right to require that, in order for Shares to be validly tendered, immediately
upon Merger Subsidiary's acceptance for payment of such Shares, Merger
Subsidiary is able to exercise full voting rights with respect to such Shares
and other securities (including voting at any meeting of Shareholders then
scheduled or acting by written consent without a meeting).
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by Merger Subsidiary, in its sole discretion, which
determination shall be final and binding on all parties. Merger Subsidiary
reserves the absolute right to reject any or all tenders of Shares determined by
it not to be in proper form or the acceptance for payment of or payment for
which may, in the opinion of Merger Subsidiary's counsel, be unlawful. Merger
Subsidiary also reserves the absolute right to waive any defect or irregularity
in any tender of Shares, whether or not similar defects or irregularities are
waived in the case of any other tender of Shares. None of Merger Subsidiary,
HCC, the Depositary, the Information Agent or any other person will be under any
duty to give notification of any defect or irregularity in tenders or incur any
liability for failure to give any such notification. Merger Subsidiary's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding.
The acceptance for payment of Shares tendered pursuant to any one of the
procedures described above will constitute an agreement between the tendering
Shareholder and Merger Subsidiary upon the terms and subject to the conditions
of the Offer.
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn on or after December 17, 1999, unless theretofore
accepted for payment as provided in this Offer to Purchase. If Merger Subsidiary
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<PAGE> 10
extends the period of time during which the Offer is open, is delayed in
accepting for payment or paying for Shares or is unable to accept for payment or
pay for Shares pursuant to the Offer for any reason, then, without prejudice to
Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of
Merger Subsidiary, retain all Shares tendered, and such Shares may not be
withdrawn except as otherwise provided in this Section 4 hereof.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must specify
the name of the person who tendered the Shares to be withdrawn and the number of
Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the
Depositary, a signed notice of withdrawal with (except in the case of Shares
tendered by an Eligible Institution) signatures guaranteed by an Eligible
Institution must be submitted prior to the release of such Shares. In addition,
such notice must specify, in the case of Shares tendered by delivery of
certificates, the name of the registered holder (if different from that of the
tendering Shareholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares.
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed
not validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described in Section 3
hereof at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Merger Subsidiary, in its sole
discretion, which determination shall be final and binding. None of Merger
Subsidiary, HCC, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defect or irregularity in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. CERTAIN TAX CONSEQUENCES.
This summary sets forth material anticipated Federal income tax
consequences to the Shareholders of their disposition of Shares pursuant to the
Offer and the Merger. The summary is based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as currently in effect. Such laws or interpretations may differ on the date
of the consummation of the Offer or at the Effective Time, and relevant facts
may also differ. The summary does not address any foreign, state or local tax
consequences, nor does it address estate or gift tax considerations. Neither the
consummation of the Offer nor the effectiveness of the Merger is conditioned
upon the receipt of any ruling from the Internal Revenue Service or any opinion
of counsel as to tax matters.
This summary is for general information only. The tax treatment of each
Shareholder will depend in part upon his particular situation. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, pension funds, mutual funds,
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships or foreign estates or
trusts, Shareholders who own actually or constructively (under certain
attribution rules contained in the Code) 5% or more of the Shares, Shareholders
who acquired their Shares through the exercise of an employee stock option or
otherwise as compensation, and persons who receive payments in respect of
options to acquire Shares. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO
THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX
LAWS.
Sales of Shares by the Shareholders pursuant to the Offer (or the Merger)
will be taxable transactions for Federal income tax purposes and may also be
taxable transactions under applicable state, local, foreign and other tax laws.
In general, a Shareholder will recognize gain or loss equal to the
difference between the tax basis of such Shareholder's Shares and the amount of
cash received in exchange for the Shares. This gain or loss will be capital gain
or loss if the Shares are capital assets in the hands of the Shareholder and
will be long-term capital
8
<PAGE> 11
gain or loss if the holding period for the Shares is more than 12 months as of
the date of the sale of such Shares.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are traded on the New York Stock Exchange under the symbol
"CGE." The following table sets forth, on a per share basis for the periods
shown, the range of high and low sales prices of the Shares as reported by the
New York Stock Exchange for the years ended 1997 and 1998 and for the period in
1999 set forth below.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1999:
First Quarter............................................... $14.06 $ 9.06
Second Quarter.............................................. $12.81 $ 9.13
Third Quarter............................................... $11.44 $ 7.50
Fourth Quarter (Through October 11, 1999)................... $10.44 $ 8.75
1998:
First Quarter............................................... $12.94 $10.88
Second Quarter.............................................. $14.81 $12.00
Third Quarter............................................... $12.50 $ 8.88
Fourth Quarter.............................................. $10.44 $ 7.94
1997:
First Quarter............................................... $10.19 $ 9.44
Second Quarter.............................................. $10.63 $ 9.00
Third Quarter............................................... $11.88 $ 9.75
Fourth Quarter.............................................. $11.94 $10.00
</TABLE>
On October 11, 1999, the last day of trading prior to the issuance by HCC
of a press release announcing the execution of the Merger Agreement, the last
sale price on the New York Stock Exchange was $10.31 per Share. On October 15,
1999, the last day of trading prior to the commencement of the Offer, the last
sale price on the New York Stock Exchange was $10.94 per Share. THE SHAREHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
As reported by the Company, the Company has paid quarterly cash dividends
of $0.03 per Share in each of 1998, 1997 and 1996. As of March 19, 1999,
according to the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1998 (the "Company 10-K"), there were approximately 111 holders of
record of outstanding Shares.
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Delaware corporation with its principal executive offices
located at 650 Town Center Drive, Suite 1600, Costa Mesa, California 92626.
According to the Company's 10-K, the Company is a Delaware holding company
formed in 1982 which operates as a speciality insurance group through its
subsidiaries. The Company's USBenefits Insurance Services, Inc. subsidiary is
the managing general underwriter and marketing organization for medical
stop-loss and provider excess coverages issued by The Continental Insurance
Company ("Continental"), one of the CNA Insurance Companies, and for group term
life insurance issued by an affiliate of Continental. The Company's Interra,
Inc. subsidiary manages and underwrites catastrophic accident and health risks
nationally and internationally.
9
<PAGE> 12
The following selected consolidated financial data relating to the Company
and its subsidiaries has been taken or derived from the audited financial
statements contained in the Company 10-K. More comprehensive financial
information is included in the Company 10-K and the other documents filed by the
Company with the Commission, and the financial data set forth below is qualified
in its entirety by reference to such reports and other documents including the
financial statements (and any related notes) contained therein. Such reports and
other documents may be examined and copies may be obtained from the offices of
the Commission in the manner set forth below.
THE CENTRIS GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues.............................................. $168,316 $157,732 $122,641
Operating income............................................ 9,886 9,329 10,123
Net income (loss)........................................... (13,382) 15,212 15,020
Net income (loss) per Share -- Basic........................ (1.11) 1.27 1.28
Number of Shares outstanding................................ 12,037 1,980 11,732
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
BALANCE SHEET DATA
Cash and invested cash...................................... $ 15,789 $ 11,122
Total investments........................................... 292,463 223,824
Total assets................................................ 646,445 343,248
Total liabilities........................................... 555,411 225,658
Total Shareholders' equity.................................. 91,034 117,590
</TABLE>
The information concerning the Company contained herein has been taken from or
is based upon reports and other documents on file with the Commission or
otherwise publicly available. Although HCC and Merger Subsidiary do not have any
knowledge that would indicate that any statements contained herein based upon
such reports and documents are untrue, HCC and Merger Subsidiary do not take any
responsibility for the accuracy or completeness of the information contained in
such reports and other documents or for any failure by the Company to disclose
events that may have occurred and may affect the significance or accuracy of any
such information but that are unknown to HCC or Merger Subsidiary.
The Company is subject to the informational requirements of the Exchange
Act and files periodic reports, proxy statements and other information with the
Commission relating to its business, financial condition and other matters. The
Company is required to disclose in such proxy statements certain information, as
of particular dates, concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company. Such reports, proxy statements and other information may be
inspected at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also
be available for inspection and copying at the regional offices of the
Commission in New York (Seven World Trade Center, New York, New York 10048) and
Chicago (500 West Madison Street (Suite 1400), Chicago, Illinois 60661). Copies
of such material can also be obtained from the Public Reference Section of the
Commission in Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site on the Internet that contains reports, proxy statements and
other information (http://www.sec.gov).
10
<PAGE> 13
8. CERTAIN INFORMATION CONCERNING MERGER SUBSIDIARY AND HCC.
Merger Subsidiary was organized on August 27, 1998 and has not conducted
any unrelated activities since its organization.
HCC and its consolidated subsidiaries provide specialized property and
casualty insurance coverages, underwriting agency and intermediary services and
other insurance related services, both to commercial customers and individuals.
The principal executive offices of HCC and Merger Subsidiary are located at
13403 Northwest Freeway, Houston, Texas 77040. The name, business address,
principal occupation or employment and citizenship of each director and
executive officer of Merger Subsidiary and HCC are set forth in Schedule I
hereto.
The following selected consolidated financial data relating to HCC and its
subsidiaries has been taken or derived from the audited financial statements
contained in HCC's Annual Report on Form 10-K for the year ended December 31,
1998, and the unaudited financial statements contained in HCC's Quarterly Report
on Form 10-Q for the six months ended June 30, 1999. More comprehensive
financial information is included in such Annual Report, such Quarterly Report
and the other documents filed by HCC with the Commission, and the financial data
set forth below is qualified in its entirety by reference to such reports and
other documents including the financial statements (and any related notes)
contained therein. Such reports and other documents may be examined and copies
may be obtained from the offices of the Commission in the same manner as set
forth with respect to the Company in Section 7 hereof.
HCC INSURANCE HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue.......... $308,034,000 $280,317,000 $270,786,000 $174,470,000 $147,328,000
Total expense.......... 200,548,000 207,253,000 222,319,000 142,469,000 95,561,000
Net earnings........... 72,278,000 49,759,000 38,582,000 20,996,000 34,721,000
Net earnings per common
share -- basic....... 1.51 1.06 0.86 0.43 0.73
Net income per common
share -- diluted..... 1.48 1.03 0.84 0.42 0.71
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1999 AT DECEMBER 31, 1998
---------------- --------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Total investments.......................................... $ 586,484,000 $ 525,646,000
Total assets............................................... 2,044,638,000 1,709,069,000
Total liabilities.......................................... 1,583,499,000 1,269,206,000
Shareholders' equity....................................... 461,139,000 439,863,000
</TABLE>
HCC is subject to the informational requirements of the Exchange Act and
files periodic reports, proxy statements and other information with the
Commission relating to its business, financial condition and other matters. HCC
is required to disclose in such proxy statements certain information, as of
particular dates, concerning its directors and officers, their remuneration,
stock options granted to them, the principal holders of its securities and any
material interests of such persons in transactions with HCC. Such reports, proxy
statements and other information should be available for inspection and copying
at the offices of the Commission in the same manner as set forth with respect to
the Company in Section 7 hereof.
Except as described in this Offer to Purchase, neither HCC, Merger
Subsidiary nor, to their knowledge, any of the persons listed in Schedule I
hereto or any associate or majority-owned subsidiary of any of the
11
<PAGE> 14
foregoing, beneficially owns or has the right to acquire any equity securities
of the Company, nor has HCC, Merger Subsidiary or, to their knowledge, any of
the persons or entities referred to above or any of the respective executive
officers, directors or subsidiaries of any of the foregoing, effected any
transaction in the equity securities of the Company during the past 60 days.
Except as described in this Offer to Purchase, neither HCC, Merger
Subsidiary nor, to their knowledge, any of the persons listed in Schedule I, has
any contract, arrangement, understanding or relationship with any other person
with respect to any securities of the Company, including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any securities of the Company, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies.
Except as described in this Offer to Purchase, there have been no contacts,
negotiations or transactions between HCC, Merger Subsidiary or any other
subsidiary of HCC or, to their knowledge, any of the persons listed in Schedule
I, on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other transfer
of a material amount of assets.
Except as described above and elsewhere in this Offer to Purchase, none of
HCC, Merger Subsidiary, any other subsidiary of HCC, or, to their knowledge, any
of the persons listed in Schedule I, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that would require disclosure pursuant to the rules and regulations
of the Commission.
In June of 1999, Craig J. Kelbel ("Mr. Kelbel") resigned as a Senior Vice
President of the Company and President and Chief Operating Officer of the
Company's wholly owned subsidiary, USBenefits Insurance Services, Inc.
("USBenefits"). After resigning from his positions with the Company and
USBenefits, Mr. Kelbel was employed by HCC Benefits Corporation, a wholly owned
subsidiary of HCC ("HCCB"). In August, 1999, the Company and USBenefits were
granted a Temporary Restraining Order in the Superior Court of Cobb County,
Georgia to prevent Mr. Kelbel from violating any duty of confidentiality that he
owed to the Company or USBenefits. The parties have settled any and all
controversies relating to these matters and Mr. Kelbel continues to be employed
by HCCB.
9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by Merger Subsidiary to purchase Shares
pursuant to the Offer and the Merger, and pay related fees and expenses is
expected to be approximately $141 million. Merger Subsidiary will obtain all
funds needed for the Offer and the Merger from HCC by means of a capital
contribution, loan or a combination thereof. HCC will obtain such funds (i) from
its general corporate funds; (ii) by borrowing under its existing credit
Facility (defined below); and (iii) from further borrowings on a short term
basis from a group of banks headed by Wells Fargo Bank (Texas) National
Association (the "Bridge Loan"). Merger Subsidiary has not conditioned the Offer
on obtaining financing. However, to date, HCC has not entered into any
definitive undertaking relating to the terms of the Bridge Loan and there can be
no assurance that such Bridge Loan will be available or, if available the terms
thereof. Pursuant to the Merger Agreement, HCC has represented and warranted
that at the Effective Time it will have adequate financing to provide for the
acquisition of tendered Shares.
As of June 30, 1999, HCC reported (i) approximately $200 million in cash
and cash equivalents; and (ii) the availability to borrow up to an additional
$72 million under its existing Facility. In addition, HCC is planning to use
certain available cash from its insurance company subsidiaries and other sources
in order to consummate the acquisition of tendered Shares.
On March 8, 1999, HCC, entered into a Loan Agreement (the "Facility") with
a group of banks. The Facility includes a $150.0 million Revolving Loan Facility
and $100.0 million Short Term Revolving Loan Facility. Borrowing under the
Facility may be made from time to time by HCC for general corporate purposes
12
<PAGE> 15
through the Short Term Revolving Loan Facility until its expiration on March 7,
2000 and through the Revolving Loan Facility until its expiration on February
28, 2002. Outstanding loans under the Facility bear interest at agreed upon
rates. The Facility is collateralized in part by the pledge of the stock of
Houston Casualty Company, Avemco Insurance Company, and U.S. Specialty Insurance
Company and by the pledge of stock and guaranties entered into by HCC's
principal underwriting agency and intermediary subsidiaries. The Facility
contains certain restrictive covenants, including, without limitation, minimum
net worth requirements for HCC and certain subsidiaries, restrictions on certain
extraordinary corporate actions, notice requirements for certain material
occurrences, and required maintenance of specified financial ratios. HCC
believes that the restrictive covenants and other obligations which are
contained in the Facility are typical for financing arrangements comparable to
the Facility. The initial funding available under the Facility was used, among
other things, to refinance existing indebtedness of HCC including all
outstanding indebtedness under HCC's $120.0 million revolving credit facility
entered into as of December 30, 1997, which was terminated.
Although no definitive plan or arrangement for repayment of borrowings
under the Facility have been made, HCC anticipates such borrowings will be
repaid with internally generated funds (including, if the Merger is
accomplished, those of the Company) and from other sources which may include the
proceeds of future bank refinancings, or the public or private sale of debt or
equity securities. In addition, a portion of such borrowings will be repaid from
proceeds expected to be received by HCC from its wholly owned subsidiary,
Houston Casualty Company, in connection with the sale by Merger Subsidiary of
some or all of the assets of the Company to be received upon consummation of the
Merger described herein. No decision has been made concerning the method HCC
will use to repay the borrowings under the Facility. Such decision will be made
based on HCC's review from time to time of the advisability of particular
actions, as well as prevailing interest rates, financial and other economic
conditions and such other factors as HCC may deem appropriate.
10. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH
THE COMPANY.
During the early part of 1998, HCC determined that it was in its best
interest to increase its position in the medical stop-loss insurance business.
At that time, Stephen L. Way, the Chairman of the Board and Chief Executive
Officer of HCC, contacted David L. Cargile, Chairman of the Board and Chief
Executive Officer of the Company and held informal discussions about a possible
business combination. The Company, through its Chief Executive Officer, advised
HCC that the Company did not wish to have combination discussions and that it
preferred to remain an independent company. These discussions were generally
cordial, but the discussions did not result in any agreement being reached
between HCC and the Company.
On or about January 11, 1999, HCC informed the Company that it had acquired
in excess of 5% of the outstanding Shares of the Company and that it was seeking
to acquire the remaining Shares for $13.25 per share pursuant to an all cash
tender offer. At that time, HCC published a press release disclosing its
intentions and filed certain documents with the Commission. On January 27, 1999,
the Company issued a press release announcing that its Board of Directors had
rejected HCC's offer. Also on January 27, 1999, HCC announced that it had
withdrawn its offer following the rejection of the offer by the Company's Board
of Directors.
In early February, 1999, HCC announced a determination not to pursue any
new proposal at that time for a business combination in light of the rejection
of its prior offer. HCC noted that it intended to review on a continuing basis
various factors relating to its investment in the Company, including the Company
business and prospects, the price of its shares, subsequent developments
affecting the Company, other investment and business opportunities available to
HCC, and general stock market and economic conditions.
At the time of its February announcement, HCC had sold 711,200 shares,
reducing its holdings to 200,000 shares or 1.7% of the reported outstanding
Shares.
Subsequent to February, 1999, the Company announced that it was in
negotiations with one or more potential acquirors and, although such
negotiations were preliminary, the Company was looking to the possibility of a
merger or other business combination. At that time, HCC notified the Company
that HCC was still interested in pursuing a possible business combination. The
Company stated at that time that it was proceeding with negotiations between
itself and others and was not at that time amenable to further discussions with
HCC.
13
<PAGE> 16
Since that time, HCC continued informal intermittent discussions with the
Company relating to a possible business combination. While the Company, through
its Chief Executive Officer, continued to advise HCC that it did not wish to
have combination discussions at the price HCC previously offered to acquire 100%
of the Shares of the Company, it was suggested that the Company would be willing
to enter into further discussions if HCC would amend its proposal.
In July 1999, HCC and the Company once again began informal discussions
concerning a possible combination. HCC prepared a letter informing the Company
of its continued interest. Thereafter, discussions were held by telephone and in
person on a number of occasions between July 1, 1999 and August 22, 1999.
HCC and the Company entered into a confidentiality agreement on August 22,
1999 and HCC conducted preliminary due diligence concerning the affairs and
activities of the Company. After such preliminary due diligence, the Chairman of
the Board of HCC and the Chairman of the Board of the Company met to discuss a
possible transaction. At that time, HCC informed the Company that it was willing
to proceed with a cash tender offer in the amount of $13.25 per share.
Preliminary terms of an agreement were discussed and outlined. On September 15,
1999 representatives of the Company met with representatives of HCC and informed
them that the Company was prepared to negotiate definitive agreements for the
proposed transaction.
During the week of September 19, 1999 through September 26, 1999,
representatives of HCC, including its legal advisors, negotiated with
representatives of the Company, including its legal advisors, regarding terms of
a definitive merger agreement and conducted detailed due diligence. During this
time, representatives of HCC also negotiated with representatives of the
Shareholders which are party to the Shareholder Option Agreement, regarding the
terms of the Shareholder Option Agreement. These negotiations included meetings
in Irvine, California attended by representatives of HCC and the Company. During
the next three weeks, negotiations continued and meetings of representatives of
both companies were held in California from September 30, through October 11,
1999 to finalize the definitive agreements. During these negotiations HCC
determined to reduce the cash tender offer price to $12.50 per share. At the
conclusion of such negotiations, the Merger Agreement, the Stock Option
Agreement, the Shareholder Option Agreement and other related agreements were
executed. At approximately 7:00 a.m. New York City time on October 12, 1999, HCC
and the Company issued separate press releases announcing the transaction.
11. PURPOSE OF THE OFFER; MERGER AGREEMENT; SHAREHOLDER OPTION AGREEMENT; STOCK
OPTION AGREEMENT; APPRAISAL RIGHTS.
The purpose of the Offer is to acquire control of, and the entire equity
interest in, the Company. Following the Offer, HCC and Merger Subsidiary intend
to acquire any remaining equity interest in the Company not acquired in the
Offer by consummating the Merger.
THE MERGER AGREEMENT. The following description of the Merger Agreement is
qualified in its entirety by reference to the text of such agreement, a copy of
which is attached as an exhibit to the Schedule 14D-1 and is incorporated in
this Offer to Purchase by reference and may be inspected in the same manner as
set forth with respect to the Company in Section 7 hereof.
The Offer. The Merger Agreement provides for the making of the Offer. The
obligation of Merger Subsidiary to accept for payment or pay for Shares is
subject to the satisfaction of the Minimum Condition and certain other
conditions that are described in Section 15 hereof. Pursuant to the Merger
Agreement, HCC and Merger Subsidiary expressly reserve the right to waive the
conditions to the Offer and to make any change in the terms or conditions of the
Offer; provided, however, that without the prior written consent of the Company,
no change may be made which (i) except as provided in the next sentence, extends
the Offer; (ii) changes the form of consideration to be paid for the Shares;
(iii) decreases the price per Share or the number of Shares sought in the Offer;
(iv) imposes conditions to the Offer in addition to those set forth in Annex I
to the Merger Agreement; (v) changes or waives the Minimum Condition; or (vi)
makes any other change to any condition to the Offer set forth in the Annex I to
the Merger Agreement which is materially adverse to the holders of Shares.
Notwithstanding the foregoing, the Merger Agreement also provides that Merger
Subsidiary may, without the consent of the Company, (i) extend the Offer Period
until all of the
14
<PAGE> 17
conditions to Merger Subsidiary's obligation to purchase Shares shall be
satisfied or waived, including, without limitation, any period required by (A)
by any rule, regulation, interpretation, or position of the Commission or the
staff thereof applicable to the Offer; or (B) pursuant to the HSR Act; or (C) to
obtain necessary approval of each state insurance regulatory agency required for
consummation of the Offer; (ii) extend the Offer Period for a period of not more
than ten Business Days beyond the expiration thereof, as such may be extended
pursuant to clause (i) of this sentence; (iii) extend the Offer Period for an
additional period of not more than ten Business Days beyond that permitted by
clauses (i) and (ii) of this sentence if on the date of such extension, less
than 90% of the Fully Diluted Shares have been validly tendered and not properly
withdrawn pursuant to the Offer; and (iv) extend the Offer Period for any reason
for a period of not more than five Business Days beyond the latest Expiration
Date that would be otherwise permitted under clauses (i), (ii), or (iii) of this
sentence. Subject to the terms of the Offer in the Merger Agreement and the
satisfaction (or waiver to the extent permitted by the Merger Agreement) of the
conditions of the Offer, Merger Subsidiary shall accept for payment all Shares
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after the applicable expiration of the Offer.
Consideration to be Paid in the Merger. The Merger Agreement provides that,
following the purchase of Shares pursuant to the Offer and upon the terms (but
subject to the conditions) set forth in the Merger Agreement, Merger Subsidiary
will be merged with and into the Company with the Company continuing as the
surviving corporation. In the Merger, (i) each Share held by the Company as
treasury stock or owned by HCC, Merger Subsidiary or any subsidiary of either of
them immediately prior to the Effective Time shall be canceled, and no payment
shall be made with respect thereto; (ii) each share of common stock of Merger
Subsidiary outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the Surviving Corporation
with the same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and (iii) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in the Merger Agreement with respect to
Shares as to which appraisal rights have been exercised under Delaware Law, be
converted into the right to receive $12.50 in cash without interest (the "Merger
Consideration"). The Merger Agreement provides that the Merger will be
consummated as soon as practicable after satisfaction of or, to the extent
permitted thereunder, waiver of the conditions to the Merger and shall become
effective at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or, with the consent of the
Independent Director referred to below, at such later time as is specified in
the certificate of merger.
Board Representation. The Merger Agreement provides that, effective upon
acceptance for payment by Merger Subsidiary of the Shares tendered pursuant to
the Offer, HCC shall be entitled to designate the number of directors, rounded
up to the next whole number, on the Company's Board of Directors that equals the
product of (i) the total number of directors on the Company's Board of Directors
(giving effect to the election of any additional directors pursuant to the
Merger Agreement); and (ii) the percentage that the number of Shares owned by
HCC or Merger Subsidiary (including Shares accepted for payment) bears to the
total number of Shares outstanding. The Company has agreed that it will take all
action necessary to cause HCC's designees to be elected or appointed to the
Company's Board of Directors, including, without limitation, increasing the
number of directors or seeking and accepting resignations of incumbent directors
or both; provided, however, that prior to the Effective Time, the Company's
Board of Directors shall always have one Independent Director. If the number of
Independent Directors is reduced below one for any reason prior to the Effective
Time, the departing Independent Director shall be entitled to designate a person
to fill such vacancy. No action proposed to be taken by the Company to amend or
terminate the Merger Agreement or the certificate of incorporation or by-laws of
the Company or waive any action required to be taken by HCC or Merger Subsidiary
shall be effective without the approval of the Independent Director. At such
times, the Company will use its best efforts to cause individuals designated by
HCC to constitute the same percentage as such individuals represent on the
Company's Board of Directors of (i) each committee of the Board; (ii) each board
of directors of each subsidiary; and (iii) each committee of each such board.
The Merger Agreement provides that, from and after the Effective Time, the
directors and officers of Merger Subsidiary at the Effective Time will be the
initial directors and officers of the Surviving Corporation,
15
<PAGE> 18
each to hold office until his or her respective successors are duly elected or
appointed and qualified in accordance with applicable law. Pursuant to the
Merger Agreement, the by-laws of Merger Subsidiary, as in effect at the
Effective Time, will be the by-laws of the Surviving Corporation until amended
in accordance with applicable law, and the Certificate of Incorporation of
Merger Subsidiary, as in effect at the Effective Time, will be the Certificate
of Incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation shall be
changed to the name of the Company.
Shareholder Meeting. The Merger Agreement provides that, if required by
applicable law, the Company will call a meeting of its Shareholders to be held
as soon as reasonably practicable following Merger Subsidiary's acquisition of
Shares in the Offer for the purpose of voting on the approval and adoption of
the Merger Agreement and the Merger. Under the Merger Agreement, at any such
meeting, HCC has agreed to make a quorum and to vote all Shares acquired in the
Offer or otherwise beneficially owned by it in favor of adoption of the Merger
Agreement.
If the Minimum Condition is satisfied pursuant to the Offer, Merger
Subsidiary will hold at least a majority of the outstanding Shares on a Fully
Diluted Basis and will be able to assure that the requisite number of
affirmative votes in favor of approval and adoption of the Merger Agreement will
be received, even if no other Shareholder votes in favor thereof. If Merger
Subsidiary obtains at least 90% of the outstanding Shares, it may effect the
Merger without any notice to and without the authorization of the Shareholders
of the Company pursuant to the "short-form" merger provisions of Delaware Law.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
organization, standing and power, capital structure, corporate authorization,
governmental authorization, non-contravention, subsidiaries, Commission filings,
financial statements, absence of certain changes, disclosure documents,
undisclosed liabilities, absence of certain changes in stock or benefit plans,
litigation, taxes, employee benefits, state takeover statutes, compliance with
laws, contracts and debt instruments, opinion of financial advisor, interests of
officers and directors, change of control, title to properties, Public Utility
Holding Company Act, Year 2000, insurance, investments, investment company,
internal controls, assumed and ceded reinsurance agreements, accounts with
financial institutions, minute books, stock books, continuing business
relationships, insurance reserves, environmental, intellectual property and
technology and other matters.
HCC and Merger Subsidiary have also made certain representations and
warranties with respect to corporate existence and power, corporate
authorization, governmental authorization, non-contravention, disclosure
documents, financing and other matters.
Conduct of Business Pending the Merger. The Company has agreed that, during
the period from the date of the Merger Agreement to the Effective Time, the
Company will, and will cause its subsidiaries to, carry on their respective
businesses in the ordinary course in substantially the same manner as
theretofore conducted and, to the extent consistent therewith, use all
commercially reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them to the end
that their goodwill and ongoing business shall be unimpaired at the Effective
Time. The Company has further agreed to (i) comply in all material respects with
all laws, statutes, ordinances, rules and regulations applicable to the Company;
(ii) take all commercially reasonable steps to preserve the current
relationships of the Company with its brokers, reinsurance intermediaries,
ceding companies, reinsurers, agents, managing general agents, suppliers and
other persons with which the Company has significant business relationships; and
(iii) perform its obligations under all Reinsurance Agreements (as defined in
the Merger Agreement), Contracts (as defined in the Merger Agreement) and
commitments to which it is a party or by or to which it is bound or subject; and
(iv) require the Company's Accountants (as defined in the Merger Agreement) to
conduct an interim quarterly review with a written report of the Company's Form
10-Q filings for the period ended September 30, 1999, in accordance with
generally accepted auditing standards. The Company has further agreed that,
during the period from the date of the Merger Agreement to the Effective
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<PAGE> 19
Time, the Company will not, and will not permit any of its subsidiaries to,
without the prior written approval of HCC, (i)(a) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by any direct or indirect wholly
owned subsidiary of the Company to its parent, (b) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (c) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities (other than in connection with the exercise of Company Options); (ii)
issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities (other than the issuance of Shares upon the exercise of
Company Options); (iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents; (iv) acquire or agree to acquire
(including, without limitation, by merger, consolidation, or acquisitions of
stock or assets) any business including through the acquisition of any interest
in any corporation, partnership, limited liability company, joint venture,
association or other business organization or division thereof; (v) mortgage or
otherwise encumber or subject to any lien or, except in the ordinary course of
business consistent with past practice and pursuant to existing contracts or
commitments, sell, lease, license, transfer or otherwise dispose of any of the
Company intellectual property rights or any other material properties or assets;
(vi) make or agree to make any new capital expenditures in excess of $100,000;
(vii) make any material tax election (unless required by law) or settle or
compromise any material income tax liability; (viii) pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), or settle any lawsuit other than the
payment, discharge, satisfaction or settlement, in the ordinary course of
business consistent with past practice and in accordance with their terms and in
an amount not to exceed $25,000, or waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party; (ix) commence a lawsuit other
than (a) for the routine collection of bills or (b) in such cases where the
Company in good faith determines that the failure to commence suit would result
in a material impairment of a valuable aspect of the Company's business,
provided that the Company consults with HCC prior to filing such suit; (x) (a)
hire any permanent employee or any other employee whose employment cannot be
terminated at will without further payment or enter into or amend any employment
or severance agreement or similar arrangements, (b) make any determination as to
amounts payable under any plan, arrangement or agreement, providing for
discretionary incentive compensation or bonus to any officer, director, employee
or independent contractor of the Company or any of its subsidiaries, (c) enter
into, adopt, or amend (except as required in Sections 2.5 and 5.9 of the Merger
Agreement) any agreement, arrangement, or benefit plan so as to increase the
liability (whether or not contingent) of the Company or HCC or any of their
subsidiaries or ERISA affiliate (as defined in the Merger Agreement) in respect
of compensation or benefits except as may be required by law or (d) grant any
options or increase any employee or director compensation; (xi) amend, commute,
terminate or waive any of its rights under any Reinsurance Agreement pursuant to
which the Company has ceded or transferred any of its obligations or
liabilities; (xii) conclude any negotiations relating to outstanding issues
arising from the purchase of Seaboard Life Insurance Company (USA) and VASA
North America, Inc. or the sale of USF RE Insurance Company; (xiii) make any
material changes in their investment portfolio or investment guidelines; (xiv)
authorize any of, or commit or agree to take any of, the foregoing actions; (xv)
take or agree or commit to take any action that would make representation or
warranty of the Company hereunder inaccurate in any material respect at, or as
of any time prior to, the Effective Time; or (xvi) omit or agree or commit to
omit to take any action necessary to prevent any such representation or warranty
from being inaccurate in any material respect at any such time.
Access to Information. From the Execution Date until the Effective Time,
the Company has agreed that it will, and has agreed to cause each of its
subsidiaries to, (i) give HCC, its counsel, financial advisors, auditors and
other authorized representatives full access (during normal business hours and
upon reasonable notice) to the offices, properties, books and records of the
Company and the subsidiaries; (ii) furnish to HCC, its counsel, financial
advisors, auditors and other authorized representatives all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, the Company has agreed that
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<PAGE> 20
it will, and has agreed to cause each of its subsidiaries to, furnish (i) a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal or state securities
laws, (ii) a copy of each tax return, report and information statement filed by
it during such period; and (iii) all other information concerning its business,
assets, properties and personnel (including financial and operating data) as
such persons may reasonably request and will instruct the Company's employees,
counsel and financial advisors to cooperate with HCC in its investigation of the
business of the Company and the subsidiaries; provided, however, that the
parties have agreed that no investigation pursuant to this paragraph will affect
any representation or warranty given by the Company in the Merger Agreement.
From the Execution Date until the Effective Time, the Company has agreed to
give HCC, its counsel, financial advisors, auditors and other authorized
representatives full access (during normal business hours at their actual
location) to all accounting, revenue, marketing, producer, processing, and other
books, records and data in possession of Company, except such records or data
which Company is prevented by contractual obligations with third parties from
disclosing; provided, however, that in the event the Company is prohibited from
making files or records available because of provisions of third party
agreements, then the Company has agreed to inform HCC of the existence of such
records, the parties thereto and the subject matter of such records.
HCC and the Company have further agreed in the Merger Agreement that, from
the Execution Date, the order issued in that certain litigation entitled The
Centris Group, Inc. et al. v. HCC Benefits Corporation, et al. Civil Action No.
99-1-4866-28 in the Superior Court of Cobb County, State of Georgia (the "Kelbel
Litigation") will be suspended except for the running of any time limitations on
Kelbel's activities which shall continue and the restriction on Kelbel shall be
of no further force and effect, provided, however, that if the Merger Agreement
is terminated by HCC for any reason other than the occurrence of a Trigger Event
(defined herein) such restrictions shall be reinstated. The parties have further
agreed to use their best efforts to cause the Order in the Kelbel Litigation to
be amended to conform to the terms provided in the Merger Agreement.
Rights Plan. Pursuant to the Merger Agreement, the Company has agreed that
upon execution of the Merger Agreement, it shall take necessary actions under
the Rights Plan, including any required amendments to the Rights Plan, so that
the commencement or consummation of the Offer, the grant or exercise of any
rights under the Stock Option Agreement or the Shareholder Option Agreement or
any other acts pursuant to such agreements, respectively, on the terms permitted
thereunder, respectively, and as contemplated therein, respectively, will not
cause (A) the Rights issued pursuant to the Rights Plan to become exercisable
under the Rights Plan, (B) HCC, or any subsidiary of HCC, including Merger
Subsidiary to be deemed a "10% Stockholder" (as defined in the Rights Plan) or
(C) the "10% Stock Ownership Date" (as defined in the Rights Plan) to occur;
provided, however, that the Company shall not be required to make such
amendments to the Rights Plan if, (i) HCC has not performed or complied in all
material respects with the Merger Agreement prior to the consummation of the
Offer; or (ii) the Company obtains, and there is in force from the Delaware
Court of Chancery, an order permanently, preliminarily or temporarily declaring
that the making of such amendments to the Rights Plan would be contrary to the
fiduciary duties of the Board of Directors of the Company. The Merger Agreement
further provides that in no event shall the Board of Directors of the Company
make an amendment of the Rights Plan in favor of any other person without making
such amendment in favor of HCC.
Affirmative Actions. Pursuant to the Merger Agreement, the Company will
retain an independent actuary (the "Actuary") which is acceptable to HCC to
prepare an independent actuarial review of all aspects of the Company's business
including, without limitation, the Company's property/casualty reserves,
including discontinued operations, the medical lines business, recoverable value
of the Company's notes receivable and indemnification obligations of the
Company. Such actuarial study shall commence no later than five Business Days
from the Execution Date and shall be completed no later than two Business Days
after receipt of all regulatory approvals to the Merger from required state
insurance regulatory agencies. The Company shall make the reserve adjustments to
take such other charges, in accordance with Generally Accepted Accounting
Principles ("GAAP") and Statutory Accounting Principles ("SAP"), consistent with
the findings of such
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<PAGE> 21
actuarial review. Such adjustments and charges shall be recorded on the
Company's books no later than three Business Days following the receipt from the
Actuary of such review. The Company has further agreed to utilize reasonable
commercial efforts and to cooperate with HCC in the establishment of
underwriting standards for business commencing January 1, 2000.
Termination of Benefit Plans. The Company has agreed in the Merger
Agreement to terminate or cause to be terminated The Centris Group, Inc.
Employees' Savings Plan and the VASA North America, Inc. 401(k) Profit Sharing
Plan prior to the date on which the Company and/or its subsidiaries and ERISA
affiliates become members of a "controlled group" with or under "common control"
with HCC as such terms are defined in Section 414(b) and 414(c) of the Code.
HSR Act Filings; Regulatory Filings; Efforts. Pursuant to the Merger
Agreement, each of HCC and the Company has agreed to (i) promptly make or cause
to be made the filings required of such party or any of its subsidiaries under
the HSR Act with respect to the transactions contemplated by the Merger
Agreement; (ii) comply at the earliest practicable date with any request under
the HSR Act for additional information, documents, or other material received by
such party or any of its subsidiaries from any federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity") in respect of such filings or such transactions; and (iii) cooperate
with the other party in connection with any such filing and in connection with
resolving any investigation or other inquiry of any such agency or other
Governmental Entity under any Antitrust Laws (as defined below) with respect to
any such filing or any such transaction. Each of HCC and the Company has agreed,
pursuant to the Merger Agreement, to promptly inform the other of any
communication with, and any proposed understanding, undertaking, or agreement
with, any Governmental Entity regarding any such filings or any such
transaction. The Merger Agreement prohibits the Company from participating in
any meeting (whether in person or by telephone) with any Governmental Entity in
respect of any such filings, investigation, or other inquiry without HCC's
consent and without giving HCC notice of the meeting and, to the extent
permitted by such Governmental Entity, the opportunity to attend and
participate.
Each of HCC and the Company has agreed, pursuant to the Merger Agreement,
to use all commercially reasonable efforts to resolve such objections, if any,
as may be asserted by any Governmental Entity with respect to the transactions
contemplated by the Merger Agreement under the HSR Act, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other Federal, state or foreign statutes, rules, regulations,
orders or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade
(collectively, "Antitrust Laws"). In connection therewith, if any administrative
or judicial action or proceeding is instituted (or threatened to be instituted)
challenging any transaction contemplated by the Merger Agreement as violative of
any Antitrust Law, and, if by mutual agreement, HCC and the Company decide that
litigation is in their best interests, each of HCC and the Company has agreed,
pursuant to the Merger Agreement, to cooperate and use all reasonable efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions. Pursuant to the Merger Agreement, each of
HCC and the Company has agreed to use all commercially reasonable efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR Act or other Antitrust Laws with respect to such
transactions as promptly as possible after the execution of the Merger
Agreement.
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<PAGE> 22
Each of the parties has agreed in the Merger Agreement to promptly make or
cause to be made the filings required of each such party or any of its
subsidiaries under any insurance regulatory law or act in any state where such
filing is required or, at the request of HCC, deemed advisable, and to comply at
the earliest practicable date with any requests made by any insurance regulatory
agency or any other Governmental Entity for additional information, documents or
other material received by such party or any of its subsidiaries and to
cooperate with the other party in connection with any such filing and in
connection with resolving any investigation or other inquiry or hearing of any
such agency or other Governmental Entity under any insurance law relating to
licensing, holding company applications, change in control, etc. with respect to
any such filing or any such transaction. Each party has further agreed to
promptly inform the other party of any communication with, and any proposed
understanding, undertaking agreement with, any Governmental Entity or insurance
agency regarding any such filings or any such transaction. The Company shall not
participate in any meeting (whether, in person or by telephone) with any
Governmental Entity or insurance regulatory agency in respect of any such
filings, investigation, or other inquiry without HCC's consent and without
giving HCC notice of the meeting, and to the extent permitted by such
Governmental Entity, the opportunity to attend and participate.
Subject to the fiduciary duties of the Board of Directors of the Company as
advised in writing by counsel to the Company, each of HCC and the Company has
agreed, pursuant to the Merger Agreement, to use all commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other party in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer, the Merger, and the other
transactions contemplated by the Merger Agreement, including (i) the obtaining
of all other necessary actions or nonactions, waivers, consents and approvals
from Governmental Entities and the making of all other necessary registrations
and filings (including other filings with Governmental Entities, if any); (ii)
the obtaining of all necessary consents, approvals or waivers from third
parties; (iii) the preparation of the Company Disclosure Documents (as defined
in the Merger Agreement) and the Offer Documents (as defined in the Merger
Agreement); and (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of the Merger Agreement.
Notwithstanding the foregoing, the Merger Agreement provides that (i)
neither HCC nor any of its subsidiaries shall be required to divest any of their
respective businesses, product lines or assets; (ii) neither HCC nor any of its
subsidiaries shall be required to take or agree to take any other action or
agree to any limitation that could reasonably be expected to have a Material
Adverse Effect (as defined in Section 15) on the business, assets, financial
condition, results of operations or prospects of HCC and its subsidiaries or the
Surviving Corporation after the Effective Time; (iii) neither the Company nor
its subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Material Adverse
Effect; (iv) no party shall be required to agree to the imposition of, or to
comply with, any condition, obligation or restriction on HCC or any of its
subsidiaries or on the Surviving Corporation or any of its subsidiaries of the
type described in clause (a) or (b) of Section 15 of this Offer; and (v) neither
HCC nor Merger Subsidiary shall be required to waive any of the conditions to
the Offer described in Section 15 of this Offer or any of the conditions to the
Merger described in this Section 11 hereof.
The Merger Agreement provides that each party will give prompt notice to
the other party of (i) any representation or warranty made by such party
contained in the Merger Agreement becoming untrue or inaccurate in any respect;
or (ii) the failure by such party to comply with or satisfy in any respect any
covenant, condition or agreement to be complied with or satisfied by such party
under the Merger Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under the Merger Agreement.
The Merger Agreement provides that the Company will give prompt notice to
HCC, and HCC or Merger Subsidiary will give prompt notice to the Company of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the transactions
contemplated by the Merger Agreement; (ii) any notice or other communication
from any Governmental Entity in connection with the transactions contemplated by
the Merger Agreement; and (iii) any actions,
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<PAGE> 23
suits, claims, investigations or proceedings commenced or, to the best of its
knowledge threatened against, relating to or involving or otherwise affecting it
or any of its subsidiaries which, if pending on the date of the Merger Agreement
would have been required to have been disclosed pursuant to the representations
and warranties of the Company or which relate to the consummation of the
transactions contemplated by the Merger Agreement.
Stock Options. The Merger Agreement provides that, at the time that Merger
Subsidiary has accepted for payment all Shares validly transferred and not
withdrawn pursuant to the Offer, each outstanding Company Option, whether vested
or unvested, shall be canceled, and each holder of any such option shall be paid
by Merger Subsidiary promptly for each such option an amount determined by
multiplying (i) the excess, if any, of $12.50 per Share over the applicable
exercise price of such option by (ii) the number of Shares such holder could
have purchased had such holder exercised such option in full immediately prior
to the time that Merger Subsidiary has accepted for payment all Shares validly
transferred and not withdrawn pursuant to the Offer (as if such Company Option
was exercisable in full). Notwithstanding any other provision of the Merger
Agreement, immediately after the acceptance for payment of Shares pursuant to
the Offer, no Company Options will remain outstanding.
Pursuant to the Merger Agreement and as soon as practicable following the
date of the Merger Agreement, the Company has agreed to use its commercially
reasonable efforts to (i) obtain any consents from holders of Company Options;
and (ii) make any amendments to the terms of such stock option or compensation
plans or arrangements that, in the case of either clauses (i) or (ii), are
necessary to give effect to the transactions contemplated by the Merger
Agreement. Notwithstanding any other provision of the Merger Agreement, payment
may be withheld in respect of any Company Option until necessary consents are
obtained. All amounts payable pursuant to the Merger Agreement in respect of
Company Options shall be subject to, and reduced by, any required withholding of
taxes and shall be paid without interest.
Other Offers. Pursuant to the Merger Agreement, the Company has agreed
that, until the termination of the Merger Agreement, the Company and its
subsidiaries will not, and will not authorize or permit the officers, directors,
employees or other agents of the Company and its subsidiaries to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal (as defined below); or (ii) subject to the fiduciary duties
of the Board of Directors under applicable law, as advised in writing by Gibson,
Dunn & Crutcher, LLP, counsel to the Company, and in response to an unsolicited
request that has been submitted to the Company's Board of Directors and
determined to be a Superior Acquisition Proposal (as defined below), engage in
negotiations with, or disclose any nonpublic information relating to the Company
or any of its subsidiaries or afford access to the properties, books or records
of the Company or any of its subsidiaries to, any person that has advised the
Company that it may be considering making, or that has made, an Acquisition
Proposal; provided, however, that the foregoing does not prohibit the Company's
Board of Directors from taking and disclosing to the Company's Shareholders a
position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act. The Company has agreed to promptly notify
HCC after receipt of any Acquisition Proposal or any indication that any person
is considering making an Acquisition Proposal or any request for nonpublic
information relating to the Company or any of its subsidiaries or for access to
the properties, books or records of the Company or any of its subsidiaries by
any person that has advised the Company that it may be considering making, or
that has made, an Acquisition Proposal and will keep HCC fully informed of the
status and details of any such Acquisition Proposal, notice or request.
"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving the Company or any
of its subsidiaries or the acquisition of any significant equity interest in, or
a significant portion of the assets of, the Company or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement; and "Superior
Acquisition Proposal" means an Acquisition Proposal which a majority of the
Company's disinterested directors determines in its good faith judgment (based
on the written advice of the Financial Advisor) to be more favorable to the
Company's Shareholders than the Offer or the Merger, and for which financing, to
the extent required, is then committed.
Agreement with respect to Director and Officer Indemnification and
Insurance. Pursuant to the Merger Agreement, after the Effective Time, HCC will
cause the Surviving Corporation to indemnify and hold
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harmless the present and former officers, directors, employees and agents of the
Company and its subsidiaries (the "Indemnified Parties") in respect of acts or
omissions based in whole or in part on, or arising in whole or in part out of,
or pertaining to (i) the fact that such Indemnified Party is or was a director,
officer or employee of the Company, any of its subsidiaries or any of their
respective predecessors or was prior to the Effective Time serving at the
request of any such party as an officer, director, employee or agent of another
corporation, partnership, trust or other enterprise; or (ii) the Merger
Agreement, or any of the transactions contemplated thereby and all actions taken
by an Indemnified Party in connection therewith. The parties also agreed to
cooperate and use commercially reasonable efforts to defend against and respond
to such proceedings to the extent set forth in the next sentence. After the
Effective Time, HCC agreed to cause Surviving Corporation to indemnify and hold
harmless, as and to the fullest extent permitted by the Company's Certificate of
Incorporation and By-Laws in effect on the date of the Merger Agreement and by
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to repay such advanced expenses if it is
finally and unappealably determined that such Indemnified Party was not entitled
to indemnification hereunder), judgments, fines and amounts paid in settlement
in connection with any such threatened or actual claim, action, suit, proceeding
or investigation, and in the event of any such threatened or actual claim,
action, suit, proceeding or investigation (whether asserted or arising before or
after the Effective Time) (collectively, "Claims"), the Indemnified Parties may
retain counsel reasonably satisfactory to them after consultation with the
Surviving Corporation; provided, however, that (1) the Surviving Corporation has
the right to assume the defense thereof and upon such assumption the Surviving
Corporation will not be liable to any Indemnified Party for any legal expenses
of other counsel or any other expenses subsequently incurred by an Indemnified
Party in connection with the defense thereof, except that if the Surviving
Corporation elects not to assume such defense, or counsel for the Indemnified
Parties reasonably advises the Indemnified Parties that there are or may be
(whether or not any have yet actually arisen) issues which raise conflicts of
interest between the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them, and the
Surviving Corporation will pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) the Surviving Corporation is obligated pursuant
to this paragraph to pay for only one firm of counsel for all Indemnified
Parties, (3) the Surviving Corporation will not be liable for any settlement
effected without its prior written consent, and (4) the Surviving Corporation
will have no obligation hereunder to any Indemnified Party when if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by the Certificate of
Incorporation or By-Laws of the Company or its subsidiaries or applicable law.
Any Indemnified Party wishing to claim indemnification under this provision,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Surviving Corporation thereof, provided, however, that the
failure to so notify shall not affect the obligations of the Surviving
Corporation under this provision except (and only) to the extent such failure to
notify materially prejudices the Surviving Corporation. Furthermore, the
Surviving Corporation agreed that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in the Company's Certificate of Incorporation or By-Laws or in the
similar governing documents of any of the Company's subsidiaries as in effect as
of the date of the Merger Agreement with respect to matters occurring on or
prior to the Effective Time shall survive the Merger and shall continue in full
force and effect thereafter, without any amendment thereto; provided, however,
that nothing contained in this provision will be deemed to preclude the
liquidation; consolidation or merger of the Company or any subsidiary thereof,
in which case all of such rights to indemnification and limitations on liability
will be deemed to so survive and continue notwithstanding any such liquidation,
consolidation or merger and shall constitute rights which may be asserted
against the Surviving Corporation. Nothing contained in this provision will be
deemed to preclude any rights to indemnification or limitations on liability
provided in the Company's Certificate of Incorporation or By-Laws or similar
governing documents of the Surviving Corporation with respect to matters
occurring subsequent to the Effective Time to the extent that the provisions
establishing such rights or limitations are not otherwise amended to the
contrary. The Surviving Corporation agreed to use its commercially reasonable
efforts to cause the persons serving as officers and directors of the Company
immediately prior to the Effective Time to be covered for a period of three
years from the Effective Date by the directors' and officers' liability
insurance
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<PAGE> 25
policy maintained by the Surviving Corporation (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions of such existing policy and provided
further that in no event will the Surviving Corporation be required to expend in
any one year an amount in excess of 200% of the annual premiums currently paid
by the Company for such insurance) with respect to acts or omissions occurring
prior to the Effective Time which were committed by such officers and directors
in their capacity as such.
Regulatory Filings. Pursuant to the terms of the Merger Agreement, the
Company has agreed to commence preparation of and, consistent with past practice
and on a timely basis, if required prior to the Closing Date, file with or
submit to any insurance department or other Governmental Entity with which the
Company is required to make such filings or submissions, and, if filed prior to
the Closing Date, deliver to the HCC true and complete copies of, the quarterly
statutory statement for each quarter of 1999 ended prior to the Closing Date,
together with all related notes, exhibits and schedules thereto. The Company has
agreed that all such quarterly statements filed with or submitted to any
insurance department or Governmental Entity (i) shall be prepared from the books
of account and other financial records of the Company; (ii) shall be filed with
or submitted to such insurance departments and Governmental Entities, on forms
prescribed or permitted thereby; (iii) shall be prepared in accordance with SAP
applied on a basis consistent with the past practices of the Company (except as
set forth in the notes, exhibits or schedules thereto), and shall comply on
their respective dates of filing or submission with the laws of such
jurisdictions; (iv) shall present fairly the statutory assets, liabilities,
capital and surplus, results of operations and cash flows of the Company as of
the dates thereof or for the periods covered thereby (subject to normal
estimation of accruals and reserves and normal year-end audit adjustments); and
(v) shall not use any accounting practices that are permitted rather than
prescribed by the insurance departments and regulatory authorities.
Other Agreements. HCC has agreed that it will take all action necessary to
cause Merger Subsidiary to perform its obligations under the Merger Agreement
and to consummate the Offer and the Merger on the terms and conditions set forth
in the Merger Agreement.
Employees. Except as otherwise provided in the Merger Agreement, HCC has
agreed that it (or the Surviving Corporation) will be a successor employer with
respect to, and assume sponsorship of (or cause the Surviving Corporation to
assume sponsorship of), in accordance with their terms, all Benefit Plans
previously delivered to HCC and all accrued benefits vested thereunder, other
than Benefit Plans terminated prior to the Effective Time; it being understood
and agreed by the parties that nothing in the Merger Agreement shall prevent HCC
or the Surviving Corporation from terminating any such Benefit Plan in
accordance with its terms or require HCC or the Surviving Corporation to incur
any liability or assume any obligation other than liabilities and obligations
under the terms of such plans as in effect on the Execution Date. The term
"Benefit Plans" means any collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, stock appreciation right,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical, workers' compensation, disability, supplementary unemployment benefits,
or other plan, arrangement or understanding (whether or not legally binding) or
any employment agreement providing compensation or benefits to any current or
former employee, officer, director or independent contractor of the Company or
any of its subsidiaries or any beneficiary thereof or entered into, maintained
or contributed to, as the case may be, by the Company or any of its
subsidiaries.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of each party to consummate the Merger are subject to the
satisfaction of the following conditions: (i) HCC or Merger Subsidiary shall
have purchased Shares in an amount equal to at least the Minimum Condition
pursuant to the Offer; (ii) if required by applicable law, the adoption of the
Merger Agreement by the Shareholders of the Company in accordance with Delaware
Law; (iii) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger; (iv)
any applicable waiting period under the HSR Act relating to the Merger shall
have expired; (v) other than filing the certificate of merger in accordance with
Delaware Law, all consents required to permit the consummation of the Merger
shall have been filed, occurred or been obtained (other than those the failure
to file, occur or obtain, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect or prevent or
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materially delay the consummation of the Merger); (vi) each Governmental Entity
having jurisdiction over the Company or any of its subsidiaries, their business,
licenses or permits, shall have, where applicable, approved the transactions
contemplated by the Merger Agreement and any "change of control" incidental
thereto; (vii) each of the officers and employees whose names are specifically
set forth on Annex II to the Merger Agreement shall have executed an agreement
to remain in the employment of the Surviving Corporation for a period of up to
120 days after the Effective Time and as of the Effective Time, none of such
persons listed on Annex II-A to the Merger Agreement and no more than two of
those persons set forth on Annex II-B to the Merger Agreement shall have
voluntarily terminated or terminated for Good Reason, as defined in the
respective Severance Agreement entered into by each of such persons; and (viii)
the Company shall have performed its obligations under Section 5.8 to the Merger
Agreement (see "The Merger Agreement -- Affirmative Actions").
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Merger Agreement by the Shareholders of the Company) (i) by mutual
written consent of the Company and HCC; (ii) by either the Company or HCC, if
such party has received an opinion from its counsel that there shall be any law
or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgement, injunction, order or decree enjoining HCC or the
Company from consummating the Merger is entered and such judgment, injunction,
order or decree shall become final and nonappealable; (iii) by either the
Company or HCC (provided, however, that no party shall be entitled to terminate
the Merger Agreement pursuant to this sub-clause (iii) as a result of its breach
of this Merger Agreement), (x) if HCC or Merger Subsidiary shall have failed to
commence the Offer within five Business Days following the date of the
announcement of the Merger Agreement, (y) if HCC or Merger Subsidiary shall not
have purchased any Shares pursuant to the Offer prior to February 29, 2000 (or,
if the Offer shall have been extended by Merger Subsidiary pursuant to the
Merger Agreement, on or prior to March 31, 2000) or (z) the Offer shall have
been terminated without HCC or Merger Subsidiary having purchased any Shares
pursuant to the Offer; (iv) by HCC upon the occurrence of any Trigger Event
described in clauses (i) through (iv) under the heading "Fees and Expenses"
below; (v) by the Company, upon the occurrence of any Trigger Event described in
clause (i) under the heading "Fees and Expenses" below; and (vi) by either the
Company or HCC, if the Merger has not been consummated by June 30, 2000
(provided, however, that the party seeking to terminate the Merger Agreement
shall not have breached its obligations under the Merger Agreement in any
material respect).
Fees and Expenses. Each party to the Merger Agreement has agreed to pay its
own fees and expenses and there are no provisions for payment by the Company of
the fees and expenses of HCC or Merger Subsidiary or vice versa or at any time
prior to the consummation of the Offer as if made at and as of such time, if the
Merger Agreement is terminated, except as stated below. The Company has agreed
to pay HCC, at HCC's demand and sole election, a fee in immediately available
funds equal to $6,000,000 (the "Termination Fee") promptly, but in no event
later than one Business Day, after the termination of the Merger Agreement as a
result of the occurrence of any of the events set forth below (each a "Trigger
Event"): (i) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or an agreement in principle
with respect to any Acquisition Proposal; (ii) any person or group (as defined
in Section 13(d)(3) of the Exchange Act) (other than HCC or any of its
affiliates) shall have become the beneficial owner (as defined in Rule 13d-3
promulgated under the Exchange Act) of at least 20% of the outstanding Shares or
shall have acquired, directly or indirectly, at least 20% of the assets of the
Company; (iii) any representation or warranty made by the Company in, or
pursuant to, the Merger Agreement that is qualified as to materiality shall not
have been true and correct when made or at any time prior to the consummation of
the Offer as if made at and as of such time, or any representation or warranty
made by the Company in, or pursuant to, the Merger Agreement that is not so
qualified shall not have been true and correct in all material respects when
made or at any time prior to the consummation of the Offer as if made at and as
of such time, or the Company shall have failed to observe or perform in any
material respect any of its obligations under the Merger Agreement; provided,
however, that it shall not be a Trigger Event unless the breaches of the
representations and warranties without regard to any materiality qualifier or
threshold, and failure to perform or breach of any obligation, individually or
in the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect; or (iv) the Board of Directors of the
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Company (or any special committee thereof) shall have withdrawn or materially
modified in a manner adverse to HCC or Merger Subsidiary its approval or
recommendation of the Offer, the Merger into the Merger Agreement the
Shareholder Option Agreement and the Stock Option Agreement, in any such case
whether or not such withdrawal or modification is required by the fiduciary
duties of the Company's Board of Directors (or any special committee thereof).
The Merger Agreement provides that if it is terminated as a result of the
occurrence of a Trigger Event, in addition to the Termination Fee paid or
payable by the Company to HCC pursuant to the foregoing, the Company shall
assume and pay, or reimburse HCC for, all reasonable fees payable and expenses
incurred by HCC (including the fees and expenses of its counsel in connection
with the Merger Agreement and the transactions contemplated hereby), up to a
maximum of $1,000,000 (the "Expense Reimbursement"). HCC shall not be entitled
to the Termination Fee if HCC shall have exercised the option granted to HCC in
the Stock Option Agreement, but shall be entitled to the Expense Reimbursement.
Appraisal Rights. Shareholders do not have dissenters' rights as a result
of the Offer. However, if the Merger is consummated, Shareholders at the time of
the Merger who do not vote in favor of or consent in writing to the Merger will
have the right under Delaware Law to dissent and demand appraisal of their
Shares in accordance with Section 262 of Delaware Law.
Under Delaware Law, dissenting Shareholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such fair
value in cash, together with a fair rate of interest, if any. Any such judicial
determination of the fair value of the Shares could be based upon considerations
other than or in addition to the price paid in the Offer (or the Merger) and the
market value of the Shares. The Shareholders should recognize that the value so
determined could be higher or lower than the price per Share paid pursuant to
the Offer or the Merger. Moreover, HCC or Merger Subsidiary may argue in an
appraisal proceeding that, for purposes of such a proceeding, the fair value of
the Shares is less than the price paid in the Offer (or the Merger).
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE FOLLOWED BY SHAREHOLDERS
DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS.
SHAREHOLDER OPTION AGREEMENT. The following description of the Shareholder
Option Agreement is qualified in its entirety by reference to the text of such
agreement, a copy of which is attached as an exhibit to Merger Subsidiary's and
HCC's Schedule 14D-1 with respect to the transaction contemplated hereby filed
with the Commission pursuant to the Exchange Act.
Grant of Stock Option. Under the Shareholder Option Agreement, each
Principal Shareholder has granted Merger Subsidiary an irrevocable option to
purchase, subject to the terms and conditions set forth in the Shareholder
Option Agreement, for a price of $12.50 per Share in cash, such Principal
Shareholder's Shares and any additional Shares acquired by such Shareholder in
any capacity (whether by exercise of options, warrants or rights, the conversion
or exchange of convertible or exchangeable securities or by means of a purchase,
dividend, distribution or otherwise) (collectively, the "Shareholder Shares").
The Shareholder Option Agreement also provides that the number and kind of
Shareholder Shares subject to the Stock Option and the purchase price therefor
shall be appropriately and equitably adjusted in the event of changes in the
Company's capital stock.
Exercise of Option. Subject to the terms of the Shareholder Option
Agreement, Merger Subsidiary has the right to exercise the Stock Option, in
whole, but not in part, at any time after the date an Acquisition Proposal or a
Superior Acquisition Proposal is successfully received and paid for in excess of
50% of the Fully Diluted Shares or a third party has otherwise acquired in
excess of 50% of the Fully Diluted Shares. The Shareholder Option Agreement
further provides that, once exercisable, the Stock Option must be exercised, if
at all, within five Business Days.
Agreement to Tender. Each of the Principal Shareholders has agreed to
validly tender (or cause the record owner of such shares to validly tender) such
Principal Shareholder's Shares in the Offer within two days of the receipt of
Merger Subsidiary's offer to purchase relating to the Offer. Each Principal
Shareholder
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has agreed, in the Shareholder Option Agreement, upon receipt of written
instructions from Merger Subsidiary, to deliver to the Depositary (i) a Letter
of Transmittal with respect to such Principal Shareholder's Shares complying
with the terms of the Offer together with instructions directing the Depositary
to make payment for such Shares directly to the Principal Shareholder (but if
such Shares are not accepted for payment or are withdrawn and are to be returned
pursuant to the Offer, to return such Shares to such Principal Shareholder
whereupon they shall continue to be held by such Principal Shareholder subject
to the terms and conditions of the Shareholder Option Agreement); (ii) the
certificates evidencing such Principal Shareholder's Shares; and (iii) all other
documents or instruments required to be delivered pursuant to the terms of the
Offer.
Conditions. The Principal Shareholders' obligations to sell their Shares
(other than by tendering pursuant to the Offer) under the Shareholder Option
Agreement are subject to the satisfaction of the following conditions: (i) the
representations and warranties of Merger Subsidiary set forth in the Shareholder
Option Agreement shall be true and correct in all material respects on the date
of sale as if made on such date; (ii) if applicable, all waiting periods under
the HSR Act to the exercise of the Stock Option shall have expired or been
terminated; and (iii) there shall be no preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining such exercise of the Stock
Option.
No Shopping. Each Principal Shareholder has further agreed to be bound to
the obligations and the restrictions placed on him as a director of the Company
pursuant to Section 5.4 of the Merger Agreement. See, "The Merger
Agreement -- Other Offers".
Proxy. In entering into the Shareholder Option Agreement, each Principal
Shareholder (i) revoked any and all previous proxies granted with respect to
such Shareholders' Shares; and (ii) granted Merger Subsidiary a proxy to vote or
consent at every annual, special or adjourned meeting, or solicitation of
consents, of the Shareholders of the Company (including the right to sign its
name as Shareholder to any consent, certificate or other document relating to
the Company that the law of the State of Delaware may permit or require) (1) in
favor of the adoption of the Merger Agreement and the Shareholder Option
Agreement and approval of the Merger and the other transactions contemplated by
the Merger Agreement and Shareholder Option Agreement; (2) against any proposal
for any recapitalization, merger, sale of assets or other business combination
between the Company and any person or entity (other than the Merger) or any
other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement not being fulfilled, and (3) in favor of any other
matter relating to consummation of the transactions contemplated by the Merger
Agreement and the Shareholder Option Agreement. Each Shareholder also agreed to
cause such Principal Shareholder's Shares that are outstanding and owned by it
beneficially to be voted in accordance with the foregoing. The proxy granted
under the Shareholder Option Agreement is irrevocable, but such proxy will be
revoked upon termination of the Shareholder Option Agreement in accordance with
its terms.
Shareholders holding an aggregate of up to 1,011,835 Shares are parties to
the Shareholder Option Agreement.
STOCK OPTION AGREEMENT. The following description of the Stock Option
Agreement, is qualified in its entirety by reference to the text of such
Agreement, a copy of which is attached as an exhibit to Merger Subsidiary's and
HCC's Schedule 14D-1 with respect to the transaction contemplated hereby filed
with the Commission pursuant to the Exchange Act.
Grant of Stock Option. Under the Stock Option Agreement, the Company
granted HCC an option to purchase, subject to the terms and conditions set forth
in the Stock Option Agreement, 19.9% of the Company's issued and outstanding
shares, at a price per Share equal to the Merger Consideration (the "HCC
Option"). As of October 11, 1999, the HCC Option would be exercisable for
2,295,679 Shares. The HCC Option is exercisable and may be exercised in whole at
any time and from time to time, until the expiration of the HCC Option as
provided in the Stock Option Agreement. The HCC Option shall only be exercisable
if, at any time after October 11, 1999 and prior to the expiration of the HCC
Option the Company enters into, or
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publicly announces its intention to enter into, an agreement or an agreement in
principle with respect to any Acquisition Proposal or Superior Acquisition
Proposal. The HCC Option shall expire at 11:59 P.M. California time on the
earlier of the fifth Business Day after the Acquisition Proposal or Superior
Acquisition Proposal is terminated or December 31, 2000. The number of shares of
Common Stock of the Company exercisable pursuant to the terms of the HCC Option
shall be appropriately adjusted to reflect any change in the Common Stock of the
Company after the date of the Stock Option Agreement.
Purchase of HCC Option by Company. The Stock Option Agreement provides that
if, before the expiration of the HCC Option, there is either (i) an Acquisition
Proposal which at any time becomes a Superior Acquisition Proposal (regardless
of whether it is consummated); or (ii) the commencement of a tender offer or
exchange offer for at least 20% of the shares of Common Stock of the Company; or
(iii) the acquisition by any person or "group" (within the meaning of Rule 13d-5
under the Exchange Act) of at least 20% of the shares (or rights to acquire
shares) of Common Stock of the Company, then, in either event, for a period of
100 days after (x) the date such Acquisition Proposal becomes a Superior
Acquisition Proposal or (y) such event occurs, but prior to the expiration of
the HCC Option, HCC shall be entitled to sell the HCC Option to the Company and
the Company shall be required to purchase the HCC Option from HCC, for
$6,000,000 in cash against HCC's written acknowledgment that it has surrendered
all of its rights to the HCC Option.
Amendment of Rights Agreement. The Stock Option Agreement provides that the
Company agreed that immediately prior to execution of such Agreement, it shall
take all necessary action under the Rights Plan, including any required
amendment thereto, so that the grant or exercise of the HCC Option on the terms
permitted under the Stock Option Agreement and as contemplated by the Stock
Option Agreement will not cause (i) the Rights to become exercisable under the
Rights Plan; (ii) HCC, or any subsidiary of HCC, including Merger Subsidiary to
be deemed a "10% Stockholder"; or (iii) the "10% Stock Ownership Date" to occur
upon such consummation; provided, however, that the Company shall not be
required to make such amendments to the Rights Plan if, (x) HCC has not
performed or complied in all material respects with the Stock Option Agreement
prior to the exercise of the HCC Option or (y) the Company obtains, and there is
in force from the Delaware Court of Chancery, an order permanently,
preliminarily or temporarily declaring that the making of such amendments to the
Rights Plan would be contrary to the fiduciary duties of the Board of Directors
of the Company. Notwithstanding anything else contained herein, in no event
shall the Board of Directors of the Company make any comparable amendment of the
Rights Plan in favor of any other person without making such amendment in favor
of HCC.
Delaware Law. In addition, the Merger would have to comply with other
applicable procedural and substantive requirements of Delaware Law, including
any duties to other Shareholders imposed upon a controlling or, if applicable,
majority shareholder. Several recent decisions by the Delaware courts, which may
or may not apply to the Merger, have held that a controlling shareholder of a
company involved in a merger has a fiduciary duty to other Shareholders which
requires that the merger be "entirely fair" to such other Shareholders. In
determining whether a merger is fair to minority Shareholders, Delaware courts
have considered, among other things, the type and amount of the consideration to
be received by the Shareholders and whether there was fair dealing among the
parties.
The Company is incorporated under the laws of the State of Delaware, which
has adopted certain laws regarding business combinations. In general, Section
203 of Delaware Law prevents an "interested shareholder" (generally, a
shareholder owning 15% or more of a corporation's outstanding voting stock or an
affiliate or associate thereof) from engaging in a "business combination"
(defined to include a merger and certain other transactions) with a Delaware
corporation for a period of three years following the time that such shareholder
became an interested shareholder unless (i) prior to such time, the
corporation's board of directors approved either the business combination or the
transaction which resulted in such shareholder becoming an interested
shareholder; (ii) upon consummation of the transaction which resulted in such
shareholder becoming an interested shareholder, the interested shareholder owned
at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock plans
and persons who are directors and also officers of the corporation); or (iii) at
or subsequent to such time the business combination is approved by the
corporation's board of directors and
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authorized at an annual or special meeting of shareholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock not owned by the interested shareholder. The Board of Directors of the
Company has approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, for purposes of Section 203.
Accordingly, the restrictions of Section 203 do not apply to the transactions
contemplated by this Offer to Purchase.
Other Matters. Any merger or other similar business combination proposed by
HCC would also have to comply with any applicable Federal law. In particular,
the Commission has adopted Rule 13e-3 under the Exchange Act which is applicable
to certain "going private" transactions. HCC believes that Rule 13e-3 will not
be applicable to the Merger unless the Merger is consummated more than one year
after termination of the Offer or if an alternative merger transaction were to
provide for Shareholders to receive consideration for their Shares in an amount
less than the price per Share paid pursuant to the Offer. If applicable, Rule
13e-3 would require, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority Shareholders in
such a transaction be filed with the Commission and distributed to such
Shareholders prior to consummation of the transaction.
If for any reason the Merger is not consummated, HCC and Merger Subsidiary
will evaluate their alternatives. Such alternatives could include purchasing
additional Shares in the open market, in privately negotiated transactions, in
another tender or exchange offer or otherwise, or taking no further action to
acquire additional Shares. Any additional purchases of Shares could be at a
price greater or less than the price to be paid for Shares in the Offer and
could be for cash or other consideration. Alternatively, Merger Subsidiary may
sell or otherwise dispose of any or all Shares acquired pursuant to the Offer or
otherwise. Such transactions may be effected on terms and at prices then
determined by HCC or Merger Subsidiary, which may vary from the price to be paid
for Shares in the Offer.
HCC intends to conduct a review of the Company and its assets, corporate
structure, dividend policy, capitalization, operations, properties and policies
and to consider, subject to the terms of the Merger Agreement, what, if any,
changes would be desirable in light of the circumstances then existing, and
reserves the right to take such actions or effect such changes as it deems
desirable. Such changes could include changes in the Company's business,
operations, corporate structure, capitalization, Board of Directors, policies or
dividend policy.
12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATIONS;
REGISTRATION UNDER THE EXCHANGE ACT.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and may reduce the number of holders
of Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by Shareholders other than HCC or Merger Subsidiary. HCC
cannot predict whether the reduction in the number of Shares that might
otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the Offer price.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the standards for continued inclusion on the New York
Stock Exchange. If, as a result of the purchase of Shares pursuant to the Offer,
the Shares no longer meet the standards for continued inclusion on the New York
Stock Exchange, the market for the Shares could be adversely affected. According
to the New York Stock Exchange's published guidelines, the New York Stock
Exchange may delist the Shares if, among other things: (1) the number of total
shareholders falls below 400; (2) the number of total shareholders falls below
1,200 and the average monthly trading volume is less than 100,000 shares (for
the most recent 12 months); (3) the number of publicly held Shares (exclusive of
holdings of officers and directors of the Company and their immediate families
and other concentrated holdings of 10% or more ("Excluded Holdings")) should
fall below 600,000; or (4) the aggregate market value of such publicly held
shares (exclusive of Excluded Holdings) should fall below $8,000,000.
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The extent of the public market for the Shares and availability of
quotations therefor would, however, depend upon such factors as the number of
holders and/or the aggregate market value of the publicly-held Shares at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration of the Shares under
the Exchange Act and other factors.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of such Shares. Depending upon factors similar to those
described above regarding listing and market quotations, the Shares might no
longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application of the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
less than 300 holders of record. Termination of the registration of the Shares
under the Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Shares and to the Commission and would
make certain of the provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), the requirement of furnishing a
proxy or information statement in connection with shareholder action and the
related requirement of an annual report to Shareholders and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
no longer applicable to the Shares. Furthermore, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 or 144A promulgated
under the Securities Act of 1933, as amended. If registration of the Shares
under the Exchange Act were terminated, the Shares would no longer be "margin
securities" or eligible for New York Stock Exchange listing/reporting. Merger
Subsidiary intends to seek to cause the Company to terminate registration of the
Shares under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration of the Shares are met.
13. DIVIDENDS AND DISTRIBUTIONS.
If on or after the Execution Date, the Company should (notwithstanding the
fact that the following actions may be prohibited under the Merger Agreement)
(i) split, combine or otherwise change the Shares or its capitalization; (ii)
acquire or otherwise cause a reduction in the number of outstanding Shares; or
(iii) issue or sell any additional Shares (other than Shares issued pursuant to
and in accordance with the terms in effect on the Execution Date of employee
stock options outstanding prior to such date and convertible securities (if any)
outstanding prior to such date), shares of any other class or series of capital
stock, other voting securities or any securities convertible into, or options,
rights, or warrants, conditional or otherwise, to acquire, any of the foregoing,
then, without prejudice to Merger Subsidiary's rights under Section 15 hereof,
Merger Subsidiary may, in its sole discretion, make such adjustments in the
purchase price and other terms of the Offer as it deems appropriate including
the number or type of securities to be purchased.
If, on or after the Execution Date, the Company should (notwithstanding the
fact that the following actions are prohibited under the Merger Agreement)
declare or pay any dividend on the Shares or any distribution with respect to
the Shares (including the issuance of additional Shares or other securities or
rights to purchase of any securities) that is payable or distributable to the
Shareholders of record on a date prior to the transfer to the name of Merger
Subsidiary or its nominee or transferee on the Company's stock transfer records
of the Shares purchased pursuant to the Offer, then, without prejudice to Merger
Subsidiary's rights under Section 15 hereof, (i) the purchase price per Share
payable by Merger Subsidiary pursuant to the Offer may be reduced to the extent
of any such cash dividend or distribution; and (ii) the whole of any such non-
cash dividend or distribution to be received by the tendering Shareholders will
(a) be received and held by the tendering Shareholders for the account of Merger
Subsidiary and will be required to be promptly remitted and transferred by each
tendering Shareholder to the Depositary for the account of Merger Subsidiary,
accompanied by appropriate documentation of transfer, or (b) at the direction of
Merger Subsidiary, be exercised for the benefit of Merger Subsidiary, in which
case the proceeds of such exercise will promptly be remitted to Merger
Subsidiary. Pending such remittance and subject to applicable law, Merger
Subsidiary will be entitled to all rights and privileges as owner of any such
non-cash dividend or distribution or proceeds
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thereof and may withhold the entire purchase price or deduct from the purchase
price the amount or value thereof, as determined by Merger Subsidiary in its
sole discretion.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT.
The Merger Agreement provides that HCC and Merger Subsidiary reserve the
right to waive the conditions to the Offer and to make any change in the terms
or conditions of the Offer; provided, however, that, without the written consent
of the Company, no change may be made which (i) except as provided in the next
sentence, extends the Offer; (ii) changes the form of consideration to be paid
for the Shares, (iii) decreases the price per Share or the number of Shares
sought in the Offer, (iv) imposes conditions to the Offer in addition to those
set forth in Annex I to the Merger Agreement, (v) changes or waives the Minimum
Condition, or (vi) makes any other change to any condition to the Offer set
forth in Annex I to the Merger Agreement which is materially adverse to the
holders of Shares. Notwithstanding the foregoing, the Merger Agreement provides
that without the consent of the Company, Merger Subsidiary may (i) extend the
Offer Period until all of the conditions to the Merger Subsidiary's obligation
to purchase Shares shall be satisfied or waived, including, without limitation,
any period required (A) by any rule, regulation, interpretation, or position of
the Commission or the staff thereof applicable to the Offer; or (B) pursuant to
the HSR Act, or (C) to obtain necessary approval of each state insurance
regulatory agency required for consummation of the Offer, (ii) extend the Offer
Period for a period of not more than ten Business Days beyond the expiration
thereof, as such may be extended pursuant to clause (i) of this sentence, (iii)
extend the Offer Period for an additional period of not more than ten Business
Days beyond that permitted by clauses (i) and (ii) of this sentence if on the
date of such extension, less than 90% of the Fully Diluted Shares have been
validly tendered and not properly withdrawn pursuant to the Offer, and (iv)
extend the Offer for any reason for a period of not more than five Business Days
beyond the latest Expiration Date that would be otherwise permitted under
clauses (i), (ii), or (iii) of this sentence. Subject to the terms of the Offer
and the Merger Agreement and the satisfaction (or waiver to the extent permitted
by this Agreement) of the conditions of the Offer, Merger Subsidiary shall
accept for payment all Shares validly tendered and not withdrawn pursuant to the
Offer as soon as practicable after the applicable expiration of the Offer.
If Merger Subsidiary shall decide, in its sole discretion, subject to the
terms of the Merger Agreement, to increase the consideration to be paid for
Shares pursuant to the Offer and the Offer is scheduled to expire at any time
before the expiration of a period of ten Business Days from, and including, the
date that notice of such increase is first published, sent or given in the
manner specified below, the Offer will be extended until the expiration of such
period of ten Business Days. If Merger Subsidiary makes a material change in the
terms of the Offer (other than a change in price or percentage of securities
sought) or in the information concerning the Offer, or waives a material
condition of the Offer, Merger Subsidiary will extend the Offer, if required by
applicable law, for a period sufficient to allow Shareholders to consider the
amended terms of the Offer.
Merger Subsidiary also reserves the right, in its sole discretion, subject
to the terms of the Merger Agreement, in the event any of the conditions
specified in Section 15 hereof shall not have been satisfied and so long as
Shares have not theretofore been accepted for payment, to delay (except as
otherwise required by applicable law and the rules of the Commission including
Rule 14e-1) acceptance for payment of or payment for Shares or to terminate the
Offer and not accept for payment or pay for Shares.
If Merger Subsidiary extends the period of time during which the Offer is
open, is delayed in accepting for payment or paying for Shares or is unable to
accept for payment or pay for Shares pursuant to the Offer for any reason, then,
without prejudice to Merger Subsidiary's rights under the Offer, the Depositary
may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares
may not be withdrawn except as otherwise provided in Section 4 hereof. The
reservation by Merger Subsidiary of the right to delay acceptance for payment of
or payment for Shares is subject to applicable law, which requires that Merger
Subsidiary pay the consideration offered or return the Shares deposited by or on
behalf of the Shareholders promptly after the termination or withdrawal of the
Offer.
Any extension, termination or amendment of the Offer will be followed as
promptly as practicable by a public announcement thereof. In the case of an
extension of the Offer, Merger Subsidiary will make a public announcement of
such extension no later than 9:00 a.m., New York City time, on the next Business
Day after the previously scheduled Expiration Date. Without limiting the manner
in which Merger Subsidiary may
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choose to make any public announcement, Merger Subsidiary will have no
obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
15. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, HCC and Merger Subsidiary
shall not be required to accept for payment or (subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) under the Exchange
Act (relating to Merger Subsidiary's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer)) pay for any Shares,
and may terminate the Offer, if (i) by the expiration of the Offer (as permitted
to be extended), the Minimum Condition shall not have been satisfied; or (ii) by
the expiration of the Offer (as permitted to be extended), the applicable
waiting period under the HSR Act shall not have expired or terminated; or (iii)
by the expiration of the Offer (as permitted to be extended), all regulatory
approvals of Governmental Entities shall not have been received; or (iv) at any
time on or after October 11, 1999, and prior to the acceptance for payment of
Shares pursuant to the Offer, any of the following conditions exist:
(a) there shall be instituted or pending any action or proceeding by
any Governmental Entity or by any other person, domestic or foreign, before
any Governmental Entity or arbitrator, (i) challenging or seeking to make
illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of
or payment for some of or all the Shares by HCC or Merger Subsidiary or the
consummation by HCC or Merger Subsidiary of the Merger, seeking to obtain
material damages or otherwise directly or indirectly relating to the
transactions contemplated by the Shareholder Option Agreement, the Stock
Option Agreement, the Merger Agreement, the Offer or the Merger; (ii)
seeking to restrain or prohibit HCC's or Merger Subsidiary's ownership or
operation (or that of their respective subsidiaries or affiliates) of all
or any material portion of the business or assets of the Company or any of
its subsidiaries or of HCC and its subsidiaries or to compel HCC or any of
its subsidiaries or affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company or any of its
subsidiaries or of HCC and its subsidiaries; (iii) seeking to impose
material limitations on the ability of HCC or any of its subsidiaries or
affiliates effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or
owned by HCC or any of its subsidiaries or affiliates on all matters
properly presented to the Company's Shareholders; (iv) seeking to require
divestiture by HCC or any of its subsidiaries or affiliates of any Shares;
or (v) that otherwise, in the reasonable judgment of HCC, is likely to
materially adversely affect the business, assets, liabilities, operations,
condition (financial or otherwise), results of operations or prospects of
the Company or any of its subsidiaries, or HCC and its subsidiaries, taken
as a whole; or
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Shareholder Option Agreement, the Stock
Option Agreement, the Merger Agreement, the Offer or the Merger, by any
Governmental Entity or arbitrator (other than the application of the
waiting period provisions of the HSR Act to the Shareholder Option
Agreement, the Stock Option Agreement, the Merger Agreement, the Offer or
the Merger), that, in the reasonable judgment of HCC, is substantially
likely, directly or indirectly, to result in any of the consequences
referred to in clauses (i) through (v) of paragraph (a) above; or
(c) any change (other than changes requested by, or done at the
discretion or with the consent of HCC) shall have occurred or been
threatened (or any development shall have occurred or been threatened
involving a prospective change) in the business, assets, liabilities,
financial condition, capitalization, operations, results of operations or
prospects of the Company and its subsidiaries that, has or is likely to
have a Material Adverse Effect, as defined herein, on the Company and its
subsidiaries taken as a whole; or
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange;
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States; (iii) any material limitation
(whether or not mandatory) by any Governmental Entity on the extension of
credit by banks or other lending
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<PAGE> 34
institutions; (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the
United States which would reasonably be expected to have a Material Adverse
Effect or prevent (or materially delay) the consummation of the Offer; or
(v) in the case of any of the foregoing existing at the time of
commencement of the Offer, a material acceleration or worsening thereof; or
(e) a tender or exchange offer for some or all of the Shares shall
have been made by another person, or it shall have been publicly disclosed
or HCC shall have otherwise learned that (i) any person or "group" (defined
in Section 13(d)(3) of the Exchange Act) (other than HCC or any of its
affiliates) shall have acquired or made an offer to acquire beneficial
ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of
more than 20% of the outstanding Shares through the acquisition of stock,
the formation of a group or otherwise, or shall have been granted any
option, right or warrant, conditional or otherwise, to acquire beneficial
ownership of more than 20% of the outstanding Shares; or
(f) any Consent (other than the filing of the certificate of merger or
approval by the Shareholders of the Company of the Merger (if required by
Delaware Law)) required to be filed, occurred or been obtained by the
Company or any of its subsidiaries or HCC or any of its subsidiaries
(including Merger Subsidiary) in connection with the execution and delivery
of the Merger Agreement, the Offer and the consummation of the transactions
contemplated by the Merger Agreement shall not have been filed, occurred or
been obtained (other than any such Consents as to which the failure to
file, occur or obtain in the aggregate, could not reasonably be expected to
(i) have a Material Adverse Effect; or (ii) prevent or materially delay the
consummation of the Offer or the Merger); or
(g) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements under the Merger
Agreement, or any of the representations and warranties of the Company set
forth in the Merger Agreement that are qualified as to materiality shall
not be true when made or at any time prior to the consummation of the Offer
as if made at and as of such time or any of the representations and
warranties set forth in the Merger Agreement that are not so qualified
shall not be true in any material respect when made or at any time prior to
consummation of the Offer as if made at and as of such time; or
(h) any party to the Shareholder Option Agreement (other than Merger
Subsidiary or HCC) shall have breached or failed to perform in any material
respect any of their agreements under the Shareholder Option Agreement or
any of the representations and warranties of any such party set forth in
the Shareholder Option Agreement shall not be true in any material respect,
in each case, when made or at any time prior to the consummation of the
Offer as if made at and as of such time, or the Shareholder Option
Agreement shall have been invalidated or terminated with respect to any
Shares subject thereto; or
(i) the Merger Agreement or the Shareholder Option Agreement shall
have been terminated in accordance with its terms; or
(j) the Board of Directors of the Company (or any special committee
thereof) shall have withdrawn or materially modified in a manner adverse to
HCC or Merger Subsidiary its approval or recommendation of the Offer, the
Merger or the Merger Agreement or its approval of the entry by HCC and
Merger Subsidiary into the Shareholder Option Agreement; or
(k) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or agreement in
principle with respect to any Acquisition Proposal;
As used herein "Material Adverse Effect" means with respect to the Company,
any change in, or effect on, the Company or the business of the Company; in each
case including its subsidiaries taken as a whole, which is, or which is
reasonably likely to be, materially adverse to the business, operations, assets,
liabilities, results of operations, condition (financial or otherwise),
prospects, insurance licenses or other material permits of the Company or its
subsidiaries or which will, or is reasonably likely to, prevent or materially
delay, the
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transactions contemplated by this Agreement, provided, however, (i) that any
effect on the Company or the business of the Company which is due to, arises
from, or relates to any action taken by the Company or its subsidiaries after
the date of this Agreement at the request of or done at the direction or with
the consent of the HCC shall not be considered to have a Material Adverse Effect
for any purpose under this Agreement and (ii) provided, further, that a Material
Adverse Effect on the Company shall not be deemed to have occurred as a result
of (w) the Company establishing additional reserves and taking other charges at
September 30, 1999 in the amount of $13.5 million; (x) the Company's independent
actuarial review of the Company's reserves and all other aspects of the
Company's business, as contemplated by Section 5.8 of the Merger Agreement, and
the establishment of appropriate reserve adjustments and other charges
(collectively the "Charges") so long as the Charges do not exceed $17 million in
the aggregate (there being no presumption that the establishment of reserves or
charges in excess of $17 million either will or will not have a Material Adverse
Effect); (y) any change (including changes in the market value of invested
assets) in general economic conditions affecting the insurance business or their
holding companies generally; or (z) the termination of the Management Agreements
between the Company and The Continental Insurance Company as a result of a
change of control.
"Material Adverse Effect" with respect to the HCC, means any change in, or
effect on, the HCC which is, or which is reasonably likely to be, materially
adverse to the HCC's operations, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects, on a consolidated basis, or
which will prevent or materially delay the transactions contemplated by this
Agreement.
The foregoing conditions are for the sole benefit of HCC and Merger
Subsidiary and may be asserted by HCC in its sole discretion regardless of the
circumstances giving rise to any such condition or (other than the Minimum
Condition) may be waived by HCC and Merger Subsidiary in their discretion in
whole at any time or in part from time to time. The failure by HCC or Merger
Subsidiary at any time to exercise its rights under any of the foregoing
conditions 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 which may be asserted at any time or from
time to time.
Notwithstanding anything to the contrary set forth in the Offer, in
response to any condition to the Offer not being satisfied, Merger Subsidiary
may not upon expiration of the Offer (and without extending the period of time
for which the Offer is open) delay acceptance for payment or payment for Shares
until such time as such condition is satisfied or waived; provided, however,
that subject to the applicable regulations of the Commission, Merger Subsidiary
reserves the right (subject to the terms of the Merger Agreement), at any time
and from time to time, to delay acceptance for payment of, or, regardless of
whether such Shares were theretofore accepted for payment, pay for, any Shares
in order to comply with applicable law.
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
General. Except as set forth in this Section 16, based on its examination
of publicly available information filed by the Company with the Commission and
other publicly available information concerning the Company, Merger Subsidiary
is not aware of any license or regulatory permit that appears to be material to
the Company's business that might be adversely affected by Merger Subsidiary's
acquisition of Shares as contemplated herein or of any approval or other action
by any government or governmental authority or agency, domestic or foreign, that
would be required for the acquisition or ownership of Shares by Merger
Subsidiary or HCC as contemplated herein. Should any such approval or other
action be required, it is currently contemplated that, except as described below
under "State Takeover Statutes", such approval or other action will be sought.
Except as described under "Antitrust" and "Insurance Regulatory Approvals",
below, however, there is no current intent to delay the purchase of Shares
tendered pursuant to the Offer pending the outcome of any such matter. There can
be no assurance that any such approval or other action, if needed, would be
obtained or would be obtained without substantial conditions or that if such
approvals were not obtained or such other actions were not taken adverse
consequences might not result to the Company's business or certain parts of the
Company's business might not have to be disposed of, any of which could cause
Merger Subsidiary to elect to terminate the Offer without the purchase of Shares
thereunder. Merger
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<PAGE> 36
Subsidiary's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions. See Section 15 hereof.
State Takeover Statutes. A number of states have adopted laws which, to
varying degrees, seek to regulate attempts to acquire corporations that are
incorporated in, or have substantial connections with, the state. The Company,
directly or through subsidiaries, conducts business in a number of states
throughout the United States, some of which have enacted such laws. Based on
publicly available information concerning the Company, HCC does not believe that
any of these laws will, by their terms, apply to the Offer or the Merger.
In addition, the constitutional validity of state statutes regulating
acquisition attempts has been the subject of considerable litigation. In its
1982 decision in Edgar v. MITE Corp., the Supreme Court of the United States
invalidated an Illinois law that, among other things, gave Illinois officials
authority to block a tender offer for any corporation having certain defined
connections with the state. In 1987, however, the Supreme Court upheld an
Indiana law that prevented acquirors of a controlling stake in certain Indiana
corporations from voting the acquired shares until the other Shareholders had
approved the acquisition. The Court distinguished between state statutes that
affect acquisitions of entities incorporated outside the state and those that
address the internal governance, including the scope and exercise of shareholder
voting rights, of in-state corporations. While the lower federal courts have
relied on a similar distinction in subsequent cases, the precise extent to which
an individual state may regulate acquisitions of out-of-state corporations
remains unclear.
If any government official or third party should seek to apply any state
takeover law to the Offer or the Merger, HCC will take such action as then
appears desirable, which action may include challenging the applicability or
validity of such statute in appropriate court proceedings. In the event it is
asserted that one or more state takeover statutes is applicable to the Offer or
the Merger and an appropriate court does not determine that it is inapplicable
or invalid as applied to the Offer or the Merger, HCC or Merger Subsidiary might
be required to file certain information with, or to receive approvals from, the
relevant state authorities or holders of Shares, and Merger Subsidiary might be
unable to accept for payment or pay for Shares tendered pursuant to the Offer,
or be delayed in continuing or consummating the Offer or the Merger. In such
case, Merger Subsidiary may not be obligated to accept for payment or pay for
any tendered Shares. See Section 15.
Antitrust. The Offer and the Merger are subject to the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied.
Pursuant to the requirements of the HSR Act, HCC and Merger Subsidiary
expect to file their Notification and Report Forms with respect to the Offer and
Merger with the DOJ and the FTC on or about October 18, 1999. As a result,
assuming such filings are made on October 18, 1999, the waiting period under the
HSR Act with respect to the Offer is scheduled to expire at 11:59 p.m., New York
City time, on November 1, 1999, (fifteen calendar days after such filings are
made), unless early termination of the waiting period is granted. However, the
DOJ or the FTC may extend the waiting period by requesting additional
information or documentary material from HCC or the Company. If such a request
is made, such waiting period will expire at 11:59 p.m., New York City time, on
the tenth day after substantial compliance by HCC and the Company with such
request.
Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of HCC. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the DOJ or the FTC raises
substantive issues in connection with a proposed transaction, the parties
frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Merger
Subsidiary will not accept for payment Shares tendered pursuant to the Offer
unless and until the waiting period requirements imposed by the HSR Act with
respect to the Offer have been satisfied. See Section 15 hereof.
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The FTC and DOJ frequently scrutinize the legality under the Antitrust Laws
(as defined below) of transactions such as Merger Subsidiary's acquisition of
Shares pursuant to the Offer and the Merger. At any time before or after Merger
Subsidiary's acquisition of Shares, the DOJ or the FTC could take such action
under the Antitrust Laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or otherwise seeking divestiture of Shares acquired by Merger Subsidiary
or divestiture of substantial assets of Merger Subsidiary or its subsidiaries.
Private parties, as well as state governments, may also bring legal action under
the Antitrust Laws under certain circumstances. Based upon an examination of
information provided by the Company relating to the businesses in which HCC and
the Company are engaged, Merger Subsidiary and HCC believe that the acquisition
of Shares by Merger Subsidiary will not violate the Antitrust Laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Shares by Merger Subsidiary on antitrust grounds will not be made
or, if such a challenge is made, of the result. See Section 15 hereof for
certain conditions to the Offer, including conditions with respect to litigation
and certain government actions.
Insurance Regulatory Approvals. The insurance holding company acts adopted
in various states generally provide that no person may acquire "control" of an
"insurer" domiciled in that state unless the change of control is first approved
by the insurance regulatory authority in that state. "Control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management or policies of a person, whether by the ownership of voting
securities, or through management contracts. "Control" is generally presumed to
exist if, after the acquisition, the acquiring person will own, with power to
vote, directly or indirectly, ten percent or more of the voting securities of an
insurer. An insurance "holding company" is any person who directly or indirectly
controls an insurer; a "controlled insurer" is an insurer controlled directly or
indirectly by a holding company.
HCC is an insurance holding company that controls insurers domiciled in
Texas. The Company is an insurance holding company that controls insurers
domiciled in Indiana and Pennsylvania. The Merger will constitute a change in
"control" of the controlled insurers that are part of the Company's holding
company system. Therefore, before the Merger may be consummated, HCC and the
Company will have to obtain the approval of the change of control of the
controlled insurers from the insurance regulatory authorities in Indiana,
Pennsylvania and Texas. Approval is obtained by filing an information statement
with the insurance regulatory authorities in each state, which includes
information about the proposed transaction by which control is intended to be
acquired; financial information about the acquiring person; the background,
experience and reputation of the management of the acquiring person; and the
plans the acquiring person has for the controlled insurers being acquired.
Some state insurance holding company acts also require pre-acquisition
notification of the acquisition of insurers which, while not domiciled in such
states, are authorized to do business in such states. The acquisition cannot be
completed until the expiration of a 30-day waiting period, unless terminated
earlier by the insurance regulatory authority in such state. The pre-acquisition
notification is required to contain market share information demonstrating the
competitive impact of the acquisition of control on the insurance markets in
such state. There are a number of exemptions from the pre-acquisition
notification requirement if the acquisition would not result in an increase in
market share in any lines of business. Because the insurers controlled by the
Company and those controlled by HCC do not directly compete in any lines of
business in the United States, it would not appear that the filing of
pre-acquisition notifications will be required. Merger Subsidiary will not
accept for payment Shares tendered pursuant to the Offer unless and until all
required approvals deemed material to the Merger have been obtained.
Margin Credit Regulations. Federal Reserve Board Regulations T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or maintaining margin stock, if the credit is
secured directly or indirectly thereby. The borrowings under the Facility will
not be directly secured by a pledge of the Shares. In addition, HCC and Merger
Subsidiary believe that such borrowings will not be "indirectly secured" within
the meaning of the Margin Credit Regulations, as interpreted. Accordingly, HCC
and Merger Subsidiary believe that the Margin Credit Regulations are not
applicable to the borrowings under the Facility.
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17. FEES AND EXPENSES.
Salomon Smith Barney Inc. ("Salomon Smith Barney") is acting as Dealer
Manager for the Offer and as financial advisor to HCC in connection with HCC's
proposed acquisition of the Company, for which services Salomon Smith Barney
will receive customary compensation. HCC also has agreed to reimburse Salomon
Smith Barney for reasonable travel and other reasonable out-of-pocket expenses,
including reasonable fees and expenses of its legal counsel, and to indemnify
Salomon Smith Barney and certain related parties against certain liabilities,
including liabilities under the federal securities laws, arising out of its
engagement. In the ordinary course of business, Salomon Smith Barney and its
affiliates may actively trade or hold the securities of HCC and the Company for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in such securities.
Merger Subsidiary has retained D.F. King & Co., Inc., to act as the
Information Agent and Harris Trust Company of New York to act as the Depositary
in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telex, telegraph and personal interviews and may
request brokers, dealers and other nominee Shareholders to forward materials
relating to the Offer to beneficial owners. The Information Agent and the
Depositary each will receive reasonable and customary compensation for their
respective services, will be reimbursed for certain reasonable out-of-pocket
expenses and will be indemnified against certain liabilities in connection
therewith, including certain liabilities under the federal securities laws.
Merger Subsidiary will not pay any fees or commissions to any broker or
dealer or any other person (other than the Information Agent and the Depositary)
for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by Merger
Subsidiary for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
18. MISCELLANEOUS.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares in any jurisdiction in which the making of the
Offer or acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, Merger Subsidiary may, in its discretion, take such
action as it may deem necessary to make the Offer in any such jurisdiction and
extend the Offer to holders of Shares in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF MERGER SUBSIDIARY NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Merger Subsidiary has filed with the Commission a Tender Offer Statement on
Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of the General
Rules and Regulations under the Exchange Act, furnishing certain additional
information with respect to the Offer. The Schedule 14D-1 and any amendments
thereto, including exhibits, may be examined and copies may be obtained from the
offices of the Commission in the manner set forth with respect to the Company in
Section 7 of this Offer to Purchase (except that such information will not be
available at the regional offices of the Commission).
MERGER SUB OF DELAWARE, INC.
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SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF HCC AND MERGER SUBSIDIARY
1. DIRECTORS AND EXECUTIVE OFFICERS OF HCC.
The following table sets forth the name, age, business address and present
principal occupation or employment, and material occupations, positions, offices
or employments for the past five years of each director and executive officer of
HCC. Each such person is a citizen of the United States of America. Unless
otherwise indicated below, the business address of each person is c/o HCC
Insurance Holdings, Inc., 13403 Northwest Freeway, Houston, Texas 77040-6094.
Unless otherwise indicated, each occupation set forth opposite an individual's
name refers to employment with HCC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND BUSINESS ADDRESS AGE MATERIAL POSITIONS HELD DURING PAST FIVE YEARS
- ------------------------- --- ----------------------------------------------
<S> <C> <C>
Stephen L. Way....................... 50 Chairman of the Board and Chief Executive Officer of
HCC since its organization in 1974. Mr. Way was
President from HCC's founding until May, 1996. Mr. Way
is a director of Fresh Del Monte Produce, Inc. and a
director of Bradstock Group plc.
James M. Berry....................... 69 Director of HCC since March, 1992. Mr. Berry is the
retired Vice Chairman of NationsBank of Texas, N.A., a
subsidiary of NationsBank, N.A. (now BankAmerica
Corp.). Mr. Berry has been the Executive
Vice-President, Finance of Belk, Inc. since May, 1995.
Mr. Berry also serves as a director of Williams-
Sonoma, Inc.
Frank J. Bramanti.................... 43 Director and Executive Vice President of HCC since
1982. Mr. Bramanti served as interim President from
June, 1997 to November, 1997.
Marvin P. Bush....................... 42 Director of HCC since May, 1999. Mr. Bush is the
President of Winston Capital Management, LLC and serves
on the Board of Directors of Fresh Del Monte Produce,
Inc. Mr. Bush is also a member of the Board of Trustees
for the George Bush Presidential Library and recently
served on the Board of Managers at the University of
Virginia.
Patrick B. Collins................... 70 Director of HCC since December, 1993. Mr. Collins is a
retired partner of the international accounting firm of
PricewaterhouseCoopers LLP, where he held that position
from 1967 through 1991. Mr. Collins also serves as a
director of Transcoastal Marine Services, Inc.
James R. Crane....................... 45 Director of HCC since May, 1999. Mr. Crane is the Chief
Executive Officer, President and Chairman of the Board
of Directors of Eagle, USA AirFreight, Inc., the
company he founded in 1984.
J. Robert Dickerson.................. 57 Mr. Dickerson is an attorney and has served as a
Director of HCC since 1981.
Edwin H. Frank, III.................. 50 Director of HCC since May, 1993. Mr. Frank is Chairman
of File Control.Com. He was formerly the President of
Underwriters Indemnity Holdings, Inc., a subsidiary of
RLI Corporation, having served in such capacity from
1985 until 1999.
</TABLE>
I-1
<PAGE> 40
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND BUSINESS ADDRESS AGE MATERIAL POSITIONS HELD DURING PAST FIVE YEARS
- ------------------------- --- ----------------------------------------------
<S> <C> <C>
Allan W. Fulkerson................... 66 Director of HCC since May, 1997. Mr. Fulkerson is the
President and director of Century Capital Management,
Inc. and the President and a director of Massachusetts
Fiduciary Advisors, Inc. and serves as Chairman and
Trustee of Century Shares Trust. Mr. Fulkerson is also
a director of Mutual Risk Management, Ltd., Terra Nova
(Bermuda) Holdings, Ltd. and Wellington Underwriting
plc.
Walter J. Lack....................... 51 Director of HCC since 1981. Mr. Lack is an attorney and
a shareholder in the law firm of Engstrom, Lipscomb &
Lack, A Professional Corporation, in Los Angeles,
California. Mr. Lack also serves as a director of
Microvision, Inc.
Stephen J. Lockwood.................. 52 Director of HCC since 1981. Vice Chairman of the Board
of Directors and Chief Executive Officer of the HCC's
subsidiary LDG Reinsurance Corporation since 1988. Mr.
Lockwood also serves as a director of four mutual funds
managed by The Dreyfus Corporation, a subsidiary of
Mellon Bank Corporation.
John N. Molbeck, Jr. ................ 52 President and Director of HCC since November, 1997.
Prior to joining HCC, Mr. Molbeck was the Managing
Director of Aon Natural Resources Group, a subsidiary
of Aon Corporation and served as the President and
Chief Operating Officer of Energy Insurance
International, Inc.
Edward H. Ellis, Jr. ................ 56 Senior Vice President and Chief Financial Officer of
HCC since October, 1997. Prior to joining HCC, Mr.
Ellis served as a partner with the international
accounting firm of PricewaterhouseCoopers LLP from
November, 1988 to September, 1997.
Benjamin D. Wilcox................... 55 Mr. Wilcox joined HCC in December, 1998 and currently
serves as the President and Chief Executive Officer of
HCC's subsidiary, Houston Casualty Company, and its
subsidiary, U.S. Specialty Insurance Company. Mr.
Wilcox is also the Chairman of the Board of Directors
of HCC's subsidiary, Avemco Insurance Company. Prior to
joining HCC, Mr. Wilcox served as a Senior Vice
President of Aon Risk Services, Inc., a subsidiary of
Aon Corporation.
</TABLE>
I-2
<PAGE> 41
2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUBSIDIARY.
The following table sets forth the name, age, business address and present
principal occupation or employment, and material occupations, positions, offices
or employments for the past five years of each director and executive officer of
Merger Subsidiary. Each such person is a citizen of the United States of
America. Unless otherwise indicated below, the business address of each person
is c/o Merger Subsidiary 13403 Northwest Freeway, Houston, Texas 77040-6094.
Unless otherwise indicated, each occupation set forth opposite an individual's
name refers to employment with HCC. For information concerning the occupations
of the persons listed below, see "-- Directors and Executive Officers of HCC"
above.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AND BUSINESS ADDRESS AGE POSITIONS HELD DURING PAST FIVE YEARS
- ------------------------- --- ----------------------------------------------------
<S> <C> <C>
Stephen L. Way............................ 50 Chairman of the Board of Directors and Chief
Executive Officer of Merger Subsidiary since October
1999.
John N. Molbeck, Jr. ..................... 52 Director and President of Merger Subsidiary since
August, 1998.
Frank J. Bramanti......................... 43 Executive Vice President of Merger Subsidiary since
August, 1998 and Director of Merger Subsidiary since
September, 1999.
Edward H. Ellis, Jr. ..................... 56 Director and Senior Vice President of Merger
Subsidiary since August, 1998.
Christopher L. Martin..................... 32 Vice President and Corporate Secretary of Merger
Subsidiary since August, 1998. Mr. Martin joined HCC
as a Vice President, Secretary and General Counsel
in July, 1997. Prior to joining HCC, Mr. Martin was
associated with the law firm of Winstead Sechrest &
Minick P.C. in Houston, Texas from August, 1992 to
June, 1997. Mr. Martin also serves as an officer of
various of the HCC subsidiaries.
</TABLE>
None of the executive officers and directors of HCC or Merger Subsidiary
currently is a director of, or holds any position with, the Company or any of
its subsidiaries. To the knowledge of HCC and Merger Subsidiary, none of HCC's
or Merger Subsidiary's directors, executive officers, affiliates or associates
beneficially owns any equity securities, or rights to acquire any equity
securities, of the Company and none has been involved in any transactions with
the Company or any of its directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the Commission.
I-3
<PAGE> 42
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, certificates for Shares and any other required documents should
be sent to the Depositary at one of the addresses set forth below:
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C> <C>
By Mail: By Hand: By Facsimile By Overnight Courier:
Wall Street Station Wall Street Plaza Transmission: Wall Street Plaza
P.O. Box 1010 88 Pine Street, (Eligible Institutions 88 Pine Street,
New York, New York 19th Floor Only) 19th Floor
10268-1010 New York, New York (212) 701-7636 New York, New York
10005 or 7637 10005
</TABLE>
For Information Call:
(212) 701-7624
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. Shareholders may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the Offer.
------------------------
The Information Agent for the Offer is:
D. F. KING & CO., INC.
77 Water Street
New York, NY 10005
Bank and Borrowers Call: (212) 269-5550
All Others Call Toll-Free: (800) 848-3094
------------------------
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10013
(212) 816-9807
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED OCTOBER 18, 1999
BY
MERGER SUB OF DELAWARE, INC.
A WHOLLY OWNED SUBSIDIARY OF
HCC INSURANCE HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand/Overnight Delivery: By Facsimile Transmission:
Wall Street Station Receive Window (Eligible Institutions Only)
P.O. Box 1010 Wall Street Plaza (212) 701-7636
New York, New York 88 Pine Street, 19th Floor
10268-1010 New York, New York 10005
</TABLE>
For Information Call Collect:
(212) 701-7624
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED
BELOW.
THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates representing
Shares (defined below) are to be forwarded with this Letter of Transmittal or,
unless an Agent's Message (defined in Section 2 of the Offer to Purchase) is
utilized, if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC" or the "Book-Entry
Transfer Facility") pursuant to the procedure set forth in Section 3 of the
Offer to Purchase.
Shareholders who cannot deliver certificates for their Shares or who cannot
deliver confirmation of the book-entry transfer of their Shares into the
Depositary's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter of Transmittal to
the Depositary by the Expiration Date (defined in Section 1 of the Offer to
Purchase) must
<PAGE> 2
tender their Shares pursuant to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Depositary.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARES TENDERED
ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL NUMBER OF
SHARES REPRESENTED TOTAL NUMBER
CERTIFICATE BY OF SHARES
NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by shareholders tendering by book-entry transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction
4.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY
DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution------------------------------------------------
Account Number --------------------------------------------------------------
Transaction Code Number -----------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Owner(s): -----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery: --------------------------
Name of Institution that Guaranteed Delivery: --------------------------------
If delivery is by book-entry transfer, give the following:
Account Number -----------------------------------------------------------
Transaction Code Number --------------------------------------------------
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Merger Sub of Delaware, Inc., a Delaware
corporation ("Merger Subsidiary"), and a wholly owned subsidiary of HCC
Insurance Holdings, Inc., a Delaware corporation ("HCC"), the above described
shares of Common Stock, par value $.01 per share (including the associated
Common Stock Purchase Rights) (the "Shares") of The Centris Group, Inc., a
Delaware corporation (the "Company"), pursuant to Merger Subsidiary's offer to
purchase all outstanding Shares at a price of $12.50 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated October 18, 1999 (the "Offer to Purchase"), receipt of
which is hereby acknowledged, and in this Letter of Transmittal (which, together
with any amendments or supplements thereto or hereto, collectively constitute
the "Offer"). Merger Subsidiary reserves the right to transfer or assign, in
whole or from time to time in part, to one or more of HCC or any of its wholly
owned subsidiaries the right to purchase Shares tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns, and transfers to, or upon the
order of, Merger Subsidiary all right, title and interest in and to all the
Shares that are being tendered hereby (and any and all other Shares or other
securities issued or issuable in respect thereof on or after October 18, 1999)
and irrevocably constitutes and appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares (and
all such other Shares or securities), with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Shares (and all such other
Shares or securities), or transfer ownership of such Shares (and all such other
Shares or securities) on the account books maintained by the Book-Entry Transfer
Facility, together, in either such case with all accompanying evidences of
transfer and authenticity, to or upon the order of Merger Subsidiary, (b)
present such Shares (and all such other Shares or securities) for transfer on
the books of the Company and (c) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares (and all such other Shares or
securities), all in accordance with the terms of the Offer.
If, on or after October 18, 1999, the Company should declare or pay any cash
or stock dividend or other distribution on or issue any rights with respect to
the Shares, payable or distributable to shareholders of record on a date before
the transfer to the name of Merger Subsidiary or its nominee or transferee on
the Company's stock transfer records of the Shares accepted for payment pursuant
to the Offer, then, subject to the provisions of the Offer to Purchase, (i) the
purchase price per Share payable by Merger Subsidiary pursuant to the Offer will
be reduced by the amount of any such cash dividend or cash distribution and (ii)
the whole of any such non-cash dividend, distribution or right will be received
and held by the tendering shareholder for the account of Merger Subsidiary and
shall be required to be promptly remitted and transferred by each tendering
shareholder to the Depositary for the account of Merger Subsidiary, accompanied
by appropriate documentation of transfer. Pending such remittance, Merger
Subsidiary will be entitled to all rights and privileges as owner of any such
non-cash dividend, distribution or right and may withhold the entire purchase
price or deduct from the purchase price the amount of value thereof, as
determined by Merger Subsidiary in its sole discretion.
The undersigned hereby irrevocably appoints STEPHEN L. WAY and FRANK J.
BRAMANTI, and each of them, and any other designees of Merger Subsidiary as the
attorneys and proxies of the undersigned, each with full power of substitution,
to exercise all voting and other rights of the undersigned in such manner, to
execute any written consent concerning any matter, and to otherwise act, as each
such attorney and proxy or its substitute shall in its sole discretion deem
proper with respect to, all of the Shares tendered hereby which have been
accepted for payment by Merger Subsidiary prior to the time of any vote or other
action (and any and all other Shares or other securities issued or issuable in
respect thereof on or after October 18, 1999), at any meeting of shareholders of
the Company (whether annual or special and whether or not an adjourned meeting),
by written consent or otherwise. This proxy is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Shares by Merger Subsidiary in accordance with the terms of the Offer. Such
acceptance for payment shall revoke any other proxy or written consent granted
by the undersigned at any time with respect to such Shares (and all such other
Shares or securities), and no subsequent proxies will be given or written
consents will be executed by the undersigned (and if given or executed, will not
be deemed to be effective). The undersigned acknowledges that in order for
Shares to be deemed validly tendered, immediately upon the acceptance for
payment of such Shares, Merger Subsidiary or Merger Subsidiary's designee must
be able to exercise full voting and other rights of a record and beneficial
holder with respect to such Shares.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all other Shares or other securities issued or issuable in
respect thereof on or after October 18, 1999), that the undersigned own(s) the
Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that such
tender of Shares complies with Rule 14e-4 under the Exchange Act, and that when
the same are accepted for payment by Merger Subsidiary, Merger Subsidiary will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or Merger Subsidiary to be necessary or desirable to
complete the sale, assignment and transfer of the Shares tendered hereby (and
all such other Shares or securities).
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors, assigns,
administrators, trustees in bankruptcy, personal and legal representatives of
the undersigned. Except as stated in the Offer, this tender is irrevocable,
provided that Shares tendered pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date or at any time on or after December 17, 1999,
unless theretofore accepted for payment.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and Merger Subsidiary upon the terms and subject to the conditions of the Offer.
The undersigned recognizes that under certain circumstances set forth in the
Offer to Purchase, Merger Subsidiary may not be required to accept for payment
any Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions", please
issue the check for the purchase price of any Shares purchased, and/or return
any certificates for Shares not tendered or not accepted for payment, in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered" (and, in the case of Shares tendered by book-entry transfer, by credit
to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise
indicated under "Special Delivery Instructions", please mail the check for the
purchase price of any Shares purchased and any certificates for Shares not
tendered or not accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing under
"Description of Shares Tendered" shown below the undersigned's signature(s). In
the event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the purchase price of
any Shares purchased and return any certificates for Shares not tendered or not
accepted for payment (and accompanying documents, as appropriate) in the name(s)
of, and mail said check and any certificates (and accompanying documents, as
appropriate) to, the person(s) so indicated. The undersigned recognizes that
Merger Subsidiary has no obligation, pursuant to the "Special Payment
Instructions", to transfer any Shares from the name of the registered holder(s)
thereof if Merger Subsidiary does not accept for payment any of the Shares so
tendered.
<PAGE> 4
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares purchased
or certificates for Shares not tendered or not purchased are to be issued in the
name of someone other than the undersigned.
Issue check and/or certificates to:
Name----------------------------------------------------------------------------
(Please Print)
Address-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
[ ] Credit Shares delivered by book-entry transfer and not purchased to the
account set forth above.
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check for the purchase price of Shares purchased
or certificates for Shares not tendered or not purchased are to be mailed to
someone other than the undersigned or to the undersigned at an address other
than that shown above.
Mail check and/or certificates to:
Name ---------------------------------------------------------------------------
(Please Print)
Address ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
<PAGE> 5
IMPORTANT
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
- --------------------------------------------------------------------------------
Dated: -------------------, 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 5.)
Name(s) ------------------------------------------------------------------------
(Please Print)
- --------------------------------------------------------------------------------
Capacity (full title) (See Instruction 5) --------------------------------------
Address ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No. ----------------------------------------------------
Tax Identification or Social Security No.: -------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature -----------------------------------------------------------
Name ---------------------------------------------------------------------------
Name of Firm -------------------------------------------------------------------
Address ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No. ----------------------------------------------------
- -------------------, 1999
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a bank, broker,
dealer, credit union, savings association or other entity that is a member of a
recognized Medallion Program approved by The Securities Transfer Association,
Inc. (an "Eligible Institution"). Signatures on this Letter of Transmittal need
not be guaranteed (a) if this Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Shares) tendered herewith and
such holder(s) have not completed the instruction entitled "Special Payment
Instructions" on this Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. In all other cases, all signatures
on this Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or, unless an
Agent's Message is utilized, if delivery of Shares is to be made by book-entry
transfer pursuant to the procedure set forth in Section 3 of the Offer to
Purchase. Certificates for all physically delivered Shares, or a Book-Entry
Confirmation of all Shares delivered electronically, as the case may be, as well
as a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) or, in connection with a book-entry transfer, an Agent's Message, and
any other documents required by this Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the front page of this
Letter of Transmittal by the Expiration Date. If a shareholder's certificate for
Shares is not immediately available or time will not permit all required
documents to reach the Depositary by the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, such shareholder's
Shares may nevertheless be tendered pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedure: (a) such tender must be made by or through an Eligible Institution,
(b) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by Merger Subsidiary must be received by the
Depositary by the Expiration Date and (c) the certificates for all physically
delivered Shares, or a Book-Entry Confirmation, as well as a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case
of a book-entry delivery, an Agent's Message) and any other documents required
by this Letter of Transmittal, must be received by the Depositary within three
New York Stock Exchange trading days after the date of execution of such Notice
of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF
THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal (or
facsimile thereof), the tendering shareholder waives any right to receive any
notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (not applicable to shareholders who tender by book-entry
transfer). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares which are to
be tendered in the box entitled "Number of Shares Tendered". In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the appropriate box on this Letter of Transmittal, as
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby is held of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the purchase price is to be made, or Shares not
tendered or not purchased are to be returned, in the name of any person other
than the registered holder(s). Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
Merger Subsidiary of the authority of such person so to act must be submitted.
<PAGE> 7
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, Merger
Subsidiary will pay any stock transfer taxes with respect to the sale and
transfer of purchased Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or Shares not tendered
or not purchased are to be registered in the name of, any person other than the
registered holder(s), or if tendered certificates are registered in the name of
any person other than the person(s) signing this Letter of Transmittal, the
amount of any stock transfer taxes (whether imposed on the registered holder(s),
such other person or otherwise) payable on account of the transfer to such
person will be deducted from the purchase price unless satisfactory evidence of
the payment of such taxes, or exemption therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. Special Payment and Delivery Instructions. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or not
purchased are to be returned, in the name of a person other than the person(s)
signing this Letter of Transmittal or if the check or any certificates for
Shares not tendered or not purchased are to be mailed to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed.
8. Waiver of Conditions. Subject to the terms of the Offer, Merger
Subsidiary reserves the absolute right in its sole discretion to waive any of
the specified conditions of the Offer (other than the Minimum Condition), in
whole or in part, in the case of any Shares tendered.
9. 31% Backup Withholding; Substitute Form W-9. Under U.S. Federal income
tax law, a shareholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such shareholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Depositary is
not provided with the correct TIN, the Internal Revenue Service may subject the
shareholder or other payee to a $50 penalty. In addition, payments that are made
to such shareholder or other payee with respect to Shares purchased pursuant to
the Offer may be subject to 31% backup withholding.
Certain shareholders (including among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the shareholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any such payments made to the shareholder or other payee. Backup withholding is
not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service, provided that the required information is given to the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
shareholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
shareholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified
Taxpayer Identification Number is provided to the Depositary. However, such
amounts will be refunded to such Shareholder if a Taxpayer Identification Number
is provided to the Depositary within 60 days.
The shareholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Offer to Purchase and this Letter of Transmittal may be
obtained from the Information Agent at its address or telephone number set forth
below. Questions may be directed to the Information Agent.
11. Lost, Destroyed or Stolen Certificates. If any certificate representing
Shares has been lost, destroyed or stolen, the shareholder should promptly
notify the Depositary. The shareholder will then be instructed as to the steps
that must be taken in order to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost or destroyed certificates have been followed.
12. Acceptance of Tendered Shares. Upon the terms and subject to the
conditions of the Offer, Merger Subsidiary will have accepted for payment (and
thereby purchased) Shares validly tendered and not withdrawn when, as and if
Merger Subsidiary gives oral or written notice to the Depositary of its
acceptance of the tenders of such Shares pursuant to the Offer.
13. Withdrawal Rights. Tendered Shares may be withdrawn only pursuant to the
procedure set forth in Section 4 of the Offer to Purchase.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF OR, IN THE
CASE OF A BOOK-ENTRY DELIVERY, AN AGENT'S MESSAGE (TOGETHER WITH CERTIFICATES
FOR, OR A BOOK-ENTRY CONFIRMATION WITH RESPECT TO, TENDERED SHARES WITH ANY
REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED
BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY, BY THE EXPIRATION DATE.
<PAGE> 8
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number or
BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number
FORM W-9 DATING BELOW. ----------------------------------------
-------------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, I certify that:
DEPARTMENT OF THE
TREASURY INTERNAL (1) The number shown on this form is my correct Taxpayer Identification Number
REVENUE SERVICE (or I am waiting for a number to be issued to me) and
PAYER'S REQUEST FOR (2) I am not subject to backup withholding because: (a) I am exempt from backup
TAXPAYER IDENTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service (the
NUMBER ("TIN") "IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding. Certification Instructions -- You must cross out
Item (2) above if you have been notified by the IRS that you are currently subject
to backup withholding because of under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out such Item (2).
- ---------------------------------------------------------------------------------------------------------------------------
PART 3
SIGNATURE ------------------------------------------------- DATE---------------------- , 1999
Awaiting TIN
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld, but that such amounts
will be refunded to me if I then provide a Taxpayer Identification Number within
sixty (60) days.
Signature ----------------------------------- Date -------------------- , 1999
<PAGE> 9
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand/Overnight Courier: By Facsimile Transmission:
Wall Street Station Receive Window (Eligible Institutions Only)
P.O. Box 1010 Wall Street Plaza (212) 701-7636
New York, New York 88 Pine Street, 19th Floor
10268-1010 New York, New York 10005
For Information Call Collect:
(212) 701-7624
</TABLE>
------------------------
The Information Agent for the Offer is:
D. F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll-Free: (800) 848-3094
------------------------
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10003
(212) 816-9807
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (defined below) if (i) certificates
representing shares of Common Stock, par value $.01 per share (including the
associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group,
Inc., a Delaware corporation (the "Company") are not immediately available, (ii)
the procedure for book-entry transfer cannot be completed on a timely basis or
(iii) time will not permit all required documents to reach Harris Trust Company
of New York (the "Depositary") prior to the expiration of the Offer. This Notice
of Guaranteed Delivery may be delivered by hand, facsimile transmission or mail
to the Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand/Overnight Delivery: By Facsimile Transmission:
Wall Street Station Receive Window (Eligible Institutions Only)
P.O. Box 1023 Wall Street Plaza (212) 701-7636
New York, New York 88 Pine Street, 19th Floor
10268-1023 New York, New York 10005
</TABLE>
For Information Telephone
(Call Collect):
(212) 701-7624
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION"
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE APPROPRIATE LETTER OF
TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Merger Sub of Delaware, Inc., a Delaware
corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC Insurance
Holdings, Inc., a Delaware corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 18, 1999 (the
"Offer to Purchase"), and the related Letter of Transmittal (which, together
with any supplements or amendments thereto, collectively constitute the
"Offer"), receipt of which is hereby acknowledged, the number of shares of
Common Stock, par value $.01 per share (including the associated Common Stock
Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware
corporation (the "Company") specified below, pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares and Certificate No(s) if available): Name(s) of Record Holder(s):
- ----------------------------------------------------- -----------------------------------------------------
(Please type or print)
Address(es): ----------------------------------------
-----------------------------------------------------
[ ] Check Here if Shares will be tendered by book (Zip Code)
entry transfer.
Area Code and Tel. No.: -----------------------------
(Daytime Telephone number)
Account Number: ------------------------------------ Signature(s): ---------------------------------------
Dated: -------------------------------------- , 1999 -----------------------------------------------------
</TABLE>
<PAGE> 3
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (defined in Section 3 of the Offer
to Purchase), hereby (i) represents that the tender of shares effected hereby
complies with Rule 14e-4 under the Securities Exchange Act of 1934, as amended
and (ii) guarantees delivery to the Depositary, at one of its addresses set
forth above, of certificates representing the Shares tendered hereby, in proper
form for transfer, or a confirmation of a book-entry transfer of such Shares
into the Depositary's account at the Book-Entry Transfer Facility (defined in
Section 3 of the Offer to Purchase), in either case together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) or, in
the case of a book-entry transfer, an Agent's Message (defined in Section 2 of
the Offer to Purchase), together with any other documents required by the Letter
of Transmittal, all within three New York Stock Exchange trading days after the
date hereof.
<TABLE>
<S> <C>
Name of Firm:---------------------------------- -------------------------------------------
(Authorized Signature)
Address:--------------------------------------- Name: -------------------------------------
(Please type or print)
- ----------------------------------------------- Title: ------------------------------------
(Zip Code)
Area Code and Tel. No.:------------------------ Date: ------------------------------ , 1999
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
AT
$12.50 NET PER SHARE
BY
MERGER SUB OF DELAWARE, INC.
A WHOLLY OWNED SUBSIDIARY OF
HCC INSURANCE HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
October 18, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Merger Sub of Delaware, Inc., a Delaware
corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC Insurance
Holdings, Inc., a Delaware corporation ("HCC"), to act as dealer manager in
connection with Merger Subsidiary's offer to purchase all outstanding shares of
Common Stock, par value $.01 per share (including the associated Common Stock
Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware
corporation (the "Company") at $12.50 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in Merger Subsidiary's Offer
to Purchase, dated October 18, 1999 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, together with any supplements or amendments
thereto, collectively constitute the "Offer").
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. Offer to Purchase dated October 18, 1999;
2. Letter of Transmittal for your use and for the information of your
clients. Facsimile copies of the Letter of Transmittal may be used to
tender Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (defined in Section 1 of the Offer to
Purchase) or if the procedure for book-entry transfer cannot be completed
by the Expiration Date;
4. A form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer;
<PAGE> 2
5. Letter to Shareholders from David L. Cargile, Chairman of the
Board, President and Chief Executive Officer of the Company, together with
a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to the
Shareholders of the Company;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 providing information relating to backup federal income
tax withholding; and
7. Return envelope addressed to Harris Trust Company of New York, the
Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, (i) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) or an Agent's Message
(defined in Section 2 of the Offer to Purchase) in connection with a book-entry
delivery of Shares, and all other required documents should be sent to the
Depositary, and (ii) either certificates representing the tendered Shares should
be delivered to the Depositary, or such Shares should be tendered by book-entry
transfer into the Depositary's account maintained at the Book-Entry Transfer
Facility (described in Section 3 of the Offer to Purchase), all in accordance
with the instructions set forth in the Letter of Transmittal and the Offer to
Purchase.
Merger Subsidiary will not pay any fees or commissions to any broker or
dealer or other person (other than the Information Agent as described in the
Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer.
Merger Subsidiary will, however, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding materials to their customers. Merger
Subsidiary will pay all stock transfer taxes applicable to its purchase of
Shares pursuant to the Offer, subject to Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
the Information Agent or the undersigned at the respective addresses and
telephone numbers set forth on the back cover of the Offer to Purchase.
Additional copies of the enclosed materials may be obtained from the Information
Agent.
Very truly yours,
SALOMON SMITH BARNEY, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON THE AGENT OF MERGER SUBSIDIARY, HCC, THE COMPANY, THE DEALER MANAGER,
THE INFORMATION AGENT OR THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THEM OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
at
$12.50 NET PER SHARE
BY
MERGER SUB OF DELAWARE, INC.
A WHOLLY OWNED SUBSIDIARY OF
HCC INSURANCE HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
October 18, 1999
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated October
18, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer") relating to an offer by Merger Sub of Delaware, Inc., a
Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC
Insurance Holdings, Inc., a Delaware corporation ("HCC"), to purchase all
outstanding shares of Common Stock, par value $.01 per share (including the
associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group,
Inc., a Delaware corporation (the "Company") at a purchase price of $12.50 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer. Holders of Shares whose certificates for such Shares are
not immediately available or who cannot deliver their certificates and all other
required documents to the Depositary, or complete the procedure for book-entry
transfer set forth in Section 3 of the Offer to Purchase, prior to the
Expiration Date (defined in Section 1 of the Offer to Purchase) must tender
their Shares according to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase.
WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. A TENDER OF
SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender price is $12.50 per Share, net to you in cash without
interest thereon, upon the terms and subject to the conditions set forth in
the Offer.
2. The Board of Directors of the Company has unanimously determined
that the Offer and the transactions contemplated by the Merger Agreement
(defined in the Introduction to the Offer to Purchase) are fair to, and in
the best interests of, the shareholders of the Company, has unanimously
<PAGE> 2
approved the Offer and the transactions contemplated by the Merger
Agreement, and unanimously recommends that the shareholders of the Company
accept the Offer and tender their Shares.
3. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on Tuesday, November 30, 1999, unless the Offer is extended. In
all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i)
certificates for such Shares (or a confirmation of a book-entry transfer of
such Shares as described in Section 2 of the Offer to Purchase), (ii) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) or an Agent's Message (defined in Section 2 of the Offer to
Purchase) in connection with a book-entry transfer and (iii) any other
documents required by the Letter of Transmittal.
4. The Offer is conditioned upon, among other things, there being
validly tendered by the Expiration Date and not withdrawn a number of
Shares which, together with the Shares then owned by Merger Subsidiary and
HCC, would represent at least a majority of the Fully Diluted Shares
(defined in the Introduction to the Offer to Purchase).
5. Merger Subsidiary will pay any stock transfer taxes applicable to
the sale of Shares to Merger Subsidiary pursuant to the Offer, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction form
on the detachable part hereof. An envelope to return your instructions to us is
enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise specified on the detachable part hereof. Your
instructions should be forwarded promptly to permit us to submit a tender on
your behalf by the expiration of the Offer. If you do not instruct us to tender
your Shares, they will not be tendered.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares in any jurisdiction in which the making of the
Offer or acceptance thereof would not be in compliance with the laws of such
jurisdiction.
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE
FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
BY
MERGER SUB OF DELAWARE, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated October 18, 1999, and the related Letter of
Transmittal, relating to the offer by Merger Sub of Delaware, Inc., a Delaware
corporation and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a
Delaware corporation, to purchase all outstanding shares of Common Stock, par
value $.01 per share (including the associated Common Stock Purchase Rights)
(the "Shares"), of The Centris Group, Inc., a Delaware corporation (the
"Company").
The undersigned instructs you to tender the number of Shares indicated
below held by you for the account of the undersigned, upon the terms and subject
to the conditions set forth in such Offer to Purchase and the related Letter of
Transmittal.
<TABLE>
<S> <C>
Dated: , 1999
------------------------------------------------------
(Signature)
----------------- ------------------------------------------------------
Number of Shares Please Print Name(s)
to be Tendered:
shares* ------------------------------------------------------
-----------------
Address: ---------------------------------------------
------------------------------------------------------
Include Zip Code
Area Code and
Telephone No.--------------- -------------------------
Taxpayer Identification
or Social Security No. -------------------------------
------------------------------------------------------
</TABLE>
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
- -- Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
GIVE THE GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF -- NUMBER OF --
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor
account) is the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designed ward, minor,
or incompetent person
7. a The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship The Owner(4)
account
9. A valid trust, estate, Legal entity (Do not furnish
or pension trust the identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
10. Corporate account The Corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received in not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file the Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
- -- Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
GIVE THE GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF -- NUMBER OF --
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor
account) is the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate, The legal entity (Do not
or pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name, and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name, and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 4
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
The Tax Identification Number ("TIN") provided in the Substitute Form W-9 should
be that of the tendering Stockholder even when such Stockholder has indicated in
Special Issuance Instructions in the Letter of Transmittal that a certificate
representing COGC Common Stock is to be issued in a name other than that in
which the certificate surrendered in exchange therefor is registered.
For a joint account, only the person whose TIN is furnished should sign the
Substitute Form W-9.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in (1)
through (13), and a person registered under the Investment Advisors Act of 1940
who regularly acts as a broker are exempt. Payments subject to reporting under
sections 6041 and 6041A are generally exempt from backup withholding only if
made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan (IRA), or a custodial account under 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A State, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct TIN to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and the regulations under such sections.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, give the payer a completed Form
W-8 Certificate of Foreign Status.
PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividend, interest, or other payments
to give taxpayer identification numbers to payers who must report the payments
to the IRS. The IRS uses the numbers for identification purposes. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (defined below). The Offer (defined below) is made solely
by the Offer to Purchase dated October 18, 1999, and the related Letter of
Transmittal and any amendments or supplements thereto, and is being made to all
holders of Shares. The Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction. In any jurisdiction where the securities, blue sky or
other laws require that the Offer be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Merger Subsidiary (defined below)
by Salomon Smith Barney Inc., the Dealer Manager, or by one or more registered
brokers or dealers that are licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
THE CENTRIS GROUP, INC.
AT
$12.50 NET PER SHARE
BY
MERGER SUB OF DELAWARE, INC.
A WHOLLY OWNED SUBSIDIARY OF
HCC INSURANCE HOLDINGS, INC.
Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary"),
and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware
corporation ("HCC"), is offering to purchase all outstanding shares of Common
Stock, par value $.01 per share (including the associated Common Stock Purchase
Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the
"Company"), at $12.50 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated October 18,
1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Offer"). Tendering shareholders of the Company will not be obligated to pay
brokerage fees or commissions or, except as set forth in the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED BY THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF SHARES
WHICH, TOGETHER WITH THE SHARES THEN OWNED BY HCC AND MERGER SUBSIDIARY, WOULD
REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A
FULLY DILUTED BASIS. THE OFFER ALSO IS SUBJECT TO THE OTHER CONDITIONS SET FORTH
IN THE OFFER TO PURCHASE, INCLUDING THE CONSENT OF CERTAIN STATE INSURANCE
REGULATORY AUTHORITIES.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 11, 1999 (the "Merger Agreement"), among the Company, HCC and
Merger Subsidiary, which has been unanimously approved by the Company's Board of
Directors. The Merger Agreement provides, among other things, that, after
consummation of the Offer, and after satisfaction or waiver of all conditions to
the Merger (defined below) set forth in the Merger Agreement, Merger Subsidiary
will be merged into the Company (the
<PAGE> 2
"Merger"), with the Company continuing as the surviving corporation. Pursuant to
the Merger Agreement, at the effective time of the Merger (the "Effective
Time"), each outstanding Share (other than Shares owned by HCC, Merger
Subsidiary or any subsidiary of either of them or held by the Company as
treasury stock (which shall be canceled) or by shareholders exercising appraisal
rights under the General Corporation Law of Delaware) will be converted into the
right to receive $12.50 in cash or any higher price paid for each Share in the
Offer, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO, AND
IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY
APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER
AND TENDER THEIR SHARES.
The term "Expiration Date" means 12:00 midnight, New York City time on
Tuesday, November 30, 1999, unless Merger Subsidiary shall have extended the
period of time for which the Offer is open, in which event the term "Expiration
Date" shall mean the latest time and date at which the Offer, as so extended by
Merger Subsidiary, will expire. Merger Subsidiary may, without the consent of
the Company; (i) extend the Offer until all of the conditions to Merger
Subsidiary's obligation to purchase Shares shall be satisfied or waived; (ii)
extend the Offer for a period of not more than ten Business Days beyond the
expiration thereof, as such period may be extended pursuant to clause (i)
hereof; (iii) extend the Offer for an additional period of not more than ten
Business Days beyond that permitted by clauses (i) and (ii) hereof if on the
date of such extension, less than ninety percent (90%) of the fully diluted
Shares have been validly tendered and not properly withdrawn pursuant to the
Offer; and (iv) extend the Offer for any reason for a period of not more than
five Business Days beyond the latest expiration date that would be otherwise
permitted under clauses (i), (ii), or (iii) of this sentence. Any such extension
will be followed as promptly as practicable by public announcement thereof, such
announcement to be made no later than 9:00 a.m. New York City time, on the next
Business Day after the previously scheduled Expiration Date.
For purposes of the Offer, Merger Subsidiary shall be deemed to have
accepted for payment tendered Shares when, and if, Merger Subsidiary gives
notice to Harris Trust Company of New York (the "Depositary") of its acceptance
of the tenders of such Shares. In all cases, payment for Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) certificates for such Shares (or of a confirmation of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (defined in the Offer to Purchase)), (ii) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) or an Agent's Message (defined in the Offer to Purchase) in connection
with a book-entry transfer and (iii) any other required documents. UNDER NO
CIRCUMSTANCE WILL INTEREST BE PAID ON THE PURCHASE PRICE TO BE PAID BY MERGER
SUBSIDIARY FOR SUCH SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING SUCH PAYMENT.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the expiration of the Offer. Thereafter, such tenders are irrevocable,
except that they may be withdrawn on or after December 17, 1999, unless
theretofore accepted for payment as provided in the Offer to Purchase. If Merger
Subsidiary extends the period of time during which the Offer is open, is delayed
in accepting for payment or paying for Shares or is unable to accept for payment
or pay for Shares pursuant to the Offer for any reason, then, without prejudice
to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of
Merger Subsidiary, retain all Shares tendered, and such Shares may not be
withdrawn except as otherwise provided in the Offer to Purchase. For a
withdrawal to be effective, a written or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses set
forth in the Offer to Purchase and must specify the name of the person who
tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If
the Shares to be withdrawn have been delivered to the Depositary, a signed
notice of withdrawal with (except in the case of Shares tendered by an Eligible
Institution (defined in the Offer to Purchase)) signatures guaranteed by an
Eligible Institution must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares tendered by delivery
of certificates, the name of the registered holder (if different from that of
the tendering shareholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry
<PAGE> 3
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and
Shares withdrawn will thereafter be deemed not validly tendered for purposes of
the Offer. However, withdrawn Shares may be retendered by again following one of
the procedures described in the Offer to Purchase at any time prior to the
expiration of the Offer.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has provided Merger Subsidiary with the Company's shareholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager, as set forth below. Requests for copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent or brokers, dealers,
commercial banks and trust companies, and copies will be furnished promptly at
Merger Subsidiary's expense. No fees or commissions will be payable by Merger
Subsidiary to brokers, dealers or other persons (other than the Information
Agent) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
D. F. KING & CO., INC.
77 Water Street
New York, NY 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll-Free: (800) 848-3094
------------------------
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10013
(212) 816-9807
October 18, 1999
<PAGE> 1
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF
OCTOBER 11, 1999
AMONG
HCC INSURANCE HOLDINGS, INC.,
MERGER SUB OF DELAWARE, INC.
AND
THE CENTRIS GROUP, INC.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE OFFER............................................................................1
Section 1.1 The Offer............................................................................1
Section 1.2 Company Action.......................................................................3
Section 1.3 Directors............................................................................4
ARTICLE 2 THE MERGER...........................................................................5
Section 2.1 The Merger...........................................................................5
Section 2.2 Conversion of Shares.................................................................5
Section 2.3 Surrender and Payment................................................................6
Section 2.4 Dissenting Shares....................................................................7
Section 2.5 Stock Options........................................................................7
ARTICLE 3 THE SURVIVING CORPORATION............................................................8
Section 3.1 Certificate of Incorporation.........................................................8
Section 3.2 Bylaws...............................................................................8
Section 3.3 Directors and Officers...............................................................8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.......................................................8
Section 4.1 Representations and Warranties of the Company........................................8
(a) Organization, Standing and Corporate Power...........................................8
(b) Subsidiaries.........................................................................9
(c) Capital Structure...................................................................10
(d) Authority; Noncontravention.........................................................11
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.....................12
(f) Disclosure Documents................................................................13
(g) Absence of Certain Changes or Events................................................14
(h) Litigation..........................................................................15
(i) Absence of Changes in Stock or Benefit Plans........................................16
(j) Participation and Coverage in Benefit Plans.........................................16
(k) ERISA Compliance....................................................................16
(l) Taxes...............................................................................18
(m) State Takeover Statutes.............................................................20
(n) Brokers; Schedule of Fees and Expenses..............................................20
(o) Licenses and Permits; Agents........................................................20
(p) Contracts; Debt Instruments; Leases.................................................22
(q) Opinion of Financial Advisor........................................................24
(r) Interests of Officers and Directors.................................................24
(s) Technology..........................................................................24
(t) Change of Control...................................................................25
(u) Environmental.......................................................................25
(v) Title to Properties.................................................................27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(w) Other Obligations...................................................................27
(x) Public Utility Holding Company Act; Non-Utility Status..............................28
(y) Year 2000...........................................................................28
(z) Insurance...........................................................................29
(aa) Investments.........................................................................29
(bb) Investment Company..................................................................30
(cc) Internal Controls...................................................................30
(dd) Assumed and Ceded Reinsurance Agreements............................................30
(ee) Accounts with Financial Institutions................................................32
(ff) Minute Books; Stock Books; Officers and Directors...................................32
(gg) Continuing Business Relationships...................................................32
(hh) Insurance Reserves..................................................................32
(ii) Disclosure..........................................................................33
Section 4.2 Representations and Warranties of Parent and Merger Subsidiary......................33
(a) Organization, Standing and Corporate Power..........................................33
(b) Authority; Noncontravention.........................................................33
(c) Disclosure Documents................................................................34
(d) Financing...........................................................................35
ARTICLE 5 COVENANTS OF THE COMPANY............................................................35
Section 5.1 Conduct of Business.................................................................35
Section 5.2 Shareholder Meeting; Proxy Material.................................................37
Section 5.3 Access to Information...............................................................38
Section 5.4 Other Offers........................................................................39
Section 5.5 Rights Agreement....................................................................39
Section 5.6 State Takeover Statutes.............................................................40
Section 5.7 Regulatory Filings..................................................................40
Section 5.8 Affirmative Actions.................................................................40
Section 5.9 Termination of Benefit Plans........................................................41
ARTICLE 6 COVENANTS OF PARENT.................................................................41
Section 6.1 Obligations of Merger Subsidiary....................................................41
Section 6.2 Voting of Shares....................................................................41
Section 6.3 Director and Officer Liability......................................................41
Section 6.4 Employees...........................................................................43
ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY.................................................43
Section 7.1 HSR Act Filings; Other Filings Reasonable Efforts; Notification.....................43
Section 7.2 Public Announcements................................................................46
Section 7.3 Confidentiality.....................................................................46
Section 7.4 Interim Financial Statements........................................................46
ARTICLE 8 CONDITIONS TO THE MERGER............................................................47
Section 8.1 Conditions to the Obligations of Each Party.........................................47
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 9 TERMINATION.........................................................................48
Section 9.1 Termination.........................................................................48
Section 9.2 Effect of Termination...............................................................48
ARTICLE 10 MISCELLANEOUS.......................................................................49
Section 10.1 Notices.............................................................................49
Section 10.2 Survival of Representations and Warranties..........................................49
Section 10.3 Amendments; No Waivers..............................................................50
Section 10.4 Fees and Expenses...................................................................50
Section 10.5 Successors and Assigns..............................................................51
Section 10.6 Governing Law.......................................................................51
Section 10.7 Counterparts; Effectiveness; Interpretation.........................................51
Section 10.8 Enforcement.........................................................................52
Section 10.9 Severability........................................................................52
Section 10.10 Entire Agreement; No Third Party Beneficiaries......................................52
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of October
11, 1999, is entered into among The Centris Group, Inc., a Delaware corporation
(the "Company"), HCC Insurance Holdings, Inc., a Delaware corporation
("Parent"), and Merger Sub of Delaware, Inc., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of the Company, the Parent
and the Merger Subsidiary have determined that it is advisable and in the best
interests of their respective shareholders for the Parent and Merger Subsidiary
to acquire the Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the Company, the Parent and the Merger Subsidiary desire to
make certain representations, warranties, covenants and agreements in
connection with this Agreement; and
WHEREAS, and furtherance of such acquisition, Parent proposes to cause
Merger Subsidiary to make the Offer (as defined in Section 1.1(a)) to purchase
all of the issued and outstanding shares of common stock, par value $.01 per
share of the Company together with attached right to purchase shares (the
"Common Stock") upon the terms and subject to the conditions of this Agreement
and the Board of Directors of the Company (the "Board" or the "Board of
Directors") has unanimously approved the Offer and recommended that the
shareholders of the Company accept the Offer; and
WHEREAS, the respective Boards of Directors of the Company, the Parent
and Merger Subsidiary have deemed advisable and have approved the Offer and the
Merger (as defined in Section 2.1) of the Merger Subsidiary with and into the
Company upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, the Company and the Parent have determined it is advisable
and in the best interests of the shareholders of the Company, for the Company
to grant an option to Parent to acquire shares of Common Stock and have entered
into a Stock Option Agreement dated the date hereof providing therefor.
NOW, THEREFORE, in consideration of the representations, warranties
and agreements herein contained, and subject to the terms and conditions herein
set forth, the parties hereto do hereby agree as follows:
ARTICLE 1
THE OFFER
Section 1.1 The Offer.
(a) Provided that nothing shall have occurred that would
result in a failure to satisfy any of the conditions set forth in
Annex I hereto, Merger Subsidiary shall, as promptly as practicable
after the date hereof, but in no event later than the first Business
<PAGE> 6
Day (as defined in Rule 14b-1(c)(6) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act")), following the execution of
this Agreement, issue a public announcement of the execution of this
Agreement and as promptly as practicable, but in any event within five
Business Days following the public announcement of the terms of this
Agreement, commence an offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $.01 per share together
with attached rights to purchase shares (the "Shares"), of the Company
at a price of $12.50 per Share, net to the seller in cash. Such Offer
shall remain open for a period not to exceed 30 Business Days (the
"Offer Period") subject to extension as provided below. The Offer
shall be subject to the condition that there shall be validly tendered
in accordance with the terms of the Offer prior to the expiration date
of the Offer and not withdrawn a number of Shares which, together with
the Shares then owned by Parent and Merger Subsidiary, represents at
least a majority (the "Minimum Condition") of the total number of
outstanding Shares, assuming the exercise of all outstanding options,
rights and convertible securities (if any) (other than options to be
canceled pursuant to Section 2.5 hereof, and Shares to be issued
pursuant to the Stock Option Agreement defined herein) and the
issuance of all Shares that the Company is obligated to issue (such
total number of outstanding Shares being hereinafter referred to as
the "Fully Diluted Shares") and to the other conditions set forth in
Annex I hereto. Parent and Merger Subsidiary expressly reserve the
right to waive the conditions to the Offer and to make any change in
the terms or conditions of the Offer; provided however, that, without
the written consent of the Company, no change may be made which (i)
except as provided in the next sentence, extends the Offer; (ii)
changes the form of consideration to be paid for the Shares, (iii)
decreases the price per Share or the number of Shares sought in the
Offer, (iv) imposes conditions to the Offer in addition to those set
forth in Annex I, (v) changes or waives the Minimum Condition, or (vi)
makes any other change to any condition to the Offer set forth in
Annex I which is materially adverse to the holders of Shares.
Notwithstanding the foregoing, without the consent of the Company,
Merger Subsidiary may (i) extend the Offer Period until all of the
conditions to the Merger Subsidiary's obligation to purchase Shares
shall be satisfied or waived, including, without limitation, any
period required (A) by any rule, regulation, interpretation, or
position of the Securities and Exchange Commission (the "SEC") or the
staff thereof applicable to the Offer; or (B) pursuant to the HSR Act,
defined below, shall have terminated, or (C) to obtain necessary
approval of each state insurance regulatory agency required for
consummation of the Offer, (ii) extend the Offer Period for a period
of not more than 10 Business Days beyond the expiration thereof, as
such may be extended pursuant to subparagraph (i) hereof, (iii) extend
the Offer Period for an additional period of not more than 10 Business
Days beyond that permitted by subparagraphs (i) and (ii) hereof if on
the date of such extension, less than ninety percent (90%) of the
Fully Diluted Shares have been validly tendered and not properly
withdrawn pursuant to the Offer, and (iv) extend the Offer for any
reason for a period of not more than five Business Days beyond the
latest Expiration Date that would be otherwise permitted under clauses
(i), (ii), or (iii) of this sentence. Subject to the terms of the
Offer and this Agreement and the satisfaction (or waiver to the extent
permitted by this Agreement) of the conditions of the Offer, Merger
Subsidiary shall accept for payment all Shares validly tendered and
not
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<PAGE> 7
withdrawn pursuant to the Offer as soon as practicable after the
applicable expiration of the Offer.
(b) A soon as practicable on the date of commencement of the
Offer, Parent and Merger Subsidiary shall (i) file with the SEC a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer
which will contain the offer to purchase and form of the related
letter of transmittal (together with any supplements or amendments
thereto, collectively the "Offer Documents") and (ii) cause the Offer
Documents to be disseminated to holders of Shares. Parent, Merger
Subsidiary and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents if and to
the extent that it shall have become false or misleading in any
material respect. Parent and Merger Subsidiary agree to take all steps
necessary to cause the Offer Documents as so corrected to be filed
with the SEC and to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
Parent and Merger Subsidiary agree to provide the Company and its
counsel in writing with any comments Parent, Merger Subsidiary or
their counsel may receive from the SEC or its staff, including, but
not limited to, comments with respect to the Offer Documents, promptly
after receipt of such comments. The Company and its counsel shall be
given a reasonable opportunity to review and comment upon the Offer
Documents and all amendments and supplements thereto prior to their
filing with the SEC.
Section 1.2 Company Action.
(a) The Company hereby consents to the Offer and represents
that its Board of Directors, at a meeting duly called and held, has
(i) unanimously determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger (defined below
in Section 2.1), the Stock Option Agreement dated as of the date
hereof (the "Stock Option Agreement") and the Shareholder Option
Agreement, dated as of the date hereof (the "Shareholder Option
Agreement"), among the shareholders of the Company that are named
therein and Merger Subsidiary, and the transactions contemplated
thereby, are fair to and in the best interest of the Company's
shareholders, (ii) unanimously approved this Agreement and the
transactions contemplated hereby, including the Offer, the Merger, the
Stock Option Agreement and the Shareholder Option Agreement and the
transactions contemplated thereby, which approval satisfies in full
the requirements of Section 203 of the General Corporation Law of the
State of Delaware (the "Delaware Law"), (iii) unanimously resolved to
recommend acceptance of the Offer and approval and adoption of this
Agreement and the Merger by its shareholders, and (iv) determined that
the consummation of the transactions contemplated hereby including the
Offering, the Merger, the Stock Option Agreement and the Shareholder
Option Agreement and thereby have not, and will not, cause the Rights,
as defined herein, to become exercisable. The Company further
represents that Advest Investment Banking, Inc. ("Advest") has
delivered to the Company's Board of Directors its opinion that the
consideration to be paid in the Offer and the Merger is fair to the
holders of Shares from a financial point of view. The Company has been
advised that each of its directors and executive officers presently
intend either to tender their Shares pursuant to the Offer or to vote
in favor of the Merger. The Company will promptly furnish Parent and
Merger
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<PAGE> 8
Subsidiary with a list of its shareholders, mailing labels and any
available listing or computer file containing the names and addresses
of all record holders of Shares and lists of securities positions of
Shares held in stock depositories, in each case as of the most recent
practicable date, and will provide to Parent and Merger Subsidiary
such additional information (including, without limitation, updated
lists of shareholders, mailing labels and lists of securities
positions) and such other assistance as Parent or Merger Subsidiary
may reasonably request in connection with the Offer.
(b) As soon as practicable on the day that the Offer is
commenced the Company will file with the SEC and disseminate to
holders of Shares a Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") which shall reflect the recommendations
of the Company's Board of Directors referred to above, subject to the
fiduciary duties of the Board of Directors of the Company as advised
in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company. The
Company, Parent and Merger Subsidiary each agrees promptly to correct
any information provided by it for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading in any
material respect. The Company agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and
to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Parent and its
counsel shall be given an opportunity to review and comment on the
Schedule 14D-9 prior to its being filed with the SEC.
Section 1.3 Directors.
(a) Effective upon the payment by Merger Subsidiary for a
majority of the Shares pursuant to the Offer, Parent shall be entitled
to designate the number of directors, rounded up to the next whole
number, on the Company's Board of Directors that equals the product of
(i) the total number of directors on the Company's Board of Directors
(giving effect to the election of any additional directors pursuant to
this Section) and (ii) the percentage that the number of Shares owned
by Parent or Merger Subsidiary (including Shares accepted for payment)
bears to the total number of Shares outstanding, and the Company shall
take all action necessary to cause Parent's designees to be elected or
appointed to the Company's Board of Directors, including, without
limitation, increasing the number of directors, or seeking and
accepting resignations of incumbent directors, or both; provided
however, that, prior to the Effective Time (defined below), the
Company's Board of Directors shall always have one member who is
neither a designee nor an affiliate of Parent or Merger Subsidiary nor
an employee of the Company (an "Independent Director"). If the number
of Independent Directors is reduced below one for any reason prior to
the Effective Time the departing Independent Director shall be
entitled to designate a person to fill such vacancy. No action
proposed to be taken by the Company to amend or terminate this
Agreement or waive any action by Parent or Merger Subsidiary shall be
effective without the approval of the Independent Director. At such
times, the Company will use its best efforts to cause individuals
designated by Parent to constitute the same percentage as such
individuals represent on the Company's Board of Directors of (x) each
committee of the Board, (y) each board of directors of each Subsidiary
(defined below) and (z) each committee of each such board.
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<PAGE> 9
(b) The Company's obligations to appoint designees to the
Board of Directors shall be subject to Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to Section 14(f) and Rule 14f-l in
order to fulfill its obligations under this Section 1.3 and shall
include in the Schedule 14D-9 such information with respect to the
Company and its officers and directors as is required under Section
14(f) and Rule 14f-1 to fulfill its obligations under this Section
1.3. Parent will supply to the Company in writing and be solely
responsible for any information with respect to itself and its
nominees, officers, directors and affiliates required by Section 14(f)
and Rule 14f-1.
ARTICLE 2
THE MERGER
Section 2.1 The Merger.
(a) At the Effective Time, Merger Subsidiary shall be merged
(the "Merger") with and into the Company in accordance with Delaware
Law, whereupon the separate existence of Merger Subsidiary shall
cease, and the Company shall be the surviving corporation (the
"Surviving Corporation").
(b) As soon as practicable after satisfaction of or, to the
extent permitted hereunder, waiver of all conditions to the Merger,
the Company and Merger Subsidiary will file a certificate of merger
with the Secretary of State of the State of Delaware and make all
other filings or recordings required by Delaware Law in connection
with the Merger. The Merger shall become effective at such time as the
certificate of merger is duly filed with the Secretary of State of the
State of Delaware or, with the consent of the Independent Director, at
such later time as is specified in the certificate of merger (the
"Effective Time").
(c) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities and
duties of the Company and Merger Subsidiary, all as provided under
Delaware Law.
Section 2.2 Conversion of Shares. At the Effective Time:
(a) each Share held by the Company as treasury stock or owned
by Parent, Merger Subsidiary or any subsidiary of either of them
immediately prior to the Effective Time shall be canceled, and no
payment shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary
outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock of the Surviving Corporation
with the same rights, powers and privileges as the shares so converted
and shall constitute the only outstanding shares of capital stock of
the Surviving Corporation; and
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<PAGE> 10
(c) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 2.2(a) or as
provided in Section 2.4 with respect to Shares as to which appraisal
rights have been exercised, be converted into the right to receive
$12.50 in cash without interest (the "Merger Consideration").
Section 2.3 Surrender and Payment.
(a) Prior to the Effective Time, Parent shall appoint an
exchange agent (the "Exchange Agent") for the purpose of exchanging
certificates representing Shares for the Merger Consideration. Parent
will make available to the Exchange Agent, as needed, the Merger
Consideration to be paid in respect of the Shares (the "Exchange
Fund"). For purposes of determining the Merger Consideration to be
made available, Parent shall assume that no holder of Shares will
perfect the right to appraisal of Shares. Promptly after the Effective
Time, Parent will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time a letter of transmittal
for use in such exchange (which shall specify that the delivery shall
be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing Shares to the Exchange
Agent). The Exchange Agent shall, pursuant to irrevocable
instructions, make the payments provided for in this Section 2.3. The
Exchange Fund shall not be used for any other purpose, except as
provided in this Agreement.
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the
Exchange Agent of a certificate or certificates representing such
Shares, together with a properly completed letter of transmittal
covering such Shares, and such other documents as shall be reasonably
requested, will be entitled to receive the Merger Consideration
payable in respect of such Shares. Until so surrendered, each such
certificate shall, after the Effective Time, represent for all
purposes, only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid
to a person other than the registered holder of the Shares represented
by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a person other than the
registered holder of such Shares or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable. For
purposes of this Agreement, "person" or "Person" means an individual,
a corporation, a partnership, a limited liability company, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares. If, after the Effective Time,
certificates representing Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set
forth, in this Article 2.
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<PAGE> 11
(e) Any portion of the Exchange Fund made available to the
Exchange Agent pursuant to Section 2.3(a) that remains unclaimed by
the holders of Shares six months after the Effective Time shall be
returned to Parent, upon demand, and any such holder who has not
exchanged his Shares for the Merger Consideration in accordance with
this Section 2.3 prior to that time shall thereafter look only to
Parent for payment of the Merger Consideration in respect of his
Shares. Notwithstanding the foregoing, Parent shall not be liable to
any holder of Shares for any amount paid to a public official pursuant
to applicable abandoned property laws. Any amounts remaining unclaimed
by holders of Shares immediately prior to such time as such amounts
would otherwise escheat to or become property of any governmental
entity shall, to the extent permitted by applicable law, become the
property of Parent, free and clear of any claims or interest of any
person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to
the Exchange Agent pursuant to Section 2.3(a) to pay for Shares for
which appraisal rights have been perfected shall be returned to
Parent, upon demand.
Section 2.4 Dissenting Shares. Notwithstanding Section 2.2, Shares
outstanding immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such Shares in accordance with Delaware Law shall
not be converted into a right to receive the Merger Consideration, unless such
holder fails to perfect or withdraws or otherwise loses the right to appraisal.
If after the Effective Time such holder fails to perfect or withdraws or loses
the right to appraisal, such Shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration. The Company shall give Parent prompt notice of any demands
received by the Company for appraisal of Shares, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any
such demands.
Section 2.5 Stock Options.
(a) At the time that Merger Subsidiary has accepted for
payment all Shares validly transferred and not withdrawn pursuant to
the Offer, each outstanding Company Option (defined below) shall be
canceled, and each holder of any such option shall be paid by Merger
Subsidiary promptly for each such option an amount determined by
multiplying (i) the excess, if any, of $12.50 per Share over the
applicable exercise price of such option by (ii) the number of Shares
such holder could have purchased had such holder exercised such option
in full immediately prior to the time that Merger Subsidiary has
accepted for payment all Shares validly transferred and not withdrawn
pursuant to the Offer (as if such Company Option was exercisable in
full). "Company Option" means any option granted, whether or not
exercisable, and not exercised or expired, to a current or former
employee, director or independent contractor of the Company or any of
its subsidiaries or any predecessor thereof to purchase Shares
pursuant to any stock option, stock bonus, stock award, or stock
purchase plan, program, or arrangement of the Company or any of its
subsidiaries or any predecessor thereof (collectively, the "Stock
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<PAGE> 12
Plans") or any other contract or agreement (other than the Stock
Option Agreement) entered into by the Company or any of its
subsidiaries.
(b) As soon as practicable following the date of this
Agreement, the Company shall use its best efforts to (i) obtain any
consents from holders of Company Options and (ii) make any amendments
to the terms of such Stock Plans or arrangements that, in the case of
either clauses (i) or (ii), are necessary to give effect to the
transactions contemplated by Section 2.5(a). Notwithstanding any other
provision of this Section 2.5, payment may be withheld in respect of
any Company Option until necessary consents are obtained. All amounts
payable pursuant to this Section 2.5 shall be subject to, and reduced
by, any required withholding of taxes and shall be paid without
interest.
ARTICLE 3
THE SURVIVING CORPORATION
Section 3.1 Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be changed to the name of the Company.
Section 3.2 Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended
in accordance with applicable law.
Section 3.3 Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
the Merger Subsidiary at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Merger Subsidiary as follows:
(a) Organization, Standing and Corporate Power. Each of the
Company and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of the Company and each of its subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) could not
reasonably be expected to have a Material
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<PAGE> 13
Adverse Effect, as defined below, on the Company and its subsidiaries
taken as a whole. The Company has delivered to Parent complete and
correct copies of its Certificate of Incorporation and By-Laws and the
certificates of incorporation or other charter or organizational
documents and by-laws of its subsidiaries, in each case as amended to
the date of this Agreement. For purposes of this Agreement, a
"subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its
Board of Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests) of which is
owned directly or indirectly by such first person. As used herein
"Material Adverse Effect" means with respect to the Company, any
change in, or effect on, the Company or the business of the Company;
in each case including its subsidiaries taken as a whole, which is, or
which is reasonably likely to be, materially adverse to the business,
operations, assets, liabilities, results of operations, condition
(financial or otherwise), prospects, insurance licenses or other
material permits of the Company or its subsidiaries or which will, or
is reasonably likely to, prevent or materially delay, the transactions
contemplated by this Agreement, provided, however, (i) that any effect
on the Company or the business of the Company which is due to, arises
from, or relates to any action taken by the Company or its
subsidiaries after the date of this Agreement at the request of or
done at the direction or with the consent of the Parent shall not be
considered to have a Material Adverse Effect for any purpose under
this Agreement and (ii) provided, further, that a Material Adverse
Effect on the Company shall not be deemed to have occurred as a result
of (w) the Company establishing additional reserves and taking other
charges at September 30, 1999 in the amount of $13.5 million; (x) the
Company's independent actuarial review of the Company's reserves and
all other aspects of the Company's business, as contemplated by
Section 5.8 hereof, and the establishment of appropriate reserve
adjustments and other charges (collectively the "Charges") so long as
the Charges do not exceed $17 million in the aggregate (there being no
presumption that the establishment of reserves or charges in excess of
$17 million either will or will not have a Material Adverse Effect);
(y) any change (including changes in the market value of invested
assets) in general economic conditions affecting the insurance
business or their holding companies generally; or (z) the termination
of the Management Agreements between the Company and The Continental
Insurance Company as a result of a change of control.
"Material Adverse Effect" with respect to the Parent, means
any change in, or effect on, the Parent which is, or which is
reasonably likely to be, materially adverse to the Parent's
operations, assets, liabilities, results of operations, condition
(financial or otherwise) or prospects, on a consolidated basis, or
which will prevent or materially delay the transactions contemplated
by this Agreement.
(b) Subsidiaries.
(i) Section 4.1(b) of the disclosure schedule
delivered by the Company to Parent and Merger Subsidiary
prior to the execution of this Agreement (the "Disclosure
Schedule") lists each subsidiary of the Company and its
respective jurisdiction of incorporation and each state in
which the Company
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<PAGE> 14
and each of its subsidiaries is licensed or qualified to
carry out its businesses. Except as disclosed in Section
4.1(b) of the Disclosure Schedule, all of the outstanding
shares of capital stock of each such subsidiary have been
validly issued and are fully paid and nonassessable and are
owned by the Company, by another subsidiary of the Company or
by the Company and another such subsidiary, free and clear of
all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever
(collectively, "Liens") and free of any other limitation or
restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock). Except for
the capital stock of its subsidiaries, the Company does not
own, directly or indirectly, any capital stock or other
ownership interest in any person except as disclosed in
Section 4.1(b)(i) of the Disclosure Schedule.
(ii) Except as set forth in Section 4.1(b)(ii) of
the Disclosure Schedule there are no corporations,
partnerships, limited liability companies, joint ventures,
associations or other entities (A) in which the Company owns,
of record or beneficially, any direct or indirect equity,
membership or other interest or any right (contingent or
otherwise) to acquire the same, or (B) which the Company
controls, directly or indirectly, by contract or proxy or
otherwise, alone or in combination with any other Person. As
used herein, unless the context otherwise requires, the term
"Company" includes the Company and each of its subsidiaries.
(c) Capital Structure. The authorized capital stock of the
Company (and not its subsidiaries) consists of 40,000,000 Shares and
5,000,000 shares of Preferred Stock of the Company. As of the date of
this Agreement, (i) 11,536,076 Shares were issued and outstanding,
(ii) 928,824 Shares were held by the Company in its treasury or by any
of the Company's subsidiaries, and (iii) 1,060,453 Shares were
reserved for issuance pursuant to the outstanding Company Options. No
Shares of Preferred Stock were outstanding. All outstanding Shares of
the Company are, and all Shares which may be issued pursuant to the
Stock Plans will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in Section 4.1(c) of the Disclosure Schedule,
there are no bonds, debentures, notes, warrants or other indebtedness
or securities of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any
matters on which shareholders of the Company may vote. Except as set
forth above and in Section 4.1(c) of the Disclosure Schedule, there
are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them
is bound obligating the Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or
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other voting securities of the Company or of any of its subsidiaries
or obligating the Company or any of its subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except as set forth
in Section 4.1(c) of the Disclosure Schedule, there are no outstanding
rights, commitments, agreements, arrangements or undertakings of any
kind obligating the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock or other
voting securities of the Company or any of its subsidiaries or any
securities of the type described in the two immediately preceding
sentences. The Company has delivered to Parent complete and correct
copies of the Stock Plans and all forms of Company Options. Section
4.1(c) of the Disclosure Schedule sets forth a complete and accurate
list of all Company Options outstanding as of the date of this
Agreement and the exercise price of each outstanding Company Option.
The authorized and outstanding capital stock of each of the Company's
subsidiaries is set forth in Section 4.1(c) of the Disclosure
Schedule.
(d) Authority; Noncontravention. The Company has the
requisite corporate power and authority to enter into this Agreement
and, except for any required approval by the Company's shareholders in
connection with the consummation of the Merger, to consummate the
transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of the
Company, except for any required approval by the Company's
shareholders in connection with the consummation of the Merger. This
Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding agreement of
Parent and Merger Subsidiary, constitutes a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforceability
may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or
at law. Except as set forth in Section 4.1(d) of the Disclosure
Schedule, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement
and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of the Company or any of
its subsidiaries under, (i) the Certificate of Incorporation or
By-Laws of the Company or the comparable charter or organizational
documents of any of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or any of its subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company
or any of its subsidiaries or their respective properties or assets
other than, in the case of clause (ii) or (iii) above, any such
conflicts, violations, defaults, rights or Liens that individually or
in the aggregate could not reasonably be expected to (A) have a
Material Adverse Effect, (B) impair the ability of the Company to
perform its obligations under this Agreement or (C) prevent or
materially delay consummation of any of the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with or exemption by
(collectively, "Consents") any federal, state or local government or
any court, administrative or
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<PAGE> 16
regulatory agency or commission or other governmental authority or
agency, domestic or foreign (a "Governmental Entity"), is required by
or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the filing of a
certificate of merger in accordance with Delaware Law and appropriate
documents with the relevant authorities of other states in which the
Company is qualified to do business, (ii) the filing of a premerger
notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act"), (iii) compliance
with any applicable requirements of the Exchange Act, (iv) such
notices, filings and consents as may be required under relevant state
property transfer or environmental laws, (v) filing with the insurance
regulatory agencies set forth in Section 4.1(d) of the Disclosure
Schedule, and (vi) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as to which
the failure to obtain or make could not reasonably be expected to (x)
have a Material Adverse Effect or (y) prevent or materially delay the
consummation of any of the transactions contemplated by this
Agreement.
(e) SEC Documents; Financial Statements; No Undisclosed
Liabilities.
(i) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC
since January 1, 1996 (the "SEC Documents"). As of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations thereunder (the
"Securities Act"), or the Exchange Act, as the case may be,
applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included
in the SEC Documents (the "Financial Statements") comply as
to form in all material respects with applicable accounting
requirements and the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto)
and fairly present in all material respects the consolidated
financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods
then ended (subject to the items set forth in Section 4.1(e)
of the Disclosure Schedule, and in the case of unaudited
statements, to normal, recurring year-end audit adjustments).
Except as set forth in the Company Filed SEC Documents
(defined below) or on Section 4.1(e) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries has
any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) and there is no
existing condition, situation or set of circumstances which
are required by generally accepted accounting
12
<PAGE> 17
principles to be set forth on a consolidated balance sheet of
the Company and its consolidated subsidiaries or in the notes
thereto, except for liabilities which, individually or in the
aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(ii) The Company has heretofore delivered to the
Parent true and complete copies of the Annual Statutory
Statements and the Quarterly Statutory Statements filed with
each Governmental Entity. Each of the Annual Statutory
Statements and Quarterly Statutory Statements was prepared in
accordance with Statutory Accounting Practices ("SAP")
consistently applied throughout the periods involved, was
prepared in accordance with the books and records of the
Company, has been audited by the Company's independent public
accountants (the "Company's Accountants"), and presents
fairly the statutory financial position of the Company at the
respective dates thereof and the statutory results of
operations and cash flows of the Company for the respective
periods then ended, subject to the items set forth in Section
4.1(e) of the Disclosure Schedule, except that the Quarterly
Statutory Statements have not been audited and are subject to
normal recurring year-end audit adjustments. Except as set
forth in Section 4.1(e) of the Disclosure Schedule, each of
the Annual Statutory Statements and Quarterly Statutory
Statements (i) complies in all material respects with the
Insurance Codes, rules and regulations of any jurisdiction in
which such statements are required to be filed, (ii) was
complete and correct in all material respects when filed,
(iii) was filed with or submitted to each jurisdiction in
which such statements are required to be filed in a timely
manner on forms prescribed or permitted by each such
jurisdiction, and (iv) was not prepared utilizing any
material accounting practices that are permitted rather than
prescribed by each such jurisdiction. Except as set forth in
Section 4.1(e) of the Disclosure Schedules, no material
deficiency has been asserted with respect to any of the
Annual Statutory Statements or Quarterly Statutory Statements
by any Governmental Entity.
(f) Disclosure Documents.
(i) Each document required to be filed by the
Company with the SEC in connection with the transactions
contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the Schedule
14D-9, the proxy or information statement of the Company (the
"Company Proxy Statement"), if any, to be filed with the SEC
in connection with the Merger, and any amendments or
supplements thereto will, when filed, comply as to form in
all material respects with the applicable requirements of the
Exchange Act.
(ii) At the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to
shareholders of the Company, and at the time such
shareholders vote on adoption of this Agreement, the Company
Proxy Statement, as supplemented or amended, if applicable,
will not contain any untrue
13
<PAGE> 18
statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made,
not misleading. At the time of the filing of any Company
Disclosure Document other than the Company Proxy Statement
and at the time of any distribution thereof, such Company
Disclosure Document will not contain any untrue statement of
a material fact or omit to state a material fact necessary in
order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.
The representations and warranties contained in this Section
4.1(f)(ii) will not apply to statements or omissions included
in the Company Disclosure Documents based upon information
furnished to the Company in writing by Parent or Merger
Subsidiary specifically for use therein.
(iii) The information with respect to the Company or
any subsidiary that the Company furnishes to Parent or Merger
Subsidiary in writing specifically for use in the Offer
Documents will not, at the time of the filing thereof, at the
time of any distribution thereof and at the time of the
consummation of the Offer, 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 were made, not misleading.
(g) Absence of Certain Changes or Events. Except as disclosed
in the SEC Documents filed and publicly available prior to the date of
this Agreement (the "Company Filed SEC Documents") or in Section
4.1(g) of the Disclosure Schedule, since December 31, 1998, the
Company has conducted its business only in the ordinary course
consistent with past practice, and there has not been (i) any event,
occurrence or development of a state of circumstances which has had or
could reasonably be expected to have a Material Adverse Effect, (ii)
any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any
of the Company's capital stock or any repurchase, redemption or other
acquisition by the Company or any of its subsidiaries of any
outstanding shares of capital stock or other securities of the Company
or any of its subsidiaries, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, (iv)
(A) any granting by the Company or any of its subsidiaries to any
current or former director, officer or employee of the Company or any
of its subsidiaries of any increase in compensation or benefits,
except in the ordinary course of business consistent with past
practice, (B) any granting by the Company or any of its subsidiaries
to any such director, officer or employee of any increase in severance
or termination pay (including the acceleration in the exercisability
of Company Options or in the vesting of Shares (or other property) or
the provision of any tax gross-up), except as was required under
employment, severance or termination agreements or plans in effect as
of December 31, 1998 which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect, or (C) any
entry by the Company or any of its subsidiaries into any employment,
deferred compensation, severance or termination
14
<PAGE> 19
agreement with any such current or former director, officer or
employee, except in the ordinary course of business consistent with
past practice, (v) any damage, destruction or loss, whether or not
covered by insurance, that has had or could have a Material Adverse
Effect, (vi) any change in accounting methods, principles or practices
by the Company or any of its subsidiaries, except insofar as may have
been required by a change in generally accepted accounting principles,
(vii) any amendment of any material term of any outstanding security
of the Company or any of its subsidiaries, (viii) any incurrence,
assumption or guarantee by the Company or any of its subsidiaries of
any material indebtedness for borrowed money other than in the
ordinary course of business consistent with past practice, but in no
event in the amount of more than $250,000 in the aggregate, (ix) any
creation or assumption by the Company or any of its subsidiaries of
any Lien on any asset other than in the ordinary course of business
consistent with past practice, but in no event in the amount of more
than $250,000 for any one transaction or $500,000 in the aggregate,
(x) any making of any loan, advance or capital contributions to or
investment in any person other than (A) made in the ordinary course of
business consistent with past practice, but in no event in the amount
of more than $100,000 for any one transaction or $150,000 in the
aggregate and (B) investments in cash equivalents made in the ordinary
course of business consistent with past practice, (xi) any transaction
or commitment made, or any contract or agreement entered into, by the
Company or any of its subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets or the merger
or consolidation with any person) or any relinquishment by the Company
or any of its subsidiaries of any contract or other right, in either
case, material to the Company or any of its subsidiaries, other than
transactions and commitments in the ordinary course of business
consistent with past practice and those contemplated by this
Agreement, but in no event representing commitments on behalf of the
Company or any of its subsidiaries of more than $250,000 for any
transaction or $500,000 for any series of transactions, (xii) any
material labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof
to organize any employees of the Company or any of its subsidiaries,
which employees were not subject to a collective bargaining agreement
at December 31, 1998, or any material lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to such employees
or (xiii) any agreement, commitment, arrangement or undertaking by the
Company or any of its subsidiaries to perform any action described in
clauses (i) through (xii).
(h) Litigation. Except as disclosed in Section 4.1(h) of the
Disclosure Schedule, there is no suit, action or proceeding pending
or, to the knowledge of the Company, threatened against or affecting
the Company or any of its subsidiaries that, individually or in the
aggregate, could reasonably be expected to (i) have a Material Adverse
Effect, (ii) impair the ability of the Company to perform its
obligations under this Agreement or (iii) prevent or materially delay
the consummation of the Offer, the Merger or any of the other
transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its
subsidiaries having, or which, insofar as reasonably can be foreseen,
in the future would have, any such effect. Section 4.1(h) of the
Disclosure Schedule sets forth, with respect to any pending suit,
action or proceeding
15
<PAGE> 20
to which the Company or any of its subsidiaries is a party, the forum,
the parties thereto, the subject matter thereof and the amount of
damages claimed. Any representation or warranty in this Agreement
which is expressed as made to the Company's knowledge or to the
knowledge of the Company means the knowledge, after reasonable
investigation and due inquiry, of the officers of the Company listed
on Schedule 4.1(h) of the Disclosure Schedule.
(i) Absence of Changes in Stock or Benefit Plans. Except as
disclosed in Section 4.1(i) of the Disclosure Schedule, since December
31, 1998, and through the date hereof, there has not been (i) any
acceleration, amendment or change of the period of exercisability or
vesting of any Company Options or restricted stock, stock bonus or
other awards under the Stock Plans or any other options to purchase
Shares or stock of any subsidiary of the Company (including any
discretionary acceleration of the exercise periods or vesting by the
Company's Board of Directors or any committee thereof or any other
persons administering a Stock Plan) or authorization of cash payments
in exchange for any Company Options, restricted stock, stock bonus or
other awards granted under any of such Stock Plans or any other
options to purchase Shares as stock of any subsidiary of the Company
or (ii) any adoption or amendment by the Company or any of its
subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom
stock, stock appreciation right, retirement, vacation, severance,
disability, death benefit, hospitalization, medical, workers'
compensation, disability, supplementary unemployment benefits, or
other plan, arrangement or understanding (whether or not legally
binding) or any employment agreement providing compensation or
benefits to any current or former employee, officer, director or
independent contractor of the Company or any of its subsidiaries or
any beneficiary thereof or entered into, maintained or contributed to,
as the case may be, by the Company or any of its subsidiaries or ERISA
affiliates (as hereafter defined) (collectively, "Benefit Plans")
other than immaterial amendments to any such Benefit Plan. Section
4.1(i) of the Disclosure Schedule sets forth for each of the fifteen
most highly compensated employees of the Company, the aggregate
maximum amount of all termination, severance or other similar benefits
to which such employee is entitled in connection with the Merger and
the other transactions contemplated by this Agreement.
(j) Participation and Coverage in Benefit Plans. Except as
set forth in Section 4.1(j) of the Disclosure Schedule, there has been
no adoption of, or amendment to, or change in employee participation
or coverage under, or written interpretation or announcement (whether
or not written) by the Company or any of its subsidiaries relating to,
any Benefit Plans which would increase materially the expense of
maintaining such Benefit Plans above the level of the expense incurred
in respect thereof for the fiscal year ended on December 31, 1998.
(k) ERISA Compliance.
(i) Except as otherwise indicated therein, Section
4.1(k) of the Disclosure Schedule lists all Benefit Plans and
"employee benefit plans" (defined
16
<PAGE> 21
in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), currently maintained, or
contributed to, by the Company or any of its subsidiaries or
ERISA affiliates (defined below) for the benefit of any
current or former employees, officers or directors of the
Company or any of its subsidiaries or ERISA affiliates or
under which the Company or any of its subsidiaries or ERISA
affiliates has any liability. The Company has delivered to
Parent a complete copy of (A) the current plan document for
each Benefit Plan (or, in the case of any unwritten Benefit
Plans, descriptions thereof), (B) a copy of the most recent
Form 5500 filed with the Internal Revenue Service with
respect to each Benefit Plan (if any such report was
required), (C) the most recent summary plan description for
each Benefit Plan for which a summary plan description is
required, (D) each trust agreement and group annuity or
insurance contract relating to any Benefit Plan, and (E) to
the extent still in the Company's possession, all material
correspondence to or from the Internal Revenue Service or the
Department of Labor from January 1, 1996 through the date
hereof to or from the Internal Revenue Service or the
Department of Labor relating to any Benefit Plan. For
purposes of this Agreement, "ERISA affiliate" of the Company
means any person which, together with the Company or any of
its subsidiaries, would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended
(the "Code").
(ii) Except as set forth in Section 4.1(k) of the
Disclosure Schedule, to the knowledge of the Company, each
Benefit Plan has been maintained and administered in
compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules
and regulations except as would not have a Material Adverse
Effect and is, to the extent required by applicable law or
contract, fully funded on a termination basis without having
any deficit or unfunded actuarial liability. Any Benefit Plan
intended to be qualified under Section 401(a) of the Code has
obtained from the Internal Revenue Service a favorable
determination letter as to its qualified status under the Tax
Reform Act of 1986 and, to Company's knowledge, nothing has
occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax qualified
status of any Benefit Plan intended to be qualified under
Code Section 401(a).
(iii) Except as set forth in Section 4.1(k) of the
Disclosure Schedule, no Benefit Plan is or ever has been
covered by Title IV of ERISA or Section 412 of the Code and
none of the Company, any of its subsidiaries, or any ERISA
affiliate has ever participated in, maintained, or
contributed to any such plan. To the knowledge of the
Company, neither the Company nor any of its subsidiaries or
ERISA affiliates has incurred or expects to incur any
liability under Title IV of ERISA or any liability or penalty
under Section 4975 or 4980B of the Code or Section 502(i) of
ERISA. To the knowledge of the Company, none of the Company,
any of its subsidiaries, or any ERISA affiliate has ever
engaged in, or is a successor or affiliate of any entity that
has engaged in, a transaction which is described in Section
4069 of ERISA.
17
<PAGE> 22
(iv) Except as set forth in Section 4.1(k) of the
Disclosure Schedule, to the Company's knowledge, there are no
pending or anticipated material claims against or otherwise
involving any of the Benefit Plans and no suit, action or
other litigation (excluding claims for benefits incurred in
the ordinary course of Benefit Plan activities) has been
brought against or with respect to any Benefit Plan.
(v) Except as set forth in Section 4.1(k) of the
Disclosure Schedule, to the Company's knowledge, all material
contributions, reserves or premium payments, required to be
made as of the date hereof to or with respect to the Benefit
Plans have been made or provided for except as would not have
a Material Adverse Effect.
(vi) Except as set forth in Section 4.1(k) of the
Disclosure Schedule, or as otherwise required by law, neither
the Company nor any of its subsidiaries or ERISA affiliates
has any obligations for post-retirement or post-termination
health (including medical, dental and vision), life
(including accidental death and dismemberment), and/or long
term disability benefits under any Benefit Plan. Except as
set forth in Section 4.1(k) of the Disclosure Schedule, each
Benefit Plan, including each plan providing coverage or
benefits for retired employees and/or their beneficiaries,
may be amended or terminated at any time by the Company or
any of its subsidiaries or ERISA affiliates. None of the
Benefit Plans are self-insured "multiple employer welfare
arrangements" as such term is defined in Section 3(40) of
ERISA.
(l) Taxes. As used in this Agreement, "tax" or "taxes" shall
include all Federal, state, local and foreign income, property, sales,
excise and other taxes, tariffs or similar governmental charges or
assessments as well as any interest, penalties and additions thereto.
(i) The Company and each of its subsidiaries have
timely filed all tax returns, statements, reports and forms
required to be filed with any tax authority and in accordance
with all applicable laws. All such tax returns are correct
and complete in all material respects. All taxes owed by the
Company and any of its subsidiaries (whether or not shown on
any tax return) have been paid (excluding any taxes owed but
not yet due). There are no Liens on any of the assets of the
Company or any of its subsidiaries that arose in connection
with any failure (or alleged failure) to pay any tax.
(ii) The Company and each of its subsidiaries has
withheld and timely paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, shareholder,
or other third party.
(iii) To the knowledge of the Company, there is no
potential assessment by a taxing authority of any additional
taxes against the Company or any of its subsidiaries for any
period for which tax returns have been filed. Except as set
18
<PAGE> 23
forth in Section 4.1 (l) (iii) of the Disclosure Schedule no
dispute or claim concerning any tax liability of the Company
or any of its subsidiaries has been proposed or claimed in
writing by any authority. The Company has provided Parent
with a list of all Federal, state, local, and foreign income
tax returns filed with respect to the Company and any of its
subsidiaries for taxable periods ended on or after December
31, 1994, indicating those tax returns that have been
audited, and indicating those tax returns that currently are
the subject of audit. The Company has provided Parent with
correct and complete copies of all its Federal income tax
returns, and examination reports, and statements of
deficiencies assessed against or agreed to by the Company and
any of its subsidiaries since December 31, 1994.
(iv) Neither the Company nor any of its subsidiaries
has waived any statute of limitations in respect of taxes or
agreed to any extension of time with respect to a tax
assessment or deficiency.
(v) Neither the Company nor any of its subsidiaries
has filed a consent pursuant to Section 341(f) of the Code
concerning collapsible corporations. Except as set forth on
Section 4.1(l)(v) of the Disclosure Schedule, neither the
Company nor any of its subsidiaries is a party to any tax
allocation or sharing agreement. Neither the Company nor any
of its subsidiaries has any liability for the taxes of any
person (other than the Company and any of its subsidiaries
that is currently a member of the Company's affiliated group
filing a consolidated federal income tax return) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(vi) As of the date of the most recent financial
statements included in the Company Filed SEC Documents, the
unpaid taxes of the Company and its subsidiaries did not
exceed the reserve for taxes (rather than any reserve for
deferred taxes established to reflect timing differences
between book and tax income) established in such financial
statements.
(vii) Neither the Company nor any of its
subsidiaries is required to include in income any adjustment
pursuant to Section 481(a) of the Code (or similar provisions
of other law or regulations) in its current or in any future
taxable period by reason of a change in accounting method;
nor does the Company or any of its subsidiaries have any
knowledge that the Internal Revenue Service (or other taxing
authority) has proposed or is considering proposing, any such
change in accounting method. Except as set forth on Section
4.1(l)(vii) of the Disclosure Schedule, neither the Company
nor any of its subsidiaries is a party to any agreement,
contract, or arrangement that, individually or collectively,
could give rise to the payment of any amount (whether in cash
or property, including Company Stock) that would not be
deductible pursuant to the terms of Sections 162(a)(1),
162(m), 162(n) or 280G of the Code.
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<PAGE> 24
(viii) The Company qualifies as an insurance company
under the Code and the Company has received no notice or
other communication relating to or affecting such
qualification of the Company as an insurance company.
(ix) Section 4.1(l)(ix) of the Disclosure Schedule
contains a list of all states, territories and jurisdictions
(foreign or domestic) to which any tax is properly payable by
the Company. No claim has ever been made by any taxing
authority in a jurisdiction in which the Company does not
file tax returns that it is or may be subject to tax in that
jurisdiction.
(m) State Takeover Statutes. The Board of Directors of the
Company has approved the Offer, the Merger, this Agreement, and the
transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to the Offer, the Merger, this
Agreement, and the transactions contemplated hereby or thereby, the
provisions of Section 203 of Delaware Law. To the best of the
Company's knowledge, no other "fair price", "moratorium", "control
share acquisition", or other anti-takeover statute or similar statute
or regulation, applies or purports to apply to the Offer, the Merger,
the Shareholder Option Agreement, this Agreement, the Stock Option
Agreement or any of the transactions contemplated hereby or thereby.
(n) Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than
Advest, the fees and expenses of which will be paid by the Company
(and a copy of whose engagement letter and a calculation of the fees
that would be due thereunder has been provided to Parent), is entitled
to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company
or any of its subsidiaries. No such engagement letter obligates the
Company to continue to use the services or pay fees or expenses in
connection with any future transaction.
(o) Licenses and Permits; Agents.
(i) Except as set forth in Section 4.1(o)(i) of the
Disclosure Schedule, the Company and its subsidiaries have
all governmental licenses, permits and authorizations (other
than those relating to the writing of insurance which are
covered by the next sentence) necessary to carry on the
Business now being conducted by the Company and its
subsidiaries (collectively, the "Permits"), all of which are
valid and in full force and effect, except for such Permits
the absence of which, individually or in the aggregate, would
not have a Material Adverse Effect. The Company and its
subsidiaries have been, and are, in compliance in all
material respects with all applicable statutes, laws,
ordinances, regulations, rules, judgments, decrees or orders
of any Governmental Entity, except for such non-compliance
which, individually or in the aggregate would not have a
Material Adverse Effect, and neither the Company nor any of
its subsidiaries has received any notice from any
Governmental Entity or any other person that either the
Company or any of its subsidiaries is in violation of, or has
violated, any
20
<PAGE> 25
applicable statutes, laws, ordinances, regulations, rules,
judgments, decrees or orders. Section 4.1(o)(i) of the
Disclosure Schedule lists all jurisdictions in which the
Company is licensed, authorized or permitted to write
insurance or reinsurance. The Company has been duly
authorized by the relevant state, foreign and other insurance
regulatory authorities to write the lines of insurance or
reinsurance that it is currently writing in the respective
jurisdictions in which it does business. Except as set forth
in Section 4.1(o)(i) of the Disclosure Schedule, the Company
does not conduct any business or underwrite reinsurance in
any foreign jurisdiction which requires any license or
approval for the Company to conduct its business as currently
conducted. No insurance regulator in any state has notified
the Company, orally or in writing, that the Company is
commercially domiciled in any jurisdiction, and the Company
is not aware of any facts that would result in the Company
being commercially domiciled in any state. The insurance
licenses listed in Section 4.1(o)(i) of the Disclosure
Schedule are the licenses necessary for the Company to
conduct the business in the manner and in the areas in which
such business is currently being conducted except where the
failure to be so licensed would not, individually or in the
aggregate, have a Material Adverse Effect, and all of the
insurance licenses are valid and in full force and effect.
The Company has not received any notice, oral or written,
that it has, and to its knowledge it has not, engaged in any
activity which would cause modification, limitation,
non-renewal, revocation or suspension of any insurance
license or permit, and no action, inquiry, investigation or
proceeding looking to or contemplating the revocation,
modification, limitation, non-renewal or suspension of any
thereof is pending or threatened. Except as set forth in
Section 4.1(o)(i) of the Disclosure Schedule, (i) all
reports, statements, documents, registrations, filings and
submissions to state insurance regulatory authorities
complied in all respects with applicable law in effect when
filed and (ii) no deficiencies have been asserted by any such
regulatory authority with respect to such reports,
statements, documents, registrations, filings or submissions
that have not been satisfied except to the extent that any
failure to file such items or such deficiencies would not,
individually or in the aggregate, result in a Material
Adverse Effect.
(ii) To the best of the Company's knowledge, all
Persons through whom the Company has placed or sold
reinsurance and insurance are duly licensed (to the extent
such licensing is required) to sell or place insurance and
reinsurance in the jurisdiction where they do so on behalf of
the Company. Except as set forth in Section 4.1(o)(ii) of the
Disclosure Schedule, no single agent, broker, intermediary or
producer generated more than $500,000 of the aggregate gross
written premium of the Company during the years ended
December 31, 1997 or December 31, 1998 or the period ending
August 31, 1999. Except as otherwise set forth in Section
4.1(o)(ii) of the Disclosure Schedule, no Person listed on
Section 4.1(o)(ii) of the Disclosure Schedule has given or
been given written notice of termination or, to the knowledge
of the Company, threatened or been threatened with
termination, or threatened or been threatened with a
substantial reduction in the amount of premiums to be written
by such Person on behalf of the Company. Except as set forth
in Section 4.1(o)(ii) of the
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Disclosure Schedule, the Company is not a party to any
managing general agency contracts or other similar
arrangements. Except as set forth in Section 4.1(o)(ii) of
the Disclosure Schedule, the Company is not a party to any
fronting or similar agreement to place or sell reinsurance or
insurance for any other Person.
(p) Contracts; Debt Instruments; Leases.
(i) Except as otherwise disclosed in Section
4.1(p)(i)(A)-4.1(p)(i)(F) of the Disclosure Schedule, neither
the Company nor any of its subsidiaries is a party to or
subject to:
(A) any union contract, or any employment,
consulting, severance, termination, or
indemnification agreement, contract or arrangement
providing for future payments, written or oral, with
any current or former officer, consultant, director
or employee which (1) exceeds $25,000 per annum or
(2) requires aggregate annual payments or total
payments over the life of such agreement, contract
or arrangement to such current or former officer,
consultant, director or employee in excess of
$25,000 or $50,000, respectively, and is not
terminable by it or its subsidiary on 30 days'
notice or less without penalty or obligation to make
payments related to such termination;
(B) any joint venture contract or
arrangement or any other agreement which has
involved or is expected to involve a sharing of
revenues of $50,000 per annum or more with other
persons;
(C) any lease for real or personal
property;
(D) any material agreement, contract,
policy, license, Permit, document, instrument,
arrangement or commitment which has not been
terminated or performed in its entirety and not
renewed which may be, by its terms, terminated,
impaired or adversely affected by reason of the
execution of this Agreement, the closing of the
Offer or the Merger, or the consummation of the
transactions contemplated hereby;
(E) any agreement, contract, policy,
license, Permit, document, instrument, arrangement
or commitment that materially limits the freedom of
the Company or any subsidiary of the Company to
compete in any line of business or with any person
or in any geographic area or which would so
materially limit the freedom of the Company or any
subsidiary of the Company after the Effective Time;
or
(F) any other agreement, contract, policy,
license, Permit, document, instrument, arrangement
or commitment not made in the ordinary course of
business which is material to the Company or any of
its subsidiaries.
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<PAGE> 27
(ii) All contracts, policies, agreements, leases,
licenses, Permits, documents, instruments, arrangements and
other commitments listed in Section 4.1(p)(i)(A)-4.1(p)(i)(F)
and Section 4.1(p)(iv) of the Disclosure Schedule or
otherwise disclosed in the Company Filed SEC Documents are
valid and binding agreements of the Company or a subsidiary
of the Company and are in full force and effect, except to
the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity
or at law and neither the Company, any of its subsidiaries
nor, to the knowledge of the Company, any other party
thereto, is in default in any material respect under the
terms of any such contract, plan, arrangement, agreement,
lease, license, Permit, instrument or other commitment.
(iii) Neither the Company nor any subsidiary of the
Company is in default in any material respect under the terms
of any exclusive license or distribution agreement or
arrangement, true and complete copies or descriptions of all
of which have been delivered to Parent. To the knowledge of
the Company, none of the parties to any of the contracts
identified pursuant to the immediately proceeding sentence,
in Section 4.1(p)(i)(A)-4.1(p)(i)(F) of the Disclosure
Schedule or otherwise disclosed in the Company Filed SEC
Documents has terminated, or in any way expressed an intent
to materially reduce or terminate the amount of, its business
with the Company or any of its subsidiaries in the future.
(iv) Set forth in Section 4.1(p)(iv) of the
Disclosure Schedule is (A) a list of all loan or credit
agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any indebtedness
of the Company or any of its subsidiaries in an aggregate
principal amount in excess of $100,000 is outstanding or may
be incurred and (B) the respective principal amounts
currently outstanding thereunder. For purposes of this
Section 4.1(p)(iv), "indebtedness" shall mean, with respect
to any person, without duplication, (A) all obligations of
such person for borrowed money, or with respect to deposits
or advances of any kind to such person, (B) all obligations
of such person evidenced by bonds, debentures, notes or
similar instruments, (C) all obligations of such person upon
which interest charges are customarily paid, (D) all
obligations of such person under conditional sale or other
title retention agreements relating to property purchased by
such person, (E) all obligations of such person issued or
assumed as the deferred purchase price of property or
services (excluding obligations of such person to creditors
for raw materials, inventory, services and supplies incurred
in the ordinary course of such person's business), (F) all
capitalized lease obligations of such person, (G) all
obligations of others secured by any Lien on property or
assets owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (H) all
obligations of such person under interest rate or currency
swap transactions (valued at the termination value thereof),
(I) all letters of credit issued for the account of such
person (excluding letters of credit issued for the benefit of
suppliers to support accounts payable
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<PAGE> 28
to suppliers incurred in the ordinary course of business),
(J) all obligations of such person to purchase securities (or
other property) which arises out of or in connection with the
sale of the same or substantially similar securities or
property, and (K) all guarantees and arrangements having the
economic effect of a guarantee of such person of any
indebtedness of any other person.
(v) All equipment, fixtures and other Properties
owned or leased by the Company (including those listed in the
Company's Depreciation Ledger in Section 4.1(p)(v) of the
Disclosure Schedule) are (i) in good operating condition and
repair, reasonable wear and tear excepted, and (ii) adequate
for the Business currently conducted by the Company and
suitable in all respects for the purposes for which they are
being used, except for such failures to be in such good
operating condition or adequacy or suitability which,
individually and in the aggregate, do not have a Material
Adverse Effect.
(q) Opinion of Financial Advisor. The Company has received
the opinion of Advest, dated the date hereof, a copy of which has been
or, within two business days of the date hereof, will be provided to
Parent, to the effect that, as of such date, the consideration to be
paid in the Offer and the Merger is fair to the Company's shareholders
from a financial point of view.
(r) Interests of Officers and Directors. None of the
Company's or any of its subsidiaries' officers or directors has any
interest in any property, real or personal, tangible or intangible,
including inventions, patents, copyrights, trademarks, trade names,
trade secrets or know-how, used in or pertaining to the business of
the Company or that of its subsidiaries, or any supplier, distributor
or customer of the Company or any of its subsidiaries, except for the
normal rights of a shareholder and rights under existing employee
Benefit Plans and Stock Plans.
(s) Technology.
(i) Except as set forth in Section 4.1(s) of the
Disclosure Schedule, the Company exclusively owns, or is
licensed to use, the rights to all patents, trademarks, trade
names, service marks, copyrights and any applications
therefor, technology, trade secrets, know-how, computer
software programs or applications and tangible or intangible
proprietary information or material that in any material
respect are used or proposed to be used in the business of
the Company and any of its subsidiaries as currently
conducted or proposed to be conducted (the "Company
Intellectual Property Rights"). Section 4.1(s) of the
Disclosure Schedule lists: (A) all patents, registered
trademarks, trade names, registered service marks, registered
copyrights, and any applications therefor included in the
Company Intellectual Property Rights; and (B) all material
licenses and other agreements to which the Company or any of
its subsidiaries is a party and pursuant to which the Company
or any of its subsidiaries is authorized to use any Company
Intellectual Property Right, and includes the identities of
the parties thereto, a description of the nature and subject
matter thereof, the applicable
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<PAGE> 29
royalty and the term thereof. Neither the Company nor any of
its subsidiaries is, or as a result of the execution,
delivery or performance of the Company's obligations
hereunder will be, in violation of, or lose any rights
pursuant to, any material license or agreement described in
Section 4.1(s) of the Disclosure Schedule.
(ii) No claims with respect to the Company
Intellectual Property Rights have been asserted in writing
or, to the knowledge of the Company, are threatened by any
person nor does the Company or any subsidiary of the Company
know of any valid grounds for any bona fide claims (A) to the
effect that the manufacture, sale or use of any product or
process as now used or offered or proposed for use or sale by
the Company or any subsidiary of the Company infringes on any
United States copyright, trade secret, United States patent
or other United States intellectual property right of any
person, (B) against the use by the Company or any subsidiary
of the Company of any Company Intellectual Property Rights,
or (C) challenging the ownership, validity or effectiveness
of any of the Company Intellectual Property Rights. All
granted and issued patents and all registered trademarks and
service marks listed in Section 4.1(s) of the Disclosure
Schedule and all registered copyrights held by the Company or
any of its subsidiaries are valid, enforceable and
subsisting. To the Company's knowledge, there has not been
and there is not any material unauthorized use, infringement
or misappropriation of any of the Company Intellectual
Property Rights by any third party, employee or former
employee.
(t) Change of Control. Except as disclosed in Section 4.1(t)
of the Disclosure Schedule, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
and thereby will not (i) result in any payment (including severance,
unemployment compensation, tax gross-up, bonus or otherwise) becoming
due to any current or former director, employee or independent
contractor of the Company or any of its subsidiaries, from the Company
or any of its subsidiaries under any Stock Plan, Benefit Plan,
agreement or otherwise, (ii) materially increase any benefits
otherwise payable under any Stock Plan, Benefit Plan, agreement or
otherwise or (iii) result in the acceleration of the time of payment,
exercise or vesting of any such benefits, in each case, that could
reasonably be expected to have a Material Adverse Effect.
(u) Environmental. Except as set forth in Section 4.1(u) of
the Disclosure Schedule, (i) the businesses as presently or formerly
engaged in by the Company and its subsidiaries are and have been
conducted in compliance in all material respects with all applicable
Environmental Laws (defined below), including having all permits,
licenses and other approvals and authorizations, during the time the
Company (or such subsidiary) engaged in such businesses, (ii) to the
knowledge of the Company, the properties presently owned or operated
by the Company or any subsidiary of the Company (including soil,
groundwater or surface water on, under or adjacent to the properties,
and buildings thereon) ("Company Properties") do not contain any
Hazardous Substance (defined below) other than as permitted under
applicable Environmental Laws,
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<PAGE> 30
(iii) neither the Company nor any subsidiary of the Company has
received any notices, demand letters or requests for information from
any federal, state, local or foreign governmental entity or any third
party indicating that the Company or any subsidiary of the Company may
be in violation of, or liable under, any Environmental Law in
connection with the ownership or operation of the Company's or any of
its subsidiaries' businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or to the knowledge of the
Company, threatened against the Company or any subsidiary of the
Company with respect to the Company or any subsidiary of the Company
or the Company Properties relating to any violation, or alleged
violation, of any Environmental Law, (v) to the knowledge of the
Company, no reports have been filed, or are required to be filed, by
the Company or any subsidiary of the Company concerning the release of
any Hazardous Substance or the threatened or actual violation of any
Environmental Law on or at Company Properties, (vi) to the knowledge
of the Company, no Hazardous Substance has been disposed of,
transferred, released or transported from any Company Property during
the time such Company Property was owned or operated by the Company or
any subsidiary of the Company, other than as permitted under
applicable Environmental Law, (vii) to the knowledge of the Company,
there have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the
possession of the Company or any subsidiary of the Company relating to
the Company or any subsidiary of the Company or the Company Properties
which have not been delivered to Parent prior to the date hereof,
(viii) to the knowledge of the Company, there are no underground
storage tanks on, in or under any of the Company Properties and no
underground storage tanks have been closed or removed from any Company
Properties while such Company Property was in the ownership of the
Company or any subsidiary of the Company, (ix) to the knowledge of the
Company, there is no asbestos present in any Company Property
presently owned or operated by the Company or any subsidiary of the
Company in violation of any Environmental Law, and no asbestos has
been removed from any Company Property while such Company Property was
owned or operated by the Company or any subsidiary of the Company, (x)
none of the Company Properties has been used at any time by the
Company or any subsidiary of the Company as a sanitary landfill or
hazardous waste disposal site, and (xi) neither the Company nor any
subsidiary of the Company has incurred, and to the knowledge of the
Company, none of the Company Properties are presently subject to, any
liabilities (fixed or contingent) relating to any suit, settlement,
court order, administrative order, judgment or claim asserted or
arising under any Environmental Law.
"Environmental Law" means (i) any federal, state, foreign and
local law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, (A) relating to
the protection, preservation or restoration of the environment
(including air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety or (B)
relating to the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of, Hazardous Substances, in each case
as amended and as now or hereafter in effect and
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<PAGE> 31
(ii) any common law or equitable doctrine (including injunctive
relief) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing any
such substance as a component. The term "Hazardous Substance" includes
any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, or petroleum or any
derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
(v) Title to Properties. Except as set forth in Section
4.1(v) of the Disclosure Schedule,
(i) each of the Company and its subsidiaries has
good and marketable or indefeasible title to, or valid
leasehold interests in, all its properties and assets, free
and clear of all Liens, except for defects in title,
easements, restrictive covenants and similar encumbrances or
impediments that, in the aggregate, do not and will not
materially interfere with the use of the properties or assets
subject thereto or affected thereby or otherwise materially
impair business operations at such properties;
(ii) each of the Company and each of its
subsidiaries has complied in all material respects with the
terms of all leases to which it is a party and under which it
is in occupancy, and all such leases are in full force and
effect and each of the Company and each of its subsidiaries
enjoys peaceful and undisturbed possession under all such
leases;
(iii) all royalties, rentals, and other payments due
with respect to the Company's its subsidiaries' leasehold or
other property interests have been properly and timely paid,
except (A) for payments which will not result in grounds for
cancellation of the Company's or its subsidiaries' rights and
(B) such failures as would not have a Material Adverse
Effect; and
(iv) neither the Company nor any of its subsidiaries
is in default (and there exists no event or circumstance
which with notice or the passage of time or both could
constitute a default by the Company or its subsidiaries)
under the terms of any leases, or other contracts or
agreements respecting the Company's or its subsidiaries'
which could (A) interfere in any material respect with the
operation or use thereof, (B) prevent the Company or its
subsidiaries from receiving the proceeds attributable to
their interest therein, (C) result in cancellation of the
Company's interest therein, or (D) impair the value of the
Company's or its subsidiaries' interest therein.
(w) Other Obligations.
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(i) except as disclosed in Section 4.1(w) of the
Disclosure Schedule, none of the Company and its subsidiaries
engages in any futures or options trading or is a party to
any related price swaps, hedges, futures or similar
instruments. Section 4.1(w) of the Disclosure Schedule
discloses a true and correct statement of the position, as of
the date hereof, of the Company and its subsidiaries with
respect to obligations under Fixed Price Contracts
(including, with respect to each Fixed Price Contract,
location of delivery and variations in the obligation to take
or deliver) and price swaps, hedges, futures or similar
instruments to which the Company or any of its subsidiaries
is a party and that are material to the Company. "Fixed Price
Contracts" shall mean any contracts, commitments or
agreements (x) having a remaining term of more than sixty
(60) days, wherein the purchase or sale price thereunder
throughout part of the remaining life of such contract,
commitment or agreement is a fixed amount or an amount that
is otherwise reasonably determinable as of the date hereof
pursuant to the terms of such contract, commitment or
agreement, or (y) which has been hedged with futures
contracts or otherwise.
(ii) neither the Company nor any of its subsidiaries
has entered into, or is a party to, or has any obligations
under, any contract for property or services that require
payment to be made by the Company or its subsidiaries
regardless of whether or not delivery is ever made of such
property or services.
(x) Public Utility Holding Company Act; Non-Utility Status.
Except as set forth in Section 4.1(x) of the Disclosure Schedule, (i)
neither the Company nor any of its subsidiaries is a "holding company"
or a "subsidiary company" of a "holding company" or an "affiliate" of
a "holding company" as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended; (ii) neither the Company nor
any of its subsidiaries is a regulated utility under the laws of any
state; (iii) no claim or complaint to the effect that the Company or
any of its subsidiaries is a regulated utility under the laws of any
state has been made to the Company or any of its subsidiaries or by
or, to the knowledge of the Company, to any public utilities
commission of any state; and (iv) neither the Company nor any of its
subsidiaries has offered pipeline service or gas transportation
services to the general public or to any significant segment thereof
or has dedicated its pipelines or related facilities in any manner to
public use.
(y) Year 2000. To the knowledge of the Company after due
inquiry except as disclosed in Section 4.1(y) of the Disclosure
Schedule, all of the MIS Systems (other than immaterial systems) and
the Facilities (other than immaterial Facilities) are, or prior to
November 1, 1999 will be, Year 2000 Compliant. The Company has made
inquiries of all material vendors of products or services to the
Company and its subsidiaries as to whether those vendors will continue
to furnish their products or services to the Company and its
subsidiaries without interruption or material delay, on and after
January 1, 2000, and as to whether such products and services are Year
2000 compliant. Section 4.1(y) of the Disclosure Schedule sets forth a
list of all vendor and supplier Year 2000 inquiry responses received
by the Company. "Year 2000 Compliant" means that (i) the MIS Systems
accurately process, provide and/or receive all date/time data
(including
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<PAGE> 33
calculating, comparing, sequencing, processing and outputting) within,
from, into, and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap
year calculations, and (ii) neither the Company's or any of its
subsidiaries' provision of their products and services nor the
performance on functionality of those products and services will be
materially adversely impacted by the transition from the twentieth to
the twenty-first century. "Facilities" means any facilities or
equipment used by the Company or any of its subsidiaries in any
location, including HVAC systems, mechanical systems, elevators,
security systems, fire suppression systems, telecommunications
systems, fax machines, copy machines, and equipment, whether or not
owned by the Company or any of its subsidiaries. "MIS Systems" means
any computer software and systems (including hardware, firmware,
operating system software, utilities software and applications
software) used in the ordinary course of business by or on behalf of
the Company or any of its subsidiaries, including in conjunction with
the Company's or any of its subsidiaries' payroll, accounting,
billing/receivables, inventory, asset tracking, customer service,
human resources, and e-mail systems.
(z) Insurance. Schedule 4.1(z) of the Disclosure Schedule
contains a true and complete list of all insurance policies held by
either the Company or any of its subsidiaries. All such policies held
by the Company or its subsidiaries, are in full force and effect and
all related premiums have been paid to date. There are no pending or
to the knowledge of the Company, threatened disputes or communications
with or from any insurance carrier denying or disputing any claim or
regarding cancellation or nonrenewal of any such policy. Since January
1, 1996, the Company has not failed to give any material notice or to
present any material claim under any insurance policy or surety bond
in due and timely fashion. The Company has given the Parent the most
recently available reports for the Company on: (i) accidents,
casualties or damages occurring on or to the properties or assets of
the Company; and (ii) claims by the Company for damages, reimbursement
of losses, contribution or indemnification under any insurance policy
and settlements or negotiations of settlements relating thereto,
except with respect to claims pursuant to Reinsurance Agreements or
Retrocession Arrangements, each as defined herein.
(aa) Investments.
(i) The Disclosure Schedule sets forth a true and
complete list of all bonds, stocks, mortgages and other
investments of any type owned by the Company as of the date
hereof (collectively, the "Scheduled Investments"). The
Company has good and marketable title to each of the
Scheduled Investments.
(ii) Except as set forth on the Disclosure Schedule,
none of the Scheduled Investments is currently in default in
the payment of principal or interest, and, to the knowledge
of the Company, no event has occurred which reasonably would
be expected to result in a diminution of the value of any
nonpublicly traded security owned by the Company.
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<PAGE> 34
(iii) There are no Liens on any of the Scheduled
Investments, except for (i) those Scheduled Investments
deposited with governmental authorities, as indicated on the
Disclosure Schedule, (ii) Liens which do not materially
detract from the value of the Scheduled Investments subject
thereto, and (iii) assets pledged to secure assumed
reinsurance contract obligations which assets are listed on
the Disclosure Schedule.
(iv) The Company has not taken or omitted to take,
any action which would result in the Company being unable to
enforce the terms of any Scheduled Investment or which would
cause any Scheduled Investment to be subject to any valid
offset, defense or counterclaim against the right of the
Company to enforce the terms of such Scheduled Investment.
(v) Except as disclosed on Section 4.1(aa)(v) of the
Disclosure Schedule, since December 31, 1998, the Company has
not (i) purchased or otherwise invested in, or committed to
purchase or otherwise invest in, any interest in real
property (including without limitation any extension of
credit secured by a mortgage or deed of trust), (ii)
purchased or otherwise invested in, or committed to purchase
or otherwise invest in, bonds, notes, debentures or other
evidences of indebtedness rated lower than "Baa" by Moody's
Investors Service Inc. or "BBB" by Standard & Poor's
Corporation at the time of purchase, (iii) entered into any
contract, agreement or arrangement with any affiliate with
respect to the purchase or other acquisition, sale or other
disposition or allocation of any Scheduled Investment or (iv)
entered into any contract, agreement or arrangement with
respect to any foreign investments.
(bb) Investment Company. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940.
(cc) Internal Controls. The Company maintains a system of
internal accounting controls, which it reasonably believes is
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to
any differences.
(dd) Assumed and Ceded Reinsurance Agreements.
(i) As used in this Agreement, the term "Reinsurance
Agreements" shall mean all assumed and ceded reinsurance and
retrocession agreements, contracts, treaties, or other
reinsurance or retrocession commitments, arrangements or
undertakings of any kind to which the Company is a party or
by which the Company or any of its respective Properties may
be bound or affected.
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(ii) Set forth in Section 4.1(dd)(ii) of the
Disclosure Schedule is a complete and accurate list of each
Reinsurance Agreement pursuant to which the Company has
assumed business and which was in force at any time after
December 31, 1996 and prior to August 31, 1999, including a
description of certain of the terms thereof (including the
name of the ceding company, the name of the broker, type of
contract, inception date, estimated premium and limit). The
Company will deliver to the Parent at the Closing a complete
and accurate list of each assumed Reinsurance Agreement in
force five Business Days prior to the Closing Date, including
information similar to Section 4.1(dd)(ii) of the Disclosure
Schedule.
(iii) Set forth in Section 4.1(dd)(iii) of the
Disclosure Schedule is a complete and accurate list of each
Reinsurance Agreement pursuant to which the Company has ceded
or transferred any portion of its obligations or liabilities
under any reinsurance or insurance agreement (a "Retrocession
Arrangement") and which was in force at August 31, 1999,
including a description of certain of the terms thereof
(including the name of the retrocessionaire, type of
contract, inception date, estimated premium and limit).
Except as set forth in Section 4.1(dd)(iii) of the Disclosure
Schedule, (i) to the knowledge of the Company, none of such
retrocessionaires is insolvent or the subject of a
rehabilitation, liquidation, conservatorship, receivership,
bankruptcy or similar proceeding; (ii) the financial
condition of any such retrocessionaires is not impaired to
the extent that a default thereunder is reasonably
anticipated, (iii) no notice of intended cancellation has
been received by the Company from of such retrocessionaires;
and (iv) the Company is entitled to take full credit in its
Annual Statutory Statements for all amounts recoverable by it
pursuant to any Retrocession Arrangement, and all such
amounts recoverable have been properly recorded in the books
and records of account of the Company and are properly
reflected in the Annual Statutory Statements. The Company
will deliver to the Parent at the Closing a complete and
accurate list of each Retrocession Arrangement in force five
Business Days prior to the Closing Date including information
similar to Section 4.1(dd)(iii) of the Disclosure Schedule.
Except as set forth in Section 4.1 (dd) (iii) of the
Disclosure Schedule no such Retrocession Arrangement contains
any provision providing that any such party thereto may
terminate, cancel, or commute the same by reason of the
transactions contemplated by this Agreement.
(iv) All of the Reinsurance Agreements and
Retrocession Arrangements are valid, binding and enforceable
against the Company and, to the best of the knowledge of the
Company, against the other parties thereto in accordance with
their terms and are in full force and effect. Except as set
forth in Section 4.1 (dd) (iv) of the Disclosure Schedule the
Company is not, and to the best of the knowledge of the
Company, no other party thereto is in, or claimed to be in,
material breach or material default under any Reinsurance
Agreement and Retrocession Arrangements, and no event has
occurred which (after notice or lapse of time or both) would
become a material breach or material default under,
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or would permit modification, cancellation, acceleration or
termination of, any Reinsurance Agreement and Retrocession
Arrangements or result in the creation of any material
encumbrance upon, or result in any Person obtaining any right
to acquire, any Properties, assets or rights of the Company.
Except as set forth in Section 4.1 (dd) (iv) of the
Disclosure Schedule there are no unresolved disputes under
any Reinsurance Agreement or Retrocession Arrangements.
(ee) Accounts with Financial Institutions. Section 4.1(ee) of
the Disclosure Schedule sets forth a list of all safe deposit boxes,
active bank accounts and other time or demand deposits of the Company,
together with names and addresses of the applicable financial
institution or other depository, the account number and the names of
all persons authorized to draw thereon or who have access thereto.
(ff) Minute Books; Stock Books; Officers and Directors. The
minute books of the Company which have been made available to the
Parent for its inspection contain true and complete records of all
meetings and consents in lieu of meetings of the Board of Directors
(and any committee hereof) of the Company and its shareholders since
incorporation and accurately reflect all transactions referred to in
such minutes and consents in lieu of meetings. Attached as Section
4.1(ff) of the Disclosure Schedule is a true and correct list of the
officers and directors of the Company and each of its subsidiaries as
of the date of this Agreement.
(gg) Continuing Business Relationships. Except as set forth
in Section 4.1(gg) of the Disclosure Schedule as of the date of this
Agreement, to the knowledge of the Company, no insured, reinsured,
retrocedent or retrocessionaire of the Company or the Parent has
informed the Company and the Company has no knowledge that any such
party may cease to do business or materially adversely change its
volume of business with the Company after the consummation of the
transactions contemplated hereby.
(hh) Insurance Reserves.
(i) The Company's reserves as of December 31, 1998
and each subsequent date on which such reserves may have been
redetermined (a) were determined in accordance with SAP; (b)
were computed in accordance with generally accepted loss
reserve standards and principles; (c) met the requirements of
all Governmental Authorities, including all insurance
regulatory agencies having authority over the Company; and
(d) made reasonable provision, in the aggregate, for all
unpaid loss and loss expense obligations, including
obligations for incurred but not reported loss and loss
adjustment expenses and unearned premiums as of the dates
referenced therein. The Company owns assets that qualify as
admitted assets under the insurance regulatory requirements
of each jurisdiction in which the Company is subject in an
amount at least equal to the reserves plus the minimum
statutory capital and surplus as required under such
insurance regulatory authorities.
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(ii) The Company has delivered or made available to
the Parent true and complete copies of all actuarial reports,
actuarial certificates on loss and loss adjustment expense
reserve reports prepared by or on behalf of the Company and
any other report prepared by any third party actuarial
consultant on behalf of or made available to the Company or
any of its affiliates, in each case relating to the adequacy
of the reserves for any period ending on or after December
31, 1995.
(ii) Disclosure. No representation or warranty of the Company
contained in this Agreement, and no statement contained in the
Disclosure Schedule or in any certificate, schedule, annex, list or
other writing furnished to the Parent, contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statement contained herein or therein, in light of the
circumstances under which they were made, not misleading.
Section 4.2 Representations and Warranties of Parent and Merger
Subsidiary. Parent and Merger Subsidiary represent and warrant to the Company
as follows:
(a) Organization, Standing and Corporate Power. Each of
Parent and Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to carry on its
business as now being conducted.
(b) Authority; Noncontravention. Parent and Merger Subsidiary
have all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of
Parent and Merger Subsidiary. This Agreement has been duly executed
and delivered by Parent and Merger Subsidiary and, assuming this
Agreement constitutes a valid and binding agreement of the Company,
constitutes a valid and binding obligation of such party, enforceable
against such party in accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles
of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of
this Agreement will not, conflict with, or result in any violation of,
or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of
Parent or any of its subsidiaries under, (i) the certificate of
incorporation or By-Laws of Parent or Merger Subsidiary or the
comparable charter or organizational documents of any other subsidiary
of Parent, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or Merger Subsidiary or
their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the
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following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent, Merger Subsidiary
or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (A) have a Material Adverse Effect on
Parent or any of its subsidiaries, (B) impair the ability of Parent
and Merger Subsidiary to perform their respective obligations under
this Agreement or (C) prevent the consummation of any of the
transactions contemplated by this Agreement. No Consent is required by
or with respect to Parent, Merger Subsidiary or any other subsidiary
of Parent in connection with the execution and delivery of this
Agreement or the consummation by Parent or Merger Subsidiary, as the
case may be, of any of the transactions contemplated by this
Agreement, except for (i) the filing of a certificate of merger in
accordance with Delaware Law and appropriate documents with the
relevant authorities of other states in which the Company is qualified
to do business, (ii) the filing of a premerger notification and report
form under the HSR Act, (iii) compliance with any applicable
requirements of the Exchange Act, (iv) such notices, filings and
consents as may be required under relevant state property transfer or
environmental laws, (v) filing with the insurance regulatory agencies
set forth in Section 4.1(d) of the Disclosure Schedule, and (vi) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any
foreign country in which the Company or any of its subsidiaries
conducts any business or owns any property or assets.
(c) Disclosure Documents.
(i) The information with respect to Parent and its
subsidiaries that Parent furnishes to the Company in writing
specifically for use in any Company Disclosure Document will
not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances
under which they were made, not misleading (A) in the case of
the Company Proxy Statement at the time the Company Proxy
Statement or any amendment or supplement thereto is first
mailed to shareholders of the Company, at the time the
shareholders vote on adoption of this Agreement and at the
Effective Time, and (B) in the case of any Company Disclosure
Document other than the Company Proxy Statement, at the time
of the filing thereof and at the time of any distribution
thereof.
(ii) The Offer Documents, when filed, will comply as
to form in all material respects with the applicable
requirements of the Exchange Act and will not at the time of
the filing thereof, at the time of any distribution thereof
or at the time of consummation of the Offer, contain any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein,
in the light of the circumstances under which they were made,
not misleading, provided, however, that this representation
and warranty will not apply to statements or omissions in the
Offer Documents based upon information furnished to Parent or
Merger Subsidiary in writing by the Company specifically for
use therein.
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(d) Financing. At the Effective Time, Parent and Merger
Subsidiary will have available all funds necessary (i) to satisfy
their respective obligations under this Agreement, and (ii) to pay all
the related fees and expenses in connection with the foregoing.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
Section 5.1 Conduct of Business. During the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all commercially reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and ongoing business
shall be unimpaired at the Effective Time. The Company will (i) comply in all
material respects with all laws, statutes, ordinances, rules and regulations
applicable to the Company, (ii) take all commercially reasonable steps to
preserve the current relationships of the Company with its brokers, reinsurance
intermediaries, ceding companies, reinsurers, agents, managing general agents,
suppliers and other persons with which the Company has significant business
relationships, and (iii) perform its obligations under all Reinsurance
Agreements, Contracts and commitments to which it is a party or by or to which
it is bound or subject; and (iv) require the Company's Accountants to conduct
an interim quarterly review with a written report of the Company's Form 10-Q
filing for the period ended September 30, 1999, in accordance with generally
accepted auditing standards. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time, the
Company shall not, and shall not permit any of its subsidiaries to, without the
prior written approval of Parent:
(a) (i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other
than dividends and distributions by any direct or indirect wholly
owned subsidiary of the Company to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities (other than
in connection with the exercise of Company Options);
(b) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than the issuance of Shares upon the exercise of Company
Options);
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(c) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(d) acquire or agree to acquire (including, without
limitation, by merger, consolidation or acquisitions of stock or
assets) any business, including through the acquisition of any
interest in any corporation, partnership, limited liability company,
joint venture, association or other business organization or division
thereof;
(e) mortgage or otherwise encumber or subject to any Lien or,
except in the ordinary course of business consistent with past
practice and pursuant to existing contracts or commitments, sell,
lease, license, transfer or otherwise dispose of any of the Company
Intellectual Property Rights or any other material properties or
assets;
(f) make or agree to make any new capital expenditures in
excess of $100,000;
(g) make any material tax election (unless required by law)
or settle or compromise any material income tax liability;
(h) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or settle any lawsuit other than the payment, discharge,
satisfaction or settlement, in the ordinary course of business
consistent with past practice and in accordance with their terms and
in an amount not to exceed $25,000, or waive the benefits of, or agree
to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its subsidiaries is a party;
(i) commence a lawsuit other than (i) for the routine
collection of bills or (ii) in such cases where the Company in good
faith determines that the failure to commence suit would result in a
material impairment of a valuable aspect of the Company's business,
provided that the Company consults with Parent prior to filing such
suit;
(j) (i) hire any permanent employee or any other employee
whose employment cannot be terminated at will without further payment
or enter into or amend any employment or severance agreement or
similar arrangements, (ii) make any determination as to amounts
payable under any plan, arrangement, or agreement, providing for
discretionary incentive compensation or bonus to any officer,
director, employee or independent contractor of the Company or any of
its subsidiaries, (iii) enter into, adopt, or amend (except as
required by Sections 2.5 and 5.9) any agreement, arrangement, or
Benefit Plan so as to increase the liability (whether or not
contingent) of the Company or the Parent or any of their subsidiaries
or ERISA affiliates in respect of compensation or benefits except as
may be required by law, or (iv) grant any options or increase any
employee or director compensation;
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(k) amend, commute, terminate or waive any of its rights
under any Reinsurance Agreement pursuant to which the Company has
ceded or transferred any of its obligations or liabilities.
(l) conclude any negotiations relating to outstanding issues
arising from the Eureko/VASA purchase or the Folksamerica/USF RE sale.
(m) make any material changes in their investment portfolio
or investment guidelines.
(n) authorize any of, or commit or agree to take any of, the
foregoing actions; or
(o) (i) take or agree or commit to take any action that would
make any representation or warranty of the Company hereunder
inaccurate in any material respect at, or as of any time prior to, the
Effective Time or (ii) omit or agree or commit to omit to take any
action necessary to prevent any such representation or warranty from
being inaccurate in any material respect at any such time.
Section 5.2 Shareholder Meeting; Proxy Material. The Company shall
cause a meeting of its shareholders (the "Company Shareholder Meeting") to be
duly called and held as soon as reasonably practicable following Merger
Subsidiary's acquisition of Shares in the Offer for the purpose of voting on
the approval and adoption of this Agreement and the Merger unless a vote of
shareholders of the Company is not required by Delaware Law. The Directors of
the Company shall, subject to their fiduciary duties as advised in writing by
Gibson, Dunn & Crutcher LLP, counsel to the Company, recommend approval and
adoption of this Agreement and the Merger by the Company's shareholders. In
connection with such meeting, the Company (i) will promptly prepare and file
with the SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its shareholders as promptly as practicable the Company
Proxy Statement and all other proxy materials for such meeting, (ii) subject to
the fiduciary duties of the Board of Directors of the Company as advised in
writing by Gibson, Dunn & Crutcher LLP, counsel to the Company, will use its
best efforts to obtain the necessary approvals by its shareholders of this
Agreement and the transactions contemplated hereby and (iii) will otherwise
comply with all legal requirements applicable to such meeting. The Company,
Parent and Merger Subsidiary, as the case may be, shall promptly prepare and
file any other filings required under the Exchange Act or any other federal or
state securities or corporate laws relating to the Merger and the transactions
contemplated herein (the "Other Filings"). Each of the parties hereto shall
notify the other parties hereto promptly of the receipt by it of any comments
from the SEC or its Staff and of any request of the SEC for amendments or
supplements to the Company Proxy Statement or by the SEC or any other
governmental officials with respect to any Other Filings or for additional
information and will supply the other parties hereto with copies of all
correspondence between it and its representatives, on the one hand, and the SEC
or the members of its Staff or any other governmental officials, on the other
hand, with respect to the Company Proxy Statement, any Other Filings or the
Merger. The Company, Parent and Merger Subsidiary each shall use all reasonable
efforts to obtain and furnish the information required to be included in the
Company Proxy Statement or any Other Filings. If at any time prior to the time
of
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approval of this Agreement and the Merger by the Company's shareholders there
shall occur any event that should be set forth in an amendment or supplement to
the Company Proxy Statement, the Company shall promptly prepare and mail to its
shareholders such amendment or supplement. The Company shall not mail the
Company Proxy Statement or, except as required by the Exchange Act or the rules
and regulations promulgated thereunder, any amendment or supplement thereto to
its shareholders to which Parent reasonably objects.
At the Company Shareholder Meeting, Parent, the Merger Subsidiary and
their respective affiliates will vote all Shares owned by them in favor of
approval and adoption of this Agreement, the Merger and the transactions
contemplated hereby and thereby.
Notwithstanding the foregoing, in the event that Parent and Merger
Subsidiary shall acquire at least 90% of the outstanding Shares pursuant to the
Offer or otherwise, the parties hereto agree, at the request of Parent and
Merger Subsidiary, to take all necessary and appropriate action to cause the
Merger to become effective in accordance with Section 253 of the DGCL, as soon
as reasonably practicable after such acquisition and the satisfaction or waiver
of the conditions of this Agreement, without a meeting of the shareholders of
the Company.
Section 5.3 Access to Information.
(a) From the date hereof until the Effective Time, the
Company shall, and shall cause each of its subsidiaries to, give
Parent, its counsel, financial advisors, auditors and other authorized
representatives full access (during normal business hours and upon
reasonable notice) to the offices, properties, books and records of
the Company and the subsidiaries, will furnish to Parent, its counsel,
financial advisors, auditors and other authorized representatives all
their respective properties, books, contracts, commitments, personnel
and records and, during such period, the Company shall, and shall
cause each of its subsidiaries to, furnish (i) a copy of each report,
schedule, registration statement and other document filed by it during
such period pursuant to the requirements of Federal or state
securities laws, (ii) a copy of each tax return, report and
information statement filed by it during such period, and (iii) all
other information concerning its business, assets, properties and
personnel (including financial and operating data) as such persons may
reasonably request and will instruct the Company's employees, counsel
and financial advisors to cooperate with Parent in its investigation
of the business of the Company and the subsidiaries; provided that no
investigation pursuant to this Section 5.3 shall affect any
representation or warranty given by the Company hereunder.
(b) From the date hereof until the Effective Time, the
Company will give Parent, its counsel, financial advisors, auditors
and other authorized representatives full access (during normal
business hours at their actual location) to all accounting, revenue,
marketing, producer, processing, and other books, records and data in
possession of Company, except such records or data which Company is
prevented by contractual obligations with third parties from
disclosing; provided that in the event the Company is prohibited from
making files or records available because of provisions of third party
agreements, then the Company shall inform Parent of the existence of
such records, the parties thereto and the subject matter of such
records.
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(c) From the date hereof, the order issued in that certain
litigation entitled The Centris Group, Inc. et al. v. HCC Benefits
Corporation, et al. Civil Action No. 99-1-4866-28 in the Superior
Court of Cobb County, State of Georgia (the "Kelbel Litigation") shall
be suspended except for the running of any time limitations on Mr.
Craig Kelbel's ("Kelbel") activities which shall continue and the
restriction on Kelbel shall be of no further force and effect,
provided, however, that if this Agreement is terminated by Parent for
any reason other than the occurrence of a Trigger Event, as defined
herein, such restrictions shall be reinstated. The parties agree to
use their best efforts to cause the Order in the Kelbel Litigation to
be amended to conform to the terms hereof.
Section 5.4 Other Offers. Until the termination of this Agreement, the
Company and its subsidiaries will not, and will not authorize or permit the
officers, directors, employees or other agents of the Company and its
subsidiaries to, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Acquisition Proposal (defined below) or (ii) subject
to the fiduciary duties of the Board of Directors under applicable law, as
advised in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company, and
in response to an unsolicited request that has been submitted to the Company's
Board of Directors and determined to be a Superior Acquisition Proposal
(defined below), engage in negotiations with, or disclose any nonpublic
information relating to the Company or any of its subsidiaries or afford access
to the properties, books or records of the Company or any of its subsidiaries
to, any person that has advised the Company that it may be considering making,
or that has made, an Acquisition Proposal, provided, however, nothing herein
shall prohibit the Company's Board of Directors from taking and disclosing to
the Company's shareholders a position with respect to a tender offer pursuant
to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company will
promptly notify Parent after receipt of any Acquisition Proposal or any
indication that any person is considering making an Acquisition Proposal or any
request for nonpublic information relating to the Company or any of its
subsidiaries or for access to the properties, books or records of the Company
or any of its subsidiaries by any person that has advised the Company that it
may be considering making, or that has made, an Acquisition Proposal and will
keep Parent fully informed of the status and details of any such Acquisition
Proposal, notice or request. For purposes of this Agreement, "Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, a
merger or other business combination involving the Company or any of its
subsidiaries or the acquisition of any significant equity interest in, or a
significant portion of the assets of, the Company or any of its subsidiaries,
other than the transactions contemplated by this Agreement. "Superior
Acquisition Proposal" means an Acquisition Proposal which a majority of the
disinterested directors determines in its good faith judgment (based on the
written advice of Advest) to be more favorable to the Company's shareholders
than the Offer or the Merger, and for which financing, to the extent required,
is then committed.
Section 5.5 Rights Agreement. The Company hereby agrees that upon
execution of this Agreement, it shall take all necessary action under the
Rights Agreement dated as of May 24, 1990, as amended, by and between the
Company and American Stock Transfer & Trust Company (the "Rights Agreement"),
including any required amendment thereto, so that commencement of the Offer,
the consummation of the Offer, the grant or exercise of any rights under the
Stock Option Agreement or the Shareholder Option Agreement or any other acts
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pursuant hereto or thereto on the terms permitted hereunder and thereunder and
as contemplated herein and therein will not cause (A) the rights (the "Rights")
issued pursuant to the Rights Agreement to become exercisable under the Rights
Agreement, (B) the Parent, or any subsidiary of the Parent, including Merger
Subsidiary to be deemed a "10% Stockholder" (as defined in the Rights
Agreement) or (C) the "10% Stock Ownership Date" (as defined in the Rights
Agreement) to occur, provided, however, that the Company shall not be required
to make such amendments to the Rights Agreement if, (i) the Parent has not
performed or complied in all material respects with this Agreement prior to the
consummation of the Offer or (ii) the Company obtains, and there is in force
from the Delaware Court of Chancery, an order permanently, preliminarily or
temporarily declaring that the making of such amendments to the Rights
Agreement would be contrary to the fiduciary duties of the Board of Directors
of the Company. Notwithstanding anything else contained herein, in no event
shall the Board of Directors of the Company make an amendment of the Rights
Agreement in favor of any other person without making such amendment in favor
of the Parent.
Section 5.6 State Takeover Statutes. If any "fair price", "control
share acquisition", "moratorium" or other anti-takeover statute, or similar
statute or regulation shall become applicable to this Agreement, the
Shareholder Option Agreement, the Stock Option Agreement or any of the
transactions contemplated hereby or thereby, including, without limitation, the
Offer or the Merger, the Company and its Board of Directors shall take all
action necessary to ensure that the Offer, the Merger and the other
transactions contemplated hereby and thereby, may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation on the Offer, the Merger and the other
transactions contemplated hereby or thereby.
Section 5.7 Regulatory Filings. The Company covenants and agrees to
commence preparation of and, consistent with past practice and on a timely
basis, if required prior to the Closing Date, file with or submit to any
insurance department or other Governmental Entity with which the Company is
required to make such filings or submissions, and, if filed prior to the
Closing Date, deliver to the Parent true and complete copies of, the quarterly
statutory statement for each quarter of 1999 ended prior to the Closing Date,
together with all related notes, exhibits and schedules thereto. All such
quarterly statements filed with or submitted to any insurance department or
Governmental Entity (i) shall be prepared from the books of account and other
financial records of the Company, (ii) shall be filed with or submitted to such
insurance departments and Governmental Entities, on forms prescribed or
permitted thereby, (iii) shall be prepared in accordance with SAP applied on a
basis consistent with the past practices of the Company (except as set forth in
the notes, exhibits or schedules thereto), and shall comply on their respective
dates of filing or submission with the laws of such jurisdictions, (iv) shall
present fairly the statutory assets, liabilities, capital and surplus, results
of operations and cash flows of the Company as of the dates thereof or for the
periods covered thereby (subject to normal estimation of accruals and reserves
and normal year-end audit adjustments), and (v) shall not use any accounting
practices that are permitted rather than prescribed by the insurance
departments and regulatory authorities.
Section 5.8 Affirmative Actions. The Company shall retain an
independent actuary (the "Actuary") which is acceptable to Parent to prepare an
independent actuarial review of all
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aspects of the Company's business, including, without limitation, the Company's
property/casualty reserves, including discontinued operations, the medical
lines business, recoverable value of the Company's notes receivable and
indemnification obligations of the Company. Such actuarial study shall commence
no later than five Business Days from the date this Agreement is executed and
shall be completed no later than two Business Days after receipt of all
regulatory approvals to the Merger from required state insurance regulatory
agencies. The Company shall make the reserve adjustments and take such other
charges, in accordance with GAAP and SAP, consistent with the findings of such
actuarial review. Such adjustments and charges shall be recorded on the
Company's books no later than three Business Days following the receipt from
the Actuary of such review. The Company further agrees to utilize reasonable
commercial efforts and to cooperate with Parent in the establishment of
underwriting standards for business commencing January 1, 2000.
Section 5.9 Termination of Benefit Plans. The Company shall terminate
or cause to be terminated The Centris Group, Inc. Employees' Savings Plan and
the VASA North America, Inc. 401(k) Profit Sharing Plan prior to the date on
which the Company and/or its subsidiaries and ERISA affiliates become members
of a "controlled group" with or under "common control" with Parent as such
terms are defined in Section 414(b) and 414(c) of the Code.
ARTICLE 6
COVENANTS OF PARENT
Parent agrees that:
Section 6.1 Obligations of Merger Subsidiary. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Offer and the Merger on the terms and
conditions set forth in this Agreement.
Section 6.2 Voting of Shares. Parent agrees to be present and vote all
Shares acquired in the Offer or otherwise beneficially owned by it in favor of
adoption of this Agreement at the Company Shareholder Meeting.
Section 6.3 Director and Officer Liability. (a) After the Effective
Time, Parent will cause the Surviving Corporation to indemnify and hold
harmless the present and former officers, directors, employees and agents of
the Company and its subsidiaries (the "Indemnified Parties") in respect of acts
or omissions based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that such Indemnified Party is or was a
director, officer or employee of the Company, any of its subsidiaries or any of
their respective predecessors or was prior to the Effective Time serving at the
request of any such party as an officer, director, employee or agent of another
corporation, partnership, trust or other enterprise or (ii) this Agreement, or
any of the transactions contemplated hereby and all actions taken by an
Indemnified Party in connection herewith. The parties hereto agree to cooperate
and use commercially reasonable efforts to defend against and respond to such
proceedings to the extent set forth in the next sentence. It is understood and
agreed that after the Effective Time, Parent shall cause Surviving Corporation
to indemnify and hold harmless, as and to the fullest extent permitted by the
Company's Certificate of Incorporation and By-Laws in effect on the date hereof
and by law, each such Indemnified
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<PAGE> 46
Party against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorneys' fees and expenses payable as incurred and in
advance of the final disposition of any claim, suit, proceeding or
investigation subject to the obligation of each Indemnified Party to repay such
advanced expenses if it is finally and unappealably determined that such
Indemnified Party was not entitled to indemnification hereunder), judgments,
fines and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, and in the event of
any such threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time) (collectively,
"Claims"), the Indemnified Parties may retain counsel reasonably satisfactory
to them after consultation with the Surviving Corporation, provided, however,
that (1) the Surviving Corporation shall have the right to assume the defense
thereof and upon such assumption the Surviving Corporation shall not be liable
to any Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by an Indemnified Party in connection with the
defense thereof, except that if the Surviving Corporation elects not to assume
such defense, or counsel for the Indemnified Parties reasonably advises the
Indemnified Parties that there are or may be (whether or not any have yet
actually arisen) issues which raise conflicts of interest between the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them, and the Surviving Corporation shall
pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (2) the Surviving Corporation shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
the Surviving Corporation shall not be liable for any settlement effected
without its prior written consent, and (4) the Surviving Corporation shall have
no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by the Certificate of
Incorporation or By-Laws of the Company or its subsidiaries or applicable law.
Any Indemnified Party wishing to claim indemnification under this Section 6.3,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Surviving Corporation thereof, provided that the failure to so
notify shall not affect the obligations of the Surviving Corporation under this
Section 6.3 except (and only) to the extent such failure to notify materially
prejudices the Surviving Corporation.
(b) Without limiting any of the obligations under paragraph (a) of
this Section 6.3, the Surviving Corporation agrees that all rights to
indemnification and all limitations of liability existing in favor of the
Indemnified Parties as provided in the Company's Certificate of Incorporation
or By-Laws or in the similar governing documents of any of the Company's
subsidiaries as in effect as of the date of this Agreement with respect to
matters occurring on or prior to the Effective Time shall survive the Merger
and shall continue in full force and effect thereafter, without any amendment
thereto; provided, however, that nothing contained in this Section 6.3(b) shall
be deemed to preclude the liquidation, consolidation or merger of the Company
or any subsidiary thereof, in which case all of such rights to indemnification
and limitations on liability shall be deemed to so survive and continue
notwithstanding any such liquidation, consolidation or merger and shall
constitute rights which may be asserted against the Surviving Corporation.
Nothing contained in this Section 6.3(b) shall be deemed to preclude any rights
to indemnification or limitations on liability provided in the Company's
Certificate of Incorporation or By-Laws or similar governing documents of the
Surviving Corporation with
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respect to matters occurring subsequent to the Effective Time to the extent
that the provisions establishing such rights or limitations are not otherwise
amended to the contrary.
(c) The Surviving Corporation shall use its commercially reasonable
effects to cause the persons serving as officers and directors of the Company
and its subsidiaries immediately prior to the Effective Time to be covered for
a period of three years from the Effective Date by the directors' and officers'
liability insurance policy maintained by the Surviving Corporation (provided
that the Surviving Corporation may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are not less
advantageous to such directors and officers than the terms and conditions of
such existing policy and provided further that in no event will the Surviving
Corporation be required to expend in any one year an amount in excess of 200%
of the annual premiums currently paid by the Company for such insurance) with
respect to acts or omissions occurring prior to the Effective Time which were
committed by such officers and directors in their capacity as such.
(d) The provisions of this Section 6.3 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
Section 6.4 Employees. Parent agrees at the Effective Time that it (or
the Surviving Corporation) shall be a successor employer with respect to, and
shall assume sponsorship of (or cause the Surviving Corporation to assume
sponsorship of), in accordance with their terms all Benefit Plans and "employee
benefit plans" (as defined in Section 3(3) of ERISA) previously delivered to
Parent and all accrued benefits vested thereunder, other than Benefit Plans
terminated prior to the Effective Time; it being understood and agreed that
nothing in this Section 6.4 shall prevent Parent from terminating any such
Benefit Plan in accordance with its terms or shall require Parent or the
Surviving Corporation to incur any liability or assume any obligation other
than liabilities and obligations existing under the terms of such plans as in
effect as of the date hereof.
ARTICLE 7
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
Section 7.1 HSR Act Filings; Other Filings Reasonable Efforts;
Notification.
(a) Each of Parent and the Company shall (i) promptly make or
cause to be made the filings required of such party or any of its
subsidiaries under the HSR Act with respect to the transactions
contemplated by this Agreement, (ii) comply at the earliest
practicable date with any request under the HSR Act for additional
information, documents, or other material received by such party or
any of its subsidiaries from the Federal Trade Commission or the
Department of Justice or any other Governmental Entity in respect of
such filings or such transactions, and (iii) cooperate with the other
party in connection with any such filing and in connection with
resolving any investigation or other inquiry of any such agency or
other Governmental Entity under any Antitrust Laws (defined below)
with respect to any such filing or any such transaction.
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Each party shall promptly inform the other party of any communication
with, and any proposed understanding, undertaking, or agreement with,
any Governmental Entity regarding any such filings or any such
transaction. The Company shall not participate in any meeting (whether
in person or by telephone) with any Governmental Entity in respect of
any such filings, investigation, or other inquiry without Parent's
consent and without giving Parent notice of the meeting and, to the
extent permitted by such Governmental Entity, the opportunity to
attend and participate.
(b) Each of Parent and the Company shall use all commercially
reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement under the HSR Act, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission
Act, as amended, and any other Federal, state or foreign statutes,
rules, regulations, orders or decrees that are designed to prohibit,
restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws").
In connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any
Antitrust Law, and, if by mutual agreement, Parent and the Company
decide that litigation is in their best interests, each of Parent and
the Company shall cooperate and use all reasonable efforts vigorously
to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or permanent
(each an "Order"), that is in effect and that prohibits, prevents, or
restricts consummation of any such transaction. Each of Parent and the
Company shall use all commercially reasonable efforts to take such
action as may be required to cause the expiration of the notice
periods under the HSR Act or other Antitrust Laws with respect to such
transactions as promptly as possible after the execution of this
Agreement.
(c) Each of the parties agrees to promptly make or cause to
be made the filings required of each such party or any of its
subsidiaries under any insurance regulatory law or act in any state
where such filing is required or, at the request of Parent, deemed
advisable, and to comply at the earliest practicable date with any
requests made by any insurance regulatory agency or any other
Governmental Entity for additional information, documents or other
material received by such party or any of its subsidiaries and to
cooperate with the other party in connection with any such filing and
in connection with resolving any investigation or other inquiry or
hearing of any such agency or other Governmental Entity under any
insurance law relating to licensing, holding company applications,
change in control, etc. with respect to any such filing or any such
transaction. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking
agreement with, any Governmental Entity or insurance agency regarding
any such filings or any such transaction. The Company shall not
participate in any meeting (whether in person or by telephone) with
any Governmental Entity or insurance regulatory agency in respect of
any such filings, investigation, or other inquiry without Parent's
consent and without giving Parent notice of the meeting, and to the
extent permitted by such Governmental Entity, the opportunity to
attend and participate.
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(d) Each of the parties agrees to use all commercially
reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner
practicable, the Offer, the Merger, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all
other necessary actions or nonactions, waivers, consents and approvals
from Governmental Entities and the making of all other necessary
registrations and filings (including other filings with Governmental
Entities, if any), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the preparation of the
Company Disclosure Documents and the Offer Documents, and (iv) the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
(e) Notwithstanding anything to the contrary in Section
7.1(a), 7.1(b), 7.1(c), or 7.1(d), (i) neither Parent nor any of its
subsidiaries shall be required to divest any of their respective
businesses, product lines or assets, or to take or agree to take any
other action or agree to any limitation that could reasonably be
expected to have a material adverse effect on the business, assets,
financial condition, results of operations or prospects of Parent or
any of its subsidiaries or the Surviving Corporation after the
Effective Time, (ii) neither the Company nor its subsidiaries shall be
required to divest any of their respective businesses, product lines
or assets, or to take or agree to take any other action or agree to
any limitation that could reasonably be expected to have a Material
Adverse Effect, (iii) no party shall be required to agree to the
imposition of, or to comply with, any condition, obligation or
restriction on Parent or any of its subsidiaries or on the Surviving
Corporation or any of its subsidiaries of the type referred to in
clause (a) or (b) of Annex I and (iv) neither Parent nor Merger
Subsidiary shall be required to waive any of the conditions to the
Offer set forth in Annex I or any of the conditions to the Merger set
forth in Article 8.
(f) Each of the Company and Parent agree to give prompt
notice to the other of (i) any representation or warranty made by such
party contained in this Agreement becoming untrue or inaccurate in any
respect or (ii) the failure by such party to comply with or satisfy in
any respect any covenant, condition or agreement to be complied with
or satisfied by such party under this Agreement; provided, however,
that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions
to the obligations of the parties under this Agreement.
(g) The Company shall give prompt notice to Parent, and
Parent or Merger Subsidiary shall give prompt notice to the Company,
of:
(i) any notice or other communication from any
person alleging that the consent of such person is or may be
required in connection with the transactions contemplated by
this Agreement;
(ii) any notice or other communication from any
Governmental Entity in connection with the transactions
contemplated by this Agreement; and
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(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise
affecting it or any of its subsidiaries which, if pending on
the date of this Agreement would have been required to have
been disclosed pursuant to this Agreement or which relate to
the consummation of the transactions contemplated by this
Agreement.
Section 7.2 Public Announcements. Each party will consult with the
others before issuing, and provide the others the opportunity to review and
comment upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, the Shareholder Option Agreement
and the Stock Option Agreement, including the Offer and the Merger, and each
party shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD.
Section 7.3 Confidentiality. The terms of the letter agreement, agreed
and consented to by the Parent on August 22, 1999, between the Company and the
Parent (the "Confidentiality Agreement") are hereby incorporated by reference
and shall continue in full force and effect except the last sentence of Section
(5) on page 4, which is hereby deleted in its entirety until the Closing, at
which time such Confidentiality Agreement and the obligations of the Parent
under this Section 7.3 shall terminate; provided, however, that the
Confidentiality Agreement shall not terminate in respect of that portion of
such confidential information relating exclusively to matters not related to
the transactions contemplated by this Agreement. If this Agreement is, for any
reason, terminated prior to the Closing, the Confidentiality Agreement shall
continue in full force and effect in respect of such confidential information.
After the Closing Date, each of the persons who were the Company's officers,
directors and affiliates as of the date hereof shall keep all non-public
information relating to the Company and the Parent confidential on the same
terms as set forth in the Confidentiality Agreement.
Section 7.4 Interim Financial Statements. The Company shall, as soon
as available, but no later than 60 days after the end of the relevant month or
quarter, as the case may be, deliver promptly to the Parent any and all final
monthly and quarterly financial statements for the Company, audited or
unaudited, prepared for the management of the Company after the date of this
Agreement and prior to the Closing Date.
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ARTICLE 8
CONDITIONS TO THE MERGER
Section 8.1 Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following conditions:
(a) if required by Delaware law, this Agreement shall have
been adopted by the shareholders of the Company in accordance with
such law;
(b) any applicable waiting period under the HSR Act relating
to the Merger shall have expired;
(c) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger;
(d) Parent or Merger Subsidiary shall have purchased Shares
in an amount equal to at least the Minimum Condition pursuant to the
Offer; and
(e) other than the filing of the certificate of merger in
accordance with Delaware Law, all Consents required to permit the
consummation of the Merger including those set forth in Sections
4.1(d) and 4.2(b) and those of any insurance regulatory agency or body
shall have been filed, occurred or been obtained (other than any such
Consents the failure to file, occur or obtain, in the aggregate, could
not reasonably be expected to (i) have a Material Adverse Effect or
(ii) prevent or materially delay the consummation of the Merger).
(f) each Governmental Entity having jurisdiction over the
Company or any of its subsidiaries, their business, licenses or
permits, shall have, where applicable, approved the transactions
contemplated by this Agreement and any "change of control" incidental
thereto.
(g) each of the Officers and employees whose names are set
forth on Annex II shall have executed an agreement to remain in the
employment of the Surviving Corporation for a period of 120 days after
the Effective Time and as of the Effective Time, none of such persons
listed on Annex II-A, and no more than two of those persons set forth
on Annex II-B shall have voluntarily terminated or terminated for Good
Reason, as defined in the respective Severance Agreements entered into
by each of such persons.
(h) The Company shall have performed its obligations under
Section 5.8 hereof.
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ARTICLE 9
TERMINATION
Section 9.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the shareholders of the
Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not
been consummated by June 30, 2000 (provided that the party seeking to
terminate the Agreement shall not have breached its obligations under
this Agreement in any material respect);
(c) by either the Company or Parent, if such party has
received an opinion from its counsel that there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
Parent or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and
nonappealable;
(d) by either the Company or Parent (provided that no party
shall be entitled to terminate this Agreement pursuant to this clause
(d) as a result of its breach of this Agreement), (x) if Parent or
Merger Subsidiary shall have failed to commence the Offer within five
business days following the date of this Agreement, (y) if Parent or
Merger Subsidiary shall not have purchased any Shares pursuant to the
Offer prior to February 29, 2000 (or, if the Offer shall have been
extended by Merger Subsidiary pursuant to this Agreement, on or prior
to March 31, 2000) or (z) the Offer shall have been terminated without
Parent or Merger Subsidiary having purchased any Shares pursuant to
the Offer;
(e) by Parent, upon the occurrence of any Trigger Event
described in clauses (i) through (iii) of Section 10.4(b); or
(f) by the Company, upon the occurrence of any Trigger Event
described in clause (i) of Section 10.4(b).
Section 9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto or their respective officers and
directors, except that the agreements contained in Sections 10.4 and 10.6 shall
survive the termination hereof and except to the extent that such termination
results from the material breach by a party of any representations, warranties,
covenants or agreements set forth in this Agreement.
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ARTICLE 10
MISCELLANEOUS
Section 10.1 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to Parent or Merger Subsidiary, to:
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, Texas 77040-6094
Telecopy: (713) 462-2401
Attention: Frank J. Bramanti
with a copy (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 2400
Houston, Texas 77002
Telecopy: (713) 650-2400
Attention: Arthur S. Berner
if to the Company, to:
The Centris Group, Inc.
650 Town Center Drive
Suite 1600
Costa Mesa, California 92626
Telecopy: (714) 434-0750
Attention: Jose A. Velasco
with a copy (which shall not constitute notice) to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Telecopy: (949) 451-4220
Attention: Robert E. Dean
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective when delivered at the address
specified in this Section.
Section 10.2 Survival of Representations and Warranties. The
representations, warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement except for the agreements
set forth in Sections 10.4 and 10.6.
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Section 10.3 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by the Company,
Parent and Merger Subsidiary or in the case of a waiver, by the party
against whom the waiver is to be effective; provided, however, that
after the adoption of this Agreement by the shareholders of the
Company, no such amendment or waiver shall, without the further
approval of such shareholders, alter or change (i) the amount or kind
of consideration to be received in exchange for any shares of capital
stock of the Company, (ii) any term of the certificate of
incorporation of the Surviving Corporation or (iii) any of the terms
or conditions of this Agreement if such alteration or change would
adversely affect the holders of any shares of capital stock of the
Company.
(b) No failure or delay by any party 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 other right, power or
privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law.
Section 10.4 Fees and Expenses.
(a) Except as otherwise provided in this Section, all costs
and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
(b) The Company agrees to pay to Parent, at Parent's demand
and sole election, a fee (the "Termination Fee") in immediately
available funds, promptly, but in no event later than one business
day, after the termination of this Agreement as a result of the
occurrence of any of the events set forth below (a "Trigger Event") in
an amount equal to $6,000,000 in the case of the occurrence of a
Trigger Event described below:
(i) the Company shall have entered into, or shall
have publicly announced its intention to enter into, an
agreement or an agreement in principle with respect to any
Acquisition Proposal;
(ii) any person or group (as defined in Section
13(d)(3) of the Exchange Act) (other than Parent or any of
its affiliates) shall have become the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act) of
at least 20% of the outstanding Shares or shall have
acquired, directly or indirectly, at least 20% of the assets
of the Company;
(iii) any representation or warranty made by the
Company in, or pursuant to, this Agreement that is qualified
as to materiality shall not have been true and correct when
made or at any time prior to the consummation of the Offer as
if made at and as of such time, or any representation or
warranty made by the Company in, or pursuant to, this
Agreement that is not so qualified shall not have
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been true and correct in all material respects when made or
at any time prior to the consummation of the Offer as if made
at and as of such time, or the Company shall have failed to
observe or perform in any material respect any of its
obligations under this Agreement; provided that it shall not
be a Trigger Event unless the breaches of the representations
and warranties without regard to any materiality qualifier or
threshold, and failure to perform or breach of any
obligation, individually or in the aggregate, could
reasonably be expected to have or result in a Material
Adverse Effect; or
(iv) the Board of Directors of the Company (or any
special committee thereof) shall have withdrawn or materially
modified in a manner adverse to Parent or Merger Subsidiary
its approval or recommendation of the Offer, the Merger, this
Agreement, the Shareholder Option Agreement, the Stock Option
Agreement in any such case whether or not such withdrawal or
modification is required by the fiduciary duties of the Board
of Directors (or any special committee thereof).
(c) If this Agreement is terminated as a result of the
occurrence of a Trigger Event, in addition to the Termination Fee paid
or payable by the Company to Parent pursuant to Section 10.4(b),
Company shall assume and pay, or reimburse Parent for, all reasonable
fees payable and expenses incurred by Parent (including the fees and
expenses of its counsel) in connection with this Agreement and the
transactions contemplated hereby, up to a maximum of $1,000,000.
(d) Parent shall not be entitled to the Termination Fee if
Parent shall have exercised all or any part of the option granted to
Parent in the Stock Option Agreement.
Section 10.5 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more
of Parent or any of its wholly-owned subsidiaries, the right to purchase Shares
pursuant to the Offer, but any such transfer or assignment will not relieve
Merger Subsidiary of its obligations under the Offer or prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
Section 10.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware (without
reference to the Delaware conflicts of law provisions).
Section 10.7 Counterparts; Effectiveness; Interpretation. This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto. When a reference is made in this Agreement to a Section, such
reference
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<PAGE> 56
shall be to a Section of this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 10.8 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 10.9 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. Upon such determination that any
term 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 to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 10.10 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the Disclosure Schedule) and the Confidentiality Agreement
dated as of August 22, 1999 between Parent and the Company (a) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties hereto with respect to the subject matter
hereof, and (b) are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder other than rights to indemnity
under Section 6.3.
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The parties hereto have caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above
written.
THE CENTRIS GROUP, INC.
By: /s/ DAVID L. CARGILE
-----------------------------------
Name: David L. Cargile
---------------------------------
Title: Chairman of the Board and
Chief Executive Officer
--------------------------------
HCC INSURANCE HOLDINGS, INC.
By: /s/ STEPHEN L. WAY
-----------------------------------
Name: Stephen L. Way
---------------------------------
Title: Chairman of the Board and
Chief Executive Officer
--------------------------------
MERGER SUB OF DELAWARE, INC.
By: /s/ STEPHEN L. WAY
-----------------------------------
Name: Stephen L. Way
---------------------------------
Title: Chairman of the Board and
Chief Executive Officer
--------------------------------
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ANNEX I
Notwithstanding any other provision of the Offer, Parent and Merger
Subsidiary shall not be required to accept for payment or (subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Merger Subsidiary's obligation to pay for or return
tendered Shares after the termination or withdrawal of the Offer)) to pay for
any Shares, and may terminate the Offer, if (i) by the expiration of the Offer
(as permitted to be extended), the Minimum Condition shall not have been
satisfied, (ii) by the expiration of the Offer (as permitted to be extended),
the applicable waiting period under the HSR Act shall not have expired or been
terminated, (iii) by the expiration of the Offer (as permitted to be extended),
all regulatory approvals of Governmental Entities shall not have been received,
or (iv) at any time on or after October 3, 1999, and prior to the acceptance
for payment of Shares pursuant to the Offer, any of the following conditions
exist:
(a) there shall be instituted or pending any action or proceeding by
any Governmental Entity or by any other person, domestic or foreign, before any
Governmental Entity or arbitrator, (i) challenging or seeking to make illegal,
to delay materially or otherwise directly or indirectly to restrain or prohibit
the making of the Offer, the acceptance for payment of or payment for some of
or all the Shares by Parent or Merger Subsidiary or the consummation by Parent
or Merger Subsidiary of the Merger, seeking to obtain material damages or
otherwise directly or indirectly relating to the transactions contemplated by
the Shareholder Option Agreement, this Agreement, the Offer or the Merger, (ii)
seeking to restrain or prohibit Parent's or Merger Subsidiary's ownership or
operation (or that of their respective subsidiaries or affiliates) of all or
any material portion of the business or assets of the Company or any of its
subsidiaries or of Parent and its subsidiaries or to compel Parent or any of
its subsidiaries or affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company or any of its
subsidiaries or of Parent and its subsidiaries (iii) seeking to impose material
limitations on the ability of Parent or any of its subsidiaries or affiliates
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares acquired or owned by Parent or
any of its subsidiaries or affiliates on all matters properly presented to the
Company's shareholders, (iv) seeking to require divestiture by Parent or any of
its subsidiaries or affiliates of any Shares, or (v) that otherwise, in the
reasonable judgment of Parent, is likely to materially adversely affect the
business, assets, liabilities, operations, condition (financial or otherwise),
results of operations or prospects of the Company or any of its subsidiaries,
or Parent and its subsidiaries, taken as a whole; or
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated, issued or
deemed applicable to the Shareholder Option Agreement, the Stock Option
Agreement, this Agreement, the Offer or the Merger, by any Governmental Entity
or arbitrator (other than the application of the waiting period provisions of
the HSR Act to the Shareholder Option Agreement, the Stock Option Agreement,
this Agreement, the Offer or the Merger), that, in the reasonable judgment of
Parent, is substantially likely, directly or indirectly, to result in any of
the consequences referred to in clauses (i) through (v) of paragraph (a) above;
or
54
<PAGE> 59
(c) any change (other than changes requested by, or done at the
direction or with the consent of Parent) shall have occurred or been threatened
(or any development shall have occurred or been threatened involving a
prospective change) in the business, assets, liabilities, financial condition,
capitalization, operations, results of operations or prospects of the Company
or any of its subsidiaries that, has, or is likely to have, a Material Adverse
Effect (as defined in the Agreement) on the Company and its subsidiaries taken
as a whole; or
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange or
in the NASDAQ over-the-counter market in the United States, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks in
the United States, (iii) any material limitation (whether or not mandatory) by
any Governmental Entity on the extension of credit by banks or other lending
institutions, (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the United
States which would reasonably be expected to have a Material Adverse Effect or
prevent (or materially delay) the consummation of the Offer or (v) in the case
of any of the foregoing existing at the time of commencement of the Offer, a
material acceleration or worsening thereof; or
(e) a tender or exchange offer for some or all of the Shares shall
have been publicly made by another person, or it shall have been publicly
disclosed or Parent shall have otherwise learned that any person or "group" (as
defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of
its affiliates) shall have acquired or made an offer to acquire beneficial
ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of more
than 20% of the outstanding Shares through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted any option, right
or warrant, conditional or otherwise, to acquire beneficial ownership of more
than 20% of the outstanding Shares; or
(f) any Consent (other than the filing of the certificate of merger or
approval by the shareholders of the Company of the Merger (if required by
Delaware law)) required to be filed, occurred or been obtained by the Company
or any of its subsidiaries or Parent of any of its subsidiaries (including
Merger Subsidiary) in connection with the execution and delivery of this
Agreement, the Offer and the consummation of the transactions contemplated by
this Agreement shall not have been filed, occurred or been obtained (other than
any such Consents as to which the failure to file, occur or obtain in the
aggregate, could not reasonably be expected to (i) have a Material Adverse
Effect or (ii) prevent or materially delay the consummation of the Offer or the
Merger); or
(g) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements under this Agreement, or
any of the representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall not be true when made or
at any time prior to consummation of the Offer as if made at and as of such
time, or any of the representations and warranties set forth in this Agreement
that are not so qualified shall not be true in any material respect when made
or at any time prior to the consummation of the Offer as if made at and as of
such time; or
55
<PAGE> 60
(h) any party to the Shareholder Option Agreement (other than Merger
Subsidiary or Parent) shall have breached or failed to perform in any material
respect any of their agreements under the Shareholder Option Agreement or any
of the representations and warranties of any such party set forth in the
Shareholder Option Agreement shall not be true in any material respect, in each
case, when made or at any time prior to the consummation of the Offer as if
made at and as of such time, or the Shareholder Option Agreement shall have
been invalidated or terminated with respect to any Shares subject thereto; or
(i) this Agreement or the Shareholder Option Agreement shall have been
terminated in accordance with its terms; or
(j) the Board of Directors of the Company (or any special committee
thereof) shall have withdrawn or materially modified in a manner adverse to
Parent or Merger Subsidiary its approval or recommendation of the Offer, the
Merger or this Agreement or its approval of the entry by Parent and Merger
Subsidiary into the Stock Option Agreement; or
(k) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or agreement in principle
with respect to any Acquisition Proposal;
The foregoing conditions are for the sole benefit of Parent and Merger
Subsidiary and may be asserted by Parent in its sole discretion regardless of
the circumstances giving rise to any such condition or (other than the Minimum
Condition) may be waived by Parent and Merger Subsidiary in their discretion in
whole at any time or in part from time to time. The failure by Parent or Merger
Subsidiary at any time to exercise its rights under any of the foregoing
conditions 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 which may be asserted at any time
or from time to time.
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<PAGE> 61
ANNEX II
ANNEX II-A
Charles M. Caporale
Mark A. Carney
Edward D. Jones, III
Jose A. Velasco
ANNEX II-B
In addition to those persons set forth in II-A above whose names are
hereby incorporated by reference, the following additional persons:
Patricia S. Boisseranc
Linton R. Groke
David L. Hubert
Barbara F. Stoner
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<PAGE> 62
Contact: Stephen L. Way, Chairman & Chief Executive Officer
HCC Insurance Holdings, Inc.
(713) 690-7300
For Immediate Release [HCC LOGO APPEARS HERE]
HCC TO ACQUIRE CENTRIS
HOUSTON (October 12, 1999) . . . HCC Insurance Holdings, Inc. (NYSE: HCC) an
international specialty insurance holding company announced today that it had
entered into a Definitive Agreement with The Centris Group, Inc. (NYSE: CGE),
to acquire all of their outstanding shares in a transaction valued at
approximately $171 million. Pursuant to this Agreement, a wholly owned
subsidiary of HCC will, through a cash tender, offer to purchase each Centris
share for $12.50 per share and will assume approximately $25 million of
outstanding bank debt.
The cash tender offer will commence within five business days and, subject to
customary conditions as well as certain regulatory approvals, should be
completed by year end 1999.
At June 30, 1999, the stated book value of Centris was $92.4 million or $7.94
per share. Centris has announced, concurrently with their press
<PAGE> 63
release for this transaction, a third quarter charge of $13.5 million which
includes reserve strengthening for their medical stop loss business and an
addition to reserves for discontinued operations. Also, Centris may take an
additional charge prior to closing this transaction which would include any
further reserve strengthening necessary on existing or discontinued lines of
business and customary expenses in connection with this transaction.
This transaction has been unanimously approved by the Boards of Directors of
HCC and Centris, and all Centris Directors, which include two of its largest
individual shareholders, and key employees have agreed to tender their shares.
Also, Mr. David L. Cargile, Chairman and Chief Executive Officer and other
large Centris Director/shareholders have agreed, under certain situations, to
provide HCC with an option to purchase their approximately 13 percent of
Centris' outstanding shares. In addition, Centris has granted HCC an option to
acquire 19.9 percent of its common stock under certain circumstances or has
agreed to pay a termination fee of $6,000,000 plus expenses of up to
$1,000,000.
Centris is a specialty insurance holding company providing medical stop loss
insurance coverage to companies that self insure their group medical benefits,
provider excess insurance coverage for hospitals and doctors who offer fixed
fee services to their patients, and excess and
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<PAGE> 64
surplus lines insurance. Operations are principally managed through their
insurance underwriting agency subsidiary, US Benefits Insurance Services, Inc.
and their insurance companies Centris Life Insurance Company, Centris Insurance
Company and USF Insurance Company.
HCC currently operates its own medical stop loss insurance business through its
insurance underwriting agency subsidiary, HCC Benefits Corporation and one of
its insurance company subsidiaries, Avemco Insurance Company. The combination
of these two insurance underwriting agency operations will create the
preeminent provider of medical stop loss insurance in the industry with over
$350 million of estimated written premiums in the year 2000. During 1999, both
HCC Benefits and US Benefits have implemented an in-depth re-underwriting of
their medical stop loss business, incorporating both rate increases and higher
deductibles. Further progress in this regard is necessary during 2000 to
ensure the return of underwriting integrity.
Stephen L. Way, Chairman and Chief Executive Officer of HCC said, "After more
than one year of intermittent but patient negotiations and recent considerable
due diligence efforts, we are extremely pleased to have reached an amicable
agreement with Centris that will benefit both groups of shareholders." Mr. Way
added, "I sincerely appreciate the efforts of Centris" management in reaching
this agreement, and particularly their Chairman and Chief Executive Officer,
David L.
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<PAGE> 65
Cargile. We plan to rapidly integrate both stop loss underwriting operations,
which are of similar size and structure, using the strengths of both companies
to maximize the synergies created and hasten the return to underwriting
profitability."
In addition to the expenses incurred in connection with this transaction, HCC
will be taking a restructuring/reorganization charge and associated expenses of
up to $5 million by the end of 1999. Since its initial public offering in
1992, HCC has completed more than 15 acquisitions for a total value exceeding
$500 million. During that time, total employees have grown from less than 100
to more than 1,000. John N. Molbeck, Jr., President and Chief Operating
Officer said, "Executive management believes it is time to reorganize and
strengthen our corporate and management structure, which will enhance our
future earnings performance." He added, "We are confident that the savings in
2000 and beyond from this restructuring will far exceed the charge and we will
have created a much more efficient and profitable company." More details will
follow in the next few weeks.
HCC is an international insurance holding company with assets exceeding $2.0
billion and whose shares are traded on the NYSE (symbol: HCC).
4
<PAGE> 66
This press release may contain certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. Investors are cautioned that
all forward-looking statements necessarily involve risks and uncertainty,
including, without limitation, the risk of a significant natural disaster, the
inability of the Company to reinsure certain risks, the adequacy of its loss
reserves, the financial viability of reinsurers, the expansion or contraction
in its various lines of business, the impact of inflation, the impact of Year
2000 issues, changing licensing requirements and regulations in the United
States and in foreign countries, the ability of the Company to integrate its
recently acquired businesses, the effect of pending or future acquisitions as
well as acquisitions which have recently been consummated, general market
conditions, competition, licensing and pricing. All statements, other than
statements of historical facts, included or incorporated by reference in this
release that address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including, without
limitation, such things as future capital expenditures (including the amount
and nature thereof), business strategy and measures to implement such strategy,
competitive strengths, goals, expansion and growth of the Company's businesses
and operations, plans, references to future success, as well as other
statements which includes words such as "anticipate," "believe," "plan,"
"probably," "estimate," "expect," and "intend" and other similar expressions,
constitute forward-looking statements. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could over time prove to be inaccurate and
therefore, there can be no assurance that the forward-looking statements
included in this press release will themselves prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
* * * *
5
<PAGE> 1
SHAREHOLDER OPTION AGREEMENT
This SHAREHOLDER OPTION AGREEMENT, dated as of October 11, 1999 (the
"Agreement"), among Merger Sub of Delaware, Inc., a Delaware corporation
("Buyer"), and the holders (the "Shareholders") of the shares of common stock,
$.01 par value together with attached rights issued pursuant to the Rights
Agreement (as defined in the Merger Agreement, hereafter defined) to purchase
shares (the "Shares") of The Centris Group, Inc. a Delaware corporation (the
"Company"), listed on Exhibit A hereof.
WHEREAS, HCC Insurance Holdings, Inc., a Delaware corporation and
parent of Buyer ("Parent"), Buyer and the Company have entered into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement")
which provides for, upon the terms and subject to the conditions set forth
thereunder, (i) the commencement of a tender offer (the "Offer") for all of the
outstanding Shares at a price of $12.50 per share in cash, and (ii) the
subsequent merger of the Buyer with and into the Company (the "Merger"); and
WHEREAS, Buyer and Shareholders wish to enter into this Shareholder
Option Agreement whereby Buyer will be granted stock options pursuant to the
terms hereof to acquire from the Shareholders their Shares of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises set forth herein and other good and valuable consideration the
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
ARTICLE 1
STOCK OPTION
Section 1.1 Grant of Stock Option. Each of the Shareholders hereby
grants to Buyer an irrevocable option (the "Option") to purchase pursuant to
the terms hereof all, but not in any part less than all, of the Shares set
forth opposite such Shareholder's name on Exhibit A hereto and any additional
Shares acquired by such Shareholder in any capacity (whether by exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities or by means of a purchase, dividend, distribution or
otherwise) (such "Shareholder's Shares" and, collectively, the "Shareholder
Shares") at a purchase price of $12.50 per Shareholder Share (as may be
adjusted pursuant to Sections 1.2(c), (d) or (e), the "Purchase Price").
Section 1.2 Exercise of Option.
(a) Subject to the conditions set forth in Section 1.5
hereof, the Option may be exercised by Buyer, in whole, but not in part, at any
time after the date (i) an Acquisition Proposal or a Superior Acquisition
Proposal (as defined in the Merger Agreement) shall have received tenders of
and paid for in excess of 50% of the Fully Diluted Shares (as defined in the
Merger Agreement) (a "Successful Third-Party Offer") or (ii) a third party has
otherwise acquired in excess of 50% of the Fully Diluted Shares. Once Buyer has
received notice as set forth herein from any Shareholder that the Option is
exercisable, the Option must then be
<PAGE> 2
exercised, if at all, within five Business Days. In the event Buyer wishes to
exercise the Option for the Shareholder Shares, Buyer shall send a written
notice (the "Exercise Notice") to the Shareholder specifying the place, the
date (not less than one nor more than five Business Days from the date of the
Exercise Notice (if such date is reasonably practicable for Shareholder
performance) and the time for the closing of such purchase; provided that such
date and time may be earlier than one Business Day after the Exercise Notice if
reasonably practicable. The closing of a purchase of Shareholder Shares
pursuant to this Section 1.2(a) (the "Closing") shall take place at the place,
on the date and at the time designated by Buyer in its Exercise Notice,
provided that if, at the date of the Closing herein provided for, the
conditions set forth in Section 1.5 shall not have been satisfied (or waived),
Buyer may postpone the Closing until a date within five Business Days after
such conditions are satisfied and the term of the Option will be
correspondingly extended.
(b) Buyer shall not be under any obligation to deliver any
Exercise Notice and may allow the Option to terminate without purchasing any
Shareholder Shares hereunder; provided however that once Buyer has delivered to
the Shareholders an Exercise Notice, subject to the terms and conditions of
this Agreement, Buyer shall be bound to effect the purchase as described in
such Exercise Notice.
(c) In the event the Option is exercised and Buyer or any of
its affiliates sells, including by direct disposition, merger or otherwise, the
Shares so acquired within two years of the date of such exercise, Buyer shall
pay the Shareholders, in respect of each Share acquired thereby, an amount
equal to the proceeds received by Buyer or any of its affiliates in respect of
such disposition less the Purchase Price. The provisions of this Section 1.2(c)
shall be void and of no further force or effect if Buyer acquires 100% of the
Company Shares pursuant to the Merger Agreement or otherwise.
(d) In the event the Option is exercised and within two years
of the date of exercise of the Option, Buyer or any of its affiliates acquires
(directly or through a series of transactions) Shares which together with any
Shares then owned by Buyer or any of its affiliates is in excess of 50% of the
Fully Diluted Shares, Buyer shall pay each Shareholder an additional sum in
respect of each Share acquired by Buyer from the Shareholder equal to the
highest tender offer price per share actually paid in the Successful
Third-Party Offer less the initial Purchase Price paid to Shareholder at the
time the Option was exercised.
(e) In the event the Option has been exercised and the
consideration per Share to be paid by Buyer pursuant to the Offer is increased
(the "New Purchase Price"), Buyer shall promptly pay to each Shareholder the
product of the New Purchase Price multiplied by the number of such
Shareholder's Shares as to which the Option has been exercised less the initial
Purchase Price paid to Shareholder at the time the Option was exercised.
Section 1.3 Closing. At the Closing, (a) each Shareholder shall
deliver to Buyer (in accordance with Buyer's instructions) a certificate or
certificates (the "Certificates") representing all of such Shareholder's
Shares, duly endorsed or accompanied by stock powers duly executed
2
<PAGE> 3
in blank and (b) Buyer shall pay to such Shareholder, by wire transfer in
immediately available funds to the account such Shareholder specifies in
writing prior to the Closing, an amount equal to (i) the number of such
Shareholder's Shares being purchased at the Closing multiplied by (ii) the
Purchase Price (the "Purchase Amount").
Section 1.4 Agreement to Tender.
(a) Each of the Shareholders hereby agrees to validly tender
(or cause the record owner of such shares to validly tender) such Shareholder's
Shares pursuant to and in accordance with the Offer (as defined in the Merger
Agreement) within two days of the receipt of Buyer's offer to purchase relating
to the Offer. Upon receipt of written instructions from the Buyer, each
Shareholder shall promptly deliver to the depositary (the "Depositary")
designated in the Offer (i) a letter of transmittal with respect to such
Shareholder's Shares complying with the terms of the Offer together with
instructions directing the Depositary to make payment for such Shares directly
to the Shareholder (but if such Shares are not accepted for payment or are
withdrawn and are to be returned pursuant to the Offer, to return such Shares
to such Shareholder whereupon they shall continue to be held by such
Shareholder subject to the terms and conditions of this Agreement), (ii) the
Certificates representing such Shareholder's Shares and (iii) all other
documents or instruments required to be delivered pursuant to the terms of the
Offer (such documents in clauses (i) through (iii) collectively being
hereinafter referred to as the "Tender Documents"). Tender by a Shareholder
pursuant to this Section 1.4(a) shall suspend such Shareholder's further
obligations under this Agreement unless and until such tendered Shareholder's
Shares are not accepted for payment or are withdrawn and are to be returned to
such Shareholder pursuant to the Offer, in which event, the Shareholder's
further obligations under this Agreement shall be reinstated in full force and
effect. For all its Shares validly tendered in the Offer and not withdrawn,
each Shareholder will be entitled to receive the highest price paid by Buyer
pursuant to the Offer, as such Offer may be amended from time to time.
Notwithstanding the foregoing, tender of any Shares subject to pledge shall be
subject to Buyer's agreement to enter into an escrow or other arrangement
satisfactory to the pledgee-lender to facilitate the satisfaction of debt
obligations with respect to any such pledged Shares. Each Shareholder agrees to
execute any documentation to effectuate such escrow or other arrangement
provided that such documentation preserves the rights of such tendering
Shareholder hereunder.
(b) Buyer agrees that if an Acquisition Proposal or a
Superior Acquisition Proposal is made for the Shares, Buyer shall give each
Shareholder written notice at least two Business Days prior to the tender of
any Shares beneficially owned by Buyer or its affiliates in such Acquisition
Proposal or Superior Acquisition Proposal. Notwithstanding anything to the
contrary herein, if Buyer or any of its affiliates tender (or retender, if
previously withdrawn) Shares in such Acquisition Proposal or Superior
Acquisition Proposal, Buyer shall consent to the Shareholders tendering (or
retendering, if previously withdrawn) their Shares pursuant to such Acquisition
Proposal or Superior Acquisition Proposal and such Shares may be released from
the terms of this Option and sold in such Acquisition Proposal or Superior
Acquisition Proposal. If Buyer or its affiliates subsequently withdraw all
Shares tendered pursuant to such Acquisition Proposal or Superior Acquisition
Proposal and gives Shareholders sufficient notice to take
3
<PAGE> 4
action, Shareholders shall withdraw their tender of shares to such Acquisition
Proposal or Superior Acquisition Proposal. No tender, withdrawal or retender by
Buyer or Shareholder to an Acquisition Proposal permitted pursuant to this
Section 1.4(b) shall extend the period for exercise of the Option pursuant to
Section 1.2(a).
Section 1.5 Conditions. The obligation of each Shareholder to sell
such Shareholder's Shares at any Closing is subject to the following
conditions:
(a) The representations and warranties of Buyer contained in
Article 4 shall be true and correct in all material respects on the date
thereof as if made on such date;
(b) All waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") applicable to such exercise of the Option shall have
expired or been terminated; and
(c) There shall be no preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining such exercise of the Option.
Section 1.6 Adjustment Upon Changes in Capitalization or Merger. In
the event of any change in the Company's capital stock by reason of stock
dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of the
Company which would have the effect of diluting or changing the Buyer's rights
hereunder, each Shareholder shall take such steps in connection with such
consolidation, merger, liquidation or other such action within such
Shareholders' powers as shareholders of the Company as may be necessary to
assure that the provisions of this Agreement shall thereafter apply as nearly
as possible to any securities or property thereafter deliverable upon exercise
of the Option.
ARTICLE 2
GRANT OF PROXY
Section 2.1 Proxy. Each Shareholder hereby revokes any and all
previous proxies granted with respect to such Shareholder's Shares. Each
Shareholder, by this Agreement, with respect to such Shareholder's Shares, does
hereby constitute and appoint Buyer, or any nominee of Buyer, with full power
of substitution, as its true and lawful attorney and proxy, for and in its
name, place and stead, to vote each of such Shareholder's Shares as its proxy,
at every annual, special or adjourned meeting, or solicitation of consents, of
the Company (including the right to sign its name (as Shareholder) to any
consent, certificate or other document relating to the Company that the law of
the State of Delaware may permit or require) (i) in favor of the adoption of
the Merger Agreement and this Agreement and approval of the Merger and the
other transactions contemplated hereby and thereby, (ii) against any
Acquisition Proposal or Superior Acquisition Proposal (as defined in the Merger
Agreement) and any other action or agreement
4
<PAGE> 5
that would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement not
being fulfilled, and (iii) in favor of any other matter relating to
consummation of the transactions contemplated by the Merger Agreement and this
Agreement. Each Shareholder further agrees to cause such Shareholder's Shares
that are outstanding and owned by it beneficially to be voted in accordance
with the foregoing. The proxy granted by each Shareholder pursuant to this
Article 2 is irrevocable and is granted in consideration of Buyer's entering
into this Agreement and the Merger Agreement; provided, however, that such
proxy shall be revoked upon termination of this Agreement in accordance with
its terms.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each of the Shareholders severally represents and warrants to the
Buyer that:
Section 3.1 Valid Title. Except as noted on Exhibit A, each such
Shareholder is the sole, true, lawful and beneficial owner of such
Shareholder's Shares with no restrictions on such Shareholder's voting rights
or rights of disposition pertaining thereto which will survive the Closing. At
any Closing, such Shareholder will convey good and valid title to such
Shareholder's Shares being purchased free and clear of any and all claims,
liens, charges, encumbrances and security interests. None of such Shareholder's
Shares is subject to any voting trust or other agreement or arrangement with
respect to the voting of such Shares.
Section 3.2 Non-Contravention. The execution, delivery and performance
by such Shareholder of this Agreement and the consummation of the transactions
contemplated hereby (i) are within such Shareholder's powers, have been duly
authorized by all necessary action (including any consultation, approval or
other action by or with any other person), (ii) require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority (except as may be required under the HSR Act or by any insurance
regulatory agency or body), and (iii) do not and will not contravene or
constitute a default under, or give rise to a right of termination,
cancellation or acceleration of any right or obligation of such Shareholder or
to a loss of any benefit of such Shareholder under, any provision of applicable
law or regulation or of any agreement, judgment, injunction, order, decree, or
other instrument binding on such Shareholder or result in the imposition of any
lien on any asset of such Shareholder.
Section 3.3 Binding Effect. This Agreement has been duly executed and
delivered by such Shareholder and is the valid and binding agreement of such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally. If this Agreement
is being executed in a representative or fiduciary capacity, the person signing
this Agreement has full power and authority to enter into and perform such
Agreement.
Section 3.4 Total Shares. Such Shareholder is the record and/or
Beneficial Owner of the number of Shares, as such ownership is set forth next
to such Shareholder's name on
5
<PAGE> 6
Exhibit A hereto. Except as set forth on Exhibit A, such Shares, constitute all
of the Shares, owned of record or Beneficially Owned by such Shareholder.
Except as set forth on Exhibit A, neither such Shareholder nor any beneficial
owner or owners of such Shareholder's Shares own any options to purchase or
rights to subscribe for or otherwise acquire any securities of the Company.
Except as set forth on Exhibit A, each Shareholder has sole voting power and
sole power to issue instructions with respect to the matters set forth in
Article 2 of this Agreement, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to agree to
all of the matters set forth in this Agreement, in each case with respect to
all of the Shares, beneficially owned by such Shareholder with no limitations,
qualifications or restrictions on such rights, subject to applicable securities
laws and the terms of this Agreement. The terms "Beneficially Owned" or
"Beneficial Ownership" with respect to any securities shall mean having
"beneficial ownership" of such securities as determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended.
Section 3.5 Finder's Fees. No investment banker, broker or finder,
other than Advest, Inc., is entitled to a commission or fee from Shareholder or
the Company in respect of this Agreement based upon any arrangement or
agreement made by or on behalf of such Shareholder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to each of the Shareholders:
Section 4.1 Corporate Power and Authority. Buyer is duly organized,
validly existing and in good standing under the laws of Delaware. Buyer has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance by
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by the board of directors of
Buyer and no other corporate action on the part of Buyer is necessary to
authorize the execution, delivery or performance by Buyer of this Agreement and
the consummation by Buyer of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Buyer and is a valid and
binding agreement of Buyer, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally.
Section 4.2 Acquisition for Buyer's Account. Any Shareholder Shares to
be acquired upon exercise of the Option will be acquired by Buyer for its own
account and not with a view to the public distribution or resale thereof and
will not be transferred except in compliance with the Securities Act of 1933,
as amended.
ARTICLE 5
COVENANTS OF THE SHAREHOLDERS
Each of the Shareholders hereby covenants and agrees that:
6
<PAGE> 7
Section 5.1 No Proxies for or Encumbrances on Shareholder Shares.
Except pursuant to the terms of this Agreement, such Shareholder shall not,
without the prior written consent of Buyer, directly or indirectly, (i) grant
any proxies or enter into any voting trust or other agreement or arrangement
with respect to the voting of any Shares or (ii) acquire, sell, assign,
transfer, encumber or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding with respect to the direct or indirect
acquisition or sale, assignment, transfer, encumbrance or other disposition of,
any Shares, any shares of preferred stock or any warrants during the term of
this Agreement other than the acquisition of Shares by means of existing
options, warrants or other convertible securities, provided that upon exercise
or acquisition the Shares become Shareholder Shares subject to this Agreement.
Section 5.2 Other Offers. Each Shareholder in his or its capacity as a
shareholder of the Company agrees to be bound to his obligations and the
restrictions placed upon him as a director of the Company pursuant to Section
5.4 of the Merger Agreement.
Section 5.3 Conduct of Shareholders. Such Shareholder will not (i)
take, agree or commit to take any action that would make any representation and
warranty of such Shareholder hereunder inaccurate in any respect as of any time
prior to the termination of this Agreement or (ii) omit, or agree or commit to
omit, to take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time.
Section 5.4 Disclosure. Each Shareholder hereby permits Buyer to
publish and disclose in the offer documents and, if approval of the Company's
shareholders is required under applicable law, a proxy statement (including all
documents and schedules filed with the SEC) their identity and ownership of the
Shares and the nature of their commitments, arrangements and understandings
under this Agreement.
ARTICLE 6
MISCELLANEOUS
Section 6.1 Termination of Agreement. This Agreement shall terminate
and unexercised Options, if any, shall expire on the earliest to occur of (a)
termination of the Merger Agreement pursuant to Section 9.1(a), (b), (c) or (d)
thereof; (b) upon consummation of the Offer by payment for Shares duly tendered
pursuant to the Offer; or (c) December 31, 2000. No such termination of this
Agreement shall relieve any party hereto from any liability for any breach of
this Agreement prior to its termination. Upon termination of this Agreement,
all proxies granted pursuant to Article 2 shall lapse. Any obligation of Buyer
to pay the Option Purchase Amount for Shareholder Shares acquired through
exercise of the Option, as such Option Purchase Amount may be adjusted pursuant
to Sections 1.2, 1.3 or 1.4(a), shall survive termination of this Agreement.
Section 6.2 Indemnification of Shareholders. If the grant or exercise
of the Option or proxy made by any Shareholder pursuant to Sections 1.1 or 2.1,
respectively, hereof results in any violation or alleged violation of insurance
laws or regulations, Buyer will indemnify each such Shareholder against all
claims, actions, suits, proceedings or investigations, losses,
7
<PAGE> 8
damages, liabilities (or actions in respect thereof), costs and expenses
(including reasonable fees and expenses of counsel) if brought by an insurance
regulatory body or insurance agency having jurisdiction over the subject matter
hereof arising out of or based upon such violation or alleged violation and
unless Buyer shall have assumed the defense thereof, as provided below, (a)
Buyer shall pay as incurred the reasonable fees and expenses of counsel
selected by the Shareholder, which counsel shall be reasonably satisfactory to
Buyer, promptly as statements therefor are received, and (b) Buyer will
cooperate in the defense of any such matter; provided, however, that Buyer
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld); and provided,
further, that Buyer shall not be obliged pursuant to this Section 6.2 to pay
the fees and disbursements of more than one counsel for all Shareholders in any
single action except to the extent that, in the opinion of counsel for the
Shareholders, two or more of such Shareholders have conflicting interests in
the outcome of such action. In the event any person asserts a claim against a
Shareholder for which such Shareholder intends to seek indemnification
hereunder, such Shareholder shall give prompt notice to Buyer, and shall permit
Buyer to assume the defense of any such claim or any litigation resulting
therefrom with counsel selected by Buyer, which counsel shall be Winstead
Sechrest & Minick P.C. (unless such firm shall have a conflict of interest) or
other counsel reasonably acceptable to such Shareholder; provided that such
Shareholder may participate in such defense at its own expense, and provided
further that the failure of any Shareholder to give notice as provided herein
shall not relieve Buyer of its obligations under this Section 6.2 except to the
extent Buyer is materially prejudiced thereby. Buyer shall not, in the defense
of any such claim or litigation, except with the consent of the Shareholder
being indemnified, consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Shareholder of a release from all
liability in respect of such claim or litigation. Each Shareholder shall
promptly furnish such information regarding itself or the claim in question as
Buyer may reasonably request and as shall be reasonably required in connection
with the defense of such claim and litigation resulting therefrom.
Section 6.3 Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
Section 6.4 Further Assurances.
(a) In the event the Buyer exercises the Option, the Buyer
and the Shareholders will each execute and deliver or cause to be executed and
delivered all further documents and instruments and use commercially reasonable
efforts to secure such consents and take all such further action as may be
reasonably necessary in order to consummate the transactions contemplated
hereby or to enable the Buyer and any assignee to exercise and enjoy all
benefits and rights of the Shareholders with respect to the Option and the
Shareholder Shares.
(b) Buyer and each of the Shareholders acknowledge that it is
Buyer's obligation to obtain the consent or approval of any insurance
regulatory body or insurance agency that may be required for the grant or
exercise of the Option or the proxy granted pursuant
8
<PAGE> 9
to this Agreement. Each of the Shareholders agrees to cooperate fully with
Buyer in obtaining any such consent or approval. Notwithstanding the preceding
sentence, the period in which the Option is exercisable pursuant to the terms
of Section 1.2 hereof will not be extended by this Section 6.4(b).
Section 6.5 Additional Agreements. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations and which may be required under any agreements, contracts,
commitments, instruments, understandings, arrangements or restrictions of any
kind to which such party is a party or by which such party is governed or
bound, to consummate and make effective the transactions contemplated by this
Agreement.
Section 6.6 Specific Performance. The parties hereto agree that the
Buyer may be irreparably damaged if for any reason any Shareholder failed to
sell such Shareholder's Shares (or other securities deliverable pursuant to
Section 1.3 upon exercise of the Option or to perform any of its other
obligations under this Agreement, and that the Buyer would not have an adequate
remedy at law for money damages in such event. Accordingly, the Buyer shall be
entitled to specific performance and injunctive and other equitable relief to
enforce the performance of this Agreement by each Shareholder. This provision
is without prejudice to any other rights that the Buyer may have against any
Shareholder for any failure to perform its obligations under this Agreement.
Section 6.7 Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by telecopy, or by registered or certified mail (postage prepaid,
return receipt requested) to such party and shall be given:
(a) if to Buyer to:
Merger Sub of Delaware, Inc.
13403 Northwest Freeway
Houston, Texas 77040
Telecopy: (713) 462-2401
Attention: Frank J. Bramanti
9
<PAGE> 10
with copies (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 2400
Houston, Texas 77002
Telecopy: (713) 650-2400
Attention: Arthur S. Berner
and
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Telecopy: (949) 451-3800
Attention: Robert E. Dean
(b) if to a Shareholder, at the address set forth below such
Shareholder's name on the signature pages hereto.
Section 6.8 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive
delivery of and payment for the Shareholder Shares.
Section 6.9 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 contemplated hereby is not affected in any
manner 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 an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
maximum extent possible.
Section 6.10 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
Section 6.11 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and assigns, provided that Buyer may assign its
rights and obligations to any affiliate of Buyer in which case Buyer shall
remain liable hereunder; and provided, further, that no Shareholder may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the Buyer.
10
<PAGE> 11
Section 6.12 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 6.13 Jurisdiction. Each of the parties hereto (a) consents to
submit itself to the non-exclusive personal jurisdiction of any court of the
United States located in the State of Delaware or of any Delaware state court
in the event any dispute arises out of this Agreement or the transactions
contemplated by this Agreement, and (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court.
Section 6.14 Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Section 6.15 Definitions. Capitalized terms used herein but not
otherwise defined shall have the meanings ascribed to them in the Merger
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Merger Sub of Delaware, Inc.
By: /s/ STEPHEN L. WAY
--------------------------------
Name: Stephen L. Way
------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-----------------------------
/s/ DAVID L. CARGILE
------------------------------------
David L. Cargile
26231 Mount Diablo Road
Laguna Hills, CA 92653
Telephone: (949) 831-2123
Facsimile: (949) 360-9558
[Signatures continued on next page]
11
<PAGE> 12
/s/ L. STEVEN MEDGYESY, M.D.
-----------------------------------
L. Steven Medgyesy, M.D.
161 East Chicago Avenue
Apt. 40D & E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ ROBERT M. LEVIN
-----------------------------------
Robert M. Levin
Co-Trustee of the Greedy Hand Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ ERMA S. MEDGYESY
-----------------------------------
Erma S. Medgyesy,
Co-Trustee of the Greedy Hand Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
Laura Descendants Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
S-1
(Signature Page to Shareholder Option Agreement)
<PAGE> 13
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
Laura Family Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
LSM Daughter Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
Laura L. Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
LSM Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
L. Steven Jr. Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
S-2
(Signature Page to Shareholder Option Agreement)
<PAGE> 14
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
LSM Children Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
LSM Son Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
L. Steven Jr. Descendants Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, Trustee of the
L. Steven Jr. Family Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ ROBERT M. LEVIN
-----------------------------------
Robert M. Levin
Co-Trustee of the Popcorn Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
S-2
(Signature Page to Shareholder Option Agreement)
<PAGE> 15
/s/ LAURA MEDGYESY
-----------------------------------
Laura Medgyesy
Co-Trustee of the Popcorn Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ ROBERT M. LEVIN
-----------------------------------
Robert M. Levin,
Co-Trustee of the Hit & Run Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ LASZLO STEVEN MEDGYESY
-----------------------------------
Laszlo Steven Medgyesy,
Co-Trustee of the Hit & Run Trust
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
/s/ ERMA S. MEDGYESY
-----------------------------------
Erma S. Medgyesy,
161 East Chicago Avenue
Apt. 40D&E
Chicago, IL 60611
Telephone: (312) 787-0108
Facsimile: (312) 787-1741
S-2
(Signature Page to Shareholder Option Agreement)
<PAGE> 16
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer, general partner of
UBI Partnership
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ ALISA M. SINGER
-----------------------------------
Alisa M. Singer, Trustee of the
Howard and Alisa Singer Descendants Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ HOWARD S. SINGER
-----------------------------------
Howard S. Singer IRA, Bear Stearns
Security Corp. Custodian (individual
retirement account f/b/o Howard S. Singer)
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
/s/ L. STEVEN MEDGYESY
-----------------------------------
L. Steven Medgyesy, Trustee of the
Singer Family Trust
2956 Techny Road
Northbrook, IL 60062
Telephone: (847) 272-2842
Facsimile: (847) 272-3556
S-2
(Signature Page to Shareholder Option Agreement)
<PAGE> 17
EXHIBIT A
<TABLE>
<CAPTION>
SHAREHOLDER(1) SHARES OPTIONS(2)
<S> <C> <C>
David L. Cargile 44,000(3) 485,000
L. Steven Medgyesy, M.D. 150,932 32,000
Howard Singer, Trustee of the L. Steven Medgyesy Family Trust(4),(5) 67,060 0
Robert M. Levin and Erma S. Medgyesy, Co-Trustees of the Greedy Hand Trust(4) 100,000 0
Robert M. Levin and Laura Medgyesy, Co-Trustees of the Popcorn Trust(4) 68,834 0
Erma S. Medgyesy and Laszlo Steven Medgyesy, Jr., Co-Trustees of the Hit & Run Trust(4) 85,834 0
Erma S. Medgyesy 16,120 0
Howard S. Singer 270,005 84,200
UBI Partnership, Howard S. Singer, general partner 14,000 0
Alisa M. Singer, Trustee of the Howard and Alisa Singer Descendants Trust(4) 16,828 0
Howard S. Singer IRA, Bear Stearns Security Corp. Custodian (individual retirement 5,600 0
account f/b/o/ Howard S. Singer)
L. Steven Medgyesy, Trustee of the Singer Family Trust(4) 172,622 0
</TABLE>
- --------
(1) Certain of the Shares set forth above have been pledged to secure certain
obligations of the Shareholders. In addition, certain of the shares set
forth above may deemed "beneficially owned" for federal securities law
purposes by more than one Shareholder. Such additional beneficial ownership
is not reflected in the above table in order to avoid duplicative reporting
of Shares.
(2) Any options held by a Shareholder to purchase additional Shares ("Company
Options") are not subject to the Option granted to Buyer pursuant to this
Agreement. Pursuant to Section 1.1 of this Agreement, to the extent any
Company Option held by a Shareholder is exercised prior to the exercise of
the Option granted pursuant to this Agreement, the Shares issuable by the
Company to the Shareholder under such Company Option will become subject to
this Agreement. As of the date hereof, the Company Options held by the
Shareholders are noted on this Exhibit A for information only.
(3) Mr. Cargile may be deemed a "beneficial owner" of 3,000 Shares owned by his
daughter, Amanda Cargile, who resides with him. Those 3,000 Shares are not
included in Mr. Cargile's Shareholder Shares and are not subject to this
Agreement.
(4) With respect to each of the above-mentioned Shareholders that are trusts,
the trustees thereof hold legal title and sole power to vote and dispose of
the Shares held by the subject trust.
(5) The L. Steven Medgyesy Family Trust is actually ten individual trusts, each
holding 6,706 Shares.
<PAGE> 1
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Agreement") made and entered into
this 11th day of October, 1999 by and between HCC INSURANCE HOLDINGS, INC.
("Parent"), a Delaware corporation, and THE CENTRIS GROUP, INC. (the
"Company"), a Delaware corporation.
WHEREAS, Parent, Merger Sub of Delaware, Inc., a Delaware corporation
and wholly owned subsidiary of Parent (the "Merger Subsidiary"); and the
Company have entered into an Agreement and Plan of Merger of even date herewith
(the "Merger Agreement") whereby Parent through Merger Subsidiary will acquire
the Company at a price of $12.50 per share in cash; and
WHEREAS, Parent and the Company wish to enter into this Stock Option
Agreement whereby Parent will be granted a stock option pursuant to the terms
hereof to acquire shares of common stock $.01 par value together with attached
rights to purchase shares (the "Common Stock") of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises set forth herein and other good and valuable consideration the
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Grant of Option. The Company hereby grants to Parent an option (the
"Option") to purchase, subject to the terms hereof, 2,327,797 shares of Common
Stock of the Company (the "Option Shares") equal to approximately 19.9% of the
shares of Common Stock issued and outstanding as of the date hereof, at a price
per share of $12.50 (the "Option Price"); provided, however, that in no event
shall the number of shares of Common Stock for which this Option is exercisable
exceed 19.9% of the Company's issued and outstanding shares of Common Stock
(without giving effect to any Option Shares subject to or issued pursuant to
this Option). The number of Option Shares of Common Stock that may be received
upon the exercise of the Option and the Option Price are, subject to adjustment
as set forth at Section 5. The Option shall be nontransferable, except as
expressly provided herein. The Option shall become exercisable and may be
exercised in whole, or in part, at any time and from time to time, until the
expiration of the Option as provided herein. The Option shall only be
exercisable if, at any time after the date hereof and prior to the expiration
of the Option, the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or an agreement in
principle with respect to any Acquisition Proposal or Superior Acquisition
Proposal (as defined in the Merger Agreement). The Option shall expire at 11:59
p.m. California time on the earlier of the fifth Business Day after the
Acquisition Proposal or Superior Acquisition Proposal is terminated or December
31, 2000.
2. Exercise of Option. Upon exercise of all or any part of the Option,
Parent shall pay the aggregate exercise price attributable to such exercise to
the Company by certified or official bank check or by wire transfer of funds.
<PAGE> 2
3. Option Shares; Certificates. The Option Shares acquired upon
exercise of the Option shall be validly issued, fully paid and nonassessable
and the certificate or certificates evidencing the Option Shares shall
constitute good delivery, shall be registered in the name of Parent and shall
bear the legend:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred except in compliance with that Act. The transfer of the
shares represented by this certificate are further subject to certain
provisions of an agreement between the registered holder hereof and
The Centris Group, Inc. A copy of such agreement is on file at the
principal office of The Centris Group, Inc. and will be provided to
the holder hereof without charge upon receipt by The Centris Group,
Inc. of a written request therefor."
It is understood and agreed that: (i) the reference to the transfer
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if Parent shall have delivered to the Company a copy of a letter
from the staff of the Securities and Exchange Commission (the "SEC"), or an
opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference in the opinion of counsel, in form and substance
reasonably satisfactory to the Company; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding subsections (i) and (ii) are
both satisfied. In addition, such certificates shall bear any other legend as
may be required by law.
4. Parent Representations for Exercise. In connection with the
exercise of the Option, Parent shall furnish the Company with such
representations and commitments with respect to the Option Shares as shall be
reasonably requested by the Company in order to insure compliance with the 1933
Act.
5. Adjustment of Shares.
(a) In the event that any shares of Common Stock are
redeemed, repurchased, retired or otherwise cease to be outstanding after the
date of this Agreement, or in the event of any exercise of stock options held
by employees or directors of the Company the number of shares of Common Stock
subject to the Option shall be decreased or increased, as appropriate, so that,
after such redemption, repurchase, retirement or exercise or other action, such
number equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject to or issued pursuant
to this Option. Nothing contained in this Section 5(a) or elsewhere in this
Agreement shall be deemed to authorize the Company or the Parent to redeem,
repurchase or retire shares in breach of any provision of the Merger Agreement.
2
<PAGE> 3
(b) In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 5(a) of this Agreement, the number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as provided in this Section 5(b). In
the event of any change in, or distributions in respect of, the Common Stock by
reason of stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock the type and number of Option Shares purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the
Company's obligations hereunder.
6. Repurchase of Option. If, before the expiration of the Option,
there is either (i) an Acquisition Proposal which at any time becomes a
Superior Acquisition Proposal (each as defined in the Merger Agreement)
(regardless of whether it is consummated) or (ii) the commencement of a tender
offer or exchange offer for at least 20% of the shares of Common Stock of the
Company or (iii) the acquisition by any person or "group" (within the meaning
of Rule 13d-5 under the Securities Exchange Act of 1934, as amended) of at
least 20% of the shares (or rights to acquire shares) of Common Stock of the
Company, then, in either event, for a period of 100 days after (x) such
Acquisition Proposal becomes a Superior Acquisition Proposal (as defined in the
Merger Agreement) or (y) such event occurs, but prior to the expiration of the
Option, Parent shall be entitled to sell the Option to the Company and the
Company shall be required to purchase the Option from Parent, for $6,000,000 in
cash against Parent's written acknowledgment that it has surrendered all of its
rights to the Option.
7. Notice of Repurchase. If Parent determines to sell the Option to
the Company, Parent shall give the Company written notice of such
determination.
8. Closing of Repurchase. The closing of the sale of the Option shall
take place at the Houston offices of Winstead Sechrest & Minick P.C. in
Houston, Texas at 9:30 a.m. Houston time on the 3rd business day after Parent
has given the Company written notice of its intention to sell the Option to the
Company.
9. Expiration Upon Payment of Termination Fee. Notwithstanding
anything to the contrary herein, the Option shall expire if the Parent shall
have been paid or shall be paid the Termination Fee pursuant to Section 10.4 of
the Merger Agreement.
10. Amendment of Rights Agreement. The Company hereby agrees that
immediately prior to execution of this Agreement, it shall take all necessary
action under the Rights Agreement, dated as of May 24, 1990, as amended by and
between the Company and American Stock Transfer & Trust Company (the "Rights
Agreement"), including any required amendment thereto, so that the grant or
exercise of the Option on the terms permitted hereunder and as contemplated
herein will not cause (i) the rights (the "Rights") issued pursuant to the
Rights Agreement to become exercisable under the Rights Agreement, (ii) the
Parent, or any subsidiary of the Parent, including Merger Subsidiary to be
deemed a "10% Stockholder" (as defined in the
3
<PAGE> 4
Rights Agreement) or (iii) the "10% Stock Ownership Date" (as defined in the
Rights Agreement) to occur upon such consummation, provided, however, that the
Company shall not be required to make such amendments to the Rights Agreement
if, (x) the Parent has not performed or complied in all material respects with
this Agreement prior to the exercise of the Option or (y) the Company obtains,
and there is in force from the Delaware Court of Chancery, an order
permanently, preliminarily or temporarily declaring that the making of such
amendments to the Rights Agreement would be contrary to the fiduciary duties of
the Board of Directors of the Company. Notwithstanding anything else contained
herein, in no event shall the Board of Directors of the Company make any
comparable amendment of the Rights Agreement in favor of any other person
without making such amendment in favor of the Parent.
11. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent as follows:
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by the Company.
(b) The Company has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Representations and Warranties of the Parent. Parent hereby
represents and warrants to the Company that:
(a) Parent has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents to herein,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent. This Agreement has been duly executed and delivered by Parent.
(b) The Option is not being, and any shares of Common Stock
or other securities acquired by Parent upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
4
<PAGE> 5
13. Equitable Remedies. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
14. Validity. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
15. Filings; Waiting Period. Each of Parent and the Company will use
commercially reasonable efforts to make all filings with, and to obtain all
consents of, all governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation, to
promptly make or cause to be made the filings required of such party or any of
its subsidiaries under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder and the expiration
or termination of any prescribed waiting period.
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
18. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
19. Expenses. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
5
<PAGE> 6
21. Capitalized Terms. Capitalized terms used in this Agreement and
not defined herein shall have the meanings ascribed thereto in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
HCC INSURANCE HOLDINGS, INC.
/s/ STEPHEN L. WAY
---------------------------------------------
By: Stephen L. Way
Chairman of the Board and Chief Executive
Officer
THE CENTRIS GROUP, INC.
/s/ DAVID L. CARGILE
---------------------------------------------
By: David L. Cargile
Chairman of the Board and Chief Executive
Officer
6
<PAGE> 1
August 22, 1999
PRIVATE AND CONFIDENTIAL
------------------------
Stephen L. Way
Chairman & Chief Executive Officer
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, TX 77040-6094
RE: CONFIDENTIALITY AGREEMENT
Dear Stephen:
In connection with your consideration of a possible transaction with The Centris
Group, Inc. ("Centris"), we will provide you, upon your request, certain
financial and other information (the "Evaluation Material") concerning the
business and affairs of Centris. The terms "you" or "your" in this Agreement
include HCC Insurance Holdings, Inc. and all of its affiliates as that term is
defined in the Federal Securities laws. The term "Evaluation Material" includes
all information furnished to you in connection with a possible transaction,
regardless of the source or manner in which it is furnished, whether written or
oral or electronically stored or transmitted, furnished before or after the date
hereof to you or your Representatives (as defined below) by Centris (which shall
be deemed to include its directors, officers, employees, agents and
representatives), or by other sources together with any analyses, compilations,
studies, or other documents or records prepared by you or your Representatives,
containing, reflecting, or resulting from such information; provided, however,
Evaluation Material does not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by you
or your directors, officers, employees, affiliates, agents, accountants,
attorneys, financial advisors or any of their affiliates, representatives,
agents or advisors, (all of the foregoing collectively referred to as "your
Representatives"); or (ii) was or becomes available to you on a non-confidential
basis from a source other than Centris, provided that such source is not known
to you to be bound by a confidentiality agreement or other contractual, legal or
fiduciary obligations of non-disclosure with Centris; or (iii) was lawfully
within your possession prior to its being furnished to you by or on behalf of
Centris, as evidenced by your written records, provided that the source of such
information was not known to you to be bound by a confidentiality agreement or
prohibited from furnishing the information to you due to a contractual, legal or
fiduciary obligation with Centris in respect thereof; or (iv) is independently
developed by you without any reliance on or use of the Evaluation Material.
<PAGE> 2
Stephen L. Way
August 22, 1999
Page 2
As a condition to you and your Representatives being furnished with any
Evaluation Material, you agree as follows:
(1) You recognize and acknowledge the competitive value and
confidential nature of the Evaluation Material and the damage
that could result to Centris if information contained therein
is disclosed to any third party. The Evaluation Material will
not be used by you or your affiliates or Representatives in
any way detrimental to Centris, including, without limitation,
in competition with Centris.
(2) You agree that the Evaluation Material will be used solely for
the purpose of evaluating a possible transaction between
Centris and you. You also agree that you and your
Representatives will keep the Evaluation Material confidential
and will not disclose any of the Evaluation Material now or
hereafter received or obtained from Centris, or any of their
representatives to any third party, without the prior written
consent of Centris; provided, however, that any of the
Evaluation Material may be disclosed to your Representatives
who need to know the information contained in the Evaluation
Material for the purpose of evaluating a possible transaction
with Centris and who agree to keep such information
confidential and to be bound by this Agreement to the same
extent as if they were parties hereto (it being understood and
agreed that your Representatives shall be informed by you of
the confidential nature of the Evaluation Material and shall
be directed by you to treat the Evaluation Material
confidentially). In any event, you shall be fully legally
responsible for any improper use of the Evaluation Material by
your Representatives.
(3) In addition, Centris will not and, without the prior written
consent of Centris, or unless required by valid court order or
other valid order of an adjudicatory body, neither you nor
your Representatives will disclose to any person (which shall
include, without limitation, any corporation, company, group,
partnership or individual) (a) that the Evaluation Material
has been made available to you, (b) that you have inspected
any portion thereof, (c) that discussions or negotiations are
taking place concerning a possible transaction with Centris or
(d) any of the terms, conditions or other facts with respect
to any such possible transaction, including the status
thereof.
(4) In the event that the transaction contemplated by this
agreement is not consummated, or upon Centris' request, all
Evaluation Materials (and all copies, extracts or other
reproductions in whole or in part thereof) provided to you by
Centris or its representatives shall be returned to Centris
(or, with Centris' written
<PAGE> 3
Stephen L. Way
August 22, 1999
Page 3
permission, destroyed, and, if requested by Centris, such
destruction shall be certified in writing to Centris by an
authorized officer supervising such destruction) and not
retained by you or your Representatives in any form
(electronically or otherwise) or for any reason. All
documents, copies, summaries and analyses, memoranda, notes
and other writings, including information in electronic form
whatsoever which was prepared by you or your Representatives
and which contain Evaluation Material shall be destroyed or
purged, and, if requested by Centris, such destruction shall
be certified in writing to Centris by an authorized officer
supervising such destruction.
(5) You agree that (except as permitted in the following
paragraph) for a period of six (6) months from the date of
this Agreement, neither you nor any of your affiliates or
associates will, in any manner, alone or in concert with third
parties (whether or not pursuant to any legally binding
agreement or commitment), without the prior written approval
of the Board of Directors or Executive Committee of Centris
(i) acquire, or offer to acquire, directly or indirectly,
record or beneficial ownership of any equity securities of
Centris or of any subsidiary of Centris; (ii) acquire or offer
to acquire, directly or indirectly, any options or other
rights to acquire any equity securities of Centris or of any
subsidiary of Centris (whether or not exercisable only after
the passage of time or the occurrence of any event); (iii)
acquire or offer to acquire, directly or indirectly, any
assets of Centris; (iv) offer to enter into any acquisition or
other business combination transaction relating to Centris or
to any subsidiary of Centris; (v) make, or in any way
participate, directly or indirectly, in any "solicitation" of
"proxies" or "written authorization or consent" (as such terms
are used in the proxy rules of the Securities and Exchange
Commission) to vote, or seek to advise or influence any person
with respect to the voting of any voting securities of
Centris; (vi) otherwise act alone or in concert with third
parties, to seek to control or influence the management, the
Board of Directors or the policies of Centris; (vii) directly
or indirectly participate in or encourage the formation of any
"group" (within the meaning of Section 13 (d) (3) of the
Securities Exchange Act of 1934) which owns or seeks or offers
to acquire record or beneficial ownership of equity securities
of Centris (including rights to acquire such equity
securities) or which seeks or offers to affect control of
Centris or otherwise seeks or proposes to do any of the acts
specified in (i) through (vi) above; (viii) propose, or
publicly announce or otherwise disclose any request for
permission or consent in respect of, any of the foregoing; or
(ix) advise, assist or encourage any third parties in
connection with any of the foregoing. You also agree during
such period not to (a) request Centris (or its directors,
officers, employees or agents), directly or indirectly, to
amend or waive any provision of this paragraph (including this
<PAGE> 4
Stephen L. Way
August 22, 1999
Page 4
sentence) or (b) take any action which would require Centris
to make a public announcement regarding the possibility of a
business combination or merger without the prior written
approval as noted above.
Notwithstanding the generality of the foregoing, this
Agreement shall not prohibit: (i) the purchase by you, or of
any investment fund managed by you or any of your affiliates,
of equity securities of Centris; provided that no such
purchase shall result in the beneficial ownership by you,
taken in the aggregate with any such investment funds, of five
percent (5%) or more of the outstanding shares of any class of
equity securities of Centris; (ii) an offer by you to acquire
all of the outstanding shares of Centris common stock at a
purchase price of $14.00 per share or greater; or (iii) in the
event the Board of Directors of Centris shall approve an
"Acquisition Transaction" with another party, an offer by you
to acquire all of the outstanding stock of Centris, or the
purchase of shares of common stock pursuant to your offer. As
used herein, an "Acquisition Transaction" means any
transaction in which all or substantially all of the assets of
Centris, or a majority of the common stock of Centris will be
acquired by any person, or a merger in which the shares of
common stock of Centris outstanding immediately prior to such
transaction, or of any other person issued in exchange for
such Centris shares, will represent either (a) less than a
majority of the outstanding shares of the surviving
corporation in such merger; or (b) (if the surviving
corporation is a wholly owned subsidiary of another
corporation) less than a majority of the outstanding shares of
such parent corporation, immediately upon completion of such
merger. In the event that, while this Section 5 remains in
effect, Centris determines not to oppose any publicly
disclosed offer by a third party for an Acquisition
Transaction, Centris will afford you an opportunity, not less
than five (5) business days, to submit a competing offer and
to make public disclosure concerning the same. This Section 5
shall terminate and be of no further effect in the event
Centris' stockholders' equity shall be reduced by 5% or more
from the amount thereof as of June 30, 1999, without giving
effect to: (i) any reduction of up to $3.8 million resulting
from the repurchase of common stock of Centris, and (ii) any
unrealized loss on investments resulting from a general change
in interest rates or other general changes in market
conditions.
(6) Neither you nor your Representatives will initiate any
communications with any employee of Centris concerning the
Evaluation Material without the prior consent of the Chairman
of Centris or his appointed representative.
<PAGE> 5
Stephen L. Way
August 22, 1999
Page 5
(7) Neither you nor your Representatives will initiate discussions
with respect to the prospective employment of Centris'
employees with you or any of your Representatives for a period
of twelve (12) months after the date of signing this Agreement
without the prior written consent of Centris.
(8) Neither Centris nor its agents make any representations or
warranties as to the accuracy or completeness of the
Evaluation Material. Centris and its agents expect that you
will conduct your own independent investigation and analysis.
You agree that neither Centris nor any of its officers,
directors, employees, agents or representatives shall have any
liability to you or your Representatives resulting from the
use of the Evaluation Material supplied by Centris or any of
its representatives under this Agreement.
(9) No delay or failure in exercising any right, power or
privilege hereunder shall be construed to be 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.
(10) Notwithstanding anything to the contrary set forth herein, in
the event that you or any of your Representatives are
requested or become legally compelled (by oral questions,
interrogatories, request for information or documents,
subpoena, civil investigative demand or similar process) to
disclose any of the Evaluation Material or take any other
action prohibited hereby, you will provide Centris with prompt
written notice so that Centris may seek a protective order or
other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such
protective order or other remedy is not obtained, or that
Centris waives compliance with the provisions of this
Agreement, you will use commercially reasonable efforts to
furnish only that portion of the Evaluation Material or take
only such action which is legally required and to obtain
reliable assurances that confidential treatment will be
accorded any Evaluation Material so furnished.
(11) It is understood that Centris may institute appropriate
proceedings against you to enforce its rights hereunder.
Because the harm which may be done to Centris by the
disclosure of the Evaluation Material, you acknowledge and
agree that money damages would not be a sufficient remedy for
any violation of the terms of this Agreement. Accordingly, you
agree that Centris shall be entitled to specific performance
and injunctive relief as remedies for any violation by you of
your obligations hereunder. These remedies shall not be deemed
to be the exclusive
<PAGE> 6
Stephen L. Way
August 22, 1999
Page 6
remedies for a violation of the terms of this Agreement but
shall be in addition to all other remedies available to
Centris at law or equity.
(12) You understand and agree that no contract or Agreement
providing for a transaction between you and Centris shall be
deemed to exist unless and until a definitive transaction
agreement (a "Transaction Agreement") has been executed and
delivered by the parties to this Agreement, and you hereby
waive, in advance, any claim (including, without limitation,
breach of contract) in connection with a possible transaction
unless and until both parties hereto shall have entered into a
Transaction Agreement. You also agree that unless and until a
Transaction Agreement between us has been executed and
delivered, Centris has no legal obligation of any kind
whatsoever with respect to any such transaction by virtue of
this Agreement or any other written or oral expression with
respect to such transaction except, in the case of this
Agreement or any other written agreement, for the matters
specifically agreed to herein or therein.
(13) This Agreement is made pursuant to and to be construed under
and conclusively deemed for all purposes to be governed by the
laws of the State of California (without giving effect to the
principles of conflict of laws) and any judicial proceeding
arising out of this Agreement or any matter related thereto
shall be brought in the Superior Court of the County of Orange
of the State of California, or in the United States District
Court for the Central District of California. By execution and
delivery of this Agreement, each party accepts the
jurisdiction of such courts as noted above, and agrees to be
bound by any judgment rendered therein in connection with this
Agreement. The prevailing party of any litigation arising out
of this Agreement shall be entitled to receive from the losing
party all costs and expenses, including the reasonable counsel
fees incurred by the prevailing party.
(14) This Agreement shall be binding on and inure to the benefit of
the parties hereto and their respective successors and
assigns.
(15) Your confidentiality obligations with respect to the
Evaluation Material shall survive the date of this Agreement
for a period of two (2) years.
<PAGE> 7
Stephen L. Way
August 22, 1999
Page 7
If the terms hereof are acceptable, please sign and return to Centris one copy
of this Agreement to evidence your acceptance of and agreement to the foregoing,
whereupon this Agreement will become a binding agreement.
Very truly yours,
THE CENTRIS GROUP, INC.
By: /s/ DAVID L. CARGILE
-----------------------------------------------
David L. Cargile
Chairman, President and Chief Executive Officer
Agreed and consented to this 22nd day of August, 1999:
HCC INSURANCE HOLDINGS, INC.
By: /s/ STEPHEN L. WAY
-----------------------------------------------
Stephen L. Way
Chairman and Chief Executive Officer
DLC/mks
