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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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THE CENTRIS GROUP, INC.
(NAME OF SUBJECT COMPANY)
THE CENTRIS GROUP, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
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155904105
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JOSE A. VELASCO
SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER,
SECRETARY AND GENERAL COUNSEL
THE CENTRIS GROUP, INC.
650 TOWN CENTER DRIVE, SUITE 1600
COSTA MESA, CALIFORNIA 92626-1925
(714) 549-1600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT)
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COPIES TO:
THOMAS D. MAGILL, ESQ.
GIBSON, DUNN & CRUTCHER LLP
4 PARK PLAZA
JAMBOREE CENTER
IRVINE, CA 92614
(949) 451-3800
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is The Centris Group, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 650 Town Center Drive, Suite 1600, Costa Mesa, California
92626-1925. The title of the class of equity securities to which this
Solicitation/ Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9"
or "Statement") relates is the common stock, $0.01 par value (including
associated common stock purchase rights), of the Company.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated October 18, 1999 (as amended
or supplemented, the "Schedule 14D-1"), filed by HCC Insurance Holdings, Inc., a
Delaware corporation ("HCC"), and Merger Sub of Delaware, Inc., a Delaware
corporation and a wholly owned subsidiary of HCC ("Merger Subsidiary"), with the
Securities and Exchange Commission (the "SEC"), relating to an offer to purchase
all of the issued and outstanding shares of common stock, par value $0.01 per
share (the "Common Stock"), including the associated rights to purchase shares
of Common Stock issued pursuant to the Rights Agreement between the Company and
American Stock Transfer & Trust Company, dated as of May 24, 1990, as amended,
(the "Rights" and, together with the Common Stock, the "Shares"), of the Company
at a price of $12.50 per Share net to the seller in cash, without interest (the
"Offer Price"), 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 in the related Letter of Transmittal (which together with any
amendments or supplements thereto constitute the "Offer Documents").
The Offer is being made in accordance with an Agreement and Plan of Merger,
dated as of October 11, 1999 (the "Merger Agreement"), by and among HCC, Merger
Subsidiary and the Company. Pursuant to the Merger Agreement, as soon as
practicable after completion of the Offer and satisfaction or waiver, if
permissible, of certain conditions, Merger Subsidiary will be merged with and
into the Company (the "Merger"), and the Company will become a wholly owned
subsidiary of HCC (the "Surviving Corporation"). At the effective time of the
Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held by HCC, Merger Subsidiary,
the Company or any of their wholly-owned subsidiaries and Shares held by
shareholders (the "Shareholders") of the Company who will have properly
perfected their dissenters' rights, if any, under Delaware law) will be
converted into the right to receive the Offer Price.
The Offer Documents indicate that the principal executive offices of HCC
and Merger Subsidiary are located at c/o HCC Insurance Holdings, Inc., 13403
Northwest Freeway, Houston, Texas 77040-6094.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Except as described herein, in Annex A hereto, and in the exhibits
hereto, to the knowledge of the Company, as of the date hereof there are no
material contracts, agreements, arrangements or understandings, or any potential
or actual conflicts of interest between the Company or its affiliates and (1)
the Company, its executive officers, directors or affiliates or (2) the Merger
Subsidiary, its executive officers, directors or affiliates.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendation of the Company's Board of Directors, the
Shareholders of the Company should be aware that certain members of the
Company's Board of Directors and certain of the Company's officers have
interests in the Offer and the Merger which are described herein and in Annex A
hereto and which may present them with certain conflicts of interest. Each of
the members of the Company's
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Board of Directors was aware of these potential conflicts and considered them
along with the other factors described in Item 4(b)(2) below.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described in the Company's Proxy Statement, dated March 31, 1999,
relating to its May 12, 1999 Annual Meeting of Shareholders (the "Proxy
Statement") under the headings "Compensation of Directors," "Compensation
Committee Of The Board Of Directors Report On Executive Compensation,"
"Compensation Committee Interlocks And Insider Participation," "Compensation Of
Executive Officers," "Employment Agreements With Named Executives" and "Related
Transactions." A copy of the applicable portions of the Proxy Statement has been
filed as an exhibit to this Schedule 14D-9 and is incorporated herein by
reference.
Upon consummation of the Offer, all outstanding Company stock options,
whether vested or unvested, will be canceled. The holders of Company stock
options, including the directors and executive officers of the Company, will
receive a cash payment in connection with the cancellation of their options
equal to the excess, if any, of $12.50 per Share over the applicable exercise
price of their options. Pursuant to the Offer, the directors and executive
officers of the Company will receive an aggregate of approximately $16,691,479
in cash for their Shares and Shares issuable upon exercise of outstanding stock
options. As of October 11, 1999, the directors and executive officers of the
Company as a group beneficially owned 1,963,962 Shares, or approximately 15.84%
of the Shares, which includes Shares subject to options, whether vested or
unvested, that could be canceled if the Offer is consummated. The Company has
been informed by its directors and executive officers that they intend to tender
pursuant to the Offer all Shares beneficially owned by them.
On October 11, 1999, the Company entered into a consulting agreement (the
"Consulting Agreement") with David L. Cargile pursuant to which Mr. Cargile will
act as an independent consultant to the Company for a six-month period following
his termination as a director and officer on the date that Merger Subsidiary
accepts for payment at least a majority of the Shares pursuant to the Offer. The
Company will pay Mr. Cargile an aggregate of $360,000 for his consulting
services rendered to the Company and his agreements relating to nonsolicitation
and confidentiality contained in the Consulting Agreement. This description of
the Consulting Agreement is qualified in its entirety by reference to the text
of such Consulting Agreement, a copy of which is attached as an exhibit to this
Schedule 14D-9 and is incorporated herein by reference.
Set forth in the following table is the aggregate maximum amount of all
termination, severance, COBRA payments, or other similar benefits to which the
certain officers of the Company may be entitled in connection with the Merger
and the other transactions contemplated in the Merger Agreement (not including
any tax or tax gross up payment) or the cost of life insurance, AD&D or Long
Term Disability Insurance. The costs for those are $0.18/$1,000; $0.02/$1,000;
and $0.28/$1,000, respectively.
<TABLE>
<CAPTION>
EMPLOYEE AMOUNT($)*
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<S> <C>
1. David L. Cargile.............. 2,031,000
2. Charles M. Caporale........... 506,000
3. Mark A. Carney................ 532,000
4. Edward D. Jones, III.......... 291,000
5. Howard S. Singer.............. 585,000
6. Jose A. Velasco............... 546,000
7. Patricia S. Boisseranc........ 149,000
8. Linton R. Groke............... 159,000
</TABLE>
<TABLE>
<CAPTION>
EMPLOYEE AMOUNT($)*
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<S> <C>
9. David L. Hubert............... 118,000
10. Barbara F. Stoner............. 156,000
11. Lorraine G. Schaefer.......... 91,000
12. Timothy J. Barden............. 166,000
13. James A. Lalko................ 115,000
14. James A. Roberson............. 158,000
15. Gretchen Hesse................ 148,000
16. Andrew M. Weissert............ 63,000
</TABLE>
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* rounded to nearest thousand
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On May 17, 1999, the Company granted vested options to purchase 6,000
Shares at the price of $10.50 per Share to each of Roxani M. Gillespie, John F.
Kooken, L. Steven Medgyesy and Charles L. Schultz, each a non-employee director
of the Company.
THE MERGER AGREEMENT
The following description of the Merger Agreement is qualified in its
entirety by reference to the text of such Merger Agreement, a copy of which is
attached as an exhibit to this Schedule 14D-9 and is incorporated herein by
reference.
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 this Section. 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 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, shall
have been determined; 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 subparagraph (i) hereof;
(iii) extend the Offer Period for an additional period of not more than ten
Business Days beyond that permitted by subparagraphs (i) and (ii) hereof 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, 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 Directors referred to below, at
such later time as is specified in the certificate of merger.
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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, 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.
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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 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
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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 affiliates (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 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,
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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% Shareholder" (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 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 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 Internal
Revenue Code of 1986, as amended (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
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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.
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, certain conditions, obligations or restrictions on HCC or any of
its subsidiaries or on the Surviving Corporation or any of its subsidiaries; and
(v) neither HCC nor Merger Subsidiary shall be required to waive any of the
conditions to the Offer or any of the conditions to the Merger.
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
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<PAGE> 10
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, 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 provisions 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
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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 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.
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 harmless the present and
former officers, directors, employees and agents of the Company (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
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<PAGE> 12
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 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.
A copy of the applicable portions of the Company's Certificate of
Incorporation and By-Laws has been filed as an exhibit to this Schedule 14D-9
and is incorporated herein by reference.
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
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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 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
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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 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 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 forgoing, 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 all or any part of the option granted to HCC in the Stock Option
Agreement, but shall be limited 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 Shareholder Option Agreement, a
copy of which is attached as an exhibit to this Schedule 14D-9 and is
incorporated herein by reference.
Grant of Stock Option. Under the Shareholder Option Agreement, certain
Shareholders named therein (the "Principal Shareholders") have each 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
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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 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 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 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 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 obligation and the restrictions placed on him as a director of the Company
pursuant to Section 5.4 of the Merger Agreement (this section is discussed
herein under the title. 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.
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<PAGE> 16
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 Stock Option Agreement, a copy of
which is attached as an exhibit to this Schedule 14D-9 and is incorporated
herein by reference.
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,
or in part, 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 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) 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 hereunder and as contemplated herein 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% Shareholder;" 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.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously (a) determined that the Merger
Agreement and the transactions contemplated thereby, including each of the Offer
and the Merger, are fair, advisable to and in the best interests of the Company
and its Shareholders, (b) approved the Offer and adopted the Merger
15
<PAGE> 17
Agreement and the transactions contemplated thereby in accordance with Delaware
Law, (c) resolved to recommend that the Shareholders accept the Offer and
approve the Merger Agreement, and (d) taken all action necessary to render
Section 203 of Delaware Law inapplicable to the Offer and the Merger.
(b) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION.
Background. In January 1998, 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 expressing HCC's interest in
informal discussions about a possible business combination. An additional
meeting was held in August 1998. The Company's Chief Executive Officer, after
consultation with the Company's Board of Directors, advised HCC following those
meetings that the Company was not for sale, and that it preferred to remain
independent.
On October 26, 1998 the Company received an unsolicited letter from HCC
expressing HCC's interest in acquiring the Company in an all cash transaction
with no financing contingencies, but this letter did not indicate a proposed
price. The Company's Board of Directors considered HCC's letter and determined
that it would not be appropriate to enter into conversations regarding a
potential sale of the Company at that time. In a letter to Mr. Way dated
November 12, 1998, the Company stated its reasons for its position, noting among
other items, that the Company had several pending transactions and business
initiatives, including the purchase of Seaboard Life Insurance Company (USA) and
VASA North America, Inc. and the sale or restructuring of its property/casualty
reinsurance operations.
On January 11, 1999, HCC publicly offered to acquire the 92.2% of the
Company it did not already own for $13.25 a share. Based on market conditions in
the insurance industry and the medical stop-loss business particularly, and
after reviewing the future prospects for the Company at the time, the Company
concluded that the offer was not adequate. Accordingly, on January 27, 1999, the
Company rejected the takeover bid, to which HCC responded by withdrawing its
offer.
Shortly after, but as a result of, HCC's unsolicited proposal, the Company
received inquiries from several other parties who also expressed an interest in
the possibility of a transaction with the Company. These parties were all large
multinational insurance companies which were also involved in the medical
stop-loss industry. The Company's Board concluded that it would be in the best
interest of the Company's Shareholders to determine whether the Company should
consider a sale to a buyer willing to pay a price that, in their judgment,
reflected the value of the Company. In this connection, Advest, which was
already providing financial advice to the Company, was engaged to act as the
Company's principal agent and financial advisor should the Company pursue a
strategic alliance or a business combination, including a sale of the Company to
a third party.
During the months of February and March 1999, the Company engaged in
conversations with four large and well known insurance companies which had
previously expressed an interest in the Company. Each of these parties signed a
confidentiality agreement in order to obtain a memorandum prepared by Advest
which included pro-forma projections and a financial analysis and valuation.
During February and March 1999, members of the Company's senior management met
with representatives of each of these companies to review the Advest materials,
answer questions and provide additional information. Thereafter, the Company
received preliminary non-binding indications of interest ranging from $16.00 to
$19.50 per share. On March 31, 1999, the Company, in conjunction with releasing
its 1998 Fourth Quarter and Year-End results, issued a statement stating that it
was looking at its strategic options, including the possible sale of the
Company.
Two of these four companies conducted extensive due diligence reviews of
the Company and its operations during April and May of 1999. The other two
companies did not conduct due diligence. One of these other two other companies
indicated early in the process a price range that was below the Company's
minimum range. The second of these two companies objected to the terms under
which its due diligence was to be conducted and imposed conditions that the
Company would not be able to meet. For a variety of reasons, no formal proposals
to acquire the Company or binding indications of interest were made by either of
the two companies that conducted due diligence.
In May 1999, five additional parties were identified by the Company as
potential buyers, and each signed a confidentiality agreement and received a
memorandum with updated pro-forma projections and a valuation
16
<PAGE> 18
analysis. Three of these companies were large insurance companies involved in
the medical stop-loss business. The other two were also in insurance-related
businesses. In addition, in August 1999, a further updated memorandum was sent
to one of the first four companies at its request, but no further interest was
expressed by that company after reviewing the revised materials. Conversations
with the five additional potential acquirers were conducted through September
1999, which involved meetings and an exchange of information. However, none of
these companies conducted due diligence on the Company, and no formal proposals
or binding indications of interest were received from any of them. After
actively marketing the Company to nine interested potential buyers from February
1999 to date, the Company had not received any formal proposals or binding
indications of interest from any party other than HCC.
During the period when the Company was involved in due diligence and
conversations with the parties described above, HCC continued to intermittently
express an interest in a transaction with the Company, directly and through its
representatives. HCC was advised informally on various occasions and in writing
on April 21, 1999, that it would not be in the best interests of the Company's
Shareholders for the Company to have conversations with HCC under existing
circumstances, i.e., while conversations were going on with other parties. On
July 22, 1999, HCC sent the Company a letter indicating that it was prepared to
offer to acquire the Company for a price ranging from $14 to $16 per Share,
subject to completion of satisfactory due diligence. The Company responded in
writing on July 26, 1999 indicating that it was prepared to proceed with a
process that would allow both parties to determine whether a transaction could
be accomplished on mutually acceptable terms and conditions. This process
included HCC entering into a confidentiality agreement to protect the Company's
competitive information, and a standstill provision to restrict HCC from
acquiring additional Shares of the Company's stock. HCC and the Company had
discussions by telephone and in person on a number of occasions between July 1
and September 15, 1999. Centris wrote to HCC on August 10, 1999 regarding a
proposed confidentiality agreement and HCC replied to the issues raised by
Centris on August 17, 1999. On August 22, 1999, HCC and the Company entered into
a confidentiality agreement, including a six month standstill provision. HCC
conducted preliminary due diligence concerning the affairs and activities of the
Company from August 30 through September 1, 1999.
Following HCC's preliminary due diligence, on September 9, 1999, the
Chairman of the Board of HCC indicated to the Chairman of the Board of the
Company that HCC was considering a cash tender offer price range of $11 to
$12.60 per Share. After consultation with the Company's Board of Directors, the
Company's Chairman of the Board advised HCC's Chairman of the Board that an
offer price in that range would not be acceptable. Thereafter, on September 15,
1999, representatives of the Company met with representatives of HCC at which
time HCC proposed an offer price of $13.25 per Share. The following day, the
Company advised HCC that the Company was prepared to negotiate a definitive
agreement for the proposed transaction based on the indicated $13.25 per Share
price.
From September 22, 1999 through September 24, 1999, meetings were held
between representatives of HCC, including its legal advisors, and
representatives of the Company, including its legal advisors, to negotiate the
terms of a definitive merger agreement and related documents, and for HCC to
conduct detailed due diligence. No agreement was reached and the negotiations
were suspended. On September 29, 1999, the Chief Executive Officers of the
Company and HCC met, at which time HCC indicated that it would be willing to pay
a price range of $10.50 to $11.50 per Share for the Company's stock. HCC was
advised that the price range would not be acceptable to the Company's Board of
Directors. After discussions between the two companies' Chief Executive
Officers, a price of $12.50 per Share was offered by HCC and the Company's Chief
Executive Officer agreed to present that offer to the Company's Board of
Directors for its consideration. Further negotiations by representatives of both
companies to finalize the definitive agreements and additional due diligence by
HCC took place between September 30, 1999 and October 3, 1999. On October 10,
1999, the Company's Board of Directors approved the $12.50 price per Share offer
and authorized the Company to enter into the Merger Agreement, the Stock Option
Agreement and the Shareholder Option Agreement and other related agreements.
Such documents were finalized and executed on October 11, 1999. At approximately
8:00 a.m. New York City time on October 12, 1999, HCC and the Company issued
separate press releases announcing the transaction.
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<PAGE> 19
Factors Considered by the Board. In approving the Merger Agreement and the
transactions contemplated thereby, and recommending that all Shareholders tender
their Shares pursuant to the Offer, the Board of Directors considered a number
of factors, including:
1. The Board of Directors's belief, as a result of the Board of
Directors's review of the Company's business, its financial condition and
prospects, that the Offer and the Merger represent the most attractive
financial alternative available to the Company's Shareholders based upon
the efforts of management and its financial advisors over the last seven
months to explore strategic alternatives and alliances, including the
possible sale of the Company.
2. The Board of Directors's judgment, after extensive consultation
with its financial advisors, that the likelihood of receiving a more
attractive offer was low, because of factors including, among other things:
(a) a sharp decline from January through October 1999 in the book
value multiples paid in insurance company acquisitions,
(b) a prolonged selling period,
(c) a significant number of managing general underwriters of
medical stop loss have been put up for sale, creating a large supply
available for acquisition, thereby depressing the price,
(d) the Company's decline in earnings, book value, and projections,
and
(e) the general decline in prices of financial services stocks,
specifically insurance company stocks.
3. The opinion of Advest to the effect that, as of the date of such
opinion and based upon and subject to certain factors and assumptions
stated therein, the $12.50 per Share consideration to be received by the
Company's Shareholders pursuant to the Offer and the Merger is fair from a
financial point of view to such Shareholders. THE FULL TEXT OF ADVEST'S
OPINION IS ATTACHED AS ANNEX B HERETO AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY.
4. The relationship of the $12.50 per Share Offer Price to the
historical market prices for the Common Stock, including the fact that such
price represents a 25.79% premium over the closing price of the Company's
Common Stock on October 8, 1999, the last full trading day prior to the
Board of Directors' approval of the Merger Agreement. In addition, the
$12.50 per Share Offer Price represents a premium of 34.41% over the $9.30
per Share average closing price for the 30 trading days immediately
preceding the Board of Directors' approval of the Merger Agreement.
5. The fact that at the time of the Company's release of its 1998
fourth quarter and year-end results on March 31, 1999, the Board of
Directors announced that it had instructed management and its advisors to
explore a possible sale of the Company, that the Company engaged in a
thorough process of soliciting indications of interest from prospective
purchasers and that no prospective purchasers other than HCC had made a
proposal for a transaction following that announcement.
6. The Company's prospects if it were to remain independent, including
information concerning the Company's business prospects, its financial
performance and condition, particularly in the near future, legislative
issues, the effect of new technology, its competitive position, as well as
the risks inherent in remaining independent as a publicly held "smallcap"
company.
7. The likelihood that the proposed acquisition would be consummated,
in light of the experience, reputation and financial capabilities of HCC,
and that the proposed acquisition would be consummated more quickly than a
stock-for-stock merger as compared to the risks to the Company if the
acquisition were not consummated or were not consummated for a significant
period of time, including a potential negative effect on (a) the Company's
employees, its customers and clients directly affecting its sales and
operating results, (b) the progress of certain development projects and (c)
the Company's stock price.
18
<PAGE> 20
8. The view of the Board of Directors, after consultation with its
financial and legal advisors, that the terms of the Merger Agreement,
including the amounts payable to Merger Subsidiary in the event of
termination, would not materially deter bona fide acquisition proposals by
third parties on more favorable terms.
9. The availability of appraisal rights under Section 262 of Delaware
Law to shareholders of the Company who dissent from the Merger.
The foregoing discussion of the information and factors considered by the
Board of Directors is not meant to be exhaustive but includes the material
factors considered by the Board of Directors in reaching its conclusions and
recommendations. In view of the variety of factors considered in its reaching a
determination, the Board of Directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusions and recommendations. In addition,
individual members of the Board may have given different weights to different
factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Advest as its financial advisor in connection with the
Offer and the Merger. Pursuant to an engagement letter dated May 18, 1999 (the
"Engagement Letter"), the Company has agreed to pay Advest upon consummation of
a sale of the Company, including a sale pursuant to the transactions
contemplated by the Merger Agreement, a total fee, payable in cash on closing,
of 50 basis points of the total dollar amount of the sale (the "Transaction
Fee"). The Company has not paid any part of the Transaction Fee to date.
Pursuant to the Engagement Letter, the Company has agreed to pay Advest
$250,000 upon delivery of Advest's opinion letter to the Company with respect to
the fairness of the consideration to be received by the Shareholders in the
Offer and the Merger.
In addition to the foregoing compensation, pursuant to the Engagement
Letter the Company has agreed to reimburse Advest for its reasonable
out-of-pocket expenses (including fees and disbursements of its attorneys) and
to indemnify it and certain related persons against certain liabilities arising
out of the engagement and the transactions in connection therewith, including
certain liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the Shareholders of the Company on its
behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) The Company purchased 25,300 of its Shares at a price of $7.875 per
Share and 400 Shares at a price of $7.8125 per Share during the past 60 days
under the Company's share repurchase program. To the best of the Company's
knowledge, no other transactions in Shares have been effected during the past 60
days by the Company or any of its executive officers, directors or affiliates
except that certain officers of the Company have acquired beneficial ownership
of Shares under the Company's payroll deduction program and 401(k) Plan, which
acquisitions are not material.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Merger Subsidiary pursuant to the Offer. Certain Shareholders are
contractually obligated to tender their Shares to Merger Subsidiary pursuant to
the Offer. See "Shareholder Option Agreement" elsewhere in this Statement.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization,
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<PAGE> 21
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Short Form Merger. Under Delaware Law, if Merger Subsidiary acquires,
pursuant to the Offer or otherwise, at least 90% of the outstanding Shares of
Common Stock, Merger Subsidiary will be able to effect the Merger after
consummation of the Offer without a vote of the Company's Shareholders. However,
if Merger Subsidiary does not acquire at least 90% of the outstanding Shares of
Common Stock pursuant to the Offer or otherwise and a vote of the Company's
Shareholders is required under Delaware Law, a significantly longer period of
time will be required to effect the Merger.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
2 Shareholder Option Agreement, dated as of October 11, 1999,
among Merger Sub of Delaware, Inc. and the shareholders of
the Company named therein
3 Stock Option Agreement, dated as of October 11, 1999,
between HCC Insurance Holdings, Inc. and The Centris Group,
Inc.
4 Letter to Shareholders of The Centris Group, Inc., dated
October 18, 1999*
5 Confidentiality Agreement, dated August 22, 1999, between
HCC Insurance Holdings, Inc. and The Centris Group, Inc.
6 Consulting Agreement, dated as of October 11, 1999 between
The Centris Group, Inc. and David L. Cargile
7 Provisions regarding indemnification of directors and
officers from the Company's Certificate of Incorporation and
Bylaws
8 Selected pages of the Company's Proxy Statement, dated March
31, 1999, for the Annual Meeting of Shareholders on May 12,
1999
ANNEX A INFORMATION STATEMENT
ANNEX B OPINION OF ADVEST, INC.
</TABLE>
- ---------------
* Included with Schedule 14D-9 mailed to Shareholders.
20
<PAGE> 22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
By: /s/ DAVID L. CARGILE
------------------------------------
David L. Cargile
Chairman, President and Chief
Executive Officer
Dated: October 18, 1999
21
<PAGE> 23
ANNEX A
THE CENTRIS GROUP, INC.
650 TOWN CENTER DRIVE, SUITE 1600
COSTA MESA, CALIFORNIA 92626-1925
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about October 18, 1999 as
a part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14-D-9") of The Centris Group, Inc. (the "Company") to the holders of
record of shares of Common Stock, par value $0.01 per share, of the Company (the
"Shares") at the close of business on or about October 18, 1999. You are
receiving this Information Statement in connection with the possible appointment
of persons designated by the Merger Subsidiary (as defined below) to a majority
of the seats on the Board of Directors of the Company.
On October 11, 1999, the Company, HCC Insurance Holdings, Inc., a Delaware
corporation ("HCC"), and Merger Sub of Delaware, Inc., a Delaware corporation
and a wholly owned subsidiary of HCC (the "Merger Subsidiary"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") in accordance with the
terms and subject to the conditions of which (i) HCC will cause the Merger
Subsidiary, on HCC's behalf, to commence a tender offer (the "Offer") for all
outstanding Shares at a price of $12.50 per Share, net to the seller in cash and
without interest thereon, and (ii) the Merger Subsidiary will be merged with and
into the Company (the "Merger"), and the Company will be the surviving legal
entity. As a result of the Offer and the Merger, the Company will become a
wholly owned subsidiary of HCC.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time. Capitalized terms used
herein and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Pursuant to the Merger Agreement, the Merger Subsidiary commenced the Offer
on October 18, 1999. The Offer is scheduled to expire at Midnight, New York City
time, on November 30, 1999, unless the Offer is extended.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of October 11, 1999, there were
11,536,076 Shares outstanding. The Company's Board of Directors currently
consists of seven (7) members and is divided into three (3) classes. At each
annual meeting of Shareholders, each director in the class to be elected is
elected for a three (3) year term. Two directors are elected at two annual
meetings and three directors are elected at the third annual meeting. The
officers of the Company serve at the discretion of the Board.
PROPOSED CHANGES TO THE COMPANY'S BOARD OF DIRECTORS
Pursuant to the Merger Agreement, 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 (the "HCC Designees"), rounded up
to the next whole number, on the Company's Board of Directors (the "Board") 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
A-1
<PAGE> 24
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.
HCC DESIGNEES
HCC has informed the Company that it will choose the HCC Designees from the
persons listed below. HCC has also informed the Company that each of the HCC
Designees has consented to act as a director, if so designated. Biographical
information concerning each of the HCC Designees is presented below. Unless
otherwise indicated below, the business address of each person is c/o Merger
Subsidiary, 13403 Northwest Freeway, Houston, Texas 77040-6094 and each
occupation set forth opposite an individual's name refers to employment with
HCC. The following biographical information provided herein has been furnished
by HCC, and the Company assumes no responsibility for the accuracy or
completeness of such information.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
NAME AGE 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.
</TABLE>
A-2
<PAGE> 25
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
NAME AGE DURING PAST FIVE YEARS
---- --- -----------------------------------
<S> <C> <C>
Edwin H. Frank, III............ 50 Director of HCC since May 1993. Mr. Frank is the 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.
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.
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 HCC's subsidiaries.
</TABLE>
None of the HCC Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to HCC's knowledge,
beneficially owns any securities (or rights to acquire any securities) of the
Company. The Company has been advised by HCC that, to HCC's knowledge, none of
the HCC Designees has been involved in any transaction with the Company or any
of its directors, executive officers or affiliates that is required to be
disclosed pursuant to the rules and regulations of the Commission, except as may
be disclosed herein or in the Schedule 14D-9.
A-3
<PAGE> 26
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of October 11, 1999 is set forth below. Some of the
current directors may resign effective immediately following the purchase of
Shares by Merger Subsidiary pursuant to the Offer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David L. Cargile........... 53 Chairman, President, Chief Executive Officer and Director
Howard S. Singer........... 53 Executive Vice President -- Corporate Finance and
Investor Relations and Director
Jose A. Velasco............ 45 Senior Vice President, Chief Administrative Officer,
Secretary, General Counsel and Director
Roxani M. Gillespie........ 58 Director
John F. Kooken............. 67 Director
L. Steven Medgyesy......... 66 Director
Charles L. Schultz......... 71 Director
Charles M. Caporale........ 49 Senior Vice President, Chief Financial Officer and
Treasurer
Edward D. Jones, III....... 54 Senior Vice President -- Strategic Planning and
Government Relations
Mark A. Carney............. 41 Senior Vice President
</TABLE>
All executive officers other than Charles M. Caporale and Mark A. Carney
have been employed by the Company for more than five years. There are no family
relationships among any of the executive officers of the Company. There have
been no events under bankruptcy or insolvency laws, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
David L. Cargile joined the Company as a Senior Vice President in December
1991, and was appointed as its President, Chief Operating Officer and a director
in August 1994, and as its Chief Executive Officer in March 1995. He was elected
as Chairman of the Board in April 1995. Prior to joining the Company Mr. Cargile
had served for a number of years as President and Chief Executive Officer of
Reinsurance Facilities Corporation, a reinsurance intermediary. He has also
served on the boards of directors of a number of companies engaged in the
reinsurance business.
Howard S. Singer has served as a director of the Company since its founding
in 1980. Prior to joining the Company in December 1991 as its Executive Vice
President -- Corporate Finance and Investor Relations, Mr. Singer had served as
its independent financial consultant.
Jose A. Velasco joined the Company in 1986 as Vice President and General
Counsel. He currently holds the positions of Senior Vice President, Chief
Administrative Officer, General Counsel and Secretary. Prior to joining the
Company, Mr. Velasco was in the private practice of law specializing in
insurance matters. Mr. Velasco was elected as a director of the Company at the
May 1999 Annual Meeting.
Roxani M. Gillespie was appointed as a director of the Company in April
1998 to fill the vacancy created by the retirement of Kenneth C. Tyler. With
over 25 years experience in the insurance industry, Ms. Gillespie was Insurance
Commissioner for the State of California from 1986 until 1991, and since 1991
has been in the private practice of law in San Francisco, California,
specializing in insurance matters.
John F. Kooken has served as a director of the Company since 1986. Prior to
his retirement in 1992, Mr. Kooken was Vice Chairman and Chief Financial Officer
of Security Pacific Corporation, the parent of Security Pacific National Bank,
Los Angeles. Since June 1992 Mr. Kooken has served as a director of Golden State
Bancorp, and since February 1994 he has served as a director of Pacific Gulf
Properties, Inc., a real estate investment trust.
L. Steven Medgyesy, M.D. has served as a director of the Company since
1983. Until March 1996 he served as Medical Director of the Company's USBenefits
Insurance Services, Inc. subsidiary. From 1963 until
A-4
<PAGE> 27
his retirement in 1993 as the Director of Laboratories at Lincoln West Medical
Center, Chicago, Dr. Medgyesy practiced in the field of pathology.
Charles L. Schultz was elected a director of the Company in May 1995. From
1985 until his retirement in 1993, Mr. Schultz held the position of Senior Vice
President, Finance and Chief Financial Officer of Farmers Group, Inc., the
management and holding company for the Farmers Insurance Group. Since November
1995 Mr. Schultz has served as a director of Amwest Insurance Group, a Southern
California-based insurance holding company.
Charles M. Caporale joined the Company in July 1997 as Senior Vice
President, Chief Financial Officer and Treasurer. Before joining the Company,
Mr. Caporale began his career at Coopers & Lybrand and served in various
capacities in the insurance industry. He joined the Minet group of companies in
1985 where he served in various management positions, including Executive Vice
President and Chief Financial Officer of Minet, Inc.
Edward D. Jones, III joined the Company in September 1993 as a Vice
President and was promoted to Senior Vice President in March, 1998. He is
responsible for corporate strategic and business planning, government affairs,
customer service, and spearheads the Company's electronic data interchange (EDI)
efforts. Before joining the Company, Mr. Jones served as Executive Vice
President and as a member of the Board of Directors of Medical Review Systems, a
firm that he co-founded in 1990. He has also served as a consultant to and held
positions with various academic and governmental organizations.
Mark A. Carney joined the Company in September 1997 as a Senior Vice
President in connection with the acquisition of INTERRA, Inc., formerly known as
INTERRA Reinsurance Group, Inc. ("INTERRA") and continues to serve as INTERRA's
President and Chief Operating Officer. In addition, Mr. Carney was appointed
President and Chief Operating Officer of the Company's USBenefits Insurance
Services, Inc. subsidiary in June 1999. Prior to joining the Company, Mr. Carney
held various executive positions with health care companies and founded INTERRA
in 1993. From 1993 to 1997 Mr. Carney was Chairman, President and Chief
Operating Officer of INTERRA.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company has five standing Committees:
Executive Committee. Has all of the power and authority in the management
of the business and affairs of the Company to take action on behalf of the Board
of Directors as may be necessary between regular meetings of the Board of
Directors, when a special meeting or a telephonic meeting of the full Board of
Directors is not possible or practicable.
Audit Committee. Meets with the Company's independent auditors to review
the scope and results of the independent auditors' activities and to review the
results of their audit when it is completed.
- Reviews the adequacy of internal financial and accounting controls and
the results of the independent auditors' examinations thereof.
- Recommends to the Board of Directors the appointment of the Company's
independent auditors.
- Reports its findings on any of the above to the full Board of Directors,
as appropriate.
- All members of the Audit Committee are non-employee directors.
Investment Committee. Establishes goals for the Company's investment
program as well as policies to achieve such goals.
- Analyzes current investments and their return and suggests any changes
deemed necessary.
- Selects independent investment advisors, determines the scope of their
duties and responsibilities, approves their fees and monitors and
evaluates their performance.
A-5
<PAGE> 28
Compensation Committee. Establishes criteria and adopts compensation
policies applicable to the Company's Chief Executive Officer and executive
officers at the level of Senior Vice President and above.
- Recommends to the Board of Directors salary, bonus and other forms of
direct and indirect compensation to be paid to the Chief Executive
Officer.
- Evaluates and makes recommendations to the Board of Directors regarding
compensation policies and programs applicable to all Company employees.
- Administers the Company's annual cash bonus plan and its stock option and
other long-term incentive plans.
- All members of the Compensation Committee are non-employee directors.
Nominating Committee. Reviews and investigates the qualifications of
candidates proposed by management or by others (including candidates proposed by
Shareholders or members of the Board of Directors) for election by Shareholders
or election by the Board of Directors itself to fill a vacancy on the Company's
Board of Directors.
- Recommendations by Shareholders must be supported by a description of
such persons' background and experience, together with the written
consents of such persons to serve on the Board if elected, and should be
addressed to the Nominating Committee, in care of the Secretary, The
Centris Group, Inc., 650 Town Center Drive, Suite 1600, Costa Mesa,
California.
The table below identifies the current members of each Committee:
<TABLE>
<CAPTION>
COMMITTEE MEMBERS
--------- -------
<S> <C>
Executive Committee...... Directors Cargile (Chairman), Kooken, Schultz and
Velasco
Audit Committee.......... Directors Schultz (Chairman), Gillespie and
Kooken
Compensation Committee... Directors Medgyesy (Chairman), Gillespie, Schultz
and Kooken
Investment Committee..... Directors Kooken (Chairman), Gillespie, Medgyesy,
Schultz and Singer
Nominating Committee..... Directors Singer (Chairman), Cargile, Gillespie,
Medgyesy and Velasco
</TABLE>
There were 13 meetings of the Board of Directors during 1998. The Executive
Committee acted once during the year. Other Committees met during 1998 as
follows: Audit -- 5 times; Investment -- 2 times; Compensation -- 2 times; and
Nominating -- 1 time. All current directors attended or participated by
telephone in at least 75% of the meetings of the Board of Directors and the
Committees of which they were members during 1998. Committee members are
appointed each year at the Board of Directors meeting immediately following the
annual meeting of Shareholders.
BOARD COMPENSATION
Directors who are also full-time employees of the Company receive no
additional compensation for their services as directors. Non-employee directors
are paid an annual retainer of $12,500 and a fee of $3,000 for each meeting of
the Board of Directors attended ($1,000 for telephonic meetings). Such directors
are also paid a fee of $1,000 for each Committee meeting ($1,500 for Committee
Chairmen). In addition, directors are reimbursed for reasonable out-of-pocket
expenses incurred by them in connection with their attendance at Board of
Directors and Committee meetings.
Non-employee directors are also entitled to receive stock option awards
under the Company's Amended and Restated 1991 Directors Stock Option Plan, which
was approved by Shareholders in 1996. Under this Plan, on the third business day
following each annual meeting, each non-employee director is automatically
granted an award of options covering between 6,000 to 9,000 Shares of Common
Stock, with the number of options actually granted determined in accordance with
a formula related to the Company's return on equity
A-6
<PAGE> 29
for the prior fiscal year. Based on the Plan formula, each of the non-employee
directors received an option grant for 6,000 Shares following the 1999 Annual
Meeting, with an exercise price which was the closing price of the Company's
stock on the New York Stock Exchange on Monday, May 17, 1999.
Those directors who are also employees of the Company may be entitled to
additional compensation in their capacity as employees to the extent that they
participate in the Company's short-term and long-term incentive compensation
plans, as described elsewhere in this Statement.
EXECUTIVE COMPENSATION
The following table provides information concerning all compensation paid
or credited by the Company to the Company's Chief Executive Officer and the four
most highly compensated executive officers (measured as of December 31, 1998)
(the "Named Executives") for services rendered to the Company and its
subsidiaries in all capacities attributable to the fiscal years ended December
31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
LONG-TERM COMP
----------------------
ANNUAL COMPENSATION NO. OF
------------------------------------------ SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(1) COMP GRANTED(2) COMP(3)
--------------------------- ----------- -------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile**..................... 1998 $449,435 -0- (4) -0- $258,813(5)
President, and Chief Executive
Officer 1997 $437,601 $300,000 (4) 60,000 $260,165(5)
1996 $411,825 $280,000 (4) 45,000 $187,400(5)
Howard S. Singer**..................... 1998 $237,989 -0- (4) -0- $ 17,553
Executive Vice President -- 1997 $233,054 $ 47,500 (4) 27,200 $ 17,376
Corporate Finance and Investor
Relations 1996 $225,914 $ 56,818 (4) 24,000 $ 9,000
John T. Grush(6)....................... 1998 $293,973 -0- (4) -0- $ 21,576
Senior Vice President and President 1997 $291,646 $ 65,000 (4) 28,800 $ 20,885
of USF RE 1996 $291,646 $ 58,309 (4) 24,000 $ 20,213
Craig J. Kelbel**(7)................... 1998 $244,804 $ 10,000 (4) -0- $ 17,253
Senior Vice President and President 1997 $239,349 $ 25,000 (4) 27,200 $ 18,251
of USBenefits Insurance Services,
Inc. 1996 $229,793 $ 69,459 (4) 24,000 $ 12,562
Jose A. Velasco........................ 1998 $218,750 $ 20,000 (4) -0- $ 15,921
Senior Vice President, 1997 $202,312 $ 61,000 (4) 32,000 $ 15,490
Chief Administrative Officer, 1996 $175,380 $ 53,165 (4) 24,000 $ 15,816
Secretary and General Counsel
</TABLE>
- ---------------
* The Company has excluded from the Summary Compensation Table the columns
relating to awards of Restricted Stock and Long-Term Incentive Plan Payouts
because no such awards or compensation were earned by or paid to the Named
Executives in the fiscal years covered by the table.
** The compensation paid to Messrs. Cargile, Singer and Kelbel during 1998 was
pursuant to employment agreements described under "Employment Contracts and
Change of Control Arrangements" elsewhere in this Statement.
(1) Cash bonus awards under the Company's Incentive Compensation Program (the
"Incentive Program") are paid in the first quarter of the year and represent
payment for services performed in the prior fiscal year. Accordingly, the
table shows the bonus amounts in the year to which they are applicable. The
gross amounts paid to all participants under the Incentive Program
applicable to fiscal years 1998, 1997 and 1996 were $308,127, $1,085,500 and
$1,240,000, respectively.
(2) Similar to cash bonus payments described in note (1) above, options granted
in the first quarter of each year were for services performed by the
executive during the prior fiscal year, and the table indicates the years to
which such option grants are applicable.
(3) Each of the Named Executives was credited with $10,000 for 1998, $9,500 for
1997 and $9,000 for 1996 as the Company's matching contribution to such
executive's participation in the Company's 401(k)
A-7
<PAGE> 30
Employees Savings Plan. The balance of the amount shown for each year in
column (i) for these executives was the Company's matching payment to the
executive's voluntary contribution to the Company's Non-Qualified Deferred
Compensation Plan, plus interest paid by the Company on the funds in the
executive's account under the Non-Qualified Deferred Compensation Plan,
except for Mr. Cargile who also received the additional compensation
described in Note (5) below.
(4) The Company also provides its executive officers health and group term-life
insurance and other benefits generally available to all salaried employees,
and certain additional noncash benefits, including club memberships and the
use and maintenance of automobiles, which benefits in no individual case
have an aggregate incremental cost to the Company which exceeds the lesser
of $50,000 or 10% of that individual's total salary and bonus as reported in
the "Summary Compensation Table." See also "Employment Agreement With Named
Executives" elsewhere in this Statement for compensation payments to Mr.
Cargile, Mr. Singer and Mr. Kelbel (or their named beneficiaries) in the
event of their disability or death during the term of their employment
agreements.
(5) As a result of the loan forgiveness arrangement and the additional income
taxes incurred as a part of Mr. Cargile's relocation in 1995 from Atlanta,
Georgia, to Southern California, as required by the Company (see "Employment
Contracts and Change of Control Arrangements" elsewhere in this Statement),
Mr. Cargile received additional compensation of $248,813 attributable to
1998, $213,357 attributable to 1997 and $178,400 attributable to 1996.
(6) Mr. Grush's employment was terminated by the Company on June 30, 1999.
(7) Mr. Kelbel resigned from the Company on June 1, 1999.
OPTION GRANTS
The upper table provides information on stock option grants made in March
1998 to the Named Executives under the Company's 1991 Employee Stock Option Plan
based upon the performance of the Named Executives during the 1997 fiscal year.
No option grants were made to the Named Executives in March 1999 applicable to
their 1998 performance. The lower table also illustrates the comparable
potential appreciation in value over a 5-year period of stock held by the
Company's Shareholders as a group, and by a unit of 1,000 Shares, from the value
of the Company's common stock of $9.75 per Share, which was the closing price of
the stock on the New York Stock Exchange on December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(ADJUSTED TO REFLECT 100% STOCK SPLIT)
-----------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED
GRANTED TO ANNUAL RATES OF STOCK
NO. OF ALL PRICE APPRECIATION FOR
SECURITIES EMPLOYEES OPTION TERM
UNDERLYING IN LAST (5-YEAR PERIOD)(2)
OPTIONS FISCAL EXERCISE OR ---------------------------
GRANTED(1) YEAR(1) BASE PRICE(1) EXPIRATION DATE 5% 10%
---------- ------------ ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile.......... 60,000 12.11% $12.38 03/24/08 $466,944 $1,183,354
Howard S. Singer.......... 27,200 5.49% $12.38 03/24/08 $211,868 $ 536,454
John T. Grush(3).......... 28,800 5.81% $12.38 03/24/08 $224,138 $ 568,010
Craig J. Kelbel(4)........ 27,200 5.49% $12.38 03/24/08 $211,868 $ 536,454
Jose A. Velasco........... 32,000 6.46% $12.38 03/24/08 $249,042 $ 631,122
</TABLE>
- ---------------
(1) All options granted to the Named Executives on March 25, 1998 were
applicable to services performed by them during fiscal year 1997. The
exercise price of the options, $12.38, was the closing price of the
Company's common stock on March 25, 1998, on the New York Stock Exchange.
(2) The information set forth in the columns marked "5%" and "10%" is at an
assumed annual rate of appreciation over the 5-year period, commencing at
the option grant date. The appreciation figures set forth are net of the
option exercise price, but before taxes associated with the option exercise.
These figures should not be viewed in any way as a forecast of actual
results of the future performance of the
A-8
<PAGE> 31
Company's stock, which will be determined by unknown future events and factors,
including market conditions as well as the option holders' continued employment
throughout the option vesting period.
(3) Mr. Grush's employment was terminated by the Company on June 30, 1999, at
which time all of his options lapsed.
(4) Mr. Kelbel resigned from the Company on June 1, 1999, at which time all of
his options lapsed.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to stock options
assigned to the Named Executives in prior years under the Company's 1988
Employee Stock Plan and its 1991 Employee Stock Option Plan, specifically
showing: (i) the number and value of Shares acquired by the Named Executives
upon exercise of options during the 1998 fiscal year; and (ii) the number and
value of exercisable and unexercisable options held at December 31, 1998.
<TABLE>
<CAPTION>
NO. OF SECURITIES
NO. OF UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED REALIZED HELD AT 12/31/98 HELD AT 12/31/98(1)
ON ON --------------------------- ---------------------------
NAME EXERCISE EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile................. -0- -0- 402,500 82,500 $957,000 -0-
Howard S. Singer................. -0- -0- 45,000 39,200 $ 71,500 -0-
John T. Grush.................... -0- -0- 48,000 40,800 $ 82,500 -0-
Craig J. Kelbel.................. -0- -0- 26,000 39,200 -0- -0-
Jose A. Velasco.................. -0- -0- 45,000 44,000 $ 71,500 -0-
</TABLE>
- ---------------
(1) Based on the closing price of the common stock of $9.75 at December 31, 1998
on the New York Stock Exchange, minus the exercise price of the option.
LONG-TERM INCENTIVE PLAN -- AWARDS FOR THE THREE-YEAR PERFORMANCE PERIOD
COMMENCING JANUARY 1, 1998
As approved by Shareholders at the 1997 Annual Meeting, the Company's
Long-Term Incentive -- Performance Unit Plan ("LTI-Plan") provides for cash
payment awards intended to qualify as performance-based compensation to satisfy
the requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended. Under the LTI-Plan performance units are assigned to each participant
at the beginning of a three-year performance period. The number of performance
units actually awarded to a participant is determined at the close of the
three-year period, based upon: (i) the Company meeting a certain pre-determined
average return on equity over the three-year performance period; and (ii) the
participant's performance over the performance period relative to the target
performance. New three-year performance periods begin annually each January 1
until the LTI-Plan is terminated. The Board of Directors has discretion to make
certain awards under the LTI-Plan if the return on equity target thresholds are
not met.
All payments earned by participants under the LTI-Plan will automatically
be deferred into the Company's Non-Qualified Deferred Compensation Plan, which
provides for a vesting of the payouts over a two-year period.
A-9
<PAGE> 32
The following table sets forth the number of units assigned to each of the
Named Executives under the LTI-Plan for the three-year performance period of
1998-2000. Each performance unit has a value of $10. As noted above, no awards
are made under the LTI-Plan until the end of the performance period, and such
awards are dependent upon the achievement of pre-determined performance target
levels.
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS
PERIOD UNTIL UNDER NON-STOCK PRICE-BASED PLANS
NO. OF MATURATION ---------------------------------
NAME UNITS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------ ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
David L. Cargile...................... 15,785 3 years $78,925 $157,800 $236,775
Howard S. Singer...................... 5,969 3 years $29,845 $ 59,690 $ 89,535
John T. Grush......................... 7,361 3 years $36,810 $ 73,620 $110,430
Craig J. Kelbel....................... 6,140 3 years $30,700 $ 61,400 $ 92,100
Jose A. Velasco....................... 5,513 3 years $27,565 $ 55,130 $ 82,695
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
David L. Cargile. Mr. Cargile serves as the Company's President and Chief
Executive Officer pursuant to a four-year employment agreement entered into in
November 1996. This agreement provides for a base annual salary which was
$449,435 for the 1998 calendar year, a discretionary cash bonus, and certain
other benefits. The Company can terminate Mr. Cargile's employment at any time
without cause by paying him 150% of the salary due to him under the remaining
term of his employment agreement. In the event of his death or disability Mr.
Cargile (or his beneficiary) will be paid the greater of the amount of his then
current compensation remaining due for the term of the employment agreement or
one (1) year's salary.
In connection with his employment and the Company's requirement that he
move from Atlanta, Georgia to Southern California, in July 1995 the Company
granted to Mr. Cargile a $649,000 interest-bearing loan for the purchase of a
residence, secured by a trust deed on that residence. Of that principal amount,
$414,765 is being forgiven by a credit on the loan by the Company over a
60-month period. Additionally, the full amount of the loan will be forgiven if
Mr. Cargile's employment terminates for any reason. As of October 18, 1999, a
principal amount of $307,690 was outstanding on the above-noted loan. In
addition, the Company agreed to pay to Mr. Cargile such additional amount as is
required to compensate him for the additional state and federal taxes due which
will arise as a result of the credit he will receive against the loan balance,
and for the increase in state taxes Mr. Cargile will experience as a California
resident as contrasted with the state taxes he would have otherwise paid as a
resident of Georgia.
Howard S. Singer. Pursuant to a four-year employment agreement entered into
in December 1996, Mr. Singer serves as the Executive Vice President of the
Company at a base annual salary which was $238,091 for the 1998 calendar year, a
bonus as may be granted by the Board, and certain other benefits. He is also
entitled to a one-time "piggyback" registration right at no cost to him with
respect to Company stock he owns. The Company can terminate Mr. Singer's
employment at any time without cause by paying him 150% of the salary due to him
under the remaining term of his employment agreement. In the event of his death
or disability Mr. Singer (or his beneficiary) will be paid the greater of the
amount of his then current compensation remaining due for the term of the
employment agreement or one (1) year's salary.
Craig J. Kelbel. Mr. Kelbel entered into a three-year employment agreement
with the Company in November 1996 to serve in the positions of President and
Chief Operating Officer of USBenefits and as a Senior Vice President of the
Company at a base annual salary which was $244,804 for the 1998 calendar year,
and certain other benefits. Mr. Kelbel resigned from the Company on June 1,
1999. Had he not terminated his employment prior to the November 1999 expiration
date of his employment agreement, the Company could have terminated Mr. Kelbel's
employment at any time without cause by paying him 100% of the salary due to him
under the remaining term of his employment agreement. In the event of his death
or disability while an employee of the Company, Mr. Kelbel (or his beneficiary)
would have been paid the amount of his then current compensation for a period of
one (1) year. Mr. Kelbel resigned from the Company on June 1, 1999.
A-10
<PAGE> 33
Change in Control Agreements. The Company has entered into severance
agreements with the Named Executives. Under these agreements, if their
employment is terminated by the Company (other than for cause) or is terminated
by the executive "for good reason" within two years after a "change in control"
of the Company, as those terms are defined in the severance agreements, each of
these executives (other than Mr. Cargile) would be entitled to receive a payment
of two years annual salary plus an amount equal to the largest annual cash
bonuses received during their employment as well as a continuation for two years
of life and medical insurance benefits. Mr. Cargile would receive three years
annual salary plus one-and-one-half times his largest annual cash bonus, as well
as the other benefits noted above. HCC has agreed that should there be any
assertion that certain additional tax payments are due on compensation that Mr.
Cargile receives in connection with a change of control of the Company, HCC will
have the right to contest such assertion and will hold Mr. Cargile harmless from
any such additional tax payments. All of the severance agreements further state
that if any executive has an employment agreement which also provides for
payments upon termination, the executive will receive payments either under the
severance agreement or the employment agreement, whichever payment is greater,
but may not receive payments under both agreements. On October 11, 1999, the
Company and the Merger Subsidiary entered into individual amendments to
severance agreements with Charles M. Caporale, Mark A. Carney, Edward D. Jones,
III, Jose A. Velasco, Patricia S. Boisseranc, Linton R. Groke, David L. Hubert
and Barbara F. Stoner. These amendments provide that if an executive voluntarily
terminates his or her employment with the Company within 120 days following the
consummation of the Merger, whether or not for "good reason" (as defined in the
executive's severance agreement), the executive will not be entitled to receive
any of the payments he or she would otherwise be entitled to receive under the
executive's severance agreement in connection with a "change in control" (as
defined in the executive's severance agreement). However, if the Company or the
Merger Subsidiary terminates the employment of an executive for any reason
within 120 days following the consummation of the Merger, the executive will be
entitled to exercise any and all rights granted to him or her pursuant to the
executive's severance agreement without regard to the executive's amendment. As
defined in the severance agreements, a "change in control" includes, under
specific circumstances, a merger of the Company with another company which
results in a 50% change of the combined voting power of the Company's securities
or the sale of more than 50% of the Company's assets or, under certain
circumstances, the beneficial ownership by any person of more than 10% of the
Company's equity securities.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of common
stock and other equity securities of the Company and to furnish the Company with
copies of all such Section 16(a) reports that they file.
Based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the 1998 fiscal year all filing requirements
applicable to its officers and directors were complied with.
A-11
<PAGE> 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 11, 1999, the number of
Shares deemed to be beneficially owned (including Shares which can be acquired
within 60 days) by: (i) each director of the Company; (ii) the Company's Chief
Executive Officer; (iii) the Company's four other most highly compensated
officers; and (iv) all directors and all executive officers of the Company as a
group, and the percentage of such holdings to the total number of shares in the
class, as calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Except as otherwise noted, the
indicated owners have sole voting and investment power with respect to the
shares specified.
<TABLE>
<CAPTION>
NUMBER AND RIGHT TO ACQUIRE
NATURE OF SHARES BENEFICIAL OWNERSHIP PERCENT OF CLASS
NAME AND ADDRESS BENEFICIALLY OWNED WITHIN 60 DAYS(1) BENEFICIALLY OWNED
---------------- ------------------ -------------------- ------------------
<S> <C> <C> <C>
David L. Cargile......................... 47,005 485,000 4.43%
650 Town Center Drive
Costa Mesa, CA 92626
John T. Grush(2)......................... 0 0 *
650 Town Center Drive
Costa Mesa, CA 92626
Craig J. Kelbel(3)....................... 89 0 *
650 Town Center Drive
Costa Mesa, CA 92626
John F. Kooken........................... 29,400(4) 32,000 *
1170 Lorain Road
San Marino, CA 91108
L. Steven Medgyesy, M.D. ................ 594,342(5) 32,000 5.41%
5215 Old Orchard Road,
Suite 300
Skokie, IL 60077
Roxani M. Gillespie...................... -0- 12,493 *
2450 Hyde Street
San Francisco, CA 94109
Charles M. Schultz....................... -0- 32,000 *
325 South Rimpau Blvd
Los Angeles, CA 90020
Howard S. Singer......................... 546,115(6) 84,200 5.42%
5215 Old Orchard Road,
Suite 300
Skokie, IL 60077
Jose A. Velasco.......................... 38,989(7) 89,000 1.10%
650 Town Center Drive
Costa Mesa, CA 92626
All Directors and Executive Officers of
the Company (12 persons) as a
group**................................ 1,097,469 866,493 15.84%
</TABLE>
- ---------------
* Indicates ownership of less than 1% of the Company's outstanding stock.
** As described in Notes (4) and (5) below, Dr. Medgyesy holds Shares as
trustee of the Singer Family Trust. Accordingly, to avoid duplicate
counting, an aggregate of 172,622 Shares which are beneficially owned by
both individuals have been deducted from this total. Neither Kenneth C.
Tyler, who retired in April 1998, nor Bernard H. Ross who passed away in
November 1998, are included in this group.
(1) This column reflects the number of Shares subject to Company stock options
that could be canceled if the Offer is consummated. Upon consummation of the
Offer, all outstanding Company stock options, whether vested or unvested,
will be canceled. The holders of Company stock options, including the
directors and executive officers of the Company, will receive a cash payment
in connection with the cancellation of their options equal to the excess, if
any, of $12.50 per Share over the applicable exercise price of their
options.
A-12
<PAGE> 35
(2) Mr. Grush's employment was terminated by the Company on June 30, 1999.
(3) Mr. Kelbel resigned from the Company on June 1, 1999.
(4) Includes 1,000 Shares held by Mr. Kooken's wife through her separate
individual retirement accounts.
(5) Includes 150,932 Shares owned directly by Dr. Medgyesy; 172,622 Shares held
by Dr. Medgyesy in his capacity as trustee of the Singer Family Trust, which
trust is for the benefit of Howard S. Singer and members of the Singer
family; 16,120 Shares held by Dr. Medgyesy's wife; and 252,894 Shares held
in various trusts for the benefit of Dr. Medgyesy and members of his family.
Dr. Medgyesy disclaims beneficial ownership in 441,636 of said Shares.
(6) Includes 337,065 Shares held directly by Mr. Singer; 172,622 Shares held by
Dr. Medgyesy in his capacity as trustee of the Singer Family Trust, which
trust is for the benefit of Mr. Singer and members of the Singer family;
16,828 Shares held by Mr. Singer's wife as trustee for the benefit of their
descendants; 14,000 Shares held by a partnership of which Mr. Singer is the
general partner; and 5,600 Shares held by Mr. Singer's individual retirement
account. Mr. Singer disclaims beneficial ownership in 209,050 of said
Shares.
(7) Includes Shares held in the employee's 401(k) account. While the employee
votes the Shares in his account at any shareholder meetings, on exiting the
account only the cash value of the Shares is distributed and Share
certificates are not issued.
SECURITY OWNERSHIP OF CERTAIN OTHER SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of each person, other than those affiliated with the management, known
to the Company as of October 11, 1999 to be the beneficial owner of more than 5%
of its outstanding common stock. The Company believes that the stock in the name
of the firms listed below is held by money managers, investment advisors or
affiliates on behalf of their respective clients, and that none of such clients
is the beneficial owner of more than 5% of the Company's stock.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
<S> <C> <C>
Kahn Brothers & Co., Inc.................................... 1,057,354(1) 9.17%
555 Madison Avenue, 22nd Floor
New York, New York 10022
Hollybank Investments, LP................................... 1,049,400(2) 9.10%
Dorsey R. Gardner, General Partner
One International Place, Suite 2401
Boston, Massachusetts 02110
Dimensional Fund Advisors Inc............................... 758,700(3) 6.58%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
</TABLE>
- ---------------
(1) As disclosed in a Schedule 13F filed with the SEC on October 8, 1999. The
Schedule 13F indicates that Kahn Brothers & Co., Inc. is the beneficial
owner of 835,784 Shares and has shared dispositive powers with respect to
such 835,784 Shares.
(2) As disclosed in a Schedule 13G filed with the SEC on June 25, 1999 and
furnished to the Company. The Schedule 13G indicates that Hollybank
Investments, LP ("Hollybank") is the beneficial owner of 1,049,400 Shares
and has sole voting and dispositive powers with respect to such Shares.
Dorsey R. Gardner and Timothy G. Caffrey are the general partners of
Hollybank and the managing members of Thistle Investments, LLC ("Thistle").
As disclosed in Hollybank's Schedule 13G, Thistle is the beneficial owner of
88,500 Shares and has sole voting and dispositive powers with respect to
such Shares; Mr. Gardner is the beneficial owner of 90,500 Shares and has
sole voting and dispositive powers with respect to such Shares; and Mr.
Caffrey is the beneficial owner of 1,000 Shares and has sole voting and
dispositive powers with respect to such Shares. As stated in the Schedule
13G, except to the extent of
A-13
<PAGE> 36
their respective interests as limited partners in Hollybank and members of
Thistle, Mr. Gardner and Mr. Caffrey disclaim beneficial ownership of the
Company Shares held by Hollybank and Thistle.
(3) As disclosed in a Schedule 13F filed with the SEC as of June 30, 1999 and
furnished to the Company. Dimensional Fund Advisors, Inc. ("Dimensional"),
an investment advisor registered under the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies also registered
under that Act, and serves as investment manager to certain other investment
vehicles, including commingled group trusts (these investment companies and
investment vehicles are referred to herein as the "Portfolios"). In its role
as investment advisor and investment manager, Dimensional possesses both
voting and investment power over the 758,700 Shares described in its
Schedule 13F that are owned by the Portfolios. All such Shares reported in
the Schedule 13F are owned by the Portfolios and Dimensional disclaims
beneficial ownership of such Shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above under "Employment Contracts and Change of Control
Arrangements," in July 1995 the Company made a loan to Mr. Cargile in the amount
of $649,000 in connection with the purchase of his principal residence in
Southern California, a portion of which loan is being forgiven over a 60-month
period. As of October 18, 1999, a principal amount of $307,690 of this loan was
outstanding.
A-14
<PAGE> 37
ANNEX B
[ADVEST, INC. LETTERHEAD]
OCTOBER 10, 1999
Board of Directors
The Centris Group, Inc.
650 Town Center Drive, Suite 1500
Costa Mesa, California 92626
Members of the Board:
The Centris Group, Inc. ("Centris" or the "Company") and HCC Insurance
Holdings, Inc. ("HCC") intend top enter into an Agreement and Plan of Merger,
dated as of October 11, 1999 (the "Agreement"), whereby a newly created
wholly-owned subsidiary of HCC ("Merger Subsidiary") will offer to purchase all
of the issued and outstanding shares of Centris common stock for $12.50 per
share (the "Tender Offer"). Subsequent to the completion of the Tender Offer,
Merger Subsidiary will be merged with and into Centris (the "Merger"), and each
outstanding share of Centris common stock that was not acquired in the Tender
Offer will be converted into the right to receive $12.50 in cash. (The Merger
and the Tender Offer together comprise the "Transaction".) At the completion of
the Transaction, Centris will be a wholly-owned subsidiary of HCC.
In connection with executing the Agreement, Centris will enter into a Stock
Option Agreement ("Option Agreement"), dated October 11, 1999, pursuant to which
Centris granted to HCC an option to purchase shares equal to 19.9% of shares
outstanding at the Option Agreement date, at a price of $12.50 per share,
subject to the terms and conditions set forth in the Option Agreement.
You have asked us whether, in our opinion, the cash consideration to be
received by Centris shareholders is fair, from a financial point of view, to the
Company and its shareholders.
In arriving at our opinion set forth below, we have, among other things,
reviewed the Agreement and Plan of Merger dated October 11, 1999, the Stock
Option Agreement dated October 11, 1999, and the Stockholder Option Agreement
dated October 11, 1999; the Company's Forms 10-K and 10-Q for the years 1996
through 1998 and the Company's Forms 10-Q for the quarters ended March 31, 1999
and June 30, 1999; the Company's Annual Reports to shareholders (1996 through
1998); the statutory financial statements of the Company's insurance
subsidiaries (1996 through 1998); comparative financial and operating data for
companies selected for each of the peer groups; and operating projections for
Centris prepared by senior management. In addition, we conducted discussions
with members of senior management of Centris concerning the financial condition,
business, and prospects of the Company. We have, among other things, performed
the following analyses and investigations: We compared the proposed purchase
price per share to the trading range of Centris' common stock, both in recent
months and for the last several years. We compared the proposed purchase price
per share on a price/earnings and price/book value basis to recent market
valuations of similar publicly traded life/health insurers. We compared the
price/earnings and price/ book valuations of the proposed purchase price per
share against valuations paid for life/health insurers in similar acquisition
transactions.
Advest has provided certain investment banking services to Centris in the
past and has received fees for rendering these services, including a fee for
advising the Company on this Transaction. As part of our engagement, the Company
has agreed to pay Advest a fee for delivery of this opinion letter.
In preparing this opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information, nor have we undertaken
an independent appraisal of the assets or liabilities of the Company. This
opinion is necessarily based upon circumstances and conditions as they exist and
can be evaluated by us as of the date of this letter. Our opinion is directed to
the Board of Directors of Centris and does not constitute a
B-1
<PAGE> 38
recommendation of any kind to any shareholder of Centris as to whether such
shareholder should tender his or her stock in the Tender Offer or how such
shareholder should vote at the shareholders' meeting to be held in connection
with the Merger. We have assumed for purposes of this opinion that there have
been no material changes in the financial condition of the Company from the
conditions disclosed in the Company's financial reports.
In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the cash consideration to be received by the Company's
shareholders in the Transaction is fair, from a financial point of view, to the
Company and its shareholders.
Very truly yours,
ADVEST, INC.
/s/ ALLEN NADLER
--------------------------------------
By: Allen Nadler
Managing Director
B-2
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
2 Shareholder Option Agreement, dated as of October 11, 1999,
among Merger Sub of Delaware, Inc. and the Shareholders of
the Company named therein
3 Stock Option Agreement, dated as of October 11, 1999,
between HCC Insurance Holdings, Inc. and The Centris Group,
Inc.
4 Letter to Shareholders of The Centris Group, Inc., dated
October 18, 1999*
5 Confidentiality Agreement, dated August 22, 1999, between
HCC Insurance Holdings, Inc. and The Centris Group, Inc.
6 Consulting Agreement, dated as of October 11, 1999, by and
between The Centris Group, Inc. and David L. Cargile
7 Provisions regarding indemnification of directors and
officers from the Company's Certificate of Incorporation and
Bylaws
8 Selected pages of the Company's Proxy Statement, dated March
31, 1999, for the Annual Meeting of Shareholders on May 12,
1999
ANNEX A INFORMATION STATEMENT
ANNEX B OPINION OF ADVEST, INC.
</TABLE>
- ---------------
* Included with Schedule 14D-9 mailed to Shareholders.
<PAGE> 1
EXHIBIT 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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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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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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(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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(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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(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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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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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.
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<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
21
<PAGE> 26
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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(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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(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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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: President 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
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(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
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<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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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> 1
EXHIBIT 2
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
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<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
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<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
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<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:
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<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,
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<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
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<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
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<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
-----------------------------------
Erma S. 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/ 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
EXHIBIT 3
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
EXHIBIT 4
[LOGO]
[THE CENTRIS GROUP]
October 18, 1999
To Our Shareholders:
On behalf of the Board of Directors of The Centris Group, Inc. (the
"Company"), I am pleased to inform you that on October 11, 1999 the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with HCC
Insurance Holdings, Inc. and Merger Sub of Delaware, Inc., a wholly owned
subsidiary of HCC Insurance Holdings, Inc. Pursuant to the Merger Agreement,
Merger Sub of Delaware, Inc. commenced today a tender offer (the "Offer") to
purchase all outstanding shares of the Company's common stock, including
associated common stock purchase rights ("Shares"), for $12.50 per Share in
cash. Under the Merger Agreement, upon satisfaction of certain conditions,
including the tender of at least a majority of the fully-diluted Shares of the
Company, the Offer will be followed by a merger (the "Merger") in which any
remaining Shares will be converted into the right to receive $12.50 per Share in
cash, without interest (except any Shares as to which the holder has properly
exercised dissenter's rights of appraisal). All of the directors and executive
officers of the Company have indicated their intention to tender their Shares in
the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO, ADVISABLE AND IN THE BEST INTERESTS OF, THE
COMPANY AND ITS SHAREHOLDERS, HAS APPROVED THE OFFER AND ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE COMPANY'S SHAREHOLDERS.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9").
Among other things, the Board of Directors considered the opinion of its
financial advisor, Advest, Inc., that the consideration to be received by the
Company's shareholders pursuant to the Offer and the Merger is fair from a
financial point of view to the Company and its shareholders.
In addition to the attached Schedule 14D-9, also enclosed is the Offer to
Purchase dated October 18, 1999, together with related materials, including a
Letter Of Transmittal, to be used for tendering your Shares in the Offer. These
documents set forth the terms and conditions of the Offer and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully before making your decision with respect to tendering your
Shares pursuant to the Offer.
Your Directors thank you for your continued support.
Very truly yours,
/s/ DAVID L. CARGILE
David L. Cargile
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 1
EXHIBIT 5
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
<PAGE> 1
EXHIBIT 6
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is entered into as of October
11, 1999, between The Centris Group, Inc., a Delaware corporation (the
"Company"), and David L. Cargile ("Cargile"). Capitalized terms not defined
herein shall have the meanings ascribed to them in the Merger Agreement
(hereafter defined).
RECITALS
A. The Company, HCC Insurance Holdings, Inc., a Delaware corporation
("HCC") and Merger Sub of Delaware, Inc., a Delaware corporation ("Merger
Subsidiary"), have entered into an Agreement and Plan of Merger, dated as of
October 11, 1999, relating to the acquisition of the Company by HCC (the "Merger
Agreement").
B. Cargile has served as a director, Chairman of the Board, President and
Chief Executive Officer of the Company, and has gained an expertise in the
specialty insurance business conducted by the Company.
C. HCC has advised Cargile that his service as a director and officer of
the Company will be terminated on the date that the Merger Subsidiary accepts
for payments at least a majority of Company Shares pursuant to the Offer.
D. HCC desires that the Company continue to receive the benefit of
Cargile's expertise for six months following termination of his full-time
employment by having him serve as an independent consultant to the Company.
AGREEMENT
In consideration of the mutual covenants and agreements contained herein,
the parties hereby agree as follows:
1. Term. The term of this Agreement shall commence on the first day after
the Merger Subsidiary accepts for payments at least a majority of Company Shares
pursuant to the Offer and shall expire six months thereafter (the "Term").
2. Consulting Services. During the Term of this Agreement, Cargile shall
provide the Company consulting services as reasonably requested by the Company
(the "Services"). Without limiting the foregoing, the Services shall include
strategic, management and financial advisory services comparable to such
services he heretofore provided the Company as its Chief Executive Officer, all
such Services to be provided as requested by the Company. Cargile shall have no
authority to act on behalf of the Company. The services provided herein by
Cargile shall not preclude Cargile from accepting any full or part time
employment with any other employer or from engaging in consulting services for
any other company or entity. The Company agrees that Cargile may give such other
obligations priority over Cargile's obligations hereunder.
3. Consulting Compensation. For Services, the Company shall pay Cargile
$30,000 per month and for Cargile's covenants of nonsolicitation and
confidentiality under this Agreement, the Company shall pay Cargile $30,000 per
month (a total of $360,000 for the six months), payable at the same times per
month as the Company's regular compensation schedule for employees (with the
first and last calendar months of the period covered by this Agreement prorated
as necessary). Any payments not made by the Company as required hereunder shall
bear interest at 8% per annum.
4. Expenses; Transportation. If the Company requests that Cargile incur
expenses in connection with the Services that he is to provide under this
Agreement, the Company shall pay directly or reimburse Cargile for all such
expenses (including travel on a first class basis). Cargile agrees to provide
the Company verification of all expenses as currently required by the Company.
During the term of this Agreement, the
<PAGE> 2
Company agrees to permit Cargile to continue to utilize the Company automobile
currently provided to him and to pay for all expenses thereof (including
operating expenses) on the same basis as is in effect on the date hereof.
5. No Withholding. Because Cargile is retained as an independent contractor
and not as an employee, the Company and Cargile acknowledge and agree that no
federal and state taxes or social security contributions shall be made by the
Company from the payments made to Cargile pursuant to Section 3, and that
Cargile will remain solely liable for the payment of all such taxes. Cargile
further acknowledges that the Company will report compensation paid pursuant to
this Agreement on a Form 1099 at the end of the year 2000.
6. Continuation of Employment. Nothing contained in this Agreement shall be
construed to create or imply any contract of employment between Cargile and the
Company, to confer upon Cargile any right to continue in the employ of the
Company (either before or after the Offer is consummated) or to confer on the
Company any right to require Cargile's continued employment.
7. Nonsolicitation. Cargile hereby covenants that during the term of this
Agreement he will not, directly or indirectly, (i) solicit or engage in any
discussions relating to the hiring of any Company employee to become an employee
of any other trade or business or as a consultant to any other trade or business
or (ii) solicit or engage in any discussions with any person or entity to
terminate such person's contractual and/or business relationship with the
Company.
8. Confidentiality. Cargile agrees that during the Term of this Agreement,
he will not disclose to any person, or otherwise use or exploit, any proprietary
or confidential information, including without limitation trade secrets,
customer lists, proposals, reports, methods, processes, techniques, computer
software or programming, budgets or other financial information or non-public
information, regarding the Company, its business, properties or affairs,
obtained by Cargile at any time during Cargile's employment by the Company,
except to the extent necessary in the performance of his duties for the Company.
This Section 8 shall not apply to information that is in the public domain,
information that is generally known in the insurance industry, or information
that Cargile can demonstrate he acquired independently of his employment with or
in rendering Services to the Company.
9. Indemnification. The Company shall indemnify Cargile to the same extent
and subject to the same limitations as if he was an officer or employee of the
Company with respect to any work undertaken by Cargile at the Company's request
under this Agreement.
10. Notices. All notices, demands or other communications provided for in
this Agreement shall be in writing and shall be delivered during normal business
hours by hand, by Federal Express, United Parcel Service or other reputable
overnight delivery service, by telecopy (confirmation of receipt received), or
by United States mail, certified or registered, return receipt requested, and
shall be deemed delivered when so delivered by hand, overnight delivery or
telecopy, or if mailed five days after the date of mailing, properly addressed
as follows:
<TABLE>
<S> <C>
If to the Company: If to Cargile:
The Centris Group, Inc. David L. Cargile
650 Town Center Drive 26231 Mount Diablo Road
Costa Mesa, CA 92626 Laguna Hills, CA 92653
Attn: Chief Executive Officer Telecopy: (949) 831-2123
Telecopy: (714) 549-1600
</TABLE>
or such other address as either party may have furnished to the other in writing
in accordance herewith.
11. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Cargile and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or
2
<PAGE> 3
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws, and not the laws pertaining to choice or
conflicts of laws, of the State of California.
13. Validity. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Legal Fees and Expenses. It is the intent of the Company that Cargile
not be required to incur any legal fees or disbursements associated with the
enforcement of his rights under this Agreement. The Company or its successor
shall pay or cause to be paid and shall reimburse Cargile for any and all
reasonable attorneys' and related fees and expenses so incurred by Cargile.
16. Successors. The parties expressly agree that this Agreement shall be
binding upon and inure to the benefit of their respective subsidiaries,
affiliated companies, heirs, administrators, successors and assigns, as
applicable.
17. Modification. The parties understand and agree that this Agreement may
not be altered, amended, modified, or otherwise changed in any respect or
particular whatsoever except in writing duly executed by each of the Parties or
their authorized representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE CENTRIS GROUP, INC.
By: /s/ JOSE A. VELASCO
------------------------------------
Name: Jose A. Velasco
Title: Senior Vice President,
Chief Operations Officer,
Secretary and General Counsel
CARGILE
By: /s/ DAVID L. CARGILE
------------------------------------
David L. Cargile
3
<PAGE> 1
EXHIBIT 7
EXCERPT FROM RESTATED CERTIFICATE OF INCORPORATION
NINTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of this Corporation or is or was serving at the
request of this Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged activity in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by this
Corporation to the fullest extent authorized by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits this
Corporation to provide broader indemnification rights than said Law permitted
this Corporation to provide prior to such amendment) against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection with any such proceeding and
such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that this
Corporation shall indemnify any such person seeking indemnity in connection with
a proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of this Corporation.
Such right shall be a contract right and shall include the right to be paid by
this Corporation expenses incurred in defending any such proceeding in advance
of its final disposition; provided however, that if the Delaware General
Corporation Law requires the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, it shall be made only upon
delivery to this Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article or otherwise.
B. If a claim under section A. is not paid in full by this Corporation
within ninety (90) days after a written claim has been received by this
Corporation, the claimant may at any time thereafter institute a proceeding
against this Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such proceeding. It shall be a defense to any such
proceeding (other than a proceeding brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to this Corporation) that
<PAGE> 2
the claimant has not met the standards of conduct which make it permissible
under the General Corporation Law of Delaware for this Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on this Corporation. Neither the failure of this Corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such proceeding that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of Delaware, nor an actual determination by this Corporation (including its
board of directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the proceeding or create a presumption that claimant has not met the applicable
standard of conduct.
C. The rights conferred on any person by sections A. and B. shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of this Restated Certificate of Incorporation, by-
law of this Corporation, agreement, vote of stockholders or disinterested
directors or otherwise.
D. This Corporation may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of this Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not this Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
TENTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
<PAGE> 3
EXCERPT FROM BY-LAWS
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding"), by reason of the fact
that he or she or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director or officer, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged activity in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said Law permitted the
Corporation to provide prior to such amendment) against all expenses, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection with any such proceeding and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Corporation shall
indemnify any such person seeking indemnity in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. Such right shall be
a contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer of the
Corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
<PAGE> 1
EXHIBIT 8
EXCERPTS FROM PROXY STATEMENT
Compensation of Directors
Directors who are also full-time employees of the Company receive no
additional compensation for their services as directors. Non-employee directors
are paid an annual retainer of $12,500 and a fee of $3,000 for each meeting of
the Board attended ($1,000 for telephonic meetings). Such directors are also
paid a fee of $1,000 for each Committee meeting ($1,500 for Committee Chairmen).
In addition, directors are reimbursed for reasonable out-of-pocket expenses
incurred by them in connection with their attendance at Board and Committee
meetings.
Non-employee directors are also entitled to receive stock option awards
under the Company's Amended and Restated 1991 Directors Stock Option Plan, which
was approved by stockholders in 1996. Under this Plan, on the third business day
following each annual meeting, each non-employee director is automatically
granted an award of options covering between 6,000 to 9,000 shares of common
stock, with the number of options actually granted determined in accordance with
a formula related to the Company's return on equity for the prior fiscal year.
Based on the Plan formula, each of the non-employee directors will receive an
option grant for 6,000 shares following the 1999 Annual Meeting, with an
exercise price which will be the closing price of the Company's stock on the New
York Stock Exchange on Monday, May 17, 1999.
Those directors who are also employees of the Company may be entitled
to additional compensation in their capacity as employees to the extent that
they participate in the Company's short-term and long-term incentive
compensation plans, as described elsewhere in this Proxy Statement.
<PAGE> 2
THE CENTRIS GROUP, INC.
Compensation Committee Of The Board Of Directors
Report On Executive Compensation
General
The Compensation Program of The Centris Group, Inc. for the 1998 fiscal
year consisted of three components: annual cash salaries, discretionary cash
bonuses under its Incentive Compensation Program and discretionary long-term
awards (a Stock Option Plan and a Long-Term Incentive Plan).
Base salaries of all employees, except for the Chief Executive Officer,
are generally set in accordance with the Company's Salary Administration Program
which provides a framework for determining an employee's salary level. This
determination is based upon a variety of factors that include job function,
expertise, experience and the competitive placement of each position relative to
other companies whose business operations are similar. Management of the Company
establishes the base salaries for those employees who are below the level of the
senior officers, while the salaries of the senior officers are established by
the Compensation Committee on the recommendation of the Chief Executive Officer.
The Company's Salary Administration Program was prepared with input from an
independent, nationally known compensation consultant and is periodically
updated with information on salary levels for companies of a generally similar
size from various sources, including salary surveys and analyses presented by
the independent compensation consultant.
The cash bonus amount which an eligible participant can receive under
the Incentive Compensation Program depends on the component of the Incentive
Compensation Program in which each person participates, the extent to which the
Company meets a predetermined net income target for the respective year, and the
participant's job performance for that year as determined by each participant's
supervisor. Payments of bonuses below the level of senior officers are made at
the discretion of the Chief Executive Officer. The Compensation Committee is
required to approve the total amount of all bonus payments (excluding the Chief
Executive Officer) under the Incentive Compensation Program.
The Compensation Committee specifically approves the bonus payments and
awards under the Company's employee Stock Option Plan and Long-Term Incentive
Plan for each of the senior officers, based upon recommendations from the Chief
Executive Officer. The salary, bonus payments, Stock Options and Long-Term
Incentive Plan awards for the Chief Executive Officer are determined by the
Compensation Committee and recommended to the full Board, which may adopt,
modify or reject such recommendations. Directors who are also employees do not
participate in the discussions or vote on matters affecting any aspect of their
own compensation.
Compensation Policies for Executives
The goals of the Company's Compensation Program have been to further
the Company's business objectives, and at the same time to attract and retain
high quality executives and to equitably reward individuals who contribute to
the Company's success. This approach seeks to link executive compensation with
achievement of profitability goals and the strategic goal of enhancing
stockholder value by tying the value of some part of the senior executives'
compensation to the Company's long-term performance.
Base Salaries. The Company provides executive officers with salaries
which are generally in the third highest quartile of the range of competitive
salaries paid to executives of companies in similar sectors of the insurance
industry. The Company periodically updates
<PAGE> 3
information on executive salary levels for companies of a generally similar size
presented by the Company's independent compensation consultant. Executive
officers are evaluated on March 1 of each year, and any adjustments to their
salaries are effective as of that date.
Annual Bonuses. Generally awards under the Incentive Compensation
Program are contingent on achievement of a Company net after-tax income target,
which is established in advance each year by the Compensation Committee. Bonuses
are awarded following the end of each year, after the Company's year-end results
have been determined. Under the Incentive Compensation Program, the Compensation
Committee has full discretionary authority with respect to bonus awards.
Therefore, if the Company's net income target is reached, the bonus award may be
less than the target amount for any executive; if the Company's net income
target is not met, the Compensation Committee has the authority to grant bonuses
to executives. While the Company did not meet its net income target for 1998,
bonuses ranging between 4% to 14% of their annual salaries were paid to certain
senior executives. The Committee concluded that payment of a limited amount of
bonuses was appropriate in light of significant efforts by senior executives to
reposition the Company, including the successful completion of the acquisition
of the VASA Group of companies. The Committee's decisions were based upon
recommendations from the Chief Executive Officer as a result of his evaluation
of each executive's overall performance and the results of the operations under
the executive's direction as compared to the Company's business plan for 1998.
Long-term Incentive Plans. The Company has adopted a Long-Term
Incentive-Performance Unit Plan ("LTI-Plan") and a Non-Qualified Deferred
Compensation Plan. The LTI-Plan was approved by the Company's stockholders at
the 1997 Annual Meeting, and both of these Plans were first implemented for
fiscal year 1997. The LTI-Plan provides for cash payment awards which qualify as
performance based compensation under Section 162(m) of the Internal Revenue
Code. Under the LTI-Plan, a target number of performance units are assigned to
key employees at the beginning of a three-year performance period, but the
actual number of performance units awarded to the participant is determined
after the close of the performance period. The first performance period began on
January 1, 1997 and ends on December 31, 1999. New three-year performance
periods begin annually, each January 1. Each performance unit assigned in the
three-year performance periods beginning in 1997 and 1998 had a value of $10.
Awards are based upon the Company meeting pre-determined annual return on equity
(ROE) targets, and for purposes of the Plan ROE is calculated as the average
return on equity over the three-year performance period. The Company must meet a
minimum level of ROE over the three year period before actual awards, which
require Committee approval, will be made to the participants. Payouts of awards
under the Plan are automatically deferred into the Non-Qualified Deferred
Compensation Plan and vest over a two year period. The Chief Executive Officer
has the authority, subject to approval by the Committee and the Board and in
conformity with the non-discretionary requirements of Section 162(m) of the
Internal Revenue Code, to adjust a participant's payout to take into account
strategic and financial events or conditions, including, but not limited to,
recognizing a participant's business unit's results for the performance period.
In addition, in 1997 the Compensation Committee adopted stock option
grant guidelines which are also aimed at more closely tying executive
compensation and incentives to long-term performance. Under these guidelines,
senior executives may be awarded options at
<PAGE> 4
predetermined target levels which are generally based upon their position in the
Company. The number of options awarded is determined by the Compensation
Committee after receiving recommendations from the Chief Executive Officer,
based on his evaluation of the Company's and the executive's performance during
the prior fiscal year. While option grants are considered by the Committee in
March of each year based on the prior year's results, no options were granted to
the senior executives in March 1999 applicable to their performance in the 1998
fiscal year.
Compensation of Chief Executive Officer
David L. Cargile, the Company's Chairman, President and Chief Executive
Officer, serves under an employment agreement entered into in November 1996, the
terms of which are described in "Employment Agreements With Named Executives"
elsewhere in this Proxy Statement. This agreement provides for an annual base
salary that can be increased and supplemented at the discretion of the Board of
Directors. Mr. Cargile's compensation, based on 1998 results, was reviewed by
the Committee in March 1999.
The Committee's compensation decisions for Mr. Cargile reflect its view
of his contribution in revitalizing the Company after he assumed
responsibilities for its operations in August 1994. Under his leadership and
initiative since that date, the Company has demonstrated meaningful growth and
improvement in its financial results--including its revenues, income, its total
assets, return on equity, stockholders' equity, book value, stockholder
dividends and its stock price. Furthermore, under Mr. Cargile's direction and
pursuant to his plan, during 1998 the Company completed the acquisition of the
VASA Group of companies, including its medical stop-loss operations and
insurance subsidiaries. This transaction permitted the Company to re-allocate
its assets by discontinuing its property/casualty reinsurance operations and
transferring the reinsurance of the medical stop-loss business to the newly
acquired insurance subsidiaries. The Committee believes that these actions will
strengthen the Company's capital base and stabilize earnings going forward by
increasing the Company's non-risk fee income and reducing its exposure to losses
from natural catastrophes.
The Committee reviewed all the foregoing factors in determining the
compensation of the Company's Chief Executive Officer. The factors were not
assigned specific weight by members of the Committee, but rather were weighed
subjectively by each member. In light of the foregoing, the Compensation
Committee concluded that an increase in Mr. Cargile's compensation as the
Company's Chief Executive Officer was appropriate considering his level of
responsibility, his leadership abilities, his contributions to the continued
growth of the Company and the focus and direction which he provided. The
Committee then explained to the Board the basis for its decisions, and the Board
concurred in the Committee's recommendations. Accordingly, Mr. Cargile was given
a 5% salary increase and assigned 15,785 performance units as his target under
the Company's LTI-Plan for the 1998-2000 performance period. However, at Mr.
Cargile's specific request, no bonus award or option grant was made to Mr.
Cargile applicable to fiscal year 1998.
<PAGE> 5
Deductibility of Executive Compensation
The 1993 Omnibus Budget Reconciliation Act ("OBRA") provides that the
income tax deductions of publicly traded companies in tax years beginning on or
after January 1, 1994 may be limited to the extent total compensation (including
base salary, annual bonus, stock option exercises and nonqualified benefits) for
certain executive officers exceeds $1,000,000 in any one year. Under OBRA, the
deduction limit does not apply to payments which meet certain requirements to
qualify as "performance-based" compensation.
The Compensation Committee intends to consider various alternatives to
preserve the deductibility of compensation payments to the extent it is
reasonably practicable and consistent with its other objectives. In this
connection, the Company has obtained stockholder approval of the Company's 1997
Long-Term Incentive-Performance Unit Plan, and intends to operate the Plan
within the requirements of Section 162(m) of the Internal Revenue Code to
preserve the corporate deductibility of executive compensation. The Company may,
however, pay compensation which is not deductible in limited circumstances when
sound management of the Company so requires. The Committee believes that if any
loss of deductibility occurs it would not be materially adverse to the Company.
For fiscal year 1998, no executive officer's taxable compensation exceeded the
$1,000,000 limit on deductibility.
Compensation Committee
L. Steven Medgyesy, M.D. (Chairman)(/1/)
Charles L. Schultz Roxani M. Gillespie
- ---------
(1) Bernard H. Ross was Chairman of the Compensation Committee until his death
in November, 1998.
The above Report of the Compensation Committee will not be deemed to be
incorporated by reference into any filing by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates the same by reference.
Compensation Committee Interlocks
And Insider Participation
The members of the Compensation Committee during 1998 were Bernard H.
Ross (Chairman until his death in November, 1998), Dr. L. Steven Medgyesy,
Charles L. Schultz and Roxani M. Gillespie. Ms. Gillespie was appointed to
replace Kenneth C. Tyler, who resigned as a director in April 1998. All of the
directors who served on the Compensation Committee during 1998 were non-employee
directors.
<PAGE> 6
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table*
The following table provides information concerning all compensation
paid or credited by the Company to the Named Executives for services rendered to
the Company and its subsidiaries in all capacities attributable to the fiscal
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
LONG-TERM COMP
-------------------------------
No. of
ANNUAL COMEPNSATION Securities
--------------------------------------------- Underlying
Other Annual Options All Other Comp
Name and Principal Position Fiscal Year Salary Bonus (/1/) Comp Granted (/2/) (/3/)
- --------------------------- ----------- ------ ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile** 1998 $449,435 -0- (/4/) -0- $258,813 (/5/)
President, and Chief 1997 $437,601 $300,000 (/4/) 60,000 $260,165 (/5/)
Executive Officer 1996 $411,825 $280,000 (/4/) 45,000 $187,400 (/5/)
Howard S. Singer** 1998 $237,989 -0- (/4/) -0- $ 17,553
Executive Vice President-- 1997 $233,054 $ 47,500 (/4/) 27,200 17,376
Corporate Finance 1996 $225,914 $ 56,818 (/4/) 24,000 9,000
and Investor Relations
John T. Grush 1998 $293,973 -0- (/4/) -0- $ 21,576
Senior Vice President and 1997 $291,646 $ 65,000 (/4/) 28,800 $ 20,885
President of USF RE 1996 $291,646 $ 58,309 (/4/) 24,000 $ 20,213
Craig J. Kelbel** 1998 $244,804 $ 10,000 (/4/) -0- $ 17,253
Senior Vice President and 1997 $239,349 $ 25,000 (/4/) 27,200 $ 18,251
President of USBenefits 1996 $229,793 $ 69,459 (/4/) 24,000 $ 12,562
Insurance Services, Inc.
Jose A. Velasco 1998 $218,750 $ 20,000 (/4/) -0- $ 15,921
Senior Vice President, Chief 1997 $202,312 $ 61,000 (/4/) 32,000 $ 15,490
Administrative Officer, 1996 $175,380 $ 53,165 (/4/) 24,000 $ 15,816
Secretary and General Counsel
</TABLE>
* The Company has excluded from the Summary Compensation Table the columns
relating to awards of Restricted Stock (column "f") and Long-Term Incentive
Plan Payouts (column "h") because no such awards or compensation were
earned by or paid to the Named Executives in the fiscal years covered by
the table.
** The compensation paid to Messrs. Cargile, Singer and Kelbel during 1998 was
pursuant to employment agreements described under "Employment Agreements
With Named Executives" elsewhere in this Proxy Statement.
<PAGE> 7
(1) Cash bonus awards under the Company's Incentive Compensation Program (the
"Incentive Program") are paid in the first quarter of the year and
represent payment for services performed in the prior fiscal year.
Accordingly, the table shows the bonus amounts in the year to which they
are applicable. The gross amounts paid to all participants under the
Incentive Program applicable to fiscal years 1998, 1997 and 1996 were
$308,127, $1,085,500 and $1,240,000, respectively.
(2) Similar to cash bonus payments described in note (1) above, options granted
in the first quarter of each year were for services performed by the
executive during the prior fiscal year, and the table indicates the years
to which such option grants are applicable.
(3) Each of the Named Executives was credited with $10,000 for 1998, $9,500 for
1997 and $9,000 for 1996 as the Company's matching contribution to such
executive's participation in the Company's 401(k) Employees Savings Plan.
The balance of the amount shown for each year in column (i) for these
executives was the Company's matching payment to the executive's voluntary
contribution to the Company's Non-Qualified Deferred Compensation Plan,
plus interest paid by the Company on the funds in the executive's account
under the Non-Qualified Deferred Compensation Plan, except for Mr. Cargile
who also received the additional compensation described in Note (5) below.
(4) The Company also provides its executive officers health and group term-life
insurance and other benefits generally available to all salaried employees,
and certain additional noncash benefits, including club memberships and the
use and maintenance of automobiles, which benefits in no individual case
have an aggregate incremental cost to the Company which exceeds the lesser
of $50,000 or 10% of that individual's total salary and bonus as reported
in the "Summary Compensation Table." See also "Employment Agreement With
Named Executives" elsewhere in this Proxy Statement for compensation
payments to Mr. Cargile, Mr. Singer and Mr. Kelbel (or their named
beneficiaries) in the event of their disability or death during the term of
their employment agreements.
(5) As a result of the loan forgiveness arrangement and the additional income
taxes incurred as a part of Mr. Cargile's relocation in 1995 from Atlanta,
Georgia, to Southern California, as required by the Company (see
"Employment Agreements With Named Executives" elsewhere in this Proxy
Statement), Mr. Cargile received additional compensation of $248,813
attributable to 1998, $213,357 attributable to 1997 and $178,400
attributable to 1996.
Option Grants in Last Fiscal Year
The upper table provides information on stock option grants made in March 1998
to the Named Executives under the Company's 1991 Employee Stock Option Plan
based upon the performance of the Named Executives during the 1997 fiscal year.
No option grants were made to the Named Executives in March 1999 applicable to
their 1998 performance. The lower table also illustrates the comparable
potential appreciation in value over a 5-year period of stock held by the
Company's stockholders as a group, and by a unit of 1,000 shares, from the value
of the
<PAGE> 8
Company's common stock of $9.75 per share, which was the closing price of the
stock on the New York Stock Exchange on December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(Adjusted to reflect 100% stock split)
-------------------------------------------------------------------- POTENTIAL REALIZABLE
% of Total VALUE AT ASSUMED
No. of Options ANNUAL RATES OF STOCK
Securities Granted to All PRICE APPREC FOR OPTION
Underlying Employees in TERM (5-YR PERIOD) (/2/)
Options Last Fiscal Yr Exercise or ------------------------
Granted (/1/) (/1/) Base Price (/1/) Expiration Date 5% 10%
------------- -------------- ---------------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile 60,000 12.11% $12.38 03/24/08 $ 466,944 $ 1,183,354
Howard S. Singer 27,200 5.49% $12.38 03/24/08 $ 211,868 $ 536,454
John T. Grush 28,800 5.81% $12.38 03/24/08 $ 224,138 $ 568,010
Craig J. Kelbel 27,200 5.49% $12.38 03/24/08 $ 211,868 $ 536,454
Jose A. Velasco 32,000 6.46% $12.38 03/24/08 $ 249,042 $ 631,122
POTENTIAL GAIN FOR
STOCKHOLDERS AT
RATE OF
------------------
All Stockholders N/A N/A N/A N/A $90,168,636 $219,816,827
Per 1,000 Shares N/A N/A N/A N/A $ 90,168 $ 219,816
</TABLE>
(1) All options granted to the Named Executives on March 25, 1998 were
applicable to services performed by them during fiscal year 1997. The
exercise price of the options, $12.38, was the closing price of the
Company's common stock on March 25, 1998, on the New York Stock Exchange.
(2) The information set forth in columns (f) and (g) is at an assumed annual
rate of appreciation over the 5-year period, commencing at the option grant
date. The appreciation figures set forth are net of the option exercise
price, but before taxes associated with the option exercise. These figures
should not be viewed in any way as a forecast of actual results of the
future performance of the Company's stock, which will be determined by
unknown future events and factors, including market conditions as well as
the option holders' continued employment throughout the option vesting
period.
<PAGE> 9
Option Exercises And Year-End Value Table
The following table provides information with respect to stock options
assigned to the Named Executives in prior years under the Company's 1988
Employee Stock Plan and its 1991 Employee Stock Option Plan, specifically
showing: (i) the number and value of shares acquired by the Named Executives
upon exercise of options during the 1998 fiscal year; and (ii) the number and
value of exercisable and unexercisable options held at December 31, 1998.
<TABLE>
<CAPTION>
NO. OF SECURITIES UNDERLYING
No. of UNEXERCISED OPTIONS HELD AT VALUE OF UNEXERCISED IN-THE-MONEY
Shares Value 12/31/98 OPTIONS (/1/) HELD AT 12/31/98
Acquired on Realized on ----------------------------- ---------------------------------
Name Exercise Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Cargile -0- -0- 402,500 82,500 $957,000 -0-
Howard S. Singer -0- -0- 45,000 39,200 $ 71,500 -0-
John T. Grush -0- -0- 48,000 40,800 $ 82,500 -0-
Craig J. Kelbel -0- -0- 26,000 39,200 -0- -0-
Jose A. Velasco -0- -0- 45,000 44,000 $ 71,500 -0-
</TABLE>
(1) Based on the closing price of the common stock of $9.75 at December 31,
1998 on the New York Stock Exchange, minus the exercise price of the
option.
Long-Term Incentive Plan--Awards for the Three-Year Performance Period
Commencing January 1, 1998
As approved by stockholders at the 1997 Annual Meeting, the Company's
Long-Term Incentive--Performance Unit Plan ("LTI-Plan") provides for cash
payment awards intended to qualify as performance-based compensation to satisfy
the requirements of Section 162(m) of the Internal Revenue Code. Under the
LTI-Plan performance units are assigned to each participant at the beginning of
a three-year performance period. The number of performance units actually
awarded to a participant is determined at the close of the three-year period,
based upon: (i) the Company meeting a certain pre-determined average return on
equity over the three-year performance period; and (ii) the participant's
performance over the performance period relative to the target performance. New
three-year performance periods begin annually each January 1 until the LTI-Plan
is terminated. The Board of Directors has discretion to make certain awards
under the LTI-Plan if the return on equity target thresholds are not met.
All payments earned by participants under the LTI-Plan will
automatically be deferred into the Company's Non-Qualified Deferred Compensation
Plan, which provides for a vesting of the payouts over a two-year period.
The following table sets forth the number of units assigned to each of
the Named Executives under the LTI-Plan for the three-year performance period of
1998-2000. Each performance unit has a value of $10. As noted above, no awards
are made under the LTI-Plan
<PAGE> 10
until the end of the performance period, and such awards are dependent upon the
achievement of pre-determined performance target levels.
<TABLE>
<CAPTION>
Performance
or Other ESTIMATED FUTURE PAYOUTS
Period Until UNDER NON-STOCK PRICE-BASED PLANS
Maturation or --------------------------------------------------
Name No. of Units Payout Threshold Target Maximum
- ---- ------------ ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
David L. Cargile 15,785 3 years $78,925 $157,800 $236,775
Howard S. Sinder 5,969 3 years $29,845 $ 59,690 $ 89,535
John T. Grush 7,361 3 years $36,810 $ 73,620 $110,430
Craig J. Kelbel 6,140 3 years $30,700 $ 61,400 $ 92,100
Jose A. Velasco 5,513 3 years $27,565 $ 55,130 $ 82,695
</TABLE>
Employment Agreements With Named Executives
David L. Cargile. Mr. Cargile serves as the Company's President and
Chief Executive Officer pursuant to a four-year employment agreement entered
into in November 1996. This agreement provides for a base annual salary which
was $449,435 for the 1998 calendar year, a discretionary cash bonus, and certain
other benefits. The Company can terminate Mr. Cargile's employment at any time
without cause by paying him 150% of the salary due to him under the remaining
term of his employment agreement. In the event of his death or disability Mr.
Cargile (or his beneficiary) will be paid the greater of the amount of his then
current compensation remaining due for the term of the employment agreement or
one (1) year's salary.
In connection with his employment and the Company's requirement that he
move from Atlanta, Georgia to Southern California, in July 1995 the Company
granted to Mr. Cargile a $649,000 interest-bearing loan for the purchase of a
residence, secured by a trust deed on that residence. Of that principal amount,
$414,765 is being forgiven by a credit on the loan by the Company over a
60-month period. Additionally, the full amount of the loan will be forgiven if
Mr. Cargile's employment terminates for any reason. As of February 28, 1999,
$363,262 of the principal amount of the above-noted loan was outstanding. In
addition, the Company agreed to pay to Mr. Cargile such additional amount as is
required to compensate him for the additional state and federal taxes due which
will arise as a result of the credit he will receive against the loan balance,
and for the increase in state taxes Mr. Cargile will experience as a California
resident as contrasted with the state taxes he would have otherwise paid as a
resident of Georgia. (See Note (5) to "Summary Compensation Table" elsewhere in
this Proxy Statement.)
Howard S. Singer. Pursuant to a four-year employment agreement entered
into in December 1996, Mr. Singer serves as the Executive Vice President of the
Company at a base annual salary which was $238,091 for the 1998 calendar year, a
bonus as may be granted by the Board, and certain other benefits. He is also
entitled to a one-time "piggyback" registration right at no cost to him with
respect to Company stock owned by Mr. Singer. The Company can terminate Mr.
Singer's employment at any time without cause by paying him 150% of the salary
due to him under the remaining term of his employment agreement. In the event of
his death or disability Mr. Singer (or his beneficiary) will be paid the greater
of the amount of his then current compensation remaining due for the term of the
employment agreement or one (1) year's salary.
Craig J. Kelbel. Mr. Kelbel entered into a three-year employment
agreement with the Company in November 1996 to serve in the positions of
President and Chief Operating Officer of USBenefits and as a Senior Vice
President of the Company at a base annual salary which was $244,804 for the 1998
calendar year, and certain other benefits. The Company can terminate Mr.
Kelbel's employment at any time without cause by paying him 100% of the salary
due to him
<PAGE> 11
under the remaining term of his employment agreement. In the event of his death
or disability Mr. Kelbel (or his beneficiary) will be paid the amount of his
then current compensation for a period of one (1) year.
Change in Control Agreements. The Company has entered into severance
agreements with the Named Executives. Under these agreements, if their
employment is terminated by the Company (other than for cause) or is terminated
by the executive "for good reason" within two years after a "change in control"
of the Company, as those terms are defined in the severance agreements, each of
these executives (other than Mr. Cargile) would be entitled to receive a payment
of two years annual salary plus an amount equal to the largest annual cash
bonuses received during their employment as well as a continuation for two years
of life and medical insurance benefits. Mr. Cargile would receive three years
annual salary plus one-and-one-half times his largest annual cash bonus, as well
as the other benefits noted above. All of these agreements further state that if
any executive has an employment agreement which also provides for payments upon
termination, the executive will receive payments either under the severance
agreement or the employment agreement, whichever payment is greater, but may not
receive payments under both agreements. As defined in the severance agreements,
a "change in control" includes, under specific circumstances, a merger of the
Company with another company which results in a 50% change of the combined
voting power of the Company's securities or the sale of more than 50% of the
Company's assets or, under certain circumstances, the beneficial ownership by
any person of more than 10% of the Company's equity securities.
RELATED TRANSACTIONS
As described above under "Employment Agreements With Named Executives,"
in July 1995 the Company made a loan to Mr. Cargile in the amount of $649,000 in
connection with the purchase of his principal residence in Southern California,
a portion of which loan is being forgiven over a 60-month period. As of February
28, 1999, a principal amount of $363,262 of this loan was outstanding.
