SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by party other than the registrant [_]
Check the appropriate box:
[x] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HOMEOWNERS GROUP, INC.
(Name of Registrant as Specified in Its Charter)
HOMEOWNERS GROUP, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-
6i(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11
(1) Title of each class of securities to which transaction
applies:
Common Stock, $0.01 par value per share
(2) Aggregate number of securities to which transactions applies:
5,558,350
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$2.35
(4) Proposed maximum aggregate value of transaction:
$13,062,122.50
(5) Total fee paid:
$2,613
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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HOMEOWNERS GROUP, INC.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325-6235
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST __, 1996
TO THE STOCKHOLDERS OF HOMEOWNERS GROUP, INC.:
A Special Meeting of Stockholders of Homeowners Group, Inc., a Delaware
corporation (the "Company") will be held on ________, August __, 1996, at the
Sheraton Design Center Hotel, 1825 Griffin Road, Dania, Florida, at 10:00 A.M.
local time, for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of May 14, 1996 (the "Merger
Agreement"), among The Cross Country Group, Inc., a Nevada corporation
("Cross Country"), CHGI Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Cross Country ("CHGI") and the Company,
pursuant to which: (a) CC Acquisition Corporation, a Delaware
corporation and assignee of the rights and obligations of CHGI under the
Merger Agreement ("Merger Sub") will be merged with and into the Company
(the "Merger"), with the Company being the surviving corporation and
wholly owned directly by Cross Country Associates, LLC, a Delaware
limited liability company ("Associates"); and (b) each of the shares of
the Company's Common Stock, $0.01 par value per share (the "Shares"),
outstanding at the effective time of the Merger (other than Shares held
by Cross Country and its affiliates and stockholders who perfect their
statutory appraisal rights under Delaware law), will be converted into
the right to receive $2.35 ("Merger Consideration") net in cash, without
interest.
(2) To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof (the "Special
Meeting").
Only holders of record of Shares at the close of business on ________, 1996 are
entitled to notice of and to vote at the Special Meeting.
The Company's Board of Directors has approved the Merger Agreement,
having determined that the acquisition of the Company pursuant to the Merger
Agreement is fair and in the best interests of the Company and its stockholders.
The Company's financial advisor, Raymond James & Associates, Inc., has advised
the Company that, in its opinion, the consideration to be paid to the Company's
stockholders pursuant to the Merger Agreement is fair to the stockholders from a
financial point of view.
If the Company's stockholders adopt the Merger Agreement, it is
currently anticipated that the merger will be consummated as promptly as
practicable after the satisfaction of certain conditions to the Merger.
As soon as practicable after the Merger is consummated, a Letter of
Transmittal will be mailed to all stockholders of record to use in surrendering
their Company stock certificates. Please do not send
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your stock certificates to the Company until you receive the Letter of
Transmittal, which will include instructions on the procedure to be used in
sending in your certificates.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions of
Section 262 of the Delaware General Corporation Law will, under certain
circumstances, have the right if the Merger is consummated to dissent and to
demand appraisal of the fair market value of their Shares. See "Rights of
Dissenting Stockholders" in the accompanying Proxy Statement, and Annex C
thereto, for a description of the procedures required to be followed in order to
exercise properly dissenters' rights.
To assure that your vote will be counted, please complete, date and sign
the enclosed proxy and return it promptly in the enclosed prepaid envelope
whether or not you plan to attend the Special Meeting. Your proxy may be revoked
in the manner described in the accompanying Proxy Statement at any time before
it has been voted at the Special Meeting.
By Order of the Board of Directors,
Michael F. Jones
Secretary
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE
AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
<PAGE>
PROXY STATEMENT
HOMEOWNERS GROUP, INC.
400 SAWGRASS CORPORATE PARKWAY
SUNRISE, FLORIDA 33325-6235
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST __, 1996
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being furnished to
holders of shares of Common Stock, $0.01 par value per share (the "Shares"), of
Homeowners Group, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at a Special Meeting of Stockholders to be held August __, 1996 at the
Sheraton Design Center Hotel, 1825 Griffin Road, Dania, Florida, at 10:00 A.M.,
local time, and at any adjournment or postponement thereof (the "Special
Meeting"). Only holders of record of Shares at the close of business on
__________, 1996 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. This Proxy Statement and form of proxy was first mailed to
the Company's stockholders on or about ________, 1996.
At the Special Meeting, the holders of Shares will be asked: (i) to
consider and vote upon a proposal unanimously approved by the Board of Directors
to approve and adopt an Agreement and Plan of Merger (the "Merger Agreement")
dated as of May 14, 1996, among The Cross Country Group, Inc., a Nevada
corporation ("Cross Country"), CHGI Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Cross Country ("CHGI"), and the
Company, pursuant to which CC Acquisition Corporation, a Delaware corporation
and assignee of the rights and obligations of CHGI under the Merger Agreement
("Merger Sub") will be merged with and into the Company (the "Merger"), with the
Company being the surviving corporation (the "Surviving Corporation") and wholly
owned by Cross Country Associates, LLC, a Delaware limited liability company
("Associates"); and (ii) to transact such other business as may properly come
before the Special Meeting.
Pursuant to the Merger Agreement, each Share outstanding at the
effective time of the Merger (other than Shares held by Cross Country and its
affiliates and stockholders who perfect their statutory appraisal rights under
Delaware law) will be converted into the right to receive $2.35 (the "Merger
Consideration") net in cash, without interest. A copy of the Merger Agreement is
attached hereto as Annex A.
The effect of the Merger will be to convert the Company from a publicly
held to a privately held corporation wholly owned by Associates, while providing
to the public stockholders a cash price for their Shares representing a premium
over market prices prevailing prior to the announcement of the Merger.
--------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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A Special Committee was appointed by the Board of Directors (the
"Special Committee"), consisting of disinterested directors, to review the terms
of the Merger Agreement and to report to the Board regarding the fairness of the
Merger to the Company's stockholders. At a meeting held on May 14, 1996, the
Special Committee voted to recommend that the Board approve the Merger
Agreement. At a meeting held immediately thereafter, the Board unanimously
approved the Merger Agreement, and the Board has determined that the Merger is
fair to and in the best interest of the Company's public stockholders and
resolved to recommend that the Company's stockholders approve and adopt the
Merger Agreement. The Special Committee and the Board, in reaching their
respective decisions, considered a number of factors, including the opinion of
Raymond James & Associates, Inc. ("Raymond James"), an investment banking firm
engaged by the Special Committee as its exclusive financial advisor, that the
Merger Consideration is fair to the Company's public stockholders from a
financial point of view. See "Special Factors--Recommendation of the Board;
Fairness of the Merger" and "--Opinion of Financial Advisor."
Upon the consummation of the Merger, all of the capital stock of the
Surviving Corporation will be owned by Associates. Carl Buccellato, Chairman,
Chief Executive Officer and President of the Company, who beneficially owns
263,453 Shares (excluding options to purchase 260,000 shares), or approximately
4.7% of the outstanding Shares, is expected to become a consultant to the
Surviving Corporation. Certain other members of the Company's management are
expected to be officers or key employees of the Surviving Corporation. See
"Special Factors--Interests of Certain Persons in the Merger."
All information contained in this Proxy Statement concerning Cross
Country, CHGI, Merger Sub and Associates, the financing to be obtained for the
Merger and plans for the Surviving Corporation has been supplied by Cross
Country. Except as otherwise indicated, all other information contained in this
Proxy Statement has been supplied by the Company.
The Board recommends a vote FOR adopting the Merger Agreement.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
--------------------
The date of this Proxy Statement is __________, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY ................................................................... 1
The Special Meeting................................................ 1
Parties to the Merger.............................................. 1
Recommendation of the Special Committee and the Board;
Background of and Reasons for the Merger......................... 3
Opinion of Financial Advisor....................................... 5
The Merger and Payment to Stockholders............................. 5
Record Date; Shares Entitled to Vote............................... 5
Required Vote...................................................... 6
Effective Time..................................................... 6
Conditions to the Merger........................................... 6
Regulatory Matters................................................. 6
Interests of Certain Persons in the Merger......................... 7
Background of the Merger........................................... 8
Rights of Dissenting Stockholders.................................. 8
Certain Federal Income Tax Consequences............................ 8
Source and Amount of Funds......................................... 8
Acceleration Litigation............................................ 9
Failure to Consummate the Merger................................... 9
Price Ranges of Shares; Dividends.................................. 9
Selected Financial Data............................................ 10
GENERAL INFORMATION........................................................ 11
Voting at the Special Meeting; Required Vote....................... 11
Proxies............................................................ 11
Available Information.............................................. 12
THE MERGER................................................................. 12
Background of the Merger........................................... 12
Recommendation of the Board; Fairness of the Merger................ 15
Opinion of Raymond James & Associates, Inc......................... 17
Plans for the Company after the Merger............................. 22
Interests of Certain Persons in the Merger......................... 22
Reasons for the Merger............................................. 23
Failure to Consummate Merger....................................... 24
Certain Effects of the Merger...................................... 24
Certain Federal Income Tax Consequences............................ 25
THE MERGER AGREEMENT....................................................... 26
The Merger......................................................... 26
Payment for Shares................................................. 26
The Exchange Fund.................................................. 27
ANIC Judgment...................................................... 27
Regulatory Matters................................................. 27
Conditions, Representations and Covenants.......................... 28
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Stock Options...................................................... 29
Directors and Officers of the Company Following the Merger;
Certificate of Incorporation..................................... 29
Fees and Expenses.................................................. 30
Termination; Amendments............................................ 30
Indemnification, Insurance and Releases............................ 31
SOURCE AND AMOUNT OF FUNDS................................................. 31
Bank Financing..................................................... 32
RIGHTS OF DISSENTING STOCKHOLDERS.......................................... 32
PRICE RANGES OF SHARES; DIVIDENDS.......................................... 34
INCORPORATED DOCUMENTS..................................................... 35
EXPERTS ................................................................... 36
OTHER MATTERS.............................................................. 36
ANNEX A - THE MERGER AGREEMENT
ANNEX B - FAIRNESS OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
ANNEX C - SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE
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<PAGE>
SUMMARY
The following summary is intended to highlight certain information
contained in this Proxy Statement. This summary does not purport to be complete
and is qualified in its entirety by the more detailed information contained
elsewhere in this Proxy Statement, the Annexes hereto and other documents
referred to herein. Unless defined herein, capitalized terms used in this
summary have the meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to read this Proxy Statement, the Annexes hereto and the
documents referred to herein in their entirety.
THE SPECIAL MEETING
The Special Meeting will be held on ________, August __, 1996, at the
Sheraton Design Center Hotel, 1825 Griffin Road, Dania, Florida at 10:00 A.M.,
local time. The Board of Directors has fixed the close of business on ________,
1996 as the Record Date. Only holders of record of Shares at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. The purpose of the Special Meeting is: (i) to consider and vote
upon approval and adoption of the Merger Agreement pursuant to which: (a) Merger
Sub will be merged with and into the Company with the Company being the
Surviving Corporation and wholly owned directly by Associates; and (b) each
Share outstanding at the effective time of the Merger (other than Shares held by
Cross Country, CHGI, Merger Sub, Associates and their affiliates and
stockholders who perfect their statutory appraisal rights under Delaware law)
will be converted into the right to receive $2.35 net in cash, without interest
(the "Merger Consideration"); and (ii) to transact such other business as may
properly come before the Special Meeting.
PARTIES TO THE MERGER
HOMEOWNERS GROUP, INC.
The Company was incorporated in 1988 in Delaware to act as the holding
company for Homeowners Marketing Services, Inc. ("HMS") and its subsidiaries,
which became subsidiaries of the Company in the same year as a result of a
reorganization prior to the Company's sale of its shares in a public offering.
The Company has provided products and services to real estate brokerage firms
since 1980.
The Company has developed a national network of real estate brokers
("Members") enrolled by the Company's franchisees ("Affiliates") and the field
sales force employed in the Corporate Owned Regions ("CORs"). The Company
believes that it is a leading supplier of products and services to real estate
brokerage firms which market primarily residential properties. The Company
offers various types of memberships including a "full membership" under which
participating brokers have access to all of the Company's products and services,
and a "limited membership" under which participating brokers and agents have
access to only certain of the Company's products and services, principally the
home warranty product. The Company operates in the District of Columbia and in
all states except Alaska.
Members generally pay an initial membership fee and annual renewal fees
in order to retain the rights of membership. Full members participate in the
Company's Errors & Omissions insurance ("E&O") program and pay marketing or
placement fees to the Company for access to the program. Members also have the
right to use products and services provided by other vendors with which the
Company has made preferred arrangements. Full membership also provides access to
the following programs: a membership-wide referral networking system
(REFNET/registered mark/), the HMS BuyerTrack/registered mark/ Follow-
<PAGE>
up System, the HMS Consumer Reach Program, a monthly real estate publication
(HMS Networking/registered mark/ magazine), the HMS Risk Management System, HMS
Photocard and certain advertising and public relations materials. Both full
members and limited members have access to the home warranty product, which they
sell to either sellers or buyers of a home. Historically, through 1995, the
Company has derived at least 88% of its annual revenues from the sale of home
warranty contracts by Members and from membership related fees.
The Company has granted the Affiliates the exclusive right, within
defined geographical territories, to enroll Members and train them in the
utilization and sale of the Company's products and services. The Company
directly enrolls Members in California, Florida (except northwest Florida, which
territory has been granted to an Affiliate) and Hawaii, and is a 45% partner in
a partnership which directly enrolls Members in Texas. During 1995, under
various arrangements, the Company also began operating in the previously
franchised territories of Colorado, Indiana, Iowa, North Dakota, South Dakota
and Nebraska. Collectively, these territories are known as Corporate Owned
Regions. In 1994, the Company also directly enrolled Members in Maine,
Massachusetts, New Hampshire and Vermont. In May, 1995, the Company franchised
this New England territory. In 1995 the Company also entered into agreements to
manage, for a fee, the Kansas, Oklahoma, Missouri territory and the Arizona, New
Mexico territory. Additionally, effective July 14, 1995, the Company purchased a
nominal interest in the Arizona, New Mexico territory. The Company has combined
administrative functions of the Kansas, Oklahoma and Missouri region with the
Texas region and the Arizona, New Mexico region with the California region,
which the Company believes will generate regional savings in overhead expenses
after the initial implementation costs.
Franchise realty organizations, such as CENTURY 21/registered mark/,
ReMax/registered mark/ and others, provide to their franchisees certain products
and services, some of which are similar to those offered by the Company.
However, access to such products and services generally requires an initial
financial commitment by the real estate brokerage firm, payment of a
predetermined percentage of revenues to the franchisor and mandatory utilization
of some of the franchisor's products and services. Under the Company's program,
Members pay for the Company's products and services which they elect to use,
once the initial membership fee and/or annual renewal fee has been paid. The
Company's membership agreement does not prohibit membership in any real estate
related franchise or service, and many HMS Members are also members of franchise
realty organizations.
THE CROSS COUNTRY GROUP, INC.
Cross Country is a privately held company engaged primarily in providing
emergency roadside assistance on behalf of major corporations and other
organizations. Cross Country also provides loss reporting, address change,
consumer affairs, customer support and home assistance services for various
customers throughout the United States through various affiliates. The principal
executive offices of Cross Country are located at 4040 Mystic Valley Parkway,
Medford, Massachusetts 02133, and the telephone number is (617) 393-9300.
CROSS COUNTY ASSOCIATES, LLC
Associates is a privately held limited liability company formed solely
for the purpose of holding the stock of the Company following the Merger, and
has not engaged in any business activity unrelated to the Merger. The Managing
Members of Associates are substantially the same as the stockholders of Cross
Country. The principal executive offices of Associates are located at 4040
Mystic Valley Parkway, Medford, Massachusetts 02133.
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<PAGE>
CC ACQUISITION CORPORATION
Merger Sub is a wholly-owned subsidiary of Associates and assignee of
CHGI's rights and obligations under the Merger Agreement. Merger Sub was formed
solely for the purpose of the Merger and has not engaged in any business
activity unrelated to the Merger.
CHGI ACQUISITION CORPORATION
CHGI is a direct, wholly-owned subsidiary of Cross Country formed solely
for the purpose of the Merger and has not engaged in any business activity
unrelated to the Merger. On June __, 1996, CHGI assigned its rights and
obligations under the Merger Agreement to Merger Sub. The principal executive
offices of CHGI are located at 4040 Mystic Valley Parkway, Medford,
Massachusetts 02133, and the telephone number is (617) 393-9300.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD; BACKGROUND OF AND REASONS
FOR THE MERGER
At a meeting held on May 14, 1996, the Special Committee determined that
the Merger is fair to the Company's stockholders and recommended that the Board
approve the Merger Agreement. At a meeting held immediately thereafter, the
Board unanimously determined that the Merger is fair to and in the best interest
of the Company's public stockholders, approved the Merger Agreement and resolved
to recommend that the Company's stockholders approve and adopt the Merger
Agreement. The Special Committee and the Board, in reaching their respective
decisions, considered a number of factors. See "The Merger--Recommendation of
the Board; Fairness of the Merger," "--Background of the Merger" and "--Opinion
of Financial Advisor."
In January, 1995, the Company received several inquiries from
unaffiliated third parties relating to various proposed transactions with the
Company, including the purchase of all of the outstanding Shares of the Company.
In response to these inquiries, the Company formed a Special Committee of the
Board of Directors to evaluate the alternatives available to the Company. The
Special Committee was composed of all directors of the Company with the
exception of Carl Buccellato, the President and Chief Executive Officer of the
Company. The Committee retained Raymond James & Associates, Inc. ("Raymond
James") to act as its exclusive financial advisor to assist the Company in
evaluating the possible alternatives to maximize stockholder value, including
remaining independent, effecting a corporate restructuring, initiating
discussions with others, or evaluating other plans of business reorganization.
From January until September, 1995, the Special Committee and Raymond
James discussed a possible transaction with approximately ten organizations. In
September, 1995, the Company announced that it had entered into exclusive
negotiations with Warrantech Corporation ("Warrantech"), an administrator and
marketer of service contracts and after-market warranties on computer
electronics, computers and computer peripherals, appliances, automobiles,
automotive components and recreational vehicles for retailers and distributors,
with respect to the possible acquisition of the Company by Warrantech.
On December 13, 1995, a jury in the Court of Common Pleas of Franklin
County, Ohio, rendered a verdict against HMS in favor of Acceleration National
Insurance Company ("ANIC") in the
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<PAGE>
amount of $5,156,022. The Company then engaged in negotiations with ANIC in an
effort to reach a settlement with respect to payment of the judgment.
The Company was unable to conclude an agreement with Warrantech and
although the Company announced on January 26, 1996 that its exclusive
negotiations with Warrantech had terminated, the Special Committee and Raymond
James continued their efforts with regard to maximization of stockholder value,
particularly in light of the judgment obtained by ANIC and its attempts to
realize on its judgment.
The Special Committee thereafter entered into negotiations with another
potential purchaser with respect to the acquisition of the Company for shares of
such purchaser's common stock, with the Shares of the Company to be valued at
$2.20 per share. While these negotiations were in process, the Company was
advised by Cross Country that it and certain of its affiliates had acquired in
excess of five percent of the Shares of the Company and that it wished to enter
into negotiations with respect to the acquisition of the Company. Upon agreement
with Cross Country as to the terms of a confidentiality agreement, the Company
provided information to Cross Country.
The Company reached an agreement with ANIC to defer action with respect
to efforts to realize on its judgment until May 5, 1996 by agreeing to enter
into a definitive merger agreement prior to that date which agreement would
provide for the payment to ANIC of $4.1 million. The Company entered into this
Agreement based upon its inability to post the bond required for an appeal and
to prevent ANIC from proceeding with actions to collect on its judgment. The May
5, 1996 date was subsequently extended until May 12, 1996, in exchange for an
increase in the amount to be paid to ANIC in satisfaction of the judgment
against HMS, upon consummation of a merger, by an amount proportionately equal
to the percentage increase in the amount to be received by the Company's
stockholders in excess of $2.20 per share in addition to the $4.1 million. The
Special Committee established May 9, 1996 as a deadline for submission of bids
to acquire the Company. The highest bid received prior to the deadline was from
Cross Country. Thereafter, the Company negotiated and executed the Merger
Agreement with Cross Country on May 14, 1996.
The Company's Board of Directors' determination that the acquisition of
the Company pursuant to the Merger Agreement is fair to and in the best
interests of the Company and its stockholders was based upon consideration of
many factors, including: (i) the Company's business, financial condition and
future prospects and the current conditions of the markets in which it operates;
(ii) the alternatives available to the Company to maximize stockholder value;
(iii) the price being offered to the Company's stockholders pursuant to the
Merger Agreement; (iv) the status of the interest of other parties which
expressed an interest in a possible transaction with the Company; (v) the status
of the negotiations with ANIC with respect to its efforts to realize on its
judgment; (vi) Raymond James' opinion that the consideration proposed to be paid
to the Company's stockholders pursuant to the Merger Agreement is fair to the
stockholders from a financial point of view; (vii) the terms and conditions of
the Merger Agreement; and (viii) the Company's continued ability under the
Merger Agreement, subject to certain conditions, to provide information to and
negotiate with any other parties interested in acquiring the Company. For
additional information on the background of and reasons for the Merger, see "The
Merger--Background of the Merger," "--Reasons for the Merger; Recommendation"
and "--Opinion of Financial Advisor."
THE BOARD, INCLUDING THE SPECIAL COMMITTEE, HAS UNANIMOUSLY
RECOMMENDED THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
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<PAGE>
OPINION OF FINANCIAL ADVISOR
The Special Committee has retained Raymond James to provide financial
advice and other assistance to the Special Committee. On May 14, 1996, Raymond
James delivered its opinion to the Special Committee and the Board to the effect
that the Merger Consideration is fair to the Company's public stockholders from
a financial point of view, which opinion has not been withdrawn as of the date
of this Proxy Statement. A copy of Raymond James' opinion is attached hereto as
Annex B. Stockholders are urged to read this opinion in its entirety for
assumptions made, matters considered, procedures followed and scope of review by
Raymond James in rendering its opinion. See "The Merger--Opinion of Financial
Advisor."
THE MERGER AND PAYMENT TO STOCKHOLDERS
If the Merger Agreement is approved and adopted by the stockholders of
the Company and certain other conditions set forth in the Merger Agreement are
satisfied or waived, Merger Sub will be merged with and into the Company, with
the Company being the Surviving Corporation. As a result of the Merger, the
Company will become a wholly-owned subsidiary of Associates. The Merger
Agreement also provides, among other things, that the stockholders of the
Company will be entitled to receive the Merger Consideration, without interest,
for each of their Shares (other than Shares held by Cross Country and its
affiliates and stockholders who perfect their statutory appraisal rights under
Delaware law). See "The Merger Agreement--Payment for Shares" and "Rights of
Dissenting Stockholders."
In order to receive the Merger Consideration following the Merger, each
holder of a stock certificate representing Shares (a "Certificate") will be
required to surrender such Certificate, together with a duly executed and
properly completed letter of transmittal and any other required documents, to
____________, prior to the Effective Time (as defined herein) to act as the
paying agent (the "Paying Agent"). The Paying Agent will send instructions to
stockholders regarding the procedures for surrendering Certificates, together
with a letter of transmittal to be used for this purpose, as promptly as
practicable after the Merger has been consummated. See "The Merger
Agreement--Payment for Shares" and "--The Exchange Fund."
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED
PROXY.
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of Shares outstanding at the close of business on
____________, 1996 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. At that date, 5,558,350 Shares were outstanding, each of
which will be entitled to one vote on each matter to be acted upon or which may
properly come before the Special Meeting. A list of stockholders entitled to
vote at the Special Meeting may be examined at the offices of the Company,
located at 400 Sawgrass Corporate Parkway, Sunrise, Florida 33325-6235, during
the 10-day period preceding the Special Meeting.
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<PAGE>
REQUIRED VOTE
The presence, in person or by proxy, of the holders of one-third of the
outstanding Shares is necessary to constitute a quorum at the Special Meeting.
Holders of Shares on the Record Date are entitled to one vote per Share,
exercisable in person or by a properly executed proxy, at the Special Meeting
with respect to all matters to be acted upon. Under the Company's Certificate of
Incorporation (the "Certificate of Incorporation"), and By-laws, as amended (the
"By-laws") and applicable law, the affirmative vote of the holders of a majority
of the Shares is required to approve and adopt the Merger Agreement. The Company
has been advised that Cross Country is the holder of proxies executed by the
members of the Board of Directors and one executive officer granting Cross
Country the right to vote the shares held by them, currently 698,481 Shares
(12.56% of the outstanding Shares), as to all matters related to the Merger and
that Cross Country intends to vote such Shares, in addition to the 491,500
Shares (8.84% of the outstanding Shares) owned by it and its affiliates, in
favor of the approval and adoption of the Merger Agreement. See "The
Merger--Interests of Certain Persons in the Merger."
All Shares represented at the Special Meeting by properly executed
proxies received prior to the vote at the Special Meeting, unless previously
revoked, will be voted in accordance with the instructions thereon. If no
instructions are given, proxies will be voted FOR approval and adoption of the
Merger Agreement. Any proxy may be revoked by the person giving it at any time
before it is voted. A proxy may be revoked by filing with the Secretary of the
Company either a written notice of revocation bearing a later date than the
proxy or a subsequent proxy relating to the same Shares, or by attending the
Special Meeting and voting in person (although attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy).
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the General Corporation Law of the State of Delaware (the
"Effective Time"). The Merger Agreement provides that such filing will be made
as soon as practicable following approval and adoption of the Merger Agreement
by the Company's stockholders and the satisfaction or waiver of certain other
conditions stated in the Merger Agreement.
CONDITIONS TO THE MERGER
The obligations of the Company, Cross Country and Merger Sub to
consummate the Merger are subject to the requisite approval and adoption of the
Merger Agreement by the Company's stockholders, the receipt of certain
regulatory approvals and compliance with certain other covenants and conditions
set forth in the Merger Agreement. See "The Merger Agreement--Conditions,
Representations and Covenants."
REGULATORY MATTERS
Seventeen of the states in which the Company's subsidiaries operate
regulate the home warranty business in which such subsidiaries are engaged.
Certain of those states require approval of a change in control of the Company.
The Merger Agreement requires the parties to use their best efforts to obtain
all such approvals and provides that the receipt of such approvals is a
condition to consummating the transaction. There can be no assurance that such
regulatory approvals will be obtained, and, if obtained,
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<PAGE>
there can be no assurance as to the date of any such approvals. There can also
be no assurance that any such approvals will not contain a condition or
requirement which will be unacceptable to Cross Country.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Company has been advised that the members of the Board of Directors
and one executive officer have granted proxies to Cross Country with respect to
698,481 Shares owned by them (12.56% of the outstanding Shares) as to all
matters related to the Merger and that Cross Country intends to vote such Shares
in favor of the approval and adoption of the Merger Agreement. See "The
Merger--Interests of Certain Persons in the Merger."
Directors and existing officers of the Company will receive the same
consideration for their Shares as the other stockholders of the Company.
It is expected that certain of the current officers of the Company will
continue as officers and key employees of the Surviving Corporation after the
Merger. Mr. Buccellato will resign as Chairman, Chief Executive Officer and
President of the Surviving Corporation at the Effective Time. In exchange for
agreeing to surrender his rights under his current employment agreement with the
Company and as compensation for his agreement not to compete for a three-year
period, Mr. Buccellato will receive a payment of $800,000 and will enter into a
three-year Consulting Agreement with the Surviving Corporation. Under the terms
of the Consulting Agreement, Mr. Buccellato will not be required to perform more
than 1,000 hours of service per year, and he will be paid $200,000 per year in
addition to certain other benefits. Gary D. Lipson, a director of the Company,
will receive $100,000 payable in 12 equal monthly installments of $8,333.33 in
consideration of the termination of an engagement agreement between Mr. Lipson
and the Company.
Pursuant to the Merger Agreement, the holders of options to purchase
common stock of the Company, which options are exercisable at a price below
$2.35 per share (which include employees and one non-employee director), will
surrender such options and receive payments equal to the excess of $2.35 over
the exercise price. Therefore, upon consummation of the Merger, Mr. Buccellato,
C. Gregory Morris, Vice President, Treasurer and Chief Financial Officer of the
Company, and Melvin Stewart, a director of the Company, will be entitled to
payments of $91,000, $21,000 and $40,000, respectively, in settlement of their
respective stock options. Certain directors of the Company are parties to
agreements with the Company, which agreements must be amended or cancelled as a
condition to the obligations of Cross Country to proceed with the Merger.
The Company has agreed that in the event that the Merger Agreement is
terminated for certain reasons, including the holders of in excess of 10% of the
Shares claiming or perfecting appraisal rights, the Board of Directors of the
Company recommending a merger or acquisition transaction other than the Merger,
the Board of Directors of the Company withdrawing, modifying or amending its
recommendation contained in this Proxy Statement in any respect materially
adverse to Cross Country or Merger Sub, or the stockholders of the Company
failing to approve the Merger, the Company will reimburse Cross Country for all
of the reasonable, documented, out-of-pocket expenses actually incurred by Cross
Country and Merger Sub in connection with the Merger including expenses of legal
counsel, investment bankers and accountants, plus a fee of $500,000. See "The
Merger Agreement--Fees and Expenses."
The Company has agreed in the Merger Agreement to provide and maintain
directors' and officers' liability insurance and to indemnify the current
directors and officers of the Company for a period of four years after the
Effective Time. See "The Merger Agreement--Indemnification and Insurance."
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<PAGE>
For a more detailed description of the interests of certain officers,
directors and stockholders of the Company in the Merger, see "The
Merger--Interests of Certain Persons in the Merger."
BACKGROUND OF THE MERGER
For a description of the events leading up to the approval of the Merger
Agreement by the Board, see "The Merger--Background of the Merger."
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, stockholders who do not vote in favor of the Merger
and file demands for appraisal prior to the stockholder vote on the Merger
Agreement, upon the consummation of the Merger, have the right to obtain a cash
payment for the "fair value" of their Shares (excluding any element of value
arising from the accomplishment or expectation of the Merger). In order to
exercise such rights, a stockholder must comply with all of the procedural
requirements of Section 262 ("Section 262") of the General Corporation Law of
the State of Delaware (the "DGCL"), a description of which is provided in
"Rights of Dissenting Stockholders" herein and the full text of which is
attached to this Proxy Statement as Annex C. Such "fair value" would be
determined in judicial proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Section 262 may result in a loss
of such dissenters' rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, the receipt of cash by a stockholder pursuant to the Merger
or the exercise of appraisal rights will be a taxable event for such stockholder
for federal income tax purposes and may also be a taxable event under applicable
local, state and foreign tax laws. A stockholder will recognize gain or loss for
federal income tax purposes equal to the difference between: (i) the amount of
cash that he or she has received, and (ii) his or her tax basis in the Shares
surrendered in exchange therefor. Such gain or loss will be capital gain or
loss, provided the Shares are held as capital assets as of the Effective Time.
The tax consequences for a particular stockholder may depend upon the facts and
circumstances applicable to such stockholder. Accordingly, each stockholder
should consult his or her own tax advisor with respect to the federal, state,
local or foreign tax consequences of the Merger.
ALL STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH UNDER
"SPECIAL FACTORS--CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE STRONGLY
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES TO THEM OF THE MERGER, AS WELL AS THE POSSIBLE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
SOURCE AND AMOUNT OF FUNDS
The total amount of the funds required for Cross Country to consummate
the Merger, including payment of $4.4 million to ANIC, is estimated to be
approximately $___ million. Associates and Merger Sub expect to obtain the funds
required to consummate the Merger from borrowings by Associates or Cross Country
pursuant to the Credit Agreement (as defined herein) or from Cross Country of
approximately $ 16.5 million (the "Financing"). Cross Country has received a
binding commitment from Fleet Bank (the "Bank"), pursuant to which a portion of
the funds needed to consummate the Merger will be made available. The terms of
certain portions of the Financing are still being negotiated and are
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<PAGE>
subject to change, as are the dollar amounts comprising the Financing. See
"Source and Amount of Funds."
ACCELERATION LITIGATION
The Merger has been negotiated in connection with the settlement of the
judgment obtained by ANIC against HMS, which is one of the Company's
subsidiaries. Pursuant to the Agreement for Satisfaction of Judgment between and
among Accel International Corporation, ANIC, the Company and HMS dated May 2,
1996, as amended (the "Settlement Agreement"), ANIC is to receive $4.4 million
(the "Settlement Amount") immediately following the Effective Time in
satisfaction of its judgment in the amount of $5,156,022. ANIC has agreed to
refrain from undertaking any action to execute on the judgment until October 31,
1996. If ANIC does not receive the Settlement Amount prior to August 31, 1996,
interest on the unpaid amount will accrue from that date at the rate of 10% per
annum. The Company has also assigned to ANIC its right to a federal income tax
refund which is currently anticipated to be $1,277,449. If such amount is
received prior to the Effective Date, it will reduce the Settlement Amount. If
not received prior to the Effective Date, ANIC will reassign the rights to the
refund to the Surviving Corporation. See "--Background of the Merger."
FAILURE TO CONSUMMATE THE MERGER
In the event that the Merger is not approved by the required vote of the
stockholders of the Company or any other condition to the consummation of the
Merger is not satisfied or waived and the Merger is not consummated, it is
likely that the Company will be without adequate resources to pay the full
amount of the ANIC judgment. In such event, the Company may be forced to seek
protection under the federal bankruptcy laws.
PRICE RANGES OF SHARES; DIVIDENDS
The Shares are listed on the Nasdaq National Market ("NMS") under the
symbol HOMG. On April 3, 1996, the last trading day prior to the filing by Cross
Country of a Schedule 13D announcing that it had acquired in excess of five
percent of the Shares, the reported closing sales price per Share on the NMS was
$1-1/2. On May 13, 1996, the last trading day prior to the Company's
announcement of the execution of the Merger Agreement, the reported closing
sales price per Share on the NMS was $1- 7/8. On __________, 1996, the last
trading day prior to the date of this Proxy Statement, the reported closing
sales price per Share on the NMS was $___. Stockholders are urged to obtain
current quotations for the Shares. Certain agreements to which the Company is a
party impose restrictions on the payment of dividends. In addition, the Merger
Agreement prohibits the declaration of dividends or distributions with respect
to the Shares. See "Price Ranges of Shares; Dividends."
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<PAGE>
SELECTED FINANCIAL DATA
The following summarized consolidated financial data is qualified in its
entirety by the more detailed financial information, including the Company's
financial statements, included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 THREE MONTHS
ENDED MARCH 31,
------------------------------------------------------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating revenue $ 42,986 $45,578 $ 51,344 $ 52,778 $ 44,554 $ 10,835 $ 10,385
Income (loss) from continuing
operations before income taxes (116) 3,891 5,319 (1,030) (3,037) 514 (384)
Income (loss) from continuing
operations 275 1,879 3,191 (833) (1,909) 316 (245)
Discontinued operation:
Loss from operation of
discontinued
reinsurance subsidiary -- -- (6,228) -- -- -- --
Estimated loss on
reinsurance portfolio
transfer -- -- (9,009) -- -- -- --
Net income (loss) $ 275 $ 1,879 ($12,046) ($ 833) ($ 1,909) $ 316 ($ 245)
CASH FLOW FROM OPERATING
ACTIVITIES $ 2,454 $ 2,755 ($ 1,557) $ 3,046 ($ 667) ($ 2,294) $ 726
DIVIDENDS DECLARED PER COMMON
SHARE $ 0.20 $ 0.20 $ 0.10 $ 0.00 $ 0.00 $ 0.00 $ 0.00
BALANCE SHEET DATA
Cash and investments $ 26,133 $19,176 $ 18,154 $ 19,625 $ 17,054 $ 17,282 $ 15,533
Total Assets 38,705 41,068 45,894 39,199 38,514 35,472 37,000
Long-term debt, net of current
portion 66 22 3,107 3,317 2,591 3,097 2,387
Deferred home warranty revenue
in excess of deferred home
warranty acquisition costs 6,906 8,196 9,994 10,441 10,572 8,618 9,493
Stockholders' equity 21,084 21,820 9,205 8,401 6,561 8,757 6,308
PER SHARE DATA
Income from continuing
operations $ 0.05 $ 0.34 $ 0.57 ($ 0.15) ($ 0.34) $ 0.06 ($ 0.04)
Discontinued operation:
Loss from operation of
discontinued
reinsurance subsidiary -- -- (1.12) -- -- -- --
Estimated loss on reinsurance
portfolio transfer -- -- (1.62) -- -- -- --
Net income (loss) $ 0.05 $ 0.34 ($ 2.17) ($ 0.15) ($ 0.34) $ 0.06 ($ 0.04)
Stockholders equity $ 3.79 $3,93 $ 1.66 $ 1.51 $ 1.18 $ 1.58 $ 1.13
Weighted average common shares
outstanding (in thousands) 5,566 5,561 5,559 5,558 5,558 5,558 5,558
</TABLE>
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GENERAL INFORMATION
VOTING AT THE SPECIAL MEETING; REQUIRED VOTE
The Board of Directors has fixed the close of business on _________,
1996 as the Record Date. As of the Record Date, there were 5,558,350 Shares
entitled to vote at the Special Meeting and there were ___ holders of record of
such Shares. Holders of Shares on the Record Date are entitled to one vote per
Share, exercisable in person or by a properly executed proxy, at the Special
Meeting with respect to all matters to be acted upon.
The presence, in person or by properly executed proxy, of the holders of
one-third of the outstanding Shares is necessary to constitute a quorum at the
Special Meeting. Pursuant to the Certificate of Incorporation, By-laws and
applicable law, the affirmative vote of the holders of a majority of the Shares
is necessary to approve and adopt the Merger Agreement. Abstentions will be
counted as present for purposes of determining whether a quorum is present.
Since the Merger requires the approval of a majority of the outstanding Shares,
abstentions will have the same effect as a negative vote. Under the rules of the
New York Stock Exchange and the National Association of Securities Dealers,
member organizations which hold shares in street name for customers will not
have the authority to vote on the Merger unless they receive specific
instructions from beneficial owners. Under the DGCL, such a non- vote will not
be counted as present for purposes of a quorum and will otherwise have the same
effect as a vote against the Merger. The Company has been advised that Cross
Country is the holder of proxies executed by the members of the Board of
Directors and one executive officer of the Company granting Cross County the
right to vote the shares held by them, currently 698,481 Shares (12.56% of the
outstanding Shares) with respect to all matters relating to the Merger and that
Cross County intends to vote said Shares in addition to the 491,500 Shares
(8.84% of the outstanding Shares) owned by it and its affiliates in favor of the
approval and adoption of the Merger Agreement.
PROXIES
All Shares represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, unless such proxies
previously have been revoked, will be voted at the Special Meeting in accordance
with the instructions on the proxies. If no such instructions are indicated,
proxies will be voted FOR approval and adoption of the Merger Agreement. The
Board of Directors does not know of any matters, other than as described in the
attached Notice of Special Meeting of Stockholders, which are to come before the
Special Meeting. If any other matters are properly presented at the Special
Meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with the Secretary of the Company written notice of revocation bearing a
later date than the proxy; by duly executing and delivering to the Secretary of
the Company, at or prior to the Special Meeting, a subsequent proxy relating to
the same Shares; or by attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, constitute
revocation of a proxy). Any written notice revoking a proxy should be sent to
Homeowners Group, Inc., 400 Sawgrass Corporate Parkway, Sunrise, Florida
33325-6235, Attention: Michael F. Jones, Secretary.
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<PAGE>
Proxies are being solicited by and on behalf of the Company's Board of
Directors. The Company will bear the cost of preparing and mailing the proxy
material furnished to the Company's stockholders in connection with the Special
Meeting. The Company will solicit proxies by mail, and the Company's directors,
officers and employees may also solicit proxies by telephone, telegram, personal
contact or otherwise. Such persons will receive no additional compensation for
such services but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will be made to furnish copies
of solicitation materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Shares held in the names of such fiduciaries,
custodians and brokerage houses. Such persons will be paid reasonable
out-of-pocket expenses. The Company has retained the firm of
_______________________, for a fee of $_________ plus reasonable out-of-pocket
expenses, to assist in the solicitation of proxies by the methods described
above.
No person is authorized to give any information or make any
representation not contained in this Proxy Statement, and, if given or made,
such information or representation should not be relied upon as having been
authorized by the Company or by Cross Country or their affiliates.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, is
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") relating to its
business, financial statements and other matters. Such reports, proxy statements
and other information, are available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 500 W. Madison Street, 14th Floor, Chicago, Illinois
60661, and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material also can be obtained from the Commission at prescribed
rates by addressing written requests for such copies to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials may also be inspected at the offices of the Nasdaq National
Market System, 1735 K Street, N.W., Washington, D.C. 20006.
THE MERGER
BACKGROUND OF THE MERGER
In January, 1995, the Company received several inquiries from
unaffiliated third parties relating to various proposed transactions with the
Company, including the purchase of all of the outstanding Shares of the Company.
In response to these inquiries, the Company formed a Special Committee of the
Board of Directors to evaluate the alternatives available to the Company. The
Special Committee was composed of all directors of the Company with the
exception of Carl Buccellato, the President and Chief Executive Officer of the
Company. The Committee retained Raymond James to act as its exclusive financial
advisor to assist the Company in evaluating the possible alternatives to
maximize stockholder value, including remaining independent, effecting a
corporate restructuring, initiating discussions with others, or evaluating other
plans of business reorganization.
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<PAGE>
During the first nine months of 1995, Raymond James circulated
confidentiality agreements to multiple interested parties, including Cross
Country. These agreements provided, among other things, that the interested
parties and their representatives would maintain the confidential nature of
information about the Company supplied to them and that for a specified period
from the date of such agreements they would not, without the prior written
approval of the Company's Board of Directors, engage in or propose any
transaction directly or indirectly to acquire any securities or assets of the
Company or its subsidiaries or act, alone or in concert with others, to seek to
control or influence the management, Board of Directors, or policies of the
Company. During this period, Raymond James circulated information about the
Company and its operations to approximately ten interested parties who had
signed confidentiality agreements. Three of these parties expressed significant
interest in acquiring the Company as a whole and presented written or verbal
proposals to acquire all or a portion of the Company.
In September, 1995, after a review of several proposals the Company
announced that it had entered into exclusive negotiations with Warrantech
Corporation ("Warrantech"), an administrator and marketer of service contracts
and after-market warranties on computer electronics, computers and computer
peripherals, appliances, automobiles, automotive components and recreational
vehicles for retailers and distributors, with respect to the possible
acquisition of the Company by Warrantech. From September 1995, through January
1996, the Company pursued negotiations with Warrantech.
On December 13, 1995, a jury in the Court of Common Pleas of Franklin
County, Ohio, rendered a verdict against HMS, in favor of ANIC in the amount of
$5,156,022. The Company then engaged in negotiations with ANIC in an effort to
reach a settlement with respect to payment of the judgment.
The Company was unable to conclude an agreement with Warrantech and
although the Company announced on January 26, 1996 that its exclusive
negotiations with Warrantech had terminated, the Special Committee and Raymond
James continued their efforts with regard to maximization of stockholder value,
particularly in light of the judgment obtained by ANIC and its attempts to
realize on its judgment.
The Special Committee thereafter entered into negotiations with another
potential purchaser, with respect to the acquisition of the Company for shares
of such purchaser's common stock, with the Shares of the Company to be valued at
$2.20 per share. While these negotiations were in process, the Company was
advised by Cross Country that it and certain of its affiliates had acquired in
excess of five percent of the Shares of the Company and that it wished to enter
into negotiations with respect to the acquisition of the Company. Until May 3,
1996, Cross County and the Company could not agree on an acceptable form of
confidentiality agreement and confidential information was not furnished to
Cross Country until said date. Upon agreement with Cross Country as to the terms
of a confidentiality agreement, the Company provided information to Cross
Country.
During this period the Company engaged in negotiations with ANIC
regarding a potential settlement. However, the Company was without sufficient
funds to post the bond required to file an appeal and prevent ANIC from
realizing on its judgment. The Company reached an agreement with ANIC to defer
action with respect to efforts to realize on its judgment until May 5, 1996.
This date was subsequently extended until May 12, 1996 in exchange for an
increase in the amount to be paid to ANIC in satisfaction of the judgment
against HMS upon consummation of the Merger, by an amount proportionately equal
to the percentage increase in the amount to be received by the Company's
stockholders in excess of $2.20 per share, in addition to the $4.1 million. The
Special Committee
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<PAGE>
established May 9, 1996 as a deadline for submission of bids to acquire the
Company. The highest bid received prior to the deadline was from Cross Country.
On May 10, 11, 13 and 14, counsel to the Special Committee, Raymond
James and counsel to Cross Country had further negotiations regarding the terms
of the Merger Agreement.
On May 14, 1996, at a meeting of the Special Committee, Raymond James
delivered to the Special Committee its opinion that the consideration of $2.35
per Share to be received by the holders of Shares pursuant to the Merger is fair
to the Company's public stockholders from a financial point of view. After
discussing Raymond James' opinion, the Special Committee determined that the
proposed Merger was fair to the stockholders of the Company. Immediately
following the meeting of the Special Committee, at a meeting of the Board of
Directors of the Company, at which the Special Committee, counsel to the Special
Committee and representatives of Raymond James participated, the Special
Committee recommended that the Board of Directors of the Company approve and
adopt the Merger Agreement and that the Board of Directors recommend to the
stockholders that they approve and adopt the Merger Agreement. At this meeting
of the Board of Directors, Raymond James formally presented its report to the
Board of Directors. After discussion regarding the Raymond James report, the
Special Committee made its recommendation regarding the Merger Agreement to the
Board of Directors. After reviewing with a representative of Raymond James the
basis for its opinion, and reviewing and approving the terms and conditions of
the proposed Merger Agreement, the Board unanimously approved the Merger
Agreement.
On June __, 1996, Cross Country advised the Company that pursuant to the
terms of the Merger Agreement, the rights and obligations of CHGI had been
assigned to Merger Sub, and that Merger Sub was wholly owned by Associates.
On July __, 1996, the Special Committee held a telephonic conference
with representatives of Raymond James and counsel to the Special Committee.
During this telephonic conference, Raymond James confirmed that it had not
withdrawn its fairness opinion attached hereto as Annex B. The factors upon
which this decision was based included (i) the Company's recent financial
performance including the Company's financial statements for the period ended
March 31, 1996, (ii) management's projections with respect to the balance of
1996 and 1997, (iii) certain financial, operating and other information received
from the Company and (iv) current market conditions and developments. In
connection with its discussion with the Special Committee, Raymond James pointed
out that (a) with respect to clauses (i) and (ii) above, that based on
information supplied by Company management, the Company's operating performance
indicated declining profitability on a comparative period basis for the fiscal
quarter ended March 31, 1996 as well as for the twelve-month period ended March
31, 1996 and that such declining profitability would be expected to continue,
particularly in the absence of funds needed to satisfy the Company's obligations
under the Settlement Agreement, which funds did not otherwise appear to be
available; and (b) with respect to clause (iii) above, that it had verified with
the Company management certain matters in connection with reaffirming its May
14, 1996 fairness opinion including that there have been no material changes to
the Company's operating performance, business plans and future prospects and the
terms, structure and financing of the proposed transaction. After participating
in the foregoing discussion, the Special Committee confirmed its determination
that the Merger is fair to the stockholders of the Company, which confirmation
was based on the factors considered in connection with the Special Committee's
initial fairness determination as discussed under "Recommendation of the Board;
Fairness of the Merger."
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<PAGE>
The Special Committee and the Board held a meeting on July __, 1996,
wherein the Special Committee discussed its prior meeting with Raymond James and
the fact that the Special Committee had confirmed its determination that the
Merger is fair to the stockholders of the Company. After participating in the
foregoing discussion, the Board confirmed its determination that the Merger is
fair to and in the best interest of the public stockholders of the Company,
which confirmation was based on the factors considered in connection with the
Board's initial fairness determination as discussed under "Recommendation of the
Board; Fairness of the Merger."
Recommendation of the Board; Fairness of the Merger
At a meeting held on May 14, 1996, the Special Committee determined that
the Merger is fair to the Company's stockholders and recommended that the
Company's Board approve the Merger Agreement. At a meeting held immediately
thereafter, the Board unanimously approved the Merger Agreement and the Board
determined that the Merger is fair to and in the best interest of the public
stockholders of the Company and resolved to recommend that the stockholders
approve and adopt the Merger Agreement.
The Special Committee, in making its recommendation to the Board, and
the Board, in reaching its decision, considered a number of factors, including
without limitation, the following:
(i) The opinion of Raymond James regarding the fairness, from a
financial point of view, of the Merger Consideration to the public
stockholders of the Company and the written report and oral
presentations regarding such report by Raymond James to the Special
Committee and the Board. See "Background of Merger" and "Opinion of
Financial Advisor." The Special Committee and the Board believed that
the ranges of values produced by Raymond James were reasonable estimates
of the Company's value. See "Opinion of the Financial Advisor." Based on
Raymond James' expertise and experience in the evaluation of businesses
in connection with transactions similar to the Merger and Raymond James'
explanations of its methodology and analyses, the Special Committee and
the Board believed that Raymond James' opinion as to the fairness of the
Merger Consideration to be received by the public stockholders was well
supported and sound. The Board and the Special Committee believed that
the Raymond James written report, oral presentations and opinion
supported the Special Committee's and Board's fairness determination.
(ii) The significant premium by which the Merger Consideration of
$2.35 per Share exceeds the last closing sales price ($1.50) of the
Shares on the day prior to the filing by Cross Country of a Schedule 13D
reporting that it and its affiliates had acquired in excess of five
percent of the outstanding Shares, the premium by which the Merger
Consideration exceeds the highest price at which the Shares traded in
the six months ($1.75), and 12 months ($2.125), preceding such
announcement date, and the fact that the Merger Consideration is
substantially in excess of the Company's book value per Share of $1.13
at March 31, 1996, or approximately two times such book value per Share.
The Special Committee and the Board believed that these premiums are
comparable to, or in excess of, premiums paid in recent acquisition
transactions and supported the Special Committee's and the Board's
determination as to the fairness of the Merger.
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<PAGE>
(iii) The effect of the ANIC judgment and its settlement on the
Company and its stockholders. The factors considered in this regard,
which the Board and Special Committee believed supported their
determination of fairness, included the following:
(a) the ability of ANIC to seize assets of HMS, as part of
its rights as a judgment creditor and the resulting disruption to
the business and affairs of the Company;
(b) the ability of ANIC to pursue other remedies
against the Company in an effort to collect on its judgment;
(c) the inability of the Company to post the bond
necessary to appeal the ANIC judgment;
(d) the prospect that HMS and/or the Company would be
required to seek protection under Chapter 11 of the United States
Bankruptcy Code, and the inevitable loss or dilution of
stockholder value flowing directly therefrom; and
(e) the time limitations contained in ANIC's agreement to
refrain from taking action to realize on its judgment.
(iv) The Board's and Special Committee's assessment that Cross
Country will be able to cause the Merger to be consummated in a timely
fashion given the nature and sources of Cross Country's financing
commitments received with respect to the Merger, the institutions
providing such commitments and the conditions to the obligations of such
institutions to fund such commitments. The Board and Special Committee
believed that the timing of and likelihood of consummation of the Merger
supported their determination as to the fairness of the Merger.
(v) The adequacy of the information regarding the Company which
the Special Committee and its financial and legal advisors had been
provided. The members of the Board and the Special Committee have
knowledge of and a familiarity with the business, financial condition,
results of operations and prospects of the Company, as well as the
industry, the risks associated with achieving the Company's projected
operating results, and the impact on the Company of general economic and
market conditions. Based on such knowledge and general knowledge about
stock market values, the members of the Board and the Special Committee
believed that the projections considered by Raymond James were
reasonable and supported the Board's and the Special Committee's
fairness determination.
(vi) The establishment of the Special Committee to make an
independent determination as to the fairness of the Merger supported the
Board's and the Special Committee's determination of fairness.
(vii) The terms and conditions of the Merger Agreement, including
the opportunity that all of the Company's stockholders will have to
dispose of all of their Shares for cash and the risk that the Merger
would not be consummated, including the relatively limited conditions to
be satisfied for the Merger to be consummated and the absence of a
financing condition to consummation of the Merger.
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(viii) The continued ability of the Board of Directors under the
Merger Agreement to furnish confidential information to, and to discuss
and negotiate with, any third party that has initiated contact with the
Company or any of its subsidiaries, if the Board of Directors
determines, in good faith, based upon the advice of the Company's
independent outside counsel, that such action is required to satisfy the
Board of Directors' fiduciary duties to the Company's stockholders. See
"The Merger--Termination of the Merger Agreement" and "--Termination
Fee."
(ix) The length of the period of the sale process, the number of
potential purchasers contacted and the belief of the Board of Directors
that all viable alternatives had been investigated in pursuing the
maximization of stockholder value.
(x) The opportunity stockholders have to demand appraisal of
their Shares in accordance with Delaware law. While the Special
Committee and Board believe the Merger is fair to the Company's public
stockholders, the availability of dissenters' rights for stockholders
who may disagree with this belief supported the decision of the Special
Committee and the Board to recommend approval of the Merger Agreement.
In view of the wide variety of factors considered in connection with
their evaluation of the Merger Agreement, neither the Special Committee nor the
Board found it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching their
respective determinations.
OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
The Special Committee retained Raymond James to render an opinion as to
the fairness, from a financial point of view, of the consideration to be issued
to stockholders of the Company in the Merger. Raymond James is a nationally
recognized investment banking firm and as part of its investment banking
business, Raymond James is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. The
Company selected Raymond James to render a fairness opinion in connection with
the Merger because of Raymond James' experience in transactions similar to the
Merger as well as Raymond James' engagement as the Company's financial advisor
since January 1995 and its involvement in the Company's consideration of various
strategic alternatives since that time.
Raymond James delivered to the Special Committee an opinion letter,
dated May 14, 1996, which stated that, based on the assumptions and subject to
qualifications set forth therein which are summarized below, as of that date,
the consideration to be received by the stockholders of the Company in the
Merger was fair, from a financial point of view, to the stockholders of the
Company. Raymond James was involved in structuring the Merger, soliciting
potential purchasers of the Company, and assisted in negotiating the terms of
the Merger. Raymond James was not requested to , and accordingly did not,
express any opinion with respect to the underlying business decision of the
Company to effect the Merger, the structure or tax consequences of the Merger
Agreement or the availability or advisability of any alternatives to the Merger.
THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND JAMES WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATION ON AND THE
SCOPE OF REVIEW BY RAYMOND JAMES IN RENDERING ITS OPINION IS ATTACHED AS ANNEX B
TO THIS PROXY
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STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF THE COMPANY
ARE URGED TO READ RAYMOND JAMES' OPINION IN ITS ENTIRETY.
In connection with Raymond James' review of the proposed Merger and the
preparation of its opinion, Raymond James examined (i) the financial terms and
conditions of the Merger Agreement; (ii) the audited financial statements of the
Company and its affiliates; (iii) certain unaudited financial statements and
operating reports of the Company, its subsidiaries and affiliates; (iv) certain
internal financial analyses and forecasts for the Company, its subsidiaries and
affiliates prepared by applicable management, and (v) certain other publicly
available information on the Company. Raymond James also held discussions with
members of the senior management of the Company, its subsidiaries and affiliates
to discuss the foregoing and considered other matters which they deemed relevant
to their inquiry.
Raymond James assumed and relied upon the accuracy and completeness of
all such information and did not attempt to verify independently any of such
information, nor did they make or obtain an independent appraisal of the assets
or liabilities (contingent or otherwise) of the Company, its subsidiaries and
affiliates. With respect to financial forecasts, Raymond James assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of applicable management, and relied upon each party to
advise them promptly if any information previously provided became inaccurate or
was required to be updated during the period of their review.
Raymond James' opinion was based upon market, economic, financial and
other circumstances and conditions existing and disclosed to them as of May 14,
1996 and such opinion specifically stated that any change in such circumstances
would require a reevaluation of their opinion.
In conducting their investigation and analyses and in arriving at their
opinion expressed herein, Raymond James took into account such accepted
financial and investment banking procedures and considerations as they deemed
relevant, including the review of (i) historical and projected revenues,
operating earnings, net income and capitalization of the Company, its
subsidiaries and affiliates and certain other publicly held companies in
businesses Raymond James believed to be comparable to that of the Company; (ii)
the then current financial position and results of operations of the Company,
its subsidiaries and affiliates and forecasted results of such entities; (iii)
the historical market prices and trading activity of the common stock of the
Company; (iv) financial and operating information concerning selected business
combinations which were deemed comparable in whole or in part; and (v) the
general condition of the securities markets.
PRO FORMA ANALYSIS. Raymond James prepared for the Board of Directors a
pro forma analysis of the Company's 1995 income statement and management's 1996
projected income statement. Management did not provide Raymond James with
projections beyond 1996.
In 1995, the Company reported a net loss of $1,908,656 or $0.34 per
share. Raymond James adjusted the Company's reported results on a pro forma
basis to account for several non-recurring or one-time items including (i) the
elimination of non-recurring legal, consulting and other related expenses; (ii)
the elimination of capital gains and benefits from securities being marked to
market at a profit; and (iii) the elimination of the Acceleration judgment. The
effect of the adjustments, on a fully-taxed basis, increased the Company's
earnings per share on a pro forma basis in 1995 to $0.275.
Management provided Raymond James with a projection for 1996 reflecting
net income of approximately $1,150,000 and earnings per share of $0.21. Raymond
James adjusted managements'
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projections to account for (i) the elimination of non-recurring legal,
consulting and other related expenses; and (ii) the elimination of capital gains
and benefits from securities being marked to market at a profit. The effect of
the adjustments, on a fully-taxed basis, increased the Company's projected
earnings per share on a pro forma basis in 1996 to $0.24.
Raymond James noted that neither of its pro forma calculations took into
account the negative effect of funding the Acceleration judgment or its
settlement. Raymond James also noted that the Company, through the first quarter
of 1996, was not performing to projections and that management had informed
them that it was now unlikely that its 1996 projections would be met.
MARKET VALUATION ANALYSIS. Raymond James prepared for the Board of
Directors an analysis of the relationship of several transaction values for the
Common Stock of the Company ranging from $2.20 to $2.50 per share to (i) the
nominal book value per share of Common Stock at March 31, 1996, and (ii) the
closing sale price of the Common Stock on various dates prior to the date Cross
Country filed its initial Form 13-D with the Securities and Exchange Commission
(April 4, 1996).
At a transaction value of $2.35 per share, the market valuation analysis
indicated a 108.0% premium over the Company's nominal book value per share of
$1.13 at March 31, 1996, a 56.7% premium over the closing market price ($1.50)
one day prior to the initial Cross Country Group 13-D filing, a 41.6% premium
over the closing market price ($1.66) one week prior to the initial Cross
Country Group 13-D filing, and a 135.0% premium over the closing market price
($1.00) four weeks prior to the initial Cross Country Group 13-D filing.
Raymond James also analyzed and calculated the Company's Enterprise
Value at various transaction values for the Common Stock of the Company ranging
from $2.20 to $2.50 per share. Enterprise Value was defined and calculated as
the consideration to be paid to the Company's stockholders and stock option
holders at various transaction values per share plus funded debt to be assumed
by a buyer as of March 31, 1996, plus the Acceleration settlement to be assumed
by a buyer at closing less excess available cash as of March 31, 1996. Raymond
James then compared these Enterprise Values to the Company's trailing 12 months
revenues as of March 31, 1996 and the number of warranty contracts sold by the
Company over the same trailing 12 month period.
At a transaction value of $2.35 per share, the ratio of Enterprise Value
to trailing 12 months revenues was 0.49x, and Enterprise Value divided by
warranty contracts sold was $201.
Raymond James also prepared for the Board of Directors an analysis of
the relationship between various pro-forma transaction values and pro-forma
1995, projected 1996, and pro forma projected 1996 earnings per share. Raymond
James added $.79 per share on a pro-forma basis to the $2.35 per share to be
paid to the stockholders in the Merger. This $.79 represents the value per share
of Common Stock of the Acceleration settlement to be paid on behalf of the
Company at closing. This pro forma adjustment was calculated by Raymond James in
order to present a meaningful comparison to Raymond James' calculation of the
Company's pro forma earnings per share which reflect no adjustments for the
obligation and funding of the Acceleration settlement.
At a pro forma transaction value of $3.14 (pro-forma equivalent to the
$2.35 transaction value), Raymond James' analysis indicated price-to-earnings
ratios of 11.4x for pro-forma 1995 earnings per share ($0.275), 15.0x for
projected 1996 earnings per share ($0.21), and 13.1x for pro forma projected
1996 earnings per share ($0.24).
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<PAGE>
PRECEDENT TRANSACTION ANALYSIS. Raymond James analyzed publicly
available information for selected completed acquisitions of companies believed
by Raymond James to be comparable to the Company. As there are few public
companies that have existed which are closely comparable to the Company, Raymond
James ultimately considered only two transactions: ServiceMaster L.P.'s
acquisition of American Home Shield Corporation and American Home Shield
Corporation's acquisition of Sierra Home Service Companies, Inc. Both American
Home Shield Corporation and Sierra Home Service Companies represent companies
operated exclusively in the home warranty industry.
Raymond James noted that in October 1989, ServiceMaster L.P. acquired
American Home Shield Corporation in a transaction in which American Home Shield
shareholders received (i) $9.50 in cash per share, and (ii) a contingent right
to receive future payments ranging from $0.00 to an aggregate of $3.50 in cash
depending upon the future earnings performance of American Home Shield
Corporation as a subsidiary of ServiceMaster. The contingent value rights
initially traded in the open market for $1.375 per right and eventually realized
$0.91 in payout. The American Home Shield financial advisor had valued the
rights between $1.00 and $1.90 per right.
Assuming a per share value range of $10.50 and $11.40 for American Home
Shield at the time of its sale, Raymond James noted that the implied
price-to-earnings ratio on its 1989 projections ranged from 10.3x to 11.2x. In
addition, Raymond James noted that American Home Shield management invested in
the ServiceMaster transaction as minority shareholders. Calls and puts were put
in place to allow/obligate ServiceMaster to acquire this minority position at
11.1x trailing earnings at a future date.
Raymond James also calculated multiples and other ratios in the
ServiceMaster - American Home Shield transaction which it deemed relevant.
Assuming a $10.50 to $11.40 per share range of value for American Home Shield,
the range of Enterprise Value divided by home warranty contracts outstanding was
approximately $332 to $373; the range of Enterprise Value to trailing 12 months
revenues was approximately 1.18x to 1.32x; and the range of the premium to book
value per share was approximately 199% to 225%.
Raymond James also analyzed the March 1996 acquisition of Sierra Home
Service Companies, Inc. by American Home Shield Corporation (still a subsidiary
of ServiceMaster). Raymond James noted that in this transaction, Sierra's
Enterprise Value divided by home warranty contracts outstanding approximated
$159. Enterprise Value to trailing 12 months revenues was approximately 0.49x
and the premium to book value per share was approximately 64%. No
price-to-earnings multiples were relevant as Sierra had been unprofitable in the
periods preceding its sale.
Raymond James noted that the Market Valuation Analysis of the Cross
Country - Company transaction indicated multiples and ratios which were lower
than the ServiceMaster - American Home Shield transaction, with the notable
exception of the price-to-earnings multiples. Raymond James also noted that the
same analysis indicated that the Cross Country - Company transaction multiples
and ratios equaled or materially exceeded the American Home Shield - Sierra
transaction.
COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, Raymond James prepared for the Board of Directors an analysis of
selected financial data for certain publicly-held companies in businesses which
Raymond James believed to be similar in various respects to the Company.
Specifically, Raymond James included in its review: CUC International,
Firstservice Corporation, Ideon Group, Rollins Inc., Roto-Rooter Inc.,
ServiceMaster L.P., Warrantech Corporation and First American Financial. Due to
the lack of consistency in the valuation multiples accorded to these
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<PAGE>
companies as a group and the fact that none of the selected companies
represented a sufficiently comparable company to the Company, Raymond James
believed that a purely quantitative comparable public company analysis would not
be particularly meaningful in the context of the Merger.
STOCK PRICE AND TRADING VOLUME ANALYSIS. Raymond James examined the
history of the daily trading prices (defined as closing price) and trading
volume of the Common Stock for the two years preceding May 14, 1996. Raymond
James noted that approximately 50% of the shares traded in both the preceding
one and two-year periods at prices of $1.25 per share or below. In the one-year
period preceding May 14, 1996, no shares had traded above $2.20 per share and
less than 6% had traded above $2.00 per share. For the two-year period preceding
May 14, 1996, shares had traded as high as $2.75 per share, but less than 4% had
traded above $2.00 per share. The Common Stock traded for $1.50 per share on the
day prior to the announcement of the Acceleration judgment and $0.75 per share
on the date of such announcement. Raymond James also noted that the Common Stock
was trading for $0.875 per share at the time the Board of Directors engaged the
firm to assist them in evaluating various strategic alternatives.
HISTORICAL TAKEOVER PREMIUM ANALYSIS. Raymond James prepared for the
Board of Directors an analysis of certain publicly available information for
selected mergers and acquisitions of public companies in transactions valued
between $5 million and $50 million since January 1, 1994. Raymond James compared
the purchase price per share in the selected transaction to the target's closing
stock price one day, one week and four weeks prior to the relevant announcement
date of the impending transaction to calculate the premium over such stock
price. Raymond James noted that the median premium for the periods one day, one
week and four weeks prior to the relevant announcement date of the selected
transaction were 35.0%, 38.1% and 41.7%, respectively. The average premiums
calculated were 44.0%, 50.6% and 52.5%, respectively. Raymond James noted that
at a transaction value of $2.35 per share, the premiums to be paid to
stockholders over the Company's closing stock price one day, one week and four
weeks prior to the date of the initial Cross Country Form 13-D filing are 56.7%,
41.6% and 135.0%, respectively.
Because the reasons for and the circumstances surrounding the precedent
transactions were specific to such transactions and because of the inherent
differences between the businesses, operations and prospects of the Company and
the businesses, operations and prospects of the selected acquired companies
analyzed, Raymond James believed that it was inappropriate to, and therefore did
not, rely solely on the historical takeover premium analysis.
The Company entered into an engagement letter with Raymond James on
January 28, 1995 pursuant to which the Company retained Raymond James as its
exclusive financial advisor. For its services relating to the fairness opinion
referred to herein, Raymond James received a $50,000 fee upon delivery of the
written opinion. For its advisory services, Raymond James received a $50,000
retainer, and will receive $100,000 upon the closing of the Merger. The Company
has also agreed to reimburse Raymond James for its reasonable out-of-pocket
expenses and has agreed to indemnify Raymond James against certain liabilities
that may arise in connection with its engagement, including liabilities that may
arise under federal securities laws. In the ordinary course of its business,
Raymond James may trade the Common Stock of the Company for its own account and
for the account of its customers and, accordingly, may at any time hold a long
or short position in such Common Stock.
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PLANS FOR THE COMPANY AFTER THE MERGER
Associates expects that the business and operations of the Surviving
Corporation will be continued by Associates substantially as they are currently
being conducted by the Company and its subsidiaries. Associates does not
currently intend to dispose of any assets of the Surviving Corporation, other
than in the ordinary course of business. It is anticipated, however, that
Associates will from time to time evaluate and review its businesses, operations
and properties and make such changes as are deemed appropriate.
It is not expected that the Surviving Corporation or any of its
subsidiaries will be obligated with respect to the financing obtained to
consummate the Merger or that any of their assets will be pledged to secure the
payment thereof.
Except as described in this Proxy Statement, none of Associates, Merger
Sub or the Company has any present plans or proposals involving the Company or
its subsidiaries which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization, or liquidation, or a sale or
transfer of a material amount of assets, or any material change in the present
dividend rate or policy, indebtedness or capitalization, or any other material
change in the Company's corporate structure or business. However, Associates
will review proposals or may propose the acquisition or disposition of assets or
other changes in the Surviving Corporation's business, corporate structure,
capitalization, management or dividend policy which it considers to be in the
best interest of the Surviving Corporation and its stockholder.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the
Merger, stockholders should be aware that certain members of the Board and of
the Company's management have interests that may present them with actual or
potential conflicts of interest.
The Company has been advised that the members of the Board of Directors
and one executive officer have granted proxies to Cross Country with respect to
698,481 Shares owned by them (12.56% of the outstanding Shares) as to all
matters related to the Merger and that Cross Country intends to vote such Shares
in favor of the approval and adoption of the Merger Agreement. See "The
Merger--Interests of Certain Persons in the Merger."
Directors and existing officers of the Company will receive the same
consideration for their Shares as the other stockholders of the Company.
It is expected that certain of the current officers of the Company will
continue as officers and key employees of the Surviving Corporation after the
Merger. Mr. Buccellato will resign as Chairman, Chief Executive Officer and
President of the Surviving Corporation at the Effective Time. In exchange for
agreeing to surrender his rights under his current employment agreement with the
Company and as compensation for his agreement not to compete for a three-year
period, Mr. Buccellato will receive a payment of $800,000 and will enter into a
three-year Consulting Agreement with the Surviving Corporation. Under the terms
of the Consulting Agreement, Mr. Buccellato will not be required to perform more
than 1,000 hours of service per year, and he will be paid $200,000 per year in
addition to certain other benefits. Gary D. Lipson, a director of the Company,
will receive $100,000 payable in
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equal monthly installments of $8,333.33 in consideration of the termination of
an engagement agreement between Mr. Lipson and the Company.
All executive officers and directors of the Company as a group currently
beneficially own 712,878 Shares (excluding stock options), which amount
constitutes 12.83% of the outstanding Shares. Upon consummation of the Merger,
Mr. Buccellato, Mr. Morris and Mr. Stewart will be entitled to payments of
$91,000, $21,000 and $40,000, respectively, in settlement of their respective
stock options.
Certain directors of the Company are parties to area franchise,
management agreements and consulting agreements with the Company (the
"Affiliated Franchisees") which were amended on April 26, 1996 (the
"Amendments"). In addition to the Amendments, one of the Affiliated Franchisees
entered into an option agreement with the Company dated April 26, 1996. The
Affiliated Franchisees have agreed to cancel the option and Amendments prior to
the Effective Time.
In addition, the Company has agreed that, in the event that the Merger
is not consummated for certain reasons, the Company will pay the reasonable
documented out-of-pocket fees, costs and expenses incurred or to be incurred by
Cross Country and Merger Sub and their affiliates and stockholders in connection
with the Merger, including expenses of legal counsel, investment bankers and
accountants, plus a fee in the amount of $500,000. See "The Merger
Agreement--Fees and Expenses."
The Company has agreed in the Merger Agreement to provide directors'
and officers' liability insurance and to indemnify the current directors and
officers of the Company. See "The Merger Agreement--Indemnification and
Insurance."
REASONS FOR THE MERGER
The Company is proposing the Merger to its stockholders at this time
because it has received a proposal from Cross Country to acquire the Company on
terms and at a price which the Special Committee found to be fair to, and the
Board found to be fair to and in the best interest of, the public stockholders
of the Company. The Merger will benefit the public stockholders of the Company
in that they will receive $2.35 in cash, without interest, per Share, which
amount represents a substantial premium over the recent historical market prices
of the Shares. The transaction has also been structured to ensure fairness to
the public stockholders by means of the appointment of the Special Committee
with independent financial advisors and the receipt of a fairness opinion from
Raymond James. In addition, the Merger will facilitate a settlement of the
adverse judgment against HMS in the ANIC litigation with respect to which the
Company has expended approximately $1.5 million to date in litigation expenses
and which judgment the Company is currently unable to pay on terms acceptable to
ANIC. See "Background of the Merger," "Failure to Consummate the Merger" and
"Acceleration Litigation."
Associates' reason for proposing the Merger at this time is its belief
that its sole ownership of the Company could allow greater focus on long-term
objectives and flexibility in the Company's operations rather than the
short-term focus which may have resulted from the effects of current operating
results on the public market for the Shares.
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FAILURE TO CONSUMMATE MERGER
If the Merger Agreement is not adopted by the required vote of the
Company's stockholders, or the Merger is not consummated for any other reason,
including the failure to satisfy or obtain a waiver of any other condition to
the consummation of the Merger, such failure to consummate the Merger will
constitute a default under the Settlement Agreement and require the Company to
pay the full amount of the judgment. This could have a material adverse effect
on the liquidity of the Company. In such event, the Company would be forced to
seek alternatives to pay the full amount of the judgment. No other alternatives
are presently being considered.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders will no longer
have any interest in, and will not be stockholders of, the Company and,
therefore, will not participate in its future potential earnings and growth and
will not be subject to the risks associated with an investment in the Company.
Instead, each such stockholder will have the right to receive upon consummation
of the Merger a payment of $2.35 in cash for each Share he or she held (other
than Shares held by Cross Country and its affiliates and stockholders who
perfect their statutory appraisal rights under Delaware law) whether or not the
Company's future operations meet the projections on which the determination of
the fairness of the price was based. Conversely, if the Merger is consummated,
Associates will realize all of the Company's profits and losses, as well as any
future improvements in the Company's operations.
The Company will, as a result of the Merger, become a wholly-owned
subsidiary of Associates and will be a privately held company. The registration
of the Shares under the Exchange Act will then be terminated. In addition,
because the Shares would no longer be publicly held, the Company would be
relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act, and its officers, directors and
stockholders owning more than 10% of the outstanding Shares would be relieved of
the reporting requirements and "short swing" trading restrictions under Section
16 of the Exchange Act. Further, the Company will cease filing information with
the Commission. The Company will also be de-listed from Nasdaq NMS.
Moreover, if the Merger is consummated, the adverse judgment in the ANIC
litigation will be settled. Such a settlement will directly benefit the Company
in that it will no longer incur legal expenses with respect to the ANIC
litigation, although such settlement will require payment of the Settlement
Amount.
If the Merger Agreement is not adopted by the required vote of the
Company's stockholders, or the Merger is not consummated for any other reason,
including the failure to satisfy or obtain a waiver of any other condition to
the consummation of the Merger, such failure to consummate the Merger will
constitute a default under the Settlement Agreement and require the Company to
pay the full amount of the judgment. This could have a material adverse effect
on the liquidity of the Company. In such event, the Company would be forced to
seek alternatives to pay the full amount of the judgment. No other alternatives
are presently being considered.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a description of certain federal income tax
consequences to stockholders who receive cash for their Shares in the Merger or
upon the exercise of appraisal rights. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, administrative positions of the Internal Revenue Service (the
"Service") and court decisions. The Company will not seek any rulings from the
Service with respect to the transactions contemplated hereby. The following
discussion is limited to the material federal income tax aspects of the Merger
for a holder of Shares who is a citizen or resident of the United States and who
holds the Shares as capital assets. This discussion also does not purport to
deal with all aspects of taxation that may be relevant to a particular investor
in light of his or her individual circumstances or to certain types of investors
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, nonresident aliens and foreign corporations)
subject to special treatment under the federal income tax laws.
In general, the receipt of cash by a stockholder pursuant to the Merger
or the exercise of appraisal rights will be a taxable event for that stockholder
for federal income tax purposes and may also be a taxable event under applicable
state, local and foreign tax laws. A stockholder will recognize gain or loss for
federal income tax purposes equal to the difference between (i) the amount of
cash that he or she receives in exchange for his or her Shares and (ii) his or
her tax basis in those Shares. That gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the stockholder has held those
Shares for more than one year as of the Effective Time.
A stockholder may be subject to backup withholding of federal income tax
at a rate of 31% on payments made to him or her in exchange for his or her
Shares, unless the stockholder is exempt from backup withholding or provides the
Paying Agent with his or her correct taxpayer identification number (by
completing IRS Form W-9 or the Substitute Form W-9 to be included with the
letter of transmittal), certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide the Paying Agent
with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. The Company will
report to each stockholder and the Service the amount of any "reportable
payments" made to the stockholder and the amount of tax withheld, if any.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH IN THIS PROXY STATEMENT
ARE BASED ON CURRENT LAW AND ARE FOR GENERAL INFORMATION ONLY. THE TAX
CONSEQUENCES FOR A PARTICULAR STOCKHOLDER WILL DEPEND UPON THE FACTS AND
CIRCUMSTANCES APPLICABLE TO THAT STOCKHOLDER. ACCORDINGLY, EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO
THE STOCKHOLDER OF THE MERGER IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS AND ANY POSSIBLE CHANGES IN THOSE LAWS. THE FOREGOING DISCUSSION MAY NOT BE
APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a conformed copy of which is attached hereto as Annex A and
incorporated by reference herein. Such summary is qualified in its entirety by
reference to the text of the Merger Agreement.
THE MERGER
The Merger Agreement provides that, subject to approval of the Merger
Agreement by the Company's stockholders and satisfaction or waiver of certain
other conditions, a duly executed copy of the related Certificate of Merger will
be filed with the Secretary of the State of Delaware. Upon such filing, Merger
Sub will be merged with and into the Company, the separate corporate existence
of Merger Sub will cease, and the Company will continue, under its name, as the
Surviving Corporation.
Upon the Effective Time, each Share (other than Shares held by Cross
Country, Merger Sub and their affiliates and stockholders who perfect their
statutory appraisal rights under Delaware law or held in treasury by the
Company) will, by virtue of the Merger and without any action on the part of the
holder thereof, be converted solely into the right to receive $2.35 in cash,
without interest, will no longer be outstanding and will be cancelled. Each
share of common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one share of common
stock of the Surviving Corporation.
Holders of Shares who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of Delaware law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their Shares and payment in cash therefor in lieu of the
Merger Consideration. See "Rights of Dissenting Stockholders."
PAYMENT FOR SHARES
Prior to the Effective Time, Merger Sub will designate the Paying Agent.
Promptly after the Effective Time, the Paying Agent will mail or make available
to each stockholder a notice and letter of transmittal containing instructions
for surrendering Certificates in exchange for payment thereof. No stockholder
should surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon receipt of any such
Certificates together with a duly executed letter of transmittal and other
requested documents, the Paying Agent will mail a check, in an amount equal to
$2.35 for each Share represented by such Certificates, to the registered owner
or, subject to certain conditions more fully described below, his or her
transferee.
Each Certificate which, prior to the Effective Time, represented Shares
(other than Shares held by Cross Country and its affiliates and stockholders who
perfect their statutory appraisal rights under Delaware law), will, after such
time, evidence only the right to receive the amount of cash into which the
Shares represented thereby shall have been converted. No interest will be paid
or accrued on the amounts payable upon the surrender of any such Certificate.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it will
be a condition of payment that the Certificate so
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surrendered will be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment will pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered, or will establish to the
satisfaction of the Surviving Corporation that such tax either has been paid or
is not applicable.
THE EXCHANGE FUND
Immediately prior to or at the Effective Time, Associates, Cross Country
or the Surviving Corporation will deposit or cause to be deposited with the
Paying Agent, in trust for the benefit of the Company's stockholders (other than
Cross Country and its affiliates and stockholders who perfect their statutory
appraisal rights under Delaware law) and the holders of options with exercise
prices below $2.35, the aggregate Merger Consideration to which holders of
Shares will be entitled at the Effective Time together with an amount equal to
the payment to which the holders of such options are entitled pursuant to the
Merger Agreement.
Promptly following the date that is six months after the Effective Time,
the Paying Agent will return to the Surviving Corporation all Merger
Consideration, and the Paying Agent's duties will terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Merger Consideration.
ANIC JUDGMENT
The effectiveness of the Settlement Agreement at the Closing is a
condition to the obligation of Cross Country to effectuate the Merger. Cross
Country has agreed that it will, at the Closing, cause funds to be available to
enable HMS to pay the Settlement Amount. The Settlement Amount will be paid
immediately following the Effective Date. Upon payment of the Settlement Amount,
the parties to the Settlement Agreement will deliver mutual releases. The
Settlement Agreement limits actions which the Company may take until the
Settlement Amount is paid in full.
REGULATORY MATTERS
The Company's warranty product is regulated in seventeen states,
generally by the departments of insurance of such state. Under certain of these
regulations, notice or approval is required for a change in control of the
issuer of the warranty product. The Merger Agreement requires the parties to use
their best efforts to obtain all such approvals and provides that the receipt of
such approvals is a condition to consummating the transaction. There can be no
assurance that such regulatory approvals will be obtained, and, if obtained,
there can be no assurance as to the date of any such approvals. There can also
be no assurance that any such approvals will not contain a condition or
requirement which will be unacceptable to Cross Country.
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<PAGE>
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of Cross Country and Merger Sub, on the one
hand, and the Company, on the other, to consummate the Merger are subject to the
following conditions, among others: (i) the approval and adoption of the Merger
Agreement by the affirmative vote of the holders of outstanding Shares to the
extent required by the Certificate of Incorporation, By-laws and applicable law;
(ii) the absence of any effective or threatened temporary restraining order,
preliminary injunction or other order issued by a court of competent
jurisdiction preventing the consummation of the transactions contemplated by the
Merger Agreement; (iii) the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended; (iv) the Settlement Agreement with ANIC remaining in full force and
effect; (v) the performance in all material respects of the covenants and
agreements made by Cross Country and Merger Sub, or the Company, as applicable,
prior to or at the Effective Time; and (vi) the accuracy in all material
respects of the representations and warranties made by Cross Country and Merger
Sub, or the Company, as applicable, in the Merger Agreement at and as of the
Effective Time. The obligations of Cross Country and Merger Sub to effect the
Merger are subject to the following additional conditions: (i) the Company shall
have taken all appropriate action to obtain the cancellation of all Options (as
defined herein) in exchange for payment by the Paying Agent in an amount equal
to the excess of $2.35 over the exercise prices thereof; (ii) Cross Country and
Merger Sub obtaining such regulatory consents, approvals or clearances as are
necessary in connection with the consummation of Merger; (iii) the holders of
Shares representing more than 10% of the total number of Shares as of the Record
Date shall not have taken actions prior to the Effective Time intended to cause
their Shares to be appraised pursuant to Section 262 of the DGCL; (iv) the
Company shall have cancelled certain agreements entered into after April 1, 1996
with certain of its directors; (v) consents have been obtained from the landlord
of the building in which the Company's headquarters are located and the other
parties to certain agreements of the Company; and (vi) all regulatory, consents,
approvals or clearances necessary for the consummation of the Merger have been
obtained. In addition, the obligation of the Company to effect the Merger is
subject to the condition that Raymond James shall not have withdrawn its opinion
that the Merger is fair to the Stockholders of the Company from a financial
point of view.
The Merger Agreement contains various customary representations and
warranties of Cross Country, Merger Sub and the Company. The representations of
Cross Country and Merger Sub relate to due organization, corporate
authorization, consents and approvals, absence of breach, lack of prior
activities and the Financing. The representations of the Company relate to due
organization, capitalization, corporate authorization, absence of certain
changes, consents and approvals, absence of breach of other agreements, status
of certain franchise agreements, title to assets and the binding nature of the
ANIC Settlement Agreement.
The Company has agreed to conduct its business in the ordinary and usual
course prior to the Effective Time. In this regard, the Company has agreed that
it will not, without the prior written consent of Cross Country, engage in
certain types of transactions, including, among other things, the issuance of
Shares, declaration of dividends or distributions with respect to the Shares,
modification of certain agreements or the incurrence of indebtedness beyond
certain limits. In addition, Cross Country, Merger Sub and the Company have made
further agreements regarding certain filings with the Commission; the vote at
the Special Meeting; best efforts to consummate successfully the Merger; notices
in connection with the Merger; access to the Company's records; public
announcements; and indemnification of the Company's officers and directors. In
addition, during the period from the date of the Merger Agreement to the
Effective Time, the Company has agreed not to solicit or initiate discussions,
directly or indirectly, concerning any possible proposal regarding a sale of the
Company's capital stock or a merger,
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acquisition, sale of assets or similar transaction involving the Company or any
subsidiary, division or major asset thereof. The Company, however, is permitted
to consider unsolicited proposals from third parties, if any such proposals are
made and the Board of Directors determines that the proposal represents a
financially superior transaction for the Stockholders of the Company and the
Board determines after consultation with counsel that the failure to take such
action would be inconsistent with its fiduciary duties, written notice is
provided to Cross Country and the Company keeps Cross Country advised of the
status of such discussions or negotiations.
STOCK OPTIONS
At or immediately prior to the Effective Time, the Company will take all
action necessary to cancel, all of the outstanding options to purchase Shares
(the "Options"), whether or not presently exercisable, which have been granted
under any stock options or other compensation plan or arrangement of the
Company. Each holder of an Option will be entitled to receive from the Paying
Agent in cancellation thereof a cash payment (subject to any withholding taxes)
in an amount equal to the excess, if any, of the Merger Consideration over the
per Share exercise price of such Option, multiplied by the number of Shares
subject to such Option (the "Option Settlement Amount"). No payment will be made
by the Company in respect of any Option having an exercise price equal to or
greater than the Merger Consideration. All Options will be cancelled upon the
payment of the Option Settlement Amount. At the Effective Time, any such Option
that the holder thereof has not consented to cancellation will be converted
into, and shall only represent the right to receive, the Option Settlement
Amount.
Immediately prior to the Effective Time, all of the Company's stock
option, stock bonus and stock award plans or arrangements, or those of any of
its subsidiaries that provide for the issuance of Shares or other shares of the
capital stock of the Company or its subsidiaries, will be terminated, and no
further stock options, bonuses or awards shall be granted thereunder subsequent
to the Effective Time. Without the prior written consent of Cross Country, the
Company will not make any additional grants of stock options, stock bonuses or
stock awards under any of such plans prior to the Effective Time.
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION
The officers and directors of Merger Sub immediately prior to the
Effective Time will be the initial officers and directors of the Surviving
Corporation. It is expected that the directors of Merger Sub immediately prior
to the Merger (and therefore the directors of the Surviving Corporation) will be
different than the current directors of the Company. The Certificate of
Incorporation of Merger Sub will be the Certificate of Incorporation of the
Surviving Corporation, until thereafter amended, except that Article 11 of the
Company's Certificate of Incorporation, which Article imposes the requirement of
approval by the holders of two-thirds of the Shares for certain extraordinary
corporate transactions, will be deleted in its entirety.
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<PAGE>
FEES AND EXPENSES
If the Merger is not consummated and (I) the Merger Agreement is
terminated because: (A) holders of more than 10% of the Shares shall have
claimed or perfected appraisal rights; (B) the Company (or the Board of
Directors of the Company) shall have authorized, recommended, proposed or
publicly announced its intention to enter into any merger or consolidation
agreement (other than this Agreement) or any other transaction in which all or
substantially all of the Company's or any Company subsidiary's equity or assets
would be acquired by a third party (other than Cross Country, Merger Sub or any
of their affiliates); (C) the Board of Directors of the Company does not
recommend in this Proxy Statement that the Company's stockholders adopt and
approve the Merger, the Merger Agreement and the transactions contemplated
thereby; (D) after publicly recommending in this Proxy Statement that Company's
stockholders adopt and approve the Merger, the Merger Agreement and the
transactions contemplated hereby, the Board of Directors of the Company shall
have withdrawn, modified or amended such recommendation in any respect
materially adverse to Cross Country or Merger Sub; or (II) (A) at any time on or
prior to the expiration of two years following termination of the Merger
Agreement, a definitive agreement is entered into for the acquisition of all or
substantially all of the Company's equity or assets with a person other than
Cross Country or Merger Sub or any of their respective affiliates at either (i)
a price per share in excess of $2.35 per Share, or (ii) an aggregate purchase
price in excess of the aggregate purchase price contemplated in the Merger
Agreement (which shall include the payments to ANIC pursuant to the Settlement
Agreement; or (B) if the following shall have occurred: (i) a meeting of the
stockholders of the Company shall have been held to adopt the Merger Agreement
and the stockholders shall have failed to adopt the Merger Agreement, and (ii)
there shall have existed at the record date for the Meeting or at the date
thereof a person or group who shall have beneficially owned or been entitled to
vote or direct the voting of not less than 20% of the then outstanding Shares,
and who shall have voted against the Merger Agreement and the transactions
contemplated thereby, or (iii) at the date of the Meeting a person or group
other than Cross Country or Merger Sub or any of their affiliates shall have in
good faith proposed (and such person or group shall appear to have the ability
to consummate such proposal) to acquire the Company, then in the event of either
(I) or (II), the Merger Agreement requires the Company to promptly reimburse
Cross Country and Merger Sub and their affiliates and stockholders for their
reasonable documented out-of-pocket expenses actually incurred by them in
connection with the proposed acquisition of the Company including expenses of
legal counsel, investment bankers and accountants plus a fee of $500,000.
TERMINATION; AMENDMENTS
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of the respective Board of
Directors of Cross Country, Merger Sub and the Company, by any of them if the
Merger has not been consummated by October 31, 1996 or if a court of competent
jurisdiction or other United States governmental body shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment or decree shall have become final and non appealable. The Merger
Agreement may be terminated at any time prior to the Effective Time by Cross
Country if (i) the Merger shall not have been consummated on or before the later
of (A) September 30, 1996 or (B) two business days after the Company
Stockholders' Meeting; (ii) there shall have occurred (A) any general suspension
of, or limitation on prices for, trading in securities on the New York Stock
Exchange or National Association of Securities Dealers Automated Quotations
System, (B) a declaration of a banking moratorium or any limitation or
suspension of payments by any U.S. governmental authority on the extension of
credit by
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lending institutions, (C) a commencement of war or armed hostilities directly
involving the United States, or (D) any limitation (whether or not mandated) by
any governmental authority which will materially adversely affect the extension
of credit by banks or other lending institutions in the United States; (iii)
holders of more than 10% of the Company's Common Stock shall have claimed or
perfected appraisal rights; (iv) the Company (or the Board of Directors of the
Company) shall have authorized, recommended, proposed or publicly announced its
intention to enter into any merger or consolidation agreement (other than the
Merger Agreement) or any other transaction in which all or substantially all of
the Company's or any Company subsidiary's equity or assets would be acquired by
a third party (other than parent, Merger Sub or any of their affiliates; (v) the
Company Board does not recommend in this Proxy Statement that the Company's
stockholders adopt and approve the Merger, the Merger Agreement and the
transactions contemplated thereby; or (vi) the Board of Directors of the Company
withdraws, modifies or amends its recommendation that the Company's stockholders
adopt and approve the Merger, the Merger Agreement and the transactions
contemplated thereby in any respect materially adverse to Cross Country or
Merger Sub.
The Merger Agreement may be amended by the mutual written agreement by
the parties thereto as evidenced by action taken by the Board of Directors of
Cross Country, Merger Sub and the Company, whether before or after stockholder
approval; provided, however, that after any such stockholder approval, no
amendment may be made without the further approval of the stockholders which
would reduce the amount or change the form of the Merger Consideration or effect
any other change to the Merger Agreement which would materially and adversely
affect the stockholders of the Company.
INDEMNIFICATION, INSURANCE AND RELEASES
The Merger Agreement provides that the current directors and officers of
the Company will be indemnified, defended and held harmless by the Surviving
Corporation for their acts and omissions prior to the Effective Time to the
fullest extent permitted by applicable law and any existing indemnity
agreements. The Surviving Corporation, as applicable, will advance expenses to
such indemnified parties to the fullest extent so permitted. The Merger
Agreement also provides that Cross Country will cause the Surviving Corporation
to maintain and provide officers' and directors' liability insurance to the
Company's current officers and directors on terms not materially less favorable
in coverage and amounts to that of the Company's present policy for a period of
four years following the Effective Time; provided, however, that in providing
such insurance, the Surviving Corporation will have no obligation to pay
premiums in excess of 150% of the current annual premium. In addition, the
directors of the Company, on the one hand, and Cross Country, Merger Sub and
their affiliates, on the other, have agreed to exchange mutual releases with
respect to the Merger and the transactions related to the Merger.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement (including the settlement of the
Acceleration Litigation) and to pay related fees and expenses is estimated to be
approximately $____ million. Associates and Merger Sub expect to obtain these
funds from the borrowing by Associates of approximately $_____ million; which
amount is expected to be borrowed either pursuant to the credit agreement
described below or from Cross Country. Associates and the Company currently have
no specific plans or arrangements for the repayment of the funds
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<PAGE>
borrowed under the credit agreement, but expect to be able to repay such
borrowings from the cash flow from the operations of the Surviving Corporation.
BANK FINANCING
Cross Country has received a binding commitment from Fleet Bank,
pursuant to which a portion of the funds needed to consummate the Merger will be
made available to Associates to consummate the Merger.
RIGHTS OF DISSENTING STOCKHOLDERS
The following summary does not purport to be a complete statement of the
provisions of Delaware law relating to the appraisal rights of stockholders and
is qualified in its entirety by reference to the provisions of Section 262 of
the DGCL set forth in full as Annex C to this Proxy Statement.
Stockholders who follow the procedures set forth in Section 262 may
receive, in lieu of the $2.35 cash per Share to be paid in the Merger, a cash
payment equal to the "fair value" of their Shares. Such fair value is to be
determined by judicial appraisal and could be more than, the same as, or less
than, the Merger Consideration. The statutory right of appraisal granted by
Section 262 is subject to strict compliance with the procedures set forth below.
Failure to follow any of these procedures may result in a termination or waiver
of appraisal rights under Section 262.
To be entitled to receive payment of the fair value of the Shares, a
stockholder (i) must file a written demand for appraisal of his or her Shares
with the Company prior to the voting by stockholders on the Merger Agreement at
the Special Meeting (such demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
an appraisal of his or her Shares); (ii) must not vote his or her Shares in
favor of approval and adoption of the Merger Agreement; and (iii) must have his
or her Shares valued in an appraisal proceeding, as described below. A proxy or
vote against approval and adoption of the Merger Agreement will not satisfy the
requirement that a stockholder file a written demand for appraisal as set forth
above. The requirement of a written demand is separate from, and should not be
confused with, the requirement that a stockholder not vote in favor of approval
and adoption of the Merger Agreement. A failure to vote on the Merger Agreement
will not be construed as a vote in favor of approval and adoption of the Merger
Agreement and will not constitute a waiver of a stockholder's rights of
appraisal. A stockholder who returns a signed proxy indicating that he or she
abstains from voting will similarly not waive his or her rights of appraisal.
However, because a proxy signed and left blank will, unless properly revoked, be
voted in favor of approval and adoption of the Merger Agreement, a stockholder
who returns a signed proxy left blank will waive his or her rights of appraisal.
Therefore, a stockholder electing to exercise appraisal rights who votes by
proxy must not leave his or her proxy blank, but must either vote against
approval and adoption of the Merger Agreement or abstain from voting. At any
time within 60 days after the Effective Time, any stockholder may withdraw his
or her demand for appraisal and accept the $2.35 per Share in cash to be paid in
the Merger. Any stockholder seeking appraisal rights must hold the Shares for
which appraisal is sought on the date of making the demand, continuously hold
such Shares through the Effective Time, and otherwise comply with Section 262.
It is a condition to the obligations of Cross Country and Merger Sub to
consummate the Merger that appraisal rights not be demanded by more than
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10% of the outstanding Shares. See "The Merger Agreement - Conditions,
Representations and Covenants."
Only a holder of record of Shares on the Record Date is entitled to seek
appraisal of the fair value of the Shares registered in such holder's name. The
demand for appraisal must be executed by or for the holder of record, fully and
correctly, as such holder's name appears on the holder's Certificates. If the
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand should be made in that capacity, and if the
Shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand for
appraisal for a holder of record; however, such agent must identify the record
owner or owners and expressly disclose in such demand that the agent is acting
as agent for the record owner or owners. Beneficial owners who are not record
owners and who intend to exercise appraisal rights should instruct the record
owner to comply strictly with the statutory requirements with respect to the
exercise of appraisal rights before the date of the Special Meeting.
A record holder, such as a broker who holds Shares as nominee for
beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of such beneficial owners with respect to the Shares
held for such beneficial owners. In such case, the written demand for appraisal
should set forth the number of Shares for which the demand is being made. Unless
a demand for appraisal specifies a number of Shares, such demand will be
presumed to cover all Shares held in the name of such record owner.
If the Merger Agreement is approved and adopted by the stockholders, the
Company will send a notice, either before the Effective Time or within ten days
thereafter, stating that appraisal rights are available to each stockholder who
has filed an adequate written demand for appraisal with the Company and who has
not voted in favor of approval and adoption of the Merger Agreement. Within 120
days after the Effective Time, the Company or any stockholder seeking appraisal
rights may file a petition in the Court of Chancery demanding a determination of
the value of the Shares of all stockholders seeking appraisal rights. The
Company does not intend to file such a petition, and all stockholders seeking to
exercise appraisal rights should initiate all necessary action with respect to
the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time, any
stockholder who has complied with the provisions of Section 262, upon written
request, shall be entitled to receive from the Company a statement setting forth
the aggregate number of Shares not voted in favor of approval and adoption of
the Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Shares. Such written
statement will be mailed to any such stockholder within ten days after his or
her written request for such a statement is received by the Company or within
ten days after expiration of the period for delivery of demands for appraisal
under Section 262(d), whichever is later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders seeking
appraisal rights have complied with Section 262 and have thereby become entitled
to appraisal rights. The Court of Chancery will then determine the fair value of
the Shares exclusive of any element of value arising from the expectation or
accomplishment of the Merger, but including a fair rate of interest, if any, to
be paid on the amount determined to be the fair value. In determining fair
value, the Court of Chancery is to take into account all relevant factors.
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Stockholders considering appraisal should bear in mind that the fair
market value of their Shares determined under Section 262 could be more than,
the same as, or less than, the consideration they will receive pursuant to the
Merger Agreement if they do not seek appraisal of their Shares, and that the
written opinion of Raymond James set forth as Annex B hereto is not necessarily
an opinion regarding fair value under Section 262.
The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts) to be charged PRO RATA against the value
of all of the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he
or she (i) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (ii) votes his or
her Shares in favor of approval and adoption of the Merger Agreement, (iii) does
not file a petition for appraisal within 120 days after the Effective Time, or
(iv) delivers to the Company both a written withdrawal of his or her demand for
appraisal and an acceptance of the terms of the Merger Agreement, except that
any such attempt to withdraw such demand not made within 60 days after the
Effective Time requires the written approval of the Company.
If an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal
rights will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such Shares (except
dividends or distributions payable to stockholders on a date prior to the
Effective Time).
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW
FOR PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DGCL, STOCKHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD CONSULT THEIR LEGAL
ADVISORS.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to Homeowners Group, Inc., 400
Sawgrass Corporate Parkway, Sunrise, Florida 33325- 6235, Attention: Michael F.
Jones, Secretary.
PRICE RANGES OF SHARES; DIVIDENDS
The Company's common stock is listed on the Nasdaq NMS under the symbol
HOMG. The following table set forth the high and low transaction prices for each
quarterly period during fiscal years 1994 and 1995 and for the period January 1,
1996 through _______, 1996. Stock price data reflects inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
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YEAR QUARTER HIGH LOW
1994 First $4.00 $2.50
Second 3.25 1.75
Third 2.63 1.75
Fourth 2.00 0.38
1995 First $1.75 $0.63
Second 2.13 1.13
Third 2.00 1.00
Fourth 1.94 0.50
1996 First $1.78 $0.50
Second ____ ____
Third (through __,1996)
The Merger Agreement provides that, prior to the Effective Time, the
Company may not declare dividends on the Shares without the prior consent of
Cross Country. In addition, certain agreements to which the Company is a party
impose restrictions on dividends until funds due to the other party are paid in
full.
On April 3, 1996, the last trading day prior to the filing by Cross
Country of a Schedule 13D reporting that it and its affiliates had acquired in
excess of five percent of the Shares, the reported closing sales price per Share
on the Nasdaq NMS was $1-1/2. On May 13, 1996, the last trading day prior to the
Company's announcement of the execution of the Merger Agreement, the reported
closing sales price per Share on the Nasdaq NMS was $1-7/8. On _________, 1996,
the last trading day prior to the date of this Proxy Statement, the reported
closing sales price per Share on the Nasdaq NMS was $___, there were 5,558,350
Shares outstanding and there were approximately 800 holders of Shares some of
which are brokerage firms which held Shares in nominee name on behalf of their
clients. Holders of Shares are urged to obtain current quotations for the
Shares.
INCORPORATED DOCUMENTS
The following documents are incorporated by reference in this Proxy
Statement and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the year
ended December 31, 1995 together with Amendment No. 1 thereto on
Form 10-K/A;
(2) The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; and
(3) The Company's current report on Form 8-K, dated June 18,
1996.
Any statement contained in a document incorporated by reference shall be deemed
to be modified or superseded for all purposes to the extent that a statement
contained in this Proxy Statement or any subsequently filed document modifies or
replaces such statement. Copies of the 1995 Annual Report on
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Form 10-K and the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 are included as part of this Proxy Statement.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document.
The Company undertakes to provide by first class mail, without charge,
to any person to whom a copy of this Proxy Statement has been delivered, within
one business day of the written or oral request of such person, a copy of any or
all of the documents referred to above which have been incorporated in this
Proxy Statement by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). The Company will
furnish any exhibit upon the payment of a specified reasonable fee which fee
will be limited to the Company's reasonable expenses in furnishing such exhibit.
Requests for such copies should be directed to Michael F. Jones, Secretary,
Homeowners Group, Inc., 400 Sawgrass Corporate Parkway, Sunrise, Florida
33325-6235, telephone number: (954) 845-9100. To ensure timely delivery, such
requests should be made by _____, 1996.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries of December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995 that are incorporated by reference in
this Proxy Statement have been incorporated by reference herein in reliance upon
the report of Deloitte & Touche LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
OTHER MATTERS
As of the date of this Proxy Statement, the only business which the
Board intends to present or knows that others will present at the Special
Meeting is that hereinabove set forth. If any other matter or matters are
properly brought before the Special Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their judgments.
Michael F. Jones
Secretary
Sunrise, Florida
_________, 1996.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 14, 1996
among The Cross Country Group, Inc., a Nevada corporation ("Parent"), CHGI
Acquisition Corporation, a Delaware Corporation and a wholly owned subsidiary of
Parent (the "Sub"), and Homeowners Group, Inc., a Delaware corporation (the
"Company") (Sub and the Company being hereinafter collectively referred to as
the "Constituent Corporations").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent pursuant to this
Agreement; and
WHEREAS, the respective Boards of Directors of Parent, the Company and Sub
have approved the merger of Sub with the Company (the "Merger"), upon the terms
and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, Parent, Sub and the
Company agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2), Sub
shall be merged into the Company and the separate existence of Sub shall
thereupon cease, with the Company being the surviving corporation in the Merger
(the "Surviving Corporation"). Upon the effectiveness of the Merger, the Company
shall possess all of the rights, privileges, powers and franchises of each of
the Constituent Corporations, and all property, real, personal and mixed, and
all debts due to any of the Constituent Corporations on whatever account, as
well as all other things in action or belonging to each of the Constituent
Corporations shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise in any of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon any property of any of the Constituent Corporations
shall be preserved unimpaired, and all debts, liabilities and duties of the
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective when a
properly executed Certificate of Merger is duly filed with the Secretary of
State of Delaware, which filing shall
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be made as soon as practicable after the closing of the transactions
contemplated by this Agreement in accordance with Section 11.1. When used in
this Agreement, the term "Effective Time" shall mean the date and time at which
such Certificate is so filed.
ARTICLE II
THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation, except that Article First thereof
shall be amended to read as follows:
"FIRST: The name of the Corporation is Homeowners Group, Inc."
and thereafter may be amended in accordance with its terms and as provided by
law.
2.2 BY-LAWS. The By-Laws of the Sub as in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation.
2.3 DIRECTORS. The directors of the Surviving Corporation shall be the
directors of Sub who shall serve until their respective successors are duly
elected and qualified in the manner provided in the Certificate of Incorporation
and By-Laws of the Surviving Corporation, or as otherwise provided by law.
2.4 OFFICERS. The officers of the Surviving Corporation shall initially
consist of the officers of the Company, until their successors are duly elected
and qualified in the manner provided in the Certificate of Incorporation and
By-Laws of the Surviving Corporation, or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
3.1 EXCHANGE RATIO. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder:
(a) All shares of Company Common Stock par value $.01 per share
("Company Common Stock") which are held by the Company, any subsidiary of
the Company, Parent, Sub or any other subsidiary of Parent, shall be
cancelled.
(b) All issued and outstanding shares of capital stock of Sub shall
be converted into 1,000 issued and outstanding shares of Common Stock of
the Surviving Corporation.
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(c) Each remaining outstanding share of Company Common Stock (other
than shares of Company Common Stock held by any holder who shall have
taken the necessary steps under the Delaware General Corporation Law
("DGCL") to dissent and demand payment, has not subsequently withdrawn or
lost such rights, and is otherwise entitled to such payment under the
DGCL, if the DGCL provides for such payment in connection with the Merger
("Dissenting Shares"), shall be cancelled and converted into the right to
receive $2.35 (the "Merger Price") in cash, without interest thereon.
(d) Notwithstanding the foregoing provisions or any other provision
of this Agreement to the contrary, Dissenting Shares shall not be
converted into the right to receive cash at or after the Effective Time
unless and until the holder of such Dissenting Shares withdraws his or her
demand for such appraisal with the consent of the Company, if required by
the DGCL, or becomes ineligible for such appraisal. If a holder of
Dissenting Shares shall withdraw his or her demand for such appraisal with
the consent of the Company, if required by the DGCL, or shall become
ineligible for such appraisal (through failure to perfect or otherwise),
then, as of the Effective Time or the occurrence of such event, whichever
last occurs, such holder's Dissenting Shares shall automatically be
converted into and represent the right to receive cash as provided above.
The Company shall give Parent (i) prompt notice of any written demands for
appraisals, withdrawals of demands for appraisal and any other instruments
served pursuant to Section 262 of the DGCL received by the Company, and
(ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Section 262 of the DGCL. The
Company will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands. Each holder of
Dissenting Shares shall have only such rights and remedies as are granted
to such a holder under Section 262 of the DGCL.
3.2 EXCHANGE AGENT.
(a) Parent shall authorize one or more persons to act as Exchange
Agent hereunder (the "Exchange Agent").
(b) Immediately prior to the Effective Time, Parent shall deposit
in trust with the Exchange Agent funds in an aggregate amount equal to
(and from time to time deposit additional funds so that the aggregate
amount in trust is not less than) the sum of: (i) the aggregate amount
payable pursuant to Section 7.5 hereof, plus (ii) the product of (A) the
number of Shares outstanding immediately prior to the Effective Time
(other than any such shares held in the treasury of the Company and its
subsidiaries or owned by Parent or any direct or indirect subsidiary of
Parent or known at the Effective Time to be Dissenting Shares), and (B)
the Merger Price (the "Payment Fund"). The Payment Fund shall be invested
by the Exchange Agent as directed by the
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Surviving Corporation, and any net earnings with respect thereto shall be
paid to the Surviving Corporation as and when required by the Surviving
Corporation.
(c) The Exchange Agent shall, pursuant to irrevocable instructions,
make the payments referred to in Section 3.1(c) hereof out of the Payment
Fund. The Parent shall cause the Exchange Agent to make the payments
referred to in Section 3.1(c) within 10 days of the Effective Time. The
Payment Fund shall not be used for any other purpose, except as provided
herein. If cash is deposited in the Payment Fund in respect of shares of
Company Common Stock that subsequently become Dissenting Shares, the
Exchange Agent shall promptly repay to the Surviving Corporation from the
Payment Fund an amount equal to the product of (i) the number of such
Dissenting Shares, and (ii) the Merger Price. Promptly following the date
which is six months after the Effective Time, the Exchange Agent shall
return to the Surviving Corporation all cash, certificates and other
instruments in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a certificate representing a share of Company
Common Stock entitled to receive at the Effective Time cash therefor may
surrender such certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
exchange therefor the amount of cash per share of Company Common Stock
specified in Section 3.1(c) hereof, without interest, but shall have no
greater rights against the Surviving Corporation than may be accorded to
general creditors of the Surviving Corporation under Delaware law.
Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to a holder of shares of Company Common Stock for
any cash delivered pursuant hereto to a public official pursuant to
applicable abandoned property laws.
(d) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record (other than Parent, any
subsidiary of Parent, the Company or any subsidiary of the Company) of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the
"Certificates"): (i) a form letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent); and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for cash. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor cash in an amount equal to the
Merger Price multiplied by the number of shares of Company Common Stock
theretofore represented by the Certificate, and the Certificate so
surrendered shall forthwith be cancelled.
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3.3 TRANSFER TAXES. If any cash to be paid in the Merger is to be paid to
a person other than the holder in whose name the certificate representing shares
of Company Common Stock surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the payment of such cash to a person other than the
registered holder of the certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
3.4 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Common
Stock shall thereafter be made. If, after the Effective Time, certificates
representing shares of Company Common Stock are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the cash consideration
set forth above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Sub that:
4.1 (a) CORPORATION ORGANIZATION. Each of the Company and the Company
Subsidiaries (as defined in Section 4.5 hereof): (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite power and
authority, corporate and otherwise, to own, operate and lease the
properties and assets it now owns, operates and leases and to carry on its
business as now being conducted; and (iii) is qualified or licensed to do
business and in good standing in every jurisdiction in which the
ownership, operation or lease of property by it or the conduct of its
business requires such qualification or licensing, except for such
failures which would not have a Company Material Adverse Effect (as
hereinafter defined). The term "Company Material Adverse Effect" as used
in this Agreement shall mean any change or effect that, individually or
when taken together with all other such changes or effects, is, or could
reasonably be, or is reasonably likely to be, materially adverse to the
business, condition (financial or otherwise), prospects, results of
operations, properties, assets or liabilities (the "Business") of the
Company and the Company Subsidiaries, taken as a whole.
(b) CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
previously delivered to Parent complete and correct copies of the
Certificate of Incorporation, and all amendments thereto to the date
hereof, and By-laws, as
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presently in effect, of the Company and any Company Subsidiary (all of
which are listed in Section 4.5 of the Disclosure Schedule), and none of
the Company and any Company Subsidiary is in default in the performance,
observation or fulfillment of either of its Certificate of Incorporation
or By-laws.
4.2 AUTHORIZATION. The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the adoption of this
Agreement by the Company's stockholders, to consummate the transactions
contemplated hereby. The Board of Directors of the Company (the "Company Board")
has duly approved the Merger, such approval constituting Company Board approval
for purposes of Section 203 of the DGCL and Article Eleven of the Company's
Certificate of Incorporation, and has duly authorized the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
and has resolved to recommend that its stockholders adopt this Agreement and
approve the Merger, and no other corporate proceedings (other than the adoption
of this Agreement by the stockholders of the Company) on the part of the Company
or any Company Subsidiary are necessary to approve and authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, subject to the foregoing, this Agreement constitutes (assuming due
authorization, execution and delivery of this Agreement by the other parties
hereto), the valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
4.3 CONSENTS AND APPROVALS: NO VIOLATIONS. Subject to obtaining the
requisite adoption and approval of this Agreement by the holders of a majority
of the outstanding shares of Company Common Stock in accordance with Delaware
law and the Company's Certificate of Incorporation and By-laws, and except:
(a) for approvals of insurance regulatory authorities;
(b) as set forth in Section 4.3 of the Disclosure Schedule;
(c) for the filings by the Company and Parent required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act");
(d) for the filing of the Proxy Statement (as defined in Section
4.16 hereof) with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and
(e) for the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by the laws of the State
of Delaware,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not, assuming receipt of the foregoing
requisite consent, authorizations,
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<PAGE>
approvals and permits: (i) violate any provision of the Certificate of
Incorporation or By-laws (or comparable governing documents) of the Company or
any Company Subsidiary; (ii) violate any statute, ordinance, rule, regulation,
order or decree of any court or of any public, governmental or regulatory body,
agency or authority applicable to the Company or any Company Subsidiary or by
which any of their respective properties or assets may be bound; (iii) require
any filing with, or permit, consent or approval of, or the giving of any notice
to, any public, governmental or regulatory body, agency or authority; (iv)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, agreement or
other instrument or obligation to which the Company or any Company Subsidiary is
a party, or by which any of them or any of their respective properties or assets
may be bound, or (v) except as disclosed in the Disclosure Schedules, afford any
employee of the Company or any Company Subsidiary any rights to compensation,
employment, severance pay, notice of termination or any other benefits;
excluding from the foregoing clauses (ii), (iii) or (iv) violations, breaches
and defaults which, and filings, notices, permits, consents and approvals, the
absence of which, would not have a Company Material Adverse Effect.
4.4 CAPITALIZATION. The authorized capital stock of the Company consists
of:
(a) 5,000,000 authorized shares of Company Preferred Stock, of
which, on the date hereof, no shares are issued and outstanding;
(b) 45,000,000 authorized shares of Company Common Stock, of
which on the date hereof, 5,558,350 shares are issued and outstanding;
(c) 300,000 shares reserved for issuance pursuant to outstanding
options granted under the Company's 1988 Stock Option Plan of which, on
the date hereof, 140,000 options were outstanding, and 140,000 shares
were subject to options currently exercisable;
(d) 300,000 shares reserved for issuance pursuant to outstanding
options granted under the Company's 1988 Incentive Stock Option Plan of
which, on the date hereof, 291,550 options were outstanding, and 219,550
shares were subject to options currently exercisable; and
(e) 300,000 shares are reserved for issuance pursuant to
outstanding options granted under the Company's 1992 Non- Employee
Directors' Stock Option Plan of which, on the date hereof, 117,500
options were outstanding, and 62,500 shares were subject to options
currently exercisable.
All shares of capital stock of the Company which are outstanding as of the date
hereof are duly authorized, validly issued, fully
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paid and nonassessable, and are not subject to, nor were they issued in
violation of, any preemptive rights. Set forth in Section 4.4 of the Disclosure
Schedule is a list of all of the holders of outstanding options, the date of the
grant(s) thereof, the exercise price(s) and exercise date(s) of each option
grant, and the number of shares subject thereto, including specifically the
number and exercise price of all options which are currently exercisable. Except
as set forth in Section 4.4 of the Disclosure Schedule and in this Section 4.4,
there are no shares of capital stock of the Company authorized or outstanding,
and there are no subscriptions, options, conversion or exchange rights, warrants
or other agreements, claims or commitments of any nature whatsoever obligating
the Company or any Company Subsidiary to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered or sold, additional shares of the
capital stock of the Company or any Company Subsidiary or obligating the Company
or any Company Subsidiary to grant, extend or enter into any such agreement or
commitment.
4.5 SUBSIDIARIES. Set forth in Section 4.5 of the Disclosure Schedule is
the number of authorized, issued and outstanding shares of each Company
Subsidiary (as defined below), its jurisdiction of incorporation and the number
of shares of capital stock or other equity interest owned or held by the Company
or any Company Subsidiary with respect to any corporation, partnership, joint
venture or other entity. All the outstanding shares of capital stock of each
corporation of which the Company owns, directly or indirectly, 50% or more of
the outstanding capital stock (a "Company Subsidiary") have been validly issued
and are fully paid, nonassessable and are not subject to, nor were they issued
in violation of, any preemptive rights. All outstanding shares of capital stock
of the Company Subsidiaries are owned, directly or indirectly, by the Company,
and except as set forth in Section 4.5 of the Disclosure Schedule with respect
to the shares of HOMS Insurance Agency, Inc., free and clear of all liens,
charges, encumbrances, security interests, equities, options, restrictions on
voting rights or rights of disposition, and claims or third party rights of
whatever nature. Except for Company Subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other equity or other securities of
any corporation, partnership, joint venture or other entity or have any direct
or indirect equity or ownership interest in any corporation, partnership, joint
venture or other entity, other than HMS Texas Partnership as to which the
Company is the general partner owning 45% of the partnership interest and
Southwest Marketing Services, Inc., a Michigan corporation, of which the Company
owns 12.5% of the outstanding capital stock. Except as set forth in Section 4.5
of the Disclosure Schedule, neither the Company nor any Company Subsidiary is
subject to any obligation or requirement to provide funds for or to make any
investment (in the form of a loan, capital contribution or otherwise) in any
entity.
4.6 SEC REPORTS. The Company has heretofore delivered to Parent and the
Sub its:
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(a) Annual Reports on Form 10-K for the years ended December 31,
1993, December 31, 1994, and December 31, 1995, as filed with the SEC;
(b) proxy statements relating to the Company's meetings of
stockholders (whether annual or special) during 1993, 1994 and 1995; and
(c) all other reports or registration statements filed by the
Company with the SEC since December 31, 1991.
Each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Commission since December 31, 1991 (the "SEC
Documents"), as of its respective filing date, (i) complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act and the respective rules and regulations of
the Commission thereunder applicable to such SEC Documents, and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The Company has timely filed all documents that it was
required to file with the Commission since January 1, 1992, except where the
failure to file did not and would not reasonably be expected to have a Company
Material Adverse Effect. The Company has not filed any Reports on Form 8- K
since February 9, 1996. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved, and fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended, except as may be as otherwise
stated therein and, in the case of unaudited statements, as permitted by Form
10-Q, non-material accruals, and for normal, recurring year-end audit
adjustments that would not be material in the aggregate.
4.7 FINANCIAL STATEMENTS. The Company has previously delivered to Parent
and the Sub:
(a) the audited consolidated balance sheets of the Company and
its subsidiaries as of December 31 in each of the years 1993 through 1995
and its audited consolidated statements of operations, changes in
stockholders' equity and changes in financial position for the respective
fiscal years then ended, including the notes thereto, in each case
examined by and accompanied by the report of Deloitte and Touche LLP
("Deloitte and Touche"), independent certified public accountants, and
(b) unaudited consolidated balance sheets of the Company and its
subsidiaries as of March 31, 1996, and as of March
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31, 1995, and unaudited consolidated statements of operations and changes
in financial position for the respective three month periods then ended,
including the notes thereto
(all of the financial statements referred to above in this Section are
hereinafter collectively referred to as the "Company Financial Statements"). The
Company Financial Statements have been prepared from, and are in accordance
with, the books and records of the Company and its consolidated subsidiaries,
and present fairly the consolidated financial position, consolidated results of
operations and changes in financial position of the Company and its consolidated
subsidiaries as of the dates and for the periods indicated, in each case in
conformity with generally accepted accounting principles, consistently applied
during such periods, except as otherwise stated in such financial statements or
in the notes thereto, or in the auditor's certifying report thereon and subject
(in the case of the unaudited interim financial statements referred to above) to
non-material accruals and normal year-end audit adjustments.
4.8 ABSENCE OF UNDISCLOSED LIABILITiES. Except as and to the extent
reflected in the balance sheet dated as of December 31, 1995 included in the
Company Financial Statements (the "Balance Sheet"), or in the notes to the
Company Financial Statements for the fiscal year then ended, neither the Company
nor any Company Subsidiary had at that date any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise
and whether due or to become due). Since the date of the Balance Sheet, neither
the Company nor any Company Subsidiary has incurred any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise,
and whether due or to become due), except for such which were incurred in the
ordinary course of business and consistent with past practice, and except to the
extent reflected in the Company's unaudited balance sheet dated as of March 31,
1996.
4.9 ABSENCE OF MATERIAL ADVERSE CHANGE. Since December 31, 1995, there
has not been, occurred or arisen any Company Material Adverse Effect.
4.10 LEGAL PROCEEDINGS, ETC. Except as set forth in Section 4.10 of the
Disclosure Schedule:
(a) there are no suits, actions, claims, proceedings or
investigations pending, relating to or involving the Company or any
Company Subsidiary (or any of their respective officers or directors in
connection with the business or affairs of the Company and the Company
Subsidiaries) or any properties or rights of the Company or any Company
Subsidiary, before any court, arbitrator or administrative or governmental
body, United States or foreign, which if determined adversely would have a
Company Material Adverse Effect;
(b) to the knowledge of the Company, there are no such suits,
actions, claims, proceedings or investigations
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threatened against the Company relating to or involving the Company or
any Company Subsidiary (or any of their respective officers or directors
in connection with the business or affairs of the Company and the Company
Subsidiaries or any properties or rights of the Company or any Company
Subsidiaries) or any properties or rights of the Company or Company
Subsidiary, before any court, arbitrator or administrative or governmental
body, United States or foreign, which if determined adversely would have a
Company Material Adverse Effect;
(c) there are no such suits, actions, claims, proceedings or
investigations pending or, to the knowledge of the officers of the
Company, threatened, challenging the validity or propriety of the
transactions contemplated by this Agreement; and
(d) neither the Company nor any Company Subsidiary is subject to
any judgment, decree, injunction, rule or order of any court or, to the
knowledge of the officers of the Company, any governmental restriction
applicable to the Company or any Company Subsidiary, which, individually
or in the aggregate, is reasonably likely to have a Company Material
Adverse Effect on the ability of the Company or any Company Subsidiary to
acquire any property or conduct business in any area.
4.11 COMPLIANCE WITH APPLICABLE LAW. The Company and each Company
Subsidiary currently holds and is in compliance with the terms of, and has for
at least the last three years been in compliance with the terms of all licenses,
permits and authorizations necessary for the lawful conduct of their respective
businesses, and has complied with, and neither the Company nor any Company
Subsidiary is in violation of, or in default in any respect under, the
applicable statutes, ordinances, rules, regulations, order or decrees of all
federal, state, local and foreign governmental bodies, agencies and authorities
having, asserting or claiming jurisdiction over it or over any part of its
operations or assets, except for such violations and defaults which,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
4.12 PERMITS. The Company and each Company Subsidiary possesses all
permits, approvals, authorizations, consents, licenses (other than those
relating to intellectual property, which are addressed in Section 4.18) and
registrations (the "Permits") which are required in order for them to conduct
the Business as presently conducted. Section 4.12 of the Disclosure Schedule
sets forth a list of all Permits issued by a state regulatory agency and all
other material Permits issued, granted to, or held by each of the Company or any
Company Subsidiary.
4.13 FRANCHISEES. As of the date hereof, there were 18 persons or
entities which own or possess the right to operate a franchised business
pursuant to a franchise agreement entered into with the Company or any Company
Subsidiary ("Franchisees"). Section 4.13 of the Disclosure Schedule sets forth
the name of
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each Franchisee, the Franchisee's territory, the address of each Franchisee's
office, and the scheduled renewal or expiration date of each such Franchisee's
franchise agreement. Except as set forth in Section 4.13 of the Disclosure
Schedule, none of the Company or any Company Subsidiary nor (to the knowledge of
the Company or any Company Subsidiary) any Franchisee, is in material breach of
or default under any such agreement (or with or without notice or lapse of time
or both, would be in breach or default under any such agreement). Except as set
forth in Section 4.13 of the Disclosure Schedule, there is no material dispute
between the Company or any Company Subsidiary, on the one hand, and any
Franchisee, on the other hand. All of the provisions of any agreement or
arrangement regarding the Company's or any Company Subsidiary's option to
purchase any Franchisee are set forth in the agreements with the Franchisees
disclosed in Section 4.13 of the Disclosure Schedule, and there are no other
agreements or arrangements, whether written or oral, relating to such repurchase
rights. Except as set forth in Section 4.13 of the Disclosure Schedule, as of
the date hereof, there were no agreements or arrangements between the Company or
any Company Subsidiary and any person to offer, sell, extend or modify any
franchise agreement or arrangement, including any agreement or arrangement by
which the Company or any Company Subsidiary manages or operates the Business in
a specific geographic region.
4.14 FRANCHISE AGREEMENTS. The Company and each Company Subsidiary has
delivered to Parent a true and complete copy of all of the franchise agreements
entered into between the Company, any Company Subsidiary and any Franchisee.
Those of the franchise agreements which are with Franchisees beneficially owned
in whole or in part by affiliates of the Company are (or will be upon amendment
as set forth in Section 9.9 to the Disclosure Schedule) on terms and conditions
substantially the same as the Company's other franchise agreements.
4.15 OFFERING CIRCULAR. The Company and each of its subsidiaries has
delivered to Parent a true and complete copy of the most recent uniform
franchise offering circular and other disclosure statements of the Company or of
any Company Subsidiary, if any, that have been used in connection with its sale
of franchises to Franchisees (the "Offering Circular"). As of its date, the
Offering Circular complied in all material respects with the requirements of the
Federal Trade Commission Act, as amended, and the rules and regulations of the
Federal Trade Commission promulgated thereunder, to the extent applicable, and
to applicable state and foreign laws; and to the Company's or any Company
Subsidiary's knowledge, such document did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.16 PROXY STATEMENT. The information with respect to the Company, its
officers and directors and the Company Subsidiaries to be contained in the
definitive proxy statement to be furnished to the stockholders of the Company
pursuant to Section 7.2 hereof (the "Proxy Statement") will not, on the date the
Proxy Statement
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is first mailed to stockholders of the Company or on the date of the Company
Stockholders' Meeting (as hereinafter defined) referred to in Section 7.3
hereof, or at the Effective Time, as such Proxy Statement is then amended or
supplemented, contain any statement which, at such time, is false or misleading
with respect to any material fact, or which omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein not false or misleading, or necessary to correct any statement in any
earlier communication (including the Proxy Statement) to stockholders of the
Company with respect to the Merger. If at any time prior to the Effective Time,
any event with respect to the Company, its officers and directors and the
Company Subsidiaries, should occur which is or should be described in an
amendment of, or a supplement to, the Proxy Statement, such event shall be so
described and the presentation in such amendment or supplement of such
information will not contain any statement which, at the time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication (including the
Proxy Statement) to stockholders of the Company with respect to the Merger. The
Proxy Statement will comply as to form with all applicable laws, including the
provisions of the Exchange Act.
4.17 SETTLEMENT AGREEMENT. The Company and Homeowners Marketing
Services, Inc., a wholly owned subsidiary of the Company ("HMS"), have entered
into a binding settlement agreement, in the form attached hereto as Exhibit A
(the "Settlement Agreement"), with Acceleration National Insurance Company
("ANIC") providing that (i) ANIC will agree to accept the greater of:
$4,100,000, or the amount equal to $4,100,000 plus an additional amount
calculated by multiplying $4,100,000 times the percentage by which the Merger
Price exceeds $2.20, and rounding that product to the next higher $50,000, in
full and complete satisfaction of its judgment against HMS in ACCELERATION
NATIONAL INSURANCE COMPANY, PLAINTIFF VS. HOMEOWNERS MARKETING SERVICES, INC.,
ET AL., DEFENDANTS, in the Court of Common Pleas of Franklin County, Ohio (the
"ANIC Lawsuit"), and (ii) such sum will be paid to ANIC at the Closing. The
Company has not and will not alter or amend the Settlement Agreement without the
prior written consent of the Parent.
4.18 INTELLECTUAL PROPERTY.
(a) As used herein, "Intellectual Property" shall mean all
intellectual property rights anywhere in the world, including, but not
limited to, all (i) registered and unregistered trademarks, service
marks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, trade dress, logos, slogans and
general intangibles of like nature, together with the goodwill
associated therewith; (ii) patents and patent applications and all
patents issued upon said patent applications or based upon such
disclosures; (iii)
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copyrights, copyright registrations and applications; (iv) know-how, trade
secrets, confidential or proprietary technical information, databases,
computer software, customer lists, business and marketing plans, designs,
processes, research in progress, inventions and invention disclosures
(whether patentable or unpatentable), drawings, schematics, blueprints,
flow sheets, designs and models, of any nature whatever; and (v) all
licenses and rights with respect to the foregoing or property of like
nature. Section 4.18 of the Disclosure sets forth the Intellectual
Property that is owned by the Company or any Company Subsidiary and any
licenses, sublicenses or other arrangements pursuant to which the Company
or any Company Subsidiary is authorized to use any third party
Intellectual Property. Except as set forth in Section 4.18 of the
Disclosure Schedule, the Company and the Company Subsidiaries own all
right, title and interest in and to, and have valid licenses to use or
otherwise possess legally enforceable rights to use all of the
Intellectual Property, wherever located, which is necessary to conduct the
Business as currently conducted, the absence of which would have a Company
Material Adverse Effect. Section 4.18 of the Disclosure Schedule sets
forth a complete and accurate list of (i) all patents and patent
applications and all registered or applied for trademarks, registered
copyrights, computer software programs (other than "off-the-shelf"
programs), trade names, slogans and service marks, and the owner thereof,
which are material to and used in connection with the Business, including
all registrations and applications for registrations thereof, and the
jurisdictions in which each such intellectual property right has been
issued or registered or in which any such application for such issuance
and registration has been filed; (ii) all unregistered United States
trademarks and unregistered copyrights which are material to the Business,
the owner thereof, and to the Company's and any Company's Subsidiary's
knowledge, all competing claims to any such marks or copyrights; (iii) all
registered or applied for trademarks in jurisdictions other than the
United States, and the owner thereof; (iv) all material licenses,
sublicenses and other agreements to which the Company or any Company
Subsidiary is a party and pursuant to which any person is authorized to
use any Intellectual Property; and (v) all licenses, sublicenses and other
agreements as to which the Company or any Company Subsidiary is a party
and pursuant to which the Company or any Company Subsidiary is authorized
to use, sublicense or transfer any third party Intellectual Property which
are material to the business of the Company or any Company Subsidiary as
they are currently conducted.
(b) Except as set forth in Section 4.18 of the Disclosure Schedule,
neither the Company nor any Company Subsidiary has transferred, conveyed,
sold, assigned, pledged, mortgaged, granted a security interest in or
otherwise encumbered the Intellectual Property that is material to the
Business as currently conducted.
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(c) The Company and each Company Subsidiary is not, nor will it
be as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in material breach of
any license, sublicense or other agreement relating to the
Intellectual Property which would result in a Company Material Adverse
Effect.
(d) All patents, patent applications, and all United States
trademark, service mark and copyright registrations held by the Company
or any Company Subsidiary, which are material to the Business, are valid
and subsisting, in full force and effect and have been duly maintained.
Except as set forth in Section 4.18 of the Disclosure Schedule, the
Company and each Company Subsidiary: (i) is not, and within the last
three years, has not been, a party to any suit, action or proceeding
which involves a claim of infringement, invalidity, misuse or
abandonment of any patents, trademarks, service marks or copyrights
(including, but not limited to, computer software), or violation of any
trade secret or other proprietary right of any third party; (ii) has no
knowledge that the manufacturing, marketing, licensing, sale,
distribution or use of its products or services, as currently conducted,
infringes or violates any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party; and (iii)
has no knowledge that any third party is violating or infringing any
Intellectual Property rights which violation or infringement would be
likely to have a Company Material Adverse Effect.
4.19 CERTAIN TAX MATTERS.
(a) DEFINITIONS. As used in this Agreement:
(i) "Taxes" means any federal, state, county, local or
foreign taxes, charges, fees, levies or other assessments,
including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and
occupation, disability employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and
penalties (civil or criminal) on or in addition to any such taxes.
(ii) "Tax Return" means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes, including, where permitted or required, combined
or consolidated returns for any group of entities.
(iii) "Tax Ruling" means a written ruling of a taxing
authority relating to Taxes.
(iv) "Closing Agreement" means a written and legally
binding agreement with a taxing authority relating to Taxes.
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(b) REPRESENTATIONS. Except as set forth in Section 4.19 of the
Disclosure Schedule:
(i) FILING OF TAX RETURNS. The Company and each of
the Company Subsidiaries have filed all Tax Returns required to
be filed by each of them and such Tax Returns are in all material
respects true, complete and correct and filed on a timely basis.
(ii) PAYMENT OF TAXES. The Company and each of the
Company Subsidiaries have, within the time and in the manner
prescribed by law, paid all Taxes that are currently due and
payable, except for those which are being contested in good faith
and for which adequate reserves have been taken.
(iii) TAX LIENS. There are no tax liens upon the
assets of the Company or of any of the Company Subsidiaries
except for statutory liens for current Taxes not yet due.
(iv) WITHHOLDING TAXES. The Company and each of the
Company Subsidiaries have complied in all material respects
with the provisions of the Code relating to the withholding of
Taxes, as well as similar provisions under any other laws, and
have, within the time and in the manner prescribed by law,
withheld and paid over to the proper governmental authorities
all amounts required.
(v) EXTENSIONS OF TIME FOR FILING. Neither the
Company nor any of the Company Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(vi) WAIVERS OF STATUTE OF LIMITATIONS. Neither the
Company nor any of the Company Subsidiaries has executed any
outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any
Taxes or Tax Returns.
(vii) NO DEFICIENCIES. The statute of limitations for
the assessment of any Taxes has expired for all Tax Returns of
the Company and of each of the Company Subsidiaries or such
Tax Returns have been examined by the appropriate taxing
authorities for all periods. No deficiency for any Taxes has
been proposed, asserted or assessed against the Company or any
of the Company Subsidiaries which has not been resolved and
paid in full.
(viii) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No
audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or
Tax Returns of the Company or any of the Company Subsidiaries.
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(ix) POWERS OF ATTORNEY. No power of attorney
currently in force has been granted by the Company or any of
the Company Subsidiaries concerning any Taxes or Tax Returns.
(x) TAX RULINGS. Neither the Company nor any of the
Company Subsidiaries has received a Tax Ruling or entered into
a Closing Agreement with any taxing authority that has or
would have a continuing adverse effect after December 31,
1995.
(xi) TAX SHARING AGREEMENTS. Neither the Company nor
any Company Subsidiary is a party to any agreement relating to
allocating or sharing of Taxes.
(xii) CODE SECTIONS 280G AND 162(M). Neither the
Company nor any Company Subsidiary is a party to any
agreement, contract or arrangement that could result in the
payment of any "excess parachute payments" within the meaning
of Section 280G of the Code or any amount that would be
non-deductible pursuant to Section 162(m) of the Code.
(xiii) CODE SECTION 341(F). Neither the Company nor
any of the Company Subsidiaries has, with regard to any assets
or property held or acquired by any of them, filed a consent
to the application of Section 341(f)(2) of the Code, or agreed
to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by the Company or any of the
Company Subsidiaries.
4.20 INSURANCE AND REINSURANCE. Section 4.20 of the Disclosure Schedule
sets forth all insurance and reinsurance policies relating to the Company and
any Company Subsidiary. The Company and each Company Subsidiary has given any
and all notices and made any and all payments required to maintain such policies
in full force and effect. Except as set forth in Section 4.20 of the Disclosure
Schedule: neither the Company nor any Company Subsidiary has received notice of
default under any such policy, and has not received written notice or, to the
knowledge of the Company or any Company Subsidiary, oral notice of any pending
or threatened termination or cancellation, coverage limitation or reduction or
material premium increase with respect to such policy. Except as set forth in
Section 4.20 of the Disclosure Schedule, neither the Company nor any Company
Subsidiary has any contracts, agreements, arrangements or understandings with
the Continental Casualty Company ("CNA") or Sphere Drake Insurance PLC ("Sphere
Drake"). Except as set forth in Section 4.20 of the Disclosure Schedule: (i)
neither the Company nor any Company Subsidiary has any obligation or liability
to CNA, nor (ii) is the Company or any Company Subsidiary in default of, nor has
an event occurred which, with the giving of notice or the passage of time, would
constitute a default under, any existing agreement or arrangement with CNA,
Sphere Drake or Victor O. Schinnerer & Company ("Schinnerer"). The Company
further represents and
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warrants the accuracy of the first sentence of Section 4.3 of the Real Estate
Errors and Omissions Program Administration and Hold Back Agreement with CNA
effective December 1, 1993.
4.21 OFFICERS' AND DIRECTORS' LIABILITY INSURANCE. The Company has
heretofore delivered to the Parent its officers' and directors' liability
insurance policy. There are no pending or anticipated claims made with respect
to such policies as of the date hereof, nor have any such claims been made
during the last three years. The annual premium on such officers' and directors'
liability insurance policy covering the Company's officers and directors is
$114,000.
4.22 TRANSACTIONS WITH AFFILIATES. Section 4.22 of the Disclosure
Schedule contains true and correct copies of all agreements between the Company
and its executive officers whose salary and bonus for the fiscal year ended
December 31, 1995, exceeded $50,000 (the "Executive Contracts"). As of the date
hereof, except as set forth in Section 4.22 of the Disclosure Schedule:
(a) there are no outstanding amounts payable to or receivable
from, or advances by the Company or any Company Subsidiary to, and
neither the Company nor any Company Subsidiary is otherwise a creditor
of or debtor to, any stockholder, officer, director, employee or
affiliate of the Company or any Company Subsidiary; and
(b) there are no contracts, agreements, arrangements or
understandings between the Company or any Company Subsidiary and any
stockholder, officer, director, employee or affiliate of the Company or
any Company Subsidiary. Full and complete copies of all such documents
listed in the Disclosure Schedule have been delivered to Parent.
4.23 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.23 of the Disclosure Schedule sets forth a true
and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination
pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other
employee benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company or any Company
Subsidiary would be deemed a "single employer" within the meaning of
Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), for the benefit of any employee or former employee of
the Company or any ERISA Affiliate (the "Plans"). Section 4.23 of the
Disclosure Schedule sets forth each of the Plans that is an "employee
benefit plan" as that term is defined in Section 3(3) of ERISA (the
"ERISA Plans").
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(b) With respect to each Plan, the Company has heretofore
delivered to Parent true and complete copies of each of the following
documents:
(i) a copy thereof;
(ii) a copy of the most recent annual report and
actuarial report, if required under ERISA and the most recent
report prepared with respect thereto in accordance with
Statement of Financial Accounting Standards No. 87, Employer's
Accounting for Pensions;
(iii) a copy of the most recent Summary Plan
Description required under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(v) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended
to qualify under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code").
(c) No Plan (or other employee benefit plan, program, agreement
or arrangement to which the Company or any ERISA Affiliate made, or was
required to make, contributions during the five (5) year period ending
on the Closing Date) is subject to Title IV of ERISA.
(d) Neither the Company nor any ERISA Affiliate, nor any ERISA
Plan, nor any trust created thereunder, nor, to the Company's knowledge
after due inquiry of all appropriate persons, any trustee or
administrator thereof has engaged in a transaction in connection with
which the Company or any ERISA Affiliate, any ERISA Plan, any such
trust, or any trustee or administrator thereof, or any party dealing
with any ERISA Plan or any such trust could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the
Code.
(e) No ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each ERISA Plan ended prior
to the Closing Date; and all contributions required to be made with
respect thereto (whether pursuant to the terms of any ERISA Plan or
otherwise) on or prior to the Closing Date have been timely made.
(f) No ERISA Plan is a "multiemployer pension plan," as defined
in Section 3(37) of ERISA, nor is any ERISA Plan a plan described in
Section 4063(a) of ERISA.
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(g) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code.
(h) Each ERISA Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified and the trusts
maintained thereunder are exempt from taxation under Section 501(a) of
the Code.
(i) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to
current or former employees of the Company or an ERISA Affiliate beyond
their retirement or other termination of service (other than (i)
coverage mandated by applicable law or (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA).
(j) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
(k) There are no pending, anticipated, or to the Company's
knowledge, threatened claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan, or otherwise
involving any such Plan (other than routine claims for benefits).
4.24 BROKERS AND FINDERS. Except for Raymond James & Associates, Inc.
("Raymond James"), neither the Company nor any Company Subsidiary, nor any of
their officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions, finders' fees or
similar fees or expenses, and no broker or finder has acted directly or
indirectly for the Company or any Company Subsidiary in connection with this
Agreement or the transactions contemplated hereby and thereby. Except for the
fees and expenses of Raymond James (a copy of the executed agreement dated
January 26, 1995 providing for which has been delivered to Parent), no
investment banking, financial advisory or similar fees have been incurred or are
or will be payable by the Company or any Company Subsidiary in connection with
this Agreement or the transactions contemplated hereby.
4.25 TITLE TO PROPERTIES. Except as set forth in the Disclosure
Schedule, the Company or one of the Company Subsidiaries has good and
indefeasible title to all properties purported to be owned by it (except
non-material properties sold or otherwise disposed of since the date thereof in
the ordinary course of business) - free and clear of all claims, liens,
charges, security interests or encumbrances of any natures whatsoever except (i)
statutory liens securing payments (including taxes) not yet due, and (ii) such
imperfections or
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irregularities of title, claims, liens, charges, security interests or
encumbrances as do not have a Company Material Adverse Effect.
4.26 LEASED PROPERTIES. Section 4.26 of the Disclosure Schedule sets
forth a list of all leasehold estates of the property occupied by the Company or
one of the Company Subsidiaries, and the Company or a Company Subsidiary is in
possession of the properties purported to be leased thereunder and each lease is
valid without material default thereunder by the lessee or, to the Company's
knowledge, the lessor, except for such leases the invalidity of which or the
material default under which in the future would not reasonably be expected to
have a Company Material Adverse Effect.
4.27 CERTAIN AGREEMENTS. Except as disclosed in the Disclosure Schedule,
neither the Company nor any Company Subsidiary is a party to any oral or written
(i) agreement, contract, indenture or other instrument relating to the borrowing
of money or the guarantee of any obligation for the borrowing of money material
to the Company and its Subsidiaries taken as a whole, or (ii) other contract,
agreement or commitment of the Company or its Subsidiaries material to the
Company and the Company Subsidiaries taken as a whole (except those entered into
in the ordinary course of business and which provide for the payment or receipt
of less than $50,000).
4.28 GOOD RELATIONS. Except as set forth in Section 4.28 of the
Disclosure Schedule, to the Company's knowledge neither the Company nor any
Company Subsidiary, nor any officer or director of any of them, knows of any
impending loss of customers, suppliers or employees of the Company or any
Company Subsidiary that might have a Company Material Adverse Effect, or which
might prevent the Business from being carried on in substantially the same
manner in which it is carried on at the date of this Agreement. Since January 1,
1995, except as set forth in Section 4.28 of the Disclosure Schedule, there has
not been any material adverse pending, nor to the Company's knowledge
threatened, dispute of any kind with any customer, client, supplier, employee,
landlord, subtenant or licensee of the Company nor any Company Subsidiary or any
pending or threatened occurrence or situation of any kind, nature or description
which is reasonably likely to result in a material reduction in the amount, or a
material adverse change in the terms or conditions, of business with any
substantial customer or supplier.
4.29 FULL DISCLOSURE. No representation or warranty made herein by
Company, and no statement contained in any document (including, without
limitation, financial statements of the Company and the Schedules and Exhibits
hereto), certificate, memorandum, or other writing furnished or to be furnished
by the Company or on its behalf to Parent or any of its representatives pursuant
to the provisions hereof or in connection with the transactions contemplated
hereby, contains or will contain any untrue or misleading statement of material
fact or omits or will omit to state any material fact necessary in order to make
the statements herein or therein not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE SUB
Parent and Sub jointly and severally represent and warrant to the
Company that:
5.1 CORPORATE ORGANIZATION. Each of the Parent and the Sub: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite power and
authority, corporate and otherwise, to own, operate and lease the properties and
assets it now owns, operates and leases and to carry on its business as now
being conducted; and (iii) is qualified or licensed to do business as a foreign
corporation and in good standing in every jurisdiction in which the ownership,
operation or lease of property by it or the conduct of its business requires
such qualification or licensing, except for such failures to be so qualified and
in good standing, if any, which would not have a Parent Material Adverse Effect
(as hereinafter defined). The term "Parent Material Adverse Effect" as used in
this Agreement shall mean any change or effect that, individually or when taken
together with all other such changes or effects, is, or could reasonably be,
materially adverse to the business, condition (financial or otherwise), results
of operations, properties, assets or liabilities of the Parent and the Sub,
taken as a whole.
5.2 AUTHORIZATION. Each of Parent and Sub has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of Parent and Sub, and
the stockholder(s) of Sub, have duly approved this Agreement and have duly
authorized the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and no other corporate proceedings on the
part of Parent or Sub are necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and Sub,
and constitutes (assuming due authorization, execution and delivery of this
Agreement by the Company), the valid and binding agreement of Parent and Sub,
enforceable against each of them in accordance with its terms.
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in
Section 5.3 of the Disclosure Schedule, and except for:
(a) the Parent's compliance with the applicable requirements of
state insurance, broker and franchise laws;
(b) the filings required under the HSR Act to be filed by the
Company and Parent; and
(c) the filing of Certificate of Merger and other appropriate
merger documents, if any, as required by the laws of the State of
Delaware, the execution and delivery of this Agreement and the
consummation of the transactions
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contemplated hereby, will not: (i) violate any provision of the
Certificate of Incorporation or Bylaws of Parent or Sub; (ii) violate
any statute, ordinance, rule, regulation, order or decree of any court
or of any public, governmental or regulatory body, agency or authority
applicable to Parent or Sub, or by which any of their respective
properties or assets may be bound; (iii) require any filing with or
permit, consent or approval of, or the giving of any notice to, any
public, governmental or regulatory body or authority; or (iv) result in
a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement or other instrument or obligation
to which Parent or Sub is a party, or by which either of them or any of
their respective properties or assets may be bound.
5.4 CAPITALIZATION.
(a) The authorized capital stock of the Sub consists of 1,000
shares of common stock, par value $.01 per share, of which, as of the
date hereof, 100 shares were issued and outstanding and owned directly
by Parent. Sub has been formed for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no
business and incurred no liabilities other than in connection with this
Agreement and the transactions contemplated hereby.
(b) Except as set forth above, there are, as of the date hereof,
no shares of capital stock of Sub authorized or outstanding, and there
are no subscriptions, options, conversion or exchange rights, warrants
or other agreements, claims or commitments of any nature whatsoever
obligating Sub to issue, transfer, deliver, sell, or redeem, or cause to
be issued, transferred, delivered, sold or redeemed, additional shares
of the capital stock of Sub or obligating Sub to grant, extend or enter
into any such agreement or commitment.
5.5 FINANCIAL STATEMENTS. Parent has previously made or will make
available to the Company:
(a) the audited consolidated balance sheet of Parent and
subsidiaries as of September 30, 1995, and the audited
consolidated statements of operations and changes in financial
position for the year then ended, including the notes thereto,
in each case examined by and accompanied by the report of
Schwartz and Schwartz, independent certified public accountants,
and
(b) unaudited consolidated balance sheets of the Company and its
subsidiaries as of March 31, 1996, and March 31, 1995, and
unaudited consolidated statements of operations and changes in
financial position for the respective three month periods then
ended, including the notes thereto
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(the financial statement referred to above in this Section are hereinafter
collectively referred to as the "Parent Financial Statements"). The Parent
Financial Statements have been prepared from, and are in accordance with, the
books and records of Parent and its subsidiaries and present fairly the
consolidated financial position of Parent and its subsidiaries as of the dates
and for the periods indicated, in each case in conformity with generally
accepted accounting principles, consistently applied during such periods, except
as otherwise stated in such financial statements.
5.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Since September 30, 1995, there
has not been, occurred or arisen any Parent Material Adverse Effect.
5.7 PROXY STATEMENT. None of the information with respect to Parent and
the Sub and each of their respective officers, directors, associates and
affiliates or with respect to the plans for the Surviving Corporation after the
Effective Time which shall have been supplied by Parent or the Sub specifically
for use in the Proxy Statement, will, on the date the Proxy Statement is first
mailed to stockholders of the Company or on the date of the Company
Stockholders' Meeting referred to in Section 7.3 hereof, at the Effective Date,
as such Proxy is then amended or supplemented, contain any statement which, at
such time, is false or misleading with respect to any material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication (including the Proxy Statement) to stockholders of
the Company with respect to the Merger. If at any time prior to the Effective
Time any event should occur which is or should be described in an amendment of,
or a supplement to, the Proxy Statement, such event shall be so described, and
the presentation in such amendment or supplement of such information with
respect to Parent and Sub and their respective officers, directors, associates
and affiliates or with respect to the plans for the Surviving Corporation after
the Effective Time which shall have been supplied by Parent or Sub in writing
specifically for use in the Proxy Statement, will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication (including the Proxy Statement) to stockholders of the
Company with respect to the Merger.
5.8 BROKERS AND FINDERS. Neither Parent nor any of its subsidiaries nor
any of their respective officers, directors or employees, has employed any
broker or finder or incurred any liability for any brokerage fees, commissions,
finders' fees or similar fees or expenses, and no broker or finder has acted
directly or indirectly for Parent or Sub or any of their respective subsidiaries
in connection with this Agreement or the transactions contemplated hereby. No
investment banking, financial advisory or similar fees have been incurred or are
or
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will be payable by Parent or any of its subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
5.9 PARENT FINANCIAL CONDITION. Parent has received a commitment letter
from Fleet Bank for a $20,000,000 line of credit and otherwise has the necessary
assets to consummate the transactions and make the payments contemplated by this
Agreement.
ARTICLE VI
COVENANTS
6.1 CONDUCT OF THE COMPANY'S BUSINESS. During the period commencing on
the date hereof and continuing until the Effective Time, the Company agrees
(except as expressly contemplated by this Agreement or to the extent that Parent
shall otherwise consent in writing) that:
(a) The Company and each Company Subsidiary will carry on its
business in, and only in, the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use all reasonable efforts to preserve
intact its present business organizations, keep available the services of
its present officers and employees and preserve its relationships with
customers, consultants, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be
materially impaired at the Effective Time.
(b) The Company will not declare any dividends on or make
distributions in respect of the Company Common Stock. Neither the
Company nor any Company Subsidiary will amend its Articles of
Incorporation, as amended, or By-laws or similar governing documents.
(c) Neither the Company nor any Company Subsidiary will issue,
authorize or propose the issuance of, or purchase or propose the
purchase of, any shares of the capital stock of the Company or any
Company Subsidiary or securities convertible into, or rights, warrants
or options (including employee stock options) to acquire, any such
shares or other convertible securities (other than the issuance of
Company Common Stock upon the exercise in accordance with the present
terms thereof, of stock options outstanding on the date of this
Agreement).
(d) Neither the Company, nor any Company Subsidiary, officer,
director or employee of (or any investment banker, attorney, accountant
or other representative retained by) the Company or any Company
Subsidiary shall, directly or indirectly, solicit, initiate or encourage
any inquiries or proposals by, or engage in any discussions or
negotiations with, or provide information to, any corporation,
partnership, person or other entity or group which it is
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reasonably expected may lead to, or which relates to, any Takeover
Transaction (as hereinafter defined). The Company will promptly advise
Parent orally and in writing of the receipt and content of such
inquiries or proposals. As used in this subsection (d), "Takeover
Transaction" shall mean any proposal or transaction: (i) relating to a
merger or other business combination involving the Company or any
Company Subsidiary; or (ii) for the acquisition of a substantial equity
interest in the Company or any Company Subsidiary or a substantial
portion of the assets of the Company or any Company Subsidiary, other
than the one contemplated by this Agreement; PROVIDED, HOWEVER, that
nothing contained in this Section 6.1(d) shall prohibit the Board of
Directors of the Company from: (x) furnishing information to, or
entering into discussions or negotiations with, any person or entity
that makes an unsolicited bona fide proposal in writing to engage in a
Takeover Transaction which the Company Board in good faith determines
represents a financially superior transaction for the stockholders of
the Company as compared to the Merger if, and only to the extent that:
(A) the Company Board determines after consultation with Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. or other outside counsel
of national reputation for its expertise in corporate and securities law
matters as the Company shall select ("Company Counsel"), that failure to
take such action would be inconsistent with the compliance by the
Company Board with its fiduciary duties to stockholders imposed by law,
(B) prior to or concurrently with furnishing such information to, or
entering into discussions or negotiations with, such a person or entity
the Company provides written notice to Parent that it is so doing; and
(C) the Company keeps Parent informed of the status (excluding, however,
the identity of such person or entity and the terms of any proposal) of
any such discussions or negotiations; and (y) to the extent applicable,
complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a takeover transaction.
(e) The Company will not, and will not permit any Company
Subsidiary to, acquire or agree to acquire by merging or consolidating
with or into, purchasing a substantial portion of the assets or stock
of, or otherwise, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets outside the ordinary
and usual course of business consistent with past practice, or otherwise
enter into, amend or modify any material commitment or transaction,
without the prior written consent of the Parent, such consent not to be
unreasonably withheld.
(f) The Company will not and will not permit any Company
Subsidiary to enter into, amend or modify the Settlement Agreement, nor
any agreement with CNA, Sphere Drake, Schinnerer, any lessor, American
Insurance Group ("AIG"), or any director of the Company, without the
prior written consent of the Parent, such consent not to be unreasonably
withheld.
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(g) The Company will not and will not permit any Company
Subsidiary to, sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of, any of
its assets outside the ordinary and usual course of business consistent
with past practice.
(h) The Company will not and will not permit any Company
Subsidiary to: (i) incur, assume, prepay, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently
or otherwise) for any indebtedness for borrowed money, or (ii) issue or
sell any debt securities or warrants or rights to acquire any debt
securities of the Company or any Company Subsidiary or guarantee any
obligations of others; (iii) except for loans, advances or capital
contributions to or investments in, a wholly owned Company Subsidiary,
make any loans, advances or capital contributions to, or investments in,
any other person or entity except for: (A) investments in IntelliSTAR in
an amount not greater than $75,000 pursuant to the General Partnership
Agreement dated as of July 14, 1995 between HMS and Professional Forum
Enterprises, Inc., a Florida corporation, or (B) investments or loans
made in the ordinary course of business which in no event shall exceed
$50,000 in any specific investment or loan PROVIDED, HOWEVER, that the
aggregate amount of all investments, loans or capital contributions made
by the Company or any Company Subsidiary shall not exceed $200,000 in the
aggregate, and any such loans or advances shall be repayable to the
Company within a period not to exceed six months.
(i) The Company will not and will not permit any Company
Subsidiary to adopt, amend, terminate or enter into any compensation,
collective bargaining, employee pension, profit sharing, retirement,
insurance, incentive compensation, severance, vacation or other plan,
agreement, trust, fund or arrangement for the benefit of any of its
employees (whether or not legally binding).
(j) The Company shall not, and shall not permit any Company
Subsidiary to: (i) increase the aggregate amounts payable under or
otherwise change in a manner materially (in reference to all Executive
Contracts) adverse to the Company any other material term of the
Executive Contracts or any other agreement with its executive officers
except as and to the extent disclosed in the Company Disclosure
Schedule, (ii) enter into any employment agreement with any executive
officer, (iii) increase the compensation payable to any other officer or
employee except for increases in the ordinary course of business
consistent with past practice of the Company; provided that any such
increase to a compensation level which exceeds $100,000 shall require
Parent consent which shall not be unreasonably withheld.
(k) The Company shall file all reports, schedules and definitive
proxy statements (the "Company Filings") required to be filed by the
Company with the SEC and shall provide
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copies thereto to Parent promptly upon the filing thereof. As of its
respective date, each Company Filing will comply in all material
respects with the requirements of the Exchange Act and the applicable
rules and regulations of the Commission thereunder and none of the
Company Filings will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading. As of their respective dates, the
financial statements of the Company included in the Company Filings will
have been prepared in accordance with generally accepted accounting
principles consistently applied (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form
10-Q), and will fairly present in all material respects the consolidated
financial position of the Company as at the dates thereof and the
consolidated results of operations, cash flow or changes in financial
position for the periods indicated therein. Upon the filing of a Company
Filing, the Company Filing shall be considered as an SEC Document for
all purposes of this Agreement.
(l) The Company will not take, agree to take, or knowingly
permit to be taken any action or do or knowingly permit to be done
anything in the conduct of the Business of the Company and the Company
Subsidiaries, or otherwise, which would be contrary to or in breach of
any of the terms or provisions of this Agreement, or which would cause
any of the representations of the Company contained herein to be or
become untrue in any material respect.
6.2 RIGHTS AGREEMENT. The Company Board will take all necessary action
so that:
(a) the common stock purchase rights (the "Rights") issued by
the Company pursuant to the Rights Agreement dated as of November 1,
1990 between the Company and Continental Stock Transfer and Trust
Company (the "Rights Agreement") will not be exercisable, trade
separately, or be otherwise affected by the Merger;
(b) neither Parent not Sub, nor any of their respective
affiliates will be deemed to be an "Acquiring Person" or an "Adverse
Person" (as such terms are defined in the Rights Agreement); and
(c) neither a "Distribution Date" nor a "Stock Acquisition Date"
(as such terms are defined in the Rights Agreement) shall occur by
virtue of the Merger.
The Company will take any and all action reasonably requested by Parent to
ensure and confirm that the Company, Parent, Sub and their respective affiliates
will not have any obligations in connection with the Rights or the Rights
Agreement in connection with the Merger. The Company shall not redeem the
Rights, or amend or terminate the Rights Agreement prior to the Effective
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Time unless required to do so by order of a court of competent jurisdiction.
6.3 TERMINATION OF EMPLOYMENT. At the Closing, (i) the Company shall
cause to be terminated the employment agreement between the Company and Carl
Buccellato dated as of December 22, 1995, existing as of the date hereof and
attached hereto as Exhibit B; (ii) the Company shall pay to Carl Buccellato
eight hundred thousand ($800,000.00) dollars in consideration for such
termination; and (iii) the Company and Carl Buccellato shall acknowledge in
writing that neither party shall have any further obligations resulting from the
termination of or relating to said employment agreement.
6.4 CONSULTING AGREEMENT. At the Closing and upon termination of the
employment agreement referred to in Section 6.3 hereof, the Surviving
Corporation shall enter into a three year consulting agreement with Carl
Buccellato (the "Consultant") whereby Carl Buccellato shall provide consulting
services to the Surviving Corporation for no more than a maximum of one thousand
hours per year. The consulting agreement shall contain restrictive covenants
substantially similar to the restrictive covenants contained in Exhibit B
attached hereto at Article VIII, Section 8.1. The restrictions on competition
set forth in subsection (b) of said Section 8.1 shall terminate upon the
expiration of the consulting agreement unless Surviving Corporation elects to
extend such restriction for one additional year, in which case it will pay
Consultant $50,000 during such extension year in equal monthly installments. In
consideration of the services to be rendered by Carl Buccellato to the Surviving
Corporation pursuant to said Consulting Agreement and in consideration of the
restrictive covenants to be contained therein, the Surviving Corporation shall
(i) pay to Carl Buccellato a consulting fee in the amount of two hundred
thousand ($200,000) per year, payable in equal monthly installments of
$16,666.67 for the term of the consulting agreement, (ii) continue during the
term of such consulting agreement, Consultant's present life, medical, dental,
group term and accidental death and disability insurance and medical executive
reimbursement Coverage, all at a maximum aggregate cost to Surviving Corporation
of not more than $30,000 per year, and (iii) transfer to Consultant his company
owned automobile at the book value thereof at December 31, 1995.
6.5 TERMINATION OF LIPSON CONSULTING AGREEMENT. At the Closing, (i) the
Company shall cause to be terminated the Engagement Agreement between the
Company and Gary Lipson dated as of December 22, 1995, as amended by First
Amendment to Engagement Agreement dated April 29, 1996, Second Amendment to
Engagement Agreement dated May 14, 1996 and to Consulting Agreement dated April
29, 1996 (copies of which are collectively referred to as the "Engagement
Agreement" and copies of which are attached hereto as Exhibit C); (ii) the
Company and Gary Lipson shall acknowledge in writing that neither party shall
have any further obligations resulting from the termination of or relating to
said Engagement Agreement; and (iii) Gary Lipson shall execute and deliver to
Parent a general release in favor of Parent, Sub, the
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Surviving Corporation and each of the officers and directors thereof. In
consideration of the foregoing, and of all obligations of any kind to Gary
Lipson under the Engagement Agreement or otherwise, the Surviving Corporation
shall pay to Gary Lipson the amount of One Hundred Thousand Dollars ($100,000)
payable in equal monthly installments of $8,333.33 under the terms of an
agreement to be mutually agreed which will provide for any disputes to be
resolved in the courts of the State of Florida or the United States District
Court of the Southern District of Florida and that the laws of the State of
Florida shall govern such agreement. With the exception of bona fide legal fees
or directors' fees for services actually rendered, the Company has not since
January 1, 1996 made, and will not through the Closing Date make, any payments
to Gary Lipson of any kind whatsoever.
6.6 MUTUAL RELEASES. At the Closing the Company shall cause each of its
directors to execute and deliver to Parent and Sub (and each director and
principal stockholder thereof ("Parent Affiliate")), and Parent and Sub (and
each Parent Affiliate) shall execute and deliver to each of the Company's
directors, mutual releases releasing and forever discharging each other party to
this Agreement and, in the case of Parent and Sub, the Parent Affiliates, from
any and all demands, causes of action or suits in law or in equity arising out
of or related to any actions or inactions of such party with respect to this
Agreement and the Merger and all of the transactions related thereto (provided
same are not in violation of the terms of this Agreement) up to and including
the Closing Date; PROVIDED HOWEVER THAT none of the foregoing shall limit in any
way the Surviving Corporation's right, or the Parent's or Sub's right (if any),
to assert any such demand, cause of action or claim (or facts that would
otherwise support such a demand, cause of action or claim) as a defense of any
claim or action commenced against it by any party released in accordance with
this Section.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS TO PROPERTIES AND RECORDS.
(a) Between the date of this Agreement and the Effective Time,
the Company will, and will cause each Company Subsidiary to, provide Parent and
its accountants, counsel and other authorized representatives full access during
reasonable business hours and under reasonable circumstances to any and all
premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) of the
Company and each Company Subsidiary and will cause their officers to furnish to
Parent and its authorized representatives any and all financial, technical and
operating data and other information pertaining to the business of the Company
and the Company Subsidiaries, as Parent shall from time to time request. Without
limiting the generality of the foregoing, those representatives of the Parent
listed on Exhibit
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7.1 may be present on-site and have access to all facilities during business
hours for the purpose of monitoring the operations of the Business; provided
that not more than three such representatives shall be so present at any time.
(b) All information furnished or to be furnished to Parent or
Sub, or obtained by the representatives referred to in (a) above, shall be
subject to the terms of the confidentiality agreement (the "Confidentiality
Agreement") between the Company and Parent which has previously been executed.
7.2 PROXY STATEMENT. The parties will cooperate in the preparation and
filing of a preliminary Proxy Statement with the SEC as soon as practicable
after the date hereof, and will use their best efforts to respond to the
comments of the SEC in connection therewith and to furnish all information
required to prepare the definitive Proxy Statement (including, without
limitation, financial statements and supporting schedules and certificates and
reports of independent public accountants). Promptly after receipt of comments
from the SEC, the Company will cause the definitive Proxy Statement to be mailed
to the stockholders of the Company and, if necessary, after the definitive Proxy
Statement shall have been so mailed, promptly circulate amended, supplemental or
supplemented proxy material and, if required in connection therewith, resolicit
proxies. The Company will not use any proxy material in connection with the
Company Stockholders Meeting without Parent's prior approval which will not be
unreasonably withheld. Parent and the Company will promptly furnish each other
with all information concerning themselves, their subsidiaries, directors,
officers and stockholders and such other matters as may be necessary or
advisable for the Proxy Statement, and any other statement or applications made
by or on behalf of Parent or the Company to any public, governmental or
regulatory body in connection with the Merger and the other transactions
contemplated by this Agreement.
7.3 STOCKHOLDER APPROVAL. The Company shall promptly call a meeting of
its stockholders for the purpose of voting upon this Agreement and the Merger
and the Company agrees that this Agreement and the Merger shall be submitted at
a meeting of the stockholders of the Company and the Company shall take all
steps necessary to duly call, give notice of, convene, and hold such meeting
(the "Company Stockholders' Meeting"). The Company Stockholders' Meeting shall
be held as soon as permissible and practicable following the date upon which the
Proxy Statement is distributed. The Company agrees that the Company Board will
recommend that its stockholders adopt this Agreement and approve the Merger
unless advised in writing by its counsel, Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A. or other Company Counsel, that such recommendation will
constitute a violation of its fiduciary duties to stockholders.
7.4 EMPLOYEE BENEFIT PLANS. The Company agrees not to grant nor further
amend (except as provided in Section 7.5) any options pursuant to the 1988 Stock
Option Plan, the 1988 Incentive Stock Option Plan or the 1992 Non-Employee
Directors' Stock Option Plan or any other Plan, from and after the date hereof,
and further
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agrees that the 1988 Stock Option Plan, the 1988 Incentive Stock Option Plan and
the 1992 Non-Employee Directors' Stock Option Plan shall be terminated as of the
Effective Time of the Merger.
7.5 COMPANY STOCK OPTIONS. The Company shall (subject to the approval of
the holders thereof) make such adjustments to all the outstanding options to
purchase shares of Company Common Stock as may be necessary to provide that at
the Effective Time: (i) each such option then exercisable other than due to any
amendment dated after April 1, 1996, up to a maximum of 456,550 options (the
"Company Options") shall, in settlement, be converted into the right to receive
a cash payment in an amount equal to the difference, if any, between the Merger
Price and the per share exercise price of such Company Option, multiplied by the
number of shares of Company Common Stock subject to such Company Option, and
(ii) all other currently non-exercisable options issued to Directors of the
Company (whether under any of the Plans, or otherwise) shall be cancelled at no
cost to the Company. The Company shall adopt such amendments to its plans under
which such Company Options were granted, and shall use its reasonable best
efforts to obtain prior to the Closing Date such consents of the holders of such
Company Options, as shall be necessary to effectuate the foregoing.
7.6 BEST EFFORTS, ETC. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best 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 to
consummate and make effective the transactions contemplated by this Agreement,
including obtaining any consents, authorizations, exemptions and approvals from,
and making all filings with, any insurance department, governmental, regulatory
or public body or authority which are necessary or, in the judgment of Parent,
desirable in connection with the transactions contemplated by this Agreement.
7.7 HSR ACT. The Company and Parent shall, as soon as practicable, file
Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and shall use best efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation.
7.8 INTERIM FINANCIALS. Prior to the Effective Time, the Company will
deliver to Parent as soon as available but in no event later than 45 days after
the end of any fiscal quarter, a consolidated statement of financial position of
the Company and the Company Subsidiaries as at the last day of such fiscal
quarter and the consolidated statements of income and changes in financial
position of such party and its subsidiaries for the fiscal period then ended
(which statements may be unaudited) prepared in conformity with the requirements
of Form 10-Q under the Exchange Act.
7.9 MATERIAL EVENTS. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of
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the occurrence of any event which will or may result in the failure to satisfy
any of the conditions specified in Articles VIII or IX hereof.
7.10 PUBLIC ANNOUNCEMENTS. Except as required by applicable law, rule,
regulation or legal process (including the rules of the Nasdaq National Market),
neither Parent, nor Sub nor the Company, nor any of their respective affiliates,
officers, directors, employees, agent or representatives will, without the prior
consent of the other parties, make any public announcement or statement
regarding the matters contemplated by this Agreement or the transactions
contemplated hereby. If any such announcement or statement is so required, the
announcing party shall consult in advance with the other parties concerning the
reasons for and the content of such announcement or statement.
7.11 INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY. The
Surviving Corporation will indemnify, defend and hold harmless the officers and
directors of the Company for their acts and omissions occurring prior to the
Effective Time to the full extent permitted by applicable provisions of Delaware
law (including rights to receive advance payment of expenses in defending any
suits, actions or proceedings). The Parent shall cause the Surviving Corporation
to maintain in full force and effect for not less than 4 years after the
Effective Time, officers' and directors' liability insurance covering said
persons (or shall obtain substantially equivalent insurance covering such
persons), on terms not materially less favorable than such insurance maintained
in effect by the Company on the date hereof in terms of coverage (including,
without limitation, types of claims, time period of claims and persons covered),
amounts and deductibles; provided, however, that, in providing such officers'
and directors' insurance, the Surviving Corporation will have no obligation
whatsoever to pay premiums on such officers' and directors' liability insurance
in excess of 150% of the annual premium existing on the officers' and directors'
liability insurance as of the date hereof.
7.12 AGREEMENT TO VOTE FOR MERGER.
(a) Parent and Sub agree that they shall vote any shares of
the Company owned by either of them directly or indirectly for approval
of the Merger.
(b) Company agrees and represents that each member of its
Board of Directors has agreed to vote any shares of the Company owned by
such Director directly or indirectly ("Director's Shares") for approval
of the Merger. Company further agrees to provide the Parent with an
irrevocable proxy in form attached hereto as Exhibit D in favor of
Parent or its nominees with respect to all such Director's Shares.
7.13 SETTLEMENT AGREEMENT FUNDING. At the Closing, Parent agrees that it
will cause funds to be available to enable HMS to make a payment to ANIC in full
and complete satisfaction of HMS' obligations pursuant to the Settlement
Agreement and HMS agrees to use such funds solely and exclusively to make such
payment to
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ANIC in full and complete satisfaction of its obligations pursuant to the
Settlement Agreement.
ARTICLE VIII
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligations of the parties to effect the Merger are
subject to the satisfaction, on or prior to the Closing, of the following
conditions.
8.1 HSR APPROVAL. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
8.2 OTHER APPROVALS.
(a) No provision of any applicable law or regulation shall
prohibit the consummation of the applicable Closing.
(b) There shall not have been commenced or threatened, or be in
effect, any temporary restraining order, preliminary injunction or
permanent injunction or other order issued by any court of competent
jurisdiction preventing the consummation of the transactions
contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB
Each and every obligation of Parent and Sub under this Agreement shall
be subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, each of which may be waived by Parent and Sub as provided
herein except as otherwise provided by law.
9.1 REPRESENTATION AND WARRANTIES TRUE. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date hereof and shall be deemed to have been
made again at and as of the Closing and shall then be true and correct in all
material respects, and at the Closing, the Company shall have delivered to
Parent a certificate to that effect signed by the Chief Executive Officer and
the principal financial officer of the Company.
9.2 THE COMPANY'S PERFORMANCE. Each of the obligations of the Company to
be performed by it or its officers or directors on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects by the Closing, including any action with respect to the Rights and the
Rights Agreement pursuant to Section 6.2 of this Agreement, and at the Closing,
the Company shall have delivered to Parent a certificate to that effect signed
by the Chief Executive Officer and the principal financial officer of the
Company.
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9.3 STOCKHOLDER APPROVAL AND OTHER COMPANY ACTION. The approval of the
stockholders by the requisite vote of the Company referred to in Section 7.3
hereof shall have been obtained.
9.4 OTHER APPROVALS. All regulatory consents, approvals, or clearances
necessary for the consummation of the Closing shall have been obtained.
9.5 CONSENTS. The lessor of the principal real estate premises occupied
by the Company, and each other party to any contract with the Company or the
Company's Subsidiaries: (i) the loss of which could have a Company Material
Adverse Effect, and (ii) which provides that such other party shall have the
right to terminate such contract, or declare such contract to be in default, as
a result of the Merger or any of the transactions or events described herein;
shall each have granted its consent in form and substance reasonably
satisfactory to Parent's counsel.
9.6 OPINION OF THE COMPANY'S COUNSEL. Parent shall have been furnished
with opinions of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
counsel to the Company, dated the Closing Date, in substantially the form
attached hereto as Exhibit E. In rendering such opinions such counsel may rely,
to the extent such counsel deems such reliance necessary or appropriate, upon
opinions of other counsel, in form and substance satisfactory to Parent (or may
deliver such opinions of other counsel each dated the Closing Date and addressed
to Parent), and, as to matters of fact, upon certificates of government
officials and of any officials of the Company or any Company Subsidiary,
provided that the extent of such reliance is set forth in such opinion and such
opinion states that it is reasonable for Parent to rely thereon.
9.7 CNA. Neither the Company, nor any Company Subsidiary, nor, to the
best of the Company's knowledge, CNA shall be in default under the terms of any
agreement or understanding between CNA and the Company or any of the Company
Subsidiaries.
9.8 INSURANCE COUNSEL OPINION. Parent shall have received the written
opinion of Bickford & Hahn LLP, insurance counsel to the Company, in form and
substance satisfactory to Lane Altman & Owens LLP, counsel to Parent (which
opinion shall specifically set forth the facts and legal analysis forming the
basis of such opinion) that, as of the Closing, the Company and each Company
Subsidiary has taken all necessary action under the reinsurance agreement with
Sphere Drake set forth in Section 4.20 of the Disclosure Schedule to ensure the
enforceability by the reinsured or its successors and assigns of the full
aggregate limits thereof, including all reinstatements, and that such
reinsurance is a valid and binding legal obligation of Sphere Drake.
9.9 AGREEMENTS WITH AFFILIATES. All agreements, understandings,
commitments or arrangements with officers and directors of the Company or the
Company Subsidiaries, or any beneficial holder of 5% or more of the Company's
Common Stock, or any affiliate of any of the foregoing, executed or entered into
on or subsequent to April 1, 1996 regardless of when effective
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shall be cancelled or terminated at no cost to the Company, unless otherwise
directed by the Parent with respect to any particular arrangement(s) identified
by Parent. Without limiting the generality of the foregoing, this shall include
the items set forth in Item 9.9 of the Disclosure Schedule.
9.10 BINDING SETTLEMENT AGREEMENT. The Settlement Agreement, as attached
hereto as Exhibit A, shall be in full force and effect and, at the Closing, upon
the payment of funds required by such Agreement to ANIC pursuant to the
Settlement Agreement, the Company shall deliver to Parent the mutual releases
executed by the parties to the Settlement Agreement and attached as exhibits to
the Settlement Agreement.
9.11 RESIGNATIONS AND CERTIFICATES. The Company shall have furnished
Parent with undated resignations of its and the Company Subsidiaries' officers
and directors, and such certificates of its officers and others to evidence
compliance with the conditions set forth in this Article IX as may be reasonably
required by Parent.
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
Each and every obligations of the Company under this Agreement shall be
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, each of which may be waived by the Company as provided
herein except as otherwise provided by law:
10.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects as of the date hereof and shall be deemed to
have been made again at and as of the Closing and shall then be true and correct
in all material respects, and at the Closing, Parent and Sub shall have each
delivered to the Company a certificate to that effect signed by the Chief
Executive Officer and the principal financial officer of Parent and of Sub.
10.2 PARENT'S AND THE SUB'S PERFORMANCE. Each of the obligations of
Parent and Sub to be performed by them on or before the Closing Date pursuant to
the terms hereof shall have been duly performed and complied with in all
material respects by the Closing and at the Closing Parent and Sub shall have
each delivered to the Company a certificate to that effect signed by the Chief
Executive Officer and principal financial officer of Parent and Sub.
10.3 STOCKHOLDER APPROVAL. The approval of the stockholders of the
Company referred to in Section 7.3 hereof shall have been obtained.
10.4 OPINION OF PARENT'S AND THE SUB'S COUNSEL. The Company shall have
been furnished with an opinion of Lane Altman & Owens
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LLP, dated the Closing Date, in substantially the form attached hereto as
Exhibit F. In rendering such opinions such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon opinions of other
counsel, in form and substance satisfactory to the Company (or may deliver such
opinions of other counsel each dated the Closing Date and addressed to the
Company), and, as to matters of fact, upon certificates of government officials
and of any official or officials of Parent Sub, provided that the extent of such
reliance is set forth in such opinions and such opinions state that it is
reasonable for the Company to rely thereon.
10.5 ABSENCE OF ORDER. No restraining order, or injunctions of any court
which prevents consummation of the Merger shall have been entered and remain in
effect.
10.6 CERTIFICATES. Parent and Sub shall have furnished the Company with
such certificates of their respective officers and others to evidence compliance
with the conditions set forth in this Article X as may be reasonably requested
by the Company.
10.7 FAIRNESS OPINION. The Company has received from Raymond James &
Associates, Inc. an opinion that the price to be paid pursuant to the Agreement
for the shares of Company Common Stock is fair to the stockholders of the
Company from a financial point of view and such opinion shall not have been
withdrawn or modified.
ARTICLE XI
CLOSING
11.1 TIME AND PLACE. Subject to the provisions of Articles VII, IX, X an
XII hereof, the closing (herein sometimes referred to as the "Closing") of the
transactions contemplated hereby shall take place as soon as practicable after
the satisfaction or waiver of the conditions to Closing contained in Articles
VIII, IX and X, at the offices of Lane Altman & Owens LLP, 101 Federal Street,
Boston, Massachusetts at 1:00 p.m., local time (the "Closing Date"), or at such
other place, at such other time, or on such other date as the Parent, Sub and
the Company may mutually agree upon for the Closing to take place.
11.2 DELIVERIES AT THE CLOSING. At the Closing:
(a) There shall be delivered to Parent, Sub and the Company
the opinions, certificates and other documents and instruments provided
to be delivered under Articles IX and X hereof.
(b) The Sub and the Company shall cause the Certificate of
Merger to be filed in accordance with the provisions of the DGCL and
shall take any and all other lawful actions and do any and all other
lawful things necessary to effect the Merger and to enable the Merger to
become effective.
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<PAGE>
ARTICLE XII
TERMINATION AND ABANDONMENT
12.1 TERMINATION. Notwithstanding adoption of this Agreement by
stockholders of the Company, this Agreement may be terminated, and the Merger
abandoned, at any time prior to the Effective Time of the Merger:
(a) by the mutual consent of the Boards of Directors of
Parent, Sub and the Company; or
(b) by Parent if, without fault of such terminating party:
(i) the Merger shall not have been consummated on or
before the later of (i) September 30, 1996 or (ii) two
business days after the Company Stockholders' Meeting; or
(ii) there shall have occurred (A) any general
suspension of, or limitation on prices for, trading in
securities on the New York Stock Exchange or National
Association of Securities Dealers Automated Quotations System,
(B) a declaration of a banking moratorium or any limitation or
suspension of payments by any U.S. governmental authority on
the extension of credit by lending institutions, (C) a
commencement of war or armed hostilities directly involving
the United States, or (D) any limitation (whether nor not
mandated) by any governmental authority which will materially
adversely affect the extension of credit by banks or other
lending institutions in the United States.
(c) by either Parent or the Company, if, without fault of such
terminating party:
(i) the Merger shall not have been consummated on or
before October 31, 1996, or such earlier date as may be
specified in the Settlement Agreement as a date allowing ANIC
to terminate the Settlement Agreement; or
(ii) if any court of competent jurisdiction in the
United States or other United States governmental body shall
have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or
otherwise prohibiting the Merger and such order, judgment or
decree shall have become final and nonappealable.
(d) by Parent, if any of the following events have occurred:
(i) holders of more than 10% of the Company's Common
Stock shall have claimed or perfected appraisal rights and
become Dissenting Shares;
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(ii) the Company (or the Company Board) shall have
authorized, recommended, proposed or publicly announced its
intention to enter into any merger or consolidation agreement
(other than this Agreement) or any other transaction in which
all or substantially all of the Company's or any Company
Subsidiary's equity or assets would be acquired by a third
party (other than parent, Sub or any of their affiliates); or
(iii) the Company Board does not recommend in the
Proxy Statement that the Company's stockholders adopt and
approve the Merger, this Agreement and the transactions
contemplated thereby; or
(iv) after publicly recommending in the Proxy
Statement that Company's stockholders adopt and approve the
Merger, this Agreement and the transactions contemplated
hereby, the Company Board shall have withdrawn, modified or
amended such recommendation in any respect materially adverse
to Parent or Sub.
12.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and the Merger by either Parent or the Company, this Agreement shall
become void and there shall be no liability hereunder on the part of Parent,
Sub, or the Company or their respective officers or directors except, in each
case, for a knowing breach, and except as provided in Sections 12.3 and 13.1
hereof, which Sections shall survive any such termination and continue in effect
thereafter.
12.3 TERMINATION PAYMENTS AND EXPENSES:
(a) If any of the following occurs and neither Parent nor Sub
is in material breach of their obligations contained herein:
(i) if any of the events set forth in Section 12.1(d)
occurs and as result thereof Parent terminates this Agreement; or
(ii) at any time on or prior to the expiration of two
years following termination of this Agreement, a definitive
agreement is entered into for the acquisition of all or
substantially all of the Company's equity or assets with a
person other than Parent or Sub, or any of their respective
affiliates at either (A) a price per share in excess of the
Merger Price, or (B) an aggregate purchase price in excess of
the aggregate purchase price contemplated in this Agreement
(which shall include the payments contemplated by Section 7.13
hereof); or
(iii) if the following shall have occurred: (A) the
Company Stockholders' Meeting shall have been held to adopt
this Agreement and the Company's stockholders shall have failed
to adopt this Agreement, and (B)(I) there shall have existed at
the record date for the
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Company Stockholders' Meeting or at the date thereof a person
or group who shall have beneficially owned or been entitled to
vote or direct the voting of not less than 20% of the then
outstanding shares of Company Common Stock, and who shall have
voted against this Agreement and the transactions contemplated
hereby, or (II) at the date of the Company Stockholders'
Meeting a person or group other than Parent, Sub or any of
their affiliates shall have in good faith proposed (and such
person or group shall appear to have the ability to consummate
such proposal) to acquire the Company,
then the Company shall pay Parent, upon Parent's request, the amount of
Parent's and Sub's reasonable documented out-of- pocket expenses
actually incurred by them in connection with the proposed acquisition of
the Company including fees and expenses of legal counsel, investment
bankers and accountants plus a fee of $500,000.
(b) The Company acknowledges that the agreements contained in
this Section 12.3 are an integral part of the transactions contemplated
by this Agreement and that, without these agreements, Parent and Sub
would not enter into this Agreement. Accordingly, if the Company fails
to pay any amounts pursuant to this Section 12.3, and, in order to
obtain such payment, legal action is commenced which results in a
judgment against the Company therefor, the Company will pay the
plaintiff's reasonable costs (including reasonable attorneys' fees) in
connection with such suit, together with interest computed on any
amounts determined pursuant to this Section 12.3 (computed from the date
or dates incurred) at the prime rate of interest announced from time to
time by Citibank, N.A. The Company's obligations pursuant to this
Section 12.3 will survive any termination of this Agreement.
(c) Except as provided in this Section 12.3, all costs and
expenses incurred in connection with this Agreement shall be paid in
accordance with Section 13.1
ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES. Except as provided in Section 12.3, all costs and
expenses incurred in connection with this Agreement, and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses EXCEPT THAT in no event shall Company's legal expenses exceed an amount
that is reasonable and fully supported by available time records.
13.2 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties, obligations, covenants and agreements of the
Company, Parent and Sub contained herein or in any Exhibit or Schedule,
certificate or letter delivered pursuant hereto shall expire with, and be
terminated and extinguished by, the effectiveness of the Merger and shall not
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<PAGE>
survive the Effective Time of the Merger, except those provided in Articles I
and III and Sections 7.1(b), 7.10, 7.11 and 12.3.
13.3 HEADINGS. The descriptive headings of the several articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
13.4 NOTICES. All notices or other communications required hereunder
shall be in writing and shall be deemed given on the date delivered if delivered
personally (including by reputable overnight courier), on the date transmitted
if sent by telecopy, (which is confirmed), or 72 hours after mailing if mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to:
The Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, Massachusetts 02133
Attention: Sidney Wolk, President
Telecopy: (617) 395-6706
with a copy to:
Lane Altman & Owens LLP
101 Federal Street
Boston, Massachusetts 02110
Attention: Robert Rosen, Esq.
Telecopy: (617) 345-0400
and
(b) if to the Company, to:
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325
Attention: Carl Buccellato
President, Chairman and
Chief Executive Officer
Telecopy: (954) 845-2260
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33133
Attention: Paul Berkowitz, Esq.
Telecopy: (305) 579-0717
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<PAGE>
13.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns and the persons referred to in
Section 7.11, but neither this Agreement nor any of the rights interests, or
obligations hereunder, shall be assigned by any of the parties hereto without
the prior written consent of the other parties, except that Sub may assign all
of its rights, interests and obligations hereunder, provided that the transferee
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein and the Parent remains responsible for all of Parent's
obligations hereunder.
13.6 COMPLETE AGREEMENT. This Agreement, including the schedules,
exhibits and other writings referred to herein or delivered pursuant hereto, the
Confidentiality Agreement and certain agreements entered into between Parent and
certain stockholders of the Company together contain the entire understanding of
the parties with respect to the Merger and the related transactions and
supersede all prior arrangements or understandings with respect thereto.
13.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Effective Time of the Merger (notwithstanding any stockholder approval) if
authorized by their respective boards of Directors and to the extent permitted
by law, (i) the parties hereto may, by written agreement, modify, amend or
supplement any term or provision of this Agreement, and (ii) any term or
provision of this Agreement may be waived by the party which is, or whose
stockholders are, entitled to the benefits thereof; provided, however, that
after this Agreement is adopted by the Company's stockholders pursuant to
Section 7.3 hereof, no such amendment or modification shall be made which
changes the cash into which Company Common Stock is to be converted as provided
in Section 3.1, or which in any way materially adversely affects the rights of
such stockholders without the further approval of such stockholders. Any written
instrument or agreement referred to in this paragraph shall be validly and
sufficiently authorized for the purposes of this Agreement if signed on behalf
of Parent, the Company and Sub by a person authorized to sign this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
13.9 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including but not limited to
matters of validity, construction, effect and performance.
13.10 ACCOUNTING TERMS. All accounting terms used herein which are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with generally accepted accounting principles.
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<PAGE>
13.11 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
[END OF PAGE]
Page 43
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers hereunto duly authorized,
all as of the date first written above.
THE CROSS COUNTRY GROUP, INC.
By: /s/ HOWARD WOLK
------------------------------
Name: Howard Wolk
Title: Vice President
ATTEST:
CHGI ACQUISITION CORPORATION
By: /s/ HOWARD WOLK
------------------------------
Name: Howard Wolk
Title: Vice President
ATTEST:
HOMEOWNERS GROUP, INC.
By: /s/ CARL BUCCELLATO
------------------------------
Name: Carl Buccellato
Title: President and Chief
Executive Officer
ATTEST:
Acknowledged and agreed to with
respect to Sections 6.3 and 6.4
/s/ CARL BUCCELLATO
- - --------------------------------
Carl Buccellato, Individually
Acknowledged and agreed to with
respect to Section 6.5
/s/ GARY LIPSON
- - --------------------------------
Gary Lipson, Individually
<PAGE>
ANNEX B
May 14, 1996
The Board of Directors
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, FL 33325
Ladies & Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view, to the stockholders of the outstanding common stock (the "Common Stock")
of Homeowners Group, Inc. ("Homeowners" or the "Company") of the consideration
to be received in connection with the proposed merger (the "Merger") of CHGI
Acquisition Corporation ("CHGI"), a wholly-owned subsidiary of The Cross Country
Group, Inc. ("Cross Country"), with and into the Company pursuant and subject to
the Agreement and Plan of Merger (the "Merger Agreement") among Homeowners,
Cross Country and CHGI. The Merger Agreement provides, among other things, that
each outstanding share of Homeowners common stock will be converted into the
right to receive $2.35 per share in cash at closing.
In connection with our review of the proposed Merger and the preparation of our
opinion herein, we have examined (i) the financial terms and conditions of the
Merger Agreement; (ii) the audited financial statements of the Company and its
affiliates; (iii) certain unaudited financial statements and operating reports
of the Company, its subsidiaries and affiliates; (iv) certain internal financial
analyses and forecasts for the Company, its subsidiaries and affiliates prepared
by management and (v) certain other publicly available information on the
Company. We have also held discussions with members of the senior management of
the Company, its subsidiaries and affiliates to discuss the foregoing and have
considered other matters which we have deemed relevant to our inquiry.
We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any of such
information, nor have we made or obtained an independent appraisal of the assets
or liabilities (contingent or otherwise) of the Company, its subsidiaries and
affiliates. With respect to financial forecasts, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management, and we have relied upon each party to
advise us promptly if any information previously provided became inaccurate or
was required to be updated during the period of our review.
Our opinion is based upon market, economic, financial and other circumstances
and conditions existing and disclosed to us as of May 14, 1996 and any change in
such circumstances would require a reevaluation of this opinion.
We express no opinion as to the underlying business decision of Homeowners to
effect the Merger, the structure or tax consequences of the Merger Agreement or
the availability or advisability of any alternatives to the Merger.
<PAGE>
The Board of Directors
Homeowners Group
May 14, 1996
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of the Company, its subsidiaries and
affiliates and certain other publicly held companies in businesses we believe to
be comparable to Homeowners; (ii) the current financial position and results of
operations of the Company, its subsidiaries and affiliates and forecasted
results of such entities; (iii) the historical market prices and trading
activity of the common stock of Homeowners; (iv) financial and operating
information concerning selected business combinations which we deemed comparable
in whole or in part; and (v) the general condition of the securities markets.
Raymond James & Associates, Inc. is actively engaged in the investment banking
business and regularly undertakes the valuation of investment securities in
connection with public offerings, private placements, business combination and
similar transactions. For our services including the rendering of this opinion,
the Company will pay us a fee upon the issuance of this opinion. In addition,
Raymond James will receive a financial advisory fee upon the closing of the
Merger and the Company has agreed to indemnify Raymond James against certain
liabilities arising out of the rendering of this opinion.
In the ordinary course of our business, we trade the common stock of Homeowners
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short poosition in such security.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the proposed Merger and is not intended
to confer rights or remedies upon Cross Country or the stockholders of Cross
Country or the Company. This opinion is not to be quoted or referred to, in
whole or in part, without our written consent.
Based upon and subject to the foregoing, it is our opinion that, as of May 14,
1996, the consideration to be received by the stockholders of the Company
pursuant to the Merger Agreement is fair, from a financial point of view, to the
holders of the Company's outstanding Common Stock.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
/s/Raymond James & Associates, Inc.
- - -----------------------------------
<PAGE>
ANNEX C
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to SS.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SS.251 (other than a merger effected pursuant to subsection
(g) of Section 251), 252, 254,257,258,263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidatiion, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers Inc. or (ii) held of record by more than 2,000 holders;
and further provided thant no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation
as provided in subsection (f) of SS.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursant to
SS.251,252,254,257,258,263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under SS.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for
<PAGE>
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to SS.228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporatiion of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register or Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by
Ch.299, L. '95, eff. 2-1-96.)
<PAGE>
HOMEOWNERS GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
ON _______________, 1996
The undersigned hereby appoints Carl Buccellato and Gary D. Lipson, and each
or both of them, as true and lawful agents and proxies with full power of
substitution in each, to represent the undersigned in all matters coming before
the Special Meeting of Stockholders of Homeowners Group, Inc. to be held at the
Sheraton Design Center Hotel, 1825 Griffin Road, Dania, Florida, at __:__ _.M.,
Dania, Florida, time and any postponements or adjournments thereof, and to vote
as follows:
(1) To adopt an Agreement and Plan of Reorganization and Merger
dated as of May 14, 1996, among The Cross Country Group, Inc.,
a Nevada corporation ("Cross Country"), CHGI Acquisition
Corporation, a Delaware corporation and a wholly-owned
subsidiary of Cross Country ("CHGI") and Homeowners Group,
Inc. pursuant to which CC Acquisition Corporation, a Delaware
corporation and assignee of the rights and obligations of CHGI
under the Merger Agreement will be merged with an into
Homeowners Group, Inc. with Homeowners Group, Inc. being the
surviving corporation:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) OTHER MATTERS:
In their discretion, to vote with respect to any other matters
that may come before the Meeting, any postponements or
adjournments thereof, including matters incident to its conduct.
PLEASE DATE AND SIGN ON THE REVERSE SIDE
<PAGE>
(Reverse Side)
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER SPECIFIED ABOVE
BY THE STOCKHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF THE PROPOSAL LISTED IN ITEM (1).
PLEASE SIGNED EXACTLY AS NAME APPEARS BELOW.
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Dated: _______________, 1996
Joint owners should each sign. Executors, administrators, custodians or
corporation officers should give full title.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
