HOMEOWNERS GROUP, INC.
400 SAWGRASS CORPORATE PARKWAY
SUNRISE, FLORIDA 33325
September 19, 1997
Dear Stockholder:
We are pleased to inform you that, pursuant to the Agreement and Plan of
Merger dated as of May 14, 1997, as amended (the "Merger Agreement"), among
Homeowners Group, Inc. ("Homeowners"), The Cross County Group, Inc. ("Cross
Country") and CHGI Acquisition Corporation, CC Acquisition Corporation (the
"Purchaser") today commenced a tender offer for all of the outstanding shares of
Homeowners' common stock. In the tender offer, stockholders who tender their
Homeowners' shares will receive $.55 plus a contingent right to receive $1.51
from a Tax Liability Escrow Fund per share in cash.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE CROSS COUNTRY TENDER OFFER
AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF HOMEOWNERS STOCKHOLDERS
AND RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE TENDER OFFER AND TENDER ALL OF
THEIR SHARES PURSUANT TO THE TENDER OFFER.
The tender offer is the culmination of the steps taken by your Board and
Homeowners' management to enhance stockholder value. In approving the tender
offer and the Merger Agreement and recommending that all stockholders tender
their shares pursuant to the tender offer, as more fully described in the
attached Solicitation/Recommendation Statement on Schedule 14D-9 filed by
Homeowners with the Securities and Exchange Commission, your Board considered a
number of factors including, among others, the financial and other terms and
conditions of the tender offer and the Merger Agreement; Homeowners' business,
financial condition, results of operations and future prospects; and the
presentation by, and opinion of, Raymond James & Associates, Inc. ("Raymond
James"), the Company's financial advisor.
Raymond James, the Company's financial advisor, has rendered to the Board of
Directors its written opinion that, as of the date of such opinion and subject
to the limitations set forth therein, the consideration to be offered to the
holders of Homeowners' common stock pursuant to the Purchaser's tender offer and
the merger is fair, from a financial point of view, to such holders. The full
text of Raymond James' opinion, dated September 16, 1997, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Raymond James, is included as Annex A to the attached Schedule14D-9.
Under the Merger Agreement, if the tender offer is completed, it will be
followed, subject to any necessary stockholder approval, by a merger in which
Homeowners will become an indirect wholly owned subsidiary of Cross Country.
Holders of Homeowners common stock 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 of Homeowners common stock and
payment in cash therefor in lieu of the merger consideration.
Enclosed with this letter is a copy of Homeowners' Schedule 14D-9 which
contains important information regarding the factors considered by your Board in
its deliberations and describes in more detail the reasons for your Board's
conclusions and certain other information regarding the tender offer and the
merger. Also enclosed is the Purchaser's Offer to Purchase and related
materials, including a letter of transmittal to be used for tendering your
Homeowners' shares. These documents set forth in detail the terms and conditions
of the tender offer and the merger and provide instructions on how to tender
your Homeowners shares. You are urged to read and carefully consider the
enclosed material and your individual circumstances. If you have any questions
or require assistance in tendering your shares, you may contact MacKenzie
Partners, Inc., which is assisting the Purchaser with the tender offer, at
1-800-322-2885 (toll-free). Please note that the tender offer is scheduled to
expire at 12:00 midnight, Eastern Standard time, on October 17, 1997, unless
extended.
We thank you for your continued
support.
Carl Buccellato
Chairman of the Board
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
HOMEOWNERS GROUP, INC.
(NAME OF SUBJECT COMPANY)
HOMEOWNERS GROUP, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
43739N107
(CUSIP NUMBER OF CLASS OF SECURITIES)
HOMEOWNERS GROUP, INC.
400 SAWGRASS CORPORATE PARKWAY
SUNRISE, FLORIDA 33325
(954) 845-9100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPIES TO:
PAUL BERKOWITZ, ESQ.
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 579-0500
================================================================================
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Homeowners Group, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 400 Sawgrass Parkway, Sunrise, Florida 33325. The title of the
class of equity securities to which this statement relates is the Company's
Common Stock, par value $.01 per share (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer described in the Tender Offer
Statement on Schedule 14D-1 dated September 19, 1997 (as amended or
supplemented, the "Schedule 14D-1"), filed by HAC, Inc., a Florida corporation
("Parent"), and its wholly owned subsidiary, CC Acquisition Corporation, a
Delaware corporation (the "Purchaser"), with the Securities and Exchange
Commission (the "Commission"), relating to an offer by the Purchaser (the
"Offer") to purchase all the issued and outstanding Shares, including the
associated common stock purchase rights (the "Associated Rights"; and together
with the Common Stock, the "Shares") issued pursuant to the Rights Agreement
(the "Rights Plan"), dated as of November 1, 1990, between the Company and
Continental Stock Transfer and Trust Company, as Rights Agent, as amended, for
total consideration of up to $2.06 per share, $.55 of which shall be net to
seller in cash (the "Cash Price"), and $1.51 of which shall be held in an escrow
account (the "Escrow Account") pending resolution of certain tax liabilities
that may be assessed against the Company (the "Escrow Right") (the Cash Price
and the Escrow Right are hereinafter referred to as the "Offer Consideration").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 14, 1996 (the "Original Merger Agreement") among the Company and The
Cross Country Group, Inc. ("Cross Country") and CHGI Acquisition Corporation
("CHGI"), as amended as of October 31, 1996 (the "First Amendment"), January 31,
1997 (the "Second Amendment"), July 1, 1997 (the "Third Amendment"), and
September 9, 1997 (the "Fourth Amendment"). The Original Merger Agreement, as so
amended, shall sometimes hereinafter be referred to as the Merger Agreement. The
Merger Agreement provides that, as soon as practicable after completion of the
Offer and satisfaction or waiver, if permissible, of all of the conditions to
the Merger (as defined below): (a) Purchaser, as assignee of the rights and
obligations of CHGI under the Merger Agreement shall be merged with and into the
Company (the "Merger"), with the Company being the surviving corporation and
wholly owned directly by Parent; and (b) each of the Shares of the Company,
outstanding at the effective time of the Merger (other than Shares held by
Parent and its affiliates and stockholders who would have perfected their
statutory appraisal rights under Delaware law), shall be converted into the
right to receive the Offer Consideration. The Merger Agreement is more fully
described in Item 3 below.
The Schedule 14D-1 indicates that the principal executive offices of the
Purchaser and Parent are located at 4040 Mystic Valley Parkway, Medford,
Massachusetts 02133 and the telephone number is (617) 393-9300.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the Company
and its subsidiaries, viewed as a single entity.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
as of the date hereof, there are no material contracts, agreements, arrangements
or understandings and no actual or potential conflicts of interest between (i)
the Company, its executive officers, directors or affiliates or (ii) the
Purchaser or Parent or their respective executive officers, directors or
affiliates.
For a discussion of the historical background of the Merger Agreement,
see "Item 4. The Solicitation or Recommendation".
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof which is
incorporated by reference herein. A copy of the Merger Agreement, and each
amendment thereto, has been filed with the Commission as Exhibits to this
Schedule 14D-9.
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The Offer. The Merger Agreement provides for the commencement of the Offer.
Holders of Company Common Stock (the "Stockholders") who tender their Shares in
the Offer will, upon consummation of the Offer, receive the Cash Price and one
Escrow Right for each Share tendered. Purchaser has expressly reserved the right
to waive certain conditions to the Offer; however, without the prior written
consent of the Company, Purchaser has agreed not to (i) decrease the Offer
Consideration payable in the Offer or reduce the maximum number of Shares to be
purchased in the Offer or (ii) impose conditions to the Offer in addition to
those set forth in Section 12 of the Schedule 14D-1. Purchaser may extend the
Offer for up to 10 business days or for longer periods (not to exceed 90
calendar days from the date of commencement of the Offer), in the event that any
condition to the Offer is not satisfied, or for one or more times for an
aggregate of 20 business days if all of the conditions to the Offer are
satisfied.
The Merger. The Merger Agreement provides that upon the terms (but subject
to the conditions) set forth in the Merger Agreement, Purchaser will be merged
with and into the Company. In the Merger, at the Effective Time (as defined in
the Merger Agreement), by virtue of the Merger and without any action on the
part of Purchaser, the Company or the holders of any of the Shares, each Share
issued and outstanding immediately prior to the Effective Time (excluding Shares
owned by Company or any of its subsidiaries or by Parent, Purchaser or any of
their affiliates and Dissenting Shares) shall be canceled and converted into the
right to receive the Cash Price and one Escrow Right (collectively, the "Merger
Consideration"). 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.
Resignation of the Board of Directors of the Company. The Merger Agreement
provides that promptly upon consummation of the Offer, each member of the Board
of Directors of the Company (other than those members affiliated with Parent or
Purchaser) shall resign and be replaced by Parent's designees.
Proxy Statement. Pursuant to the Merger Agreement, the Company shall, if
required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold an annual or special meeting of its Stockholders as
soon as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the transactions
contemplated thereby (the "Stockholders' Meeting"). At the Stockholders'
Meeting, Parent and Purchaser shall cause all Shares then owned by them to be
voted in favor of the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. If Parent and Purchaser own more than 50% of
the outstanding Shares following consummation of the Offer, Parent and Purchaser
shall have sufficient voting power to approve the Merger, even if no other
Stockholder votes in favor of the Merger. In the event that Parent and Purchaser
own at least 90% of the then outstanding Shares following consummation of the
Offer, the parties have agreed to take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 253 of the
Delaware General Corporation Law ("DGCL"), as soon as reasonably practicable
after such acquisition, without a meeting of the Stockholders of the Company.
The Merger Agreement provides that the Company shall, if required by
applicable law, as soon as practicable following consummation of the Offer, file
a proxy statement (the "Proxy Statement") with the Commission under the
Securities Exchange Act of 1934 ("Exchange Act"), and shall use its best efforts
to have the Proxy Statement cleared by the Commission. Parent, Purchaser and the
Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent of the receipt of any comments of
the Commission. The Company shall give Parent and its counsel the opportunity to
review the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the Commission. NOTWITHSTANDING THE FOREGOING, THE PURCHASER HAS INDICATED THAT
IT WILL SEEK TO CAUSE THE COMPANY TO MAKE AN APPLICATION FOR TERMINATION OF
REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT AS SOON AS POSSIBLE FOLLOWING
THE OFFER IF THE REQUIREMENTS FOR TERMINATION OF REGISTRATION ARE MET. IF
DEREGISTRATION OF THE SHARES IS ACCOMPLISHED, THE COMPANY WOULD NOT BE REQUIRED
TO SOLICIT PROXIES AS EXPLAINED ABOVE.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and power, capital structure, corporate authorization,
noncontravention, consents and approvals, Commission filings, information
supplied, compliance with applicable laws, litigation, taxes, pension and
benefit plans and ERISA, absence of certain changes or events, absence of
material liabilities, opinion of financial advisor, vote required, labor
matters, intangible property, environmental matters, real property, board
recommendation, material contracts, related party transactions, indebtedness,
liens and other matters.
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The Company and Purchaser have also made certain representations and
warranties with respect to corporate existence and power, corporate
authorization, consents and approvals, noncontravention, information supplied,
board recommendation, financing, and other matters.
Conduct of Business Pending the Merger. The Company has agreed that during
the period from the date of the Merger Agreement to consummation of the Offer,
except as otherwise provided in the Merger Agreement or consented to by
Purchaser, the businesses of the Company and its subsidiaries will be conducted
only in, and the Company and its subsidiaries will not take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and that the Company will use its best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its subsidiaries and to preserve the current
relationships of the Company and its subsidiaries with customers, suppliers,
franchisees and other persons with which the Company or any of its subsidiaries
has significant business relations. The Company has further agreed that it will
not, without the prior written consent of Purchaser, 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, 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, acquisition, sale of assets or similar
transaction involving the Company or any subsidiary, division or major asset
thereof.
Termination of Chief Executive Officer of the Company. Contemporaneously
with the consummation of the Offer, and in accordance with the terms thereof,
the Company will terminate the employment agreement between the Company and Carl
Buccellato dated as of December 22, 1995, and Mr. Buccellato will resign as
Chairman and as a director of the Board of Directors of the Company, and as an
officer and employee of the Company and its subsidiaries. Under the terms of the
employment agreement, Mr. Buccellato was entitled to a base salary of $407,610,
subject to an annual cost of living increase based on the Consumer Price Index
and a performance bonus as determined by the Board of Directors. Mr.
Buccellato's employment agreement provides that, in the event of termination of
employment due to a change in control of the Company, he shall be entitled to a
lump sum distribution of compensation in an amount equal to 2.99 times the sum
of the annual base salary currently provided for in the employment agreement. In
consideration for terminating his employment agreement, the Company will enter
into a settlement agreement with Mr. Buccellato pursuant to which the Company
will pay to Mr. Buccellato a lump sum payment of $600,000 in cash.
Regulatory Matters. Seventeen of the states in which the Company's
subsidiaries operate regulate the home warranty business in which such
subsidiaries are engaged. The states of Florida, California and Virginia require
pre-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. All required notices and applications have been filed with such
states by the Company and Parent. All of the states have approved the Merger.
Stock Options. In the Merger Agreement, the Company has agreed to make such
adjustments to all the outstanding options issued by the Company to purchase
Shares 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 contingent right to receive from the Escrow,
an amount equal to the amount, if any, by which (A) the sum of (x) the Cash
Price, and (y) the actual amount of cash distributed to Escrow Right holders in
connection with liquidation of the Escrow exceeds (B) the per share exercise
price of the Company Option (the "Option Settlement Amount"), and (ii) all other
currently non-exercisable options issued to Directors of the Company shall be
canceled at no cost to the Company.
Immediately prior to the Effective Time, all of the Company's stock option,
stock bonus and stock award plans or arrangements, that provide for the issuance
of Shares, 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 Parent, 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.
Extension of Agreement for Satisfaction of Judgment. Contemporaneously with
execution of the Fourth Amendment, the Company and The Cross Country Group, LLC
("CCG"), an affiliate of Purchaser, entered into a Third Amendment to Agreement
for Satisfaction of Judgment pursuant to which CCG agreed not to take any
3
action to collect on the Judgment until the earlier of (i) November 14, 1997, or
(ii) termination of the Merger Agreement for any reason. In consideration for
the foregoing, the Company further secured the Company's obligation under the
Judgment by (i) the pledge by the Company of the shares of Homeowners
Association of America, Inc., HAA of Arizona, Inc., HAA of Georgia, Inc., HAA of
Utah, Inc. (collectively, the "HAA Entities") owned by the Company to CCG, and
(ii) the grant by the HAA Entities of a security interest in their respective
assets in favor of CCG.
Mutual Releases, Indemnification and Insurance. In accordance with the
Merger Agreement, Cross Country, Parent, Purchaser, and the Company and its
affiliated entities, exchanged general mutual releases with the Board of
Directors of the Company (except for Mr. Buccellato) at commencement of the
Offer. In addition, the Merger Agreement provides that the Company will
indemnify, defend and hold harmless the directors of the Company for their acts
and omissions occurring prior to consummation of the Offer to the full extent
permitted by applicable provisions of the DGCL (including rights to receive
advance payment of expenses in defending any suits, actions or proceedings). The
Company is required to maintain in full force and effect for not less than 4
years after the consummation of the Offer, 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 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 Company will have no obligation
whatsoever to pay premiums on such officers' and directors' liability insurance
in excess of $345,000.
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 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, Purchaser or any
of their affiliates); (C) the Board of Directors of the Company does not
recommend that the Company's Stockholders adopt and approve the Merger, the
Merger Agreement and the transactions contemplated thereby; or (D) after
publicly recommending that Company's Stockholders adopt and approve the Merger,
the Merger Agreement and the transactions contemplated thereby, the Board of
Directors of the Company shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to Parent or Purchaser; 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 Parent or Purchaser or any of their respective affiliates at
either (x) a price per share in excess of the Offer Consideration as reduced by
the Tax Claims, or (y) an aggregate purchase price in excess of the aggregate
purchase price contemplated in the Merger Agreement (which shall include the
payments which HMS is required to make to CCG under the settlement agreement
pursuant to which CCG agreed to take no action with respect to the Judgment
until November 14, 1997 (the "Settlement Agreement"), or (B) if the following
shall have occurred: (x) 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 there shall have existed at the record date
for the 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, and who shall have voted against
the Merger Agreement and the transactions contemplated thereby, or (y) at the
date of the Stockholders' Meeting a person or group other than Purchaser or any
of its 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 Merger Agreement requires the Company to promptly reimburse
Purchaser and its 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, Purchaser and the Company, by any of them
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
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
4
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 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 (unless
this condition is waived by Parent; (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's Board of Directors does not recommend that
the Company's stockholders adopt and approve the Merger, the Merger Agreement
and the transactions contemplated thereby; (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
Purchaser; (vii) Parent or Purchaser shall have failed to pay for Shares
pursuant to the Offer within 90 days following commencement of the Offer, unless
such failure to pay for such Shares shall have been caused by or resulted from
the failure of Parent or Purchaser to perform in any material respect any
material covenant or agreement of either of them contained in the Merger
Agreement or the material breach by Parent or Purchaser of any material
representation or warranty of either of them contained herein or therein; or
(viii) if the Company shall have filed an application to terminate registration
of the Shares under Section 12 of the Exchange Act, and such application shall
have been denied by the Commission.
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, Purchaser 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. Certain conditions to the Merger may be
waived by the party for whose benefit such condition was imposed.
Delaware Law. The Board of the Company has approved the Merger Agreement and
the transactions contemplated thereby, including the Offer, the Merger and the
Stockholders Agreement (as discussed below). Accordingly, the restrictions of
Section 203 do not apply to the transactions contemplated by the Offer, the
Merger Agreement or the Stockholders Agreement. Section 203 of the DGCL prevents
an "interested stockholder" (generally, a stockholder owning 15% or more of a
corporation's outstanding voting stock or an affiliate or associate thereof)
from engaging in a "business combination" (defined to include a merger and
certain other transactions) with a Delaware corporation for a period of three
years following the date on which such stockholder became an interested
stockholder unless (i) prior to such date, the corporation's board of directors
approved either the business combination or the transaction which resulted in
such stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in such stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the corporation's
voting stock outstanding at the time the transaction commenced (excluding shares
owned by certain employee stock plans and persons who are directors and also
officers of the corporation) or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3 % of the outstanding voting
stock not owned by the interested stockholder. As described above, the foregoing
description of Section 203 of the DGCL does not apply to the Offer or the Merger
(or the transactions contemplated thereby).
THE STOCKHOLDERS AGREEMENT
Simultaneously with commencement of the Offer, Parent, Purchaser and each of
the members of the Company's Board of Directors (excluding the member of the
Board affiliated with the Purchaser and the Parent) (the "Selling Stockholders")
entered into a stockholders agreement (the "Stockholders Agreement"). The
following summary of the material terms of the Stockholders Agreement is not a
complete description of the terms and conditions thereof and is qualified in its
entirety by reference to the full text thereof which is incorporated herein by
reference and a copy of which has been filed with the Commission as an exhibit
to this Schedule 14D-9.
Tender of Shares. Upon the terms and subject to the conditions of the
Stockholders Agreement, each of the Selling Stockholders has (i) agreed to
validly tender and not to withdraw pursuant to and in accordance with the terms
of the Offer, not later than the fifth business day after commencement of the
Offer, the respective number of Shares owned beneficially by him or her; (ii)
acknowledged that the transfer by such Selling Stockholder of his or her Shares
5
to Purchaser will pass to and unconditionally vest in Purchaser good and valid
title to such Shares free and clear of all claims, liens, restrictions, security
interests, pledges, limitations and encumbrances whatsoever; and (iii) agreed to
permit Parent and Purchaser to publish and disclose his or her identity and
ownership of Shares and the nature of his or her commitments, arrangements and
understandings under the Stockholders Agreement in the documents relating to the
Offer and, if stockholder approval for the Merger is required, in any proxy
statement relating thereto (including all documents and schedules filed with the
Commission).
Voting. Each Selling Stockholder has agreed that during the period
commencing on the date of the Stockholders Agreement and continuing until the
first to occur of the Effective Time or termination of the Merger Agreement in
accordance with its terms, at any meeting of the Stockholders, however called,
or in connection with any written consent of the Stockholders, such Selling
Stockholder will vote (or cause to be voted) the Shares held of record or
beneficially owned by such Stockholder, in favor of the Merger, the execution
and delivery by the Company of the Merger Agreement and the approval of the
terms thereof, and each of the other actions contemplated by the Merger
Agreement and the Stockholders Agreement and any actions required in furtherance
thereof. In addition, each Selling Stockholder granted to Parent a proxy to vote
the Shares of such Stockholder in accordance with the provisions and agreements
described above.
In connection with the Stockholders Agreement, the Selling Stockholders have
made certain customary representations, warranties and covenants, including with
respect to (i) their ownership of the Shares, (ii) their authority to enter into
and perform their obligations under the Stockholders Agreement, (iii)
noncontravention, (iv) the absence of liens and encumbrances on and in respect
of their Shares, (v) restrictions on the transfer of their Shares, (vi) the
solicitation of acquisition proposals, and (vii) the waiver of their appraisal
rights.
Termination. Other than as provided therein, the Stockholders Agreement
terminates by its terms upon the termination of the Merger Agreement by
Purchaser.
THE TAX CLAIMS
On June 9, 1997, the Company received Notices of Proposed Adjustments from
the IRS proposing to disallow approximately $20 million in losses that the
Company had taken on its Federal Income Tax Returns for taxable years 1993, 1994
and 1995 (the "Tax Claims"). The Tax Claims could result in the Company being
liable for approximately $6.5 million of tax, plus approximately $2.0 million in
interest. Although not assessed to date, the IRS could also impose penalties.
The Company has not yet been able to determine the extent or probability of any
liability to the IRS in settlement of the Tax Claims.
The Escrow Agreement. Based upon the uncertainty of the Tax Claims
liability, and in accordance with the terms of the Last Amendment, the Company
and Parent have agreed that $1.51 of the Offer Consideration will be held in the
Escrow Account pending resolution of the Tax Claims. Immediately preceding
consummation of the Offer, Parent has agreed to deposit, either in cash or an
irrevocable standby letter of credit, (the "Letter of Credit") into the Escrow
Account, an amount equal to $1.51 for each Share validly tendered and not
withdrawn pursuant to the Offer. In addition, immediately preceding consummation
of the Merger, Parent has agreed to deposit, either in cash or through an
increase in the Letter of Credit, an additional $1.51 for each Share outstanding
immediately prior to the effective time of the Merger (other than any Shares
owned by Parent or its affiliates, Shares validly tendered, or any Shares as to
which Dissenter's Rights are perfected). The cash funds or the Letter of Credit
deposited into the Escrow Account prior to consummation of the Offer and the
Merger shall hereinafter be collectively referred to as the "Escrow Funds".
Under the Escrow Agreement, the Escrow Agent shall distribute the Escrow
Funds: (a) in accordance with any written notices received containing mutually
agreed upon directions of the Company and the Stockholder Representatives (as
defined below); or (b) in accordance with written notices given by either the
Company or the Stockholder Representatives, provided that the Escrow Agent has
provided a copy of such notice to the other party, and such other party has not
objected thereto within five (5) business days after the Escrow Agent has so
delivered a copy of such notice. If either the Company or the Stockholder
Representatives object to such notice, such objecting party must deliver to the
other party and the Escrow Agent a written notice describing such objections in
reasonable detail (a "Dispute Notice"). Upon receipt of any Dispute Notice, the
Escrow Agent shall not distribute the Escrow Funds, but shall continue to hold
the Escrow Funds until receipt of either (x) written notice containing mutually
agreed upon directions signed by both the Company and the Stockholder
Representatives, or (y) written notice from the Company or the Stockholder
Representatives that a final judgment or binding arbitration decision has been
rendered and is in full force and effect as to the Escrow Funds, and a copy of
such
6
final judgment or binding arbitration is delivered with such notice, at which
time the Escrow Agent shall distribute the Escrow Funds pursuant to such
mutually agreed upon written notice or such written notice of the Company or
Stockholder Representatives (accompanied by such final judgment or binding
arbitration), as the case may be.
The Tax Contingency Settlement Agreement. In accordance with the terms of
the Last Amendment, immediately prior to consummation of the Offer, Parent and
certain members of the Company's Board of Directors (the "Stockholder
Representatives") have agreed to enter into a Tax Contingency Settlement
Agreement.
The Tax Contingency Settlement Agreement requires Parent to use its best
efforts consistent with reasonable business practices to cause the Company to
achieve a resolution of the Tax Claims. Upon receipt from the IRS of a proposed
settlement of the Tax Claims (the "Proposed Settlement") Parent will advise the
Stockholder Representatives in writing of the Proposed Settlement and all costs
and expenses associated therewith (the "Settlement Amount"). Parent shall have
the right, in its sole discretion, to either accept or reject the Proposed
Settlement. If Parent elects to accept the Proposed Settlement, it shall notify
the Stockholder Representatives in writing. Within five (5) days after receipt
of such notification, Parent and the Stockholder Representatives shall direct
the Escrow Agent to disburse the Escrow Funds as follows:
a. To the Escrow Agent in payment of all costs, expenses and indemnities of
the Escrow Agent.
b. To Parent, the Settlement Amount increased by all interest accrued on
such portion of the Escrow Funds multiplied by a fraction (i) the
numerator of which is equal to the number of Shares either accepted in
the Offer or converted in the Merger and (ii) the denominator of which is
the number of Shares issued and outstanding as of the date hereof
("Outstanding Shares").
c. To the Exchange Agent (for distribution to the former Stockholders of
Company who have tendered their Shares or whose Shares have been
converted in the Merger), the balance of the Escrow Fund increased by all
interest accrued on such portion of the Escrow Fund.
For example, assuming (i) 5,558,350 Shares outstanding, and (ii) all Shares
not then owned by Parent or its affiliates, approximately 4,000,000 Shares, are
tendered in the Offer or converted in the Merger, then approximately 71%
(4,000,000/5,558,350) of any Settlement Amount, net of expenses, will be
distributed to Parent to cover the Settlement Amount, and the remainder of the
Escrow Funds, if any, will be distributed to the former Stockholders of the
Company who tendered their Shares or whose Shares were converted in the Merger.
Reimbursement by Professionals. The Tax Contingency Settlement Agreement
provides that Parent may, in its sole and absolute discretion, seek to cause the
Company to recover all or any portion of the Settlement Amount paid to the IRS
from any person or entity that it considers to bear responsibility therefor. If
the Company receives a recovery on account of the Tax Claims (the "Tax
Recovery"), then the Company shall notify the Stockholder Representatives of the
amount of the Tax Recovery and all costs and expenses incurred by Parent or the
Company (including, without limitation, attorneys' fees) in connection with the
assertion, collection, settlement, prosecution or the investigation of the Tax
Recovery. Ten days after such notice, Parent shall apply and distribute the Tax
Recovery as follows:
a. To Parent or the Company, in reimbursement of all costs and expenses
incurred by Parent or the Company to third parties (including, without
limitation, attorneys' fees) in connection with the assertion,
collection, settlement, prosecution or investigation of the Tax Recovery.
b. To Parent or the Company, in compensation for their internal costs and
expenses in connection therewith an amount equal to 25% of the amount set
forth in subparagraph a above.
c. To the Company, the amount, if any, by which the Settlement Amount
exceeds the amount deposited with the Escrow Agent.
d. To the Company, the Net Tax Recovery (equal to the Tax Recovery reduced
by the foregoing payments) multiplied by a fraction (x) the numerator of
which is equal (i) to the number of Outstanding Shares reduced by (ii)
the number of Shares either accepted in the Offer or converted in the
Merger, and (y) the denominator of which is the number of Outstanding
Shares.
e. The balance of the Net Tax Recovery shall be distributed:
(i) 25% to the Company, and
(ii) 75% to the Exchange Agent (for distribution to the former
Stockholders of the Company who have tendered their Shares or whose
Shares were converted in the Merger), up to a maximum of $1.51 per
Share.
7
DIRECTOR AFFILIATIONS
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 such option and the Amendments prior to the
commencement of the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Company's Board of Directors has determined that the Offer and the
Merger are fair to and in the best interests of the stockholders of the Company
and recommends that all stockholders of the Company accept the Offer and tender
all their Shares pursuant to the Offer. This recommendation is based in part
upon an opinion (the "Fairness Opinion") received by the Company from Raymond
James & Associates, Inc. ("Raymond James") that the consideration to be received
by the Company's stockholders in the Offer and the Merger is fair to the
stockholders from a financial point of view. No limitations were imposed by the
Board of Directors or management of the Company on Raymond James with respect to
the investigations made, or the procedures followed by it, in rendering the
Fairness Opinion. For purposes of its opinion, Raymond James relied, without
independent verification, on the accuracy, completeness and fairness of all
financial and other information reviewed by it. The Fairness Opinion contains a
description of the factors considered, the assumptions made and the scope of
review undertaken by Raymond James in rendering its opinion. THE FULL TEXT OF
THE FAIRNESS OPINION RECEIVED BY THE COMPANY FROM RAYMOND JAMES IS FILED AS
ANNEX A TO THIS SCHEDULE 14D-9. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY.
(b) Background of the Offer; Reasons for the Recommendation.
BACKGROUND OF THE OFFER
In January, 1995, the Company received several unsolicited 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 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, obtaining new financing, sale of various operating
assets of the Company, initiating discussions with others regarding the
acquisition of the Company and other possible forms of business reorganization.
Initially, the Special Committee considered the alternatives of obtaining
financing and entering into an agreement with a strategic investor. Negotiations
were held with potential lenders to provide funds to the Company under an
arrangement which would have permitted conversion of the debt position to
equity. This alternative was rejected after evaluation of the costs of such
financing and the potential dilutive impact of such financing on existing
stockholders.
Based upon the Company's recent operating results, and the various
contingencies facing the Company, the Special Committee concluded that the
Company would be better served if it combined with a strong complementary
business entity. Therefore, the option of remaining independent was not selected
as a viable course of action for the Company to pursue. Accordingly, the options
related to corporate restructuring or business reorganization were also deemed
to be secondary to the business combination alternatives.
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
(generally three years) 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. No information was provided to Cross Country at this
time, based on their refusal to sign a confidentiality agreement on terms
similar to those executed by other interested parties. During this period,
8
Raymond James circulated information about the Company and its operations to
approximately ten interested parties who had signed confidentiality agreements.
Three of the parties who signed confidentiality agreements presented written or
verbal proposals to acquire all or a portion of the Company.
In June 1995, the Special Committee met with representatives of First
Service Corporation, an organization which proposed a loan to the Company
convertible into shares of Common Stock. The Special Committee concluded that
this proposal would have resulted in an unacceptable dilution to the Company's
stockholders at the conversion price proposed. In addition, such a proposal
would not have provided liquidity to the Company's stockholders.
The Special Committee also met in June 1995 with American HomeShield
Corporation ("HomeShield"), a subsidiary of Service Master LP, regarding the
acquisition of the Company. Although numerous proposals were made, the
acquisition of the Company would have been dependent on favorable resolution of
litigation initiated by Acceleration National Insurance Company ("ANIC") against
Homeowners Marketing Services, Inc. ("HMS"), a wholly owned subsidiary of the
Company, which was then ongoing and modification of certain other contractual
relationships which the Special Committee did not believe was feasible on
economic terms acceptable to the Company. In addition, the discount required by
HomeShield to complete the Merger prior to the completion of the referenced
litigation was deemed unacceptable by the Special Committee and negotiations
terminated.
During this period, the Special Committee was also engaged in discussions
with Warrantech Corporation, 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. In September, 1995, after a review of
the foregoing proposals, the Company announced that it had entered into
exclusive negotiations with Warrantech. The Warrantech proposal was to exchange
shares of Warrantech common stock for shares of the Company's Common Stock. Each
share of the Company's Common Stock would have been exchanged for that number of
Warrantech shares determined by dividing 1.25 by the price of Warrantech shares
during a specified period. 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 (the "Judgment")
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 and Warrantech were unable to conclude an agreement. The failure
to reach agreement was principally due to the impact on the Company of the
Judgment, the refusal of Warrantech to agree to deliver a minimum number of
shares to the Company's stockholders and certain contingencies imposed by
Warrantech including renegotiation of certain Company contracts on terms
acceptable to Warrantech in its sole discretion. The Company announced on
January 26, 1996 that its exclusive negotiations with Warrantech had terminated.
The Special Committee and Raymond James again contacted potential bidders with
whom discussions had been suspended during the Warrantech negotiations.
Discussions were also held with ANIC in an attempt to negotiate a settlement
of the Judgment obtained by it and to postpone its attempts to realize on the
Judgment. As a condition of ANIC agreeing to refrain from exercising its rights
under the Judgment, the Company was required to waive its rights to appeal the
Judgment. The Board of Directors agreed to such waiver based in part upon the
fact that the Company was without the funds needed to obtain the bond required
to pursue the appeal.
The Special Committee thereafter entered into negotiations with HFS
Incorporated ("HFS"), with respect to the acquisition of the Company for shares
of HFS' common stock. Under this proposal the Shares of the Company were to be
valued at $2.20 per share.
While these negotiations were in process, the Company was advised by Cross
Country that 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. The contacts between the Company and
Cross Country originally began with discussions regarding joint marketing of
products in February 1996. A subsequent meeting was held in March 1996 in New
York City at which Cross Country proposed acquiring the Company. This meeting
was attended by Carl Buccellato, Gary Lipson and Diane Gruber, on behalf of the
Company, and Howard Wolk, Sidney Wolk and Ted Wolk, on behalf of Cross Country.
Cross Country originally proposed advancing funds to the Company to satisfy the
Judgment, with such funds being secured by a lien on Company assets. The Company
representatives rejected this proposal in favor of an acquisition of the Company
by Cross Country.
9
Although Cross Country made various proposals to acquire the outstanding
Shares 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. Therefore, the
March 15, 1996 proposal of Cross Country to acquire the outstanding Shares of
the Company at $1.95 per share, the April 30, 1996 proposal at $2.10 per share
and the May 3, 1996 proposal of $2.35 per share (including an agreement to pay
ANIC the full amount of the Judgment) were based solely on Cross Country's
review of publicly available information. All of these proposals were subject to
reduction in price based upon the outcome of certain contingencies. They were
therefore rejected for both this reason and the fact that, until May 3, 1996,
they were less than the alternative bid from HFS. Upon agreement with Cross
Country on May 3, 1996 as to the terms of a confidentiality agreement, the
Company provided information to Cross Country.
During this period the Company continued its negotiations with ANIC
regarding a potential settlement. The Company reached an agreement with ANIC to
defer action with respect to efforts to realize on the Judgment until May 5,
1996, and to pay to ANIC upon consummation of a merger the sum of $4.1 million
in satisfaction of the Judgment. 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 upon consummation of the Merger. The increase
payable to ANIC was to be proportionately equal to the percentage increase in
the amount to be received by the Company's stockholders in excess of $2.20 per
share rounded up to the next $50,000. By way of example, a payment to the
Company's stockholders of $2.35 per share would have resulted in payment to ANIC
of $4.4 million. The Company agreed to pay to ANIC the proceeds of a federal
income tax refund which was then expected to be approximately $1.4 million in
partial satisfaction of the Judgment.
The Special Committee established May 9, 1996 as a deadline for submission
of bids to acquire the Company. On May 7, 1996, Raymond James, on behalf of the
Company, notified potential bidders of the May 9, 1996 deadline. The
notification included a form of Merger Agreement which the Company was willing
to sign.
HFS expressed concern regarding both the apparent willingness of Cross
Country to engage in a hostile takeover and the refusal of the Company's
franchisees to agree to amend their franchise agreements in accordance with HFS
requests. HFS therefore declined to submit a bid. The only 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 specific terms of the Merger Agreement, including the
representations and warranties to be provided by the Company and various
conditions precedent to the closing, including cancellation and modification of
certain agreements. The Merger Agreement was signed by Cross Country and the
Company on May 14, 1996 and reflected the right of stockholders to receive $2.35
per share of Common Stock.
On June 14, 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.
The First Amendment
Following execution of the Original Merger Agreement, various claims against
the Company were brought to the attention of Cross Country. As a result, Cross
Country determined that certain obligations and contractual relationships of the
Company differed from the representations made to Cross Country in the Original
Merger Agreement. Cross Country concluded that these obligations and contractual
relationships, as discussed below, committed the Company to various payments and
obligations which Cross Country believed had a material adverse impact on its
valuation of the Company. Cross Country therefore notified the Company that it
would be unwilling to consummate the Merger unless such obligations and
relationships were terminated or modified in a manner acceptable to Cross
Country. As an alternative, Cross Country offered to consummate the Merger
without resolution of these issues at $1.80 per share.
Although the Company disagrees with Cross Country's assertion that such
non-disclosure constituted breach of the Merger Agreement and believes that the
disclosures to Cross Country were appropriate, in light of the limited economic
resources available to the Company, the fact that a previously extensive
offering process had resulted in only limited interest in the Company and the
fact that ANIC had agreed, at that time, to refrain from taking any action with
respect to the Judgment only until October 31, 1996, the Company agreed to
address the objections raised by Cross Country to the consummation of the
Merger. The Company's decision was further based on continuing losses by the
Company which amounted to approximately $.07 per share for the first nine months
of 1996 and the belief of management that profitable operations were not likely
in the near future.
10
Extensive efforts were undertaken by the Company to settle the foregoing
obligations and contractual arrangements and to quantify the actual costs
associated therewith. Certain of these efforts were successful but require the
payment of funds by the Company or the commitment to pay funds upon consummation
of the Merger to obtain such modifications. One such situation, a claim by the
Company's franchisees that payments were due to them for 1995 as a result of
profit sharing agreements was first brought to Cross Country's attention in
July, 1996. This claim was disputed by the Company, but settled for a payment of
$591,965, payable within five days after consummation of the Merger, in order to
avoid litigation and maintain good relationships with the franchisees. The
provider of reinsurance for the Company's warranty products alleged its
arrangement with the Company was exclusive. Although the Company disputed such a
claim, Cross Country advised the Company that it was unwilling to proceed with
the Merger unless this dispute was resolved. This contract was terminated for a
payment of approximately $260,000. An employment arrangement which the Merger
Agreement required be terminated without cost, required the payment of
approximately $175,000. In another case, a claim by a supplier of marketing
services to the Company that it is entitled under an existing agreement to
continuing royalties from the sale of certain products, which rights it was
willing to waive for a payment of approximately $700,000, is disputed by the
Company. Despite efforts to resolve this matter, the claim remains outstanding.
Upon quantification of the costs associated with the foregoing obligations,
and in light of the Company's ongoing and potential obligation to make payments
associated therewith, Cross Country agreed to proceed with the Merger at $2.06
per share. After negotiations with Cross Country and in light of the losses of
the Company, the lack of perceived alternatives, and the other factors discussed
above, the Company agreed to execute the First Amendment and proceed with the
Merger at a reduced price per share of $2.06.
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 Original
Merger Agreement was fair to the Company's public stockholders from a financial
point of view at that time. Based upon the developments discussed above leading
to the execution of the First Amendment, on November 6, 1996, Raymond James
delivered a verbal opinion to the Special Committee that, based on its analysis
to that date, the Merger Consideration ($2.06 per share) is fair to the
Company's stockholders from a financial point of view. After discussing Raymond
James' opinion, the Special Committee and the Board of Directors, in a joint
meeting at which counsel to the Special Committee and a representative of
Raymond James participated, determined that the proposed Merger was fair to the
stockholders of the Company and approved and adopted the Merger Agreement,
subject to a number of conditions including the delivery of Raymond James'
written fairness opinion, which was received on November 26, 1996 and
recommended to the stockholders that they approve and adopt the Merger
Agreement.
The Company and Cross Country thereafter entered into the First Amendment as
of October 31, 1996, reducing the Merger Consideration in the Original Merger
Agreement to $2.06. Pursuant to an agreement entered into in connection with the
First Amendment, the arrangement with Carl Buccellato was further modified to
provide that Mr. Buccellato would waive all rights under his existing employment
agreement and agree not to compete for a two year period in exchange for a
payment of $200,000 at the closing of the Merger and an additional $600,000
payable in installments of $25,000 per month during the two years following the
Merger plus interest on the unpaid balance at 8.25% per annum. The arrangement
with Mr. Buccellato under the original Merger Agreement called for a waiver of
his rights under his employment agreement (which extended through December 31,
2000 at a base compensation level of $385,000 per year) in exchange for a
payment of $800,000 at the time of the Merger and the payment of $200,000 per
year under a three-year consulting agreement requiring that his services be
available to Cross Country for 1,000 hours per year. The modified arrangement
does not call for the provision of consulting services.
In connection with negotiating the First Amendment, and in order to allow
the Merger to proceed, the Company attempted to obtain from ANIC an extension of
its October 31, 1996 deadline for foregoing action to collect on the Judgment.
When ANIC refused to grant such an extension, The Cross Country Group, L.L.C.,
an affiliate of Cross Country, purchased the rights of ANIC under the Judgment,
making The Cross Country Group, L.L.C. the holder of the Judgment. The balance
of the Judgment had been reduced by a payment by the Company on September 4,
1996 of $1,401,485.20, representing the proceeds of a federal income tax refund
received by the Company. The Company and HMS then entered into an agreement with
The Cross County Group, L.L.C. which extended the period during which Cross
Country would agree to take no action with respect to the Judgment until January
31, 1997 (the "Settlement Agreement") (this date has been extended until the
earlier of: (i) July 1, 1997 or (ii) termination of the Merger Agreement as part
of the Second Amendment). In consideration of The Cross
11
Country Group, L.L.C.'s agreeing to extend the date for enforcement of the
Judgment, the Company guaranteed the payment of the Judgment and pledged the
shares of HMS and another Company subsidiary as collateral. In addition, the two
subsidiaries granted security interests in their assets to secure the obligation
to repay the Judgment. As a result of such arrangements, the Company is now
responsible for the Judgment which was previously only against one of its
subsidiaries and has further pledged assets upon which The Cross Country Group
L.L.C. could foreclose to satisfy its claim in the event that the Merger is not
completed or the Judgment is not paid prior to July 1, 1997. The Special
Committee noted that such arrangement provided the holder of the Judgment with
possibly greater legal rights. However, in light of the fact that ANIC would not
agree to extend its October 31, 1996 deadline for foregoing action to collect on
the Judgment, the Special Committee and the Board believed that the failure to
agree to this arrangement, pursuant to which The Cross Country Group, L.L.C.
purchased the Judgment and entered into the Settlement Agreement, could have
resulted in the bankruptcy of the Company as it was without resources to pay the
outstanding balance of the Judgment.
In connection with the First Amendment and the Settlement Agreement, the
Company also amended its existing Shareholder Rights Plan (the "Rights Plan") to
permit Cross Country and its affiliates to purchase an unlimited number of
Shares of Common Stock in unsolicited privately negotiated transactions without
causing the rights to separate or become exercisable. Such amendment was not
effective until three days after announcement of the signing of the Amendment
and was only to be effective so long as no other offers were received to
purchase the Company during that three-day period. The three-day period expired
without receipt of any such offers.
Such amendment permits Cross Country to acquire additional Shares prior to
the Merger making it less likely that an alternative bidder for the Company will
emerge. Although the Special Committee and the Board of Directors viewed this as
a negative factor, in light of the absence of any other bidders since May 1996
and the inability of the Company to satisfy the Judgment without the large
investment by Cross Country, the amendment to the Rights Plan was deemed
acceptable.
On December 20, 1996, Parent acquired 120,000 shares of Common Stock at
$1.73 per share in a single, unsolicited privately negotiated transaction,
bringing the total ownership by affiliates of Cross Country to 611,500 shares.
On May 6, 1997, Parent acquired an additional 1,027,000 shares at $2.03 per
share in a single, unsolicited privately negotiated transaction, bringing the
total ownership by affiliates of Cross Country to 1,638,500 shares. In
connection with the foregoing purchases, Cross Country has represented to the
Company that neither it nor its affiliates will seek to change the Company's
management or Board of Directors, or otherwise exercise control of the Company
prior to consummation of the Merger. Cross Country has further agreed that in
the event it or any of its affiliates proposes a modification of any of the
terms of the Merger Agreement, such proposed changes may require additional
disclosure and result in obligations to make certain filings with the Securities
and Exchange Commission.
The Second Amendment
When it became apparent that the Merger would not be completed prior to the
January 31, 1997 deadline established by the First Amendment, the Company and
Cross Country entered into the Second Amendment. The Second Amendment was signed
on February 3, 1997, effective January 31, 1997. The Second Amendment extended
the time period for consummation of the Merger and the time for satisfaction of
the Judgment referred to above. This date has been extended until the earlier
of: (i) July 1, 1997 or (ii) termination of the Merger Agreement for any reason.
If the Merger is not consummated by July 1, 1997 or the Merger Agreement is
terminated, The Cross Country Group, L.L.C. is entitled to seek enforcement of
the entire outstanding amount of the Judgment.
The Third Amendment
On June 9, 1997, ten days prior the Special Meeting at which Stockholders
were to ratify the Merger, the Company notified Cross Country that it had
received Notices of Proposed Adjustments from the Internal Revenue Service
concerning the Tax Claims. The Tax Claims could result in the Company being
liable for approximately $6.5 million of tax, plus approximately $2.0 million in
interest. Although not assessed to date, the IRS could also impose penalties.
On June 13, 1997, Cross Country, on behalf of itself and its affiliates,
notified the Company that the Tax Claims constituted a "Company Material Adverse
Effect" under the Merger Agreement, and gave the Company formal notice of its
election not to proceed with the Merger without modification to address the Tax
Claims.
12
On June 16, 1997, representatives of Cross Country and their counsel met
with Company counsel and Gary Lipson, a member of the Company's Board of
Directors and the Chairman of the Special Committee. At that meeting, Cross
Country proposed a third amendment to the Merger Agreement that would have made
adjustments in the $2.06 per Share to be paid in the Merger to reflect the
potential liability associated with the Tax Claims.
In anticipation of the Company more fully evaluating the Tax Claims
liability, Cross Country and the Company agreed to execute the Third Amendment,
which extended the Merger Agreement from June 30, 1997 to July 31, 1997, but did
not address any modification to the $2.06 per share to be paid under the Merger
Agreement.
The Fourth Amendment
Cross Country and the Company again commenced discussions in the middle of
July, 1997. On July 30, 1997, Cross Country proposed a fourth amendment to the
Merger Agreement under which Parent, or one of its affiliates, would commence a
tender offer for all outstanding Shares at a price of $2.06 per Share, of which
$.50 per Share would be paid in cash and $1.56 of which would be held in an
escrow account pending resolution of the Tax Claims liability.
Under such proposal, approximately $6 million would have been held in escrow
pending any settlement of the Tax Claims liability with the IRS. Upon any
favorable resolution of the Tax Claims that resulted in the potential liability
payable out of escrow being less than $6 million, the balance of the escrow
amount would have been paid to Company Stockholders.
On July 31, 1997, the Company advised Cross Country that it could not
complete review of the documentation necessary for execution of the proposed
fourth amendment because the Board of Directors first required resolution of the
terms of the escrow arrangement, including control over any settlement of the
Tax Claims with the IRS. On July 31, 1997, the Company and Cross Country agreed
to extend the Third Amendment to August 6, 1997.
On the morning of August 7, 1997, the Company notified Cross Country that
there were a number of unresolved issues associated with the proposed fourth
amendment, and that it had received two inquiries with respect to the
acquisition of the Company. Based upon the foregoing, the Company requested
another extension to September 2, 1997.
On August 8, 1997, Cross Country responded by proposing another extension to
August 15, 1997. In addition, Cross Country offered to negotiate an all cash
offer in lieu of the proposed escrow arrangement.
The Company rejected the additional extension and began discussions with
other potential bidders including HomeShield, and on August 11, 1997 Cross
Country formally demanded that the Company call a Special Meeting in lieu of
Annual Meeting, and gave the Company notice of its intention to nominate persons
for positions on the Board of Directors, and to remove the incumbent members of
the Board of Directors.
On August 13, 1997, Parent requested that the Company hold an Annual Meeting
on September 30, 1997, and gave the Company notice of its intention to nominate
(i) one candidate to replace the single director whose term expired in 1996, and
(ii) two candidates to replace the two directors whose terms expire in 1997.
Parent also gave the Company notice of its intention to present a proposal at
the Annual Meeting calling for the removal of the remaining incumbent directors
without cause.
On August 14, 1997, Parent requested a meeting with the professionals
handling the Tax Claims for the Company in order to permit Parent to assess the
likely impact of the Tax Claims on the Company and formulate an all-cash offer.
On August 15, 1997, the Company responded to Parent's request advising that
it would arrange such a meeting, provided Parent agreed to (i) execute a
confidentiality agreement, (ii) withdraw its demand for a meeting of
Stockholders, and (iii) agree to forbear from taking any action with respect to
the Judgment.
On August 18, 1997, Parent notified the Company that it was unwilling to
withdraw its demand for an Annual Meeting, and notified the Company that Parent
had commenced litigation in Delaware Chancery Court seeking to compel the
Company to hold an Annual Meeting, and a declaration that three out of five
members of the Company's Board of Directors were to stand for re-election at
such meeting. Parent further notified the Company, that in the interest of
reestablishing cooperation, it would be willing to forbear from taking any
action with respect to the Judgment until 5:00 P.M. on September 2, 1997,
provided that the Company: (i) agreed that it would not, prior to that time,
enter into any letter of intent or binding agreement with respect to the sale of
any stock or assets of the Company, or any subsidiary thereof; (ii) scheduled by
August 19, 1997 an Annual Meeting of Stockholders for September 30, 1997; and
(iii) delivered to Parent for receipt by August 22, 1997 the Stockholders list,
and committed to update such information on a weekly basis. Parent also enclosed
a demand for inspection of the Company's Stockholder list in accordance with
Section 220 of the DGCL.
13
On August 21, 1997, the Company notified Parent that the Company's Board of
Directors had held a meeting earlier that day and (i) established November 14,
1997 as the date for the Company's next Annual Meeting of Stockholders, (ii) set
September 17, 1997 as the Record Date for the Annual Meeting, and (iii)
acknowledged that the business at the Annual Meeting would include the election
of directors with respect to the classes whose terms expired in 1996 and would
expire in 1997. The Company also agreed to comply with the demand of Parent to
inspect and obtain copies of the Company's Stockholder list, and updates
thereof. In addition, the Company notified Parent that it had amended its Rights
Plan so that any acquisition of shares of the Company by Parent or any of its
affiliates after August 22, 1997 would no longer be exempt under the Rights
Plan.
On August 21, 1997, the Company also advised Parent that at least three
members of the Company's Board of Directors had agreed to support a tender offer
by Purchaser for all outstanding Shares at $.55 in cash and the contingent right
to receive $1.51 from the Escrow Account.
On August 28, 1997, the Company advised Parent that earlier that day, the
Company's Board of Directors met and took the following actions: (i) elected
Howard L. Wolk to the Company's Board of Directors, (ii) elected Richard Knox as
Executive Vice-President and Chief Operating Officer of the Company; (iii)
elected Alan Pyles as the Company's Vice-President of Real Estate Operations;
and (iv) called the next meeting of the Board of Directors for Tuesday,
September 9, 1997.
In addition to the foregoing, the Company and Parent agreed, effective
August 28, 1997, as follows: (a) Howard L. Wolk will resign from the Company's
Board if, and when, either (i) The Cross Country Group, LLC or any affiliate
executes on the Judgment, or (ii) Parent, or one of its affiliates does not
commence a tender offer (negotiated or otherwise) for the outstanding shares of
the Company by September 17, 1997; (b) until 5:00 P.M. on Wednesday, September
17, 1997, 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, encourage or respond to any inquiries
or proposals by, or engage in any discussions or negotiations with, or provide
information to, or enter into any agreement with, any corporation, partnership,
person or other entity or group which it is reasonably expected may lead to, or
which relates to, any takeover transaction, and any such discussions or
negotiations shall be terminated immediately; (c) until 5:00 P.M. on Wednesday,
September 17, 1997, CCG and its affiliates will forbear from exercising its
rights under the Judgment; and (d) the Company will cause its transfer agent to
provide Cross Country with a copy of a list of its Stockholders as of August 18,
1997 and as of August 28, 1997.
At its September 9, 1997 special meeting, the Company's Board of Directors
discussed the proposed final terms of the Fourth Amendment and considered a new
proposed bid to purchase the Company submitted by HomeShield in the evening of
September 8, 1997. Although such bid on its face was for an amount in excess of
the amount being offered by the Purchaser, the Board considered that specific
terms had not been provided, modifications to contracts with third parties would
be required and a ten business day diligence period was being demanded in the
letter. The bid was also subject to the approval of the Board of Directors of
HomeShield. In addition, the Board was mindful that Cross Country had the
ability to exercise its rights under the Judgment, which the Company was unable
to pay and which could cause the Company to enter into bankruptcy. In light of
the uncertainty of HomeShield's proposed offer and the adverse effects that a
delay in securing the sale of the Company would have on the Company, its
stockholders and its creditors, the Company's Board of Directors rejected the
offer proposed by HomeShield. After concluding its review of the Fourth
Amendment, and upon receipt from Raymond James of its opinion, which was
conditioned upon Raymond James' review of the final Merger Agreement documents,
that the Merger Agreement, the Offer and the Merger were fair to the
Stockholders from a financial point of view, the Company's Board of Directors
approved the Fourth Amendment. The Company and the Purchaser executed the Fourth
Amendment on September 9, 1997.
On September 11, 1996, the Company's Board of Directors received a second
letter from HomeShield that proposed to reduce the above-mentioned diligence
period from ten to five days and waive its contract modification requirement
with respect to a single third party. Notwithstanding the modified proposals
contained in such letter, the Company's Board of Directors rejected HomeShield's
bid for the reasons specified above at its meeting on September 16, 1997.
At its meeting on September 16, 1997, the Company's Board of Directors also
considered a recommendation by Raymond James to amend the escrow agreement (the
"Escrow Agreement") entered into between the Company and Purchaser to remove the
limit on the time period during which the Stockholders could receive any amounts
held in escrow by the Purchaser. After a discussion with Cross Country, the
Escrow Agreement was amended as proposed. Subsequent to the amendment to the
Escrow Agreement and during the meeting, Raymond James delivered its final
opinion stating that the Merger Agreement, the Offer and the Merger were fair to
the Stockholders from a financial point of view.
14
Composition of the Special Committee
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. Mr. Buccellato was not included in the membership of the Special
Committee, based upon the belief of the Board of Directors that the possibility
of employment of Mr. Buccellato by an acquirer of the Company might impair his
independence. Although the Merger Agreement provides that Mr. Lipson will
receive $100,000 for cancellation of certain agreements between Mr. Lipson and
the Company, the Board of Directors concluded that this payment did not raise a
potential conflict of interest as the payments to be received are in
cancellation of existing rights. It is not anticipated that Mr. Lipson will
perform services for the Company after the Merger.
The Special Committee also includes members who are Affiliates with
franchise agreements containing terms similar to the agreements between the
Company and non-director Affiliates. All of the proposals received by the
Company involved the potential of modifying the relationship between the Company
and its franchisees. While the interests of the members of the Special Committee
who are franchisees are potentially different than that of stockholders who are
not franchisees, the Board of Directors concluded that because these directors
had substantially the same rights under their franchise agreements as all other
Affiliates, and therefore the same interests as other Affiliates in the
consummation of the Merger, they would not have a conflict of interest in
evaluating the Merger.
REASONS FOR THE RECOMMENDATION
The Special Committee of the Company's Board of Directors (the "Special
Committee"), in reaching its decision to approve the Merger Agreement,
considered the factors set forth below and the Board of Directors adopted the
analysis of the Special Committee. Although all of these items, except as
indicated, were considered as positive factors in concluding to recommend that
the stockholders approve and adopt the Merger Agreement, the Special Committee
and the Board assigned particular weight to items (i) - (viii). Of these items,
the Special Committee and the Board of Directors concluded that (i), (ii) and
(iii) were of the most importance as they lead to the conclusion that the
failure to consummate the Offer and the Merger would result in little
opportunity for the Company to generate profits for stockholders. Items (iv)
through (viii) were also considered to be significantly relevant because they
lead to the conclusion that the Offer Consideration to be received by the
Company's public stockholders is fair and reasonable. The remainder of the items
(viii - xiv) were given lesser weight and are listed in the order of the weight
assigned to them.
(i) The losses incurred by the Company in recent years.
(ii) The effect of the Judgment and its settlement on the Company and its
stockholders. The factors considered in this regard, which the Board of
Directors and Special Committee believed supported their decision to enter
into the First Amendment, included the following:
(a) the ability of the holder of the Judgment to seize assets of HMS
(a significant source of revenues to the Company), as part of its rights
as a judgment creditor and the resulting disruption to the business and
affairs of the Company in the absence of a settlement;
(b) the ability of the holder of the Judgment to pursue remedies
against the Company and its subsidiaries in an effort to collect on the
Judgment in the absence of a settlement;
(c) extension of the period during which CCG would agree to refrain
from taking action against the Company under the Settlement Agreement;
(d) the fact that the Company has expended approximately $1.6 million
to date in litigation expenses relating to the Judgment and had earlier
waived its rights to appeal the Judgment.
(iii) The performance of the Company on a historical basis and the
prospects and risks facing the Company going forward as a public corporation
in light of the Judgment and the potential liabilities asserted under the
Tax Claims.
(iv) The fact that Purchaser is willing to provide a minimum cash payment
to the Stockholders despite the fact that the potential liability of the
Company to the IRS as a result of the Tax Claims (although disputed by the
Company) could exceed the amount of the Company's stockholder's equity.
15
(v) The opinion of Raymond James regarding the fairness, from a financial
point of view, of the Offer 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 of Directors. See
"Annex A -- Opinion of Raymond James & Associates, Inc." Based on Raymond
James' expertise and experience in the evaluation of businesses in
connection with transactions similar to the Offer and the Merger and Raymond
James' explanations of its methodology and analyses, the Special Committee
and the Board of Directors believed that Raymond James' opinion as to the
fairness of the Offer Consideration to be received by the public
stockholders was well supported and sound and adopted their analysis.
(vi) A review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate the Company as a public
company); the range of possible benefits and risks to the Company's
Stockholders of such alternatives and the timing and likelihood of actually
accomplishing any such alternatives.
(vii) The significant premium by which the Offer Consideration exceeds
the last closing sales price of the Shares on the day prior to commencement
of the Offer, and the overall valuation of the Company in light of the
Judgment and the Tax Claims.
(viii) 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.
(ix) The fact that the transactions contemplated by the Merger Agreement
are not conditioned upon the receipt of financing. The Board of Directors
and the Special Committee favorably assessed the Purchaser's ability to
cause the Offer and the Merger to be consummated given the nature and
sources of funds available to the Purchaser and its affiliates.
(x) The fact that the Parent and the Purchaser have obtained the
regulatory approvals necessary to consummate the Offer and Merger.
(xi) The establishment of the Special Committee to make an independent
determination as to the fairness of the Offer and the Merger supported the
Board of Directors' and the Special Committee's determination of fairness.
(xii) 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 of Directors 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 of Directors and the Special Committee
believed that the projections considered by Raymond James were reasonable
and supported the Board of Directors' and the Special Committee's fairness
determination.
(xiii) The opportunity stockholders have to demand appraisal of their
Shares in the Merger in accordance with Delaware law. While the Special
Committee and Board of Directors believe the Offer and the Merger are fair
to the Company's public stockholders, the availability of dissenters' rights
for stockholders who may disagree with this belief was viewed as positive
and supported the decision of the Special Committee and the Board of
Directors to recommend approval of the Merger Agreement.
(xiv) The stockholders of the Company would lose the opportunity to
participate in the future operations of the Company which could have a
negative impact on the stockholders if such operations were profitable.
However, based on the alternatives available to the Company, the Board of
Directors and the Special Committee viewed continued operations as an
independent entity to represent little opportunity for profit to the
stockholders, particularly in light of the Judgment.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Raymond James to act as its financial advisor and
exclusive agent in connection with identifying and seeking out "Prospective
Purchasers" who would be interested in entering into a "Transaction" with the
Company. Pursuant to a letter agreement, dated January 28, 1995, between the
Company and Raymond James, the Company has agreed to pay Raymond James a fee of
approximately $100,000 if the Offer and Merger
16
are consummated. In addition, the Company has agreed to pay Raymond James a fee
of $50,000 upon delivery of its Fairness Opinion. The Company has also agreed to
reimburse Raymond James for its reasonable out-of-pocket expenses incurred in
connection with the engagement, including fees and disbursements of its legal
counsel, whether or not the Offer or Merger is consummated. The Company has also
agreed to indemnify Raymond James and its directors, offices, agents, employees
and controlling persons for certain costs, expenses and liabilities to which it
may be subjected arising out of or related to its engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty (60) days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate, or subsidiary of the Company.
(b) All of the Company's stockholders (see Item 3, "Identity and
Background," above) and all of the Company's other executive officers and
directors who own Shares of Common Stock currently intend to tender all of their
Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relate
to or would result in one or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information contained in the exhibits set forth in Item 9 below is
incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated September 19, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(7) Form of Summary Advertisement, dated September 19, 1997.
(a)(8) Text of Press Release, dated September 17, 1997.
(b) None.
(c)(1) Agreement and Plan of Merger, dated as of May 14, 1996.
(c)(2) Amendment to Agreement and Plan of Merger, dated as of October
31, 1996.
(c)(3) Second Amendment to Agreement and Plan of Merger, dated as of January
31, 1997.
(c)(4) Third Amendment to Agreement and Plan of Merger, dated as of July 1,
1997.
(c)(5) Extension of Third Amendment to Agreement and Plan of Merger, dated
as of July 31, 1997.
17
(c)(6) Fourth Amendment to Agreement and Plan of Merger, dated as of
September 9, 1997.
(c)(7) Stockholders Agreement, dated as of September 16, 1997.
(c)(8) Form of Tax Contingency Settlement Agreement.
(c)(9) Form of Escrow Agreement.
(c)(10)Agreement for Satisfaction of Judgment, dated as of October
31, 1996.
(c)(11)First Amendment to Agreement for Satisfaction of Judgment, dated as
of January 31, 1997.
(c)(12)Second Amendment to Agreement for Satisfaction of Judgment, dated as
of July 1, 1997.
(c)(13)Extension of Second Amendment to Agreement for Satisfaction of
Judgment, dated as of July 31, 1997.
(c)(14)Third Amendment to Agreement for Satisfaction of Judgment, dated as
of September 16, 1997.
(c)(15)Release Agreement, dated as of September 16, 1997.
(c)(16)Employment Agreement dated December 22, 1995 between the Company and
Carl Buccellato.
(c)(17)Settlement Agreement dated September 16, 1997 between the Company
and Carl Buccellato.
(c)(18)Security Agreement, dated as of October 31, 1996.
(c)(19)Guaranty and Pledge Agreement, dated as of October 31, 1997.
(c)(20)Security Agreement, dated as of September 16, 1997.
(c)(21)Pledge Agreement, dated as of September 16, 1997.
Exhibit A Opinion of Raymond James & Associates, Inc. dated September
16, 1997.*
Exhibit B Letter to Stockholders dated September 19, 1997.**
- ----------
* Included as Annex A in copy mailed to Stockholders.
** Included in copy mailed to Stockholders.
18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
HOMEOWNERS GROUP, INC.
By: /s/ C. GREGORY MORRIS
-----------------------------
C. GREGORY MORRIS
September 16, 1997
19
ANNEX A
OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
September 16, 1997
The Board of Directors
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, FL 33325
Ladies and 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 offer (the "Offer") to purchase
any and all outstanding shares of Common Stock, including the associated common
stock purchase rights, for total consideration of up to $2.06 per share, $.55 of
which shall be net to the stockholder in cash, and $1.51 of which shall be held
in an escrow account pending resolution of certain tax liabilities that may be
assessed against the Company.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 14, 1996 among the Company and The Cross Country Group, Inc. ("Cross
Country") and CHGI Acquisition Corporation ("CHGI"), as amended as of October
31, 1996, January 31, 1997, July 1, 1997 and September 9, 1997 (the "Merger
Agreement"). The Merger Agreement provides that, as soon as practicable after
the completion of the Offer and satisfaction or waiver, if permissible, of all
of the conditions to the Merger (as defined herein), (a) CC Acquisition
Corporation ("CC"), a wholly-owned subsidiary of HAC, Inc. ("HAC"), as assignee
of the rights and obligations of CHGI under the Merger Agreement shall be merged
with and into the Company (the "Merger"), with the Company being the surviving
corporation and wholly owned directly by HAC and (b) each of the shares of the
Company, outstanding at the effective time of the Merger (other than shares held
by CC and its affiliates and Company stockholders who have perfected their
statutory appraisal rights under Delaware law), shall be converted into the
right to receive the Offer consideration.
In connection with our review of the proposed Offer and 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 and 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 September 16,
1997 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 Offer and Merger
Agreement or the availability or advisability of any alternatives to the Offer
and Merger.
A-1
The Board of Directors
Homeowners Group
September 16, 1997
Page 2
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 forecast 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 combinations
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 position 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 Offer and Merger and is not
intended to confer rights or remedies upon Cross Country or the stockholders of
Cross Country and does not constitute a recommendation to any stockholders of
Homeowners regarding whether said stockholder should tender their Common Stock
pursuant to the Offer and/or how said stockholder should vote at any meeting of
the stockholders of Homeowners. 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
September 16, 1997, the consideration to be received by the stockholders of the
Company pursuant to the Offer and 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.
A-2
ANNEX B
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 19, 1997,
as part of Homeowners Group, Inc.'s (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 with respect to the tender offer (the "Offer") by CC
Acquisition Corporation (the "Offeror") (the "Schedule 14D-9") to the holders of
record of the Company's common stock, par value $.01 per share (the "Common
Stock"). Capitalized terms used and not otherwise defined herein shall have the
meaning set forth in the Schedule 14D-9. You are receiving this Information
Statement in connection with the possible election of a new slate of directors,
other than Mr. Howard Wolk who shall remain a director, to the Company's Board
of Directors. The Merger Agreement provides that promptly upon consummation of
the Offer, each member of the Board of Directors of the Company (other than
those members affiliated with the Offeror or HAC, Inc., the sole shareholder of
the Offeror (the "Parent")) shall resign and be replaced by Parent's designees.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
The Offer is scheduled to expire at 12:00 midnight, Eastern Standard Time,
on October 17, 1997, at which time, if all conditions to the Offer have been
satisfied or waived, the Purchaser has informed the Company that it intends to
purchase all of the shares of Common Stock validly tendered pursuant to the
Offer and not properly withdrawn.
The information contained in this Information Statement concerning the
Purchaser has been furnished to the Company by the Purchaser and the Company
assumes no responsibility for the accuracy, completeness or fairness of any such
information.
At the close of business on September 9, 1997, there were 5,558,350 shares
of Common Stock issued and outstanding, which is the only class of securities
outstanding having the right to vote for the election of directors of the
Company, each of which entitles its record holder to one vote.
OFFEROR DESIGNEES
The Purchaser has informed the Company that it currently intends to choose
the designees (the "Offeror Designees") it has the right to designate to the
Board pursuant to the Merger Agreement from the individuals listed in Schedule I
of the Offer, a copy of which is being mailed to Company stockholders. The
information with respect to such directors and executive officers in Schedule I
is hereby incorporated herein by reference in its entirety. As of September 9,
1997, the ages of each of such officers are as follows: Sidney Wolk -- 62;
Howard Wolk -- 33; Jeffrey C. Wolk -- 31; Nathan Wolk -- 67; and Tom Graham --
49.
It is expected that the Offeror Designees may assume their positions as
directors at any time following the purchase by the Purchaser of shares of
Common Stock pursuant to the Offer, which purchase cannot be earlier than
October 17, 1997, and that upon such position, the Offeror Designees will
thereafter constitute the Board.
Howard Wolk is the only affiliate of the Purchaser or the Parent that is a
director of, or holds any position with, the Company. Howard Wolk does not
directly own any shares of Common Stock, but through his relationship with
Parent may be deemed to indirectly beneficially own 1,638,500 shares of Common
Stock held by Parent. Jeffrey C. Wolk, an executive officer and director of
Parent, and an "Offeror Designee", directly owns 3,000 shares of Common Stock.
The Company has been advised that, to the best knowledge of the Purchaser and
Parent, none of the other Purchaser's or Parent's directors or executive
officers beneficially owns any equity securities, or rights to acquire any
equity securities, of the Company and none has been involved in any transactions
with the Company or any of its directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission.
B-1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning beneficial ownership,
as of September 9, 1997, by persons known to the Company (based upon filings on
Schedules 13D and 13G filed pursuant to the Exchange Act) to own five percent or
more of the Company's outstanding voting securities. The table also shows
information concerning beneficial ownership by all directors, by each of the
Company's Named Executive Officers (as such term is defined in the Exchange Act)
and by all directors and executive officers as a group. The number of shares of
Common Stock beneficially owned by each director or executive officer is
determined under rules of the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares of Common Stock as to which the
individual has the right to acquire within 60 days of September 9, 1997, through
the exercise of any stock option or other right. Unless otherwise indicated,
each person has sole investment and voting power (or shares such powers with his
or her spouse), with respect to the shares of Common Stock set forth in the
following table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
SHARES OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) COMMON STOCK PERCENT
--------------------------------------- ------------ -------
<S> <C> <C>
Carl Buccellato 523,453(2) 8.8%
Diane M. Gruber 27,550(3) 0.5%
Gary D. Lipson 45,000(4) 0.8%
Michael A. Nocero, Jr. M.D 140,000(5) 2.5%
Melvin Stewart 307,875(6) 5.2%
C. Gregory Morris 60,000(7) 1.0%
Howard L. Wolk 0(8) --
Sandra Stewart Bernstein 406,862(9) 7.3%
2810 North 46th Avenue
Hollywood, FL 33021
Dimensional Fund Advisors, Inc. 293,500(10) 4.9%
1299 Ocean Avenue
Santa Monica, CA 90401
HAC, Inc. 1,638,500(11) 29.5%
4040 Mystic Valley Parkway
Boston, MA 02155
All Directors and Executive Officers as a Group
(7 persons) 1,103,878 18.6%
</TABLE>
(1) The address of all executive officers and directors is 400 Sawgrass
Corporate Parkway, Sunrise, FL 33325.
(2) Includes 14,397 shares of Common Stock held by Carl Buccellato as Trustee
of the Renee Buccellato Trust, the Lori Ann Buccellato Trust and the
Matthew Buccellato Trust. Includes presently exercisable options to
purchase 260,000 shares of Common Stock.
(3) Includes presently exercisable options to purchase 17,500 shares of Common
Stock. The total does not include 1,000 shares owned by Gayle N. Gruber,
Ms. Gruber's daughter, as to which beneficial ownership is disclaimed by
Ms. Gruber.
(4) Includes presently exercisable options to purchase 25,000 shares of Common
Stock.
(5) Includes 78,500 shares of Common Stock owned under a retirement plan for
the benefit of Michael A. Nocero, Jr. M.D. and indirect ownership of 33,000
shares owned by his daughters. Includes presently exercisable options to
purchase 25,000 shares of Common Stock.
(6) Includes presently exercisable options to purchase 2,500 shares of Common
Stock and 243,701 shares of Common Stock held by Melvin Stewart as Trustee
of the Melvin Stewart Trust. Also includes 15,788 shares of Common Stock
held by Mitchell Stewart as Trustee of the Bari Udell Trust, as to which
trust Melvin Stewart has the power to direct the voting and investment of
such shares as trust advisor and as to which beneficial ownership is
disclaimed by Mr. Stewart.
(7) Consists of presently exercisable options to purchase 60,000 shares of
Common Stock.
(8) Howard L. Wolk does not have sole voting and dispositive power over any
shares of the Company, but, as a result of being an officer and director of
HAC, Inc., Mr. Wolk may be deemed to have indirect beneficial ownership of
the 1,638,500 shares of Common Stock held by HAC, Inc.
(9) Ownership shares and percentages based upon the Schedules 13G as provided
to the Company.
(10)Ownership shares and percentages based on Schedules 13D filed April 11,
1996, as amended, as provided to the Company.
(11)Includes (i) an aggregate of 285,000 shares of Common Stock which the
officers and directors have the right to acquire through the exercise of
presently exercisable options and (ii) an additional 50,000 shares of
Common Stock which the officers and directors will have the right to
acquire though the exercise of options that will become exercisable
contemporaneously with the consummation of the Merger.
B-2
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all directors and executive officers of the
Company as of September 9, 1997 are listed below, followed by a brief account of
their business experience during the past five years. Directors are elected at
the Company's Annual Meeting of Stockholders and serve three years or until
their successors are elected and qualified. All of the Company's six directors
listed below are currently serving three year terms. There are no family
relationships among directors or executive officers of the Company. All
non-employee directors are currently compensated at the rate of $3,500 for each
Board meeting attended. The Board met four times in 1996 and all Directors in
office at the time of such meetings attended all of the meetings. The directors
of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
DIRECTORS WHOSE TERM EXPIRES AT THE NEXT ANNUAL MEETING
Gary D. Lipson 44 Director 1991
Howard Wolk 33 Director 1997
DIRECTORS WHOSE TERM EXPIRES IN 1997
Carl Buccellato 54 Chairman, President, Chief 1988
Executive, Officer and
Director
Michael A. Nocero, Jr., M.D. 56 Director 1988
DIRECTOR WHOSE TERM EXPIRES IN 1998
Diane M. Gruber 56 Director 1993
Melvin Stewart 55 Director 1988
</TABLE>
DIRECTORS
Mr. Lipson has been an attorney in the South Florida area for more than 20
years.
Mr. Buccellato has been President and Chief Executive Officer of the Company
since May, 1992 and Chairman of the Company since September, 1994. Prior to May,
1992, he served as Chief Operating Officer. Mr. Buccellato currently serves as
President and Chief Executive Officer of Homeowners Marketing Services, Inc.
("HSM"), a wholly owned subsidiary of the Company. Mr. Buccellato holds various
executive positions in other subsidiaries of the Company and was Secretary of
the Company until January, 1993.
Dr. Nocero is a practicing cardiologist with the Central Florida Cardiology
Group in Orlando, Florida and is a Diplomate of the American Board of Internal
Medicine and Cardiovascular Diseases. Dr. Nocero is on the Board of Trustees of
The American College of Cardiology and formerly served as the Chairman of the
Board of the American College of Cardiology.
Ms. Gruber has been in the real estate and insurance industries for more
than thirty years. She is a licensed life, health and property and casualty
insurance broker. Ms. Gruber, along with her spouse, owns 100% of the stock of
the firm that is the Company's franchisee for Rhode Island and Connecticut, and
50% of the stock of the firm that is the Company's franchisee for Maine,
Vermont, New Hampshire and Massachusetts. She is Executive Vice President of the
Company's franchisee for New Jersey/New York.
Mr. Stewart served as the Chairman of the Company from June 1988 to
September 1994. Mr. Stewart served as President and Chief Executive Officer from
incorporation until May 1992. He has served as a Director of HMS since its
formation in 1980. The Company was organized to become the holding company for
HMS and its subsidiaries in 1988. Mr. Stewart has also held various executive
positions in HMS and other subsidiaries of the Company.
B-3
Mr. Wolk has served as Vice President of The Cross Country Group, Inc. since
1993. From 1992 to 1993, Mr. Wolk was a member of the National Performance
Review and Associate Counsel, White House Office of Personnel.
EXECUTIVE OFFICERS
C. Gregory Morris, 42, has been the Vice President, Treasurer and Chief
Financial Officer of the Company since October, 1992. Prior to that he was Vice
President of Finance and Administration of Arby's, Inc.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers and any persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all forms they file pursuant to
Section 16(a). To the Company's knowledge, based solely on review of the copies
of such reports furnished to the Company and written representations that no
other reports were required during the year ended December 31, 1996, the
Company's officers, directors and greater than ten percent beneficial owners
were in compliance with all Section 16(a) filing requirements.
COMMITTEES
The Company has a Stock Option and Compensation Committee, an Audit and
Investment Committee, a Nominating Committee and an Executive Committee. The
Stock Option and Compensation Committee is comprised of Messrs. Stewart and
Lipson, Ms. Gruber and Dr. Nocero; the Audit and Investment Committee is
comprised of Dr. Nocero and Mr. Stewart; the Nominating Committee is comprised
of Dr. Nocero, Mr. Lipson and Ms. Gruber, and the Executive Committee is
comprised of Messrs. Buccellato and Lipson and Ms. Gruber. In 1996, the
Executive Committee met four times. The other committees did not meet. All
Directors in office at the time of such meetings attended their respective
committee meetings. Non-employee directors are compensated at the rate of $500
for each committee meeting attended and are entitled to reimbursement for travel
expenses incurred in connection with attending meetings. However, Mr. Lipson,
the non-employee director on the Executive Committee, was paid $3,500 for each
of the four Executive Committee meetings he attended.
The function of the Audit and Investment Committee is to review the
investment strategy and performance of the investment portfolio, to recommend
the firm to be appointed as independent certified public accountants to audit
the Company's financial statements, to review the scope and results of the audit
with the independent certified public accountants, to receive reports from the
independent auditors and to review the adequacy of the internal controls and
accounting procedures of the Company.
The function of the Stock Option and Compensation Committee is to administer
the stock option plans (including making awards and determining the terms and
conditions upon which they are granted) and to review and establish the
compensation of the executive officers.
The function of the Nominating Committee is to assist management with
respect to matters of succession, to review the qualifications of candidates for
the position of Director and to recommend candidates to the Board as nominees
for election at the Annual Meeting of Stockholders or to fill such Board
vacancies as may occur during the year. The Nominating Committee will consider
nominees recommended by security holders. Recommendations may be forwarded to
the Nominating Committee at the Company.
The function of the Executive Committee is to review Company activity and
make recommendations to the full Board of Directors.
In January 1995, in response to 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, the Board formed a
Special Committee to evaluate the alternatives available to the Company. Mr.
Lipson is Chair of the Special Committee on which Ms. Gruber, Dr. Nocero and Mr.
Stewart also serve. The Special Committee met ten times in 1996.
B-4
EXECUTIVE COMPENSATION
The following table discloses compensation received by the Company's Chief
Executive Officer and the only other executive officer receiving in excess of
$100,000 per year (the "Named Executive Officers") for the three fiscal years
ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
STOCK ALL OTHER
OPTION COMPENSATION
NAME/TITLE YEAR SALARY BONUS OTHER(1) GRANTS (2)
---------- ---- ------ ----- --------------- ---
<S> <C> <C> <C> <C> <C> <C>
Carl Buccellato, 1996 $407,740 0 $16,576 0 $2,850
Chairman, President, 1995 368,359 0 14,523 360,000 2,772
Chief Executive Officer 1994 368,359 0 30,319 0 2,772
and Director
C. Gregory Morris, 1996 $148,750 0 $13,239 0 $2,850
Vice President, Treasurer and 1995 150,000 0 11,052 0 2,250
Chief Financial Officer 1994 152,104 0 6,595 0 2,772
</TABLE>
(1) Totals in this column reflect the aggregate value of perquisites, including
personal use of Company automobiles, outside financial counseling, executive
health benefits, relocation expenses and payments made on life insurance
policies for their benefit. During 1996, Mr. Buccellato received health
benefits of $6,069, financial counseling of $5,500 and life insurance
payments of $5,007; and Mr. Morris received $4,239 of health benefit
payments and $9,000 auto allowance.
(2) These amounts represent the Company's matching contributions to the
Company's 401(k) plan.
EMPLOYMENT AGREEMENTS
Contemporaneously with the consummation of the Offer, and in accordance with
the terms of the Merger Agreement, the Company will terminate the employment
agreement between the Company and Carl Buccellato dated as of December 22, 1995,
and Mr. Buccellato will resign as Chairman of the Board of Directors of the
Company, as director and as an officer and employee of the Company and its
subsidiaries. Under the terms of the Employment Agreement, Mr. Buccellato was
entitled to a base salary of $407,610, subject to an annual cost of living
increase based on the Consumer Price Index and a performance bonus as determined
by the Board of Directors. Mr. Buccellato's Employment Agreement provided that,
in the event of termination of employment due to a change in control of the
Company, he would be entitled to a lump sum distribution of compensation in an
amount equal to 2.99 times the sum of the annual base salary currently provided
for in the Employment Agreement. In consideration for terminating his employment
agreement, the Company will enter into a settlement agreement with Mr.
Buccellato pursuant to which the Company paid to Mr. Buccellato a lump sum
payment of $600,000 in cash.
OPTIONS GRANTED DURING 1996
No options were granted to the named executive officers in 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning exercises of
stock options by the Named Executive Officers during the 1996 fiscal year and
the fiscal year-end value of the unexercised stock options held by the Named
Executive Officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
SHARES OF NUMBER OF SECURITIES 1996 FISCAL YEAR-END
COMMON UNDERLYING UNEXERCISED EXERCISABLE(E)
STOCK OPTIONS AT 1996 FISCAL YEAR-END UNEXERCISABLE(U)(1)
ACQUIRED ON VALUE ------------------------------- -------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISED UNEXERCISED
---- -------- -------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Carl Buccellato -0- -0- 260,000 -0- -0- -0-
C. Gregory Morris -0- -0- 60,000 -0- -0- -0-
</TABLE>
- --------------
(1) The market value of the shares of Common Stock underlying the options held
by the Named Executive Officers was less than the exercise price of the
options at December 31,1996.
B-5
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors serve on the Stock Option and Compensation Committee
("Compensation Committee") of the Company's Board of Directors: Gary D. Lipson
(Chairman), Diane M. Gruber and Michael A. Nocero, Jr., M.D.
Subsequent to the 1994 termination by mutual agreement of Mr. Stewart's
prior employment contract with the Company, Mr. Stewart provided consulting
services upon the request of the Company through November 30, 1996, for a
consulting fee of $15,922 per month. Mr. Stewart also received medical benefits
as previously provided under his employment contract. He further agreed not to
compete with the Company through January 1998 and relinquished all stock options
granted to him during his employment with the Company.
Homeowners Marketing Services International, Inc. ("HMSI"), a wholly-owned
subsidiary of the Company, is party to a franchise agreement with Southwest
Marketing Services, Inc. ("SMS"), a corporation owned 25% by Michael A. Nocero,
Jr., M.D., granting such corporation the exclusive right to market HMS products
and services and enroll Member-Brokers in Arizona and New Mexico. In 1996, the
Company paid $390,286 to SMS. The terms and provisions of this franchise
agreement are comparable to those entered into with non-affiliated third
parties.
Broker Marketing Services of Texas, Inc. ("BMST"), a corporation owned 100%
by Dr. Nocero and HMS Texas, Inc., a wholly-owned subsidiary of the Company,
have entered into a partnership agreement for the operation of the Texas
territory. Pursuant to the terms of this partnership agreement, HMS Texas, Inc.
and BMST are each entitled to 45% of the profits and cash distributions from the
partnership, with a third-party manager entitled to the remaining 10%. The
partnership agreement names HMS Texas, Inc. as managing partner with sole
authority to make all major operational decisions and provides for restrictions
on transferability and rights of first refusal with respect to interests in the
partnership. In 1996, distributions of $31,957 were paid to BMST.
HMSI is also party to a franchise agreement with O & A Marketing Services of
the West, Inc. ("O&A"), a corporation owned 20% by Dr. Nocero, granting such
corporation the exclusive right to market HMS products and services and enroll
Member-Brokers in Kansas, Missouri and Oklahoma. In 1996, the Company paid
$691,942 to O&A. The terms and provisions of this franchise agreement are
comparable to those entered into with non-affiliated third parties.
Homeowners Marketing Services, Inc. ("HMS"), a wholly owned subsidiary of
the Company, has entered into a partnership agreement with Professional Forum
Enterprises, Inc. ("PFE"), a corporation 80% owned by Michael A. Nocero, Jr.,
M.D., to market Internet access and related products and services to real estate
professionals. Pursuant to the partnership agreement, HMS and PFE share in the
partnership profits or losses at the rate of 50% each, and both HMS and PFE are
obligated to make joint contributions to fund the partnership operations. During
1996, HMS contributed $222,500 toward the joint funding of the partnership and
purchased $37,961 in computer equipment and materials on behalf of the
partnership.
In 1996, the Company paid approximately $157,308 in fees and reimbursable
expenses for consulting services rendered by Gary D. Lipson, which fees and
expenses the Company believes are more favorable to the Company than those which
would have been paid to an unrelated party. On December 22, 1995, the Company
and Mr. Lipson entered into an engagement agreement pursuant to which Mr. Lipson
agreed to make himself available to provide legal services on behalf of the
Company and its subsidiaries for a minimum of 500 hours per year at an hourly
rate of $200. Upon his execution of the engagement agreement, Mr. Lipson became
entitled to a non-refundable retainer of $100,000. In connection with the
consummation of the Merger, Mr. Lipson will receive $100,000 payable in equal
monthly installments of $8,333.33 in consideration of the termination of the
engagement agreement between Mr. Lipson and the Company.
HMSI is also party to a franchise agreement with HMS New Jersey/New York
("HMSNJNY") of which Diane M. Gruber is Executive Vice President. HMSNJNY has
the exclusive right to market HMS products and services and enroll
Member-Brokers in New Jersey and New York. In 1996, the Company paid $528,384 to
HMSNJNY. HMSI has also entered into an agreement with a firm that is the
Company's franchisee for Rhode Island and Connecticut, of which Diane Gruber,
with her spouse, owns 100% of the stock. This firm has the exclusive right to
market HMS products and services and enroll Member-Brokers in Rhode Island and
Connecticut. In connection with the purchase of this territory, as of December
31, 1996, the franchisee firm owes HMSI $12,399, under a promissory note issued
at the time of purchase. In 1996, the Company paid $23,874 to this firm. The
terms and provisions of the franchise agreements with HMSNJNY and HMSRIC are
comparable to those
B-6
entered into with non-affiliated third parties. In connection with the franchise
operations, these two firms have purchased computer equipment through HMS and
currently owe $714 and $535 under promissory notes issued to HMS.
HMSI has also entered into an agreement with a firm that is the Company's
franchisee for the Massachusetts, Maine, New Hampshire and Vermont, of which
Diane Gruber, with her spouse, owns 50% of the stock. This firm has the
exclusive right to market HMS products and services and enroll Member-Brokers in
Massachusetts, Maine, New Hampshire and Vermont. In connection with this
arrangement, the franchisee firm owes HMSI $51,443 under a promissory note
issued at the time of the purchase of the franchised territory. In 1996, the
Company paid $125,204 to this firm. The terms and provisions of the franchise
agreements with this firm are comparable to those entered into with
non-affiliated third parties. This firm also has the first right of refusal to
the franchise rights to the states of Pennsylvania and Florida should the
Company decide to sell the franchise rights to those territories.
The Company has been advised that on September 16, 1997, the members of the
Board of Directors and one executive offer, as stockholders of the Company,
entered into the Stockholders Agreement with Parent and Purchaser with respect
to 702,481 shares of Common Stock owned by them (12.6% of the outstanding shares
of Common Stock), pursuant to which such stockholders have agreed to tender
their shares of Common Stock into the Offer, and have granted Parent proxies as
to all matters related to the Merger and Parent intends to vote such shares of
Common Stock in favor of the approval and adoption of the Merger Agreement.
See "Executive Compensation -- Employment Agreements" for a discussion of
Carl Buccellato's severance arrangement with 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 $2.06 per
share (which include employees and one non-employee director), will surrender
such options in exchange for the contingent right to receive the Option
Settlement Amount. Mr. Buccellato, Mr. Stewart and Mr. C. Gregory Morris, Chief
Financial Officer and Executive Vice-President of the Company, own 260,000,
25,000 and 60,000 options respectively. The options held by Mr. Buccellato and
Mr. Morris are exercisable at $2.00 per Share, and the options held by Mr.
Stewart are exercisable at $.75 per Share. Based upon the foregoing, and
assuming that all of the Escrow Funds are distributed to Escrow Right holders,
Messrs. Buccellato, Morris and Stewart would be entitled to Option Settlement
Amounts of $15,600, $32,750 and $3,600, respectively.
B-7
STOCK PERFORMANCE COMPARISON BETWEEN
HOMEOWNERS GROUP, INC. COMMON STOCK,
NASDAQ STOCK MARKET (US COMPANIES) AND PEER GROUP COMMON
STOCK
(CHART DEPICTING PLOT POINTS BELOW)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LEGEND
- ---------------------------------------------------------------------------------------------------------------------
Symbol CRSP TOTAL RETURNS INDEX FOR: 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
[] HOMEOWNERS GROUP, INC. 100.0 69.1 46.8 10.9 9.2 22.5
{} Nasdaq Stock Market (US Companies) 100.0 116.4 133.6 130.6 184.7 227.2
o Self-Determined Peer Group 100.0 156.7 258.1 195.8 226.8 414.5
Companies in the Self-Determined Peer Group
ALPNET INC. FIRST AMERICAN HEALTH CONCEPTS INC.
MARLTON TECHNOLOGIES WARRANTECH CORP.
NOTES:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is
used.
D. The index level for all series was set to $100.0 on 12/31/91.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-8
EXHIBIT (a)(1)
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
BY
CC ACQUISITION CORPORATION
FOR TOTAL CONSIDERATION PER SHARE CONSISTING OF:
$.55 NET IN CASH TO SELLER
AND
ONE CONTINGENT RIGHT TO RECEIVE
$1.51 FROM TAX CLAIMS ESCROW FUND
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, OCTOBER 17, 1997 UNLESS THE OFFER IS
EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS FOR ANY AND ALL SHARES OUTSTANDING THAT ARE NOT ALREADY HELD BY
HAC, INC. ("PARENT"), CC ACQUISITION CORPORATION ("PURCHASER"), OR ANY OF THEIR
AFFILIATES. THE OFFER IS SUBJECT TO CERTAIN CONDITIONS CONTAINED IN THIS OFFER
TO PURCHASE. THE OFFER IS NOT SUBJECT TO THERE BEING A MINIMUM NUMBER OF SHARES
VALIDLY TENDERED AND NOT WITHDRAWN. THE OFFER IS NOT CONDITIONED ON RECEIPT OF
FINANCING.
--------------
THE BOARD OF DIRECTORS OF HOMEOWNERS GROUP, INC. (THE "COMPANY") (EXCLUDING
THOSE DIRECTORS AFFILIATED WITH PARENT AND PURCHASER), ACTING ON THE
RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, HAS (A)
DETERMINED THAT EACH OF THE MERGER AGREEMENT, THE OFFER AND THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, (B) APPROVED
THE EXECUTION, DELIVERY AND PERFORMANCE OF THE MERGER AGREEMENT, AND THE RELATED
STOCKHOLDERS AGREEMENT REFERENCED BELOW AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND (C) RESOLVED TO
RECOMMEND ACCEPTANCE OF THE OFFER, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE MERGER BY THE HOLDERS OF COMPANY COMMON STOCK.
--------------
PARENT AND PURCHASER HAVE ENTERED INTO A STOCKHOLDERS AGREEMENT WITH CERTAIN
SELLING STOCKHOLDERS, WHICH INCLUDE ALL OF THE MEMBERS OF THE BOARD OF DIRECTORS
OF THE COMPANY (EXCLUDING THOSE MEMBERS OF THE BOARD AFFILIATED WITH PURCHASER
AND PARENT) (THE "SELLING STOCKHOLDERS"), PURSUANT TO WHICH, AMONG OTHER THINGS,
SUCH SELLING STOCKHOLDERS HAVE AGREED TO VALIDLY TENDER (AND NOT WITHDRAW) IN
THE OFFER, UPON THE TERMS AND SUBJECT TO THE CONDITIONS THEREOF, APPROXIMATELY
12.6% OF THE COMPANY'S OUTSTANDING SHARES FOR THE OFFER CONSIDERATION.
--------------
IMPORTANT
ANY HOLDER (A "STOCKHOLDER") OF SHARES (AS DEFINED HEREIN) DESIRING TO
TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S SHARES SHOULD EITHER (1)
COMPLETE AND SIGN THE LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF IN ACCORDANCE
WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL, MAIL OR DELIVER IT AND ANY
OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY AND EITHER DELIVER THE CERTIFICATES
FOR SUCH SHARES TO THE DEPOSITARY ALONG WITH THE LETTER OF TRANSMITTAL OR TENDER
SUCH SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN "THE
TENDER OFFER -- PROCEDURES FOR TENDERING SHARES" OR (2) REQUEST HIS OR HER
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO HANDLE THE
TRANSACTION. A STOCKHOLDER WHO HAS SHARES REGISTERED IN THE NAME OF A BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY, OR OTHER NOMINEE MUST CONTACT THAT
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF HE OR SHE
DESIRES TO TENDER SUCH SHARES.
Any Stockholder desiring to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply with the procedure
for book-entry transfer on a timely basis, may tender such Shares by following
the procedure for guaranteed delivery set forth in "THE TENDER OFFER --
Procedures for Tendering Shares."
Questions and requests for assistance or for additional copies of this Offer
to Purchase and the Letter of Transmittal may be directed to the Information
Agent at its address and telephone numbers set forth on the back cover of this
Offer to Purchase. Stockholders may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
September 19, 1997
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION 1
SPECIAL FACTORS 4
1. Background of the Offer and Execution of the Merger Agreement 4
2. The Tax Claims; The Escrow Agreement; The Tax Contingency Settlement Agreement 8
3. Recommendation of the Special Committee and the Company's Board of Directors,
Fairness of the Offer and the Merger 9
4. Opinion of Financial Advisor to the Company 11
5. Purpose and Effects of the Offer and the Merger; Reasons for the Offer and
the Merger 15
6. Plans for the Company after the Offer and the Merger 16
7. The Merger Agreement; The Stockholders Agreement; The Rights Plan 16
8. Rights of Stockholders in the Merger 22
9. Interests of Certain Persons in the Offer and the Merger 24
10. Certain U.S. Federal Income Tax Consequences 27
THE TENDER OFFER 28
1. Terms of the Offer 28
2. Procedures for Tendering Shares 28
3. Withdrawal Rights 30
4. Acceptance for Payment and Payment 31
5. Price Range of Shares; Dividends 32
6. Effect of the Offer on the Market for the Shares; Exchange Act Registration 32
7. Certain Information Concerning the Company 33
8. Certain Information Concerning Parent and the Purchaser 35
9. Source and Amount of Funds 35
10. Purpose of the Offer and the Merger; Plans for the Company 35
11. Dividends and Distributions 36
12. Conditions to the Offer 36
13. Certain Legal Matters 37
14. Fees and Expenses 38
15. Miscellaneous 39
SCHEDULE I: Directors and Executive Officers of Parent and Purchaser.
SCHEDULE II: Opinion of Raymond James & Associates, Inc.
SCHEDULE III: Text of Section 262 of the Delaware General Corporation Law.
</TABLE>
ii
To the Holders of Common Stock of
Homeowners Group, Inc.:
INTRODUCTION
CC Acquisition Corporation, a Delaware corporation (the "Purchaser"), a
wholly-owned subsidiary of HAC, Inc., a Florida corporation ("Parent"), hereby
offers (the "Offer") to purchase any and all outstanding shares of common stock,
par value $0.01 per share (the "Common Stock"), of Homeowners Group, Inc., a
Delaware corporation (the "Company"), including the associated common stock
purchase rights (the "Associated Rights"; and together with the Common Stock,
the "Shares") issued pursuant to the Rights Agreement, dated as of November 1,
1990, between the Company and Continental Stock Transfer and Trust Company, as
Rights Agent, as amended, (the "Rights Plan") for total consideration of up to
$2.06 per Share, $.55 of which shall be net to seller in cash (the "Cash
Price"), and $1.51 of which shall be held in an escrow account (the "Escrow
Account") pending resolution of certain tax liabilities that may be assessed
against the Company (the "Escrow Right") (the Cash Price and the Escrow Right,
sometimes hereinafter referred to as the "Offer Consideration").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 14, 1996 (the "Original Merger Agreement") among the Company and The
Cross Country Group, Inc. ("Cross Country") and CHGI Acquisition Corporation
("CHGI"), as amended as of October 31, 1996 (the "First Amendment"), January 31,
1997 (the "Second Amendment"), July 1, 1997 (the "Third Amendment"), and
September 9, 1997 (the "Last Amendment"). The Original Merger Agreement, as so
amended, shall sometimes hereinafter be referred to as the "Merger Agreement."
The Merger Agreement provides that, as soon as practicable after the completion
of the Offer and satisfaction or waiver, if permissible, of all of the
conditions to the Merger (as defined below), (a) Purchaser, as assignee of the
rights and obligations of CHGI under the Merger Agreement shall be merged with
and into the Company (the "Merger"), with the Company being the surviving
corporation and wholly owned directly by Parent; and (b) each of the Shares of
the Company, outstanding at the effective time of the Merger (other than Shares
held by Purchaser and its affiliates and Stockholders who have perfected their
statutory appraisal rights under Delaware law), shall be converted into the
right to receive the Offer Consideration. The Merger Agreement is more fully
described in "SPECIAL FACTORS -- The Merger Agreement; The Stockholders
Agreement; The Rights Plan."
Prior to execution of the Last Amendment, the Merger Agreement provided for
each outstanding Share to be converted in the Merger into the right to receive
$2.06 per Share net in cash.
On June 9, 1997, one week prior to the scheduled Special Meeting of
Stockholders called for the purpose of ratifying the Merger, the Company
received Notices of Proposed Adjustments from the Internal Revenue Service (the
"IRS") proposing to disallow approximately $20 million in losses that the
Company had taken on its Federal Income Tax Returns for taxable years 1993, 1994
and 1995 (the "Tax Claims"). The Tax Claims could result in the Company being
liable for approximately $6.5 million of tax, plus approximately $2.0 million in
interest. Although not assessed to date, the IRS could impose penalties. The
Company disputes any liability associated with the Tax Claims and intends to
vigorously defend any such claims associated therewith. See "SPECIAL FACTORS --
The Tax Claims; The Escrow Agreement; The Tax Contingency Settlement Agreement."
As a result of the Tax Claims, and in accordance with the Last Amendment,
the Company and Parent have agreed that $1.51 of the Offer Consideration will be
held in the Escrow Account pending resolution of the Tax Claims. Accordingly, if
the conditions to the Offer are met, Parent has agreed that, immediately
preceding consummation of the Offer, it will enter into an escrow agreement (the
"Escrow Agreement") with PNC Bank, New England (the "Escrow Agent") and,
contemporaneously therewith, deposit cash funds or an irrevocable standby letter
of credit (the "Letter of Credit") into the Escrow Account in an amount equal to
$1.51 for each Share validly tendered and not withdrawn immediately prior to
consummation of the Offer. In addition, Parent has agreed that immediately
preceding consummation of the Merger, it will deposit additional cash funds or
increase the Letter of Credit held in the Escrow Account by an amount equal to
$1.51 for each Share outstanding immediately prior to the Effective Time of the
Merger (other than any Shares owned by Parent or its affiliates, validly
tendered in the Offer or known to be Dissenting Shares). The deposited cash
funds or Letter of Credit held in the Escrow Account prior to consummation of
the Offer, and prior to the effective time of the Merger shall hereinafter be
collectively referred to as the "Escrow Funds". See "SPECIAL FACTORS -- The Tax
Claims; The Escrow Agreement; The Tax Contingency Settlement Agreement."
Tendering Stockholders (and each Stockholder whose Shares will be converted
in the Merger) shall be deemed to own, without any further action, one Escrow
Right for each Share validly tendered in the Offer or converted in the Merger,
as applicable. Each Escrow Right shall entitle the holder to receive its pro
rata portion of the funds
1
from the Escrow Account (up to a maximum of $1.51 per Share) if and when there
is a settlement of the Tax Claims with the IRS. The Company has advised
Purchaser that, as of September 17, 1997, there were 5,558,350 Shares issued and
outstanding. Parent and its affiliates have acquired 1,638,500 Shares or 29.5%
of the Shares outstanding. Based upon the foregoing, and assuming all Shares not
then owned by Parent or its affiliates are tendered in the Offer or converted in
the Merger, Parent will be obligated to deposit a maximum of $5,918,973.50 in
Escrow Funds into the Escrow Account. Any settlement of the Tax Claims, net of
the expenses, will be divided pro-rata among Parent, its affiliates and the
public Stockholders. Accordingly, assuming all Shares are acquired in the Offer
and the Merger, 29.5% of any net settlement will be paid by Parent and its
affiliates, and 70.5% will be paid out of the Escrow Funds with the balance of
the Escrow Funds then being distributed to those Stockholders who have tendered
their Shares in the Offer or whose Shares have been converted in the Merger.
Escrow Rights will not be assignable or transferable except by operation of
law (including the laws of descent and distribution) or by intestacy, and will
not be evidenced by any certificate or other instrument. No dividends will be
paid with respect to the Escrow Rights, and they will not bear any stated rate
of interest or have any voting or other stockholder rights. The Escrow Rights
will represent only the contingent right to receive the funds from the Escrow
Account in accordance with the terms and conditions of the Escrow Agreement.
Escrow Right holders may be entitled to receive a portion of any funds recovered
from any person or entity that is found to be liable for any portion of the
settlement paid to the IRS. See "SPECIAL FACTORS -- The Tax Claims; The Escrow
Agreement; The Tax Contingency Settlement Agreement."
THE BOARD OF DIRECTORS OF THE COMPANY (EXCLUDING THOSE DIRECTORS AFFILIATED
WITH PARENT AND PURCHASER), ACTING ON THE RECOMMENDATION OF A SPECIAL COMMITTEE
OF INDEPENDENT DIRECTORS, HAS (A) DETERMINED THAT EACH OF THE MERGER AGREEMENT,
THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF THE COMPANY, (B) APPROVED THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE MERGER AGREEMENT AND THE RELATED STOCKHOLDERS AGREEMENT
REFERENCED BELOW AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND (C) RESOLVED TO RECOMMEND ACCEPTANCE OF
THE OFFER, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER BY STOCKHOLDERS.
Tendering Stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the sale of Shares pursuant to the Offer. The
Purchaser will pay all charges and expenses of MacKenzie Partners, Inc., as
Information Agent for the Offer (the "Information Agent"),and Continental Stock
Transfer & Trust Company, as the Depositary (the "Depositary") in connection
with the Offer. See "THE TENDER OFFER -- Fees and Expenses."
The Company's financial advisor, Raymond James & Associates, Inc. ("Raymond
James"), has delivered to the Company's Board of Directors a written opinion,
dated September 16, 1997, to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, consideration to be received
by the holders of Shares in the Offer and the Merger was fair from a financial
point of view to such holders. A copy of the opinion of Raymond James is set
forth in Schedule II hereto and is contained in the Solicitation/Recommendation
Statement on Schedule 14D-9 filed by the Company with the United States
Securities and Exchange Commission (the "Commission") in connection with the
Offer (together with any exhibits, annexes, amendments or supplements thereto,
the "Schedule 14D-9"), which is being mailed to Company Stockholders herewith
and should be read carefully in its entirety. The opinion of Raymond James is
directed to the Company's Board of Directors and relates only to the fairness of
the consideration to be received in the Offer and the Merger by holders of
Shares from a financial point of view, does not address any other aspect of the
Offer or the Merger or related transactions, and is not intended to constitute,
and does not constitute an opinion regarding the potential tax liabilities faced
by the Company, or a recommendation to any Stockholder as to whether such
Stockholder should tender Shares in the Offer. See "SPECIAL FACTORS -- Opinion
of Financial Advisor to the Company."
THE OFFER IS FOR ANY AND ALL SHARES OUTSTANDING THAT ARE NOT OWNED BY
PARENT, PURCHASER, OR ANY OF THEIR AFFILIATES. THE OFFER IS SUBJECT TO CERTAIN
CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. THE OFFER IS NOT SUBJECT TO
THERE BEING A MINIMUM NUMBER OF SHARES VALIDLY TENDERED AND NOT WITHDRAWN. THE
OFFER IS NOT CONDITIONED ON RECEIPT OF FINANCING. SEE "THE TENDER OFFER --
CONDITIONS TO THE OFFER", WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER.
2
The Company has advised Purchaser that, as of September 17, 1997, there were
approximately 100 record holders of Shares and approximately 456,550 Shares
subject to employee stock options (the "Options"). Including 702,481 Shares
(12.6%) beneficially owned by Parent by virtue of the Stockholders Agreement,
Parent beneficially owns an aggregate of 2,356,981 Shares, or 42% of all Shares
outstanding. Based upon the foregoing information, Purchaser would own more than
a majority of the Shares outstanding if approximately 447,750 additional Shares
were validly tendered and not withdrawn in the Offer. In connection with the
transactions contemplated by the Merger Agreement, all of the Shares
beneficially owned by Parent and Purchaser will be voted in favor of approval
and adoption of the Merger and the Merger Agreement.
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger and the
Merger Agreement by the affirmative vote of the holders of more than 50% of the
outstanding Shares. If Parent and Purchaser own more than 50% of the outstanding
Shares after consummation of the Offer, and such a meeting is called, Parent and
Purchaser will own a sufficient number of Shares to approve and adopt the Merger
and the Merger Agreement without requiring the vote or proxy of any other
Stockholder. See "SPECIAL FACTORS -- Purpose and Effects of the Offer and the
Merger; Reasons for the Offer and the Merger." In addition, under the Delaware
General Corporation Law (the "DGCL"), if Parent and Purchaser own at least 90%
of the outstanding Shares upon consummation of the Offer, Purchaser will be able
to approve and adopt the Merger and the Merger Agreement without calling a
meeting of the Company's Stockholders and without the approval of any
Stockholders other than Parent and Purchaser. Therefore, in accordance with the
DGCL, in the event that Parent and Purchaser own at least 90% of the outstanding
Shares upon consummation of the Offer, all necessary and appropriate action will
be taken to cause the Merger to become effective as soon as reasonably
practicable after such acquisition without a meeting of Stockholders. If,
however, Parent and Purchaser do not own at least 90% of the outstanding Shares
and a meeting and approval of the Company's Stockholders is required under DGCL,
as described above, a longer period of time will be required to effect the
Merger. Under the Merger Agreement, if at any scheduled expiration date of the
Offer, all conditions to the Offer have been satisfied, but the number of Shares
beneficially owned by Parent, together with the number of Shares tendered into
the Offer, is less than 90% of the outstanding Shares, Purchaser shall be
entitled to extend the Offer from time to time without the consent of the
Company (for not more than 20 business days) in order to permit Purchaser to
solicit additional Shares to be tendered into the Offer. See "SPECIAL FACTORS --
Purpose and Effects of the Offer and the Merger; Reasons for the Offer and the
Merger."
No appraisal rights are available in connection with the Offer, but may be
available in connection with the Merger. See "SPECIAL FACTORS -- Rights of
Stockholders in the Merger."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
3
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER AND EXECUTION OF THE MERGER AGREEMENT.
The following information is based on the knowledge of Parent and Purchaser
to the extent describing matters within the knowledge of Parent and Purchaser
(including certain activities of the Company and the Company's Board of
Directors), and/or based upon publicly available information.
In January, 1995, the Company received several unsolicited 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
Company's Board of Directors to evaluate the alternatives available to the
Company. The Special 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, obtaining new financing, sale of various operating
assets of the Company, initiating discussions with others regarding the
acquisition of the Company and other possible forms of business reorganization.
On December 13, 1995, a jury in the Court of Common Pleas of Franklin
County, Ohio, rendered a verdict against Homeowners Marketing Services, Inc., a
subsidiary of the Company ("HMS"), in favor of Acceleration National Insurance
Company ("ANIC") in the amount of $5,156,022 (the "Judgment"). The Company then
engaged in negotiations with ANIC in an effort to reach a settlement with
respect to payment of the Judgment.
The contacts between the Company and Cross Country originally began with
discussions regarding joint marketing of products in February, 1996. A
subsequent meeting was held in March, 1996 in New York City at which Cross
Country proposed acquiring the Company. This meeting was attended by Carl
Buccellato, Gary Lipson and Diane Gruber, on behalf of the Company, and Howard
Wolk, Sidney Wolk and Nathan Wolk, on behalf of Cross Country. Cross Country
originally proposed advancing funds to the Company to satisfy the Judgment, with
such funds being secured by a lien on Company assets. The Company
representatives rejected this proposal in favor of an acquisition of the Company
by Cross Country.
On March 15, 1996, Cross Country proposed to acquire the outstanding Shares
of the Company at $1.95 per share. On April 30, 1996, Cross Country proposed to
acquire the outstanding Shares of the Company at $2.10. The foregoing proposals
were based solely on Cross Country's review of publicly available information
because Cross Country and the Company could not agree upon the terms of a
Confidentiality Agreement. Specifically, the Company required that, among other
things, Cross Country agree to abstain from making a tender offer for the Shares
for a period of one year as a condition to any sale negotiations. Upon agreement
with Cross Country on May 3, 1996 as to the terms of a confidentiality
agreement, the Company provided information to Cross Country.
The Special Committee established May 9, 1996 as a deadline for submission
of bids to acquire the Company. On May 7, 1996, Raymond James, on behalf of the
Company, notified Cross Country of the May 9, 1996 deadline.
The only 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 specific terms of the
Original Merger Agreement, including the representations and warranties to be
provided by the Company and various conditions precedent to the closing. The
Original Merger Agreement was signed by the Company, Cross Country and CHGI on
May 14, 1996 and reflected the right of Stockholders to receive $2.35 per Share.
In connection with the execution of the Original Merger Agreement, Cross
Country executed a voting agreement with the members of the Board of Directors
of the Company, pursuant to which the Board of Directors granted Cross Country
proxies to vote the 698,481 Shares then held by the Board of Directors as to all
matters related to the Merger.
On June 14, 1996, Cross Country advised the Company that pursuant to the
terms of the Original Merger Agreement, the rights and obligations of CHGI had
been assigned to Purchaser.
4
INTERIM AMENDMENTS TO THE MERGER AGREEMENT
Following execution of the Original Merger Agreement, Cross Country became
aware of various claims against, and contractual obligations of, the Company
which Cross Country determined were materially different from the
representations made by the Company to Cross Country in the Original Merger
Agreement. Cross Country advised the Company that these obligations and
contractual claims, as discussed below, committed the Company to various
payments and obligations which had a material adverse impact on the valuation of
the Company. Cross Country therefore notified the Company that it would be
unwilling to consummate the Merger unless such obligations and relationships
were terminated or modified in a manner that did not have a material adverse
impact on the valuation of the Company. As an alternative, Cross Country offered
to consummate the Merger without resolution of these issues at $1.80 per Share.
Settlement of the claims and contractual obligations required the payment of
funds by the Company or the commitment to pay funds upon consummation of the
Merger. One such situation, a claim by the Company's franchisees that payments
were due to them for 1995 and 1996 as a result of profit sharing agreements was
first brought to Cross Country's attention in July, 1996. This claim was
disputed by the Company, but settled by the Company committing to make a payment
of $591,965 to its franchisees. The provider of reinsurance for the Company's
warranty products alleged its arrangement with the Company was exclusive.
Although the Company disputed such a claim, the contract was terminated for a
payment by the Company of approximately $260,000. The Company was required to
pay approximately $175,000 in order to terminate an employment arrangement,
which it had represented would be terminated without cost. In another case, a
claim by a supplier of marketing services to the Company that it is entitled
under an existing agreement to continuing royalties from the sale of certain
products, which rights it was willing to waive for a payment of approximately
$700,000, remained unresolved.
Upon quantification of the costs associated with the foregoing obligations,
and in light of the Company's ongoing and potential obligation to make payments
associated therewith, Cross Country and the Company agreed to proceed with the
Merger at $2.06 per Share and entered into the First Amendment.
In connection with negotiating the First Amendment, the Company attempted to
obtain from ANIC an extension of its October 31, 1996 deadline for foregoing
action to collect on the Judgment. When ANIC refused to grant such an extension,
and in order to allow the Merger to proceed without ANIC foreclosing on the
Judgment, The Cross Country Group, LLC, an affiliate of Cross Country ("CCG")
purchased the rights of ANIC under the Judgment. The balance of the Judgment had
been reduced by a payment by the Company on September 4, 1996 of $1,401,485.20,
representing the proceeds of a federal income tax refund received by the
Company. CCG then entered into an agreement with the Company and HMS which
extended the period during which CCG would agree to take no action with respect
to the Judgment until January 31, 1997 (the "Settlement Agreement") (this date
was extended until the earlier of: (i) August 7, 1997 or (ii) termination of the
Merger Agreement as part of the interim amendments to the Original Merger
Agreement, and further extended to November 14, 1997 as part of the Last
Amendment). In consideration of CCG's agreeing to extend the date for
enforcement of the Judgment, the Company guaranteed the payment of the Judgment
against HMS and pledged the shares of HMS and Homeowners Marketing Services
International ("HMSI"), the franchisor subsidiary of the Company, as collateral
for its guaranty. In addition, HMS, HMSI and CCG entered into a Security
Agreement, dated as of October 31, 1996, pursuant to which HMS and HMSI granted
security interests in their assets to secure the obligation to repay the
Judgment.
In connection with the First Amendment and the Settlement Agreement, the
Company also amended the Rights Plan to permit Cross Country and its affiliates
to purchase an unlimited number of Shares in unsolicited privately negotiated
transactions without becoming an "Acquiring Person," or an "Adverse Person," and
without causing the Associated Rights to separate or become exercisable (as such
terms are defined in the Rights Plan). Such amendment was not effective until
three days after announcement that the Rights Plan was amended and was only to
be effective so long as no other offers were received to purchase the Company
during that three-day period. The three-day period expired without receipt of
any such offers. On December 20, 1996, Parent acquired 120,000 Shares at $1.73
per Share in a single, unsolicited privately negotiated transaction, bringing
the total ownership by Parent and its affiliates to 611,500 Shares.
As a result of the Merger not being completed prior to the January 31, 1997
deadline established by the First Amendment, the Company and Cross Country
entered into the Second Amendment on February 3, 1997, effective January 31,
1997. The Second Amendment extended the time period for consummation of the
Merger and the time for satisfaction of the Judgment referred to above until the
earlier of: (i) July 1, 1997 or (ii) termination of the Merger Agreement for any
reason.
5
On May 6, 1997, Parent acquired an additional 1,027,000 Shares at $2.03 per
Share in a single, unsolicited privately negotiated transaction, bringing the
total ownership by Parent and its affiliates to 1,638,500 shares. As a condition
to the May 6, 1997 purchase, Parent represented to the Company that neither it
nor its affiliates would seek to change the Company's management or Board of
Directors, or otherwise exercise control of the Company prior to consummation of
the Merger.
On June 9, 1997, ten days prior the Special Meeting at which Stockholders
were to ratify the Merger, the Company notified Cross Country that it had
received Notices of Proposed Adjustments from the IRS proposing to disallow
approximately $20 million in losses that the Company had taken on its Federal
Income Tax Returns for taxable years 1993, 1994 and 1995 (the "Tax Claims"). The
Tax Claims could result in the Company being liable for approximately $6.5
million of tax, plus approximately $2.0 million in interest. Although not
assessed to date, the IRS could also impose penalties.
On June 13, 1997, Cross Country, on behalf of itself and its affiliates,
notified the Company that the Tax Claims constituted a "Company Material Adverse
Effect" under the Merger Agreement, and gave the Company formal notice of its
election not to proceed with the Merger without modification to address the Tax
Claims.
On June 16, 1997, representatives of Cross Country and their counsel met
with Company counsel and Gary Lipson, a member of the Company's Board of
Directors and the Chairman of the Special Committee. At that meeting, Cross
Country proposed a third amendment to the Merger Agreement that would have made
adjustments in the $2.06 per Share to be paid in the Merger to reflect the
potential liability associated with the Tax Claims.
In anticipation of the Company more fully evaluating the Tax Claims
liability, Cross Country and the Company agreed to execute the Third Amendment,
which extended the Merger Agreement from June 30, 1997 to July 31, 1997, but did
not address any modification to the $2.06 per share to be paid under the Merger
Agreement.
LAST AMENDMENT OF THE MERGER AGREEMENT
Cross Country and the Company again commenced discussions in the middle of
July, 1997. On July 30, 1997, Cross Country proposed a fourth amendment to the
Merger Agreement under which Parent, or one of its affiliates, would commence a
tender offer for all outstanding Shares at a price of $2.06 per Share, $.50 of
which would be paid in cash, and $1.56 of which would be held in an escrow
account pending resolution of the Tax Claims liability.
Under such proposal, approximately $6 million would have been held in escrow
pending any settlement of the Tax Claims liability with the IRS. Upon any
favorable resolution of the Tax Claims that resulted in the potential liability
payable out of escrow being less than $6 million, the balance of the escrow
amount would have been paid to Company Stockholders.
On July 31, 1997, the Company advised Cross Country that it could not
complete review of the documentation necessary for execution of the proposed
fourth amendment because the Board of Directors first required resolution of the
terms of the escrow arrangement, including control over any settlement of the
Tax Claims with the IRS. On July 31, 1997, the Company and Cross Country agreed
to extend the Third Amendment to August 7, 1997.
On the morning of August 7, 1997, the Company notified Cross Country that
there were a number of unresolved issues associated with the proposed fourth
amendment, and that it had received two inquiries with respect to acquisition of
the Company. Based upon the foregoing, the Company requested another extension
to September 2, 1997.
On August 8, 1997, Cross Country responded by proposing another extension to
August 15, 1997. In addition, Cross Country offered to negotiate an all cash
offer in lieu of the proposed escrow arrangement.
The Company rejected the additional extension and on August 11, 1997, Parent
formally demanded that the Company call a Special Meeting in lieu of Annual
Meeting, and gave the Company notice of its intention to nominate persons for
positions on the Board of Directors, and to remove the incumbent members of the
Board of Directors.
On August 13, 1997, Parent requested that the Company hold an Annual Meeting
on September 30, 1997, and gave the Company notice of its intention to nominate
(i) one candidate to replace the single director whose term expired in 1996, and
(ii) two candidates to replace the two directors whose terms expire in 1997.
Parent also gave the Company notice of its intention to present a proposal at
the Annual Meeting calling for the removal of the remaining incumbent directors
without cause.
On August 14, 1997, Parent requested a meeting with the professionals
handling the Tax Claims for the Company in order to permit Parent to assess the
likely impact of the Tax Claims on the Company and formulate an all-cash offer.
On August 15, 1997, the Company responded to Parent's request advising that
it would arrange such a meeting, provided Parent agreed to (i) execute a
confidentiality agreement, (ii) withdraw its demand for a meeting of
Stockholders, and (iii) agreed to forbear from taking any action with respect to
the Judgment.
6
On August 18, 1997, Parent notified the Company that it was unwilling to
withdraw its demand for an Annual Meeting, and notified the Company that it had
commenced litigation in Delaware Chancery Court seeking to compel the Company to
hold an Annual Meeting, and a declaration that three out of five members of the
Company's Board of Directors were to stand for re-election at such meeting.
Cross Country further notified the Company, that in the interest of
reestablishing cooperation, it would be willing to forbear from taking any
action with respect to the Judgment until 5:00 P.M. on September 2, 1997,
provided that the Company: (i) agreed that it would not, prior to that time,
enter into any letter of intent or binding agreement with respect to the sale of
any stock or assets of the Company, or any subsidiary thereof; (ii) scheduled by
August 19, 1997, an Annual Meeting of Stockholders for September 30, 1997; and
(iii) delivered to Parent for receipt by August 22, 1997, the Stockholders list,
and committed to update such information on a weekly basis. Parent also enclosed
a demand for inspection of the Company's Stockholder list in accordance with
Section 220 of the DGCL.
On August 21, 1997, the Company notified Parent that the Company's Board of
Directors had held a meeting earlier that day and (i) established November 14,
1997 as the date for the Company's next Annual Meeting of Stockholders, (ii) set
September 17, 1997 as the Record Date for the Annual Meeting, and (iii)
acknowledged that the business at the Annual Meeting would include the election
of directors with respect to the classes whose terms expired in 1996 and would
expire in 1997. The Company also agreed to comply with the demand of Parent to
inspect and obtain copies of the Company's Stockholder list, and updates
thereof. In addition, the Company notified Parent that it had amended its Rights
Plan so that any acquisition of shares of the Company by Parent or any of its
affiliates after August 22, 1997 would no longer be exempt under the Rights
Plan.
On August 21, 1997, the Company also advised Parent that at least three
members of the Company's Board of Directors had agreed to support a tender offer
by Purchaser for all outstanding Shares at $.55 in cash and the contingent right
to receive $1.51 from the Escrow Account.
On August 28, 1997, the Company advised Parent that earlier that day, the
Company's Board of Directors met and took the following actions: (i) elected
Howard L. Wolk to the Company's Board of Directors, (ii) elected Richard Knox as
Executive Vice-President and Chief Operating Officer of the Company; (iii)
elected Alan Pyles as the Company's Vice-President of Real Estate Operations;
and (iv) called the next meeting of the Board of Directors for Tuesday,
September 9, 1997 in order to ratify the Last Amendment.
In addition to the foregoing, the Company and Parent agreed, effective
August 28, 1997, as follows: (a) Howard L. Wolk will resign from the Company's
Board if, and when, either (i) CCG or any affiliate executes on the Judgment, or
(ii) Parent, or one of its affiliates does not commence a tender offer
(negotiated or otherwise) for the outstanding shares of the Company by September
17, 1997; (b) until 5:00 P.M. on Wednesday, September 17, 1997, 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, encourage or respond to any inquiries or proposals by, or engage in
any discussions or negotiations with, or provide information to, or enter into
any agreement with, any corporation, partnership, person or other entity or
group which it is reasonably expected may lead to, or which relates to, any
takeover transaction, and any such discussions or negotiations shall be
terminated immediately; (c) until 5:00 P.M. on Wednesday, September 17, 1997,
CCG and its affiliates will forbear from exercising its rights under the
Judgment; and (d) the Company will cause its transfer agent to provide Cross
Country with a copy of a list of its Stockholders as of August 18, 1997 and as
of August 28, 1997.
On September 9, 1997, the Company's Board of Directors convened a meeting at
the Company to ratify the final terms of the Last Amendment. Howard L. Wolk,
President of Parent and Robert M. Rosen, legal counsel to Parent, were present
at the Company and addressed the Board of Directors at various times during its
deliberations. During one such time, the Board of Directors notified Mr. Wolk
and Mr. Rosen that the Special Committee had received a proposal from American
Home Shield, Inc., and that it was evaluating the terms and conditions of the
proposal.
After a prolonged period of deliberations by the Board of Directors, which
did not include Mr. Wolk or Mr. Rosen, the Board of Directors voted to ratify
the Last Amendment. Gary L. Lipson, a member of the Board of Directors voted
against ratifying the Last Amendment.
On September 9, 1997, Purchaser and the Company entered into the Last
Amendment to the Merger Agreement.
On September 16, 1997, at a meeting of the Company's Board of Directors, and
after a review of the final documentation associated with the Last Amendment,
including a requirement that the Escrow Agreement be modified, Raymond James
delivered its final written opinion that the Merger Agreement and the
transactions contemplated thereby were fair to Stockholders from a financial
point of view.
A description of certain of the activities of the Company's Board of
Directors and the Special Committee can be found in "Item 4. The Solicitation or
Recommendation" in the Schedule 14D-9.
7
2. THE TAX CLAIMS; THE ESCROW AGREEMENT; THE TAX CONTINGENCY SETTLEMENT
AGREEMENT.
The Tax Claims. On June 9, 1997, the Company received Notices of Proposed
Adjustments from the IRS proposing to disallow approximately $20 million in
losses that the Company had taken on its Federal Income Tax Returns for taxable
years 1993, 1994 and 1995 (the "Tax Claims"). The Tax Claims could result in the
Company being liable for approximately $6.5 million of tax, plus approximately
$2.0 million in interest. Although not assessed to date, the IRS could also
impose penalties. The Company has not yet been able to determine the extent or
probability of any liability to the IRS in settlement of the Tax Claims.
The Escrow Agreement. Based upon the uncertainty of the Tax Claims
liability, and in accordance with the terms of the Last Amendment, the Company
and Parent have agreed that $1.51 of the Offer Consideration will be held in the
Escrow Account pending resolution of the Tax Claims. Immediately preceding
consummation of the Offer, Parent has agreed to deposit, either in cash or an
irrevocable standby letter of credit, (the "Letter of Credit") into the Escrow
Account, an amount equal to $1.51 for each Share validly tendered and not
withdrawn pursuant to the Offer. In addition, immediately preceding consummation
of the Merger, Parent has agreed to deposit, either in cash or through an
increase in the Letter of Credit, an additional $1.51 for each Share outstanding
immediately prior to the effective time of the Merger (other than any Shares
owned by Parent or its affiliates, Shares validly tendered, or any Shares as to
which Dissenter's Rights are perfected). The cash funds or the Letter of Credit
deposited into the Escrow Account prior to consummation of the Offer and the
Merger shall hereinafter be collectively referred to as the "Escrow Funds".
Under the Escrow Agreement, the Escrow Agent shall distribute the Escrow
Funds: (a) in accordance with any written notices received containing mutually
agreed upon directions of the Company and the Stockholder Representatives (as
defined below); or (b) in accordance with written notices given by either the
Company or the Stockholder Representatives, provided that the Escrow Agent has
provided a copy of such notice to the other party, and such other party has not
objected thereto within five (5) business days after the Escrow Agent has so
delivered a copy of such notice. If either the Company or the Stockholder
Representatives object to such notice, such objecting party must deliver to the
other party and the Escrow Agent a written notice describing such objections in
reasonable detail (a "Dispute Notice"). Upon receipt of any Dispute Notice, the
Escrow Agent shall not distribute the Escrow Funds, but shall continue to hold
the Escrow Funds until receipt of either (x) written notice containing mutually
agreed upon directions signed by both the Company and the Stockholder
Representatives, or (y) written notice from the Company or the Stockholder
Representatives that a final judgment or binding arbitration decision has been
rendered and is in full force and effect as to the Escrow Funds, and a copy of
such final judgment or binding arbitration is delivered with such notice, at
which time the Escrow Agent shall distribute the Escrow Funds pursuant to such
mutually agreed upon written notice or such written notice of the Company or
Stockholder Representatives (accompanied by such final judgment or binding
arbitration), as the case may be.
The Tax Contingency Settlement Agreement. In accordance with the terms of
the Last Amendment, immediately prior to consummation of the Offer, Parent and
certain members of the Company's Board of Directors (the "Stockholder
Representatives") have agreed to enter into a Tax Contingency Settlement
Agreement.
The Tax Contingency Settlement Agreement requires Parent to use its best
efforts consistent with reasonable business practices to cause the Company to
achieve a resolution of the Tax Claims. Upon receipt from the IRS of a proposed
settlement of the Tax Claims (the "Proposed Settlement"), Parent will advise the
Stockholder Representatives in writing of the Proposed Settlement and all costs
and expenses associated therewith (the "Settlement Amount"). Parent shall have
the right, in its sole discretion, to either accept or reject the Proposed
Settlement. If Parent elects to accept the Proposed Settlement, it shall notify
the Stockholder Representatives in writing. Within five (5) days after receipt
of such notification, Parent and the Stockholder Representatives shall direct
the Escrow Agent to disburse the Escrow Funds as follows:
a. To the Escrow Agent in payment of all costs, expenses and
indemnities of the Escrow Agent.
b. To Parent, the Settlement Amount increased by all interest accrued on
such portion of the Escrow Funds multiplied by a fraction (i) the
numerator of which is equal to the number of Shares either accepted in
the Offer or converted in the Merger and (ii) the denominator of which is
the number of Shares issued and outstanding as of the date hereof
("Outstanding Shares").
c. To the Exchange Agent (for distribution to the former Stockholders of
Company who have tendered their Shares or whose Shares have been
converted in the Merger), the balance of the Escrow Funds increased by
all interest accrued on such portion of the Escrow Fund.
8
For example, assuming (i) 5,558,350 Shares outstanding, and (ii) all Shares
not then owned by Parent or its affiliates, approximately 4,000,000 Shares, are
tendered in the Offer or converted in the Merger, then approximately 71%
(4,000,000/5,558,350) of any Settlement Amount, net of expenses, will be
distributed to Parent to cover the Settlement Amount, and the remainder of the
Escrow Funds, if any, will be distributed to the former Stockholders of the
Company who tendered their Shares or whose Shares were converted in the Merger.
Reimbursement by Professionals. The Tax Contingency Settlement Agreement
provides that Parent may, in its sole and absolute discretion, seek to cause the
Company to recover all or any portion of the Settlement Amount paid to the IRS
from any person or entity that it considers to bear responsibility therefor. If
the Company receives a recovery on account of the Tax Claims (the "Tax
Recovery"), then the Company shall notify the Stockholder Representatives of the
amount of the Tax Recovery and all costs and expenses incurred by Parent or the
Company (including, without limitation, attorneys' fees) in connection with the
assertion, collection, settlement, prosecution or the investigation of the Tax
Recovery. Ten days after such notice, Parent shall apply and distribute the Tax
Recovery as follows:
a. To Parent or the Company, in reimbursement of all costs and expenses
incurred by Parent or the Company to third parties (including, without
limitation, attorneys' fees) in connection with the assertion,
collection, settlement, prosecution or investigation of the Tax Recovery.
b. To Parent or the Company, in compensation for their internal costs and
expenses in connection therewith an amount equal to 25% of the amount set
forth in subparagraph a above.
c. To the Company, the amount, if any, by which the Settlement Amount
exceeds the amount deposited with the Escrow Agent.
d. To the Company, the Net Tax Recovery (equal to the Tax Recovery reduced
by the foregoing payments) multiplied by a fraction (x) the numerator of
which is equal (i) to the number of Outstanding Shares reduced by (ii)
the number of Shares either accepted in the Offer or converted in the
Merger, and (y) the denominator of which is the number of Outstanding
Shares.
e. The balance of the Net Tax Recovery shall be distributed:
(i) 25% to the Company, and
(ii) 75% to the Exchange Agent (for distribution to the former
Stockholders of the Company who have tendered their Shares or whose
Shares were converted in the Merger), up to a maximum of $1.51 per
Share.
3. RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE COMPANY'S BOARD OF
DIRECTORS; FAIRNESS OF THE OFFER AND THE MERGER.
The following is based on information provided by the Company in the
Schedule 14D-9:
The Company's Board of Directors by a majority vote, has determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger are fair to and in the best interests of the holders of Shares
(other than Parent, Purchaser and their affiliates), has approved and adopted
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and recommends that all Stockholders of the Company accept
the Offer and tender all their Shares. This recommendation is based in part upon
an opinion (the "Fairness Opinion") received by the Company from Raymond James &
Associates, Inc. ("Raymond James") that the consideration to be received by the
Company's Stockholders in the Offer and the Merger is fair to the holders of
Shares (other than Parent or Purchaser) from a financial point of view. No
limitations were imposed by the Special Committee, Board of Directors or
management of the Company on Raymond James with respect to the investigations
made, or the procedures followed by it, in rendering the Fairness Opinion. For
purposes of its opinion, Raymond James relied, without independent verification,
on the accuracy, completeness and fairness of all financial and other
information reviewed by it. The Fairness Opinion contains a description of the
factors considered, the assumptions made and the scope of review undertaken by
Raymond James in rendering its opinion. THE FULL TEXT OF THE FAIRNESS OPINION
RECEIVED BY THE COMPANY FROM RAYMOND JAMES IS FILED AS SCHEDULE II, HERETO, AND
IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ SUCH OPINION
IN ITS ENTIRETY.
Reasons for the Recommendation. As described in "Item 4. The Solicitation or
Recommendation" in the Schedule 14D-9, the decision of the Special Committee to
approve, and recommend adoption and approval by Stockholders of the Merger
Agreement, and the transactions contemplated thereby, including the Offer and
the Merger, followed extensive discussions of the Special Committee, including
those with its financial and legal
9
advisers. The Special Committee, in reaching its decision, considered the
factors set forth below and the Board of Directors adopted the analysis of the
Special Committee. Although all of these items, except as indicated, were
considered as positive factors in concluding to recommend that the Stockholders
approve and adopt the Merger Agreement, the Special Committee and the Board of
Directors assigned particular weight to items (i)--(vii). Of these items, the
Special Committee and the Board of Directors concluded that (i), (ii) and (iii)
were of the most importance as they lead to the conclusion that the failure to
consummate the transactions contemplated by the Merger Agreement would result in
little opportunity for the Company to generate profits for Stockholders. Items
(iv) through (vii) were also considered to be significantly relevant because
they lead to the conclusion that the Offer Consideration to be received by the
Company's public Stockholders is fair and reasonable. The remainder of the items
(viii--xiv) were given lesser weight and are listed in the order of the weight
assigned to them.
(i) The losses incurred by the Company in recent years.
(ii) The effect of the ANIC Judgment and its settlement on the Company
and its Stockholders. The factors considered in this regard, which the Board
of Directors and Special Committee believed supported their decision to
enter into the First Amendment, included the following:
(a) the ability of the holder of the Judgment to seize assets of HMS
(a significant source of revenues to the Company), as part of its rights
as a judgment creditor and the resulting disruption to the business and
affairs of the Company in the absence of a settlement;
(b) the ability of the holder of the Judgment to pursue
remedies against the Company and its subsidiaries in an effort to
collect on the Judgment in the absence of a settlement;
(c) extension of the period during which CCG would agree to refrain
from taking action against the Company under the Settlement Agreement;
(d) the fact that the Company has expended approximately $1.6 million
to date in litigation expenses in the ANIC matter and had earlier waived
its rights to appeal the judgment.
(iii) The performance of the Company on a historical basis and the
prospects and risks facing the Company going forward as a public corporation
in light of the Judgment and the Tax Claims liability.
(iv) The fact that Purchaser is willing to provide a minimum cash payment
to Stockholders despite the fact that the potential liability of the Company
to the IRS as a result of the Tax Claims (although disputed by the Company)
could exceed the amount of the Company's Stockholders' equity.
(v) The opinion of Raymond James regarding the fairness, from a financial
point of view, of the Offer 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 of Directors. Based
on Raymond James' expertise and experience in the evaluation of businesses
in connection with transactions similar to those contemplated by the Merger
Agreement, and Raymond James' explanations of its methodology and analyses,
the Special Committee and the Board of Directors believed that Raymond
James' opinion as to the fairness of the Offer Consideration to be received
by the public Stockholders was well supported and sound and adopted their
analysis.
(vi) A review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate the Company as a public
company), the range of possible benefits and risks to the Company's
Stockholders of such alternatives and the timing and the likelihood of
actually accomplishing any of such alternatives.
(vii) The significant premium by which the Offer Consideration exceeds
the last closing sales price of the Shares on the day prior to commencement
of the Offer, and the overall valuation of the Company in light of the ANIC
Judgment and the Tax Claims.
(viii) 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.
(ix) The fact that the transactions contemplated by the Merger Agreement
are not conditioned upon financing. The Board of Directors and the Special
Committee favorably assessed Purchaser's ability to cause the Offer and
Merger to be consummated given the nature and sources of funds available to
Purchaser and its affiliates.
(x) The fact that Parent and Purchaser have obtained the regulatory
approvals necessary to consummate the Offer and Merger.
10
(xi) The establishment of the Special Committee to make an independent
determination as to the fairness of the Offer and Merger supported the Board
of Directors' and the Special Committee's determination of fairness.
(xii) 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 of Directors 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 of Directors and the Special Committee
believed that the projections considered by Raymond James were reasonable
and supported the Board of Directors' and the Special Committee's fairness
determination.
(xiii) The opportunity Stockholders have to demand appraisal of their
Shares in the Merger in accordance with Delaware law. While the Special
Committee and Board of Directors believe the Offer and Merger are fair to
the Company's public Stockholders, the availability of dissenters' rights
for Stockholders who may disagree with this belief was viewed as positive
and supported the decision of the Special Committee and the Board of
Directors to recommend approval of the Merger Agreement.
(xiv) The Stockholders of the Company would lose the opportunity to
participate in the future operations of the Company which could have a
negative impact on the Stockholders if such operations were profitable.
However, based on the alternatives available to the Company, the Board of
Directors and the Special Committee viewed continued operations as an
independent entity to represent little opportunity for profit to the
Stockholders, particularly in light of the ANIC Judgment.
4. OPINION OF FINANCIAL ADVISOR TO THE COMPANY.
The following is based on information provided by the Company:
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 Offer and 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 Offer and the Merger because of Raymond James' experience in
transactions similar to the Offer and 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
September 16, 1997, which stated that, based on the assumptions and subject to
qualifications set forth therein which are summarized below, as of September 16,
1997, the consideration to be received by the stockholders of the Company in the
Offer and Merger was fair, from a financial point of view, to the stockholders
of the Company. Raymond James was involved in structuring the Offer and Merger,
soliciting potential purchasers of the Company, and assisted in negotiating the
terms of the Offer and 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 Offer and Merger, the structure or tax
consequences of the Merger Agreement or the availability or advisability of any
alternatives to the Offer and 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 SCHEDULE II TO THIS OFFER TO PURCHASE 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 Offer and 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 management, and (v) certain
other publicly available information on the Company. Raymond James also held
discussions with members of the management of the Company and its subsidiaries
to discuss the foregoing and considered other matters which they deemed relevant
to their inquiry.
11
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 management, and relied upon management 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 September 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 and its
subsidiaries 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 and its subsidiaries
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.
From an analytical perspective, Raymond James first considered the fairness,
from a financial point of view, of consideration to Stockholders equal to $2.06
per Share assuming that there were no contingencies or issues associated with
the Tax Claims. This $2.06 per Share is the sum of the cash and escrow portions
of the Offer Consideration and is equal to the consideration agreed to by the
parties in the Second Amendment to the Merger Agreement. this perspective
allowed Raymond James to analyze the potential value of the Offer Consideration
isolated from the Tax Claims, which Raymond James then considered separately
through review of the escrow structure of the Offer.
Pro Forma Analysis. Raymond James prepared for the Board of Directors a pro
forma analysis of the Company's 1995 and 1996 income statements and management's
1997 projected income statement. Management had not prepared projections but
indicated to Raymond James that financial results in 1998 were not projected to
be significantly different than 1997. Raymond James noted the limitations of
analysis of such a relatively short period of future projections and concluded
that it was inappropriate to rely solely on any analysis of management's
projections in determining the fairness of the merger consideration.
In 1995, the Company reported a net loss of $1,855,221 or $0.33 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 market value adjustments from securities being marked to
market; (iii) the elimination of the ANIC Judgment; and (iv) the effect of the
settlements with the Company's franchisees regarding certain 1995 and 1996
profit-sharing payments. The effect of the adjustments, on a fully-taxed basis,
increased the Company's net income per Share on a pro forma basis in 1995 to
$0.22
In 1996, the Company reported a net loss of $2,597,561 or $0.47 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 expenses, (ii) the
elimination of market value adjustments from securities being marked to market,
(iii) the elimination of non-recurring asset dispositions, and (iv) the
elimination of accrued interest on the ANIC Judgment. The effect of the
adjustments, on a fully-taxed basis, increased the Company's net income per
Share on a pro-forma basis in 1996 to $0.07 per Share.
Management provided Raymond James with a projection for the balance of 1997.
Management noted that said projections were consistent with those previously
provided to Cross Country. Raymond James adjusted managements' projections to
account for: (i) the elimination of non-recurring legal, consulting and other
expenses, (ii) the elimination of market value adjustments from securities being
marked to market, (iii) the elimination of non-recurring asset dispositions, and
(iv) the elimination of accrued interest on the ANIC Judgment. The effect of the
adjustments had no impact on the Company's projected revenues for 1997 ($46.9
million). Such adjustments increased the Company's projected net earnings per
share on a pro forma basis in 1997 to $0.22.
Raymond James noted that its pro forma calculations did not take into
account the negative effect of funding the ANIC Judgment or its settlement, the
negative effect of funding any settlements with the IRS relating to any of the
outstanding Tax Claims or any profit-sharing payments to Affiliates in either
1996 or 1997, any or all of which
12
would have the effect of reducing pro forma earnings. Management's projections
for 1997 anticipated an increase in home warranty production over 1996 but a
material decrease in membership related revenue due to decreasing participation
in the Company's E&O program.
Market Valuation Analysis. Raymond James prepared for the Board of Directors
an analysis of the relationship of several potential transaction values for the
Common Stock of the Company ranging from $1.80 to $2.35 per Share to (i) the
nominal book value per share of Common Stock at June 30, 1997, and (ii) the
closing sale price of the Common Stock on various dates prior to the date Parent
and its affiliates filed its initial Form 13-D with the Securities and Exchange
Commission (April 4, 1996).
At a potential transaction value of $2.06 per share, the market valuation
analysis indicated a 194.3% premium over the Company's nominal book value per
share of $0.70 at June 30, 1997, a 37.3% premium over the closing market price
($1.50) one day prior to the initial Parent 13-D filing, a 24.1% premium over
the closing market price ($1.66) one week prior to the initial Parent 13-D
filing, and a 106.0% premium over the closing market price ($1.00) four weeks
prior to the initial Parent 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
$1.80 to $2.35 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 potential transaction values per share plus funded debt to be assumed
by a buyer as of June 30, 1997, plus the value of the ANIC settlement less
excess available cash as of June 30, 1997. Raymond James then compared these
Enterprise Values to the Company's trailing 12 months revenues as of June 30,
1997 and the number of warranty contracts sold by the Company over the same
trailing 12 month period.
At a potential transaction value of $2.06 per share, the ratio of Enterprise
Value to trailing 12 months revenues was 0.42, and Enterprise Value divided by
warranty contracts sold was $162.
Raymond James also prepared for the Board of Directors an analysis of the
relationship between various pro forma transaction values and pro forma 1995,
1996 and pro forma projected 1997 earnings per Share. Raymond James added $0.75
per Share on a pro forma basis to $2.06 per Share representing the value per
Share of Common Stock of the ANIC settlement ($1,401,485 already paid to ANIC
and the $2,750,000 paid by CCG for the remaining claim). 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 ANIC
settlement.
At a pro forma potential transaction value of $2.81 (pro forma equivalent to
the $2.06 potential transaction value), Raymond James' analysis indicated
price-to-earnings ratios of 12.8x for pro forma 1995 earnings per Share ($0.22),
40.1x for pro forma 1996 earnings per Share ($0.07), and 12.8x for management's
pro forma projected 1997 net earnings per Share of ($0.22).
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.
13
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 Parent --
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 Parent -- Company transaction multiples and ratios
approximated or exceeded the American Home Shield--Sierra transaction. Given the
relative similarities between the Company and its circumstances with Sierra,
Raymond James concluded that this analysis supported its conclusion and was
accorded meaningful weight.
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, Rollins Inc., ServiceMaster L.P., Warrantech Corporation and First
American Financial. Due to the lack of consistency in the valuation multiples
accorded to these 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 Offer and Merger.
Raymond James applied minor weight to this analysis in determining its
conclusion.
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, 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 ANIC Judgment and $0.75
per share on the date of such announcement. Raymond James also noted the trading
history of the stock since the initial May 14, 1996 announcement of the Merger
and the June 10, 1997 announcement of the Tax Claims. Specifically, since the
Company's announcement of the Tax Claims and Cross Country's unwillingness to
proceed with the original Merger, the Common Stock has traded in a range of
$0.125 to $0.875 per Share and closed on September 12, 1997 at $0.375 per Share.
In addition, Raymond James 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 31.6%, 37.4% and 39.5%, respectively. The average premiums
calculated were 40.9%, 48.8% and 50.4%, respectively. Raymond James noted that
at a transaction value of $2.06 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 Parent Form 13-D filing are 37.3%, 24.1%
and 106.0%, 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.
14
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 various fairness opinions,
Raymond James has received $150,000. 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.
5. PURPOSE AND EFFECTS OF THE OFFER AND THE MERGER; REASONS FOR THE OFFER
AND THE MERGER.
The Offer and the Merger are being made pursuant to the Merger Agreement.
The purpose of the Offer and the Merger is for Purchaser to acquire the entire
equity interest in the Company. In order to facilitate a prompt and orderly
transfer of ownership to Purchaser of the Shares owned by public Stockholders,
the transaction has been structured as a tender offer followed by a merger of
Purchaser with and into the Company in which the remaining equity interest in
the Company not acquired by Parent and Purchaser pursuant to the Offer or
otherwise, will be converted into the right to receive the Offer Consideration,
as provided in the Merger Agreement.
Consummation of the Merger is subject to obtaining the approval and adoption
of the Merger and the Merger Agreement by the requisite vote, if required by the
DGCL. Under the DGCL and the Merger Agreement, the approval of the Company's
Board of Directors and the affirmative vote of the holders of more than 50% of
the outstanding Shares is required to approve and adopt the Merger and the
Merger Agreement. The Company's Board of Directors (a) has determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, are fair to and in the best interest of the Company and the
holders of Shares (other than Parent and Purchaser), (b) has approved and
adopted the Merger Agreement, the Stockholders Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and (c) recommends
acceptance of the Offer, and, if applicable, approval and adoption of the Merger
Agreement and the Merger, by the holders of the Shares. In the Merger Agreement,
the Company has agreed to take all action necessary to convene a meeting of
Stockholders as soon as practicable after the consummation of the Offer for the
purpose of considering and taking action on the Merger Agreement and the
transactions contemplated thereby, if required to do so.
Following the Offer, if Parent and Purchaser own more than 50% of the
outstanding Shares, and a meeting of the Stockholders of the Company is called,
Parent and Purchaser will own a sufficient number of Shares to approve and adopt
the Merger and the Merger Agreement without requiring the vote or proxy of any
other Stockholder. In addition, under the DGCL, if Parent and Purchaser own at
least 90% of outstanding Shares, Purchaser will be able to approve and adopt the
Merger and the Merger Agreement without calling a meeting of the Company's
Stockholders and without the approval of any Stockholders other than Parent and
Purchaser. Therefore, in accordance with the DGCL, in the event that Parent and
Purchaser own at least 90% of then outstanding Shares after consummation of the
Offer, all necessary and appropriate action will be taken to cause the Merger to
become effective as soon as reasonably practicable after such acquisition
without a meeting of Stockholders. If, however, Parent and Purchaser do not own
at least 90% of then outstanding Shares, and a meeting and the approval of the
Company's Stockholders is required under the DGCL, as described above, a longer
period of time will be required to effect the Merger. Under the Merger
Agreement, if at any scheduled expiration date of the Offer, all conditions to
the Offer have been satisfied, but Parent and Purchaser own less than 90% of the
outstanding Shares, Purchaser shall be entitled to extend the Offer from time to
time without the consent of the Company (for not more than 20 business days) in
order to permit Purchaser to solicit additional Shares to be tendered into the
Offer.
For Stockholders of the Company other than Parent, Purchaser and its
affiliates, the Merger will result in a termination of their rights as
Stockholders. They will not participate in any earnings or growth of the
surviving corporation after the Merger and will not have any right to vote on
corporate matters. Such Stockholders also will not face the risk of any decline
in the earnings or value of the Company after the Merger.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if such class is not listed on a national securities
exchange and there are fewer than 300 record holders of such Shares. Termination
of registration of the Shares under the Exchange Act would reduce substantially
the information required to be furnished by the
15
Company to its Stockholders and to the Commission and would make certain
provisions of the Exchange Act no longer applicable to the Company, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with Stockholders' meetings pursuant
to Section 14(a) and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions. If registration of the Shares under the
Exchange Act were terminated prior to the consummation of the Merger, the Shares
would no longer be eligible for reporting on the OTC Bulletin Board where
transactions in the Shares are currently reported. IT IS THE PRESENT INTENTION
OF THE PURCHASER TO SEEK TO CAUSE THE COMPANY TO MAKE AN APPLICATION FOR
TERMINATION OF REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT AS SOON AS
POSSIBLE FOLLOWING THE OFFER IF THE REQUIREMENTS FOR TERMINATION OF REGISTRATION
ARE MET. See "THE TENDER OFFER -- Effect of the Offer on the Market for the
Shares, Exchange Listing and Exchange Act Registration."
6. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER.
Pursuant to the Merger Agreement, promptly following consummation of the
Offer, Parent and Purchaser intend to effect the Merger in accordance with the
terms thereof. Prior to the effective time of the Merger, from time to time
after completion of the Offer, Parent intends to evaluate and review the Company
and its assets, corporate structure, dividend policy, capitalization,
operations, properties, policies, management and personnel and consider and
determine what, if any, changes would be desirable in light of the circumstances
which then exist. Such strategies could include, among other things, changes in
the Company's business, corporate structure, certificate of incorporation,
by-laws, capitalization, management or dividend policy.
Except as described in this Offer to Purchase, Parent and Purchaser have no
present plans or proposals that would result in an extraordinary corporate
transaction, such as a merger, consolidation, reorganization, liquidation or
sale or transfer of a material amount of assets, involving the Company or any of
its subsidiaries, or any material changes in the Company's present
capitalization, dividend policy, employee benefit plans, corporate structure or
business or any material changes or reductions in the composition of its
management or personnel.
7. THE MERGER AGREEMENT; THE STOCKHOLDERS AGREEMENT; THE RIGHTS PLAN.
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof which is
incorporated by reference herein. A copy of the Merger Agreement, and each
amendment thereto, has been filed with the Commission as Exhibits to the
Schedule 14D-1 . The Merger Agreement, and each amendment thereto may be
examined, and copies thereof may be obtained, as set forth in "THE TENDER OFFER
- -- Certain Information Concerning the Company -- Available Information."
THE MERGER AGREEMENT
The Offer. The Merger Agreement provides for the commencement of the Offer.
Stockholders who tender their Shares in the Offer will, upon consummation of the
Offer, receive the Cash Price and one Escrow Right for each Share tendered.
Purchaser has expressly reserved the right to waive certain conditions to the
Offer; however, without the prior written consent of the Company, Purchaser has
agreed not to (i) decrease the Offer Consideration payable in the Offer or (ii)
impose conditions to the Offer in addition to those set forth in "THE TENDER
OFFER -- Conditions to the Offer." Purchaser may extend the Offer for up to 10
business days or for longer periods, (not to exceed 90 calendar days from the
date of commencement of the Offer) in the event that any condition to the Offer
is not satisfied, or for one or more times for an aggregate of 20 business days
if all of the conditions to the Offer are satisfied.
The Merger. The Merger Agreement provides that upon the terms (but subject
to the conditions) set forth in the Merger Agreement, Purchaser will be merged
with and into the Company. In the Merger, at the effective time of the Merger,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the Shares, each Share issued and outstanding
immediately prior to the effective time (excluding Shares owned by Company or
any of its subsidiaries or by Parent, Purchaser or any of their affiliates and
Dissenting Shares) shall be canceled and converted into the right to receive the
Cash Price and one Escrow Right (collectively, the "Merger Consideration"). In
the event there is a settlement of the Tax Claims, and a distribution of the
Escrow Funds to Escrow Right Holders prior to the effective time of the Merger,
then the Cash Price portion of the Merger Consideration shall be increased by
the pro-rata portion of such distribution. Holders of Shares who do not vote
16
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 "SPECIAL FACTORS --
Rights of Stockholders in the Merger."
Resignation of the Board of Directors of the Company. The Merger Agreement
provides that promptly upon consummation of the Offer, each member of the Board
of Directors of the Company (other than those members affiliated with Parent or
Purchaser) shall resign and be replaced by Parent's designees.
Proxy Statement. Pursuant to the Merger Agreement, the Company shall, if
required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold an annual or special meeting of its Stockholders as
soon as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the transactions
contemplated thereby (the "Stockholders' Meeting"). At the Stockholders'
Meeting, Parent and Purchaser shall cause all Shares then owned by them to be
voted in favor of the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. If Parent and Purchaser own more than 50% of
the outstanding Shares following consummation of the Offer, Parent and Purchaser
shall have sufficient voting power to approve the Merger, even if no other
Stockholder votes in favor of the Merger. In the event that Parent and Purchaser
own at least 90% of the then outstanding Shares following consummation of the
Offer, the parties have agreed to take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 253 of Delaware
Law, as soon as reasonably practicable after such acquisition, without a meeting
of the Stockholders of the Company.
The Merger Agreement provides that the Company shall, if required by
applicable law, as soon as practicable following consummation of the Offer, file
a proxy statement with the Commission under the Exchange Act (the "Proxy
Statement"), and shall use its best efforts to have the Proxy Statement cleared
by the Commission. Parent, Purchaser and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the Commission. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement and all
responses to requests for additional information and replies to comments prior
to their being filed with, or sent to, the Commission.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and power, capital structure, corporate authorization,
noncontravention, consents and approvals, Commission filings, information
supplied, compliance with applicable laws, litigation, taxes, pension and
benefit plans and ERISA, absence of certain changes or events, absence of
material liabilities, opinion of financial advisor, vote required, labor
matters, intangible property, environmental matters, real property, board
recommendation, material contracts, related party transactions, indebtedness,
liens and other matters.
The Company and Purchaser have also made certain representations and
warranties with respect to corporate existence and power, corporate
authorization, consents and approvals, noncontravention, information supplied,
board recommendation, financing, and other matters.
Conduct of Business Pending the Merger. The Company has agreed that during
the period from the date of the Merger Agreement to consummation of the Offer,
except as otherwise provided in the Merger Agreement or consented to by
Purchaser, the businesses of the Company and its subsidiaries will be conducted
only in, and the Company and its subsidiaries will not take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and that the Company will use its best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its subsidiaries and to preserve the current
relationships of the Company and its subsidiaries with customers, suppliers,
franchisees and other persons with which the Company or any of its subsidiaries
has significant business relations. The Company has further agreed that it will
not, without the prior written consent of Purchaser, 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, during the period from the date of the Merger Agreement to the
effective time of the Merger, 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, acquisition, sale of assets
or similar transaction involving the Company or any subsidiary, division or
major asset thereof.
17
Termination of Chief Executive Officer of the Company. Contemporaneously
with the consummation of this Offer, and in accordance with the terms of the
Merger Agreement, the Company will terminate the Employment Agreement between
the Company and Carl Buccellato dated as of December 22, 1995, and Mr.
Buccellato will resign as Chairman of the Board of Directors of the Company, as
director and as an officer and employee of the Company and its subsidiaries.
Under the terms of the Employment Agreement, Mr. Buccellato is entitled to a
base salary of $407,610, subject to an annual cost of living increase based on
the Consumer Price Index and a performance bonus as determined by the Board of
Directors. Mr. Buccellato's Employment Agreement provides that, in the event of
termination of employment due to a change in control of the Company, he will be
entitled to a lump sum distribution of compensation in an amount equal to 2.99
times the sum of the annual base salary currently provided for in the Employment
Agreement. In consideration for terminating his Employment Agreement, the
Company will enter into a Settlement Agreement with Mr. Buccellato pursuant to
which the Company will pay to Mr. Buccellato a lump sum payment of $600,000 in
cash.
Regulatory Matters. Seventeen of the states in which the Company's
subsidiaries operate regulate the home warranty business in which such
subsidiaries are engaged. The states of Florida, California and Virginia require
pre-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. All required notices and applications have been filed with such
states by the Company and Parent. All of the states have approved the Merger.
Stock Options. In the Merger Agreement, the Company has agreed to make such
adjustments to all the outstanding options issued by the Company to purchase
Shares 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 contingent right to receive from the Escrow,
an amount equal to the amount, if any, by which (A) the sum of (x) the Cash
Price, and (y) the actual amount of cash distributed to Escrow Right holders in
connection with liquidation of the Escrow exceeds (B) the per share exercise
price of the Company Option (the "Option Settlement Amount"), and (ii) all other
currently non-exercisable options issued to Directors of the Company shall be
canceled at no cost to the Company.
Immediately prior to the effective time of the Merger, all of the Company's
stock option, stock bonus and stock award plans or arrangements, that provide
for the issuance of Shares, will be terminated, and no further stock options,
bonuses or awards shall be granted thereunder. Without the prior written consent
of Parent, 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 of the Merger.
Extension of Agreement for Satisfaction of Judgment. Contemporaneously with
execution of the Last Amendment, the Company and CCG entered into a Third
Amendment to Agreement for Satisfaction of Judgment pursuant to which CCG agreed
not to take any action to collect on the Judgment until the earlier of (i)
November 14, 1997, (ii) termination of the Merger Agreement for any reason or
(iii) (a) the public announcement by a person not currently a reported owner of
10% or more, other than Parent or any of its affiliates, of beneficial ownership
("beneficial ownership" being defined in accordance with Rule 13d-3 of the
Exchange Act) of 10% or more of the Company Shares outstanding; (b) the date
upon which a tender offer or exchange offer is first published or sent or given
within the meaning of Rule 14d- 2(a) of the Exchange Act by a person other then
Parent or its affiliates; or (c) the filing of a Schedule 13D by a person other
then Parent or its affiliates that contains a description of a plan or proposal
that such reporting person or its affiliates have in response to any of the
requested information contained in Item 4(b)-(j) of the Schedule 13D. In
consideration for the foregoing, the Company (a) further secured the Company's
obligation under the Judgment by (i) the pledge by the Company of the shares of
Homeowners Association of America, Inc., HAA of Arizona, Inc., HAA of Georgia,
Inc., HAA of Utah, Inc. (collectively, the "HAA Entities") owned by the Company
to CCG, and (ii) the grant by the HAA Entities of a security interest in their
respective assets in favor of CCG.
Mutual Releases, Indemnification and Insurance. In accordance with the
Merger Agreement, Cross Country, Parent, Purchaser, and the Company and its
affiliated entities, exchanged general mutual releases with the Board of
Directors of the Company (except with respect for Carl Buccellato, who will
execute a mutual release upon his resignation) at commencement of the Offer. In
addition, the Merger Agreement provides that the Company will indemnify, defend
and hold harmless the directors of the Company for their acts and omissions
occurring prior to consummation of the Offer 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 Company
is required to
18
maintain in full force and effect for not less than 4 years after the
Consummation of the Offer, 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 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 Company will have no obligation whatsoever to pay premiums on
such officers' and directors' liability insurance in excess of $345,000.
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 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, Purchaser or any
of their affiliates); (C) the Board of Directors of the Company does not
recommend that the Company's Stockholders adopt and approve the Merger, the
Merger Agreement and the transactions contemplated thereby, or; (D) after
publicly recommending that Company's Stockholders adopt and approve the Merger,
the Merger Agreement and the transactions contemplated thereby, the Board of
Directors of the Company shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to Parent or Purchaser; 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 Parent or Purchaser or any of their respective affiliates at
either (x) a price per share in excess of the Offer Consideration as reduced by
the Tax Claims, or (y) an aggregate purchase price in excess of the aggregate
purchase price contemplated in the Merger Agreement (which shall include the
payments to CCG pursuant to the Settlement Agreement), or (B) if the following
shall have occurred: (x) 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 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 (y) at the date
of the Meeting a person or group other than Purchaser or any of its 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 Merger
Agreement requires the Company to promptly reimburse Purchaser and its
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 of the Merger by the mutual written consent of the
respective Board of Directors of Purchaser and the Company, by any of them 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 Purchaser
if (i) the Merger shall not have been consummated on or before 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 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 (unless this condition is waived by
Parent; (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's Board of
Directors does not recommend that the Company's Stockholders adopt and approve
the Merger, the Merger Agreement and the transactions contemplated thereby; (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
19
materially adverse to Purchaser; (vii) Parent or Purchaser shall have failed to
pay for Shares pursuant to the Offer within 90 days following commencement of
the Offer, unless such failure to pay for such Shares shall have been caused by
or resulted from the failure of Parent or Purchaser to perform in any material
respect any material covenant or agreement of either of them contained in the
Merger Agreement or the material breach by Purchaser of any material
representation or warranty of either of them contained herein or therein; or
(viii) if the Company shall have filed an application to terminate registration
of the Shares under Section 12 of the Exchange Act, and such application shall
have been denied by the Commission.
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
Purchaser 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 Offer Consideration or effect any other change
to the Merger Agreement which would materially and adversely affect the
Stockholders of the Company. Certain conditions to the Merger may be waived by
the party for whose benefit such condition was imposed.
Delaware Law. The Board of Directors of the Company has approved the Merger
Agreement and the transactions contemplated thereby, including the Offer, the
Merger and the Stockholders Agreement, and the entry by Purchaser into the
Stockholders Agreement for purposes of Section 203 of the DGCL. Accordingly, the
restrictions of Section 203 do not apply to the transactions contemplated by the
Offer, the Merger Agreement or the Stockholders Agreement. Section 203 of the
DGCL prevents an "interested stockholder" (generally, a stockholder owning 15%
or more of a corporation's outstanding voting stock or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include a merger
and certain other transactions) with a Delaware corporation for a period of
three years following the date on which such stockholder became an interested
stockholder unless (i) prior to such date, the corporation's board of directors
approved either the business combination or the transaction which resulted in
such stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in such stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the corporation's
voting stock outstanding at the time the transaction commenced (excluding shares
owned by certain employee stock plans and persons who are directors and also
officers of the corporation) or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3 % of the outstanding voting
stock not owned by the interested stockholder. As described above, the foregoing
description of Section 203 of the DGCL does not apply to the Offer or the Merger
(or the transactions contemplated thereby).
THE STOCKHOLDERS AGREEMENT
The following is a summary of the material terms of the Stockholders
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof which is incorporated herein by reference and a copy of which has
been filed with the Commission as an exhibit to the Schedule 14D-1. The
Stockholders Agreement may be examined, and copies thereof may be obtained, as
set forth in "THE TENDER OFFER -- Certain Information Concerning the Company --
Available Information."
Tender of Shares. On September 16, 1997, Parent, Purchaser and each of the
Selling Stockholders entered into the Stockholders Agreement. Upon the terms and
subject to the conditions of such agreement, each of the Selling Stockholders
has (i) agreed to validly tender and not to withdraw pursuant to and in
accordance with the terms of the Offer, not later than the fifth business day
after commencement of the Offer, the respective number of Shares owned
beneficially by him or her; (ii) acknowledged that the transfer by such Selling
Stockholder of his or her Shares to Purchaser will pass to and unconditionally
vest in Purchaser good and valid title to such Shares free and clear of all
claims, liens, restrictions, security interests, pledges, limitations and
encumbrances whatsoever and (iii) agreed to permit Parent and Purchaser to
publish and disclose his or her identity and ownership of Shares and the nature
of his or her commitments, arrangements and understandings under the
Stockholders Agreement in the documents relating to the Offer and, if
Stockholder approval for the Merger is required, in any proxy statement relating
thereto (including all documents and schedules filed with the Commission).
Voting. Each Selling Stockholder has agreed that during the period
commencing on the date of the Stockholders Agreement and continuing until the
first to occur of the effective time or termination of the Merger Agreement in
accordance with its terms, at any meeting of the Stockholders, however called,
or in connection with any written consent of the Stockholders, such Selling
Stockholder will vote (or cause to be voted) the Shares held
20
of record or beneficially owned by such Stockholder, in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
of the terms thereof, and each of the other actions contemplated by the Merger
Agreement and the Stockholders Agreement and any actions required in furtherance
thereof. In addition, each Selling Stockholder granted to Parent a proxy to vote
the Shares of such Stockholder in accordance with the provisions and agreements
described above.
In connection with the Stockholders Agreement, the Selling Stockholders have
made certain customary representations, warranties and covenants, including with
respect to (i) their ownership of the Shares, (ii) their authority to enter into
and perform their obligations under the Stockholders Agreement, (iii)
noncontravention, (iv) the absence of liens and encumbrances on and in respect
of their Shares, (v) restrictions on the transfer of their Shares, (vi) the
solicitation of acquisition proposals, and (vii) the waiver of their appraisal
rights.
Termination. Other than as provided therein, the Stockholders Agreement
terminates by its terms upon the termination of the Merger Agreement by
Purchaser.
THE RIGHTS PLAN
The following is a summary of the material terms of the Company's Rights
Plan. This summary is not a complete description of the terms and conditions
thereof and is qualified in its entirety by reference to the full text thereof.
The Rights Plan may be examined, and copies thereof may be obtained, as set
forth in "THE TENDER OFFER -- Certain Information Concerning the Company --
Available Information."
On November 1, 1990, the Board of Directors of the Company declared a
dividend distribution of one Associated Right for each outstanding share of
Common Stock of the Company to Stockholders of record at the close of business
on November 12, 1990. Each Associated Right entitles the registered holder to
purchase from the Company one Share at a price of $30 per share (the "Purchase
Price"), subject to adjustment. The description and terms of the Associated
Rights are set forth in the Rights Plan.
The Associated Rights will separate from the Shares and a Distribution Date
will occur upon the earliest of (i) 10 days following a public announcement that
a person or group of affiliated or associated persons an ("Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding Shares (the "Stock Acquisition Date"), (ii) 10 business
days following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 30% or more of such outstanding
Shares or (iii) immediately after the Board of Directors of the Company shall
declare any person to be an Adverse Person.
To declare a person an Adverse Person requires a determination by the
Company's Board of Directors that such person, alone or together with its
affiliates and associates, has become the Beneficial Owner (as defined in the
Rights Plan) of an amount of Shares which the Board of Directors determines to
be substantial (which amount shall in no event be less than 10% of the Shares
then outstanding) and a determination by at least a majority of the Continuing
Directors (as defined below) who are not officers of the Company, (a) that such
beneficial ownership by such person is intended to cause the Company to
repurchase the Shares beneficially owned by such person or to cause pressure on
the Company to take action or enter into a transaction or series of transactions
intended to provide such person with short-term financial gain under
circumstances where the Continuing Directors determine that the best long-term
interests of the Company and its Stockholders would not be served by taking such
action or entering into such transactions or series of transactions at that time
or, (b) that such beneficial ownership is causing or is reasonably likely to
cause a material adverse impact (including, but not limited to, impairment of
relationships with customers, impairment of the Company's ability to maintain
its competitive position or impairment of the Company's business reputation or
dealings with governmental or regulatory agencies) on the business or prospects
of the Company (provided, that a finding of suitability, qualification or the
like by any regulatory body shall not necessarily affect the Continuing
Directors' determination).
In the event that (i) any person becomes the Beneficial Owner of 20% or more
of the then outstanding Shares (except pursuant to an offer for all outstanding
Shares determined by the Continuing Directors to be fair to and otherwise in the
best interests of the Company and its Stockholders) or (ii) the Continuing
Directors declares that a person is an Adverse Person, each holder of an
Associated Right will thereafter have the right to receive, upon exercise
thereof, the number of Shares (or, in certain circumstances, cash, property or
other securities of the Company or a reduction in the purchase price) having a
value equal to two times the exercise price of the Associated Right.
21
In the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than pursuant to a
tender offer or exchange offer for all outstanding Shares determined by the
Continuing Directors to be fair to and otherwise in the best interests of the
Company and its Stockholders), or (ii) more than 50% of the Company's assets or
earning power is sold or transferred, each holder of an Associated Right shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Associated Right.
In the event that the Associated Rights cannot be exercised for common stock
of the acquiring company as set forth above, Associated Right holders will be
entitled to put the Associated Rights to the acquiring company for cash equal to
the exercise price of the Associated Rights. The events set forth in this
paragraph and in the second preceding paragraph are referred to as "Triggering
Events".
The term "Continuing Directors" means any member of the Board of Directors
of the Company who was a member of the Board prior to the date of the Rights
Plan, and any person who is subsequently elected to the Board of Directors if
such person is recommended or approved by a majority of Continuing Directors,
but shall not include an Acquiring Person or an Adverse Person, or any of their
affiliates or associates, or any representative of the foregoing entities.
The Board of Directors of the Company may, at any time prior to the earlier
of (i) the close of business on the tenth day following a Stock Acquisition
Date, or (ii) the final expiration date (November 13, 2000), redeem all but not
less than all of the then outstanding Associated Rights at a redemption price of
$.01 per Associated Right; provided, however, if the Board of Directors of the
Company authorizes redemption of the Associated Rights in either of the
circumstances set forth in clauses (i) and (ii) below, then there must be
Continuing Directors then in office and such authorization shall require the
approval of a majority of the Continuing Directors: (i) such authorization
occurs on or after the time a Person becomes an Acquiring Person, or (ii) such
authorization occurs on or after the date of a change (resulting from a proxy or
consent solicitation) in a majority of the directors in office at the
commencement of such solicitation if any Person who is a participant in such
solicitation, intends to take, or may consider taking, any action which would
result in such Person becoming an Acquiring Person or which would cause the
occurrence of a Triggering Event unless, concurrent with such solicitation, such
Person (or one or more of its Affiliates or Associates) is making a cash tender
offer pursuant to a Schedule 14D-1 (or any successor form) filed with the
Commission for all outstanding Shares not beneficially owned by such Person (or
by its Affiliates or Associates).
THE COMPANY HAS INFORMED PARENT AND PURCHASER THAT, BECAUSE (I) THE OFFER IS
AN OFFER TO PURCHASE ALL OF THE OUTSTANDING SHARES AND THE BOARD OF DIRECTORS
HAS DETERMINED THAT THE OFFER DESCRIBED HEREIN IS FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY'S STOCKHOLDERS (A "PERMITTED OFFER") AND (II) THE PRICE
PER SHARE TO BE PAID IN THE MERGER IS OF THE SAME FORM AND AMOUNT AS THE
PURCHASER SHALL PAY IN THE OFFER, THE ACQUISITION OF SHARES PURSUANT TO THE
OFFER OR THE CONSUMMATION OF THE MERGER WILL NOT (A) CAUSE ANY PERSON TO BECOME
AN ACQUIRING PERSON, (B) CAUSE A DISTRIBUTION DATE TO OCCUR OR CAUSE OR REQUIRE
THE DISTRIBUTION OF ANY RIGHTS CERTIFICATES TO THE RECORD HOLDERS OF SHARES, OR
(C) GIVE RISE TO A RIGHTS TRIGGERING EVENT. IN ADDITION, THE COMPANY HAS AGREED,
PURSUANT TO THE MERGER AGREEMENT, TO TAKE ALL ACTION NECESSARY SO AS TO RENDER
THE RIGHTS AGREEMENT INAPPLICABLE TO THE MERGER AGREEMENT, THE STOCKHOLDERS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY SUCH AGREEMENTS.
8. RIGHTS OF STOCKHOLDERS IN THE MERGER.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, Stockholders may, if certain statutory procedures are
complied with, have certain rights under the DGCL to dissent and demand
appraisal and to receive payment in cash for the fair value of their Shares.
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 Schedule III to this Offer to Purchase.
Stockholders who follow the procedures set forth in Section 262 may receive,
in lieu of the Offer Consideration 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
Offer 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.
22
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
(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 of the Merger, any Stockholder may
withdraw his or her demand for appraisal and accept the Offer Consideration 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 of the Merger, and
otherwise comply with Section 262. Purchaser may (but is not required to)
terminate the Merger Agreement if the holders of more than 10% of the
outstanding Shares claim or perfect appraisal rights.
Only a holder of record of Shares on the record date set for Stockholders
entitled to vote on the Merger (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 any meeting called for the purpose of voting
on the Merger.
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 of the Merger 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 of the Merger, the Company
or any Stockholder seeking appraisal rights may file a petition in the Delaware
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 of the Merger, 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.
23
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.
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 Schedule II 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 of
the Merger, 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 of the Merger 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 of the Merger, 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 of the Merger).
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, Attention:
Secretary.
9. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER.
In considering the recommendations of the Board of Directors of the Company
and the Special Committee with respect to the Offer and the Merger and the
fairness of the consideration to be paid under the Offer and in the Merger,
Stockholders of the Company should be aware that certain officers and directors
of the Company have interests in the Offer and the Merger, including those
referred to below, that present them with potential conflicts of interest.
The Company has been advised that on September 16, 1997, the members of the
Board of Directors and one executive officer, as Stockholders of the Company
entered into the Stockholders Agreement with Parent and Purchaser with respect
to 702,481 Shares owned by them (12.6% of the outstanding Shares), pursuant to
which such Stockholders have agreed to tender their Shares into the Offer, and
have granted Parent proxies as to all matters related to the Merger and Parent
intends to vote such Shares in favor of the approval and adoption of the Merger
Agreement.
24
Contemporaneously with the consummation of the Offer, Carl Buccellato will
resign as Chairman, Chief Executive Officer, President and a director of the
Company and its subsidiaries. In exchange for agreeing to surrender his rights
under his current employment agreement with the Company, Mr. Buccellato will
receive a payment of $600,000. Mr. Buccellato beneficially owns 263,453 Shares
(excluding options to purchase 260,000 Shares) or approximately 4.7% of the
outstanding shares, which in accordance with Stockholders Agreement, he has
agreed to tender into the Offer.
Gary D. Lipson, a director of the Company and Chairman of the Special
Committee, will receive $100,000 payable in 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 $2.06 per
share (which include employees and one non-employee director), will surrender
such options in exchange for the contingent right to receive the Option
Settlement Amount. Carl Buccellato, Melvin Stewart, a Director of the Company,
and C. Gregory Morris, Chief Financial Officer and Executive Vice-President of
the Company own 260,000, 25,000 and 60,000 options respectively. The options
held by Mr. Buccellato and Mr. Morris are exercisable at $2.00 per Share, and
the options held by Mr. Stewart are exercisable at $.75 per Share. Based upon
the foregoing, and assuming that all of the Escrow Funds are distributed to
Escrow Right holders, Messrs. Buccellato, Morris and Stewart would be entitled
to Option Settlement Amounts of $15,600, $32,750 and $3,600, respectively.
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. Prior to commencement of
the Offer, the Affiliated Franchisees have canceled the option and Amendments.
In addition, the Company has agreed that, in the event that the Offer 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 Purchaser
and its 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 TENDER OFFER -- 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 "SPECIAL FACTORS -- The Merger Agreement -- Mutual
Releases, Indemnification, and Insurance."
Beneficial Ownership of Common Stock. The Company has advised Purchaser as
follows: The following table sets forth information concerning beneficial
ownership, as of September 9, 1997, by persons known to the Company (based upon
filings on Schedules 13D and 13G filed pursuant to the Exchange Act) to own 5%
or more of the Company's outstanding voting securities. The table also shows
information concerning beneficial ownership by all directors, by each of the
Company's Named Executive Officers (as such term is defined in the Exchange Act)
and by all directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined under
rules of the Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has the right to
acquire within 60 days of September 9, 1997, through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power (or shares such powers with his or her spouse), with
respect to the shares set forth in the following table.
25
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
--------------------------------------- ------ -------
<S> <C> <C>
Carl Buccellato 523,453(2) 8.8%
Diane M. Gruber 27,550(3) 0.5%
Gary D. Lipson 45,000(4) 0.8%
Michael A. Nocero, Jr. M.D 140,000(5) 2.5%
Melvin Stewart 307,875(6) 5.2%
C. Gregory Morris 60,000(7) 1.0%
Howard L. Wolk 0(8) --
Sandra Stewart Bernstein 406,862(9) 7.3%
2810 North 46th Avenue
Hollywood, FL 33021
Dimensional Fund Advisors, Inc. 293,500(9) 4.9%
1299 Ocean Avenue
Santa Monica, CA 90401
HAC, Inc. 1,638,500(10) 29.5%
4040 Mystic Valley Parkway
Boston, MA 02155
All Directors and Executive Officers as a Group
(7 persons) 1,103,878(11) 18.6%
</TABLE>
- -------------
(1) The address of all executive officers and directors is 400 Sawgrass
Corporate Parkway, Sunrise, FL 33325.
(2) Includes 14,397 shares of common stock held by Carl Buccellato as Trustee
of the Renee Buccellato Trust, the Lori Ann Buccellato Trust and the
Matthew Buccellato Trust. Includes presently exercisable options to
purchase 260,000 shares of common stock.
(3) Includes presently exercisable option to purchase 17,500 shares of common
stock. The total does not include 1,000 shares owned by Gayle N. Gruber,
Ms. Gruber's daughter, as to which beneficial ownership is disclaimed by
Ms. Gruber.
(4) Includes presently exercisable options to purchase 25,000 shares of common
stock.
(5) Includes 78,500 shares of common stock owned under a retirement plan for
the benefit of Michael A. Nocero, Jr. M.D. and indirect ownership of 33,000
shares owned by his daughters. Includes presently exercisable options to
purchase 25,000 shares of common stock.
(6) Includes presently exercisable options to purchase 25,000 shares of Common
Stock and 243,701 shares of common stock held by Melvin Stewart as Trustee
of the Melvin Stewart Trust. Also includes 15,788 shares of common stock
held by Mitchell Stewart as Trustee of the Bari Udell Trust, as to which
trust Melvin Stewart has the power to direct the voting and investment of
such shares as trust advisor and as to which beneficial ownership is
disclaimed by Mr. Stewart.
(7) Consists of presently exercisable options to purchase 60,000 shares of
common stock.
(8) Howard L. Wolk does not have sole voting and dispositive power over any
Shares of the Company, but, as a result of being an officer and director of
HAC, Inc., Mr. Wolk may be deemed to have indirect beneficial ownership of
the 1,638,500 Shares held by HAC, Inc.
(9) Ownership shares and percentages based upon the Schedules 13G as provided
to the Company.
(10) Ownership shares and percentages based on Schedules 13D filed April 11,
1996, as amended, as provided to the Company.
(11) Includes (i) an aggregate of 285,000 shares of common stock which the
officers and directors have the right to acquire through the exercise of
presently exercisable options and (ii) an additional 50,000 shares of
common stock which the officers and directors will have the right to
acquire though the exercise of options that will become exercisable
contemporaneously with the consummation of the Merger.
26
10. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.
The receipt of Cash Price pursuant to the Offer (or the Merger) will be a
taxable transaction for federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code"), and also may be a taxable transaction
under applicable state, local or foreign tax laws. In general, a Stockholder
will recognize gain or loss for federal income tax purposes equal to the
difference between the amount of consideration received pursuant to the Offer or
the Merger and the aggregate tax basis in the particular securities tendered by
the Stockholder and purchased pursuant to the Offer or converted in the Merger,
as the case may be. However, Stockholders may wish to consult their own personal
tax advisors to determine the proper timing of such gain recognition.
If Shares are held by a Stockholder as capital assets, gain or loss
recognized by such Stockholder will be capital gain or loss. Generally, for
sales and exchanges after July 28, 1997, such gain or loss will be long-term
capital gain or loss if the Stockholder's holding period for the securities
exceeds 18 months at the time of the sale (in the case of the Offer) or at the
effective time of the Merger. Under present law, long-term capital gains
recognized by an individual Stockholder generally will be taxed at a maximum
federal tax rate of 20%.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED AS COMPENSATION OR WITH
RESPECT TO HOLDERS OF SECURITIES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER
THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF
SECURITIES IN LIGHT OF SUCH HOLDER'S INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES
TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER.
27
THE TENDER OFFER
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered and not withdrawn prior to the Expiration Date. The term "Expiration
Date" means 12:00 midnight, eastern standard time, on Friday, October 17, 1997,
unless and until the Purchaser, in its sole discretion, shall have extended the
period of time during which the Offer is open, in which event the term
"Expiration Date" shall refer to the latest time at which the Offer, as so
extended by the Purchaser, will expire.
The Offer is conditioned upon satisfaction of each of the conditions set
forth in Section 12, "Conditions to the Offer" contained herein. Purchaser
expressly reserves the right (but shall not be obligated) to waive any or all of
the conditions of the Offer.
Pursuant to the terms of the Merger Agreement, Purchaser expressly reserves
the right to amend or modify the terms of the Offer, except that, without the
prior written consent of the Company, Purchaser may not (and Parent shall not
cause Purchaser to) (i) decrease the Offer Consideration or the form of
consideration therefor, (ii) change, in any material respect, the conditions to
the Offer, (iii) impose additional material conditions to the Offer, (iv) extend
the Expiration Date (except that Purchaser may extend the Expiration Date (a) as
required by law, (b) for up to 10 business days after the initial Expiration
Date or for longer periods (not to exceed 90 calendar days from the date of
commencement) in the event that any condition to the Offer is not satisfied, or
(c) for one or more times for an aggregate period of up to 20 business days if
all of the conditions to the Offer are satisfied.)
The Company has provided Purchaser with its Stockholder list and security
position listings for the purpose of disseminating the Offer to Stockholders.
This Offer to Purchase and the related Letter of Transmittal and other relevant
materials will be mailed to record holders of Shares, and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Stockholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
2. PROCEDURES FOR TENDERING SHARES.
Valid Tender. For a Stockholder validly to tender Shares pursuant to the
Offer, either (a) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or, in
the case of a book-entry transfer (if applicable), an Agent's Message (as
defined below), and any other required documents, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date and either Certificates must be received
by the Depositary at one of such addresses (or such Shares must be delivered
pursuant to the procedures for book-entry transfer set forth below), in each
case prior to the Expiration Date, or (b) the tendering Stockholder must comply
with the guaranteed delivery procedures set forth below. As used herein,
"Certificates" shall mean certificates representing Shares and the Associated
Rights attached hereto.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (a "Book-Entry Transfer Facility")
for the purposes of the Offer within two business days after the date of this
Offer to Purchase. Any financial institution that is a participant in the
Book-Entry Transfer Facility system may make book-entry delivery of Shares by
causing the Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account in accordance with the Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Shares may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message, and any other required
documents, must, in any case, be transmitted to, and received by, the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering Stockholder must comply with the
guaranteed delivery procedures described below. The confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Facility as described
herein is referred to herein as "Book-Entry Confirmation." DELIVERY OF DOCUMENTS
TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
28
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (a) if the Letter of Transmittal is signed by a registered holder
(which term, for purposes of this Section, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the owner of the applicable security) who has not completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal, or (b) if the securities are
tendered for the account of a financial institution (including most commercial
banks, savings and loan associations and brokerage houses) that is a participant
in the Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal.
If the Certificates are registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made or Certificates
not tendered or not accepted for payment are to be returned, to a person other
than the registered holder, then the tendered Certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the Certificates, with
the signatures guaranteed as described above. See Instructions 1 and 5 of the
Letter of Transmittal.
Guaranteed Delivery. If a Stockholder desires to tender Shares pursuant to
the Offer and such Stockholder's Certificates are not immediately available or
time will not permit all required documents to reach the Depositary on or prior
to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary on or prior to the Expiration Date; and
(iii) the appropriate Certificates (or, if applicable, a Book-Entry
Confirmation) representing all tendered securities, in proper form for
transfer, together with the appropriate Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message)
and any other documents required by the Letter of Transmittal, are received
by the Depositary within three trading days after the date of execution of
such Notice of Guaranteed Delivery ("Delivery"). A trading day is any day on
which the NASDAQ National Market is open for business.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR TRANSMITTED BY
TELEGRAM, FACSIMILE TRANSMISSION OR MAIL TO THE DEPOSITARY AND MUST INCLUDE A
GUARANTEE BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN THE NOTICE OF
GUARANTEED DELIVERY.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, A BOOK-ENTRY CONFIRMATION). IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) Certificates or, if applicable, a Book-Entry
Confirmation, with respect to such Shares, (b) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry
29
transfer, an Agent's Message and (c) any other documents required by the Letter
of Transmittal. Accordingly, payment might not be made to all tendering
Stockholders at the same time and will depend upon when Certificates are
received by the Depositary or, if applicable, when Book-Entry Confirmations,
with respect to tendered Shares are received into the Depositary's account at
the Book-Entry Transfer Facility.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering Stockholder irrevocably appoints designees of the Purchaser
as the Stockholder's attorneys-in-fact and proxies in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of the Stockholder's rights with respect to the securities tendered by
the Stockholder and accepted for payment by the Purchaser. All such powers of
attorney and proxies shall be considered coupled with an interest in the
tendered securities. This appointment will be effective when, and only to the
extent that, the Purchaser accepts the tendered securities for payment pursuant
to the Offer. Upon such acceptance for payment, all prior powers of attorney,
proxies or consents given by the Stockholder with respect to the tendered
securities will, without further action, be revoked, and no subsequent powers of
attorney, proxies or consents may be given (and, if given, will not be deemed to
be effective) with respect thereto. The designees of the Purchaser will, with
respect to the tendered securities, be empowered to exercise all voting and
other rights of such Stockholder as they in their sole discretion may deem
proper at any annual, special or adjourned meeting of the Company's
Stockholders, by written consent or otherwise. The Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Shares, the Purchaser must
be able to exercise full voting and other rights of a record and beneficial
holder, including action by written consent, with respect to such Shares.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, whose determination shall
be final and binding on all parties. The Purchaser reserves the absolute right
to reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any defect or irregularity in any tender with
respect to Shares of any particular Stockholder, whether or not similar defects
or irregularities are waived in the case of other Stockholders. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived. None of the Purchaser, Parent, the
Depositary, the Information Agent, or any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. The Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the Instructions thereto) will be final and binding on all
parties.
Backup Federal Income Tax Withholding. In order to avoid "backup
withholding" of federal income tax on payments of cash pursuant to the Offer, a
Stockholder surrendering Shares in the Offer must, unless an exemption applies,
provide the Depositary with such Stockholder's correct taxpayer identification
number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury
that such TIN is correct and that such Stockholder is not subject to backup
withholding. If a Stockholder does not provide such Stockholder's correct TIN or
fails to provide the certifications described above, the Internal Revenue
Service (the "IRS") may impose a penalty on such Stockholder and payment of cash
to such Stockholder pursuant to the Offer may be subject to backup withholding
of 31%. All Stockholders surrendering Shares pursuant to the Offer should
complete and sign the main signature form and the Substitute Form W-9 included
as part of the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary). Certain Stockholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding,
but such Stockholders may be subject to other withholding requirements. Such
Stockholders should consult with their own tax advisors as to the specific tax
consequences relating to cash payments. Noncorporate foreign Stockholders should
complete and sign the main signature form and a Form W-8, Certificate of Foreign
Status, a copy of which may be obtained from the Depositary, in order to avoid
backup withholding. See Instruction 11 to the Letter of Transmittal.
3. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 3, tenders of Shares made
pursuant to the Offer are irrevocable, provided that such securities tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after October 17, 1997.
30
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its addresses
set forth on the back cover of the this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the securities to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder, if different from that of the person who tendered such Shares. If
Certificates have been delivered or otherwise identified to the Depositary,
then, prior to the release of such Certificates, the serial numbers of the
particular Certificates evidencing the Shares to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution,
except in the case of Shares tendered for the account of an Eligible
Institution, must also be furnished to the Depositary as described above. If
Shares have been tendered pursuant to the procedures for book-entry transfer as
set forth in Section 2, any notice of withdrawal must also specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will not be deemed to be validly tendered for purposes of the Offer. Withdrawn
securities may, however, be retendered by following one of the procedures
described in Section 2 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, Parent, the Information Agent, the Depositary or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Upon the terms and subject to the conditions of the Offer (including if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, all Shares validly tendered on or prior to the Expiration Date as soon as
practicable after the Expiration Date. In addition, subject to the applicable
rules of the Commission, the Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for Shares in order to
comply, in whole or in part, with any applicable law. Any such delays will be
effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a
bidder's obligation to pay for or return tendered securities promptly after the
termination or withdrawal of such bidder's offer).
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after a timely receipt by the Depositary of (i)
the Certificates or, if applicable, a Book-Entry Confirmation with respect to
such Shares into the Depositary's account at the Book-Entry Transfer Facility
pursuant to the procedures set forth in Section 2, (ii) the Letter of
Transmittal (or a manually signed facsimile thereof), for the Shares properly
completed and duly executed, with any required signature guarantees, or, in the
case of book-entry transfer, an Agent's Message, and (iii) any other documents
required by the Letter of Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment (and thereby purchased) validly tendered Shares, if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. In all cases,
payment for Shares accepted for payment pursuant to the Offer will be made by
deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering Stockholders for the purpose of receiving payment from the
Purchaser and transmitting payment to such tendered Stockholders. Under no
circumstances will interest on the purchase price of the Shares be paid by the
Purchaser by reason of any extension of the Offer or any delay in making such
payment. Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering Stockholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering Stockholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any time
or in part from time to time, to Parent or to one or more direct or indirect
wholly owned subsidiaries of Parent, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer, but any such transfer or assignment
will not relieve the Purchaser of its obligations under the Offer or prejudice
the rights of tendering Stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
31
5. PRICE RANGE OF SHARES; DIVIDENDS.
Until August 12, 1997, the Company's common stock was listed on the Nasdaq
NMS under the symbol HOMG. On August 12, 1997, the Company's securities were
delisted from the Nasdaq NMS and are now eligible to trade on the OTC Bulletin
Board. The following table sets forth the high and low transaction prices for
each quarterly period during fiscal years 1995 and 1996, the first and second
quarter of 1997 and for the period July 1, 1997 through September 9, 1997. Stock
price data reflects inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW
---- ------- ---- ---
<S> <C> <C> <C>
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 2.19 1.31
Third 2.13 1.88
Fourth 2.06 1.50
1997 First $1.94 $ 1.13
Second 2.03 0.50
Third (through Sept. 9) 0.88 0.13
</TABLE>
On April 3, 1996, the last trading day prior to the filing of a Schedule 13D
by certain affiliates of Cross Country reporting that they 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 Original Merger Agreement,
the reported closing sales price per Share on the Nasdaq NMS was $1 7/8 . On
June 9, 1997, the last trading day prior to the date the Company publicly
announced that it received the notices from the IRS regarding the Tax Claims,
the reported closing sales price per Share on the Nasdaq NMS was $2.00. On
September 15, 1997, the reported closing sales price per Share on the OTC
Bulletin Board was $0.375. Holders of Shares are urged to obtain current
quotations for the Shares.
According to published financial sources, the Company did not declare any
cash dividends on the Shares during the periods set forth above.
6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE ACT
REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
Shares held by holders other than the Purchaser.
On August 12, 1997, the Company's Shares were delisted from the Nasdaq NMS
because the Company no longer meets requirements for inclusion in the NMS. The
Company's Shares are now eligible to trade on the OTC Bulletin Board.
The Shares are not currently "margin securities" under the regulations of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to extend
credit on the collateral for the Shares.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if such class is not listed on a national securities
exchange and there are fewer than 300 record holders of such Shares. The Company
has approximately 100 record holders of Shares. Termination of registration of
the Shares under the Exchange Act would reduce substantially the information
required to be furnished by the Company to its Stockholders and to the
Commission
32
and would make certain provisions of the Exchange Act no longer applicable to
the Company, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
Stockholders' meetings pursuant to Section 14(a) and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions. If
registration of the Shares under the Exchange Act were terminated prior to the
consummation of the Merger, the Shares would no longer be eligible for reporting
on the OTC Bulletin Board where transactions in the Shares are currently
reported. IT IS THE PRESENT INTENTION OF THE PURCHASER TO SEEK TO CAUSE THE
COMPANY TO MAKE AN APPLICATION FOR TERMINATION OF REGISTRATION OF THE SHARES
UNDER THE EXCHANGE ACT AS SOON AS POSSIBLE FOLLOWING THE OFFER IF THE
REQUIREMENTS FOR TERMINATION OF REGISTRATION ARE MET.
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
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.
HMS 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(R)), the HMS BuyerTrack(R) Follow-up System, the HMS Consumer Reach
Program, 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 1996, 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, Colorado, Idaho, Florida (except northwest Florida, which
territory has been granted to an Affiliate), Hawaii, Indiana, Iowa, Nebraska,
North Dakota, Oregon, South Dakota and Washington, and is a 45% partner in a
partnership which directly enrolls Members in Texas. Collectively, these
territories are known as Corporate Owned Regions. The Company manages, for a
fee, the Kansas, Oklahoma, Missouri territory and the Arizona, New Mexico
territory and owns a nominal interest in the Arizona, New Mexico territory. The
Company has combined administrative functions of the Kansas, Oklahoma and
Missouri region and of the Arizona, New Mexico and the Texas region. The
Colorado region and the Washington, Oregon and Idaho regions have combined
administrative functions with the California region.
Selected Financial Data. Set forth below is certain selected consolidated
financial information with respect to the Company and its subsidiaries excerpted
or derived from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997. More comprehensive financial information is
included in such reports and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by reference
to such reports and other documents and all of the financial information
(including any related notes) contained therein. Such reports and other
documents should be available for inspection and copies thereof should be
obtainable in the manner set forth below under "Available Information."
33
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT (IN THOUSANDS)
Operating revenue $22,854 $21,931 $45,531 $44,692
Income (loss) from continuing operations before income
taxes 200 (428) (1,597) 2,208
Income (loss) from continuing operations 123 (269) (1,038) 1,361
Net income (loss) 123 (269) (2,598) (1,855)
CASH FLOW FROM OPERATING ACTIVITIES (IN THOUSANDS) 1,908 3,072 4,347 (667)
Cash and cash equivalents 2,548 2,311 1,834 997
Total assets 37,755 39,517 37,754 38,757
Long-term debt, net of current portion 1,843 2,165 2,941 2,592
Stockholders' equity 3,901 6,270 3,760 6,365
PER SHARE DATA
Income (loss) from continuing operations 0.02 (0.05) (0.19) 0.25
Net income (loss) 0.02 (0.05) (0.47) (0.33)
Stockholders' equity 0.70 1.13 0.68 1.15
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS) 5,558 5,558 5,558 5,558
</TABLE>
Ratio of Earnings to Fixed Charges; Book Value per Share. The Company's
ratio of earnings to fixed charges for the fiscal year ended December 31, 1996
was (4.59). The ratio of earnings to fixed charges for the fiscal year ended
December 31, 1995 was 7.28. The ratio of earnings to fixed charges for the
period ended June 30, 1997 was 1.64. For purposes of this paragraph, "earnings"
is the Company's pre-tax income from continuing operations adjusted for the
profit/loss input of items considered in fixed costs and "fixed costs" is the
Company's (a) interest (whether expensed or capitalized), (b) amortization of
debt expense, discounts, or premiums, and (c) such portion of rent expense
representative of interest.
Available Information. The Company is subject to the information filing
requirements of the Exchange Act and, in accordance therewith, is required to
file periodic reports, proxy statements and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons in
transactions with the Company and other matters is required to be described in
proxy statements distributed to the Company's Stockholders and filed with the
Commission. These reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for
inspection and copying at prescribed rates at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material may also be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The information concerning the Company contained in this Offer to Purchase,
including financial information, has been taken from or based upon publicly
available documents and records on file with the Commission and other publicly
available information. Although neither the Purchaser nor Parent has any
knowledge that such information is untrue, neither the Purchaser nor Parent
takes any responsibility for the accuracy or completeness of such information or
for any failure by the Company to disclose events that may have occurred or may
affect the significance or accuracy of such information.
34
8. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER.
Purchaser. Purchaser is a wholly-owned subsidiary of Parent. Parent was
formed in connection with the transactions contemplated under the terms of the
Merger Agreement, and has not carried on any activities to date other than those
incident to its formation, the Merger Agreement, and the commencement of the
Offer.
Parent. Parent is a wholly-owned subsidiary of Cross Country Associates,
L.L.C., a privately held limited liability company formed solely for the purpose
of holding the stock of Parent. Parent was formed in connection with the
transactions contemplated under the terms of the Merger Agreement, and has not
carried on any activities to date other than those incident to its formation,
the Merger Agreement, and the commencement of the Offer.
Parent beneficially owns 1,638,500 Shares and may be deemed the beneficial
owner of an additional 702,481 Shares as a result of being a party to the
Stockholders Agreement.
Except as described in this Offer to Purchase, none of Parent or the
Purchaser, or, to the best knowledge of Parent and the Purchaser, any of the
persons listed on Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of the Company, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, none of
Parent or the Purchaser, or, to the best knowledge of Parent and the Purchaser,
any of the persons listed on Schedule I hereto, has had, any business
relationships or transactions with the Company or any of its executive officers,
directors or affiliates that would require reporting under the rules of the
Commission applicable to this Offer to Purchase. Except as set forth in this
Offer to Purchase, there have been no contracts, negotiations or transactions
between Parent or the Purchaser or any of their respective subsidiaries, or, to
the best knowledge of Parent and the Purchaser, any of the persons listed on
Schedule I hereto, and the Company or its affiliates, concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
election of directors or a sale or other transfer of a material amount of
assets. Except as set forth in this Offer to Purchase, neither Parent nor the
Purchaser, nor, to the best knowledge of Parent and the Purchaser, any of the
persons listed on Schedule I hereto, beneficially owns any Shares or has
effected any transactions in the Shares during the past 60 days.
9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser and Parent to consummate
the Offer and the Merger, including Funding of Parent's escrow obligations
described in "SPECIAL FACTORS -- The Tax Claims; The Escrow Agreement; The Tax
Contingency Settlement Agreement", hereof, and to pay related fees and expenses
is estimated to be approximately $8.1 million. Parent will ensure that Purchaser
has sufficient funds to acquire all the outstanding Shares pursuant to the Offer
and the Merger. Parent will provide such funds from its working capital or its
affiliates' working capital or from existing credit facilities or new credit
facilities established for this purpose or from a combination of the foregoing.
No decision has been made concerning which of the foregoing sources Parent will
utilize. Such decision will be made based on Parent's review from time to time
of the advisability of particular actions, as well as on prevailing interest
rates and financial and other economic conditions and such other factors as
Parent may deem appropriate.
Parent anticipates that any indebtedness incurred through borrowings under
credit facilities will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by parent and its
affiliates (including, following the Merger, funds generated by the Surviving
Corporation), and bank refinancing. No decision has been made concerning the
method Parent will employ to repay such indebtedness. Such decision will be made
based on Parent's review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions and such other factors as Parent may deem appropriate.
10. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY.
The purpose of the Offer and the Merger is to enable Parent to acquire, in
one or more transactions, control of the Board and the entire equity interest
in, the Company. The Offer is intended to increase the likelihood that the
Merger will be completed promptly.
35
Parent intends, from time to time after completion of the Offer, to evaluate
and review the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel and
consider and determine what, if any, changes would be desirable in light of the
circumstances which then exist. Such strategies could include, among other
things, changes in the Company's business, corporate structure, certificate of
incorporation, By-laws, capitalization, management or dividend policy.
Except as described in this Offer to Purchase, Parent and Purchaser have no
present plans or proposals that would result in an extraordinary corporate
transaction, such as a merger, consolidation, reorganization, liquidation or
sale or transfer of a material amount of assets, involving the Company or any of
its subsidiaries, or any material changes in the Company's present
capitalization, dividend policy, employee benefit plans, corporate structure or
business or any material changes or reductions in the composition of its
management or personnel.
11. DIVIDENDS AND DISTRIBUTIONS.
If, on or after September 9, 1997 (the "Applicable Date"), the Company
should (a) split, combine or otherwise change the Shares or its capitalization,
(b) acquire or otherwise cause a reduction in the number of outstanding Shares
or other securities or (c) issue or sell additional Shares (other than the
issuance of Shares under options prior to the Applicable Date, in accordance
with the terms of such options as publicly disclosed prior to the Applicable
Date), shares of any other class of capital stock, other voting securities or
any securities convertible into, or rights, warrants or options, conditional or
otherwise, to acquire, any of the foregoing, then, subject to the provisions of
Section 12, the Purchaser, in its sole discretion, may make such adjustments as
it deems appropriate in the Offer Consideration and other terms of the Offer,
including, without limitation, the number or type of securities offered to be
purchased.
If, on or after the Applicable Date, the Company should declare or pay any
cash dividend on the Shares or make any other distribution on the Shares, or
issue with respect to the Shares any additional Shares, shares of any other
class of capital stock, other voting securities or any securities convertible
into, or rights, warrants or options, conditional or otherwise, to acquire, any
of the foregoing, which are payable or distributable to Stockholders of record
on a date prior to the transfer of the Shares purchased pursuant to the Offer to
the Purchaser or its nominee or transferee on the Company's stock transfer
records, then, subject to the provisions of Section 12, (a) the Offer
Consideration may, in the sole discretion of the Purchaser, be reduced by the
amount of any such cash dividend or cash distribution and (b) the whole of any
such noncash dividend, distribution or issuance to be received by the tendering
Stockholders will (i) be received and held by the tendering Stockholders for the
account of the Purchaser and will be required to be promptly remitted and
transferred by each tendering Stockholder to the Depositary for the account of
the Purchaser, accompanied by appropriate documentation of transfer, or (ii) at
the direction of the Purchaser, be exercised for the benefit of the Purchaser,
in which case the proceeds of such exercise will promptly be remitted to the
Purchaser. Pending such remittance and subject to applicable law, the Purchaser
will be entitled to all rights and privileges as owner of any such noncash
dividend, distribution, issuance or proceeds and may withhold the entire Offer
Consideration or deduct from the Offer Consideration the amount or value
thereof, as determined by the Purchaser, in its sole discretion.
Pursuant to the terms of the Merger Agreement, the Company is prohibited
from taking any of the actions described in the two preceding paragraphs and
nothing herein shall constitute a waiver by Purchaser of any of its rights under
the Merger Agreement or a limited of remedies available to Purchaser for any
breach of the Merger Agreement, including termination thereof.
12. CONDITIONS TO THE OFFER.
Notwithstanding any other term or provision of the Offer, the Purchaser will
not be required to accept for payment, or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to a bidder's obligation to pay for or return tendered securities
promptly after the termination or withdrawal of such bidder's offer), to pay for
any Shares not theretofore accepted for payment or paid for, and may terminate
or amend the Offer if, at any time on or after the Applicable Date, and before
the acceptance of such securities for payment or, subject to any applicable
rules and regulations of the Commission, the payment therefor, any of the
following events or facts shall have occurred:
(a) an order shall have been entered in any action or proceeding before
any federal or state court or governmental agency or other regulatory body
or a permanent injunction by any federal or state court of competent
jurisdiction in the United States shall have been issued and remain in
effect (i) making illegal the
36
purchase of, or payment for, any Shares by Parent, Purchaser or any
affiliate of Parent or Purchaser; (ii) otherwise preventing the consummation
of any of the transactions contemplated by the Merger Agreement; (iii)
imposing limitations on the ability of Parent, Purchaser or any affiliate of
Parent or Purchaser to exercise effectively full rights of ownership of any
Shares, including, without limitation, the right to vote any Shares acquired
by Parent or Purchase pursuant to the Offer on all matters properly
presented to the Company's Stockholders, which would effect a material
diminution in the value of the Shares acquired by Parent or Purchaser;
(b) there shall have been any federal or state statute, rule or
regulation enacted or promulgated on or after the date of the Offer that
could reasonably be expected to result, directly or indirectly, in any of
the consequences referred to in clauses (i) through (iii) of paragraph (a)
above;
(c) any event shall have occurred or shall have failed to occur which
shall result in a Company Material Adverse Effect, (as defined in the Merger
Agreement) other than the Tax Claims;
(d) the Company shall not have received the written opinion of Raymond
James that the Offer Consideration to be received by the holders of the
Shares in the Offer and Merger is fair, from a financial point of view, to
such holders;
(e) the Company shall not have caused its subsidiary, Homeowners
Marketing Services International, Inc. to enter into and execute with each
of its Affiliates an Amended and Restated Amendment to Affiliation
Agreement, Profit Sharing Release and Estoppel Agreement upon terms and
conditions satisfactory to Parent in its sole discretion;
(f) any of the Company's covenants contained in the Merger Agreement
shall not have been satisfied;
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) the IRS shall have advised the Company, either orally or in writing,
that it is more probable than not that the cost to the Company of the Tax
Claims, including interest, penalties, costs and expenses will exceed $8.5
million;
which, in the sole judgment of Parent and Purchaser in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of the Purchaser and Parent
and may be asserted by the Purchaser regardless of the circumstances giving rise
to any such condition or may be waived by the Purchaser in whole or in part at
any time and from time to time in its sole discretion. The failure by the
Purchaser at any time to exercise any of the foregoing rights will not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances will not be deemed a waiver with respect to
any other facts and circumstances and each such right will be deemed an ongoing
right that may be asserted at any time and from time to time. Any determination
by the Purchaser concerning the events described in this Section 12 will be
final and binding upon all parties.
13. CERTAIN LEGAL MATTERS.
General. Except as described in this Section 13, based on a review of
publicly available information filed by the Company with the Commission and
other publicly available information concerning the Company, neither Parent nor
the Purchaser is aware of any license or regulatory permit that appears to be
material to the business of the Company and its subsidiaries, taken as a whole,
that might be adversely affected by the acquisition of Shares by the Purchaser
pursuant to the Offer or the Merger or, except as set forth below, of any
approval or other action by any governmental, administrative or regulatory
agency or authority, domestic or foreign, that would be required prior to the
acquisition of Shares by the Purchaser pursuant to the Offer or the Merger.
Should any such approval or other action be required, the Purchaser currently
contemplates that it will be sought. While the Purchaser does not currently
intend to delay the acceptance for payment of Shares tendered pursuant to the
Offer pending the outcome of any such matter, there can be no assurance that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that adverse consequences might not result to
the Company's business or that certain parts of the Company's business might not
have to be disposed of in the event that such approvals were not obtained or any
other actions were not taken. The Purchaser's obligations under the Offer to
accept for payment and pay for Shares is subject to certain conditions. See
Section 12.
37
State Takeover Statutes. A number of states have adopted "takeover" statutes
that purport to apply to attempt to acquire corporations that are incorporated
in such states, or whose business operations have substantial economic effects
in such states, or which have substantial assets, stockholders, employees,
principal executive offices or principal places of business in such states.
In 1982, in Edgar v. MITE Corporation, the Supreme Court of the United
States invalidated on constitutional grounds the Illinois Business Takeover Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in 1987, in CTS Corp. v.
Dynamics Corp. of America, the Supreme Court held that the State of Indiana may,
as a matter of corporate law, and, in particular, with respect to those aspects
of corporate law concerning corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
prior approval of the remaining stockholders. The state law before the Supreme
Court was by its terms applicable only to corporations that had a substantial
number of stockholders in the state and were incorporated there. Subsequently, a
number of federal courts ruled that various state takeover statutes were
unconstitutional insofar as they apply to corporations incorporated outside the
state of enactment.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted "takeover"
statutes. The Purchaser does not know whether any of these statutes will, by
their terms, apply to the Offer, and has not complied with any such statutes. To
the extent that certain provisions of these statutes purport to apply to the
Offer, Purchaser believes that there are reasonable bases for contesting such
statutes. If any person should seek to apply any state takeover statute,
Purchaser would take such action as then appears desirable, which action may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. If it is asserted that one or more takeover
statutes applies to the Offer and the Merger, and it is not determined by an
appropriate court that such statute or statutes do not apply or are invalid as
applied to the Offer and the Merger, Purchaser might be required to file certain
information with, or receive approvals form, the relevant state authorities, and
Parent and Purchaser might be unable to purchase or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer. In
such case, Parent and Purchaser may not be obligated to accept for payment or
pay for Shares tendered. See Section 12.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules that have been promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares pursuant to the Merger Agreement
however, is not subject to such requirements because the parties to the Merger
Agreement satisfy the "size of the parties" exemption to the notice filing
requirements.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Merger Agreement. At any time before or after the
purchase of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Parent, the Company or
their respective subsidiaries and affiliates. Private parties and state
attorneys general may also bring legal action under federal or state antitrust
laws under certain circumstances. Based upon an examination of information
available to Parent relating to the businesses in which Parent, the Company and
their respective subsidiaries and affiliates are engaged, Parent and Purchaser
believe that the Offer will not violate the antitrust laws. Nevertheless, there
can be no assurance that a challenge to the Offer on antitrust grounds will not
be made or, if such a challenge is made, what the result would be. See "THE
TENDER OFFER -- Conditions to the Offer."
14. FEES AND EXPENSES.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and Continental Stock Transfer & Trust Company to act as the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telex, telegraph and personal interview
and may request brokers, dealers, commercial banks, trust companies and other
nominees to forward the materials relating to the Offer to beneficial owners.
The Information Agent and the Depositary each will receive reasonable and
customary
38
compensation from Parent for their services and will be indemnified by Parent
against certain liabilities and expenses in connection therewith, including,
without limitation, certain liabilities under the federal securities laws.
Neither the Information Agent nor the Depositary has been retained to make
solicitations or recommendations in connection with the Offer.
Except as set forth above, neither Parent nor the Purchaser will pay any
fees or commissions to any broker or dealer or other person for soliciting
tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and
trust companies and other nominees will, upon request, be reimbursed by the
Purchaser for reasonable expenses incurred by them in forwarding the offering
materials to their customers.
The following is an estimate of expenses to be incurred in connection with
the Offer:
<TABLE>
<CAPTION>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
Legal Fees $ 60,000
Printing and Mailing $ 20,000
Advertising $ 25,000
Filing Fees $ 2,000
Depositary Fees $ 2,500
Information Agent Fees $ 12,500
Miscellaneous $ 5,000
--------
Total $127,000
--------
EXPENSES TO BE PAID BY THE COMPANY:
Financial Advisor $150,000
Legal Fees $ 65,000
Miscellaneous $ 5,000
</TABLE>
15. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the securities,
blue sky or other laws of such jurisdiction. Neither the Purchaser nor Parent is
aware of any jurisdiction in which the making of the Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. To the
extent the Purchaser or Parent becomes aware of any state law that would limit
the class of offerees in the Offer, the Purchaser will amend the Offer and
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to such holders of Shares
prior to the expiration of the Offer. In any jurisdiction the securities, blue
sky or other laws of which require the Offer to be made by a licensed broker or
dealer, the Offer is being made on behalf of the Purchaser or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR PARENT NOT CONTAINED HEREIN OR IN
THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser and Parent have filed with the Commission a Tender Offer
Statement on Schedule 14D-1 and a Rule 13e-3 Transaction Statement on Schedule
13E-3, and the Company has filed a Solicitation/Recommendation Statement on
Schedule 14D-9. Such statments, together with exhibits, furnishing certain
additional information with respect to the Offer, and any amendments thereto,
including exhibits, may be inspected and copies may be obtained in the manner
set forth in "THE TENDER OFFER -- Certain Information Concerning the Company --
Available Information" with respect to the Company (except that such material
will not be available at the regional offices of the Commission).
CC ACQUISITION CORPORATION
September 19, 1997
39
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
Parent. Set forth below are the names, business address and present
principal occupation or employment, and material occupations, positions, offices
and employments of each director and executive officer of Parent. Except as
otherwise noted, the business address of each such person is 4040 Mystic Valley
Parkway, Medford, Massachusetts 02155, and each such person is a United States
citizen. In addition, except as otherwise noted, each director and executive
officer of Parent has been employed in his or her present principal occupation
listed below during the last five years.
Directors of Parent are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME 5-YEAR EMPLOYMENT HISTORY
---- -------------------------
<S> <C>
Sidney D. Wolk* ........................ 1992 -- Present, Director, President and Treasurer of The
Treasurer Cross Country Group, Inc.
Nathan T. Wolk* ......................... 1992 -- Present, Partner/Of-Counsel, Lane Altman & Owens
Secretary LLP, 101 Federal Street, Boston, MA 02110; 1992 -- Present,
Director and Secretary of The Cross Country Group, Inc.
Howard L. Wolk* ........................ 1993 -- Present, Vice President, The Cross Country Group,
President Inc; 1993, Member, National Performance
Review; Associate Counsel, White House Office of
Presidential Personnel; 1992, Associate, Simpson Thacher
& Bartlett.
Jeffrey C. Wolk* ....................... 1992 -- Present, Vice President, The Cross Country Group,
Vice-President Inc.
Thomas P. Graham ........................ 1993 -- Present, Chief Financial Officer, The Cross Country
Chief Financial Officer Group, Inc.; 1992 - 1993, Chief Financial Officer, Dynamics
Research Corporation.
Stephen P. Scapicchio .................. 1992 -- Present, Vice President -- Finance, The Cross Country
Vice President -- Finance Group, Inc.
</TABLE>
Purchaser. Set forth below are the names, business address and present
principal occupation or employment, and material occupations, positions, offices
and employments of each director and executive officer of Purchaser. Except as
otherwise noted, the business address of each such person is 4040 Mystic Valley
Parkway, Medford, Massachusetts 02155, and each such person is a United States
citizen. In addition, except as otherwise noted, each director and executive
officer of Purchaser has been employed in his or her present principal
occupation listed below during the last five years. Directors of Purchaser are
indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME 5-YEAR EMPLOYMENT HISTORY
---- -------------------------
<S> <C>
Sidney D. Wolk* ......................... See Above
Treasurer
Nathan T. Wolk* ......................... See Above
Secretary
Howard L. Wolk* ......................... See Above
President
Jeffrey C. Wolk* ........................ See Above
Vice President
</TABLE>
I-1
SCHEDULE II
OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
September 16, 1997
The Board of Directors
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, FL 33325
Ladies and 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 offer (the "Offer") to purchase
any and all outstanding shares of Common Stock, including the associated common
stock purchase rights, for total consideration of up to $2.06 per share, $.55 of
which shall be net to the stockholder in cash, and $1.51 of which shall be held
in an escrow account pending resolution of certain tax liabilities that may be
assessed against the Company.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 14, 1996 among the Company and The Cross Country Group, Inc. ("Cross
Country") and CHGI Acquisition Corporation ("CHGI"), as amended as of October
31, 1996, January 31, 1997, July 1, 1997 and September 9, 1997 (the "Merger
Agreement"). The Merger Agreement provides that, as soon as practicable after
the completion of the Offer and satisfaction or waiver, if permissible, of all
of the conditions to the Merger (as defined herein), (a) CC Acquisition
Corporation ("CC"), a wholly-owned subsidiary of HAC, Inc. ("HAC"), as assignee
of the rights and obligations of CHGI under the Merger Agreement shall be merged
with and into the Company (the "Merger"), with the Company being the surviving
corporation and wholly owned directly by HAC and (b) each of the shares of the
Company, outstanding at the effective time of the Merger (other than shares held
by CC and its affiliates and Company stockholders who have perfected their
statutory appraisal rights under Delaware law), shall be converted into the
right to receive the Offer consideration.
In connection with our review of the proposed Offer and 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 and 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 September 16,
1997 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 Offer and Merger
Agreement or the availability or advisability of any alternatives to the Offer
and Merger.
II-1
The Board of Directors
Homeowners Group
September 16, 1997
Page 2
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 forecast 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 combinations
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 position 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 Offer and Merger and is not
intended to confer rights or remedies upon Cross Country or the stockholders of
Cross Country and does not constitute a recommendation to any stockholders of
Homeowners regarding whether said stockholder should tender their Common Stock
pursuant to the Offer and/or how said stockholder should vote at any meeting of
the stockholders of Homeowners. 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
September 16, 1997, the consideration to be received by the stockholders of the
Company pursuant to the Offer and 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.
II-2
SCHEDULE III
TEXT OF SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
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 Section 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 Section 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
consolidation, 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 that 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 Section 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 pursuant to Section
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 Section 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.
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(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 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 Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or series
of stock of such constituent corporation, and shall include in such notice a
copy of this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given by
the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's 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 such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of an class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has bee-n given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the date
the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given ,prior to
the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(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
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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.
(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 in 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
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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.
(l) 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. 349, L. '96, eff. 7-1-96.)
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Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, Certificates for the Shares
and any other required documents should be sent by each Stockholder of the
Company or his broker, dealer, commercial bank, trust company or other nominee
to the Depositary as follows:
The Depositary for the Offer is
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand: By Overnight:
2 Broadway 2 Broadway, 19th Floor 2 Broadway
New York, NY 10004 New York, NY 10004 New York, NY 10004
</TABLE>
By Facsimile Transmission:
(212) 509-5150
Confirm by Telephone:
(212) 509-4000, Ext. 535
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or
other tender offer materials may be directed to the Information Agent at its
respective telephone numbers and address listed below. A Stockholder may also
contact a broker, dealer, commercial bank or trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED SEPTEMBER 19, 1997
BY
CC ACQUISITION CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY OCTOBER 17,1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: By Overnight Delivery: By Hand
2 Broadway 2 Broadway 2 Broadway, 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
By Facsimile Transmission:
(212) 509-5150
Confirm by Telephone:
(212) 509-4000, Ext. 535
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU
MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED
BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Shares (as
defined below) of Homeowners Group, Inc., a Delaware corporation (the "Company")
if certificates evidencing Shares ("Certificates") are to be forwarded herewith
or delivery of Shares is to be made by book-entry transfer to an account
maintained by Continental Stock Transfer & Trust Company (the "Depositary") at
The Depository Trust Company (a "Book-Entry Transfer Facility") pursuant to the
book-entry transfer procedure set forth in "THE TENDER OFFER--Procedure for
Tendering Shares--Book-Entry Transfer" in Section 2 of the Offer to Purchase.
See Instruction 2 hereof. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
|_| CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution:__________________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
|_| DTC
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
|_| CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):________________________________________________
Window Ticket No. (if any):_____________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
Check Box of Applicable Book-Entry Transfer Facility:
|_| DTC
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------ -------------------- ------------------
<S> <C> <C> <C>
Name and Address of Shareholder Certificate No.(1) Number of Shares
Tendered(2)
- ------------------------------------------------------------------------ -------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
-------------------- ------------------
TOTAL SHARES
- --------------------------------------------------------------------------------------------- ------------------
(1) Need not be completed by stockholders delivering Shares by book-entry transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares evidenced by each Certificate delivered to the Depositary are
being tendered hereby. See Instruction 4.
</TABLE>
- ----------------------------------- -----------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(PLEASE PRINT) (PLEASE PRINT)
(See Instruction 7)
To be completed ONLY if the check To be completed ONLY if the check
is to be issued in the name of and is to be issued in the name of the
mailed to other than the registered registered holder(s) but sent to
holders(s).* other than the address of record.
Certificates must be properly
assigned and signatures guaranteed.
Issue and mail the check to: Mail the check to:
Name: Name:
Address: Address:
- ----------------------------------- -----------------------------------
-----------------------------------
* If the check is to be issued SIGNATURE
in the name of any person
other than the registered
holder(s) of the
certificate(s) surrendered,
such person must complete and
sign the Substitute Form W-9.
(See Instruction 12).
Dated:_______________________, 1997 (X)
-----------------------------------
Must be signed by registered holder(s) as name(s) appear on the certificate(s),
or the authorized representative of such registered holder(s), or by person(s)
to whom the surrendered certificate(s) have been transferred. (See Instruction
1).
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to CC Acquisition Corporation, a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of HAC,
Inc., a Delaware corporation ("Parent"), (i) the above described shares of
Common Stock, par value $0.01 per share (the "Shares"), of Homeowners Group,
Inc., a Delaware corporation (the "Company"), including the associated common
stock purchase rights (the "Associated Rights") issued pursuant to the Rights
Agreement, dated as of November 1, 1990, between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent, as amended, for total
consideration of up to $2.06 per share, $.55 of which shall be net to seller in
cash (the "Cash Price"), and $1.51 of which shall be held in an escrow account
(the "Escrow Account", and together with the Cash Price, the "Offer
Consideration"), upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated September 19, 1997 (the "Offer to Purchase"), receipt
of which is hereby acknowledged and in this Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer"). The undersigned
understands that the Purchaser reserves the right to transfer or assign, in
whole or from time to time in part, to one or more of its affiliates, the right
to purchase all or any portion of the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms and conditions of such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby and all dividends, distributions (including,
without limitation, distributions of additional Shares) and rights declared,
paid or distributed in respect of such Shares on or after September 9, 1997
(collectively,
"Distributions"), and irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares (and any Distributions), with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver Certificates (and any Distributions), or transfer ownership of
such Shares (and any Distributions) on the account books maintained by the
Book-Entry Transfer Facility, together, in any such case, with all accompanying
evidences of transfer and authenticity to, or upon the order of the Purchaser,
(ii) present such Shares (and any Distributions) for transfer on the books of
the Company and (iii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares (and any Distributions), all in accordance
with the terms of the Offer.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints each designee of Purchaser as attorney-in-fact and proxy of the
undersigned, each with full power of substitution, to the full extent of the
undersigned's rights with respect to the Shares (and any Distributions) tendered
by the undersigned and accepted for payment by the Purchaser. All such powers of
attorney and proxies, being deemed to be irrevocable, shall be considered
coupled with an interest in the tendered Shares. This appointment will be
effective if, when, and only to the extent that, the Purchaser accepts such
Shares for payment pursuant to the Offer. Upon such acceptance for payment, all
prior powers of attorney and proxies given by the undersigned with respect to
such Shares (and any Distributions) will, without further action, be revoked,
and no subsequent powers of attorney and proxies may be given nor any subsequent
written consent executed by the undersigned (and, if given or executed, will not
be deemed to be effective) with respect thereto. The designees of the Purchaser
will, with respect to the Shares and other securities for which the appointment
is effective, be empowered to exercise all voting and other rights of the
undersigned as they in their sole discretion may deem proper at any annual or
special meeting of the stockholders of the Company or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise, and the Purchaser reserves the right to require that, in order for
Shares or other securities to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser must be able to
exercise full voting rights with respect to such Shares (and any Distributions).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distributions), and that when such Shares are accepted
for payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto (and to any Distributions), free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Shares (and
any Distributions) will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares (and any Distributions) tendered hereby.
In addition, the undersigned shall remit and transfer promptly to the Depositary
for the account of the Purchaser all Distributions in respect of the Shares
tendered hereby, accompanied by appropriate documentation of transfer, and,
pending such remittance and transfer or appropriate assurance thereof, the
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby or deduct from such purchase price, the amount or value of each such
Distribution as determined by the Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be
affected by, and all such authority shall survive, the death or incapacity of
the undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one
of the procedures described in "THE TENDER OFFER--Procedure for Tendering
Shares" in the Offer to Purchase and in the instructions hereto will constitute
the undersigned's acceptance of the terms and conditions of the Offer. The
Purchaser's acceptance of such Shares for payment will constitute a binding
agreement between the undersigned and the Purchaser upon the terms and subject
to the conditions of the Offer, including, without limitation, the undersigned's
representation and warranty that the undersigned owns the Shares being tendered.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the Cash Price portion of the purchase
price of all Shares, and return all Certificates evidencing Shares not purchased
or not tendered, in the name(s) of the registered holder(s) appearing above
under "Description of Shares Tendered". Similarly, unless otherwise indicated in
the box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Certificates evidencing Shares
not tendered or not purchased (and accompanying documents, as appropriate) to
the address(es) of the registered holder(s) appearing above under "Description
of Shares Tendered". In the event that the boxes entitled "Special Payment
Instructions" and "Special Delivery Instructions" are both completed, please
issue the check for the purchase price of all Shares purchased and return all
Certificates evidencing Shares not purchased or not tendered in the name(s) of,
and mail such check and Certificates to, the person(s) so indicated. The
undersigned recognizes that the Purchaser has no obligation, pursuant to the
Special Payment Instructions, to transfer any Shares from the name of the
registered holder(s) if the Purchaser does not purchase any of the Shares
tendered hereby.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or by a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (an
"Eligible Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this document, shall include
any participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of applicable security) of the Shares
tendered hereby and such holder(s) has (have) completed neither the box entitled
"Special Payment Instructions" nor the box entitled "Special Delivery
Instructions" on the reverse hereof or (ii) such Shares are tendered for the
account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used either if Certificates are to be forwarded herewith or
if Shares are to be delivered by book-entry transfer pursuant to the procedure
set forth in "THE TENDER OFFER--Procedure for Tendering Shares" in the Offer to
Purchase. Certificates evidencing all physically tendered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility of all Shares delivered by book-entry transfer as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the reverse hereof prior to the Expiration Date (as defined in "THE
TENDER OFFER--The Offer" in the Offer to Purchase). If Certificates are
forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal must accompany each such delivery.
Securityholders whose Certificates are not immediately available, who cannot
deliver their Certificates and all other required documents to the Depositary
prior to the Expiration Date or who cannot complete the procedure for delivery
by book-entry transfer, if applicable, on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described in "THE TENDER
OFFER--Procedures for Tendering Shares--Guaranteed Delivery" in the Offer to
Purchaser. Pursuant to such procedure: (i) such tender must be made by or
through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Purchaser, must be received by the Depositary prior to the Expiration Date; and
(iii) the Certificates evidencing all physically delivered Shares in proper form
for transfer by delivery, or a confirmation of a book-entry transfer, if
applicable, into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered by book-entry transfer, in each case together with a Letter
of Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees, and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three trading
days after the date of execution of such Notice of Guaranteed Delivery. A
trading day is any day on which the Nasdaq National Market is open for business.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SECURITYHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and
no fractional Shares will be purchased. By execution of the Letter of
Transmittal (or a facsimile hereof), all tendering securityholders waive any
right to receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under either
"Description of Shares Tendered" is inadequate, the Certificate numbers, the
number of Shares evidenced by such Certificates and the number of Shares
tendered should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If fewer than all the Shares evidenced by any Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the boxes entitled "Number of
Shares Tendered". In such cases, new Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Certificates delivered to the Depositary
herewith will be sent to the person(s) signing this Letter of Transmittal,
unless otherwise provided in the box entitled "Special Delivery Instructions" ,
as soon as practicable after the expiration or termination of the Offer. All
Shares evidenced by Certificates delivered to the Depositary will be deemed to
have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons,
all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of
the Shares tendered hereby, no endorsements of Certificates or separate stock
powers are required, unless payment is to be made to, or Certificates evidencing
Shares not tendered or not purchased are to be issued in the name of, a person
other than the registered holder(s), in which case, the Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Certificate(s). Signatures on such
Certificate(s) and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Certificate(s). Signatures on such
Certificate(s) and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to the Purchaser of the payment of such taxes, or
exemption therefrom, is submitted. Except as provided in this Instruction 6, it
will not be necessary for transfer tax stamps to be affixed to the Certificates
evidencing the Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Certificate is to be sent to someone other than the person(s)
signing this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal but at an address other than that shown in the boxes entitled
"Description of Shares Tendered" , the appropriate boxes on this Letter of
Transmittal must be completed.
8. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the securityholder
should promptly notify the Depositary. The securityholder will then be
instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
9. WAIVER OF CONDITIONS. The conditions to the Offer may be waived by the
Purchaser in whole or in part at any time and from time to time in its sole
discretion.
10. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Mackenzie Partners, Inc., as
Information Agent at its address or telephone number set forth below. Additional
copies of the Offer to Purchase, this Letter of Transmittal and the Notice of
Guaranteed Delivery may be obtained from the Information Agent or from
securityholders' brokers, dealers, commercial banks or trust companies.
11. FOREIGN HOLDERS. Foreign holders must submit a completed IRS Form W-8
to avoid backup withholding. IRS Form W-8 may be obtained by contacting the
Depositary at one of the addresses on the face of this Letter of Transmittal.
12. SUBSTITUTE FORM W-9. Each tendering securityholder is required to
provide the Depositary with a correct Taxpayer Identification Number ("TIN") on
the Substitute Form W-9 which is provided under "Important Tax Information"
below, and to certify, under penalties of perjury, that such number is correct
and that such securityholder is not subject to backup withholding of federal
income tax. If a tendering securityholder has been notified by the Internal
Revenue Service that such securityholder is subject to backup withholding, such
securityholder must cross out item (2) of the Certification box of the
Substitute Form W-9, unless such securityholder has since been notified by the
Internal Revenue Service that such securityholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering securityholder to 31% federal income tax withholding on
the payment of the purchase price of all Shares purchased from such shareholder.
If the tendering securityholder has not been issued a TIN and has applied for
one or intends to apply for one in the near future, such securityholder should
write "Applied For" in the space provided for in the TIN in Part I of the
Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For"
is written in Part 1 and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 31% on all payments of the purchase price to
such securityholder until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN "THE TENDER OFFER--THE OFFER" IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a securityholder whose tendered
Shares are accepted for payment is required by law to provide the Depositary (as
payer) with such securityholder's correct TIN on Substitute Form W-9 below. If
such securityholder is an individual, the TIN is such securityholder's social
security number. If the Depositary is not provided with the correct TIN, the
securityholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such securityholder with respect
to Shares purchased pursuant to the Offer may be subject to backup withholding
of 31%.
Certain securityholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold
31% of any payments made to the securityholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a
securityholder with respect to Shares purchased pursuant to the Offer, the
securityholder is required to notify the Depositary of such securityholder's
correct TIN by completing the form below certifying (a) that the TIN provided on
Substitute Form W-9 is correct (or that such securityholder is awaiting a TIN),
and (b) that (i) such securityholder is exempt from backup withholding, (ii)
such securityholder has not been notified by the Internal Revenue Service that
such securityholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (iii) the Internal Revenue Service has
notified such securityholder that such securityholder is no longer subject to
backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The securityholder is required to give the Depositary the social
security number or employer identification number of the record holder of the
Shares tendered hereby. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed Guidelines for Certification
of Taxpayer Identification Number on Substitute W-9 for additional guidance on
which number to report. If
the tendering securityholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, the securityholder
should write "Applied For" in the space provided for the TIN in Part I, and sign
and date the Substitute Form W-9. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of all payments of the purchase price to such securityholder until
a TIN is provided to the Depositary.
IMPORTANT
STOCKHOLDER: SIGN HERE AND COMPLETE SUBSTITUTE
FORM W-9 ON REVERSE
- --------------------------------------------------------------------------------
(Signature(s) of Stockholder(s))
Dated: ,1997
-----------------------
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on the Certificate or on a security position listing or by person(s) authorized
to become registered holder(s) by Certificates and documents transmitted
herewith. If signature is by trustees, executors, administrators, guardians,
attorneys-in-fact, agents, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 5.)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity (Full Title):
----------------------------------------------------------
(See Instruction 5)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Codes and Telephone Numbers:
-----------------------------------------------
(Home)
-----------------------------------------------
(Business)
Taxpayer Identification or Social Security No.
----------------------------------
(Complete Substitute
Form W-9 on Reverse)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
- --------------------------------------------------------------------------------
Authorized Signature(s)
- --------------------------------------------------------------------------------
(Name)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Address Including Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 1997
-----------------------
Name:
------------------------------------------------------------------
Business Name:
---------------------------------------------------------
Check as appropriate: Individual/Sole Proprietor Corporation
----- -----
Partnership Other:
----- ----- --------------------
Address:
---------------------------------------------------------------
---------------------------------------------------------------
================================================================================
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
- --------------------------------------------------------------------------------
Part I - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
- --------------------------------------------------------------------------------
Part II - For Payees exempt from backup withholding, see the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 and
complete as instructed therein.
- --------------------------------------------------------------------------------
Part III - Social Security Number OR Employer Identification Number
- --------------------------------------
(If awaiting TIN, write "Applied For")
================================================================================
Certification - Under penalties of perjury, I certify that:
(1) The Number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
================================================================================
Signature Date , 1997
------------------------------ -------------------
================================================================================
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31.0% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
INSTRUCTIONS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART III OF THE SUBSTITUTE FORM W-9.
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31.0% of all
payments of the Cash Price portion of the Offer Consideration made to me
thereafter will be withheld until I provide a number.
Signature Date , 1997
------------------------------ -------------------
================================================================================
The Information Agent for the Offer is:
MACKENZIE PARTNERS
156 Fifth Avenue
New York, N.Y. 10010
(212) 929-5500 (collect call)
or
Call Toll Free: (800) 322-2885
EXHIBIT (a)(3)
NOTICE OF GUARANTEED DELIVERY
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
FOR
TENDER OF SHARES OF COMMON STOCK
OF
HOMEOWNERS GROUP , INC.
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN STANDARD TIME, ON FRIDAY OCTOBER 17, 1997,UNLESS THE OFFER IS EXTENDED
------------------------
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) if (i) certificates
evidencing shares of Common Stock, par value $0.01 per share (the "Shares") of
Homeowners Group, Inc., a Delaware corporation (the "Company"), are not
immediately available or the procedures for book-entry transfer, if applicable,
cannot be completed on a timely basis or time will not permit all required
documents to reach Continental Stock Transfer & Trust Company (the "Depositary")
prior to the Expiration Date (as defined in the Offer to Purchase (as
hereinafter defined)). This Notice of Guaranteed Delivery may be delivered by
hand or transmitted by telegram, facsimile transmission or mail to the
Depositary. See "THE TENDER OFFER--Procedure for Tendering Shares--Guaranteed
Delivery" in the Offer to Purchase.
The Depositary for the Offer is
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: By Overnight Delivery: By Hand
2 Broadway 2 Broadway 2 Broadway, 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
By Facsimile Transmission:
(212)509-5150
Confirm by Telephone:
(212)509-4000, Ext. 535
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary
and must deliver the Letter of Transmittal and certificates for Shares to the
Depositary within the time period shown herein. Failure to do so could result in
a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
Ladies and Gentlemen:
The undersigned hereby tenders to CC Acquisition Corporation,
a Delaware corporation (the "Purchaser"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 19, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which, as amended
from time to time, together constitute the "Offer"), receipt of each of which is
hereby acknowledged, the number of Shares specified below pursuant to the
guaranteed delivery procedures set forth in "THE TENDER OFFER--Procedure for
Tendering Shares--Guaranteed Delivery" in the Offer to Purchase.
Number of Shares:____________________________ Name(s) of Registered Holder(s):
Certificate Nos. (If available):_____________ ________________________________
_____________________________________________ ________________________________
(Please Type or Print)
Check the box below if Shares will be tendered
by book-entry transfer:
Address(es):____________________
|_| The Depository Trust Company
________________________________
(Please Type or Print)
Account Number:_____________________________ Area Code and Tel. No.:_________
Dated__________________________, 1997
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
The undersigned, an Eligible Institution (as such term is defined under
"THE TENDER OFFER--Procedure for Tendering Shares--Guaranteed Delivery" in the
Offer to Purchase), hereby guarantees to deliver to the Depositary the
certificates representing the Shares tendered hereby, in proper form for the
transfer, or a Book-Entry Confirmation (as defined under "THE TENDER
OFFER--Procedure for Tendering Shares--Book-Entry Transfer" in the Offer to
Purchase) with respect to such Shares, in either case together with a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof), with any required signature guarantees, and any other documents
required by the Letter of Transmittal, within three trading days after the date
hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the certificates for Shares to the
Depositary within the time period shown herein. Failure to do so could result in
a financial loss to such Eligible Institutions.
Name of Firm:_____________________________ ___________________________________
(Authorized Signature)
Address:__________________________________ Name:______________________________
(Please Type or Print)
__________________________________________ Title:_____________________________
(Zip Code)
Area Code and Tel. No.:___________________ Date:________________________, 1997
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH
YOUR LETTER OF TRANSMITTAL.
EXHIBIT (a)(4)
OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
BY
CC ACQUISITION CORPORATION
FOR TOTAL CONSIDERATION PER SHARE CONSISTING OF:
$.55 NET IN CASH TO SELLER
AND
ONE CONTINGENT RIGHT TO RECEIVE $1.51 PER SHARE
FROM A TAX CLAIMS ESCROW FUND
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY OCTOBER 17, 1997 UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
September 19, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees:
We have been appointed by CC Acquisition Corporation, a Delaware
corporation (the "Purchaser") to act as Information Agent in connection with the
Purchaser's offer to purchase (i) any and all outstanding shares of Common
Stock, par value $0.01 per share (the "Common Stock") of Homeowners Group, Inc.,
a Delaware corporation (the "Company"), including the associated common stock
purchase rights (the "Associated Rights"; and together with the Common Stock,
the "Shares") issued pursuant to the Rights Agreement, dated as of November 1,
1990, between the Company and Continental Stock Transfer & Trust Company, as
Rights Agent, as amended, (the "Rights Agreement"), for total consideration of
up to $2.06 per share, $.55 of which shall be net to seller in cash (the "Cash
Price"), and $1.51 of which shall be held in an escrow account (the "Escrow
Account", and together with the Cash Price, the "Offer Consideration"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
September 19, 1997 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer") enclosed herewith. As used herein, "Certificates" shall mean
certificates representing Shares.
Please furnish copies of the enclosed materials to those of your
clients for whose accounts you hold Shares registered in your name or in the
name of your nominee.
For information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. The Offer to Purchase dated September 19, 1997.
2. The Letter of Transmittal to be used by holders of Shares in
accepting the Offer and tendering the Shares.
3. A letter to stockholders of the Company from the Chairman of
the Board of Directors of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to stockholders of
the Company.
4. The Notice of Guaranteed Delivery for Shares to be used to
accept the Offer if neither of the two procedures for tendering Shares set forth
under "THE TENDER OFFER--Procedures for Tendering Shares" in the Offer to
Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in then name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer.
6. Guidelines of the Internal Revenue Service for the
Certification of Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to Continental Stock Transfer &
Trust Company (the "Depositary").
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, EASTERN STANDARD TIME, ON FRIDAY OCTOBER 17, 1997, UNLESS THE
OFFER IS EXTENDED.
Please note the following:
1. The Offer to purchase Shares is being made for total consideration
of up to $2.06 per share, $.55 of which shall be net to seller in cash (the
"Cash Price"), and $1.51 of which shall be held in an escrow account (the
"Escrow Account") pending resolution of certain tax liabilities (the "Tax
Claims") that may be assessed against the Company (the "Escrow Right").
2. Tendering stockholders will receive the Cash Price per Share and be
deemed to own, without any further action, one Escrow Right for each Share
validly tendered in the Offer. Each Escrow Right entitles the holder to receive
funds from the Escrow Account (up to a maximum of $1.51 per Share) if and when
there is a settlement of the Tax Claims with the IRS, and provided that the
portion of such settlement to be paid by the public stockholders does not exceed
the amount of funds held in the Escrow Account.
3. As of September 17, 1997 there were 5,558,350 Shares issued and
outstanding. Purchaser and its affiliates have acquired 1,638,500 Shares or
29.5% of the Shares outstanding prior to commencement of the Offer. Based upon
the foregoing,and assuming all Shares not already acquired by Purchaser and its
affiliates are tendered in the Offer and/or converted in the Merger, Parent will
be obligated to deposit (either in cash or by letter of credit) a maximum of
$5,918,973 ($1.51 times 3,919,850 Shares held by public stockholders) into the
Escrow Account. Any settlement of The Tax Claims, net of expenses, will be
divided pro-rata among Purchaser and the public stockholders. Accordingly,
assuming all Shares are acquired in the Offer, 29.5% of any net settlement will
be paid by Parent and its affiliates, and 70.5% will be paid out of the Escrow
Funds.
4. Purchaser may, in its sole discretion, seek to cause the Company to
recover all or any portion of any settlement amount paid to the IRS from any
person or entity that it considers to bear responsibility
therefor. Escrow Right holders may receive a portion of such recovery. See
"SPECIAL FACTORS--The Tax Claims; The Escrow Agreement; The Tax Contingency
Settlement Agreement" in the Offer to Purchase.
5. The Escrow Rights will not be assignable or transferable except by
operation of law (including the laws of descent and distribution) or by
intestacy, and will not be evidenced by any certificate or other instrument. No
dividends will be paid with respect to the Escrow Rights, and they will not bear
any stated rate of interest or have any voting or other stockholder rights. The
Escrow Rights will represent only the contingent right to receive the funds held
in the Escrow Account.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to
the Offer. However, federal income tax backup withholding at a rate of 31.0% may
be required, unless an exemption is provided or unless the required taxpayer
indemnification information is provided. See Instruction 12 of the Letter of
Transmittal.
7. The Board of Directors of the Company (the "Board") has determined
that the Merger Agreement and the transactions contemplated thereby, including
the Offer and the Merger (as defined in the Offer to Purchase), taken as a
whole, are fair to and in the best interests of the stockholders of the Company,
has approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and recommends that the stockholders of the
Company accept the Offer and tender their Shares thereunder to Purchaser and, if
required by applicable law, approve and adopt the Merger Agreement and the
Merger.
8. Notwithstanding any other provision of the Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only after
timely receipt by the Depositary of (i) Certificates pursuant to the procedures
set forth under "THE TENDER OFFER--Procedure for Tendering Shares" in the Offer
to Purchase, or a timely Book-Entry Confirmation (as defined under "THE TENDER
OFFER--Procedure for Tendering Shares--Book Entry Transfer" in the Offer to
Purchase) with respect to such Shares, (ii) the Letter of Transmittal (or a
manually signed facsimile thereof), properly completed and duly executed, with
any required signature guarantee, and (iii) any other document required by the
Letter of Transmittal. Accordingly, payment may not be made to all tendering
stockholders at the same time depending upon when the Certificates are actually
received by the Depositary.
In order to take advantage of the Offer, (i) a duly executed and
properly completed Letter of Transmittal (or a manually signed facsimile
thereof) and any required guarantees or other required documents should be sent
to the Depositary and (ii) Certificates representing the tendered Shares or a
timely Book-Entry Confirmation should be delivered to the Depositary in
accordance with the Offer to purchase and the instructions set forth in the
Letter of Transmittal.
If holders of Shares wish to tender, but it is impracticable for them
to forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedures specified under "THE
TENDER OFFER--Procedures for Tendering Shares--Guaranteed Delivery" in the Offer
to Purchase.
The Purchaser will not pay any fees or commissions to any broker or
dealer or any other person (other than the Information Agent as described in
"THE TENDER OFFER--Fees and Expenses" of the Offer to Purchase) in connection
with the solicitation of tenders of Shares pursuant to the Offer. The Purchaser
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the enclosed materials to your clients.
Any inquiries you may have with respect to the Offer should be
addressed to Mackenzie Partners, Inc., the Information Agent, at the address and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed materials may be obtained by calling
the Information Agent, toll-free at (800) 322-2885 or collect at (212) 929-5500,
or from brokers, dealers, commercial banks or trust companies.
Very truly yours,
MACKENZIE PARTNERS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS AN AGENT OF PARENT, THE PURCHASER, THE COMPANY, THE
DEPOSITARY, OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THE FOREGOING,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT
ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
EXHIBIT (a)(5)
OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
BY
CC ACQUISITION CORPORATION
FOR TOTAL CONSIDERATION PER SHARE CONSISTING OF:
$.55 NET IN CASH TO SELLER
AND
ONE CONTINGENT RIGHT TO RECEIVE $1.51 PER SHARE
FROM A TAX CLAIMS ESCROW FUND
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY OCTOBER 17, 1997 UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
September 19, 1997
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated
September 19, 1997 (the "Offer to Purchase"), and the related Letter of
Transmittal (which as amended from time to time, together constitute the
"Offer") relating to the offer by CC Acquisition Corporation, a Delaware
corporation (the "Purchaser") to purchase (i) any and all outstanding shares of
Common Stock, par value $0.01 per share (the "Shares"), of Homeowners Group,
Inc., a Delaware corporation (the "Company"), including the associated common
stock purchase rights (the "Associated Rights") issued pursuant to the Rights
Agreement, dated as of November 1, 1990, between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent, as amended, (the "Rights
Agreement"), for total consideration of up to $2.06 per share, $.55 of which
shall be net to seller in cash (the "Cash Price"), and $1.51 of which shall be
held in an escrow account (the "Escrow Account", and together with the Cash
Price, the "Offer Consideration"), upon the terms and subject to the conditions
set forth in the Offer. As used herein, "Certificates" shall mean certificates
representing Shares.
We are (or our nominee is) the holder of record of Shares held by us
for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER
OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Shares held by us for your account, upon
the terms and subject to the conditions set forth in the Offer to Purchase.
Your attention is called to the following:
1. The Offer to purchase Shares is being made for total consideration
of up to $2.06 per share, $.55 of which shall be net to seller in cash (the
"Cash Price"), and $1.51 of which shall be held in an escrow account (the
"Escrow Account") pending resolution of certain tax liabilities (the "Tax
Claims") that may be assessed against the Company (the "Escrow Right").
2. Tendering stockholders will receive the Cash Price per Share and be
deemed to own, without any further action, one Escrow Right for each Share
validly tendered in the Offer. Each Escrow Right entitles the holder to receive
funds from the Escrow Account (up to a maximum of $1.51 per Share) if and when
there is a settlement of the Tax Claims with the IRS, and provided that the
portion of such settlement to be paid by the public stockholders does not exceed
the amount of funds held in the Escrow Account.
3. As of September 17, 1997 there were 5,558,350 Shares issued and
outstanding. Purchaser and its affiliates have acquired 1,638,500 Shares or
29.5% of the Shares outstanding prior to commencement of the Offer. Based upon
the foregoing, and assuming all Shares not already acquired by Purchaser and its
affiliates are tendered in the Offer and/or converted in the Merger, Parent will
be obligated to deposit (either in a cash or by letter of credit) a maximum of
$5,918,973 ($1.51 times 3,919,850 Shares held by public stockholders) into the
Escrow Account. Any settlement of the Tax Claims, net of expenses, will be
divided pro-rata among Purchaser and the public stockholders. Accordingly,
assuming all Shares are acquired in the Offer, 29.5% of any net settlement will
be paid by Parent and its affiliates, and 70.5% will be paid out of the Escrow
Funds.
4. Purchaser may, in its sole discretion, seek to cause the Company to
recover all or any portion of any settlement amount paid to the IRS from any
person or entity that it considers to bear responsibility therefor. Escrow Right
holders may receive a portion of such recovery. See "SPECIAL FACTORS--The Tax
Claims; The Escrow Agreement; The Tax Contingency Settlement Agreement" in the
Offer to Purchase.
5. The Escrow Rights will not be assignable or transferable except by
operation of law (including the laws of descent and distribution) or by
intestacy, and will not be evidenced by any certificate or other instrument. No
dividends will be paid with respect to the Escrow Rights, and they will not bear
any stated rate of interest or have any voting or other stockholder rights. The
Escrow Rights will represent only the contingent right to receive the funds held
in the Escrow Account.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to
the Offer. However, federal income tax backup withholding at a rate of 31.0% may
be required, unless an exemption is provided or unless the required taxpayer
indemnification information is provided. See Instruction 12 of the Letter of
Transmittal.
7. The Board of Directors of the Company (the "Board") has determined
that the Merger Agreement and the transactions contemplated thereby, including
the Offer and the Merger (as defined in the Offer to Purchase), taken as a
whole, are fair to and in the best interests of the stockholders of the Company,
has approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and recommends that the stockholders of the
Company accept the Offer and tender their Shares thereunder to Purchaser and, if
required by applicable law, approve and adopt the Merger Agreement and the
Merger.
8. Notwithstanding any other provision of the Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only after
timely receipt by the Depositary of (i) Certificates pursuant to the procedures
set forth under "THE TENDER OFFER--Procedure for Tendering Shares" in the Offer
to Purchase, or a timely Book-Entry Confirmation (as defined under "THE TENDER
OFFER--Procedure for Tendering Shares--Book Entry Transfer" in the Offer to
Purchase) with respect to such Shares,
(ii) the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantee, and
(iii) any other document required by the Letter of Transmittal. Accordingly,
payment may not be made to all tendering stockholders at the same time depending
upon when the Certificates are actually received by the Depositary.
If you wish to have us tender any or all of your Shares, please so
instruct us by completing, executing and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions to us
is enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified on the instruction form contained in this
letter. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf prior to the Expiration Date of the Offer.
The Offer is made solely by the Offer to Purchase and the related
Letter of Transmittal. The Offer is not being made to (nor will tenders by
accepted from or on behalf of ) holders of Shares in any jurisdiction in which
the making of the Offer or the acceptance thereof would not be in compliance
with the securities, blue sky or other laws of such jurisdiction. Purchaser is
not aware of any jurisdiction in which the making of the Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. To the
extent the Purchaser or Parent becomes aware of any state law that would limit
the class of offerees in the Offer, the Purchaser will amend the Offer and,
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to such holders of Shares
prior to the expiration of the Offer. In any jurisdiction the securities, blue
sky or other laws of which require the Offer to be made by a licensed broker or
dealer, the Offer is being made on behalf of the Purchaser by one or more
registered brokers or dealers licenses under the laws of such jurisdiction.
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
The undersigned acknowledge(s) receipt of your letter, the enclosed
Offer to Purchase dated September 19, 1997 and the related Letter of Transmittal
(which, together with the Offer to Purchase and supplements or amendments
thereto, collectively constitute the "Offer") in connection with the offer by CC
Acquisition Corporation, a Delaware corporation to purchase (i) any and all
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
Homeowners Group, Inc., a Delaware corporation (the "Company"), including the
associated common stock purchase rights (the "Associated Rights") issued
pursuant to the Rights Agreement, dated as of November 1, 1990, between the
Company and Continental Stock Transfer & Trust Company, as Rights Agent, as
amended, (the "Rights Agreement"), for total consideration of up to $2.06 per
share, $.55 of which shall be net to seller in cash (the "Cash Price"), and
$1.51 of which shall be held in an escrow account (the "Escrow Account", and
together with the Cash Price, the "Offer Consideration").
This will instruct you to tender to Homeowners the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
- --------------------------------------------------------------------------------
Number of Shares to be Tendered:*_________________________________
Date:_____________________________, 1997
- --------------------------------------------------------------------------------
SIGN HERE
Signature(s):___________________________________________________________________
Print or Type Name(s):__________________________________________________________
Print or Type Address(es):______________________________________________________
Area Code and Telephone Number(s):______________________________________________
Taxpayer Identification or Social Security Number(s):___________________________
- --------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
EXHIBIT (a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -
Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the type of
number to give the payer.
================================================================================
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY
NUMBER OF -
================================================================================
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account
or, if combined funds, any one
of the individuals(1)
3. Husband and wife (joint account) The actual owner of the account
or, if joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is
the only contributor, the
minor(1)
6. Account in the name of guardian The ward, minor, or incompetent
or committee for a designated ward, person(3)
minor, or incompetent person
7. a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner(1)
a legal or valid trust under State
law
8. Sole proprietorship account The owner(4)
================================================================================
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION NUMBER OF -
================================================================================
9. A valid trust, estate, or pension The legal entity(Do not furnish
trust the identifying number of the
personal representative or
trustee unless the legal entity
itself is not designated in the
account title.)(5)
10.Corporate account The corporation
11.Religious, Charitable, or The organization
educational organization account
12.Partnership account held in the name The partnership
of the business
13.Association, club, or other tax-exempt The organization
organization
14.A broker or registered nominee The broker or nominee
15.Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or prison)
that receives agricultural program
payments
================================================================================
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business" name. You may use either your Social Security Number or
Employer Identification Number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
* A corporation.
* A financial institution.
* An organization exempt from tax under section 501(a), or an
individual retirement plan or a custodial account under Section
403(b)(7).
* The United States or any agency or instrumentality thereof.
* A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.
* A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
* An international organization or any agency, or instrumentality
thereof.
* A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
* A real estate investment trust.
* A common trust fund operated by a bank under section 584(a).
* An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1).
* An entity registered at all times under the Investment Company Act
of 1940.
* A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
* Payments to nonresident aliens subject to withholding under section
1441.
* Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
* Payments of patronage dividends where the amount received is not
paid in money.
* Payments made by certain foreign organizations.
* Payments made to a nominee.
Payments of interest not generally subject to a backup withholding include the
following:
* Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to
the payer.
* Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
* Payments described in section 6049(b)(5) to non-resident aliens.
* Payments on tax-free covenant bonds under section 1451.
* Payments made by certain foreign organizations.
* Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PLAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN THE FORM AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.- If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
EXHIBIT (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (as defined below). The Offer (as defined below) is made
solely by the Offer to Purchase dated September 19, 1997 (the "Offer to
Purchase") and the related Letter of Transmittal and is being made to all
holders of Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction or any administrative or judicial action pursuant thereto.
In any jurisdiction where securities, blue sky, or other laws require the Offer
to be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of CC Acquisition Corporation by one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
HOMEOWNERS GROUP, INC.
BY
CC Acquisition Corporation
An Affiliate of The Cross Country Group
For Total Consideration Per Share Consisting Of:
$.55 Net in Cash to Seller
and
One Contingent Right To Receive
$1.51 From Tax Liability Escrow Fund
CC Acquisition Corporation, a Delaware corporation (the "Purchaser"),
and a wholly-owned subsidiary of HAC, Inc., a Florida corporation ("Parent"), is
offering to purchase any and all outstanding shares of common stock, par value
$0.01 per share (the "Common Stock"), of Homeowners Group, Inc., a Delaware
corporation (the "Company"), including the associated common stock purchase
rights (the "Associated Rights"; and together with the Common Stock, the
"Shares") issued pursuant to the Rights Agreement, dated as of November 1, 1990,
between the Company and Continental Stock Transfer & Trust Company, as Rights
Agent, as amended, (the "Rights Plan") for total consideration of up to $2.06
per Share, $.55 of which shall be net to seller in cash (the "Cash Price"), and
$1.51 of which shall be held in an interest bearing escrow account (the "Escrow
Account") pending resolution of certain tax liabilities that may be assessed
against the Company (the "Escrow Right") (the Cash Price and the Escrow Right,
sometimes hereinafter referred to as the "Offer Consideration"), upon the terms
and subject to the conditions set forth in the Offer to Purchase and related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer"). Parent and Purchaser are
affiliates of The Cross Country Group.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY , OCTOBER 17, 1997 UNLESS THE OFFER IS
EXTENDED.
The Offer is being made pursuant to an Agreement and Plan of Merger
dated as of May 14, 1996 among the Company and certain affiliates of Parent,
including Purchaser and CHGI Acquisition Corporation ("CHGI"), as amended (the
"Merger Agreement"). The Merger Agreement provides that, as soon as practicable
after the completion of the Offer and satisfaction or waiver, if permissible, of
all of the conditions to the Merger (as defined below), (a) Purchaser, as
assignee of the rights and obligations of CHGI under the Merger Agreement shall
be merged with and into the Company (the "Merger"), with the Company being the
surviving corporation and wholly owned directly by Parent; and (b) each of the
Shares of the Company, outstanding at the effective time of the Merger (other
than Shares held by Purchaser and its affiliates and Stockholders who have
perfected their statutory appraisal rights under Delaware law), shall be
converted into the right to receive the Offer Consideration.
THE BOARD OF DIRECTORS OF THE COMPANY (EXCLUDING THOSE DIRECTORS
AFFILIATED WITH PARENT AND PURCHASER), ACTING ON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF INDEPENDENT DIRECTORS, HAS (A) DETERMINED THAT EACH OF THE MERGER
AGREEMENT, THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF THE COMPANY, (B) APPROVED THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE MERGER AGREEMENT AND THE RELATED STOCKHOLDERS AGREEMENT
REFERENCED BELOW AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND (C) RESOLVED TO RECOMMEND ACCEPTANCE OF
THE OFFER, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER BY THE HOLDERS OF COMPANY COMMON STOCK.
THE OFFER IS FOR ANY AND ALL SHARES OUTSTANDING THAT ARE NOT OWNED BY
PARENT, PURCHASER, OR ANY OF THEIR AFFILIATES. THE OFFER IS SUBJECT TO CERTAIN
CONDITIONS CONTAINED IN THE OFFER TO PURCHASE. THE OFFER IS NOT SUBJECT TO THERE
BEING A MINIMUM NUMBER OF SHARES VALIDLY TENDERED AND NOT WITHDRAWN. THE OFFER
IS NOT CONDITIONED ON RECEIPT OF FINANCING. SEE "THE TENDER OFFER-- CONDITIONS
TO THE OFFER"CONTAINED IN THE OFFER TO PURCHASE, WHICH SETS FORTH IN FULL THE
CONDITIONS TO THE OFFER.
Parent and Purchaser have entered into a Stockholders Agreement with
certain stockholders, which include all of the members of the Board of Directors
of the Company (excluding those members of the Board affiliated with Purchaser
and Parent) (the "Selling Stockholders"), pursuant to which, among other things,
such Selling Stockholders have agreed to validly tender (and not withdraw) in
the Offer, upon the terms and subject to the conditions thereof, approximately
12.6% of the Company's outstanding Shares for the Offer Consideration.
On June 9, 1997, the Company received Notices of Proposed Adjustments
from the Internal Revenue Service (the "IRS") proposing to disallow
approximately $20 million in losses that the Company had taken on its Federal
Income Tax Returns for taxable years 1993, 1994 and 1995 (the "Tax Claims"). The
Tax Claims could result in the Company being liable for approximately $6.5
million of tax, plus approximately $2.0 million in interest. Although not
assessed to date, the IRS could impose penalties.
As a result of the Tax Claims, the Company and Parent have agreed that
$1.51 of the Offer Consideration will be held in the Escrow Account pending
resolution of the Tax Claims. Tendering Stockholders, and those stockholders
whose Shares are converted in the Merger, will receive the Cash
Price per Share and shall be deemed to own, without any further action, one
Escrow Right for each Share validly tendered in the Offer or converted in the
Merger, as applicable. If the Tax Claims are settled with the IRS, each Escrow
Right shall entitle the holder to receive its pro rata portion of the funds from
the Escrow Account (up to a maximum of $1.51 per Share) if and when there is a
settlement of the Tax Claims with the IRS. Escrow Rights will not be assignable
or transferable except by operation of law (including the laws of descent and
distribution) or by intestacy, and will not be evidenced by any certificate or
other instrument. No dividends will be paid with respect to the Escrow Rights,
and they will not bear any stated rate of interest or have any voting or other
stockholder rights. The Escrow Rights will represent only the contingent right
to receive the funds from the Escrow Account in accordance with the terms and
conditions of the Escrow Agreement. Escrow Right holders may be entitled to
receive a portion of any funds recovered from any person or entity that is found
to be liable for any portion of the settlement paid to the IRS. See "SPECIAL
FACTORS -- The Tax Claims; The Escrow Agreement; The Tax Contingency Settlement
Agreement" in the Offer to Purchase.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares properly tendered to the
Purchaser and not withdrawn as, if and when the Purchaser gives oral or written
notice to Continental Stock Transfer & Trust Company (the "Depositary") of the
Purchaser's acceptance for payment of such Shares. Upon the terms and subject to
the conditions of the Offer, payment for Shares accepted for payment pursuant to
the Offer will be made by deposit of the Cash Price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving the Cash Price from the Purchaser and transmitting payment to
tendering stockholders. In all cases, payment for Shares accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) certificates for such Shares (or a timely Book- Entry Confirmation (as
defined in the Offer to Purchase) with respect thereto), (ii) a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) and (iii) any other
documents required by the Letter of Transmittal.
Except as otherwise provided below, tenders of Shares are irrevocable.
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth below at any time prior to the Expiration Date (as defined
in the Offer to Purchase) and, unless theretofore, accepted for payment and paid
for by the Purchaser pursuant to the Offer, may also be withdrawn at any time
after October 17, 1997. For a withdrawal to be effective, a written, telegraphic
or facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase and must specify the name of the person having tendered the Shares to
be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of the Shares to be withdrawn, if different from the name of
the person who tendered the Shares. If certificates for Shares have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such certificates, the serial numbers shown on such certificates must
be submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution (as defined in "THE TENDER OFFER -- Procedures for
Tendering Shares" in the Offer to Purchase), the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
delivered pursuant to the procedures for book-entry transfer as set forth in
"THE TENDER OFFER -- Procedures for Tendering Shares" in the Offer to Purchase,
any notice of withdrawal must also specify the name and number of the account at
the appropriate Book-Entry Transfer Facility (as defined in the Offer to
Purchase) to be credited with the withdrawn Shares and otherwise comply with
such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares
may not be rescinded, and any Shares properly withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn Shares
may be
retendered again by following one of the procedures described in "THE TENDER
OFFER -- Procedures for Tendering Shares" in the Offer to Purchase any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination will be final and binding. None of the
Purchaser, Parent, the Depositary, the Information Agent, or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal, or incur any liability for failure to give any such
notification.
Subject to the terms of the Merger Agreement, the Purchaser expressly
reserves the right, in its sole discretion, at any time or from time to time, to
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any Shares, by giving oral or
written notice of such extension to the Depositary.
The information required to be disclosed by paragraph (e)(1)(vii) of
Rule 14d-6 under the Securities Exchange Act of 1934, as amended, is contained
in the Offer to Purchase and is incorporated herein by reference.
The Company has provided the Purchaser with the Company's stockholder
lists and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase, the related Letter of Transmittal
and other relevant documents will be mailed by the Purchaser to record holders
of Shares, and will be furnished by the Purchaser to brokers, dealers, banks,
trust companies and similar person whose names, or the names of whose nominees,
appear on the stockholder lists, or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance or additional copies of the Offer
to Purchase, Letter of Transmittal and other tender offer documents may be
directed to the Information Agent, at the address and telephone numbers set
forth below, and copies will be furnished at the Purchaser's expense. The
Purchaser will not pay any fees or commissions to any broker or dealer or other
person (other than the Information Agent) for soliciting tenders of Shares
pursuant to the Offer.
The Information Agent for the Offer is:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 929-5500 (CALL COLLECT)
OR
CALL TOLL-FREE (800) 322-2885
September 19, 1997
EXHIBIT (a)(8)
C. Gregory Morris Howard L. Wolk, President
Chief Financial Officer, Executive Vice President HAC, Inc.
Homeowners Group, Inc. 4040 Mystic Valley Parkway
400 Sawgrass Corporate Parkway Medford, MA 02155
Sunrise, FL 33305 (617) 393-9300
(954) 845-9100
FOR IMMEDIATE RELEASE
HAC, INC. TO ACQUIRE REMAINING INTEREST IN HOMEOWNERS GROUP, INC.
Sunrise, FL, September 17, 1997 Homeowners Group, Inc. (OTC Bulletin
Board: HOMG) and HAC, Inc. ("HAC"), parent company of CC Acquisition Corporation
("CCAC"), announced the signing of a Fourth Amendment to the Agreement and Plan
of Merger, dated as of May 14, 1996, as amended, pursuant to which CCAC will
commence a tender offer to acquire any or all of the outstanding shares of
Homeowners that HAC does not already own for total consideration of up to $2.06
per Share, $.55 of which shall be net to seller in cash, and $1.51 of which
shall be held in escrow pending resolution of certain tax liabilities that may
be assessed against the Company. HAC is an affiliate of The Cross Country Group.
It is anticipated that the tender offer will be followed by a merger of
CCAC into Homeowners, with Homeowners being the surviving legal entity. In the
Merger, stockholders of Homeowners will receive the same consideration for their
shares as stockholders who tender into the tender offer.
The tender offer is neither conditioned upon receipt of financing nor
subject to a minimum number of shares being tendered.
The tender offer and the Merger Agreement were approved by the Board of
Directors of Homeowners, acting on the recommendation of a Special Committee of
Independent Directors.
All of the members of the Board of Directors of Homeowners and one
executive officer, have agreed to tender all of their shares, representing a
total of 12.6% of Homeowners' outstanding shares.
HAC and its affiliates presently own 29.5% of the shares outstanding.
Homeowners is a leading provider of goods and services to the real
estate industry and has a national membership network of approximately 15,000
real estate brokerage offices located in 49 states and the District of Columbia
with an estimated 200,000 member brokers and sales agents. Additionally,
Homeowners has nationwide network of approximately 17,000 service contractors
supporting its national home warranty and service contract business. Corporate
headquarters is in Sunrise, Florida.
EXHIBIT (c)(1)
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 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.
(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 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.
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 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, 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 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:
(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 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 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
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 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) 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.
(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.
(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.
(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 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").
(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.
(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
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.
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 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
(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 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 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.
(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 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 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 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 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 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 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 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.
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 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 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.
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;
(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 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
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
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.
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]
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 L. Wolk
----------------------------------
Name: Howard L. Wolk
Title: Vice President
ATTEST:
CHGI ACQUISITION CORPORATION
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. 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
Exhibit A
[Acceleration Settlement Agreement]
Exhibit B
[Employment Contract of Carl Buccellato]
Exhibit C
[Engagement Agreement of Gary Lipson]
Exhibit D
[Form of Voting Agreement]
Exhibit E
[Form of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A. Opinion]
[Closing Date]
Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, MA 01255
Dear Sirs:
[Introduction]
1. The Company (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 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 ownership,
operation or lease of property by it or the conduct of its business requires
such qualification or licensing, except for such failures, if any, to be so
qualified and in good standing, which, when taken together with all such
failures, would not in the aggregate have a Material Adverse Effect on the
business, condition (financial or otherwise), operations, properties, assets,
liabilities of the Company and the Company Subsidiaries taken as a whole.
2. The Company has full corporate power and authority to execute and deliver
the Agreement and to consummate the transactions contemplated thereby. The
agreement has been duly executed and delivered by the Company and constitutes
(assuming due authorization, execution and delivery of the Agreement by the
other parties thereto) a valid, enforceable and binding agreement of the
Company, except to the extent that enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereinafter in effect relating to equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
Very truly yours,
Exhibit F
[Form of Opinion of Lane Altman & Owens, LLP]
[Closing Date]
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325
Dear Sirs:
[Introduction]
1. Each of the Parent and 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 when taken together with all such other failures would not in the
aggregate have a Material Adverse Effect on the business, condition (financial
or otherwise), operations, properties, assets or liabilities of parent and its
subsidiaries taken as a whole.
2. Each of Parent and Sub has full corporate power and authority to execute
and deliver the Agreement and to consummate the transactions contemplated
thereby. The Agreement has been duly executed and delivered by Parent and Sub
and constitutes (assuming due authorization, execution and deliver of the
Agreement by the Company) a valid, enforceable and binding agreement of each of
Parent and Sub, except to the extent that enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereinafter in effect relating to equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
Very truly yours,
Disclosure Schedules -- Schedule 7.1
Sidney D. Wolk
Nathan T. Wolk
Howard L. Wolk
Jeffrey C. Wolk
Thomas Graham
EXHIBIT (c)(2)
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment, dated as of this 31st day of October, 1996, is entered
into by and among The Cross Country Group, Inc. ("Parent"), CC Acquisition
Corporation ("Merger Sub"), and Homeowners Group, Inc. (the "Company").
WHEREAS, Parent, CHGI Acquisition Corporation, a wholly-owned
subsidiary of Parent (the "Sub") and the Company entered into an Agreement and
Plan of Merger dated as of May 14, 1996 (the "Agreement"); and
WHEREAS, Sub assigned its rights and obligations under the Agreement to
Merger Sub pursuant to a written assignment dated June 13, 1996; and
WHEREAS, Parent, Merger Sub and the Company desire to amend the
Agreement.
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, Parent, Merger Sub and the Company agree as follows, effective as of
the date hereof, with capitalized terms not otherwise defined herein having the
same meaning as set forth in the Agreement:
1. The term "Sub" wherever it appears in the Agreement shall be deleted
and replace by "Merger Sub."
2. Article III, Section 3.1, Exchange Ratio, subparagraph (c) shall be
deleted in its entirety and replaced with the following:
"(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 canceled
and converted into the right to receive $2.06 (the "Merger Price") in
cash, without interest thereon."
3. Amendment to Schedule 4.3. Schedule 4.3 of the Agreement is hereby
amended in its entirety to read as provided in Exhibit A attached hereto.
4. Amendment to Schedule 4.4. Schedule 4.4 of the Agreement is hereby
amended in its entirety to read as provided in Exhibit B attached hereto.
5. Article IV, Section 4.6, SEC Reports, shall be amended by adding the
following sentence at the end thereof:
"Notwithstanding the foregoing, the Company shall be permitted to file
a Report on Form 8-K reflecting the execution of this Amendment."
6. Article IV, Section 4.7, Financial Statements, shall be deleted in
its entirety and replaced by the following:
"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, June 30 and
September 30, 1996, and as of March 31, June 30 and September
30, 1995, and unaudited consolidated statements of operations
and changes in financial position for the respective three,
six and nine 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 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."
7. Article IV, Section 4.8, Absence of Undisclosed Liabilities, shall
be deleted in its entirety and replaced by the following:
"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
-2-
Financial Statements for the fiscal year then ended, and except for
payment to certain Franchises (as said term is defined in Section 4.13
hereof) in the amounts of $591,965, 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 September 30, 1996."
8. Amendment to Schedule 4.10. Schedule 4.10 of the Agreement is hereby
amended in its entirety to read as provided in Exhibit C attached hereto.
9. Amendment to Schedule 4.13. Schedule 4.13 of the Agreement is hereby
amended in its entirety to read as provided in Exhibit D attached hereto.
10. Article IV, Section 4.14, Franchise Agreements, shall be amended by
adding the following sentence at the end thereof:
"Parent acknowledges that, as set forth in Section 9.12
hereof, certain of the franchise agreements have been amended since May
14, 1996, that it has participated in the negotiation of such
amendments and that it has received copies of the same and agrees that
no such amendment shall be deemed a breach of the terms of this
Agreement."
11. Article IV, Section 4.17, Settlement Agreement, shall be deleted in
its entirety and replaced by the following:
"4.17 Settlement Agreement. On May 2, 1996, the Company and
Homeowners Marketing Services, Inc., a wholly owned subsidiary of the
Company ("HMS"), entered into a binding settlement agreement with
Acceleration National Insurance Company ("ANIC") providing that (i)
ANIC would 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 agreement was amended on May 7, 1996
by a First Amendment to May 2, 1996 Agreement for Satisfaction of
Judgment. Effective as of October 31. 1996, The Cross Country Group,
L.L.C., an affiliate of Parent, purchased the rights of ANIC and
entered into a new Settlement Agreement with HMS and the Company (the
"Settlement Agreement"). The
-3-
Company has not and will not further alter or amend the Settlement
Agreement without the prior written consent of the Parent."
12. Amendment to Schedule 4.19. Schedule 4.19 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit E attached hereto.
13. Amendment to Schedule 4.20. Schedule 4.20 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit F attached hereto.
14. Article IV, Section 4.21, Officers' and Directors' Liability
Insurance, shall be deleted in its entirety and replaced by the following:
"4.21 Officers' and Directors' Liability Insurance. The
Company has heretofore delivered to 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 $153,900."
15. Amendment to Schedule 4.22. Schedule 4.22 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit G attached hereto.
16. Amendment to Schedule 4.23. Schedule 4.23 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit H attached hereto.
17. Amendment to Schedule 4.25. Schedule 4.25 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit I attached hereto.
18. Amendment to Schedule 4.27. Schedule 4.27 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit J attached hereto.
19. Amendment to Schedule 4.28. Schedule 4.28 of the Agreement is
hereby amended in its entirety to read as provided in Exhibit K attached hereto.
20. Article VI, Section 6.1, Conduct of the Company's Business,
subparagraph (a), shall be amended by adding the following sentence at the end
thereof:
"Notwithstanding the foregoing, the termination of the
employment of Michael Jones shall not be deemed to be a breach of this
subparagraph."
-4-
21. Article VI, Section 6.1, Conduct of the Company's Business,
subparagraph (f), shall be amended by adding the following sentence at the end
thereof:
"Notwithstanding the foregoing, the Company shall be permitted
to enter into: (i) the Settlement Agreement as set forth in Section
7.14 hereof and (ii) a modification of its agreements with AIG as set
forth in Exhibit L attached hereto, neither of which shall be deemed to
be a breach of this subparagraph."
22. Article VI, Section 6.1, Conduct of the Company's Business,
subparagraph (h), shall be deleted in its entirety and replaced by the
following:
"(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 $140,000 after May 14, 1996
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 after May 14, 1996 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 after May 14, 1996 shall not exceed
$265,000 in the aggregate, and any such loans or advances shall be
repayable to the Company within a period not to exceed six months."
23. Article VI, Section 6.1, Conduct of the Company's Business, shall
be amended by adding the following subsection (m) thereto:
"(m) From and after the date of this Amendment, the Company
will not amend or terminate any existing, or enter into new, agreements
with any Franchisees (except as provided in Section 9.12 hereof) or
with any third party with respect to sale of the Company's products and
services, without in each case the consent of the Parent."
-5-
24. Article VI, Section 6.2, Rights Agreement, shall be amended by
adding the following sentences at the end thereof:
"The Company shall, immediately upon execution of this
Amendment, further amend the Rights Agreement to permit the acquisition
of shares of Company Common Stock by the Merger Sub under the
conditions set forth in the Amendment to the Rights Plan in the form of
Exhibit M attached hereto. The Company shall issue a press release with
respect to such amendment within one business day of the execution of
the Amendment to Agreement and Plan of Merger."
25. Article VI, Section 6.3, Termination of Employment, shall be
deleted in its entirety and replaced by the following:
"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 of the Merger Agreement and attached hereto as Exhibit
N; and (ii) the Surviving Corporation shall pay to Carl Buccellato the
amount as set forth in the Settlement Agreement as provided in Section
6.4 hereof."
26. Article VI, Section 6.4, Consulting Agreement, shall be deleted in
its entirety and replaced by the following:
"6.4 Buccellato Settlement 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 Settlement
Agreement with Carl Buccellato, as provided in Exhibit N-1."
27. Article VI, Section 6.6, Mutual Releases, shall be deleted in its
entirety and replaced by the following:
"6.6 Mutual Releases. At the Closing the Company shall cause
each of its directors to execute and deliver to Parent and Merger Sub
(and each director and principal stockholder thereof ("Parent
Affiliate")), and Parent and Merger Sub (and each Parent Affiliate)
shall execute and deliver to each of the Company's directors, mutual
releases releasing and further discharging each other party 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 such party's tenure as a director of the Company, this
Agreement, 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
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): (i) as a defense of any claim or
-6-
action commenced against it by any party released in accordance with
this Section or (ii) in connection with an action brought by a person
or party unaffiliated with Parent, Merger Sub or any Parent Affiliate;
and further provided that notwithstanding the foregoing, the release of
Carl Buccellato shall be as set forth in Exhibit N-1 hereto."
28. Article VII, Section 7.11, Indemnification of Officers and
Directors of the Company, shall be deleted in its entirety and replaced by the
following:
"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 annual premiums on such officers' and directors' liability
insurance in excess of $171,000."
29. Article VII, Additional Agreements, shall be amended by adding the
following Section:
"7.14 Modification of Settlement Agreement. The Company shall,
and Parent shall cause The Cross Country Group, L.L.C., as the assignee
of the rights of ANIC to, enter into the Settlement Agreement
(substantially in the form of Exhibit O hereto) contemporaneously with
the execution of this Amendment which shall provide for, among other
things, agreement of The Cross Country Group, L.L.C. to take no action
with respect to realization on its rights under the Settlement
Agreement prior to the earlier of: (a) January 31, 1997 and (b) the
termination of its obligations under this Agreement in consideration
for the guarantee of the obligation of HMS under the Settlement
Agreement by the Company, the pledge by the Company of the shares of
HMS and Homeowners Marketing Services International, Inc. ("HMSII")
owned by the Company to The Cross Country Group, L.L.C. to secure the
guarantee and the grant by HMS and HMSII of a security interest in
their respective assets in favor of The Cross Country Group, L.L.C. to
further secure such guarantee."
30. Article IX, Section 9.9, Agreements with Affiliates, shall be
amended by adding the
-7-
following sentence at the end thereof:
"Parent and Merger Sub hereby acknowledge that the conditions set forth
by this Section 9.9 have been satisfied and no further action with
respect to such matters shall be required so long as no further
modification of such agreements, understandings, commitments or
arrangements is made."
31. Article IX, Section 9.10, Binding Settlement Agreement, shall be
deleted in its entirety.
32. Article IX, Conditions to the Obligations of Parent and Sub, shall
be amended by adding the following section:
"9.12 Franchise Agreement - Amendment and Estoppel Agreement.
The Company shall have caused HMSI to: (i) enter into and execute an
amendment to existing franchise agreements (including franchise
agreements whose terms have been extended to December 31, 1996) with
all Franchisees upon terms and conditions satisfactory to Parent, and
(ii) have obtained estoppel letters from all Franchisees which shall
contain a waiver of any and all claims the Franchisees have or may have
under the existing franchise agreements including, without limitation,
a waiver of all claims for profit sharing for 1996."
33. Article XI, Section 11.1, Time and Place, shall be deleted in its
entirety and replaced by the following:
"11.1 Time and Place. Subject to the provisions of Articles
VII, IX, X and XII hereof, the closing (herein sometimes referred to as
the 'Closing') of the transactions contemplated hereby shall take place
not later than five (5) business days 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 or at such other time as the Parent, Sub and the Company
may mutually agree upon for the Closing to take place."
34. Article XII, Section 12.1, Termination, subparagraph (b)(i), shall
be deleted in its entirety and replaced by the following:
"(i) the Merger shall not have been consummated on or before
the later of: (A) March 1, 1997, or (B) two business days after the
Company's stockholders' meeting;".
35. Article XII, Section 12.1, Termination, subparagraph (c)(i), shall
be deleted in its entirety and replaced by the following:
"(i) the Merger shall not have been consummated on or before
March 1,
-8-
1997,".
36. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
37. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to principles of conflicts of laws.
38. Except as modified by this Amendment, the terms of the Merger
Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, each party has executed this Amendment to Agreement
and Plan of Merger as of the date first set forth above.
THE CROSS COUNTRY GROUP, INC.
By:/s/ Sidney Wolk
-----------------------------------------
Name: Sidney Wolk
Title: President
CC ACQUISITION CORPORATION
By:/s/ Sidney Wolk
-----------------------------------------
Name: Sidney Wolk
Title: President
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
-----------------------------------------
Name: C. Gregory Morris
Title: Vice President, Treasurer and
Chief Financial Officer
-9-
EXHIBIT LIST
Exhibit A Schedule 4.3
Exhibit B Schedule 4.4
Exhibit C Schedule 4.10
Exhibit D Schedule 4.13
Exhibit E Schedule 4.19
Exhibit F Schedule 4.20
Exhibit G Schedule 4.22
Exhibit H Schedule 4.23
Exhibit I Schedule 4.25
Exhibit J Schedule 4.27
Exhibit K Schedule 4.28
Exhibit L Modification Agreements with AIG
Exhibit M Amendment to Rights Plan
Exhibit N Employment Agreement between the Company and Carl
Buccellato dated as of December 22, 1995
Exhibit N-1 Buccellato Settlement Agreement with Carl Buccellato
Exhibit O Settlement Agreement
-10-
EXHIBIT (c)(3)
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment, dated as of this 31st day of January, 1997, is entered
into by and among The Cross Country Group, Inc. ("Parent"), CC Acquisition
Corporation ("Merger Sub"), and Homeowners Group, Inc. (the "Company").
WHEREAS, Parent, CHGI Acquisition Corporation, a wholly-owned
subsidiary of Parent (the "Sub") and the Company entered into an Agreement and
Plan of Merger dated as of May 14, 1996 (the "Agreement"); and
WHEREAS, Parent, Merger Sub and the Company amended the Agreement as of
October 31, 1996 (the "First Amendment"); and
WHEREAS, Parent, Merger Sub and the Company desire to further amend the
Agreement.
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, Parent, Merger Sub and the Company agree as follows, effective as of
the date hereof, with capitalized terms not otherwise defined herein having the
same meaning as set forth in the Agreement:
1. Section 7.14 is hereby deleted in its entirety and replaced with the
following:
"7.14 Modification of Settlement Agreement. The Company and
The Cross Country Group, L.L.C., as the assignee of the rights of ANIC,
shall enter into the Settlement Agreement (substantially in the form of
Exhibit O hereto) contemporaneously with the execution of this
Amendment which shall provide for, among other things, agreement of The
Cross Country Group, L.L.C. to take no action with respect to
realization on its rights under the Settlement Agreement prior to the
earlier of: (a) July 1, 1997 or (b) the termination of its obligations
under this Agreement, in consideration for the guarantee of the
obligation of HMS under the Settlement Agreement by the Company, the
pledge by the Company of the shares of HMS and Homeowners Marketing
Services International, Inc. ("HMSII") owned by the Company to The
Cross Country Group, L.L.C. to secure the guarantee and the grant by
HMS and HMSII of a security interest in their respective assets in
favor of The Cross Country Group, L.L.C. to further secure such
guarantee."
2. Section 9.12 is hereby deleted in its entirety and replaced with the
following:
"9.12 Franchise Agreement - Amendment and Estoppel Agreement
and Profit Sharing Release. The Company shall have caused HMSI to: (i)
enter into and execute an amendment to existing franchise agreements
(including franchise agreements whose terms have been extended to July
1, 1997) with all Franchisees upon terms and conditions satisfactory to
Parent, and (ii) have obtained estoppel letters and releases from all
Franchisees which shall contain a waiver of any and all claims the
Franchisees have or may have under the existing franchise agreements
including, without limitation, a waiver of all claims for profit
sharing for 1996."
3. Section 12.1(b)(i) shall be deleted in its entirety and replaced
with the following:
"(i) the Merger shall not have been consummated on or before
the later of: (A) July 1, 1997, or (B) two business days after the
Company's stockholders' meeting;".
4. Section 12.1 (c)(i) shall be deleted in its entirety and replaced
with the following:
"(i) the Merger shall not have been consummated on or before
July 1, 1997,".
5. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to principles of conflicts of laws.
7. Except as modified by this Amendment, the terms of the Agreement, as
amended by the First Amendment, shall remain unmodified and in full force and
effect.
-2-
IN WITNESS WHEREOF, each party has executed this Amendment as of the
date first set forth above.
THE CROSS COUNTRY GROUP, INC.
By:/s/ Howard L. Wolk
-----------------------------------------
Name: Howard L. Wolk
Title: Vice President
CC ACQUISITION CORPORATION
By:/s/ Howard L. Wolk
-----------------------------------------
Name: Howard L. Wolk
Title: President
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
-----------------------------------------
Name: C. Gregory Morris
Title: Vice President, Treasurer and
Chief Financial Officer
-3-
EXHIBIT (c)(4)
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment, dated as of the 1st day of July, 1997, is entered into
by and among The Cross Country Group, Inc. ("Parent"), CC Acquisition
Corporation ("Merger Sub"), and Homeowners Group, Inc. (the "Company").
WHEREAS, Parent, CHGI Acquisition Corporation, a wholly-owned
subsidiary of the Parent and the Company entered into an Agreement and Plan of
Merger dated as of May 14, 1996 (the "Merger Agreement");
WHEREAS, Parent, Merger Sub and the Company amended the Merger
Agreement as of October 31, 1996 (the "First Amendment") and again amended the
Merger Agreement as of January 31, 1997 (the "Second Amendment") (collectively,
the "Prior Amendments");
WHEREAS, the Company recently received Notices of Proposed Adjustment
from the Internal Revenue Service ("IRS") that could result in the disallowance
of approximately $20 million in losses previously claimed by the Company on its
federal income tax returns (the "Tax Contingency");
WHEREAS, Parent notified the Company that the Tax Contingency is a
Company Material Adverse Effect (as defined in the Merger Agreement) and that as
a result of such Company Material Adverse Effect, Parent and Merger Sub were not
willing to proceed with the Merger under the current terms of the Merger
Agreement; and
WHEREAS, The Company acknowledges that the Tax Contingency is a Company
Material Adverse Effect and the parties desire to further amend the Merger
Agreement to adequately reflect the impact of the Tax Contingency on the
Company.
NOW THEREFORE, in consideration of the premises and agreements
contained herein, Parent, Merger Sub and the Company agree as follows:
1. EFFECT ON MERGER AGREEMENT AND PRIOR AMENDMENTS.
The terms of this Amendment shall amend, modify, and supersede any
contrary or inconsistent terms in the Merger Agreement and Prior
Amendments. Except as modified
by this Third Amendment, the terms of the Merger Agreement, as amended
by the Prior Amendments, shall remain unmodified and in full force and
effect. Except as otherwise indicated herein, all defined terms shall
have the meaning ascribed to them in the Merger Agreement.
2. FRANCHISE AMENDMENTS.
As a condition to the obligations of Parent and Merger Sub to
consummate the Merger, the Company shall have caused HMSI to enter into
and execute a Third Amendment to Affiliation Agreement, Second
Amendment to Profit Sharing Release and Second Amendment to Estoppel
Agreement with each of HMSI's Franchisees, upon terms and conditions
satisfactory to Parent in its sole discretion.
3. TAX CONTINGENCY.
Parent may designate one person as its representative, who shall be
kept fully informed by, and whose advice shall be conveyed to, legal
counsel retained by the Company to represent it in connection with the
Tax Contingency.
4. EXTENSION OF AGREEMENT FOR SATISFACTION OF JUDGMENT.
Contemporaneously with execution of this Third Amendment, the Company
and The Cross Country Group, L.L.C. shall enter into an Extension of
Agreement for Satisfaction of Judgment which shall provide for the
agreement of The Cross Country Group, L.L.C. to take no action with
respect to realization of its rights under the Agreement for
Satisfaction of Judgment between Homeowners Marketing Services, Inc.
and The Cross Country Group, L.L.C., as amended, prior to the earlier
of: (a) July 31, 1997 or (b) termination of Parent's obligations under
the Merger Agreement, as amended by the Prior Amendments and this Third
Amendment.
5. TERMINATION AND ABANDONMENT.
In addition to and not in limitation of, the termination rights set
forth in the Merger Agreement, as amended by the Prior Amendments, the
Merger Agreement, as amended by the Prior Amendments and this Third
Amendment shall terminate if, on or before July 31, 1997 both (a) the
Tax Contingency shall not have been resolved to the satisfaction of
Parent, and (b) the Merger shall not have been consummated.
2
IN WITNESS WHEREOF, each party has executed this Third Amendment as of
the first date set forth above.
THE CROSS COUNTRY GROUP, INC.
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: Vice President
-------------------------------
CC ACQUISITION CORPORATION
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: President
-------------------------------
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
----------------------------------
Name: C. Gregory Morris
--------------------------------
Title: Vice President, Treasurer and
Chief Financial Officer
-------------------------------
3
EXHIBIT (c)(5)
EXTENSION TO THIRD AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This Extension to the Third Amendment to Agreement dated July 31, 1997,
is entered into by and among Homeowners Group, Inc.,The Cross Country Group,
Inc., and CC Acquisition Corporation (hereinafter collectively, the "Parties").
WHEREAS, the Agreement and Plan of Merger dated May 14, 1996 (as
amended) between the Parties will expire on the date hereof; and
WHEREAS, the Parties desire to extend the date by which the Merger must
be consummated.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. To extend the date upon which the Merger Agreement, as amended,
shall terminate, to August 6, 1997, if both (a) the Tax Contingency (as defined
in the Third Amendment) shall not have been resolved to the satisfaction of
Parent, and (b) the Merger shall not have been consummated by that date.
2. All other provisions of the Third Amendment to the Merger Agreement
shall remain the same.
IN WITNESS WHEREOF, the Parties have executed this Agreement of
Extension as of the date set forth above.
THE CROSS COUNTRY GROUP, INC.
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: Vice President
-------------------------------
CC ACQUISITION CORPORATION
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: President
-------------------------------
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
----------------------------------
Name: C. Gregory Morris
--------------------------------
Title: Vice President, Treasurer and
Chief Financial Officer
-------------------------------
EXHIBIT (c)(6)
FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
------------------------------------------------
This Fourth Amendment, dated as of the 16 th day of September, 1997, is
entered into by and among The Cross Country Group, Inc. ("Parent"), CC
Acquisition Corporation ("Merger Sub"), and Homeowners Group, Inc. (the
"Company").
WHEREAS, Parent, CHGI Acquisition Corporation, a wholly-owned
subsidiary of the Parent and the Company entered into an Agreement and Plan of
Merger dated as of May 14, 1996, as amended as of October 31, 1996 (the "First
Amendment"), as of January 31, 1997 (the "Second Amendment") as of June 30, 1997
(the "Third Amendment") and as extended to August 7, 1997 by Extension of Third
Amendment dated as of July 31, 1997 (collectively, the "Merger Agreement");
WHEREAS, the Company on June 9, 1997 notified the Parent that it had
received Notices of Proposed Adjustment from the Internal Revenue Service
("IRS") that could result in the disallowance of approximately $20 million in
losses previously claimed by the Company on its federal income tax returns (the
"Tax Contingency");
WHEREAS, Parent notified the Company that the Tax Contingency is a
Material Adverse Effect (as defined in the Merger Agreement) and that as a
result of such Material Adverse Effect, Parent and Merger Sub were not willing
to proceed with the Merger under the current terms of the Merger Agreement;
WHEREAS, The Merger Agreement expired on August 7, 1997; and
WHEREAS, Parent, Merger Sub and the Company desire to revive the Merger
Agreement and to further amend the Merger Agreement, to adequately reflect the
impact of the Tax Contingency on the Company.
NOW THEREFORE, in consideration of the premises and agreements
contained herein, Parent, Merger Sub and the Company agree as follows:
ARTICLE I
EFFECT ON MERGER AGREEMENT
The terms of this Fourth Amendment shall revive the Merger Agreement
retroactively as of August 7, 1997, and shall amend, modify, and supersede any
contrary or inconsistent terms in the Merger Agreement, provided, however, there
shall be no breach of any covenants contained in the Merger Agreement by the
parties thereto solely for any actions of the parties from the
period of August 8, 1997 to August 21, 1997, and further provided that Parent is
hereby released and discharged from any liability or obligations of any kind
whatsoever under or in connection with the Merger Agreement except for the
obligation to cause Merger Sub to commence the Offer and pay the Offer
Consideration as provided in Section 2.1. Except as modified by this Fourth
Amendment, the terms of the Merger Agreement shall remain unmodified and in full
force and effect. Except as otherwise indicated herein, all defined terms shall
have the meaning ascribed to them in the Merger Agreement.
ARTICLE II
THE OFFER
2.1 The Offer. (a) Provided that the Merger Agreement, as amended by
this Fourth Amendment, shall not have been terminated and none of the events set
forth in Exhibit A hereto shall be existing ("Conditions to the Offer"), as
promptly as practicable (but in any event not later than September 17, 1997),
Merger Sub shall commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) ("Commencement of the
Offer"), an offer to purchase (the "Offer") all outstanding shares of Company
Common Stock together with the Associated Rights (as defined below) (other than
shares of Company Common Stock and Associated Rights owned by Parent and/or its
affiliates) for total consideration consisting of $.55 per share, net to the
seller in cash (the "Cash Price"), plus the contingent right (the "Escrow
Right") to receive a maximum of $1.51 per share from the Escrow Funds (as
hereinafter defined) (the Cash Price and Escrow Rights are sometimes hereinafter
collectively referred to as the "Offer Consideration"). As used in this Fourth
Amendment, "Associated Rights" shall mean the Common Stock Purchase Rights
issued pursuant to the Company Rights Agreement (as defined below). Except where
the context otherwise requires, all references herein to the shares of Company
Common Stock shall include the Associated Rights. Merger Sub shall not be
required to accept for payment any shares of Company Common Stock tendered
pursuant to the Offer unless all Conditions to the Offer shall have been
satisfied.
(b) Merger Sub expressly reserves the right to waive any Conditions to
the Offer (except the Minimum Condition), to increase the Offer Consideration
payable in the Offer, and to make any other changes in the terms and Conditions
to the Offer; provided, however, that Merger Sub may not, without the prior
written consent of the Company, (i) make any change which decreases the Offer
Consideration payable in the Offer or reduces the maximum number of shares of
Company Common Stock to be purchased in the Offer, (ii) impose conditions to the
Offer in addition to those set forth in Exhibit A hereto, and (iii) extend the
Expiration Date, except that Merger Sub may extend the Expiration Date (a) as
required by law, (b) for up to 10 business days after the initial Expiration
Date or for longer periods (not to exceed 90 calendar days from the date of
Commencement of the Offer) in the event that any Conditions to the Offer are not
satisfied, or (c) for one or more times for an aggregate period of up to 20
business days in the event that all Conditions to the Offer have been satisfied.
Assuming the prior satisfaction or
2
waiver of the Conditions to the Offer, Merger Sub shall accept for payment, and
pay for, in accordance with the terms of the Offer, all shares of Company Common
Stock validly tendered and not withdrawn pursuant to the Offer as soon as
practicable after the expiration date thereof.
2.2 Offer Documents. As soon as practicable on the date of Commencement
of the Offer, Merger Sub shall file or cause to be filed with the SEC (i) a
Tender Offer Statement on Schedule 14d-1 (together with all amendments and
supplements thereto the Schedule 14d-1") with respect to the Offer, (ii) a Rule
13e-3 Transaction Statement on Schedule 13e-3 (together with all amendments and
supplements thereto, the "Schedule 13e-3") with respect to the Offer and the
Merger (collectively, the "Transactions"). The Schedule 14d-1 and Schedule 13e-3
shall contain or incorporate by reference the offer to purchase and related
letter of transmittal and other ancillary Offer documents and instruments
pursuant to which the Offer will be made (collectively with any supplements or
amendments thereto, the "Offer Documents") and shall contain (or shall be
amended in a timely manner to contain) all information which is required to be
included therein in accordance with the Exchange Act and the rules and
regulations thereunder and any other applicable law; provided, however, that no
agreement or representation is hereby made or shall be made by Merger Sub with
respect to information supplied by the Company expressly for inclusion in, or
with respect to Company information derived from the Company's public SEC
filings that is included or incorporated by reference in, the Offer Documents.
Merger Sub and the Company each agree to promptly correct any information
provided by them for use in the Offer Documents if and to the extent that it
shall have become false or misleading in any material respect and Merger Sub
further agrees to take all lawful action necessary to cause the Offer Documents
as so corrected to be filed promptly with the SEC and to be disseminated to
holders of Company Common Stock, in each case as and to the extent required by
applicable law. All Offer Documents must be reasonably acceptable to the Company
and must provide that the tendered shares will, subject to Merger Sub's right to
extend the Offer as set forth in Section 2.1(b) hereof, be purchased upon
expiration of the Offer, provided that the Conditions to the Offer shall have
been satisfied or waived by Merger Sub (the time of such purchase being referred
to herein as the "Consummation of the Offer").
2.3 Company Actions.
(a) The Company hereby consents to the Offer and represents
that (a) its Board of Directors has (i) determined that each of the Merger
Agreement, this Fourth Amendment and, the Transactions are fair to and in the
best interests of the stockholders of the Company, (ii) approved the execution,
delivery and performance of the Merger Agreement, as amended by this Fourth
Amendment and the consummation of the transactions contemplated hereby and
thereby, including the Transactions, and such approval constitutes approval of
the foregoing for the purposes of Section 203 of the DGCL, (iii) resolved to
recommend acceptance of the Offer, approval and adoption of Merger Agreement,
3
as amended by this Fourth Amendment and approval of the Merger by the holders of
Company Common Stock, and (iv) taken all action necessary in respect of the
Rights Agreement, dated as of November 1, 1990, between the Company and the
Continental Stock Transfer & Trust Company, as Rights Agent, as amended, (the
"Company Rights Agreement"), so as to render the Company Rights Agreement
inapplicable to any and all of the execution, delivery and performance of the
Merger Agreement, as amended by this Fourth Amendment and the consummation of
the Transactions (such necessary action to include, without limitation, taking
action to provide that none of Parent and its affiliates will become an
"Acquiring Person" or an "Adverse Person" and that no "Stock Acquisition Date"
or "Distribution Date" (as such terms are defined in the Company Rights
Agreement) will occur as a result of such execution, delivery and performance or
such consummation.
(b) The Company hereby agrees to file with the SEC
simultaneously with the filing by Merger Sub of the Schedule 14D-1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing such
recommendations of the Board of Directors of the Company in favor of the
Transactions and otherwise complying with Rule 14d-9 under the Exchange Act. The
Schedule 14D-9 shall comply in all material respects with the Exchange Act and
any other applicable law and shall contain (or shall be amended in a timely
manner to contain) all information which is required to be included therein in
accordance with the Exchange Act and the rules and regulations thereunder and
any other applicable law. The Company and Merger Sub each agree to promptly
correct any information provided by them for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading in any material respect
and the Company further agrees to take all lawful action necessary to cause the
Schedule 14D-9 as so corrected to be filed promptly with the SEC and
disseminated to the holders of Company Common Stock, in each case as and to the
extent required by applicable law.
(c) In connection with execution of this Fourth Amendment, the
Company shall promptly furnish, or cause its transfer agent to furnish, Merger
Sub with mailing labels, security position listings and all available listings
or computer files containing the names and addresses of the record holders of
the Company Common Stock as of the latest practicable date and shall furnish, or
cause its transfer agent to furnish, Merger Sub with such information and
assistance (including updated lists of stockholders, mailing labels and lists of
security positions) as Merger Sub or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of Company Common
Stock.
2.4 Directors. Promptly upon the Consummation of the Offer, each member
of the Board of Directors of the Company shall resign and be replaced by Merger
Sub's designees. At the request of Merger Sub, the Company shall take, at the
Company's expense, all lawful action necessary to effect any such election,
including, without limitation, mailing to its stockholders the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, unless such information has previously been provided to the
Company's stockholders in the Schedule 14D-9.
4
ARTICLE III
TAX CONTINGENCY ESCROW RIGHTS
3.1 Tax Contingency Settlement Agreement. If the Conditions to the
Offer are met, immediately preceding the Consummation of the Offer, the Company
shall enter into the "Tax Contingency Settlement Agreement" with persons
mutually satisfactory to Company and Merger Sub and designated as the
Stockholder Representatives (as such term is defined in the Tax Contingency
Settlement Agreement), in the form attached hereto as Exhibit B, which
Stockholder Representatives shall accept such position at the request of the
Company.
3.2 Establishment of Tax Contingency Escrow. If the Conditions to the
Offer are met, immediately preceding the Consummation of the Offer, HAC, Inc.,
the parent of Merger Sub, shall enter into an escrow agreement (the "Escrow
Agreement") with a person or entity mutually satisfactory to Company and HAC,
Inc. (the "Escrow Agent") in the form attached hereto as Exhibit C, and Merger
Sub shall, or shall cause one or more of its affiliates, to deposit with the
Escrow Agent, an aggregate amount equal to (i) the Option Settlement Amount (as
defined in Article VIII, Section 8.2, hereof), and (ii) the product of: (x) the
number of shares validly tendered and not withdrawn immediately prior to
Consummation of the Offer, and (y) $1.51 (the "Escrow Funds"), the Escrow Funds,
at the election of Merger Sub, to be either in cash or in the form of an
irrevocable standby letter of credit issued by Fleet Bank, N.A., or such other
bank as is reasonably satisfactory to the Company containing the terms set forth
in the Escrow Agreement. The Escrow Funds, if deposited in cash, shall be
invested by the Escrow Agent and the interest earned thereon shall be added to
the Escrow Funds to be disbursed by the Escrow Agent, all in accordance with the
terms and conditions of the Escrow Agreement.
3.3 Establishment of Escrow Rights. If the Conditions to the Offer are
met, then upon the Consummation of the Offer the holders of shares of Company
Common Stock whose shares were validly tendered and not withdrawn in the Offer
(the "Pre-Offer Shareholders") shall be deemed to own, without any further
action, one Escrow Right for each share of Company Common Stock validly
tendered. The right of Escrow Right holders to receive funds from the Escrow
Agreement shall be represented and governed by the terms of the Escrow
Agreement. The Escrow Rights will not be assignable or transferable except by
operation of law (including the laws of descent and distribution) or by
intestacy, and will not be evidenced by any certificate or other instrument. No
dividends will be paid with respect to the Escrow Rights, and they will not bear
any stated rate of interest or have any voting or other shareholder rights. The
Escrow Rights will represent only the contingent right to receive the Escrow
Funds in accordance with the terms and conditions of the Escrow Agreement.
5
ARTICLE IV
THE MERGER
Article I of the Agreement and Plan of Merger is further amended by
deleting said Article I in its entirety and inserting in its place the
following:
"1.1 The Merger. At the Effective Time, Merger Sub shall be merged into
the Company and the separate existence of Merger 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 be made as soon as practicable after
the closing of the Merger."
ARTICLE V
THE SURVIVING CORPORATION
Article II of the Agreement and Plan of Merger is further amended by
deleting said Article II in its entirety and inserting in its place the
following:
"2.1 Certificate of Incorporation. The Certificate of Incorporation of
Merger 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.
6
2.2 By-Laws. The By-Laws of Merger 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 Merger 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 VI
CONVERSION OF SHARES
Article III of the Agreement and Plan of Merger is further amended by
deleting said Article III in its entirety and inserting in its place the
following:
"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 which are held by the
Company, any subsidiary of the Company, Parent, Merger Sub or any other
affiliate of Parent, shall be canceled.
(b) All issued and outstanding shares of capital stock of
Merger Sub shall be converted into 1,000 issued and outstanding shares of Common
Stock of the Surviving Corporation.
(c) Each remaining outstanding share of Company Common Stock
(other than shares of Company Common Stock held by the Company, Parent, Merger
Sub or any other affiliate of Parent or any holder who shall have taken the
necessary steps under the 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 canceled and converted into the
right to receive the Cash Price and one Escrow Right for each share held
(collectively, the "Merger Consideration").
(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 the Merger Consideration at or after the
Effective Time unless and until the holder of such Dissenting Shares withdraws
his, her or its demand for such appraisal with the consent of the
7
Company, if required by the DGCL, or becomes ineligible for such appraisal. If
such a holder of Dissenting Shares shall withdraw his, her or its 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 the right to receive the Merger Consideration 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. Except as otherwise provided by
law, 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 Deposit of Additional Escrow Funds into Escrow. Immediately prior
to the Effective Time, Merger Sub shall, or shall cause one or more of its
affiliates to deposit with the Escrow Agent, additional Escrow Funds in an
aggregate amount equal to the product of (i) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time (other than any
such shares held in the treasury of the Company and its subsidiaries, owned by
Parent or its affiliates, tendered by the Pre-Offer Stockholders or known to be
Dissenting Shares) (the "Pre-Merger Stockholders"), and (ii) $1.51 (the
"Additional Escrow Amount"); provided, however, that if there has been a
distribution of Escrow Funds to the Pre-Offer Shareholders prior to the
additional funding of Escrow Funds in accordance with the terms hereof, then the
Additional Escrow Amount shall be reduced, and the Cash Price portion of the
Payment Fund (as defined in Section 3.3 below) shall be increased, by the
pro-rata portion of such distribution. If cash is deposited into the Escrow in
respect of shares of Company Common Stock that subsequently become Dissenting
Shares, the Escrow Agent shall promptly repay to the Parent from the Escrow Fund
an amount equal to the product of (x) the number of such Dissenting Shares and
(y) $1.51. The Additional Escrow Amount shall be either in cash or letter of
credit as provided in Article III hereof.
3.3 Exchange Agent. (a) Merger Sub shall authorize one or more persons
to act as Exchange Agent hereunder (the "Exchange Agent").
(b) Immediately prior to the Effective Time, Merger Sub shall
deposit in escrow 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
escrow is not less than) the product of (i) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time (other than any
such shares held in treasury of the Company and its subsidiaries, owned by
Parent or its affiliates, tendered by the Pre-Offer Stockholders or known at the
Effective Time to be Dissenting Shares), and (ii) the Cash Price (the "Payment
Fund"). The Payment Fund shall be invested by the Exchange Agent as directed by
the Surviving Corporation, and any net earnings with respect thereto shall be
paid to the Surviving Corporation as and when required by the Surviving
Corporation.
8
(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 Merger Sub 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 Cash 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 except as set
forth in Section 3.3(e) hereof. 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 or its
affiliates, 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 Certificate in exchange for the Cash Price and
Escrow Right upon surrendering 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 (i) cash in an amount equal to
the Cash Price plus the amount distributed with respect to each Escrow Right
prior to the time of surrender of the Certificate and (ii) one Escrow Right (to
the extent that the Escrow Agreement is then in existence) multiplied by the
number of shares of Company Common Stock theretofore represented by the
Certificate, and the Certificate so surrendered shall forthwith be canceled.
(e) Upon receipt of any portion of the Escrow Fund pursuant to
the terms of the Tax Contingency Settlement Agreement and the Escrow Agreement,
the Exchange Agent shall distribute such amounts pro-rata to each holder of the
Escrow Rights.
3.4 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
9
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.
3.5 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 canceled and exchanged for the cash consideration set
forth above.
ARTICLE VII
COVENANTS
7.1 Section 6.1(a) and 6.1(d) of the Merger Agreement shall be deleted
in their entirety and replaced by the following:
"Conduct of the Business Pending the Offer. (a) The Company covenants
and agrees that, between the date of this Fourth Amendment and the Consummation
of the Offer, unless Merger Sub shall otherwise agree in writing, the businesses
of the Company and its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use its best efforts to preserve substantially intact the business organization
of the Company and its subsidiaries, to keep available the services of the
current officers, employees and consultants of the Company and its subsidiaries
and to preserve the current relationships of the Company and its subsidiaries
with customers, suppliers, franchisees and other persons with which the Company
or any of its subsidiaries has significant business relations.
(b) Neither the Company, nor any of its subsidiaries, officer, director
or employee of (or any investment banker, attorney, accountant or other
representative retained by) the Company or any of its subsidiaries shall,
directly or indirectly, solicit, initiate, encourage or respond to any inquiries
or proposals by, or engage in any discussions or negotiations with, or provide
information to, or enter into any agreement with any corporation, partnership,
person or other entity or group which it is reasonably expected may lead to, or
which relates to, any Takeover Transaction and any such discussions or
negotiations shall be terminated immediately. For the purposes hereof "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."
10
7.2 Termination of Employment. Sections 6.3 and 6.4 of the Merger
Agreement shall be deleted in their entirety and replaced with the following:
"(a) Upon Consummation of the Offer, (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 of the Merger Agreement;
(ii) Carl Buccellato shall resign as Chairman of the Board of Directors, and as
a director, officer and employee of the Company and of any of the Company's
Subsidiaries and affiliates; and (iii) the Company shall pay to Carl Buccellato
the amount as set forth in the Settlement Agreement, as amended, as provided in
Subsection (b) below.
(b) Upon Consummation of the Offer and the termination of the
Employment Agreement referred to in Subsection (a) above, the Company shall
enter into an Amendment to the Settlement Agreement with Carl Buccellato in the
form attached hereto as Exhibit D.
7.3 Termination of Lipson Consulting Agreement. Section 6.4 of the
Merger Agreement shall be deleted in its entirety and replaced with the
following:
"Upon Commencement of the Offer, (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 to the original Merger Agreement 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
and the Company a general release in favor of Parent, Merger Sub, the Company
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 Company shall enter into the Severance
Right and shall enter into the Severance Agreement in the form of Exhibit E.
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 Consummation of the Offer make, any payments to Gary Lipson of any
kind whatsoever."
7.4 Mutual Releases. Section 6.6 of the Merger Agreement shall be
deleted in its entirety and replaced with the following:
"Upon Commencement of the Offer, Parent, Merger Sub, and the Company
and its affiliated entities, shall enter into releases in for the form of the
Release Agreement attached hereto as Exhibit F with the Current Board. In
addition to and in consideration of the foregoing,
11
the parties, in their capacity as stockholders of the Company, shall agree not
to participate as plaintiffs in any suit in law or in equity against any party
to the foregoing releases or any of their subsidiaries, affiliates,
stockholders, officers, directors and employees arising out of or related to any
actions or inactions of such parties with respect to the Transactions."
7.5 Settlement of Tax Contingency Prior to Consummation of Offer. The
Company hereby agrees that it shall not settle the Tax Contingency prior to
Consummation of the Offer without the express written consent of Parent. Upon
any such settlement the amount of the Cash Price and the Escrow Fund shall be
appropriately adjusted as mutually determined by Parent and Company."
7.6 Extension of Agreement for Satisfaction of Judgment. Upon
Commencement of the Offer, the Company and The Cross Country Group, L.L.C. shall
enter into an Extension of Agreement for Satisfaction of Judgment (substantially
in the form of Exhibit G hereto) in consideration for which the Company will (a)
further secure the Company's obligation under the Judgment by (i) the pledge by
the Company of the shares of Homeowners Association of America, Inc., HAA of
Arizona, Inc., HAA of Georgia, Inc., HAA of Utah, Inc., HAA of Virginia, Inc.
and HAA of California, Inc. (collectively, the "HAA Entities") owned by the
Company to The Cross Country Group, L.L.C., and (ii) the grant by the HAA
Entities of a security interest in their respective assets in favor of the Cross
Country Group, L.L.C.
7.7 Settlement With Visby Marketing Group, Inc., et., al.. Upon
Commencement of the Offer, Parent and Company shall enter into a Settlement
Agreement with Gayle Pomerantz, individually, One Stop Creative Services, Inc,
and Visby Marketing Group, Inc. substantially upon the terms and conditions
contained in the form of Settlement Agreement attached hereto as Exhibit H, or
any modifications thereto that are satisfactory to Parent in its sole
discretion.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Company Stock Options. Section 7.5 of the Merger Agreement shall be
deleted in its entirety and replaced with the following:
"If the Conditions to the Offer are met, immediately preceding the
Consummation of the Offer, the Company shall make such adjustments to all the
outstanding options issued by the Company to purchase shares of the 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 contingent right to receive from the Escrow,
an amount equal to the amount, if any, by which (A) the sum of (x) the Cash
Price, and (y) the actual amount of cash distributed to Pre-Offer Shareholders
in connection with liquidation of the Escrow exceeds (B) the per share exercise
price of the Company Option (the "Option Settlement Amount"), and (ii) all other
currently non-exercisable options issued to Directors of the
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Company shall be canceled 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."
8.2 Indemnification of Directors of the Company. Section 7.11 of the
Merger Agreement shall be deleted in its entirety and replaced by the following:
"The Company will indemnify, defend and hold harmless the directors of
the Company for their acts and omissions occurring prior to Consummation of the
Offer 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 Company shall maintain in full force and effect for
not less than 4 years after the Consummation of the Offer, 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 Company will have no obligation whatsoever to pay aggregate
premiums on such officers' and directors' liability insurance in excess of
$270,000. Such obligations shall be conditioned upon the directors executing an
Amendment to the Directors' Indemnification Agreement in the form attached
hereto as Exhibit I.
8.3 Stockholders Agreement. Section 7.12(b) of the Merger Agreement
shall be deleted in its entirety and replaced by the following:
"Contemporaneously with the Commencement of the Offer, Merger Sub shall
enter into a Stockholders Agreement (in the form attached hereto as Exhibit J)
with certain beneficial and record holders of Company Common Stock, which
Stockholders Agreement shall provide for certain matters with respect to their
shares (including the tender of their shares and certain other actions relating
to the Offer and the Merger)."
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB
Sections 9.3, 9.6 and 9.8 of the Merger Agreement are hereby amended by
adding the following sentence to the end of each such Section:
"Satisfaction of the foregoing shall not be a condition to Parent and
Merger Sub's obligations under the Merger Agreement, provided there has been
Consummation of the Offer."
Section 9.12 of the Merger Agreement shall be deleted in its entirety
and replaced with the following:
13
"The Company shall have caused its subsidiary, Homeowners
Marketing Services International, Inc. to enter into and
execute with each of its Affiliates Amended and Restated First
Amendment to Affiliation Agreement, Profit Sharing Release and
Estoppel Agreement upon terms and conditions satisfactory to
Merger Sub in its sole discretion."
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF COMPANY
Sections 10.4 and 10.7 of the Merger Agreement are hereby amended by
adding the following sentence to the end of each such Section:
"Satisfaction of the foregoing, shall not be a condition to Company's
obligations under the Merger Agreement, provided there has been Consummation of
the Offer."
ARTICLE XI
TERMINATION AND ABANDONMENT
11.1 In addition to, and not in limitation of, the termination rights
set forth in the Merger Agreement, Parent and/or Merger Sub shall have the
following rights to terminate and abandon the Merger Agreement, as amended by
this Fourth Amendment:
(i) if due to an occurrence or circumstance that would result in a
failure to satisfy any Conditions to the Offer, Parent and/or
Merger Sub shall have (x) failed to commence the Offer on or
before September 17, 1997, (y) terminated the Offer without
having accepted any shares of Company Common Stock for payment
thereunder or (z) failed to pay for shares of Company Common
Stock pursuant to the Offer upon, expiration of the Offer,
unless such failure to pay for such Shares shall have been
caused by or resulted from the failure of Parent or Merger Sub
to perform in any material respect any material covenant or
agreement of either of them contained in the Merger Agreement,
as amended by this Fourth Amendment, or the material breach by
Parent or Merger Sub of any material representation or
warranty of either of them contained herein or therein; or
(ii) if the Company shall have filed an application to terminate
registration of the Shares under Section 12 of the Exchange
Act, and such application shall have been denied by the
Securities and Exchange Commission.
11.2 Sections 12.1(b)(i) and 12.1(c)(i) of the Merger Agreement shall
be deleted in their entirety and replaced by the following:
14
"(i) neither the Consummation of the Offer nor consummation of the
Merger shall have occurred on or before December 31, 1997."
11.3 Section 12.3(a)(ii) of the Merger Agreement shall be deleted in
its entirety and replaced by the following:
at any time on or prior to the expiration of two years
following termination of the Merger Agreement, as amended by
this Fourth Amendment, 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
Merger Sub, or any of their respective affiliates at a price
per share in excess of the Offer Consideration as reduced by
the Tax Contingency (or, if then paid, the amount thereof
paid); or
11.4 The word "or" shall be added to the end of Section 12.3(a)(iii) of
the Merger Agreement and a new Section 12.3(a)(iv) shall be added which shall
read in its entirety as follows:
"if the Company shall have failed to comply with the terms and
obligations of Section 2.3 of this Fourth Amendment,"
11.5 The last phrase of Section 12.3(a) shall be deleted in its
entirety and replaced by the following:
"then the Company shall pay Merger Sub, upon Merger Sub's
request, the amount of Parent's and Merger 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."
11.6 Section 12.3(b) of the Merger Agreement shall be deleted in its
entirety and replaced by the following:
"The Company acknowledges that the agreements contained in
this Section 12.3 are an integral part of the transactions contemplated by the
Merger Agreement, as amended by this Fourth Amendment and that, without these
agreements, Merger Sub would not enter into this Fourth Amendment. 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 the Merger
Agreement, as amended by this Fourth Amendment."
15
ARTICLE XII
The Disclosure Schedule shall be amended as set forth on the attached
"Amended Disclosure Schedule."
IN WITNESS WHEREOF, each party has executed this Fourth Amendment as of
the first date set forth above.
THE CROSS COUNTRY GROUP, INC.
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: Vice President
-------------------------------
CC ACQUISITION CORPORATION
By:/s/ Howard L. Wolk
----------------------------------
Name: Howard L. Wolk
--------------------------------
Title: President
-------------------------------
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
----------------------------------
Name: C. Gregory Morris
--------------------------------
Title: Vice President, Treasurer and
Chief Financial Officer
-------------------------------
16
EXHIBITS
--------
Exhibit
- -------
A Conditions to the Offer
B Tax Contingency Agreement
C Escrow Agreement
D Buccellato Settlement Agreement
E Lipson Severance Agreement
F Release Agreement
G Extension of Agreement for Satisfaction of Judgment
H Settlement with Visby Marketing Group, Inc.
I Amendment to Director's Indemnification Agreements
J Stockholders Agreement
17
EXHIBIT A
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provision of the Offer, Merger Sub shall not
be required to commence the Offer, or if commenced, to accept for payment or pay
for any shares of Company Common Stock tendered pursuant to the Offer, and may
terminate or amend the Offer and may postpone the acceptance for payment of and
payment for shares of Company Common Stock tendered, if at any time on or after
the date of this Fourth Amendment, and prior to the acceptance for payment of
shares of Company Common Stock, any of the following conditions shall exist:
(a) an order shall have been entered in any action or
proceeding before any federal or state court or governmental agency or
other regulatory body or a permanent injunction by any federal or state
court of competent jurisdiction in the United States shall have been
issued and remain in effect (i) making illegal the purchase of, or
payment for, any shares of Company Common Stock by Parent, Merger Sub
or any affiliate of Parent or Merger Sub; (ii) otherwise preventing the
consummation of any of the Transactions; (iii) imposing limitations on
the ability of Parent, Merger Sub or any affiliate of Parent or Merger
Sub to exercise effectively full rights of ownership of any shares of
Company Common Stock, including, without limitation, the right to vote
any shares of Company Common Stock acquired by Parent or Merger Sub
pursuant to the Offer on all matters properly presented to the
Company's stockholders, which would effect a material diminution in the
value of the shares of Company Common Stock acquired by Parent or
Merger Sub;
(b) there shall have been any federal or state statute, rule
or regulation enacted or promulgated on or after the date of the Offer
that could reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in clauses (i) through (iii) of
paragraph (a) above;
(c) any event shall have occurred or shall have failed to
occur which shall result in a Company Material Adverse Effect, other
then the Tax Claims;
(d) the Company shall not have received the written opinion of
Raymond James and Associates, Inc. that the Offer Consideration to be
received by the holders of the Company Common Stock in the Offer is
fair, from a financial point of view, to such holders;
(e) the Company shall not have caused its subsidiary,
Homeowners Marketing Services International, Inc. to enter into and
execute with each of its Affiliates Amended and Restated First
Amendment to Affiliation Agreement, Profit Sharing Release and
Estoppel Agreement upon terms and conditions satisfactory to Merger Sub
in its sole discretion."
(f) any of the Company's covenants contained in this Fourth
Amendment shall not have been satisfied; or
(g) the Merger Agreement, as amended by the Prior Amendments
and this Fourth Amendment shall have been terminated in accordance with
its terms.
(h) the Internal Revenue Service shall advise the Company,
either orally or in writing, that it is more probable than not that the
cost to the Company of the Tax Claims, including interest, penalties,
costs and expenses will exceed $8.5 million.
which, in the sole judgment of Merger Sub in any such case, and regardless of
the circumstances giving rise to such condition, makes it inadvisable to proceed
with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Merger Sub and may
be asserted by Merger Sub regardless of the circumstances giving rise to any
such condition or may be waived by Merger Sub in whole or in part at any time
and from time to time in their sole discretion. The failure by Merger Sub at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right; the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to any other facts
and circumstances; and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
EXHIBIT (c)(7)
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT, dated as of September 16, 1997, is made
and entered into by HAC, Inc., a Florida corporation ("Parent"), CC Acquisition
Corporation, a Delaware corporation ("Sub"), and the other parties signatory
hereto (each a "Stockholder", and collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, concurrently herewith, The Cross Country Group, Inc., a Nevada
corporation and affiliate of Parent, Sub and Homeowners Group, Inc., a Delaware
corporation (the "Company"), are entering into a Fourth Amendment (the "Fourth
Amendment") to Agreement and Plan of Merger dated as of May 14, 1996, as
amended, (the "Merger Agreement") pursuant to which Sub will be merged with and
into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company desire
that, as soon as practicable (and not later than September 17, 1997), Sub
commence a tender offer (the "Offer") to purchase all outstanding shares of
Company Common Stock (as defined in Section 1), including all of the Shares (as
defined in Section 2) owned beneficially by the Stockholders; and
WHEREAS, as an inducement and a condition to entering into the Fourth
Amendment, Parent has required that the Stockholders agree, and the Stockholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect
to any securities shall mean having "beneficial ownership" of such securities
(as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all other
Persons with whom such Person would constitute a "group" within the meaning of
Section 13(d)(3) of the Exchange Act.
(b) "Company Common Stock" shall mean the common stock, $.01
par value, of the Company.
(c) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
2. TENDER OF SHARES.
(a) Each Stockholder hereby agrees to validly tender (and not
to withdraw) pursuant to and in accordance with the terms of the Offer, not
later than the fifth business day after commencement of the Offer pursuant to
Section 2.1 of the Fourth Amendment and Rule 14d-2 under the Exchange Act, the
number of shares of Company Common Stock set forth opposite such Stockholder's
name on Schedule I hereto (the "Existing Shares", and together with any shares
of Company Common Stock acquired by such Stockholder after the date hereof and
prior to the termination of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of purchase, dividend, distribution or otherwise, the
"Shares"), Beneficially Owned by such Stockholder. Each Stockholder hereby
acknowledges and agrees that the Parent's obligation to accept for payment and
pay for Shares in the Offer, including the Shares Beneficially Owned by such
Stockholder, is subject to the terms and conditions of the Offer.
(b) The transfer by each Stockholder of his or her Shares to
Sub in the Offer shall pass to and unconditionally vest in Sub good and valid
title to the number of Shares set forth opposite such Stockholder's name on
Schedule I hereto, free and clear of all claims, liens, restrictions, security
interests, pledges, limitations and encumbrances whatsoever.
(c) Each Stockholder hereby agrees to permit Parent and Sub to
publish and disclose in the Offer Documents (as defined in Section 2.2 of the
Fourth Amendment), and, if Company Stockholder approval is required under
applicable law, the Proxy Statement (including all documents and schedules filed
with the SEC) his or her identity and ownership of Company Common Stock and the
nature of his or her commitments, arrangements and understandings under this
Agreement.
3. AGREEMENT TO VOTE.
(a) Each Stockholder agrees to vote all of his or her Shares
in favor of the Merger Agreement and all transactions arising out of the Merger
Agreement that will require Stockholder approval. Each Stockholder's agreement
to vote his or her Shares shall include an agreement to execute written consents
in lieu of a meeting.
(b) Each Stockholder hereby grants to Parent a proxy to vote
the Shares of such Stockholder as indicated in Section 3(a). Each Stockholder
intends such proxy to be irrevocable and coupled with an interest and will take
such further action or execute such other instruments as may be necessary to
effectuate the intent of this proxy and hereby revokes any proxy previously
granted by Stockholder with respect to such Shares.
2
4. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES. Each Stockholder
hereby covenants, represents and warrants on behalf of such Stockholder to
Parent as follows:
(a) Ownership of Shares. Such Stockholder is either (i) the
record and Beneficial Owner of, or (ii) the Beneficial Owner but not the record
holder of the Existing Shares. On the date hereof, the Existing Shares
constitute all of the Shares owned of record or Beneficially Owned by such
Stockholder. Such Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 2 and 3 hereof,
sole power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Existing Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power, Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without limitation,
any voting agreement, stockholders agreement or voting trust agreement. This
Agreement has been duly and validly executed and delivered by such Stockholder
and constitutes a valid and binding agreement of such Stockholder, enforceable
against such Stockholder in accordance with its terms. There is no beneficiary
or holder of a voting trust certificate or other interest of any trust of which
such Stockholder is trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, such Stockholder's spouse, enforceable against such person in
accordance with its terms.
(c) No Conflicts. No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by such Stockholder
and the consummation by such Stockholder of the transactions contemplated
hereby, and none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated hereby or compliance by such Stockholder with any of the provisions
hereof shall (1) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which such Stockholder is a
party or by which such Stockholder or any of such Stockholder's properties or
assets may be bound, or (2) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Stockholder or
any of such Stockholder's properties or assets.
(d) No Encumbrances. Except as required by Section 2 and for
the proxy granted under Section 3(b), such Stockholder's Shares and the
certificates representing such
3
Stockholder's Shares are now, and at all times during the term hereof will be,
held by such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever.
(e) No Finder's Fees. No broker, investment banker, financial
adviser or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder.
(f) No Solicitation. No Stockholder shall, in his or her
capacity as such, directly or indirectly, solicit (including by way of
furnishing information) or respond to any inquiries or the making of any
proposal relating in any way to the transactions contemplated by the Merger
Agreement, as amended, by any person or entity (other than Parent or any
affiliate of Parent). If any Stockholder receives any such inquiry or proposal,
then such Stockholder shall promptly inform Parent of the terms and conditions,
if any, of such inquiry or proposal and the identity of the person making such
proposal. Each Stockholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(g) Restriction on Transfer, Proxies and Non-Interference.
Except as required by Section 2 or Section 3(b), no Stockholder shall, directly
or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sell, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of such Stockholder's Shares or any interest therein; (ii) grant any
proxies or powers of attorney, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares; or (iii) take any action
that would make any representation or warranty of such Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling such
Stockholder from performing such Stockholder's obligations under this Agreement.
(h) Waiver of Appraisal Rights. Each Stockholder hereby waives
any rights of appraisal or rights to dissent from the Merger that such
Stockholder may have.
(i) Reliance by Parent. Each Stockholder understands and
acknowledges that Parent and Sub are entering into the Fourth Amendment to the
Merger Agreement in reliance upon such Stockholder's execution and delivery of
this Agreement.
(j) Further Assurances. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further action
as may be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
4
5. STOP TRANSFER. Each Stockholder agrees with, and covenants to,
Parent that such Stockholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
In the event of a stock dividend or distribution, stock split, recapitalization,
combination, exchange of shares or the like, the term "Shares" shall be deemed
to refer to and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Shares
may be changed or exchanged.
6. TERMINATION. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
termination of the Merger Agreement, as amended in accordance with its terms.
7. MISCELLANEOUS.
(a) Entire Agreement. This Agreement and the Merger Agreement,
as amended, constitute the entire agreement between the parties with respect to
the Existing Shares and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
Existing Shares.
(b) Certain Events. Each Stockholder agrees that this
Agreement and the obligations hereunder shall attach to such Stockholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs, guardians,
administrators or successors. Notwithstanding any transfer of Shares, the
transferor shall remain liable for the performance of all obligations under this
Agreement.
(c) Assignment. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties, provided that Parent or Sub may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent of its
obligations hereunder if such assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and delivery
of a written agreement executed by the relevant parties hereto; provided that
Schedule I hereto may be supplemented by Parent by adding the name and other
relevant information concerning any stockholder of the Company who agrees to be
bound by the terms of this Agreement without the agreement of any other party
hereto, and thereafter such added stockholder shall be treated as a
"Stockholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail,
5
postage prepaid, return receipt requested) or by any courier service, such as
Federal Express, providing proof of delivery. All communications hereunder shall
be delivered to the respective parties at the following addresses:
If to Stockholder: At the addresses set forth on
Schedule I hereto.
If to Parent or Sub: The Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, MA 02155
Attn: Howard L. Wolk
Telephone: (617) 393-9300
Telecopy: (617) 395-6706
copies to: Lane, Altman & Owens, LLP
101 Federal Street
Boston, MA 02110
Attn: Robert M. Rosen
Telephone: (617) 345-9800
Telecopy: (617) 345-0400
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
(h) No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a
6
waiver by such party of its right to exercise any such or other right, power or
remedy or to demand such compliance.
(i) No Third Party Beneficiaries. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(j) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(k) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Parent, Sub and each Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
HAC, INC.
By:/s/ Howard L. Wolk
-------------------------------------
Name: Howard L. Wolk
-----------------------------------
Title: President
----------------------------------
CC Acquisition Corporation
By:/s/ Howard L. Wolk
-------------------------------------
Name: Howard L. Wolk
-----------------------------------
Title: President
----------------------------------
7
SCHEDULE I
----------
STOCKHOLDER COMMON STOCK
- ----------- ------------
/s/ Carl Buccellato
- ----------------------- 249,056
Carl Buccellato
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
/s/ Melvin Stewart
- ----------------------- 305,375
Melvin Stewart
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
/s/ C. Gregory Morris
- ----------------------- 0
C. Gregory Morris
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
/s/ Diane M. Gruber
- ----------------------- 10,050
Diane M. Gruber
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
/s/ Gary D. Lipson
- ----------------------- 20,000
Gary D. Lipson
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
8
- ----------------------- 118,000
Michael A. Nocero, Jr.
c/o Paul Berkowitz, Esq.
Greenberg, Traurig
1221 Brickell Avenue
Miami, FL. 33131
In the event any of the individuals named above exercise any options
and acquire Company Common Stock pursuant to said exercise, the shares obtained
upon exercise shall be deemed to be subject to the provisions of this Agreement.
9
EXHIBIT (c)(8)
TAX CONTINGENCY SETTLEMENT AGREEMENT
This Tax Contingency Settlement Agreement, dated as of
[________________], 1997, is entered into between HAC, Inc., a Florida
corporation ("HAC"), and Melvin Stewart of Hollywood, Florida, Dr. Michael
Nocero, of Orlando, Florida, and Diane Gruber of Red Bank, New Jersey, as
representatives of those stockholders of Homeowners Group, Inc., a Delaware
corporation ("HOMG") who tender Shares pursuant to the Offer or whose Shares are
converted in the Merger (as hereinafter defined) (individually and collectively,
the "Stockholder Representatives").
RECITALS:
- ---------
1. HOMG, and CC Acquisition Corporation ("Merger Sub") have entered
into an Agreement and Plan of Merger dated as of May 14, 1996, as amended most
recently by Fourth Amendment to Agreement and Plan of Merger dated September 9,
1997 (the "Fourth Amendment") (the Agreement and Plan of Merger as so amended is
referred to herein as the "Merger Agreement").
2. Merger Sub has made a tender offer (the "Offer") for all of the
shares of common stock, $.01 par value of HOMG (the "Company Common Stock") not
held by Merger Sub or any other affiliate of Merger Sub at a cash price of $.55
per share (the "Cash Price"), and such Offer is expected to be consummated on or
about October [ ], 1997, unless extended ("Consummation of the Offer").
3. It is contemplated that following the Consummation of the Offer, and
in accordance with the terms of the Merger Agreement, Merger Sub will merge into
HOMG (the "Merger") for consideration equal to the Cash Price, with HOMG being
the surviving corporation (the "Surviving Corporation").
4. As additional consideration for both the Offer and the Merger, the
sum of $1.51 for each share of Company Common Stock acquired for the Cash Price
is to be deposited in escrow to cover the Tax Claims, as set forth in that
certain Escrow Agreement dated as of even date herewith.
5. The purpose of this Tax Contingency Settlement Agreement is to
establish procedures for the resolution of the Tax Claims:
NOW, THEREFORE, in consideration of the premises and of other good and
valuable considerations, the parties hereto hereby agree as follows:
1. Definitions. Except as hereinafter defined, capitalized terms used
in this Agreement will have the meanings set forth in the Merger Agreement.
(a) "Escrow Agent" shall mean ( ) or such successor as is selected
pursuant to Section 5(e) of the Escrow Agreement.
(b) "Escrow Agreement" shall mean that certain agreement of even
date herewith by and among HAC, Inc., the Stockholder
Representatives and the Escrow Agent.
(c) "Escrow Fund" shall mean the amount deposited by HAC with the
Escrow Agent pursuant to Section 1 of the Escrow Agreement,
which Escrow Fund shall consist of a Cash Escrow or an L/C
Escrow, as defined in the Escrow Agreement.
(d) "Exchange Agent" shall mean Continental Stock Transfer and
Trust Company.
(e) "Stockholder Representatives" shall mean Melvin Stewart, Dr.
Michael Nocero and Diane Gruber or such successors as are
selected pursuant to Section 7 of the Escrow Agreement.
(f) "Tax Claims" shall mean any liability for income taxes arising
out of or related to the Notices of Proposed Adjustment that
the Company received from the Internal Revenue Service (the
"IRS"), copies of which are attached hereto as Exhibit A,
together with any penalties, interest, costs and expenses
(including without limitation attorneys' fees) incurred by or
assessed against the Company, the Surviving Corporation, any
subsidiary of the Company or the Surviving Corporation, or any
of their respective officers, directors, representatives,
agents or employees in connection with the assertion,
collection, settlement, defense or investigation of any such
liabilities.
(g) "Tax Recovery" shall mean any reimbursement on account of Tax
Claims pursuant to Section 3 hereof.
2. Settlement of Tax Claims. HAC shall use its best efforts consistent
with reasonable business practices to cause HOMG to achieve a resolution of the
Tax Claims. Upon receipt from the IRS of a proposed settlement of the Tax Claims
(the "Proposed Settlement") HAC will advise the Stockholder Representatives in
writing of the Proposed Settlement and all costs and expenses associated
therewith (the "Settlement Amount"). HAC shall have the right, in its sole
discretion, to either accept or reject the Proposed Settlement. If HAC elects to
accept the Proposed
2
Settlement, it shall notify the Stockholder Representatives in writing. Within
five (5) days after receipt of such notification, HAC and the Stockholder
Representatives shall direct the Escrow Agent to draw on the L/C Escrow and/or
disburse the Escrow Fund as follows:
A. To the Escrow Agent in payment of all costs, expenses and
indemnities of the Escrow Agent.
B. To HAC, the Settlement Amount increased by all interest accrued on
such portion of the Escrow Fund multiplied by a fraction (i) the numerator of
which is equal to the number of shares of Company Common Stock either accepted
in the Offer or converted in the Merger and (ii) the denominator of which is the
number of shares of Company Common Stock issued and outstanding as of the date
hereof ("Outstanding Shares").
C. To the Exchange Agent (for distribution to the former stockholders
of HOMG) the balance of the Escrow Fund increased by all interest accrued on
such portion of the Escrow Fund.
Solely for sake of example, assuming (i) 5,558,350 Shares outstanding,
and (ii) all Shares not now owned by HAC or its affiliates, approximately
4,000,000 Shares, are tendered in the offer or converted in the Merger, then
aproximately 71% (4,000,000/5,558,350) of any Settlement Amount, net of
expenses, will be distributed to HAC to cover the liability to the IRS, and the
remainder of the Escrow Funds, if any will be distributed to the former
stockholders of the Company who tendered their Shares or whose Shares were
converted in the Merger.
3. Reimbursement by Professionals. HAC may, in its sole and absolute
discretion, seek to cause HOMG to recover all or any portion of the Settlement
Amount from any person or entity that it considers to bear responsibility
therefor. If HOMG receives a recovery on account of the Tax Claims (the "Tax
Recovery") then HOMG shall notify the Stockholder Representatives of the amount
of the Tax Recovery and all costs and expenses incurred by HAC or HOMG
(including, without limitation, attorneys' fees) in connection with the
assertion collection, settlement, prosection or the investigation of the Tax
Recovery. Ten days after such notice, HAC shall apply and distribute the Tax
Recovery as follows:
A. To HAC or HOMG in reimbursement of all verified out-of-pocket costs
and expenses incurred by HAC or HOMG to third parties (including, without
limitation, attorneys' fees) in connection with the assertion, collection,
settlement, prosecution or investigation of the Tax Recovery.
B. To HAC or HOMG in compensation for their internal costs and expenses
in connection therewith an amount equal to 25% of the amount set forth in
subparagraph A above.
C. To HOMG, the amount, if any, by which the Settlement Amount exceeds
the amount deposited with the Escrow Agent pursuant to Section 1 of the Escrow
Agreement.
D. To HOMG, the Net Tax Recovery (equal to the Tax Recovery reduced by
the foregoing payments) multiplied by a fraction (x) the numerator of which is
equal to (i) the number of Outstanding Shares reduced by (ii) the number of
shares of Company Common Stock either accepted in the Offer or converted in the
Merger, and (y) the denominator of which is the number of Outstanding Shares .
3
E. The balance of the Net Tax Recovery shall be distributed:
(i) 25% to HOMG, and up to a maximum of $1.51 per share
(ii) 75% to the Exchange Agent (for distribution to the
former Stockholders of HOMG).
4. Notices. All notices, requests, instructions and demands that may be
given by any party hereto to any other party in the course of the transactions
herein contemplated will be in writing and will be deemed given when posted in
the United States mail, certified return receipt requested, addressed to the
respective parties as follows:
(a) If to HAC, Inc.: HAC, Inc.
4040 Mystic Valley Parkway
Medford, MA 02155
Attn:__________________
Phone: (617) 393-9300
Fax: (617) 395-6706
(b) If to Stockholder
Representatives: Melvin Stewart
2812 North 46th Avenue
Hollywood, FL 33021
Phone: (954) 781-6262
Fax: (954) 781-6288
Dr. Michael Nocero
Central Florida Cardiology Group
500 East Colonial Drive
Orlando, FL 32803
Phone: (407) 841-7151
Fax: (407) 872-1336
Diane Gruber
Gruber Enterprises
130 Maple Avenue, Suite 6C
Red Bank, NJ 07701
Phone: (908) 842-6460
Fax: (908) 741-3220
5. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their permitted assigns.
4
6. Amendment and Termination. This Agreement may be amended by and upon
the written agreement of HAC and Stockholder Representatives.
7. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to conflicts of law principles.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute but one and the same Instrument.
9. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
10. Responsibility of the Parties. Neither HAC nor the Stockholder
Representatives, nor any directors, officers, employees or representatives of
any of them, shall be liable to anyone for any action taken or permitted to be
taken by such party except in the case of gross negligence or willful
misconduct.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the day
and year first above written.
HAC, INC.
By:_____________________________________
Title
5
STOCKHOLDER REPRESENTATIVES
------------------------------------------
Melvin Stewart
------------------------------------------
Dr. Michael Nocero
------------------------------------------
Diane Gruber
6
EXHIBIT (c)(9)
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and entered into
as of this ___ day of ____________, 1997, by and among , HAC, Inc., a Florida
corporation ("HAC"), Melvin Stewart of Hollywood, Florida, Dr. Michael Nocero,
of Orlando, Florida, and Diane Gruber of Red Bank, New Jersey, as
representatives of those stockholders of Homeowners Group, Inc., a Delaware
corporation ("HOMG") who tender Shares pursuant to the Offer or whose Shares are
converted in the Merger (as hereinafter defined) (individually and collectively,
the "Stockholder Representatives"), and _____________________ as escrow agent
(the "Escrow Agent").
RECITALS:
- ---------
1. HOMG and CC Acquisition Corporation ("Merger Sub") have entered into
an Agreement and Plan of Merger dated as of May 14, 1996, as amended most
recently by Fourth Amendment to Agreement and Plan of Merger dated September 9,
1997 (the "Fourth Amendment") (the Agreement and Plan of Merger as so amended is
referred to herein as the "Merger Agreement").
2. Merger Sub has made a tender offer (the "Offer") for all of the
shares of common stock, $.01 par value of HOMG (the "Company Common Stock") not
held Merger Sub or any other affiliate of Merger Sub at a cash price of $.55 per
share (the "Cash Price"), and such Offer is expected to be consummated on or
about October ___, 1997, unless extended ("Consummation of the Offer").
3. It is contemplated that following the Consummation of the Offer, and
in accordance with the terms of the Merger Agreement, Merger Sub will merge into
HOMG (the "Merger") for consideration equal to the Cash Price, with HOMG being
the surviving corporation (the "Surviving Corporation").
4. As additional consideration for both the Offer and the Merger, the
sum of $1.51 for each share of Company Common Stock acquired for the Cash Price
is to be deposited in escrow to cover the Tax Claims, as set forth in that
certain Tax Contingency Settlement Agreement dated as of even date herewith.
5. This Escrow Agreement is entered into pursuant to Section 3.1 of the
Fourth Amendment, and as a condition precedent to the closing of the
transactions contemplated therein (the "Closing").
6. Capitalized terms used herein, unless otherwise defined, shall have
the meanings assigned to them in the Merger Agreement.
AGREEMENTS
- ----------
Accordingly, in consideration of the recitals and of the respective
agreements and covenants contained herein, and intending to be legally bound
hereby, the parties agree as follows:
Section 1 Escrow Funds. Simultaneously with the execution hereof, and
pursuant to Section 3.2 of the Merger Agreement, HAC is depositing with the
Escrow Agent the sum of $__________ and may in the future deposit with the
Escrow Agent additional amounts, (such funds presently and as may in the future
be so deposited, the "Escrow Funds"), which Escrow Funds may, at the election of
HAC, be either in the form of cash ("Cash Escrow") or an irrevocable standby
letter of credit issued by Fleet Bank, N.A., or such other bank reasonably
satisfactory to the Stockholder Representatives ("L/C Escrow"), issued on the
terms set forth on Exhibit B. The Escrow Funds will be held and distributed by
the Escrow Agent in accordance with the provisions contained herein.
Section 2 Acceptance of Appointment as Escrow Agent. The Escrow Agent,
by signing this Escrow Agreement, accepts the appointment as Escrow Agent and
agrees to hold and distribute all Escrow Funds in accordance with the provisions
contained herein.
Section 3 Investment of Cash Escrow. Pending distribution of the Escrow
Funds as provided herein, the Escrow Agent shall invest the Cash Escrow as
directed in writing by HAC in money market funds consisting of short-term U.S.
Treasury securities (or such other investments as HAC specifies, in its sole
discretion, in which case HAC shall reimburse the Escrow Fund for any loss of
principal thereof and net interest at four percent per year). The Escrow Agent
shall accept written instructions as to investment of the Cash Escrow from any
party specified in writing by HAC.
Section 4 Distribution of Escrow Funds. The Escrow Agent shall draw on
the L/C Escrow and/or distribute the Escrow Funds net of all fees and expenses
payable pursuant to Section 6 hereof:
-2-
(a) in accordance with any written notices received by it from time to
time containing mutually agreed upon directions of HAC and Stockholder
Representatives; or
(b) in accordance with written notices given to it by either HAC or
Stockholder Representatives provided that Escrow Agent has provided a
copy of such notice to the other party in the manner set forth in
Section 8 hereof, and such other party has not objected thereto within
five (5) business days after the Escrow Agent has so delivered a copy
of such notice. If either party shall object to such notice, that party
shall deliver to the other party and the Escrow Agent a written notice
describing such objections in reasonable detail (a "Dispute Notice").
Upon receipt of any Dispute Notice, the Escrow Agent shall not draw on
the Escrow L/C and/or distribute the Escrow Funds, but shall continue
to hold the Escrow Funds until receipt of either (x) written notice
containing mutually agreed upon directions signed by both HAC and
Stockholder Representatives, or (y) written notice from HAC or
Stockholder Representatives that a final judgment or binding
arbitration decision pursuant to Section 17 of this Agreement has been
rendered and is in full force and effect as to the Escrow Funds, and a
copy of such final judgment or binding arbitration is delivered with
such notice, at which time the Escrow Agent shall draw on the Escrow
L/C and/or distribute the Escrow Funds pursuant to such mutually agreed
upon written notice or such written notice of HAC or Stockholder
Representatives (accompanied by such final judgment or binding
arbitration), as the case may be.
Section 5 Rights and Responsibilities of the Escrow Agent. (a) HAC and
Stockholder Representatives acknowledge and agree that the Escrow Agent (i)
shall be obligated only for the performance of such duties as are specifically
set forth in this Escrow Agreement on its part to be performed; (ii) shall not
be obligated to take any legal or other action hereunder which might in its
judgment involve any expense or liability unless it shall have been furnished
with acceptable indemnification; (iii) may rely on and shall be protected in
acting or refraining from acting upon any written notice, instruction,
instrument, statement, request or document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
person, and shall have no responsibility for determining the accuracy thereof,
and (iv) may
-3-
consult counsel satisfactory to it, including in-house counsel, and the opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion of such counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or willful misconduct. Subject to the provisions of
Section 6 hereof, HAC covenants and agrees to indemnify the Escrow Agent and
hold it harmless without limitation from and against any loss, liability or
expense of any nature incurred by the Escrow Agent arising out of or in
connection with this Escrow Agreement or with the administration of its duties
hereunder, including but not limited to legal fees and other costs and expenses
of defending or preparing to defend against any claim or liability, unless such
loss, liability or expense shall be caused by the Escrow Agent's willful
misconduct or gross negligence. In no event shall the Escrow Agent be liable for
indirect, punitive, special or consequential damages.
(c) Subject to the provisions of Section 6 hereof, HAC agrees to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrow Funds under this Agreement, and to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent on any such payment or other activities under this
Agreement. HAC and Stockholder Representatives undertake to instruct the Escrow
Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Subject to the provisions of Section 6
hereof, HAC agrees to indemnify and hold the Escrow Agent harmless from any
liability on account of taxes, assessments or other governmental charges,
including, without limitation, the withholding or deduction of, or the failure
to withhold or deduct, same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable legal fees)
interest and penalties. Notwithstanding the foregoing, no distributions will be
made unless the Escrow Agent is supplied with an original, signed W- 9 form or
its equivalent prior to distribution.
(d) The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving thirty (30 ) days, prior written notice of resignation to HAC and
Stockholder Representatives. Prior to the effective date of the resignation as
specified in such notice, HAC will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrow Funds to a bank or trust
-4-
company that it selects subject to the reasonable consent of the Stockholder
Representatives. Such bank or trust company shall have a principal office in
Boston, Massachusetts, and shall have capital, surplus and undivided profits in
excess of $50,000,000. If, however, HAC shall fail to name such a successor
escrow agent within twenty (20) days after the notice of resignation from the
Escrow Agent, the Stockholder Representatives shall be entitled to name such
successor escrow agent. If no successor escrow agent is named by HAC or
Stockholder Representatives, the Escrow Agent may apply to a court of competent
jurisdiction for appointment of a successor escrow agent. The provisions of
Section 5(b) and Section 5(c) shall survive the termination of this Agreement.
(e) The Escrow Agent shall be fully entitled to act on written
instructions as follows:
(i) On behalf of HAC - any one of Howard Wolk, Sidney Wolk or
Tom Graham or any other individual identified in writing by any one of them.
(ii) On behalf of the Stockholder Representatives - any two of
Melvin Stewart, Dr. Michael Nocero or Diane Gruber, or any two successor
Stockholder Representatives.
Section 6 Fees and Expenses:
(a) Of Escrow Agent. The Escrow Agent shall (i) be paid a fee for its
services under this Escrow Agreement as provided by Exhibit A and (ii) be
entitled to reimbursement for reasonable expenses (including the reasonable fees
and disbursements of its counsel) actually incurred by the Escrow Agent in
connection with its duties under this Escrow Agreement (collectively, the
"Escrow Agent Fees and Expenses"). The Escrow Agent shall be entitled to
reimbursement on demand for all expenses incurred in connection with the
administration of the escrow account created hereby which are in excess of its
compensation for normal services hereunder, including without limitation,
payment of any legal fees incurred by the Escrow Agent in connection with
resolution of any claim by any party hereunder. All Escrow Agent Fees and
Expenses, and all rights of the Escrow Agent for indemnification, shall be paid
out of the Escrow Fund to the extent of available funds, and shall then be paid
by HAC.
(b) HAC shall be entitled to reimbursement out of the Escrow Fund for
any amount that it is required to pay in satisfaction of its obligation to
indemnify the Escrow Agent pursuant to this Escrow Agreement, the Tax
Contingency Settlement Agreement or otherwise.
Section 7 Successor Stockholder Representatives. Any one or more of the
Stockholder Representatives may at any time resign as a Stockholder
Representative by giving thirty (30) days prior written notice of resignation to
HAC and Escrow Agent and to the other Stockholder
-5-
Representatives. In the event of such resignation, the remainder of the
Stockholder Representatives shall continue to act by unanimous consent, as a
Stockholder Representative. In the event there shall be only one Stockholder
Representative, then Gary D. Lipson shall act as a successor Stockholder
Representative, upon his executing and delivering to HAC and Escrow Agent a
written acknowledgment of his acceptance of such position.
If no two Stockholder Representatives are acting in accordance
herewith, HAC or the remaining Stockholder Representative may apply to a court
of competent jurisdiction for appointment of successors. The successor
Stockholder Representatives as so selected shall act as the Stockholder
Representatives hereunder and under the Tax Contingency Settlement Agreement.
Section 8 Notices. All notices, requests, consents or other
communications required or permitted under this Escrow Agreement shall be in
writing and shall be deemed to have been duly given or delivered by any party
(a) when received by such party if delivered by hand, (b) upon confirmation when
delivered by telecopy, (c) within one day after being sent by recognized
overnight delivery service, or (d) within three business days after being mailed
by first-class mail, postage prepaid, and in each case addressed as follows:
To Escrow Agent: ____________________________
____________________________
____________________________
Attention: _____________________
Phone: ________________________
Fax: __________________________
To HAC: HAC, Inc.
4040 Mystic Valley Parkway
Medford, MA 02155
Attn: Howard C. Wolk
Phone: (617)393-9300
Fax: (617) 845-2361
-6-
With a copy to: Lane Altman & Owens LLP
101 Federal Street
Boston, MA 02110
Attention: Robert M. Rosen, Esq.
Phone: (617) 345-9800
Fax: (617) 345-0400
To Stockholder Representatives: Melvin Stewart
2812 North 46th Avenue
Hollywood, FL 33021
Phone: (954) 781-6262
Fax: (954) 781-6288
Dr. Michael Nocero
Central Florida Cardiology Group
500 East Colonial Drive
Orlando, FL 32803
Phone: (407) 841-7151
Fax: (407) 872-1336
Diane Gruber
Gruber Enterprises
130 Maple Avenue
Suite 6C
Red Bank, NJ 07701
Phone: (908) 842-6460
Fax: (908) 741-3220
With a copy to: Greenberg, Traurig
1221 Brickell Avenue
Miami, FL 33131
Attn: Paul Berkowitz, Esq.
Phone: (305) 579-0500
Fax: (305) 579-0717
Any party by written notice to the other parties pursuant to this
Section 8 may change the address or the persons to whom notices or copies
thereof shall be directed.
-7-
Section 9 Assignment. This Escrow Agreement and the rights and duties
hereunder shall be binding upon and inure to the benefit of the parties hereto
and the successors and assigns of each of the parties to this Escrow Agreement.
No rights, obligations or liabilities hereunder shall be assignable by any party
without the prior written consent of the other parties.
Section 10 Amendment. This Escrow Agreement may be amended or modified
only by an instrument in writing duly executed by the parties to this Escrow
Agreement.
Section 11 Waivers. Any waiver by any party hereto of any breach of or
failure to comply with any provision of this Escrow Agreement by any other party
hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of, such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Escrow Agreement.
Section 12 Governing Law. This Escrow Agreement shall be governed by
and construed in accordance with the laws, and enforced in the courts, of the
Commonwealth of Massachusetts without regard to conflict-of-laws rules thereof.
Section 13 Construction. The headings in this Escrow Agreement are
solely for convenience of reference and shall not be given any effect in the
construction or interpretation of this Escrow Agreement. Unless otherwise
stated, references to Sections and Exhibits are references to Sections and
Exhibits of this Escrow Agreement.
Section 14 Acknowledgment. The funds placed in escrow pursuant to this
Agreement are intended solely for the benefit of the Stockholders of HOMG after
payment of and satisfaction of the Tax Claims. Neither HOMG, nor any of its
subsidiaries, has any interest, legal or equitable, in the escrowed funds or any
proceeds thereof.
Section 15 Termination. This Escrow Agreement shall terminate at the
time of the final distribution by the Escrow Agent of all Escrow Funds in
accordance with the provisions of this Escrow Agreement.
Section 16 Counterparts. This Escrow Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
Section 17 Dispute Resolution. It is understood and agreed that should
any dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Funds, including without limitation, the
obligation of HAC or the Stockholder Representatives to
-8-
give the Escrow Agent instructions with respect thereto pursuant to the terms of
the Tax Contingency Settlement Agreement, or should any claim be made upon such
Escrow Funds by a third party, the Escrow Agent upon receipt of written notice
of such dispute or claim by the parties hereto or by a third party, is
authorized and directed to retain in its possession without liability to anyone,
all or any of said Escrow Funds until such dispute shall have been settled
either by the mutual agreement of the parties involved, by a final order, decree
or judgment of a court in the United States of America, the time for perfection
of an appeal of such order, decree or judgment having expired, or by an award of
an Arbitration panel of the American Arbitration Association. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Escrow Funds.
Section 18 Force Majeure. Neither HAC nor Stockholder Representatives
nor Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond its control. Such acts shall include, without
limitation, acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, computer viruses,
power failures, communication line failures, earthquakes or other disasters.
Section 19 Consent to Jurisdiction and Service. HAC and Stockholder
Representatives hereby absolutely and irrevocably consent and submit to the
jurisdiction of the courts of the Commonwealth of Massachusetts and of any
federal court located in said Commonwealth in connection with any actions or
proceedings brought against HAC and Stockholder Representatives by the Escrow
Agent, or brought against HAC or Stockholder Representatives by the other of
them, arising out of or relating to this Escrow Agreement. In any such action or
proceeding, HAC and Stockholder Representatives hereby absolutely and
irrevocably waive personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agree that service thereof
may be made by certified or registered first class mail directed to HAC and
Stockholder Representatives, as the case may be, at their respective addresses
in accordance with Section 8 hereof.
Section 20 Reproduction of Documents. This Escrow Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, and (b) certificates and
other information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro- card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
-9-
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement
as of the date first written above.
HAC, INC. (EIN# __-_______)
By:________________________
Title:
Stockholder Representatives
-----------------------------------
-----------------------------------
-----------------------------------
ESCROW AGENT
------------------------------------
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EXHIBIT A
ESCROW AGENT'S FEE
------------------
Annual Fee:
Out-of-Pocket Expenses:
Investment Fees:
Wire Fee:
-11-
EXHIBIT B
TERMS OF IRREVOCABLE STANDBY LETTER OF CREDIT
---------------------------------------------
1) Principal amount equal to
(a) $1.51, multiplied by
(b) Number of Shares tendered and accepted in Offer, plus number
of non-tendered Shares converted in Merger, multiplied by
(c) 1.04
2) Final Expiration Date of Letter of Credit
- October 15, 2000
3) Conditions
- Receipt of written instructions of Escrow Agent
-12-
EXHIBIT (c)(10)
AGREEMENT FOR SATISFACTION OF JUDGMENT
This Agreement for Satisfaction of Judgment (the "Agreement") is
entered into as of October 31, 1996 among Homeowners Group, Inc. ("HOMG"),
Homeowners Marketing Services, Inc. ("HMS") and The Cross Country Group, L.L.C.
("CC").
BACKGROUND
A. On or about November 20, 1991, Acceleration National
Insurance Company ("ANIC") filed a six-count complaint in the Court of Common
Pleas of Franklin County, Ohio, in a case styled Acceleration National Insurance
Company v. Homeowners Marketing Services, Inc., et al, Case No. 91CVH11-9404.
The complaint was subsequently amended to include ten counts.
B. On or about May 3, 1994, ANIC filed a fifteen-count complaint
in the Court of Common Pleas of Franklin County, Ohio, in a case styled
Acceleration National Insurance Company~v. Homeowners Marketing Services, Inc.,
et al, Case No. 94CVHO5-3083. The two complaints were consolidated and tried as
one action commencing on November 6, 1995 (the "Litigation").
C. On December 20, 1995, judgment was entered in favor of ANIC
against HMS for the sum of $5,156,022.00 plus interest and costs of the
Litigation (the "Judgment"). Judgment was also entered in favor of Defendant
HOMG.
D. HMS filed a notice of appeal from the Judgment initiating
Case No. 96APEO1-68 and Case No. 96APE01-69 in the Court of Appeals, Franklin
County, Ohio (the "Appeal"). On or about January 29, 1996, ANIC filed a
conditional cross-appeal of each of HMS' appeals in the Court of Appeals of
Franklin County, Ohio, which cross-appeals are currently pending (the
"Cross-Appeal").
E. ANIC initiated post judgment proceedings in Florida and
elsewhere, including discovery in aid of execution. On March 13, 1996, the
Circuit Court for Broward County, Florida dismissed an action by HMS which
contested the domestication of the Judgment in Florida.
F. HOMG applied for and held the right to receive a federal
income tax refund from the Internal Revenue Service ("IRS") for the 1994 taxable
year (the "Refund Claim").
G. HOMG entered into an Agreement and Plan of Merger with The
Cross Country Group, Inc. and CC Acquisition Corporation, affiliates of CC,
pursuant to which, subject to the approval of the stockholders of HOMG, CC
Acquisition Corporation will acquire the outstanding shares of HOMG (the "Merger
Agreement").
H. On May 2, 1996, Accel International Corporation ("Accel"),
ANIC, HOMG and HMS entered into an Agreement for Satisfaction of Judgment and on
May 7, 1996, entered into a First Amendment to May 2, 1996.
Agreement for Satisfaction of Judgment (collectively, the "May
Agreement").
I. On August 30, 1996, HOMG received the Refund Claim in the
amount of $1,401,785.20 and paid the same to ANIC and Accel.
J. As of October 31, 1996, CC purchased all right, title and
interest of Accel and ANIC pursuant to the Judgment.
K. The parties to this Agreement desire to provide for the
satisfaction and release of the Judgment.
STATEMENT OF AGREEMENT
In consideration of their mutual promises and covenants, the
parties agree as follows:
1. RECITALS. The foregoing recitals are true and correct and
repeated herein in their entirety.
2. CASH PAYMENT. CC, as assignee of the rights of ANIC, agrees
to accept the sum of $2,698,214.80 (the "Judgment Amount") plus interest at
10%/O per annum since September . 1996, as provided in Section 8, plus interest
at 10% per annum on $4, 100,000 from September 1,. through September 4, 1996
(collectively, the "Payoff Amount") in full and complete satisfaction of the
Judgment on the condition such payment is received by CC no later than the
closing of the initial Merger Agreement or January 1, 1997, whichever occurs
first.
3. INCOME TAX REFUND. CC hereby acknowledges that HOMG has
received the Refund Claim as set forth in Section 3 of the May Agreement and has
paid the same in full to Accel and ANIC, and that the Judgment Amount is the net
amount owed after giving effect to such payment of the Refund Claim. CC further
agrees to execute any and all documents reasonably required by HOMG to terminate
the security interest granted pursuant to the May Agreement with respect to the
Refund Claim.
4. DISMISSAL OF APPEAL. HOMG and HMS hereby represent and
warrant that the Appeal and Cross-Appeal have been dismissed with prejudice.
5. FORBEARANCE OF COLLECTION EFFORTS. Unless sooner terminated
pursuant to the provisions of Section 7 of this Agreement, CC, as the assignee
of the rights of ANIC, will not undertake prior to January 31, 1997, any act to
execute on the Judgment, including the issuance or service of writs of
attachment, Garnishment or execution from any court, or to obtain discovery in
aid
2
of execution from any third party
6. CONDITION PRECEDENT TO CLOSING OF MERGER AGREEMENT. HOMG
covenants, represents and warrants that satisfaction of the Judgment in
accordance with the terms of this Agreement shall be a condition precedent to
the closing of the Merger Agreement.
7. CONTINGENCIES AND TERMINATION. The obligations of CC, as the
assignee of ANIC, to accept the Payoff Amount in full satisfaction of the
Judgment and to forbear from any and all efforts to enforce the Judgment are
contingent upon the closing of the Merger Agreement. Sections 2 and 5 of this
Agreement shall become null, void, and of no further force or effect at the sole
option of CC upon the occurrence of any one of the following events-.
(a) the Merger Agreement has not been closed on or before
January 1,1997;
(b) HOMG advises CC or either ~HOMG or CC publicly
announces that the Merger Agreement has been
abandoned. HOMG further agrees to directly notify CC
within twenty-four hours should the proposed Merger
Agreement be abandoned by HOMG for any reason;
(c) the stockholders of HOMG fail to approve and to
authorize the Merger Agreement; or
(d) HOMG or CC falls to obtain the approval of any
government regulatory body or agency from which
approval of the Merger Agreement is required prior to
closing of the Merger Agreement.
If any of the foregoing events occur and CC elects to terminate
its agreements and commitments set forth in Sections 2 and 5 of this Agreement,
CC shall promptly notify HOMG and HMS in writing of its decision to do so.
8. INTEREST. Interest on the unpaid portion of the Judgment
Amount shall accrue at a per annum rate of 10% starting September 5, 1996.
9. EFFECT OF TERMINATION. In the event CC elects in accordance
with Section 7 of this Agreement to terminate its obligations to accept the
Payoff Amount in fun satisfaction of the Judgment and to forebear from any and
all efforts to enforce the Judgment, the parties shall be in the same position
they were in prior to this Agreement, except that CC shall be free to enforce
the Judgment as reduced by the Refund Claim.
10. MUTUAL RELEASE. At the closing of the Merger Agreement and
upon receipt by CC of either the Payoff Amount (if such payment occurs on or
before January 31, 1997) or the Judgment, as reduced by the Refund Claim (if
such payment occurs after January 31, 1997), CC, HOMG and HMS will execute and
exchange a mutual release in the form attached hereto as Exhibit 1. Within 30
days after receiving such payment, CC shall file a Satisfaction of Judgment for
each action pending in: (i) the Circuit Court of Broward County, Florida, styled
Homeowners Marketing Services, Inc.
3
v. Acceleration National Insurance Company. Case No. 96-001110 CACE (12) (the
"Domestication Action"); and (ii) the Court of Common Pleas of Franklin County,
Ohio, styled Acceleration National Insurance Company v. Homeowner Marketing
Services, Inc., Consolidated Case Nos. 91CVH11- 9404, 94CVHO5-3083 (the "Ohio
Action"), and be responsible for dismissing with prejudice each of the following
actions: (i) the Ohio Action; (ii) the Domestication Action; (iii) that certain
action pending in the Circuit Court of ~Broward County, Florida, styled
Acceleration National Insurance Company v. Homeowners Marketing Services, Inc.,
et al, Case No. 96-001152 (18)- and (iv) that certain action pending in the
Circuit Court of Dade County, Florida, styled Acceleration National Insurance
Company v. Homeowners Marketing Services, Inc., Case No. 96~-00850 (CA) 23.
11. ADDITIONAL REPRESENTATIONS AND WARRANTIES. CC, HOMG and HMS
each warrants and represents that the officer signing this Agreement on its
behalf is authorized to do so and to bind the entity to the terms of this
Agreement. By execution of this Agreement, the parties represent that they have
the capacity to execute this Agreement on behalf of HMS, HOMG and CC,
respectively. HMS and HOMG hereby represent and warrant: (i) that they have not
been released from the Judgment and agree not to contest the validity of the
Judgment; (ii) that they have made no assistant of their claims or causes of
action against AMC set forth in the Litigation; and (iii) that no other person
has any right to or interest in them.
12. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be construed according to the laws of the State of ~Massachusetts. Should any
dispute arise regarding this Agreement which the parties are unable to resolve,
the par-tics agree that the Superior Court of Suffolk County, Massachusetts
shall have exclusive jurisdiction to adjudicate any and all such controversies.
13. CONSTRUCTION. The parties to this Agreement have been
re~presented by counsel in connection with the negotiations and drafting of this
Agreement and any ambiguity in this Agreement shall not be construed against any
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or waive any person, firm or corporation other than CC, HOMG and HMS
and their respective subsidiaries, affiliates, legal representatives, successors
and assigns, any rights or benefits under or by reason of this Agreement.
14. NOTICES. In the event that any party to this Agreement shall
be required to afford notice in writing to any other party of the occurrence or
non-occurrence of any event, such notice shall be provided as follows:
If to CC:
Howard Wolk
The Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, Massachusetts 02155
4
With a Copy to:
Robert M. Rosen
Lane Altman & Owens, LLP
100 Federal Street
Boston, MA 02110
If to HOMG or HMS:
Carl Buccellato
Chairman and Chief Executive Officer
[HOMG or HMS]
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325-6235
With a Copy to:
Paul Berkowitz, Esq.
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel. P.A.
1221 Bicknell Avenue
Miami, Florida 33131
15. HOMG GUARANTY AND PLEDGE. In consideration of the execution
of this Agreement by CC, HOMG hereby agrees to guaranty the obligations of HMS
under the Judgment and this Agreement, including, but not limited to, the
payment as described in Section 2 and further agrees to pledge to CC all of its
rights, title and interest in and to the shares of HMS and Homeowners Marketing
Services International, Inc. ("HMSI") owned by HOMG, such guaranty and pledge to
be in form and substance reasonably satisfactory to CC.
16. GRANT OF SECURITY INTEREST BY HMSI AND HMSI. In further
consideration of the execution of this Agreement by CC, HOMG agrees to cause HMS
and HMSI to enter into an agreement providing for the guaranty of the obligation
of HOMG under the Judgment and this Agreement, including, but not limited to,
the payment as described in Section 2 and further providing to secure that
guaranty by granting a security interest to CC in their assets, such agreement
to be in form and substance reasonably satisfactory to CC.
5
IN WITNESS WHEREOF, each party has executed this Agreement by
its duly authorized representative on the date set forth below.
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
----------------------------------------
C. Gregory Morris, Vice President,
Treasurer & Chief Financial Officer
HOMEOWNERS MARKETING
SERVICES, INC.
By:/s/ C. Gregory Morris
----------------------------------------
C. Gregory Morris, Vice President,
Treasurer & Chief Financial Officer
THE CROSS COUNTRY GROUP, L.L.C.
By:/s/ Howard L. Wolk
----------------------------------------
Name: Howard L. Wolk
Title: Member
6
MUTUAL RELEASE
The Cross Country Group, L.L.C., a Massachusetts limited
liability company with its principal place of business at 4040 Mystic Valley
Parkway, Boston, Massachusetts 02155 ("Cross Country" or "First Party"), as
assignee and successor in interest to the right, title and interest of
Acceleration National Insurance Company ("ANIC") in the judgment entered in
favor of ANIC against Homeowners Marketing Services, Inc. on or about December
20, 1995, in the amount of $5,156,022.00, plus interest and costs (the
"Judgment") in the Court of Common Pleas of Franklin County, Ohio, in the
consolidation cases styled, Acceleration National Insurance Company v.
Homeowners Marketing Services, Inc., et al., Case. Nos. 9CVH11-9404,
94CVH05-3083 (the "Ohio Action"), and Homeowners Group, Inc., a Delaware
corporation with its principal place of business at 400 Sawgrass Corporate
Parkway, Sunrise, Florida 33325-6235 ("HOMG"), and Homeowners Marketing
Services, Inc., a Florida corporation with its principal place of business at
400 Sawgrass Corporate Parkway, Sunrise, Florida 33325-6235 ("HMS") (HOMG and
HMS, collectively referred to as "Second Party"), for themselves and their
successors and assigns, hereby mutually release and forever discharge the other
Party, and all of their past and present directors, officers, employees, and
agents from any and all claims whatsoever, from the beginning of the world to
the date of these presents, whether such claims are legal or equitable, known or
unknown, contingent or mature, or joint, several or individual, including but
not limited to all claims or causes of action asserted or which could have been
asserted in the Ohio Action and any other outstanding action relating to the
Judgment, including those actions filed by ANIC styled, Homeowners Marketing
Services, Inc. v. Acceleration National Insurance Company, Case No. 96- 0011110
CACE (12) (Circuit Court of Broward County, Florida), Acceleration National
Insurance
Company v. Homeowners Marketing Services, Inc., et al., Case No. 96-001152 (18)
(Circuit Court of Broward County, Florida), and Acceleration National Insurance
Company v. Homeowners Marketing Services, Inc., Case No. 96-00850 (CA) 23
(Circuit Court of Dade County, Florida), and any other interest in the Judgment,
including any claim to, right to execute upon, seek satisfaction of, or seek
recovery arising out of or to the Judgment.
THE CROSS COUNTRY GROUP, L.L.C.
Date:__________________________ By___________________________________
Its__________________________________
HOMEOWNERS GROUP, INC.
Date:__________________________ By___________________________________
Its__________________________________
HOMEOWNERS MARKETING SERVICES, INC.
Date:__________________________ By___________________________________
Its__________________________________
EXHIBIT (c)(11)
FIRST AMENDMENT TO
AGREEMENT FOR SATISFACTION OF JUDGMENT
The First Amendment to Agreement for Satisfaction of Judgment is
entered into as of this 31st day of January, 1997 by and among HOMEOWNERS GROUP,
INC. ("HOMG"), HOMEOWNERS MARKETING SERVICES, INC. ("HMS") and THE CROSS COUNTRY
GROUP, L.L.C. ("CC").
WHEREAS, on October 31, 1996, CC, HOMG and HMS entered into an
Agreement for Satisfaction of Judgment (the "Agreement") for the satisfaction
and release of that certain judgment entered on December 20, 1995 in favor of
Acceleration National Insurance Company against HMS for the sum of $5,156,022
plus interest and costs;
WHEREAS, CC, HOMG and HMS desire to amend the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CASH PAYMENT. CC, as assignee of the rights of ANIC, agrees to accept
the sum of $2,698,214.80 (the "Judgment Amount") plus interest at 10% per annum
since September 5, 1996, as provided in Section 8, plus interest at 10% per
annum on $4,100,000 from September 1, through September 4, 1996 (collectively,
the "Payoff Amount") in full and complete satisfaction of the Judgment on the
condition such payment is received by CC no later than the closing of the Merger
Agreement or July 1, 1997, whichever occurs first.
2. Section 5 of the Agreement is hereby deleted and replaced in its
entirety with the following:
FORBEARANCE OF COLLECTION EFFORTS. Unless sooner terminated pursuant to
the provisions of Section 7 of this Agreement, CC, as the assignee of the rights
of ANIC, will not undertake prior to July 1, 1997, any act to execute on the
Judgment, including the issuance or service of writs of attachment, garnishment
or execution from any court, or to obtain discovery in aid of execution from any
third party.
3. Section 7 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CONTINGENCIES AND TERMINATION. The obligations of CC, as the assignee
of ANIC, to accept the Payoff Amount in full satisfaction of the Judgment and to
forbear from any and all efforts to enforce the Judgment are contingent upon the
closing of the Merger Agreement. Sections 2 and 5 of this Agreement shall become
null, void, and of no further force or effect at the sole option of CC upon the
occurrence of any one of the following events:
(a) the Merger Agreement has not been closed on or before
July 1, 1997;
(b) HOMG advises CC or either HOMG or CC publicly
announces that the Merger Agreement has been
abandoned. HOMG further agrees to directly notify CC
within twenty-four hours should the proposed Merger
Agreement be abandoned by HOMG for any reason;
(c) the stockholders of HOMG fail to approve and to
authorize the Merger Agreement;
(d) holders of more than 10% of HOMG's stock shall have
claimed or perfected appraisal rights; or
(e) HOMG or CC fails to obtain the approval of any
government regulatory body or agency from which
approval of the Merger Agreement is required prior to
closing of the Merger Agreement.
If any of the foregoing events occur and CC elects to terminate its
agreements and commitments set forth in Section 2 and 5 of this Agreement, CC
shall promptly notify HOMG and HMS in writing of its decision to do so.
4. Section 10 of the Agreement is hereby deleted and replaced in its
entirety with the following:
MUTUAL RELEASE. At the closing of the Merger Agreement and upon receipt
by CC of either the Payoff Amount (if such payment occurs on or before July 1,
1997) or the Judgment, as reduced by the Refund Claim (if such payment occurs
after July 1, 1997), CC, HOMG and HMS will execute and exchange a mutual release
in the form attached hereto as Exhibit 1. Within 30 days after receiving such
payment, CC shall file a Satisfaction of Judgment for each action pending in :
(i) the Circuit Court of Broward County, Florida, styled Homeowners Marketing
Services, Inc. v. Acceleration National Insurance Company. Case No. 96-001110
CACA (12) (the "Domestication Action"); and (ii) the Court of Common Pleas of
Franklin County, Ohio,
2
styled Acceleration National Insurance Company v. Homeowners Marketing Services,
Inc., et al., Consolidated Case Nos. 91CVH11-9404, 94CVH05-3083 (the "Ohio
Action"), and be responsible for dismissing with prejudice each of the following
actions: (i) the Ohio Action; (ii) the Domestication Action; (iii) that certain
action pending in the Circuit Court of Broward County, Florida, styled
Acceleration National Insurance Company v. Homeowners Marketing Services, Inc.,
et al., Case. No. 96-001152 (18); and (iv) that certain action pending in the
Circuit Court of Dade County, Florida, styled Acceleration National Insurance
Company v. Homeowners Marketing Services, Inc., Case No. 96-00850 (CA) 23.
5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and same instrument.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to principles of conflicts of laws. The parties further agree that
venue for any action shall be in the Suffolk County Superior court, Commonwealth
of Massachusetts.
7. NO OTHER MODIFICATIONS. Except as modified by this Agreement, the
terms of the Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, each party has executed this Amendment by its duly
authorized representative on the date set forth below.
HOMEOWNERS GROUP, INC.
Date: 1/31/97 By:/s/ C. Gregory Morris
------------------------- ---------------------------
Name:
Title:
HOMEOWNERS MARKETING
SERVICES, INC.
Date: 1/31/97 By:/s/ C. Gregory Morris
------------------------- ---------------------------
Name:
Title:
3
THE CROSS COUNTRY GROUP,
L.L.C.
Date: 1/31/97 By:/s/ Howard L. Wolk
------------------------- ---------------------------
Name:
Title:
4
EXHIBIT(c)(12)
SECOND AMENDMENT TO
AGREEMENT FOR SATISFACTION OF JUDGMENT
This Second Amendment to Agreement for Satisfaction of Judgment is
entered into as of this 1st day of July, 1997 by and among HOMEOWNERS GROUP,
INC. ("HOMG"), HOMEOWNERS MARKETING SERVICES, INC. ("HMS") and THE CROSS COUNTRY
GROUP, L.L.C. ("CC").
WHEREAS, on October 31, 1996, CC, HOMG and HMS entered into an
Agreement for Satisfaction of Judgment (the "Agreement") for the satisfaction
and release of that certain judgment entered on December 20, 1995 in favor of
Acceleration National Insurance Company against HMS for the sum of $5,156,022
plus interest and costs;
WHEREAS, on January 31, 1997, CC, HOMG and HMS entered into the First
Amendment to the Agreement; and
WHEREAS, CC, HOMG and HMS desire to further amend the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CASH PAYMENT. CC, as assignee of the rights of ANIC, agrees to accept
the sum of $2,698,214.80 (the "Judgment Amount") plus interest at 10% per annum
since September 5, 1996, as provided in Section 8, plus interest at 10% per
annum on $4,100,000 from September 1, through September 4, 1996 (collectively,
the "Payoff Amount") in full and complete satisfaction of the Judgment on the
condition such payment is received by CC no later than the closing of the Merger
Agreement or July 31, 1997, whichever occurs first.
2. Section 5 of the Agreement is hereby deleted and replaced in its
entirety with the following:
FORBEARANCE OF COLLECTION EFFORTS. Unless sooner terminated pursuant to
the provisions of Section 7 of this Agreement, CC, as the assignee of the rights
of ANIC, will not undertake prior to July 31, 1997, any act to execute on the
Judgment, including the issuance or service of writs of attachment, garnishment
or execution from any court, or to obtain discovery in aid of execution from any
third party.
3. Section 7 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CONTINGENCIES AND TERMINATION. The obligations of CC, as the assignee
of ANIC, to accept the Payoff Amount in full satisfaction of the Judgment and to
forbear from any and all efforts to enforce the Judgment are contingent upon the
closing of the Merger Agreement. Sections 2 and 5 of this Agreement shall become
null, void, and of no further force or effect at the sole option of CC upon the
occurrence of any one of the following events:
(a) the Merger Agreement has not been closed on or before
July 31, 1997;
(b) HOMG advises CC or either HOMG or CC publicly
announces that the Merger Agreement has been
abandoned. HOMG further agrees to directly notify CC
within twenty-four hours should the Merger Agreement
be abandoned by HOMG for any reason;
(c) the stockholders of HOMG fail to approve and to
authorize the Merger Agreement;
(d) holders of more than 10% of HOMG's stock shall have
claimed or perfected appraisal rights;
(e) the failure of HMS and HMSI to execute and deliver to
CC within five (5) business days from the date of
execution of this Second Amendment, the appropriate
UCC financing statements necessary to grant a
perfected security interest to CC in their assets, in
accordance with Section 16 of the Agreement and that
certain Security Agreement dated as of October 31,
1996, by and among CC, HMS and HMSI; or
(f) HOMG or CC fails to obtain the approval of any
government regulatory body or agency from which
approval of the Merger Agreement is required prior to
closing of the Merger Agreement.
If any of the foregoing events occur and CC elects to terminate its
agreements and commitments set forth in Section 2 and 5 of this Agreement, CC
shall promptly notify HOMG and HMS in writing of its decision to do so.
4. Section 10 of the Agreement is hereby deleted and replaced in its
entirety with the
2
following:
MUTUAL RELEASE. At the closing of the Merger Agreement and upon receipt
by CC of either the Payoff Amount (if such payment occurs on or before July 31,
1997) or the Judgment, as reduced by the Refund Claim (if such payment occurs
after July 31, 1997), CC, HOMG and HMS will execute and exchange a mutual
release in the form attached to the Agreement as Exhibit 1. Within 30 days after
receiving such payment, CC shall file a Satisfaction of Judgment for each action
pending in : (i) the Circuit Court of Broward County, Florida, styled Homeowners
Marketing Services, Inc. v. Acceleration National Insurance Company. Case No.
96-001110 CACA (12) (the "Domestication Action"); and (ii) the Court of Common
Pleas of Franklin County, Ohio, styled Acceleration National Insurance Company
v. Homeowners Marketing Services, Inc., et al., Consolidated Case Nos.
91CVH11-9404, 94CVH05-3083 (the "Ohio Action"), and be responsible for
dismissing with prejudice each of the following actions: (i) the Ohio Action;
(ii) the Domestication Action; (iii) that certain action pending in the Circuit
Court of Broward County, Florida, styled Acceleration National Insurance Company
v. Homeowners Marketing Services, Inc., et al., Case. No. 96-001152 (18); and
(iv) that certain action pending in the Circuit Court of Dade County, Florida,
styled Acceleration National Insurance Company v. Homeowners Marketing Services,
Inc., Case No. 96-00850 (CA) 23.
5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and same instrument.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to principles of conflicts of laws. The parties further agree that
venue for any action shall be in the Suffolk County Superior court, Commonwealth
of Massachusetts.
7. NO OTHER MODIFICATIONS. Except as modified by this Agreement, the
terms of the Agreement shall remain unmodified and in full force and effect.
3
IN WITNESS WHEREOF, each party has executed this Amendment by its duly
authorized representative on the date set forth below.
HOMEOWNERS GROUP, INC.
Date: 7/1/97 By:/s/ C. Gregory Morris
------------------------- -------------------------------
Name:
Title:
HOMEOWNERS MARKETING
SERVICES, INC.
Date: 7/1/97 By:/s/ C. Gregory Morris
------------------------- -------------------------------
Name:
Title:
THE CROSS COUNTRY GROUP,
L.L.C.
Date: 7/1/97 By:/s/ Howard L. Wolk
------------------------- -------------------------------
Name:
Title:
4
EXHIBIT (c)(13)
EXTENSION OF SECOND AMENDMENT TO
AGREEMENT FOR SATISFACTION OF JUDGMENT
This Extension of Second Amendment to Agreement for Satisfaction of
Judgment is entered into as of this 31st day of July, 1997 by and among
HOMEOWNERS GROUP, INC. ("HOMG"), HOMEOWNERS MARKETING SERVICES, INC. ("HMS") and
THE CROSS COUNTRY GROUP, L.L.C. ("CC").
WHEREAS, CC, HOMG and HMS desire to extend the the agreement of CC
contained in the Second Amendment (the "Second Amendment") to Agreement for
Satisfaction of Judgment, dated as of the 1st day of July, 1997, not to take any
action to collect on the Judgment.
NOW, THEREFORE, the parties hereto agree as follows:
1. CC will not undertake prior to August 6, 1997, any act to execute on
the Judgment, including the issuance or service of writs of attachment,
garnishment or execution from any court, or to obtain discovery in aid of
execution from any third party, and will accept the Payoff Amount (as defined in
the Second Amendment) if it is paid by August 6, 1997.
2. All other provisions of the Second Amendment to Agreement for
Satisfaction of Judgment shall remain the same.
IN WITNESS WHEREOF, each party has executed this Amendment by its duly
authorized representative on the date set forth above.
HOMEOWNERS GROUP, INC.
By:/s/ C. Gregory Morris
-------------------------------
Name:
Title:
HOMEOWNERS MARKETING
SERVICES, INC.
By:/s/ C. Gregory Morris
-------------------------------
Name:
Title:
THE CROSS COUNTRY GROUP,
L.L.C.
By:/s/ Howard L. Wolk
-------------------------------
Name:
Title:
2
EXHIBIT (c)(14)
THIRD AMENDMENT TO
AGREEMENT FOR SATISFACTION OF JUDGMENT
This Third Amendment to Agreement for Satisfaction of Judgment is
entered into as of the 16th day of September, 1997 by and among HOMEOWNERS
GROUP, INC. ("HOMG"), HOMEOWNERS MARKETING SERVICES, INC. ("HMS") and THE CROSS
COUNTRY GROUP, L.L.C. ("CC").
WHEREAS, on October 31, 1996, CC, HOMG and HMS entered into an
Agreement for Satisfaction of Judgment (the "Agreement") for the satisfaction
and release of that certain judgment entered on December 20, 1995 in favor of
Acceleration National Insurance Company against HMS for the sum of $5,156,022
plus interest and costs;
WHEREAS, as of January 31, 1997, CC, HOMG and HMS entered into the
First Amendment to the Agreement, and as of July 1, 1997 CC, HOMG and HMS
entered into the Second Amendment to the Agreement;
WHEREAS, CC, HOMG and HMS desire to further amend the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CASH PAYMENT. CC, as assignee of the rights of ANIC, agrees to accept
the sum of $2,698,214.80 (the "Judgment Amount") plus interest at 10% per annum
since September 5, 1996, as provided in Section 8, plus interest at 10% per
annum on $4,100,000 from September 1, through September 4, 1996 (collectively,
the "Payoff Amount") in full and complete satisfaction of the Judgment on the
condition such payment is received by CC no later than the Consummation of the
Offer (as defined in the Fourth Amendment to the Merger Agreement dated as of
even date herewith (the "Fourth Amendment")), or November 4, 1997, whichever
occurs first.
2. Section 5 of the Agreement is hereby deleted and replaced in its
entirety with the following:
FORBEARANCE OF COLLECTION EFFORTS. Unless sooner terminated pursuant to
the provisions of Section 7 of this Agreement, CC, as the assignee of the rights
of ANIC, will not undertake
prior to November 14, 1997, any act to execute on the Judgment, including the
issuance or service of writs of attachment, garnishment or execution from any
court, or to obtain discovery in aid of execution from any third party.
3. Section 7 of the Agreement is hereby deleted and replaced in its
entirety with the following:
CONTINGENCIES AND TERMINATION. The obligations of CC, as the assignee
of ANIC, to accept the Payoff Amount in full satisfaction of the Judgment and to
forbear from any and all efforts to enforce the Judgment are contingent upon
Consummation of the Offer. Sections 2 and 5 of the Agreement shall become null,
void, and of no further force or effect at the sole option of CC upon the
occurrence of any one of the following events:
(a) the earlier of (i) expiration of the Offer, or (ii)
the filing of an involuntary bankruptcy, receivership
or other insolvency proceeding against HOMG;
(b) either CC or HOMG advises the other or either HOMG or
CC publicly announces that the Merger Agreement has
been abandoned. HOMG further agrees to directly
notify CC within twenty-four hours should the Merger
Agreement be abandoned by HOMG for any reason;
(c) the stockholders of HOMG fail to approve and to
authorize the Merger;
(d) holders of more than 10% of HOMG's stock shall have
claimed or perfected appraisal rights;
(e) the failure of HMS and HMSI to execute and deliver to
CC within five (5) business days from the date of
execution of this Third Amendment, the appropriate
UCC financing statements necessary to grant a
perfected security interest to CC in their assets, in
accordance with Section 16 of the Agreement and that
certain Security Agreement dated as of September __,
1997; as amended, by and among CC, HMS and HMSI and
that certain Security Agreement dated as of September
__, 1997, by and among CC and various subsidiaries of
HOMG;
(f) HOMG or CC fails to obtain the approval of any
government regulatory body or agency from which
approval of the Offer, as defined in the Merger
Agreement, as amended by the Fourth Amendment is
required prior to closing of the Offer;
2
(g) (i) the public announcement by a person not currently
a reported owner of 10% or more, other than CC or any
of its affiliates, of beneficial ownership
("beneficial ownership" being defined in accordance
with Rule 13d-3 of the Securities Exchange Act of
1934, as amended, the ("Exchange Act")) of 10% or
more of HOMG's common stock outstanding; (ii) the
date upon which a tender offer or exchange offer is
first published or sent or given within the meaning
of Rule 14d-2(a) of the Exchange Act by a person
other then CC or its affiliates; or (iii) the filing
of a Schedule 13D by a person other then CC or its
affiliates that contains a description of a plan or
proposal that such reporting person or its affiliates
have in response to any of the requested information
contained in Item 4(b)-(j) of the Schedule 13D;
(h) the breach (without regard to materiality) by Company
of any of the terms and/or conditions of the Merger
Agreement, as amended; or
If any of the foregoing events occur and CC elects to terminate its
agreements and commitments set forth in Section 2 and 5 of this Agreement, CC
shall promptly notify HOMG and HMS in writing of its decision to do so.
4. Section 10 of the Agreement is hereby deleted and replaced in its
entirety with the following:
MUTUAL RELEASE. Upon Consummation of the Offer and upon receipt by CC
of either the Payoff Amount (if such payment occurs on or before November 14,
1997) or the Judgment, as reduced by the Refund Claim (if such payment occurs
after November 14, 1997), CC, HOMG and HMS will execute and exchange a mutual
release in the form attached to the Agreement as Exhibit 1. Within 30 days after
receiving such payment, CC shall file a Satisfaction of Judgment for each action
pending in : (i) the Circuit Court of Broward County, Florida, styled Homeowners
Marketing Services, Inc. v. Acceleration National Insurance Company. Case No.
96-001110 CACA (12) (the "Domestication Action"); and (ii) the Court of Common
Pleas of Franklin County, Ohio, styled Acceleration National Insurance Company
v. Homeowners Marketing Services, Inc., et al., Consolidated Case Nos.
91CVH11-9404, 94CVH05-3083 (the "Ohio Action"), and be responsible for
dismissing with prejudice each of the following actions: (i) the Ohio Action;
(ii) the Domestication Action; (iii) that certain action pending in the Circuit
Court of Broward County, Florida, styled Acceleration National Insurance Company
v. Homeowners Marketing Services, Inc., et al., Case. No. 96-001152 (18); and
(iv) that certain action pending in the Circuit Court of Dade County, Florida,
styled Acceleration National Insurance Company v. Homeowners Marketing Services,
Inc., Case No. 96-00850 (CA) 23.
3
5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and same instrument.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to principles of conflicts of laws. The parties further agree that
venue for any action shall be in the Suffolk County Superior court, Commonwealth
of Massachusetts.
7. NO OTHER MODIFICATIONS. Except as modified by this Agreement, the
terms of the Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, each party has executed this Amendment by its duly
authorized representative on the date set forth below.
HOMEOWNERS GROUP, INC.
Date: 9/16/97 By:/s/ C. Gregory Morris
------------------------- -------------------------------
Name:
Title:
HOMEOWNERS MARKETING
SERVICES, INC.
Date: 9/16/97 By:/s/ C. Gregory Morris
------------------------- -------------------------------
Name:
Title:
THE CROSS COUNTRY GROUP,
L.L.C.
Date: 9/16/97 By:/s/ Howard L. Wolk
------------------------- -------------------------------
Name:
Title:
4
EXHIBIT (c)(15)
RELEASE AGREEMENT
-----------------
This Release Agreement is entered into as of the 16th day of September,
1997 by and among Melvin Stewart, Diane Gruber, Gary Lipson, and Michael Nocero,
Jr., (collectively, the "Directors"), Homeowners Group, Inc. ("HOMG"), The Cross
Country Group, Inc. ("CCI") and CC Acquisition Corporation ("CCAC").
WHEREAS, HOMG, CCI and CCAC have entered into an Agreement and Plan of
Merger dated as of May 14, 1996, as amended (the "Merger Agreement"); and
WHEREAS, the Merger Agreement provides, among other things, that upon
Commencement of the Offer (as defined in the Merger Agreement), the parties
shall enter into this Release Agreement;
NOW THEREFORE, for and in consideration of the foregoing and other
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Each of the Directors remises, releases, acquits, satisfies and
forever discharges CCI and each and every one of its subsidiaries and affiliated
corporations and other entities, including CCAC, and HOMG, and each and every
one of its subsidiaries and affiliated corporations and other entities, and the
shareholders, partners, directors, officers, employees and agents of all of the
foregoing, of and from any and all manner of action and actions, cause and
causes of action, suits, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, executions, claims and
demands whatsoever, in law or in equity, which each of the Directors ever had,
now has, or which any heir, executor, successor or assign of each of the
Directors hereafter can, shall or may have, against CCI or any of its
subsidiaries or affiliated corporations and other entities, including CCAC, or
HOMG, and/or any of its subsidiaries and affiliated corporations and other
entities, or the shareholders, partners, directors, officers, employees and
agents of any of the foregoing, for, upon or by reason of any matter, cause or
thing whatsoever, from the beginning of time to the date of this Agreement, with
the exception of the covenants, agreements and obligations of such released
parties set forth in the Merger Agreement and all documents executed pursuant
thereto, the General Corporation Law of
the State of Delaware, the Company's Certificate of Incorporation as in effect
on the date hereof, the Company's By-Laws as in effect on the date hereof, the
Indemnification Agreements by and between the Company and each of the Directors,
as amended, and any directors and officers liability insurance policy or
policies from time to time in effect with respect to the past, present or future
directors and officers of the Company, provided, however, that none of the
foregoing shall limit in any way the right of the Directors to assert any
demand, cause of action or claim (or facts that would otherwise support such a
demand, cause of action or claim): (i) as a defense of any claim, demand or
action commenced against any or all of them by any party released in accordance
with this paragraph or (ii) in connection with any action brought by a person or
party unaffiliated with the Directors or their affiliates; and further, provided
that none of the foregoing shall affect the rights and obligations of Diane
Gruber and Michael Nocero, Jr., under and pursuant to certain franchise
agreements and any amendments or related agreements thereto to which they and/or
entities they control, are a party, including but not limited to a certain
Amended and Restated First Amendment to Affiliation Agreement, Profit Sharing
Release and Estoppel Agreement, all dated September ___, 1997..
2. CCI, for itself and for each and every one of its subsidiaries and
affiliated corporations and other entities, including CCAC, and HOMG, for itself
and for each and every one of its subsidiaries and affiliated corporations or
the entities, and the shareholders, partners, directors, officers, employees and
agents of all of the foregoing, remise, release, acquit, satisfy, and forever
discharge each of the Directors and their heirs, executors, successors and
assigns, of and from any, and all manner of action and actions, cause and causes
of action, suits, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever, in law or in equity, which CCI or any of its subsidiaries or
affiliated corporations and other entities, including CCAC, and HOMG or any of
its subsidiary or affiliated corporations and other entities, or the
shareholders, partners, directors, officers, employees and agents of any of the
foregoing, ever had, now has, or which any heir, executor, successor or assign
of any of them hereafter can, shall or may have, against each of the Directors,
for, upon or by reason of any matter, cause or thing whatsoever, from the
beginning of time to the date of this Agreement, with the exception of the
covenants, agreements and obligations of such Released Parties set forth in the
Merger Agreement and all documents executed pursuant thereto; provided, however,
that none of the foregoing shall limit in any way the right of CCI, CCAC or
HOMG, or each of their subsidiaries or affiliated corporations or other entities
to assert any demand, cause of action or claim (or facts that would otherwise
support such a demand, cause of action or claim): (i) as a defense of any claim,
demand or action commenced against it by any party released in accordance with
this paragraph or (ii) in connection with any action brought by a person or
party unaffiliated with CCI, or any of its subsidiaries and affiliated
corporations, including CCAC; and further provided that none of the foregoing
shall affect the rights and obligations of Diane Gruber and Michael Nocero, Jr.
under and pursuant to certain franchise agreements and any amendments or related
agreements thereto to which they and/or
2
entities they control, are a party, including but not limited to a certain
Amended and Restated First Amendment to Affiliation Agreement, Profit Sharing
Release and Estoppel Agreement, all dated [September __, 1997].
3. Each party to this Agreement, in his, her or its capacity as a
stockholder of HOMG, agrees that such party shall not participate as plaintiff
in any suit in law or in equity against any party to this Agreement or any of
such party's subsidiaries, affiliates, stockholders, officers, directors and
employees arising out of or related to any actions or inactions of such parties
with respect to the transactions contemplated by the Merger Agreement.
4. This Agreement may be executed in multiple counterparts, each of
which, when so executed and delivered shall be an original, but such
counterparts shall together constitute one and the same instrument and
Agreement.
5. This Agreement shall be construed according to the laws of the State
of Delaware as if all acts and omissions hereunder occurred therein.
6. Any action to enforce this Agreement must be brought solely in any
United States Court of competent jurisdiction where venue is proper and, both
parties shall submit to the jurisdiction of such Court and will comply with all
requirements necessary to give such Court jurisdiction.
Executed as of the date first written above.
HOMEOWNERS GROUP, INC.
By: /s/ C. Gregory Morris
----------------------------------
Title: Executive Vice President
-------------------------------
THE CROSS COUNTRY GROUP, INC.
By: /s/ Howard L. Wolk
----------------------------------
Title: Vice President
-------------------------------
3
CC ACQUISITION CORPORATION
By: /s/ Howard L. Wolk
----------------------------------
Title: Vice President
-------------------------------
/s/ Melvin Stewart /s/ Gary Lipson
- ------------------------------ ------------------------------------
Melvin Stewart Gary Lipson
/s/ Diane Gruber
- ------------------------------ ------------------------------------
Diane Gruber Michael Nocero, Jr.
4
EXHIBIT (c)(16)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of December 22, 1995, by
and between HOMEOWNERS GROUP, INC., a Delaware corporation (the "Company"), and
CARL BUCCELLATO (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ the Executive, and
the Executive desires to continue to be employed by the Company, pursuant to the
provisions contained in this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, each of the Company and the Executive agrees as follows:
ARTICLE I
EMPLOYMENT
1.1 THE COMPANY. The Company employs the Executive and the Executive
accepts such employment. Subject to the direction of the Board of Directors of
the Company and the Executive Committee thereof, the Executive shall serve as
the Chairman of the Board, President and Chief Executive Officer of the Company.
The Executive shall have such responsibilities, perform such duties and exercise
such power and authority as are inherent in, or incident to, the offices of
Chairman of the Board, President and Chief Executive Officer. The Executive
shall devote his full business time and attention, and his best efforts, to the
diligent performance of such duties.
1.2 SUBSIDIARY CORPORATIONS. The Executive shall serve as the Chairman
of the Board, President and Chief Executive Officer of each and every one of the
Company's direct and indirect subsidiary corporations, including without
limitation Homeowners Marketing Services, Inc., a Florida corporation ("HMS"),
Homeowners Association of America, Inc., a Florida corporation ("HAA"), and HOMS
Insurance Agency, Inc., a Florida corporation ("HOMS").
ARTICLE II
TERM
Subject to the provisions of Article VI below, the term of this
Agreement shall be for a period of five years, commencing as of January 1, 1996
and expiring on December 31, 2000. Unless either party shall give to the other
written notice of termination on or before June 30, 2000, the term of this
Agreement shall, on December 31, 2000, be extended for a period of three years,
commencing as of January 1, 2001 and expiring on December 31, 2003.
ARTICLE III
SALARY
3.1 INITIAL SALARY. In full payment for the obligations to be performed
by the Executive during the term of this Agreement, the Company shall pay to the
Executive a salary at an annual rate equal to the sum of (a) Three Hundred
Seventy-Seven Thousand Two Hundred Eleven Dollars ($377,211) and (b) a cost of
living adjustment for the 1995 calendar year determined pursuant to the
provisions of that certain Employment Agreement dated as of June 1, 1992 by and
between the Company and the Executive (the "Previous Agreement") (subject to
applicable payroll and/or other taxes required by law to be withheld).
3.2 ADJUSTMENT OF SALARY. As promptly as practicable after the
conclusion of each of the Company's fiscal years during the term of the
Executive's employment hereunder, the certified public accountants regularly
retained by the Company shall determine the increase, if any, in the cost of
living, using as the basis of such computation the current applicable Consumer
Price Index published by the Bureau of Labor Statistics of the United States
Department of Labor (the "Index").
Any such increase shall be computed as follows:
(a) The Index number in the column for Miami, Florida,
entitled "all items," for the month of January shall be the "Current Index
Number" and the corresponding Index number for the immediately preceding
January, commencing with January 1995, shall be the "Base Index Number."
(b) The increase in the cost of living shall be determined by
dividing the Current Index Number by the Base Index Number and subtracting the
integer 1 from the quotient thereof, and then multiplying the remainder by One
Hundred Percent (100%) in accordance with the following formula:
Increase Current Index Number - 1 x 100%
in = --------------------
Cost of Living Base Index Number
2
(c) The percentage increase in the cost of living, multiplied
by the Executive's then current salary, shall be the increase required to be
determined pursuant to this Section 3.2.
(d) If the publication of the Consumer Price Index is
discontinued for any reason, then the parties shall utilize comparable
statistics of the cost of living for the City of Miami, Florida, the City of
Fort Lauderdale, Florida, Dade County, Florida, or Broward County, Florida, as
computed and published by an agency or instrumentality of the United States of
America or by a responsible financial periodical or recognized authority then to
be selected by the parties.
(e) In the absence of fraud or manifest error, any
determination made by the Company's accountants pursuant to this Section 3.2
shall be conclusive and binding upon the Company and the Executive.
(f) The Executive's then current salary shall be adjusted as
of January 1 of each year, commencing as of January 1, 1997, in accordance with
the provisions of this Section 3.2 and such adjustment shall remain in effect
during such year.
3.3 PAYMENT OF SALARY. Payments of salary shall be made to the
Executive in installments from time to time on the same dates payments of salary
are generally made to all senior management employees of the Company.
ARTICLE IV
BONUS
The Executive may receive an annual bonus in an amount
determined by the Board of Directors of the Company, in its discretion, if and
when so determined by the Board of Directors.
ARTICLE V
CERTAIN FRINGE BENEFITS
5.1 GENERALLY. The Executive shall be entitled to receive such benefits
and to participate in such benefit plans as are generally provided from time to
time by the Company to its senior management employees; provided, however, that
nothing contained in this Section 5.1 shall be construed to obligate the Company
to provide any specific benefits to its employees generally.
5.2 VACATIONS. The Executive shall be entitled to vacation time on an
annual basis in accordance with such policies as are from time to time adopted
by the Company's Board of Directors with respect to its senior management
employees.
3
5.3 AUTOMOBILE. The Company shall provide the Executive a luxury
automobile for use by the Executive in connection with the performance of his
duties under this Agreement. The Executive shall be entitled to receive
reimbursement for such automobile expenses as are incurred by the Executive in
connection with the performance of his duties under this Agreement. Such
reimbursement shall include the cost of operating the automobile, the cost of
maintenance of such automobile and the cost of insurance of such automobile.
5.4 STOCK OPTIONS. The Executive shall be entitled to participate in
the Company's stock option plans as may from time to time be in effect and to
receive such incentive or other stock options as may from time to time be
granted to him thereunder; provided, however, that nothing contained in this
Section 5.4 shall be construed to obligate the Company, its Board of Directors
or any committee of its Board of Directors to grant any incentive or other stock
option whatsoever to the Executive.
5.5 LIFE INSURANCE. The Company shall purchase and maintain in effect
one or more term insurance policies on the life of the Executive in an aggregate
amount of not less than One Million Dollars ($1,000,000). The beneficiary of
each such policy shall be the person or persons who shall from time to time be
designated in writing by the Executive to the Company. In the absence of any
written designation to the contrary, the beneficiary of all such insurance
policies shall be the Executive's spouse.
5.6 INCOME TAX RETURNS AND ESTATE PLANNING. The Company shall pay for
the cost of preparation of the Executive's annual federal income tax returns and
for reasonable estate planning advice that the Executive receives from time to
time.
5.7 REIMBURSEMENT OF MEDICAL EXPENSES. The Company shall reimburse the
Executive for the full amount of any medical, dental and optical expenses not
covered under any group medical plan from time to time in effect for the benefit
of Company employees generally. Such coverage shall include without limitation
mental health care and treatment and other medical, dental and optical expenses
not covered under the Company's health care plan now or hereafter in effect. The
Company may satisfy its obligation to the Executive under this Section 5.7 by
providing excess medical, dental, optical and other health care insurance
coverage for the Executive's benefit.
5.8 ANNUAL PHYSICAL EXAMINATION. To the extent not covered by any group
medical plan from time to time in effect for the benefit of Company employees
generally or other insurance coverage provided by the Company for the benefit of
the Executive, the Company shall reimburse the Executive for the full cost of a
complete annual physical examination.
5.9 BUSINESS AND ENTERTAINMENT EXPENSES. The Company shall reimburse
the Executive for all reasonable business and entertainment expenses related to
the Executive's position with the Company.
4
ARTICLE VI
TERMINATION OF EMPLOYMENT
6.1 CERTAIN DEFINITIONS. The following terms shall have the following
respective meanings when utilized in this Agreement:
(a) "Bonus" shall mean, as of a given date, the most recent
annual bonus awarded by the Company to the Executive.
(b) "Cause" shall mean any action by the Executive or any
inaction by the Executive which constitutes:
(i) fraud, embezzlement, misappropriation, dishonesty
or breach of trust;
(ii) a felony or moral turpitude;
(iii) a material breach or violation of any or all of
the covenants, agreements and obligations of the
Executive set forth in this Agreement, other than as
the result of the Executive's death or Disability (as
hereinafter defined);
(iv) a willful or knowing failure or refusal by the
Executive to perform any or all of his material
duties and responsibilities as an officer of the
Company, other than as the result of the Executive's
death or Disability; or
(v) gross negligence by the Executive in the
performance of any or all of his material duties and
responsibilities as an officer of the Company, other
than as a result of the Executive's death or
Disability;
provided, however, that if the basis for any termination of the Executive's
employment by the Company as set forth in the Termination Notice (as hereinafter
defined) delivered by the Company to the Executive is any or all of the
definitions of Cause set forth in Sections 6.1(b)(iii), 6.1(b)(iv) or 6.1(b)(v)
of this Agreement, then, in such event, the Executive shall have fifteen (15)
days from and after the date of his receipt of such Termination Notice to
present a reasonable plan to cure such action or inaction specified in the
Termination Notice, which plan may require more than fifteen (15) days to cure
the specified action or inaction, but such plan must be reasonably satisfactory
to the Company and the Executive must proceed diligently to effectuate such
plan.
(c) "Compensation" shall mean the sum of the Executive's
Salary (as hereinafter defined) and Bonus.
5
(d) "Disability" shall mean any mental or physical illness,
condition, disability or incapacity which prevents the Executive from reasonably
discharging his duties and responsibilities as an officer of the Company. If any
disagreement or dispute shall arise between the Company and the Executive as to
whether the Executive suffers from any Disability, then, in such event, the
Executive shall submit to the physical or mental examination of a physician
licensed under the laws of the State of Florida, who is mutually agreeable to
the Company and the Executive, and such physician shall determine whether the
Executive suffers from any Disability. In the absence of fraud or bad faith, the
determination of such physician shall be final and binding upon the Company and
the Executive. The entire cost of such examination shall be paid for solely by
the Company.
(e) "Good Reason" shall mean:
(i) the assignment by the Board of Directors or the
Executive Committee of the Board of Directors to the
Executive, without his express written consent, of
duties and responsibilities which results in the
Executive having less significant duties and
responsibilities or exercising less significant power
and authority than he had, or duties and
responsibilities or power and authority not
comparable to that of the level and nature which he
had, immediately prior to such assignment;
(ii) the removal of the Executive from, or a failure
to reappoint the Executive to, his then current
position or positions with the Company or its
subsidiaries or affiliates, except (A) with the
Executive's express written consent or (B) in
connection with any termination of the Executive's
employment by the Company as the result of the
Executive's Protracted Disability (as hereinafter
defined) or for Cause;
(iii) the reduction of the Executive's Salary or the
reduction of any or all of the Executive's benefits
set forth in Article V above;
(iv) the Company's failure to perform on a timely
basis its obligations under this Agreement;
(v) the Company's requiring the Executive, without
his express written consent, to travel on Company
business to an extent substantially greater than the
Executive's business travel obligations immediately
prior to such time;
(vi) the Company's requiring the Executive, without
his express written consent, to change his place of
permanent residency to place outside of Broward
County, Florida;
6
(vii) the Company's moving its executive offices to a
place outside of Broward County, Florida, without the
Executive's express written consent; or
(viii) the failure of the Company to obtain the
express written assumption of, and agreement to
perform on a timely basis, the Company's obligations
under this Agreement by any successor to the Company
as required by Article IX of this Agreement.
(f) "Protracted Disability" shall mean any Disability which
prevents the Executive from reasonably discharging his duties and
responsibilities as an officer of the Company for a period of twelve (12)
consecutive months.
(g) "Salary" shall mean, as of a given date, the Executive's
then current annual salary.
(h) "Termination Date" shall mean a specific date not less
than forty-five (45) nor more than ninety (90) days from and after the date of
any Termination Notice upon which the Executive's employment by the Company
shall be terminated in accordance with the provisions of this Agreement.
(i) "Termination Notice" shall mean a written notice which
sets forth (i) the specific provision of this Agreement relied upon to terminate
the Executive's employment, (ii) in reasonable detail the facts and
circumstances claimed to provide the basis for the termination of the
Executive's employment, and (iii) a Termination Date.
6.2 TERMINATION OF EMPLOYMENT.
(a) Notwithstanding the provisions of Article II hereof, this
Agreement (i) shall automatically terminate upon the death of the Executive
pursuant to the provisions of Section 6.3 hereof, (ii) may be terminated at any
time by the Company pursuant to the provisions of Sections 6.4 or 6.5 hereof,
and (iii) may be terminated at any time by the Executive pursuant to the
provisions of Section 6.6 hereof.
(b) If either the Company or the Executive shall desire to
terminate the Executive's employment by the Company pursuant to any of the
provisions of Sections 6.4, 6.5 or 6.6 of this Agreement, then, in such event,
the party causing such termination shall provide a Termination Notice to the
other party.
(c) If this Agreement shall be terminated pursuant to any of
the provisions of this Article VI, the Company shall be discharged from all of
its obligations to the Executive under this Agreement upon the payment to the
Executive of the amount set forth in the Section of this Article VI pursuant to
which such termination shall occur. The Executive's sole and exclusive remedy
for
7
the termination of this Agreement, regardless of whether such termination shall
be initiated by the Company or the Executive, and regardless of whether such
termination shall be with or without Cause, shall be the payment by the Company
to the Executive of the amount set forth in the Section of this Article VI
pursuant to which such termination shall occur.
6.3 TERMINATION UPON DEATH OF EXECUTIVE. If during the term of this
Agreement the Executive shall die, then the employment of the Executive by the
Company shall automatically terminate on the date of the Executive's death. In
such event, not more than thirty (30) days after the date of the Executive's
death, the Company shall pay to the Executive's estate or as otherwise directed
by the Executive's personal representative, an amount in cash equal to the
Executive's Compensation (subject to applicable payroll and/or other taxes
required by law to be withheld) determined as of the date of the Executive's
death.
6.4 DISABILITY OF EXECUTIVE.
(a) In the event that at any time during the term of this
Agreement the Executive shall suffer any Disability, then the Company shall be
obligated to continue to pay in the ordinary and normal course of its business
to the Executive or his legal representative, as the case may be, the
Executive's Compensation (subject to applicable payroll and/or other taxes
required by law to be withheld) from the date that the Executive shall first
suffer any such Disability to the date that the Executive's employment by the
Company shall be terminated pursuant to any of the provisions of this Agreement.
(b) In the event that the Executive shall suffer any
Protracted Disability during the term of this Agreement, then the Company may
terminate the Executive's employment under this Agreement. In such event, in
addition to any other benefits which may have been provided by the Company to
the Executive or his legal representative, as the case may be, pursuant to the
provisions of Section 6.4(a) above, not later than the Termination Date
specified in the Termination Notice delivered by the Company to the Executive or
his legal representative, as the case may be, the Company shall pay to the
Executive or as otherwise directed by the Executive's legal representative an
amount in cash equal to the Executive's Compensation (subject to applicable
payroll and/or taxes required by law to be withheld) determined as of the date
of such Termination Notice. Subsequent to such Termination Date, the Executive
or his legal representative, as the case may be, shall also be entitled to
receive any benefits which may be payable under any disability insurance policy
or disability plan provided to the Executive by the Company.
6.5 TERMINATION OF EMPLOYMENT BY COMPANY.
(a) The Company may terminate this Agreement at any time with
Cause. In such event, the Company shall be obligated to continue to pay in the
ordinary and normal course of its business to the Executive only his Salary
(subject to applicable payroll and/or other taxes required by law to be
withheld) through the Termination Date set forth in the Termination Notice.
8
(b) The Company may terminate this Agreement at any time
without Cause. If any such termination shall occur on or before December 31,
2000, then, in such event, not later than the Termination Date specified in the
Termination Notice, the Company shall pay to the Executive, in cash, an amount
equal to (i) the Executive's Compensation, determined as of the date of the
Termination Notice, multiplied by (ii) the greater of (A) the number of years
and any portion of a year remaining in the term of this Agreement or (B) three
(subject to applicable payroll and/or other taxes required by law to be
withheld). If any such termination shall occur after December 31, 2000, then, in
such event, not later than the Termination Date specified in the Termination
Notice, the Company shall pay to the Executive, in cash, an amount equal to (i)
the Executive's Compensation, determined as of the date of the Termination
Notice, multiplied by (ii) three (subject to applicable payroll and/or other
taxes required by law to be withheld).
6.6 TERMINATION OF EMPLOYMENT BY EXECUTIVE.
(a) The Executive may terminate this Agreement at any time
with Good Reason. If any such termination shall occur on or before December 31,
2000, then, in such event, not later than the Termination Date specified in the
Termination Notice, the Company shall pay to the Executive, in cash, an amount
equal to (i) the Executive's Compensation, determined as of the date of the
Termination Notice, multiplied by (ii) the greater of (A) the number of years
and any portion of a year remaining in the term of this Agreement or (B) three
(subject to applicable payroll and/or other taxes required by law to be
withheld). If any such termination shall occur after December 31, 2000, then, in
such event, not later than the Termination Date specified in the Termination
Notice, the Company shall pay to the Executive, in cash, an amount equal to (i)
the Executive's Compensation, determined as of the date of the Termination
Notice, multiplied by (ii) three (subject to applicable payroll and/or other
taxes required by law to be withheld).
(b) The Executive may terminate this Agreement at any time
without Good Reason. In such event, the Company shall be obligated to continue
to pay in the ordinary and normal course of its business to the Executive only
his Salary (subject to applicable payroll and/or other taxes required by law to
be withheld) through the Termination Date set forth in the Termination Notice.
ARTICLE VII
TERMINATION OF EMPLOYMENT
SUBSEQUENT TO A CHANGE IN CONTROL OF THE COMPANY
7.1 CHANGE IN CONTROL OF THE COMPANY DEFINED. For purposes of this
Article VII, the term "Change in Control of the Company" shall mean any change
in control of the Company of a nature which would be required to be reported (a)
in response to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the
date of this Agreement, promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (b) in response to Item 1 of the Current
9
Report on Form 8-K, as in effect on the date of this Agreement, promulgated
under the Exchange Act, or (c) in any filing by the Company with the Securities
and Exchange Commission; provided, however, that, without limitation, a Change
in Control of the Company shall be deemed to have occurred if:
(i) any "person" (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), other
than the Company, any majority-owned subsidiary of
the Company or any compensation plan of the Company
or any majority-owned subsidiary of the Company,
becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 of the Exchange Act), directly
or indirectly, of securities of the Company (whether
by merger, consolidation, reorganization or
otherwise) representing fifteen percent (15%) or more
of the combined voting power of the Company's then
outstanding securities;
(ii) during any period of two consecutive years
during the term of this Agreement, the individuals
who at the beginning of such period constitute the
Board of Directors of the Company cease for any
reason to constitute at least a majority of such
Board of Directors, unless the election of each
director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two-thirds of the directors
then in office who were directors at the beginning of
such period;
(iii) any "person" (as such term is defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
other than the Company, any subsidiary of the Company
or any compensation, retirement, pension or other
employee benefit plan or trust of the Company or any
subsidiary of the Company, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or
indirectly, of securities of HMS, HAA or HOMS,
respectively, or any successor to HMS, HAA or HOMS,
respectively (whether by merger, consolidation,
reorganization or otherwise) representing a majority
of the combined voting power of the then outstanding
securities of HMS, HAA or HOMS, as the case may be;
(iv) the Company shall merge or consolidate with or
into another corporation or other entity, or enter
into a binding agreement to merge or consolidate with
or into another corporation or other entity, other
than a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
corporation or entity) not less than eighty-five
percent (85%) of the combined voting power of the
voting securities of the Company or such surviving
corporation or entity outstanding immediately after
such merger or consolidation;
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(v) HMS shall merge or consolidate with or into
another corporation or other entity, or enter into a
binding agreement to merge or consolidate with or
into another corporation or other entity, other than
a merger or consolidation which would result in the
voting securities of HMS outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving corporation or
entity) not less than a majority of the combined
voting power of the voting securities of HMS or such
surviving corporation or entity outstanding
immediately after such merger or consolidation;
(vi) HAA shall merge or consolidate with or into
another corporation or other entity, or enter into a
binding agreement to merge or consolidate with or
into another corporation or other entity, other than
a merger or consolidation which would result in the
voting securities of HAA outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving corporation or
entity) not less than a majority of the combined
voting power of the voting securities of HAA or such
surviving corporation or entity outstanding
immediately after such merger or consolidation;
(vii) HOMS shall merge or consolidate with or into
another corporation or other entity, or enter into a
binding agreement to merge or consolidate with or
into another corporation or other entity, other than
a merger or consolidation which would result in the
voting securities of HOMS outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving corporation or
entity) not less than a majority of the combined
voting power of the voting securities of HOMS or such
surviving corporation or entity outstanding
immediately after such merger or consolidation;
(viii) the Company shall sell, lease, exchange,
transfer, convey or otherwise dispose of all or
substantially all of its assets, or enter into a
binding agreement for the sale, lease, exchange,
transfer, conveyance or other disposition of all or
substantially all of its assets, in one transaction
or in a series of related transactions;
(ix) any of HMS, HAA or HOMS shall sell, lease,
exchange, transfer, convey or otherwise dispose of
all or substantially all of its respective assets, or
enter into a binding agreement for the sale, lease,
exchange, transfer, conveyance or other disposition
of all or substantially all of its respective assets,
in one transaction or in a series of related
transactions;
11
(x) the Company shall liquidate or dissolve, or any
plan or proposal shall be adopted for the liquidation
or dissolution of the Company; or
(xi) any of HMS, HAA or HOMS shall liquidate or
dissolve, or any plan or proposal shall be adopted
for the liquidation or dissolution of any of HMS, HAA
or HOMS.
7.2 TERMINATION OF EMPLOYMENT AFTER CHANGE IN CONTROL OF COMPANY.
(a) Notwithstanding the provisions of Articles II and VI of
this Agreement, in the event that there shall occur any Change in Control of the
Company and at any time subsequent to the date of any such Change in Control of
the Company, either the Company shall terminate the employment of the Executive
without Cause or the Executive shall terminate his employment for Good Reason,
then, in any such event, the following shall occur:
(i) Not later than the Termination Date specified in
the Termination Notice delivered by the Company to
the Executive, or by the Executive to the Company, as
the case may be, the Company shall pay to the
Executive an amount, in cash, equal to his "base
amount," as such term is defined in Section 280G of
the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder,
determined as of the date of the Termination Notice,
multiplied by Two and Ninety-Nine One Hundredths
(2.99) (the "Change in Control Termination Amount")
(subject to applicable payroll and/or other taxes
required by law to be withheld); and
(ii) Any and all stock options granted to the
Executive under any stock option plan of the Company
as may from time to time be in effect, which shall
not by their terms have vested on or before such
Termination Date, shall vest on such Termination
Date.
(b) The Change in Control Termination Amount shall be
determined by the Company's regularly retained certified public accountants in
consultation with the Company's regularly retained attorneys. In making such
determination, the Company's regularly retained certified public accountants and
attorneys shall liberally construe the provisions of the Internal Revenue Code
of 1986, as amended, and the applicable rules and regulations thereunder. In the
absence of fraud or manifest error, any determination made pursuant to this
Section 7.2(b) shall be conclusive and binding upon the Company and the
Executive.
(c) Notwithstanding anything to the contrary set forth in
Sections 7.2(a) and 7.2(b) above, the amount paid by the Company to the
Executive shall be limited to the maximum amount which will not constitute a
"parachute payment," as such term is defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended. This limitation shall first be
applied to amounts provided pursuant to clause (ii) of Section 7.2(a) hereof
(otherwise included in the
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calculation of a parachute payment) to the extent thereof and then to amounts
provided pursuant to clause (i) of Section 7.2(a) hereof.
ARTICLE VIII
CERTAIN RESTRICTIONS ON THE EXECUTIVE
8.1 CERTAIN RESTRICTIONS. The Executive covenants and agrees with the
Company as follows:
(a) He shall not at any time, directly or indirectly, for
himself or any other person, firm, corporation, partnership, association or
other entity (collectively, a "Person") which competes in any manner with the
Company or any of its subsidiaries or affiliates in the United States of America
or its territories and possessions or any other countries in which the Company
as of the date of termination of this Agreement conducts its business directly
or indirectly through any of its subsidiaries or affiliates (collectively, the
"Territory"), employ, attempt to employ or enter into any contractual
arrangement for employment with, any employee or former employee of the Company
or any of its subsidiaries or affiliates, unless such former employee shall not
have been employed by the Company or any of its subsidiaries or affiliates for a
period of at least one year.
(b) He shall not, during the term of this Agreement and for a
period of three years from and after the date of termination of this Agreement,
directly or indirectly, (i) acquire or own in any manner any interest in, or
loan any amount to, any Person which competes in any manner with the Company or
any of its subsidiaries or affiliates in the Territory, (ii) be employed by or
serve as an employee, agent, officer, or director of, or as a consultant to, any
Person, other than the Company and its subsidiaries and affiliates, which
competes in any manner with the Company or its subsidiaries or affiliates in the
Territory, or (iii) compete in any manner with the Company or its subsidiaries
or affiliates in the Territory. The foregoing provisions of this Section 8.1(b)
shall not prevent the Executive from acquiring and owning not more than three
percent (3%) of the equity securities of any Person whose securities are listed
for trading on a national securities exchange or are regularly traded in the
over-the-counter securities market.
(c) In the course of the Executive's employment by the
Company, the Executive will have access to confidential or proprietary
information of the Company and its subsidiaries and affiliates. The Executive
shall not at any time divulge or communicate to any Person, or use to the
detriment of the Company or its subsidiaries or affiliates, any such
confidential or proprietary information. The term "confidential or proprietary
information" shall mean information not generally available to the public,
including without limitation personnel information, financial information,
customer lists, supplier lists, ownership information, marketing plans and
analyses, trade secrets, know-how, computer software, management agreements and
procedures and techniques of operating and managing the business of the Company
and its subsidiaries and affiliates. The Executive acknowledges and agrees that
all confidential or proprietary information
13
is and shall remain the property of the Company and its subsidiaries and
affiliates, and agrees to maintain all such confidential or proprietary
information in strictest confidence.
8.2 REMEDIES. It is recognized and acknowledged by each of the Company
and the Executive that a breach or violation by the Executive of any or all of
his covenants and agreements contained in Section 8.1 of this Agreement will
cause irreparable harm and damage to the Company and its subsidiaries and
affiliates in a monetary amount which would be virtually impossible to ascertain
and, therefore, will deprive the Company of an adequate remedy at law.
Accordingly, if the Executive shall breach or violate any or all of his
covenants and agreements set forth in Section 8.1 hereof, then the Company and
its subsidiaries and affiliates shall have resort to all equitable remedies,
including without limitation the remedies of specific performance and
injunction, both permanent and temporary, as well as all other remedies which
may be available at law.
8.3 INTENT. It is the intent of the parties that the restrictions set
forth in Section 8.1 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 8.1
hereof shall be adjudicated by a court of competent jurisdiction to be invalid
or unenforceable because of its duration or geographic scope, then such
provision shall be reduced by such court in duration or geographic scope or both
to such extent as to make it valid and enforceable in the jurisdiction where
such court is located, and in all other respects shall remain in full force and
effect.
ARTICLE IX
SUCCESSOR TO THE COMPANY
The Company shall require any successor, whether direct or
indirect, and whether by purchase, merger, consolidation or otherwise, to all or
substantially all of the business or properties and assets of the Company, to
execute and deliver to the Executive, not later than the date of the
consummation of any such purchase, merger, consolidation or other transaction, a
written instrument in form and in substance reasonably satisfactory to the
Executive and his legal counsel pursuant to which any such successor shall agree
to assume and to perform on a timely basis or to cause to be performed on a
timely basis all of the Company's covenants, agreements and obligations set
forth in this Agreement (a "Successor Agreement"). The failure of the Company to
cause any such successor to execute and deliver a Successor Agreement to the
Executive shall (a) constitute a breach of the provisions of this Agreement by
the Company and (b) be deemed to constitute a termination by the Executive of
his employment hereunder (as of the date upon which any such successor shall
succeed to all or substantially all of the business or properties and assets of
the Company) for Good Reason.
14
ARTICLE X
ATTORNEYS' FEES
In the event that any litigation shall arise between the
Company and the Executive based, in whole or in part, upon this Agreement or any
or all of the provisions contained herein, then, in any such event, the
prevailing party in any such litigation shall be entitled to recover from the
non-prevailing party, and shall be awarded by a court of competent jurisdiction,
any and all reasonable fees and disbursements of trial and appellate counsel
paid, incurred or suffered by such prevailing party as the result of, arising
from, or in connection with, any such litigation.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and interpreted in accordance, with the laws of the State of Florida,
without giving effect to the principles of conflicts of law thereof.
11.2 NOTICES. Any and all notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given when delivered by hand, or when delivered by
United States mail, by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties at the following respective
addresses:
If to the Company: Homeowners Group, Inc.
6365 Taft Street
Suite 2000
Hollywood, Florida 33084
Attention: Chief Financial Officer
If to the Executive: Carl Buccellato
507 Palm Drive
Hallandale, Florida 33009
or to such other address as either party may from time to time give written
notice of to the other in accordance with the provisions of this Section 11.2.
11.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Executive with respect to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
arrangements, both oral and written, between the Company and the Executive with
respect to such subject matter. Without limiting the generality of
15
the immediately preceding sentence, and except as otherwise provided in Section
3.1 above, the Previous Agreement is superseded by this Agreement and shall be
of no further force or effect from and after January 1, 1996.
11.4 AMENDMENTS. This Agreement may not be amended or modified in any
manner, except by a written instrument executed by each of the Company and the
Executive.
11.5 BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of, and shall be binding upon, each of the Company and the Executive and their
respective heirs, personal representatives, executors, legal representatives,
successors and assigns.
11.6 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law. Except as otherwise provided in Section 8.3 above, if any one or more of
the words, phrases, sentences, clauses or sections contained in this Agreement
shall be declared invalid by any court of competent jurisdiction, then, in any
such event, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, or section or
sections had not been inserted.
11.7 NO WAIVERS. The waiver by either party of a breach or violation
of any provision of this Agreement by the other party shall not operate nor be
construed as a waiver of any subsequent breach or violation. The waiver by
either party to exercise any right or remedy it or he may possess shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
11.8 JURISDICTION AND VENUE; SERVICE OF PROCESS; WAIVER OF TRIAL BY
JURY.
(a) Any claim or dispute arising out of, connected with, or in
any way related to this Agreement which results in litigation shall be
instituted by the complaining party and adjudicated either in the Federal
District Court for the Southern District of Florida or in the Circuit Court for
Broward County, Florida, and each of the parties to this Agreement consent to
the personal jurisdiction of and venue in such courts. In no event shall either
party to this Agreement contest the jurisdiction or venue of such courts with
respect to any such litigation.
(b) Each of the Company and the Executive agrees that service
of any process, summons, notice or document, by United States registered or
certified mail, to its or his address set forth in or as provided in Section
11.2 above shall be effective service of such process, summons, notice or
document for any action, suit or proceeding brought against it or him by the
other party in the Federal District Court for the Southern District of Florida
or in the Circuit Court for Broward County, Florida.
16
(c) In recognition of the fact that the issues which would
arise under this Agreement are of such a complex nature that they could not be
properly tried before a jury, each of the Company and the Executive waives trial
by jury.
11.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any or all of the provisions hereof.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the separate parties in separate counterparts, each of which
shall be deemed to constitute an original and all of which shall be deemed to
constitute the one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement on the date first written above.
HOMEOWNERS GROUP, INC.
By /s/ C. Gregory Morris
----------------------------
C. Gregory Morris,
Vice President and
Chief Financial Officer
/s/ Carl Buccellato
----------------------------
Carl Buccellato
17
EXHIBIT (c)(17)
SETTLEMENT AND TERMINATION AGREEMENT
Settlement and Termination Agreement ("Agreement") dated ____________,
1997 among Homeowners Group, Inc., a Delaware corporation (the "Company"), The
Cross Country Group, Inc., a Nevada corporation ("Cross Country"), and Carl
Buccellato ("Buccellato").
RECITALS
A. The Company and Buccellato entered into an Employment Agreement
dated as of December 22, 1995 (the "Employment Agreement").
B. Cross Country, CHGI Acquisition Corporation, CC Acquisition
Corporation and the Company are parties to an Agreement and Plan of Merger dated
as of May 14, 1996, as amended (the "Merger Agreement") which contemplates,
among other things, the acquisition by Cross Country of all of the outstanding
common stock, $.01 par value ("Common Stock"), of the Company pursuant to a
tender offer (the "Tender Offer").
C. Sections 6.3 and 6.4 of the Merger Agreement provide that certain
payments will be made to Buccellato at and after the closing of the Merger.
D. The Company, Cross Country and Buccellato entered a Settlement and
Termination Agreement dated November 13, 1996 (the "November Settlement
Agreement").
E. The parties desire to terminate the Employment Agreement, the
agreements among the parties contained in Sections 6.3 and 6.4 of the Merger
Agreement relating to Buccellato and the November Settlement Agreement on the
terms and conditions contained in this Agreement.
AGREEMENT
1. Termination of Employment Agreement, Portions of Merger Agreement
and November Settlement Agreement. The Employment Agreement, the agreements
among the parties contained in Sections 6.3 and 6.4 of the Merger Agreement
relating to Buccellato and the November Settlement Agreement are terminated
effective as of the date of this Agreement.
2. Payments to Buccellato. (a) Simultaneously with the execution of
this Agreement, the Company is paying to Buccellato $600,000 (the "Settlement
Amount") by cashier's or certified check, receipt of which Buccellato
acknowledges.
(b) Until the second anniversary of this Agreement (the
"Second Anniversary"), the Company agrees to pay the annual premiums (and all
increases in the annual premiums) for all insurance policies maintained by the
Company on behalf of Buccellato that were in force as of September 30, 1996
including, but not limited to, life, medical, dental, group term, accidental
death
and dismemberment, and long term disability insurance, and medical executive
reimbursement (collectively, the "Benefits"). The Company's obligation to
provide the Benefits to Buccellato shall not exceed $30,000 for each 12-month
period between the date of the payment of the Settlement Amount and the Second
Anniversary. The parties agree that (i) Buccellato will continue to be
reimbursed until the Second Anniversary for the $2,000,000 term life insurance
policy currently in force on his life, subject to the $30,000 maximum, (ii)
Buccellato's rights under COBRA are fully preserved, and (iii) he may exercise
all rights available to him under COBRA after the Second Anniversary.
(c) Within five days after the payment of the Settlement
Amount, the Company agrees to transfer to Buccellato title to the automobile
currently provided to Buccellato pursuant to Section 5.3 of the Employment
Agreement upon payment by Buccellato of a purchase price equal to the book value
of such automobile on the Company's books as of the date of payment of the
Settlement Amount. Such vehicle shall be transferred "as is" without any
representations except as to title.
3. Resignation. Simultaneously with the execution of this Agreement,
Buccellato is resigning (a) as an officer and director of the Company and (b)
from all positions in the affiliates and subsidiaries of the Company held by
Buccellato. The form of resignation is Exhibit A to this Agreement. Buccellato
agrees that the resignation will not contain any statement to the effect that
his resignation is based on a disagreement with the Company on matters relating
to the Company's operations, policies or practices.
4. Releases. Simultaneously with the execution of this Agreement, (a)
Buccellato is giving to the Company a Release in the form of Exhibit B to this
Agreement; (b) Buccellato is giving to Cross Country a Release in the form of
Exhibit C to this Agreement; (c) the Company is giving to Buccellato a Release
in the form of Exhibit D to this Agreement; and (d) Cross Country is giving to
Buccellato a Release in the form of Exhibit E to this Agreement. Buccellato, in
his capacity as a stockholder of the Company, agrees that he will not
participate as a plaintiff in any action at law or in equity against the
Company, Cross Country or any of the subsidiaries, affiliates, stockholders,
officers, directors or employees of either of them, arising out of or related to
any actions or inactions of such parties with respect to the transactions
contemplated by the Merger Agreement, as amended.
5. Cooperation. Buccellato agrees to cooperate and to assist the
Company and Cross Country in all litigation matters which may be brought by or
against the Company or Cross Country, or both, as to which Buccellato has
knowledge or involvement.
6. Visby Affidavit. Buccellato has provided to the Company and Cross
Country a signed and notarized affidavit relating to contracts between the
Company and Visby Marketing Group, Inc. The affidavit shall be treated as a
privileged communication to counsel and as work product prepared in connection
with litigation.
2
7. Indemnification and Advancement of Expenses. The Company agrees that
Buccellato shall continue to receive all indemnification, advancement of
expenses, and all Directors' and Officers' Insurance benefits available to him
as of the date of this Agreement on the same terms and for the same duration as
provided to other present directors and officers of the Company.
8. Nondisparagement. Buccellato agrees not to disparage the Company or
Cross Country in any way, and Cross Country and the Company each agree not to
disparage Buccellato in any way or to comment adversely on his employment by the
Company or his termination of employment by the Company, subject in each case to
the respective parties' obligations to respond truthfully with respect to
litigation or governmental proceedings or inquiries.
9. Review of Files. Buccellato has reviewed all files in his possession
or control relating to the business of the Company, and a representative of
Cross Country was present and observed such review. Based on this review of
files (and any other information of which he is aware), Buccellato prepared a
memorandum to the Company and Cross Country with regard to liabilities or
contingent liabilities of which he is aware.
10. Confidentiality. (a) Buccellato acknowledges that as a result of
his employment by the Company, he is informed of valuable and confidential
information of the Company including, but not limited to, trade secrets,
technical information, personnel information, financial information, know-how,
computer software, management plans and analyses, management agreements and
procedures, special techniques and specialized procedures for operating and
managing the business of the Company and its subsidiaries and affiliates, plans,
specifications, marketing and sales information, the identity of customers and
suppliers and all of the information contained or to be contained in the Visby
affidavit delivered pursuant to paragraph 6 hereof (collectively, "Confidential
Information"), and that this Confidential Information is the exclusive property
of the Company to be held by Buccellato in trust and solely for the Company's
benefit. Accordingly, Buccellato shall not at any time reveal, report, publish,
transfer or otherwise disclose to any person, corporation or other entity, or
use for his own benefit any of the Confidential Information without the prior
written consent of the Company, except to officers and employees of the Company,
and other persons whom the Company agrees in writing are in a contractual or
fiduciary relationship with the Company or who have a need for this information
for purposes that are in the best interests of the Company. This provision does
not prohibit Buccellato from disclosing information which legally is or becomes
of general public knowledge from authorized sources other than Buccellato.
(b) If the Confidential Information known to Buccellato or in
his possession is subpoenaed, subject to a demand for production, or any other
form of legal process issued with respect to the Confidential Information by any
judicial, regulatory, administrative, legislative or governmental authority, or
any other person or entity, Buccellato agrees to notify the Company promptly
that such subpoena, demand or other legal process has been received. Buccellato
agrees to use his best efforts, consistent with the requirements of applicable
law, to protect the Confidential Information from disclosure and to cooperate
with the Company in seeking protection from disclosure of the Confidential
Information. If Buccellato is required to disclose the Confidential
3
Information, Buccellato agrees, at the Company's request and expense, to use his
best efforts to obtain assurances that the Confidential Information will be
maintained on a confidential basis and not be disclosed to a greater degree than
legally required.
11. Change in Control. Buccellato agrees that Cross Country and any
entity in control of, controlled by or under common control with Cross Country
may at any time from the date of this Agreement purchase Company Common Stock,
in any amount without triggering a "Change in Control of the Company" as defined
in (i) the Employment Agreement, (ii) the Company's Incentive Stock Option Plan,
or (iii) the Company's Stock Option Plan.
12. Tender Offer. Buccellato acknowledges that Cross Country has
commenced a Tender Offer for the outstanding Common Stock of the Company.
Buccellato has tendered all of his shares of Company Common Stock to Cross
Country and accepted the price per share of Common Stock offered by Cross
Country in the Tender Offer. Mr. Buccellato has executed and delivered a
Stockholder Agreement in the form of Exhibit F.
13. Noncompetition and Nonsolicitation.
(a) Noncompetition. Buccellato agrees that for two years after
the date of this Agreement, he shall not, directly or indirectly, engage,
participate, or assist in any business organization by performing services in
the United States to arrange or to provide errors and omissions coverage for
realtors or home warranties (the "Proscribed Activities"), whether as owner,
part-owner, stockholder, partner, director, officer, trustee, employee,
consultant, agent, lender or in any other capacity, on his own behalf or on
behalf of any corporation, partnership or other business organization.
Buccellato may make passive investments in a competitive enterprise the shares
of which are publicly traded, provided that Buccellato's holdings in such
enterprise, together with the holdings of any of Buccellato's affiliates (as
that term is defined in Rule 405 of the Rules under the Securities Exchange Act
of 1934, as amended), do not exceed 3% of the outstanding shares of the stock of
such enterprise.
(b) Nonsolicitation. Buccellato agrees that during the period
ending two years after the date of this Agreement he shall not (i) directly or
indirectly solicit any person (natural or otherwise) in the United States to
purchase products or services competitive with the Proscribed Activities, (ii)
directly or indirectly solicit any person (natural or otherwise) to purchase or
sell products or services relating to the Proscribed Activities or (iii)
directly or indirectly recruit or otherwise solicit or induce any person who is
at the time (or was within one year prior to the time), an employee or
consultant of the Company to terminate his employment with, or otherwise cease
his relationship with the Company or accept unsolicited the services of such
person.
14. Restrictions Reasonable. The restrictions against competition and
solicitation set forth above are considered by the parties to be reasonable for
the purposes of protecting the business of the Company. If any restriction is
found by a court of competent jurisdiction to be unenforceable because it
extends for too long a period of time, over too broad a range of activities or
in too large a geographic area, that restriction shall be interpreted to extend
only over the maximum period of time, range of activities or geographic area as
to which it may be enforceable.
4
15. Remedies. The parties acknowledge that they would not have an
adequate remedy at law for money damages if the covenants contained in Sections
8, 10 or 13 were not complied with in accordance with their terms. Because the
breach or threatened breach of any of the covenants in Sections 8, 10 or 13 will
result in immediate and irreparable injury to the parties, each party agrees
that the others shall be entitled to an injunction restraining a violation or
threatened violation of Sections 8, 10 or 13 to the fullest extent allowed by
law. Nothing in this Agreement shall prohibit the parties from pursuing all
other legal or equitable remedies that may be available for a breach or
threatened breach, including the recovery of damages.
16. Survival. The provisions of Sections 8, 10, 13 and 15 shall inure
to the benefit of the parties and their respective successors and assigns. If
Buccellato dies before the Second Anniversary, the benefits under the insurance
policies provided for in Section 2(b) shall be paid as designated from time to
time by Buccellato.
17. Federal Income Tax Withholding. The Company may withhold from
benefits payable under this Agreement, or arrange for the payment of, federal,
state, local or other taxes only if required by law or governmental regulation
or ruling.
18. Further Assurances. Buccellato, Cross Country and the Company agree
to execute, acknowledge, deliver and file, or cause to be executed,
acknowledged, delivered and filed, all further instruments, agreements or
documents as may be necessary to consummate the transactions provided for in
this Agreement and to do all further acts necessary to carry out the purpose and
intent of this Agreement.
19. No Waiver. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with the waiver or estoppel. No written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of the term or condition for the future or as to any act
other than that specifically waived. The waiver by any party of any other
party's breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach, and the failure of any party to
exercise any right or remedy shall not operate or be construed as a waiver or
bar to the exercise of such right or remedy upon the occurrence of any
subsequent breach. No delay on the part of a party in exercising a right, power
or privilege hereunder shall operate as a waiver thereof. No waiver on the part
of a party of a right, power or privilege, or a single or partial exercise of a
right, power or privilege, shall preclude further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of this
Agreement are cumulative and are not exclusive of the rights or remedies that a
party may otherwise have at law or in equity.
20. Governing Law; Venue and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida
without reference to its conflicts of law principles. Venue and jurisdiction of
all actions relating to the performance or interpretation of this Agreement may
be brought only in the courts of the State of Florida located in Broward County
or in the United States District Court for the Southern District of Florida. The
parties consent to
5
personal jurisdiction in the courts described in this Section for the purpose of
all actions, and waive all objections to venue and the right to assert that a
court chosen under this Section is improper based on the doctrine of forum non
conveniens.
21. Notices. Notices required or permitted to be given under this
Agreement shall be in writing and effective upon delivery in person or by
certified mail, return receipt requested, to the parties at the addresses below
or to another address as either party shall direct by notice to the other party.
(a) If to the Company:
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325-6235
Facsimile: 954-845-2260
Attention: President
with a copy to:
Paul Berkowitz, Esq.
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, FL 33131-3216
Facsimile: 305-579-0717
(b) If to the Cross Country:
Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, Massachusetts 02133
Facsimile: 617-395-6706
Attention: President
with a copy to:
Robert M. Rosen, Esq.
Lane Altman & Owens LLP
101 Federal Street
Boston, Massachusetts 02110
Facsimile: 617-345-0400
6
(c) If to Buccellato:
Carl Buccellato
507 Palm Drive
Hallendale, FL 33009
Facsimile: 954-455-9223
with a copy to:
Thomas G. O'Brien III, Esq.
Steel Hector & Davis LLP
1900 Phillips Point West
777 South Flagler Drive
West Palm Beach, Florida 33401-6198
Facsimile: 561-655-1509
22. Assignment.
(a) This Agreement and all of Buccellato's rights, duties and
obligations under this Agreement are personal in nature and shall not be
assignable by Buccellato. A purported assignment shall not be valid or binding
on the Company.
(b) This Agreement shall inure to the benefit of and be
legally binding upon all successors and assigns of the Company. The Company will
require a successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Buccellato, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. For purposes of this Section 22,
"Company" shall mean the Company as defined above and all successors to its
business or assets that execute and deliver the agreement provided for in this
Section 22 or that otherwise become bound by the terms and provisions of this
Agreement by operation of law. Nothing herein shall obligate Cross Country to
make payments pursuant to Section 2 or otherwise.
23. Attorneys' Fees. If litigation is brought concerning this
Agreement, the prevailing party shall be entitled to receive from the
non-prevailing party, and the non-prevailing party shall upon final judgment and
the expiration of all appeals immediately pay upon demand all reasonable
attorneys' fees and expenses of the prevailing party. Each of the Company and
Buccellato agrees to pay its own and his own legal fees, disbursements and other
expenses reasonably incurred in connection with the preparation and negotiation
of this Agreement.
24. Entire Agreement. This Agreement constitutes the entire
understanding of the parties and supersedes all prior discussions, negotiations,
agreements and understandings, whether oral or written, with respect to its
subject matter. This Agreement may be modified only by a written instrument
properly executed by Buccellato, the Company and Cross Country.
7
25. Severability. If any one or more of the provisions of this
Agreement is held invalid, illegal or unenforceable, the remaining provisions of
this Agreement shall be unimpaired, and the invalid, illegal or unenforceable
provision shall be replaced by a mutually acceptable valid, legal and
enforceable provision which comes closest to the intent of the parties.
26. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
The parties have executed this Agreement effective as of the day and
year first written above.
HOMEOWNERS GROUP, INC.
By:___________________________________ ______________________________
Gregory Morris, Vice President Carl Buccellato, Individually
CROSS COUNTRY GROUP, INC.
By:___________________________________
Howard Wolk, Vice President
8
EXHIBIT A
FORM OF RESIGNATION
RESIGNATION
I hereby resign as a member of the Board of Directors and as an officer
of Homeowners Group, Inc. (the "Company") and from all positions held by me in
the affiliates and subsidiaries of the Company effective today.
Dated: , 1997 ___________________________
Carl Buccellato
9
EXHIBIT B
RELEASE
Carl Buccellato, and each of his heirs, personal representatives,
successors and assigns (the "Releasor"), for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby releases and
forever discharges Homeowners Group, Inc., and its (i) predecessors, (ii)
subsidiaries, (iii) past and present stockholders, directors, affiliates,
officers, and employees, (iv) trustees, (v) insurers, (vi) sureties, (vii)
successors and (viii) assigns (collectively, the "Releasees") from any and all
claims, obligations, actions, causes of action, claims at law or in equity,
suits, debts, liens, encumbrances, contracts, agreements, promises, liabilities,
demands, controversies, damages, losses, debts, dues, fees, costs or expenses of
any nature whatsoever, whether fixed or contingent, which the Releasor may now
have, may have had or may hereafter have against the Releasees by reason of any
matter, cause, happening or thing occurring on or before the date of this
Release whether known or unknown to the Releasor, including but not limited to,
any matter, cause, happening or thing arising out of or related to Releasor's
employment with and resignation from Homeowners Group, Inc. and its subsidiaries
and affiliates. This Release does not affect the Releasor's rights to (a) file
an Equal Employment Opportunity Commission ("EEOC") charge or participate in an
investigation or proceeding conducted by the EEOC or (b) enforce the terms of
the Settlement and Termination Agreement dated ______________, 1997 among
Homeowners Group, Inc., The Cross Country Group, Inc. and the Releasor.
The Releasor understands and agrees that this Release acquits, releases
and forever discharges the Releasees of and from any and all claims, actions,
causes or causes of action, suits, demands, damages, losses, obligations, debts,
dues or other liabilities, whether arising at law or in equity, which the
Releasor may have sustained, has now sustained or may hereafter sustain or which
the Releasor may have had, may now have or may hereafter have because of the
claims of any third parties, anticipated or unanticipated, arising out of or
related to the Releasees' involvement, association or participation in any way
with the Releasor.
The Releasor understands that the acceptance of the aforesaid
consideration, and the execution and delivery of this Release are not to be
considered an admission of liability, but are in full settlement and compromise
of all disputes between the Releasor and the Releasees and for which the
Releasees have denied and still deny any wrongdoing.
This Release shall be governed by and construed in accordance with the
laws of the State of Florida without reference to its conflicts of law
principles. Venue and jurisdiction of all actions relating to the performance or
interpretation of this Release may be brought only in the courts of the State of
Florida located in Broward County or in the United States District Court for the
Southern District of Florida. The parties consent to personal jurisdiction in
the courts described in this Paragraph for the purpose of all actions, and waive
all objections to venue and the right to assert that a court chosen under this
Paragraph is improper based on the doctrine of forum non conveniens.
If litigation is brought concerning this Release, the prevailing party
shall be entitled to receive from the non-prevailing party, and the
non-prevailing party shall upon final judgment and
expiration of all appeals immediately pay upon demand, all reasonable attorneys'
fees and expenses of the prevailing party.
If any one or more of the provisions of this Release is held invalid,
illegal or unenforceable, the remaining provisions of this Release shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision which
comes closest to the intent of the parties.
WITNESSES:
_____________________________ _________________________
Carl Buccellato
_____________________________
ACKNOWLEDGMENT
STATE OF FLORIDA
COUNTY OF BROWARD
On this ____ day of _________, 1997, before me personally appeared Carl
Buccellato who is personally known to me or produced a driver's license as
identification, and he acknowledged before me that he executed the above Release
as his free act and deed and that he did take an oath.
_________________________
Notary Public
State of Florida At Large
My Commission Expires:
2
EXHIBIT C
RELEASE
Carl Buccellato, and each of his heirs, personal representatives,
successors and assigns (the "Releasor"), for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby releases and
forever discharges The Cross Country Group, Inc., and its (i) predecessors, (ii)
subsidiaries, (iii) past and present stockholders, directors, affiliates,
officers, and employees, (iv) trustees, (v) insurers, (vi) sureties, (vii)
successors and (viii) assigns (collectively, the "Releasees") from any and all
claims, obligations, actions, causes of action, claims at law or in equity,
suits, debts, liens, encumbrances, contracts, agreements, promises, liabilities,
demands, controversies, damages, losses, debts, dues, fees, costs or expenses of
any nature whatsoever, whether fixed or contingent, which the Releasor may now
have, may have had or may hereafter have against the Releasees by reason of any
matter, cause, happening or thing occurring on or before the date of this
Release whether known or unknown to the Releasor, including but not limited to,
any matter, cause, happening or thing arising out of or related to Releasor's
employment with and resignation from Homeowners Group, Inc. and its subsidiaries
and affiliates. This Release does not affect the Releasor's rights to (a) file
an Equal Employment Opportunity Commission ("EEOC") charge or participate in an
investigation or proceeding conducted by the EEOC or (b) enforce the terms of
the Settlement and Termination Agreement dated ______________, 1997 among
Homeowners Group, Inc., The Cross Country Group, Inc. and the Releasor.
The Releasor understands and agrees that this Release acquits, releases
and forever discharges the Releasees of and from any and all claims, actions,
causes or causes of action, suits, demands, damages, losses, obligations, debts,
dues or other liabilities, whether arising at law or in equity, which the
Releasor may have sustained, has now sustained or may hereafter sustain or which
the Releasor may have had, may now have or may hereafter have because of the
claims of any third parties, anticipated or unanticipated, arising out of or
related to the Releasees' involvement, association or participation in any way
with the Releasor.
The Releasor understands that the acceptance of the aforesaid
consideration, and the execution and delivery of this Release are not to be
considered an admission of liability, but are in full settlement and compromise
of all disputes between the Releasor and the Releasees and for which the
Releasees have denied and still deny any wrongdoing.
This Release shall be governed by and construed in accordance with the
laws of the State of Florida without reference to its conflicts of law
principles. Venue and jurisdiction of all actions relating to the performance or
interpretation of this Release may be brought only in the courts of the State of
Florida located in Broward County or in the United States District Court for the
Southern District of Florida. The parties consent to personal jurisdiction in
the courts described in this Paragraph for the purpose of all actions, and waive
all objections to venue and the right to assert that a court chosen under this
Paragraph is improper based on the doctrine of forum non conveniens.
If litigation is brought concerning this Release, the prevailing party
shall be entitled to receive from the non-prevailing party, and the
non-prevailing party shall upon final judgment and expiration of all appeals
immediately pay upon demand, all reasonable attorneys' fees and expenses of the
prevailing party.
If any one or more of the provisions of this Release is held invalid,
illegal or unenforceable, the remaining provisions of this Release shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision which
comes closest to the intent of the parties.
WITNESSES:
_____________________________ _________________________
Carl Buccellato
_____________________________
ACKNOWLEDGMENT
STATE OF FLORIDA
COUNTY OF BROWARD
On this ____ day of _________, 1997, before me personally appeared Carl
Buccellato who is personally known to me or produced a driver's license as
identification, and he acknowledged before me that he executed the above Release
as his free act and deed and that he did take an oath.
_________________________
Notary Public
State of Florida At Large
My Commission Expires:
2
EXHIBIT D
RELEASE
Homeowners Group, Inc., and each of its predecessors, subsidiaries,
affiliates, officers, employees, trustees, insurers, sureties, successors and
assigns (collectively, the "Releasors"), for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, hereby releases and
forever discharges Carl Buccellato, and each of his heirs, personal
representatives, successors and assigns, from any and all claims, obligations,
actions, causes of action, claims at law or in equity, suits, debts, liens,
encumbrances, contracts, agreements, promises, liabilities, demands,
controversies, damages, losses, debts, dues, fees, costs or expenses of any
nature whatsoever, whether fixed or contingent, which the Releasors may now
have, may have had or may hereafter have against the Releasee by reason of any
matter, cause, happening or thing occurring on or before the date of this
Release and listed on Annex A hereto. This Release does not affect Releasors'
right to enforce the terms of the Settlement and Termination Agreement dated
_____________, 1997 among Homeowners Group, Inc., The Cross Country Group, Inc.
and the Releasee.
The Releasors understand that the acceptance of the aforesaid
consideration, and the execution and delivery of this Release are not to be
considered an admission of liability, but are in full settlement and compromise
of all disputes between the Releasors and the Releasee and for which the
Releasee has denied and still denies any wrongdoing.
This Release shall be governed by and construed in accordance with the
laws of the State of Florida without reference to its conflicts of law
principles. Venue and jurisdiction of all actions relating to the performance or
interpretation of this Release may be brought only in the courts of the State of
Florida located in Broward County or in the United States District Court for the
Southern District of Florida. The parties consent to personal jurisdiction in
the courts described in this Paragraph for the purpose of all actions, and waive
all objections to venue and the right to assert that a court chosen under this
Paragraph is improper based on the doctrine of forum non conveniens.
If litigation is brought concerning this Release, the prevailing party
shall be entitled to receive from the non-prevailing party, and the
non-prevailing party shall upon final judgment and expiration of all appeals
immediately pay upon demand, all reasonable attorneys' fees and expenses of the
prevailing party.
If any one or more of the provisions of this Release is held invalid,
illegal or unenforceable, the remaining provisions of this Release shall be
unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision which comes closest to the intent of the
parties.
WITNESSES: HOMEOWNERS GROUP, INC.
________________________
By:______________________________
Gregory Morris, Vice President
________________________
ACKNOWLEDGMENT
STATE OF FLORIDA
COUNTY OF BROWARD
On this ____ day of __________, 1997, before me personally appeared
Gregory Morris, as Vice President of Homeowners Group, Inc., who is personally
known to me or produced a driver's license as identification, and he
acknowledged before me that he executed the above Release on behalf of
Homeowners Group, Inc. as his free act and deed and that he did take an oath.
__________________________
Notary Public
State of Florida At Large
My Commission Expires:
2
EXHIBIT E
RELEASE
The Cross Country Group, Inc., and each of its predecessors,
subsidiaries, affiliates, officers, employees, trustees, insurers, sureties,
successors and assigns (collectively, the "Releasors"), for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby releases and forever discharges Carl Buccellato, and each of his heirs,
personal representatives, successors and assigns, from any and all claims,
obligations, actions, causes of action, claims at law or in equity, suits,
debts, liens, encumbrances, contracts, agreements, promises, liabilities,
demands, controversies, damages, losses, debts, dues, fees, costs or expenses of
any nature whatsoever, whether fixed or contingent, which the Releasors may now
have, may have had or may hereafter have against the Releasee by reason of any
matter, cause, happening or thing occurring on or before the date of this
Release and listed on Annex A hereto. This Release does not affect Releasors'
right to enforce the terms of the Settlement and Termination Agreement dated
_____________, 1997 among Homeowners Group, Inc., The Cross Country Group, Inc.
and the Releasee.
The Releasors understand that the acceptance of the aforesaid
consideration, and the execution and delivery of this Release are not to be
considered an admission of liability, but are in full settlement and compromise
of all disputes between the Releasors and the Releasee and for which the
Releasee has denied and still denies any wrongdoing.
This Release shall be governed by and construed in accordance with the
laws of the State of Florida without reference to its conflicts of law
principles. Venue and jurisdiction of all actions relating to the performance or
interpretation of this Release may be brought only in the courts of the State of
Florida located in Broward County or in the United States District Court for the
Southern District of Florida. The parties consent to personal jurisdiction in
the courts described in this Paragraph for the purpose of all actions, and waive
all objections to venue and the right to assert that a court chosen under this
Paragraph is improper based on the doctrine of forum non conveniens.
If litigation is brought concerning this Release, the prevailing party
shall be entitled to receive from the non-prevailing party, and the
non-prevailing party shall upon final judgment and expiration of all appeals
immediately pay upon demand, all reasonable attorneys' fees and expenses of the
prevailing party.
If any one or more of the provisions of this Release is held invalid,
illegal or unenforceable, the remaining provisions of this Release shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision which
comes closest to the intent of the parties.
WITNESSES: THE CROSS COUNTRY GROUP, INC.
________________________________
By: ___________________________
Howard Wolk, Vice President
________________________________
ACKNOWLEDGMENT
STATE OF FLORIDA
COUNTY OF BROWARD
On this ____ day of __________, 1997, before me personally appeared
Sidney Wolk, as President of The Cross Country Group, Inc., who is personally
known to me or produced a driver's license as identification, and he
acknowledged before me that he executed the above Release on behalf of The Cross
Country Group, Inc. as his free act and deed and that he did take an oath.
______________________
Notary Public
2
EXHIBIT F
STOCKHOLDER AGREEMENT
(See Attached.)
3
EXHIBIT (c)(18)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is entered into as of October
31, 1996, by and among The Cross Country Group, L.L.C. (the "Secured Party"),
Homeowners Marketing Services, Inc. ("HMSI") and Homeowners Marketing Services
International, Inc. ("HMSII" and collectively with HMSI, the "Debtors").
RECITALS
WHEREAS, simultaneous with the execution and delivery of this
Agreement, Secured Party has acquired from Acceleration National Insurance
Company of all its rights under that certain judgment in consolidated cases
styled Acceleration National Insurance Company v. Homeowners Marketing Services,
Inc., et al, in the Court of Common Pleas, Franklin County, Ohio, Case No. 9 1
CVHI 1-9404 and 94CVlD5-3083 (the "Judgment");
WHEREAS, Secured Party, Homeowners Group, Inc. and HMSI have,
contemporaneously with the execution of this Security Agreement, entered into a
Settlement Agreement with respect to the Judgment to, among other things, extend
the date by which amounts payable by HMSI must be paid (the "Settlement
Agreement");
WHEREAS, CC Acquisition Corporation, an affiliate of the Secured Party,
has confirmed its intent to consummate the transactions described in that
certain Agreement and Plan of Merger dated as of May 14, 1996 among CC
Acquisition Corporation, Homeowners Group, Inc. and The Cross Country Group,
Inc., as amended by amendment of even date herewith;
WHEREAS, Secured Party has required that Debtors enter into this
Security Agreement as a condition to the Secured Party entering into the
Settlement Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows-
1. HMSII Guaranty. In consideration of Secured Party's execution of the
Settlement Agreement, HMSII absolutely and unconditionally guarantees the
performance by HMSI of its obligations under the Judgment and the Settlement
Agreement, as amended (collectively, the "Obligations").
2. Security Interest. In consideration of and as an inducement for the
Secured Party's execution of the Settlement Agreement, Debtors hereby grant the
Secured Party a security interest (the "Security Interest") in each of the
assets of the Debtors (the "Collateral") to secure HMSI's Obligations and
HMSII's guaranty thereof
3. Representations and Warranties of Debtors. The Debtors represent and
warrant, and so long as the Judgment remains unpaid shall be deemed continuously
to represent and warrant, that:
(a) The Debtors are the owners of the Collateral free of all
security interests or other encumbrances except for the security interest in
favor of Secured Party,
(b) This Security Agreement is being executed on behalf of
Debtors by one or more properly authorized officers and all necessary actions
have been taken by Debtors to authorize such execution.
(c) The Debtors are engaged in business operations which are
carried on at the following address: 400 Sawgrass Corporate Parkway, Sunrise,
Florida 33325.
4. Covenants of Debtors. So long as the Obligations of HMSI under the
Settlement Agreement and/or the Judgment remain outstanding, the Debtors: (a)
will defend the Collateral against the claims and demands of all other parties-
will keep the Collateral free from all security interests or other encumbrances
except the Security Interest; (b) will keep accurate and complete records
concerning the Collateral- at the Secured Party's request will mark any such
records and the Collateral to give notice of the Security Interest; (c) will,
upon demand, deliver to Secured Party any documents relating to the Collateral
or any part thereof, and any and all other schedules, documents and statements
which the Secured party may from time to time request- (d) win notify the
Secured Party promptly in writing of any change in the Debtors' address
specified above- and (e) in connection herewith will execute and deliver to the
Secured Party such financing statements and other documents, pay all costs of
and filing financing statements and other documents in all public offices
requested by the Secured Party and do such other things as the Secured Party may
request to protect the Collateral and Secured Party's Security Interest.
5. Defaults and Remedies. (a) In the event that HMSI shall default in
the performance of its Obligations under the Settlement Agreement and/or the
Judgment beyond any grace or cure period provided therein, and HMSII shall have
failed within five (5) days of notice of such default and expiration of any
applicable cure period from Secured Party to cure the same (such default and
failure to cure, an "Event of Default"), Secured Party shall have all rights
with respect to the Collateral as shall be provided to Secured Party under the
Uniform Commercial Code as then in effect in the State of Florida.
(b) The Debtors agree that any notice by the Secured Party of
the sale or disposition of the Collateral or any other intended action
hereunder, whether required by the Uniform Commercial Code or otherwise, shall
constitute reasonable notice to the Debtors if the notice is sent by a
recognized overnight delivery service at least ten (10) days before the action
to the Debtors' address as specified in this Agreement or to any other address
which the Debtors have specified in writing to the Secured Party as the address
to which notices shall be given to the Debtors.
6. Miscellaneous.
(a) The Debtors authorize the Secured Party at the Debtors'
expense to file any financing statement or other documents or statements
relating to the Collateral (without the Debtors' signature thereon) which the
Secured Party deems appropriate, and the Debtors appoint the Secured Party as
the Debtors' attorney-in-fact to execute any such financing statement or
statements in the
-2-
Debtors' name and to perform all other acts which the Secured Party deems
sappropriate to perfect and to continue perfection of the Security Interest.
(b) After any Event of Default, the Secured Party may notify
any party obligated to pay proceeds of the existence of the obligation under the
Satisfaction Agreement and may direct them to make payments of all proceeds to
the Secured Party.
(c) No delay or omission by the Secured Party in exercising
any right hereunder or with respect to the Judgment and/or the Settlement
Agreement shall operate as a waiver of that or any other right, and no single or
partial exercise of any right shall preclude the Secured Party from any other or
future exercise of the right or the exercise of any other right or remedy. All
rights and remedies of the Secured Party under this Agreement and under the
Uniform Commercial Code shall be deemed cumulative.
(d) The terms "Secured Party" and "Debtors" as used in this
Agreement include the heirs, personal representatives, and successors or assigns
of those parties.
(d) This Agreement may not be modified or amended nor shall
any provision of it be waived except in a writing signed by the Debtors and by
an authorized officer of the Secured Party.
(e) This Agreement shall be construed under the Florida
Uniform Commercial Code and any other applicable Florida laws in effect from
time to time.
(f) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions.
(g) All sections and descriptive headings in this Agreement
are inserted for convenience only, and shall not affect the construction or
interpretation hereof
(h) This Security Agreement is a continuing agreement which
shall remain in force and effect until all obligations under the Satisfaction
Agreement have been satisfied in fun.
(i) This Security Agreement may be signed in one or more
counterparts.
- 3 -
IN WITNESS WHEREOF, each party has executed this Agreement by its duly
authorized representative as of the date set forth above.
HOMEOWNERS MARKETING SERVICES, INC.
By: /s/ C. Gregory Morris
-------------------------------------------------
C. Gregory Morris, Vice President, Treasurer &
Chief Financial Officer
HOMEOWNERS MARKETING SERVICES
INTERNATIONAL, INC.
By: /s/ C. Gregory Morris
-------------------------------------------------
C. Gregory Morris, Vice President, Treasurer &
Chief Financial Officer
THE CROSS COUNTRY GROUP, L.L.C.
By: /s/ Howard L. Wolk
-------------------------------------------------
- 4 -
EXHIBIT (c)(19)
GUARANTY AND PLEDGE AGREEMENT
-----------------------------
THIS GUARANTY AND PLEDGE AGREEMENT (the "Agreement") is made and
entered into as of this 31st day of October, 1996, by and between The Cross
Country Group, L.L.C. ("Secured Party") and Homeowners Group, Inc. ("Pledgor").
RECITALS
WHEREAS, simultaneous with the execution and delivery of this
Agreement, Secured Party has acquired from Acceleration National Insurance
Company all its rights under that certain judgment in consolidated cases styled
Acceleration National Insurance Company v. Homeowners Marketing Services, Inc.,
et al, in the Court of Common Pleas, Franklin County, Olio, Case No. 91 CVH 1
1-9404 and 94CVHO5-3083 (the "Judgment");
WHEREAS, Secured Party, Pledgor and Homeowners Marketing Services, Inc.
("HMSI") have, contemporaneously with the execution of this Guaranty and Pledge
Agreement, entered into a Settlement Agreement with respect to the Judgment to,
among other things, extend the date by which amounts payable by HMSI must be
paid (the "Settlement Agreement");
WHEREAS, Pledgor is the owner of a stock certificate evidencing 1,000
shares of stock of HMSI (the "HMSI Stock"), representing a 100% interest in
HMSI;
WHEREAS, Pledgor is the owner of a stock certificate evidencing 500
shares of Homeowners Marketing Services International, Inc. ("HMSII) stock (the
"HMSII Stock"), representing a 100% interest in HMSII;
WHEREAS, CC Acquisition Corporation, an affiliate of the Secured Party,
has confirmed its intent to consummate the transactions described in that
certain Agreement and Plan of Merger dated as of May 14, 1996 among Pledgor, CC
Acquisition Corporation and The Cross Country Group, Inc,, as amended by
amendment of even date herewith;
WHEREAS, Secured Party has required that Pledgor enter into this
Guaranty and Pledge Agreement as a condition to the Secured Party entering into
the Settlement Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained here' and for other good and valuable consideration, the
parties hereto agree as follows:
AGREEMENT
1. Guarantee of Obligations. In consideration of Secured Party's
execution of the Settlement Agreement, Pledgor hereby absolutely and
unconditionally guarantees to Secured Party the performance of the obligations
of HMSI under the Judgment and the Settlement Agreement.
2. Pledge of Pledged Shares. As security for the guaranty set forth in
Section I above, Pledgor hereby pledges to Secured Party, and grants to Secured
Party, a first priority security interest in the HMSI Stock and the HMSII Stock
(collectively, the "Pledged Shares").
3. Delivery of Pledged Shares. The certificates representing the
Pledged Shares are hereby delivered to Secured Party, to be held by Secured
Party, in accordance with the terms of this Agreement, accompanied by duly
executed instruments of transfer.
4. Representations of Pledgor. Pledgor hereby represents and warrants
that it is the record and beneficial holder of the Pledged Shares free and clear
of any hens affecting the title thereto, except for liens created by this
Agreement. Pledgor hereby represents and warrants that it has the right to
pledge the Pledged Shares.
5. Rights of Pledgor. During such time that Secured Party holds the
Pledged Shares, and until such time as Secured Party forecloses on such Pledged
Shares pursuant to the terms of paragraph 6 hereof, Pledgor shall be the owner
of such Pledged Shares and shall have the right to vote and give consents with
respect to the Pledged Shares and to collect and receive dividends paid in
respect of the Pledged Shares, and Secured Party shall have no right to sell,
transfer, pledge, hypothecate or otherwise transfer the Pledged Shares to any
third party. Notwithstanding the foregoing, and in addition to its rights
pursuant to Section 6 hereof, in the event that there shall be and for so long
as there shall be a continuing default by Pledgor under the Judgment and/or the
Settlement Agreement, Secured Party shall have the right to vote the Pledged
Shares.
6. Defaults and Remedies. (a) In the event that HMSI shall default in
the performance of its obligations under the Judgment and/or the Settlement
Agreement, beyond any grace or cure period provided therein, and Pledgor shall
have failed within five (5) days of notice thereof from Secured Party to cure
the same, Secured Party shall have all rights with respect to the Pledged Shares
as shall be provided to Secured Party under the Uniform Commercial Code as then
in effect in the State of Florida.
(b) Pledgor agrees that any notice by the Secured Party of the proposed
disposition of the Pledged Shares or any other intended action hereunder,
whether required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Pledgor if the notice is sent by a recognized overnight
delivery service at least ten (10) days before the action to the Pledgor at 400
Sawgrass Corporate Parkway, Sunrise, Florida 33325 or to any other address which
Pledgor has specified in writing to the Secured Party as the address to which
notices shall be given to Pledgor.
7. Release. Immediately upon the compliance in full with the Judgment
and/or Settlement Agreement, in accordance with the terms thereof, Secured Party
shall redeliver the Pledged Shares to Pledgor, together with all instruments of
transfer delivered herewith, free and clear of any and all hens affecting title
thereto, and Pledgor's obligations hereunder shall terminate.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of, and enforced in the courts of the Commonwealth of
Massachusetts.
9. Counterpart Signatures. This Agreement may be signed in one or more
counterparts.
10. Headings. The headings are for the convenience of reference only,
and do not form a part hereof and in no way define, limit, describe, modify or
interpret the meanings of the parties, the scope of this Agreement or the intent
of any Section hereof.
11. Severability. If for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation or affect of those portions of this
Agreement which are valid.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE CROSS COUNTRY GROUP, L.L.C.
By: /s/ Howard L. Wolk
------------------------------------
HOMEOWNERS GROUP, INC.
By: /s/ C. Gregory Morris
------------------------------------
C. Gregory Morris, Vice President,
Treasurer & Chief Financial Officer
EXHIBIT (c)(20)
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Agreement") is entered into as of the
16th day of September, 1997, by and among The Cross Country Group, L.L.C. (the
"Secured Party"), Homeowners Association of America, Inc., HAA of Arizona, Inc.,
HAA of Georgia, Inc., HAA of Utah, Inc., HAA Home Protection of California, Inc.
and HAA of Virginia, Inc. (collectively, the "HAA Entities").
RECITALS
--------
WHEREAS, Secured Party has acquired from Acceleration National
Insurance Company all of its rights under that certain judgment in consolidated
cases styled Acceleration National Insurance Company v. Homeowners Marketing
Services, Inc., et al, in the Court of Common Pleas, Franklin County, Ohio, Case
No. 9 1 CVHI 1-9404 and 94CVlD5-3083 (the "Judgment");
WHEREAS, Secured Party, Homeowners Group, Inc. and Homeowners Marketing
Services, Inc. ("HMS") have entered into an Agreement for Satisfaction of
Judgment, dated as of October 31, 1996, as amended, with respect to the Judgment
to, among other things, extend the date by which amounts payable by HMS must be
paid (the "Settlement Agreement");
WHEREAS, Secured Party, Homeowners Group, Inc. and HMS have,
contemporaneously with execution of this Security Agreement, entered into a
Third Amendment to the Settlement Agreement, which among other things, further
extends the date by which amounts payable by HMS must be paid;
WHEREAS, CC Acquisition Corporation, an affiliate of the Secured Party,
has confirmed its intent to consummate the transactions described in that
certain Agreement and Plan of Merger dated as of May 14, 1996 among CC
Acquisition Corporation, Homeowners Group, Inc. and The Cross Country Group,
Inc., as amended by amendments dated as of October 31, 1996, January 31, 1997
and July 31, 1997, and by a further amendment of even date herewith;
WHEREAS, Secured Party has required that the HAA Entities enter into
this Security Agreement as a condition to the Secured Party entering into the
Third Amendment to the Settlement Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. Guaranty of HAA Entities. In consideration of Secured Party's
execution of the Third Amendment to the Settlement Agreement, each of the HAA
Entities absolutely, unconditionally and jointly and severally guarantees the
performance by HMS of its obligations under the Judgment and the Settlement
Agreement, as amended (collectively, the "Obligations").
2. Security Interest. In consideration of and as an inducement for the
Secured Party's execution of the Third Amendment to the Settlement Agreement,
each of the HAA Entities hereby
grants to the Secured Party a security interest (the "Security Interest") in
each of their respective assets (the "Collateral") to secure HMS's Obligations
and the HAA Entities' guaranty thereof.
3. Representations and Warranties of the HAA Entities. Each of the HAA
Entities hereby individually represents and warrants, and so long as the
Judgment remains unpaid shall be deemed continuously to represent and warrant,
that:
(a) It is the owner of its respective Collateral free of all
security interests or other encumbrances except for the security interest in
favor of Secured Party and except as may be disposed of added in the ordinary
course of business,
(b) This Security Agreement is being executed on behalf of it
by one or more properly authorized officers and all necessary actions have been
taken by it to authorize such execution.
(c) It is engaged in business operations which are carried on
at the following address: 400 Sawgrass Corporate Parkway, Sunrise, Florida
33325.
4. Covenants of the HAA Entities. So long as the Obligations of HMS
under the Settlement Agreement, as amended, and/or the Judgment remain
outstanding, each of the HAA Entities: (a) will defend its respective Collateral
against the claims and demands of all other parties and will keep the Collateral
free from all security interests or other encumbrances except the Security
Interest; (b) will keep accurate and complete records concerning its respective
Collateral and at the Secured Party's request will mark any such records and its
respective Collateral to give notice of the Security Interest; (c) will, upon
demand, deliver to Secured Party any documents relating to its respective
Collateral or any part thereof, and any and all other schedules, documents and
statements which the Secured party may from time to time request; (d) will
notify the Secured Party promptly in writing of any change in its address
specified above; and (e) in connection herewith will execute and deliver to the
Secured Party such financing statements and other documents, pay all costs of
and file such financing statements and other documents in all public offices
requested by the Secured Party and do such other things as the Secured Party may
reasonably request to protect the Collateral and Secured Party's Security
Interest.
5. Defaults and Remedies. (a) In the event that HMS shall default in
the performance of its Obligations under the Settlement Agreement, as amended,
and/or the Judgment beyond any grace or cure period provided therein, and the
HAA Entities shall have failed within five (5) days of notice of such default
and expiration of any applicable cure period from Secured Party to cure the same
(such default and failure to cure, an "Event of Default"), Secured Party shall
have all rights with respect to the Collateral as shall be provided to Secured
Party under the Uniform Commercial Code as then in effect in the State of
Florida.
(b) Each of the HAA Entities agree that any notice by the
Secured Party of the sale or disposition of its respective Collateral or any
other intended action hereunder, whether required by the Uniform Commercial Code
or otherwise, shall constitute reasonable notice to any of the HAA Entities if
the notice is sent by a recognized overnight delivery service at least ten (10)
-2-
days before the action to the HAA Entities' address as specified in this
Agreement (Attention: C. Gregory Morris) or to any other address which any of
the HAA Entities shall have specified in writing to the Secured Party as the
address or addresses to which notices shall be given to all of the HAA Entities.
6. Miscellaneous.
(a) Each of the HAA Entities authorizes the Secured Party at
the expense of each HAA Entity to file any financing statement or other
documents or statements relating to its respective Collateral (without the HAA
Entity's signature thereon) which the Secured Party deems appropriate, and each
of the HAA Entities appoints the Secured Party as each HAA Entity's
attorney-in-fact to execute any such financing statement or statements in the
name of the HAA Entities and to perform all other acts which the Secured Party
deems appropriate to perfect and to continue perfection of the Security
Interest.
(b) After any Event of Default, the Secured Party may notify
any party obligated to pay proceeds of the existence of the obligation under the
Settlement Agreement, as amended, and may direct them to make payments of all
proceeds to the Secured Party.
(c) No delay or omission by the Secured Party in exercising
any right hereunder or with respect to the Judgment and/or the Settlement
Agreement, as amended, shall operate as a waiver of that or any other right, and
no single or partial exercise of any right shall preclude the Secured Party from
any other or future exercise of the right or the exercise of any other right or
remedy. All rights and remedies of the Secured Party under this Agreement and
under the Uniform Commercial Code shall be deemed cumulative.
(d) The terms "Secured Party" and "HAA Entities" as used in
this Agreement include the successors or assigns of those parties.
(e) This Agreement may not be modified or amended nor shall
any provision of it be waived except in a writing signed by each of the HAA
Entities and by an authorized officer of the Secured Party.
(f) This Agreement shall be construed under the Florida
Uniform Commercial Code and any other applicable Florida laws in effect from
time to time.
(g) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions.
(h) All sections and descriptive headings in this Agreement
are inserted for convenience only, and shall not affect the construction or
interpretation hereof.
(i) This Security Agreement is a continuing agreement which
shall remain in force and effect until all obligations under the Settlement
Agreement, as amended, have been satisfied in full.
-3-
(j) This Security Agreement may be signed in one or more
counterparts.
IN WITNESS WHEREOF, each party has executed this Agreement by its duly
authorized representative as of the date set forth above.
HOMEOWNERS ASSOCIATION OF AMERICA, INC.
By: /s/ C. Gregory Morris
---------------------------------
HAA OF ARIZONA, INC.
By: /s/ C. Gregory Morris
---------------------------------
HAA OF GEORGIA, INC.
By: /s/ C. Gregory Morris
---------------------------------
HAA OF UTAH, INC.
By: /s/ C. Gregory Morris
---------------------------------
HAA HOME PROTECTION OF CALIFORNIA, INC.
By: /s/ C. Gregory Morris
---------------------------------
HAA OF VIRGINIA, INC.
By: /s/ C. Gregory Morris
---------------------------------
THE CROSS COUNTRY GROUP, L.L.C.
By: /s/ Howard L. Wolk
---------------------------------
- 4 -
EXHIBIT (c)(21)
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT (the "Agreement") is made and entered into as of
the 16th day of September, 1997, by and between The Cross Country Group, L.L.C.
("Secured Party") and Homeowners Group, Inc. ("Pledgor").
RECITALS
WHEREAS, Secured Party has acquired from Acceleration National
Insurance Company all its rights under that certain judgment in consolidated
cases styled Acceleration National Insurance Company v. Homeowners Marketing
Services, Inc., et al, in the Court of Common Pleas, Franklin County, Ohio, Case
No. 91 CVH 1 1-9404 and 94CVHO5-3083 (the "Judgment");
WHEREAS, Secured Party, Pledgor and Homeowners Marketing Services, Inc.
("HMS") have entered into an Agreement for Satisfaction of Judgment, dated as of
October 31, 1996, as amended, with respect to the Judgment, which among other
things, extends the date by which amounts payable by HMS must be paid (the
"Settlement Agreement");
WHEREAS, in consideration of Secured Party entering into the Settlement
Agreement, Pledgor entered into a Guaranty and Pledge Agreement, dated as of
October 31, 1996, whereby Pledgor unconditionally guaranteed HMS's performance
of its obligations under the Settlement Agreement;
WHEREAS, Secured Party, Pledgor and HMS have, contemporaneously with
execution of this Pledge Agreement, entered into a Third Amendment to the
Settlement Agreement, which among other things, further extends the date by
which amounts payable by HMS must be paid;
WHEREAS, Pledgor is the owner of stock certificates evidencing all of
the issued and outstanding shares of stock of the entities listed on Schedule A,
attached hereto (the "HAA Stock");
WHEREAS, CC Acquisition Corporation, an affiliate of the Secured Party,
has confirmed its intent to consummate the transactions described in that
certain Agreement and Plan of Merger dated as of May 14, 1996 among CC
Acquisition Corporation, Pledgor and The Cross Country Group, Inc., as amended
by amendments dated as of October 31, 1996, January 31, 1997 and July 31, 1997,
and by a further amendment of even date herewith;
WHEREAS, Secured Party has required that Pledgor enter into this Pledge
Agreement as a condition to the Secured Party entering into the Settlement
Agreement;
1
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
parties hereto agree as follows:
AGREEMENT
---------
1. Pledge of HAA Stock. In consideration of Secured Party's execution
of the Settlement Agreement, as amended, which extends the date by which HMS
must satisfy its obligations under the Judgment and Settlement Agreement, as
amended, and extends the date by which Secured Party has agreed to forbear from
enforcing Pledgor's guarantee of the performance of the obligations of HMS under
the Judgment and the Settlement Agreement, Pledgor hereby pledges to Secured
Party, as additional security for its guaranty, and grants to Secured Party, a
first priority security interest in the HAA Stock (collectively, the "Pledged
Shares").
2. Delivery of Pledged Shares. The certificates representing the
Pledged Shares are hereby delivered to Secured Party, to be held by Secured
Party, in accordance with the terms of this Agreement, accompanied by duly
executed instruments of transfer.
3. Representations of Pledgor. Pledgor hereby represents and warrants
that it is the record and beneficial holder of the Pledged Shares free and clear
of any liens affecting the title thereto, except for liens created by this
Agreement. Pledgor hereby represents and warrants that it has the right to
pledge the Pledged Shares.
4. Rights of Pledgor. During such time that Secured Party holds the
Pledged Shares, and until such time as Secured Party forecloses on such Pledged
Shares pursuant to the terms of paragraph 6 hereof, Pledgor shall be the owner
of such Pledged Shares and shall have the right to vote and give consents with
respect to the Pledged Shares and to collect and receive dividends paid in
respect of the Pledged Shares, and Secured Party shall have no right to sell,
transfer, pledge, hypothecate or otherwise transfer the Pledged Shares to any
third party.
5. HAA Guaranty. As a third-party beneficiary of Secured Party's
agreement contained in the Settlement Agreement, and in consideration therefore.
Homeowners Association of America, Inc. ("HAA") hereby unconditionally
guarantees the obligations of Pledges under the Settlement Agreement, and hereby
covenants and agrees not to transfer, sell, pledge or otherwise dispose of any
shares of stock of HAA's subsidiaries, including but not limited to the common
stock of HAA of California, Inc. and HAA of Virginia, Inc. HAA hereby represents
and warrants that it owns, free and clear of any liens or encumbrances all of
the issued and outstanding shares of common stock of HAA of Virginia, Inc. and
HAA of California, Inc.
6. Defaults and Remedies. (a) In the event that HMS shall default in
the performance of its obligations under the Judgment and/or the Settlement
Agreement, as amended, beyond any grace or cure period provided therein, and
Pledgor shall have failed within five (5) days of notice thereof from Secured
Party to cure the same, Secured Party shall have all rights with respect to the
Pledged Shares as shall be provided to Secured Party under the Uniform
Commercial Code as then in effect in the State of Florida.
(b) Pledgor agrees that any notice by the Secured Party of the proposed
disposition of the Pledged Shares or any other intended action hereunder,
whether required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Pledgor if the notice is sent by a recognized overnight
delivery service at least ten (10) days before the action to the Pledgor at 400
Sawgrass Corporate Parkway, Sunrise, Florida 33325, Attention: C. Gregory Morris
or to any other address which Pledgor has specified in writing to the Secured
Party as the address to which notices shall be given to Pledgor.
2
7. Release. Immediately upon the compliance in full with the Judgment
and/or Settlement Agreement, as amended, in accordance with the terms thereof,
Secured Party shall redeliver the Pledged Shares to Pledgor, together with all
instruments of transfer delivered herewith, free and clear of any and all liens
affecting title thereto, and Pledgor's obligations hereunder shall terminate.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of, and enforced in the courts of the Commonwealth of
Massachusetts.
9. Counterpart Signatures. This Agreement may be signed in one or more
counterparts.
10. Headings. The headings are for the convenience of reference only,
and do not form a part hereof and in no way define, limit, describe, modify or
interpret the meanings of the parties, the scope of this Agreement or the intent
of any Section hereof.
11. Severability. If for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation or affect those portions of this
Agreement which are valid.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE CROSS COUNTRY GROUP, L.L.C.
By: /s/ Howard L. Wolk
-----------------------------
HOMEOWNERS GROUP, INC.
By: /s/ C. Gregory Morris
-----------------------------
Ackowledged and Agreed to:
HOMEOWNERS ASSOCIATION OF AMERICA, INC.
By: /s/ C. Gregory Morris
------------------------------------
3
SCHEDULE A
----------
<TABLE>
<CAPTION>
COMPANY SHARES CERTIFICATE NO.
- ------- ------ ---------------
<S> <C> <C>
Homeowners Association
of America, Inc.
HAA of Arizona, Inc.
HAA of Georgia, Inc.
HAA of Utah, Inc.
</TABLE>
4
