HOMEOWNERS GROUP, INC.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325-6235
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 1997
TO THE STOCKHOLDERS OF HOMEOWNERS GROUP, INC.:
A Special Meeting of Stockholders of Homeowners Group, Inc., a Delaware
corporation (the "Company") will be held on June 19, 1997, at the Signature
Grand, 6900 State Road 84, Davie, Florida, at 10:00 A.M. local time, for the
following purposes:
(1) To consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated as of May 14, 1996, as
amended by Amendment to Agreement and Plan of Merger dated as of October
31, 1996 and as further amended by Second Amendment to Agreement and
Plan of Merger dated as of January 31, 1997 (the "Merger Agreement"),
among The Cross Country Group, Inc., a Nevada corporation ("Cross
Country"), CHGI Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Cross Country ("CHGI") and the Company,
pursuant to which: (a) CC Acquisition Corporation, a Delaware
corporation and assignee of the rights and obligations of CHGI under the
Merger Agreement ("Merger Sub") will be merged with and into the Company
(the "Merger"), with the Company being the surviving corporation and
wholly owned directly by HAC, Inc., a Florida corporation ("HAC") and a
wholly-owned subsidiary of Cross Country Associates, L.L.C., a Delaware
limited liability company ("Associates"); and (b) each of the shares of
the Company's Common Stock, $0.01 par value per share (the "Shares"),
outstanding at the effective time of the Merger (other than Shares held
by Cross Country and its affiliates and stockholders who perfect their
statutory appraisal rights under Delaware law), will be converted into
the right to receive $2.06 (the "Merger Consideration") net in cash,
without interest; and
(2) To transact such other business as may properly come
before the meeting or any adjournments or postponements thereof
including matters incident to its conduct (the "Special Meeting").
Only holders of record of Shares at the close of business on April 21,
1997 are entitled to notice of and to vote at the Special Meeting.
The Company's Board of Directors has approved the Merger Agreement,
having determined that the acquisition of the Company pursuant to the Merger
Agreement is fair and in the best interests of the Company and its stockholders.
The Company's financial advisor,
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Raymond James & Associates, Inc., has advised the Company that, in its opinion,
the consideration to be paid to the Company's stockholders pursuant to the
Merger Agreement is fair to the stockholders from a financial point of view.
If the Company's stockholders adopt the Merger Agreement, it is
currently anticipated that the Merger will be consummated as promptly as
practicable after the satisfaction of certain conditions to the Merger.
As soon as practicable after the Merger is consummated, a Letter of
Transmittal will be mailed to all stockholders of record to use in surrendering
their Company stock certificates. Please do not send your stock certificates to
the Company until you receive the Letter of Transmittal, which will include
instructions on the procedure to be used in sending in your certificates.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions of
Section 262 of the Delaware General Corporation Law will, under certain
circumstances, have the right, if the Merger is consummated, to dissent and to
demand appraisal of the fair market value of their Shares. See "Appraisal
Rights" in the accompanying Proxy Statement, and Annex C thereto, for a
description of the procedures required to be followed in order to exercise
properly dissenters' rights.
To assure that your vote will be counted, please complete, date and sign
the enclosed proxy and return it promptly in the enclosed prepaid envelope
whether or not you plan to attend the Special Meeting. Your proxy may be revoked
in the manner described in the accompanying Proxy Statement at any time before
it has been voted at the Special Meeting.
By Order of the Board of Directors,
/s/ KAREN CHILDRESS
----------------------------------
Karen Childress
Secretary
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE
AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
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PROXY STATEMENT
HOMEOWNERS GROUP, INC.
400 SAWGRASS CORPORATE PARKWAY
SUNRISE, FLORIDA 33325-6235
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 1997
This Proxy Statement (the "Proxy Statement") is being furnished to
holders of shares of Common Stock, $0.01 par value per share (the "Shares"), of
Homeowners Group, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at a Special Meeting of Stockholders to be held June 19, 1997 at the
Signature Grand, 6900 State Road 84, Davie, Florida, at 10:00 A.M., local time,
and at any adjournment or postponement thereof (the "Special Meeting"). Only
holders of record of Shares at the close of business on April 21, 1997 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting.
This Proxy Statement and form of proxy was first mailed to the Company's
stockholders on or about May 6, 1997.
At the Special Meeting, the holders of Shares will be asked: (i) to
consider and vote upon a proposal unanimously approved by the Board of Directors
to approve and adopt an Agreement and Plan of Merger dated as of May 14, 1996
(the "Original Merger Agreement"), as amended by Amendment to Agreement and Plan
of Merger dated as of October 31, 1996 (the "First Amendment") and as further
amended by Second Amendment to Agreement and Plan of Merger dated as of January
31, 1997 (the "Second Amendment" and together with the Original Merger Agreement
and the First Amendment, the "Merger Agreement") among The Cross Country Group,
Inc., a Nevada corporation ("Cross Country"), CHGI Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Cross Country ("CHGI"),
and the Company, pursuant to which CC Acquisition Corporation, a Delaware
corporation and assignee of the rights and obligations of CHGI under the Merger
Agreement ("Merger Sub") will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation (the "Surviving
Corporation") and wholly owned by HAC, Inc., a Florida corporation ("HAC") and
wholly-owned subsidiary of Cross Country Associates, L.L.C., a Delaware limited
liability company ("Associates"); and (ii) to transact such other business as
may properly come before the Special Meeting.
Pursuant to the Merger Agreement, each Share outstanding at the
effective time of the Merger (other than Shares held by Cross Country and its
affiliates and stockholders who perfect their statutory appraisal rights under
Delaware law) will be converted into the right to receive $2.06 (the "Merger
Consideration") net in cash, without interest. A copy of the Merger Agreement is
attached hereto as Annex A.
The effect of the Merger will be to convert the Company from a publicly
held to a privately held corporation wholly owned by HAC, while providing to the
public stockholders a
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cash price for their Shares representing a premium over market prices prevailing
prior to the announcement of the Merger.
--------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL
A Special Committee was appointed by the Board of Directors (the
"Special Committee"), to review the terms of the Merger Agreement and to report
to the Board of Directors regarding the fairness of the Merger to the Company's
stockholders. At a meeting held on May 14, 1996, the Special Committee voted to
recommend that the Board of Directors approve the Original Merger Agreement. The
Board of Directors, at a meeting held immediately thereafter, approved the
Original Merger Agreement. At a joint meeting with the Special Committee on
November 6, 1996, the Board of Directors unanimously approved the First
Amendment, and at a joint meeting with the Special Committee on February 3,
1997, approved the Second Amendment. The Board of Directors has determined that
the Merger is fair to and in the best interest of the Company's public
stockholders and resolved to recommend that the Company's stockholders approve
and adopt the Merger Agreement. The Special Committee and the Board of
Directors, in reaching their respective decisions, considered a number of
factors, including the opinion of Raymond James & Associates, Inc. ("Raymond
James"), an investment banking firm engaged by the Special Committee as its
exclusive financial advisor, that the Merger Consideration is fair to the
Company's stockholders from a financial point of view. See "THE MERGER"--
Recommendation of the Special Committee and the Board; Fairness of the Merger"
and "--Opinion of Raymond James & Associates, Inc."
Based upon the 5,558,350 Shares of the Company outstanding on the Record
Date, reduced by the 1,638,500 Shares currently owned by affiliates of Cross
Country, and assuming that no stockholders perfect their statutory appraisal
rights, an aggregate of $8,074,891 will be paid to the Company's stockholders
other than affiliates of Cross Country in the Merger in exchange for their
Shares.
On May 13, 1996, the last trading day prior to the Company's
announcement of the execution of the Merger Agreement, the reported closing
price per share of the Company's Common Stock on the Nasdaq NMS was $1-7/8. On
May 5, 1997, the last trading day prior to the date of this Proxy Statement, the
reported closing price per share on the Nasdaq NMS was $1-5/8.
All information contained in this Proxy Statement concerning Cross
Country, CHGI, Merger Sub, HAC and Associates, the financing for the Merger and
plans for the Surviving Corporation has been supplied by Cross Country. Except
as otherwise indicated, all other information contained in this Proxy Statement
has been supplied by the Company.
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The Board of Directors recommends a vote FOR adopting the Merger
Agreement.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
--------------------
The date of this Proxy Statement is May 6, 1997.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY......................................................................................1
The Special Meeting.......................................................................1
Parties to the Merger.....................................................................1
Background of and Reasons for the Merger..................................................2
First Amendment to the Merger Agreement...................................................3
Second Amendment to the Merger Agreement..................................................4
Recommendation of the Special Committee and the Board.....................................4
Opinion of Financial Advisor..............................................................5
The Merger and Payment to Stockholders....................................................5
Record Date, Shares Entitled to Vote......................................................6
Required Vote.............................................................................6
Effective Time............................................................................6
Conditions to the Merger..................................................................7
Regulatory Matters........................................................................7
Interests of Certain Persons in the Merger................................................7
Adverse Effects of the Merger on Stockholders.............................................8
Appraisal Rights..........................................................................8
Certain Federal Income Tax Consequences...................................................9
Source and Amount of Funds; Absence of Financing Condition................................9
Failure to Consummate the Merger.........................................................10
Fees and Expenses of the Merger Upon Termination.........................................10
Price Ranges of Shares; Dividends........................................................10
Selected Financial Data..................................................................11
GENERAL INFORMATION.........................................................................12
Voting at the Special Meeting; Required Vote.............................................12
Proxies..................................................................................12
Forward-Looking Information and Associated Risk..........................................13
Available Information....................................................................13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................14
THE MERGER..................................................................................16
Parties to the Merger....................................................................16
Background of the Merger.................................................................18
First Amendment to the Merger Agreement..................................................21
Second Amendment to the Merger Agreement.................................................24
Composition of the Special Committee.....................................................25
Recommendation of the Special Committee and the Board; Fairness of the Merger............25
Contingent Liability to CNA..............................................................29
Opinion of Raymond James & Associates, Inc...............................................30
Plans for the Company After the Merger...................................................37
Interests of Certain Persons in the Merger...............................................37
Adverse Effect of the Merger on Stockholders.............................................38
Reasons of Cross Country for the Merger..................................................39
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Failure to Consummate the Merger.........................................................39
Certain Effects of the Merger............................................................39
Certain Federal Income Tax Consequences..................................................40
THE MERGER AGREEMENT........................................................................41
The Merger...............................................................................41
Payment for Shares.......................................................................41
The Exchange Fund........................................................................42
Regulatory Matters.......................................................................42
Conditions, Representations and Covenants................................................43
Modifications and Amendments to the Merger Agreement and Waiver of Conditions to the
Merger by the Company..................................................................44
Stock Options............................................................................44
Directors and Officers of the Company Following the Merger; Certificate of Incorporation.45
Fees and Expenses........................................................................45
Termination; Amendments..................................................................46
Indemnification, Insurance and Releases..................................................47
SOURCE AND AMOUNT OF FUNDS..................................................................47
Bank Financing...........................................................................47
APPRAISAL RIGHTS............................................................................47
PRICE RANGES OF SHARES; DIVIDENDS...........................................................50
ACCOMPANYING AND INCORPORATED DOCUMENTS.....................................................51
EXPERTS.....................................................................................52
OTHER MATTERS...............................................................................52
STOCKHOLDER PROPOSALS.......................................................................53
</TABLE>
ANNEX A - The Merger Agreement
ANNEX B - Fairness Opinion of Raymond James & Associates, Inc.
ANNEX C - Section 262 of the General Corporation Law of the State of
Delaware
v
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SUMMARY
The following summary is intended to highlight certain information
contained in this Proxy Statement. This summary does not purport to be complete
and is qualified in its entirety by the more detailed information contained
elsewhere in this Proxy Statement, the Annexes hereto and other documents
referred to herein. Unless defined herein, capitalized terms used in this
summary have the meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to read this Proxy Statement, the Annexes hereto and the
documents referred to herein in their entirety.
THE SPECIAL MEETING
The Special Meeting will be held on June 19, 1997, at the Signature
Grand, 6900 State Road 84, Davie, Florida at 10:00 A.M., local time. The Board
of Directors has fixed the close of business on April 21, 1997 as the Record
Date. Only holders of record of Shares at the close of business on the Record
Date will be entitled to notice of and to vote at the Special Meeting. The
purpose of the Special Meeting is: (i) to consider and vote upon approval and
adoption of the Merger Agreement pursuant to which: (a) Merger Sub will be
merged with and into the Company with the Company being the Surviving
Corporation and wholly owned directly by HAC; and (b) each Share outstanding at
the effective time of the Merger (other than Shares held by Cross Country, CHGI,
Merger Sub, Associates and their affiliates and stockholders who perfect their
statutory appraisal rights under Delaware law) will be converted into the right
to receive $2.06 net in cash, without interest (the "Merger Consideration"); and
(ii) to transact such other business as may properly come before the Special
Meeting.
PARTIES TO THE MERGER
HOMEOWNERS GROUP, INC.
The Company was incorporated in 1988 in Delaware to act as the holding
company for Homeowners Marketing Services, Inc. ("HMS") and its subsidiaries,
which became subsidiaries of the Company in the same year as a result of a
reorganization prior to the Company's sale of its shares in a public offering.
HMS has provided products and services to real estate brokerage firms since
1980.
THE CROSS COUNTRY GROUP, INC.
Cross Country is a privately held company engaged primarily in providing
emergency roadside assistance on behalf of major corporations and other
organizations. Cross Country also provides loss reporting, address change,
consumer affairs, customer support and home assistance services for various
customers throughout the United States through various affiliates.
1
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CROSS COUNTRY ASSOCIATES, L.L.C.
Associates is a privately held limited liability company formed solely
for the purpose of holding the stock of HAC, and has not engaged in any business
activity unrelated to the Merger. The Managing Members of Associates are
substantially the same as the stockholders of Cross Country.
HAC, INC.
HAC is a direct, wholly-owned subsidiary of Associates formed solely for
the purpose of holding the stock of the Company following the Merger, and has
not engaged in any business activity unrelated to the Merger.
CC ACQUISITION CORPORATION
Merger Sub is a wholly-owned subsidiary of HAC and assignee of CHGI's
rights and obligations under the Merger Agreement. Merger Sub was formed solely
for the purpose of the Merger and has not engaged in any business activity
unrelated to the Merger.
CHGI ACQUISITION CORPORATION
CHGI is a direct, wholly-owned subsidiary of Cross Country formed solely
for the purpose of the Merger and has not engaged in any business activity
unrelated to the Merger. On June 14, 1996, CHGI assigned its rights and
obligations under the Merger Agreement to Merger Sub.
Except where otherwise indicated, use of the term Cross Country includes
Cross Country, Associates, HAC, Merger Sub and CHGI. The principal executive
offices of Cross Country, Associates, HAC, Merger Sub and CHGI are located at
4040 Mystic Valley Parkway, Medford, Massachusetts 02133 and the telephone
number is (617) 393-9300.
BACKGROUND OF AND REASONS FOR THE MERGER
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 Committee retained Raymond James & Associates, Inc. ("Raymond
James") to act as its exclusive financial advisor to assist the Company in
evaluating the possible alternatives to maximize stockholder value, including
remaining independent, effecting a corporate restructuring, initiating
discussions with others, or other plans of business reorganization.
2
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On December 13, 1995, a jury in the Court of Common Pleas of Franklin
County, Ohio, rendered a verdict against HMS in favor of Acceleration National
Insurance Company ("ANIC") in the amount of $5,156,022. The Company entered into
negotiations with ANIC in an effort to reach a settlement with respect to
payment of the judgment and certain terms of the Merger have been negotiated in
connection with the settlement of this judgment. Pursuant to an Agreement for
Satisfaction of Judgment between and among Accel International Corporation,
ANIC, the Company and HMS, dated May 2, 1996, as amended, ANIC agreed to refrain
from undertaking any action to execute on the judgment until October 31, 1996.
After discussions with a number of potential strategic investors,
lenders, purchasers of certain assets of the Company and merger partners, the
Company negotiated and executed the Original Merger Agreement with Cross Country
on May 14, 1996. Pursuant to the Original Merger Agreement, Cross Country was
obligated to make available approximately $4.4 million (the "Settlement Amount")
for payment to ANIC immediately following the Effective Time (as defined herein)
in full satisfaction of the ANIC judgment which was in the amount of $5,156,022.
Although this amount was reduced by the payment by the Company of $1,401,485 on
September 4, 1996 (representing the proceeds of a federal income tax refund),
the unpaid portion of the Settlement Amount has accrued interest at the rate of
10% per annum since September 1, 1996.
For a further discussion of the background and reasons for the Merger,
see "THE MERGER-Background of the Merger".
FIRST AMENDMENT TO THE MERGER AGREEMENT
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 advised the Company that certain obligations and contractual
relationships of the Company differed from the representations made to Cross
Country in the Original Merger Agreement, and that the potential payments and
costs associated therewith had a material adverse effect on Cross Country's
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 so as to eliminate such adverse
impact.
Although the Company 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 the holder of a material
judgment against one of the Company's principal subsidiaries had agreed, at that
time, to refrain from taking any action with respect to its 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 management's belief that
profitable operations were not likely in the near future.
3
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Extensive efforts were undertaken by the Company to settle the subject
obligations and contractual relationships and to quantify the actual costs
associated therewith. Certain of these efforts were successful but require the
payment of approximately $1,026,000 by the Company. In addition, a disputed
claim of approximately $700,000 remains unresolved.
In light of the foregoing required payments and in consideration of the
remaining contingency, the Company and Cross Country entered into the First
Amendment as of October 31, 1996, reducing the Merger Consideration in the
Original Merger Agreement to $2.06. 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, The Cross Country Group, L.L.C., an
affiliate of Cross Country, purchased the judgment from ANIC for $2.75 million,
and simultaneously entered into an Agreement for Satisfaction of Judgment with
the Company and HMS, pursuant to which The Cross Country Group, L.L.C. agreed
not to take action to collect on the judgment until January 31, 1997. The
Company guaranteed the obligation of HMS and pledged the shares of HMS and
another subsidiary of the Company to secure such guarantee. HMS and the
subsidiary granted security interests in their assets as part of the First
Amendment.
SECOND AMENDMENT TO THE MERGER AGREEMENT
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.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD
At a meeting held on May 14, 1996, the Special Committee determined that
the Merger was fair to the Company's stockholders and recommended that the Board
of Directors approve the Original Merger Agreement. The Board of Directors, at a
meeting held immediately thereafter, approved the Original Merger Agreement. At
a joint meeting with the Special Committee on November 6, 1996, the Board of
Directors unanimously approved the First Amendment and at a joint meeting with
the Special Committee held on February 3, 1997, unanimously approved the Second
Amendment. The Board of Directors has determined that the Merger is fair to and
in the best interest of the Company's stockholders, and has approved the Merger
Agreement and resolved to recommend that the Company's stockholders approve and
adopt the Merger Agreement. For a discussion of the factors considered by the
Special Committee and the Board of Directors in reaching their respective
decisions, see "THE MERGER--Recommendation of the Special Committee and the
Board; Fairness of the Merger," "--Background of the Merger" and "--Opinion of
Raymond James & Associates, Inc."
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THE BOARD, INCLUDING THE SPECIAL COMMITTEE, HAS UNANIMOUSLY RECOMMENDED
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The Special Committee has retained Raymond James to provide financial
advice and other assistance to the Special Committee. On May 14, 1996, Raymond
James delivered its opinion to the Special Committee and the Board of Directors
to the effect that a payment of $2.35 net in cash for each share of the
Company's Common Stock 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 to the Merger Agreement,
on November 6, 1996, Raymond James delivered a new opinion to the Special
Committee that the Merger Consideration ($2.06 per share) is fair to the
Company's public stockholders from a financial point of view. Raymond James has
confirmed that its opinion has not been withdrawn as of the date of this Proxy
Statement. A copy of Raymond James' November 26, 1996 opinion is attached hereto
as Annex B. Stockholders are urged to read this opinion in its entirety for
assumptions made, matters considered, procedures followed and scope of review by
Raymond James in rendering its opinion. See "THE MERGER--Opinion of Raymond
James & Associates, Inc."
THE MERGER AND PAYMENT TO STOCKHOLDERS
If the Merger Agreement is approved and adopted by the stockholders of
the Company and the Merger is consummated, the Company will become a
wholly-owned subsidiary of HAC. The Merger Agreement also provides, among other
things, that the stockholders of the Company will be entitled to receive the
Merger Consideration, without interest, for each of their Shares (other than
Shares held by Cross Country and its affiliates and stockholders who perfect
their statutory appraisal rights under Delaware law). See "THE MERGER
AGREEMENT--Payment for Shares" and "APPRAISAL RIGHTS."
In order to receive the Merger Consideration following the Merger, each
holder of a stock certificate representing Shares (a "Certificate") will be
required to surrender such Certificate, together with a duly executed and
properly completed letter of transmittal and any other required documents, to
Continental Stock Transfer & Trust Company, prior to the Effective Time (as
defined herein) to act as the paying agent (the "Paying Agent"). The Paying
Agent will send instructions to stockholders regarding the procedures for
surrendering Certificates, together with a letter of transmittal to be used for
this purpose, as promptly as practicable after the Merger has been consummated.
See "THE MERGER AGREEMENT--Payment for Shares" and "--The Exchange Fund."
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED PROXY.
RECORD DATE.
5
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RECORD DATE, SHARES ENTITLED TO VOTE
Holders of record of Shares outstanding at the close of business on
April 21, 1997 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. At that date, 5,558,350 Shares were outstanding, each of which
will be entitled to one vote on each matter to be acted upon or which may
properly come before the Special Meeting. A list of stockholders entitled to
vote at the Special Meeting may be examined at the offices of the Company,
located at 400 Sawgrass Corporate Parkway, Sunrise, Florida 33325-6235, during
the 10-day period preceding the Special Meeting.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of one-third of the
outstanding Shares is necessary to constitute a quorum at the Special Meeting.
Holders of Shares on the Record Date are entitled to one vote per Share,
exercisable in person or by a properly executed proxy, at the Special Meeting
with respect to all matters to be acted upon. Under the Company's Certificate of
Incorporation (the "Certificate of Incorporation"), and By-laws, as amended (the
"By-laws") and applicable law, the affirmative vote of the holders of a majority
of the Shares is required to approve and adopt the Merger Agreement. The Company
has been advised that Cross Country is the holder of proxies executed by the
members of the Board of Directors and one executive officer granting Cross
Country the right to vote the Shares held by them, currently 698,481 Shares
(12.56% of the outstanding Shares), as to all matters related to the Merger and
that Cross Country intends to vote such Shares, in addition to the 1,638,500
Shares (29.5% of the outstanding Shares) currently owned by its affiliates, in
favor of the approval and adoption of the Merger Agreement. These proxies were
granted on May 14, 1996. See "THE MERGER--Interests of Certain Persons in the
Merger."
All Shares represented at the Special Meeting by properly executed
proxies received prior to the vote at the Special Meeting, unless previously
revoked, will be voted in accordance with the instructions thereon. If no
instructions are given, proxies will be voted FOR approval and adoption of the
Merger Agreement. Any proxy may be revoked by the person giving it at any time
before it is voted. A proxy may be revoked by filing with the Secretary of the
Company either a written notice of revocation bearing a later date than the
proxy or a subsequent proxy relating to the same Shares, or by attending the
Special Meeting and voting in person (although attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy).
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time") in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"). The Merger Agreement provides that such filing will be
made as soon as practicable following approval and adoption of the Merger
Agreement by the Company's stockholders and the satisfaction or waiver of
certain other conditions stated in the Merger Agreement.
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CONDITIONS TO THE MERGER
The obligations of the Company, Cross Country and Merger Sub to
consummate the Merger are subject to the requisite approval and adoption of the
Merger Agreement by the Company's stockholders, the receipt of certain
regulatory approvals and compliance with certain other covenants and conditions
set forth in the Merger Agreement. See "THE MERGER AGREEMENT-Conditions,
Representations and Covenants."
REGULATORY MATTERS
Seventeen of the states in which the Company's subsidiaries operate
regulate the home warranty business in which such subsidiaries are engaged. The
states of California, Florida 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 by the Company and Cross Country with such
states. All of the states have responded and all requested supplemental forms
have been filed. On January 27, 1997, the state of Virginia's Bureau of
Insurance approved Cross Country's application for pre-Merger approval. On
February 20, 1997, the State of California's Department of Insurance approved
the Merger. On April 11, 1997, the Department of Insurance of the State of
Florida approved the Merger. See "THE MERGER AGREEMENT-Regulatory Matters"
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Company has been advised that on May 14, 1996, the members of the
Board of Directors and one executive officer granted proxies to Cross Country
with respect to 698,481 Shares owned by them (12.56% of the outstanding Shares)
as to all matters related to the Merger and that Cross Country intends to vote
such Shares in favor of the approval and adoption of the Merger Agreement.
Directors and existing officers of the Company will receive the same
consideration for their Shares as the other stockholders of the Company. It is
expected that certain of the current officers of the Company will continue as
officers and key employees of the Surviving Corporation after the Merger. Carl
Buccellato will resign as Chairman, Chief Executive Officer and President of the
Surviving Corporation and Subsidiaries at the Effective Time. In exchange for
agreeing to surrender his rights under his current employment agreement with the
Company and as compensation for his agreement not to compete for a two-year
period, Mr. Buccellato will receive 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. Mr. Buccellato beneficially owns 263,453 Shares (excluding
presently exercisable options to purchase 260,000 Shares at $2.00 per Share) or
approximately 4.7% of the outstanding shares. Gary D. Lipson, a director of the
Company, will receive $100,000 payable in 12 equal monthly installments of
$8,333.33 in consideration of the termination of an engagement agreement between
Mr. Lipson and the Company.
7
<PAGE>
Upon consummation of the Merger, Mr. Buccellato. C. Gregory Morris, Vice
President, Treasurer and Chief Financial Officer of the Company, and Melvin
Stewart, a director of the Company, will receive $15,600, $3,600 and $32,750,
respectively, in settlement of their respective stock options. Certain directors
of the Company are parties to agreements with the Company, which agreements must
be amended or canceled as a condition to the obligations of Cross Country to
proceed with the Merger.
The Company has agreed in the Merger Agreement to provide and maintain
directors' and officers' liability insurance and to indemnify the current
directors and officers of the Company for a period of four years after the
Effective Time. For a more detailed description of the interests of certain
officers, directors and stockholders of the Company in the Merger, see "THE
MERGER--Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Indemnification, Insurance and Releases."
ADVERSE EFFECTS OF THE MERGER ON STOCKHOLDERS
As a result of the proposed Merger, stockholders will have no ownership
interest in the Surviving Corporation and will not participate in any potential
profits of the Surviving Corporation after the Merger. In addition, the payments
or benefits described above in the section captioned "Interests of Certain
Persons in the Merger" will not be made to stockholders who are not officers or
directors of the Company. See "THE MERGER-Adverse Effects of the Merger on
Stockholders."
APPRAISAL RIGHTS
Under Delaware law, stockholders who do not vote in favor of the Merger
and file demands for appraisal prior to the stockholder vote on the Merger
Agreement, upon the consummation of the Merger, have the right to obtain a cash
payment for the "fair value" of their Shares (excluding any element of value
arising from the accomplishment or expectation of the Merger). In order to
exercise such rights, a stockholder must comply with all of the procedural
requirements of Section 262 ("Section 262") of the DGCL, a description of which
is provided in "APPRAISAL RIGHTS" herein and the full text of which is attached
to this Proxy Statement as Annex C. Such "fair value" would be determined in
judicial proceedings, the result of which cannot be predicted. Failure to take
any of the steps required under Section 262 may result in a loss of such
dissenters' rights.
In addition, the Merger Agreement provides that Cross Country may
terminate the Merger Agreement if the holders of more than 10% of the Shares
claim or perfect appraisal rights.
8
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, the receipt of cash by a stockholder pursuant to the Merger
or the exercise of appraisal rights will be a taxable event for such stockholder
for federal income tax purposes and may also be a taxable event under applicable
local, state and foreign tax laws. A stockholder will recognize gain or loss for
federal income tax purposes equal to the difference between: (i) the amount of
cash that he or she has received, and (ii) his or her tax basis in the Shares
surrendered in exchange therefor. Such gain or loss will be capital gain or
loss, provided the Shares are held as capital assets as of the Effective Time.
The tax consequences for a particular stockholder may depend upon the facts and
circumstances applicable to such stockholder. Accordingly, each stockholder
should consult his or her own tax advisor with respect to the federal, state,
local or foreign tax consequences of the Merger.
ALL STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH UNDER
"THE MERGER--CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE STRONGLY URGED TO
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL LAW INCOME TAX
CONSEQUENCES TO THEM OF THE MERGER, AS WELL AS THE POSSIBLE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
SOURCE OF FUNDS; ABSENCE OF FINANCING CONDITION
The total amount of funds required for Cross Country to consummate the
Merger, is estimated to be approximately $8.0 million. This amount does not
include the $2.75 million paid by The Cross County Group, L.L.C. to purchase the
judgment held by ANIC.
HAC and Merger Sub will obtain the funds required to consummate the
Merger from borrowings by HAC and Cross Country pursuant to the Credit Agreement
(as defined herein) in the amount of $25 million (the "Financing") with Fleet
Bank N.A. (the "Bank"). The Credit Agreement has been executed and funding will
occur simultaneously with the consummation of the Merger. See "SOURCE AND AMOUNT
OF FUNDS."
Pursuant to the Merger Agreement, Cross Country has no right to
terminate its obligations to consummate the Merger if it is unable to obtain
financing. The Special Committee and the Board of Directors viewed this as a
positive factor in recommending the Merger to the stockholders. See "THE
MERGER-Recommendation of the Special Committee and the Board; Fairness of the
Merger."
9
<PAGE>
FAILURE TO CONSUMMATE THE MERGER
In the event that the Merger is not consummated because it is not
approved by the required vote of the stockholders of the Company, holders of
more than 10% of the Shares claim or perfect appraisal rights or any other term
or condition to the consummation of the Merger is not satisfied or waived, it is
likely that the Company will be without adequate resources to pay the full
amount due to The Cross County Group, L.L.C. as holders of the ANIC judgment
which would become immediately due and payable under the Settlement Agreement.
In such event, the Company would be forced to seek alternatives to paying the
full amount of the judgment (reduced by the amount of the payment as a result of
the federal income tax refund). No other alternatives are presently being
considered.
FEES AND EXPENSES OF THE MERGER UPON TERMINATION
The Company has agreed that in the event that the Merger Agreement is
terminated for certain reasons, including the holders of in excess of 10% of the
Shares claiming or perfecting appraisal rights, the Board of Directors of the
Company recommending a merger or acquisition transaction other than the Merger,
the Board of Directors of the Company withdrawing, modifying or amending its
recommendation contained in this Proxy Statement in any respect materially
adverse to Cross Country or Merger Sub, or the stockholders of the Company
failing to approve the Merger, the Company will reimburse Cross Country for all
of the reasonable, documented, out-of-pocket expenses actually incurred by Cross
Country and Merger Sub in connection with the Merger including expenses of legal
counsel, investment bankers and accountants, plus a fee of $500,000. See "THE
MERGER AGREEMENT--Fees and Expenses."
PRICE RANGES OF SHARES; DIVIDENDS
The Shares are listed on the Nasdaq National Market ("NMS") under the
symbol HOMG. On April 3, 1996, the last trading day prior to the filing by Cross
Country of a Schedule 13D announcing that it had acquired in excess of five
percent of the Shares, the reported closing sales price per Share on the NMS was
$1-1/2. On May 13, 1996, the last trading day prior to the Company's
announcement of the execution of the Merger Agreement, the reported closing
sales price per Share on the NMS was $1- 7/8. On November 6, 1996, the last
trading day prior to the Company's announcement of the First Amendment, the
reported closing sales price per Share on the NMS was $1-1/2. On February 4,
1997, the day prior to the Company's announcement of signing of the Second
Amendment, the reported closing sales price per share on the NMS was $1-13/16.
On May 5, 1997, the last trading day prior to the date of this Proxy Statement,
the reported closing sales price per Share on the NMS was $1-5/8. Stockholders
are urged to obtain current quotations for the Shares. Certain agreements to
which the Company is a party impose restrictions on the payment of dividends. In
addition, the Merger Agreement prohibits the declaration of dividends or
distributions with respect to the Shares. See "PRICE RANGES OF SHARES;
DIVIDENDS."
10
<PAGE>
SELECTED FINANCIAL DATA
The following summarized consolidated financial data is qualified in its
entirety by the more detailed financial information, including the Company's
financial statements, included in the Company's Annual Report on Form 10-K for
the year ending December 31, 1996 incorporated into and accompanying this Proxy
Statement.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
INCOME STATEMENT (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue $ 45,578 $ 51,397 $ 33,194 $ 44,692 $ 45,531
Income (loss) from continuing operations 3,891 5,361 (742) (2,208) (1,322)
before income taxes
Income (loss) from continuing operations 1,879 3,216 (658) (1,361) (867)
Discontinued operations:
Loss from operation of discontinued -- (6,228) -- (3,216) (1,559)
reinsurance segment
Estimated loss on reinsurance portfolio -- (9,009) -- -- --
transfer
Net income (loss) $ 1,879 $(12,021) $ (658) $ (1,855) $ (2,426)
CASH FLOW FROM OPERATING ACTIVITIES 2,755 (1,557) 3,046 (667) 4,347
(in thousands)
Dividends Declared Per Common Share $ 0.20 $ 0.10 $ 0.00 $ 0.00 $ 0.00
Balance Sheet (in thousands)
Cash and investments $ 19,176 $ 18,154 $ 19,625 $ 17,054 $ 15,346
Total assets 41,068 45,894 39,527 38,757 37,651
Long-term debt, net of current portion 22 3,107 3,317 2,592 1,798
Deferred home warranty revenue in excess of
deferred home warranty acquisition costs 8,196 9,994 10,441 10,572 11,631
Stockholders' equity 21,820 8,782 8,152 6,365 3,931
PER SHARE DATA
Income (loss) from continuing operations $ 0.34 $ 0.58 $ (0.12) $ (0.25) $ (0.16)
Discontinued operation:
Loss from operation of discontinued -- (1.12) -- (0.58) (0.28)
reinsurance subsidiary
Estimated loss on reinsurance portfolio -- (1.62) -- -- --
transfer
Net income (loss) 0.34 (2.16) (0.12) (0.33) $ (0.44)
Stockholders' equity $ 3.93 $ 1.58 $ 1.47 $ 1.15 $ 0.71
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,561 5,559 5,558 5,558 5,558
(in thousands)
</TABLE>
11
<PAGE>
GENERAL INFORMATION
VOTING AT THE SPECIAL MEETING; REQUIRED VOTE
The Board of Directors has fixed the close of business on April 21, 1997
as the Record Date. As of the Record Date, there were 5,558,350 Shares entitled
to vote at the Special Meeting and there were 99 holders of record of such
Shares. Holders of Shares on the Record Date are entitled to one vote per Share,
exercisable in person or by a properly executed proxy, at the Special Meeting
with respect to all matters to be acted upon.
The presence, in person or by properly executed proxy, of the holders of
one-third of the outstanding Shares is necessary to constitute a quorum at the
Special Meeting. Pursuant to the Certificate of Incorporation, By-laws and
applicable law, the affirmative vote of the holders of a majority of the Shares
is necessary to approve and adopt the Merger Agreement. Abstentions will be
counted as present for purposes of determining whether a quorum is present.
Since the Merger requires the approval of a majority of the outstanding Shares,
abstentions will have the same effect as a negative vote. Under the rules of the
New York Stock Exchange and the National Association of Securities Dealers,
member organizations which hold shares in street name for customers will not
have the authority to vote on the Merger unless they receive specific
instructions from beneficial owners. Under the DGCL, such a non-vote will not be
counted as present for purposes of a quorum and will otherwise have the same
effect as a vote against the Merger. The Company has been advised that Cross
Country is the holder of proxies executed by the members of the Board of
Directors and one executive officer of the Company granting Cross County the
right to vote the Shares held by them, currently 698,481 Shares (12.56% of the
outstanding Shares) with respect to all matters relating to the Merger and that
Cross County intends to vote said Shares in addition to the 1,638,500 Shares
(29.5% of the outstanding Shares) currently owned by its affiliates in favor of
the approval and adoption of the Merger Agreement.
PROXIES
All Shares represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, unless such proxies
previously have been revoked, will be voted at the Special Meeting in accordance
with the instructions on the proxies. If no such instructions are indicated,
proxies will be voted FOR approval and adoption of the Merger Agreement. The
Board of Directors does not know of any matters, other than as described in the
attached Notice of Special Meeting of Stockholders, which are to come before the
Special Meeting. If any other matters are properly presented at the Special
Meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with the Secretary of the Company written notice of revocation bearing a
later date than the proxy; by duly executing and delivering
12
<PAGE>
to the Secretary of the Company, at or prior to the Special Meeting, a
subsequent proxy relating to the same Shares; or by attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not, by itself, constitute revocation of a proxy). Any written notice revoking a
proxy should be sent to Homeowners Group, Inc., 400 Sawgrass Corporate Parkway,
Sunrise, Florida 33325-6235, Attention: Karen Childress, Secretary.
Proxies are being solicited by and on behalf of the Company's Board of
Directors. The Company will bear the cost of preparing and mailing the proxy
material furnished to the Company's stockholders in connection with the Special
Meeting. The Company will solicit proxies by mail, and the Company's directors,
officers and employees may also solicit proxies by telephone, telegram, personal
contact or otherwise. Such persons will receive no additional compensation for
such services but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will be made to furnish copies
of solicitation materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Shares held in the names of such fiduciaries,
custodians and brokerage houses. Such persons will be paid reasonable
out-of-pocket expenses. The Company has retained the firm of Corporate Investor
Communications, Inc., for a fee of $4,500 plus reasonable out-of-pocket
expenses, to assist in the solicitation of proxies by the methods described
above.
No person is authorized to give any information or make any
representation not contained in this Proxy Statement, and, if given or made,
such information or representation should not be relied upon as having been
authorized by the Company or by Cross Country or their affiliates.
FORWARD-LOOKING INFORMATION AND ASSOCIATED RISK
Management believes that this Proxy Statement contains forward-looking
information within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including statements regarding, among
other items, the Company's earnings. This forward-looking information is based
largely on the Company's revenues and expectations and is subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially as a result of the factors described in
the section "THE MERGER--Opinion of Raymond James & Associates, Inc.",
including, among others, general economic conditions and competitive factors. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Proxy Statement will in fact
transpire.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, is required to file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission") relating to its business, financial statements and other
matters. Such reports, proxy statements and other information, are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 W.
Madison Street, 14th Floor,
13
<PAGE>
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. In addition, such reports, proxy statements and other information
can be obtained from the Commission's web site at http://www.sec.gov. Copies of
such material also can be obtained from the Commission at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials
may also be inspected at the offices of the Nasdaq National Market System, 1735
K Street, N.W., Washington, D.C. 20006.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning beneficial
ownership, as of April 21, 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 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 April 21, 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.
BENEFICIAL OWNERSHIP
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENT
---------------------------------------- -------------- ---------
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%
Sandra Stewart Bernstein 406,862 (8) 7.3%
2810 North 46th Avenue
Hollywood, FL 33021
Dimensional Fund Advisors, Inc. 293,500 (8) 4.9%
1299 Ocean Avenue
Santa Monica, CA 90401
NAPAQ Corporation, et al 611,500 (9) 10.3%
4040 Mystic Valley Parkway
14
<PAGE>
BENEFICIAL OWNERSHIP
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENT
---------------------------------------- -------------- ---------
Boston, MA 02155
DC Investment Partners Opportunity Fund, L.P 989,500 (10) 17.8%
2200 Abbott Martin Road, Suite 201
Nashville, TN 37215
All Directors and Executive Officers
as a Group (6 persons) 1,103,878 (11) 18.6%
- ---------------
(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 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) Ownership shares and percentages based upon the Schedules 13G as
provided to the Company.
(9) Ownership shares and percentages based on Schedules 13D, as amended, as
provided to the Company. Consists of four related persons that own
positions: NAPAQ Corporation, HAC, Inc., Cross Country Motor Club, Inc.
and Jeffrey C. Wolk. Each of these persons is affiliated with The Cross
Country Group, Inc. On May 6, 1997, HAC, Inc. purchased the 1,027,000
shares owned by D.C. Investment Partners Opportunity Fund, L.P.,
increasing the ownership of shares of the Company's Common Stock by The
Cross Country Group, Inc. and its affiliates to 1,638,500 shares.
15
<PAGE>
(10) Ownership shares and percentages based on Schedule 13D, as amended, as
provided to the Company. Consists of four related parties that own
positions: D. Robert Crants, Michael W. Devlin, Lucius E. Burch and the
Stephens Group, Inc. On May 6, 1997, HAC, Inc. purchased the 1,027,000
shares of HOMG beneficially owned by D.C. Investment Partners
Opportunity Fund, L.P. ("D.C. Investors"). As a result of such purchase,
D.C. Investors no longer owns any shares of 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.
Ms. Gruber, Messrs. Buccellato, Lipson, Morris and Stewart and Dr.
Nocero have advised the Company that they have granted proxies to Cross Country
with respect to the right to vote the Shares held by them, currently 698,481
Shares (12.56% of the outstanding Shares), with respect to all matters relating
to the Merger.
THE MERGER
PARTIES TO THE MERGER
HOMEOWNERS GROUP, INC.
The Company was incorporated in 1988 in Delaware to act as the holding
company for Homeowners Marketing Services, Inc. ("HMS") and its subsidiaries,
which became subsidiaries of the Company in the same year as a result of a
reorganization prior to the Company's sale of its Shares in a public offering.
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/registered
16
<PAGE>
mark), the HMS BuyerTrack/registered mark/ 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.
Franchise realty organizations, such as CENTURY 21/registered mark/,
ReMax/registered mark/ and others, provide to their franchisees certain products
and services, some of which are similar to those offered by the Company.
However, access to such products and services generally requires an initial
financial commitment by the real estate brokerage firm, payment of a
predetermined percentage of revenues to the franchisor and mandatory utilization
of some of the franchisor's products and services. Under the Company's program,
Members pay for the Company's products and services which they elect to use,
once the initial membership fee and/or annual renewal fee has been paid. The
Company's membership agreement does not prohibit membership in any real estate
related franchise or service, and many HMS Members are also members of franchise
realty organizations.
THE CROSS COUNTRY GROUP, INC.
Cross Country is a privately held company engaged primarily in providing
emergency roadside assistance on behalf of major corporations and other
organizations. Cross Country also provides loss reporting, address change,
consumer affairs, customer support and home assistance services for various
customers throughout the United States through various affiliates. The principal
executive offices of Cross Country are located at 4040 Mystic Valley Parkway,
Medford, Massachusetts 02133, and the telephone number is (617) 393-9300.
CROSS COUNTRY ASSOCIATES, L.L.C.
Associates is a privately held limited liability company formed solely
for the purpose of holding the stock of HAC, and has not engaged in any business
activity unrelated to the Merger. The Managing Members of Associates are
substantially the same as the stockholders of Cross
17
<PAGE>
Country. The principal executive offices of Associates are located at 4040
Mystic Valley Parkway, Medford, Massachusetts 02133.
HAC, INC.
HAC is a direct, wholly-owned subsidiary of Associates formed solely for
the purpose of holding the stock of the Company following the Merger, and has
not engaged in any business activity unrelated to the Merger.
CC ACQUISITION CORPORATION
Merger Sub is a wholly-owned subsidiary of HAC and assignee of CHGI's
rights and obligations under the Merger Agreement. Merger Sub was formed solely
for the purpose of the Merger and has not engaged in any business activity
unrelated to the Merger.
CHGI ACQUISITION CORPORATION
CHGI is a direct, wholly-owned subsidiary of Cross Country formed solely
for the purpose of the Merger and has not engaged in any business activity
unrelated to the Merger. On June 14, 1996, CHGI assigned its rights and
obligations under the Merger Agreement to Merger Sub.
BACKGROUND OF THE MERGER
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.
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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,
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, 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 the ANIC litigation 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.
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On December 13, 1995, a jury in the Court of Common Pleas of Franklin
County, Ohio, rendered a verdict against HMS, in favor of ANIC in the amount of
$5,156,022. The Company then engaged in negotiations with ANIC in an effort to
reach a settlement with respect to payment of the judgment.
The Company and Warrantech were unable to conclude an agreement. The
failure to reach agreement was principally due to the impact on the Company of
the ANIC 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 its judgment. As a condition of ANIC agreeing to refrain from
exercising its rights under its judgment, the Company was required to waive its
rights to appeal the ANIC 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, 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 ANIC 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.
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 its 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
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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 its 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 against HMS 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 said 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.
FIRST AMENDMENT TO THE MERGER AGREEMENT
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
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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 its 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.
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
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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
(See "THE MERGER AGREEMENT-Conditions, Representations and Covenants") 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
its judgment, making The Cross Country Group, L.L.C. the holder of the judgment
against HMS, a subsidiary of the Company. 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 Country Group, L.L.C.'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 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 a
judgment
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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 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 ANIC judgment without
the large investment by Cross Country, the amendment to the Rights Plan was
deemed acceptable.
On December 20, 1996, HAC acquired 120,000 Shares 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 5, 1997, HAC
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.
SECOND AMENDMENT TO THE MERGER AGREEMENT
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
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Merger and the time for satisfaction of the ANIC 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.
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.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD; FAIRNESS OF THE MERGER
At a joint meeting of the Special Committee and the Board of Directors
held on November 6, 1996, the Special Committee and the Board of Directors
unanimously approved the First Amendment, determined that the Merger is fair to
and in the best interest of the public stockholders of the Company and resolved
to recommend that the stockholders approve and adopt the Merger Agreement.
On May 5, 1997, the Special Committee held a telephonic conference with
representatives of Raymond James and counsel to the Special Committee. During
this telephonic conference, Raymond James confirmed that it had not withdrawn
its fairness opinion attached hereto as Annex B. After participating in the
foregoing discussion, the Special Committee confirmed its determination that the
Merger is fair to the stockholders of the Company, which confirmation was based
on the factors considered in connection with the Special Committee's initial
fairness determination as discussed below.
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The Special Committee and the Board of Directors held a meeting on May
5, 1997, wherein the Special Committee discussed its prior meeting with Raymond
James and the fact that the Special Committee had confirmed its determination
that the Merger is fair to the stockholders of the Company. After participating
in the foregoing discussion, the Board of Directors confirmed its determination
that the Merger is fair to and in the best interest of the public stockholders
of the Company, which confirmation was based on the factors considered in
connection with the Board of Directors' fairness determination as discussed
below.
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 assigned
particular weight to items (i) - (vii). Of these items, the Special Committee
and the Board of Directors concluded that (i) and (ii) were of the most
importance as they lead to the conclusion that the failure to consummate the
Merger would result in little opportunity for the Company to generate profits
for stockholders. Items (iii) through (vii) were also considered to be
significantly relevant because they lead to the conclusion that the Merger
Consideration to be received by the Company's public stockholders is fair and
reasonable. The remainder of the items (viii - xv) 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 and the
conclusion of management that such losses could not be reversed in the
near future.
(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 its judgment in the absence of a settlement;
(c) extension of the period during which the holder of the
judgment would agree to refrain from taking action against the
Company under the Settlement Agreement until the earlier of: (i)
July 1, 1997 or (ii) termination of the Merger 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.
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(iii) The opinion of Raymond James regarding the fairness, from a
financial point of view, of the Merger Consideration to the public
stockholders of the Company and the written report and oral
presentations regarding such report by Raymond James to the Special
Committee and the Board of Directors. See "Background of Merger" and
"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 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
Merger Consideration to be received by the public stockholders was well
supported and sound and adopted their analysis.
(iv) The significant premium by which the Merger Consideration of
$2.06 per Share exceeds the last closing sales price ($1.50) of the
Shares on the day prior to the filing by Cross Country of a Schedule 13D
reporting that it and its affiliates had acquired in excess of five
percent of the outstanding Shares, the premium by which the Merger
Consideration exceeds the highest price at which the Shares traded in
the six months ($1.75) preceding such announcement date, and the fact
that the Merger Consideration is substantially in excess of the
Company's book value per Share of $1.11 at September 30, 1996. The
Special Committee and the Board of Directors believed that these
premiums are comparable to, or in excess of, premiums paid in recent
acquisition transactions and supported the Special Committee's and the
Board of Directors' determination as to the fairness of the Merger.
However, due to the inherent differences between the business operations
and prospects of the Company and the businesses, operations and
prospects of other acquired companies available for analysis, there were
a limited number of comparable transactions considered by Raymond James.
Accordingly, Raymond James concluded it was inappropriate to, and did
not rely solely on the historical takeover analysis.
(v) 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.
(vi) The terms and conditions of the Merger Agreement, including
the opportunity that all of the Company's stockholders will have to
dispose of all of their Shares for cash.
(vii) The continued ability of the Board of Directors under the
Merger Agreement to furnish confidential information to, and to discuss
and negotiate with, any third party that has initiated contact with the
Company or any of its subsidiaries, if the Board of Directors
determines, in good faith, based upon the advice of the Company's
independent outside counsel, that such action is required to satisfy the
Board of Directors' fiduciary duties to the Company's stockholders. See
"THE MERGER AGREEMENT-Termination; Amendments" and "-Fees and Expenses."
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(viii) The fact that the Merger Agreement does not permit Cross
Country to terminate its obligation to consummate the Merger if it is
unable to obtain financing for the transaction. In addition, the Company
has been advised that Cross Country has entered into an agreement for
such financing. The Board of Directors and the Special Committee
favorably assessed Cross Country's ability to cause the Merger to be
consummated given the nature and sources of Cross Country's financing
agreement with respect to the Merger, the institution entering into such
agreement and the limited conditions to the obligations of such
institution to fund such loan. See "SOURCE AND AMOUNT OF FUNDS."
(ix) The Board of Directors' and Special Committee's belief that
Cross Country would be able to obtain the regulatory approvals necessary
to consummate the Merger.
(x) The establishment of the Special Committee to make an
independent determination as to the fairness of the Merger supported the
Board of Directors' and the Special Committee's determination of
fairness.
(xi) 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.
(xii) The risk that the Merger would not be consummated in light
of the conditions to the consummation of the Merger, which were
considered by the Special Committee and the Board of Directors to be
minimal after the execution of the First Amendment.
(xiii) The opportunity stockholders have to demand appraisal of
their Shares in accordance with Delaware law. While the Special
Committee and Board of Directors believe the Merger is 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
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continued operations as an independent entity to represent little
opportunity for profit to the stockholders, particularly in light of the
ANIC judgment.
(xv) The amendment of the Shareholder Rights Agreement permitting
Cross Country to acquire additional Shares which the Board of Directors
and Special Committee viewed as a negative in light of the inhibiting
effect on other potential bidders. However, in light of the absence of
other bidders through the bidding process, this factor was outweighed by
the willingness of Cross Country to purchase the ANIC judgment for $2.75
million and agree to refrain from commencing execution on the same.
The Board of Directors and the Special Committee viewed the modification
of the arrangements with Mr. Buccellato and Cross Country as a relationship
between those two parties and did not consider such agreement to have any impact
on the consideration to be paid to the stockholders of the Company.
The foregoing analysis was conducted based upon the First Amendment to
the Merger Agreement. A similar analysis had been undertaken by the Board of
Directors and the Special Committee in connection with the Original Merger
Agreement. Such analysis resulted in the conclusion that the price of $2.35 per
share was fair and in the best interests of the stockholders.
As noted above, the effect of the First Amendment was to, among other
things, reduce the Merger Consideration from $2.35 to $2.06 per share. Upon
notification from Cross Country after execution of the Original Merger Agreement
that it would be unwilling to consummate the Merger on the terms set forth in
the Original Merger Agreement unless certain obligations and relationships which
were brought to the attention of Cross Country were terminated or modified in a
manner acceptable to Cross Country, members of the Special Committee, together
with counsel, met with both representatives of Cross Country and its counsel and
representatives of the other parties to the relationships which Cross Country
believed had an adverse impact on the Company. Efforts to resolve the issues
without payment of substantial funds were unsuccessful. Although the Company
believes that the disclosures to Cross Country in connection with the Original
Merger Agreement were appropriate and complete, based upon the absence of viable
alternatives available to the Company, particularly in light of continuing
losses and the ability of the holder of the ANIC judgment to enforce its rights
under the judgment, the Special Committee and the Board of Directors, after
again reviewing the items listed above, determined that consummating the Merger
at the reduced merger price represented the best available alternative for the
stockholders of the Company. The Special Committee and the Board therefore
concluded that the reduced merger price is fair to and in the best interest of
the public stockholders. The Board and the Special Committee also concluded that
all of the factors listed above were still applicable, particularly the first
five items. Additional information with respect to this conclusion and the
events which occurred after the execution of the Original Merger Agreement is
discussed in "Background of the Merger" and "First Amendment to the Merger
Agreement."
The Special Committee and the Board of Directors, at a joint meeting
held on February 3, 1997, determined that it would not be possible to complete
the Merger prior to the January 31, 1997 deadline established by the First
Amendment. As the Special Committee and the Board
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continued to believe that the Merger was in the best interests of the Company
and the stockholders, it was therefore determined to enter into the Second
Amendment to extend the deadline until July 1, 1997. See "-Second Amendment to
the Merger Agreement."
CONTINGENT LIABILITY TO CNA
In connection with the transfer of the net assets of POMG Insurance
Company, Ltd. ("POMG"), a now liquidated Company subsidiary which conducted the
Company's reinsurance operations, to Continental Casualty Company ("CNA") and
the assumption by CNA of the obligations of POMG under certain realtor's errors
and omissions policies, the Company guaranteed the performance by Sphere Drake
Insurance PLC ("Sphere Drake"), a third party reinsurance company, under a $5
million reinsurance treaty purchased by POMG to protect it from losses in excess
of a predetermined amount. Under the terms of the Company's guarantee, CNA, as
the transferee of the reinsurance treaty, bears any credit risk under the
treaty, including, but not limited to, any risk that Sphere Drake becomes
insolvent, is adjudicated as a bankrupt or has liquidation or similar
proceedings commenced against it. The Company has placed $3 million into a
collateral account to secure its guarantee (the "Collateral Account"), and has
also agreed, if necessary, to pay the additional $2 million related to the
guarantee from future commissions. On April 10, 1996, CNA issued a Notice of
Arbitration to the reinsurer with respect to its refusal to honor the
reinsurance treaty.
The Company, CNA and Sphere Drake are engaged in settlement discussions
with respect to the reinsurance treaty. Although terms are not finalized, it is
possible that the Company could pay a substantial portion of the Collateral
Account to CNA under the currently proposed settlement agreement. The potential
settlement agreement is contingent upon the closing of the Merger. As a result
of these settlement negotiations, the Company recorded a loss provision of $2.5
million for the guarantee in its Consolidated Statements of Operations for 1996.
Should the Merger fail to be consummated, the potential settlement agreement
will be null and void and the Company will continue to be contingently liable
for the entire $5 million under the conditions described in the preceding
paragraph. In such event, the Company will attempt to negotiate a settlement,
but there can be no assurance that it will be successful in such efforts.
As part of the transfer of the POMG assets, the Company is further
obligated to pay five percent of all commissions on realtors' errors and
omissions policies up to a maximum of $5 million to cover the losses of CNA on
assumed policies. A "holdback fund" has been established to accumulate said
funds. Under the current agreement, the Company is obligated to make additional
payments to the holdback fund if certain premium production levels are not met.
In connection with the proposed settlement with CNA which is, as noted above,
contingent upon the closing of the Merger, the holdback fund agreement will be
modified to require payment to the fund only out of commissions actually earned
on policies sold. Should the Merger fail to be consummated, there will be no
adjustment to the current agreement.
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OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
The Special Committee retained Raymond James to render an opinion as to
the fairness, from a financial point of view, of the consideration to be issued
to stockholders of the Company in the Merger. Raymond James is a nationally
recognized investment banking firm and as part of its investment banking
business, Raymond James is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. The
Company selected Raymond James to render a fairness opinion in connection with
the Merger because of Raymond James' experience in transactions similar to the
Merger as well as Raymond James' engagement as the Company's financial advisor
since January 1995 and its involvement in the Company's consideration of various
strategic alternatives since that time.
Raymond James delivered to the Special Committee an opinion letter,
dated November 26, 1996, which stated that, based on the assumptions and subject
to qualifications set forth therein which are summarized below, as of November
26, 1996, the consideration to be received by the stockholders of the Company in
the Merger was fair, from a financial point of view, to the stockholders of the
Company. Raymond James was involved in structuring the Merger, soliciting
potential purchasers of the Company, and assisted in negotiating the terms of
the Merger. Raymond James was not requested to , and accordingly did not,
express any opinion with respect to the underlying business decision of the
Company to effect the Merger, the structure or tax consequences of the Merger
Agreement or the availability or advisability of any alternatives to the Merger.
THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND JAMES WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATION ON AND THE
SCOPE OF REVIEW BY RAYMOND JAMES IN RENDERING ITS OPINION IS ATTACHED AS ANNEX B
TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF
THE COMPANY ARE URGED TO READ RAYMOND JAMES' OPINION IN ITS ENTIRETY.
In connection with Raymond James' review of the proposed Merger and the
preparation of its opinion, Raymond James examined (i) the financial terms and
conditions of the Merger Agreement; (ii) the audited financial statements of the
Company and its affiliates; (iii) certain unaudited financial statements and
operating reports of the Company, its subsidiaries and affiliates; (iv) certain
internal financial analyses and forecasts for the Company, its subsidiaries and
affiliates prepared by 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.
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
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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 November
26, 1996 and such opinion specifically stated that any change in such
circumstances would require a reevaluation of their opinion.
In conducting their investigation and analyses and in arriving at their
opinion expressed herein, Raymond James took into account such accepted
financial and investment banking procedures and considerations as they deemed
relevant, including the review of (i) historical and projected revenues,
operating earnings, net income and capitalization of the Company 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.
PRO FORMA ANALYSIS. Raymond James prepared for the Board of Directors a
pro forma analysis of the Company's 1995 income statement and management's 1996
and 1997 projected income statements. As warranty contracts are only for a
one-year term, the Company did not believe that projections beyond 1997 were
sufficiently reliable to be of value in this analysis. 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 $1,908,656 or $0.34 per
share. Raymond James adjusted the Company's reported results on a pro forma
basis to account for several non-recurring or one-time items including: (i) the
elimination of non-recurring legal, consulting and other related expenses; (ii)
the elimination of 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 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 $0.21
Management provided Raymond James with a projection for the balance of
1996 and for 1997. Management noted that said projections were similar to those
previously provided to Cross Country. Raymond James adjusted managements'
projections to account for: (i) the elimination of non-recurring legal,
consulting and other related expenses; and (ii) the elimination of capital gains
and benefits from securities being marked to market at a profit. The effect of
the adjustments had no impact on the Company's projected revenues for 1996
($46.3 million) or 1997 ($46.9 million). Such adjustments increased the
Company's projected net earnings on a pro
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forma basis to $575,000 and projected net earnings per share on a pro forma
basis in 1996 to $0.10. These adjustments increased projected net earnings on a
pro forma basis in 1997 to a loss of $49,000 and increased net earnings per
share to a loss of $0.01 in 1997. Raymond James also calculated a pro forma
projected revenues, net income and earnings per share in 1997 assuming a 10%
increase in warranty revenue production over projected 1996 levels. After all
adjustments and assuming a 10% increase in direct warranty expenses, this pro
forma calculation indicated revenues of $49.6 million, net income of $263,000
and earnings per share of $0.05. Raymond James relied solely on management's
projections and calculated more favorable projections solely for illustrative
purposes. Raymond James provided no opinion, and did not state that these
adjusted projections were more appropriate than the projections provided by
management.
Raymond James noted that its pro forma calculations did not take into
account the negative effect of funding the ANIC judgment or its settlement nor
did they take into account any profit-sharing payments to Affiliates in either
1996 or 1997, all of which would have the effect of reducing pro forma earnings.
Management's projections for 1996 anticipated an increase in home warranty
production over 1995 and a 3.5% increase in 1997 over 1996 but a material
decrease in membership related revenue in both years due to decreasing
participation in the Company's E&O program and a 5% increase in general and
administrative costs in 1997. Raymond James also noted that the Company, through
the third quarter of 1996, was not performing to the original 1996 projections
provided earlier in the year, primarily due to continued deterioration in the
Company's membership-related revenue at a faster than anticipated rate and also
due to higher than projected warranty claims expense.
MARKET VALUATION ANALYSIS. Raymond James prepared for the Board of
Directors an analysis of the relationship of several transaction values for the
Common Stock of the Company ranging from $1.80 to $2.35 per share to (i) the
nominal book value per share of Common Stock at September 30, 1996, and (ii) the
closing sale price of the Common Stock on various dates prior to the date Cross
Country filed its initial Form 13-D with the Securities and Exchange Commission
(April 4, 1996).
At a transaction value of $2.06 per share, the market valuation analysis
indicated a 85.7% premium over the Company's nominal book value per share of
$1.11 at September 30, 1996, a 37.3% premium over the closing market price
($1.50) one day prior to the initial Cross Country Group 13-D filing, a 24.1%
premium over the closing market price ($1.66) one week prior to the initial
Cross Country Group 13-D filing, and a 106.0% premium over the closing market
price ($1.00) four weeks prior to the initial Cross Country Group 13-D filing.
Raymond James also analyzed and calculated the Company's Enterprise
Value at various transaction values for the Common Stock of the Company ranging
from $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 transaction values per share plus funded debt to be assumed
by a buyer as of September 30, 1996, plus the value of the ANIC settlement less
excess available cash projected as of December 31, 1996. Raymond James then
compared these Enterprise Values to the Company's trailing 12 months revenues as
of September 30, 1996 and the number of warranty contracts sold by the Company
over the same trailing 12 month period.
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At a transaction value of $2.06 per share, the ratio of Enterprise Value
to trailing 12 months revenues was 0.43x, and Enterprise Value divided by
warranty contracts sold was $167.
Raymond James also prepared for the Board of Directors an analysis of
the relationship between various pro forma transaction values and pro forma
1995, projected 1996 and 1997, and pro forma projected 1996 earnings per share.
Raymond James added $0.75 per share on a pro forma basis to the $2.06 per share
to be paid to the stockholders in the Merger. This $0.75 represents 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 Cross Country 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 transaction value of $2.81 (pro forma equivalent to the
$2.06 transaction value), Raymond James' analysis indicated price-to-earnings
ratios of 13.4x for pro forma 1995 earnings per share ($0.21), 28.1x for pro
forma projected 1996 earnings per share ($0.10), 56.2x for pro forma projected
1997 earnings per share ($0.05) (which assumes a 10% increase in warranty
production) and a non-meaningful multiple for management's pro forma projected
1997 net loss per share of ($0.01) (which assumes no increase in warranty
production).
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.
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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 noted that the
price-to-earnings multiples derived from the Cross Country-Company transaction
compared favorably to the ServiceMaster-American Home Shield transaction, and
further indicated that they considered this measure one of the most meaningful
given the different circumstances of the companies and time periods involved.
Raymond James also analyzed the March 1996 acquisition of Sierra Home
Service Companies, Inc. by American Home Shield Corporation (still a subsidiary
of ServiceMaster). Raymond James noted that in this transaction, Sierra's
Enterprise Value divided by home warranty contracts outstanding approximated
$159. Enterprise Value to trailing 12 months revenues was approximately 0.49x
and the premium to book value per share was approximately 64%. No
price-to-earnings multiples were relevant as Sierra had been unprofitable in the
periods preceding its sale.
Raymond James noted that the Market Valuation Analysis of the Cross
Country - Company transaction indicated multiples and ratios which were lower
than the ServiceMaster American Home Shield transaction, with the notable
exception of the price-to-earnings multiples. Raymond James also noted that the
same analysis indicated that the Cross Country - Company transaction multiples
and ratios approximated or materially 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
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
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less than 4% had traded above $2.00 per share. The Common Stock traded for $1.50
per share on the day prior to the announcement of the Acceleration judgment and
$0.75 per share on the date of such announcement. Raymond James also noted the
trading history of the stock since the initial May 14, 1996 announcement of the
Cross Country transaction. 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 33.3%, 40.8% and 43.9%, respectively. The average premiums
calculated were 43.7%, 51.0% and 53.7%, 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 Cross Country Form 13-D filing are 37.3%,
24.1% and 106.0%, respectively. Raymond James noted that the premiums to be paid
to the Company's stockholders over book value; historic stock prices, including
those existing at the time of the Company's initiation of the sale process; and
recent stock prices were material and generally supported its conclusions.
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.
In evaluating the fairness of the consideration to be paid to the
Company's stockholders pursuant to the Merger Agreement, including the decrease
in consideration from $2.35 to $2.06 per share, Raymond James noted to the
Special Committee and the Board of Directors that (i) the Company was not
performing to the original 1996 projections provided earlier in the year upon
which the $2.35 was partially determined to be fair, (ii) the value of the
Company to potential acquirers, including Cross Country, was reduced due to
economic and liability issues first identified by Cross Country several months
after the execution of the Original Merger Agreement, (iii) the time limitations
imposed by the judgments against the Company significantly reduced the
availability of other alternatives, and (iv) none of the previously interested
potential acquirers had indicated a continued interest in acquiring the Company.
Raymond James noted that its analyses of the transactions in November
1996 versus its analysis in May 1996 reflected decreases in certain measures of
value, such as book value premiums, premiums over historic market prices and
comparable precedent transaction multiples, roughly approximating the price
decrease of $2.35 per share to $2.06. Raymond James also
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noted, however, more material decreases in Company performance including a
decrease in pro-forma projected earnings per share for 1996 from $0.24 in May to
a loss of $0.10 in November 1996.
The Company entered into an engagement letter with Raymond James on
January 28, 1995 pursuant to which the Company retained Raymond James as its
exclusive financial advisor. For its services relating to the fairness opinion
referred to herein, Raymond James received a $50,000 fee upon delivery of its
initial opinion and a $50,000 fee upon delivery of its subsequent written
opinion. For its advisory services, Raymond James received a $50,000 retainer,
and will receive $100,000 upon the closing of the Merger. The Company has also
agreed to reimburse Raymond James for its reasonable out-of-pocket expenses and
has agreed to indemnify Raymond James against certain liabilities that may arise
in connection with its engagement, including liabilities that may arise under
federal securities laws. In the ordinary course of its business, Raymond James
may trade the Common Stock of the Company for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position in such Common Stock.
PLANS FOR THE COMPANY AFTER THE MERGER
HAC expects that the business and operations of the Surviving
Corporation will be continued by HAC substantially as they are currently being
conducted by the Company and its subsidiaries and that HAC will make additional
investments in the Company as appropriate to increase the Company's business.
HAC does not currently intend to dispose of any assets of the Surviving
Corporation, other than in the ordinary course of business. It is anticipated,
however, that HAC will from time to time evaluate and review its businesses,
operations and properties and make such changes as are deemed appropriate.
Except as described in this Proxy Statement, none of Associates, HAC,
Merger Sub or the Company has any present plans or proposals involving the
Company or its subsidiaries which relate to or would result in an extraordinary
corporate transaction such as a merger, reorganization, or liquidation, or a
sale or transfer of a material amount of assets, or any material change in the
present dividend rate or policy, indebtedness or capitalization, or any other
material change in the Company's corporate structure or business. However, HAC
will review proposals or may propose the acquisition or disposition of assets or
other changes in the Surviving Corporation's business, corporate structure,
capitalization, management or dividend policy which it considers to be in the
best interest of the Surviving Corporation and its stockholder.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect
to the Merger, stockholders should be aware that although directors and existing
officers of the Company will receive the same consideration for their Shares as
the other stockholders of the Company, certain members of the Board of Directors
and of the Company's management have interests that may present them with actual
or potential conflicts of interest.
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The Company has been advised that on May 14, 1996, the members of the
Board of Directors and one executive officer granted proxies to Cross Country
with respect to 698,481 Shares owned by them (12.56% of the outstanding Shares)
as to all matters related to the Merger and that Cross Country intends to vote
such Shares in favor of the approval and adoption of the Merger Agreement.
It is expected that certain of the current officers of the Company will
continue as officers and key employees of the Surviving Corporation after the
Merger. Carl Buccellato will resign as Chairman, Chief Executive Officer and
President of the Surviving Corporation and its subsidiaries at the Effective
Time. In exchange for agreeing to surrender his rights under his current
employment agreement with the Company, Mr. Buccellato will receive 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 following two years plus interest
on the unpaid balance at 8.25% per annum. Mr. Buccellato beneficially owns
263,453 Shares (excluding options to purchase 260,000 Shares) or approximately
4.7% of the outstanding shares. Gary D. Lipson, a director of the Company, 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 and receive payments equal to the excess of $2.06 over
the exercise price. Therefore, upon consummation of the Merger, Mr. Buccellato,
C. Gregory Morris, Vice President, Treasurer and Chief Financial Officer of the
Company, and Melvin Stewart, a director of the Company, will be entitled to
payments of $15,600, $3,600 and $32,750, respectively, in settlement of their
respective stock options.
Certain directors of the Company are parties to area franchise,
management agreements and consulting agreements with the Company (the
"Affiliated Franchisees") which were amended on April 26, 1996 (the
"Amendments"). In addition to the Amendments, one of the Affiliated Franchisees
entered into an option agreement with the Company dated April 26, 1996. The
Affiliated Franchisees have agreed to cancel the option and Amendments prior to
the Effective Time.
In addition, the Company has agreed that, in the event that the Merger
is not consummated for certain reasons, the Company will pay the reasonable
documented out-of-pocket fees, costs and expenses incurred or to be incurred by
Cross Country and Merger Sub and their affiliates and stockholders in connection
with the Merger, including expenses of legal counsel, investment bankers and
accountants, plus a fee in the amount of $500,000. See "THE MERGER
AGREEMENT--Fees and Expenses."
The Company has agreed in the Merger Agreement to provide directors' and
officers' liability insurance and to indemnify the current directors and
officers of the Company. See "THE MERGER AGREEMENT--Indemnification, Insurance
and Releases."
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ADVERSE EFFECT OF THE MERGER ON STOCKHOLDERS
As a result of the proposed Merger, the interest of the stockholders in
the Company will terminate and stockholders will have no ownership interest in
the Surviving Corporation. Stockholders will therefore not participate in any
potential earnings and growth of the Surviving Corporation after the Merger. In
addition, the payments or benefits described in "-Interests of Certain Persons
in the Merger" will not be made to stockholders who are not officers or
directors of the Company. Although the Board of Directors of the Company
believes that the acquisition of the Company pursuant to the Merger Agreement is
fair and in the best interests of the Company and the stockholders, certain
stockholders could conclude that as a result of the payments and
indemnifications described above, the Board of Directors and management of the
Company may have interests that differ from those of the stockholders in
general.
REASONS OF CROSS COUNTRY FOR THE MERGER
Cross Country's reasons for proposing the Merger at this time are its
belief that its sole ownership of the Company could allow greater focus on
long-term objectives and flexibility in the Company's operations rather than the
short-term focus which may have resulted from the effects of current operating
results on the public market for the Shares and that its ability to make
additional capital available will enable the Company to increase its business.
FAILURE TO CONSUMMATE THE MERGER
In the event that the Merger is not consummated, it is likely that the
Company will be without adequate resources to pay the full amount due to The
Cross County Group, L.L.C. under the Settlement Agreement. In such event, the
Company would be forced to seek alternatives to paying the full amount of the
judgment. No other alternatives are presently being considered.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders will no longer
have any interest in, and will not be stockholders of, the Company and,
therefore, will not participate in its future potential earnings and growth and
will not be subject to the risks associated with an investment in the Company.
Instead, each such stockholder will have the right to receive upon consummation
of the Merger a payment of $2.06 in cash for each Share he or she held (other
than Shares held by Cross Country and its affiliates and stockholders who
perfect their statutory appraisal rights under Delaware law) whether or not the
Company's future operations meet the projections on which the determination of
the fairness of the price was based. Conversely, if the Merger is consummated,
Cross Country will realize all of the Company's profits and losses, as well as
any future improvements in the Company's operations.
The Company will, as a result of the Merger, become a wholly-owned
subsidiary of HAC and will be a privately held company. The registration of the
Shares under the Exchange Act will then be terminated. In addition, because the
Shares would no longer be publicly held, the Company would be relieved of the
obligation to comply with the proxy rules of Regulation 14A
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under Section 14 of the Exchange Act, and its officers, directors and
stockholders owning more than 10% of the outstanding Shares would be relieved of
the reporting requirements and "short swing" trading restrictions under Section
16 of the Exchange Act. Further, the Company will cease filing information with
the Commission. The Company will also be de-listed from Nasdaq NMS.
If the Merger Agreement is not adopted by the required vote of the
Company's stockholders, or the Merger is not consummated for any other reason,
such failure to consummate the Merger will require the Company to pay the full
amount of the judgment. This could have a material adverse effect on the
liquidity of the Company. In such event, the Company would be forced to seek
alternatives to pay the full amount due under the Settlement Agreement. No other
alternatives are presently being considered.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a description of certain federal income tax
consequences to stockholders who receive cash for their Shares in the Merger or
upon the exercise of appraisal rights. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, administrative positions of the Internal Revenue Service (the
"Service") and court decisions. The Company will not seek any rulings from the
Service with respect to the transactions contemplated hereby. The following
discussion is limited to the material federal income tax aspects of the Merger
for a holder of Shares who is a citizen or resident of the United States and who
holds the Shares as capital assets. This discussion also does not purport to
deal with all aspects of taxation that may be relevant to a particular investor
in light of his or her individual circumstances or to certain types of investors
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, nonresident aliens and foreign corporations)
subject to special treatment under the federal income tax laws.
In general, the receipt of cash by a stockholder pursuant to the Merger
or the exercise of appraisal rights will be a taxable event for that stockholder
for federal income tax purposes and may also be a taxable event under applicable
state, local and foreign tax laws. A stockholder will recognize gain or loss for
federal income tax purposes equal to the difference between (i) the amount of
cash that he or she receives in exchange for his or her Shares and (ii) his or
her tax basis in those Shares. That gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the stockholder has held those
Shares for more than one year as of the Effective Time.
A stockholder may be subject to backup withholding of federal income tax
at a rate of 31% on payments made to him or her in exchange for his or her
Shares, unless the stockholder is exempt from backup withholding or provides the
Paying Agent with his or her correct taxpayer identification number (by
completing IRS Form W-9 or the Substitute Form W-9 to be included with the
letter of transmittal), certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide the Paying Agent
with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service. Any amount paid as backup
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withholding will be creditable against the stockholder's income tax liability.
The Company will report to each stockholder and the Service the amount of any
"reportable payments" made to the stockholder and the amount of tax withheld, if
any.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH IN THIS PROXY STATEMENT
ARE BASED ON CURRENT LAW AND ARE FOR GENERAL INFORMATION ONLY. THE TAX
CONSEQUENCES FOR A PARTICULAR STOCKHOLDER WILL DEPEND UPON THE FACTS AND
CIRCUMSTANCES APPLICABLE TO THAT STOCKHOLDER. ACCORDINGLY, EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO
THE STOCKHOLDER OF THE MERGER IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS AND ANY POSSIBLE CHANGES IN THOSE LAWS. THE FOREGOING DISCUSSION MAY NOT BE
APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Original
Merger Agreement, the First Amendment and the Second Amendment, conformed copies
of which are attached hereto as Annex A and incorporated by reference herein.
Such summary is qualified in its entirety by reference to the text of the Merger
Agreement.
THE MERGER
The Merger Agreement provides that, subject to approval of the Merger
Agreement by the Company's stockholders and satisfaction or waiver of certain
other conditions, a duly executed copy of the related Certificate of Merger will
be filed with the Secretary of the State of Delaware. Upon such filing, Merger
Sub will be merged with and into the Company, the separate corporate existence
of Merger Sub will cease, and the Company will continue, under its name, as the
Surviving Corporation.
Upon the Effective Time, each Share (other than Shares held by Cross
Country, Merger Sub and their affiliates and stockholders who perfect their
statutory appraisal rights under Delaware law or held in treasury by the
Company) will, by virtue of the Merger and without any action on the part of the
holder thereof, be converted solely into the right to receive $2.06 in cash,
without interest, will no longer be outstanding and will be canceled. Each share
of common stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one share of common
stock of the Surviving Corporation.
Holders of Shares who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of Delaware law
regarding statutory appraisal rights
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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 "APPRAISAL
RIGHTS."
PAYMENT FOR SHARES
Prior to the Effective Time, Merger Sub will designate the Paying Agent.
Promptly after the Effective Time, the Paying Agent will mail or make available
to each stockholder a notice and letter of transmittal containing instructions
for surrendering Certificates in exchange for payment thereof. No stockholder
should surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon receipt of any such
Certificates together with a duly executed letter of transmittal and other
requested documents, the Paying Agent will mail a check, in an amount equal to
$2.06 for each Share represented by such Certificates, to the registered owner
or, subject to certain conditions more fully described below, his or her
transferee.
Each Certificate which, prior to the Effective Time, represented Shares
(other than Shares held by Cross Country and its affiliates and stockholders who
perfect their statutory appraisal rights under Delaware law), will, after such
time, evidence only the right to receive the amount of cash into which the
Shares represented thereby shall have been converted. No interest will be paid
or accrued on the amounts payable upon the surrender of any such Certificate.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it will
be a condition of payment that the Certificate so surrendered will be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment will pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered, or will establish to the satisfaction of the Surviving Corporation
that such tax either has been paid or is not applicable.
THE EXCHANGE FUND
Immediately prior to or at the Effective Time, Cross Country will
deposit or cause to be deposited with the Paying Agent, in trust for the benefit
of the Company's stockholders (other than Cross Country, Merger Sub and their
affiliates and stockholders who perfect their statutory appraisal rights under
Delaware law) and the holders of options with exercise prices below $2.06, the
aggregate Merger Consideration to which holders of Shares will be entitled at
the Effective Time together with an amount equal to the payment to which the
holders of such options are entitled pursuant to the Merger Agreement.
Promptly following the date that is six months after the Effective Time,
the Paying Agent will return to the Surviving Corporation all Merger
Consideration, and the Paying Agent's duties will terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Merger Consideration.
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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 by the Company and Cross Country with such
states. All of the states have responded and all requested supplemental forms
have been filed. On January 27, 1997, the State of Virginia's Bureau of
Insurance approved Cross Country's application for pre-Merger approval. On
February 20, 1997, the State of California's Department of Insurance approved
the Merger. On April 11, 1997, the Department of Insurance of the State of
Florida approved the Merger.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of Cross Country and Merger Sub, on the one
hand, and the Company, on the other, to consummate the Merger are subject to the
following conditions, among others: (i) the approval and adoption of the Merger
Agreement by the affirmative vote of the holders of outstanding Shares to the
extent required by the Certificate of Incorporation, By-laws and applicable law;
(ii) the absence of any effective or threatened temporary restraining order,
preliminary injunction or other order issued by a court of competent
jurisdiction preventing the consummation of the transactions contemplated by the
Merger Agreement; (iii) the Settlement Agreement remaining in full force and
effect; (iv) the performance in all material respects of the covenants and
agreements made by Cross Country and Merger Sub, or the Company, as applicable,
prior to or at the Effective Time; and (v) the accuracy in all material respects
of the representations and warranties made by Cross Country and Merger Sub, or
the Company, as applicable, in the Merger Agreement at and as of the Effective
Time. The obligations of Cross Country and Merger Sub to effect the Merger are
subject to the following additional conditions: (i) the Company shall have taken
all appropriate action to obtain the cancellation of all Options (as defined
herein) in exchange for payment by the Paying Agent in an amount equal to the
excess of $2.06 over the exercise prices thereof; (ii) Cross Country and Merger
Sub obtaining such regulatory consents, approvals or clearances as are necessary
in connection with the consummation of Merger; (iii) the holders of Shares
representing more than 10% of the total number of Shares as of the Record Date
shall not have claimed or perfected appraisal rights pursuant to Section 262 of
the DGCL; (iv) the Company shall have canceled certain agreements entered into
after April 1, 1996 with certain of its directors; (v) consents have been
obtained from the landlord of the building in which the Company's headquarters
are located and the other parties to certain agreements of the Company; and (vi)
all regulatory, consents, approvals or clearances necessary for the consummation
of the Merger have been obtained. In addition, the obligation of the Company to
effect the Merger is subject to the condition that Raymond James shall not have
withdrawn its opinion that the Merger is fair to the Stockholders of the Company
from a financial point of view.
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The Merger Agreement contains various customary representations and
warranties of Cross Country, Merger Sub and the Company. The representations of
Cross Country and Merger Sub relate to due organization, corporate
authorization, consents and approvals, absence of breach, lack of prior
activities and the Financing. The representations of the Company relate to due
organization, capitalization, corporate authorization, absence of certain
changes, consents and approvals, absence of breach of other agreements, status
of certain franchise agreements, title to assets and the binding nature of the
ANIC Settlement Agreement.
The Company has agreed to conduct its business in the ordinary and usual
course prior to the Effective Time. In this regard, the Company has agreed that
it will not, without the prior written consent of Cross Country, engage in
certain types of transactions, including, among other things, the issuance of
Shares, declaration of dividends or distributions with respect to the Shares,
modification of certain agreements or the incurrence of indebtedness beyond
certain limits. In addition, Cross Country, Merger Sub and the Company have made
further agreements regarding certain filings with the Commission; the vote at
the Special Meeting; best efforts to consummate successfully the Merger; notices
in connection with the Merger; access to the Company's records; public
announcements; and indemnification of the Company's officers and directors. In
addition, during the period from the date of the Merger Agreement to the
Effective Time, the Company has agreed not to solicit or initiate discussions,
directly or indirectly, concerning any possible proposal regarding a sale of the
Company's capital stock or a merger, acquisition, sale of assets or similar
transaction involving the Company or any subsidiary, division or major asset
thereof. The Company, however, is permitted to consider unsolicited proposals
from third parties, if any such proposals are made and the Board of Directors
determines that the proposal represents a financially superior transaction for
the Stockholders of the Company and the Board of Directors determines after
consultation with counsel that the failure to take such action would be
inconsistent with its fiduciary duties, written notice is provided to Cross
Country and the Company keeps Cross Country advised of the status of such
discussions or negotiations.
MODIFICATIONS AND AMENDMENTS TO THE MERGER AGREEMENT AND WAIVER OF CONDITIONS TO
THE MERGER BY THE COMPANY
The Merger Agreement provides that Cross Country and the Company may
modify, amend or supplement any term or provision of the Merger Agreement and
that the Company may waive any of the conditions to its obligation to consummate
the Merger except as otherwise provided by law; provided, however, that after
the vote of the stockholders at the Special Meeting, no amendment or
modification may be made which changes the Merger Consideration or which in any
way materially adversely affects the rights of the stockholders without their
approval. The Board of Directors does not currently intend to make any such
amendment or modification or waive any conditions to the Company's obligation to
consummate the Merger.
STOCK OPTIONS
At or immediately prior to the Effective Time, the Company will take all
action necessary to cancel all of the outstanding options to purchase Shares
(the "Options"), whether or not presently exercisable, which have been granted
under any stock options or other compensation
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plan or arrangement of the Company. Each holder of an Option that is exercisable
on or prior to the Effective Time will be entitled to receive from the Paying
Agent in cancellation thereof a cash payment (subject to any withholding taxes)
in an amount equal to the excess, if any, of the Merger Consideration over the
per Share exercise price of such Option, multiplied by the number of Shares
subject to such exercisable Option (the "Option Settlement Amount"). No payment
will be made by the Company in respect of any Option having an exercise price
equal to or greater than the Merger Consideration. All exercisable Options will
be canceled upon the payment of the Option Settlement Amount. At the Effective
Time, any such exercisable Option that the holder thereof has not consented to
cancellation will be converted into, and shall only represent the right to
receive, the Option Settlement Amount.
Immediately prior to the Effective Time, all of the Company's stock
option, stock bonus and stock award plans or arrangements, that provide for the
issuance of Shares of the capital stock of the Company, will be terminated, and
no further stock options, bonuses or awards shall be granted thereunder
subsequent to the Effective Time. Without the prior written consent of Cross
Country, the Company will not make any additional grants of stock options, stock
bonuses or stock awards under any of such plans prior to the Effective Time.
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION
The officers and directors of Merger Sub immediately prior to the
Effective Time will be the initial officers and directors of the Surviving
Corporation. It is expected that the directors of Merger Sub immediately prior
to the Merger (and therefore the directors of the Surviving Corporation) will be
different than the current directors of the Company. The Certificate of
Incorporation of Merger Sub will be the Certificate of Incorporation of the
Surviving Corporation, until thereafter amended.
FEES AND EXPENSES
If the Merger is not consummated and (I) the Merger Agreement is
terminated because: (A) holders of more than 10% of the Shares shall have
claimed or perfected appraisal rights; (B) the Company (or the Board of
Directors of the Company) shall have authorized, recommended, proposed or
publicly announced its intention to enter into any merger or consolidation
agreement (other than this Agreement) or any other transaction in which all or
substantially all of the Company's or any Company subsidiary's equity or assets
would be acquired by a third party (other than Cross Country, Merger Sub or any
of their affiliates); (C) the Board of Directors of the Company does not
recommend in this Proxy Statement that the Company's stockholders adopt and
approve the Merger, the Merger Agreement and the transactions contemplated
thereby; (D) after publicly recommending in this Proxy Statement that Company's
stockholders adopt and approve the Merger, the Merger Agreement and the
transactions contemplated hereby, the Board of Directors of the Company shall
have withdrawn, modified or amended such recommendation in any respect
materially adverse to Cross Country or Merger Sub; or (II) (A) at any time on or
prior to the expiration of two years following termination of the Merger
Agreement, a definitive agreement is entered into for the acquisition of all or
substantially all of the Company's equity or assets with a person other than
Cross Country or Merger Sub or any of their respective affiliates
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at either (i) a price per share in excess of $2.06 per Share, or (ii) an
aggregate purchase price in excess of the aggregate purchase price contemplated
in the Merger Agreement (which shall include the payments to The Cross Country
Group, L.L.C. pursuant to the Settlement Agreement), or (B) if the following
shall have occurred: (i) a meeting of the stockholders of the Company shall have
been held to adopt the Merger Agreement and the stockholders shall have failed
to adopt the Merger Agreement, and (ii) there shall have existed at the record
date for the Meeting or at the date thereof a person or group who shall have
beneficially owned or been entitled to vote or direct the voting of not less
than 20% of the then outstanding Shares, and who shall have voted against the
Merger Agreement and the transactions contemplated thereby, or (iii) at the date
of the Meeting a person or group other than Cross Country or Merger Sub or any
of their affiliates shall have in good faith proposed (and such person or group
shall appear to have the ability to consummate such proposal) to acquire the
Company, then in the event of either (I) or (II), the Merger Agreement requires
the Company to promptly reimburse Cross Country and Merger Sub and their
affiliates and stockholders for their reasonable documented out-of-pocket
expenses actually incurred by them in connection with the proposed acquisition
of the Company including expenses of legal counsel, investment bankers and
accountants plus a fee of $500,000.
TERMINATION; AMENDMENTS
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of the respective Board of
Directors of Cross Country, Merger Sub and the Company, by any of them if the
Merger has not been consummated by July 1, 1997 or if a court of competent
jurisdiction or other United States governmental body shall have issued an
order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment or decree shall have become final and non appealable. The Merger
Agreement may be terminated at any time prior to the Effective Time by Cross
Country if (i) the Merger shall not have been consummated on or before the later
of (A) July 1, 1997 or (B) two business days after the Company Stockholders'
Meeting; (ii) there shall have occurred (A) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock Exchange
or National Association of Securities Dealers Automated Quotations System, (B) a
declaration of a banking moratorium or any limitation or suspension of payments
by any U.S. governmental authority on the extension of credit by lending
institutions, (C) a commencement of war or armed hostilities directly involving
the United States, or (D) any limitation (whether or not mandated) by any
governmental authority which will materially adversely affect the extension of
credit by banks or other lending institutions in the United States; (iii)
holders of more than 10% of the Company's Common Stock shall have claimed or
perfected appraisal rights; (iv) the Company (or the Board of Directors of the
Company) shall have authorized, recommended, proposed or publicly announced its
intention to enter into any merger or consolidation agreement (other than the
Merger Agreement) or any other transaction in which all or substantially all of
the Company's or any Company subsidiary's equity or assets would be acquired by
a third party (other than parent, Merger Sub or any of their affiliates; (v) the
Company's Board of Directors does not recommend in this Proxy Statement that the
Company's stockholders adopt and approve the Merger, the Merger Agreement and
the transactions contemplated thereby; or (vi) the Board of Directors of the
Company withdraws, modifies or amends its recommendation that the Company's
stockholders adopt and approve the Merger, the
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Merger Agreement and the transactions contemplated thereby in any respect
materially adverse to Cross Country or Merger Sub.
The Merger Agreement may be amended by the mutual written agreement by
the parties thereto as evidenced by action taken by the Board of Directors of
Cross Country, Merger Sub and the Company, whether before or after stockholder
approval; provided, however, that after any such stockholder approval, no
amendment may be made without the further approval of the stockholders which
would reduce the amount or change the form of the Merger Consideration or effect
any other change to the Merger Agreement which would materially and adversely
affect the stockholders of the Company.
INDEMNIFICATION, INSURANCE AND RELEASES
The Merger Agreement provides that the current directors and officers of
the Company will be indemnified, defended and held harmless by the Surviving
Corporation for their acts and omissions prior to the Effective Time to the
fullest extent permitted by applicable law and any existing indemnity
agreements. The Surviving Corporation, as applicable, will advance expenses to
such indemnified parties to the fullest extent so permitted. The Merger
Agreement also provides that Cross Country will cause the Surviving Corporation
to maintain and provide officers' and directors' liability insurance to the
Company's current officers and directors on terms not materially less favorable
in coverage and amounts to that of the Company's present policy for a period of
four years following the Effective Time; provided, however, that in providing
such insurance, the Surviving Corporation will have no obligation to pay annual
premiums in excess of $153,900. In addition, the directors of the Company, on
the one hand, and Cross Country, Merger Sub and their affiliates, on the other,
have agreed to exchange mutual releases with respect to the Merger and the
transactions related to the Merger.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $8.0 million. This amount does not include the
$2.75 million paid by The Cross County Group, L.L.C. to purchase the judgment
from ANIC. HAC and Merger Sub expect to obtain these funds from the borrowing by
HAC under a $25 million line of credit pursuant to the credit agreement
described below.
BANK FINANCING
Cross Country and HAC have entered into a credit agreement with Fleet
Bank, pursuant to which the funds needed to consummate the Merger will be made
available to HAC to consummate the Merger.
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APPRAISAL RIGHTS
The following summary does not purport to be a complete statement of the
provisions of Delaware law relating to the appraisal rights of stockholders and
is qualified in its entirety by reference to the provisions of Section 262 of
the DGCL set forth in full as Annex C to this Proxy Statement.
Stockholders who follow the procedures set forth in Section 262 may
receive, in lieu of the $2.06 cash per Share to be paid in the Merger, a cash
payment equal to the "fair value" of their Shares. Such fair value is to be
determined by judicial appraisal and could be more than, the same as, or less
than, the Merger Consideration. The statutory right of appraisal granted by
Section 262 is subject to strict compliance with the procedures set forth below.
Failure to follow any of these procedures may result in a termination or waiver
of appraisal rights under Section 262.
To be entitled to receive payment of the fair value of the Shares, a
stockholder (i) must file a written demand for appraisal of his or her Shares
with the Company prior to the voting by stockholders on the Merger Agreement at
the Special Meeting (such demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
an appraisal of his or her Shares); (ii) must not vote his or her Shares in
favor of approval and adoption of the Merger Agreement; and (iii) must have his
or her Shares valued in an appraisal proceeding, as described below. A proxy or
vote against approval and adoption of the Merger Agreement will not satisfy the
requirement that a stockholder file a written demand for appraisal as set forth
above. The requirement of a written demand is separate from, and should not be
confused with, the requirement that a stockholder not vote in favor of approval
and adoption of the Merger Agreement. A failure to vote on the Merger Agreement
will not be construed as a vote in favor of approval and adoption of the Merger
Agreement and will not constitute a waiver of a stockholder's rights of
appraisal. A stockholder who returns a signed proxy indicating that he or she
abstains from voting will similarly not waive his or her rights of appraisal.
However, because a proxy signed and left blank will, unless properly revoked, be
voted in favor of approval and adoption of the Merger Agreement, a stockholder
who returns a signed proxy left blank will waive his or her rights of appraisal.
Therefore, a stockholder electing to exercise appraisal rights who votes by
proxy must not leave his or her proxy blank, but must either vote against
approval and adoption of the Merger Agreement or abstain from voting. At any
time within 60 days after the Effective Time, any stockholder may withdraw his
or her demand for appraisal and accept the $2.06 per Share in cash to be paid in
the Merger. Any stockholder seeking appraisal rights must hold the Shares for
which appraisal is sought on the date of making the demand, continuously hold
such Shares through the Effective Time, and otherwise comply with Section 262.
Cross Country and Merger Sub may terminate the Merger Agreement if the holders
of more than 10% of the outstanding Shares claim or perfect appraisal rights.
See "The MERGER AGREEMENT - Conditions, Representations and Covenants" and
"-Termination; Amendments."
Only a holder of record of Shares on the Record Date is entitled to seek
appraisal of the fair value of the Shares registered in such holder's name. The
demand for appraisal must be
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executed by or for the holder of record, fully and correctly, as such holder's
name appears on the holder's Certificates. If the Shares are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, the demand
should be made in that capacity, and if the Shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be made by or for all owners of record. An authorized agent, including one or
more joint owners, may execute the demand for appraisal for a holder of record;
however, such agent must identify the record owner or owners and expressly
disclose in such demand that the agent is acting as agent for the record owner
or owners. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal rights
before the date of the Special Meeting.
A record holder, such as a broker who holds Shares as nominee for
beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of such beneficial owners with respect to the Shares
held for such beneficial owners. In such case, the written demand for appraisal
should set forth the number of Shares for which the demand is being made. Unless
a demand for appraisal specifies a number of Shares, such demand will be
presumed to cover all Shares held in the name of such record owner.
If the Merger Agreement is approved and adopted by the stockholders, the
Company will send a notice, either before the Effective Time or within ten days
thereafter, stating that appraisal rights are available to each stockholder who
has filed an adequate written demand for appraisal with the Company and who has
not voted in favor of approval and adoption of the Merger Agreement. Within 120
days after the Effective Time, the Company or any stockholder seeking appraisal
rights may file a petition in the Court of Chancery demanding a determination of
the value of the Shares of all stockholders seeking appraisal rights. The
Company does not intend to file such a petition, and all stockholders seeking to
exercise appraisal rights should initiate all necessary action with respect to
the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time, any
stockholder who has complied with the provisions of Section 262, upon written
request, shall be entitled to receive from the Company a statement setting forth
the aggregate number of Shares not voted in favor of approval and adoption of
the Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Shares. Such written
statement will be mailed to any such stockholder within ten days after his or
her written request for such a statement is received by the Company or within
ten days after expiration of the period for delivery of demands for appraisal
under Section 262(d), whichever is later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders seeking
appraisal rights have complied with Section 262 and have thereby become entitled
to appraisal rights. The Court of Chancery will then determine the fair value of
the Shares exclusive of any element of value arising from the expectation or
accomplishment of the Merger, but including a fair rate of interest, if any, to
be paid on the amount determined to be the fair value. In determining fair
value, the Court of Chancery is to take into account all relevant factors.
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Stockholders considering appraisal should bear in mind that the fair
market value of their Shares determined under Section 262 could be more than,
the same as, or less than, the consideration they will receive pursuant to the
Merger Agreement if they do not seek appraisal of their Shares, and that the
written opinion of Raymond James set forth as Annex B hereto is not necessarily
an opinion regarding fair value under Section 262.
The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts) to be charged PRO RATA against the value
of all of the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he
or she (i) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (ii) votes his or
her Shares in favor of approval and adoption of the Merger Agreement, (iii) does
not file a petition for appraisal within 120 days after the Effective Time, or
(iv) delivers to the Company both a written withdrawal of his or her demand for
appraisal and an acceptance of the terms of the Merger Agreement, except that
any such attempt to withdraw such demand not made within 60 days after the
Effective Time requires the written approval of the Company.
If an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal
rights will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such Shares (except
dividends or distributions payable to stockholders on a date prior to the
Effective Time).
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW
FOR PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DGCL, STOCKHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD CONSULT THEIR LEGAL
ADVISORS.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to Homeowners Group, Inc., 400
Sawgrass Corporate Parkway, Sunrise, Florida 33325- 6235, Attention: Karen
Childress, Secretary.
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PRICE RANGES OF SHARES; DIVIDENDS
The Company's common stock is listed on the Nasdaq NMS under the symbol
HOMG. The following table set forth the high and low transaction prices for each
quarterly period during fiscal years 1995 and 1996, the first quarter of 1997
and for the period April 1 through May 5, 1997. Stock price data reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
YEAR QUARTER HIGH LOW
---- ------- ----- -----
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 (through
May 5, 1997) 1.69 1.50
The Merger Agreement provides that, prior to the Effective Time, the
Company may not declare dividends on the Shares without the prior consent of
Cross Country. In addition, certain agreements to which the Company is a party
impose restrictions on dividends until funds due to the other party are paid in
full.
On April 3, 1996, the last trading day prior to the filing by Cross
Country of a Schedule 13D reporting that it and its affiliates had acquired in
excess of five percent of the Shares, the reported closing sales price per Share
on the Nasdaq NMS was $1-1/2. On May 13, 1996, the last trading day prior to the
Company's announcement of the execution of the Merger Agreement, the reported
closing sales price per Share on the Nasdaq NMS was $1-7/8. On May 5, 1997, the
last trading day prior to the date of this Proxy Statement, the reported closing
sales price per Share on the Nasdaq NMS was $1-5/8, there were 5,558,350 Shares
outstanding and there were 99 holders of record of Shares. Many of the holders
are brokerage firms which held Shares in nominee name on behalf of their clients
and the Company believes that there are over 700 beneficial owners of Shares.
Holders of Shares are urged to obtain current quotations for the Shares.
51
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ACCOMPANYING AND INCORPORATED DOCUMENTS
This Proxy Statement is accompanied by the following document which is
incorporated by reference in this Proxy Statement and is deemed to be a part
hereof:
The Company's Annual Report on Form 10-K for the year ended December 31,
1996.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement or any subsequently filed document
modifies or replaces such statement.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document.
The Company will furnish any exhibit to any of the documents
accompanying this Proxy Statement upon the payment of a specified reasonable fee
which fee will be limited to the Company's reasonable expenses in furnishing
such exhibit. Requests for such copies should be directed to Karen Childress,
Secretary, Homeowners Group, Inc., 400 Sawgrass Corporate Parkway, Sunrise,
Florida 33325-6235, telephone number: (954) 845-9100. To ensure timely delivery,
such requests should be made by May 19, 1997.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries of December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996 that are incorporated by reference in
this Proxy Statement have been incorporated by reference herein in reliance upon
the report of Deloitte & Touche LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
OTHER MATTERS
As of the date of this Proxy Statement, the only business which the
Board of Directors intends to present or knows that others will present at the
Special Meeting is that hereinabove set forth. If any other matter or matters
are properly brought before the Special Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgments.
52
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STOCKHOLDER PROPOSALS
In anticipation of this Special Meeting of Stockholders, no regular
annual meeting of stockholders was held in 1996. In the event that the Special
Meeting of Stockholders is postponed or in the event that the Merger Agreement
is not approved and adopted, the Company will schedule an annual meeting of
stockholders in August 1997 and will take such actions as are reasonably
appropriate to inform the holders of the Shares of the same. A proposal by a
stockholder which complies with requirements as to the form and substance
established by applicable laws and regulations will be included in the Proxy
Statement in connection with such annual meeting if received by the Company not
later than July 15, 1997.
Karen Childress
Secretary
Sunrise, Florida
May 6, 1997
53
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 14, 1996
among The Cross Country Group, Inc., a Nevada corporation ("Parent"), CHGI
Acquisition Corporation, a Delaware Corporation and a wholly owned subsidiary of
Parent (the "Sub"), and Homeowners Group, Inc., a Delaware corporation (the
"Company") (Sub and the Company being hereinafter collectively referred to as
the "Constituent Corporations").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent pursuant to this
Agreement; and
WHEREAS, the respective Boards of Directors of Parent, the Company and Sub
have approved the merger of Sub with the Company (the "Merger"), upon the terms
and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, Parent, Sub and the
Company agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2), Sub
shall be merged into the Company and the separate existence of Sub shall
thereupon cease, with the Company being the surviving corporation in the Merger
(the "Surviving Corporation"). Upon the effectiveness of the Merger, the Company
shall possess all of the rights, privileges, powers and franchises of each of
the Constituent Corporations, and all property, real, personal and mixed, and
all debts due to any of the Constituent Corporations on whatever account, as
well as all other things in action or belonging to each of the Constituent
Corporations shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise in any of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon any property of any of the Constituent Corporations
shall be preserved unimpaired, and all debts, liabilities and duties of the
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective when a
properly executed Certificate of Merger is duly filed with the Secretary of
State of Delaware, which filing shall
<PAGE>
be made as soon as practicable after the closing of the transactions
contemplated by this Agreement in accordance with Section 11.1. When used in
this Agreement, the term "Effective Time" shall mean the date and time at which
such Certificate is so filed.
ARTICLE II
THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation, except that Article First thereof
shall be amended to read as follows:
"FIRST: The name of the Corporation is Homeowners Group, Inc."
and thereafter may be amended in accordance with its terms and as provided by
law.
2.2 BY-LAWS. The By-Laws of the Sub as in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation.
2.3 DIRECTORS. The directors of the Surviving Corporation shall be the
directors of Sub who shall serve until their respective successors are duly
elected and qualified in the manner provided in the Certificate of Incorporation
and By-Laws of the Surviving Corporation, or as otherwise provided by law.
2.4 OFFICERS. The officers of the Surviving Corporation shall initially
consist of the officers of the Company, until their successors are duly elected
and qualified in the manner provided in the Certificate of Incorporation and
By-Laws of the Surviving Corporation, or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
3.1 EXCHANGE RATIO. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder:
(a) All shares of Company Common Stock par value $.01 per share
("Company Common Stock") which are held by the Company, any subsidiary of
the Company, Parent, Sub or any other subsidiary of Parent, shall be
cancelled.
(b) All issued and outstanding shares of capital stock of Sub shall
be converted into 1,000 issued and outstanding shares of Common Stock of
the Surviving Corporation.
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(c) Each remaining outstanding share of Company Common Stock (other
than shares of Company Common Stock held by any holder who shall have
taken the necessary steps under the Delaware General Corporation Law
("DGCL") to dissent and demand payment, has not subsequently withdrawn or
lost such rights, and is otherwise entitled to such payment under the
DGCL, if the DGCL provides for such payment in connection with the Merger
("Dissenting Shares"), shall be cancelled and converted into the right to
receive $2.35 (the "Merger Price") in cash, without interest thereon.
(d) Notwithstanding the foregoing provisions or any other provision
of this Agreement to the contrary, Dissenting Shares shall not be
converted into the right to receive cash at or after the Effective Time
unless and until the holder of such Dissenting Shares withdraws his or her
demand for such appraisal with the consent of the Company, if required by
the DGCL, or becomes ineligible for such appraisal. If a holder of
Dissenting Shares shall withdraw his or her demand for such appraisal with
the consent of the Company, if required by the DGCL, or shall become
ineligible for such appraisal (through failure to perfect or otherwise),
then, as of the Effective Time or the occurrence of such event, whichever
last occurs, such holder's Dissenting Shares shall automatically be
converted into and represent the right to receive cash as provided above.
The Company shall give Parent (i) prompt notice of any written demands for
appraisals, withdrawals of demands for appraisal and any other instruments
served pursuant to Section 262 of the DGCL received by the Company, and
(ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Section 262 of the DGCL. The
Company will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands. Each holder of
Dissenting Shares shall have only such rights and remedies as are granted
to such a holder under Section 262 of the DGCL.
3.2 EXCHANGE AGENT.
(a) Parent shall authorize one or more persons to act as Exchange
Agent hereunder (the "Exchange Agent").
(b) Immediately prior to the Effective Time, Parent shall deposit
in trust with the Exchange Agent funds in an aggregate amount equal to
(and from time to time deposit additional funds so that the aggregate
amount in trust is not less than) the sum of: (i) the aggregate amount
payable pursuant to Section 7.5 hereof, plus (ii) the product of (A) the
number of Shares outstanding immediately prior to the Effective Time
(other than any such shares held in the treasury of the Company and its
subsidiaries or owned by Parent or any direct or indirect subsidiary of
Parent or known at the Effective Time to be Dissenting Shares), and (B)
the Merger Price (the "Payment Fund"). The Payment Fund shall be invested
by the Exchange Agent as directed by the
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Surviving Corporation, and any net earnings with respect thereto shall be
paid to the Surviving Corporation as and when required by the Surviving
Corporation.
(c) The Exchange Agent shall, pursuant to irrevocable instructions,
make the payments referred to in Section 3.1(c) hereof out of the Payment
Fund. The Parent shall cause the Exchange Agent to make the payments
referred to in Section 3.1(c) within 10 days of the Effective Time. The
Payment Fund shall not be used for any other purpose, except as provided
herein. If cash is deposited in the Payment Fund in respect of shares of
Company Common Stock that subsequently become Dissenting Shares, the
Exchange Agent shall promptly repay to the Surviving Corporation from the
Payment Fund an amount equal to the product of (i) the number of such
Dissenting Shares, and (ii) the Merger Price. Promptly following the date
which is six months after the Effective Time, the Exchange Agent shall
return to the Surviving Corporation all cash, certificates and other
instruments in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a certificate representing a share of Company
Common Stock entitled to receive at the Effective Time cash therefor may
surrender such certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
exchange therefor the amount of cash per share of Company Common Stock
specified in Section 3.1(c) hereof, without interest, but shall have no
greater rights against the Surviving Corporation than may be accorded to
general creditors of the Surviving Corporation under Delaware law.
Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to a holder of shares of Company Common Stock for
any cash delivered pursuant hereto to a public official pursuant to
applicable abandoned property laws.
(d) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record (other than Parent, any
subsidiary of Parent, the Company or any subsidiary of the Company) of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the
"Certificates"): (i) a form letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent); and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for cash. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor cash in an amount equal to the
Merger Price multiplied by the number of shares of Company Common Stock
theretofore represented by the Certificate, and the Certificate so
surrendered shall forthwith be cancelled.
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3.3 TRANSFER TAXES. If any cash to be paid in the Merger is to be paid to
a person other than the holder in whose name the certificate representing shares
of Company Common Stock surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the payment of such cash to a person other than the
registered holder of the certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
3.4 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Common
Stock shall thereafter be made. If, after the Effective Time, certificates
representing shares of Company Common Stock are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the cash consideration
set forth above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Sub that:
4.1 (a) CORPORATION ORGANIZATION. Each of the Company and the Company
Subsidiaries (as defined in Section 4.5 hereof): (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite power and
authority, corporate and otherwise, to own, operate and lease the
properties and assets it now owns, operates and leases and to carry on its
business as now being conducted; and (iii) is qualified or licensed to do
business and in good standing in every jurisdiction in which the
ownership, operation or lease of property by it or the conduct of its
business requires such qualification or licensing, except for such
failures which would not have a Company Material Adverse Effect (as
hereinafter defined). The term "Company Material Adverse Effect" as used
in this Agreement shall mean any change or effect that, individually or
when taken together with all other such changes or effects, is, or could
reasonably be, or is reasonably likely to be, materially adverse to the
business, condition (financial or otherwise), prospects, results of
operations, properties, assets or liabilities (the "Business") of the
Company and the Company Subsidiaries, taken as a whole.
(b) CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
previously delivered to Parent complete and correct copies of the
Certificate of Incorporation, and all amendments thereto to the date
hereof, and By-laws, as
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presently in effect, of the Company and any Company Subsidiary (all of
which are listed in Section 4.5 of the Disclosure Schedule), and none of
the Company and any Company Subsidiary is in default in the performance,
observation or fulfillment of either of its Certificate of Incorporation
or By-laws.
4.2 AUTHORIZATION. The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the adoption of this
Agreement by the Company's stockholders, to consummate the transactions
contemplated hereby. The Board of Directors of the Company (the "Company Board")
has duly approved the Merger, such approval constituting Company Board approval
for purposes of Section 203 of the DGCL and Article Eleven of the Company's
Certificate of Incorporation, and has duly authorized the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
and has resolved to recommend that its stockholders adopt this Agreement and
approve the Merger, and no other corporate proceedings (other than the adoption
of this Agreement by the stockholders of the Company) on the part of the Company
or any Company Subsidiary are necessary to approve and authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, subject to the foregoing, this Agreement constitutes (assuming due
authorization, execution and delivery of this Agreement by the other parties
hereto), the valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
4.3 CONSENTS AND APPROVALS: NO VIOLATIONS. Subject to obtaining the
requisite adoption and approval of this Agreement by the holders of a majority
of the outstanding shares of Company Common Stock in accordance with Delaware
law and the Company's Certificate of Incorporation and By-laws, and except:
(a) for approvals of insurance regulatory authorities;
(b) as set forth in Section 4.3 of the Disclosure Schedule;
(c) for the filings by the Company and Parent required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act");
(d) for the filing of the Proxy Statement (as defined in Section
4.16 hereof) with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and
(e) for the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by the laws of the State
of Delaware,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not, assuming receipt of the foregoing
requisite consent, authorizations,
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approvals and permits: (i) violate any provision of the Certificate of
Incorporation or By-laws (or comparable governing documents) of the Company or
any Company Subsidiary; (ii) violate any statute, ordinance, rule, regulation,
order or decree of any court or of any public, governmental or regulatory body,
agency or authority applicable to the Company or any Company Subsidiary or by
which any of their respective properties or assets may be bound; (iii) require
any filing with, or permit, consent or approval of, or the giving of any notice
to, any public, governmental or regulatory body, agency or authority; (iv)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, agreement or
other instrument or obligation to which the Company or any Company Subsidiary is
a party, or by which any of them or any of their respective properties or assets
may be bound, or (v) except as disclosed in the Disclosure Schedules, afford any
employee of the Company or any Company Subsidiary any rights to compensation,
employment, severance pay, notice of termination or any other benefits;
excluding from the foregoing clauses (ii), (iii) or (iv) violations, breaches
and defaults which, and filings, notices, permits, consents and approvals, the
absence of which, would not have a Company Material Adverse Effect.
4.4 CAPITALIZATION. The authorized capital stock of the Company consists
of:
(a) 5,000,000 authorized shares of Company Preferred Stock, of
which, on the date hereof, no shares are issued and outstanding;
(b) 45,000,000 authorized shares of Company Common Stock, of
which on the date hereof, 5,558,350 shares are issued and outstanding;
(c) 300,000 shares reserved for issuance pursuant to outstanding
options granted under the Company's 1988 Stock Option Plan of which, on
the date hereof, 140,000 options were outstanding, and 140,000 shares
were subject to options currently exercisable;
(d) 300,000 shares reserved for issuance pursuant to outstanding
options granted under the Company's 1988 Incentive Stock Option Plan of
which, on the date hereof, 291,550 options were outstanding, and 219,550
shares were subject to options currently exercisable; and
(e) 300,000 shares are reserved for issuance pursuant to
outstanding options granted under the Company's 1992 Non- Employee
Directors' Stock Option Plan of which, on the date hereof, 117,500
options were outstanding, and 62,500 shares were subject to options
currently exercisable.
All shares of capital stock of the Company which are outstanding as of the date
hereof are duly authorized, validly issued, fully
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paid and nonassessable, and are not subject to, nor were they issued in
violation of, any preemptive rights. Set forth in Section 4.4 of the Disclosure
Schedule is a list of all of the holders of outstanding options, the date of the
grant(s) thereof, the exercise price(s) and exercise date(s) of each option
grant, and the number of shares subject thereto, including specifically the
number and exercise price of all options which are currently exercisable. Except
as set forth in Section 4.4 of the Disclosure Schedule and in this Section 4.4,
there are no shares of capital stock of the Company authorized or outstanding,
and there are no subscriptions, options, conversion or exchange rights, warrants
or other agreements, claims or commitments of any nature whatsoever obligating
the Company or any Company Subsidiary to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered or sold, additional shares of the
capital stock of the Company or any Company Subsidiary or obligating the Company
or any Company Subsidiary to grant, extend or enter into any such agreement or
commitment.
4.5 SUBSIDIARIES. Set forth in Section 4.5 of the Disclosure Schedule is
the number of authorized, issued and outstanding shares of each Company
Subsidiary (as defined below), its jurisdiction of incorporation and the number
of shares of capital stock or other equity interest owned or held by the Company
or any Company Subsidiary with respect to any corporation, partnership, joint
venture or other entity. All the outstanding shares of capital stock of each
corporation of which the Company owns, directly or indirectly, 50% or more of
the outstanding capital stock (a "Company Subsidiary") have been validly issued
and are fully paid, nonassessable and are not subject to, nor were they issued
in violation of, any preemptive rights. All outstanding shares of capital stock
of the Company Subsidiaries are owned, directly or indirectly, by the Company,
and except as set forth in Section 4.5 of the Disclosure Schedule with respect
to the shares of HOMS Insurance Agency, Inc., free and clear of all liens,
charges, encumbrances, security interests, equities, options, restrictions on
voting rights or rights of disposition, and claims or third party rights of
whatever nature. Except for Company Subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other equity or other securities of
any corporation, partnership, joint venture or other entity or have any direct
or indirect equity or ownership interest in any corporation, partnership, joint
venture or other entity, other than HMS Texas Partnership as to which the
Company is the general partner owning 45% of the partnership interest and
Southwest Marketing Services, Inc., a Michigan corporation, of which the Company
owns 12.5% of the outstanding capital stock. Except as set forth in Section 4.5
of the Disclosure Schedule, neither the Company nor any Company Subsidiary is
subject to any obligation or requirement to provide funds for or to make any
investment (in the form of a loan, capital contribution or otherwise) in any
entity.
4.6 SEC REPORTS. The Company has heretofore delivered to Parent and the
Sub its:
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(a) Annual Reports on Form 10-K for the years ended December 31,
1993, December 31, 1994, and December 31, 1995, as filed with the SEC;
(b) proxy statements relating to the Company's meetings of
stockholders (whether annual or special) during 1993, 1994 and 1995; and
(c) all other reports or registration statements filed by the
Company with the SEC since December 31, 1991.
Each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Commission since December 31, 1991 (the "SEC
Documents"), as of its respective filing date, (i) complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act and the respective rules and regulations of
the Commission thereunder applicable to such SEC Documents, and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The Company has timely filed all documents that it was
required to file with the Commission since January 1, 1992, except where the
failure to file did not and would not reasonably be expected to have a Company
Material Adverse Effect. The Company has not filed any Reports on Form 8- K
since February 9, 1996. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved, and fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended, except as may be as otherwise
stated therein and, in the case of unaudited statements, as permitted by Form
10-Q, non-material accruals, and for normal, recurring year-end audit
adjustments that would not be material in the aggregate.
4.7 FINANCIAL STATEMENTS. The Company has previously delivered to Parent
and the Sub:
(a) the audited consolidated balance sheets of the Company and
its subsidiaries as of December 31 in each of the years 1993 through 1995
and its audited consolidated statements of operations, changes in
stockholders' equity and changes in financial position for the respective
fiscal years then ended, including the notes thereto, in each case
examined by and accompanied by the report of Deloitte and Touche LLP
("Deloitte and Touche"), independent certified public accountants, and
(b) unaudited consolidated balance sheets of the Company and its
subsidiaries as of March 31, 1996, and as of March
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31, 1995, and unaudited consolidated statements of operations and changes
in financial position for the respective three month periods then ended,
including the notes thereto
(all of the financial statements referred to above in this Section are
hereinafter collectively referred to as the "Company Financial Statements"). The
Company Financial Statements have been prepared from, and are in accordance
with, the books and records of the Company and its consolidated subsidiaries,
and present fairly the consolidated financial position, consolidated results of
operations and changes in financial position of the Company and its consolidated
subsidiaries as of the dates and for the periods indicated, in each case in
conformity with generally accepted accounting principles, consistently applied
during such periods, except as otherwise stated in such financial statements or
in the notes thereto, or in the auditor's certifying report thereon and subject
(in the case of the unaudited interim financial statements referred to above) to
non-material accruals and normal year-end audit adjustments.
4.8 ABSENCE OF UNDISCLOSED LIABILITiES. Except as and to the extent
reflected in the balance sheet dated as of December 31, 1995 included in the
Company Financial Statements (the "Balance Sheet"), or in the notes to the
Company Financial Statements for the fiscal year then ended, neither the Company
nor any Company Subsidiary had at that date any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise
and whether due or to become due). Since the date of the Balance Sheet, neither
the Company nor any Company Subsidiary has incurred any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise,
and whether due or to become due), except for such which were incurred in the
ordinary course of business and consistent with past practice, and except to the
extent reflected in the Company's unaudited balance sheet dated as of March 31,
1996.
4.9 ABSENCE OF MATERIAL ADVERSE CHANGE. Since December 31, 1995, there
has not been, occurred or arisen any Company Material Adverse Effect.
4.10 LEGAL PROCEEDINGS, ETC. Except as set forth in Section 4.10 of the
Disclosure Schedule:
(a) there are no suits, actions, claims, proceedings or
investigations pending, relating to or involving the Company or any
Company Subsidiary (or any of their respective officers or directors in
connection with the business or affairs of the Company and the Company
Subsidiaries) or any properties or rights of the Company or any Company
Subsidiary, before any court, arbitrator or administrative or governmental
body, United States or foreign, which if determined adversely would have a
Company Material Adverse Effect;
(b) to the knowledge of the Company, there are no such suits,
actions, claims, proceedings or investigations
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threatened against the Company relating to or involving the Company or
any Company Subsidiary (or any of their respective officers or directors
in connection with the business or affairs of the Company and the Company
Subsidiaries or any properties or rights of the Company or any Company
Subsidiaries) or any properties or rights of the Company or Company
Subsidiary, before any court, arbitrator or administrative or governmental
body, United States or foreign, which if determined adversely would have a
Company Material Adverse Effect;
(c) there are no such suits, actions, claims, proceedings or
investigations pending or, to the knowledge of the officers of the
Company, threatened, challenging the validity or propriety of the
transactions contemplated by this Agreement; and
(d) neither the Company nor any Company Subsidiary is subject to
any judgment, decree, injunction, rule or order of any court or, to the
knowledge of the officers of the Company, any governmental restriction
applicable to the Company or any Company Subsidiary, which, individually
or in the aggregate, is reasonably likely to have a Company Material
Adverse Effect on the ability of the Company or any Company Subsidiary to
acquire any property or conduct business in any area.
4.11 COMPLIANCE WITH APPLICABLE LAW. The Company and each Company
Subsidiary currently holds and is in compliance with the terms of, and has for
at least the last three years been in compliance with the terms of all licenses,
permits and authorizations necessary for the lawful conduct of their respective
businesses, and has complied with, and neither the Company nor any Company
Subsidiary is in violation of, or in default in any respect under, the
applicable statutes, ordinances, rules, regulations, order or decrees of all
federal, state, local and foreign governmental bodies, agencies and authorities
having, asserting or claiming jurisdiction over it or over any part of its
operations or assets, except for such violations and defaults which,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
4.12 PERMITS. The Company and each Company Subsidiary possesses all
permits, approvals, authorizations, consents, licenses (other than those
relating to intellectual property, which are addressed in Section 4.18) and
registrations (the "Permits") which are required in order for them to conduct
the Business as presently conducted. Section 4.12 of the Disclosure Schedule
sets forth a list of all Permits issued by a state regulatory agency and all
other material Permits issued, granted to, or held by each of the Company or any
Company Subsidiary.
4.13 FRANCHISEES. As of the date hereof, there were 18 persons or
entities which own or possess the right to operate a franchised business
pursuant to a franchise agreement entered into with the Company or any Company
Subsidiary ("Franchisees"). Section 4.13 of the Disclosure Schedule sets forth
the name of
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each Franchisee, the Franchisee's territory, the address of each Franchisee's
office, and the scheduled renewal or expiration date of each such Franchisee's
franchise agreement. Except as set forth in Section 4.13 of the Disclosure
Schedule, none of the Company or any Company Subsidiary nor (to the knowledge of
the Company or any Company Subsidiary) any Franchisee, is in material breach of
or default under any such agreement (or with or without notice or lapse of time
or both, would be in breach or default under any such agreement). Except as set
forth in Section 4.13 of the Disclosure Schedule, there is no material dispute
between the Company or any Company Subsidiary, on the one hand, and any
Franchisee, on the other hand. All of the provisions of any agreement or
arrangement regarding the Company's or any Company Subsidiary's option to
purchase any Franchisee are set forth in the agreements with the Franchisees
disclosed in Section 4.13 of the Disclosure Schedule, and there are no other
agreements or arrangements, whether written or oral, relating to such repurchase
rights. Except as set forth in Section 4.13 of the Disclosure Schedule, as of
the date hereof, there were no agreements or arrangements between the Company or
any Company Subsidiary and any person to offer, sell, extend or modify any
franchise agreement or arrangement, including any agreement or arrangement by
which the Company or any Company Subsidiary manages or operates the Business in
a specific geographic region.
4.14 FRANCHISE AGREEMENTS. The Company and each Company Subsidiary has
delivered to Parent a true and complete copy of all of the franchise agreements
entered into between the Company, any Company Subsidiary and any Franchisee.
Those of the franchise agreements which are with Franchisees beneficially owned
in whole or in part by affiliates of the Company are (or will be upon amendment
as set forth in Section 9.9 to the Disclosure Schedule) on terms and conditions
substantially the same as the Company's other franchise agreements.
4.15 OFFERING CIRCULAR. The Company and each of its subsidiaries has
delivered to Parent a true and complete copy of the most recent uniform
franchise offering circular and other disclosure statements of the Company or of
any Company Subsidiary, if any, that have been used in connection with its sale
of franchises to Franchisees (the "Offering Circular"). As of its date, the
Offering Circular complied in all material respects with the requirements of the
Federal Trade Commission Act, as amended, and the rules and regulations of the
Federal Trade Commission promulgated thereunder, to the extent applicable, and
to applicable state and foreign laws; and to the Company's or any Company
Subsidiary's knowledge, such document did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.16 PROXY STATEMENT. The information with respect to the Company, its
officers and directors and the Company Subsidiaries to be contained in the
definitive proxy statement to be furnished to the stockholders of the Company
pursuant to Section 7.2 hereof (the "Proxy Statement") will not, on the date the
Proxy Statement
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is first mailed to stockholders of the Company or on the date of the Company
Stockholders' Meeting (as hereinafter defined) referred to in Section 7.3
hereof, or at the Effective Time, as such Proxy Statement is then amended or
supplemented, contain any statement which, at such time, is false or misleading
with respect to any material fact, or which omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein not false or misleading, or necessary to correct any statement in any
earlier communication (including the Proxy Statement) to stockholders of the
Company with respect to the Merger. If at any time prior to the Effective Time,
any event with respect to the Company, its officers and directors and the
Company Subsidiaries, should occur which is or should be described in an
amendment of, or a supplement to, the Proxy Statement, such event shall be so
described and the presentation in such amendment or supplement of such
information will not contain any statement which, at the time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication (including the
Proxy Statement) to stockholders of the Company with respect to the Merger. The
Proxy Statement will comply as to form with all applicable laws, including the
provisions of the Exchange Act.
4.17 SETTLEMENT AGREEMENT. The Company and Homeowners Marketing
Services, Inc., a wholly owned subsidiary of the Company ("HMS"), have entered
into a binding settlement agreement, in the form attached hereto as Exhibit A
(the "Settlement Agreement"), with Acceleration National Insurance Company
("ANIC") providing that (i) ANIC will agree to accept the greater of:
$4,100,000, or the amount equal to $4,100,000 plus an additional amount
calculated by multiplying $4,100,000 times the percentage by which the Merger
Price exceeds $2.20, and rounding that product to the next higher $50,000, in
full and complete satisfaction of its judgment against HMS in ACCELERATION
NATIONAL INSURANCE COMPANY, PLAINTIFF VS. HOMEOWNERS MARKETING SERVICES, INC.,
ET AL., DEFENDANTS, in the Court of Common Pleas of Franklin County, Ohio (the
"ANIC Lawsuit"), and (ii) such sum will be paid to ANIC at the Closing. The
Company has not and will not alter or amend the Settlement Agreement without the
prior written consent of the Parent.
4.18 INTELLECTUAL PROPERTY.
(a) As used herein, "Intellectual Property" shall mean all
intellectual property rights anywhere in the world, including, but not
limited to, all (i) registered and unregistered trademarks, service
marks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, trade dress, logos, slogans and
general intangibles of like nature, together with the goodwill
associated therewith; (ii) patents and patent applications and all
patents issued upon said patent applications or based upon such
disclosures; (iii)
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copyrights, copyright registrations and applications; (iv) know-how, trade
secrets, confidential or proprietary technical information, databases,
computer software, customer lists, business and marketing plans, designs,
processes, research in progress, inventions and invention disclosures
(whether patentable or unpatentable), drawings, schematics, blueprints,
flow sheets, designs and models, of any nature whatever; and (v) all
licenses and rights with respect to the foregoing or property of like
nature. Section 4.18 of the Disclosure sets forth the Intellectual
Property that is owned by the Company or any Company Subsidiary and any
licenses, sublicenses or other arrangements pursuant to which the Company
or any Company Subsidiary is authorized to use any third party
Intellectual Property. Except as set forth in Section 4.18 of the
Disclosure Schedule, the Company and the Company Subsidiaries own all
right, title and interest in and to, and have valid licenses to use or
otherwise possess legally enforceable rights to use all of the
Intellectual Property, wherever located, which is necessary to conduct the
Business as currently conducted, the absence of which would have a Company
Material Adverse Effect. Section 4.18 of the Disclosure Schedule sets
forth a complete and accurate list of (i) all patents and patent
applications and all registered or applied for trademarks, registered
copyrights, computer software programs (other than "off-the-shelf"
programs), trade names, slogans and service marks, and the owner thereof,
which are material to and used in connection with the Business, including
all registrations and applications for registrations thereof, and the
jurisdictions in which each such intellectual property right has been
issued or registered or in which any such application for such issuance
and registration has been filed; (ii) all unregistered United States
trademarks and unregistered copyrights which are material to the Business,
the owner thereof, and to the Company's and any Company's Subsidiary's
knowledge, all competing claims to any such marks or copyrights; (iii) all
registered or applied for trademarks in jurisdictions other than the
United States, and the owner thereof; (iv) all material licenses,
sublicenses and other agreements to which the Company or any Company
Subsidiary is a party and pursuant to which any person is authorized to
use any Intellectual Property; and (v) all licenses, sublicenses and other
agreements as to which the Company or any Company Subsidiary is a party
and pursuant to which the Company or any Company Subsidiary is authorized
to use, sublicense or transfer any third party Intellectual Property which
are material to the business of the Company or any Company Subsidiary as
they are currently conducted.
(b) Except as set forth in Section 4.18 of the Disclosure Schedule,
neither the Company nor any Company Subsidiary has transferred, conveyed,
sold, assigned, pledged, mortgaged, granted a security interest in or
otherwise encumbered the Intellectual Property that is material to the
Business as currently conducted.
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(c) The Company and each Company Subsidiary is not, nor will it
be as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in material breach of
any license, sublicense or other agreement relating to the
Intellectual Property which would result in a Company Material Adverse
Effect.
(d) All patents, patent applications, and all United States
trademark, service mark and copyright registrations held by the Company
or any Company Subsidiary, which are material to the Business, are valid
and subsisting, in full force and effect and have been duly maintained.
Except as set forth in Section 4.18 of the Disclosure Schedule, the
Company and each Company Subsidiary: (i) is not, and within the last
three years, has not been, a party to any suit, action or proceeding
which involves a claim of infringement, invalidity, misuse or
abandonment of any patents, trademarks, service marks or copyrights
(including, but not limited to, computer software), or violation of any
trade secret or other proprietary right of any third party; (ii) has no
knowledge that the manufacturing, marketing, licensing, sale,
distribution or use of its products or services, as currently conducted,
infringes or violates any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party; and (iii)
has no knowledge that any third party is violating or infringing any
Intellectual Property rights which violation or infringement would be
likely to have a Company Material Adverse Effect.
4.19 CERTAIN TAX MATTERS.
(a) DEFINITIONS. As used in this Agreement:
(i) "Taxes" means any federal, state, county, local or
foreign taxes, charges, fees, levies or other assessments,
including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and
occupation, disability employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and
penalties (civil or criminal) on or in addition to any such taxes.
(ii) "Tax Return" means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes, including, where permitted or required, combined
or consolidated returns for any group of entities.
(iii) "Tax Ruling" means a written ruling of a taxing
authority relating to Taxes.
(iv) "Closing Agreement" means a written and legally
binding agreement with a taxing authority relating to Taxes.
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(b) REPRESENTATIONS. Except as set forth in Section 4.19 of the
Disclosure Schedule:
(i) FILING OF TAX RETURNS. The Company and each of
the Company Subsidiaries have filed all Tax Returns required to
be filed by each of them and such Tax Returns are in all material
respects true, complete and correct and filed on a timely basis.
(ii) PAYMENT OF TAXES. The Company and each of the
Company Subsidiaries have, within the time and in the manner
prescribed by law, paid all Taxes that are currently due and
payable, except for those which are being contested in good faith
and for which adequate reserves have been taken.
(iii) TAX LIENS. There are no tax liens upon the
assets of the Company or of any of the Company Subsidiaries
except for statutory liens for current Taxes not yet due.
(iv) WITHHOLDING TAXES. The Company and each of the
Company Subsidiaries have complied in all material respects
with the provisions of the Code relating to the withholding of
Taxes, as well as similar provisions under any other laws, and
have, within the time and in the manner prescribed by law,
withheld and paid over to the proper governmental authorities
all amounts required.
(v) EXTENSIONS OF TIME FOR FILING. Neither the
Company nor any of the Company Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(vi) WAIVERS OF STATUTE OF LIMITATIONS. Neither the
Company nor any of the Company Subsidiaries has executed any
outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any
Taxes or Tax Returns.
(vii) NO DEFICIENCIES. The statute of limitations for
the assessment of any Taxes has expired for all Tax Returns of
the Company and of each of the Company Subsidiaries or such
Tax Returns have been examined by the appropriate taxing
authorities for all periods. No deficiency for any Taxes has
been proposed, asserted or assessed against the Company or any
of the Company Subsidiaries which has not been resolved and
paid in full.
(viii) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No
audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or
Tax Returns of the Company or any of the Company Subsidiaries.
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(ix) POWERS OF ATTORNEY. No power of attorney
currently in force has been granted by the Company or any of
the Company Subsidiaries concerning any Taxes or Tax Returns.
(x) TAX RULINGS. Neither the Company nor any of the
Company Subsidiaries has received a Tax Ruling or entered into
a Closing Agreement with any taxing authority that has or
would have a continuing adverse effect after December 31,
1995.
(xi) TAX SHARING AGREEMENTS. Neither the Company nor
any Company Subsidiary is a party to any agreement relating to
allocating or sharing of Taxes.
(xii) CODE SECTIONS 280G AND 162(M). Neither the
Company nor any Company Subsidiary is a party to any
agreement, contract or arrangement that could result in the
payment of any "excess parachute payments" within the meaning
of Section 280G of the Code or any amount that would be
non-deductible pursuant to Section 162(m) of the Code.
(xiii) CODE SECTION 341(F). Neither the Company nor
any of the Company Subsidiaries has, with regard to any assets
or property held or acquired by any of them, filed a consent
to the application of Section 341(f)(2) of the Code, or agreed
to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by the Company or any of the
Company Subsidiaries.
4.20 INSURANCE AND REINSURANCE. Section 4.20 of the Disclosure Schedule
sets forth all insurance and reinsurance policies relating to the Company and
any Company Subsidiary. The Company and each Company Subsidiary has given any
and all notices and made any and all payments required to maintain such policies
in full force and effect. Except as set forth in Section 4.20 of the Disclosure
Schedule: neither the Company nor any Company Subsidiary has received notice of
default under any such policy, and has not received written notice or, to the
knowledge of the Company or any Company Subsidiary, oral notice of any pending
or threatened termination or cancellation, coverage limitation or reduction or
material premium increase with respect to such policy. Except as set forth in
Section 4.20 of the Disclosure Schedule, neither the Company nor any Company
Subsidiary has any contracts, agreements, arrangements or understandings with
the Continental Casualty Company ("CNA") or Sphere Drake Insurance PLC ("Sphere
Drake"). Except as set forth in Section 4.20 of the Disclosure Schedule: (i)
neither the Company nor any Company Subsidiary has any obligation or liability
to CNA, nor (ii) is the Company or any Company Subsidiary in default of, nor has
an event occurred which, with the giving of notice or the passage of time, would
constitute a default under, any existing agreement or arrangement with CNA,
Sphere Drake or Victor O. Schinnerer & Company ("Schinnerer"). The Company
further represents and
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warrants the accuracy of the first sentence of Section 4.3 of the Real Estate
Errors and Omissions Program Administration and Hold Back Agreement with CNA
effective December 1, 1993.
4.21 OFFICERS' AND DIRECTORS' LIABILITY INSURANCE. The Company has
heretofore delivered to the Parent its officers' and directors' liability
insurance policy. There are no pending or anticipated claims made with respect
to such policies as of the date hereof, nor have any such claims been made
during the last three years. The annual premium on such officers' and directors'
liability insurance policy covering the Company's officers and directors is
$114,000.
4.22 TRANSACTIONS WITH AFFILIATES. Section 4.22 of the Disclosure
Schedule contains true and correct copies of all agreements between the Company
and its executive officers whose salary and bonus for the fiscal year ended
December 31, 1995, exceeded $50,000 (the "Executive Contracts"). As of the date
hereof, except as set forth in Section 4.22 of the Disclosure Schedule:
(a) there are no outstanding amounts payable to or receivable
from, or advances by the Company or any Company Subsidiary to, and
neither the Company nor any Company Subsidiary is otherwise a creditor
of or debtor to, any stockholder, officer, director, employee or
affiliate of the Company or any Company Subsidiary; and
(b) there are no contracts, agreements, arrangements or
understandings between the Company or any Company Subsidiary and any
stockholder, officer, director, employee or affiliate of the Company or
any Company Subsidiary. Full and complete copies of all such documents
listed in the Disclosure Schedule have been delivered to Parent.
4.23 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.23 of the Disclosure Schedule sets forth a true
and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination
pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other
employee benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company or any Company
Subsidiary would be deemed a "single employer" within the meaning of
Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), for the benefit of any employee or former employee of
the Company or any ERISA Affiliate (the "Plans"). Section 4.23 of the
Disclosure Schedule sets forth each of the Plans that is an "employee
benefit plan" as that term is defined in Section 3(3) of ERISA (the
"ERISA Plans").
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(b) With respect to each Plan, the Company has heretofore
delivered to Parent true and complete copies of each of the following
documents:
(i) a copy thereof;
(ii) a copy of the most recent annual report and
actuarial report, if required under ERISA and the most recent
report prepared with respect thereto in accordance with
Statement of Financial Accounting Standards No. 87, Employer's
Accounting for Pensions;
(iii) a copy of the most recent Summary Plan
Description required under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding
agreement and the latest financial statements thereof; and
(v) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended
to qualify under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code").
(c) No Plan (or other employee benefit plan, program, agreement
or arrangement to which the Company or any ERISA Affiliate made, or was
required to make, contributions during the five (5) year period ending
on the Closing Date) is subject to Title IV of ERISA.
(d) Neither the Company nor any ERISA Affiliate, nor any ERISA
Plan, nor any trust created thereunder, nor, to the Company's knowledge
after due inquiry of all appropriate persons, any trustee or
administrator thereof has engaged in a transaction in connection with
which the Company or any ERISA Affiliate, any ERISA Plan, any such
trust, or any trustee or administrator thereof, or any party dealing
with any ERISA Plan or any such trust could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the
Code.
(e) No ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each ERISA Plan ended prior
to the Closing Date; and all contributions required to be made with
respect thereto (whether pursuant to the terms of any ERISA Plan or
otherwise) on or prior to the Closing Date have been timely made.
(f) No ERISA Plan is a "multiemployer pension plan," as defined
in Section 3(37) of ERISA, nor is any ERISA Plan a plan described in
Section 4063(a) of ERISA.
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(g) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code.
(h) Each ERISA Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified and the trusts
maintained thereunder are exempt from taxation under Section 501(a) of
the Code.
(i) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to
current or former employees of the Company or an ERISA Affiliate beyond
their retirement or other termination of service (other than (i)
coverage mandated by applicable law or (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA).
(j) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
(k) There are no pending, anticipated, or to the Company's
knowledge, threatened claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan, or otherwise
involving any such Plan (other than routine claims for benefits).
4.24 BROKERS AND FINDERS. Except for Raymond James & Associates, Inc.
("Raymond James"), neither the Company nor any Company Subsidiary, nor any of
their officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions, finders' fees or
similar fees or expenses, and no broker or finder has acted directly or
indirectly for the Company or any Company Subsidiary in connection with this
Agreement or the transactions contemplated hereby and thereby. Except for the
fees and expenses of Raymond James (a copy of the executed agreement dated
January 26, 1995 providing for which has been delivered to Parent), no
investment banking, financial advisory or similar fees have been incurred or are
or will be payable by the Company or any Company Subsidiary in connection with
this Agreement or the transactions contemplated hereby.
4.25 TITLE TO PROPERTIES. Except as set forth in the Disclosure
Schedule, the Company or one of the Company Subsidiaries has good and
indefeasible title to all properties purported to be owned by it (except
non-material properties sold or otherwise disposed of since the date thereof in
the ordinary course of business) - free and clear of all claims, liens,
charges, security interests or encumbrances of any natures whatsoever except (i)
statutory liens securing payments (including taxes) not yet due, and (ii) such
imperfections or
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irregularities of title, claims, liens, charges, security interests or
encumbrances as do not have a Company Material Adverse Effect.
4.26 LEASED PROPERTIES. Section 4.26 of the Disclosure Schedule sets
forth a list of all leasehold estates of the property occupied by the Company or
one of the Company Subsidiaries, and the Company or a Company Subsidiary is in
possession of the properties purported to be leased thereunder and each lease is
valid without material default thereunder by the lessee or, to the Company's
knowledge, the lessor, except for such leases the invalidity of which or the
material default under which in the future would not reasonably be expected to
have a Company Material Adverse Effect.
4.27 CERTAIN AGREEMENTS. Except as disclosed in the Disclosure Schedule,
neither the Company nor any Company Subsidiary is a party to any oral or written
(i) agreement, contract, indenture or other instrument relating to the borrowing
of money or the guarantee of any obligation for the borrowing of money material
to the Company and its Subsidiaries taken as a whole, or (ii) other contract,
agreement or commitment of the Company or its Subsidiaries material to the
Company and the Company Subsidiaries taken as a whole (except those entered into
in the ordinary course of business and which provide for the payment or receipt
of less than $50,000).
4.28 GOOD RELATIONS. Except as set forth in Section 4.28 of the
Disclosure Schedule, to the Company's knowledge neither the Company nor any
Company Subsidiary, nor any officer or director of any of them, knows of any
impending loss of customers, suppliers or employees of the Company or any
Company Subsidiary that might have a Company Material Adverse Effect, or which
might prevent the Business from being carried on in substantially the same
manner in which it is carried on at the date of this Agreement. Since January 1,
1995, except as set forth in Section 4.28 of the Disclosure Schedule, there has
not been any material adverse pending, nor to the Company's knowledge
threatened, dispute of any kind with any customer, client, supplier, employee,
landlord, subtenant or licensee of the Company nor any Company Subsidiary or any
pending or threatened occurrence or situation of any kind, nature or description
which is reasonably likely to result in a material reduction in the amount, or a
material adverse change in the terms or conditions, of business with any
substantial customer or supplier.
4.29 FULL DISCLOSURE. No representation or warranty made herein by
Company, and no statement contained in any document (including, without
limitation, financial statements of the Company and the Schedules and Exhibits
hereto), certificate, memorandum, or other writing furnished or to be furnished
by the Company or on its behalf to Parent or any of its representatives pursuant
to the provisions hereof or in connection with the transactions contemplated
hereby, contains or will contain any untrue or misleading statement of material
fact or omits or will omit to state any material fact necessary in order to make
the statements herein or therein not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE SUB
Parent and Sub jointly and severally represent and warrant to the
Company that:
5.1 CORPORATE ORGANIZATION. Each of the Parent and the Sub: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite power and
authority, corporate and otherwise, to own, operate and lease the properties and
assets it now owns, operates and leases and to carry on its business as now
being conducted; and (iii) is qualified or licensed to do business as a foreign
corporation and in good standing in every jurisdiction in which the ownership,
operation or lease of property by it or the conduct of its business requires
such qualification or licensing, except for such failures to be so qualified and
in good standing, if any, which would not have a Parent Material Adverse Effect
(as hereinafter defined). The term "Parent Material Adverse Effect" as used in
this Agreement shall mean any change or effect that, individually or when taken
together with all other such changes or effects, is, or could reasonably be,
materially adverse to the business, condition (financial or otherwise), results
of operations, properties, assets or liabilities of the Parent and the Sub,
taken as a whole.
5.2 AUTHORIZATION. Each of Parent and Sub has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors of Parent and Sub, and
the stockholder(s) of Sub, have duly approved this Agreement and have duly
authorized the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and no other corporate proceedings on the
part of Parent or Sub are necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and Sub,
and constitutes (assuming due authorization, execution and delivery of this
Agreement by the Company), the valid and binding agreement of Parent and Sub,
enforceable against each of them in accordance with its terms.
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in
Section 5.3 of the Disclosure Schedule, and except for:
(a) the Parent's compliance with the applicable requirements of
state insurance, broker and franchise laws;
(b) the filings required under the HSR Act to be filed by the
Company and Parent; and
(c) the filing of Certificate of Merger and other appropriate
merger documents, if any, as required by the laws of the State of
Delaware, the execution and delivery of this Agreement and the
consummation of the transactions
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contemplated hereby, will not: (i) violate any provision of the
Certificate of Incorporation or Bylaws of Parent or Sub; (ii) violate
any statute, ordinance, rule, regulation, order or decree of any court
or of any public, governmental or regulatory body, agency or authority
applicable to Parent or Sub, or by which any of their respective
properties or assets may be bound; (iii) require any filing with or
permit, consent or approval of, or the giving of any notice to, any
public, governmental or regulatory body or authority; or (iv) result in
a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement or other instrument or obligation
to which Parent or Sub is a party, or by which either of them or any of
their respective properties or assets may be bound.
5.4 CAPITALIZATION.
(a) The authorized capital stock of the Sub consists of 1,000
shares of common stock, par value $.01 per share, of which, as of the
date hereof, 100 shares were issued and outstanding and owned directly
by Parent. Sub has been formed for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no
business and incurred no liabilities other than in connection with this
Agreement and the transactions contemplated hereby.
(b) Except as set forth above, there are, as of the date hereof,
no shares of capital stock of Sub authorized or outstanding, and there
are no subscriptions, options, conversion or exchange rights, warrants
or other agreements, claims or commitments of any nature whatsoever
obligating Sub to issue, transfer, deliver, sell, or redeem, or cause to
be issued, transferred, delivered, sold or redeemed, additional shares
of the capital stock of Sub or obligating Sub to grant, extend or enter
into any such agreement or commitment.
5.5 FINANCIAL STATEMENTS. Parent has previously made or will make
available to the Company:
(a) the audited consolidated balance sheet of Parent and
subsidiaries as of September 30, 1995, and the audited
consolidated statements of operations and changes in financial
position for the year then ended, including the notes thereto,
in each case examined by and accompanied by the report of
Schwartz and Schwartz, independent certified public accountants,
and
(b) unaudited consolidated balance sheets of the Company and its
subsidiaries as of March 31, 1996, and March 31, 1995, and
unaudited consolidated statements of operations and changes in
financial position for the respective three month periods then
ended, including the notes thereto
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(the financial statement referred to above in this Section are hereinafter
collectively referred to as the "Parent Financial Statements"). The Parent
Financial Statements have been prepared from, and are in accordance with, the
books and records of Parent and its subsidiaries and present fairly the
consolidated financial position of Parent and its subsidiaries as of the dates
and for the periods indicated, in each case in conformity with generally
accepted accounting principles, consistently applied during such periods, except
as otherwise stated in such financial statements.
5.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Since September 30, 1995, there
has not been, occurred or arisen any Parent Material Adverse Effect.
5.7 PROXY STATEMENT. None of the information with respect to Parent and
the Sub and each of their respective officers, directors, associates and
affiliates or with respect to the plans for the Surviving Corporation after the
Effective Time which shall have been supplied by Parent or the Sub specifically
for use in the Proxy Statement, will, on the date the Proxy Statement is first
mailed to stockholders of the Company or on the date of the Company
Stockholders' Meeting referred to in Section 7.3 hereof, at the Effective Date,
as such Proxy is then amended or supplemented, contain any statement which, at
such time, is false or misleading with respect to any material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication (including the Proxy Statement) to stockholders of
the Company with respect to the Merger. If at any time prior to the Effective
Time any event should occur which is or should be described in an amendment of,
or a supplement to, the Proxy Statement, such event shall be so described, and
the presentation in such amendment or supplement of such information with
respect to Parent and Sub and their respective officers, directors, associates
and affiliates or with respect to the plans for the Surviving Corporation after
the Effective Time which shall have been supplied by Parent or Sub in writing
specifically for use in the Proxy Statement, will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication (including the Proxy Statement) to stockholders of the
Company with respect to the Merger.
5.8 BROKERS AND FINDERS. Neither Parent nor any of its subsidiaries nor
any of their respective officers, directors or employees, has employed any
broker or finder or incurred any liability for any brokerage fees, commissions,
finders' fees or similar fees or expenses, and no broker or finder has acted
directly or indirectly for Parent or Sub or any of their respective subsidiaries
in connection with this Agreement or the transactions contemplated hereby. No
investment banking, financial advisory or similar fees have been incurred or are
or
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will be payable by Parent or any of its subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
5.9 PARENT FINANCIAL CONDITION. Parent has received a commitment letter
from Fleet Bank for a $20,000,000 line of credit and otherwise has the necessary
assets to consummate the transactions and make the payments contemplated by this
Agreement.
ARTICLE VI
COVENANTS
6.1 CONDUCT OF THE COMPANY'S BUSINESS. During the period commencing on
the date hereof and continuing until the Effective Time, the Company agrees
(except as expressly contemplated by this Agreement or to the extent that Parent
shall otherwise consent in writing) that:
(a) The Company and each Company Subsidiary will carry on its
business in, and only in, the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use all reasonable efforts to preserve
intact its present business organizations, keep available the services of
its present officers and employees and preserve its relationships with
customers, consultants, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be
materially impaired at the Effective Time.
(b) The Company will not declare any dividends on or make
distributions in respect of the Company Common Stock. Neither the
Company nor any Company Subsidiary will amend its Articles of
Incorporation, as amended, or By-laws or similar governing documents.
(c) Neither the Company nor any Company Subsidiary will issue,
authorize or propose the issuance of, or purchase or propose the
purchase of, any shares of the capital stock of the Company or any
Company Subsidiary or securities convertible into, or rights, warrants
or options (including employee stock options) to acquire, any such
shares or other convertible securities (other than the issuance of
Company Common Stock upon the exercise in accordance with the present
terms thereof, of stock options outstanding on the date of this
Agreement).
(d) Neither the Company, nor any Company Subsidiary, officer,
director or employee of (or any investment banker, attorney, accountant
or other representative retained by) the Company or any Company
Subsidiary shall, directly or indirectly, solicit, initiate or encourage
any inquiries or proposals by, or engage in any discussions or
negotiations with, or provide information to, any corporation,
partnership, person or other entity or group which it is
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reasonably expected may lead to, or which relates to, any Takeover
Transaction (as hereinafter defined). The Company will promptly advise
Parent orally and in writing of the receipt and content of such
inquiries or proposals. As used in this subsection (d), "Takeover
Transaction" shall mean any proposal or transaction: (i) relating to a
merger or other business combination involving the Company or any
Company Subsidiary; or (ii) for the acquisition of a substantial equity
interest in the Company or any Company Subsidiary or a substantial
portion of the assets of the Company or any Company Subsidiary, other
than the one contemplated by this Agreement; PROVIDED, HOWEVER, that
nothing contained in this Section 6.1(d) shall prohibit the Board of
Directors of the Company from: (x) furnishing information to, or
entering into discussions or negotiations with, any person or entity
that makes an unsolicited bona fide proposal in writing to engage in a
Takeover Transaction which the Company Board in good faith determines
represents a financially superior transaction for the stockholders of
the Company as compared to the Merger if, and only to the extent that:
(A) the Company Board determines after consultation with Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. or other outside counsel
of national reputation for its expertise in corporate and securities law
matters as the Company shall select ("Company Counsel"), that failure to
take such action would be inconsistent with the compliance by the
Company Board with its fiduciary duties to stockholders imposed by law,
(B) prior to or concurrently with furnishing such information to, or
entering into discussions or negotiations with, such a person or entity
the Company provides written notice to Parent that it is so doing; and
(C) the Company keeps Parent informed of the status (excluding, however,
the identity of such person or entity and the terms of any proposal) of
any such discussions or negotiations; and (y) to the extent applicable,
complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a takeover transaction.
(e) The Company will not, and will not permit any Company
Subsidiary to, acquire or agree to acquire by merging or consolidating
with or into, purchasing a substantial portion of the assets or stock
of, or otherwise, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets outside the ordinary
and usual course of business consistent with past practice, or otherwise
enter into, amend or modify any material commitment or transaction,
without the prior written consent of the Parent, such consent not to be
unreasonably withheld.
(f) The Company will not and will not permit any Company
Subsidiary to enter into, amend or modify the Settlement Agreement, nor
any agreement with CNA, Sphere Drake, Schinnerer, any lessor, American
Insurance Group ("AIG"), or any director of the Company, without the
prior written consent of the Parent, such consent not to be unreasonably
withheld.
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(g) The Company will not and will not permit any Company
Subsidiary to, sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of, any of
its assets outside the ordinary and usual course of business consistent
with past practice.
(h) The Company will not and will not permit any Company
Subsidiary to: (i) incur, assume, prepay, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently
or otherwise) for any indebtedness for borrowed money, or (ii) issue or
sell any debt securities or warrants or rights to acquire any debt
securities of the Company or any Company Subsidiary or guarantee any
obligations of others; (iii) except for loans, advances or capital
contributions to or investments in, a wholly owned Company Subsidiary,
make any loans, advances or capital contributions to, or investments in,
any other person or entity except for: (A) investments in IntelliSTAR in
an amount not greater than $75,000 pursuant to the General Partnership
Agreement dated as of July 14, 1995 between HMS and Professional Forum
Enterprises, Inc., a Florida corporation, or (B) investments or loans
made in the ordinary course of business which in no event shall exceed
$50,000 in any specific investment or loan PROVIDED, HOWEVER, that the
aggregate amount of all investments, loans or capital contributions made
by the Company or any Company Subsidiary shall not exceed $200,000 in the
aggregate, and any such loans or advances shall be repayable to the
Company within a period not to exceed six months.
(i) The Company will not and will not permit any Company
Subsidiary to adopt, amend, terminate or enter into any compensation,
collective bargaining, employee pension, profit sharing, retirement,
insurance, incentive compensation, severance, vacation or other plan,
agreement, trust, fund or arrangement for the benefit of any of its
employees (whether or not legally binding).
(j) The Company shall not, and shall not permit any Company
Subsidiary to: (i) increase the aggregate amounts payable under or
otherwise change in a manner materially (in reference to all Executive
Contracts) adverse to the Company any other material term of the
Executive Contracts or any other agreement with its executive officers
except as and to the extent disclosed in the Company Disclosure
Schedule, (ii) enter into any employment agreement with any executive
officer, (iii) increase the compensation payable to any other officer or
employee except for increases in the ordinary course of business
consistent with past practice of the Company; provided that any such
increase to a compensation level which exceeds $100,000 shall require
Parent consent which shall not be unreasonably withheld.
(k) The Company shall file all reports, schedules and definitive
proxy statements (the "Company Filings") required to be filed by the
Company with the SEC and shall provide
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copies thereto to Parent promptly upon the filing thereof. As of its
respective date, each Company Filing will comply in all material
respects with the requirements of the Exchange Act and the applicable
rules and regulations of the Commission thereunder and none of the
Company Filings will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading. As of their respective dates, the
financial statements of the Company included in the Company Filings will
have been prepared in accordance with generally accepted accounting
principles consistently applied (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form
10-Q), and will fairly present in all material respects the consolidated
financial position of the Company as at the dates thereof and the
consolidated results of operations, cash flow or changes in financial
position for the periods indicated therein. Upon the filing of a Company
Filing, the Company Filing shall be considered as an SEC Document for
all purposes of this Agreement.
(l) The Company will not take, agree to take, or knowingly
permit to be taken any action or do or knowingly permit to be done
anything in the conduct of the Business of the Company and the Company
Subsidiaries, or otherwise, which would be contrary to or in breach of
any of the terms or provisions of this Agreement, or which would cause
any of the representations of the Company contained herein to be or
become untrue in any material respect.
6.2 RIGHTS AGREEMENT. The Company Board will take all necessary action
so that:
(a) the common stock purchase rights (the "Rights") issued by
the Company pursuant to the Rights Agreement dated as of November 1,
1990 between the Company and Continental Stock Transfer and Trust
Company (the "Rights Agreement") will not be exercisable, trade
separately, or be otherwise affected by the Merger;
(b) neither Parent not Sub, nor any of their respective
affiliates will be deemed to be an "Acquiring Person" or an "Adverse
Person" (as such terms are defined in the Rights Agreement); and
(c) neither a "Distribution Date" nor a "Stock Acquisition Date"
(as such terms are defined in the Rights Agreement) shall occur by
virtue of the Merger.
The Company will take any and all action reasonably requested by Parent to
ensure and confirm that the Company, Parent, Sub and their respective affiliates
will not have any obligations in connection with the Rights or the Rights
Agreement in connection with the Merger. The Company shall not redeem the
Rights, or amend or terminate the Rights Agreement prior to the Effective
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Time unless required to do so by order of a court of competent jurisdiction.
6.3 TERMINATION OF EMPLOYMENT. At the Closing, (i) the Company shall
cause to be terminated the employment agreement between the Company and Carl
Buccellato dated as of December 22, 1995, existing as of the date hereof and
attached hereto as Exhibit B; (ii) the Company shall pay to Carl Buccellato
eight hundred thousand ($800,000.00) dollars in consideration for such
termination; and (iii) the Company and Carl Buccellato shall acknowledge in
writing that neither party shall have any further obligations resulting from the
termination of or relating to said employment agreement.
6.4 CONSULTING AGREEMENT. At the Closing and upon termination of the
employment agreement referred to in Section 6.3 hereof, the Surviving
Corporation shall enter into a three year consulting agreement with Carl
Buccellato (the "Consultant") whereby Carl Buccellato shall provide consulting
services to the Surviving Corporation for no more than a maximum of one thousand
hours per year. The consulting agreement shall contain restrictive covenants
substantially similar to the restrictive covenants contained in Exhibit B
attached hereto at Article VIII, Section 8.1. The restrictions on competition
set forth in subsection (b) of said Section 8.1 shall terminate upon the
expiration of the consulting agreement unless Surviving Corporation elects to
extend such restriction for one additional year, in which case it will pay
Consultant $50,000 during such extension year in equal monthly installments. In
consideration of the services to be rendered by Carl Buccellato to the Surviving
Corporation pursuant to said Consulting Agreement and in consideration of the
restrictive covenants to be contained therein, the Surviving Corporation shall
(i) pay to Carl Buccellato a consulting fee in the amount of two hundred
thousand ($200,000) per year, payable in equal monthly installments of
$16,666.67 for the term of the consulting agreement, (ii) continue during the
term of such consulting agreement, Consultant's present life, medical, dental,
group term and accidental death and disability insurance and medical executive
reimbursement Coverage, all at a maximum aggregate cost to Surviving Corporation
of not more than $30,000 per year, and (iii) transfer to Consultant his company
owned automobile at the book value thereof at December 31, 1995.
6.5 TERMINATION OF LIPSON CONSULTING AGREEMENT. At the Closing, (i) the
Company shall cause to be terminated the Engagement Agreement between the
Company and Gary Lipson dated as of December 22, 1995, as amended by First
Amendment to Engagement Agreement dated April 29, 1996, Second Amendment to
Engagement Agreement dated May 14, 1996 and to Consulting Agreement dated April
29, 1996 (copies of which are collectively referred to as the "Engagement
Agreement" and copies of which are attached hereto as Exhibit C); (ii) the
Company and Gary Lipson shall acknowledge in writing that neither party shall
have any further obligations resulting from the termination of or relating to
said Engagement Agreement; and (iii) Gary Lipson shall execute and deliver to
Parent a general release in favor of Parent, Sub, the
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Surviving Corporation and each of the officers and directors thereof. In
consideration of the foregoing, and of all obligations of any kind to Gary
Lipson under the Engagement Agreement or otherwise, the Surviving Corporation
shall pay to Gary Lipson the amount of One Hundred Thousand Dollars ($100,000)
payable in equal monthly installments of $8,333.33 under the terms of an
agreement to be mutually agreed which will provide for any disputes to be
resolved in the courts of the State of Florida or the United States District
Court of the Southern District of Florida and that the laws of the State of
Florida shall govern such agreement. With the exception of bona fide legal fees
or directors' fees for services actually rendered, the Company has not since
January 1, 1996 made, and will not through the Closing Date make, any payments
to Gary Lipson of any kind whatsoever.
6.6 MUTUAL RELEASES. At the Closing the Company shall cause each of its
directors to execute and deliver to Parent and Sub (and each director and
principal stockholder thereof ("Parent Affiliate")), and Parent and Sub (and
each Parent Affiliate) shall execute and deliver to each of the Company's
directors, mutual releases releasing and forever discharging each other party to
this Agreement and, in the case of Parent and Sub, the Parent Affiliates, from
any and all demands, causes of action or suits in law or in equity arising out
of or related to any actions or inactions of such party with respect to this
Agreement and the Merger and all of the transactions related thereto (provided
same are not in violation of the terms of this Agreement) up to and including
the Closing Date; PROVIDED HOWEVER THAT none of the foregoing shall limit in any
way the Surviving Corporation's right, or the Parent's or Sub's right (if any),
to assert any such demand, cause of action or claim (or facts that would
otherwise support such a demand, cause of action or claim) as a defense of any
claim or action commenced against it by any party released in accordance with
this Section.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS TO PROPERTIES AND RECORDS.
(a) Between the date of this Agreement and the Effective Time,
the Company will, and will cause each Company Subsidiary to, provide Parent and
its accountants, counsel and other authorized representatives full access during
reasonable business hours and under reasonable circumstances to any and all
premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) of the
Company and each Company Subsidiary and will cause their officers to furnish to
Parent and its authorized representatives any and all financial, technical and
operating data and other information pertaining to the business of the Company
and the Company Subsidiaries, as Parent shall from time to time request. Without
limiting the generality of the foregoing, those representatives of the Parent
listed on Exhibit
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7.1 may be present on-site and have access to all facilities during business
hours for the purpose of monitoring the operations of the Business; provided
that not more than three such representatives shall be so present at any time.
(b) All information furnished or to be furnished to Parent or
Sub, or obtained by the representatives referred to in (a) above, shall be
subject to the terms of the confidentiality agreement (the "Confidentiality
Agreement") between the Company and Parent which has previously been executed.
7.2 PROXY STATEMENT. The parties will cooperate in the preparation and
filing of a preliminary Proxy Statement with the SEC as soon as practicable
after the date hereof, and will use their best efforts to respond to the
comments of the SEC in connection therewith and to furnish all information
required to prepare the definitive Proxy Statement (including, without
limitation, financial statements and supporting schedules and certificates and
reports of independent public accountants). Promptly after receipt of comments
from the SEC, the Company will cause the definitive Proxy Statement to be mailed
to the stockholders of the Company and, if necessary, after the definitive Proxy
Statement shall have been so mailed, promptly circulate amended, supplemental or
supplemented proxy material and, if required in connection therewith, resolicit
proxies. The Company will not use any proxy material in connection with the
Company Stockholders Meeting without Parent's prior approval which will not be
unreasonably withheld. Parent and the Company will promptly furnish each other
with all information concerning themselves, their subsidiaries, directors,
officers and stockholders and such other matters as may be necessary or
advisable for the Proxy Statement, and any other statement or applications made
by or on behalf of Parent or the Company to any public, governmental or
regulatory body in connection with the Merger and the other transactions
contemplated by this Agreement.
7.3 STOCKHOLDER APPROVAL. The Company shall promptly call a meeting of
its stockholders for the purpose of voting upon this Agreement and the Merger
and the Company agrees that this Agreement and the Merger shall be submitted at
a meeting of the stockholders of the Company and the Company shall take all
steps necessary to duly call, give notice of, convene, and hold such meeting
(the "Company Stockholders' Meeting"). The Company Stockholders' Meeting shall
be held as soon as permissible and practicable following the date upon which the
Proxy Statement is distributed. The Company agrees that the Company Board will
recommend that its stockholders adopt this Agreement and approve the Merger
unless advised in writing by its counsel, Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A. or other Company Counsel, that such recommendation will
constitute a violation of its fiduciary duties to stockholders.
7.4 EMPLOYEE BENEFIT PLANS. The Company agrees not to grant nor further
amend (except as provided in Section 7.5) any options pursuant to the 1988 Stock
Option Plan, the 1988 Incentive Stock Option Plan or the 1992 Non-Employee
Directors' Stock Option Plan or any other Plan, from and after the date hereof,
and further
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agrees that the 1988 Stock Option Plan, the 1988 Incentive Stock Option Plan and
the 1992 Non-Employee Directors' Stock Option Plan shall be terminated as of the
Effective Time of the Merger.
7.5 COMPANY STOCK OPTIONS. The Company shall (subject to the approval of
the holders thereof) make such adjustments to all the outstanding options to
purchase shares of Company Common Stock as may be necessary to provide that at
the Effective Time: (i) each such option then exercisable other than due to any
amendment dated after April 1, 1996, up to a maximum of 456,550 options (the
"Company Options") shall, in settlement, be converted into the right to receive
a cash payment in an amount equal to the difference, if any, between the Merger
Price and the per share exercise price of such Company Option, multiplied by the
number of shares of Company Common Stock subject to such Company Option, and
(ii) all other currently non-exercisable options issued to Directors of the
Company (whether under any of the Plans, or otherwise) shall be cancelled at no
cost to the Company. The Company shall adopt such amendments to its plans under
which such Company Options were granted, and shall use its reasonable best
efforts to obtain prior to the Closing Date such consents of the holders of such
Company Options, as shall be necessary to effectuate the foregoing.
7.6 BEST EFFORTS, ETC. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including obtaining any consents, authorizations, exemptions and approvals from,
and making all filings with, any insurance department, governmental, regulatory
or public body or authority which are necessary or, in the judgment of Parent,
desirable in connection with the transactions contemplated by this Agreement.
7.7 HSR ACT. The Company and Parent shall, as soon as practicable, file
Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and shall use best efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation.
7.8 INTERIM FINANCIALS. Prior to the Effective Time, the Company will
deliver to Parent as soon as available but in no event later than 45 days after
the end of any fiscal quarter, a consolidated statement of financial position of
the Company and the Company Subsidiaries as at the last day of such fiscal
quarter and the consolidated statements of income and changes in financial
position of such party and its subsidiaries for the fiscal period then ended
(which statements may be unaudited) prepared in conformity with the requirements
of Form 10-Q under the Exchange Act.
7.9 MATERIAL EVENTS. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of
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the occurrence of any event which will or may result in the failure to satisfy
any of the conditions specified in Articles VIII or IX hereof.
7.10 PUBLIC ANNOUNCEMENTS. Except as required by applicable law, rule,
regulation or legal process (including the rules of the Nasdaq National Market),
neither Parent, nor Sub nor the Company, nor any of their respective affiliates,
officers, directors, employees, agent or representatives will, without the prior
consent of the other parties, make any public announcement or statement
regarding the matters contemplated by this Agreement or the transactions
contemplated hereby. If any such announcement or statement is so required, the
announcing party shall consult in advance with the other parties concerning the
reasons for and the content of such announcement or statement.
7.11 INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY. The
Surviving Corporation will indemnify, defend and hold harmless the officers and
directors of the Company for their acts and omissions occurring prior to the
Effective Time to the full extent permitted by applicable provisions of Delaware
law (including rights to receive advance payment of expenses in defending any
suits, actions or proceedings). The Parent shall cause the Surviving Corporation
to maintain in full force and effect for not less than 4 years after the
Effective Time, officers' and directors' liability insurance covering said
persons (or shall obtain substantially equivalent insurance covering such
persons), on terms not materially less favorable than such insurance maintained
in effect by the Company on the date hereof in terms of coverage (including,
without limitation, types of claims, time period of claims and persons covered),
amounts and deductibles; provided, however, that, in providing such officers'
and directors' insurance, the Surviving Corporation will have no obligation
whatsoever to pay premiums on such officers' and directors' liability insurance
in excess of 150% of the annual premium existing on the officers' and directors'
liability insurance as of the date hereof.
7.12 AGREEMENT TO VOTE FOR MERGER.
(a) Parent and Sub agree that they shall vote any shares of
the Company owned by either of them directly or indirectly for approval
of the Merger.
(b) Company agrees and represents that each member of its
Board of Directors has agreed to vote any shares of the Company owned by
such Director directly or indirectly ("Director's Shares") for approval
of the Merger. Company further agrees to provide the Parent with an
irrevocable proxy in form attached hereto as Exhibit D in favor of
Parent or its nominees with respect to all such Director's Shares.
7.13 SETTLEMENT AGREEMENT FUNDING. At the Closing, Parent agrees that it
will cause funds to be available to enable HMS to make a payment to ANIC in full
and complete satisfaction of HMS' obligations pursuant to the Settlement
Agreement and HMS agrees to use such funds solely and exclusively to make such
payment to
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ANIC in full and complete satisfaction of its obligations pursuant to the
Settlement Agreement.
ARTICLE VIII
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligations of the parties to effect the Merger are
subject to the satisfaction, on or prior to the Closing, of the following
conditions.
8.1 HSR APPROVAL. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
8.2 OTHER APPROVALS.
(a) No provision of any applicable law or regulation shall
prohibit the consummation of the applicable Closing.
(b) There shall not have been commenced or threatened, or be in
effect, any temporary restraining order, preliminary injunction or
permanent injunction or other order issued by any court of competent
jurisdiction preventing the consummation of the transactions
contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB
Each and every obligation of Parent and Sub under this Agreement shall
be subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, each of which may be waived by Parent and Sub as provided
herein except as otherwise provided by law.
9.1 REPRESENTATION AND WARRANTIES TRUE. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date hereof and shall be deemed to have been
made again at and as of the Closing and shall then be true and correct in all
material respects, and at the Closing, the Company shall have delivered to
Parent a certificate to that effect signed by the Chief Executive Officer and
the principal financial officer of the Company.
9.2 THE COMPANY'S PERFORMANCE. Each of the obligations of the Company to
be performed by it or its officers or directors on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects by the Closing, including any action with respect to the Rights and the
Rights Agreement pursuant to Section 6.2 of this Agreement, and at the Closing,
the Company shall have delivered to Parent a certificate to that effect signed
by the Chief Executive Officer and the principal financial officer of the
Company.
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9.3 STOCKHOLDER APPROVAL AND OTHER COMPANY ACTION. The approval of the
stockholders by the requisite vote of the Company referred to in Section 7.3
hereof shall have been obtained.
9.4 OTHER APPROVALS. All regulatory consents, approvals, or clearances
necessary for the consummation of the Closing shall have been obtained.
9.5 CONSENTS. The lessor of the principal real estate premises occupied
by the Company, and each other party to any contract with the Company or the
Company's Subsidiaries: (i) the loss of which could have a Company Material
Adverse Effect, and (ii) which provides that such other party shall have the
right to terminate such contract, or declare such contract to be in default, as
a result of the Merger or any of the transactions or events described herein;
shall each have granted its consent in form and substance reasonably
satisfactory to Parent's counsel.
9.6 OPINION OF THE COMPANY'S COUNSEL. Parent shall have been furnished
with opinions of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
counsel to the Company, dated the Closing Date, in substantially the form
attached hereto as Exhibit E. In rendering such opinions such counsel may rely,
to the extent such counsel deems such reliance necessary or appropriate, upon
opinions of other counsel, in form and substance satisfactory to Parent (or may
deliver such opinions of other counsel each dated the Closing Date and addressed
to Parent), and, as to matters of fact, upon certificates of government
officials and of any officials of the Company or any Company Subsidiary,
provided that the extent of such reliance is set forth in such opinion and such
opinion states that it is reasonable for Parent to rely thereon.
9.7 CNA. Neither the Company, nor any Company Subsidiary, nor, to the
best of the Company's knowledge, CNA shall be in default under the terms of any
agreement or understanding between CNA and the Company or any of the Company
Subsidiaries.
9.8 INSURANCE COUNSEL OPINION. Parent shall have received the written
opinion of Bickford & Hahn LLP, insurance counsel to the Company, in form and
substance satisfactory to Lane Altman & Owens LLP, counsel to Parent (which
opinion shall specifically set forth the facts and legal analysis forming the
basis of such opinion) that, as of the Closing, the Company and each Company
Subsidiary has taken all necessary action under the reinsurance agreement with
Sphere Drake set forth in Section 4.20 of the Disclosure Schedule to ensure the
enforceability by the reinsured or its successors and assigns of the full
aggregate limits thereof, including all reinstatements, and that such
reinsurance is a valid and binding legal obligation of Sphere Drake.
9.9 AGREEMENTS WITH AFFILIATES. All agreements, understandings,
commitments or arrangements with officers and directors of the Company or the
Company Subsidiaries, or any beneficial holder of 5% or more of the Company's
Common Stock, or any affiliate of any of the foregoing, executed or entered into
on or subsequent to April 1, 1996 regardless of when effective
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shall be cancelled or terminated at no cost to the Company, unless otherwise
directed by the Parent with respect to any particular arrangement(s) identified
by Parent. Without limiting the generality of the foregoing, this shall include
the items set forth in Item 9.9 of the Disclosure Schedule.
9.10 BINDING SETTLEMENT AGREEMENT. The Settlement Agreement, as attached
hereto as Exhibit A, shall be in full force and effect and, at the Closing, upon
the payment of funds required by such Agreement to ANIC pursuant to the
Settlement Agreement, the Company shall deliver to Parent the mutual releases
executed by the parties to the Settlement Agreement and attached as exhibits to
the Settlement Agreement.
9.11 RESIGNATIONS AND CERTIFICATES. The Company shall have furnished
Parent with undated resignations of its and the Company Subsidiaries' officers
and directors, and such certificates of its officers and others to evidence
compliance with the conditions set forth in this Article IX as may be reasonably
required by Parent.
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
Each and every obligations of the Company under this Agreement shall be
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, each of which may be waived by the Company as provided
herein except as otherwise provided by law:
10.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects as of the date hereof and shall be deemed to
have been made again at and as of the Closing and shall then be true and correct
in all material respects, and at the Closing, Parent and Sub shall have each
delivered to the Company a certificate to that effect signed by the Chief
Executive Officer and the principal financial officer of Parent and of Sub.
10.2 PARENT'S AND THE SUB'S PERFORMANCE. Each of the obligations of
Parent and Sub to be performed by them on or before the Closing Date pursuant to
the terms hereof shall have been duly performed and complied with in all
material respects by the Closing and at the Closing Parent and Sub shall have
each delivered to the Company a certificate to that effect signed by the Chief
Executive Officer and principal financial officer of Parent and Sub.
10.3 STOCKHOLDER APPROVAL. The approval of the stockholders of the
Company referred to in Section 7.3 hereof shall have been obtained.
10.4 OPINION OF PARENT'S AND THE SUB'S COUNSEL. The Company shall have
been furnished with an opinion of Lane Altman & Owens
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LLP, dated the Closing Date, in substantially the form attached hereto as
Exhibit F. In rendering such opinions such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon opinions of other
counsel, in form and substance satisfactory to the Company (or may deliver such
opinions of other counsel each dated the Closing Date and addressed to the
Company), and, as to matters of fact, upon certificates of government officials
and of any official or officials of Parent Sub, provided that the extent of such
reliance is set forth in such opinions and such opinions state that it is
reasonable for the Company to rely thereon.
10.5 ABSENCE OF ORDER. No restraining order, or injunctions of any court
which prevents consummation of the Merger shall have been entered and remain in
effect.
10.6 CERTIFICATES. Parent and Sub shall have furnished the Company with
such certificates of their respective officers and others to evidence compliance
with the conditions set forth in this Article X as may be reasonably requested
by the Company.
10.7 FAIRNESS OPINION. The Company has received from Raymond James &
Associates, Inc. an opinion that the price to be paid pursuant to the Agreement
for the shares of Company Common Stock is fair to the stockholders of the
Company from a financial point of view and such opinion shall not have been
withdrawn or modified.
ARTICLE XI
CLOSING
11.1 TIME AND PLACE. Subject to the provisions of Articles VII, IX, X an
XII hereof, the closing (herein sometimes referred to as the "Closing") of the
transactions contemplated hereby shall take place as soon as practicable after
the satisfaction or waiver of the conditions to Closing contained in Articles
VIII, IX and X, at the offices of Lane Altman & Owens LLP, 101 Federal Street,
Boston, Massachusetts at 1:00 p.m., local time (the "Closing Date"), or at such
other place, at such other time, or on such other date as the Parent, Sub and
the Company may mutually agree upon for the Closing to take place.
11.2 DELIVERIES AT THE CLOSING. At the Closing:
(a) There shall be delivered to Parent, Sub and the Company
the opinions, certificates and other documents and instruments provided
to be delivered under Articles IX and X hereof.
(b) The Sub and the Company shall cause the Certificate of
Merger to be filed in accordance with the provisions of the DGCL and
shall take any and all other lawful actions and do any and all other
lawful things necessary to effect the Merger and to enable the Merger to
become effective.
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ARTICLE XII
TERMINATION AND ABANDONMENT
12.1 TERMINATION. Notwithstanding adoption of this Agreement by
stockholders of the Company, this Agreement may be terminated, and the Merger
abandoned, at any time prior to the Effective Time of the Merger:
(a) by the mutual consent of the Boards of Directors of
Parent, Sub and the Company; or
(b) by Parent if, without fault of such terminating party:
(i) the Merger shall not have been consummated on or
before the later of (i) September 30, 1996 or (ii) two
business days after the Company Stockholders' Meeting; or
(ii) there shall have occurred (A) any general
suspension of, or limitation on prices for, trading in
securities on the New York Stock Exchange or National
Association of Securities Dealers Automated Quotations System,
(B) a declaration of a banking moratorium or any limitation or
suspension of payments by any U.S. governmental authority on
the extension of credit by lending institutions, (C) a
commencement of war or armed hostilities directly involving
the United States, or (D) any limitation (whether nor not
mandated) by any governmental authority which will materially
adversely affect the extension of credit by banks or other
lending institutions in the United States.
(c) by either Parent or the Company, if, without fault of such
terminating party:
(i) the Merger shall not have been consummated on or
before October 31, 1996, or such earlier date as may be
specified in the Settlement Agreement as a date allowing ANIC
to terminate the Settlement Agreement; or
(ii) if any court of competent jurisdiction in the
United States or other United States governmental body shall
have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or
otherwise prohibiting the Merger and such order, judgment or
decree shall have become final and nonappealable.
(d) by Parent, if any of the following events have occurred:
(i) holders of more than 10% of the Company's Common
Stock shall have claimed or perfected appraisal rights and
become Dissenting Shares;
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(ii) the Company (or the Company Board) shall have
authorized, recommended, proposed or publicly announced its
intention to enter into any merger or consolidation agreement
(other than this Agreement) or any other transaction in which
all or substantially all of the Company's or any Company
Subsidiary's equity or assets would be acquired by a third
party (other than parent, Sub or any of their affiliates); or
(iii) the Company Board does not recommend in the
Proxy Statement that the Company's stockholders adopt and
approve the Merger, this Agreement and the transactions
contemplated thereby; or
(iv) after publicly recommending in the Proxy
Statement that Company's stockholders adopt and approve the
Merger, this Agreement and the transactions contemplated
hereby, the Company Board shall have withdrawn, modified or
amended such recommendation in any respect materially adverse
to Parent or Sub.
12.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and the Merger by either Parent or the Company, this Agreement shall
become void and there shall be no liability hereunder on the part of Parent,
Sub, or the Company or their respective officers or directors except, in each
case, for a knowing breach, and except as provided in Sections 12.3 and 13.1
hereof, which Sections shall survive any such termination and continue in effect
thereafter.
12.3 TERMINATION PAYMENTS AND EXPENSES:
(a) If any of the following occurs and neither Parent nor Sub
is in material breach of their obligations contained herein:
(i) if any of the events set forth in Section 12.1(d)
occurs and as result thereof Parent terminates this Agreement; or
(ii) at any time on or prior to the expiration of two
years following termination of this Agreement, a definitive
agreement is entered into for the acquisition of all or
substantially all of the Company's equity or assets with a
person other than Parent or Sub, or any of their respective
affiliates at either (A) a price per share in excess of the
Merger Price, or (B) an aggregate purchase price in excess of
the aggregate purchase price contemplated in this Agreement
(which shall include the payments contemplated by Section 7.13
hereof); or
(iii) if the following shall have occurred: (A) the
Company Stockholders' Meeting shall have been held to adopt
this Agreement and the Company's stockholders shall have failed
to adopt this Agreement, and (B)(I) there shall have existed at
the record date for the
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Company Stockholders' Meeting or at the date thereof a person
or group who shall have beneficially owned or been entitled to
vote or direct the voting of not less than 20% of the then
outstanding shares of Company Common Stock, and who shall have
voted against this Agreement and the transactions contemplated
hereby, or (II) at the date of the Company Stockholders'
Meeting a person or group other than Parent, Sub or any of
their affiliates shall have in good faith proposed (and such
person or group shall appear to have the ability to consummate
such proposal) to acquire the Company,
then the Company shall pay Parent, upon Parent's request, the amount of
Parent's and Sub's reasonable documented out-of- pocket expenses
actually incurred by them in connection with the proposed acquisition of
the Company including fees and expenses of legal counsel, investment
bankers and accountants plus a fee of $500,000.
(b) The Company acknowledges that the agreements contained in
this Section 12.3 are an integral part of the transactions contemplated
by this Agreement and that, without these agreements, Parent and Sub
would not enter into this Agreement. Accordingly, if the Company fails
to pay any amounts pursuant to this Section 12.3, and, in order to
obtain such payment, legal action is commenced which results in a
judgment against the Company therefor, the Company will pay the
plaintiff's reasonable costs (including reasonable attorneys' fees) in
connection with such suit, together with interest computed on any
amounts determined pursuant to this Section 12.3 (computed from the date
or dates incurred) at the prime rate of interest announced from time to
time by Citibank, N.A. The Company's obligations pursuant to this
Section 12.3 will survive any termination of this Agreement.
(c) Except as provided in this Section 12.3, all costs and
expenses incurred in connection with this Agreement shall be paid in
accordance with Section 13.1
ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES. Except as provided in Section 12.3, all costs and
expenses incurred in connection with this Agreement, and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses EXCEPT THAT in no event shall Company's legal expenses exceed an amount
that is reasonable and fully supported by available time records.
13.2 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties, obligations, covenants and agreements of the
Company, Parent and Sub contained herein or in any Exhibit or Schedule,
certificate or letter delivered pursuant hereto shall expire with, and be
terminated and extinguished by, the effectiveness of the Merger and shall not
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survive the Effective Time of the Merger, except those provided in Articles I
and III and Sections 7.1(b), 7.10, 7.11 and 12.3.
13.3 HEADINGS. The descriptive headings of the several articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
13.4 NOTICES. All notices or other communications required hereunder
shall be in writing and shall be deemed given on the date delivered if delivered
personally (including by reputable overnight courier), on the date transmitted
if sent by telecopy, (which is confirmed), or 72 hours after mailing if mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to:
The Cross Country Group, Inc.
4040 Mystic Valley Parkway
Medford, Massachusetts 02133
Attention: Sidney Wolk, President
Telecopy: (617) 395-6706
with a copy to:
Lane Altman & Owens LLP
101 Federal Street
Boston, Massachusetts 02110
Attention: Robert Rosen, Esq.
Telecopy: (617) 345-0400
and
(b) if to the Company, to:
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325
Attention: Carl Buccellato
President, Chairman and
Chief Executive Officer
Telecopy: (954) 845-2260
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33133
Attention: Paul Berkowitz, Esq.
Telecopy: (305) 579-0717
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<PAGE>
13.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns and the persons referred to in
Section 7.11, but neither this Agreement nor any of the rights interests, or
obligations hereunder, shall be assigned by any of the parties hereto without
the prior written consent of the other parties, except that Sub may assign all
of its rights, interests and obligations hereunder, provided that the transferee
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein and the Parent remains responsible for all of Parent's
obligations hereunder.
13.6 COMPLETE AGREEMENT. This Agreement, including the schedules,
exhibits and other writings referred to herein or delivered pursuant hereto, the
Confidentiality Agreement and certain agreements entered into between Parent and
certain stockholders of the Company together contain the entire understanding of
the parties with respect to the Merger and the related transactions and
supersede all prior arrangements or understandings with respect thereto.
13.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Effective Time of the Merger (notwithstanding any stockholder approval) if
authorized by their respective boards of Directors and to the extent permitted
by law, (i) the parties hereto may, by written agreement, modify, amend or
supplement any term or provision of this Agreement, and (ii) any term or
provision of this Agreement may be waived by the party which is, or whose
stockholders are, entitled to the benefits thereof; provided, however, that
after this Agreement is adopted by the Company's stockholders pursuant to
Section 7.3 hereof, no such amendment or modification shall be made which
changes the cash into which Company Common Stock is to be converted as provided
in Section 3.1, or which in any way materially adversely affects the rights of
such stockholders without the further approval of such stockholders. Any written
instrument or agreement referred to in this paragraph shall be validly and
sufficiently authorized for the purposes of this Agreement if signed on behalf
of Parent, the Company and Sub by a person authorized to sign this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
13.9 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including but not limited to
matters of validity, construction, effect and performance.
13.10 ACCOUNTING TERMS. All accounting terms used herein which are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with generally accepted accounting principles.
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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]
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers hereunto duly authorized,
all as of the date first written above.
THE CROSS COUNTRY GROUP, INC.
By: /s/ HOWARD WOLK
------------------------------
Name: Howard Wolk
Title: Vice President
ATTEST:
CHGI ACQUISITION CORPORATION
By: /s/ HOWARD WOLK
------------------------------
Name: Howard Wolk
Title: Vice President
ATTEST:
HOMEOWNERS GROUP, INC.
By: /s/ CARL BUCCELLATO
------------------------------
Name: Carl Buccellato
Title: President and Chief
Executive Officer
ATTEST:
Acknowledged and agreed to with
respect to Sections 6.3 and 6.4
/s/ CARL BUCCELLATO
- --------------------------------
Carl Buccellato, Individually
Acknowledged and agreed to with
respect to Section 6.5
/s/ GARY LIPSON
- --------------------------------
Gary Lipson, Individually
<PAGE>
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."
<PAGE>
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 Financial Statements for the fiscal year then
ended, and except for payment to certain Franchisees (as said term is
defined in Section 4.13 hereof) in the aggregate amount 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
-2-
<PAGE>
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 Company has not and will not further alter
or amend the May 2, 1996 Settlement Agreement or 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.
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<PAGE>
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."
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
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<PAGE>
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 Forvm 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."
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."
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<PAGE>
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 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
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<PAGE>
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 SETTLEMENT AGREEMENT WITH THE CROSS COUNTRY GROUP, L.L.C..
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) 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 following sentence at the end thereof:
"Parent and Merger Sub hereby acknowledge that the agreement set
forth in item 6 of Schedule 9.9 has been modified on terms acceptable
to Parent and Merger Sub and no further action with respect to such
matter shall be required so long as no further modification of the
agreement 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 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
December 31, 1996) 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."
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<PAGE>
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, 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.
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<PAGE>
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
--------------------------------------------
Sidney Wolk
President
CC ACQUISITION CORPORATION
By: /S/ SIDNEY WOLK
--------------------------------------------
Sidney Wolk
President
HOMEOWNERS GROUP, INC.
By: /S/ C. GREGORY MORRIS
___________________________________
C. Gregory Morris, Vice President,
Treasurer & Chief Financial Officer
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<PAGE>
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 Bucellato dated as of December 22,
1995
Exhibit N-1 Buccellato Settlement Agreement with
Carl Buccellato
Exhibit O Settlement Agreement
<PAGE>
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
<PAGE>
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.
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<PAGE>
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 Wolk
------------------------------------------
CC ACQUISITION CORPORATION
By: /s/ Howard Wolk
------------------------------------------
HOMEOWNERS GROUP, INC.
By: /s/ Greg Morris
------------------------------------------
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<PAGE>
ANNEX B
November 26, 1996
The Board of Directors
Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, FL 33325
Ladies & Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view, to the stockholders of the outstanding common stock (the "Common Stock")
of Homeowners Group, Inc. ("Homeowners" or the "Company") of the consideration
to be received in connection with the proposed merger (the "Merger") of CC
Acquisition Corporation, a wholly-owned subsidiary of The Cross Country Group,
Inc. ("Cross Country") and assignee of the rights and obligations of CHGI
Acquisition Corporation ("CHGI"), with and into the Company pursuant and subject
to the Agreement and Plan of Merger among Homeowners, Cross Country and CHGI
dated as of May 14, 1996, as amended by Amendment to Agreement and Plan of
Merger dated as of October 31, 1996 (the "Merger Agreement"). The Merger
Agreement provides, among other things, that each outstanding share of
Homeowners Common Stock will be converted into the right to receive $2.06 per
share in cash at closing.
In connection with our review of the proposed Merger and the preparation of our
opinion herein, we have examined (i) the financial terms and conditions of the
Merger Agreement; (ii) the audited financial statements of the Company and its
affiliates; (iii) certain unaudited financial statements and operating reports
of the Company, its subsidiaries and affiliates; (iv) certain internal financial
analyses and forecasts for the Company, its subsidiaries and affiliates prepared
by management and (v) certain other publicly available information on the
Company. We have also held discussions with members of the senior management of
the Company, its subsidiaries and affiliates to discuss the foregoing and have
considered other matters which we have deemed relevant to our inquiry.
We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any of such
information, nor have we made or obtained an independent appraisal of the assets
or liabilities (contingent or otherwise) of the Company, its subsidiaries and
affiliates. With respect to financial forecasts, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management, and we have relied upon each party to
advise us promptly if any information previously provided became inaccurate or
was required to be updated during the period of our review.
Our opinion is based upon market, economic, financial and other circumstances
and conditions existing and disclosed to us as of November 26, 1996 and any
change in such circumstances would require a reevaluation of this opinion.
We express no opinion as to the underlying business decision of Homeowners to
effect the Merger, the structure or tax consequences of the Merger Agreement or
the availability or advisability of any alternatives to the Merger.
<PAGE>
The Board of Directors
Homeowners Group
November 26, 1996
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of the Company, its subsidiaries and
affiliates and certain other publicly held companies in businesses we believe to
be comparable to Homeowners; (ii) the current financial position and results of
operations of the Company, its subsidiaries and affiliates and forecasted
results of such entities; (iii) the historical market prices and trading
activity of the Common Stock of Homeowners; (iv) financial and operating
information concerning selected business combinations which we deemed comparable
in whole or in part; and (v) the general condition of the securities markets.
Raymond James & Associates, Inc. is actively engaged in the investment banking
business and regularly undertakes the valuation of investment securities in
connection with public offerings, private placements, business 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 poosition in such security.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the proposed Merger and is not intended
to confer rights or remedies upon Cross Country or the stockholders of Cross
Country and does not constitute a recommendation to any stockholders of
Homeowners regarding how said stockholder should vote at the Homeowner's Special
Meeting. 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
November 26, 1996, the consideration to be received by the stockholders of the
Company pursuant to the Merger Agreement is fair, from a financial point of
view, to the holders of the Company's outstanding Common Stock.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
/s/Raymond James & Associates, Inc.
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<PAGE>
ANNEX C
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to SS.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SS.251 (other than a merger effected pursuant to subsection
(g) of Section 251), 252, 254,257,258,263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidatiion, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers Inc. or (ii) held of record by more than 2,000 holders;
and further provided thant no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation
as provided in subsection (f) of SS.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursant to
SS.251,252,254,257,258,263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under SS.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for
<PAGE>
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to SS.228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporatiion of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register or Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by
Ch.299, L. '95, eff. 2-1-96.)
<PAGE>
CONSENT OF RAYMOND JAMES & ASSOCIATES, INC.
Homeowners Group, Inc.
Sunrise, Florida
We hereby consent to the reference and use in the Proxy Statement of our
opinion dated November 26, 1996.
Raymond James & Associates, Inc.
St. Petersburg, Florida
April 15, 1997
<PAGE>
HOMEOWNERS GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
ON MAY 29, 1997
The undersigned hereby appoints Diane Gruber and Gary D. Lipson, and
each or both of them, as true and lawful agents and proxies with full power of
substitution in each, to represent the undersigned in all matters coming before
the Special Meeting of Stockholders of Homeowners Group, Inc. to be held at the
Signature Grand, 6900 State Road 84, Davie, Florida, on May 29, 1997 at 10:00
A.M., Dania, Florida, time and any postponements or adjournments thereof, and to
vote as follows:
(1) To adopt an Agreement and Plan of Merger dated as of May 14,
1996, as amended as of October 31, 1996 and as further amended as of
January 31, 1997, among The Cross Country Group, Inc., a Nevada
corporation ("Cross Country"), CHGI Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Cross Country ("CHGI") and
Homeowners Group, Inc. pursuant to which CC Acquisition Corporation, a
Delaware corporation and assignee of the rights and obligations of CHGI
under the Merger Agreement, as amended, will be merged with and into
Homeowners Group, Inc. with Homeowners Group, Inc. being the surviving
corporation and each share of the common stock of Homeowners Group,
Inc. outstanding at the effective time of the Merger (other than shares
held by Cross Country and its affiliates and stockholders who perfect
their statutory appraisal rights) will be converted into the right to
receive $2.06 net in cash, without interest:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) OTHER MATTERS:
In their discretion, to vote with respect to any other matters
that may come before the Meeting, any adjournments or postponements
thereof, including matters incident to its conduct.
PLEASE DATE AND SIGN ON THE REVERSE SIDE
<PAGE>
(Reverse Side)
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER SPECIFIED ABOVE
BY THE STOCKHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF THE PROPOSAL LISTED IN ITEM (1).
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
(Signature)
(Signature)
Dated: , 1997
Joint Owners Should Each Sign.
Executors, Administrators, Custodians or
Corporation Officers Should Give Full
Title
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
2
