UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 001-10997
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INTEGON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3559471
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 West Fifth Street, Winston-Salem, North Carolina 27152
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(Address of principal executive offices) (Zip Code)
(910) 770-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
As of April 30, 1997, there were 15,736,121 shares outstanding of
Integon Corporation's Common Stock.
Page 1
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INTEGON CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
------
Item 1. Financial Statements.
Balance Sheets - March 31, 1997 and December 31, 1996......... 3
Statements of Operations - Three Months Ended March 31,
1997 and 1996............................................. 4
Statements of Cash Flows - Three Months Ended March 31,
1997 and 1996............................................. 5
Notes to Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 18
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
INTEGON CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share data)
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale--at market
(amortized cost $636,131 and $522,452) ........................... $ 625,104 $ 521,311
Other long-term investments .......................................... 2,815 2,743
Short-term investments ............................................... 5,720 --
----------- -----------
633,639 524,054
Cash and cash equivalents ............................................ 27,816 43,838
Reinsurance receivable ............................................... 176,839 185,077
Premiums due and uncollected (less allowance for
doubtful accounts of $5,282 and $5,282) .......................... 250,661 248,537
Prepaid reinsurance premiums ......................................... 52,584 48,909
Accounts receivable, primarily financing receivables
(less allowance for doubtful accounts of $1,398 and $1,112) ....... 39,602 32,957
Accrued investment income ............................................ 9,290 8,933
Deferred policy acquisition costs .................................... 52,215 55,106
Property and equipment (less accumulated depreciation
of $12,705 and $10,808) .......................................... 70,303 68,271
Goodwill (less accumulated amortization of $14,648 and $13,885) ...... 106,193 106,957
Deferred income taxes ................................................ 29,328 22,044
Other assets ......................................................... 31,807 12,116
----------- -----------
$ 1,480,277 $ 1,356,799
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums .................................................... $ 374,194 $ 364,081
Loss and loss adjustment expenses payable ............................ 523,554 478,031
Accrued expenses and other liabilities ............................... 149,007 104,536
Short-term debt ...................................................... 10,000 44,000
Notes payable ........................................................ 150,705 150,760
----------- -----------
1,207,460 1,141,408
----------- -----------
Company-obligated mandatorily redeemable capital securities
of subsidiary trust holding solely Integon Corporation
Junior Subordinated Deferrable Interest Debentures ................. 100,000 --
----------- -----------
STOCKHOLDERS' EQUITY
$3.875 Convertible Preferred Stock--$.01 par value
per share, 1,437,500 shares authorized, issued and
outstanding ........................................................ 14 14
Common Stock--$.01 par value per share, authorized--
35,000,000 shares; issued--17,303,321 and
17,271,707 shares .................................................. 173 173
Class A Non-Voting Common Stock--$.01 par value per
share, authorized 20,000,000 shares; issued and
outstanding--none .................................................. -- --
Additional paid-in capital ........................................... 147,891 147,891
Net unrealized depreciation of securities ............................ (7,080) (700)
Retained earnings .................................................... 69,640 105,834
Treasury stock--at cost, 1,567,200 shares ............................ (37,821) (37,821)
---------- ----------
172,817 215,391
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$1,480,277 $1,356,799
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
Item 1. Financial Statements. (continued)
<TABLE>
<CAPTION>
INTEGON CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES
Net premiums written .................................................. $ 202,554 $ 194,262
========= =========
Premiums earned ....................................................... $ 196,117 $ 164,815
Net investment income ................................................. 9,043 7,753
Net realized investment gains (loss) .................................. (481) 2,077
Other income .......................................................... 4,540 4,175
--------- ---------
209,219 178,820
BENEFITS AND EXPENSES
Loss and loss adjustment expenses ..................................... 199,238 130,558
Policy acquisition and other underwriting expenses .................... 51,143 34,971
Other expenses ........................................................ 4,747 4,049
Amortization of goodwill .............................................. 764 769
Interest expense ...................................................... 3,767 3,631
--------- ---------
259,659 173,978
--------- ---------
INCOME (LOSS) FROM OPERATIONS BEFORE FEDERAL
INCOME TAX (BENEFIT) AND DISTRIBUTIONS ON
CAPITAL SECURITIES OF SUBSIDIARY TRUST (50,440) 4,842
Federal income tax (benefit) .......................................... (18,042) 1,457
--------- ---------
Income (loss) before distributions on capital
securities of subsidiary .............................................. (32,398) 3,385
Distributions on capital securities of
subsidiary trust, net of federal income
tax benefit of $533 ................................................... (990) --
--------- ---------
NET INCOME (LOSS) ................................................ (33,388) 3,385
Preferred stock dividends ............................................. 1,393 1,393
--------- ---------
Net income (loss) available to common shareholders .................... $ (34,781) $ 1,992
========= =========
EARNINGS PER COMMON SHARE
Primary ............................................................... $ (2.21) $ .13
========= =========
Fully diluted ......................................................... $ (2.21) $ .13
========= =========
Weighted average common shares outstanding:
Primary ............................................................. 15,736 15,903
========= =========
Fully diluted ....................................................... 15,736 15,903
========= =========
Dividends declared per share .......................................... $ .09 $ .09
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
Item 1. Financial Statements. (continued)
<TABLE>
<CAPTION>
INTEGON CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
-------------------------
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ............................................ $ (33,388) $ 3,385
Adjustments to reconcile net income to net cash provided
by operating activities:
Net realized investment (gains) losses .................. 481 (2,077)
Depreciation and amortization ........................... 2,769 2,242
Net amortization of discounts and premiums .............. 255 170
Provision for deferred federal income taxes (benefit) ... (3,849) 281
Net decrease in reinsurance assets ...................... 4,563 11,409
Increase in premiums due and uncollected ................ (2,124) (20,953)
Net (increase) decrease in deferred policy acquisition
costs ................................................ 2,891 (5,454)
Net increase in accounts and notes receivable,
accrued investment income and other assets ........ (11,198) (4,199)
Increase in unearned premiums ........................... 10,113 27,442
Increase in loss and loss adjustment expenses payable ... 45,523 6,008
Net increase in accrued expenses and other liabilities 15,705 10,192
--------- ---------
Net cash flows provided by operating activities
from continuing operations ........................... 31,741 28,446
--------- ---------
Cash Flows from Investing Activities
Investment securities sold ................................... 267,386 112,247
Investment securities matured, called or redeemed ............ 4,276 2,917
Investment securities purchased .............................. (395,725) (126,684)
Other, net ................................................... 10 (727)
--------- ---------
Net cash flows used in investing activities ............. (124,053) (12,247)
--------- ---------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt ................... (34,000) 2,000
Proceeds from Company-obligated mandatorily redeemable
capital securities of subsidiary trust .................. 100,000 --
Common stock dividends ....................................... (1,415) (1,415)
Preferred stock dividends .................................... (1,393) (1,393)
Decrease in notes payable .................................... (55) (72)
Increase in book cash overdrafts ............................. 13,153 3,405
--------- ---------
Net cash flows provided by financing activities .......... 76,290 2,525
--------- ---------
Net increase (decrease) in cash and cash equivalents ......... (16,022) 18,724
Cash and cash equivalents at beginning of period ......... 43,838 21,046
--------- ---------
Cash and cash equivalents at end of period ................... $ 27,816 $ 39,770
========= =========
Supplemental Disclosures of Cash Flows Information
Interest paid during the period .............................. $ 3,421 $ 3,274
Federal income taxes paid during the period .................. -- 950
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
Item 1. Financial Statements. (continued)
INTEGON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
Note 1 - Accounting Policies
The accompanying unaudited consolidated financial statements of Integon
Corporation and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim periods.
In the opinion of management, these financial statements include all
adjustments, including all normal recurring accruals, necessary for a fair
presentation of the consolidated financial position at March 31, 1997 and
December 31, 1996 and the consolidated results of operations and cash flows for
the periods ended March 31, 1997 and 1996.
The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1997.
Note 2 - Financing Activity
On February 10, 1997, Integon Capital I, a newly created wholly-owned subsidiary
trust of the Company, issued $100.0 million of 10 3/4% capital securities due
February 15, 2027 (the "Capital Securities"), the proceeds of which were
invested in 10 3/4% junior subordinated debentures of the Company due February
15, 2027.
The sole asset of Integon Capital I consists of $103.1 million of 10 3/4% junior
subordinated debentures of Integon Corporation due February 15, 2027. The
obligations of Integon Capital I under the Capital Securities, are fully and
unconditionally guaranteed by the Company.
Holders of the Capital Securities are entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable semi-annually in arrears on February 15 and August 15 of each year,
commencing August 15, 1997, at the annual rate of 10 3/4% of the liquidation
amount of
Page 6
<PAGE>
Item 1. Financial Statements. (continued)
$1,000 per Capital Security. The distribution rate and the distribution payment
dates and other payment dates for the Capital Securities will correspond to the
payments and payment dates on the junior subordinated debentures of Integon
Corporation. Distributions on the Capital Securities are deferrable at the
Company's option for up to five years. The Company, subject to certain
exceptions, may not pay dividends on its capital stock during such deferral
periods.
For financial reporting purposes, Integon Capital I is treated as a subsidiary
of the Company and, accordingly, its accounts are included in the consolidated
financial statements of the Company. The Capital Securities are presented in the
consolidated balance sheet of the Company as a separate line item directly above
stockholders' equity under the caption "Company-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely Integon Corporation junior
subordinated deferrable interest debentures." The Company records distributions
payable on the Capital Securities as "Distributions on capital securities of
subsidiary trust" in its consolidated statement of income.
The Company paid $10.75 million of the proceeds from the transaction into a
reserve account which will be used to pay the first two interest payments on the
Capital Securities. The remaining net proceeds to the Company were used to
contribute $50.0 million to the domestic insurance subsidiaries in the form of
certificates of contribution bearing interest at 10 3/4% per annum, not
compounded, reduce the Company's short-term debt by $32.0 million and for
general corporate purposes.
Underwriting fees and other costs of $4.0 million relating to the issuance of
the Capital Securities have been deferred. Such costs are being amortized using
the interest-rate method.
Note 3 - Stock Option and Incentive Plans
At March 31, 1997, the Company had two stock-based compensation plans, which are
described below. The Company applies APB 25 and related Interpretations in
accounting for these plans. Accordingly, no compensation cost has been
recognized for stock options issued under either the 1992 Stock Option Plan or
the Amended and Restated Omnibus Long-Term Performance Incentive Compensation
Plan. Had compensation cost for stock-based compensation under these two plans
been determined consistent with Statement of Financial Accounting Standards
("SFAS") Number 123, the Company's net income and earnings per share on
Page 7
<PAGE>
Item 1. Financial Statements. (continued)
a pro forma basis for the three months ended March 31, would have been as
follows:
1997 1996
---- ----
Pro forma net income............................... $ (33,607) $ 3,291
Pro forma primary earnings per share............... $ (2.22) $ .12
Pro forma fully diluted earnings per share......... $ (2.22) $ .12
Note 4 - Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS 128
"Earnings per Share" ("SFAS 128") which changes the method of calculating
earnings per share. SFAS 128 requires the presentation of "basic" earnings per
share and "diluted" earnings per share on the face of the income statement.
Basic earnings per share is computed by dividing the net income available to
common shareholders by the weighted average shares of outstanding common stock.
The calculation of diluted earnings per share is similar to basic earnings per
share except that the denominator includes dilutive common stock equivalents
such as stock options and warrants. The statement is effective for financial
statements for periods ending after December 31, 1997, and early adoption is not
permitted. The pro forma basic earnings per share and diluted earnings per share
calculated in accordance with SFAS 128 for the three months ended March 31, are
as follows:
1997 1996
---- ----
Pro forma basic earnings per share.............. $(2.21) $.13
Pro forma diluted earnings per share............ $(2.21) $.13
Note 5 - Loss and Loss Adjustment Expenses Payable
Loss and loss adjustment expenses payable represent the estimated liability on
claims reported to the Company plus reserves for claims incurred but not yet
reported and the estimated settlement expenses related to these claims. The
liabilities for claims and related settlement expenses are determined using
"case basis" evaluations and statistical analysis and represent estimates of the
ultimate net cost of all losses incurred through the balance sheet date.
Although considerable variability is inherent in such estimates,
Page 8
<PAGE>
Item 1. Financial Statements. (continued)
management believes that the liabilities for unpaid claims and related
settlement expenses are adequate; however, there can be no assurance that future
adjustments to loss and loss adjustment expenses payable will not be required.
The estimates are reviewed by management and, as adjustments to these
liabilities become necessary, such adjustments are reflected in current
operations.
During the three months ended March 31, 1997, the Company increased loss and
loss adjustment expense payable by $42.0 million. This increase was primarily
related to automobile liability coverages.
Note 6 - Subsequent Events
On April 28, 1997, Integon Corporation announced that an investment banker will
be retained to review all strategic alternatives available, including the sale
of the Company, after recording a loss of $2.21 per share for the quarter ended
March 31, 1997.
Page 9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes on pages 3 through 9 of this
Quarterly Report on Form 10-Q. The reader is presumed to have read or have
access to Integon Corporation's 1996 Annual Report on Form 10-K.
Results of Continuing Operations
Three Months Ended March 31, 1997 ("1997") Compared with Three Months Ended
March 31, 1996 ("1996")
Net premiums written increased 4.3% from $194.3 million in 1996 to $202.6
million in 1997. Price increases taken during the fourth quarter of 1996 and the
first quarter of 1997 have had the effect of slowing premium growth. Nonstandard
automobile insurance net premiums written increased from $176.8 million in 1996
to $180.2 million in 1997 or 1.9% due primarily to growth in the Company's more
mature operating states. Specialty auto products net premiums written increased
47.3% from $11.0 million in 1996 to $16.2 million in 1997. Premiums earned on
all lines of business increased 19.0% from $164.8 million in 1996 to $196.1
million in 1997 and reflects primarily the increase in net premiums written
during 1996 compared to 1995.
Loss and loss adjustment expenses increased 52.6% from $130.6 million in
1996 to $199.2 million in 1997. The loss ratio, defined as loss and loss
adjustment expenses as a percentage of premiums earned, increased from 79.2% in
1996 to 101.6% in 1997 due primarily to an increase to loss reserves of $42.0
million following a comprehensive review and analysis by the Company's actuarial
staff and independent consulting actuaries. During the first quarter of 1997,
the Company experienced greater than anticipated physical damage loss activity
related to the 1996 accident year. Furthermore, after an in-depth review, the
Company determined that reserves primarily related to automobile liability
coverages needed to be strengthened.
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
The Company's estimate of loss reserves, including reserves for claims
incurred but not reported, are subject to variability and, accordingly may
develop differently than projected. These estimates are reviewed by management
and, as adjustments to these liabilities become necessary such adjustments are
reflected in current operations.
Policy acquisition and other underwriting expenses increased $16.1 million
from $35.0 million in 1996 to $51.1 million in 1997. The expense ratio, defined
as policy acquisition and other underwriting expenses as a percentage of
premiums earned, increased from 21.2% in 1996 to 26.1% in 1997. The increase in
the expense ratio was due primarily to a write-off of deferred policy
acquisition costs of $3.7 million due to the increase in the loss ratio for
accident year 1996 and due to an increase in personnel-related and other
information systems costs. Such costs were incurred primarily to enhance the
Company's operations, and also included expenditures for modifications necessary
to accommodate the Year 2000.
Net investment income increased 16.6% from $7.8 million in 1996 to $9.0
million in 1997 as a result of the $108.7 million increase in average invested
assets. This higher level of invested assets was partially offset by lower
yields. The pre-tax yield of the portfolio was 5.9% in 1997 compared to 6.1% in
1996. The percentage of cash and invested assets invested in tax-exempt
securities was 21.2% and 21.3% in 1997 and 1996, respectively. In addition to
the variances discussed above, there were pre-tax net realized investment losses
of $.5 million in 1997 compared to pre-tax net realized investment gains of $2.1
million in 1996.
Other income less other expenses decreased from income of $.1 million in
1996 to an expense of $.2 million in 1997 due primarily to a decline in premium
finance income.
Interest expense increased 3.8% from $3.6 million in 1996 to $3.8 million
in 1997 due to increased short-term borrowings.
Page 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (Continued)
Federal income taxes decreased $19.5 million from $1.5 million tax
expense in 1996 to an $18.0 million tax benefit in 1997 due to a loss from
operations before federal income tax. The effective tax rate increased from
30.1% in 1996 to 35.8% in 1997 due primarily to the underwriting loss in 1997.
The deferred tax asset in the amount of $29.3 million has not been
reduced by a valuation allowance. Based on available information, the Company
has concluded it is more likely than not that all of the deferred tax asset will
be realized. In evaluating the need for a valuation allowance, refunds available
for carryback of losses to offset taxable income in prior years were considered
as well as future taxable income.
Distributions on capital securities of subsidiary trust resulted in an
after-tax charge of $.9 million in 1997, representing the Company's minority
interest in the earnings of Integon Capital I, a single-purpose wholly-owned
subsidiary trust. The charge is due to the obligations incurred by Integon
Capital I on the Capital Securities issued February 10, 1997. See Note 2.
Net income decreased $36.8 million from $3.4 million in 1996 to a loss
of $33.4 million in 1997.
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Analysis of Financial Condition
Information regarding the Company's investment portfolio at March 31,
1997 is as follows:
March 31, 1997
Type/Ratings of Investments (1) Carrying Amount (2) Percentage
- ------------------------------- ------------------- ----------
(in thousands)
Fixed maturities:
Government and agencies................ $158,741 24.0%
Aaa 173,934 26.3%
Aa ................................... 79,772 12.1%
A (3).................................. 199,863 30.2%
Baa 10,266 1.6%
-------- -----
Total investment grade............. 622,576 94.2%
Below investment grade................. 2,528 0.4%
-------- -----
Subtotal........................... 625,104 94.6%
Other long-term investments................ 2,815 0.4%
Short-term investments..................... 5,720 0.9
Cash and cash equivalents.................. 27,816 4.1
-------- -----
Total invested assets.............. $661,455 100.0%
======== =====
(1) The ratings set forth above are based on the ratings, if any, assigned
by Moody's Investors Service, Inc. ("Moody's"). If Moody's ratings were
unavailable, the equivalent ratings supplied by Standard & Poor's
Corporation ("S&P") or the National Association of Insurance
Commissioners ("NAIC") were used where available. The percentage of
rated securities that were not assigned a rating by Moody's at March
31, 1997 was 6.5%.
(2) Carrying amount is estimated market value for fixed maturities
available for sale.
(3) The "A" category includes $17.7 million of securities which were not
rated by Moody's or S&P, but were rated "1" by the NAIC.
Page 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Liquidity and Capital Resources
Sources of Funds. The Company's major sources of operating funds have
been (i) dividends from its subsidiaries, (ii) reimbursements of costs and
expenses in connection with the management agreement among the Company and its
subsidiaries pursuant to which the Company provides certain services to such
subsidiaries, (iii) tax sharing payments from the operating subsidiaries of the
Company and (iv) borrowings under credit facilities. The Company files a
consolidated federal income tax return including its subsidiaries and receives
payments pursuant to a tax sharing agreement among the Company and its
subsidiaries. Taxes are computed for each subsidiary and paid to the Company as
if such subsidiary were filing a tax return on a stand-alone basis, thereby
providing additional funds to the Company, because the aggregate of such
payments generally exceeds taxes to be paid by the Company on a consolidated
basis. These sources are expected to be available for future needs except for
dividends from the Company's subsidiaries. Dividends will be retained by the
subsidiaries as needed. The Company's insurance subsidiaries are limited as to
the amount of ordinary dividends they may pay (see "Regulation" below). In
addition, in determining the ability of its subsidiaries to pay dividends, the
Company monitors its subsidiaries' operating leverage based on the level of net
premiums written to statutory surplus. Currently, the Company seeks to maintain
its subsidiaries' ratio of net premiums written to statutory surplus at a level
of approximately 3.0x in accordance with industry standards. The ratio was 3.07x
for the twelve months ended March 31, 1997. On February 13, 1997, Integon
Corporation contributed $50.0 million to the domestic insurance subsidiaries in
the form of certificates of contribution. Interest on the certificates accrues
at the rate of 10 3/4% per annum, not compounded, and is due and payable
semiannually to the extent funds exist pursuant to regulatory requirements.
As of March 31, 1997, Integon Corporation, the parent company, had approximately
$2.5 million of cash and cash equivalents that were available for general
corporate purposes, including debt service, dividend payments and working
capital. The Company believes that the sources of funds available to it,
including the
Page 14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
$75.0 million committed credit facility described in "Financing Activities"
below, are and will be sufficient to satisfy its short-term needs.
The principal sources of funds for the Company's subsidiaries are net premiums
collected, proceeds from investment income and from investments that have been
sold, matured or repaid and premium financing revenues.
On a consolidated basis, net cash flows provided by operating activities for the
three months ended March 31, 1997 and 1996 were $31.7 million and $28.4 million,
respectively. Based on the Company's current financial plans, management
believes that its subsidiaries will continue to realize positive cash flows from
their operating activities and that the operating liquidity needs of such
subsidiaries can be funded from such cash flow. Statements concerning cash flows
look forward in time. The following important factors, among others, could cause
actual cash flows to differ materially from those set forth in the above forward
looking statement: claims frequency, claims severity, severe adverse weather
conditions, the cost of automobile repair, economic activity, competitive
pricing, and the regulatory environment in which the Company operates.
Uses of Funds. The Company's principal uses of funds are the payment of
corporate operating expenses, taxes, debt service and dividends on Common and
Preferred Stock. During the first quarter of 1997, the Company contributed $50.0
million of capital in the form of certificates of contribution to the insurance
subsidiaries to maintain the ratio of net premiums written to statutory surplus
at a level of 3.0x.
The principal uses of funds of the Company's subsidiaries are the payment of
claims on insurance policies, the payment of operating expenses, the payment of
interest on the certificates of contribution, distributions on the Capital
Securities, purchase of investments, tax sharing payments and dividends to the
Company.
The Company and its subsidiaries have no material commitments for capital
expenditures.
Page 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Financing Activities: The Company has a committed credit facility of
$75.0 million. The interest rate charged on this credit facility is based on the
bids of the participating lenders and in the case of Eurodollar loans a margin
percentage ranging from .55% to .675% is added. The facility fee ranges from
.20% to .35% of the total amount of the facility.
On February 10, 1997, Integon Capital I issued $100.0 million of 10 3/4% capital
securities due February 15, 2027, the proceeds of which were invested in 10 3/4%
junior subordinated debentures of the Company, due February 15, 2027. See Note
2 of Notes to Financial Statements.
Investments. In accordance with the Company's investment policy, the
Company's investments at March 31, 1997 consisted primarily of investment-grade
securities (rated Baa or better by Moody's Investor Services, Inc. or the
equivalent). Consolidated cash and cash equivalents at March 31, 1997 amounted
to $27.8 million, or 4.1% of total cash and invested assets.
Management has determined that the entire fixed maturity portfolio should be
classified as "available for sale". Fixed maturity securities classified as
"available for sale" are carried at estimated market value. The market value and
amortized cost of all fixed maturity securities at March 31, 1997 were $625.1
million and $636.1 million, respectively.
Management believes that the securities in the Company's investment portfolio at
March 31, 1997 are readily marketable.
Regulation. Insurance laws and regulations impose certain restrictions
on the amount of dividends that may be paid by insurance companies. The maximum
amount of ordinary dividends that a North Carolina domiciled property and
casualty insurance company may pay at any point in time without regulatory
approval is the lesser of (a) 10% of the policyholders' statutory surplus of
such property and casualty insurance company as of the preceding December 31 or
(b) the statutory net income of such property and casualty insurance company for
the preceding calendar year, less the amount of dividends paid during the
Page 16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
preceding 12 months. The Company's insurance subsidiaries have made no payments
of ordinary dividends during the twelve months ended March 31, 1997. Dividends
will be retained by the subsidiaries as needed.
If the insurance subsidiaries are not able to pay ordinary dividends and their
requests for the payment of extraordinary dividends are not granted, and if
amounts needed are in excess of the available funds under the credit facility,
additional borrowings, the issuance of additional securities or obtaining other
funds could be necessary to pay debt service, Common Stock and Preferred Stock
dividends and other expenses of the Company.
Page 17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Filed Herewith (*),
Nonapplicable (NA), or
Incorporated by Reference from
-----------------------------
Integon
Exhibit Registration
Number Exhibit No. or Report
- ------- ------- --------------
10.1 Letter Agreement entered into between * NA
the Company and Steven C. Andrews dated
February 13, 1997 regarding severance
10.2 Letter Agreement entered into between * NA
the Company and Donald F. McKee dated
February 13, 1997 regarding severance
10.3 Form of Letter Agreement entered into * NA
between the Company and each of John B.Yorke,
Arthur S. Lyon, Jr., Brian T. Sheekey,
John C. Beattie and Kenneth J. Jakubowski
dated February 13, 1997 regarding severance
10.4 Amendment No. 2 to the Integon Corporation * NA
1992 Stock Option Plan
10.5 Integon Corporation Amended and Restated * NA
Omnibus Long-Term Performance Incentive
Compensation Plan
10.6 Amendment No. 1 to the Integon Corporation * NA
Amended and Restated Omnibus Long-Term
Performance Incentive Compensation Plan
Page 18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K. (continued)
a. Exhibits
Filed Herewith (*),
Nonapplicable (NA), or
Incorporated by Reference from
-----------------------------
Integon
Exhibit Registration
Number Exhibit No. or Report
- ------- ------- -------------
10.7 Integon Corporation Executive
Salary Deferral Plan * NA
10.8 Integon Corporation Severance Policy * NA
10.9 Integon Corporation Amended and * NA
Restated Annual Incentive Award Plan
11.1 Computation of Earnings per Share * NA
27 Financial Data Schedule * NA
b. Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended March 31,
1997.
Filing Date Item No. Description
- ----------- ---------- -----------
January 23, 1997 5 Other Events. Copy of press release
concerning fourth quarter 1996 results.
January 29, 1997 5 Other Events. Securities offering by
Integon Capital I.
January 31, 1997 5 Other Events. Rights Agreement.
Page 19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGON CORPORATION
May 15, 1997 /s/ Brian T. Sheekey
----------------
Brian T. Sheekey
(Duly Authorized Officer
and Principal Accounting Officer)
Page 20
<PAGE>
INDEX TO EXHIBITS
Filed Herewith (*),
Nonapplicable (NA), or
Incorporated by Reference from
-------------------------------------
Integon
Exhibit Registration Sequential
Number Exhibit No. or Report Page Number
- ------- --------- ------------- -----------
10.1 Letter Agreement entered into 10.1 *
between the Company and Steven
C. Andrews dated February 13,
1997 regarding severance
10.2 Letter Agreement entered into 10.2 *
between the Company and Donald
F. McKee dated February 13,
1997 regarding severance
10.3 Form of Letter Agreement 10.3 *
entered into between the Company
and each of John B. Yorke,
Arthur S. Lyon,Jr., Brian T.
Sheekey, John C Beattie, and
Kenneth J. Jakubowski dated
February 13, 1997 regarding severance
10.4 Amendment No. 2 to the Integon 10.4 *
Corporation 1992 Stock Option Plan
10.5 Integon Corporation Amended and 10.5 *
Restated Omnibus Long-Term
Performance Incentive
Compensation Plan
10.6 Amendment No. 1 to the Integon 10.6 *
Corporation Amended and Restated
OmnibusLong-Term Performance
Incentive Compensation Plan
<PAGE>
INDEX TO EXHIBITS (continued)
Filed Herewith (*),
Nonapplicable (NA), or
Incorporated by Reference from
-------------------------------------
Integon
Exhibit Registration Sequential
Number Exhibit No. or Report Page Number
- ------- --------- ------------- -----------
10.7 Integon Corporation Executive 10.7 *
Salary Deferral Plan
10.8 Integon Corporation 10.8 *
Severance Policy
10.9 Integon Corporation Amended 10.9 *
and Restated Annual
Incentive Award Plan
11.1 Computation of Earnings 11.1 *
Per Share
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
February 13, 1997
Mr. Steven C. Andrews
Integon Corporation
500 West Fifth Street
Winston-Salem, North Carolina 27152
Dear Mr. Andrews:
Integon Corporation, a Delaware corporation (the "Company"), considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interest of the Company and its shareholders.
Accordingly, the Board of Directors of the Company (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the management of the Company to their
assigned duties without distraction in circumstances arising from the
possibility of a termination in your employment.
This letter agreement, which has been approved by the Board sets forth the
severance benefits which the Company agrees will be provided to you in the event
your employment with the Company is terminated.
1. Agreement to Provide Services; Right To Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company or
you may terminate your employment at any time, subject to the Company's
providing the benefits hereinafter specified in accordance with the terms
hereof.
(ii) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 50% or more of the combined voting powers of
the Company's then outstanding voting securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of common
stock, par value of $0.01 per share, of the Company, or in the event that the
Company enters into negotiations with respect to a merger, consolidation, or
other acquisition of the Company, or of all or substantially all of the
Company's assets, with a Person, you agree that you will not leave the employ of
the Company (other than as a result of Disability, as such term is hereinafter
defined) and will render the services contemplated in the recitals to this
Agreement until such tender offer, exchange offer, merger, consolidation, or
acquisition has been abandoned or terminated or a change in control of the
Company, as defined in Section 3 hereof, has occurred. For purposes of this
Agreement, the term "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than the Company, a subsidiary of the Company, or any employee benefit plan(s)
sponsored by the Company.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1997; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1st date, the Company or you shall have
given notice that this Agreement shall not be extended; and provided, further,
that this Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a change in control of the Company, as
defined in Section 3 hereof, shall have occurred during such term.
3. Change in Control. For purposes of this Agreement, a "change in control"
of the Company shall mean a change in control of a nature that would be required
to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act;
provided that, without limitation, such a change in control shall be deemed to
have occurred at such time as (a) any Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the combined voting power of the Company's Voting
Securities; (b) the Company is merged or consolidated with another corporation,
and as a result of such merger or consolidation, less than 50% of the
outstanding voting securities of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of the Company, (c)
the Company transfers substantially all of its assets to another corporation or
entity which is not a wholly owned subsidiary of the Company; or (d) individuals
who constitute the Board on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such person were
a member of the Incumbent Board.
4. Termination Following Change in Control. If any of the events described
in Section 3 hereof constituting a change in control of the Company shall have
occurred, you shall be entitled to the benefits provided in paragraph (iv) and
(v) of Section 5 hereof upon the termination of your employment within
twenty-four (24) months after such event, unless such termination is (a) because
of your death or (b) by the Company for Cause or Disability (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination of your employment based on "Disability" shall
mean termination because of your absence from your duties with the Company and
determined pursuant to the provisions of the long-term disability plan in effect
at the time such termination occurs.
(ii) Cause. Termination by the Company of your employment for "Cause" shall
mean termination upon (a) the willful and continued failure by you to perform
substantially all of your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to you by the Chairman of the Board or
the Chief Executive Officer of the Company which specifically identifies the
manner in which you have not substantially performed your duties, or (b) the
willful engaging by you in illegal conduct which is materially and demonstrably
injurious to the Company. For purposes of this paragraph (ii), no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by you in good
faith and in the best interests of the corporation. It is also expressly
understood that your attention to matters not directly related to the business
of the Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the entire membership
of the Board at a meeting called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the Board you
were guilty of the conduct set forth above in (a) or (b) of this paragraph (ii)
and specifying the particulars thereof in detail.
5. Compensation Upon Termination.
(i) If your employment is terminated as a result of your Disability, the
Company shall continue to pay you your base salary for a period of twenty-four
(24) months following the date of your termination, at the rate in effect just
prior to your Disability. Notwithstanding the foregoing, the obligation to pay
such amount shall be offset by the amount, if any, you may be entitled to
receive under the Company's long term disability plan. Provided further, that
nothing set forth herein is intended to otherwise reduce any benefits that you
may be entitled to receive under the Company's long term disability plan.
(ii) If your employment shall be involuntarily terminated by the Company
(excluding termination for Cause and termination after a change in control
subject to paragraph (iv) hereof) the Company shall pay you an amount equal to
your base salary for eighteen (18) months at the rate in effect just prior to
the date of termination, such amount being paid in equal semi-monthly payments
over the 18 month period following the date of your termination. The Company
also shall pay you an amount in cash equal to 100% of the Performance Award
under Article 8 of the Amended and Restated Integon Corporation Omnibus
Long-Term Performance Incentive Compensation Plan ("Omnibus Plan") that would
have been payable for the calendar year in which your termination occurs,
assuming that the performance goal for the year had been attained at a level of
100% (the "targeted bonus amount"). Such amount shall be payable in equal
semi-monthly installments over the 18 month period following the date of your
termination. Further, the Company shall pay you for the period ending 18 months
after the date of your termination any benefits that may be due to you under any
benefit plan, program or policy of the Company intended to benefit employees
(hereinafter referred to as "Plans") except other severance pay plans.
(iii) If you voluntarily terminate your employment, the Company shall pay
you your salary through the date of termination at the rate in effect just prior
to the date of termination and shall pay you for all earned but unused vacation
as of the date of termination. Thereupon the Company shall have no further
obligations to you under this Agreement.
(iv) Subject to Section 8 hereof, if, within twenty-four (24) months after
a change in control of the Company shall have occurred, as defined in Section 3
above, your employment shall be terminated (other than as a result of your
death) (a) by the Company other than for Cause or Disability, or (b) voluntarily
by you, then, you shall be entitled, without regard to any contrary provisions
of any Plans, to the benefits as provided below:
(A) the Company shall pay your base salary through the date of termination
at the rate in effect just prior to the date of your termination or the rate in
effect immediately prior to the change in control, whichever is higher, plus any
benefits or awards (including both the cash and stock components) which pursuant
to the terms of any Plans have been earned or become payable, but which have not
yet been paid to you (including amounts which previously had been deferred at
your request); and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the date of termination, the Company shall pay to you an amount in
cash equal to the lesser of 1 1/2 times your base salary and any targeted bonus
amount (except to the extent the targeted bonus amount has already been paid
pursuant to the change in control provisions of the Omnibus Plan) or 2.99 times
your "annualized includible compensation for the base period" minus any
parachute (as defined in Section 280G(d) (1) of the Internal Revenue code of
1986 (the "Code") payable one-third at the time of termination, one-third at the
end of twelve (12) months following the date of your termination, and one-third
at the end of eighteen (18) months following the date of your termination. The
Company shall also pay you the value of the non-compete set forth in
subparagraph (v) below.
(v) Except as otherwise provided herein, the amount of any payment provided
for in this Section 5 shall not be reduced, offset or subject to recovery by the
Company by reason of any compensation earned by you as the result of employment
by another employer after the date of your termination, or otherwise.
Notwithstanding the foregoing, you agree for a period of eighteen (18) months
after the date of your termination in connection with a change in control, that
you will not, as individual, proprietor, partner, joint venturer, shareholder
(other than in a publicly traded company, provided that you do not own more than
3% of the securities of such company), investor, consultant, advisor, broker,
director, officer, agent, employee, trustee, beneficiary or in any other
capacity whatsoever, directly or indirectly engage in, or participate with any
other person or entity to engage in, any business or activity, whether
consisting of a single transaction, or a series of transactions or continuous
activity, similar to or competitive with the primary business or activity in
which the Company engages during the term of this Agreement and in consideration
for such non-competition agreement by you, the Company shall pay you $846,150,
payable one-third six months after the date of your termination, one-third 12
months after the date of your termination and one-third 18 months after the date
of your termination; provided, however that should you engage in any such
business or activity, the Company's sole remedy therefor shall be termination of
your payment rights under this paragraph 5, which obligation shall be deemed
released and discharged on the date that you first engage in any such business
or activity.
6. Successors; Binding Agreement.
(i) Upon your written request, the Company will seek to have any Successor
(as hereinafter defined), by agreement in form and substance satisfactory to
you, assent to the fulfillment by the Company of its obligations under this
Agreement. "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by you as a result of (i) your termination following a change
in control of the Company (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or incurred by you in
seeking advice with respect to the matters set forth in Section 8 hereof) or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement.
8. Taxes.
(i) All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if any of
the payments provided for in this Agreement, together with any other payments
which you have the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code), the payments
pursuant to this Agreement shall be reduced (reducing first the payments under
Section 5(iv)(B)) to the largest amount as will result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the Code.
9. Survival. The respective obligations of, and benefits afforded to, the
Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company, to the address set forth on the first page of this
agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided that all notices to the Company shall be directed
to the attention of the President of the Company, with a copy to the Secretary
of the Company, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and by the General Counsel (or in the case of the General
Counsel, the President) of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of North Carolina.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in North
Carolina by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the date of your termination during the pendency of any dispute of controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or disclose to
any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary of the Company or other
confidential information concerning their business, affairs, products, supplies
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company and its subsidiaries, taken as a whole; it
being understood, however, that the obligations of this Section 14 shall not
apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any other
agreement between the Company, or any of its subsidiaries, and you shall limit,
qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose. This Agreement specifically supersedes and replaces the letter
agreement dated January 1, 1996.
16. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign below and return to the Secretary of the Company this
letter, which will then constitute our agreement on this subject.
Sincerely,
INTEGON CORPORATION
By: /s/ John B. Yorke
-----------------
John B. Yorke
Vice President, General Counsel
Agreed to this 19th day of February, 1997.
/s/ Steven C. Andrews
- ----------------------
Steven C. Andrews
End Exhibit 10.1
<PAGE>
Exhibit 10.2
February 13, 1997
Mr. Donald F. McKee
Integon Corporation
500 West Fifth Street
Winston-Salem, North Carolina 27152
Dear Mr. McKee:
Integon Corporation, a Delaware corporation (the "Company"), considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interest of the Company and its shareholders.
Accordingly, the Board of Directors of the Company (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the management of the Company to their
assigned duties without distraction in circumstances arising from the
possibility of a termination in your employment.
This letter agreement, which has been approved by the Board sets forth the
severance benefits which the Company agrees will be provided to you in the event
your employment with the Company is terminated.
1. Agreement to Provide Services; Right To Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company or
you may terminate your employment at any time, subject to the Company's
providing the benefits hereinafter specified in accordance with the terms
hereof.
(ii) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 50% or more of the combined voting powers of
the Company's then outstanding voting securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of common
stock, par value of $0.01 per share, of the Company, or in the event that the
Company enters into negotiations with respect to a merger, consolidation, or
other acquisition of the Company, or of all or substantially all of the
Company's assets, with a Person, you agree that you will not leave the employ of
the Company (other than as a result of Disability, as such term is hereinafter
defined) and will render the services contemplated in the recitals to this
Agreement until such tender offer, exchange offer, merger, consolidation, or
acquisition has been abandoned or terminated or a change in control of the
Company, as defined in Section 3 hereof, has occurred. For purposes of this
Agreement, the term "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than the Company, a subsidiary of the Company, or any employee benefit plan(s)
sponsored by the Company.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1997; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1st date, the Company or you shall have
given notice that this Agreement shall not be extended; and provided, further,
that this Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a change in control of the Company, as
defined in Section 3 hereof, shall have occurred during such term.
3. Change in Control. For purposes of this Agreement, a "change in control"
of the Company shall mean a change in control of a nature that would be required
to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act;
provided that, without limitation, such a change in control shall be deemed to
have occurred at such time as (a) any Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the combined voting power of the Company's Voting
Securities; (b) the Company is merged or consolidated with another corporation,
and as a result of such merger or consolidation, less than 50% of the
outstanding voting securities of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of the Company, (c)
the Company transfers substantially all of its assets to another corporation or
entity which is not a wholly owned subsidiary of the Company; or (d) individuals
who constitute the Board on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such person were
a member of the Incumbent Board.
4. Termination Following Change in Control. If any of the events described
in Section 3 hereof constituting a change in control of the Company shall have
occurred, you shall be entitled to the benefits provided in paragraph (iv) and
(v) of Section 5 hereof upon the termination of your employment within
twenty-four (24) months after such event, unless such termination is (a) because
of your death or (b) by the Company for Cause or Disability (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination of your employment based on "Disability" shall
mean termination because of your absence from your duties with the Company and
determined pursuant to the provisions of the long-term disability plan in effect
at the time such termination occurs.
(ii) Cause. Termination by the Company of your employment for "Cause" shall
mean termination upon (a) the willful and continued failure by you to perform
substantially all of your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to you by the Chairman of the Board or
the Chief Executive Officer of the Company which specifically identifies the
manner in which you have not substantially performed your duties, or (b) the
willful engaging by you in illegal conduct which is materially and demonstrably
injurious to the Company. For purposes of this paragraph (ii), no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by you in good
faith and in the best interests of the corporation. It is also expressly
understood that your attention to matters not directly related to the business
of the Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the entire membership
of the Board at a meeting called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the Board you
were guilty of the conduct set forth above in (a) or (b) of this paragraph (ii)
and specifying the particulars thereof in detail.
5. Compensation Upon Termination.
(i) If your employment is terminated as a result of your Disability, the
Company shall continue to pay you your base salary for a period of twenty-four
(24) months following the date of your termination, at the rate in effect just
prior to your Disability. Notwithstanding the foregoing, the obligation to pay
such amount shall be offset by the amount, if any, you may be entitled to
receive under the Company's long term disability plan. Provided further, that
nothing set forth herein is intended to otherwise reduce any benefits that you
may be entitled to receive under the Company's long term disability plan.
(ii) If your employment shall be involuntarily terminated by the Company
(excluding termination for Cause and termination after a change in control
subject to paragraph (iv) hereof) the Company shall pay you an amount equal to
your base salary for eighteen (18) months at the rate in effect just prior to
the date of termination, such amount being paid in equal semi-monthly payments
over the 18 month period following the date of your termination. The Company
also shall pay you an amount in cash equal to 100% of the Performance Award
under Article 8 of the Amended and Restated Integon Corporation Omnibus
Long-Term Performance Incentive Compensation Plan ("Omnibus Plan") that would
have been payable for the calendar year in which your termination occurs,
assuming that the performance goal for the year had been attained at a level of
100% (the "targeted bonus amount"). Such amount shall be payable in equal
semi-monthly installments over the 18 month period following the date of your
termination. Further, the Company shall pay you for the period ending 18 months
after the date of your termination any benefits that may be due to you under any
benefit plan, program or policy of the Company intended to benefit employees
(hereinafter referred to as "Plans") except other severance pay plans.
(iii) If you voluntarily terminate your employment, the Company shall pay
you your salary through the date of termination at the rate in effect just prior
to the date of termination and shall pay you for all earned but unused vacation
as of the date of termination. Thereupon the Company shall have no further
obligations to you under this Agreement.
(iv) Subject to Section 8 hereof, if, within twenty-four (24) months after
a change in control of the Company shall have occurred, as defined in Section 3
above, your employment shall be terminated (other than as a result of your
death) (a) by the Company other than for Cause or Disability, or (b) voluntarily
by you, then, you shall be entitled, without regard to any contrary provisions
of any Plans, to the benefits as provided below:
(A) the Company shall pay your base salary through the date of termination
at the rate in effect just prior to the date of your termination or the rate in
effect immediately prior to the change in control, whichever is higher, plus any
benefits or awards (including both the cash and stock components) which pursuant
to the terms of any Plans have been earned or become payable, but which have not
yet been paid to you (including amounts which previously had been deferred at
your request); and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the date of termination, the Company shall pay to you an amount in
cash equal to the lesser of 1 1/2 times your base salary and any targeted bonus
amount (except to the extent the targeted bonus amount has already been paid
pursuant to the change in control provisions of the Omnibus Plan) or 2.99 times
your "annualized includible compensation for the base period" minus any
parachute (as defined in Section 280G(d) (1) of the Internal Revenue code of
1986 (the "Code") payable one-third at the time of termination, one-third at the
end of twelve (12) months following the date of your termination, and one-third
at the end of eighteen (18) months following the date of your termination. The
Company shall also pay you the value of the non-compete set forth in
subparagraph (v) below.
(v) Except as otherwise provided herein, the amount of any payment provided
for in this Section 5 shall not be reduced, offset or subject to recovery by the
Company by reason of any compensation earned by you as the result of employment
by another employer after the date of your termination, or otherwise.
Notwithstanding the foregoing, you agree for a period of eighteen (18) months
after the date of your termination in connection with a change in control, that
you will not, as individual, proprietor, partner, joint venturer, shareholder
(other than in a publicly traded company, provided that you do not own more than
3% of the securities of such company), investor, consultant, advisor, broker,
director, officer, agent, employee, trustee, beneficiary or in any other
capacity whatsoever, directly or indirectly engage in, or participate with any
other person or entity to engage in, any business or activity, whether
consisting of a single transaction, or a series of transactions or continuous
activity, similar to or competitive with the primary business or activity in
which the Company engages during the term of this Agreement and in consideration
for such non-competition agreement by you, the Company shall pay you $663,600,
payable one-third six months after the date of your termination, one-third 12
months after the date of your termination and one-third 18 months after the date
of your termination; provided, however that should you engage in any such
business or activity, the Company's sole remedy therefor shall be termination of
your payment rights under this paragraph 5, which obligation shall be deemed
released and discharged on the date that you first engage in any such business
or activity.
6. Successors; Binding Agreement.
(i) Upon your written request, the Company will seek to have any Successor
(as hereinafter defined), by agreement in form and substance satisfactory to
you, assent to the fulfillment by the Company of its obligations under this
Agreement. "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by you as a result of (i) your termination following a change
in control of the Company (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or incurred by you in
seeking advice with respect to the matters set forth in Section 8 hereof) or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement.
8. Taxes.
(i) All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if any of
the payments provided for in this Agreement, together with any other payments
which you have the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code), the payments
pursuant to this Agreement shall be reduced (reducing first the payments under
Section 5(iv)(B)) to the largest amount as will result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the Code.
9. Survival. The respective obligations of, and benefits afforded to, the
Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company, to the address set forth on the first page of this
agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided that all notices to the Company shall be directed
to the attention of the President of the Company, with a copy to the Secretary
of the Company, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and by the General Counsel (or in the case of the General
Counsel, the President) of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of North Carolina.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in North
Carolina by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the date of your termination during the pendency of any dispute of controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or disclose to
any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary of the Company or other
confidential information concerning their business, affairs, products, supplies
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company and its subsidiaries, taken as a whole; it
being understood, however, that the obligations of this Section 14 shall not
apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any other
agreement between the Company, or any of its subsidiaries, and you shall limit,
qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose. This Agreement specifically supersedes and replaces the letter
agreement dated January 1, 1996.
16. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign below and return to the Secretary of the Company this
letter, which will then constitute our agreement on this subject.
Sincerely,
INTEGON CORPORATION
By: /s/ John B. Yorke
-----------------
John B. Yorke
Vice President, General Counsel
Agreed to this 20th day of February, 1997.
---- ---------
/s/ Donald F. McKee
- -------------------
Donald F. McKee
End Exhibit 10.2
<PAGE>
Exhibit 10.3
February 13, 1997
Mr. John B. Yorke
Integon Corporation
500 West Fifth Street
Winston-Salem, North Carolina 27152
Dear Mr. Yorke:
Integon Corporation, a Delaware corporation (the "Company"), considers the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interest of the Company and its shareholders.
Accordingly, the Board of Directors of the Company (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the management of the Company to their
assigned duties without distraction in circumstances arising from the
possibility of a termination in your employment.
This letter agreement, which has been approved by the Board sets forth the
severance benefits which the Company agrees will be provided to you in the event
your employment with the Company is terminated.
1. Agreement to Provide Services; Right To Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company or
you may terminate your employment at any time, subject to the Company's
providing the benefits hereinafter specified in accordance with the terms
hereof.
(ii) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 50% or more of the combined voting powers of
the Company's then outstanding voting securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of common
stock, par value of $0.01 per share, of the Company, or in the event that the
Company enters into negotiations with respect to a merger, consolidation, or
other acquisition of the Company, or of all or substantially all of the
Company's assets, with a Person, you agree that you will not leave the employ of
the Company (other than as a result of Disability, as such term is hereinafter
defined) and will render the services contemplated in the recitals to this
Agreement until such tender offer, exchange offer, merger, consolidation, or
acquisition has been abandoned or terminated or a change in control of the
Company, as defined in Section 3 hereof, has occurred. For purposes of this
Agreement, the term "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than the Company, a subsidiary of the Company, or any employee benefit plan(s)
sponsored by the Company.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1997; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1st date, the Company or you shall have
given notice that this Agreement shall not be extended; and provided, further,
that this Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a change in control of the Company, as
defined in Section 3 hereof, shall have occurred during such term.
3. Change in Control. For purposes of this Agreement, a "change in control"
of the Company shall mean a change in control of a nature that would be required
to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act;
provided that, without limitation, such a change in control shall be deemed to
have occurred at such time as (a) any Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the combined voting power of the Company's Voting
Securities; (b) the Company is merged or consolidated with another corporation,
and as a result of such merger or consolidation, less than 50% of the
outstanding voting securities of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of the Company; (c)
the Company transfers substantially all of its assets to another corporation or
entity which is not a wholly owned subsidiary of the Company; or (d) individuals
who constitute the Board on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such person were
a member of the Incumbent Board.
4. Termination Following Change in Control. If any of the events described
in Section 3 hereof constituting a change in control of the Company shall have
occurred, you shall be entitled to the benefits provided in paragraph (iv) of
Section 5 hereof upon the termination of your employment within twenty-four (24)
months after such event, unless such termination is (a) because of your death or
(b) by the Company for Cause or Disability or (c) by you other than for Good
Reason (as all such capitalized terms are hereinafter defined).
(i) Disability. Termination of your employment based on "Disability" shall
mean termination because of your absence from your duties with the Company and
determined pursuant to the provisions of the long-term disability plan in effect
at the time such termination occurs.
(ii) Cause. Termination by the Company of your employment for "Cause" shall
mean termination upon (a) the willful and continued failure by you to perform
substantially all of your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to you by the Chairman of the Board or
the Chief Executive Officer of the Company which specifically identifies the
manner in which you have not substantially performed your duties, or (b) the
willful engaging by you in illegal conduct which is materially and demonstrably
injurious to the Company. For purposes of this paragraph (ii), no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by you in good
faith and in the best interests of the corporation. It is also expressly
understood that your attention to matters not directly related to the business
of the Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the entire membership
of the Board at a meeting called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the Board you
were guilty of the conduct set forth above in (a) or (b) of this paragraph (ii)
and specifying the particulars thereof in detail.
(iii) Good Reason. Termination by you of your employment for "Good Reason"
shall mean termination based on:
(A) a substantial change in your status (other than any such change
primarily attributable to the fact that the Company may no longer be publicly
owned) or a significant alteration of your job responsibilities (except in
connection with the termination of your employment for Cause or Disability or as
a result of your death or by you other than for Good Reason);
(B) a reduction by the Employer in your base salary as in effect
immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan (as
hereinafter defined) in which you are participating at the time of the change in
control of the Company (or Plans providing you with at least substantially
similar benefits) other than as a result of the normal expiration of any such
Plan in accordance with its terms as in effect at the time of the change in
control, or the taking of any action, or the failure to act, by the Company
which would adversely affect your continued participation in any of such Plans
on at least as favorable a basis to you as is the case on the date of the change
in control or which would materially reduce your benefits in the future under
any of such Plans or deprive you of any material benefit enjoyed by you at the
time of the change in control;
(D) the failure by the Company to provide and credit you with the number of
paid vacation days to which you are then entitled in accordance with the
Company's normal vacation policy as in effect immediately prior to the change in
control;
(E) the Company's requiring you to be based anywhere other than within a
radius of 20 miles of the city where your office is located immediately prior to
the change in control except for required travel on the Company's business to an
extent substantially consistent with the business travel obligations which you
undertook on behalf of the Company prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as hereinafter
defined) the assent to this Agreement contemplated by Section 6 hereof;
(G) any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business of the
Company which, prior to the change in control, you were permitted to attend to
or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
such as the Annual Incentive Award Plan, Omnibus Plan (each as hereinafter
defined), or any employee benefit plan such as a profit sharing, vacation,
medical, dental, vision, disability, accident, life insurance plan or a
relocation plan or policy or any other plan, program or policy of the Company
intended to benefit employees.
5. Compensation Upon Termination.
(i) If your employment is terminated as a result of your Disability, the
Company shall continue to pay you your base salary for a period of twenty-four
(24) months following the date of your termination, at the rate in effect just
prior to your Disability. Notwithstanding the foregoing, the obligation to pay
such amount shall be offset by the amount, if any, you may be entitled to
receive under the Company's long term disability plan. Provided further, that
nothing set forth herein is intended to otherwise reduce any benefits that you
may be entitled to receive under the Company's long term disability plan.
(ii) If your employment shall be involuntarily terminated by the Company
(excluding termination for Cause and termination after a change in control
subject to paragraph (iv) hereof) the Company shall pay you an amount equal to
your base salary for twelve (12) months at the rate in effect just prior to the
date of termination, such amount being paid in equal semi-monthly payments over
the 12 month period following the date of your termination. The Company also
shall pay you an amount in cash equal to 100% of the value of the award under
the Annual Incentive Award Plan that would have been payable for the calendar
year in which your termination occurs, assuming that the performance goal for
the year had been attained at a level of 100% (the "targeted bonus amount").
Such amount shall be payable in equal semi-monthly installments over the 12
month period following your date of termination. Further, the Company shall pay
you for the period ending 12 months after the date of your termination any
benefits that may be due to you under any Plan, except other severance pay
plans. In addition, the Company shall pay you up to an additional six (6) months
of your base salary in the event you are not employed at the end of the twelve
(12) month period referenced above provided that you have used your best efforts
to obtain comparable employment. Such payments shall be made in equal
installments on a semi-monthly basis for up to six (6) months for so long as you
remain unemployed and continue to use your best efforts to obtain comparable
employment. If you become employed during such additional six (6) month period,
you will be entitled to continue to receive the difference between the severance
pay and the base salary of the new job, if any, for the remainder of the six (6)
month period. Notwithstanding, the foregoing, if the Company determines that the
value of the non-compete described in subparagraph (v) below is greater than
eighteen months of base salary plus the targeted bonus amount for one year, the
Company shall pay you the value of the non-compete in lieu of any base salary
and the targeted bonus amount.
(iii) If you voluntarily terminate your employment, the Company shall pay
you your salary through the date of termination at the rate in effect just prior
to the date of termination and shall pay you for all earned but unused vacation
as of the date of termination. Thereupon the Company shall have no further
obligations to you under this Agreement.
(iv) Subject to Section 8 hereof, if, within twenty-four (24) months after
a change in control of the Company shall have occurred, as defined in Section 3
above, your employment shall be terminated (other than as a result of your
death) (a) by the Company other than for Cause or Disability, or (b) by you for
Good Reason, then, you shall be entitled, without regard to any contrary
provisions of any Plans, to the benefits as provided below:
(A) the Company shall pay your base salary through the date of termination
at the rate in effect just prior to the date of your termination or the rate in
effect immediately prior to the change in control, whichever is higher, plus any
benefits or awards (including both the cash and stock components) which pursuant
to the terms of any Plans have been earned or become payable, but which have not
yet been paid to you (including amounts which previously had been deferred at
your request); and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the date of termination, the Company shall pay to you an amount in
cash equal to your base salary for twelve (12) months at the rate in effect just
prior to the date of termination, such amount being paid in equal semi-monthly
payments over the 12 month period following the date of your termination. The
Company also shall pay you the targeted bonus amount in equal semi-monthly
payments over the 12 month period following your date of termination. Further,
the Company shall pay you for the period ending 12 months after the date of your
termination any benefits that may be due to you under any Plan except other
severance pay plans. Further, the Company shall pay you an amount in cash equal
to any award under the Amended and Restated Integon Corporation Omnibus
Long-Term Performance Incentive Compensation Plan (the "Omnibus Plan") that
exceeds the maximum award that may be paid out under the Omnibus Plan during any
performance period. In addition, the Company shall pay you up to an additional
six (6) months of your base salary in the event you are not employed at the end
of the twelve (12) month period referenced above provided that you have used
your best efforts to obtain comparable employment. Such payments shall be made
in equal installments on a semi-monthly basis for up to six (6) months for so
long as you remain unemployed and continue to use your best efforts to obtain
comparable employment. If you become employed during such additional six (6)
month period, you will be entitled to continue to receive the difference between
the severance pay and the base salary of the new job, if any, for the remainder
of the six (6) month period. Notwithstanding, the foregoing, if the Company
determines that the value of the non-compete described in subparagraph (v) below
is greater than eighteen months of base salary plus the targeted bonus amount
for one year, the Company shall pay you the value of the non-compete in lieu of
any base salary and the targeted bonus amount.
(v) Except as otherwise provided herein, the amount of any payment provided
for in this Section 5 shall not be reduced, offset or subject to recovery by the
Company by reason of any compensation earned by you as the result of employment
by another employer after the date of your termination, or otherwise.
Notwithstanding the foregoing, you agree for a period of eighteen months after
the date of your termination provided for above, that you will not, as
individual, proprietor, partner, joint venturer, shareholder (other than in a
publicly traded company, provided that you do not own more than 3% of the
securities of such company), investor, consultant, advisor, broker, director,
officer, agent, employee, trustee, beneficiary or in any other capacity
whatsoever, directly or indirectly engage in, or participate with any other
person or entity to engage in, any business or activity, whether consisting of a
single transaction, or a series of transactions or continuous activity, similar
to or competitive with the primary business or activity in which the Company
engages during the term of this Agreement; provided, however that should you
engage in any such business or activity, the Company's sole remedy therefor
shall be termination of your payment rights under this paragraph 5, which
obligation shall be deemed released and discharged on the date that you first
engage in any such business or activity.
6. Successors; Binding Agreement.
(i) Upon your written request, the Company will seek to have any Successor
(as hereinafter defined), by agreement in form and substance satisfactory to
you, assent to the fulfillment by the Company of its obligations under this
Agreement. "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by you as a result of (i) your termination following a change
in control of the Company (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or incurred by you in
seeking advice with respect to the matters set forth in Section 8 hereof) or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement.
8. Taxes. All payments to be made to you under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
9. Survival. The respective obligations of, and benefits afforded to, the
Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company, to the address set forth on the first page of this
agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided that all notices to the Company shall be directed
to the attention of the President of the Company, with a copy to the Secretary
of the Company, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and by the General Counsel (or in the case of the General
Counsel, the Chief Executive Officer) of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in North
Carolina by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the date of your termination during the pendency of any dispute of controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or disclose to
any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary of the Company or other
confidential information concerning their business, affairs, products, supplies
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company and its subsidiaries, taken as a whole; it
being understood, however, that the obligations of this Section 14 shall not
apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any other
agreement between the Company, or any of its subsidiaries, and you shall limit,
qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.
16. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign below and return to the Secretary of the Company this
letter, which will then constitute our agreement on this subject.
Sincerely,
INTEGON CORPORATION
By: /s/ John C Head III
-------------------
John C Head III
Chief Executive Officer
Agreed to this 10th day of March, 1997.
---- -------
/s/ John B. Yorke
- ------------------
John B. Yorke
End Exhibit 10.3
<PAGE>
Exhibit 10.4
AMENDMENT NO. 2 TO THE
INTEGON CORPORATION
1992 STOCK OPTION PLAN
1. Purpose
The purpose of this Amendment No. 2 (this "Amendment") to the Integon
Corporation 1992 Stock Option Plan, as amended (the "Plan"), is to provide that
Stock Options granted under the Plan may be transferable to the extent permitted
by the Committee. Terms not otherwise defined herein shall have the meanings
given them in the Plan.
2. Effective Date
The effective date of this Amendment shall be January 22, 1997.
3. Transferability of Options
The Plan is hereby amended by deleting Section 5.3(g) thereof and
replacing it with the following:
(g) Transferability. The Committee may award to a Participant Stock
Options that are transferable by such Participant and subsequent
transferees. The scope and limitations of the transferability of Stock
Options shall be set forth in the written agreement evidencing the
Stock Options. In the absence of any express provision in such written
agreement with respect to the transferability of such Stock Options,
such Stock Options shall not be transferable by a Participant other
than by will or the laws of descent and distribution.
4. Conforming and Other Changes
Section 5.3(h) of the Plan is hereby amended to permit the exercise of
any Stock Option properly transferred (pursuant to the Plan and the written
agreement evidencing such Stock Option) by the holder thereof to the same extent
that such Stock Option could have been exercised by the Participant (or the
Participant's legal representative or designated beneficiary, in the case of the
Participant's death) had such Stock Option not been transferred. In addition,
the first sentence of Section 5.3(h) of the Plan is amended and restated as
follows: "Stock Options which remain outstanding on the date of a Participant's
termination of employment or service with the Company and all Affiliates shall
cease to be exercisable and shall terminate on the date of such Participant's
termination, except as otherwise provided in this Section 5.3(h) or in the
written agreement evidencing such Stock Options."
End Exhibit 10.4
<PAGE>
Exhibit 10.5
INTEGON CORPORATION AMENDED AND RESTATED
OMNIBUS LONG-TERM PERFORMANCE
INCENTIVE COMPENSATION PLAN
ARTICLE 1 - PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of the Plan are to aid the Company in attracting and
retaining Key Employees through a competitive compensation package, to stimulate
the efforts of such Key Employees and to strengthen their desire to remain with
the Company, to aid the Company in attracting superior individuals to serve as
Nonemployee Directors and to provide appropriate compensation to such
Nonemployee Directors for their Service. Towards this end, the Plan provides
that the Committee may grant (i) non-qualified stock options (i.e., options that
are not incentive stock options within the meaning of Section 422 of the Code)
to Key Employees and Nonemployee Directors, (ii) Performance Awards to Key
Employees payable in cash or deferred compensation that is denominated in Common
Stock share units or both and (iii) Units to Key Employees payable in cash and
Common Stock, all as more fully described herein. The Plan also provides (i) for
the grant of Common Stock to Nonemployee Directors as part of such Nonemployee
Directors' annual compensation and (ii) that such Nonemployee Directors may take
their remaining compensation in the form of cash, Common Stock, Restricted Stock
or non-qualified stock options.
1.2 Term. The Plan replaces and supersedes the Integon Corporation 1992
Non-Employee Directors Stock Plan, except with respect to shares of Common Stock
issued and outstanding under such 1992 Non-Employee Directors Stock Plan which
will continue to be governed by the terms of such plan. The Plan shall become
effective as of February 8, 1996; provided that for purposes of Article 9, the
Plan shall become effective on June 1, 1995. Awards shall not be granted under
Articles 8 and 9 of the Plan after May 16, 2001, except that the Committee may
grant Performance Awards and value Units after such date in recognition of
performance for Performance Periods and Unit Periods commencing prior to such
date. Notwithstanding the foregoing, the Plan is hereby amended and restated for
all Awards granted hereunder after December 31, 1996. In addition, with respect
to Awards made under Article 9 prior to January 1, 1997, the amendments effected
hereby shall be applicable only to Unit Periods commencing after December 31,
1996.
ARTICLE 2 - DEFINITIONS
2.1 Annual Dollar Value. "Annual Dollar Value" of a Unit means the dollar value
(with fractions of a cent rounded up to the nearest cent) resulting from
multiplying the Initial Dollar Value of such Unit by the applicable Multiplier
for the applicable Unit Period and dividing such product by three (3). As an
example, using the chart of Multipliers attached as Exhibit A hereto, for a Unit
with an Initial Dollar Value of $13.00, the Annual Dollar Value of such Unit
would be $4.95 ($13.00 multiplied by 114.1% and divided by 3) for the applicable
Unit Period if the Growth in Net Written Premiums and Combined Operating Ratio
for such Unit Period were H% and CC.5%, respectively.
2.2 Award. "Award" means any form of cash, deferred compensation that is
denominated in Common Stock share units, Common Stock, stock options,
Performance Awards, Deferral Restricted Stock, Deferral Stock Options or Units
granted under Articles 7, 8, 9 or 10 of the Plan to a Participant selected by
the Committee pursuant to such terms, conditions, restrictions and/or
limitations, if any, as the Committee may establish.
2.3 Award Date. "Award Date" shall have the meaning given such term in Section
8.4.
2.4 Award Payment Date. "Award Payment Date" means the date the Performance
Awards for a Performance Period shall be paid to Participants. The Award Payment
Date for a Performance Period shall occur as soon as administratively possible
following the completion of the certifications required pursuant to Subsection
8.6.3.
2.5 Board. "Board" means the Board of Directors of Integon.
2.6 Cause. "Cause" means, in the case of a Nonemployee Director, termination of
such Nonemployee Director's Service by Integon's shareholders for cause pursuant
to the Bylaws of Integon.
"Cause" means, in the case of a Key Employee, termination of such Key Employee's
employment by the Company because of (a) the willful and continued failure by
the Participant to perform substantially all of his or her duties with the
Company (other than any such failure resulting from the Participant's incapacity
due to physical or mental illness) after a demand for substantial performance is
delivered to the Participant by the Chairman of the Board or the CEO that
specifically identifies the manner in which the Participant has not
substantially performed his or her duties, or (b) the willful engaging by the
Participant in illegal conduct that is materially and demonstrably injurious to
the Company. For purposes of this definition, no act, or failure to act, on the
Participant's part shall be considered "willful" unless done, or omitted to be
done, by the Participant in bad faith and without reasonable belief that the
Participant's action or omission was in, or not opposed to, the best interest of
the Company. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted to be done, by
the Participant in good faith and in the best interest of the Company. The
Participant's attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause as long as the Board
has approved the Participant's engagement in such activities. Notwithstanding
the foregoing, the Participant shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to the Participant a copy
of a resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting called and held for
the purpose (after reasonable notice to the Participant and an opportunity for
the Participant, together with the Participant's counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Participant was
guilty of the conduct set forth above in (a) or (b) of this definition and
specifying the particulars thereof in detail.
2.7 CEO. "CEO" means the Chief Executive Officer of Integon.
2.8 Change In Control. "Change In Control" means the following:
2.8.1 A tender offer or exchange offer is made whereby the effect of
such offer is to take over and control the affairs of Integon and
such offer is consummated for the ownership of securities of Integon
representing 50% or more of the combined voting power of Integon's
then-outstanding voting securities;
2.8.2 Integon is merged or consolidated with another corporation and,
as a result of such merger or consolidation, outstanding securities
representing less than 50% of the voting power of the surviving or
resulting corporation shall then be owned in the aggregate by the
former shareholders of Integon other than affiliates within the
meaning of the Exchange Act of any party to such merger or
consolidation;
2.8.3 Integon transfers all or substantially all of its assets to
another corporation or entity that is not a wholly owned Subsidiary
of Integon;
2.8.4 Any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of Integon representing 50% or
more of the combined voting power of Integon's then-outstanding
securities; or
2.8.5 As the result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were members of the Board immediately
before the transaction cease to constitute at least a majority
thereof.
2.9 Change In Control Price. "Change In Control Price" means the highest closing
price per share paid for the purchase of Common Stock during the ninety (90) day
period ending on the date the Change In Control occurs on the primary securities
exchange on which the Common Stock is then traded, or the merger or tender price
if higher.
2.10 Change in Ownership. "Change in Ownership" means a Change In Control that
results directly or indirectly in Integon's Common Stock ceasing to be actively
traded on the primary securities exchange on which the Common Stock is traded
immediately prior to such Change in Control.
2.11 Code. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
2.12 Combined Operating Ratio. "Combined Operating Ratio" means, for the Company
on a consolidated basis for any period, the sum of (i) the statutory expense
ratio, plus (ii) the statutory loss ratio rounded to the nearest one-half
percentage point (0.5%).
2.13 Committee. "Committee" means the Compensation and Personnel Committee of
the Board, unless and until its members are not qualified to serve on the
Committee pursuant to the provisions of the Plan, in which case the Board will
designate the members of the Committee; provided that the Committee shall at all
times consist of two or more Directors, each of whom is both a "disinterested
person" within the meaning of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning of the definition of such term as contained in
Treasury Regulation Section 1.162-27(e)(3), or any successor definition;
provided further that no Director shall be appointed a member of the Committee
who has received any Award other than an Award under Article 10 in the year
prior to such appointment; provided further that no Committee member may receive
an Award other than pursuant to Article 10.
2.14 Common Stock. "Common Stock" means common stock, $.01 par value per share,
of Integon, which may be newly issued shares, shares issued and outstanding,
treasury stock or shares owned by a Subsidiary.
2.15 Company. "Company" means Integon and its Subsidiaries.
2.16 Covered Employee. "Covered Employee" means an Employee who is a "covered
employee" within the meaning of Section 162(m) of the Code.
2.17 Deferral Restricted Stock. "Deferral Restricted Stock" means Common Stock
of the Company that is subject to the risk of forfeiture and other conditions
set forth in Section 10.3.2.
2.18 Deferral Restriction Period. "Deferral Restriction Period" means, for
Deferral Restricted Stock, the period ending 3 years after the Effective Date of
such Deferral Restricted Stock.
2.19 Deferral Stock Options. "Deferral Stock Options" means options to purchase
shares of Common Stock having the terms and conditions set forth in Section
10.3.3.
2.20 Director. "Director" means a director of Integon.
2.21 Disability. "Disability" means a disability as determined under the Salary
Continuation Plan of Integon or any successor or replacement long-term
disability plan maintained by the Company.
2.22 Effective Date. "Effective Date" means the date an Award is determined to
be effective by the Committee upon the grant of such Award.
2.23 Employee. "Employee" means any employee of Integon or any Subsidiary but
excludes Directors who are not also employees of Integon or any Subsidiary.
2.24 Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules promulgated thereunder and successor
provisions and rules thereto.
2.25 Final Dollar Value. "Final Dollar Value" of a Unit means the sum of the
Annual Dollar Value of such Unit for each of the three Unit Periods in the
three-year Unit Cycle for such Unit.
2.26 Growth in Net Written Premiums. "Growth in Net Written Premiums" means the
annual percentage increase, rounded to the nearest whole percentage point, in
the Net Written Premiums of the Company calculated for the applicable Unit
Period by subtracting the Net Written Premiums for the immediately prior fiscal
year ("Starting Premiums") from the Net Written Premiums for the subject fiscal
year and dividing such difference by the Starting Premiums.
2.27 Initial Dollar Value. "Initial Dollar Value" of a Unit means the dollar
value established for such Unit by the Committee prior to the Award of such
Unit.
2.28 Initial Election Date. "Initial Election Date" means, for each Nonemployee
Director, the later to occur of (i) the date of Integon's 1996 annual
shareholders' meeting or (ii) the date of the Nonemployee Director's initial
election or appointment to the Board.
2.29 Insurance Subsidiary. "Insurance Subsidiary" means a Subsidiary engaged in
the business of issuing insurance policies.
2.30 Integon. "Integon" means Integon Corporation, a Delaware corporation.
2.31 Key Employee. "Key Employee" means a senior level Employee of the Company
who holds a position of responsibility in a managerial, administrative, or
professional capacity.
2.32 Multiplier. "Multiplier" means the number, established by the Committee in
the manner set forth in this Plan, that is used to obtain the Annual Dollar
Value for a particular Unit based upon targeted levels of Growth in Net Written
Premiums and Combined Operating Ratio for each Unit Period in the Unit Cycle for
such Unit.
2.33 Negative Discretion. "Negative Discretion" means the discretion authorized
by the Plan to be applied by the Committee in determining the size of an Award
for a Performance Period if, in the Committee's sole judgment, such application
is appropriate. Negative Discretion may only be used by the Committee to
eliminate or reduce the size of an Award under Article 8. By way of example and
not by way of limitation, in no event shall any discretionary authority granted
to the Committee by the Plan, including but not limited to Negative Discretion,
be used to: (a) grant Awards for a Performance Period if the Performance Goals
for such Performance Period have not been attained; or (b) increase an Award
above the maximum amount payable under Article 8 of this Plan.
2.34 Net Written Premiums. "Net Written Premiums" means the aggregate for each
Insurance Subsidiary, but without duplication for Insurance Subsidiaries that
are Subsidiaries of Insurance Subsidiaries, of the amount of premiums written
(after deducting or adding premiums on business ceded to or assumed from others)
as determined in accordance with Statutory Accounting Practices.
2.35 Nonemployee Director. "Nonemployee Director" means a member of the Board
who is not an Employee.
2.36 Participant. "Participant" means any Key Employee or Nonemployee Director
who has been selected for a grant of stock options pursuant to Article 7, any
Key Employee who, for a Performance Period, has been selected to participate in
the Performance Award Program pursuant to Article 8, any Key Employee who has
been selected for a grant of Units pursuant to Article 9 and/or any Nonemployee
Director who is eligible to receive a grant of Common Stock pursuant to Article
10, or who elects to receive Common Stock, Deferral Restricted Stock or Deferral
Stock Options pursuant to Article 10.
2.37 Performance Awards. "Performance Awards" means the cash and deferred
compensation denominated in Common Stock share units granted to Key Employees
pursuant to Article 8.
2.38 Performance Criteria. "Performance Criteria" means the one or more criteria
that the Committee shall select for purposes of establishing the Performance
Goal(s) for a Performance Period. The Performance Criteria that will be used to
establish such Performance Goal(s) shall be limited to the following: return on
net assets, return on shareholders' equity, return on assets, return on capital,
shareholder returns, profit margin, earnings per share, net earnings, operating
earnings, Common Stock price per share and sales or market share. To the extent
required by Section 162(m) of the Code, the Committee shall, within the first 90
days of a Performance Period (or, if longer, within the maximum period allowed
under Section 162(m) of the Code), define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period.
2.39 Performance Goals. "Performance Goals" means, for a Performance Period, the
one or more goals established by the Committee for a Performance Period based
upon Performance Criteria. The Committee is authorized at any time during the
first 90 days of a Performance Period, or at any time thereafter (but only to
the extent the exercise of such authority after the first 90 days of a
Performance Period would not cause the Awards granted to the Covered Employees
for the Performance Period to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code), in its sole and absolute
discretion, to adjust or modify the calculation of a Performance Goal for such
Performance Period in order to prevent the dilution or enlargement of the rights
of Participants, (a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development; (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company or the financial statements of the Company, or in response
to, or in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions; and (c) in view of the Committee's
assessment of the business strategy of the Company, performance of comparable
organizations, economic and business conditions, and any other circumstances
deemed relevant.
2.40 Performance Period. "Performance Period" means the one or more periods of
time at least one year in length, which may be of varying and overlapping
durations, as the Committee may select, over which the attainment of one or more
Performance Goals will be measured for the purpose of determining a
Participant's right to the payment of a Performance Award.
2.41 Performance Restricted Period. "Performance Restricted Period" means with
respect to Common Stock share units credited to a three-year deferred
compensation account for a particular Performance Award the three-year period
commencing on the Award Date of such Performance Award and with respect to
Common Stock share units credited to a five-year deferred compensation account
for a particular Performance Award the five-year period commencing on the Award
Date of such Performance Award.
2.42 Plan. "Plan" means this Integon Corporation Omnibus Long-Term Performance
Incentive Compensation Plan, as amended and restated hereby.
2.43 Retirement. "Retirement" means, in the case of a Key Employee, a voluntary
termination by such Key Employee from employment by the Company, (i) on or after
attainment of age 65, (ii) on or after the attainment of age 60 if the
Participant has 10 years of employment with the Company or (iii) when the sum of
the Participant's age and the Participant's years of employment with the Company
equals or exceeds 80.
"Retirement" means, in the case of a Nonemployee Director, the termination of
such Nonemployee Director's Service at the end of such Nonemployee Director's
scheduled term as a Director, or at any earlier time with the consent of the
Board.
2.44 Rule 16b-3. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, or any successor or replacement provision.
2.45 Service. "Service" means service as a Director.
2.46 Statutory Accounting Practices. "Statutory Accounting Practices" means,
with respect to any Insurance Subsidiary, the statutory accounting practices
prescribed or permitted by the insurance department or similar governmental
authority charged with regulating insurance companies or insurance holding
companies in its state of domicile, consistent with the past practices of such
Insurance Subsidiary.
2.47 Subsidiary. "Subsidiary" means a corporation or other business entity in
which Integon directly or indirectly has an ownership interest of 50% or more.
2.48 Unit. "Unit" means an Award under this Plan representing a promise by the
Corporation to pay an amount in accordance with Article 9.
2.49 Unit Grant Notice. "Unit Grant Notice" means notice to Key Employees of
grants of Units pursuant to Article 9.
2.50 Unit Cycle. "Unit Cycle" means, for a particular Unit, the three-year
period commencing on the first day of the Company's fiscal year in which such
Unit is awarded and ending on the last day of the Company's second fiscal year
following the fiscal year in which such Unit is awarded.
2.51 Unit Period. "Unit Period" means, for a particular Unit, each one of the
Company's fiscal years in the three-year Unit Cycle for such Unit.
ARTICLE 3 - ELIGIBILITY
3.1 In General. Only Key Employees and Nonemployee Directors are eligible to
participate in Awards under Article 7. Only Key Employees are eligible to
participate in Awards under Articles 8 and 9 of the Plan. Only Nonemployee
Directors shall participate in Awards under Article 10 of the Plan. For purposes
of Articles 7, 8 and 9 of the Plan, the Committee shall select, from time to
time, Participants from those Key Employees and Nonemployee Directors who, in
the opinion of the Committee, can further the Plan's purposes. Once a
Participant is so selected, the Committee shall determine the type or types of
Awards to be made to the Participant and shall establish in the related Stock
Option Agreement or Unit Grant Notice the terms, conditions, restrictions,
and/or limitations, if any, applicable to the Awards in addition to those set
forth in this Plan and the administrative rules and regulations issued by the
Committee.
ARTICLE 4 - PLAN ADMINISTRATION
4.1 Responsibility. The Committee shall have total and exclusive responsibility
to control, operate, manage, and administer the Plan in accordance with its
terms.
4.2 Authority of the Committee. The Committee shall have all the authority that
may be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the preceding sentence,
the Committee shall have the exclusive right to: (a) interpret the Plan; (b)
determine eligibility for participation in the Plan; (c) decide all questions
concerning eligibility for and the amount of Awards payable under the Plan; (d)
construe any ambiguous provision of the Plan; (e) correct any defect; (f) supply
any omission; (g) reconcile any inconsistency; (h) issue administrative
guidelines as an aid to the administration of the Plan and make changes in such
guidelines as it from time to time deems proper; (i) make regulations for
carrying out the Plan and make changes in such regulations as it from time to
time deems proper; (j) determine whether Awards should be granted singly, in
combination, or in tandem; (k) to the extent permitted under the Plan, grant
waivers of Plan terms, conditions, restrictions, and limitations; (l) accelerate
the vesting, exercise, or payment of an Award, other than Awards made under
Article 10, or the Performance Period, Performance Cycle or Unit Period of an
Award when such action or actions would be in the best interest of the Company;
(m) grant Awards in replacement of Awards previously granted under this Plan or
any other executive compensation plan of the Company; (n) establish and
administer the Performance Goals and certify whether, and to what extent, they
have been attained; and (o) take any and all other action it deems necessary or
advisable for the proper operation or administration of the Plan.
4.3 Discretionary Authority. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan including without limitation its
construction of the terms of the Plan and its determination of eligibility for
participation and Awards under the Plan. It is the intent of the Plan that the
decisions of the Committee and its action with respect to the Plan shall be
final, binding and conclusive upon all persons having or claiming to have any
right or interest in or under the Plan.
4.4 Section 162(m) of the Code. With regard to all Covered Employees, the Plan
shall, for all purposes, be interpreted and construed so as to ensure compliance
with Section 162(m) of the Code.
4.5 Action by the Committee. The Committee may act only by a majority of its
members. Any determination of the Committee may be made, without a meeting, by a
writing or writings signed by all of the members of the Committee. In addition,
the Committee may authorize any one or more of its members or the General
Counsel of the Company to execute and deliver documents on behalf of the
Committee.
4.6 Delegation of Authority. The Committee may delegate some or all of its
authority under the Plan to any person or persons provided that any such
delegation be in writing; provided, however, that only the Committee may select
and grant Awards to Participants who are subject to Section 16 of the Exchange
Act or are Covered Employees.
ARTICLE 5 - FORMS OF AWARDS
5.1 In General. Awards may be paid in the form of stock options pursuant to
Article 7, Performance Awards in cash or deferred compensation denominated in
shares of Common Stock share units pursuant to Article 8, Units in the form of
Common Stock or cash pursuant to Article 9, and cash, Common Stock, Deferral
Restricted Stock, and Deferral Stock Options pursuant to Article 10. All Awards
shall be subject to the terms, conditions, restrictions and limitations of the
Plan. The Committee may, in its sole judgment, subject an Award, except awards
granted pursuant to Article 10, to such other terms, conditions, restrictions
and/or limitations (including, but not limited to, the time and conditions of
exercise and restrictions on transferability and vesting), provided they are not
inconsistent with the terms of the Plan. Awards under a particular Article of
the Plan need not be uniform. Any combination of Awards may be granted at one
time and on more than one occasion to the same Key Employee or Nonemployee
Director. For purposes of the Plan, the value of any Award granted in the form
of Common Stock shall be the closing price at which a share of Common Stock
shall have been sold on the date of the grant's Effective Date, or on the next
preceding trading day if such date was not a trading date, on the primary
securities exchange on which the Common Stock is then traded.
ARTICLE 6 - SHARES SUBJECT TO PLAN
6.1 Available Shares. The maximum number of shares of Common Stock that shall be
available for grant of Awards under the Plan during its term, shall not exceed
1,000,000. (Such amount shall be subject to adjustment as provided in Section
6.2.) Any shares of Common Stock subject to Awards that terminate by expiration,
forfeiture, cancellation or surrender for any reason without the issuance of
such shares shall become again available for grant under the Plan; provided that
if such shares of Common Stock subject to Awards are settled in cash in lieu of
Common Stock or are exchanged with the Committee's permission for Awards not
involving Common Stock, such shares shall not be available again for grant under
the Plan. The maximum number of shares available for issuance under the Plan
shall not be reduced to reflect any dividends or dividend equivalents that are
reinvested into additional shares of Common Stock.
6.2 Adjustment to Shares.
6.2.1 In General. The provisions of this Subsection 6.2.1 are subject
to the limitation contained in Subsection 6.2.2. If there is any
change in the number of outstanding shares of Common Stock through
the declaration of stock dividends, stock splits or the like, the
number of shares available for Awards, the shares subject to any
Award, the number of Common Stock share units held in a three-year or
five-year deferral compensation account and the option prices or
exercise prices of Awards shall be automatically adjusted. If there
is any change in the number of outstanding shares of Common Stock
through any change in the capital account of Integon, or through a
merger, consolidation, separation (including a spin-off or other
distribution of stock or property), reorganization (whether or not
such reorganization comes within the meaning of such term in Section
368(a) of the Code) or partial or complete liquidation, the Committee
shall make appropriate adjustments in the maximum number of shares of
Common Stock which may be issued under the Plan and any adjustments
and/or modifications to outstanding Awards as it, in its sole
discretion, deems appropriate. In the event of any other change in
the capital structure or in the Common Stock of Integon, the
Committee shall also be authorized to make such appropriate
adjustments in the maximum number of shares of Common Stock available
for issuance under the Plan and any adjustments and/or modifications
to outstanding Awards as it, in its sole discretion, deems
appropriate. The maximum number of shares available for issuance
under the Plan shall be automatically adjusted to the extent
necessary to reflect any dividend equivalents paid in the form of
Common Stock.
6.2.2 Covered Employees. In no event shall the Award of any
Participant who is a Covered Employee be adjusted pursuant to
Subsection 6.2.1 to the extent it would cause such Award to fail to
qualify as "performance-based compensation" under Section 162(m) of
the Code.
ARTICLE 7 - STOCK OPTIONS
7.1 In General. Awards may be granted by the Committee to Key Employees and
Nonemployee Directors in the form of non-qualified stock options (i.e., stock
options that are not incentive stock options within the meaning of Section 422
of the Code). All Awards under the Plan granted to Covered Employees in the form
of stock options are intended to qualify as "performance-based compensation"
under Section 162(m) of the Code.
7.2 Terms and Conditions of Stock Options. A stock option shall be exercisable
in whole or in such installments and at such times as may be determined by the
Committee and may contain such other terms and conditions as determined by the
Committee. All stock options granted under this Plan shall expire no later than
10 years after the Effective Date of such option. The price at which Common
Stock may be purchased upon exercise of a stock option shall be not less than
100% of the fair-market value of the Common Stock, as determined by the
Committee, on the Effective Date of the option.
7.3 Option Agreements. Each Award of a stock option under this Plan shall be
evidenced by a written agreement (a "Stock Option Agreement") signed by the
Participant and containing such terms and conditions as the Committee may
determine from time to time pursuant to this Plan.
7.4 Additional Terms and Conditions. The Committee may, by way of the Stock
Option Agreement or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, with respect to any stock option Award,
provided they are not inconsistent with the Plan.
7.5 Exercise. Upon exercise, the option price of a stock option may be paid in
cash, shares of Common Stock, a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a stock option. Subject to Section 11.1, stock
options awarded under the Plan may be exercised by way of a broker-assisted
exercise program, provided such program is available at the time of the option's
exercise. The Committee may permit a Participant to satisfy any amounts required
to be withheld under the applicable federal, state, and local tax laws in effect
from time to time by electing to have the Company withhold a portion of the
shares of Common Stock to be delivered for the payment of such taxes.
7.6 Termination of Employment or Service. Stock options granted to a Key
Employee under Article 7 of this Plan that remain outstanding on the date of
such Key Employee's termination of employment with the Company shall cease to be
exercisable and shall terminate and be forfeited on the date of such Employee's
termination of employment, except as otherwise provided in this Section 7.6 and
Section 7.8. Stock options granted to a Nonemployee Director under Article 7 of
this Plan that remain outstanding on the date of such Nonemployee Director's
termination of Service shall cease to be exercisable and shall terminate and be
forfeited on the date of such Nonemployee Director's termination of Service,
except as otherwise provided in this Section 7.6 and Section 7.8.
Notwithstanding the foregoing, (i) stock options granted under Article 7 of this
Plan to a Key Employee, who immediately prior to acceptance of employment with
the Company served as a Nonemployee Director, shall continue to be exercisable
after the date of such Key Employee's termination of employment if at such time
such Key Employee continues to serve as a Director and (ii) such stock options
shall cease to be exercisable and shall terminate and be forfeited on the date
of such Participant's termination of Service, except as otherwise provided in
this Section 7.6 and Section 7.8. To the extent permitted under Rule 16b-3, on
the date of a Participant's termination of employment or Service with the
Company because of death, Disability or Retirement, all of such Participant's
unexercised stock options granted under this Plan shall remain exercisable, to
the extent such options were exercisable at the time of termination, for an
additional period of up to one year after the date of such Participant's
termination (but in no event beyond the original expiration date of such stock
options). If a Participant's employment or Service with the Company terminates
for any other reason, other than for Cause, all of such Participant's
unexercised stock options granted under this Plan shall remain exercisable for a
period of up to 90 days after the Participant's termination (but not beyond the
original expiration date of such options) to the same extent as they were
exercisable on the date of Participant's termination.
7.7 No Shareholder Rights. A Participant shall have neither rights to dividends
nor other rights of a shareholder with respect to stock options granted under
this Plan until such Participant has exercised the option and received shares of
Common Stock upon payment in full.
7.8 Change in Control. Notwithstanding any contrary provision in the Plan, upon
a Change in Control, no additional terms, conditions, restrictions, or
limitations shall be placed upon any stock option granted under this Article 7,
and each stock option outstanding shall become immediately exercisable as to all
of the shares of Common Stock covered thereby. In addition, upon a Change in
Ownership, each outstanding stock option granted under this Article 7 shall be
converted into the right to receive, as soon as practicable but in no event
later than thirty (30) days after the Change in Ownership, for each share of
Common Stock purchasable under such stock option an amount in cash equal to the
difference between the Change In Control Price and the per share exercise price
of such stock option. In the event that the exercise price of an outstanding
stock option is equal to or greater than the Change In Control Price, such stock
option shall have a value of zero, shall be cancelled, and the owner thereof
shall not be entitled to receive any payment.
7.9 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum number of shares of Common Stock for which stock
options may be granted under the Plan in any calendar year to any one
Participant is 45,000 shares of Common Stock.
ARTICLE 8 - PERFORMANCE AWARD PROGRAM
8.1 Eligibility. Only Key Employees shall be eligible to receive Performance
Awards. Within the first 90 days of a Performance Period (or, if longer, within
the maximum period allowed under Section 162(m) of the Code), the Committee
shall select those Key Employees who will be Participants for such Performance
Period. However, designation of a Key Employee as a Participant for a
Performance Period shall not in any manner entitle the Participant to receive a
Performance Award for the Performance Period. The entitlement of any Participant
to payment of a Performance Award for such Performance Period shall be decided
solely in accordance with the provisions of this Article 8. Moreover,
designation of a Key Employee as a Participant for a particular Performance
Period shall not require designation of such Key Employee as a Participant in
any subsequent Performance Period, and designation of one Key Employee as a
Participant shall not require designation of any other Key Employee as a
Participant in such Performance Period or in any other Performance Period. All
of the Performance Awards issued under the Performance Award Program to Covered
Employees are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code.
8.2 Calculation of Performance Incentive Base Salary. Within the first 90 days
of a Performance Period (or, if longer, within the maximum period allowed under
Section 162(m) of the Code), the Committee shall calculate the Participant's
Performance Incentive Base Salary for the Performance Period then beginning. The
Performance Incentive Base Salary for any Performance Period shall be the
Participant's base salary as of the date the Performance Goal(s) for such
Performance Period is set by the Committee. Once the Performance Incentive Base
Salary is determined, the Performance Incentive Base Salary will not change for
that Performance Period.
8.3 Procedure for Determining Awards. With regard to a particular Performance
Period, the Committee shall, using its full discretion, select the length of
such Performance Period. Within the first 90 days of a Performance Period (or,
if longer, within the maximum period allowed under Section 162(m) of the Code),
the Committee shall establish in writing for such Performance Period (i) the
specific Performance Criteria that will be used to establish the Performance
Goal(s) for such Performance Period and the kind(s) and/or level(s) of such
Performance Goal(s) and (ii) an award matrix, detailing the Performance Award
for each Participant if such Performance Goals are attained. The amount of a
Participant's Performance Award will equal the product of the Participant's
Incentive Base Salary and the percentage derived from the award matrix (the
"Performance Formula"); provided, however, that in determining the size of an
individual Award to be paid for a Performance Period, the Committee may, through
the use of Negative Discretion, reduce or eliminate the amount of the Award
earned under the Performance Formula for the Performance Period if, in its sole
discretion, such reduction or elimination is appropriate.
8.4 Performance Awards: Cash or Deferred Compensation. Of the Performance Award
determined to be payable for any Participant at the end of any Performance
Period, 20% must be placed into a deferred compensation account that is
denominated in Common Stock share units. The deferred compensation may be a
three-year account or a five-year account, at the Participant's election. Each
Participant shall have the option to receive the remaining 80% of the
Performance Award in any combination of the following three forms: cash, a
credit to a three-year deferred compensation account that is denominated in
Common Stock share units or a five-year deferred compensation account that is
denominated in Common Stock share units. Each Participant who has received an
award in a year shall make and deliver to the Company by December 31 of such
year a written election with respect to the next year as to such method of
payment of the Performance Award that may be granted for such next year and each
other Participant shall make and deliver to the Company a written election as to
the method of payment of a Performance Award within 10 days after receipt of
written notice that such Participant is eligible to receive a Performance Award.
Unless otherwise changed in writing by a Participant, the most recent annual
election made by a Participant shall apply to subsequent years. Amounts
contributed to a Participant's three-year deferred compensation account for a
particular Performance Award shall be denominated in Common Stock share units as
follows: the amount of cash compensation credited to the three-year deferred
compensation account shall be multiplied by 1.5 and divided by average of the
closing price (the "Award Date Price") per share of Common Stock, on the primary
securities exchange on which shares of Common Stock are traded, over the final
30 calendar days of the Performance Period for which the Performance Award was
made. Amounts contributed to a Participant's five-year deferred compensation
account for a particular Performance Award shall be denominated in Common Stock
share units as follows: the amount of cash compensation credited to five-year
deferred compensation account shall be multiplied by 2.0 and divided by the
Award Date Price. The amount of share units credited to either a three-year
deferred compensation account or the five-year deferred compensation account in
excess of the quotient of (i) the cash compensation credited to such account
with respect to a particular Performance Award divided by (ii) the applicable
Award Date Price is defined as the "Restricted Performance Amount", and such
quotient is defined as the "Vested Performance Amount." The final day of the
Performance Period for a Performance Award is defined as the "Award Date."
8.4.1 Any amounts that the Participant elects, pursuant to
Section 8.4, be paid in cash shall be paid on the Award Payment Date;
8.4.2 Amounts credited to a Participant's three-year deferred
compensation account with respect to a particular Performance Award
shall be paid to the Participant promptly after the third anniversary
of the Award Date of such Performance Award. At the election of the
Participant, submitted in writing prior to such third anniversary,
such amounts shall be paid in shares of Common Stock equal to the
Common Stock share units credited to such account or in cash in an
amount equal to the product of the number of Common Stock share units
credited to such account multiplied by the closing trading price per
share of Common Stock on the primary securities exchange on which the
Common Stock is traded on such third anniversary date (or, if such
date is not a trading day, the next preceding trading day).
8.4.3 Amounts credited to a Participant's five-year deferred
compensation account with respect to a particular Performance Award
shall be paid to the Participant promptly after the fifth anniversary
of the Award Date of such Performance Award. At the election of the
Participant, submitted in writing prior to such fifth anniversary,
such amounts shall be paid in shares of Common Stock equal to the
Common Stock share units credited to such account or in cash in an
amount equal to the product of the number of Common Stock share units
credited to such account multiplied by the closing trading price per
share of Common Stock on the primary securities exchange on which the
Common Stock is traded on such fifth anniversary date (or, if such
date is not a trading day, the next preceding trading day).
8.5 Deferred Compensation Accounts: Terms and Conditions. Deferred Compensation
Accounts and shares of Common Stock to be issued pursuant thereto shall be
subject to the following terms and conditions:
8.5.1 Except as provided in this Section 8.5, the Participant shall
not have, with respect to the Common Stock share units credited to a
three-year or five-year deferred compensation account, any of the
rights of a shareholder of the Company holding shares of the Common
Stock; provided, however, that in the event of the payment of any
cash dividends on the Common Stock based on a record date occurring
while amounts are credited to a three-year or five-year deferred
compensation account, the amount of such account shall be increased
by a number of Common Stock share units equal to the quotient of the
amount of such cash dividend per share of Common Stock divided by the
closing price per share of Common Stock on the primary securities
exchange on which the Common Stock is traded on the record date for
such dividend, or the next preceding trading day if such record date
is not a trading day on such exchange.
8.5.2 The Restricted Performance Amount with respect to a particular
Performance Award shall vest on a straight-line basis with such
amount credited to a three-year deferred compensation account fully
vesting three years after the applicable Award Date and such amount
credited to a five-year deferred compensation account fully vesting
five years after the applicable Award Date. The Vested Performance
Amount shall be fully vested as of the Award Date. Upon a
Participant's termination of employment during an unexpired
Performance Restriction Period, any amount credited to a three-year
or five-year deferred compensation account that has not yet vested
shall be forfeited by that Participant.
8.6 Payment of Awards.
8.6.1 Condition to Receipt of Awards. Except as provided in Sections
8.7 and 8.9, a Participant must be employed by the Company on the
Performance Period's Award Payment Date to be eligible for an Award
for such Performance Period.
8.6.2 Limitation. A Participant shall be eligible to receive an Award
for a Performance Period only if: (i) the Performance Goals for such
Performance Period are achieved; and (ii) the Performance Formula as
applied against such Performance Goals determines that all or some
portion of the Performance Award has been earned by that Participant
for the Performance Period.
8.6.3 Certification. Following the completion of a Performance
Period, the Committee shall meet to review and certify in writing
whether, and to what extent, the Performance Goals for the
Performance Period have been achieved. If the Committee certifies
that the Performance Goals have been achieved, it shall, based upon
application of the Performance Formula to the Performance Goals for
such Performance Period, also calculate and certify in writing for
each Participant what percentage of the Performance Award has been
earned for the Performance Period. The Committee shall then determine
the size of each Participant's Award for the Performance Period.
8.6.4 Timing of Award Payments. The Performance Awards granted by
the Committee for a Performance Period shall be paid to Participants
on the Award Payment Date for such Performance Period, subject to
deferral pursuant to Section 8.4.
8.6.5 New Participants. Participants who commence employment by the
Company after the Committee's selection of Participants for the
Performance Period, as well as Key Employees who are selected by the
Committee to be Participants after such date, shall, in the event
Awards are paid for the Performance Period, be entitled to a pro rata
Award. The amount of the pro rata Award shall be determined by
multiplying the Award the Participant would have otherwise been paid
if he or she had been a Participant for the entire Performance Period
by a fraction, the numerator of which is the number of full months he
or she was eligible as a Participant to participate in the
Performance Award Program during the Performance Period and the
denominator of which is the total number of full months in the
Performance Period. For purposes of this calculation, a partial month
of participation shall: (i) be treated as a full month of
participation to the extent a Participant participates in the
Performance Award Program for 15 or more days of such month; and (ii)
not be taken into consideration to the extent the Participant
participates in the Performance Award Program for less than 15 days
of such month.
8.7 Termination of Employment During Performance Period. In the event a
Participant's employment terminates prior to the Award Date for a Performance
Period, such Participant shall not receive any amount in connection with such
Performance Award and such Performance Award shall terminate. Notwithstanding
the preceding sentence, if (i) such Participant's employment terminates because
of death, Disability or Retirement or (ii) if such Participant served as a
Nonemployee Director immediately prior to his acceptance of employment with the
Company, upon the termination of such employment prior to the Award Date for a
Performance Period, such Participant shall receive, if Awards are paid for such
Performance Period, a pro rata Performance Award determined by multiplying the
Performance Award the Participant would have otherwise been paid if he or she
had been a Participant through the Award Date for the Performance Period by a
fraction, the numerator of which is the number of full months he or she was a
Participant during such Performance Period and the denominator of which is the
total number of full months in the Performance Period. For purposes of this
calculation, a partial month of participation shall: (1) be treated as a full
month of participation to the extent a Participant participates in the
Performance Award Program on 15 or more days of such month; and (2) not be taken
into consideration to the extent the Participant participates in the Performance
Award Program for less than 15 days of such month. Such pro rata Performance
Award shall be paid in the form of cash no more than 120 days after the Award
Payment Date for such Performance Award.
8.8 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum Performance Award payable to any one Participant
under the Plan for a Performance Period, before adjustments to account for
deferral of payment pursuant to Section 8.4 is $700,000.
8.9 Change of Control, Liquidation or Dissolution.
8.9.1 Dissolution, Liquidation. In the event of a proposed
dissolution or liquidation of the Company, all vested amounts in a
three-year or five-year deferred compensation account shall be paid
to the Participants in cash in an amount equal to the product of (i)
the sum of the Vested Performance Amount plus the vested portion of
the Restricted Performance Amount multiplied by (ii) the Change in
Control Price, as though such dissolution or liquidation constituted
a Change in Control. All other amounts in such account shall be
forfeited.
8.9.2 Change in Control; Current Awards. Upon a Change in Control,
any Participant in the Performance Award Program shall be paid, as
soon as practicable but in no event later than thirty (30) days after
the Change in Control, for an Award for each Performance Period in
which the Participant was selected to participate and during which
the Change in Control occurs ("Current Performance Period"). The
amount of such payment for an Award shall be determined by assuming
that the Performance Goal for such Current Performance Period was
attained at a level of 100% or the equivalent thereof and determining
the Performance Award that would have been payable for such
Performance Period had the Performance Goal been attained at a level
of 100% or the equivalent thereof.
8.9.3 Change in Control; Deferred Compensation. Notwithstanding any
contrary provision in the Plan, upon a Change in Control, no
additional terms, conditions, restrictions or limitations shall be
placed on a three-year or five-year deferred compensation account,
and all vested amounts in a three-year or five-year deferred
compensation account shall be paid to Participants in cash, in an
amount equal to the product of (i) the sum of the Vested Performance
Amount plus the vested portion of the Restricted Performance Amount
multiplied by (ii) the Change in Control Price. All other amounts in
such account shall be forfeited.
ARTICLE 9 - UNIT AWARD PROGRAM
9.1 In General. Awards may be granted by the Committee to Key Employees in the
form of Units. All Awards under the Plan granted to Covered Employees in the
form of Units are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code.
9.2 Eligibility. Only Key Employees shall be eligible to receive Awards of
Units; provided that no Key Employee is eligible to receive an Award of Units in
any calendar year in which that Key Employee is a Participant for purposes of a
Performance Award under Article 8. Within the first 90 days of any Unit Cycle
(or, if longer, within the maximum period allowed under Section 162(m) of the
Code), the Committee shall select those Key Employees who will be Participants
for purposes of Awards of Units for such Unit Cycle. The entitlement of any
Participant to payment of an Award of Units for such Unit Cycle shall be decided
solely in accordance with the provisions of this Article 9. Designation of a Key
Employee as a Participant for a particular Unit Cycle shall not require
designation of such Key Employee as a Participant in any subsequent Unit Cycle,
and designation of one Key Employee as a Participant shall not require
designation of any other Key Employee as a Participant in such Unit Cycle or in
any other Unit Cycle.
9.3 Procedure for Determining Unit Awards. With regard to grants of Units in any
particular Unit Cycle, the Committee shall, using its full discretion, within
the first 90 days of a Unit Cycle (or, if longer, within the maximum period
allowed under Section 162(m) of the Code), establish in writing (i) Multipliers,
which shall be a function of Combined Operating Ratio for each Unit Period
within the Unit Cycle and Growth in Net Written Premiums for each Unit Period
within the Unit Cycle, (ii) the Initial Dollar Value of all Units to be awarded
in such Unit Cycle and (iii) the number of Units to be granted to each
Participant. In establishing such Multipliers, the Committee shall consider
return on equity implied by targeted Combined Operating Ratios and Growth in Net
Written Premiums. An example of a chart establishing such Multipliers is
attached as Exhibit A hereto.
9.4 Unit Grant Notice. As soon as administratively practicable following a grant
of Units to a Key Employee, the Company shall provide such Key Employee a Unit
Grant Notice which shall contain, among other things, a copy of the chart
adopted by the Committee establishing the Multipliers applicable to such Units,
the number of Units granted to the Participant and the Initial Value thereof.
9.5 Nontransferability of Units. No Unit granted pursuant to the Plan shall be
transferable otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code.
9.6 Additional Terms and Conditions. The Committee may, by way of the Unit Grant
Notice or otherwise, establish other terms, conditions, restrictions and/or
limitations, if any, with respect to any grant of Units, provided they are not
inconsistent with the Plan.
9.7 Valuation and Payment of Units.
9.7.1 Annual Certification. Following the completion of a Unit Period
for any Unit, the Committee shall meet to review and certify in
writing the determination of the applicable Multiplier for such Unit.
Based upon such Multiplier so calculated, the Committee shall
calculate and notify each Participant of the Annual Dollar Value of
the Unit. In the event the Multiplier for any Unit Period is zero,
the value of the Units to which such Multiplier applies shall be
zero.
9.7.2 Three-year Certification. Upon the determination of the Annual
Dollar Value for the third fiscal year of the Unit Cycle for a Unit,
the Committee shall certify in writing the Final Dollar Value of the
Unit and notify the Participant thereof.
9.7.3 Conversion to Common Stock and Rights to Cash. As soon as
administratively possible following the certification of the
Multiplier applicable to Units for the third year of the Unit Cycle,
the Company shall cause to be issued in the name of such Participant,
and promptly deliver to such Participant, a certificate (the "Share
Certificate") evidencing a number of shares of Common Stock equal to
the quotient of (i) sixty percent (60%) of the sum of the Final
Dollar Value of such Units divided by (ii) the average closing price
per share of the Common Stock over the final 30 calendar days of the
Unit Cycle on the primary securities exchange on which such shares
are traded, rounded down to the nearest whole share (the remaining
dollar amount not so converted into shares of common stock due to
rounding is referred to herein as the "Fractional Amount").
9.7.4 At the time the Share Certificate is delivered to the
Participant, the Company shall pay to such Participant in cash an
amount equal to forty percent (40%) of the Final Dollar Value of such
Units plus the Fractional Amount with respect to Share Certificates
then delivered, less applicable withholding for state and federal
taxes (including taxes with respect to the Share Certificates).
9.7.5 If the amount to be paid pursuant to paragraph 9.7.3 with
respect to any Units held by such Participant is not sufficient to
satisfy the Company's obligation to make withholding, pursuant to
applicable federal and state law, for applicable taxes, the Company
shall, at the request of the Participant, deduct and withhold from
the Share Certificate the whole number of shares of Common Stock
having a value (based on the closing price at which a share of Common
Stock shall have sold on the final trading day of the Unit Cycle as
reported on the listing of the primary securities exchange on which
such shares are traded), rounded up to the nearest share, equal to
such deficiency and shall deliver, in lieu of the Share Certificate,
a new certificate evidencing such remaining shares of Common Stock.
9.8 New Participants. Key Employees selected by the Committee to be Participants
for a Unit Cycle who commence employment with the Company after the Committee's
initial selection of Participants for the Unit Cycle, as well as Key Employees
who are selected by the Committee to be Participants for a Unit Cycle after such
date, shall be entitled to a pro rata Award for the Unit Period in which such
employment or selection commences. The amount of the pro rata Award shall be
determined by multiplying the Award the Participant would otherwise have been
paid if he or she had been a Participant for the entire Unit Period (i.e., the
Annual Dollar Value for such Unit Period) by a fraction, the numerator of which
is the number of full months he or she was eligible as a Participant to
participate in the Unit Award Program during the Unit Period and the denominator
of which is twelve (12). For purposes of this calculation, a partial month of
participation shall: (i) be treated as a full month of participation to the
extent a Participant participates in the Unit Award Program for 15 or more days
of such month; and (ii) not be taken into consideration to the extent the
Participant participates in the Unit Award Program for less than 15 days of such
month. The amount of such Award will be deemed the Annual Dollar Value for such
Unit Period for the purpose of determining both such amount and the Final Dollar
Value.
9.9 Forfeiture Upon Cessation of Employment. A Participant who ceases, at any
time before the expiration of the Unit Cycle for any Units awarded to such
Participant, to be a full-time employee of the Company (defined as any employee
of the Company employed on the basis of 40 hours per work week, or 2,080 hours
per year, or the equivalent thereof) for any reason shall forfeit all rights to
receive any payment pursuant to this Plan with respect to such Units; provided,
however, in the event that cessation of such Participant's employment results
from such Participant's death, Disability or Retirement, all Units applicable to
such Participant, including Units for which the Unit Cycle shall not have
elapsed, for which payment had not previously been made to such Participant
pursuant to the term of this Plan shall, upon such event, be converted into the
right to receive an amount in cash equal to the sum of (i) with respect to Units
awarded to such Participant for which an applicable Unit Period shall have
elapsed, the sum of the Annual Dollar Value for each elapsed Unit Period in the
Unit Cycle and (ii) with respect to Units awarded to such Participant for which
the applicable Unit Period shall not have elapsed, a pro rata portion of the
Annual Dollar Value for the then-current Unit Period based on the portion of
such Unit Period that had elapsed. Amounts, if any, payable under this Section
9.9 shall be paid as soon as administratively possible; provided that amounts
payable hereunder with regard to Units for which the Unit Cycle shall not have
elapsed shall not be paid until after the Annual Dollar Value for such Units for
such Unit Cycle have been determined pursuant to this Article 9.
9.10 Change of Control, Liquidation or Dissolution.
9.10.1 Dissolution, Liquidation. In the event of a proposed
dissolution or liquidation of the Company, each Unit awarded under
the Plan shall terminate as of a date to be fixed by the Committee.
At least thirty (30) days' written notice of the date so fixed shall
be given to each Participant holding outstanding Units for which a
Unit Period has elapsed (or other person entitled to receive payment
in respect of such Units). On such date fixed by the Committee, the
Company shall make payments to such Participants (or other persons
entitled to receive payment in respect of such Units) in cash based
on the Final Dollar Value of such Units being the sum of the Annual
Dollar Value for such Units for the Unit Periods then elapsed.
9.10.2 Change in Control. Notwithstanding any contrary provision in
the Plan, upon a Change in Control, no additional terms, conditions,
restrictions, or limitations shall be placed upon any Award granted
under Article 9, and all Units, including Units for which the Unit
Period shall not have elapsed, for which payment had not previously
been made to a Participant pursuant to the term of this Plan shall,
upon the Change of Control, be converted into the right to receive
within thirty (30) days after such Change of Control occurs an amount
in cash equal to the Final Dollar Value thereof. For the purpose of
determining such Final Dollar Value, the Annual Dollar Value of a
Unit with respect to any unelapsed Unit Period shall be determined by
assuming that the Multiplier for such Unit Period is 100%.
9.11 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum Final Dollar Value of Units that may be awarded
under the Plan in any calendar year to any Participant is $375,000.
ARTICLE 10 - NONEMPLOYEE DIRECTOR AWARDS
10.1 In General. Nonemployee Directors are eligible to (i) receive automatic
grants of shares of Common Stock as part of the compensation for such
Nonemployee Directors' Service and (ii) elect to receive Common Stock, Deferral
Restricted Stock, or Deferral Stock Options in lieu of other cash compensation
for Service.
10.2 Common Stock.
10.2.1 Awards of Common Stock. Each Nonemployee Director serving as a
Director on the next day following the end of Integon's annual
shareholder's meeting in each year ("Director Grant Date") shall
automatically be awarded 1,650 shares of Common Stock on such
Director Grant Date (or a portion of such shares of Common Stock if
such Participant did not serve as a Director the entire period
between the annual shareholders' meeting preceding the Director Grant
Date and the Director Grant Date, which portion of such shares shall
equal the portion of such period the Participant did serve as a
Director).
10.2.2 Rule 16b-3(c)(2)(ii)(B). The provisions of Section 10.2 shall
not be altered or amended more than once every six months except as
necessary to comply with the Code, the Employee Retirement Income
Security Act, or the rules and regulations thereunder.
10.3 Common Stock, Deferral Restricted Stock, and Deferral Stock Options.
10.3.1 Election. Each year, on the date of Integon's scheduled annual
shareholders' meeting (or, for Nonemployee Directors whose Initial
Election Date shall fall within the period of six months after such
scheduled annual meeting, on such Initial Election Date), each
Nonemployee Director may, subject to any approval by the shareholders
of the Company required by Rule 16b-3, make an irrevocable election
to receive, in lieu of all or any part of the cash compensation to
which such member would otherwise be entitled as a member of the
Board (other than reimbursement of expenses and/or individual meeting
fees) for the period from the annual shareholders' meeting to the day
prior to the following annual meeting, either (i) Common Stock, (ii)
Deferral Restricted Stock or (iii) Deferral Stock Options, but not in
any combination of the three, provided, however, that a Participant
may make his or her first election on, or at any time prior to, his
or her Initial Election Date. An election made hereunder shall be
effective, beginning on the Initial Election Date or the annual
meeting dates following such a Initial Election Date, for the grant
of such number of: (i) shares of Common Stock, (ii) shares of
Deferral Restricted Stock or (iii) Deferral Stock Options, as is
determined by the Committee at the Effective Date to constitute an
amount of Common Stock, Deferral Restricted Stock, or Deferral Stock
Options equivalent to the cash compensation elected to be foregone.
In making such determination of equivalency for purposes of Common
Stock and Deferral Restricted Stock, the Committee shall use the
average of the closing price at which a share of Common Stock shall
have been traded over the 30 calendar days ending with the date of
the grant of such Common Stock or Deferral Restricted Stock on the
primary securities exchange on which the Common Stock is then traded.
In making such determination of equivalency for purposes of Deferral
Stock Options, the Committee shall rely upon the Black-Scholes option
pricing model, determining such equivalency as of the Effective Date
of such Deferral Stock Option.
Each such election shall be in writing and shall be delivered to the
Secretary of the Company. The Effective Date of any such Deferral
Award shall be the date six months after such Nonemployee Director's
Initial Election Date and, for subsequent elections on the date of
Integon's annual shareholders' meeting, the date six months after
such meeting.
10.3.2 Terms and Conditions of Deferral Restricted Stock.
10.3.2.1 Subject to the provisions of the Plan, until
the expiration of the Deferral Restriction Period, the
Participant shall not be permitted to hold, sell,
assign, transfer, pledge or otherwise encumber shares
of Deferral Restricted Stock.
10.3.2.2 Except as provided in this Section 10.3, the
Participant shall have, with respect to the shares of
Deferral Restricted Stock, all of the rights of a
shareholder of the Company holding shares of the Common
Stock, including, if applicable, the right to vote the
shares and the right to receive any cash dividends.
Dividends payable in Common Stock shall be paid in the
form of additional whole shares of Deferral Restricted
Stock on which such dividend was paid (based on the
closing price per share of the Common Stock on the
primary securities exchange which the Common Stock is
traded as of the record date for such dividend, or the
next preceding trading day if the record date is not a
trading day on such exchange), held subject to the same
conditions and restrictions of the underlying Deferral
Restricted Stock, with any fractional share amounts
paid in cash on the payment date of such dividend.
10.3.2.3 Except to the extent otherwise provided in
this Section 10.3, upon a Participant's termination of
Service during an unexpired Deferral Restriction
Period, all shares subject to such unexpired Deferral
Restriction Period held by that Participant shall be
forfeited. In the event of the termination of Service
of a Participant in the Deferral Restricted Period
because of death, Disability or Retirement, the
unexpired Deferral Restriction Period applicable to
Deferral Restricted Stock held by that Participant
shall lapse and shares of such Deferral Restricted
Stock shall become free of all restrictions and become
fully vested and transferable. Notwithstanding any
contrary provision in the Plan, upon a Change in
Control, no additional terms, conditions, restrictions,
or limitations shall be placed upon any Deferral
Restricted Stock granted under this Article 10, and the
unexpired Deferral Restriction Period applicable to
each share of Deferral Restricted Stock outstanding
under this Plan shall lapse and each share of such
Deferral Restricted Stock shall become free of all
restrictions and become fully vested and transferable.
10.3.2.4 Each Deferral Restricted Stock award shall be
confirmed by, and be subject to the terms of, a
Deferral Stock Agreement.
10.3.2.5 Deferral Restricted Stock Certificates. Shares
of Deferral Restricted Stock shall be evidenced in such
manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more
stock certificates. Any certificate issued in respect
of shares of Deferral Restricted Stock shall be
registered in the name of such Participant and shall
bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such
Deferral Restricted Stock, substantially in the
following form:
"The transferability of this certificate and
the shares of stock represented hereby are
subject to the terms and conditions (including
forfeiture) of the Integon Corporation Amended
and Restated Omnibus Long-Term Performance
Incentive Compensation Plan. Copies of such
Plan and Agreement are on file at the offices
of Integon Corporation, 500 West Fifth Street,
Winston-Salem, North Carolina 27152."
The Committee may require that the certificates
evidencing such shares be held in custody by the
Company until the restrictions thereon shall have
lapsed and that, as a condition of any Award of
Deferral Restricted Stock, the Participant shall have
delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
If and when the applicable Deferral Restriction Period
expires without a prior forfeiture of the Deferral
Restricted Stock, unlegended certificates for such
shares shall be delivered to the Participant upon
surrender of the legended certificates.
10.3.3 Terms and Conditions of Deferral Stock Options.
10.3.3.1 Exercise Price. The price at which Common
Stock may be purchased upon exercise of a Deferral
Stock Option shall be not less than 100% of the
fair-market value of the Common Stock, as determined by
the Committee, on the date of grant of such Deferral
Stock Options.
10.3.3.2 Vesting. Subject to the provisions of Sections
10.3.3.3 and 10.3.3.4, after one year from the
Effective Date of such Deferral Stock Option, such
Deferral Stock Option shall become exercisable for all
shares of Common Stock covered thereby.
10.3.3.3 Acceleration due to Termination of Service,
Change in Control. If the Service of any Participant
ends during the one-year period for which cash
compensation has been waived, such Participant's rights
in such Deferral Stock Option shall be as follows:
10.3.3.3.1 Upon the termination of such
Nonemployee Director's Service because of
death, Disability or Retirement during such
one-year period, each unexercised Deferral
Stock Option held by that Nonemployee Director
shall become immediately exercisable as to
100% of the shares of Common Stock covered
thereby;
10.3.3.3.2 Upon the termination of such
Nonemployee Director's Service during such
one- year period for any reason other than
death, Disability or Retirement, a portion of
the shares of Common Stock covered thereby
shall become immediately exercisable as
follows:
10.3.3.3.2.1The shares of Common
Stock covered by a Deferral Stock
Option attributable to the election
to forgo cash compensation for the
one-year period in which such
Participant's Service terminates
shall be prorated and such Option
shall become immediately exercisable
to the extent of that portion of the
shares of Common Stock attributable
to the time of Service during that 1
year period; and
10.3.3.3.2.2 As to the balance of the
shares of Common Stock covered by
such Deferral Stock Option for such
1 year period, such option shall
lapse immediately.
Notwithstanding any contrary provision in the
Plan, upon a Change in Control, no additional
terms, conditions, restrictions, or
limitations shall be placed upon any Deferral
Stock Option granted under this Article 10,
and each Deferral Stock Option outstanding
shall become immediately exercisable as to all
of the shares of Common Stock covered thereby.
In addition, upon a Change in Ownership, each
outstanding Deferral Stock Option granted
under this Article 10 shall be converted into
the right to receive, as soon as practicable
but in no event later than thirty (30) days
after the Change in Ownership, for each share
of Common Stock purchasable under such
Deferral Stock Option an amount in cash equal
to the difference between the Change In
Control Price and the per share exercise price
of such Deferral Stock Option. In the event
that exercise price of an outstanding Deferral
Stock Option is equal to or greater than the
Change In Control Price, such Deferral Stock
Option shall have a value of zero, shall be
cancelled, and the owner thereof shall not be
entitled to receive any payment.
10.3.3.4 Term of Exercisability. Once any portion of a
Deferral Stock Option becomes exercisable, it shall
remain exercisable only for the lesser of (i) 10 years
after the date of grant (or such lesser number of years
as the Committee shall determine) or (ii) 1 year (or
such greater number of years as the Committee shall
determine) after the Service of a Participant
terminates for any reason.
10.3.3.5 Exercise and Payment. Upon exercise, the
option price of a Deferral Stock Option may be paid in
cash, shares of Common Stock, a combination of the
foregoing, or such other consideration as the Committee
may deem appropriate. The Committee shall establish
appropriate methods for accepting Common Stock, whether
restricted or unrestricted, and may impose such
conditions as it deems appropriate on the use of such
Common Stock to exercise a stock option. Subject to
Section 15.8, stock options awarded under the Plan may
be exercised by way of a broker-assisted exercise
program, provided such program is available at the time
of the option's exercise. The Committee may permit a
Participant to satisfy any amounts required to be
withheld under the applicable federal, state and local
tax laws in effect from time to time, by electing to
have the Company withhold a portion of the shares of
Common Stock to be delivered for the payment of such
taxes.
10.3.3.6 Option Agreements. Each Award of a Deferral
Stock Option under this Plan shall be evidenced by a
written agreement signed by the Nonemployee Director
and containing such terms and conditions as the
Committee may determine from time to time pursuant to
this Plan.
10.3.4 Rule 16b-3 Compliance. The grant of Common Stock, Deferral
Restricted Stock, and Deferral Stock Options is intended to comply in
all respects with Rule 16b-3(d)(1) of the Exchange Act such that the
grant of all Common Stock, Deferral Restricted Stock, and Deferral
Election Stock Options issued under the Plan shall be exempt from
Section 16(b) of the Exchange Act.
ARTICLE 11 - MISCELLANEOUS
11.1 Withholding Taxes. The Company shall be entitled to deduct from any payment
under the Plan, regardless of the form of such payment, the amount of all
applicable income and employment taxes required by law to be withheld with
respect to such payment or may require the Participant to pay to it such tax
prior to and as a condition of the making of such payment. In accordance with
any applicable administrative guidelines it establishes, the Committee may allow
a Participant to pay the amount of taxes required by law to be withheld from an
Award by withholding from any payment of Common Stock due as a result of such
Award, or by permitting the Participant to deliver to the Company, shares of
Common Stock having a fair-market value, as determined by the Committee, equal
to the amount of such required withholding taxes.
11.2 Amendments to Awards. The Committee may at any time unilaterally amend any
unexercised, unearned, or unpaid Award, except Awards made under Article 10,
including, but not by way of limitation, Awards earned but not yet paid, to the
extent it deems appropriate; provided, however, that any such amendment which,
in the opinion of the Committee, is adverse to the Participant shall require the
Participant's consent.
11.3 Regulatory Approvals and Listings. Notwithstanding anything contained in
this Plan to the contrary, the Company shall have no obligation to issue or
deliver certificates of Common Stock evidencing any Award resulting in the
payment of Common Stock prior to (i) the obtaining of any approval from any
governmental agent that the Company shall, in its sole discretion, determine to
be necessary or advisable, (ii) the admission of such shares to listing on the
stock exchange on which the Common Stock may be listed and (iii) the completion
of any registration or other qualification of said shares under any state or
federal law or ruling of any governmental body that the Company shall, in its
sole discretion, determine to be necessary or advisable.
11.4 No Right to Continued Employment or Grants. Participation in the Plan shall
not give any Key Employee or Nonemployee Director any right to remain in the
employ or Service of the Company. Integon, or, in the case of employment with a
Subsidiary, the Subsidiary, reserves the right to terminate any Employee at any
time, subject to the provisions of any employment agreement with such Key
Employee. Further, except as provided in Article 10, the adoption of this Plan
shall not be deemed to give any Key Employee, Nonemployee Director or any other
individual any right to be selected as a Participant or to be granted an Award.
11.5 Amendment/Termination. The Committee may suspend or terminate the Plan at
any time with or without prior notice. In addition, except as otherwise
expressly provided, the Committee may, from time to time and with or without
prior notice, amend the Plan in any manner, but may not without shareholder
approval adopt any amendment that would require the vote of the shareholders of
Integon pursuant to Section 16 of the Exchange Act or Section 162(m) of the
Code, but only insofar as such amendment affects Covered Employees. Upon a
Change In Control no action, including, but not by way of limitation, the
amendment, suspension or termination of the Plan, shall be taken which would
affect the rights of any Participant or the operation of the Plan with respect
to any Award to which the Participant may have become entitled hereunder on or
prior to the date of the Change In Control or to which he or she may become
entitled as a result of such Change In Control.
11.6 Governing Law. The Plan shall be governed by and construed in accordance
with the laws of the State of North Carolina, except as superseded by applicable
federal law.
11.7 No Right, Title, or Interest in Company Assets. No Participant shall have
any rights as a shareholder as a result of participation in the Plan until the
date of issuance of a stock certificate in his or her name and, in the case of
shares of Common Stock, such rights are granted to the Participant under the
Plan. To the extent any person acquires a right to receive payments from the
Company under the Plan, such rights shall be no greater than the rights of an
unsecured creditor of the Company and the Participant shall not have any rights
in or against any specific assets of the Company. All of the Awards granted
under the Plan shall be unfunded.
11.8 Section 16 of the Exchange Act. In order to avoid any Exchange Act
violations, the Committee may, from time to time, impose additional restrictions
upon an Award, including but not limited to, restrictions regarding tax
withholdings and restrictions regarding the Participant's ability to exercise
Awards under any broker-assisted exercise program.
11.9 No Guarantee of Tax Consequences. No person connected with the Plan in any
capacity, including, but not limited to, Integon and its Subsidiaries and their
directors, officers, agents and employees makes any representation, commitment,
or guarantee that any tax treatment, including, but not limited to, federal,
state and local income, estate and gift tax treatment, will be applicable with
respect to amounts deferred under the Plan, or paid to or for the benefit of a
Participant under the Plan, or that such tax treatment will apply to or be
available to a Participant on account of participation in the Plan.
11.10 Compliance with Section 162(m). If any provision of the Plan would cause
the Awards granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.
11.11 Funding of Cash Payments. The Company shall fund cash payments under this
Plan from its general assets and shall not maintain any designated or segregated
fund for such purposes.
11.12 Legal Fees. Integon shall pay all legal fees and related expenses incurred
by a Participant in seeking to obtain or enforce any payment, benefit or right
he or she may be entitled to under the Plan after a Change in Control or a
Change in Ownership; provided, however, the Participant shall be required to
repay any such amounts to Integon to the extent a court of competent
jurisdiction issues a final and non-appealable order setting forth the
determination that the position taken by the Participant was frivolous or
advanced in bad faith.
<PAGE>
Exhibit 10.5 Continued
<TABLE>
<CAPTION>
EXHIBIT A
SAMPLE CHART OF MULTIPLIERS
Combined Operating Ratio
FF.0% EE.5% EE.0% DD.5% DD.0% CC.5% CC.0% BB.5% BB.0% AA.5%**
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A%*....... 71.8% 81.9% 91.9% 101.9% 111.9% 122.0% 132.0%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
B% ....... 75.7% 86.2% 96.6% 107.0% 117.3% 127.7% 138.0%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
C% ....... 79.1% 90.1% 101.0% 111.9% 122.8% 133.5% 144.2%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
D% ....... 71.3% 82.7% 94.0% 105.3% 116.6% 127.9% 139.2% 150.4%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
E% ....... 73.0% 84.4% 95.9% 107.4% 118.9% 130.4% 141.9% 153.4%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
Growth in F% ....... 74.7% 86.3% 97.9% 109.6% 121.3% 132.9% 144.6% 156.3%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
Net Written G% ....... 76.4% 88.2% 100.0% 111.8% 123.6% 135.5% 147.3% 159.2%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
Premiums H% ....... 78.2% 90.1% 102.1% 114.1% 126.0% 138.1% 150.1% 162.1%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
I% ....... 79.9% 92.1% 104.2% 116.4% 128.5% 140.7% 152.9% 165.1%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
J% ....... 81.7% 94.0% 106.4% 118.7% 131.1% 143.4% 155.8% 168.1%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
K% ....... 70.9% 83.4% 96.0% 108.5% 121.0% 133.6% 146.1% 158.7% 171.2%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
L% ....... 72.5% 85.2% 97.9% 110.7% 123.4% 136.1% 148.9% 161.6% 174.3%
==== ---- ----- ----- ----- ----- ----- ----- ----- -------
M% ....... 74.1% 87.0% 99.9% 112.9% 125.8% 138.7% 151.7% 164.6% 177.5%
---- ---- ----- ----- ----- ----- ----- ----- ----- -------
N% ....... 75.7% 88.8% 102.0% 115.1% 128.2% 141.3% 154.5% 167.6% 180.7%
---- ---- ----- ----- ----- ----- ----- ----- ----- -------
</TABLE>
- ----------------
* or less
** or greater
No payments shall be due with respect to Units to the extent Growth in Net
Written Premiums is less than A%, Combined Operating Ratio is greater than EE.5%
or with respect to boxes in the chart left blank.
The foregoing chart has been prepared on an arbitrary basis and is provided to
illustrate the application of the Plan. Letters have been substituted for
numbers in Growth in Net Written Premiums and Combined Operating Ratio to avoid
any implication that the foregoing chart presents a projection of the Company's
operating results.
End Exhibit 10.5
<PAGE>
Exhibit 10.6
AMENDMENT NO. 1 TO THE
INTEGON CORPORATION
AMENDED AND RESTATED
OMNIBUS LONG-TERM PERFORMANCE
INCENTIVE COMPENSATION PLAN
1. Purpose
The purpose of this Amendment No. 1 (this "Amendment") to the Integon
Corporation Amended and Restated Omnibus Long-term Performance Incentive
Compensation Plan (the "Plan") is to clarify the treatment of Awards under
Article 8 upon termination of employment of a Participant who served as a
Nonemployee Director immediately prior to acceptance of employment with the
Company. Terms not otherwise defined herein shall have the meanings given them
in the Plan.
2. Effective Date
The effective date of this Amendment shall be February 13, 1997.
3. Certain Revisions to Article 8
(a) The Plan is hereby amended by adding the following clause to the
end of the first sentence of 8.5.2:
; provided, however, that with respect to any Participant who served as
a Nonemployee Director immediately prior to accepting employment with
the Company the Restricted Performance Amount shall be fully vested as
of the Award Date.
As so revised, Section 8.5.2 shall read as follows:
8.5.2 The Restricted Performance Amount with respect to a particular
Performance Award shall vest on a straight-line basis with such amount
credited to a three-year deferred compensation account fully vesting
three years after the applicable Award Date and such amount credited to
a five-year deferred compensation account fully vesting five years
after the applicable Award Date; provided, however, that with respect
to any Participant who served as a Nonemployee Director immediately
prior to accepting employment with the Company the Restricted
Performance Amount shall be fully vested as of the Award Date. The
Vested Performance Amount shall be fully vested as of the Award Date.
Upon a Participant's termination of employment during an unexpired
Performance Restriction Period, any amount credited to a three-year or
five-year deferred compensation account that has not yet vested shall
be forfeited by that Participant.
(b) The Plan is hereby amended by deleting the first two sentences of
Section 8.7 in their entirety and replacing them with the following:
In the event a Participant's employment terminates prior to the Award
Date for a Performance Period, such Participant shall not receive any
amount in connection with such Performance Award and such Performance
Award shall terminate; provided, however, that for the purpose of this
Section 8.7, the phrase "terminates employment" shall mean, with
respect to any Participant who served as a Nonemployee Director
immediately prior to accepting employment with the Company, the later
of such Participant's termination of employment with the Company or
termination of Service. Notwithstanding the preceding sentence, if such
Participant terminates employment because of death, Disability or
Retirement prior to the Award Date for a Performance Period, such
Participant shall receive, if Awards are paid for such Performance
Period, a pro rata Performance Award determined by multiplying the
Performance Award the Participant would have otherwise been paid if he
or she had been a Participant through the Award Date for the
Performance Period by a fraction, the numerator of which is the number
of full months he or she was a Participant during such Performance
Period and the denominator of which is the total number of full months
in the Performance Period.
As so revised, Section 8.7 shall read as follows:
8.7 Termination of Employment During Performance Period. In the event a
Participant's employment terminates prior to the Award Date for a
Performance Period, such Participant shall not receive any amount in
connection with such Performance Award and such Performance Award shall
terminate; provided, however, that for the purpose of this Section 8.7,
the phrase "terminates employment" shall mean, with respect to any
Participant who served as a Nonemployee Director immediately prior to
accepting employment with the Company, the later of such Participant's
termination of employment with the Company or termination of Service.
Notwithstanding the preceding sentence, if such Participant terminates
employment because of death, Disability or Retirement prior to the
Award Date for a Performance Period, such Participant shall receive, if
Awards are paid for such Performance Period, a pro rata Performance
Award determined by multiplying the Performance Award the Participant
would have otherwise been paid if he or she had been a Participant
through the Award Date for the Performance Period by a fraction, the
numerator of which is the number of full months he or she was a
Participant during such Performance Period and the denominator of which
is the total number of full months in the Performance Period. For
purposes of this calculation, a partial month of participation shall:
(1) be treated as a full month of participation to the extent a
Participant participates in the Performance Award Program on 15 or more
days of such month; and (2) not be taken into consideration to the
extent the Participant participates in the Performance Award Program
for less than 15 days of such month. Such pro rata Performance Award
shall be paid in the form of cash no more than 120 days after the Award
Payment Date for such Performance Award.
End Exhibit 10.6
<PAGE>
Exhibit 10.7
INTEGON CORPORATION
EXECUTIVE SALARY DEFERRAL PLAN
ARTICLE 1 - PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of the Plan are to permit selected Key Employees of
the Company the opportunity to defer receipt of salary for three to five years,
with the amount thereof treated as phantom stock units during the period of
deferral. Accordingly, the Plan is intended to aid the Company in attracting and
retaining superior individuals to serve as Key Employees by providing a flexible
compensation program.
1.2 Term. The Plan shall become effective as of January 22, 1997 and no election
to defer any payment of salary shall be made under the Plan with respect to
salary to be paid in the ordinary course after December 31, 2006.
ARTICLE 2 - DEFINITIONS
2.1 Board. "Board" means the Board of Directors of Integon.
2.2 Change In Control. "Change In Control" means the following:
2.2.1 A tender offer or exchange offer is made whereby the effect of
such offer is to take over and control the affairs of Integon and
such offer is consummated for the ownership of securities of Integon
representing 50% or more of the combined voting power of Integon's
then-outstanding voting securities;
2.2.2 Integon is merged or consolidated with another corporation and,
as a result of such merger or consolidation, outstanding securities
representing less than 50% of the voting power of the surviving or
resulting corporation shall then be owned in the aggregate by the
former stockholders of Integon other than affiliates within the
meaning of the Exchange Act of any party to such merger or
consolidation;
2.2.3 Integon transfers all or substantially all of its assets to
another corporation or entity that is not a wholly owned Subsidiary
of Integon;
2.2.4 Any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of Integon representing 50% or
more of the combined voting power of Integon's then-outstanding
securities; or
2.2.5 As the result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were members of the Board immediately
before the transaction cease to constitute at least a majority
thereof.
2.3 Change In Control Price. "Change In Control Price" means the highest closing
price per share paid for the purchase of Common Stock during the ninety (90) day
period ending on the date the Change In Control occurs on the primary securities
exchange on which the Common Stock is then traded, or the merger or tender price
if higher.
2.4 Committee. "Committee" means the Compensation and Personnel Committee of the
Board, unless and until its members are not qualified to serve on the Committee
pursuant to the provisions of the Plan, in which case the Board will designate
the members of the Committee; provided that the Committee shall at all times
consist of two or more Directors, each of whom is both a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning of the definition of such term as contained in
Treasury Regulation Section 1.162-27(e)(3), or any successor definition;
provided further that no Director shall be appointed a member of the Committee
who has received any Award other than an Award under Article 10 of the Integon
Corporation Amended and Restated Omnibus Long-term Performance Incentive
Compensation Plan, as amended from time to time (the "Omnibus Plan"), in the
year prior to such appointment; provided further that no Committee member may
receive an Award other than pursuant to Article 10 of the Omnibus Plan.
2.5 Common Stock. "Common Stock" means common stock, $.01 par value per share,
of Integon, which may be newly issued shares, shares issued and outstanding,
treasury stock or shares owned by a Subsidiary.
2.6 Company. "Company" means Integon and its Subsidiaries.
2.7 Integon. "Integon" means Integon Corporation, a Delaware corporation.
2.8 Key Employee. "Key Employee" means a senior level employee of the Company
who holds a position of responsibility in a managerial, administrative, or
professional capacity.
2.9 Participant. "Participant" means any Key Employee who has been selected to
be eligible to participate in the Plan.
2.10 Plan. "Plan" means this Integon Corporation Executive Salary Deferral Plan.
2.11 Subsidiary. "Subsidiary" means a corporation or other business entity in
which Integon directly or indirectly has an ownership interest of 50% or more.
ARTICLE 3 - ELIGIBILITY
3.1 In General. Only Key Employees are eligible to participate in the Plan. The
Committee shall select, from time to time, Participants from those Key Employees
who, in the opinion of the Committee, can further the Plan's purposes. Once a
Participant is so selected, the Committee shall promptly notify the Participant
of eligibility.
ARTICLE 4 - PLAN ADMINISTRATION
4.1 Responsibility. The Committee shall have total and exclusive responsibility
to control, operate, manage, and administer the Plan in accordance with its
terms.
4.2 Authority of the Committee. The Committee shall have all the authority that
may be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the preceding sentence,
the Committee shall have the exclusive right to: (a) interpret the Plan; (b)
determine eligibility for participation in the Plan; (c) construe any ambiguous
provision of the Plan; (d) correct any defect; (e) supply any omission; (f)
reconcile any inconsistency; (g) issue administrative guidelines as an aid to
the administration of the Plan and make changes in such guidelines as it from
time to time deems proper; (h) make regulations for carrying out the Plan and
make changes in such regulations as it from time to time deems proper; (i) to
the extent permitted under the Plan, grant waivers of Plan terms, conditions,
restrictions, and limitations; (j) accelerate the vesting, exercise, or payment
of an Award when such action or actions would be in the best interest of the
Company; and (k) take any and all other action it deems necessary or advisable
for the proper operation or administration of the Plan.
4.3 Discretionary Authority. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan including without limitation its
construction of the terms of the Plan and its determination of eligibility for
participation and Awards under the Plan. It is the intent of the Plan that the
decisions of the Committee and its action with respect to the Plan shall be
final, binding and conclusive upon all persons having or claiming to have any
right or interest in or under the Plan.
4.4 Action by the Committee. The Committee may act only by a majority of its
members. Any determination of the Committee may be made, without a meeting, by a
writing or writings signed by all of the members of the Committee. In addition,
the Committee may authorize any one or more of its members or the General
Counsel of the Company to execute and deliver documents on behalf of the
Committee.
4.5 Delegation of Authority. The Committee may delegate some or all of its
authority under the Plan to any person or persons provided that any such
delegation be in writing.
ARTICLE 5 - DEFERRED SALARY PROGRAM
5.1 Election to Defer Compensation. Promptly upon receipt of notice to a
Participant of eligibility to participate in the Plan, such Participant shall
deliver to the General Counsel of the Company written notice of such
Participant's election to defer, in accordance with the terms of the Plan, some
or all of the salary payments to be received by such Participant. Such election
shall be effective with respect to the regular pay period next commencing after
the date of such notice from the Participant, and may be amended in writing at
any time, which amendments shall be effective with respect to salary to be paid
in the regular pay period next commencing after the Company's receipt of such
amendment. In addition, the Participant's notice of election, and any amendment
thereto, shall set forth the percentage of the Participant's salary to be placed
in a three-year deferred compensation account that is denominated in Common
Stock share units and the percentage of salary to be placed in a five-year
deferred compensation account that is denominated in Common Stock share units.
Any portion of salary that is not to be deferred shall be paid in accordance
with the Company's regular pay procedures. Unless otherwise changed in writing
by a Participant, the most recent election made by a Participant shall apply to
subsequent periods. Amounts contributed to a Participant's three-year deferred
compensation account or five-year deferred compensation account for a particular
pay period shall be denominated in Common Stock share units as follows: the
amount of cash compensation credited to such deferred compensation account shall
be divided by the closing price per share of Common Stock on the primary
securities exchange on which shares of the Common Stock are traded as of the
date that written notice of election to defer is received by the Company's
General Counsel from the Participant (or the next succeeding trading day if such
day is not a trading day on such exchange). The date on which such payment of
salary would otherwise be made is defined as the "Deferral Date."
5.2 Payment of Deferred Compensation. The amount of salary elected to be
deferred pursuant to the Plan shall be paid as follows:
5.2.1 Except as provided in Section 5.2.3, amounts credited to a
Participant's three-year deferred compensation account with respect
to a particular pay period shall be paid to the Participant promptly
after the third anniversary of the Deferral Date with respect to such
pay period. Such amounts shall be paid in cash, subject to applicable
withholding, in an amount equal to the product of the number of
Common Stock share units credited to such account for such pay period
multiplied by the closing trading price per share of Common Stock on
the primary securities exchange on which the Common Stock is traded
on such third anniversary date (or, if such date is not a trading
day, the next preceding trading day).
5.2.2 Except as provided in Section 5.2.3, amounts credited to a
Participant's five-year deferred compensation account with respect to
a particular pay period shall be paid to the Participant promptly
after the fifth anniversary of the Deferral Date with respect to such
pay period. Such amounts shall be paid in cash, subject to applicable
withholding, in an amount equal to the product of the number of
Common Stock share units credited to such account for such pay period
multiplied by the closing trading price per share of Common Stock on
the primary securities exchange on which the Common Stock is traded
on such fifth anniversary date (or, if such date is not a trading
day, the next preceding trading day).
5.2.3 A Participant may elect to defer receipt of amounts payable
pursuant to the Plan for one additional year by providing to the
Company, at least one year prior to the scheduled date for payment of
any amount hereunder, written notice of the Participant's election to
defer receipt for an additional one-year period. The final day of
each such additional one-year period is referred to as the
"Termination Date." Amounts credited to a Participant's three-year or
five-year deferred compensation account the payment of which has been
so deferred shall be paid to the Participant promptly after the
Termination Date in cash, subject to applicable withholding, in an
amount equal to the product of the number of Common Stock share units
credited to such account the payment of which has been so deferred
until such Termination Date multiplied by the closing trading price
per share of Common Stock on the primary securities exchange on which
the Common Stock is traded on such Termination Date (or, if such date
is not a trading day, the next preceding trading day).
5.3 No Rights as Stockholder; Adjustments.
5.3.1 The Participant shall not have, with respect to the Common
Stock share units credited to a three-year or five-year deferred
compensation account, any of the rights of a stockholder of Integon
holding shares of the Common Stock; provided, however, that in the
event of the payment of any cash dividends on the Common Stock based
on a record date occurring while amounts are credited to a three-year
or five-year deferred compensation account or the payment of which
has been deferred pursuant to Section 5.2.3, the amount of such
account shall be increased by a number of Common Stock share units
equal to the quotient of the amount of such cash dividend per share
of Common Stock divided by the closing price per share of Common
Stock on the primary securities exchange on which the Common Stock is
traded on the record date for such dividend, or the next preceding
trading day if such record date is not a trading day on such
exchange.
5.3.2 If there is any change in the number of outstanding shares of
Common Stock through the declaration of stock dividends, stock splits
or the like, the number of Common Stock share units held in deferred
compensation accounts shall be appropriately adjusted. In the event
of any other change in the capital structure or in the Common Stock
of Integon, the Committee shall also be authorized to make such
appropriate adjustments in amounts held in deferred compensation
accounts.
5.4 Change of Control, Liquidation or Dissolution.
5.4.1 In the event of a proposed dissolution or liquidation of the
Company or upon a Change in Control, all amounts in a three-year or
five-year deferred compensation account shall be paid to the
Participants in cash in an amount equal to the product of (i) the sum
of the amounts held in such deferred compensation accounts
(denominated in Common Stock share units multiplied by (ii) the
Change in Control Price, as though such dissolution or liquidation
constituted a Change in Control.
5.4.2 Notwithstanding any contrary provision in the Plan, upon a
Change in Control, no additional terms, conditions, restrictions or
limitations shall be placed on a three-year or five-year deferred
compensation account.
ARTICLE 6 - MISCELLANEOUS
6.1 Withholding Taxes. The Company shall be entitled to deduct from any payment
under the Plan, regardless of the form of such payment, the amount of all
applicable income and employment taxes required by law to be withheld with
respect to such payment or may require the Participant to pay to it such tax
prior to and as a condition of the making of such payment.
6.2 Amendment/Termination. The Committee may suspend or terminate the Plan at
any time with or without prior notice. In addition, except as otherwise
expressly provided, the Committee may, from time to time and with or without
prior notice, amend the Plan in any manner.
6.3 Governing Law. The Plan shall be governed by and construed in accordance
with the laws of the State of North Carolina.
6.4 No Guarantee of Tax Consequences. No person connected with the Plan in any
capacity, including, but not limited to, Integon and its Subsidiaries and their
directors, officers, agents and employees makes any representation, commitment,
or guarantee that any tax treatment, including, but not limited to, federal,
state and local income, estate and gift tax treatment, will be applicable with
respect to amounts deferred under the Plan, or paid to or for the benefit of a
Participant under the Plan, or that such tax treatment will apply to or be
available to a Participant on account of participation in the Plan.
6.5 Funding of Cash Payments. The Company shall fund cash payments under this
Plan from its general assets and shall not maintain any designated or segregated
fund for such purposes.
End Exhibit 10.7
<PAGE>
Exhibit 10.8
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 1 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
1. PURPOSE:
-------
To provide financial assistance to certain employees whose services are no
longer needed and who are permanently separated from Integon Corporation
(hereinafter collectively referred to as the "Company"), at the Company's choice
and through no fault of their own; provided that such employees comply with the
terms and conditions set forth in this policy. This policy neither constitutes
an employment contract nor a contract by the Company to extend severance
benefits to any of its employees. Severance payments are not to be viewed as
automatic and are not compensation for past services, but instead are intended
only as prospective payments that will be offered in the discretion of the
Company.
2. APPLICABILITY:
-------------
This Policy applies to all Eligible Employees of the Company.
A. Eligible Employees: Full-time and year round part-time employees who have
been employed by the Company and who are permanently separated, at the Company's
choice as a result of:
o Elimination of current job or reduction in the total number of employees
in the same department performing the same or similar job.
o Substantial change in current job duties for which the employee no longer
qualifies.
o Substantial change in current job duties which results in a twenty
percent (20%) or more reduction in salary.
o Declining a geographic transfer to a new job offered to employee upon the
elimination of current job as an alternative to termination provided that the
expenses associated with the transfer would qualify as deductible moving
expenses under the Internal Revenue Code.
B. Ineligible Employees:
1. Any employee covered by an employment agreement, or other written agreement
regarding severance pay.
2. Any employee, if the termination is for any of the following reasons:
a. Discharge for cause as determined by the Company.
b. Voluntary resignation.
c. Retirement.
d. The sale, exchange or transfer of Company assets to another employer who
assumes the operations of the Company if such employer offers employment at the
same geographic location or at a location for which the expenses associated with
a transfer would not qualify as deductible moving expenses under the Internal
Revenue Code and offers employment at a base salary which is at least equal to
eighty percent (80%) of the employee's current base salary.
e. The Company ceases an operation and the same is assumed by another
employer if such employer offers employment at the same geographic location or
at a location for which expenses associated with a transfer would not qualify as
deductible moving expenses under the Internal Revenue Code and offers employment
at a base salary which is at least equal to 80% of the employee's current base
salary.
f. Death.
g. Disability
h. Failure to return to work following a Family and Medical Leave of
Absence.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 2 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
2. APPLICABILITY:
-------------
(cont.)
3. Any employee who transfers employment to a subsidiary or affiliate of the
Company.
4. Any employee who is otherwise eligible but does not execute a severance
agreement that includes, among other things, a provision releasing the Company,
its subsidiaries and affiliates from any and all claims the employee might have
against the Company, its subsidiaries and affiliates including, but not limited
to, any claim of discrimination on account of any matter or things whatsoever
relating to employee's employment by the Company.
5. In the event that the time for the Eligible Employee to review the severance
agreement has not expired before the Eligible Employee's employment terminates,
severance benefits will begin on the day following such employee's termination.
Provided, however, that if an executed severance agreement is not returned prior
to the expiration of time to review such, no further severance payments will be
made and all severance payments made must be reimbursed to the Company.
6. Any Eligible Employee who accepts a severance package is obligated to
reimburse the Company for the full amount of such payments if the employee
subsequently discloses any of the Company's trade secrets, violates any written
covenants between the employee and the Company or otherwise engages in conduct
that may adversely affect the Company's reputation or business relations.
7. The Company may permanently suspend benefits under severance packages in pay
status in the event of the Company, its subsidiaries or affiliates' insolvency,
liquidation, or bankruptcy reorganization or in the event the cost of providing
such benefits would lead to insolvency, liquidation, or bankruptcy
reorganization.
8. Any severance benefits provided by the Company under this policy shall be
reduced dollar-for-dollar by any severance, separation, or other termination pay
benefit that the Company is required to pay to an Eligible Employee or former
employee under any federal or state law (including but not limited to the
Worker's Adjustment and Restraining Notification Act "WARN").
3. POLICY:
-------
A. Severance pay is computed on the basis of Eligible Employee's base salary
(excluding commissions, bonuses, overtime and/or other additional remuneration)
at the time of termination.
B. In addition, Eligible Employees will be entitled to receive payment for all
earned but unused vacation.
C. In addition, in the event of a termination of employment in connection with a
change in control of the Company, as defined in the Amended and Restated Integon
Corporation Omnibus Long-Term Performance Incentive Compensation Plan, (the
"Omnibus Plan") the Company will make a payment in cash of any award under
Article 9 of the Omnibus Plan that exceeds the maximum award that may be paid
out during any performance period under the Omnibus Plan.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 3 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
3. POLICY:
------
(cont.)
D. The amount of severance is based on the number of full years' service the
Eligible Employee has with the Company as follows:
Years of Service Weeks of Severance Pay
Less than 1 Year 2 weeks of base salary
1-4 Years 4 weeks of base salary
5-9 Years 1 week of base salary for each year of service plus 4
additional weeks of base salary
10-14 Years 1 week of base salary for each year of service plus 8
additional weeks of base salary
15 Years and Over 1 week of base salary for each completed year of
service plus 12 additional weeks of base salary.
E. Any Assistant Vice President of the Company who is an Eligible Employee, with
less than ten (10) years of service will be entitled to receive thirteen (13)
weeks of severance pay and will be entitled to receive up to an additional
thirteen (13) weeks of supplemental severance pay if the officer is not
employed. If an officer has ten (10) years of service or more, the officer will
be entitled to receive severance based on the table set forth above; provided
however, if the number of weeks of severance does not equal at least twenty-six
(26), and the officer remains unemployed at the end of his scheduled severance
period, the officer will be entitled to receive additional weeks of supplemental
severance pay so that the maximum total number of weeks of severance pay equals
twenty-six (26) weeks. For example, if an Assistant Vice President has eleven
(11) years of service, he/she is entitled to nineteen (19) weeks of severance
plus up to an additional seven (7) weeks of supplemental severance pay if the
officer is not employed.
If the Officer becomes employed at any time while receiving supplemental
severance, the officer will be entitled to continue receiving the difference
between the supplemental severance pay and the base salary of the new job, if
any, for the remainder of the supplemental severance period. Employment includes
self-employment.
F. Any Vice President of the Company who is an eligible employee, with less than
fifteen (15) years of service will be entitled to receive twenty-six (26) weeks
of severance pay and will be entitled to receive up to an additional twenty-six
(26) weeks of supplemental severance pay if the officer is not employed. If an
officer has fifteen (15) years of service or more, the officer will be entitled
to receive severance based on the table set forth above; provided however, if
the number of weeks of severance does not equal fifty-two (52), and the officer
remains unemployed at the end of his scheduled severance period, the officer
will be entitled to receive additional weeks of supplemental severance pay so
that the maximum total number of weeks of severance pay equals fifty-two (52)
weeks. For example, if a Vice President has twenty (20) years of service, he/she
is entitled to thirty-two (32) weeks of severance plus up to an additional
twenty (20) weeks of supplemental severance pay if the officer is not employed.
If the Officer becomes employed at any time while receiving supplemental
severance, the Officer will be entitled to continue receiving the difference
between the supplemental severance pay and the base salary of the new job, if
any, for the remainder of the supplemental severance period. Employment includes
self-employment.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 4 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
3. POLICY:
-------
(cont.)
G. Payments will be made on a semi-monthly basis on the fifteenth (15th) and
last day of each month. The Company reserves the right to determine the method
of payment. Notwithstanding the foregoing, any Eligible Employee who is not an
Officer will receive a lump sum payment of any remaining severance upon written
notification to the Company of new employment.
H. In the event of the death of an Eligible Employee during the severance
period, all severance payments shall cease.
I. Any debts or monies owed to the Company or its subsidiaries or affiliates by
the employee will be deducted from the first severance payment and subsequent
severance payments, if necessary, until the amount owed is repaid in full.
J. Benefits:
1. Long Term Disability benefits will terminate on the last day worked.
Life insurance coverage will continue through the severance period. If the
severance agreement is not executed life insurance coverage terminates at the
end of the conversion period as stated in the policy. Continuance of these
coverages are based on the conversion rights of each plan's provisions.
2. If the eligible employee executes the severance agreement, medical,
dental, and vision benefits will continue through the severance pay period and
the Company will continue to subsidize the required premium as it does for
active employees during this time.
If the employee qualifies for COBRA at the end of the severance pay period,
or if an employee does not execute a severance document (and qualifies for
COBRA) the employee may elect to continue benefits provided under COBRA for up
to eighteen (18) months or until the employee no longer qualifies for COBRA,
whichever is shorter.
4. ADMINISTRATION AND INTERPRETATION:
----------------------------------
A. The Human Resources Department will administer the policy.
B. The Company retains the right to interpret, revise or cancel this policy at
any time and without prior notice.
C. The Company shall in its sole discretion determine each employee's
eligibility and the amount of severance pay.
5. PLAN DESCRIPTION:
-----------------
NAME: Severance Policy of Integon Corporation
PLAN ADMINISTRATOR: Integon Corporation
EMPLOYER PLAN IDENTIFICATION NUMBER: 13-3559471
DEPARTMENT OF LABOR NUMBER FOR PLAN: 513
AGENT FOR SERVICE OF LEGAL PROCESS UNDER THE PLAN: Integon Corporation
DATE PLAN YEARS END: 12/31
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 5 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
5. PLAN DESCRIPTION:
-----------------
(cont.)
PLAN ADMINISTRATION:
The Board of Directors of Integon Corporation shall have the right at any time
to amend or modify the plan, retroactively or otherwise, or to terminate or
partially terminate the plan. However, no such amendment or termination shall in
any manner impair the rights to receive benefit payments provided for under the
plan to any eligible employee who has satisfied all conditions precedent to
receiving severance benefits under the plan prior to such amendment. No oral
representations by anyone can extend the severance pay policy to provide
severance packages not covered by this plan.
The plan document and Summary Plan Description determines all rights and
benefits under this plan. A copy of the plan document is available upon request
from the Human Resources Department.
ERISA STATEMENT:
As a participant under the Severance Policy of Integon Corporation for Eligible
Employees of Integon Corporation (the plan), you are entitled to certain rights
and protections under the Employee Retirement Income Security Act of 1974
(ERISA). A copy of the plan document will be on file in the Human Resources
Department, P. O. Box 3199, Winston-Salem, NC 27152, and you are free to examine
it at any time. You may also obtain a copy of the plan document and other plan
information upon written request to Integon. A charge to cover the printing cost
of the documents will be made. A summary of the plan's annual financial report
will be furnished to each participant as soon as practically possible after the
annual filing.
In addition to creating rights for plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the plan. The people who
operate your plan, called "fiduciaries," have a duty to do so prudently and in
the interest of you and other plan participants. No one may fire you or
discriminate against you in any way to prevent you from obtaining a benefit or
exercising your rights under ERISA. If your claim for a benefit is denied in
whole or in part, you must receive a written explanation of the reason for the
denial. You have the right to have your claim reviewed and reconsidered.
Under ERISA, there are steps you can take to enforce your rights. For instance,
if you request materials from the plan and do not receive them within 30 days,
you may file suit in a federal court. In such a case, the court may require the
plan administrator to provide the materials and pay you up to $100 a day until
you receive the materials, unless the materials were not sent to you because of
reasons beyond the control of the administrator. If you have a claim for
benefits which is denied or ignored, you may file a suit in a state or federal
court. If it should happen that plan fiduciaries misuse the money or you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file a suit in a federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees. If you
have questions about your plan, you should contact the Human Resources
Department, Integon, P.O. Box 3199, Winston-Salem, NC 27102-3199. If you have
any questions about this statement or about your rights under ERISA, you should
contact the nearest Area Office of the Pension Welfare Benefits Administration,
Department of Labor.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 6 of 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
5. PLAN DESCRIPTION:
-----------------
(cont.)
A. Except as otherwise provided in the plan, Integon Corporation has the power
and discretion to determine conclusively all questions arising in connection
with the administration, interpretation and/or application of the plan, and
shall make all determinations as to the right of any potentially eligible,
terminated employee to benefits under the plan.
B. If an ex-employee believes that he/she is entitled to a severance package, in
whole or in part, he/she must forward a written claim to the Vice President
Human Resources at:
6. CLAIMS PROCEDURES:
------------------
Integon Corporation
P. O. Box 3199
Winston-Salem, NC 27102-3199
The claimant's claim should include the following:
1. The claimant's name, address, telephone number, and social security number.
2. The claimant's dates of employment with the Company.
3. The claimant's job title and position with the Company.
4. The reasons for termination of the claimant's employment; and
5. A statement of the reasons why the claimant believes that he/she is entitled
to severance pay under the plan.
C. Within ninety (90) days of receipt of the claimant's claim, the Vice
President Human Resources will determine whether the claimant is eligible for a
severance package, unless special circumstances require an extension of time for
an additional ninety (90) days. The Vice President Human Resources will notify
the claimant within that period. The notice shall set forth the specific reasons
for the determination and the plan provisions on which the decision was based;
describe any additional material or information necessary for the claimant to
perfect the claim along with an explanation of why such material or information
is necessary; and explain the steps to be taken if the claimant wishes to submit
his or her claim for review.
D. If a claimant desires a review, he/she must file a written request for review
with the Vice President Human Resources within sixty (60) days following receipt
of the notice initially denying the claim, in whole or in part. After submission
of the request for review, the Vice President Human Resources must act within
sixty (60) days after receiving the claimant's request for review. Before the
end of that sixty (60) day period, the Vice President Human Resources will
provide the claimant a written statement containing the final decision on the
claim for severance benefits. The time limit for the review process may be
extended to a maximum of one hundred twenty (120) days from the Vice President
Human Resources' receipt of the request for review if there are special
circumstances. The final decision on the claim will specify both circumstances.
The final decision on the claim will specify both the reasons for the
determination and the plan provisions on which the decision was based.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTEGON FUNCTION: HUMAN RESOURCES
OPERATING POLICY
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTION: All Employees
MEMO NO. RELEASE DATE: 01/97
HR 1910 EFFECTIVE DATE: 02/01/97 PAGE 7 OF 7
SUPERSEDES POLICY DATED: 03/93
================================================================================
SUBJECT: SEVERANCE
- --------------------------------------------------------------------------------
6. CLAIMS PROCEDURES:
------------------
(cont.)
E. The claimant is entitled to be represented by an attorney or other authorized
person at any time during the review procedure. The claimant or his/her agent
has a right to see all pertinent plan records concerning the claim and a right
to submit written comments.
7. QUESTIONS REGARDING THIS POLICY:
--------------------------------
May be directed to the Assistant Vice President, Human Resources at Extension
2948; or the Vice President, Human Resources at Extension 2263.
- --------------------------------------------------------------------------------
End Exhibit 10.8
<PAGE>
Exhibit 10.9
AMENDED AND RESTATED
ANNUAL INCENTIVE AWARD PLAN
INTEGON CORPORATION
I. PURPOSE
The purpose of the Integon Corporation Annual Incentive Plan (this "Plan")
is to enhance profits and overall performance of Integon Corporation (the
"Company") by providing senior management and key employees of the Company and
its subsidiaries an additional inducement for achieving and exceeding the
Company's performance objectives. Additionally, the Plan will allow a level of
compensation that is appropriate when compared with compensation levels of other
comparable organizations and will provide the Company with the flexibility to
recognize and reward an individual's performance and contributions to the
Company.
II. ADMINISTRATION OF PLAN
The Compensation and Personnel Committee of the Board of Directors (the
"Committee") shall administer the Plan. The Committee may in its discretion
delegate its authority to administer this Plan to the Chief Executive Officer of
the Company.
III. EFFECTIVE DATE
The Plan will become effective each year commencing January 1.
IV. ELIGIBILITY
A. The Committee along with the Chief Executive Officer shall determine which
members of senior management and other key employees of the Company and its
subsidiaries shall be eligible to participate in this Plan.
V. AWARDS
A. Awards will be based on growth in the Company's net written premiums on a
consolidated basis ("Net Written Premiums") and the Company's combined operating
ratio ("Combined Operating Ratio"), as well as the participant's individual
performance against personal objectives.
B. Awards shall be stated as a percentage of the participant's base salary at
targeted levels of Net Written Premiums and Combined Operation Ratio. In
determining the amount to be paid to a participant under the Plan, the Committee
shall weigh three performance factors: Net Written Premiums, Combined Operating
Ratio and the participant's achievement of personal performance objectives. The
Committee may assign differing weights to these factors depending upon the
participant's position with the Company and ability to affect Net Written
Premiums and Combined Operating Ratio. Such determination shall be made by the
Committee in its sole discretion. The Committee may delegate to the Chief
Executive Officer the authority to make the foregoing determinations with
respect to any participant other than the Chief Executive Officer, the Chief
Operating Officer and the Chief Financial Officer.
C. Payment of Awards
Awards shall be payable in a lump sum as soon as possible following the
determination of results for the Plan year. All payments of amounts pursuant to
this Plan shall be subject to applicable withholding for taxes.
End Exhibit 10.9
<PAGE>
Exhibit 11.1
<TABLE>
<CAPTION>
INTEGON CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
----------------------
1997 1996
------------ ------------
<S> <C> <C>
Income available to common shareholders:
Net income (loss) ......................... $ (33,388) $ 3,385
Preferred stock dividends ................. (1,393) (1,393)
------------ ------------
Net income available to common
shareholders ........................ $ (34,781) $ 1,992
============ ============
Weighted average common shares outstanding:
Primary:
Common shares outstanding ............ 15,736,121 15,714,407
Assumed exercise of stock options .... -- 188,361
------------ ------------
Total ................................. 15,736,121 15,902,768
============ ============
Fully diluted:
Common shares outstanding ............ 15,736,121 15,714,407
Assumed exercise of stock options .... -- 188,361
------------ ------------
Total ................................. 15,736,121 15,902,768
============ ============
Earnings per common share:
Primary ................................... $ (2.21) $ .13
============ ============
Fully diluted ............................. $ (2.21) $ .13
============ ============
</TABLE>
End Exhibit 11.1
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> This statement contains summary financial information
extracted from Integon Corporation's March 31, 1997
financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000878660
<NAME> Integon Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 625,104
<DEBT-CARRYING-VALUE> 625,104
<DEBT-MARKET-VALUE> 625,104
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 627,919
<CASH> 33,536
<RECOVER-REINSURE> 176,839
<DEFERRED-ACQUISITION> 52,215
<TOTAL-ASSETS> 1,480,277
<POLICY-LOSSES> 523,554
<UNEARNED-PREMIUMS> 374,194
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 150,705
0
14
<COMMON> 173
<OTHER-SE> 172,817
<TOTAL-LIABILITY-AND-EQUITY> 1,480,277
246,479
<INVESTMENT-INCOME> 9,043
<INVESTMENT-GAINS> (481)
<OTHER-INCOME> 4,540
<BENEFITS> 199,238
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 199,238
<INCOME-PRETAX> (51,963)
<INCOME-TAX> (18,575)
<INCOME-CONTINUING> (33,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,388)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.21)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
