<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997
- -------------------------------------------------------------------------------
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SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
[X] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
----------------
INTEGON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN REGISTRANT)
----------------
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11:
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration No.:
3) Filing Party:
4) Date Filed:
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<PAGE>
INTEGON CORPORATION
500 WEST FIFTH STREET
WINSTON-SALEM, NORTH CAROLINA 27152
September 16, 1997
Dear Stockholder:
You are cordially invited to a Special Meeting of Stockholders of Integon
Corporation at our corporate headquarters, 500 West Fifth Street, Winston-
Salem, North Carolina 27152, on October 16, 1997 at 9:00 a.m. (Eastern
Daylight Time).
At this meeting, you will be asked to vote upon a proposal to approve a
merger of the Company with a subsidiary of General Motors Acceptance
Corporation. A copy of the Agreement and Plan of Merger (excluding the
exhibits and the schedules) is attached to this Proxy Statement. If the Merger
is consummated, each share of the Company's Common Stock will thereafter
represent the right to receive $26.00 in cash, without interest. Each share of
the Company's $3.875 Convertible Preferred Stock, which is converted into
Common Stock prior to the effective date of the Merger, will thereafter
represent the right to receive $26.00 per share of Common Stock issued upon
conversion (or $68.24 per share of Convertible Preferred Stock so converted)
in cash, without interest. After the Merger, each share of Convertible
Preferred Stock will be convertible into the right to receive $68.24 per
share, in cash, without interest, and any shares of Convertible Preferred
Stock not so converted will be redeemed at $52.33 per share shortly following
the effective time of the Merger.
Enclosed with this letter is a Notice of Special Meeting, Proxy Statement,
Proxy Card and return envelope. On behalf of your Board of Directors, I urge
you to read the enclosed material carefully.
The Board of Directors has determined that the Merger is fair and in the
best interests of the Company and its stockholders and has approved the Merger
and the Merger Agreement. The Board of Directors recommends that you vote
"FOR" approval and adoption of the Merger and the Merger Agreement.
Consummation of the Merger is subject to a number of conditions and other
terms, including approval and adoption of the Merger Agreement by the
affirmative vote of at least a majority of the outstanding shares of the
Company's Common Stock as of the record date, all of which are summarized,
along with certain financial and other information, in the accompanying Proxy
Statement.
Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the accompanying Proxy Card and return
it in the enclosed prepaid envelope as soon as possible. If you attend the
Special Meeting, you may vote your shares in person, even if you have
previously submitted a Proxy Card. Approval of the Merger requires the
affirmative vote of a majority of the outstanding shares of the Company's
Common Stock entitled to vote thereon and, as a result, a failure to vote will
have the same effect as a vote against the Merger.
I and my family intend to vote "FOR" the Merger.
May I personally state that I believe this transaction is in the best
interests of Integon's stockholders, as well as its policyholders, employees,
agents and creditors. It is a "good deal" for all, and I thank all who have
shown support for the Company, its employees and its Board of Directors.
Sincerely,
John C Head III
Chairman of the Board
<PAGE>
INTEGON CORPORATION
----------------
500 WEST FIFTH STREET
WINSTON-SALEM, NORTH CAROLINA 27152
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 16, 1997
----------------
To the Stockholders ofIntegon Corporation:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Integon Corporation, a Delaware corporation (the "Company"), will
be held at the Company's corporate headquarters, 500 West Fifth Street,
Winston-Salem, North Carolina 27152, on October 16, 1997 at 9:00 a.m. (Eastern
Daylight Time) for the following purposes:
1. To consider and vote upon a proposal (the "Proposal") to approve and
adopt the Agreement and Plan of Merger, dated as of June 23, 1997, as
amended on July 7, 1997, and as further amended on July 17, 1997 (as
amended, the "Merger Agreement"), among the Company, General Motors
Acceptance Corporation, a New York corporation ("GMAC"), and IC Purchasing
Corp., an indirect wholly owned subsidiary of GMAC ("Merger Sub"), pursuant
to which Merger Sub will be merged (the "Merger") with and into the
Company, and the Company will become an indirect subsidiary of GMAC. As a
result of the Merger, each share of the Company's common stock, par value
$.01 per share (the "Common Stock") (other than (i) shares of Common Stock
held in the treasury of the Company or owned or held by GMAC, Merger Sub or
any other wholly owned subsidiary of GMAC, which will be canceled without
payment, (ii) shares of Common Stock in respect of which appraisal rights
are properly demanded and exercised, and (iii) shares of Common Stock held
by the subsidiaries of the Company, which will remain outstanding as shares
of the surviving corporation), will represent the right to receive $26.00,
in cash, without interest. Each share of the Company's $3.875 Convertible
Preferred Stock, par value $.01 per share (the "Convertible Preferred
Stock") (other than shares of Convertible Preferred Stock owned by GMAC,
Merger Sub or any other wholly owned subsidiary of GMAC, which will be
canceled without payment), which is converted into Common Stock by its
holder on or prior to the effective date of the Merger pursuant to the
Certificate of Designation for the Convertible Preferred Stock, will
represent the right to receive $26.00 per share of Common Stock issued upon
conversion of such Convertible Preferred Stock (or $68.24 per share of
Convertible Preferred Stock so converted) in cash, without interest. After
the Merger, each share of Convertible Preferred Stock will be convertible
into the right to receive $68.24 per share, in cash, without interest, and
any shares of Convertible Preferred Stock not so converted will be redeemed
at $52.33 per share shortly following the Effective Time (as defined in the
Merger Agreement) of the Merger. See "THE MERGER--The Merger Agreement--
Redemption of Convertible Preferred Stock." Pursuant to the Merger
Agreement, each option (a "1992 Option") issued under the Integon
Corporation 1992 Stock Option Plan, as amended from time to time, will
represent the right to receive, in settlement and cancellation of such 1992
Option, an amount in cash, without interest, equal to the excess of $26.00
over the exercise price of such 1992 Option, multiplied by the number of
shares of Common Stock covered by such 1992 Option. Each option (an
"Omnibus Option") issued under the Integon Corporation Amended and Restated
Omnibus Long-Term Performance Incentive Compensation Plan, as amended from
time to time (the "Omnibus Plan"), will represent the right to receive, in
settlement and cancellation of such Omnibus Option, an amount in cash,
without interest, equal to (i) the excess of the greater of $26.00 or the
highest closing price per share paid for the purchase of Common Stock
during the ninety (90) day period ending at the Effective Time on the New
York Stock Exchange, over the exercise price of such Omnibus Option,
multiplied by (ii) the number of shares of Common Stock covered by such
Omnibus Option.
<PAGE>
2. To transact such other business as may properly be brought before the
Special Meeting or at any adjournments or postponements thereof.
The proposed Merger and other related matters are more fully described in
the attached Proxy Statement and the Annexes thereto.
The close of business on August 22, 1997 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Special Meeting and any adjournments or
postponements thereof. Only holders of record of Common Stock and Convertible
Preferred Stock at the close of business on the record date are entitled to
notice of, and only holders of record of Common Stock on such date are
entitled to vote at, the Special Meeting or any adjournments or postponements
thereof.
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. To
ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the Special Meeting. You may
revoke your proxy in the manner described in the accompanying Proxy Statement
at any time before it is voted at the Special Meeting.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement, it is expected that the Special Meeting will be postponed or
adjourned in order to permit further solicitation of proxies by the Company.
If the Merger is consummated, holders of Common Stock who properly demand
appraisal prior to the vote on the Merger Agreement at the Special Meeting, do
not vote in favor of adoption of the Merger Agreement and otherwise comply
with the requirements of Section 262 of the Delaware General Corporation Law
(the "DGCL"), a copy of which is included as Annex C to the attached Proxy
Statement, will be entitled to seek an appraisal of their shares of Common
Stock. For a discussion of the procedures to be followed in asserting
appraisal rights under Section 262 of the DGCL in connection with the proposed
Merger, see "THE MERGER--Appraisal Rights" in the accompanying Proxy
Statement.
The affirmative vote of a majority of the outstanding shares of Common Stock
is required to approve the Proposal.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE WITHOUT DELAY. ANY
STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY VOTE PERSONALLY ON EACH MATTER
BROUGHT BEFORE THE SPECIAL MEETING AND ANY PROXY GIVEN BY A STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. PLEASE DO NOT SEND ANY
CERTIFICATES FOR YOUR SHARES AT THIS TIME.
By Order of the Board of Directors,
John B. Yorke
Secretary
September 16, 1997
--IMPORTANT--
If your shares are held in "street name," only your bank or broker can vote
your shares. Please contact the person responsible for your account and
instruct him or her to complete, sign, date and return the enclosed proxy card
as soon as possible.
If you have any questions or need further assistance in voting your shares,
please call D.F. King & Co., Inc., which is assisting the Company in
soliciting proxies, at (800) 669-5550.
<PAGE>
INTEGON CORPORATION
500 WEST FIFTH STREET
WINSTON-SALEM, NORTH CAROLINA 27152
----------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER __16, 1997
----------------
This Proxy Statement, the accompanying Notice of Special Meeting and Proxy
Card, are being furnished to the stockholders of Integon Corporation, a
Delaware corporation ("Integon" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board
of Directors") from holders of outstanding shares of common stock, par value
$.01 per share, of the Company (the "Common Stock") for use at the Special
Meeting of Stockholders to be held at the Company's corporate headquarters,
500 West Fifth Street, Winston-Salem, North Carolina 27152, on October 16,
1997 at 9:00 a.m. (Eastern Daylight Time), and at any adjournments thereof or
postponements (the "Special Meeting"). This Proxy Statement, the accompanying
Notice of Special Meeting and Proxy Card, are first being mailed to the
Stockholders on or about September 16, 1997.
At the Special Meeting, holders (the "Stockholders") of the Common Stock
will consider and vote upon a proposal (the "Proposal") to approve and adopt
the Agreement and Plan of Merger, dated as of June 23, 1997, as amended on
July 7, 1997, and as further amended on July 17, 1997 (as amended, the "Merger
Agreement"), among the Company, General Motors Acceptance Corporation, a New
York corporation ("GMAC"), and IC Purchasing Corp., a Delaware corporation and
indirect wholly owned subsidiary of GMAC ("Merger Sub"), pursuant to which:
(a) Merger Sub will be merged with and into the Company (the "Merger"), and
the Company, as the surviving corporation (the "Surviving Corporation") in the
Merger, will become an indirect subsidiary of GMAC; (b) each share of the
Company's Common Stock (other than (i) shares of Common Stock held in the
treasury of the Company or owned or held by GMAC, Merger Sub or any other
wholly owned subsidiary of GMAC, which will be canceled without payment, (ii)
shares of Common Stock in respect of which appraisal rights are properly
demanded and exercised, and (iii) shares of Common Stock held by the
subsidiaries of the Company, which will remain outstanding as shares of the
Surviving Corporation), will represent the right to receive $26.00, in cash,
without interest; (c) each share of the Company's $3.875 Convertible Preferred
Stock, par value $.01 per share (the "Convertible Preferred Stock") (other
than shares of Convertible Preferred Stock owned by GMAC, Merger Sub or any
other wholly owned subsidiary of GMAC, which will be canceled without
payment), which is converted into Common Stock by its holder on or prior to
the effective date of the Merger pursuant to the Certificate of Designation
for the Convertible Preferred Stock (the "Certificate of Designation"), will
represent the right to receive $26.00 per share of Common Stock issued upon
conversion of such Convertible Preferred Stock (or $68.24 per share of
Convertible Preferred Stock so converted) in cash, without interest. After the
Merger, each share of Convertible Preferred Stock will be convertible into the
right to receive $68.24 per share, in cash, without interest, and any shares
of Convertible Preferred Stock not so converted will be redeemed at $52.33 per
share shortly following the Effective Time (as defined in the Merger
Agreement) of the Merger; see "THE MERGER--The Merger Agreement--Redemption of
Convertible Preferred Stock;" (d) each option (a "1992 Option") issued under
the Integon Corporation 1992 Stock Option Plan, as amended from time to time
(the "1992 Plan"), will represent the right to receive, in settlement and
cancellation of such 1992 Option, an amount in cash, without interest, equal
to the excess of $26.00 over the exercise price of such 1992 Option,
multiplied by the number of shares of Common Stock covered by such 1992
Option; and (e) each option (an "Omnibus Option", and together with the 1992
Options, the "Options") issued under the Integon Corporation Amended and
Restated Omnibus Long-Term Performance Incentive Compensation Plan, as amended
from time to time (the "Omnibus Plan", and, together with the 1992 Plan, the
"Option Plans"), will represent the right to receive, in settlement and
cancellation of such Omnibus Option, an amount in cash, without interest,
equal to
<PAGE>
(i) the excess of the greater of $26.00 or the highest closing price per share
paid for the purchase of Common Stock during the ninety (90) day period ending
at the Effective Time on the New York Stock Exchange (the "Change In Control
Price"), over the exercise price of such Omnibus Option, multiplied by (ii)
the number of shares of Common Stock covered by such Omnibus Option. The
consideration to be received by the holders of the Common Stock, Convertible
Preferred Stock and Options in or as a result of the Merger shall be referred
to herein as the "Merger Consideration."
Consummation of the Merger is conditioned upon, among other things, approval
and adoption of the Merger Agreement by the requisite vote of the Stockholders
and the receipt of certain regulatory approvals and consents. The Special
Meeting may be postponed or adjourned until the requisite vote is obtained.
There can be no assurance that the conditions to the Merger will be satisfied
or, where permissible, waived or that the Merger will be consummated. For
further information concerning the terms and conditions of the Merger, see
"THE MERGER--The Merger Agreement."
A copy of the Merger Agreement is attached hereto as Annex A and is
incorporated herein by reference. The summaries of the portions of the Merger
Agreement set forth in this Proxy Statement do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the text
of the Merger Agreement.
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS AND APPROVED THE MERGER AND THE MERGER AGREEMENT. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AND THE MERGER AGREEMENT. In reaching its determination, the Board of
Directors gave consideration to a number of factors described in this Proxy
Statement, including, among other things, the June 22, 1997 oral opinion
(which was subsequently confirmed in writing in an opinion dated June 23,
1997) of Goldman, Sachs & Co. ("Goldman Sachs"), financial advisor to the
Company, that, as of the date of such written opinion, the $26.00 per share,
in cash, to be received by the holders of shares of Common Stock pursuant to
the Merger Agreement is fair to such holders. Goldman Sachs also delivered its
written opinion dated the date of this Proxy Statement that as of the date of
this Proxy Statement, the $26.00 per share, in cash, to be received by the
holders of shares of Common Stock pursuant to the Merger Agreement is fair to
such holders. The full text of the written opinion of Goldman Sachs, dated the
date of this Proxy Statement, which sets forth the assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is included as Annex B hereto and is incorporated herein by
reference. Stockholders are urged to, and should, read the opinion in its
entirety. See "THE MERGER--Opinion of the Company's Financial Advisor."
In connection with the Merger, appraisal rights will be available to those
Stockholders who properly demand appraisal prior to the Stockholders' vote on
the Merger Agreement at the Special Meeting, do not vote in favor of adoption
of the Merger Agreement and otherwise comply with the requirements of Section
262 of the Delaware General Corporation Law (the "DGCL"). Holders of
Convertible Preferred Stock, as such, are not entitled to appraisal rights
(although a holder of shares of Convertible Preferred Stock who converts such
shares into Common Stock prior to the Special Meeting and who, subsequent to
such conversion, properly demands appraisal of such Common Stock prior to the
vote on the Merger Agreement, may be so entitled to appraisal rights with
respect to such Common Stock). A copy of Section 262 of the DGCL is attached
as Annex C hereto. For a discussion of the procedures to be followed in
asserting appraisal rights under Section 262 of the DGCL in connection with
the Merger, see "THE MERGER--Appraisal Rights."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED ON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
---------------
The date of this Proxy Statement is September 16, 1997
---------------
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY INFORMATION......................................................... 5
The Parties............................................................... 5
The Special Meeting....................................................... 5
The Merger................................................................ 7
The Merger Agreement...................................................... 8
Conditions to the Merger; Regulatory Approvals............................ 8
Rights Agreement.......................................................... 9
No Solicitation; Fiduciary Duties......................................... 9
Termination............................................................... 10
Fees and Expenses......................................................... 10
Interests of Certain Persons in the Merger................................ 10
Certain Tax Consequences to Stockholders.................................. 11
Source and Amount of Funds................................................ 12
Appraisal Rights.......................................................... 12
Certain Financial Information............................................. 12
Market Prices and Cash Dividends Information.............................. 12
VOTING AND PROXIES.......................................................... 14
Record Date; Solicitation of Proxies...................................... 14
Vote Required............................................................. 14
THE MERGER.................................................................. 16
General .................................................................. 16
Background of and Reasons for the Merger.................................. 16
Recommendation of the Board of Directors.................................. 21
Opinion of the Company's Financial Advisor................................ 21
The Merger Agreement...................................................... 26
Consideration to be Paid in the Merger.................................. 26
Certificate of Incorporation and Bylaws................................. 26
Stockholders' Meeting................................................... 26
Representations and Warranties.......................................... 26
Conduct of Business Pending Merger...................................... 27
Access to Information................................................... 28
No Solicitation; Fiduciary Duties....................................... 28
Fees and Expenses....................................................... 28
Reasonable Efforts; Additional Actions.................................. 29
Notification of Certain Matters......................................... 29
Public Announcements.................................................... 29
Severance Agreements.................................................... 29
Indebtedness of the Company............................................. 30
Termination of Investment Advisory Agreement............................ 30
Termination of Executive Salary Deferral Plan........................... 30
Employee Plans.......................................................... 30
Investment Portfolio.................................................... 30
Updating of Schedules................................................... 31
Redemption of Convertible Preferred Stock............................... 31
General Conditions to the Merger........................................ 31
Conditions to Obligation of GMAC and Merger Sub......................... 31
Conditions to Obligation of the Company................................. 32
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rights Agreement....................................................... 32
Termination............................................................ 32
Indemnification........................................................ 33
Amendment.............................................................. 33
Interests of Certain Persons in the Merger............................... 33
Regulatory Approvals..................................................... 36
Certain Tax Consequences to Stockholders................................. 36
Accounting Treatment..................................................... 37
Source and Amount of Funds............................................... 37
Appraisal Rights......................................................... 37
SELECTED CONSOLIDATED FINANCIAL INFORMATION................................ 40
MARKET PRICES AND CASH DIVIDENDS INFORMATION............................... 41
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.......................................... 42
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF
THE COMPANY AFTER THE MERGER.............................................. 45
AVAILABLE INFORMATION...................................................... 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 46
EXPERTS ................................................................... 46
INDEPENDENT PUBLIC ACCOUNTANTS............................................. 47
STOCKHOLDER PROPOSALS...................................................... 47
OTHER MATTERS.............................................................. 47
</TABLE>
Annex A Agreement and Plan of Merger, dated as of June 23, 1997, by and
between Integon Corporation and General Motors Acceptance Corpo-
ration.
Amendment to Agreement and Plan of Merger, dated July 7, 1997,
by and among Integon Corporation, General Motors Acceptance Cor-
poration and IC Purchasing Corp.
Amendment No. 2 to Agreement and Plan of Merger, dated July 17,
1997, by and among Integon Corporation, General Motors Accept-
ance Corporation and IC Purchasing Corp.
Annex B Opinion of Goldman, Sachs & Co., financial advisor to the Compa-
ny.
Annex C Section 262 of the Delaware General Corporation Law.
4
<PAGE>
SUMMARY INFORMATION
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement, in the attached annexes and in the documents incorporated herein by
reference. Stockholders are urged to read carefully this Proxy Statement,
including the annexes hereto, in its entirety.
THE PARTIES
Integon Corporation. The Company, through its wholly owned property and
casualty insurance subsidiaries, specializes in the marketing and underwriting
of nonstandard automobile insurance to individuals. To a lesser extent, the
Company also writes specialty automobile insurance and, in North Carolina,
preferred risk automobile insurance. The Company has been writing insurance for
more than 25 years and currently markets its products in 31 states through
approximately 13,000 independent agencies located principally in the eastern
United States.
The Company's nonstandard automobile insurance products are designed for
drivers who are unable to obtain coverage from standard market carriers due to
prior driving records, other underwriting criteria, or market conditions. These
drivers are normally charged higher premium rates than the rates charged for
preferred or standard risk drivers and generally obtain lower liability limits
than preferred or standard risk policyholders. The Company's specialty
automobile insurance products include business vehicle insurance designed
primarily for tradespeople and artisans who have small fleets or lightweight
single vehicles, as well as motorcycle insurance. The Company's executive
offices are located at 500 West Fifth Street, Winston-Salem, North Carolina
27152, and its telephone number is (910) 770-2000.
General Motors Acceptance Corporation. GMAC is a wholly owned subsidiary of
General Motors Corporation ("GM"). GMAC, through its subsidiaries and
affiliates, specializes in automotive financing. It offers a wide variety of
automotive financial services to automotive dealerships around the world,
including retail financing, wholesale financing, leasing and lease financing.
GMAC also offers commercial financing for real estate, equipment and working
capital loans to automobile dealerships, GM suppliers and customers of GM
affiliates. In addition, through its subsidiaries and affiliates, GMAC provides
insurance and mortgage banking services. As of December 31, 1996, GMAC and its
subsidiaries had 388 financial services offices, 21 insurance offices, 175
mortgage offices and 17,758 employees worldwide.
GMAC's insurance business, Motors Insurance Corporation and its subsidiaries
offer selected personal, mechanical and commercial insurance and reinsurance in
the United States, Canada, Europe, Latin America and the Asia-Pacific region.
Personal lines coverages include automobile, homeowners and umbrella liability
insurance. Its commercial lines coverages include dealer vehicle inventories
and dealer property and casualty insurance. Motors Insurance Corporation also
reinsures diverse property and casualty risks. GMAC's executive offices are
located at 3044 West Grand Boulevard, Detroit, MI 48202, and its telephone
number is (313) 556-5000.
IC Purchasing Corp. Merger Sub is a special purpose Delaware corporation
created solely for the purpose of consummating the Merger and is an indirect
wholly owned subsidiary of GMAC. The principal executive offices of Merger Sub
are located at c/o General Motors Acceptance Corporation, 3044 West Grand
Boulevard, Detroit, MI 48202, and its telephone number is (313) 556-5000.
THE SPECIAL MEETING
Purpose of the Special Meeting; Date, Time and Place. The Special Meeting of
Stockholders will be held at the Company's corporate headquarters, 500 West
Fifth Street, Winston-Salem, North Carolina 27152, on October 16, 1997 at 9:00
a.m. (Eastern Daylight Time). At the Special Meeting, the holders of shares of
Common Stock will consider and vote upon a proposal to adopt and approve the
Merger Agreement.
5
<PAGE>
In the Merger, each share of Common Stock (other than (i) shares of Common
Stock held in the treasury of the Company or owned or held by GMAC, Merger Sub
or any other wholly owned subsidiary of GMAC, which will be canceled without
payment, (ii) shares of Common Stock in respect of which appraisal rights are
properly demanded and exercised, and (iii) shares of Common Stock held by the
subsidiaries of the Company, which will remain outstanding as shares of the
Surviving Corporation), will represent the right to receive $26.00, in cash,
without interest. Each share of Convertible Preferred Stock (other than shares
of Convertible Preferred Stock owned by GMAC, Merger Sub or any other wholly
owned subsidiary of GMAC, which will be canceled without payment), which is
converted into Common Stock by its holder on or prior to the effective date of
the Merger pursuant to the Certificate of Designation, will represent the right
to receive $26.00 per share of Common Stock issued upon conversion of such
Convertible Preferred Stock (or $68.24 per share of Convertible Preferred Stock
so converted), in cash, without interest. After the Effective Time, each share
of Convertible Preferred Stock will be convertible into the right to receive
$68.24 per share, in cash, without interest, and any shares of Convertible
Preferred Stock not so converted will be redeemed at $52.33 per share shortly
following the Effective Time of the Merger. See "THE MERGER--The Merger
Agreement--Redemption of Convertible Preferred Stock." Each 1992 Option issued
under the 1992 Plan, will represent the right to receive, in settlement and
cancellation of such 1992 Option, an amount in cash, without interest, equal to
the excess of $26.00 over the exercise price of such 1992 Option, multiplied by
the number of shares of Common Stock covered by such 1992 Option. Each Omnibus
Option issued under the Omnibus Plan, will represent the right to receive, in
settlement and cancellation of such Omnibus Option, an amount in cash, without
interest, equal to (i) the excess of the greater of $26.00 or the Change In
Control Price over the exercise price of such Omnibus Option, multiplied by
(ii) the number of shares of Common Stock covered by such Omnibus Option.
Vote Required; Voting Procedures; Record Date. The close of business on
August 22, 1997 has been fixed as the record date (the "Record Date") for the
determination of stockholders entitled to notice of, and to vote at, the
Special Meeting. Only holders of record of Common Stock at the close of
business on the Record Date will be entitled to vote at the Special Meeting. At
the Record Date, 16,128,526 shares of Common Stock were issued and outstanding,
each of which will be entitled to one vote on each matter to be acted upon at
the Special Meeting.
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Special
Meeting. Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock as
of the Record Date. Abstentions may be specified with respect to the approval
and adoption of the Merger Agreement and will be counted as present for the
purpose of determining the existence of a quorum, but will have the effect of a
negative vote due to the requirement of the affirmative votes described in the
preceding sentence.
On the Record Date, directors and executive officers of the Company as a
group (13 persons) beneficially owned 1,030,254 shares of Common Stock, or 6.4%
of the total outstanding shares of Common Stock. Each of the directors and
executive officers of the Company intends to vote his shares in favor of
approval and adoption of the Merger and the Merger Agreement. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Shares of Common Stock that are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted "FOR" approval and
adoption of the Merger Agreement, and in the discretion of the persons named in
the proxy as proxy appointees, as to any other matter which may properly come
before the Special Meeting. Under the rules of the New York Stock Exchange,
Inc. (the "NYSE"), while brokers who hold shares of Common Stock in "street
name" have the authority to vote on certain items when they have not received
instructions from beneficial owners, brokers will not be entitled to vote on
the Merger Agreement absent instructions. Shares of Common Stock held by
brokers who do not receive instructions but which are reported as "instructions
withheld" will be treated as present, in person or by proxy,
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at the Special Meeting and counted as present for quorum purposes. A failure by
a broker to vote, however, will have the effect of a negative vote on the
approval and adoption of the Merger Agreement due to the requirement of the
affirmative votes described above.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, including, among other things, a motion to
adjourn or postpone the Special Meeting to another time and/or place for the
purpose of, among other things, soliciting additional proxies in favor of
approval and adoption of the Merger Agreement, one or more of the persons named
as proxy appointees will vote in accordance with their best judgment on such
matters and consistent with the voting rights of such shares as provided by the
Company's bylaws and the DGCL; provided, however, that no proxy that is voted
or is treated as voted against approval and adoption of the Merger Agreement
will be voted in favor of any adjournment or postponement for the purpose of
soliciting additional proxies. At any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would
have been voted at the original convening of the Special Meeting, except for
proxies that have been effectively revoked prior to such reconvened meeting.
The grant of a proxy will also confer discretionary authority on the persons
named in the proxy to vote in accordance with their best judgment on matters
incident to the conduct of the Special Meeting. See "VOTING AND PROXIES--Vote
Required."
Any Stockholder may revoke a proxy at any time before it is voted by filing
with the Secretary of the Company, at the offices of the Company, an instrument
revoking the proxy or by returning a duly executed proxy bearing a later date,
or by attending the Special Meeting and voting in person. Any such filing
should be sent to Integon Corporation, 500 West Fifth Street, Winston-Salem,
North Carolina 27152, attention: Secretary. Attendance at the Special Meeting
will not by itself constitute revocation of a proxy. See "VOTING AND PROXIES."
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company has engaged D. F. King & Co., Inc. ("D.F. King") to
assist the Company in the solicitation of proxies and to provide various proxy
services for the Company in connection with the Special Meeting at a cost of
approximately $9,000 plus reasonable out-of-pocket expenses. The Company will
reimburse banks, brokers, custodians and other fiduciaries who hold shares of
Common Stock in their name or custody, or in the name of nominees for others,
for their out-of-pocket expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares. The Company will
bear the costs of the Special Meeting and of soliciting proxies therefor. See
"VOTING AND PROXIES" and "THE MERGER--The Merger Agreement--Fees and Expenses."
THE MERGER
Recommendation of the Board of Directors. The Board of Directors, at a
special meeting held on June 22, 1997, approved the Merger and the Merger
Agreement by unanimous vote of all the directors except Lester L. Coleman (who
was out of the country), and Ronald N. Zebeck, both of whom were not present at
the meeting, subject to the approval of the Merger Agreement by the board of
directors of GM. Such approval was obtained on June 23, 1997 and the Merger
Agreement was executed. At a special meeting held on July 7, 1997, the Board of
Directors by unanimous vote of all the directors, except Frederick B.
Whittemore who was not present at the meeting, approved an amendment to the
Merger Agreement to formally add Merger Sub as a party to the Merger Agreement,
ratified the Merger Agreement as amended and directed that the Merger Agreement
be submitted to the Stockholders for approval and adoption. The Board of
Directors has determined that the Merger is fair and in the best interests of
the Company and the Stockholders, and recommends that the Stockholders vote
"FOR" approval and adoption of the Merger and the Merger Agreement. In reaching
its decision to approve the Merger Agreement and in arriving at its
recommendation, the Board of Directors gave consideration to a number of
factors described in this Proxy Statement under "THE MERGER--Background of and
Reasons for the Merger"
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and "--Recommendation of the Board of Directors." In considering the
recommendation of the Board of Directors with respect to the Merger,
Stockholders should be aware that certain directors of the Company have a
direct or indirect interest in recommending the Merger, as do certain executive
officers of the Company. See "THE MERGER--Interests of Certain Persons in the
Merger."
Opinion of the Company's Financial Advisor. On June 22, 1997, Goldman Sachs
delivered its oral opinion to the Board of Directors, which was subsequently
confirmed in writing in an opinion dated June 23, 1997, that, as of the date of
such written opinion, the $26.00 per share in cash to be received by the
holders of shares of Common Stock pursuant to the Merger Agreement is fair to
such holders. Goldman Sachs also delivered its written opinion dated the date
of this Proxy Statement that as of the date of this Proxy Statement, the $26.00
per share, in cash, to be received by the holders of shares of Common Stock
pursuant to the Merger Agreement is fair to such holders. The full text of the
written opinion of Goldman Sachs, dated the date of this Proxy Statement which
sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as Annex
B. Stockholders are urged to, and should, read such opinion in its entirety.
See "THE MERGER--Opinion of the Company's Financial Advisor."
THE MERGER AGREEMENT
Effective Time of the Merger; Payment of the Merger Consideration. As soon as
practicable on the first business day after the satisfaction or waiver of the
conditions set forth in the Merger Agreement (the "Closing Date"), the Company
will file with the Secretary of State of the State of Delaware (the "Delaware
Secretary of State") a certificate of merger (the "Certificate of Merger"),
executed in accordance with the relevant provisions of the DGCL. The date and
time of the filing of the Certificate of Merger with the Delaware Secretary of
State will be the "Effective Time."
Detailed instructions with regard to the surrender of certificates formerly
evidencing shares of Common Stock, including certificates formerly evidencing
shares of Common Stock received upon conversion, prior to the Effective Time,
of Convertible Preferred Stock (collectively, the "Certificates"), and
agreements evidencing Options (the "Option Agreements"), to be accompanied by a
letter of transmittal, will be forwarded to holders of such Certificates and
Option Agreements as promptly as practicable following the Closing Date by a
paying agent mutually acceptable to GMAC and the Company in accordance with the
Merger Agreement (the "Paying Agent"). Shares of Convertible Preferred Stock
that are not converted prior to the Effective Time will remain outstanding, but
will be redeemed at $52.33 per share shortly after the Effective Time. From and
after the Effective Time, such shares will be convertible into the right to
receive $68.24 per share until five days prior to the redemption date. See "THE
MERGER--The Merger Agreement--Redemption of Convertible Preferred Stock."
Payment will be made to the holders of shares of Common Stock, Convertible
Preferred Stock (upon conversion as noted above) or Options as promptly as
practicable following receipt by the Paying Agent of Certificates or Option
Agreements and other required documents. No interest will be paid or accrued on
the cash payable upon the surrender of Certificates or Option Agreements.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK.
CONDITIONS TO THE MERGER; REGULATORY APPROVALS
The obligations of GMAC, Merger Sub and the Company to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including
obtaining requisite Stockholders' approval and certain regulatory approvals,
and the representations and warranties of the Company being true and correct on
and as of the Effective Time, except where the failure of any such
representations and warranties to be true and correct on and as of the
Effective Time, individually or in the aggregate, did not result in a material
adverse effect on the Company and its subsidiaries taken as a whole.
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Early termination of the waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), was granted on July 14, 1997, effective immediately.
The Company and Head Asset Management L.L.C. have agreed to terminate the
Investment Advisory Agreement, effective at the Effective Time. One of the
conditions to the Merger is the making of insurance filings and notices and the
obtaining of consents under applicable state insurance laws and regulations. As
of the date of this Proxy Statement, GMAC has filed all required applications
under applicable state insurance laws but review of such filings is still
pending. See "THE MERGER--Regulatory Approvals--Insurance Laws."
Other conditions include those relating to: the absence of legal requirements
prohibiting or preventing the consummation of the Merger; maintaining portfolio
investments of the insurance subsidiaries generally in accordance with past
practice; filing the Certificate of Merger; obtaining all consents, amendments
or waivers under borrowing or other contractual arrangements required by the
Merger; conducting operations in the ordinary course of business, consistent
with past practice; using all efforts to preserve intact the business
organization of the Company and its subsidiaries and maintaining satisfactory
relationships with customers, suppliers and employees; terminating the Integon
Corporation Executive Salary Deferral Plan; updating the schedules to the
Merger Agreement on a monthly basis; and defending any pending or threatened
litigation related to the Merger or the consummation of the transactions
contemplated by the Merger Agreement. See "No Solicitation; Fiduciary Duties"
below and "THE MERGER--The Merger Agreement--General Conditions to the Merger."
RIGHTS AGREEMENT
On June 23, 1997, the Company further amended (the "Amendment") the Rights
Agreement, dated as of January 22, 1997, as amended on February 13, 1997 (as
amended, the "Rights Agreement"), between the Company and First Chicago Trust
Company of New York, as rights agent. The Amendment provides that none of (a)
the execution or delivery of the Merger Agreement by the Company and GMAC, (b)
GMAC or Merger Sub, or any Affiliate or Associate (as defined in the Rights
Agreement) of GMAC or Merger Sub, becoming a Beneficial Owner (as defined in
the Rights Agreement) of Common Stock pursuant to the Merger Agreement or (c)
the consummation of the Merger or other transactions contemplated in the Merger
Agreement shall (i) cause GMAC or the Merger Sub, or any Affiliate or Associate
of GMAC or Merger Sub, to become an Acquiring Person (as defined in the Rights
Agreement), (ii) cause a Distribution Date (as defined in the Rights Agreement)
to occur in accordance with the terms of the Rights Agreement or (iii) be
deemed a Section 13 Event (as defined in the Rights Agreement). The Amendment
also provides that the Expiration Date (as defined in the Rights Agreement)
shall occur at or prior to the earliest to occur of (i) the Close of Business
on January 22, 2007, (ii) the time at which the Rights (as defined in the
Rights Agreement) are redeemed, (iii) the time at which such Rights are
exchanged or (iv) the Effective Time.
NO SOLICITATION; FIDUCIARY DUTIES
The Company has agreed in the Merger Agreement that neither it nor any of its
subsidiaries, nor any of their respective officers, directors, employees or
representatives, shall, directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or provide any information to,
any person or group (other than GMAC and Merger Sub or any affiliate, associate
or designee of GMAC or Merger Sub) concerning any proposal for an acquisition
of all or any substantial part of the business and properties or capital stock
of the Company and its subsidiaries taken as a whole, whether by merger, tender
offer, purchase of assets or shares of capital stock or otherwise (an
"Acquisition Proposal"). The Company is required by the Merger Agreement to
promptly notify GMAC if any proposal, offer or substantial contact with respect
thereto is made by any person in writing. Notwithstanding the foregoing, the
Board of Directors may take, and disclose to the Stockholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to any tender offer
for shares of capital stock of the Company and the Company may, directly or
indirectly, furnish information and access, in each case only in response to
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unsolicited requests therefor after the date of the Merger Agreement, and may
participate in discussions and negotiate with any person or group concerning
any Acquisition Proposal, only if such person or group has submitted a written
Acquisition Proposal to the Board of Directors and the Board of Directors
determines in its good faith judgment, based as to legal matters on the written
advice of the Company's independent legal counsel, that failing to take such
action would constitute a breach of the Board of Directors' fiduciary duty
under applicable law, whereupon GMAC has a right of first refusal, exercisable
within two business days, to acquire the Company and its subsidiaries on
substantially the same economic terms set forth in such Acquisition Proposal or
will be entitled to receive a break-up fee. See "THE MERGER--The Merger
Agreement--No Solicitation; Fiduciary Duties" and "--Termination."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(i) by mutual written consent of GMAC, Merger Sub and the Company;
(ii) by GMAC, Merger Sub or the Company in the event (A) of the failure
of the Stockholders to approve the Merger, (B) the Merger is not
consummated by December 31, 1997 (provided that the right to terminate
shall not be available to the party whose failure to fulfill materially any
covenant or obligation has been the cause or resulted in the failure of the
Effective Time to occur by such date), or (C) consummation of the Merger is
barred by final court or government order;
(iii) by the Company, if the Company receives an Acquisition Proposal
from any person or group and the Board of Directors determines in its good
faith judgment, based as to legal matters on the written advice of the
Company's independent legal counsel, that failing to terminate the Merger
Agreement would constitute a breach of the Board of Directors' fiduciary
duty under applicable law; provided, however, that if the Company so elects
to terminate the Merger Agreement, GMAC will have a right of first refusal,
exercisable within two business days after delivery of the Acquisition
Proposal, to acquire the Company and its subsidiaries on substantially the
same economic terms set forth in such Acquisition Proposal, or will be
entitled to receive upon demand to the Company, a break-up fee equal to
$15,000,000.
See "THE MERGER--The Merger Agreement--Termination," and "--Fees and
Expenses."
FEES AND EXPENSES
Under the Merger Agreement, the Company is required to pay to GMAC a break-up
fee of $15,000,000 if the Merger Agreement is terminated by the Board of
Directors in connection with an Acquisition Proposal under the circumstances
described under "THE MERGER--The Merger Agreement--Termination," "--No
Solicitation; Fiduciary Duties," and "--Fees and Expenses."
Each party is to pay its own fees, charges and expenses, whether or not the
Merger is consummated. The Company will bear the costs of the Special Meeting
and of soliciting proxies. See "THE MERGER--The Merger Agreement--Fees and
Expenses."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have interests in the
Merger that may be different from, or in addition to, those of the Stockholders
generally. See "THE MERGER--Interests of Certain Persons in the Merger."
Certain directors and executive officers of the Company are holders of
Options, which are fully vested, or which will become fully vested and
exercisable at the Effective Time. Each 1992 Option so vested and exercisable
will represent the right to receive, in settlement and cancellation of such
1992 Option, an amount in
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cash, without interest, equal to the excess of $26.00 over the exercise price
of such 1992 Option, multiplied by the number of shares of Common Stock covered
by such 1992 Option. Each Omnibus Option so vested and exercisable will
represent the right to receive, in settlement and cancellation of such Omnibus
Option, an amount in cash, without interest, equal to (i) the excess of the
greater of $26.00 or the Change In Control Price over the exercise price of
such Omnibus Option, multiplied by (ii) the number of shares of Common Stock
covered by such Omnibus Option. See "THE MERGER--The Merger Agreement--
Consideration to be Paid in the Merger" and "THE MERGER--Interests of Certain
Persons in the Merger."
John C Head III, Chairman of the Board of Directors, is the only participant
under the Integon Corporation Executive Salary Deferral Plan (the "Salary
Deferral Plan"), having deferred all cash compensation otherwise due him in
1997 indexed to the Common Stock's total return. As required by GMAC, the
Salary Deferral Plan will be terminated at or prior to the Effective Time with
no further liability or obligation to the Company and its subsidiaries other
than to pay Mr. Head an amount due thereunder that will be approximately
$985,000. In addition, under the Omnibus Plan, Mr. Head will be entitled to a
bonus of $500,000, which will be deferred until January 2, 1998 and paid by the
Surviving Corporation. See "THE MERGER--The Merger Agreement--Termination of
Executive Salary Deferral Plan."
Steven C. Andrews and Donald F. McKee, the Executive Vice President and Chief
Operating Officer, and the Senior Vice President and Chief Financial Officer,
respectively, of the Company, are party to agreements that contain certain
change of control provisions under which such officers may be entitled to
certain severance payments and additional non-compete payments in the event
that such officers' employment is terminated or in the event that such officers
voluntarily leave employment within two years following the Effective Time.
Five other executive officers of the Company are party to agreements that
contain change of control provisions under which such officers may be entitled
to certain payments in the event that such officers' employment is
involuntarily or constructively terminated within two years following the
Effective Time. The Merger Agreement provides that for a period of at least two
years from and after the Effective Time, GMAC will cause the Surviving
Corporation to honor such agreements in accordance with their terms. Neither
Mr. Head nor John B. McKinnon, the President and Chief Executive Officer of the
Company, are parties to any agreement entitling them to severance or non-
compete payments. See "THE MERGER--The Merger Agreement--Severance Agreements"
and "THE MERGER--Interests of Certain Persons in the Merger."
Under the Omnibus Plan, seven executive officers (excluding Mr. McKinnon)
will also be entitled to bonus payments, regardless of the Company's
performance, upon the occurrence of a change of control. See "THE MERGER--
Interests of Certain Persons in the Merger."
Under the Merger Agreement, from and after the Effective Time, GMAC agrees to
provide, or cause the Surviving Corporation to provide, to employees of the
Company retirement benefits, bonus and incentive compensation and life, health,
disability and other welfare benefits on a basis economically comparable to
similar plans currently in effect for the Company's employees, and, for
purposes of determining eligibility to participate, vesting and entitlement
benefits, service with the Company or any subsidiary prior to the Effective
Time shall be treated as service with GMAC or its subsidiaries, except to the
extent such recognition would result in a duplication of benefits. See "THE
MERGER--The Merger Agreement--Employee Plans."
CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS
The receipt of cash for shares of Common Stock or Options in or as a result
of the Merger or pursuant to the exercise of appraisal rights, as well as the
receipt of cash upon conversion of shares of Convertible Preferred Stock, will
be taxable transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign or other tax laws.
Stockholders are urged to consult their own tax advisors as to the particular
tax consequences of the Merger, including the applicability and effect of
state, local, foreign and other taxes. See "THE MERGER--Certain Tax
Consequences to Stockholders."
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SOURCE AND AMOUNT OF FUNDS
The total amount of funds necessary for payment of the Merger Consideration
will be approximately $527,900,000. The foregoing amount assumes that the
Options outstanding as of August 22, 1997 will be cashed-out at the difference
between $26.00 per share minus the exercise price per share of such Options and
that all shares of Convertible Preferred Stock will be converted on or prior to
the Effective Time. GMAC also intends to fund or cause to be funded the
insurance subsidiaries of the Company as necessary to continue their operations
in accordance with applicable insurance laws and regulations or otherwise as
required by the North Carolina Insurance Department. GMAC anticipates paying
the foregoing amounts from the internal resources of GMAC or its affiliates.
See "THE MERGER--Source and Amount of Funds."
APPRAISAL RIGHTS
Subject to compliance with the procedures set forth in Section 262 of the
DGCL, the full text of which is included as Annex C to this Proxy Statement,
holders of shares of Common Stock are entitled to appraisal rights in
connection with the Merger. Any demand for appraisal must be made prior to the
Stockholder vote on the Merger Agreement at the Special Meeting. Holders of
shares of Common Stock who properly demand in writing, prior to the Stockholder
vote on the Merger Agreement at the Special Meeting, and thereafter perfect
their right to, appraisal of such shares (and do not withdraw such demand or
lose such right) and who do not vote in favor of the approval and adoption of
the Merger Agreement, will have the right to obtain a cash payment for the
"fair value" of such shares (excluding any element of value arising from the
accomplishment or expectation of the Merger), together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value,
as determined by the Delaware Court of Chancery. The "fair value" determined in
such judicial proceeding cannot be predicted. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. The Delaware Court of
Chancery will also determine the amount of interest, if any, to be paid upon
the amounts to be received by persons whose shares of Common Stock have been
appraised. The costs of the action may be determined by such court and taxed
upon the parties as the court deems equitable. The court may also order that
all or a portion of the expenses incurred by any holder of shares of Common
Stock in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the
shares of Common Stock entitled to appraisal. Failure to take any of the steps
required under Section 262 of the DGCL on a timely basis may result in the loss
of appraisal rights. Holders considering seeking appraisal should be aware that
the fair value of their shares of Common Stock as determined under Section 262
could be more than, the same as or less than the value of the Merger
Consideration that they would otherwise receive in the Merger if they did not
seek appraisal of their shares of Common Stock. Holders of Convertible
Preferred Stock, as such, are not entitled to appraisal rights in connection
with the Merger, although a holder of shares of Convertible Preferred Stock who
converts such shares into Common Stock prior to the Special Meeting and
complies with the foregoing requirements for demanding appraisal of such Common
Stock may demand appraisal of such Common Stock. See "THE MERGER--Appraisal
Rights."
CERTAIN FINANCIAL INFORMATION
See "SELECTED CONSOLIDATED FINANCIAL INFORMATION" and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" for certain financial information with respect
to the Company and its subsidiaries.
MARKET PRICES AND CASH DIVIDENDS INFORMATION
Shares of Common Stock and Convertible Preferred Stock are listed and traded
on the NYSE. On June 20, 1997, the last full trading day preceding public
announcement of the signing of the Merger Agreement, the high, low and closing
sales prices of a share of Common Stock on the NYSE Composite Transactions Tape
were $16.125, $15.50 and $15.50, respectively, and the high, low and closing
sales prices of a share of Convertible Preferred Stock were $48, $47.75 and
$48, respectively. On June 23, 1997, the date on which the signing of the
Merger Agreement was announced, the high, low and closing sales prices of a
share of Common Stock on the
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NYSE Composite Transactions Tape immediately prior to a trading halt pending
the announcement were $16.125, $15.50 and $16, respectively, and the high, low
and closing sales prices of a share of Convertible Preferred Stock were $48.50,
$48.50 and $48.50, respectively. On September 12, 1997, the latest practicable
trading day before the printing of this Proxy Statement, the high, low and
closing sales prices of a share of Common Stock on the NYSE Composite
Transactions Tape were $25.50, $25.438 and $25.438, respectively, and the high,
low and closing sales prices of a share of Convertible Preferred Stock were
$67.00, $67.00 and $67.00, respectively. For additional information concerning
historical market prices of the Common Stock and the Convertible Preferred
Stock and the dividends paid thereon, see "THE MERGER--Market Prices and Cash
Dividends Information."
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VOTING AND PROXIES
This Proxy Statement is being furnished to Stockholders in connection with
the solicitation of proxies by or on behalf of the Board of Directors for use
at the Special Meeting.
RECORD DATE; SOLICITATION OF PROXIES
The close of business on August 22, 1997 has been fixed as the Record Date
for the determination of Stockholders entitled to notice of, and to vote at,
the Special Meeting. At the Record Date, there were 16,128,526 shares of
Common Stock issued and outstanding and entitled to vote at the Special
Meeting. Holders of shares of Common Stock are entitled to one vote at the
Special Meeting for each share of Common Stock held of record by them at the
Record Date. Holders of shares of Convertible Preferred Stock are entitled to
notice of, but not to vote at, the Special Meeting.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees
(who will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokers, custodians and other
fiduciaries who hold shares of Common Stock in their name or custody, or in
the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor. The Company's proxy solicitor, D.F. King, has
agreed to assist the Company in connection with the solicitation of proxies.
Pursuant to the Company's agreement with D.F. King, D.F. King will provide
various proxy services for the Company in connection with the Special Meeting
at a cost of approximately $9,000, plus reasonable out-of-pocket expenses. Any
questions or requests for assistance regarding this Proxy Statement and
related proxy materials may be directed to D.F. King by telephone at (800)
669-5550.
VOTE REQUIRED
A majority of the outstanding shares of Common Stock entitled to vote as of
the Record Date, represented in person or by proxy, is required for a quorum
at the Special Meeting. The affirmative vote of a majority of the shares of
outstanding Common Stock as of the Record Date is required for approval and
adoption of the Merger Agreement. Abstentions may be specified with respect to
the approval and adoption of the Merger Agreement and will be counted as
present for the purpose of determining the existence of a quorum but will have
the effect of a negative vote due to the requirement of the affirmative votes
described in the preceding sentence.
On the Record Date, directors and executive officers of the Company as a
group (13 persons) beneficially owned 1,030,254 shares of Common Stock, or
6.4% of the total outstanding shares of Common Stock. Each of the directors
and executive officers of the Company intends to vote his shares in favor of
approval and adoption of the Merger and the Merger Agreement. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted "FOR" approval and
adoption of the Merger Agreement, and in the discretion of the persons named
in the proxy as proxy appointees, as to any other matter which may properly
come before the Special Meeting.
Under the rules of the NYSE, while brokers who hold shares of Common Stock
in street name have the authority to vote on certain items when they have not
received instructions from beneficial owners, brokers will not be entitled to
vote on the Merger Agreement absent instructions. Shares of Common Stock held
by brokers who do not receive instructions but which are reported as
"instructions withheld" will be treated as present, in person or by proxy, at
the Special Meeting and counted as present for quorum purposes. A failure by a
broker to vote, however, will have the effect of a negative vote on the
approval of the Merger Agreement due to the requirement of the affirmative
votes described above.
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Under the Company's bylaws, the business which may be transacted at the
Special Meeting is limited to the purpose stated in the Notice of Meeting.
Accordingly, it is not expected that any matters other than those referred to
in this Proxy Statement will be brought before the Special Meeting. If,
however, other matters are properly presented, including, among other things,
a motion to adjourn or postpone the Special Meeting to another time and/or
place for the purpose of, among other things, soliciting additional proxies in
favor of approval and adoption of the Merger Agreement, one or more of the
persons named as proxy appointees will vote in accordance with their best
judgment on such matters and consistent with the voting rights of such shares
as provided by the Company's bylaws and the DGCL; provided, however, that no
proxy that is voted or is treated as voted against approval and adoption of
the Merger Agreement will be voted in favor of any adjournment or postponement
for the purpose of soliciting additional proxies. At any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Special Meeting, except for proxies that have been effectively revoked prior
to such reconvened meeting. The grant of a proxy will also confer
discretionary authority on the persons named as proxy appointees to vote in
accordance with their best judgment on matters incident to the conduct of the
Special Meeting.
Any holder of shares of Common Stock may revoke a proxy at any time before
it is voted by filing with the Secretary of the Company an instrument revoking
the proxy or by returning a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. The last proxy executed by
a Stockholder will revoke all previous proxies executed by such Stockholder.
Any such filing should be sent to Integon Corporation, 500 West Fifth Avenue,
Winston-Salem, North Carolina 27152; Attention: Secretary. Attendance at the
Special Meeting will not by itself constitute revocation of a proxy.
Holders of shares of Common Stock have the right to demand appraisal in
connection with the Merger and, subject to certain conditions provided under
the DGCL, to receive payment for the fair value of such shares. See "THE
MERGER--Appraisal Rights."
The Merger Agreement to be considered at the Special Meeting involves a
matter of great importance to the Stockholders. Accordingly, holders of shares
of Common Stock are urged to read and carefully consider the information
presented in this Proxy Statement and are urged to complete, date, sign and
promptly return the enclosed proxy card in the accompanying prepaid envelope.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK. Instructions will also be sent to
holders of Convertible Preferred Stock as to converting their shares and to
holders of Option Agreements.
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THE MERGER
GENERAL
The following information with respect to the Merger is qualified in its
entirety by reference to the complete text of the Merger Agreement, a copy of
which is included in this Proxy Statement as Annex A. The Merger Agreement
sets forth the terms and conditions upon which the Merger is to be effected.
If the Merger Agreement is approved and adopted by the holders of a majority
of the outstanding shares of Common Stock at the Special Meeting, and all
other conditions to the obligations of the parties thereto are satisfied or
waived, the Merger will be consummated and Merger Sub will merge with and into
the Company at the Effective Time. The Company will be the Surviving
Corporation in the Merger.
Each share of Common Stock (other than (i) shares of Common Stock held in
the treasury of the Company or owned or held by GMAC, Merger Sub or any other
wholly owned subsidiary of GMAC, which will be canceled without payment, (ii)
shares of Common Stock in respect of which appraisal rights have been properly
demanded and exercised, and (iii) shares of Common Stock held by the
subsidiaries of the Company, which will remain outstanding as shares of the
Surviving Corporation), will represent the right to receive $26.00, in cash,
without interest.
Each share of Convertible Preferred Stock, (other than shares of Convertible
Preferred Stock owned by GMAC, Merger Sub or any other wholly owned subsidiary
of GMAC, which will be canceled without payment), which is converted into
Common Stock by its holder on or prior to the Effective Time pursuant to the
Certificate of Designation, will represent the right to receive $26.00 per
share of Common Stock issued upon conversion of such Convertible Preferred
Stock (or $68.24 per share of Convertible Preferred Stock so converted), in
cash, without interest. After the Effective Time, each share of Convertible
Preferred Stock will be convertible into the right to receive $68.24 per
share, in cash, without interest, until the close of business on the fifth day
preceding the Redemption Record Date (as defined in the Certificate of
Designation). Under the Merger Agreement, GMAC has agreed to cause the
Surviving Corporation to issue a notice of redemption of the Convertible
Preferred Stock within five days after the Effective Time. Such notice of
redemption shall provide for the Redemption Record Date to be at least 20 days
after the notice of redemption has been given. Any shares of Convertible
Preferred Stock not converted into $68.24 per share will be redeemed at $52.33
per share on the Redemption Record Date. See "THE MERGER--The Merger
Agreement--Redemption of Convertible Preferred Stock."
Each 1992 Option issued under the 1992 Plan will represent the right to
receive, in settlement and cancellation of such 1992 Option, an amount in
cash, without interest, equal to the excess of $26.00 over the exercise price
of such 1992 Option, multiplied by the number of shares of Common Stock
covered by such 1992 Option. Each Omnibus Option issued under the Omnibus Plan
will represent the right to receive, in settlement and cancellation of such
Omnibus Option, an amount in cash, without interest, equal to (i) the excess
of the greater of $26.00 or the Change In Control Price over the exercise
price of such Omnibus Option, multiplied by (ii) the number of shares of
Common Stock covered by such Omnibus Option. As a result of the Merger,
holders of shares of Common Stock will cease to have an equity interest in, or
possess any rights as stockholders of, the Surviving Corporation and holders
of Options will cease to possess any rights as Option holders of the Surviving
Corporation.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. The terms of the Merger Agreement are the result
of arm's-length negotiations between representatives, legal advisors and
financial advisors of the Company and of GMAC. The following is a brief
discussion of the background of those negotiations.
The Company reported a loss of $33.4 million or ($2.21) per share for the
three months ended March 31, 1997, compared to net income of $3.4 million or
$0.13 per share for the three months ended March 31, 1996. After a review of
loss reserves in the first quarter of 1997, using further loss experience and
segmented data on a state-by-state and product-type basis, the Company
determined that reserves needed to be strengthened. The financial results for
the first quarter were adjusted to include an increase to loss reserves of
$42.0 million, or
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$27.3 million ($1.73 per share) on an after-tax basis, and the related write-
off of deferred policy acquisition costs of $3.7 million, or $2.4 million
($.15 per share) on an after-tax basis. The process of estimating loss and
loss adjustment expense reserves requires the reliance on past history to
predict the development of known claims and claims incurred but not reported.
There are no methodologies that can be used to guarantee the ultimate accuracy
of the estimates developed. The Company had utilized the same reserve
methodology for five years and had consistently experienced favorable loss
reserve development. During 1995 and 1996, the Company experienced growth in
its nonstandard private passenger automobile insurance business and expanded
such business into nine new states. The business in the new states comprised
approximately $9.8 million and $36.1 million of additional net written
premiums for 1995 and 1996, respectively. Entrance into new markets caused the
Company's loss ratio to increase because new business is generally less
profitable than renewal business. During the fourth quarter of 1996, the
Company experienced some negative development in its loss reserves due to
increased physical damage claim frequency and severity, which was offset by
certain favorable developments such as reduction of claims costs from loss
control initiatives and a decrease in bodily injury severity trends.
Recognizing these offsetting and conflicting trends, the Company estimated the
loss reserve requirements utilizing the methods employed during the past five
years and recorded a $12.5 million reserve increase. During the first quarter
1997 review of reserves, the loss experience data revealed that the business
was experiencing yet more adverse development than indicated in the fourth
quarter, and certain other unfavorable factors emerged, including higher
losses experienced during the fourth quarter than initially estimated,
increased physical damage frequency and severity trends, and a slower than
anticipated reduction in claims costs from loss control initiatives
implemented at the Company. Based on this information, the Company further
segmented the data it was using to estimate needed reserves and determined
that the additional reserve increase of $42.0 million was necessary. The
Company believes that the recent events causing the net losses for the year
ended December 31,1996 and quarter ended March 31, 1997 are not indicative of
the future earnings potential of the Company. The primary reason for the
losses in these periods was the charging of inadequate prices to customers.
The Company has revised its pricing and implemented underwriting restrictions
designed to enhance profitability.
At the same time as the quarterly results became known, the Board of
Directors started its discussions as to possible methods to maximize the long-
term value of the Company to its security holders. On April 28, 1997, the
Company publicly announced that it had retained Goldman Sachs to review all
strategic alternatives available, including the sale of the Company, to
accomplish that goal. In this context, the Board of Directors directed Goldman
Sachs to begin a process in which indications of interest would be solicited
from third parties regarding the possible acquisition of all or part of the
Company, so that the Board of Directors could determine whether a transaction
in the best interests of the Company's stockholders could be achieved.
Goldman Sachs contacted, or was contacted by, approximately 43 companies to
ascertain if those entities might be interested in a business combination
with, or an acquisition of, the Company. Certain of the entities contacted
expressed varying levels of interest in the Company. Each interested entity
was given the opportunity to examine certain non-public information regarding
the Company and its subsidiaries following the execution of a confidentiality
agreement, which included limitations on the ability of such interested
parties to pursue certain transactions involving the Company without the
Company's consent. As part of this process, representatives of Motors
Insurance Corporation, a subsidiary of GMAC, were contacted and Motors
Insurance Corporation executed a confidentiality agreement and received the
same non-public information regarding the Company as provided to other
interested parties.
On May 15, 1997, a meeting of the Board of Directors was held to discuss the
progress made in contacting interested entities. At the meeting, Goldman Sachs
informed the Board of Directors that several of the parties contacted were
reviewing the confidential information packages and certain others were still
contemplating whether they wanted to become further involved in the process. A
preliminary timetable for the process was distributed, which proposed a May
20, 1997 deadline for submitting non-binding preliminary proposals for the
acquisition of the Company. Also at the meeting of the Board of Directors,
counsel for the Company made a presentation summarizing the terms of a draft
form of merger agreement, which would be sent to those companies involved in
the next stage of the process.
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In response to Goldman Sachs' request, on or prior to May 20, 1997, the
Company received ten preliminary, non-binding proposals for the acquisition
of, an investment in, or a merger with, the Company. The interested entities
stated they would consider using either cash or non-cash consideration or a
combination of the two and suggested possible prices per share ranging from
prices below the trading price of the Common Stock to prices representing a
significant premium over such trading price. Each of the preliminary proposals
was subject to the completion of a due diligence review of the Company.
On May 21, 1997, at a meeting of the Board of Directors, the Board of
Directors reviewed each of the ten preliminary proposals with its financial
and legal advisors. Goldman Sachs also informed the Board of Directors of the
status of discussions with other entities who had not yet submitted their
proposals. Based on this discussion, the Board of Directors decided that,
because they presented a price that was more favorable, five of the ten
preliminary proposals already submitted should be given further consideration
by the Company and that all five interested parties should be invited to
conduct a due diligence review and submit final proposals, including a mark-up
of the draft form of merger agreement. The draft merger agreement was sent to
the five potential bidders.
The invited parties conducted a due diligence investigation of the Company
for a period of two to three days, which included a review of the Company's
reserves by independent actuaries. Representatives of each of the interested
entities met with the management of the Company, including John C Head III,
Chairman of the Board of Directors, and John B. McKinnon, director, President
and Chief Executive Officer, in certain cases.
On June 2, 1997, the Company announced that it had elected Mr. McKinnon as
President and Chief Executive Officer of the Company. Mr. Head, formerly Chief
Executive Officer, remained as Chairman of the Board of Directors. During the
due diligence process, Mr. Head and Mr. McKinnon met with representatives of
Morgan Stanley & Co., financial advisor to GMAC ("Morgan Stanley"), to review
the nature of the consideration (stock or cash) and to understand the GM
approval process. Frederick B. Whittemore, a director of the Company and an
advisory director and former managing director at Morgan Stanley, did not
participate in the negotiations but had discussions with Morgan Stanley as to
the potential interest of the Board of Directors in a stock-for-stock
transaction.
On June 20, 1997, after the due diligence process was completed, GMAC
submitted a formal merger proposal to the Board of Directors (the "GMAC
Proposal"), which GMAC Proposal was subject to approval from the board of
directors of GM. The Board of Directors reviewed the terms of the GMAC
Proposal with its legal and financial advisors. Pursuant to the terms of the
GMAC Proposal, (i) GMAC would acquire all outstanding shares of Common Stock,
all shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock, and all shares of Common Stock issuable upon exercise of the
Options, at a purchase price in cash of $26.00 per share of Common Stock (net
of Option proceeds) and (ii) Merger Sub, a wholly owned direct or indirect
subsidiary of GMAC to be incorporated in Delaware, would be merged with and
into the Company, with the Company as the surviving corporation. In the
afternoon of June 20, 1997, the Board of Directors reviewed and considered the
price and structure of the transaction set forth in the GMAC Proposal and
discussed a number of factors with respect thereto. The GMAC Proposal stated
that consideration would be in cash and, as part of the transaction, the $150
million of indebtedness of the Company under its existing Indentures, dated as
of August 26, 1992 and October 15, 1994 with First National Bank of Chicago,
as trustee (the "Indentures"), and the $100 million of 10 3/4% Capital
Securities (the "Capital Securities") of Integon Capital I (the "Trust") would
remain outstanding and would be honored in accordance with their terms. The
Merger does not require the consent of the holders of senior notes under the
Company's outstanding Indentures , or of the holders of Capital Securities.
However, holders of Capital Securities will have the right to require the
Trust to repurchase their Capital Securities following the consummation of the
Merger, at 101% of the aggregate liquidation amount of such Capital Securities
plus accumulated and unpaid distributions thereon. See "--The Merger
Agreement--Indebtedness of the Company." In addition, it was noted that (i)
there were no financing contingencies to the GMAC Proposal, (ii) GMAC expected
to keep the Company intact, including most of the current management team and
employees, (iii) the existing severance commitments for employees would
generally be recognized, and (iv) GMAC intended to establish employee benefit
plans on a basis economically comparable to the
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Company's current plans. For continuing officers and directors,
indemnification provisions under GM's bylaws (and its D&O insurance policy)
would be provided on the same terms as are applicable to other employees of GM
and its subsidiaries.
The Board of Directors then reviewed the process of approval of the Merger
by GMAC and GM with its legal and financial advisors. The GMAC Proposal stated
that the transaction was approved by the GMAC Executive Committee and was
subject to the approval of the full board of directors of GMAC (which such
GMAC Proposal stated was expected that day) and to the approval of the board
of directors of GM. Goldman Sachs informed the directors that, based on its
discussions with Morgan Stanley, it was Goldman Sachs' understanding that if
the Board of Directors reacted promptly to the GMAC Proposal, it would be
quickly approved by GM. A discussion followed among the Directors on various
matters, including certain terms of the GMAC Proposal and the issue of the
approval by the board of directors of GM. GMAC agreed to use its best efforts
to get the matter before the board of directors of GM only if negotiations
were held on an exclusive basis. Thus, because the GMAC Proposal presented a
price that was so favorable, the Board of Directors concluded that
representatives of the Company, including its legal and financial advisors,
should pursue the negotiations with GMAC, including a review of GMAC's
comments to the draft merger agreement, on an exclusive basis over the
weekend, with a goal of getting the matter before the board of directors of GM
on Monday if agreement on all terms could be reached. No further negotiations
were held with any other entity. On the afternoon of June 20, the Company was
informed that GMAC's board of directors had approved the proposed transaction.
Contract negotiations started on an exclusive basis with GMAC on June 21 and
continued until the night of June 22. The negotiations were conducted by
representatives of Goldman Sachs and outside counsel to the Company. The
Chairman of the Board of Directors, the President and the General Counsel of
the Company were in contact with Goldman Sachs and outside counsel to the
Company. On the evening of June 22, the Board of Directors reconvened to
review the GMAC Proposal and the definitive Merger Agreement, as negotiated
over the weekend. At the meeting, the Board of Directors reviewed in detail
the offer from GMAC and the terms of the Merger Agreement and received a
presentation from Goldman Sachs as to the financial terms of the transaction.
Goldman Sachs advised the Board, orally (which opinion was subsequently
confirmed in writing in an opinion dated June 23, 1997), that it was of the
opinion that the $26.00 per share in cash to be received by holders of shares
of Common Stock pursuant to the Merger Agreement is fair to such holders.
Goldman Sachs also delivered its written opinion dated the date of this Proxy
Statement that as of the date of this Proxy Statement, the $26.00 per share,
in cash, to be received by the holders of shares of Common Stock pursuant to
the Merger Agreement is fair to such holders. See "THE MERGER--Opinion of the
Company's Financial Advisor" and Annex B (which is the full text of the
written opinion of Goldman Sachs dated the date of this Proxy Statement, and
which sets forth the assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion and is incorporated
herein by reference). The Board of Directors then approved the Merger
Agreement by unanimous vote of all the directors, except Mr. Coleman (who was
out of the country) and Mr. Zebeck both of whom were not present at the
meeting, and determined that the terms of the Merger and the Merger Agreement
were fair and in the best interests of the stockholders, all, however, subject
to receipt of the approval of the board of directors of GM at its meeting of
June 23, 1997.
On June 23, 1997, the Company was informed that the board of directors of GM
had approved the proposed transaction and Goldman Sachs delivered its written
fairness opinion to the Company's Board of Directors. The Company asked the
NYSE to halt trading in its securities pending an announcement, which was
done. The Merger Agreement was signed on the evening of June 23, 1997 and a
press release announcing the signing of the Merger Agreement was issued.
On July 7, 1997, the Board of Directors considered, and all the directors
except Mr. Whittemore, who was not present at the meeting, unanimously
approved, an amendment to the Merger Agreement to formally add Merger Sub as a
party to the Merger Agreement, ratified the Merger Agreement as so amended and
recommended that the Stockholders approve the Merger and approve and adopt the
Merger Agreement.
On July 17, 1997, the Board of Directors approved by unanimous written
consent a second amendment to the Merger Agreement clarifying that the shares
of Common Stock held by the subsidiaries of the Company will remain
outstanding.
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Reasons for the Merger. In determining whether to approve the Merger and the
Merger Agreement and to recommend that Stockholders approve the Merger and the
Merger Agreement, the Board of Directors gave significant weight to the
following factors:
(x) The historical trading prices for the shares of Common Stock, the
price per share offered by GMAC and the fact that the consideration to be
paid in the Merger represents a premium of 114.4% over the May 20, 1997
closing market price of $12.13 per share of Common Stock and a premium of
62.5% over the June 23, 1997 closing market price of $16 per share of
Common Stock;
(y) The members of the Board of Directors were generally familiar with
and knowledgeable about the Company's affairs, including the present and
possible future economic, regulatory and competitive environment in which
the Company operates its insurance business, and further reviewed these
matters in the course of their deliberations. In evaluating the Company's
prospects, the Board of Directors considered, among other things, the
recent negative developments in the financial condition and results of
operations of the Company and the negative effect of these developments on
the ability of the Company to improve its results and capacity to fund and
manage its future growth. The Board of Directors also considered the risks
facing the Company, including the need for the Company to raise additional
capital to replace certain of its outstanding indebtedness that matures in
1998, the subsequent entry of financially stronger and much larger insurers
into the Company's business, and the increasing rate of competition and
concluded that it would be a number of years before the Company could
realize a value to stockholders similar to that offered by the GMAC
Proposal;
(z) The oral opinion (which opinion was subsequently confirmed in writing
in an opinion dated June 23, 1997) received by the Board of Directors from
Goldman Sachs on June 22, 1997, to the effect that, as of such date, the
$26.00 per share in cash to be received by the holders of Common Stock
pursuant to the Merger Agreement is fair to such holders;
In addition, the Board of Directors also considered favorably the
following factors:
(i) The terms of the Merger Agreement represented the highest price per
share for the Common Stock that was proposed to the Company during the
process;
(ii) The process was extensive and afforded each participant every
opportunity to submit its best proposal prior to the acceptance of any
proposal by the Board of Directors;
(iii) That the Merger is not conditioned on the availability of financing
or other financing contingencies;
(iv) GMAC's financial condition and credit ratings and its ability to
consummate the Merger;
(v) The uncertainty, if the GMAC Proposal was rejected, of negotiating an
alternative transaction on as favorable a basis with another party; and
(vi) That the Merger Agreement permits third parties to make Acquisition
Proposals to the Company and that, if any such proposals were made, the
Company, in the exercise of its fiduciary duties, could determine to
provide information to, engage in negotiations and, subject to the exercise
by GMAC of its right of first refusal or to the payment by the Company of a
$15,000,000 break-up fee, enter into a transaction with another party; that
the right of first refusal must be exercised quickly (within two business
days); and that the break-up fee is a reasonable amount as compared to the
total Merger Consideration.
The Board of Directors recognized that approval of the Merger will result in
each stockholder liquidating and selling his, her or its shares of Common
Stock and, in effect, result in each stockholder ceasing to have any equity
interest in the Company and therefore losing the opportunity to share in the
Company's future earnings and growth. However, the Board of Directors
concluded that the GMAC Proposal represented a greater value to the
stockholders of the Company given the Company's current financial condition
and results of operations and the fact that it would be a number of years
before the Company could realize a value to stockholders similar to that
offered by the GMAC Proposal. The Board of Directors also recognized that an
all-cash transaction would have tax disadvantages for certain stockholders of
the Company. However, in the opinion of the Board of
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Directors, this disadvantage was clearly outweighed by the advantages set
forth in paragraphs (x) through (z) and (i) through (vi) above.
Based on this analysis, the Board of Directors determined by unanimous vote
of the Directors that the Merger is fair to, and in the best interests of, the
stockholders. All of the directors except one (Mr. Coleman, who was out of the
country) were at the meeting on June 20, 1997. All of the directors except Mr.
Coleman and Mr. Zebeck were at the June 22, 1997 reconvened meeting. All of
the directors except Mr. Whittemore were at the July 7, 1997 meeting at which
the Board of Directors by unanimous vote of the directors present and voting
approved the amendment adding Merger Sub as a party to the Merger Agreement
and ratified the Merger Agreement as amended.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, and such information and
factors were considered collectively by the Board of Directors in connection
with its review of the Merger Agreement and the proposed transactions. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Board of Directors did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Board of Directors may have given different weights to different factors.
For a discussion of the interests of certain members of the Company's
management and Directors in the Merger, which interests were considered by the
Board of Directors, see "--Interests of Certain Persons in the Merger."
The full text of the written opinion of Goldman Sachs, dated the date of
this Proxy Statement, which sets forth the assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is attached hereto as Annex B and is incorporated herein by
reference. THE STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See also "--Opinion of the Company's Financial Advisor."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously determined that the Merger and the
Merger Agreement are advisable, fair and in the best interests of the Company
and its stockholders and approved the Merger Agreement. ACCORDINGLY, THE BOARD
OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AND THE MERGER AGREEMENT. In considering the recommendation of the
Board of Directors, Stockholders should be aware that certain directors of the
Company have a direct or indirect interest in recommending the Merger, as do
certain executive officers of the Company. See "THE MERGER--Interests of
Certain Persons in the Merger."
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
On June 23, 1997, Goldman Sachs delivered its written opinion to the Board
of Directors that as of the date of such opinion, the $26.00 per share in cash
to be received by the holders of Common Stock pursuant to the Merger Agreement
is fair to such holders. Goldman Sachs also delivered its written opinion
dated the date of this Proxy Statement that as of the date of this Proxy
Statement, the $26.00 per share, in cash, to be received by the holders of
shares of Common Stock pursuant to the Merger Agreement is fair to such
holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN
BY REFERENCE. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement and this Proxy Statement; (ii) Annual Reports to
Stockholders and Annual Reports on Form 10-K of Integon for the five years
ended December 31, 1996; (iii) statutory financial statements for Integon for
the two years ended December 31, 1996; (iv) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Integon; (v) certain other
communications from Integon to its stockholders; (vi) certain financial
analyses and actuarial appraisals performed by nationally recognized actuarial
and appraisal firms (the "Appraisals"); and (vii) certain
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internal financial analyses and forecasts for Integon prepared by management.
Goldman Sachs also held discussions with members of the senior management of
Integon regarding its past and current business operations, financial
condition, and future prospects. In addition, Goldman Sachs reviewed the
reported price and trading activity for the Common Stock, compared certain
financial and stock market information for Integon with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
insurance industry and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion, including, without
limitation, the information furnished by Integon and its actuaries relating to
loss and loss adjustment expense reserves and related items. In addition,
Goldman Sachs has not made an independent evaluation or appraisal of the
assets and liabilities (including the loss and loss adjustment expense
reserves) of Integon or any of its subsidiaries and, except for the
Appraisals, Goldman Sachs has not been furnished with any such evaluation or
appraisal. Goldman Sachs' advisory services and the opinion of Goldman Sachs
referred to herein were provided for the information and assistance of the
Board of Directors in connection with its consideration of the Merger and such
opinion does not constitute a recommendation as to how any holder of Common
Stock should vote with respect to the Merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Integon
Board on June 23, 1997. Goldman Sachs used substantially the same type of
analysis in connection with providing the written opinion dated the date of
this Proxy Statement and attached hereto as Annex B.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Integon to corresponding
financial information, ratios and public market multiples for 13 publicly
traded corporations in the property and casualty insurance industry:
American International Group, Inc., The Allstate Corp., Travelers
Property/Casualty Corporation, CIGNA Corp., Chubb Corp., Hartford Financial
Services Group Inc., St. Paul Companies, Inc., CNA Financial Corp., SAFECO
Corporation, Progressive Corp., Cincinnati Financial Corp., United States
Fidelity & Guaranty Group and American Financial Group, Inc. (the "P&C
Selected Companies"). Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of Integon were calculated
using a price of $15.50 per share of Integon Common Stock, the closing
price of such Common Stock on the New York Stock Exchange on June 20, 1997,
and the multiples of the P&C Selected Companies were calculated using
closing market prices for such companies on June 20, 1997. The multiples
and ratios for each of the P&C Selected Companies were based on the most
recent publicly available information. With respect to the P&C Selected
Companies, Goldman Sachs considered estimated calendar year 1997 and 1998
price/earnings ratios (based on median Institutional Broker Estimate System
("IBES") earnings estimates), which ranged from a low of 11.1x to a high of
22.1x, with a median of 15.0x, for estimated calendar year 1997, and a low
of 10.4x to a high of 19.5x, with a median of 13.2x, for estimated calendar
year 1998, compared for estimated calendar year 1998 to ratios of 13.7x
(based on IBES estimates) and 8.7x (based on management estimates) for
Integon (estimated calendar year 1997 information was not meaningful for
Integon because Integon was estimated to have no earnings for calendar year
1997). Goldman Sachs also considered for the P&C Selected Companies the
market price to book value multiple (excluding any adjustments for FASB No.
115), which ranged from a low of 0.94x to a high of 3.63x, with a median of
2.28x, compared to a multiple of 1.68x for Integon, and the debt to total
capitalization ratio, which ranged from a low of 11.6% to a high of 33.5%,
with a median of 19.8%, compared to ratios of 37.1% (based on total
capital) and 49.1% (based on tangible capital) for Integon. IBES is a data
service, which monitors and publishes a compilation of earnings estimates
produced by selected research analysts on companies of interest to
investors.
In addition, Goldman Sachs reviewed and compared certain financial
information relating to Integon to corresponding financial information,
ratios and public market multiples for five publicly traded corporations in
the nonstandard auto insurance industry: Progressive Corp., Guaranty
National Corp., Titan Holdings Inc., Mobile America Corp. and Omni
Insurance Group, Inc. (the "NS Selected Companies"). Goldman
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Sachs calculated and compared various financial multiples and ratios. The
multiples of Integon were calculated using a price of $15.50 per share of
Integon Common Stock, the closing price of such Common Stock on the New
York Stock Exchange on June 20, 1997, and the multiples of the NS Selected
Companies were calculated using closing market prices for such companies on
June 20, 1997. The multiples and ratios for each of the NS Selected
Companies were based on the most recent publicly available information.
With respect to the NS Selected Companies, Goldman Sachs considered
estimated calendar year 1997 and 1998 price/earnings ratios (based on
median IBES earnings estimates), which ranged from a low of 8.0x to a high
of 18.8x, with a median of 12.9x, for estimated calendar year 1997, and a
low of 7.2x to a high of 16.7x, with a median of 11.0x, for estimated
calendar year 1998, compared for estimated calendar year 1998 to ratios of
13.7x (based on IBES estimates) and 8.7x (based on management estimates)
for Integon (estimated calendar year 1997 information was not meaningful
for Integon because Integon was estimated to have no earnings for calendar
year 1997). Goldman Sachs also considered for the NS Selected Companies the
market price to book value multiple (excluding any adjustments for FASB No.
115), which ranged from a low of 1.36x to a high of 3.63x, with a median of
1.80x, compared to a multiple of 1.68x for Integon, and the debt to total
capitalization ratio, which ranged from a low of 0.0% to a high of 31.5%,
with a median of 30.6%, compared to ratios of 37.1% (based on total
capital) and 49.1% (based on tangible capital) for Integon.
(ii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis under the following two scenarios: (a) using Integon's
management estimates (the "Management Case") and (b) using IBES earnings
estimates (the "IBES Case"). Goldman Sachs calculated a net present value
of free cash flows for the years 1997 through 2006 using discount rates
ranging from 12.5% to 20.0% and based on earnings per share ("EPS") growth
rates ranging from 10.0% to 20.0%. Goldman Sachs calculated Integon's
terminal values in the year 2006 based on multiples ranging from 12.0x EPS
to 18.0x EPS. These terminal values were then discounted to present value
using discount rates from 12.5% to 20.0%.
Using Integon's terminal values in the year 2006 based on multiples
ranging from 12.0x EPS to 18.0x EPS and EPS growth rates ranging from 10.0%
to 20.0% and then discounting these terminal values to present value using
discount rates ranging from 12.5% to 20.0%, the implied per share values
(which is the present value of cash flows per share plus the equity
terminal value) ranged from a low of $10.27 to a high of $46.83 in the
Management Case and from a low of $6.62 to a high of $30.61 in the IBES
Case.
(iii) Analysis at Various Prices. Goldman Sachs prepared a financial
analysis of the Merger and calculated various financial multiples assuming
(a) that holders of Common Stock receive in the Merger $26.00 in cash for
each share of Common Stock and (b) $581.0 million (excluding option
proceeds) of equity consideration (assuming 15.7 million shares of Common
Stock outstanding, 1.6 million options outstanding, 1.2 million treasury
shares held by subsidiaries of Integon, and 3.8 million shares of Common
Stock issued upon conversion of preferred stock). Goldman Sachs calculated
multiples of the equity consideration to: (i) book value and (ii) fully
diluted EPS. This analysis indicated that the multiple of stated book value
at March 31, 1997 was 3.4x and tangible book value at March 31, 1997 was
8.7x. This analysis indicated that the multiple of (A) (1) estimated 1997
EPS (based on IBES estimates) was (19.7)x and (2) estimated 1998 EPS (based
on IBES estimates) was 22.4x, and (B) (1) estimated 1997 EPS (based on
management estimates) was (20.5)x, (2) estimated 1998 EPS (based on
management estimates) was 15.0x, and (3) estimated 1999 EPS (based on
management estimates) was 12.3x. This analysis also indicated that the
$26.00 in cash per share of Common Stock to be paid pursuant to the Merger
Agreement represented a premium, based on the closing price per share of
Integon Common Stock on June 20, 1997 and April 28, 1997 of $15.50 and
$9.50, respectively, of 67.7% and 173.7%, respectively.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to 15 selected transactions in the nonstandard
automobile insurance industry since April 1990: the Merger, Allstate
Insurance/Colonial Insurance Company of California (pending),
FundAmerican/Charter Group--Northern County Mutual (pending), Progressive
Corp./Midland Financial, Orion Capital Corp./Guaranty National Corp.,
Allstate Insurance/All Nation Insurance Co., GGS Management Holdings,
Inc./Superior Insurance, Unitrin/Milwaukee Insurance Group, Guaranty
National/Viking (Talegen), USF&G Corp./Victoria Financial, Integon/Bankers
& Shippers, Guardian Royal Exchange PLC/American Ambassador Casualty Co.
(Allianz Group), The Penn Central Corporation/NSA Automobile Insurance
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Group of American Financial Corporation, Integon Acquisition Corp./Integon
Corporation (a majority owned sub of Southmark Corporation), and Stoneridge
Resources, Inc./Acceptance Insurance Holdings Inc. (the "NS Selected
Transactions"). Such analysis indicated that for the NS Selected
Transactions aggregate consideration as a multiple of (a) latest 12 months
("LTM") net income (calculated in accordance with generally accepted
accounting principles ("GAAP")) ranged from a low of 8.8x to a high of
44.1x, with a median of 18.2x (LTM net income information is not meaningful
for Integon), (b) tangible book value (calculated in accordance with GAAP)
ranged from a low of 1.05x to a high of 1.87x, with a median of 1.60x,
compared to 8.72x for Integon, (c) statutory net income ranged from a low
of 9.3x to a high of 22.5x, with a median of 16.4x, compared to 73.2x for
Integon, and (d) statutory surplus ranged from a low of 0.9x to a high of
4.7x, with a median of 2.0x, compared to 2.4x for Integon. Such analysis
also indicated that for the NS Selected Transactions, the percentage of
premium paid (based on the market price of the acquired company's stock
prior to announcement of the transaction) ranged from a low of 15% to a
high of 67%, with a median of 65%, compared to 68% for Integon.
In addition, Goldman Sachs analyzed certain information relating to 49
selected transactions in the property and casualty insurance industry since
March 1990: SAFECO Corporation/American States Financial Corp. (pending),
Fremont General Corporation/Industrial Indemnity (pending), Vesta Insurance
Group, Inc./Anthem Casualty Insurance Co. and Shelby Insurance Co. and
subsidiaries (pending), Fireman's Fund Insurance Co./Crop Growers Corp.
(pending), General Electric Capital Corp./Coregis Insurance (pending), HCC
Insurance Holdings, Inc./Avemco Corp. (pending), American Financial Group,
Inc./American Eagle Inc., Progressive Corp./Midland Financial (93.6%),
Danielson/Midland Financial (terminated), KKR/Talegen (terminated),
Highlands Insurance Group/Vik Brothers Insurance, Inc., St. Paul
Companies/Northbrook Insurance (of Allstate Corp.), Orion Capital
Corp./Guaranty National Corp., Travelers/Aetna Property/Casualty Group,
Delphi Financial/SIG Holdings, Insurance Partners/Highlands Insurance Group
(subsidiary of Halliburton), Berkshire Hathaway/GEICO (remaining 49%), W.R.
Berkley/MECC (Midwest Employers), Unitrin/Milwaukee Insurance Group, Orion
Capital Corp./Guaranty National Corp. (30.7%), Guaranty National
Corp./Viking (Talegen), Zurich Insurance/Home Holdings (3.8% stake), USF&G
Corp./Victoria Financial, CNA Financial/Continental Corp., Vik Brothers
Insurance/Armco Inc.--Insurance Operations, Fremont General Corp./Casualty
Insurance Company (subsidiary of Continental Corp.), AIG (raising fully
diluted ownership to 42%)/Twentieth Century Industries, Anthem P&C
Holdings, Inc., Associated Insurance Holdings/Federal Kemper Insurance Co.
(Kemper Corp.), Guardian Royal Exchange PLC/American Ambassador Casualty
Co. (Allianz Group), Fairfax Financial Holdings Ltd./Ranger Insurance Co.
(Chase Enterprises), WellPoint Health Networks, Inc./Unicare Financial
Corp., Primerica/Travelers Corp. (73%), Winterthur Schweizerische/Unigard
Insurance Group (subsidiary of John Hancock), Harleysville Group Inc./Lake
States Insurance Co. (American Community Mutual), St. Paul
Companies/Economy Fire and Casualty (Kemper Corp.), Foundation Health
Corp./Business Insurance Corp., State Auto Financial Corp./Milbank
Insurance Co., American Banker Insurance Group Inc./Voyager Insurance Co.
(Primerica), Ohio Farmers Insurance Co. (of Westfield Companies(/Beacon
Insurance Company of America (subsidiary of Allmerica P&C Cos.), Associated
Group/Shelby Group (subsidiary of Alleghany)), Vista Resources/American
Southern Insurance, Leucadia National Corporation/Colonial Penn Group, Inc.
(of FPL Group, Inc.), General Accident Corporation/Hawkeye-Security
Insurance Company (of USLICO Corporation), TVH Acquisition Corp./Home
Insurance (of AmBase Corp.), Allianz AG Holding/Fireman's Fund Insurance
Company (of Fireman's Fund Corporation), The Penn Central Corporation/NSA
Automobile Insurance Group of American Financial Corporation, Integon
Acquisition Corp./Integon Corporation (a majority owned subsidiary of
Southmark Corporation), Stoneridge Resources, Inc./Acceptance Insurance
Holdings, Inc., Winterthur Schweizerische/General Casualty Company (of
Reliance Group Holdings, Inc.) (the "P&C Selected Transactions"). Such
analysis indicated that for the P&C Selected Transactions aggregate
consideration as a multiple of (a) LTM net income (calculated in accordance
with GAAP) ranged from a low of 5.3x to a high of 47.1x, with a mean of
24.3x and a median of 21.2x (LTM net income information is not meaningful
for Integon), (b) tangible book value (calculated in accordance with GAAP)
ranged from a low of 0.55x to a high of 4.10x, with a mean of 1.60x and a
median of 1.29x, compared to 8.72x for
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Integon, (c) statutory net income ranged from a low of 6.2x to a high of
53.3x, with a mean of 19.5x and a median of 16.3x, compared to 73.2x for
Integon, and (d) statutory surplus ranged from a low of 0.56x to a high of
6.33x, with a mean of 2.05x and a median of 1.69x, compared to 2.4x for
Integon. Such analysis also indicated that for the P&C Selected
Transactions, the percentage of premium paid (based on the market price of
the acquired company's stock prior to announcement of the transaction)
ranged from a low of 2.8% to a high of 97.3%, with a mean of 35.9% and a
median of 30.8%, compared to 68% for Integon.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
opinion, Goldman Sachs did not reach its opinion based upon any single
analysis or factor considered by it; rather Goldman Sachs made its
determination as to fairness on the basis of its experience and professional
judgment, after considering the results of all such analyses. No company or
transaction (other than the Merger) used in the above analyses as a comparison
is directly comparable to Integon or GMAC or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to the Board of Directors as to the fairness to the holders of Common
Stock of the $26.00 per share in cash to be received by such holders pursuant
to the Merger Agreement and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. Because such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of the parties or their respective advisors, none of Integon, GMAC, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors was one
of many factors taken into consideration by the Board of Directors in making
its determination to approve the Merger Agreement. The foregoing summary does
not purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified by reference to the written opinion of Goldman Sachs
set forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Integon selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the Merger. Goldman Sachs is familiar with Integon, having provided
certain investment banking services to Integon from time to time, including
having acted as underwriter for the issuance of $100,000,000 aggregate
liquidation amount of 10 3/4% Capital Securities by Integon Capital I, a
subsidiary of Integon, in February 1997, and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement. Goldman Sachs also has provided
investment banking services to GM and GMAC from time to time and may provide
investment banking services to GM and GMAC in the future. In the ordinary
course of Goldman Sachs' securities businesses, it actively trades the debt
and equity securities of Integon and GM and its subsidiaries for its own
account and the accounts of its customers, and it therefore may from time to
time hold a long or short position in such securities.
Pursuant to a letter agreement, dated April 28, 1997 (the "Engagement
Letter"), Integon engaged Goldman Sachs to act as its financial advisor to
assist Integon in its analysis and consideration of the various financial
alternatives available to it and in connection with the possible sale of all
or a portion of Integon. Pursuant to the terms of the Engagement Letter,
Integon has agreed to pay Goldman Sachs upon consummation of the Merger a
transaction fee of 1.25% of the aggregate consideration paid in such
transaction, which consideration includes the assumption by the Surviving
Corporation of the Company's indebtedness under its outstanding indentures
(assuming aggregate consideration of approximately $778.6 million, the
transaction fee to be paid to Goldman Sachs upon consummation of the Merger is
approximately $9.7 million). Integon has agreed to reimburse Goldman Sachs for
its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached hereto as Annex A. The summary of the Merger
Agreement contained herein is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the Merger
Agreement. Stockholders are urged to review the Merger Agreement carefully.
Consideration to be Paid in the Merger. The Merger Agreement provides that
upon the terms (and subject to the conditions) set forth in the Merger
Agreement, Merger Sub will be merged with and into the Company and the
separate existence of Merger Sub will cease, and the Company shall be the
Surviving Corporation and shall become an indirect subsidiary of GMAC. As a
result of the Merger, each share of Common Stock (other than (i) shares of
Common Stock held in the treasury of the Company or owned or held by GMAC,
Merger Sub or any other wholly owned subsidiary of GMAC, which will be
canceled without payment, (ii) shares of Common Stock in respect of which
appraisal rights have been properly demanded and exercised, and (iii) shares
of Common Stock held by the subsidiaries of the Company, which will remain
outstanding as shares of the Surviving Corporation), will represent the right
to receive $26.00, in cash, without interest. Each share of Convertible
Preferred Stock (other than shares of Convertible Preferred Stock owned by
GMAC, Merger Sub or any other wholly owned subsidiary of GMAC, which will be
canceled without payment), which is converted into Common Stock by its holder
on or prior to the Effective Time pursuant to the Certificate of Designation,
will represent the right to receive $26.00 per share of Common Stock issued
upon conversion of such Convertible Preferred Stock (or $68.24 per share of
Convertible Preferred Stock), in cash, without interest. After the Effective
Time, each share of Convertible Preferred Stock will be convertible into the
right to receive $68.24 per share, in cash, without interest, and any shares
of Convertible Preferred Stock not so converted will be redeemed at $52.33 per
share shortly after the Effective Time. See "THE MERGER--The Merger
Agreement--Redemption of Convertible Preferred Stock." Each 1992 Option issued
under the 1992 Plan will represent the right to receive, in settlement and
cancellation of such 1992 Option, an amount in cash, without interest, equal
to the excess of $26.00 over the exercise price of such 1992 Option,
multiplied by the number of shares of Common Stock covered by such 1992
Option. Each Omnibus Option issued under the Omnibus Plan will represent the
right to receive, in settlement and cancellation of such Omnibus Option, an
amount in cash, without interest, equal to (i) the excess of the greater of
$26.00 or the Change In Control Price over the exercise price of such Omnibus
Option, multiplied by (ii) the number of shares of Common Stock covered by
such Omnibus Option. The Merger Agreement provides that (subject to certain
provisions therein) the closing of the Merger shall occur as soon as
practicable following the satisfaction or, to the extent permitted under the
Merger Agreement, waiver of the conditions to the Merger set forth in the
Merger Agreement.
Certificate of Incorporation and Bylaws. At the Effective Time, the
certificate of incorporation of the Company will continue as the certificate
of incorporation of the Surviving Corporation, and the bylaws of Merger Sub
will become the bylaws of the Surviving Corporation.
Stockholders' Meeting. The Merger Agreement provides that the Company,
acting through the Board of Directors, shall take all action necessary to
convene a meeting of the stockholders for the purpose of considering and
voting on the Merger Agreement and the transactions contemplated thereby as
soon as practicable following the date of the Merger Agreement and, subject to
its fiduciary duties under applicable law as advised by outside counsel,
recommend to the Stockholders the approval of the Merger Agreement and of the
transactions contemplated thereby.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company, subject to exceptions for prior
disclosure on schedules and, in certain cases, for matters that do not have a
material adverse effect on the business, operations, assets, properties,
liabilities, financial condition or results of operations ("Material Adverse
Effect") on the Company or any of its subsidiaries, with respect to, among
other things, (i) the due organization, valid existence, good standing, due
qualification, corporate power and authority of the Company and its
subsidiaries; (ii) the full authorization and power to execute and deliver the
Merger Agreement and to consummate the transactions contemplated thereby, and
the validity and enforceability thereof; (iii) the execution
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and delivery of the Merger Agreement not conflicting with the charter and
bylaws of the Company or its subsidiaries, not constituting a default under
contracts, or a violation of laws and regulations; (iv) capitalization; (v)
subsidiaries; (vi) certain consents and approvals of governmental entities;
(vii) the compliance with the Exchange Act, as amended, in connection with
documents filed by the Company with the SEC since December 31, 1995; (viii)
insurance subsidiary financial statements and the compliance of such
statements with regulatory requirements; (ix) the absence of undisclosed
liabilities; (x) the conduct of business in the ordinary course and the
absence of material changes and events since December 31, 1996; (xi) the
absence of actions or proceedings other than Direct Action Claims (as defined
in the Merger Agreement), pending or threatened, or judgments against the
Company or its subsidiaries, or facts known that could result into such
actions; (xii) the compliance of the Company and its subsidiaries with their
charter documents and contracts to which they are parties; (xiii) the timely
filing of tax returns and other representations related to tax matters; (xiv)
employee benefit plans and certain ERISA matters; (xv) the absence of untrue
or misleading statements in the information provided for the Proxy Statement;
(xvi) brokers and finders fees; (xvii) the amendment to the Rights Agreement;
(xviii) material contracts; (xix) the compliance of loss, adjustment to
expense and unearned premium reserves with required form and regulatory
requirements; (xx) the appropriateness of reinsurance recoverables; (xxi) the
absence of labor controversies and collective bargaining agreements; (xxii)
the absence of default under or breach of contracts to which the Company or
its subsidiaries are parties; (xxiii) the premiums receivable of the insurance
subsidiaries arising under validly issued policies and in the ordinary course
of business; (xxiv) bank accounts; (xxv) guarantees; (xxvi) the maintenance of
insurance policies to which the Company or its subsidiaries are parties or
beneficiaries; (xxvii) disclosures of the interests of related parties in the
Company or its subsidiaries; (xxviii) the good title of the Company and its
subsidiaries to intellectual property rights used in the course of business
and the absence of infringements of the rights of, or claims from, third
parties; (xxix) the compliance of the businesses of the Company and its
subsidiaries with laws and regulations; (xxx) the good title of the Company
and its subsidiaries to the real property used in the business and the
compliance of the use of the real property with laws and regulations; (xxxi)
the compliance of investments of insurance subsidiaries with regulatory
requirements and state financial standards; (xxxii) the compliance of
insurance practices with legal and regulatory requirements; (xxxiii) the
obtaining of and compliance with all licenses and other permits required for
the conduct of the business of the Company and its subsidiaries; (xxxiv) the
absence of material overdue assessment under risk sharing plans; and (xxxv)
the availability of documents to GMAC.
GMAC and Merger Sub have also made certain representations and warranties,
including representations and warranties with respect to (i) the due
organization, valid existence, good standing, corporate power and authority of
GMAC and Merger Sub; (ii) the full authorization and power to execute and
deliver the Merger Agreement and to consummate the transactions contemplated
thereby, and the validity and enforceability thereof; (iii) the absence of
conflict or breach of charter documents, consents and approvals and absence of
violation, breach of or default under contracts or legal requirements; and
(iv) brokers and finders fees.
It is a condition to the obligation of GMAC and Merger Sub to effect the
Merger that all representations and warranties of the Company contained in the
Merger Agreement be true and correct on and as of the Effective Time as if
made on and as of such date, except where the failure of such representation
and warranty to be true and correct on the Effective Time has not resulted in
a Material Adverse Effect on the Company and its subsidiaries taken as a
whole. See "--Conditions to Obligation of GMAC and Merger Sub."
Conduct of Business Pending Merger. The Company has agreed that from the
date of the Merger Agreement to the Effective Time, with certain exceptions,
unless GMAC has consented in writing thereto, the Company will, and will cause
each of its subsidiaries to conduct its operations in the ordinary course of
business consistent with past practice and use its reasonable best efforts to
preserve intact its business organization and to maintain satisfactory
relationships with customers, suppliers and employees and all other persons
having business relationships with it.
The Company has also agreed that it shall not, and shall not permit any of
its subsidiaries to: (i) amend its charter or bylaws; (ii) issue, sell,
pledge, or otherwise deliver any capital stock of any class, or any securities
convertible into or exchangeable for shares of capital stock of any class of
the Company other than shares of
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Common Stock issuable upon exercise of the Options and upon conversion of the
Convertible Preferred Stock; (iii) effect any split, combination or
reclassification; (iv) declare or pay or set aside any dividend (other than
regularly scheduled dividends on the Common Stock and the Convertible
Preferred Stock at their levels on the date of the Merger Agreement); (v)
redeem, purchase or otherwise acquire any share of its capital stock; (vi)
increase or establish any employee benefit plan or otherwise increase in any
manner the compensation payable or to become payable by the Company or any of
its subsidiaries to any of their respective directors, officers or employees,
other than in the ordinary course of business consistent with past practice or
as required under any existing employment agreement or employee benefit plan,
or enter into any employment or severance agreement with or grant any
severance or termination pay to any director, officer or employee of the
Company or any of its subsidiaries, other than in accordance with existing
employee benefit plans; (vii) enter into any other agreements, commitments or
contracts that are material to the Company and its subsidiaries taken as a
whole, other than in the ordinary course of business consistent with past
practice; (viii) take any action with respect to the assets and liabilities,
rights and obligations of the Company and its subsidiaries that would
constitute a material change in such assets, liabilities, rights and
obligations of the Company and its subsidiaries; and (ix) enter into any
agreement or commitment, whether in writing or otherwise, to take any action
described above or agree, commit or arrange to do any of the foregoing.
Access to Information. Under the Merger Agreement, from the date of the
Merger Agreement to the Effective Time, upon reasonable notice, the Company
and its subsidiaries are to afford GMAC and its authorized representatives
(including its accountants, financial advisors and legal counsel) reasonable
access during normal business hours to all of the properties, personnel,
contracts and other agreements, any documents relating to tax returns of the
Company and its subsidiaries and other books and records of the Company and
its subsidiaries and are to promptly deliver or make available to GMAC a copy
of each report, schedule and other document filed by the Company pursuant to
the requirements of federal or state securities laws and all other information
concerning the business, properties, assets and personnel of the Company and
its subsidiaries as GMAC may from time to time reasonably request, including,
without limitation, access to outside counsel of the Company or any subsidiary
in connection with the review of any claim, dispute, action, proceeding, suit,
appeal, investigation or inquiry pending or threatened against the Company or
any subsidiary.
No Solicitation; Fiduciary Duties. The Company has agreed in the Merger
Agreement that neither it nor any of its subsidiaries, nor any of their
respective officers, directors, employees or representatives, shall, directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any person or group (other
than GMAC and Merger Sub or any affiliate, associate or designee of GMAC or
Merger Sub) concerning any Acquisition Proposal. The Company is to promptly
notify GMAC if any proposal, offer or substantial contact with respect thereto
is made by any person in writing. Notwithstanding the foregoing, the Merger
Agreement provides that (a) the Board of Directors may take, and disclose to
the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with respect to any tender offer for shares
of capital stock of the Company and (b) the Company may, directly or
indirectly, furnish information and access, in each case only in response to
unsolicited requests after the date of the Merger Agreement, and may
participate in discussions and negotiate with any person or group concerning
any Acquisition Proposal, only if such person or group has submitted a written
Acquisition Proposal to the Board of Directors and the Board of Directors
determines in its good faith judgment, based as to legal matters on the
written advice of the Company's independent legal counsel, that failing to
take such action would constitute a breach of the Board of Directors'
fiduciary duty under applicable law. See "--Fees and Expenses" and "--
Termination" for a description of the consequences of responding to an
Acquisition Proposal.
Fees and Expenses. Except as provided in the Merger Agreement, whether or
not the Merger is consummated, all fees, charges and expenses incurred in
connection with the Merger Agreement and the transactions contemplated
thereunder shall be paid by the party incurring such fees, charges or
expenses. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor. The Company will reimburse banks, brokers,
custodians and other fiduciaries who hold shares of Common Stock in their name
or custody, or in the name of nominees for others, for their out-of-pocket
expenses incurred in forwarding copies of the proxy materials to those persons
for whom they hold such shares. The Company has engaged D.F. King to
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<PAGE>
assist it in the solicitation of proxies and to provide various proxy services
for the Company in connection with the Special Meeting at a cost of
approximately $9,000 plus reasonable out-of-pocket expenses. See "VOTING AND
PROXIES--Record Date; Solicitation of Proxies."
The Merger Agreement provides that the Company will pay to GMAC a break-up
fee of $15,000,000 if the Company terminates the Merger Agreement after having
received an Acquisition Proposal from any person or group and after a good
faith determination by the Board of Directors, based as to legal matters on
the written advice of the Company's independent legal counsel, that failing to
terminate the Merger Agreement would constitute a breach of the Board of
Directors' fiduciary duty under applicable law. See "--Termination."
Reasonable Efforts; Additional Actions. The Merger Agreement provides that,
subject to the terms and conditions provided therein, the Company, GMAC and
Merger Sub shall use all reasonable efforts to take, or cause to be taken, all
action, and to do or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by the Merger Agreement, including using all reasonable efforts
to (a) obtain all consents, amendments to or waivers under the terms of any of
the Company's and the GMAC's borrowing or other contractual arrangements
required by the Merger, (b) effect promptly all necessary or appropriate
registrations and filings with governmental entities, including, without
limitation, filings and submissions pursuant to the HSR Act, the Securities
Act, the Exchange Act and the DGCL, (c) effect promptly and prosecute
diligently (including responding to all reasonable requests for supplemental
information) all approvals, filings and/or notices required under any
applicable insurance laws for the consummation of the Merger, (d) defend any
lawsuit or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the consummation of the Merger and (e)
fulfill or cause the fulfillment of the conditions to closing set forth in the
Merger Agreement.
Notification of Certain Matters. The Merger Agreement provides that the
Company shall give notice to GMAC, and GMAC and Merger Sub shall give notice
to the Company, promptly upon becoming aware of (a) any occurrence, or failure
to occur, of any event, which occurrence or failure to occur has caused or
could reasonably be expected to cause any representation or warranty in the
Merger Agreement to be untrue or inaccurate in any material respect at any
time after the date of the Merger Agreement and prior to the Effective Time
and (b) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
thereunder.
Public Announcements. The Merger Agreement provides that GMAC and Merger
Sub, on the one hand, and the Company, on the other hand, shall not, and shall
cause their subsidiaries and affiliates not to, issue or cause the publication
of any press release or any other announcement (including without limitation
announcements to employees, agents or policyholders) with respect to the
Merger, the Merger Agreement or the other transactions contemplated thereby
without the consent of the other, except where such release or announcement is
required by applicable law or pursuant to any listing agreement with, or the
rules or regulations of, any securities exchange or any other regulatory
requirements.
Severance Agreements. Steven C. Andrews and Donald F. McKee, the Executive
Vice President and Chief Operating Officer, and the Senior Vice President and
Chief Financial Officer, respectively, of the Company, are party to agreements
that contain change of control provisions under which such executive officers
may be entitled to certain severance payments and additional non-compete
payments in the event that such officers' employment is terminated or in the
event that such officer voluntarily leaves employment within two years
following the Effective Time. John B. Yorke, John C. Beattie, Arthur S. Lyon,
Brian T. Sheekey and Kenneth J. Jakubowski, executive officers of the Company,
are also party to agreements that contain change of control provisions
providing that such officers will be entitled to certain payments in the event
that such officers' employment is involuntarily or constructively terminated
within two years following the Effective Time. Six other officers of the
Company are party to agreements with the Company under which they may be
entitled to certain payments upon a change of control of the Company, the
terms and conditions of which are similar to those of Messrs. Yorke, Beattie,
Lyon, Sheekey and Jakubowski. All the foregoing agreements are collectively
referred to herein
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<PAGE>
as the "Severance Agreements." The Company also has a severance pay policy
covering its employees, which are not parties to the Severance Agreements,
that entitles such employees to receive severance pay if their employment is
terminated in connection with a change of control, under certain
circumstances. Neither John C Head III nor John B. McKinnon, the Chairman of
the Board of Directors, and the President and Chief Executive Officer,
respectively, of the Company, are parties to any agreement entitling them to
severance or non-compete payments. For a detailed description of the Severance
Agreements, see "--Interests of Certain Persons in the Merger."
The Merger Agreement provides that for a period of at least two years from
and after the Effective Time, GMAC will cause the Surviving Corporation to
honor the severance policy and Severance Agreements in accordance with the
terms of such policy and agreements as are in effect immediately prior to the
Effective Time.
Indebtedness of the Company. The Merger Agreement provides that from and
after the Effective Time, GMAC will and will cause the Surviving Corporation
to honor in accordance with their terms, the $150 million aggregate principal
amount of Senior Notes issued by the Company under the Indenture dated as of
August 26, 1992 between the Company and First National Bank of Chicago, as
trustee, as supplemented from time to time, and the Indenture dated as of
October 15, 1994 between the Company and First National Bank of Chicago, as
trustee, as supplemented from time to time, and the approximately $103 million
aggregate amount of Junior Subordinated Deferrable Interest Debentures (the
"Debentures") issued by the Company under the Indenture dated as of February
10, 1997 between the Company and First Union National Bank of North Carolina,
as trustee, as supplemented from time to time (the "Junior Subordinated
Indenture"), including, without limitation, any repurchase obligations with
respect to the Debentures upon a Change of Control (as such term is defined in
the Junior Subordinated Indenture). Thus, upon the occurrence of a Change of
Control under the Junior Subordinated Indenture, holders of Capital Securities
of the Trust will have the right, at such holders' option, to require the
Company to repurchase a like amount of Debentures corresponding to the
liquidation amount of Capital Securities that such holders seek to have
repurchased at a repurchase price equal to 101% of the aggregate liquidation
amount of such Capital Securities plus accumulated and unpaid distributions
thereon to the repurchase date, which date shall not be less than 30 days nor
more than 60 days from the date a notice of Change of Control has been sent by
the Company to such holders (which notice shall be sent within 10 business
days following the occurrence of such Change of Control).
Termination of Investment Advisory Agreement. The Merger Agreement provides
that effective at the Effective Time, the Company shall terminate the
Investment Advisory Agreement between the Company and Head Asset Management
L.L.C. with no further liability or obligation thereunder to the Company or
its subsidiaries.
Termination of Executive Salary Deferral Plan. As required by GMAC, the
Merger Agreement provides that, effective at or prior to the Effective Time,
the Company shall terminate the Salary Deferral Plan, which became effective
as of January 22, 1997, with no further liability or obligation thereunder to
the Company or its subsidiaries other than to pay Mr. Head, the only
participant under the plan, having deferred all cash compensation otherwise
due him in 1997 indexed to the Common Stock's total return, an amount of
approximately $985,000 due thereunder. In addition, under the Omnibus Plan,
Mr. Head will be entitled to a bonus of $500,000, which will be deferred until
January 2, 1998 and paid by the Surviving Corporation.
Employee Plans. Under the Merger Agreement, from and after the Effective
Time, GMAC has agreed to provide, or cause the Surviving Corporation to
provide, to employees of the Company retirement benefits, bonus and incentive
compensation and life, health, disability and other welfare benefits on a
basis economically comparable to similar plans currently in effect for the
Company's employees, and, for purposes of determining eligibility to
participate, vesting and entitlement benefits, service with the Company or any
subsidiary prior to the Effective Time is to be treated as service with GMAC
or its subsidiaries unless such recognition would result in a duplication of
benefits. See "--Interests of Certain Persons in the Merger."
Investment Portfolio. The Company is to cause the investments of its
insurance subsidiaries to be maintained prior to the Effective Time in
accordance with past investment policies and practices of the insurance
subsidiaries, except that, pending the closing, cash proceeds from any
investment (whether as a result of the sale
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<PAGE>
or maturity of an investment or from investment income) is to be invested in
United States Treasury Securities having a maturity of 4 1/2 to 5 1/2 years.
Updating of Schedules. From the date of the Merger Agreement until the
Effective Time, the Company is to keep up-to-date all of the Schedules to the
Merger Agreement, and is to notify GMAC on a monthly basis of any changes or
additions or events that may, after the lapse of time, cause any change or
addition in any of such Schedules, whether or not such changes or additions
relate to matters that are permitted under the Merger Agreement. If the
Company submits an amended Schedule to GMAC and, if in GMAC's reasonable
judgment, such amendment or supplement, either individually or in the
aggregate with other amendments or supplements, results in a change that has
had a Material Adverse Effect on the Company and its subsidiaries taken as a
whole, then GMAC may reject such amended Schedule and, if the Company fails or
refuses to promptly take such actions as are necessary to make the original
version of the Schedule satisfy in all material respects each applicable
representation and warranty under the Merger Agreement (as of the Effective
Time), such failure or refusal will be deemed to be the failure of the
conditions to closing set forth in Article 6 of the Merger Agreement, and GMAC
will be entitled to terminate the Merger Agreement. See "--Conditions to
Obligation of GMAC and Merger Sub."
Redemption of Convertible Preferred Stock. Under the Merger Agreement, GMAC
shall cause the Surviving Corporation to issue a notice of redemption within
five days after the Effective Time to all holders of Convertible Preferred
Stock then outstanding. Such notice of redemption shall provide for the
Redemption Record Date to be at least 20 days after the notice of redemption
has been given. On the Redemption Record Date, the Surviving Corporation shall
redeem all outstanding shares of Convertible Preferred Stock at $52.33 per
share, the redemption price under the terms of the Certificate of Designation.
If a notice of redemption has been given and any holder of shares of
Convertible Preferred Stock shall, prior to the close of business on the fifth
day preceding the Redemption Record Date, give written notice to the Surviving
Corporation, pursuant to paragraph 6 of the Certificate of Designation, of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by Certificates for such shares, duly endorsed or assigned to the
Surviving Corporation and any necessary transfer tax payment, as required by
such paragraph 6), then such redemption shall not become effective as to such
shares to be converted and such shares shall be converted into the right to
receive $68.24 in cash, without interest, which amount corresponds to the
amount of cash receivable upon the Merger by a holder of the number of shares
of Common Stock into which a share of Convertible Preferred Stock would have
been convertible immediately prior to the Merger at the Conversion Price (as
defined in the Certificate of Designation) then in effect. See "--
Consideration to be Paid in the Merger" and "--Termination."
General Conditions to the Merger. The respective obligations of each party
to effect the Merger are subject to the satisfaction or waiver, at or prior to
the Effective Time, of the following conditions: (i) the Merger Agreement
shall have been adopted by the affirmative vote of the Stockholders by the
requisite vote in accordance with applicable law; (ii) no laws or regulations
shall have been enacted, entered, promulgated or enforced by any court or
governmental entity that prohibit or prevent the consummation of the Merger;
(iii) all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental entity required in connection with the
execution, delivery and performance of the Merger Agreement shall have been
obtained or made (as the case may be), except for filings in connection with
the Merger and any other documents required to be filed after the Effective
Time and except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a
Material Adverse Effect with respect to the Company or any subsidiary or GMAC,
or materially adversely affect the ability of the Company, GMAC or Merger Sub
to perform their respective obligations hereunder, and such consents,
authorizations, orders and approvals shall be subject to no conditions other
than (A) conditions customarily imposed by insurance regulatory authorities or
(B) other conditions that could not reasonably be expected to have a Material
Adverse Effect with respect to the Company or any of the subsidiaries, taken
as a whole; and (iv) any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated.
Conditions to Obligation of GMAC and Merger Sub. In addition, the obligation
of GMAC and Merger Sub to effect the Merger is subject to the fulfillment or
waiver at the Effective Time of the following conditions:
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(i) the Company shall have performed in all material respects the covenants
and obligations required to be performed by it under the Merger Agreement on
or prior to the Effective Time; (ii) the representations and warranties of the
Company contained in the Merger Agreement shall be true and correct on and as
of the Effective Time as if made on and as of such date (except to the extent
that any such representation or warranty had by its terms been made as of a
specific date in which case such representation or warranty shall have been
true and correct as of such specific date); provided, however, that if the
failure of any such representations and warranties to be true and correct on
and as of the Effective Time, individually or in the aggregate, has not
resulted in a Material Adverse Effect on the Company and its subsidiaries
taken as a whole, the foregoing condition shall be deemed to have been
fulfilled; (iii) GMAC shall have received a certificate signed by an executive
officer of the Company to the effect above; (iv) all proceedings taken in
connection with the filing of the Certificate of Merger and other similar
transactions contemplated hereby and all documents incident to such
transactions shall be reasonably satisfactory in form and substance to GMAC
and its counsel; and (v) GMAC shall have received a legal opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, counsel for the Company, covering certain
legal matters.
Conditions to Obligation of the Company. The obligation of the Company to
effect the Merger is subject to the fulfillment or waiver at the Effective
Time of the following additional conditions: (i) GMAC and Merger Sub shall
have performed in all material respects the covenants and obligations required
to be performed by them under the Merger Agreement on or prior to the
Effective Time; (ii) the representations and warranties of GMAC and Merger Sub
contained in the Merger Agreement shall be true and correct in all material
respects on and as of the Effective Time as if made on and as of such date;
(iii) the Company shall have received a certificate signed by an executive
officer of each of GMAC and Merger Sub to the effect above; and (iv) the
Company shall have received a legal opinion of GMAC's legal staff covering
certain legal matters.
Rights Agreement. On June 23, 1997, the Company amended (the "Amendment")
the Rights Agreement, dated as of January 22, 1997, as amended on February 13,
1997 (as amended, the "Rights Agreement"), between the Company and First
Chicago Trust Company of New York, as rights agent. The Amendment provides
that none of (a) the execution or delivery of the Merger Agreement by the
Company and GMAC, (b) GMAC or Merger Sub, or any Affiliate or Associate (as
defined in the Rights Agreement) of GMAC or Merger Sub, becoming a Beneficial
Owner (as defined in the Rights Agreement) of Common Stock pursuant to the
Merger Agreement or (c) the consummation of the Merger or other transactions
contemplated in the Merger Agreement shall (i) cause GMAC or the Merger Sub,
or any Affiliate or Associate of GMAC or Merger Sub, to become an Acquiring
Person (as defined in the Rights Agreement), (ii) cause a Distribution Date
(as defined in the Rights Agreement) to occur in accordance with the terms of
the Rights Agreement or (iii) be deemed a Section 13 Event (as defined in the
Rights Agreement). The Amendment also provides that the Expiration Date (as
defined in the Rights Agreement) shall occur at or prior to the earliest to
occur of (i) the close of business on January 22, 2007, (ii) the time at which
the Rights (as defined in the Rights Agreement) are redeemed, (iii) the time
at which such Rights are exchanged or (iv) the Effective Time.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the Stockholders, but prior to the Effective Time:
(a) by mutual written consent of GMAC, Merger Sub and the Company;
(b) by GMAC, Merger Sub or the Company:
(i) if a court of competent jurisdiction or other governmental entity
shall have issued an order or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such
order or other action shall have become final and nonappealable; or
(ii) if the Effective Time shall not have occurred on or before
December 31, 1997, provided, however, that the right to terminate the
Merger Agreement shall not be available to any party whose failure to
fulfill materially any covenant or obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
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(c) by GMAC, Merger Sub or the Company, if the stockholder approval shall
not have been obtained by reason of the failure to obtain the requisite
vote at a duly held meeting of stockholders or at any adjournment thereof;
and
(d) by the Company if the Company receives an Acquisition Proposal from
any person or group and the Board of Directors determines in its good faith
judgment, based as to legal matters on the written advice of the Company's
independent legal counsel, that failing to terminate the Merger Agreement
would constitute a breach of the Board of Directors fiduciary duty under
applicable law; provided, however, that if the Company exercises its right
to terminate the Merger Agreement, (i) the Company, upon giving written
notice of termination of the Merger Agreement shall furnish a written copy
of the Acquisition Proposal giving rise to such termination, and GMAC shall
have a right of first refusal, exercisable within two business days after
delivery of the Acquisition Proposal to GMAC, to acquire the Company and
its subsidiaries on substantially the same economic terms set forth in such
Acquisition Proposal, provided that GMAC may substitute cash for any non-
cash consideration provided for under such Acquisition Proposal so long as
a substantially equivalent economic value, on an after-tax basis, is
provided to the Company's stockholders; and (ii) in the event GMAC elects
not to exercise such right of first refusal, the Company, upon demand by
GMAC, shall pay GMAC a break-up fee equal to $15,000,000. After exercise of
any right of first refusal by GMAC in accordance with the immediately
preceding sentence, GMAC shall have 180 days to close such transaction.
Indemnification. The Merger Agreement provides that the certificate of
incorporation and bylaws (or equivalent governing instruments) of the
Surviving Corporation and each of its subsidiaries shall contain provisions no
less favorable with respect to indemnification than are set forth in the
certification of incorporation and bylaws of the Company and its subsidiaries,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at or prior to the
Effective Time were directors, officers, agents or employees of the Company or
any of its subsidiaries or who were otherwise entitled to indemnification
pursuant to the certificate of incorporation and bylaws (or equivalent
governing instruments) of the Company or any of its subsidiaries. GMAC shall
cause to be maintained in effect for six years after the Effective Time the
current policies of the directors' and officers' liability insurance
maintained by the Company and its subsidiaries with respect to matters
occurring prior to the Effective Time; provided, however, that GMAC may
substitute therefor policies of at least the same coverage containing terms
and conditions that are no less advantageous than the existing policies
(including with respect to the period covered).
Amendment. To the extent permitted by applicable law, the Merger Agreement
may be amended, modified or supplemented, at any time before or after adoption
of the Merger Agreement by the Stockholders by an instrument in writing signed
on behalf of all of the parties prior to the Effective Time; provided,
however, that after the Merger Agreement is adopted by the Stockholders, no
such amendment or modification shall (a) alter or change the amount or kind of
consideration to be delivered to the stockholders, (b) alter or change any
term of the certificate of incorporation of the Surviving Corporation to be
effected by the Merger or (c) alter or change any of the terms or conditions
of the Merger Agreement if such alteration or change would adversely affect
the stockholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have interests in
the Merger that may be different from, or in addition to, those of the
Stockholders generally.
Certain directors and executive officers of the Company are holders of 1992
Options, which are fully vested, or which will become fully vested and
exercisable at the Effective Time and will represent the right to receive, in
settlement and cancellation of such 1992 Options, an amount in cash, without
interest, equal to the excess of $26.00 over the exercise price of such 1992
Options, multiplied by the number of shares of common stock covered by such
1992 Options. Certain directors and executive officers of the Company are
holders of Omnibus
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Options, which are fully vested, or which will become fully vested and
exercisable at the Effective Time and will represent the right to receive, in
settlement and cancellation of such Omnibus Options, an amount in cash,
without interest, equal to (i) the excess of the greater of $26.00 or the
Change In Control Price over the exercise price of such Omnibus Options,
multiplied by (ii) the number of shares of Common Stock covered by such
Omnibus Options. See "The Merger Agreement--Consideration to be Paid in the
Merger."
The following table sets forth the 1992 Options and Omnibus Options held by
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
1992 OPTIONS OMNIBUS OPTIONS
------------------------- -------------------------
NUMBER OF NUMBER OF
SECURITIES EXERCISE SECURITIES EXERCISE
UNDERLYING PRICE UNDERLYING PRICE
NAME OPTIONS GRANTED ($/SHARE) OPTIONS GRANTED ($/SHARE)
---- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C>
John B. McKinnon............ -- -- 3,550 $19.00
Steven C. Andrews........... 85,000 (1) 40,786 (2)
Donald F. McKee............. 50,000 $17.125 40,786 (2)
John B. Yorke............... 39,000 (3) 6,000 $14.00
Brian T. Sheekey............ 20,000 $20.125 6,000 $14.00
Arthur S. Lyon, Jr.......... 24,600 (4) 6,000 $14.00
John C. Beattie............. 39,000 (5) 6,000 $14.00
Kenneth J. Jakubowski....... -- -- 15,000 $12.50
</TABLE>
- --------
(1) Exercise price of $15.00 for 75,000 shares and $17.125 for 10,000 shares.
(2) Exercise price of $18.375 for 25,786 shares and $14.00 for 15,000 shares.
(3) Exercise price of $20.25 for 35,000 shares and $20.00 for 4,000 shares.
(4) Exercise price of $30.25 for 8,000 shares, $18.25 for 4,800 shares,
$17.125 for 5,400 shares and $20.00 for 6,400 shares.
(5) Exercise price of $18.25 for 25,000 shares, $17.125 for 7,000 shares and
$20.00 for 7,000 shares.
John C Head III will be entitled to certain payments due under the Salary
Deferral Plan and the Omnibus Plan. See "THE MERGER--The Merger Agreement--
Termination of Executive Salary Deferral Plan."
Steven C. Andrews, Donald F. McKee, John B. Yorke, John C. Beattie, Arthur
S. Lyon, Jr., Brian T. Sheekey and Kenneth J. Jakubowski, all of whom are
executive officers of the Company, are party to Severance Agreements.
Under the Severance Agreements of Steven C. Andrews and Donald F. McKee, in
the event of a Change in Control of the Company (as defined in such
executive's Severance Agreement), either the Company or the executive may
terminate the executive's employment within 24 months after the Change in
Control, and upon such termination (unless the termination is for Cause (as
defined in such executive's Severance Agreement) the executive will receive as
severance pay and in lieu of any further salary for periods subsequent to the
date of termination, an amount in cash equal to the lesser of 1 1/2 times the
executive's base salary and any targeted bonus amount in cash equal to 100% of
the performance award under Article 8 of the Omnibus Plan that would have been
payable for the calendar year in which the termination occurs, assuming that
the performance goal for the year had been attained at 100% (except to the
extent the targeted bonus amount described below has already been paid
pursuant to the change in control provisions of the Omnibus Plan) or 2.99
times the executive's "annualized includible compensation for the base period"
minus any parachute payment (as defined in Section 280G(d)(1) of the Internal
Revenue Code) payable one-third at the time of termination, one-third at the
end of the 12 months following the date of termination, and one-third at the
end of the 18 months following the date of termination. In addition, upon a
Change in Control, the Company has agreed to make certain payments to the
executive, payable one-third six months after the date of termination, one-
third 12 months after the date of termination and one-third 18 months after
the date of termination. As consideration for such payment in the event of a
termination in connection with a Change in Control, the executive has agreed
for a period of 18 months following his termination that he will not, as an
individual, proprietor, partner, joint venturer, shareholder (other
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than in a publicly traded company provided that the executive does 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
the agreement; provided, however, that the Company's sole remedy in the event
of a breach of the executive's agreement is to be released from making
payments under the agreement to the executive. If his employment is terminated
in connection with the Merger, Mr. Andrews will be entitled to receive a
payment of approximately $1,036,000 (which amount excludes the target bonus
amount to be paid under the Omnibus Plan), and Mr. McKee will be entitled to
approximately $1,084,000 (which amount excludes the target bonus amount to be
paid under the Omnibus Plan), plus, in each case, any benefit that the
executive may have been due under any benefit plan.
Under the Severance Agreements of Messrs. Yorke, Beattie, Lyon, Sheekey and
Jakubowski, in the event of a Change in Control of the Company (as defined in
such executive's Severance Agreement), either the Company or the executive if
the executive has Good Reason (as defined in such executive's Severance
Agreement), may terminate the executive's employment within 24 months after
the Change in Control, and upon such termination (unless the termination is
for Cause (as defined in such executive's Severance Agreement)), the executive
will receive an amount in cash equal to the executive's base salary for 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 termination. The Company will also pay to the executive
the targeted bonus amount in cash equal to 100% of the value of the award
under the Annual Incentive Award Plan of the Company that would have been
payable for the calendar year in which the termination occurs, assuming that
the performance goal for the year had been attained at a level of 100%. Such
bonus amount will be payable in equal semi-monthly payments over the 12 month
period following the date of termination. Further, the Company will pay to the
executive for the period ending 12 months after the date of termination any
benefit that may be due to the executive under any benefit plan, program or
policy of the Company, except other severance pay plans. Further, the Company
will pay to the executive an amount in cash equal to any award under 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 will pay
the executive up to an additional six months of base salary in the event that
the executive is not employed at the end of the 12 month period, provided that
the executive is using his best efforts to obtain comparable employment. Such
payments will be made in equal installments on a semi-monthly basis for up to
six months so long as the executive remains unemployed and continues to use
his best efforts to obtain comparable employment. If the executive becomes
employed during such additional six month period, he 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 month period.
Notwithstanding the foregoing, if the Company determines that the value of the
non-compete described below is greater than the 18 months of base salary plus
the targeted bonus amount for one year, the Company will pay the executive the
value of the non-compete in lieu of any base salary and the targeted bonus
amount. As consideration for such payments, the executive has agreed for a
period of 18 months following the date of termination that he will not, as an
individual, proprietor, partner, joint venturer, shareholder (other than in a
publicly traded company provided that the executive does 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 the agreement; provided, however,
that the Company's sole remedy in the event of a breach of the executive's
agreement is to be released from making payments under the agreement to the
executive. If his employment is terminated in connection with the Merger, and
assuming that the value of his non-compete is not greater than 18 months of
base salary plus the targeted bonus amount, Mr. Yorke will be entitled to a
maximum payment of $350,000, Mr. Beattie a maximum of $281,200, Mr. Lyon a
maximum of $340,000 and Mr. Sheekey and Mr. Jakubowski each a maximum of
$266,000, plus in each case, any benefits that the executive may have been due
under any benefit plan.
35
<PAGE>
The Merger Agreement provides that for a period of at least two years from
and after the Effective Time, GMAC will cause the Surviving Corporation to
honor the Severance Agreements in accordance with their terms immediately
prior to the Effective Time. See "The Merger Agreement--Severance Agreements."
Under the Omnibus Plan, Messrs. Andrews, McKee, Yorke, Beattie, Lyon,
Sheekey and Jakubowski will be entitled to a bonus payable, regardless of the
Company's performance, upon the Merger, in the following amounts: Mr. Andrews
will be entitled to $327,000, Mr. McKee $318,333, Mr. Yorke $173,333, Mr.
Beattie $156,000, Mr. Lyon $182,000, Mr. Sheekey $121,333, and Mr. Jakubowski
$65,000.
From and after the Effective Time, GMAC agrees to provide, or cause the
Surviving Corporation to provide, to employees of the Company retirement
benefits, bonus and incentive compensation and life, health, disability and
other welfare benefits on a basis economically comparable to similar plans
currently in effect for the Company's employees, and, for purposes of
determining eligibility to participate, vesting and entitlement benefits,
service with the Company or any subsidiary prior to the Effective Time shall
be treated as service with GMAC or its subsidiaries, except to the extent such
recognition would result in a duplication of benefits. See "The Merger
Agreement--Employee Plans."
REGULATORY APPROVALS
U.S. Antitrust Matters. Under the provisions of the HSR Act applicable to
the Merger, the Merger may only be consummated following the expiration of a
30-calendar day waiting period following the filing by the Company and by GMAC
of Notification and Report Forms with respect to the Merger, unless GMAC or
the Company receives a formal request for additional information or
documentary material from the Antitrust Division of the United States Justice
Department (the "Antitrust Division") or the Federal Trade Commission (the
"FTC") or unless early termination of the waiting period is granted. GMAC and
the Company submitted their Notification and Report Forms with respect to the
Merger on June 30, 1997. Early termination of the applicable waiting period
was granted on July 14, 1997, effective immediately.
However, at any time before or after the Effective Time, the Antitrust
Division or the FTC could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking the divestiture of shares of
Common Stock acquired by GMAC or the divestiture of substantial assets of the
Company or its subsidiaries or GMAC or its subsidiaries. Private parties may
also bring legal action under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the result thereof.
Insurance Laws. State insurance holding company laws and regulations
applicable to the Company generally provide that no person may acquire control
of the Company unless such person has provided certain required information
to, and such acquisition has been approved (or not disapproved) by, the
appropriate insurance regulatory authorities. In accordance with the insurance
holding company laws of North Carolina, GMAC, on behalf of itself and certain
of its subsidiaries, has filed an application on Form A for the approval of
the Merger with the North Carolina Insurance Department. As of the date of
this Proxy Statement, GMAC has filed all required applications with the North
Carolina Insurance Department, but the North Carolina Insurance Department has
not completed its review of the filing. Numerous different states have adopted
laws which require an acquiror of an insurer to file notification of the
intended acquisition under certain circumstances. GMAC is investigating the
need for such filings and will comply with any such statutory requirements. In
addition, GMAC has filed all required applications with the Bermuda Monetary
Authority required under the laws and regulations of Bermuda, but the Bermuda
Monetary Authority has not completed its review of the filing.
CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS
The following is a summary of certain United States income tax consequences
of the Merger to Stockholders.
36
<PAGE>
The receipt of cash in exchange for Common Stock (including Common Stock
issuable upon conversion of the Convertible Preferred Stock) pursuant to the
Merger, upon the exercise of appraisal rights or, in the case of the
Convertible Preferred Stock not converted prior to the Effective Time, upon a
conversion or redemption after the Effective Time, will be taxable
transactions for U.S. federal income tax purposes and may also be taxable
transactions under applicable state, local and foreign tax laws. A Stockholder
will generally recognize gain or loss for U.S federal income tax purposes in
an amount equal to the difference between such Stockholder's adjusted tax
basis in such Stockholder's Common Stock (including Common Stock issuable upon
conversion of the Convertible Preferred Stock) or the Convertible Preferred
Stock and the cash received by such Stockholder. Such gain or loss will be a
capital gain or loss if such Common Stock or Convertible Preferred Stock
converted at the Effective Time is held as a capital asset and will be long-
term capital gain or loss if, at the Effective Time, such Common Stock or
Convertible Preferred Stock has been held for more than one year. In the case
of Convertible Preferred Stock not converted at the Effective Time, such gain
or loss will be a capital gain or loss if such Convertible Preferred Stock is
held as a capital asset and will be a long-term capital gain or loss if, at
the date of conversion or redemption, such Convertible Preferred Stock has
been held for more than one year.
The receipt of consideration pursuant to the Merger or the exercise of
appraisal rights may be subject, under certain circumstances, to "backup
withholding" at a 31% rate. This withholding generally applies only if the
Stockholder (i) fails to furnish his or her social security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the Internal
Revenue Service that he or she has failed to report properly interest or
dividends, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is the
correct number and that he or she is not subject to backup withholding.
The foregoing discussion may not apply to Stockholders or Option holders who
acquired their Common Stock or Options pursuant to the exercise of employee
stock options or other compensation arrangements with the Company, who are not
citizens or residents of the United States or who are otherwise subject to
special tax treatment. EACH STOCKHOLDER AND OPTION HOLDER IS URGED TO CONSULT
HIS, HER OR ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting purposes.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds necessary for payment of the Merger Consideration
under the Merger Agreement will be approximately $527,900,000. The foregoing
amount assumes that the Options outstanding as of August 22, 1997 will be
cashed-out at the difference between $26.00 per share minus the exercise price
per share of such Options and that all shares of Convertible Preferred Stock
will be converted on or prior to the Effective Time. GMAC also intends to fund
or cause to be funded the insurance subsidiaries of the Company as necessary
to continue their operations in accordance with applicable insurance laws and
regulations or otherwise as required by the North Carolina Insurance
Department. GMAC anticipates paying the foregoing amounts from the internal
resources of GMAC or its affiliates. See "THE MERGER--The Merger
Consideration."
APPRAISAL RIGHTS
Record holders of shares of Common Stock who follow the appropriate
procedures are entitled to appraisal rights under Section 262 of the DGCL in
connection with the Merger. The following discussion is not a complete
statement of the law pertaining to appraisal rights under the DGCL and is
qualified in its entirety by the full text of Section 262 of the DGCL which is
reprinted in its entirety as Annex C to this Proxy Statement. Except as set
forth herein, stockholders will not be entitled to appraisal rights in
connection with the Merger.
37
<PAGE>
Under Section 262 of the DGCL, record holders of shares of Common Stock who
follow the procedures set forth in Section 262 of the DGCL and who do not vote
in favor of the Merger will be entitled to have their shares of Common Stock
appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court.
Under Section 262 of the DGCL, where a merger agreement is to be submitted
for adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 days prior to the meeting, the Company must notify
each of the stockholders who are entitled to appraisal rights that such
appraisal rights are available and include in each such notice a copy of
Section 262 of the DGCL. This Proxy Statement constitutes such notice. Any
holder of Common Stock who wishes to exercise appraisal rights should review
the following discussion and Annex C carefully because failure to timely and
properly comply with the procedures specified in Section 262 of the DGCL will
result in the loss of appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights must
deliver to the Company, before the vote on the adoption of the Merger
Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. Such demand will be sufficient if it
reasonably informs the Company of the Stockholder's identity and that the
Stockholder intends to demand appraisal of his or her shares. A proxy or vote
against the Merger will not satisfy this requirement. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must be the record
holder of such shares on the date the written demand for appraisal is made and
must continue to hold such shares of record through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates. If shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
for appraisal should be made in that capacity, and if the shares of Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand for appraisal should be executed by or on behalf
of all joint owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however,
the agent must identify the record owner or owners and expressly disclose the
fact that, in executing the demand, the agent is agent for such owner or
owners. A record holder such as a broker who holds shares of Common Stock as
nominee for several beneficial owners may exercise appraisal rights with
respect to the shares of Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Common Stock
held for other beneficial owners; in such case, the written demand should set
forth the number of shares as to which appraisal is sought and where no number
of shares is expressly mentioned the demand will be presumed to cover all
shares of Common Stock held in the name of the record owner. Holders of shares
of Common Stock who hold their shares in brokerage accounts or other nominee
forms and who wish to exercise appraisal rights are urged to consult with
their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such nominee.
All written demands for appraisal of shares of Common Stock should be mailed
or delivered to Integon Corporation, 500 West Fifth Street, Winston-Salem,
North Carolina 27152, Attention: Secretary so as to be received before the
vote on the adoption of the Merger Agreement at the Special Meeting.
Within 10 days after the Effective Time, the Company, as the surviving
corporation in the Merger, must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262 of the DGCL. Within 120 days after the Effective Time, but not thereafter,
the Company, or any holder of shares of Common Stock entitled to appraisal
rights under Section 262 of the DGCL and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. The Company is not under any
obligation, and has no present intention, to file a petition with respect to
the appraisal of the fair value of the shares of Common Stock. Accordingly, it
is the obligation of the Stockholders to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262 of
the DGCL.
38
<PAGE>
Within 120 days after the Effective Time, any record holder of shares of
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from the Company a
statement setting forth the aggregate number of shares of Common Stock not
voted in favor of the Merger with respect to which demands for appraisal were
received and the aggregate number of holders of such shares. Such statements
must be mailed within 10 days after a written request therefor has been
received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares
of Common Stock entitled to appraisal rights and will appraise the "fair
value" of the shares of Common Stock, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. Holders considering seeking appraisal should be aware that the
fair value of their shares of Common Stock as determined under Section 262 of
the DGCL could be more than, the same as or less than the value of the Merger
Consideration that they would otherwise receive if they did not seek appraisal
of their shares of Common Stock. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in the appraisal proceedings. More specifically, the
Delaware Supreme Court has stated that: "Fair value, in an appraisal context,
measures that which has been taken from the shareholder, viz., his
proportionate interest in a going concern. In the appraisal process the
corporation is valued as an entity, not merely as a collection of assets or by
the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an ongoing enterprise, occupying a particular
market position in the light of future prospects." The Delaware Court of
Chancery will also determine the amount of interest, if any, to be paid upon
the amounts to be received by persons whose shares of Common Stock have been
appraised. The costs of the action may be determined by the court and taxed
upon the parties as the court deems equitable. Upon application of a
Stockholder, the court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Common Stock entitled to
appraisal.
Any holder of shares of Common Stock who has duly demanded an appraisal in
compliance with Section 262 of the DGCL will not, after the Effective Time, be
entitled to vote the shares of Common Stock subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of shares of Common Stock as of a date prior to the Effective Time).
If any holder of shares of Common Stock who demands appraisal of shares
under Section 262 of the DGCL fails to perfect, or effectively withdraws or
loses, the right to appraisal, as provided in the DGCL, the shares of Common
Stock of such holder will be converted into Merger Consideration without
interest in accordance with the Merger Agreement. A holder of shares of Common
Stock will fail to perfect, or will effectively lose, the right to appraisal
if no petition for appraisal is filed within 120 days after the Effective
Time. A holder may withdraw a demand for appraisal by delivering to the
Company a written withdrawal of the demand for appraisal and acceptance of the
Merger, except that any such attempt to withdraw made more than 60 days after
the Effective Time will require the written approval of the Company and, after
a petition for appraisal has been filed, such appraisal proceeding may not be
dismissed as to any stockholder without the approval of the Court.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Holders of Convertible Preferred Stock, as such, are not entitled to
appraisal rights in connection with the Merger, although such holders who
convert their shares of Convertible Preferred Stock into Common Stock prior to
the Special Meeting and who comply with the foregoing requirements for
demanding and perfecting appraisal rights with respect to such Common Stock
may seek appraisal of such shares of Common Stock.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of
such Section, a copy of which is attached hereto as Annex C.
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated income statement and balance sheet data set forth
below have been derived from the financial statements of the Company. The
selected consolidated financial information below should be read in
conjunction with the financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Form 10-K for the year ended December 31, 1996
and Form 10-Q for the quarter ended June 30, 1997, incorporated by reference
hereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------
1997(5) 1996 1996(4) 1995 1994(3) 1993(3) 1992(3)
---------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Direct premiums
written............... $ 471,942 $ 458,926 $ 935,011 $ 797,373 $ 545,483 $395,767 $341,957
Net premiums written... 388,463 392,073 797,989 620,447 363,467 246,393 193,459
Total revenues......... 421,025 370,096 783,411 627,458 369,587 267,510 215,287
Income (loss) from
continuing
operations............ (36,788) 11,682 170 36,619 22,538 43,286 31,324
Net income (loss)...... (36,788) 11,682 170 33,995 23,188 44,196 30,110
Net income (loss)
available to common
stockholders.......... (39,573) 8,897 (5,400) 28,425 22,306 44,196 29,772
PER SHARE
Income (loss) from
continuing
operations............ $ (2.51) $ .56 $ (.34) $ 1.86 $ 1.38 $ 2.53 $ 1.94
Net income (loss)...... (2.51) .56 (.34) 1.73 1.42 2.58 1.87
Weighted average shares
outstanding........... 15,745 15,863 15,850 19,635 15,750 17,119 15,918
Dividends paid......... $ .18 $ .18 $ .36 $ .36 $ .36 $ .32 $ .16
FINANCIAL POSITION
Cash and invested
assets................ $ 685,899(4) $ 523,971 $ 567,892 $ 505,104 $ 420,919 $244,588 $242,249
Total assets........... 1,484,437 1,296,286 1,356,799 1,241,679 1,152,123 656,721 584,070
Short-term debt........ 26,000 21,000 44,000 16,000 21,000 16,049 --
Notes payable.......... 150,714 150,743 150,760 150,807 150,812 75,826 74,808
Company-Obligated
Mandatorily Redeemable
Capital Securities of
Subsidiary Trust...... 100,000 -- -- -- -- -- --
Stockholders' equity... 173,252 229,018 215,391 234,847 195,259 127,462 115,820
GAAP COMBINED RATIO(1)
Loss ratio............. 90.1% 76.7% 80.0% 73.4% 70.4% 62.1% 57.0%
Expense ratio.......... 25.3 20.9 22.4 21.6 22.0 21.9 24.1
---------- ---------- ---------- ---------- ---------- -------- --------
Combined ratio......... 115.4% 97.6% 102.4% 95.0% 92.4% 84.0% 81.1%
---------- ---------- ---------- ---------- ---------- -------- --------
SELECTED INSURANCE
COMPANY STATUTORY
DATA(2)
Loss ratio............. 90.0% 75.5% 79.4% 73.2% 70.8% 63.0% 57.0%
Expense ratio.......... 24.2 21.5 22.1 21.5 21.7 22.0 20.9
---------- ---------- ---------- ---------- ---------- -------- --------
Combined ratio......... 114.2% 97.0% 101.5% 94.7% 92.5% 85.0% 77.9%
---------- ---------- ---------- ---------- ---------- -------- --------
Statutory net income
(loss)................ $ (22,730) $ 11,909 $ 6,882 $ 41,814 $ 37,883(3) $ 35,097 $ 39,267
Statutory surplus...... 273,714(6) 246,099 245,919 226,832 198,589 103,033 105,395
Net premiums written to
statutory surplus..... 2.9x 2.9x 3.2x 2.7x 2.6x(3) 2.4x 1.8x
</TABLE>
- --------
(1) Ratios for 1993 exclude the effect of non-recurring items relating to the
settlement of a premium rate dispute.
(2) Combined ratio for 1994 is computed including the results of Bankers and
Shippers for the period after the acquisition date of October 18, 1994.
(3) During October 1994, the Company acquired Bankers and Shippers for $153.2
million and the transaction was accounted for under the purchase method.
The results of operations of Bankers and Shippers are included with the
results of the Company from October 18, 1994. See Note B "Acquisitions-
Purchase of Bankers and Shippers" to the financial statements for the year
ended December 31, 1996 included in the Form 10-K incorporated by
reference for selected proforma operating results assuming the acquisition
occurred on January 1, 1994 and 1993, respectively. The net premiums
written to statutory surplus and statutory net income includes the results
of Bankers and Shippers for the full year 1994.
(4) Gives effect to the February 10, 1997, issuance of Company-Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding
Solely the Company's Junior Subordinated Deferrable Interest Debentures in
the amount of $100.0 million.
(5) The financial statements of the Company for the year ended December 31,
1996 and the six months ended June 30, 1997 include the effects of
increases in loss and loss adjustment expenses payable of $12.5 million
and $42.0 million, respectively due to actual loss and loss adjustment
expenses in excess of original expectations.
(6) During the first quarter of 1997, the Company contributed $50.0 million of
capital in the form of certificates of contribution to its insurance
subsidiaries.
40
<PAGE>
MARKET PRICES AND CASH DIVIDENDS INFORMATION
Shares of Common Stock and Convertible Preferred Stock are listed and traded
on the NYSE. On June 20, 1997, the last full trading day preceding public
announcement of the signing of the Merger Agreement, the high, low and closing
sales prices of a share of Common Stock on the NYSE Composite Transactions
Tape were $16.125, $15.50 and $15.50, respectively, and the high, low and
closing sales prices of a share of Convertible Preferred Stock were $48,
$47.75 and $48, respectively. On June 23, 1997, the date on which the signing
of the Merger Agreement was announced, the high, low and closing sales prices
of a share of Common Stock on the NYSE Composite Transactions Tape immediately
prior to a trading halt pending the announcement were $16.125, $15.50 and $16,
respectively, and the high, low and closing sales price of a share of
Convertible Preferred Stock were $48.50, $48.50 and $48.50, respectively. On
September 12, 1997, the latest practicable trading day before the printing of
this Proxy Statement, the high, low and closing sales prices of a share of
Common Stock on the NYSE Composite Transactions Tape were $25.50, $25.438 and
$25.438 , respectively, and the high, low and closing sales price of a share
of Convertible Preferred Stock were $67.00, $67.00 and $67.00, respectively.
The following table sets forth the quarterly cash dividends paid by the
Company on the Common Stock and on the Convertible Preferred Stock for the
most recent fiscal year and any interim period:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Common Stock
First Quarter........................................ $ .09/Sh $ .09/Sh
Second Quarter....................................... $ .09/Sh $ .09/Sh
Third Quarter........................................ $ .09/Sh --
Fourth Quarter....................................... $ .09/Sh --
Convertible Preferred Stock
First Quarter........................................ $.96875/Sh $.96875/Sh
Second Quarter....................................... $.96875/Sh $.96875/Sh
Third Quarter........................................ $.96875/Sh --
Fourth Quarter....................................... $.96875/Sh --
</TABLE>
On August 14, 1997, the Board of Directors declared a cash dividend of $.09
per share of Common Stock and of $.96875 per share of Convertible Preferred
Stock, which will be payable on September 15, 1997 by the Company to
stockholders of record on September 2, 1997.
The Company, a holding company whose principal asset is the capital stock of
its insurance subsidiaries, relies primarily on dividends from its insurance
subsidiaries to meet its obligations for payment of interest and principal on
outstanding debt obligations, including dividends to stockholders and
corporate expenses. The ability of insurance subsidiaries to pay dividends to
the Company is restricted by the insurance laws of North Carolina, under which
the maximum amount of ordinary dividends that an insurance subsidiary may pay
to the Company at any point in time without regulatory approval is the lesser
of (a) 10% of the policyholders' statutory surplus of such insurance
subsidiary as of the preceding December 31 or (b) the statutory net income of
such insurance subsidiary for the preceding calendar year, less the amount of
dividends paid during the preceding 12 months. In 1996, the maximum amount of
ordinary dividends payable by the Company's insurance subsidiaries was
approximately $22.3 million. The Company's insurance subsidiaries paid
approximately $4.8 million of ordinary dividends in 1996.
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership, both direct and
indirect, reported to the Company as of August 22, 1997 (except as otherwise
noted), of Common Stock of the Company including shares as to which a right to
acquire ownership exists (for example, through the exercise of the Options or
conversion of the Convertible Preferred Stock.) The information is presented
for beneficial owners of more than five percent (5%) of the Company's Common
Stock, for each director, for each executive officer and for the group
comprised of all directors and executive officers. Other than the directors
and executive officers identified herein, no other director or executive
officer owned beneficially more than one percent (1%) of the outstanding
shares of Common Stock and management knows of no persons other than those
identified herein who owned beneficially more than five percent (5%) of the
outstanding shares of Common Stock as of August 22, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) COMMON STOCK
------------------------------------ --------------- -------------
<S> <C> <C>
Steven C. Andrews(2).............................. 133,786 *
500 West Fifth Street
Winston-Salem, NC 27152
John C. Beattie(2)................................ 45,000 *
500 West Fifth Street
Winston-Salem, NC 27152
Lester L. Coleman................................. 4,486 *
3600 Lincoln Plaza
500 North Akard Street
Dallas, TX 75201
John C Head III(3)................................ 552,459 3.4%
1330 Avenue of the Americas
12th Floor
New York, NY 10019-5402
Madie Ivy(3)...................................... 552,459 3.4%
1330 Avenue of the Americas
12th Floor
New York, NY 10019-5402
Kenneth J. Jakubowski(2).......................... 15,000 *
500 West Fifth Street
Winston-Salem, NC 27152
Jupiter Industries, Inc.(4)....................... 2,482,546 15.4%
Caremark Towers
2215 Sanders Road, Suite 385
Northbrook, IL 60062
Jupiter Integon Limited Partnership(4)............ 2,469,077 15.3%
Caremark Towers
2215 Sanders Road, Suite 385
Northbrook, IL 60062
Arthur S. Lyon, Jr.(2)............................ 31,100 *
500 West Fifth Street
Winston-Salem, NC 27152
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) COMMON STOCK
------------------------------------ --------------- -------------
<S> <C> <C>
Donald F. McKee(2).............................. 125,786 *
500 West Fifth Street
Winston-Salem, NC 27152
John B. McKinnon(5)............................. 29,083 *
2020 Virginia Road
Winston-Salem, NC 27104
Brian T. Sheekey(2)............................. 26,000 *
500 West Fifth Street
Winston-Salem, NC 27152
Derek V. Smith.................................. 1,584 *
200 Alderman Drive
Alpharetta, GA 30005
Thomas W. Smith(6).............................. 1,610,500 10.0%
323 Railroad Avenue
Greenwich, CT 06830
Tiger Management L.L.C.(7)...................... 1,466,800 9.1%
101 Park Avenue
New York, NY 10178
Thomas N. Tryforos(6)........................... 1,212,600 7.5%
323 Railroad Avenue
Greenwich, CT 06830
Frederick B. Whittemore......................... 17,486 *
1251 Avenue of the Americas
New York, New York 10020
John B. Yorke(2)................................ 47,000 *
500 West Fifth Street
Winston-Salem, NC 27152
Ronald N. Zebeck................................ 1,484 *
600 South Highway 169, Suite 1800
St. Louis Park, MN 55426
--------- ----
All executive officers and directors as a group
(13 persons)(8)................................ 1,030,254 6.4%
</TABLE>
- --------
* Represents less than 1% of the Common Stock.
(1) Except as indicated in the Notes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) The amount reported includes options that will become exercisable at the
Effective Time that were granted pursuant to the 1992 Plan and the Omnibus
Plan for Messrs. Andrews, Beattie, Jakubowski, Lyon, McKee, Sheekey and
Yorke in the amount of 125,786, 45,000, 15,000, 30,600, 90,786, 26,000 and
45,000 respectively.
(3) Mr. Head and Ms. Ivy are married to each other. Includes 13,794 shares of
Common Stock held directly by Mr. Head, 3,551 shares of convertible
preferred stock held directly by Mr. Head (which are convertible into
9,320 shares of Common Stock), 11,928 shares of Common Stock held by Ms.
Ivy, 3,452 shares of convertible preferred stock held directly by Ms. Ivy
(which are convertible into 9,060 shares of Common Stock), 471,012 shares
of Common Stock held by a limited partnership of which Mr. Head and Ms.
Ivy are the general partners, 13,894 shares of Common Stock held by a
profit sharing plan in which Mr. Head and Ms. Ivy have an interest, 220
shares of Common Stock and 200 shares of Convertible Preferred Stock
43
<PAGE>
(which are convertible into 525 shares of Common Stock) for which Ms. Ivy
is custodian for their children, 3,996 shares of Common Stock and 1,086
shares of Convertible Preferred Stock (which are convertible into 2,850
shares of Common Stock) owned by trusts for the benefit of their children,
13,046 shares of Common Stock and 1,072 shares of Convertible Preferred
Stock (which are convertible into 2,814 shares of Common Stock) through
corporations in which Mr. Head and Ms. Ivy have an interest. Mr. Head, Ms.
Ivy and Jupiter Industries, Inc. are parties to an agreement concerning the
nomination and election of directors of the Company. Such agreement is
terminable at will.
(4) Jupiter Integon Limited Partnership ("Jupiter Partnership") is the direct
beneficial owner of 2,469,077 shares of the Common Stock, and Jupiter
Industries, Inc. ("Jupiter"), as the general partner of Jupiter
Partnership, may be deemed to own beneficially such shares. In addition,
Jupiter is the direct beneficial owner of 13,469 shares of the Common
Stock. Jupiter Partnership pledged 320,000 shares of the Common Stock to
Bank of America Illinois pursuant to a Pledge Agreement dated December 9,
1996, among Jupiter Partnership, Jupiter and Bank of America Illinois.
Jupiter, Mr. Head and Ms. Ivy are parties to an agreement concerning the
nomination and election of directors of the Company. Such agreement is
terminable at will. Information on number of shares owned is taken from a
Schedule 13D filed on behalf of Jupiter Partnership and Jupiter, as
received by the Company on January 2, 1997.
(5) Includes 1,000 shares of Convertible Preferred Stock (which are
convertible into 2,625 shares of Common Stock) and 3,550 options issued
under the Omnibus Plan.
(6) Thomas W. Smith beneficially owns 1,310,500 shares of the Company's Common
Stock in his capacity as general partner of three private investment
limited partnerships of which Mr. Smith and Thomas N. Tryforos are general
partners, an employee profit sharing plan of which Mr. Smith and Mr.
Tryforos are trustees, certain family members of Mr. Smith, trusts for the
benefit of certain family members of Mr. Smith and a private charitable
foundation established by Mr. Smith (the "Managed Accounts"). In addition,
Mr. Smith directly owns 300,000 shares of Common Stock. Mr. Tryforos may
be deemed to beneficially own 1,205,000 shares of Common Stock in his
capacity as an investment manager for the Managed Accounts. In addition,
Mr. Tryforos directly owns 7,600 shares of Common Stock. Mr. Smith has
sole voting and investment power with respect to 405,500 shares of Common
Stock. Each of Messrs. Smith and Tryforos has shared voting and investment
power with respect to 1,205,000 shares of Common Stock. Information on
number of shares owned is taken from a questionnaire completed in
preparation for the Company's 1997 Proxy Statement.
(7) Each of Tiger Management L.L.C. ("TMLLC"), Tiger Performance L.L.C.
("TPLLC") and Panther Management Company L.P. ("PMCLP") is an investment
advisor under Section 203 of the Investment Advisors Act of 1940. Julian
H. Robertson, Jr. is the ultimate controlling person of TMLLC, TPLLC and
PMCLP. Other persons are known to have the right to receive dividends
from, or proceeds from the sale of, the 1,466,800 shares beneficially
owned by TMLLC. The interest of one such advisee, the Jaquar Fund N.V., a
Netherlands Antilles corporation, is more than a 5% holder of the Common
Stock. PMCLP's 81,900 shares are held for the benefit of Panther Partners,
L.P., an investment company registered under Section 8 of the Investment
Company Act. Information on number of shares owned is taken from the
Schedule 13G filed on behalf of TMLLC, TPLLC, PMCLP and Mr. Robertson, as
received by the Company on February 12, 1997.
(8) The amount reported includes 381,722 options that will become exercisable
at the Effective Time that were granted pursuant to the 1992 Plan and
Omnibus Plan and 10,361 shares of Convertible Preferred Stock that are
convertible into 27,194 shares of Common Stock.
To the best knowledge of the Company's management, there is no other
beneficial owner of more than 5% of a single class of voting security of the
Company.
44
<PAGE>
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY AFTER THE MERGER
If the proposed Merger is consummated, the holders of Common Stock and
Option holders will no longer have an equity interest in the Company and,
therefore, will not share in its future earnings and growth. Instead, each
holder of Common Stock and Option holder will have the right to receive the
Merger Consideration in cash.
GMAC will cause the Surviving Corporation to issue a notice of redemption of
the Convertible Preferred Stock within five days after the Effective Time to
all holders of Convertible Preferred Stock then outstanding and shall redeem
all outstanding shares of Convertible Preferred Stock that have not been
converted prior to the close of business on the fifth day preceding the
redemption date, at $52.33 per share, the redemption price under the terms of
the Certificate of Designation.
As a result of the Merger and the conversion and/or redemption of the
Convertible Preferred Stock, the Company will become an indirect wholly owned
subsidiary of GMAC. The Common Stock and the Convertible Preferred Stock,
after its redemption, will be delisted from NYSE, the registration of the
Common Stock and the Convertible Preferred Stock, after its redemption, under
the Exchange Act will terminate and the Company will be relieved of the
obligation to comply with the proxy rules of Regulation 14A under Section 14
of the Exchange Act, and its officers, directors and beneficial owners of more
than 10% of the Common Stock will be relieved of the reporting requirements
and restrictions on insider trading under Section 16 of the Exchange Act.
Accordingly, no separate information will be required to be made publicly
available than presently is the case.
Immediately after the Merger, all of the then outstanding Common Stock will
be beneficially owned by an indirect subsidiary of GMAC and GMAC will have an
indirect interest in the assets and liabilities of the Company. The officers
and directors of Merger Sub immediately prior to the Effective Time (who will
be designees of GMAC) will be the directors of the Company from and after the
Effective time (until their successors are duly elected or appointed and
qualified).
45
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the SEC. Copies of such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the SEC: Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains a Web Site at http://www.sec.gov that contains reports and other
information regarding registrants that file electronically with the SEC. In
addition, materials filed by the Company may be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996 as amended by the Form 10-K/A dated September 12, 1997;
2. The Company's Current Reports on Form 8-K, dated January 22, 1997,
January 28, 1997, March 31, 1997, April 18, 1997, June 2, 1997, June 23,
1997, June 30, 1997, July 7, 1997, July 17, 1997, August 1, 1997 and August
14, 1997;
3. The Company's reports on Form 8-A, dated January 31, 1997, and on Form
8-A/A, dated February 6, 1997, February 20, 1997 and June 26, 1997;
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 as amended by the Form 10-Q/A dated September 12, 1997; and
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 as amended by the Form 10-Q/A dated September , 1997.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part of this
Proxy Statement from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated
or deemed to be incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement.
The Company will provide without charge to any person to whom this Proxy
Statement is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to: 500 West Fifth
Street, Winston-Salem, North Carolina 27152, Attention: John B. Yorke, Vice
President and Corporate General Counsel (telephone: (910) 770-8110). Copies of
such documents will be delivered by first class mail or other equally prompt
means within one business day of receipt of such request. To ensure timely
delivery of such documents, requests for such documents should be made no
later than October 9, 1997.
EXPERTS
The consolidated financial statements and schedules of the Company and its
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 appearing in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and that are
incorporated by reference in this Proxy Statement have been incorporated by
reference herein in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, incorporated by reference herein,
given upon the authority of said firm as experts in accounting and auditing.
46
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP serves as the Company's independent certified public
accountants. A representative of Deloitte & Touche LLP will be at the Special
Meeting to answer questions by Stockholders and will have the opportunity to
make a statement if so desired.
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the SEC, Stockholder proposals
intended for presentation at the 1998 Annual Meeting of Stockholders, which
will only be held if the Merger is not consummated, must be received by the
Secretary of the Corporation no later than November 28, 1997 if such proposals
are to be considered for inclusion in the Company's Proxy Statement.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Special Meeting and as of the date hereof does not know of
any other matters that may be brought before the Special Meeting by others. If
any other matter should properly come before the Special Meeting, the persons
named in the enclosed proxy as proxy appointees will have discretionary
authority to vote the shares of Common Stock thereby represented in accordance
with their best judgment.
47
<PAGE>
Execution Copy
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
GENERAL MOTORS ACCEPTANCE CORPORATION
and
INTEGON CORPORATION
-------------------
June 23, 1997
-------------------
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE 1 THE MERGER..................................................................................2
1.1 The Merger..................................................................................2
1.2 Closing; Effective Time.....................................................................2
1.3 Certificate of Incorporation................................................................3
1.4 By-laws.....................................................................................3
1.5 Directors and Officers......................................................................3
ARTICLE 2 CONVERSION OF SECURITIES....................................................................3
2.1 Common Stock................................................................................3
2.2 Convertible Preferred Stock.................................................................4
2.3 Treasury Stock and Parent-Owned Stock.......................................................5
2.4 Dissenting Shares...........................................................................5
2.5 Merger Sub Common Stock.....................................................................6
2.6 Exchange of Certificates....................................................................6
2.7 Options.....................................................................................9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................10
3.1 Organization...............................................................................10
3.2 Capitalization.............................................................................11
3.3 Subsidiaries...............................................................................12
3.4 Authorization; Binding Agreement...........................................................13
3.5 Noncontravention...........................................................................13
3.6 Approvals..................................................................................14
3.7.A SEC Filings; Financial Statements..........................................................15
3.7.B Insurance Subsidiary Statements............................................................16
3.7.C No Undisclosed Liabilities.................................................................17
3.8 Absence of Certain Changes or Events.......................................................17
3.9 Litigation, Judgments, No Default, Etc.....................................................22
3.10 Compliance.................................................................................23
3.11.A Definition of Tax and Taxes, Tax Returns and Taxing Authority..............................24
3.11.B Taxes......................................................................................25
3.11.C Tax Representations........................................................................26
3.12 Employee Benefit Plans.....................................................................29
3.13 Information Supplied.......................................................................32
3.14 Finders and Investment Bankers.............................................................33
3.15 Rights Agreement...........................................................................33
3.16 Opinion of Financial Advisor...............................................................34
3.17 Contracts..................................................................................34
3.18 Reserves...................................................................................37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
3.19 Reinsurance Recoverables...................................................................37
3.20 Collective Bargaining Agreements...........................................................37
3.21 No Default.................................................................................37
3.22 Premiums Receivable........................................................................38
3.23 Bank Accounts..............................................................................39
3.24 Guarantees.................................................................................39
3.25 Insurance..................................................................................39
3.26 Related Parties............................................................................40
3.27 Proprietary Rights.........................................................................40
3.28 Compliance with Law........................................................................41
3.29 Real Property..............................................................................42
3.30 Investments of Insurance Subsidiaries......................................................43
3.31 Insurance Practices........................................................................43
3.32 Licenses and Permits.......................................................................43
3.33 Overdue Assessments: Risk Sharing Plans...................................................44
3.34 Underlying Documents.......................................................................45
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE MERGER SUB............................45
4.1 Organization...............................................................................45
4.2 Authorization; Binding Agreement...........................................................46
4.3 Noncontravention...........................................................................47
4.4 Governmental Approvals.....................................................................47
4.5 Finders and Investment Bankers.............................................................48
ARTICLE 5 COVENANTS..................................................................................48
5.1 Conduct of Business of the Company.........................................................48
5.2 Stockholder Approval; Proxy Statement......................................................50
5.3 Access and Information.....................................................................51
5.4 No Solicitation............................................................................52
5.5 Reasonable Efforts; Additional Actions.....................................................53
5.6 Notification of Certain Matters............................................................54
5.7 Public Announcements.......................................................................55
5.8 Merger Sub.................................................................................55
5.9 Severance..................................................................................56
5.10 Indebtedness of the Company................................................................56
5.11 Termination of Investment Advisory Agreement...............................................57
5.12 Termination of Amended Salary Deferral Plan and Deferral of Bonus Payment..................57
5.13 Employee Plans.............................................................................57
5.14 Investment Portfolio.......................................................................58
5.15 Indemnification of Directors and Officers..................................................58
5.16 Updating of Schedules......................................................................59
5.17 Redemption of Company Convertible Preferred Stock..........................................59
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE 6 CONDITIONS.................................................................................60
6.1 Conditions to Each Party's Obligations.....................................................60
6.2 Conditions to Obligation of the Parent and the Merger Sub..................................62
6.3 Conditions to Obligation of the Company....................................................63
ARTICLE 7 TERMINATION................................................................................64
7.1 Termination................................................................................64
7.2 Procedure for and Effect of Termination....................................................65
ARTICLE 8 MISCELLANEOUS..............................................................................66
8.1 Certain Definitions........................................................................66
8.2 Amendment and Modification.................................................................67
8.3 Waiver of Compliance; Consents.............................................................68
8.4 Survival...................................................................................68
8.5 Notices....................................................................................68
8.6 Assignment.................................................................................70
8.7 Expenses...................................................................................70
8.8 Governing Law..............................................................................70
8.9 Counterparts...............................................................................70
8.10 Interpretation.............................................................................70
8.11 Entire Agreement...........................................................................71
8.12 No Third Party Beneficiaries...............................................................71
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule 2.3 - Treasury Shares Held by Subsidiaries
Schedule 3.2 - Capitalization
Schedule 3.3 - Subsidiaries
Schedule 3.2.4 - Guarantees
Schedule 3.5 - Consents
Schedule 3.7.A - SEC Filings
Schedule 3.7.C - No Undisclosed Liabilities
Schedule 3.8 - Certain Changes or Events
Schedule 3.9 - Litigation
Schedule 3.10 - Compliance
Schedule 3.11.B - Taxes
Schedule 3.11.C - Tax Representations
Schedule 3.12(a) - Employee Benefit Plans
Schedule 3.12(b) - Employee Benefit Plans
Schedule 3.14 - Finders & Investment Bankers
Schedule 3.17 - Contracts
Schedule 3.23 - Bank Accounts
Schedule 3.25 - Insurance
Schedule 3.26 - Related Parties
Schedule 3.27 - Proprietary Rights
Schedule 3.29 - Real Property
Schedule 3.30 - Investment of Insurance Subsidiaries
Schedule 3.32 - Licenses and Permits
Schedule 3.33 - Overdue Assessments; Risk Sharing Plans
Schedule 5.1 - Conduct of Business
Schedule 5.9 - Severance Schedule
Schedule 5.12 - Amended Salary Deferral Plan
<CAPTION>
EXHIBITS
<S> <C> <C>
Exhibit 6.2(e) - Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
Exhibit 6.3(d) - Opinion of Parent's Legal Staff
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 23, 1997 (the "Agreement"),
---------
by and between GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation
(the "Parent"), and INTEGON CORPORATION, a Delaware corporation (the "Company").
------ -------
WHEREAS, the respective boards of directors of the Parent and the Company
have approved this Agreement pursuant to which, among other things, a wholly
owned direct or indirect subsidiary of the Parent to be incorporated in Delaware
(the "Merger Sub") will be merged with and into the Company (the "Merger") on
---------- ------
the terms and conditions contained herein and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"); the Merger Sub and the
----
Company are sometimes collectively referred to herein as the "Constituent
-----------
Corporations"; and
- ------------
WHEREAS, the Parent and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
<PAGE>
2
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of
----------
this Agreement, at the Effective Time (as defined in Section 1.2) and in
accordance with the DGCL, the Merger Sub shall be merged with and into the
Company, which shall be the surviving corporation in the Merger (the "Surviving
---------
Corporation"). At the Effective Time, the separate existence of the Merger Sub
- -----------
shall cease and the other effects of the Merger shall be as set forth in Section
259 of the DGCL.
1.2 Closing; Effective Time. Subject to the provisions of Article
-----------------------
6, the closing of the Merger (the "Closing") shall take place in New York City
-------
at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, as soon as
practicable but in no event later than 10:00 a.m. New York City time on the
first business day after the date on which each of the conditions set forth in
Article 6 have been satisfied or waived by the party or parties entitled to the
benefit of such conditions, or at such other place, at such other time or on
such other date as the Parent, the Merger Sub and the Company may mutually
agree. The date on which the Closing actually occurs is hereinafter referred to
as the "Closing Date." At the Closing, the Parent, the Merger Sub and the
------------
Company shall cause a certificate of merger (the "Certificate of Merger") to be
---------------------
executed and filed with the Secretary of State of the State of Delaware in
accordance with the DGCL. The Merger shall become effective as of the date and
time of such filing or as of such subsequent date or time as the Parent and the
<PAGE>
3
Company shall agree to and shall be set forth in the Certificate of Merger
("Effective Time").
- ----------------
1.3 Certificate of Incorporation. The certificate of incorporation
----------------------------
of the Company, as in effect immediately prior to the Effective Time, shall be,
from and after the Effective Time, the certificate of incorporation of the
Surviving Corporation, until thereafter altered, amended or repealed as provided
therein and in accordance with applicable law.
1.4 By-laws. The by-laws of the Merger Sub, as in effect
-------
immediately prior to the Effective Time, shall become, from and after the
Effective Time, the by-laws of the Surviving Corporation, until thereafter
altered, amended or repealed as provided therein and in accordance with
applicable law.
1.5 Directors and Officers. The directors and officers of the
----------------------
Merger Sub immediately prior to the Effective Time shall become, from and after
the Effective Time, the directors and officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualified or
their earlier resignation or removal.
ARTICLE 2
CONVERSION OF SECURITIES; OPTIONS
2.1 Common Stock. Each share of Common Stock, par value $.01 per
------------
share, of the Company (the "Company Common Stock") issued and outstanding
--------------------
immediately prior to the Effective Time (other than Dissenting Shares (as
defined in Section 2.4) and Parent Shares (as defined in Section 2.3)) shall, by
virtue of the
<PAGE>
4
Merger and without any action on the part of the holder thereof, be converted
into the right to receive an amount in cash equal to $26.00 per share (the
"Common Stock Price Per Share") payable to the holder thereof, without interest
----------------------------
thereon, upon surrender of the certificate formerly representing such share of
Company Common Stock in accordance with Section 2.6. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of the Company Common Stock shall have been changed into a
different number of shares or a different class, by reason of any dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, the Common Stock Price Per Share shall be correspondingly adjusted on
a per-share basis to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
2.2 Convertible Preferred Stock. All shares of $3.875 Convertible
---------------------------
Preferred Stock, par value $.01 per share, of the Company (the "Company
-------
Convertible Preferred Stock") issued and outstanding immediately prior to the
- ---------------------------
Effective Time shall remain outstanding after the Effective Time, subject to
Section 5.17. Each share of Company Convertible Preferred Stock shall entitle
its holder, from and after the Effective Time during the period such shares are
convertible, to convert such shares into cash in an amount (the "Cash Conversion
---------------
Consideration") equal to (i) the Common Stock Price Per Share multiplied by (ii)
- -------------
the number of shares of Company Common Stock into which the shares of Company
Convertible Preferred Stock held by such holder would have been convertible
immediately prior to
<PAGE>
5
the Effective Time at the Conversion Price (as defined in the Certificate of
Designation of the Company Convertible Preferred Stock (the "Certificate of
--------------
Designation")) then in effect. The Parent acknowledges that each share of
- -----------
Company Convertible Preferred Stock that has been converted into Company Common
Stock prior to the Effective Time shall have been duly converted for purposes of
this Agreement and that the Company Common Stock issued upon such conversion
shall entitle its holder to receive the Common Stock Price Per Share under
Section 2.1.
2.3 Treasury Stock and Parent-Owned Stock. Each share of Company
-------------------------------------
Common Stock held in the Company's treasury immediately prior to the Effective
Time, if any (excluding any shares of Company Common Stock held by the Company's
subsidiaries, all of which shares are described on Schedule 2.3 and shall be
------------
entitled to receive the Common Stock Price Per Share as set forth in Section 2.1
and shall not be canceled and retired), and each share of Company Common Stock
and Company Convertible Preferred Stock then owned by the Parent, the Merger Sub
or any other wholly-owned subsidiary of the Parent (collectively, "Parent
------
Shares"), if any, shall, by virtue of the Merger, automatically be canceled and
- ------
retired and cease to exist and no consideration shall be delivered in exchange
therefor.
2.4 Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, each share of Company Common Stock that is issued and
outstanding immediately prior to the Effective Time and that is held by a
stockholder who has properly exercised and perfected appraisal rights under
Section 262 of the DGCL (the "Dissenting Shares"), shall not be converted into
-----------------
or exchangeable for the right to
<PAGE>
6
receive the Common Stock Price Per Share, but shall be entitled to receive such
consideration as shall be determined pursuant to Section 262 of the DGCL;
provided, however, that if such holder shall have failed to perfect or shall
- -------- -------
have effectively withdrawn or lost its right to appraisal and payment under the
DGCL, each share of Company Common Stock of such holder shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Common Stock Price Per Share,
without any interest thereon, in accordance with Section 2.6, and such shares
shall no longer be Dissenting Shares.
2.5 Merger Sub Common Stock. Each share of common stock of the
-----------------------
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of common stock of the Surviving
Corporation.
2.6 Exchange of Certificates.
------------------------
2.6.1 On or before the Effective Time, the Parent shall
deposit or cause to be deposited in trust with a bank or trust company mutually
acceptable to the Parent and the Company (the "Exchange Agent") cash in the
--------------
aggregate amount required to make the cash payments in respect of (i) the
Company Common Stock issued and outstanding at the Effective Time (other than
Dissenting Shares and Parent Shares), (ii) the Company Convertible Preferred
Stock that is convertible after the Effective Time into the Cash Conversion
Consideration, and (iii) the Company Options (as defined in Section 2.7)
(collectively, the "Merger Consideration"), such sum being hereinafter referred
--------------------
to as the "Exchange Fund". The Exchange Agent
-------------
<PAGE>
7
shall, pursuant to irrevocable instructions, make the payments provided for in
this Article 2 out of the Exchange Fund. If any cash deposited with the Exchange
Agent pursuant to this Section 2.6 remains unclaimed by the former stockholders
or former option holders of the Company following the expiration of nine months
after the Effective Time, such cash (together with all interest earned thereon)
shall be delivered, upon demand, to the Parent by the Exchange Agent and,
thereafter, any former stockholders and any former option holders of the Company
who have not heretofore complied with this Article 2 shall be entitled to look
only to the Parent (subject to abandoned property, escheat or similar laws) as
general creditors thereof with respect to the payment of their claim for any
Merger Consideration.
2.6.2 As soon as reasonably practicable following the Closing
Date, the Parent shall instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (collectively, the
"Certificates") and to each holder of an agreement evidencing a Company Option
------------
(an "Option Agreement"), (i) a letter of transmittal (which shall specify that
----------------
delivery shall be effected, and risk of loss and title to the Certificates and
the Option Agreements shall pass, only upon delivery of the Certificates and the
Option Agreements to the Exchange Agent and shall be in such form and have such
other provisions as the Parent may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates and the Option Agreements for
payment therefor.
<PAGE>
8
2.6.3 After the Effective Time, each holder of shares of
Company Common Stock or Option Agreements shall surrender and deliver the
Certificates or Option Agreements, as the case may be, to the Exchange Agent
together with a duly completed and executed transmittal letter. Upon such
surrender and delivery, following the Effective Time, the holder shall be
entitled to receive in exchange therefor, a check in the amount of the cash
payment which such holder is entitled to receive pursuant to this Article 2, and
such Certificates and Option Agreements shall forthwith be canceled. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates or Option Agreements. If the payment is to be made to a person
other than the person in whose name a Certificate surrendered is registered, it
shall be a condition of payment that (a) the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and (b) the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Parent that such tax has
been paid or is not applicable. Until so surrendered, each outstanding
Certificate or Option Agreement after the Effective Time shall be deemed for all
purposes to evidence the right to receive such payment of cash, without any
interest thereon.
2.6.4 At the Effective Time, the stock transfer books of the
Company shall be closed and no transfer of shares of Company Common Stock shall
be made thereafter. In the event that, after the Effective Time, Certificates or
Option
<PAGE>
9
Agreements are presented to the Surviving Corporation or the Parent, they
shall be canceled and exchanged for cash as provided in this Article 2.
2.7 Options.
-------
2.7.1 All outstanding options obligating the Company to
issue, transfer or sell any shares of Company Common Stock and issued pursuant
to the Integon Corporation 1992 Stock Option Plan, as amended from time to time
(the "1992 Plan") (such options, the "1992 Plan Company Options"), or pursuant
--------- -------------------------
to the Integon Corporation Amended and Restated Omnibus Long-Term Performance
Incentive Compensation Plan, as amended from time to time (the "Omnibus Plan",
------------
and together with the 1992 Plan, the "Company Option Plans") (such options, the
--------------------
"Omnibus Plan Company Options" and together with the 1992 Plan Company Options,
----------------------------
the "Company Options"), which Company Options are outstanding immediately prior
---------------
to the Effective Time, are vested, or by action of the Compensation and
Personnel Committee of the Board of Directors of the Company prior to the date
hereof, will become fully vested at the Effective Time. Each holder of a 1992
Plan Company Option shall be entitled to receive as soon as practicable after
the Effective Time, in settlement and cancellation of such 1992 Plan Company
Option, an amount in cash in immediately available funds equal to the product of
(i) the excess of the Common Stock Price Per Share over the exercise price of
each such 1992 Plan Company Option, multiplied by (ii) the number of shares of
Company Common Stock covered by such 1992 Plan Company Option. Each holder of an
Omnibus Plan Company Option shall be entitled to receive as soon as practicable
after the Effective
<PAGE>
Time, in settlement and cancellation of such Omnibus Plan Company Option, an
amount in cash in immediately available funds equal to the product of (i) the
excess of the greater of (A) the Common Stock Price Per Share or (B) the Change
In Control Price (as defined in the Omnibus Plan in effect as of the date of
this Agreement) over the exercise price of each such Omnibus Plan Company
Option, multiplied by (ii) the number of shares of Company Common Stock covered
by such Omnibus Plan Company Option.
2.7.2 Prior to the Effective Time, the Company and the Parent
shall cooperate and take such other action as may be necessary to cancel all
outstanding Company Options in consideration for the payment provided herein and
to effectuate the arrangements described in this Section 2.7.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Parent and, upon the
Amendment (as defined in Section 5.8), to the Merger Sub as follows:
3.1 Organization. Each of the Company and its subsidiaries
------------
(collectively, the "Subsidiaries") is duly organized, validly existing and in
------------
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Company
and each of its Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in
<PAGE>
11
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect (as defined in Section 8.1) with respect to the
Company or any of its Subsidiaries. The Company has previously delivered or made
available to the Parent correct and complete copies of the certificates of
incorporation and by-laws (or equivalent governing instruments) as currently in
effect, of the Company and each of its Subsidiaries.
3.2 Capitalization. The authorized capital stock of the Company is as
--------------
disclosed in the Company SEC Filings (as defined in Section 3.7.A). Except as
disclosed in the Company SEC Filings or as set forth on Schedule 3.2, no shares
------------
of capital stock of the Company are authorized, reserved for issuance or issued
and outstanding and there are no outstanding Company Options. All issued and
outstanding shares of Company Common Stock have been duly authorized and are
validly issued, fully paid, nonassessable and free of preemptive rights. Except
for the Company Options disclosed in the Company SEC Filings or as set forth in
Schedule 3.2, the Company does not have outstanding any subscription, option,
- ------------
put, call, warrant or other right or commitment to issue or any obligation or
commitment to redeem or purchase, any of its authorized capital stock or any
securities convertible into or exchangeable for any of its authorized capital
stock. There are no shareholder agreements, voting agreements, voting trusts or
other similar arrangements which
<PAGE>
12
have the effect of restricting or limiting the transfer, voting or other rights
associated with the capital stock of the Company.
3.3 Subsidiaries. Except as disclosed in the Company SEC Filings or as
------------
set forth on Schedule 3.3, the Company does not own, directly or indirectly, (a)
------------
any shares of capital stock of any subsidiary of the Company or (b) any other
material equity interest in any person, domestic or foreign. All of the
outstanding shares of capital stock of each of the Subsidiaries that are owned
by the Company or any other Subsidiary (collectively, the "Company Subsidiary
------------------
Shares") have been duly authorized and are validly issued, fully paid and
- ------
nonassessable and free of preemptive rights. There are no irrevocable proxies or
similar obligations with respect to any of the Company Subsidiary Shares and,
except as set forth on Schedule 3.3, all of the Company Subsidiary Shares are
------------
owned by the Company free and clear of all liens, claims, charges, encumbrances
or security interests (collectively, "Liens") with respect thereto. Schedule 3.3
----- ------------
sets forth, with respect to each Subsidiary, (i) the number of authorized shares
of each class of its capital stock and (ii) the number of issued and outstanding
shares of each class of capital stock, with a true, correct and complete list of
the record and beneficial holders of such shares. No Subsidiary has outstanding
any subscription, option, put, call, warrant or other right or commitment to
issue, nor any obligation or commitment to redeem or purchase, any of its
authorized capital stock, or any securities convertible into or exchangeable for
any of its authorized capital stock.
<PAGE>
13
3.4 Authorization; Binding Agreement. The Company has the full legal
--------------------------------
power and authority to execute and deliver this Agreement and, subject to the
due execution and delivery of the Amendment by the Parent, the Company and
Merger Sub, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and, subject to the due execution and delivery of
the Amendment by the Parent, the Company and Merger Sub, the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company, subject, in both cases,
to the adoption of this Agreement by the stockholders of the Company in
accordance with the DGCL and the certificate of incorporation and by-laws of the
Company. This Agreement has been duly and validly executed and delivered by the
Company and, subject to the due execution and delivery of the Amendment by the
Parent, the Company and Merger Sub and the adoption of this Agreement by the
stockholders of the Company in accordance with the DGCL and the certificate of
incorporation and by-laws of the Company, constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
3.5 Noncontravention. Neither the execution and delivery of this
----------------
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws (or equivalent governing instruments) of the Company or
any of its Subsidiaries, (b) except as set forth on Schedule 3.5, require any
------------
consent, approval or notice under or conflict with or result in a violation or
breach of, or
<PAGE>
14
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation (collectively, "Contracts
---------
and Other Agreements") to which the Company or any of its Subsidiaries is a
- --------------------
party or by which any of them or any portion of their properties or assets may
be bound or (c) violate any order, judgment, writ, injunction, determination,
award, decree, law, statute, rule or regulation (collectively, "Legal
-----
Requirements") applicable to the Company or any of its Subsidiaries or any
- ------------
portion of their properties or assets; provided that no representation or
--------
warranty is made in the foregoing clause (b) with respect to matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect with respect to the Company or any Subsidiary.
3.6 Approvals. No consent, approval or authorization of or declaration
---------
or filing with any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (each, a
"Government Entity") on the part of the Company or any of its Subsidiaries that
- ------------------
has not been obtained or made is required in connection with the execution or
delivery by the Company of this Agreement or the consummation by the Company of
the transactions contemplated hereby, other than (a) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, (b)
filings and other applicable requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the Securities Exchange
Act of 1934, as amended (the
<PAGE>
15
"Exchange Act"), (c) approvals, filings and/or notices required under any
------------
applicable insurance laws, and (d) consents, approvals, authorizations,
declarations or filings that, if not obtained or made, could not reasonably be
expected to result in a Material Adverse Effect with respect to the Company or
any Subsidiary or prevent the Company from consummating the transactions
contemplated hereby.
3.7.A SEC Filings; Financial Statements. Except as set forth on
---------------------------------
Schedule 3.7.A, the Company has made all filings required to be made with the
- --------------
Securities and Exchange Commission (the "SEC") since December 31, 1995 and has
---
delivered or made available to the Parent true, correct and complete copies of
the Company's (a) Annual Reports on Form 10-K for the years ended December 31,
1995 and December 31, 1996 (the "Company 1995 Form 10-K" and the "Company 1996
---------------------- ------------
Form 10-K," respectively), as filed with the SEC, (b) proxy statements relating
- ---------
to all of the Company's meetings of stockholders (whether annual or special)
since December 31, 1995 and (c) all other reports, statements and registration
statements (including Quarterly Reports on Form 10-Q and Current Reports on Form
8-K) filed by the Company with the SEC since December 31, 1995 (collectively,
and in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Company SEC Filings"). As of their
-------------------
respective dates, the SEC Filings did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
and its Subsidiaries included or incorporated by
<PAGE>
16
reference in the Company 1995 Form 10-K, the Company 1996 Form 10-K and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(the "Company 1997 First Quarter Form 10-Q") have been prepared in accordance
------------------------------------
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes to such
financial statements) and fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries at the
respective dates thereof and the consolidated results of operations and cash
flows for the respective periods then ended (subject, in the case of unaudited
interim financial statements, to normal year-end adjustments).
3.7.B Insurance Subsidiary Statements. For each of the insurance
-------------------------------
subsidiaries of the Company chartered as an insurance company under state law
(collectively, the "Insurance Subsidiaries"), the Company has delivered or made
----------------------
available to the Parent true, correct and complete copies of (a) the statutory
financial statements (including the annual reports filed in each state in which
one of such Insurance Subsidiaries is admitted or approved) for each such
Insurance Subsidiary for the years 1994 through 1996 and (b) the statutory
financial statements (including quarterly reports filed in each state in which
one of such Insurance Subsidiaries is admitted or approved) for each such
Insurance Subsidiary for the quarter ending March 31, 1997, and will deliver to
Parent true, correct and complete copies of such statements for all quarters
ending thereafter and prior to the Effective Time. All such statements shall be
referred to as the "Insurance Subsidiary Statements". The Insurance Subsidiary
-------------------------------
Statements do (and, with respect to any Insurance Subsidiary
<PAGE>
17
Statement for any quarter after March 31, 1997, and prior to the Effective Time,
will) present fairly, on a consistent basis and in accordance with practices
prescribed or permitted by the appropriate regulatory agencies of each state in
which the Insurance Subsidiary Statements have been filed or may be required to
be filed, the financial position at the date of each such statement and results
of each such Insurance Subsidiary's operations for each such referenced periods.
Further, the exhibits and schedules included in the Insurance Subsidiary
Statements are fairly stated in all material respects in relation to the subject
Insurance Subsidiary and the Insurance Subsidiary Statements comply in all
material respects with all applicable regulatory requirements.
3.7.C No Undisclosed Liabilities. Neither the Company nor any
--------------------------
Subsidiary has any liabilities or obligations (absolute, accrued, contingent or
otherwise) which are not reflected in its financial statements referenced in
Sections 3.7.A. or 3.7.B., except for (i) liabilities and obligations incurred
in the ordinary course of business since March 31, 1997, none of which,
individually or in the aggregate, has had a Material Adverse Effect on the
Company or any Subsidiary, or (ii) liabilities or obligations disclosed in
Schedule 3.7.C.
- --------------
3.8 Absence of Certain Changes or Events. Since December 31, 1996,
------------------------------------
except as disclosed on Schedule 3.8 or in the Company SEC Filings or as
------------
consented to in writing by the Parent, the Company and the Subsidiaries have
conducted business only in the ordinary and usual course and, without limiting
the generality of the foregoing:
<PAGE>
18
(a) Neither the Company, nor any Subsidiary has sustained any
damage, destruction or loss (including, without limitation, by reason of
revocation of license, certificate of authority, or right to do business, total
or partial termination, suspension, default or modification of contracts,
governmental restriction, regulation, investigation or inquiry), regardless of
whether covered by insurance, which, individually or in the aggregate, have had
or would reasonably be expected to have a Material Adverse Effect with respect
to the Company or any Subsidiary.
(b) There have been no changes, events or conditions (other
than changes, events or conditions affecting generally the United States economy
or the insurance industry or that are caused primarily or substantially by, or
as a result of, the announcement of this Agreement and the transactions
contemplated hereby, including payment of the expenses, fees and other charges
incurred by the Company's contemplation, negotiation, execution or consummation
of this Agreement) which, individually or in the aggregate, have had or would
reasonably be expected to have a Material Adverse Effect with respect to the
Company or any Subsidiary.
(c) No material contractual obligation of the Company or any
Subsidiary has been modified in any material respect or terminated, except in
accordance with its terms, and neither the Company nor any Subsidiary has
received notice from any person with respect to such a possible modification or
termination thereof.
<PAGE>
19
(d) Neither the Company nor any Subsidiary incurred additional
debt for borrowed money, or incurred any other obligation or liability (fixed,
contingent or otherwise), regardless of whether required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles, except in the ordinary and usual course of its business and
consistent with past practices and except pursuant to the Credit Agreement,
dated as of October 12, 1993, between the Company and the Chase Manhattan Bank.
(e) Neither the Company nor any Subsidiary has paid or prepaid
any obligation or liability (fixed, contingent or otherwise), or discharged or
satisfied any lien or encumbrance, or settled any liability, claim, dispute,
proceeding, suit or appeal other than Direct Action Claims (as defined in
Section 3.9), pending or threatened against it or any of its assets or
properties, except for liabilities included in the December 31, 1996 audited
consolidated balance sheet of the Company contained in the Company SEC Filings
(the "December 31, 1996 Balance Sheet") and liabilities incurred since December
-------------------------------
31, 1996 in the ordinary and usual course of business of the Company or such
Subsidiary.
(f) Neither the Company nor any Subsidiary has authorized,
declared, paid or effected any dividend, payment or other distribution on or
with respect to any share of its capital stock.
(g) Neither the Company nor any Subsidiary has purchased,
redeemed or otherwise acquired or committed itself to acquire, directly or
indirectly, any of the capital stock of the Company or any Subsidiary.
<PAGE>
20
(h) Neither the Company nor any Subsidiary has mortgaged,
pledged, otherwise encumbered or subjected to lien any of its assets or
properties, tangible or intangible, nor has the Company nor any Subsidiary
mortgaged, pledged, otherwise encumbered or subjected to any lien any of the
capital stock of the Company or any Subsidiary except for liens for current
taxes which are not yet due and payable.
(i) Neither the Company nor any Subsidiary has sold, leased or
otherwise disposed of any asset or property, tangible or intangible, except in
the ordinary and usual course of its business, and in each case for a
consideration at least equal to the fair value of such asset or property, nor
has the Company nor any Subsidiary leased or licensed to others (including
officers and directors) any asset or property, or discontinued any product or
service line or the sale or other disposition of any of its products or
services.
(j) Neither the Company nor any Subsidiary has purchased or
otherwise acquired any debt or equity securities of any corporation,
partnership, joint venture, firm or other entity other than in connection with
ordinary course investment activities.
(k) Neither the Company nor any Subsidiary has made any
expenditure for the purchase, acquisition, construction or improvement of a
capital asset except (a) in the ordinary course of business, (b) pursuant to
Company Agreements listed on Schedule 3.17, (c) as listed on Schedule 3.8, or
------------- ------------
(d) for such expenditures in the aggregate not exceeding $500,000.
<PAGE>
21
(l) Neither the Company nor any Subsidiary has entered into any
transaction or contract, nor has the Company or any Subsidiary waived any right
of substantial value or canceled any debts or claims or voluntarily suffered any
extraordinary losses, except in either case in the ordinary and usual course of
its business or as disclosed in Schedule 3.17.
-------------
(m) Neither the Company nor any Subsidiary has sold, assigned,
transferred or conveyed any Proprietary Right (as defined in Section 3.27).
(n) Neither the Company nor any Subsidiary has effected any amendment
or supplement to, or extension of, any employee profit-sharing, stock option,
stock purchase, pension, bonus, incentive, retirement, medical reimbursement,
life insurance, deferred compensation or any other employee benefit plan or
arrangement.
(o) Neither the Company nor any Subsidiary has paid to or for the
benefit of any of its directors, officers, employees or shareholders any
compensation of any kind other than wages, salaries, bonuses and benefits at
times and rates in effect prior to December 31, 1996, other than scheduled
increases and increases in the ordinary course of business consistent with past
practice.
(p) Neither the Company nor any Subsidiary has effected any amendment
or modification to its charter documents, by-laws or other governing documents.
<PAGE>
22
(q) Neither the Company nor any Subsidiary has made any change in
accounting methods or principles used for financial or regulatory reporting
purposes, except for changes which are required of all property and casualty
insurers.
(r) Neither the Company nor any Subsidiary has entered into any
agreement or commitment, whether in writing or otherwise, to take any action
described in this Section 3.8.
(s) Neither the Company nor any Subsidiary has experienced any
strikes, shutdowns, slowdowns or work stoppages.
(t) The Insurance Subsidiaries taken together have not experienced any
change in reserves which has or would be reasonably expected to have a Material
Adverse Effect with respect to such Insurance Subsidiaries.
(u) There have been no claims (including Direct Action Claims)
incurred or reported to the Insurance Subsidiaries taken together which,
individually or in the aggregate, have or would be reasonably expected to have a
Material Adverse Effect with respect to such Insurance Subsidiaries.
3.9 Litigation, Judgments, No Default, Etc. Except as described in
--------------------------------------
Schedule 3.9, (a) there is no action or proceeding, other than Direct Action
- ------------
Claims (as defined below), pending or, to the best knowledge of the Company,
threatened before any federal or state court or agency to which the Company or
any Subsidiary is a party, the outcome of which could involve payment by the
Company or any Subsidiary of damages, fines or penalties (net of actual
recoveries received by the Company and the Subsidiaries) in excess of $250,000
or which individually or in the
<PAGE>
23
aggregate would have a Material Adverse Effect with respect to the Company or
any Subsidiary, (b) there is no judgment, decree, injunction, rule or order
(collectively "Orders") of any court, arbitrator or Governmental Entity
------
outstanding against the Company or any Subsidiary, (c) there are no facts known
to the Company or any Subsidiary that would result in any such claim, dispute,
action, proceeding, suit, appeal, investigation or inquiry which would have such
a Material Adverse Effect with respect to the Company or any Subsidiary and (d)
to the best knowledge of the Company, there are no statutes, rules or
regulations, statutory or regulatory proceedings, or any other governmental or
regulatory rules, releases, interpretative opinions or pronouncements, whether
state, local or federal, which materially and adversely affect the ability of
the Company or any Subsidiary to carry on their business as currently conducted.
"Direct Action Claim" means a claim brought against an Insurance Subsidiary in
-------------------
the ordinary course of the Insurance Subsidiary's business for damages allegedly
caused by or to an insured of the Insurance Subsidiary, pursuant to the laws of
a state which permits tort claims to be filed directly against an insurer
(provided that such a claim shall not be considered a Direct Action Claim to the
extent that it seeks recovery in excess of policy limits against the insurer or
extra-contractual damages against the insurer).
3.10 Compliance. Except as disclosed in the Company SEC Filings or as
----------
set forth on Schedule 3.10, neither the Company nor any of its Subsidiaries
-------------
is in default or violation of any term, condition or provision of (a) its
certificate of incorporation or by-laws (or equivalent governing instruments),
or (b) any Contracts
<PAGE>
24
and Other Agreements to which the Company or any of its Subsidiaries is a party
or by which any of them or any portion of their properties or assets may be
bound; provided that no representation or warranty is made in the foregoing
--------
clause (b) with respect to matters that, individually or in the aggregate, have
not had or could not reasonably be expected to result in a Material Adverse
Effect with respect to the Company or any of its Subsidiaries.
3.11.A Definition of Tax and Taxes, Tax Returns and Taxing Authority.
-------------------------------------------------------------
(a) "Tax" and "Taxes" mean (i) any tax imposed on or measured by
--- -----
net income, gross income, gross receipts, franchise, capital stock, license,
sales, use, service, transfer, withholding, payroll, premium, real or personal
property or windfall profits tax, estimated, ad valorem, value added, or excise
tax, alternative or add-on minimum tax, or other tax, fee, levy, duty and
charges of whatever kind, including any employment, social security, workers'
compensation, unemployment compensation, utility, stamp, occupation or
assessment, together with any interest and any penalty, addition to tax or
additional amount imposed by any governmental authority (domestic or foreign)
responsible for the imposition of any such tax (a "Taxing Authority"), imposed
----------------
upon the Company or any Subsidiary and (ii) any liability for the payment of any
amount of the type described in clause (i) as a result of the Company or any
Subsidiary being a successor to or transferee of any other corporation at any
time on or prior to the Effective Time.
<PAGE>
25
(b) "Tax Returns" shall mean returns, reports and other
-----------
documentation (including any additional or supporting material and amendments
thereto) filed or maintained, or required to be filed or maintained, in
connection with the calculation, determination, assessment or collection of the
Company's or its Subsidiaries' Tax.
3.11.B Taxes. The Company and its Subsidiaries have timely filed all
-----
Tax Returns required to be filed by them through the date hereof with the
appropriate Taxing Authorities, and shall prepare and timely file, in a manner
consistent with prior years and applicable law and regulations, all Tax Returns
required to be filed on or before the Effective Time. All Tax Returns are true,
correct and complete, and Taxes relating to the Company and its Subsidiaries
which are due to, or claimed to be due from them by, any Taxing Authority have
been paid other than as disclosed in Schedule 3.11.B. Except as disclosed on
---------------
Schedule 3.11.B and, to the best knowledge of the Company, there is currently no
- ---------------
audit or examination of, or action or proceeding relating to, any Tax Return of
the Company or any of its Subsidiaries or which includes the Company or any of
its Subsidiaries presently in progress or of which the Company or any of its
Subsidiaries has received notice. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any Tax
Returns which include the Company or its Subsidiaries. Except as disclosed in
the Company SEC Filings or as set forth on Schedule 3.11.B, no deficiencies for
---------------
any Taxes have been proposed, asserted or assessed against the Company or any of
its Subsidiaries.
<PAGE>
26
3.11.C Tax Representations.
-------------------
(a) Each Insurance Subsidiary is an "insurance company" within
the meaning of Treas. Reg. (S) 1.801-3(a) and subject to taxation under Part II
of Subchapter L of the Internal Revenue Code of 1986, as amended (the "Code"),
----
for the taxable period ending on the Closing Date and for all prior taxable
periods for which the statute of limitations has not expired, except as set
forth on Schedule 3.11.C.
---------------
(b) The unpaid loss reserves of each Insurance Subsidiary have
been computed in accordance with Section 846 of the Code for all taxable periods
for which Tax Returns have been filed and for which the statute of limitations
has not expired.
(c) There are no liens for Taxes upon the assets of the Company
or any Subsidiary except liens for current Taxes not yet due or payable or liens
imposed for nonpayment of Taxes which are currently being contested in good
faith by the Company or such Subsidiary, and for which adequate reserves are
reflected in the financial statements referred to in Sections 3.7.A or 3.7.B.
(d) Based on tax rates currently in effect, the current and
deferred Taxes of the Company and the Subsidiaries (i) as of March 31, 1997, did
not exceed by a material amount the reserve for such Taxes set forth in the
Company's consolidated financial statements contained in the Company 1997 First
Quarter Form 10-Q and (ii) will not exceed by a material amount such reserve as
adjusted for
<PAGE>
27
operations and transactions through the Effective Time in accordance with the
past customs and practice of the Company and the Subsidiaries.
(e) Except as set forth on Schedule 3.11.C, there is no contract,
---------------
agreement, plan or arrangement covering any person that, individually or
collectively, could give rise to the payment by the Company or the Subsidiaries
of any amount that would not be deductible by the Company or the Subsidiaries by
reason of Section 162(m) of the Code.
(f) The Company is not a U.S. real property holding corporation
under Section 897 of the Code.
(g) Except as provided in Schedule 3.11.C, the Company or its
---------------
Subsidiaries have not agreed (and no agreement has been made on their behalf) to
make any adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method or change in basis
of computing reserves or otherwise, and there is no application pending with any
Taxing Authority requesting permission for any changes in any accounting method
of the Company or the Subsidiaries.
(h) Any tax sharing agreement among the Company and the
Subsidiaries shall be and hereby is deemed to be amended so as to be
inapplicable to taxable periods commencing on or after the Closing Date and
shall have no further effect for any taxable year (whether the current year, a
future year or a past year).
(i) The Company or its Subsidiaries have set up an adequate
reserve for the payment of all Taxes required to be paid by the Company or its
<PAGE>
28
Subsidiaries, and the consolidated financial statements of the Company contained
in the Company 1997 First Quarter Form 10-Q reflect an adequate reserve for the
payment of all Taxes required to be paid by the Company and its Subsidiaries
through the date of such financial statements.
(j) The Federal income Tax Return of the Company and its
consolidated Subsidiaries have been examined and settled with the Internal
Revenue Service, or the statute of limitations with respect to such years has
expired, for all years through 1992, except for a pending refund claim by the
Company.
(k) The Company and each Subsidiary have timely withheld from and
paid to the appropriate Taxing Authority, and have properly reported, all
employee salaries, wages and other compensation with respect to matters that,
individually or in the aggregate, have had or would reasonably be expected to
result in a Material Adverse Effect with respect to the Company or any of its
Subsidiaries.
(l) The Company and each Subsidiary is a member of the
consolidated group (as defined in Section 1504 of the Code) of which the Company
is the common parent for all taxable years beginning January 1, 1995. Except as
set forth in Schedule 3.11.C, neither the Company nor any Subsidiary (a) has,
---------------
for any periods ending on or after January 1, 1995, been a member of a
consolidated group filing a consolidated federal income Tax Return, other than
the group of which the Company is the common parent or (b) has any liability for
Taxes for any person (other than the Company and any Subsidiary) under Treas.
Reg. (S) 1.1502-6 or any
<PAGE>
29
similar provision of state, local or foreign law, or as a transferee, successor,
by contract or otherwise.
(m) No requests for ruling or determination letters with respect
to the income, operations or business of the Company or any Subsidiary are
pending with any Taxing Authority.
(n) Neither the Company nor any Subsidiary has received written
notice from any Taxing Authority in a jurisdiction in which such entity does not
file a Tax Return stating that such entity is subject to taxation in that
jurisdiction, which notice relates to an amount that, if due, could have a
Material Adverse Effect on the Company or any Subsidiary. Except as set forth on
Schedule 3.11.C, neither the Company nor any Subsidiary is required to file any
- ---------------
Tax Return in any jurisdiction outside the United States.
3.12 Employee Benefit Plans.
----------------------
(a) Except for the plans, programs or arrangements, contractual or
otherwise, listed in Schedule 3.12(a), (i) neither the Company nor any
----------------
Subsidiary nor, with respect to employees, directors or officers of the Company
or any Subsidiary, any other person maintains, sponsors or contributes to any
plan, program or arrangement providing for (A) payment of deferred compensation
or retirement benefits, (B) the accrual or payment of bonuses or special or
incentive compensation of any kind, (C) any severance or termination payments,
(D) loans, loan guarantees or other extensions of credit to directors, officers
or employees, (E) life, health, disability or other welfare benefits, or (F)
moving or other relocation
<PAGE>
30
expense benefits or reimbursements; and (ii) neither the Company nor any
Subsidiary nor, with respect to employees, directors or officers of the Company
or any Subsidiary, any other person maintains, sponsors or contributes to any
other stock bonus, stock option, stock incentive, employee stock ownership,
stock purchase or similar plans or practices, whether formal or informal.
(b) With respect to any plan, program or arrangement of the nature
described in Section 3.12(a) above (hereinafter, the "Plans"), except as
-----
disclosed on such Schedule 3.12(b):
----------------
i) the financial statements, if any, relating to
the Plans for the past five plan years have been furnished or were made
available to the Parent, have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance with the books
and records of such Plans, which books and records are correct and
complete in all material respects;
ii) all such Plans comply in all material respects
with the applicable requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Code and the applicable
-----
requirements for tax-exempt status under the Code and each Plan has
been operated substantially in accordance with its terms and no
penalties or excise taxes have been incurred under ERISA or the Code;
iii) no material change in the assets or
liabilities of any such Plan has occurred after the date of the
financial statement relating thereto
<PAGE>
31
(other than any change resulting from the normal and anticipated accrual
of benefits, payment of benefits or receipt of contributions);
iv) all required contributions to the Plans have
been timely made, all contributions accrued by the Company or any
Subsidiary through March 31, 1997 are reflected in the Company's SEC
Filings;
v) all applicable reporting and disclosure
obligations to any governmental agency or entity and to any Plan
participant or beneficiary have been materially satisfied;
vi) there have been no transactions between any such
Plan and any "party in interest" or "disqualified person", within the
meaning of ERISA or the Code, which might subject the Company or any
Subsidiary to a tax or penalty on prohibited transactions or to a civil
action under ERISA;
vii) all such Plans that are funded Plans have
sufficient assets to pay all benefits, expenses and liabilities, accrued
or otherwise;
viii) no investigation or review by the Internal
Revenue Service ("IRS") is pending or is contemplated in which the IRS
---
has asserted or may assert that any Plan is not qualified under the Code
or that any related trust, including any trust for a welfare Plan, is
not exempt from tax under Section 501 of the Code. No assessment of any
federal income taxes has been made or, to the best knowledge of the
Company, is contemplated against any of the Company or any Subsidiary or
any related trust of any such Plan on the basis of failure of such
qualification or exemption nor, to the knowledge of the
<PAGE>
32
Company, is there any basis for any such investigation, review,
assertion or assessment;
ix) no event has occurred or is threatened or about
to occur with respect to any Plan for which is required to be filed a
notice of a reportable event, within the meaning of Section 4043(b) of
ERISA and the Pension Benefit Guaranty Corporation (the "PBGC")
----
regulations issued thereunder. No notice of termination has been filed
by the Plan administrator pursuant to Section 4041 of ERISA or issued by
the PBGC pursuant to Section 4042 of ERISA with respect to any such Plan
nor is there any basis for the filing of any such notice of termination;
and
x) after the Effective Time, neither the Company
nor any Subsidiary will have any liability with respect to any
obligation to contribute to, or any duty to provide any benefits under,
any such Plan.
(c) Neither the Company nor any Subsidiary is or has ever
been a contributing employer to any multi-employer pension plan (within the
meaning of Section 3(37) of ERISA); neither the Company nor any Subsidiary is
under any obligation to make contributions to any multi-employer pension plan;
and neither the Company nor any Subsidiary has actual or potential liability
under Section 4201 of ERISA for any complete or partial withdrawal from any
multi-employer pension plan.
3.13 Information Supplied. None of the information supplied or to
--------------------
be supplied by the Company for inclusion or incorporation by reference in the
proxy statement (the "Proxy Statement") to be filed with the SEC by the Company
---------------
in
<PAGE>
33
connection with the meeting of the Company's stockholders (the "Company
-------
Stockholders' Meeting") to be held in connection with the Merger will, at the
- ---------------------
time the Proxy Statement is mailed to the Company's stockholders, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
3.14 Finders and Investment Bankers. Neither the Company nor any of
------------------------------
its officers or directors has employed any investment banker, financial advisor,
broker or finder in connection with the transactions contemplated by this
Agreement, except for Goldman, Sachs & Co. ("Goldman Sachs"), or incurred any
-------------
liability for any investment banking, business consultancy, financial advisory,
brokerage or finders' fees or commissions in connection with the transactions
contemplated hereby, except for fees payable to Goldman Sachs (including any
fees for the written opinion provided pursuant to Section 3.16), all of which
fees have been or will be paid by the Company in accordance with the agreement
attached as Schedule 3.14.
-------------
3.15 Rights Agreement. The Company has delivered or made available
----------------
to the Parent a correct and complete copy of the Rights Agreement dated as of
January 22, 1997 (the "Company Rights Agreement") between the Company and First
------------------------
Chicago Trust Company of New York, as Rights Agent, including all exhibits
thereto. The Company has amended the Company Rights Plan (the "Rights Plan
-----------
Amendment") so that neither the execution and delivery of this Agreement nor the
- ---------
consummation of the transactions contemplated hereby will (a) cause the Rights
under the Company Rights Agreement (the "Rights") to become exercisable, (b)
------
cause any
<PAGE>
34
person to become an Acquiring Person (as defined in the Company Rights
Agreement) or (c) give rise to a Distribution Date (as defined in the Company
Rights Agreement). The Company has delivered to the Parent a true, correct and
complete copy of the Rights Plan Amendment.
3.16 Opinion of Financial Advisor. The Company has received a
----------------------------
written opinion of Goldman Sachs to the effect that, as of the date of this
Agreement, the Merger is fair to the stockholders of the Company from a
financial point of view.
3.17 Contracts.
---------
(a) Set forth in Schedule 3.17 hereto is a list identifying
-------------
all outstanding contracts, leases and commitments, other than as an insurer
(except for insurance policies issued outside of the ordinary course of
business, which are listed on Schedule 3.17), whether written or oral, either
-------------
(i) to which the Company or any Subsidiary is a party, or (ii) to which any of
its or their properties are subject and (a) are listed in the next sentence, or
(b) with respect to which the Company or any Subsidiary is, in the case of any
one contract, lease or commitment or series of related contracts, leases or
commitments, obligated to make aggregate payments in excess of $500,000, or (c)
which is performable by the Company or such Subsidiary beyond one year
subsequent to the Effective Time and has aggregate payments in excess of
$500,000, or (d) which are material to the business, prospects or financial
condition of the Company and the Subsidiaries, taken as a whole (collectively
the "Company Agreements").
------------------
<PAGE>
35
The following types of agreements are Company
Agreements, irrespective of dollar amount or term:
i) management or employment contracts (other than
oral agreements for employment at will), consulting contracts,
collective bargaining contracts or other agreements with any labor
union, or termination and severance agreements;
ii) notes, mortgages, deeds of trust, loan
agreements, security agreements, guarantees, debentures, indentures,
credit agreements, warehousing agreements, repurchase agreements and
other evidence of indebtedness other than endorsements for collection or
deposit in the ordinary course of business;
iii) pension, retirement, profit-sharing, deferred
compensation, bonus, incentive, life insurance, hospitalization, or
other employee benefit plans or arrangements (including, without
limitation, any contracts or agreements with trustees, insurance
companies or other relating to any such employee benefit plan or
arrangement);
iv) stock option, stock purchase, warrant,
repurchase or other contracts or agreements with any employee or officer
of either the Company or any Subsidiary relating to the shares of
capital stock of any Subsidiary or the Company;
v) contracts or agreements with reinsurers,
managing general agents, managing general underwriters, general agents,
underwriters,
<PAGE>
36
agents, investment bankers, investment advisers, custodians, brokers or
sales representatives;
vi) contracts or agreements with any director or
officer of the Company or any Subsidiary or with any person or entity
affiliated or associated with such director or officer;
vii) powers of attorney or similar authorizations
granted to any third party by the Company or any Subsidiary other than
those granted in the ordinary course of business;
viii) contracts or agreements containing covenants
limiting the freedom of the Company or any Subsidiary to compete in any
line of business or with respect to any particular product or service or
with any person; and
ix) requirements contracts or similar agreements in
which the Company or any Subsidiary is the purchaser or the seller.
The Company and the Subsidiaries have complied in all material respects
with all the provisions of their respective Company Agreements and are not in
default in any material respect under any of the terms thereof. No party to any
of the Company Agreements will have the right to terminate any or all of the
provisions of any Company Agreement as a result of the transactions contemplated
by this Agreement.
(b) The Company has made available to representatives of
the Parent, for its review and examination, all of the Company Agreements.
<PAGE>
37
3.18 Reserves. All loss, adjustment to expense and unearned premium
--------
reserves required under applicable regulatory requirements to be established by
the Company or any Subsidiary have been and are in the required form. The
amount of such reserves carried on the books of the Company and the Subsidiaries
(including those established for reported and unreported insurance benefits,
losses or claims and expenses) satisfy all applicable regulatory requirements.
3.19 Reinsurance Recoverables. The reinsurance recoverables, net of
------------------------
related reserves for uncollectible amounts, on the books of each of the
Insurance Subsidiaries as of December 31, 1996 and March 31, 1997, respectively,
are appropriate.
3.20 Collective Bargaining Agreements. Neither the Company nor any
--------------------------------
Subsidiary is a party to or subject to any collective bargaining agreement with
any labor union. There are no labor controversies pending or, to the best
knowledge of the Company, threatened against the Company or any Subsidiary which
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to the Company or any Subsidiary.
3.21 No Default. Each of the Company and the Subsidiaries has in
----------
all respects performed, or is now performing, the obligations of, and is not in
default (and would not by the lapse of time and/or the giving of notice be in
default), nor has it received notice of default, in respect of, any contract,
agreement, lease or commitment binding upon it or its assets or properties
(including, without limitation, any contract, agreement, lease or commitment
described in any Schedule attached
<PAGE>
38
hereto), except where such nonperformance or default would not reasonably be
expected to result in a Material Adverse Effect with respect to the Company or
any Subsidiary. Except as previously disclosed in writing to the Parent, to the
best knowledge of the Company, no party with whom the Company or any Subsidiary
has an agreement, contract, lease or commitment which is material to the
condition (financial or otherwise), business, net worth, assets, properties,
operations or future prospects of the Company of such Subsidiary is in default
thereunder or has breached any terms or provisions thereof. To the best
knowledge of the Company, there are no facts or circumstances which make a
default under, or termination or suspension of, any of the contracts or
obligations referred to in this Section 3.21 likely to occur subsequent to the
date hereof nor has any third party raised any claim, dispute or controversy
with respect to such contracts or obligations.
3.22 Premiums Receivable. All of the premiums receivable of the
-------------------
Insurance Subsidiaries shown on the December 31, 1996 Balance Sheet or the March
31, 1997 consolidated balance sheet of the Company contained in the Company SEC
Filings (the "Interim Balance Sheet"), or thereafter acquired arose under
---------------------
validly issued policies of insurance in the ordinary and usual course of the
business of the Company or the applicable Subsidiary. The values at which
premiums receivable are carried on the December 31, 1997 Balance Sheet and
Interim Balance Sheet are consistent with their respective past practices and in
accordance with generally accepted accounting principles applied on a consistent
basis.
<PAGE>
39
3.23 Bank Accounts. Schedule 3.23 is a full and complete written
------------- -------------
list of all of the bank accounts of the Company, together with the names of
persons authorized to draw thereon. Except as set forth therein, all cash in
such accounts is held in demand deposits and is not subject to any restriction
or limitation as to withdrawal.
3.24 Guarantees. Except as set forth on Schedule 3.24, neither the
---------- -------------
Company nor any Subsidiary has guaranteed, or is otherwise contingently
obligated for, any indebtedness of any third party, except guarantees by the
Company of the Subsidiaries' obligations and endorsements for collection or
deposit in the ordinary course of business.
3.25 Insurance. Schedule 3.25 is (i) a full and complete list of
--------- -------------
all policies of insurance to which the Company or any Subsidiary is a party or
is a beneficiary or named insured (except for insurance policies issued by the
Insurance Companies in the ordinary course of business and reinsurance
agreements to which the Company or any Subsidiary is a party), and the Company
and the Subsidiaries have in full force and effect, with all premiums due
thereon paid, the policies of insurance set forth therein and (ii) a true and
complete list of all insurance policies to which other parties are a party or a
beneficiary which relate to the properties, assets or operations of or any
Subsidiary, and the names of such other parties. No notice of cancellation or
termination has been received with respect to any insurance policy described in
this Section 3.25. Each of the Company and the Subsidiaries carries insurance,
with insurers that, to the knowledge of the Company, are solvent, in
<PAGE>
40
amount and types of coverage which are customary in the industry and against
risks and losses which are usually insured against by persons holding or
operating similar properties and similar businesses. No material claims have
been asserted under any of such insurance policies or relating to the
properties, assets or operations of the Company or any Subsidiary since December
31, 1996.
3.26 Related Parties. Except as set forth in Schedule 3.26, (a) no
--------------- -------------
officer or director of the Company or any Subsidiary, or any affiliate of any
such person, has, either directly or indirectly, a beneficial interest, or
alleges a claim of beneficial interest, in any contract or agreement to which
the Company or any Subsidiary may be bound or (b) no officer or director of the
Company or any Subsidiary eligible to receive any severance obligations
referenced in the Severance Schedule (as defined in Section 5.9 has, either
directly or indirectly, an interest in any corporation, partnership, firm or
other person or entity which furnishes or sells services or products which are
similar to those furnished or sold by the Company or any Subsidiary other than
shares of publicly held companies not in excess of 1% of such companies'
outstanding shares.
3.27 Proprietary Rights. Schedule 3.27 is a true, correct and
------------------ -------------
complete list of patents, patent applications, trademarks, trademark
registrations, applications for trademark registrations, trade secrets, service
marks, service mark registrations, applications for service mark registrations,
trade names, labels, slogans, claims of copyright, copyright registrations,
applications for copyright registrations, copyrights, drawings, designs,
proprietary know-how or information, or other rights
<PAGE>
41
with respect thereto (collectively referred to as "Proprietary Rights") owned or
------------------
used by the Company or the Subsidiaries in their respective businesses. The
Company and the Subsidiaries own or possess adequate licenses or other rights to
use the Proprietary Rights, and the same are sufficient to conduct the business
of the Company and the Subsidiaries as they have been and are now being
conducted. The operations of the Company and the Subsidiaries do not conflict
with or infringe, and, no one has asserted to the Company nor any Subsidiary
that such operations conflict with or infringe, any Proprietary Rights owned,
possessed or used by any third party. To the best knowledge of the Company,
there are no third parties whose operations conflict with or infringe nor has
anyone asserted that such operations conflict with or infringe, any Proprietary
Rights owned, possessed or used by the Company or any Subsidiary. There are no
facts or alleged facts which would reasonably serve as a basis of any claim that
the Company or any Subsidiary does not have the unrestricted right to use, free
of any rights or claims of others, all Proprietary Rights in the development,
provision, use, sale or other disposition of any or all products or services
presently being, or contemplated to be, used, furnished or sold in the business
of the Company or such Subsidiary.
3.28 Compliance with Law. The businesses of the Company and each
-------------------
Subsidiary have been conducted in all material respects in accordance with all
applicable laws, rules, regulations, orders and other requirements of
governmental authorities (excluding ERISA which is covered by Section 3.12),
including, without limitation, all insurance company holding laws, all laws,
regulations and orders
<PAGE>
42
relating to the ownership and operation of insurance companies, antitrust or
trade regulation, employment and discrimination practices and procedures, the
health and safety of employees, consumer credit and other consumer protection
laws, insurance, environmental protection, the pollution of the atmosphere,
surface water, ground water and noise, and the handling of toxic and hazardous
waste materials. Neither the Company nor any Subsidiary has received any notice
of alleged violations of the foregoing and there are no pending or, to the best
knowledge of the Company, threatened hearings or investigations with respect to
any of the foregoing.
3.29 Real Property. The attached Schedule 3.29 constitutes a true,
------------- -------------
correct and complete list of all real property owned, leased, or under option to
be purchased, sold or leased, by the Company or any Subsidiary, and no other
real property is used in the conduct of the operations of the Company or any
Subsidiary. All property leased by the Company or any Subsidiary is held under
valid and existing leases. Except as set forth in Schedule 3.29, neither the
-------------
operations of the Company or any Subsidiary on any such real property, nor the
condition of such real property, including improvements thereon, violates in any
material respect any applicable building code, health, fire or safety
engineering code, zoning requirement or classification, or other Legal
Requirement relating to the environment, pollution control, public health,
occupational safety or otherwise relating to such property or to such
operations. Neither the Company nor any Subsidiary has received notice of any
pending or threatened condemnation proceedings which may materially and
adversely affect the use or value of any property described in Schedule 3.29.
-------------
<PAGE>
43
3.30 Investments of Insurance Subsidiaries. The investments of the
-------------------------------------
Insurance Subsidiaries reflected on their respective Insurance Subsidiary
Statements comply in all material respects with all applicable regulatory
requirements and financial standards of the states in which each is admitted or
approved, respectively, to the extent applicable. A list of all portfolio
investments of the Insurance Subsidiaries as of May 31, 1997, is attached hereto
as Schedule 3.30.
-------------
3.31 Insurance Practices. The insurance practices and business
-------------------
operations of the Insurance Subsidiaries (including, without limitation, their
reserving, marketing, investment, financial, claims, underwriting, premium
collection and refunding and other practices) conform in all material respects
to all applicable legal and regulatory requirements and accepted insurance
company practices.
3.32 Licenses and Permits.
--------------------
(a) Each of the Company and the Subsidiaries has obtained,
and is in compliance in all material respects with, all necessary licenses,
permits, consents, approvals, orders, certificates, authorizations, declarations
and filings required by all federal, state, local and other governmental or
regulatory authorities (including, without limitation, any federal, state and
local laws and regulations and authorities or agencies regulating insurance
companies and their operations) and all courts and other tribunals for the
conduct of the businesses and operations of the Company and such Subsidiary as
now conducted (collectively, the "Required Licenses"), and there are no
-----------------
proceedings pending or, to the best knowledge of the Company, threatened which
may result in the revocation, cancellation or suspension,
<PAGE>
44
or any adverse modification, of any such Required License nor are there any
facts known to the Company which may give rise to such proceedings. The attached
Schedule 3.32 contains a true, correct and complete list of all Required
- -------------
Licenses and the jurisdictions for which they are issued and a true, correct and
complete list of all states in which the Company or any Subsidiary currently has
pending an application to transact any line of business. Except as described on
Schedule 3.32, all of the Required Licenses shall remain in full force and
- -------------
effect notwithstanding the consummation of the transactions contemplated
hereunder.
(b) All material reports and applications required to be
filed with any regulatory authority have been filed and are true, correct and
complete in all respects and accurately present the information contained
therein. Neither the consummation of the transactions contemplated by this
Agreement nor any change which occurs as a result thereof will, when reflected
in appropriate amendments to such applications or filings, have a material
adverse effect upon any matters (including rate approvals) which are the subject
of such reports, applications or filings.
3.33 Overdue Assessments: Risk Sharing Plans. There are no overdue
---------------------------------------
assessments in excess of $250,000 levied against the Company or any Subsidiary
by any insurance guaranty association or fund. Other than as set forth in
Schedule 3.33, neither the Company nor any Subsidiary currently participate in,
- -------------
nor are they required to participate in, any risk sharing plan, pool, joint
underwriting association, or similar arrangement pursuant to any insurance laws.
The liabilities
<PAGE>
45
and obligations (absolute, accrued, contingent and otherwise) of the Company and
its Subsidiaries in respect of such risk sharing plans set forth on
Schedule 3.33 do not exceed $1,000,000.
- -------------
3.34 Underlying Documents. Any underlying documents listed or
--------------------
described in the Schedules referred to in this Agreement have heretofore been
made available to the Parent or its representatives. All such documents
furnished to the Parent are true, correct and complete copies, and there are no
amendments or modifications thereto, except as expressly noted in the Schedules
in which such documents are incorporated. The minute books of the Company and
each Subsidiary contain true, correct and complete records of all meetings and
other corporate actions taken through April 28, 1997 by the directors and
stockholders of the Company and such Subsidiary.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE MERGER SUB
The Parent and, after the Amendment, the Merger Sub represent and
warrant to the Company as follows, provided that any representation and warranty
relating to the Merger Sub shall be as of the date the Merger Sub executes the
Amendment:
4.1 Organization. Each of the Parent and the Merger Sub is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority to own,
<PAGE>
46
lease and operate its properties and to carry on its business as now being
conducted. The Parent is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it make such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect with respect to
the Parent. The Parent has previously delivered or made available to the Company
correct and complete copies of the certificates of incorporation and by-laws, as
currently in effect, of the Parent and the Merger Sub. The Merger Sub is a newly
formed, wholly owned subsidiary of the Parent and, except for activities
incident to the acquisition of the Company, the Merger Sub has not engaged in
any business activities of any type or kind whatsoever.
4.2 Authorization; Binding Agreement. Each of the Parent and the
--------------------------------
Merger Sub has the full legal power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of each of the Parent and the Merger Sub. This
Agreement has been duly and validly executed and delivered by each of the Parent
and the Merger Sub and constitutes a legal, valid and binding agreement of each
of the Parent and the Merger Sub, enforceable against each of them in accordance
with its terms.
<PAGE>
47
4.3 Noncontravention. Neither the execution and delivery of this
----------------
Agreement nor the consummation of the transactions contemplated hereby will
(a) conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of the Parent or the Merger Sub, (b) require any
consent, approval or notice under or conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any Contracts and Other
Agreements to which the Parent or the Merger Sub is a party or by which either
of them or any material portion of their properties or assets may be bound or
(c) violate any Legal Requirements applicable to the Parent or the Merger Sub or
any material portion of their properties or assets; provided that no
--------
representation or warranty is made in the foregoing clause (b) with respect to
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect with respect to the Parent.
4.4 Governmental Approvals. No consent, approval or authorization
----------------------
of, or declaration or filing with, any Governmental Entity on the part of either
the Parent or the Merger Sub that has not been obtained or made is required in
connection with the execution or delivery by the Parent or the Merger Sub of
this Agreement or the consummation by the Parent or the Merger Sub of the
transactions contemplated hereby, other than (a) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, (b) filings
under the HSR Act and the
<PAGE>
48
Exchange Act, (c) approvals, filings and/or notices required under any
applicable insurance laws, and (d) consents, approvals, authorizations,
declarations or filings that, if not obtained or made, could not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect with respect to the Parent or prevent the Parent or the Merger Sub from
consummating the transactions contemplated hereby.
4.5 Finders and Investment Bankers. Neither the Parent or the
------------------------------
Merger Sub nor any of their respective officers or directors has employed any
investment banker, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except for Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), or incurred any liability for any investment
--------------
banking, business consultancy, financial advisory, brokerage or finders' fees or
commissions in connection with the transactions contemplated hereby, except for
fees payable to Morgan Stanley, all of which fees have been or will be paid by
the Parent.
ARTICLE 5
COVENANTS
5.1 Conduct of Business of the Company. Except as contemplated by
----------------------------------
this Agreement, during the period commencing on the date hereof and ending at
the Effective Time, the Company shall, and shall cause each of its Subsidiaries
to, conduct its operations according to its ordinary course of business
consistent with past practice, and the Company shall, and shall cause each of
its Subsidiaries to, use all reasonable efforts to preserve intact its business
organization and to maintain
<PAGE>
49
satisfactory relationships with its customers, suppliers and employees and
others with which it has business relationships. Without limiting the generality
of the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, neither the Company nor any or its Subsidiaries
will, without the prior written consent of the Parent:
(a) amend or propose to amend its certificate of
incorporation or by-laws (or equivalent governing instruments);
(b) except as set forth on Schedule 5.1, authorize for
------------
issuance, issue, sell, pledge, deliver or agree or commit to issue, sell, pledge
or deliver (whether through the issuance or granting of any options, warrants,
calls, subscriptions, stock appreciation rights or other rights or other
agreements) any capital stock of any class or any securities convertible into or
exchangeable for shares of capital stock of any class of the Company, other than
shares of Company Common Stock (and accompanying Rights) issuable upon exercise
of Company Options and upon conversion of Company Convertible Preferred Stock
outstanding on the date of this Agreement in accordance with the present terms
thereof;
(c) split, combine or reclassify any shares of Company Common
Stock or declare, pay or set aside for payment any dividend (other than
regularly scheduled dividends on the Company Common Stock and the Company
Convertible Preferred Stock at their current levels) or other distribution in
respect of any Company Common Stock, or redeem, purchase or otherwise acquire
any shares of Company Common Stock;
<PAGE>
50
(d) increase or establish any Plan or otherwise increase in
any manner the compensation payable or to become payable by the Company or any
of its Subsidiaries to any of their respective directors, officers or employees,
other than in the ordinary course of business consistent with past practice or
as required under any existing employment agreement or Plan, or enter into any
employment or severance agreement with or grant any severance or termination pay
to any director, officer or employee of the Company or any of its Subsidiaries,
other than in accordance with existing Plans;
(e) enter into any other agreements, commitments or contracts
that are material to the Company and its Subsidiaries taken as a whole, other
than in the ordinary course of business consistent with past practice;
(f) except as contemplated by this Agreement, without the
prior written consent of the Parent, otherwise take or cause to be taken any
action described in clauses (c) through (r) of Section 3.8 between the date of
this Agreement and the Effective Time; or
(g) agree, commit or arrange to do any of the foregoing.
5.2 Stockholder Approval; Proxy Statement. The Company shall take
-------------------------------------
all action necessary in connection with applicable law to convene the Company
Stockholders' Meeting as promptly as practicable after the date hereof to
consider and vote upon this Agreement and the transactions contemplated hereby.
The Company shall, through its Board of Directors (the "Company Board"),
-------------
recommend that its stockholders vote in favor of the adoption of this Agreement
and the transactions
<PAGE>
51
contemplated hereby, subject to the Company Board's fiduciary duty under
applicable law, exercised after consultation with the Company's independent
legal counsel.
5.3 Access and Information. Between the date of this Agreement and
----------------------
the Effective Time, the Company shall, and shall cause its Subsidiaries to,
afford the Parent and its authorized representatives (including its accountants,
financial advisors and legal counsel) reasonable access during normal business
hours to all of the properties, personnel, Contracts and Other Agreements, any
documents relating to Tax Returns of the Company and its Subsidiaries and other
books and records of the Company and its Subsidiaries and shall promptly deliver
or make available to the Parent (a) a copy of each report, schedule and other
document filed by the Company pursuant to the requirements of federal or state
securities laws and (b) all other information concerning the business,
properties, assets and personnel of the Company and its Subsidiaries as the
Parent may from time to time reasonably request, including, without limitation,
access to outside counsel of the Company or any Subsidiary in connection with
the review of any claim, dispute, action, proceeding, suit, appeal,
investigation or inquiry pending or threatened against the Company or any
Subsidiary. The Parent shall hold, and shall cause its Representatives (as
defined in the letter agreement dated May 6, 1997 (the "Company Confidentiality
-----------------------
Agreement") between the Company and Motors Insurance Corporation) to hold, all
- ---------
Evaluation Material (as defined in the Company Confidentiality Agreement) in
confidence in accordance with the terms of the Company Confidentiality Agreement
and, in the event of the termination of this Agreement for any reason, the
Parent
<PAGE>
52
promptly shall return or destroy all Evaluation Material in accordance
with the terms of the Company Confidentiality Agreement.
5.4 No Solicitation. Except as otherwise contemplated by this
---------------
Agreement, neither the Company or any of its Subsidiaries, nor any of their
respective officers, directors, employees or representatives, shall, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any person or group (other
than the Parent and the Merger Sub or any affiliate, associate or designee of
the Parent or the Merger Sub) concerning any proposal for an acquisition of all
or any substantial part of the business and properties or capital stock of the
Company and its Subsidiaries taken as a whole, whether by merger, tender offer,
purchase of assets or shares of capital stock or otherwise (an "Acquisition
-----------
Proposal"). The Company shall promptly notify the Parent if any proposal, offer
- --------
or substantial contact with respect thereto is made by any person in writing.
Notwithstanding the foregoing, (a) the Company Board may take, and disclose to
the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with respect to any tender offer for shares
of capital stock of the Company and (b) the Company may, directly or indirectly,
furnish information and access, in each case only in response to unsolicited
requests therefor after the date hereof, and may participate in discussions and
negotiate with any person or group concerning any Acquisition Proposal, only if
such person or group has submitted a written Acquisition Proposal to the Company
Board and the Company Board determines in its good faith judgment, based as to
legal
<PAGE>
53
matters on the written advice of the Company's independent legal counsel,
that failing to take such action would constitute a breach of the Company's
Board's fiduciary duty under applicable law.
5.5 Reasonable Efforts; Additional Actions.
--------------------------------------
5.5.1 Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action, and to do or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including using all reasonable
efforts to (a) obtain all consents, amendments to or waivers under the terms of
any of the Company's and the Parent's borrowing or other contractual
arrangements required by the transaction contemplated by this Agreement, (b)
effect promptly all necessary or appropriate registrations and filings with
Governmental Entities, including, without limitation, filings and submissions
pursuant to the HSR Act, the Securities Act, the Exchange Act and the DGCL, (c)
effect promptly (but in no event later than twenty (20) days) and prosecute
diligently (including responding to all reasonable requests for supplemental
information) all approvals, filings and/or notices required under any applicable
insurance laws for the consummation of the transactions contemplated by this
Agreement, (d) defend any lawsuit or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transaction
<PAGE>
54
contemplated hereby and (e) fulfill or cause the fulfillment of the conditions
to Closing set forth in Article 6.
5.5.2 If, at any time after the Effective Time, the Surviving
Corporation shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation the right, title or interest in, to or under any of the rights,
properties or assets of either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
5.6 Notification of Certain Matters. The Company shall give notice
-------------------------------
to the Parent, and the Parent and the Merger Sub shall give notice to the
Company, promptly upon becoming aware of (a) any occurrence, or failure to
occur, of any event, which occurrence or failure to occur has caused or could
reasonably be expected to cause any representation or warranty in this Agreement
to be untrue or inaccurate in any material respect at any time after the date
hereof and prior to the
<PAGE>
55
Effective Time and (b) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided that the delivery of any notice pursuant to this
--------
Section 5.6 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
5.7 Public Announcements. The initial press release or releases
--------------------
with respect to the transactions contemplated by this Agreement shall be in the
form agreed to by the Parent and the Company. Thereafter, for as long as this
Agreement is in effect, the Parent and the Merger Sub, on the one hand, and the
Company, on the other hand, shall not, and shall cause their subsidiaries and
affiliates not to, issue or cause the publication of any press release or any
other announcement (including without limitation announcements to employees,
agents or policyholders) with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the consent of the other, except where
such release or announcement is required by applicable law or pursuant to any
listing agreement with, or the rules or regulations of, any securities exchange
or any other regulatory requirements. The Parent will inform the Company in
writing as to the appropriate persons to give such consent.
5.8 Merger Sub. On or before July 3, 1997, the Parent shall cause
----------
the Merger Sub to be duly incorporated and organized and shall cause the Merger
Sub to authorize and execute an amendment to this Agreement by which the Merger
Sub agrees to become a Constituent Corporation hereunder and otherwise to be
bound by the terms hereof as applicable to the Merger Sub (the "Amendment") and
---------
the Parent and the Company agree to execute and deliver the Amendment. The
Parent will take
<PAGE>
56
all action necessary to cause the Merger Sub to perform its obligation under
this Agreement as so amended and to consummate the Merger on the terms and
conditions set forth in this Agreement as so amended. All references herein to
the Agreement shall, after the Amendment is executed and delivered by the
Parent, the Company and Merger Sub, mean this Agreement as so amended by the
Amendment.
5.9 Severance. For a period of at least two (2) years from and
---------
after the Effective Time, the Parent will cause the Surviving Corporation to
honor the severance obligations listed on Schedule 5.9 (the "Severance
------------ ---------
Schedule") in accordance with the terms of such plans as in effect immediately
prior to the Effective Time.
5.10 Indebtedness of the Company. From and after the Effective
---------------------------
Time, the Parent will and will cause the Surviving Corporation to honor in
accordance with their terms, the Indenture dated as of August 26, 1992 between
the Company and First National Bank of Chicago, as trustee, as supplemented from
time to time, the Indenture dated as of October 15, 1994 between the Company and
First National Bank of Chicago, as trustee, as supplemented from time to time,
and the Indenture dated as of February 10, 1997 between the Company and First
Union National Bank of North Carolina, as trustee, as supplemented from time to
time (the "Junior Subordinated Debenture Indenture"), including, without
---------------------------------------
limitation, any repurchase obligations with respect to the debentures issued
pursuant to the Junior Subordinated Debenture Indenture upon a Change of Control
(as such term is defined in the Junior Subordinated Debenture Indenture).
<PAGE>
57
5.11 Termination of Investment Advisory Agreement. Effective at or
--------------------------------------------
prior to the Effective Time, the Company shall have terminated the Investment
Advisory Agreement between the Company and Head Asset Management L.L.C. with no
further liability or obligation to the Company or its Subsidiaries.
5.12 Termination of Amended Salary Deferral Plan and Deferral of
-----------------------------------------------------------
Bonus Payment. Effective at or prior to the Effective Time, the Company shall
- -------------
have terminated the Integon Corporation Executive Salary Deferral Plan, which
became effective as of January 22, 1997, with no further liability or obligation
to the Company or its Subsidiaries other than to pay the participant therein the
amount due set forth on Schedule 5.12. The Parent agrees to cause the Surviving
-------------
Corporation to defer until January 2, 1998, and to pay John C Head III, his
bonus in the amount of $500,000.
5.13 Employee Plans. From and after the Effective Time, the Parent
--------------
agrees to provide, or cause the Surviving Corporation to provide, to employees
of the Company retirement benefits, bonus and incentive compensation and life,
health, disability and other welfare benefits on a basis economically comparable
to similar plans currently in effect for the Company's employees, and, for
purposes of determining eligibility to participate, vesting and entitlement
benefits, service with the Company or any Subsidiary prior to the Effective Time
shall be treated as service with the Parent or its subsidiaries; provided,
--------
however, that such service shall not be recognized to the extent such
- -------
recognition would result in a duplication of benefits.
<PAGE>
58
5.14 Investment Portfolio. The Company shall cause the investments
--------------------
of the Insurance Subsidiaries to be maintained prior to the Effective Time in
accordance with past investment policies and practices of the Insurance
Subsidiaries, except that, pending the Closing, cash proceeds from any
investment (whether as a result of the sale or maturity of an investment or from
investment income) shall only be invested in United States Treasury Securities
having a maturity of five (5) years.
5.15 Indemnification of Directors and Officers. The certificate of
-----------------------------------------
incorporation and by-laws (or equivalent governing instruments) of the Surviving
Corporation and each of its subsidiaries shall contain provisions no less
favorable with respect to indemnification than are set forth in the
Certification of Incorporation and by-laws of the Company and its Subsidiaries,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at or prior to the Effective
Time were directors, officers, agents or employees of the Company or any of its
subsidiaries or who were otherwise entitled to indemnification pursuant to the
certificate of incorporation and by-laws (or equivalent governing instruments)
of the Company or any of its subsidiaries. The Parent shall cause to be
maintained in effect for six years after the Effective Time the current policies
of the directors' and officers' liability insurance maintained by the Company
and its subsidiaries with respect to matters occurring prior to the Effective
Time; provided, however, that the Parent may substitute therefor policies of at
-------- -------
least the same coverage
<PAGE>
59
containing terms and conditions that are not less advantageous than the existing
policies (including with respect to the period covered).
5.16 Updating of Schedules. From the date hereof until the
---------------------
Effective Time, the Company shall keep up to date all of the Schedules, and
shall notify the Parent on a monthly basis of any changes or additions or events
which may, after the lapse of time, cause any change or addition in any of such
Schedules, whether or not such changes or additions relate to matters that are
permitted under Section 5.1. If the Company submits an amended Schedule to the
Parent pursuant to this Section and, if in the Parent's reasonable judgment,
such amendment or supplement, either individually or in the aggregate with other
amendments or supplements, results in a change that has had a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole, then the Parent may
reject such amended Schedule and, if the Company fails or refuses to promptly
take such actions as are necessary to make the original version of the Schedule
satisfy in all material respects each applicable representation and warranty
under this Agreement (as of the Effective Time), such failure or refusal will be
deemed to be the failure of the condition set forth in Section 6.2(b) below, and
the Parent will be entitled to terminate this Agreement pursuant to Article 7
below.
5.17 Redemption of Company Convertible Preferred Stock. The Parent
-------------------------------------------------
shall cause the Surviving Corporation to issue a notice of redemption within
five days after the later of (i) the Effective Time or (ii) September 16, 1997
to all holders of Company Convertible Preferred Stock outstanding on the
Effective Time.
<PAGE>
60
Such notice of redemption shall provide for the Redemption Record Date (as
defined in the Certificate of Designation) to be at least 20 days after the
notice of redemption has been given. On the Redemption Record Date, the
Surviving Corporation shall redeem all outstanding shares of Company Convertible
Preferred Stock in accordance with the terms of the Certificate of Designation.
If a notice of redemption has been given and any holder of shares of Company
Convertible Preferred Stock shall, prior to the close of business on the fifth
day preceding the Redemption Record Date, give written notice to the Surviving
Corporation, pursuant to paragraph 6 of the Certificate of Designation, of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Surviving Corporation and any necessary transfer tax payment, as
required by such paragraph 6), then such redemption shall not become effective
as to such shares to be converted and such conversion shall become effective at
the Conversion Price then in effect and shall entitle the holder to the Cash
Conversion Consideration.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
conditions:
<PAGE>
61
(a) This Agreement shall have been adopted by the affirmative vote of
the stockholders of the Company by the requisite vote in accordance with
applicable law;
(b) No Legal Requirements shall have been enacted, entered, promulgated
or enforced by any court or Governmental Entity that prohibit or prevent the
consummation of the Merger;
(c) (i) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made (as the case may be), except for filings in connection with the
Merger and any other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect with respect to the Company or any Subsidiary or the Parent or
materially adversely affect the ability of the Company, the Parent or the Merger
Sub to perform their respective obligations hereunder and (ii) such consents,
authorizations, orders and approvals shall be subject to no conditions other
than (A) conditions customarily imposed by insurance regulatory authorities or
(B) other conditions that could not reasonably be expected to have a Material
Adverse Effect with respect to the Company or any of the Subsidiaries, taken as
a whole; and
(d) Any waiting period applicable to the Merger under the HSR Act shall
have expired or been terminated.
<PAGE>
62
6.2 Conditions to Obligation of the Parent and the Merger Sub. The
---------------------------------------------------------
obligation of the Parent and the Merger Sub to effect the Merger shall be
subject to the fulfillment or waiver at the Effective Time of the following
additional conditions:
(a) The Company shall have performed in all material respects the
covenants and obligations required to be performed by it under this Agreement on
or prior to the Effective Time;
(b) The representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the Effective Time as if made
on and as of such date (except to the extent that any such representation or
warranty had by its terms been made as of a specific date in which case such
representation or warranty shall have been true and correct as of such specific
date); provided, however, that if the failure of any such representations and
warranties to be true and correct on and as of the Effective Date, individually
or in the aggregate, has not resulted in a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole, the foregoing condition shall be
deemed to have been fulfilled;
(c) The Parent shall have received a certificate signed by an executive
officer of the Company to the effect of Sections 6.2(a) and (b);
(d) All proceedings taken in connection with the filing of the
Certificate of Merger and other similar transactions contemplated hereby and all
documents incident to such transactions shall be reasonably satisfactory in form
and substance to the Parent and its counsel; and
<PAGE>
63
(e) The Parent shall have received a legal opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, counsel for the Company, covering the matters set
forth on Exhibit 6.2(e), which firm may rely on appropriate opinion of local
counsel.
6.3 Conditions to Obligation of the Company. The obligation of the
---------------------------------------
Company to effect the Merger shall be subject to the fulfillment or waiver at
the Effective Time of the following additional conditions:
(a) The Parent and the Merger Sub shall have performed in all material
respects the covenants and obligations required to be performed by them under
this Agreement on or prior to the Effective Time;
(b) The representations and warranties of the Parent and the Merger Sub
contained in this Agreement shall be true and correct in all material respects
on and as of the Effective Time as if made on and as of such date;
(c) The Company shall have received a certificate signed by an
executive officer of each of the Parent and Merger Sub to the effect of Sections
6.3 (a) and (b); and
(d) The Company shall have received a legal opinion of the Parent's
legal staff covering the matters set forth on Exhibit 6.3(d), which legal staff
may rely on appropriate opinion of local counsel.
<PAGE>
64
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger
-----------
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after adoption by the stockholders of the Company:
(a) By the mutual written consent of the Parent, the Merger Sub and the
Company;
(b) By the Parent, the Merger Sub or the Company:
(i) if a court of competent jurisdiction or other Governmental
Entity shall have issued an Order or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such Order
or other action shall have become final and nonappealable; or
(ii) if the Effective Time shall not have occurred on or before
December 31, 1997, provided, however, that the right to terminate this
-------- -------
Agreement under this Section 7.1(b)(ii) shall not be available to any party
whose failure to fulfill materially any covenant or obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; and
(c) By the Parent, the Merger Sub or the Company, if the stockholder
approval referred to in Section 6.1(a) shall not have been obtained by reason of
the failure to obtain the requisite vote at a duly held meeting of stockholders
or at any adjournment thereof;
<PAGE>
65
(d) By the Company if the Company receives an Acquisition Proposal from
any person or group and the Company Board determines in its good faith judgment,
based as to legal matters on the written advice of the Company's independent
legal counsel, that failing to terminate this Agreement would constitute a
breach of the Company Board's fiduciary duty under applicable law; provided,
--------
however, that if the Company exercises its right to terminate this Agreement
- -------
pursuant to this subsection (d), (i) the Company, upon giving written notice of
termination of this Agreement shall furnish a written copy of the Acquisition
Proposal giving rise to such termination, and the Parent shall have a right of
first refusal, exercisable within two (2) business days after delivery of the
Acquisition Proposal to the Parent, to acquire the Company and its Subsidiaries
on substantially the same economic terms set forth in such Acquisition Proposal,
provided that the Parent may substitute cash for any non-cash consideration
provided for under such Acquisition Proposal so long as a substantially
equivalent economic value, on an after-tax basis, is provided to the Company's
stockholders; and (ii) in the event the Parent elects not to exercise such right
of first refusal, the Company, upon demand by the Parent, shall pay the Parent a
break-up fee equal to $15,000,000. After exercise of any right of first refusal
by Parent in accordance with the immediately preceding sentence, the Parent
shall have 180 days to close such transaction.
7.2 Procedure for and Effect of Termination. In the event that
---------------------------------------
this Agreement is terminated and the Merger is abandoned by the Parent or the
Merger Sub, on the one hand, or by the Company, on the other hand, pursuant to
<PAGE>
66
Section 7.1, written notice of such termination and abandonment shall forthwith
be given to the other parties and this Agreement shall terminate and the Merger
shall be abandoned without any further action. If this Agreement is terminated
as provided herein, no party hereto shall have any liability or further
obligation to any other party under the terms of this Agreement except (i) with
respect to the willful breach by any party hereto, (ii) as provided under
Section 7.1(d) and (iii) the provisions of this Section 7.2, the second sentence
of Section 5.3.1, Section 7.1(d) and Article 8 shall survive the termination of
this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Certain Definitions. For purposes of this Agreement, the
-------------------
following terms shall have the meanings ascribed to them in this Section 8.1:
(a) "affiliate," with respect to any person, shall mean any person
---------
controlling, controlled by or under common control with such person and shall
also include any person 10% or more of whose outstanding voting power is owned
by the specified person either directly or indirectly through subsidiaries;
(b) "knowledge," with respect to the Company, shall mean the
---------
actual knowledge of any executive officer or director of the Company;
(c) "Material Adverse Effect," with respect to any person, shall
-----------------------
mean a material adverse effect on the business, operations, assets, properties,
liabilities, financial condition or results of operations of such person;
<PAGE>
67
(d) "person" shall mean and include an individual, a partnership,
------
a joint venture, a limited liability company, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof; and
(e) "subsidiary," with respect to any person, shall mean any
----------
corporation 50% or more of the outstanding voting power of which, or any
partnership, joint venture, limited liability company or other entity 50% or
more of the total equity interest of which, is directly or indirectly owned by
such person. For purposes of this Agreement, all references to "subsidiaries"
of a person shall be deemed to mean "subsidiary" if such person has only one
subsidiary.
8.2 Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified or supplemented, whether before or after
stockholder approval, only by a written agreement signed by each of the parties
hereto at any time prior to the Effective Time with respect to any of the terms
contained herein; provided, however, that after this Agreement is adopted by the
-------- -------
Company's stockholders pursuant to Section 5.2, no such amendment or
modification shall (a) alter or change the amount or kind of the consideration
to be delivered to the stockholders of the Company, (b) alter or change any term
of the certificate of incorporation of the Surviving Corporation to be effected
by the Merger or (c) alter or change any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the stockholders
of the Company.
<PAGE>
68
8.3 Waiver of Compliance; Consents. Any failure of the Parent or
------------------------------
the Merger Sub, on the one hand, or the Company, on the other hand, to comply
with any obligation, covenant, agreement or condition herein may be waived by
the Parent, the Merger Sub or the Company, respectively, only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 8.3.
8.4 Survival. The respective representations and warranties of the
--------
Parent, the Merger Sub and the Company contained herein shall not survive the
Closing hereunder.
8.5 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopier (with a confirmed receipt thereof) or registered or
certified mail (postage prepaid, return receipt requested), and on the next
business day when sent by overnight courier service, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
<PAGE>
69
(a) if to the Parent or the Merger Sub, to:
General Motors Acceptance Corporation
485 W. Milwaukee Avenue
Detroit, MI 48202
Attention: Bernard J. Buselmeier
Telecopier: (313) 974-5616
with a copy to:
Foley & Lardner
330 N. Wabash Avenue, Suite 3300
Chicago, IL 60611
Attention: Frederick L. Feldkamp, Esq.
Telecopier: (312) 755-1925
(b) if to the Company, to:
Integon Corporation
500 West Fifth Street
Winston Salem, North Carolina 27152
Attention: Secretary
Telecopier: (910) 770-2747
with copies to:
Head & Company L.L.C.
1330 Avenue of the Americas
New York, New York 10019-5402
Attention: John C Head III
Telecopier: (212) 315-0520
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Judith R. Thoyer, Esq.
Telecopier: (212) 757-3990
<PAGE>
70
8.6 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
provided, however, that the rights of the Merger Sub may be transferred to any
- -------- -------
wholly owned subsidiary of the Parent with an appropriate amendment to this
Agreement.
8.7 Expenses. Whether or not the Merger is consummated, all fees,
--------
charges and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
charges or expenses.
8.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such State, without regard
to the choice of law principles thereof.
8.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Interpretation. The article and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
<PAGE>
71
8.11 Entire Agreement. This Agreement (including the schedules,
----------------
exhibits, documents or instruments referred to herein) and the Parent
Confidentiality Agreement embody the entire agreement and understanding of the
parties hereto in respect of the subject matter hereof and thereof and supersede
all prior agreements and understandings, both written and oral, among the
parties, or between any of them, with respect to the subject matter hereof and
thereof.
8.12 No Third Party Beneficiaries. This Agreement is not intended
----------------------------
to, and does not, create any rights or benefits of any party other than the
parties hereto.
<PAGE>
72
IN WITNESS WHEREOF, the Parent and the Company have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
GENERAL MOTORS ACCEPTANCE
CORPORATION
By: /s/ Eric A. Feldstein
---------------------------------
Name: Eric A. Feldstein
Title: Executive Vice President
and Chief Financial Officer
INTEGON CORPORATION
By: /s/ John B. McKinnon
---------------------------------
Name: John B. McKinnon
Title: President and Chief
Executive Officer
<PAGE>
EXECUTION COPY
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT, dated July 7, 1997, to AGREEMENT AND PLAN OF MERGER dated as
of June 23, 1997 (the "Agreement"), by and between GENERAL MOTORS ACCEPTANCE
---------
CORPORATION, a New York corporation (the "Parent"), and INTEGON CORPORATION, a
------
Delaware corporation (the "Company").
-------
WHEREAS, the respective boards of directors of the Parent and the Company
have approved the Agreement pursuant to which, among other things, a wholly
owned direct or indirect subsidiary of the Parent to be incorporated in Delaware
(the "Merger Sub") will be merged with and into the Company (the "Merger") on
---------- ------
the terms and conditions contained therein and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL");
----
WHEREAS, IC PURCHASING CORP, a wholly owned indirect subsidiary of the
Parent (the "Merger Sub") was duly incorporated and organized on July 1, 1997,
and the Parent, the Company and the Merger Sub agree, pursuant to Section 5.8 of
the Agreement, that the Merger Sub should become a party to the Agreement as a
Constituent Corporation thereunder;
WHEREAS, the parties to the Agreement desire to make certain other
amendments thereto;
<PAGE>
2
WHEREAS, upon execution and delivery of this Amendment by the Parent, the
Company and the Merger Sub, all references to the Agreement will be to the
Agreement as amended hereby.
NOW THEREFORE, in consideration of the agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. The Merger Sub hereby becomes a party to the Agreement as a
Constituent Corporation and agrees to be bound by the terms of the Agreement
applicable to the Merger Sub.
2. Section 5.14 of the Agreement shall be amended to read in its
entirety as follows:
"5.14 Investment Portfolio. The Company shall cause the investments of
--------------------
the Insurance Subsidiaries to be maintained prior to the Effective Time in
accordance with past investment policies and practices of the Insurance
Subsidiaries, except that, pending the Closing, cash proceeds from any
investment (whether as a result of the sale or maturity of an investment or from
investment income) shall only be invested in United States Treasury Securities
having a maturity of four and one-half (4 1/2) to five and one-half (5 1/2)
years."
<PAGE>
3
IN WITNESS WHEREOF, the Parent, the Company and the Merger Sub have
caused this Amendment to the Agreement to be signed by their respective duly
authorized officers as of the date first above written.
GENERAL MOTORS ACCEPTANCE
CORPORATION
By: /s/ Eric A. Feldstein
--------------------------------------
Name: Eric A. Feldstein
Title: Executive Vice President
INTEGON CORPORATION
By: /s/ John B. McKinnon
----------------------------------
Name: John B. McKinnon
Title: President & CEO
IC PURCHASING CORP
By: /s/ Bernard J. Buselmeier
------------------------------------
Name: Bernard J. Buselmeier
Title: Vice President & Treasurer
<PAGE>
EXECUTION COPY
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 2, dated July 17, 1997, to AGREEMENT AND PLAN OF MERGER
dated as of June 23, 1997, as amended by the Amendment to Agreement and Plan of
Merger, dated July 7, 1997 (as amended, the "Agreement"), by and among GENERAL
---------
MOTORS ACCEPTANCE CORPORATION, a New York corporation (the "Parent"), INTEGON
------
CORPORATION, a Delaware corporation (the "Company"), and IC PURCHASING CORP., a
-------
Delaware corporation and indirect wholly-owned subsidiary of the Parent (the
"Merger Sub").
- -----------
WHEREAS, the parties to the Agreement desire to make certain amendments
to the Agreement;
NOW THEREFORE, in consideration of the agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. The first sentence of Section 2.1 of the Agreement shall be
amended to read in its entirety as follows:
"Each share of Common Stock, par value $.01 per share, of the Company
(the "Company Common Stock") issued and outstanding immediately prior to the
--------------------
Effective Time (other than Dissenting Shares (as defined in Section 2.4), Parent
Shares (as defined in Section 2.3) and Subsidiaries' Shares (as defined in
Section 2.3)) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive an amount in cash
equal to $26.00 per share (the "Common Stock Price Per Share") payable to the
----------------------------
holder thereof, without
<PAGE>
2
interest thereon, upon surrender of the certificate formerly representing such
share of Company Common Stock in accordance with Section 2.6."
The remainder of Section 2.1 shall remain unchanged.
2. Section 2.3 of the Agreement shall be amended to read in its
entirety as follows:
"2.3 Treasury Stock and Parent-Owned Stock. Each share of Company
-------------------------------------
Common Stock held in the Company's treasury immediately prior to the Effective
Time (excluding any shares of Company Common Stock held by the Company's
subsidiaries, all of which shares are described on Schedule 2.3 and which shall
------------
not be canceled and retired, as set forth below), and each share of Company
Common Stock and Company Convertible Preferred Stock then owned by the Parent,
the Merger Sub or any other wholly-owned subsidiary of the Parent (collectively,
"Parent Shares"), if any, shall, by virtue of the Merger, automatically be
-------------
canceled and retired and cease to exist and no consideration shall be delivered
in exchange therefor. Each share of Company Common Stock held by the Company's
subsidiaries issued and outstanding immediately prior to the Effective Time, all
of which shares are described on Schedule 2.3 (the "Subsidiaries' Shares"),
------------ --------------------
shall remain outstanding as shares of common stock of the Surviving
Corporation."
3. Section 2.5 of the Agreement shall be amended to read in its
entirety as follows:
"2.5 Merger Sub Common Stock. Each share of common stock of the Merger
-----------------------
Sub issued and outstanding immediately prior to the Effective Time shall,
<PAGE>
3
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into a number of shares of common stock of the Surviving
Corporation equal to the quotient of (i) the aggregate number of shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (excluding the Subsidiaries' Shares), divided by (ii) the aggregate number
of shares of Merger Sub issued and outstanding immediately prior to the
Effective Time."
4. Section 5.5.1 of the Agreement shall be amended to read in its
entirety as follows:
"5.5.1 Upon the terms and subject to the conditions of this Agreement,
each of the parties hereto shall use all reasonable efforts to take, or cause to
be taken, all action, and to do or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, including using all reasonable efforts to (a)
obtain all consents, amendments to or waivers under the terms of any of the
Company's and the Parent's borrowing or other contractual arrangements required
by the transaction contemplated by this Agreement, (b) effect promptly all
necessary or appropriate registrations and filings with Governmental Entities,
including, without limitation, filings and submissions pursuant to the HSR Act,
the Securities Act, the Exchange Act and the DGCL, (c) effect promptly and
prosecute diligently (including responding to all reasonable requests for
supplemental information) all approvals, filings and/or notices required under
any applicable insurance laws for the consummation of the transactions
<PAGE>
4
contemplated by this Agreement, it being understood that the application on Form
A for the approval of the Merger to be filed with the North Carolina Insurance
Department shall include a statement that the Parent will make or cause to be
made a capital contribution to the insurance subsidiaries listed on Schedule 2.3
------------
as necessary to continue their operations in accordance with applicable
insurance laws and regulations or otherwise as required by the North Carolina
Insurance Department, (d) defend any lawsuit or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transaction contemplated hereby and (e) fulfill or cause the fulfillment of
the conditions to Closing set forth in Article 6."
<PAGE>
5
IN WITNESS WHEREOF, the Parent, the Company and the Merger Sub have
caused this Amendment to the Agreement to be signed by their respective duly
authorized officers as of the date first above written.
GENERAL MOTORS ACCEPTANCE
CORPORATION
By: /s/ Eric A. Feldstein
--------------------------------
Name: Eric A. Feldstein
Title: Executive Vice President
INTEGON CORPORATION
By: /s/ John B. McKinnon
--------------------------------
Name: John B. McKinnon
Title: President and CEO
IC PURCHASING CORP.
By: /s/ Bernard J. Buselmeier
--------------------------------
Name: Bernard J. Buselmeier
Title: Vice President & Treasurer
<PAGE>
[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- -------------------------
September 16, 1997
Board of Directors
Integon Corporation
500 West Fifth Street
Winston-Salem, North Carolina 27152
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
Integon Corporation (the "Company") of the $26.00 per Share in cash to be
received by such holders pursuant to the Agreement and Plan of Merger dated as
of June 23, 1997 between General Motors Acceptance Corporation ("GMAC"), a
wholly-owned subsidiary of General Motors Corporation ("GM"), and the Company
(the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as underwriter for the
issuance of Capital Securities by Integon Capital I, a subsidiary of the
Company, in February 1997, and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. We also have provided certain investment banking services to
GM and GMAC from time to time and may provide investment banking services to GM
and GMAC in the future. In the ordinary course of our securities businesses, we
actively trade the debt and equity securities of the Company and GM and its
subsidiaries for our own account and the accounts of our customers, and we
therefore may from time to time hold a long or short position in such
securities.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Proxy Statement relating to the Special Meeting of Stockholders
of the Company to be held in connection with the Agreement; Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the five years
ended December 31, 1996; statutory financial statements for the Company for the
two years ended December 31, 1996; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company; certain other communications from
the Company to its stockholders; certain financial analyses and actuarial
appraisals performed by nationally recognized actuarial and appraisal firms (the
"Appraisals"); and certain internal financial analyses and forecasts for the
Company prepared by management. We also have held discussions with members of
the senior management of the Company regarding its past and current business
operations,
<PAGE>
Integon Corporation
September 16, 1997
Page Two
financial condition and future prospects. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the insurance
industry and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion, including, without limitation, the
information furnished by the Company and their actuaries relating to loss and
loss adjustment expense reserves and related items. We are not actuaries and
our services did not include any actuarial determinations or evaluations by us
or an attempt to evaluate actuarial assumptions. In addition, we have not made
an independent evaluation or appraisal of the assets and liabilities (including
the loss and loss adjustment expense reserves) of the Company or any of its
subsidiaries and, except for the Appraisals, we have not been furnished with any
such evaluation or appraisal.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $26.00 per
Share in cash to be received by the holders of Shares pursuant to the Agreement
is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
ANNEX C
EXCERPTS FROM DELAWARE GENERAL CORPORATION
LAW RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS.--(A) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation shall, also notify such stockholders of
the effective date of the merger or consolidation. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the
2
<PAGE>
notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 349, L.
'96, eff. 7-1-96.)
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<PAGE>
INTEGON CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS ON OCTOBER 16, 1997
The undersigned hereby appoints John C Head III or John B. McKinnon, each
with full powers of substitution, the attorneys and agents as proxies of
the undersigned with the powers the undersigned would posses, if personally
present, to vote all of the Common Stock of Integon Corporation (hereinafter
"Integon") held of record by the undersigned on August 22, 1997 and that the
undersigned may be entitled to vote at the Special Meeting of Stockholders to be
held on October 16, 1997, at 9:00 a.m. (Eastern Daylight Time), at Integon's
corporate headquarters, 500 West Fifth Street, Winston-Salem, North Carolina
27152, and at any adjournments and postponements thereof, upon the matters set
forth herein, and, in their discretion, upon all other matters that may come
before the Special Meeting.
Without otherwise limiting the general authorization hereby given, said
attorneys are instructed to vote as follows on the matters set forth below:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL:
(1) to approve and adopt the Agreement and Plan of Merger dated as of June
23, 1997, as amended on July 7, 1997 and as further amended on July 17, 1997 (as
amended, the "Merger Agreement"), by and among Integon, General Motors
Acceptance Corporation ("GMAC") and IC Purchasing Corp., an indirect and wholly
owned subsidiary of GMAC ("Merger Sub"), and the transactions contemplated
thereby, including the Merger (as defined in the Merger Agreement).
FOR: [_] AGAINST: [_] ABSTAIN: [_]
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
THE PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, FOR
PROPOSAL 1, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING.
<PAGE>
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[Space for mailing label]
NOTE: Your signature should appear as your name appears hereon. When
shares of Common Stock are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by the
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Please sign, date and return this Form promptly using the enclosed envelope.
Dated: , 1997
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(Signature)
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(Signature if held jointly)
