<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
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PRELIMINARY COPY
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:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] 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
, 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 September , 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 SEPTEMBER __ , 1997
----------------
, 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 September , 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
, 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 SEPTEMBER __ , 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 September ,
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 , 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. The full text of the written
opinion of Goldman Sachs, 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 , 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...................................................... 25
Consideration to be Paid in the Merger.................................. 25
Certificate of Incorporation and Bylaws................................. 26
Stockholders' Meeting................................................... 26
Representations and Warranties.......................................... 26
Conduct of Business Pending Merger...................................... 27
Access to Information................................................... 27
No Solicitation; Fiduciary Duties....................................... 28
Fees and Expenses....................................................... 28
Reasonable Efforts; Additional Actions.................................. 28
Notification of Certain Matters......................................... 29
Public Announcements.................................................... 29
Severance Agreements.................................................... 29
Indebtedness of the Company............................................. 29
Termination of Investment Advisory Agreement............................ 30
Termination of Executive Salary Deferral Plan........................... 30
Employee Plans.......................................................... 30
Investment Portfolio.................................................... 30
Updating of Schedules................................................... 30
Redemption of Convertible Preferred Stock............................... 30
General Conditions to the Merger........................................ 31
Conditions to Obligation of GMAC and Merger Sub......................... 31
Conditions to Obligation of the Company................................. 31
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Rights Agreement....................................................... 32
Termination............................................................ 32
Indemnification........................................................ 33
Amendment.............................................................. 33
Interests of Certain Persons in the Merger............................... 33
Regulatory Approvals..................................................... 35
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 September , 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, who were both 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. The full text of the written opinion of Goldman Sachs, 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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<PAGE>
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 , 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 $ , $ and $ , respectively, and the high, low and
closing sales prices of a share of Convertible Preferred Stock were $ , $
and $ , 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
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financial results for the first quarter were adjusted to include an increase
to loss reserves of $42.0 million, or $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.
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.
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.
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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 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
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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. 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, 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 who 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.
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;
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(z) The oral opinion (which opinion was subsequently confirmed in
writing) 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 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, 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."
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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.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JUNE 23, 1997,
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; (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 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.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Integon to corresponding
financial information, ratios and public market multiples
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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 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%.
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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
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.,
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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
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.
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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.
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
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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 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
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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 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
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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 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
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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 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
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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 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
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<PAGE>
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: (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
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<PAGE>
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;
(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.
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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 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>
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- --------
(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 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
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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.
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
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<PAGE>
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.
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
36
<PAGE>
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.
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
37
<PAGE>
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.
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
38
<PAGE>
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(5) 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
, 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 $ , $ and $ ,
respectively, and the high, low and closing sales price of a share of
Convertible Preferred Stock were , and , 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.
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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).
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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;
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; and
4. The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 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 , 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.
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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.
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