SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
(X) Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-11856
TIG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3172455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 EAST 55TH STREET, 28TH FLOOR
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(212) 446-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $0.01 par value per share,
outstanding as of close of business on June 30, 1996: 56,293,264 excluding
8,193,000 treasury shares.
<PAGE>
TIG HOLDINGS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed consolidated balance sheets as of June 30, 1996
(unaudited) and December 31, 1995 .................................. 1
Condensed consolidated statements of income for the three
and six months ended June 30, 1996 (unaudited) and
June 30, 1995 (unaudited) ...........................................2
Condensed consolidated statement of changes in shareholders'
equity for the six months ended June 30, 1996 (unaudited) ...........3
Condensed consolidated statements of cash flows for the six
months ended June 30, 1996 (unaudited) and
June 30, 1995 (unaudited) ...........................................4
Notes to condensed consolidated financial statements (unaudited) ....5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
2.1 Consolidated Results ................................................8
2.2 Reinsurance ........................................................11
2.3 Retail .............................................................13
2.4 Commercial Specialty ...............................................15
2.5 Other Lines ........................................................17
2.6 Investments ........................................................18
2.7 Reserves ...........................................................21
2.8 Liquidity and Capital Resources ....................................22
2.9 Glossary ...........................................................24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................26
Item 4. Submission of Matters to a Vote of Security Holders ................26
Item 6. Exhibits and Reports on Form 8-K ...................................28
Exhibit 11 - Computation of Earnings Per Share (unaudited) .........29
SIGNATURES ...................................................................30
<PAGE>
<TABLE>
<CAPTION>
TIG HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
------------------------------
(In millions, except share data) 1996 1995
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Investments:
Fixed maturities at market
(cost: $4,111 in 1996 and $4,233 in 1995 ) $4,112 $4,402
Short-term and other investments, at cost which
approximates market 117 148
- - --------------------------------------------------------------------------------------------------------------
Total investments 4,229 4,550
Cash 4 4
Accrued investment income 56 56
Premium receivable (net of allowance of: $4 in 1996 and $3 in 1995) 438 409
Reinsurance recoverable (net of allowance of: $9 in 1996 and 1995) 1,284 1,221
Deferred policy acquisition costs 148 144
Prepaid reinsurance premium 96 111
Income taxes 158 60
Other assets 118 128
- - --------------------------------------------------------------------------------------------------------------
Total assets $6,531 $6,683
- - --------------------------------------------------------------------------------------------------------------
LIABILITIES
Reserves for:
Losses $3,310 $3,288
Loss adjustment expenses 576 598
Unearned premium 708 712
- - --------------------------------------------------------------------------------------------------------------
Total reserves 4,594 4,598
Funds withheld under reinsurance agreements 202 151
Notes payable 118 120
Other liabilities 449 413
- - --------------------------------------------------------------------------------------------------------------
Total liabilities 5,363 5,282
- - --------------------------------------------------------------------------------------------------------------
MANDATORY REDEEMABLE PREFERRED STOCK 25 25
- - --------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock - par value $0.01 per share
(authorized: 180,000,000 shares; issued and outstanding:
64,486,264 shares in 1996 and 64,125,050 shares in 1995) 1,194 1,186
Class A convertible common stock - par value $0.01 per share
(authorized: 1,000,000 shares; issued and outstanding:
35,793 shares in 1995) - 1
Retained earnings 164 168
Net unrealized gain on fixed maturity investments, net of taxes - 110
Net unrealized loss on foreign currency, net of taxes (1) (1)
- - --------------------------------------------------------------------------------------------------------------
1,357 1,464
Treasury stock (8,193,000 shares in 1996 and 4,041,100
shares in 1995) (214) (88)
- - --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,143 1,376
- - --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,531 $6,683
- - --------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TIG HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
(In millions, except per share data) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net premium earned $389 $408 $775 $826
Net investment income 73 66 143 132
Net realized investment gain (loss) (5) 1 (5) (12)
- - ----------------------------------------------------------------------------------------------------------
Total revenues 457 475 913 946
- - ----------------------------------------------------------------------------------------------------------
LOSSES AND EXPENSES
Net losses and loss adjustment expenses incurred 281 296 587 606
Commissions and premium related expenses 88 79 177 176
Other operating expenses 36 51 75 92
Dividends to policyholders 1 3 3 6
Interest expense 2 2 4 2
Restructuring charges - - 100 -
- - ----------------------------------------------------------------------------------------------------------
Total losses and expenses 408 431 946 882
- - ----------------------------------------------------------------------------------------------------------
Income (loss) before income tax benefit (expense) 49 44 (33) 64
Income tax benefit (expense) (15) (11) 36 (13)
- - ----------------------------------------------------------------------------------------------------------
NET INCOME $34 $33 $3 $51
- - ----------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $0.55 $0.53 $0.03 $0.81
- - ----------------------------------------------------------------------------------------------------------
DIVIDEND PER COMMON SHARE $0.05 $0.05 $0.10 $0.10
- - ----------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TIG HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Unrealized Foreign Total
Class A Investment Currency Share-
Common Common Retained Gain Translation Treasury holders'
(In millions) Stock Stock Earnings (Loss) Adjustment Stock Equity
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,186 $1 $168 $110 $(1) $(88) $1,376
Net income 3 3
Common stock dividends (6) (6)
Preferred stock dividends (1) (1)
Common stock issued 5 5
Conversion of Class A common 1 (1) -
Amortization of unearned
compensation 2 2
Treasury stock (126) (126)
Change in net unrealized
gain on fixed maturity
investments (110) (110)
- - ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $1,194 - $164 - $(1) $(214) $1,143
- - ------------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TIG HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------
(In millions) 1996 1995
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $3 $51
Adjustments to reconcile net income to cash provided by
operating activities:
Changes in:
Loss reserves 22 106
Loss adjustment expenses reserves (22) (16)
Unearned premium reserves (4) 31
Reinsurance recoverable (63) (87)
Prepaid reinsurance premium 15 (37)
Premium receivable (29) (89)
Deferred policy acquisition costs (4) (6)
Funds withheld under reinsurance agreements 51 24
Other assets and other liabilities 46 26
Accrued investment income - (2)
Income taxes (39) 11
Investment loss 5 12
Other 19 1
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities - 25
- - ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of fixed maturity investments (1,184) (798)
Sales of fixed maturity investments 1,279 702
Maturities and calls of fixed maturity investments - 79
Net (increase) decrease in short-term investments 33 (43)
Other 2 (31)
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 130 (91)
- - ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Common stock issued 5 1
Acquisition of treasury stock (126) (31)
Common stock dividends (6) (6)
Preferred stock dividends (1) (1)
Proceeds from (payments on) notes payable (2) 98
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (130) 61
- - ------------------------------------------------------------------------------------------------------------
Decrease in cash - (5)
Cash at beginning of period 4 9
- - ------------------------------------------------------------------------------------------------------------
Cash at end of period $4 $4
- - ------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996
(Unaudited)
- - --------------------------------------------------------------------------------
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - --------------------------------------------------------------------------------
BASIS OF PRESENTATION. TIG Holdings, Inc. ("TIG Holdings") is primarily engaged
in the business of property/casualty insurance and reinsurance through its 16
insurance subsidiaries (collectively "TIG" or "the Company"). The accompanying
unaudited condensed consolidated financial statements include the accounts of
TIG Holdings and its subsidiaries and have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. Financial statements
prepared in accordance with GAAP require the use of management estimates. In the
opinion of management, all adjustments, including normal recurring accruals,
considered necessary for a fair presentation have been included. Certain
reclassifications of prior year amounts have been made to conform with the 1996
presentation.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in TIG's annual report on Form 10-K for the year ended December
31, 1995.
EARNINGS PER SHARE ("EPS"). EPS is calculated based upon the weighted average
common shares outstanding ("average shares") during the period. In order to
calculate average shares, unallocated ESOP shares and treasury shares are
deducted from the outstanding common shares. Class A common stock and common
stock options are considered common stock equivalents and are included in
average share calculations if dilutive. Common stock equivalents were excluded
from the primary EPS computation for the six months ended June 30, 1995, as
their inclusion would be anti-dilutive. To obtain net income attributable to
common shareholders for EPS computations, the preferred stock dividend is
deducted from net income. Refer also to Exhibit 11.
INCOME TAXES. Tax exempt investment income is reported in the accounting period
in which such tax-exempt income is recorded in the financial statements.
Deferred income taxes at June 30, 1996 and December 31, 1995 included a deferred
liability of $.3 million and $59 million, respectively, related to net
unrealized investment gains.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES. The liability for unpaid losses and
loss adjustment expenses ("LAE") is based on an evaluation of reported losses
and on estimates of incurred but unreported losses. The reserve liabilities are
determined using adjusters' individual case estimates and statistical
projections. The liability is reported net of estimated salvage and subrogation
recoverable. Adjustments to the liability resulting from subsequent developments
or revisions to the estimate are reflected in results of operations in the
period in which such adjustments become known. While there can be no assurance
that the reserves at any given date are adequate to meet TIG's obligations, the
amounts reported on the balance sheet are management's best estimate of that
amount.
TREASURY STOCK. The Board of Directors has authorized the repurchase of up to 10
million shares of TIG Holdings common stock. As of June 30, 1996, the
Company has repurchased 8.2 million shares for an aggregated cost of $214
million. The Company uses the cost method to record the repurchase of treasury
shares.
<PAGE>
TIG HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996
(Unaudited)
- - --------------------------------------------------------------------------------
NOTE B. RESTRUCTURING CHARGES
- - --------------------------------------------------------------------------------
In February 1996, TIG announced the reorganization of its commercial operations
and plans to exit certain lines of business that failed to meet profitability
standards. As a result of this reorganization, TIG took the following actions:
1) combined its Specialty Commercial and Worker's Compensation divisions to form
a new division called Commercial Specialty, 2) identified field offices for
consolidation and closure, 3) identified lines of business for non-renewal or
cancellation for which 1995 net premium written was approximately $190 million
or 12% of consolidated 1995 net premium written, 4) formed a run-off division
(called "Other Lines") to administer contractually required policy renewals for
run-off lines of business, and 5) notified approximately 600 employees that
their positions would be eliminated. At June 30, 1996, the consolidation/closure
of field offices was approximately 50% complete; net written premium for Other
Lines had declined by 39% for the three months ended June 30, 1996 as compared
to the three months ended March 31, 1996; and approximately 400 individuals'
employment had been terminated. Management estimates that most Other Lines
policies will be non-renewed and that remaining Other Lines personnel will be
terminated by December 1997.
TIG recorded a $100 million accrual in first quarter 1996 for estimated
restructuring charges comprised of severance of $17 million; contractual policy
obligations of $37 million; office lease termination of $18 million; furniture,
equipment and capitalized software write-downs of $12 million; and a reserve for
litigation and credit issues related to terminated producers of $16 million. The
remaining reserve at June 30, 1996 is $72 million. Charges against the
restructure accrual of $28.3 million have been recorded during the first six
months of 1996 and are comprised of $7.7 million in severance, $7.8 million in
contractual policy obligations, $11.0 million in lease termination costs and
$1.8 million in asset write-downs.
The components of the underwriting loss from the Other Lines division, which
includes all run-off operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In millions) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net premium written $38 $59 $100 $156
- - ----------------------------------------------------------------------------------------------
Premium earned $60 $92 $134 $209
Losses and LAE incurred (See Note C) (47) (69) (131) (156)
Underwriting expenses (13) (35) (36) (80)
- - ----------------------------------------------------------------------------------------------
Underwriting loss $0 $(12) $(33) $(27)
- - ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996
(Unaudited)
- - --------------------------------------------------------------------------------
NOTE C. LOSS RESERVES
- - --------------------------------------------------------------------------------
In connection with the February 1996 restructuring, TIG completed a
re-evaluation of loss and LAE reserves related to run-off lines using additional
loss development data received during first quarter 1996. This data confirmed
adverse loss development trends observed in the second half of 1995 and was a
consideration in the decision to exit certain lines of business as discussed in
Note B. As a result of this re-evaluation and management's belief that the
restructuring decision will make the claims settlement process less consistent
and more volatile, TIG increased loss and LAE reserves by $31 million in the
first quarter of 1996 for run-off lines, principally for the Transportation and
Large Programs units.
- - --------------------------------------------------------------------------------
NOTE D. INCOME TAXES
- - --------------------------------------------------------------------------------
In March 1996, TIG entered into settlement agreements with the IRS on several
outstanding audit assessments, which resulted in a redetermination of certain
tax liabilities related to prior tax years. As a result of the redetermination,
a $20 million deferred tax benefit was recognized in first quarter 1996.
Accordingly, the effective tax rate for the six months ended June 30, 1996 will
not necessarily approximate the estimated effective tax rate for the full year.
- - --------------------------------------------------------------------------------
NOTE E. CONTINGENCIES
- - --------------------------------------------------------------------------------
TIG's insurance subsidiaries are routinely engaged in litigation in the normal
course of their business. As a liability insurer, the Company defends
third-party claims brought against its insureds. As an insurer, the Company
defends against coverage claims.
On January 11, 1994, a Los Angeles County Superior Court jury returned a verdict
of $28 million for punitive damages against TIG Insurance Company ("TIC") in
Talbot Partners v. Cates Construction, Inc. and TIC (the "Talbot Case"). The
award arose out of TIC's handling of a surety bond claim on a construction
project. Management is vigorously pursuing its right to appeal the judgment. TIC
is presently litigating with the carriers of its errors and omissions insurance
policies as to coverage for punitive damages under the agreed upon language of
the policies. On June 27, 1996, a Los Angeles County Superior Courts entered a
verdict against TIC in Reliance Insurance Company of Illinois ("Reliance") v.
TIC. The court ruled in this declaratory relief action that Reliance, which is
one of the carriers which insures TIC, was not obligated to TIC under its
errors and omissions insurance policies for punitive damages under Calafornia
law. Management is reviewing whether to appeal this judgment. Management
believes, however, that the ultimate liability, if any, arising from the Talbot
case will not materially impact consolidated operating results.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.1 CONSOLIDATED RESULTS
- - --------------------------------------------------------------------------------
TIG Holdings, Inc. ("TIG Holdings") and its subsidiaries (collectively "TIG" or
the "Company") offer property/casualty insurance and reinsurance throughout the
United States through three major operating divisions: Reinsurance, Retail, and
Commercial Specialty. Products that have been de-emphasized or placed into run-
off are included in the Other Lines division. The following analysis provides an
assessment of TIG's financial results for the three and six months ended June
30, 1996 as compared to the three and six months ended June 30, 1995 and
material changes in financial position from December 31, 1995 to June 30, 1996.
This discussion updates the "Management's Discussion and Analysis" in the 1995
Annual Report to Shareholders and should be read in conjunction therewith. TIG
Holdings would like to caution readers regarding certain forward-looking
statements in the following discussion and elsewhere in this Form 10-Q. While
TIG Holdings believes in the veracity of all statements made herein,
forward-looking statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by TIG Holdings, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, including without limitation, changes in interest rates,
increased competition, particularly price competition (which would reduce
margins), increases in catastrophes, regulatory changes, adverse loss
development for prior years, the adequacy of TIG's loss reserves as well as
general market conditions. Many of these uncertainties and contingencies are
beyond TIG Holdings' control and, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect TIG
Holdings' actual results and could cause its actual results to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
TIG Holdings. TIG disclaims any obligation to update forward looking statements.
Results of operations for the three and six months ended June 30, 1996 and 1995
are presented below. Certain reclassifications of prior period amounts have been
made to conform with the current period presentation. Key industry terms are
defined at Item 2.9 - Glossary and are italicized the first time used in the
following discussion:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In millions) 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premium written $467 $556 $975 $1,044
- - -------------------------------------------------------------------------------------------------------------
Net premium written $383 $401 $787 $821
- - -------------------------------------------------------------------------------------------------------------
Net premium earned $389 $408 $775 $826
Less: Net loss and LAE incurred 281 296 587 606
Commission expense 75 65 149 142
Premium related expense 13 14 28 34
Other underwriting expense 26 42 57 74
Policyholder dividends incurred 1 3 3 6
- - -------------------------------------------------------------------------------------------------------------
Underwriting loss (7) (12) (49) (36)
Net investment income 73 66 143 132
Net realized investment gain (loss) (5) 1 (5) (12)
Corporate expenses (10) (9) (18) (18)
Interest expense (2) (2) (4) (2)
Restructuring charges - - (100) -
- - -------------------------------------------------------------------------------------------------------------
Income (loss) before tax benefit (expense) 49 44 (33) 64
Income tax benefit (expense) (15) (11) 36 (13)
- - -------------------------------------------------------------------------------------------------------------
Net income $34 $33 $3 $51
- - -------------------------------------------------------------------------------------------------------------
Income excluding investment gains (losses) and restructuring charges $37 $32 $71 $58
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
OVERVIEW. Net income for second quarter 1996 of $34 million increased slightly
over 1995 as improved underwriting results offset pre-tax investment losses of
$5 million taken to increase portfolio yield. Income excluding investment losses
increased to $37 million in second quarter 1996, a 16% improvement over 1995.
The effective tax rate for second quarter 1996 was 30.6%, 5.6 percentage points
higher than second quarter 1995. As discussed at Item 2.6, TIG significantly
reduced its investment in tax-exempt municipal securities in first quarter 1996,
which resulted in the effective tax rate increase.
Net income for the first six months of 1996 was $3 million, reflecting pre-tax
restructuring charges of $100 million recorded in first quarter 1996 in
connection with the reorganization of commercial operations and the decision to
exit certain underperforming programs. Income excluding restructuring charges
and investment losses increased to $71 million for the first six months of 1996,
a 22% improvement over 1995, as a $20 million deferred tax benefit recorded in
first quarter 1996 offset reserve strengthening of $31 million recorded for
certain Other Lines programs. For additional information regarding first quarter
1996 restructuring charges, reserve strengthening and income tax benefit see
Notes B, C and D to the Condensed Consolidated Financial Statements.
The following table shows net premium written by division and the percentage of
consolidated net premium written by each division:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
NPW % NPW % NPW % NPW %
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reinsurance $145 37.8 $136 33.9 $282 35.8 $260 31.7
Retail 91 23.8 98 24.5 185 23.5 179 21.8
Commercial Specialty 109 28.5 108 26.9 220 28.0 226 27.5
Other Lines 38 9.9 59 14.7 100 12.7 156 19.0
- - --------------------------------------------------------------------------------------------------------
Total $383 100.0 $401 100.0 $787 100.0 $821 100.0
- - --------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated net premium written declined by $18 million or 4.5% in second
quarter 1996 compared to 1995 primarily due to a $21 million decline in Other
Lines premium. For second quarter 1996 compared to 1995, Reinsurance net premium
written increased by $9 million or 6.6% and Commercial Specialty net premium
written increased slightly in spite of a $13 million decline in Workers'
Compensation premiums related to continued price competition in the workers'
compensation market. Retail net premium written declined by $7 million or 7.1%
in second quarter 1996 compared to 1995 due to planned reductions in property
premium to reduce catastrophe exposures. The ratio of net premium written to
gross premium written increased from 72.1 in second quarter 1995 to 82.0 in 1996
primarily due to the 90% reinsurance of one Other Lines program which was
effective in the second quarter of 1995.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
The following table represents the components of TIG's consolidated statutory
combined ratio:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
STATUTORY RATIOS: 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss and LAE 72.4 73.7 75.7 74.0
- - -------------------------------------------------------------------------------------------------
Commission expense 20.2 16.3 19.8 17.9
Premium related expense 3.2 4.0 3.3 4.2
Other underwriting expense 6.4 10.1 7.0 9.2
- - -------------------------------------------------------------------------------------------------
Total underwriting expense 29.8 30.4 30.1 31.3
Policyholder dividends 0.7 2.0 1.1 1.7
- - -------------------------------------------------------------------------------------------------
Combined ratio 102.9 106.1 106.9 107.0
- - -------------------------------------------------------------------------------------------------
</TABLE>
UNDERWRITING RESULTS. The consolidated combined ratio decreased by 3.2 and 0.1
percentage points for the three and six months ended June 30, 1996 compared to
the corresponding prior year periods. Reductions in the combined ratio for
Reinsurance and Other Lines for the three and six months ended June 30, 1996
compared to 1995 reduced the consolidated combined ratio. This reduction was
partially offset by increases in the combined ratio for Retail and Commercial
Specialty that increased the consolidated combined ratio in the corresponding
periods. A dicussion of the underwriting results for Reinsurance, Retail,
Commercial Specialty and Other Lines follows in Items 2.2, 2.3, 2.4 and 2.5
respectively.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.2 REINSURANCE
- - --------------------------------------------------------------------------------
TIG's reinsurance operations are conducted through TIG Reinsurance Company ("TIG
Re") which is based in Stamford, Connecticut. TIG Re's strategy is to focus on
excess of loss casualty coverages, written on a treaty basis, generally taking
large treaty participations. By assuming a significant participation in each
treaty, TIG Re exercises substantial control over the terms and structure of
each treaty. TIG Re typically seeks to write treaties attaching within working
layers, where losses are more predictable and a higher premium is available.
Underwriting results for TIG Re are presented below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ------------------
(In millions) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premium written $147 $158 $295 $301
- - ------------------------------------------------------------------------------------------
Net premium written $145 $136 $282 $260
- - ------------------------------------------------------------------------------------------
Net premium earned $136 $125 $265 $244
Less: Net loss and LAE incurred 98 94 191 183
Commission expense 34 29 67 57
Other underwriting expense 6 5 12 11
- - ------------------------------------------------------------------------------------------
Underwriting loss $(2) $(3) $(5) $(7)
- - ------------------------------------------------------------------------------------------
</TABLE>
PREMIUM. TIG Re focuses on long-term relationships with clients who meet their
underwriting standards and share their partnership perspective. While overall
market conditions have not improved substantially, TIG Re continues to see
profitable opportunities and has maintained a growth rate comparable to that of
other top tier reinsurance companies. Gross premium written decreased by 2% and
net premium written increased by 8% for the first six months of 1996 compared to
the prior year. The decline in gross premium written is due to a change in
structure of one program from assuming business on a gross basis to a net basis.
This program restructuring has caused the ratio of net written to gross written
premium to increase 13 percentage points to 99% in second quarter 1996.
Approximately 81% and 83% of business eligible for renewal in the first six
months of 1996 and 1995, respectively, was retained. Gross premium produced
through TIG Re's London office was $14.0 million for the first six months of
1996, as compared to $8.3 million for the same period in 1995. The following
table summarizes TIG Re's net premium written by statutory line of business:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------------
1996 1995 1996 1995
--------------------------------------------------------------------------
(In millions) NPW % NPW % NPW % NPW %
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property $35 24.1 $18 13.2 $61 21.6 $46 17.7
Medical Malpractice 23 15.9 20 14.7 49 17.4 36 13.8
Automobile Liability 16 11.0 14 10.3 39 13.8 20 7.7
Errors & Omissions 28 19.3 37 27.2 51 18.1 60 23.1
General Liability 21 14.5 26 19.1 42 14.9 47 18.1
Other 22 15.2 21 15.5 40 14.2 51 19.6
- - --------------------------------------------------------------------------------------------------
Total $145 100.0 $136 100.0 $282 100.0 $260 100.0
- - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
UNDERWRITING RESULTS. The improvement in TIG Re's underwriting results in 1996
over 1995 is consistent with management's expectations and reflects management's
selection of clients and programs meeting strict criteria for adequate returns.
There has been some upward change in commission and brokerage rates on business
renewed in 1996, but most casualty accounts have been renewed at expiring terms.
The following table presents the components of TIG Re's statutory combined
ratio:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------------------
STATUTORY RATIOS: 1996 1995 1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss and LAE 72.1 75.2 71.9 75.0
- - --------------------------------------------------------------------------------------------
Commission expense 25.5 22.8 25.5 23.9
Premium related expense 0.2 0.1 0.2 0.1
Other underwriting expense 4.1 4.1 4.3 4.2
- - --------------------------------------------------------------------------------------------
Total underwriting expense 29.8 27.0 30.0 28.2
- - --------------------------------------------------------------------------------------------
Combined ratio 101.9 102.2 101.9 103.2
- - --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.3 RETAIL
- - --------------------------------------------------------------------------------
The Retail division, based in Battle Creek, Michigan, principally provides
single-risk, independent agency produced property and liability coverage to
targeted individuals and small businesses. Coverages include automobile policies
which cover liabilities to third parties for bodily injury and property damage
and which cover physical damage to the insured's own vehicle resulting from
collision or various other causes of loss. Homeowners/commercial property
policies protect against loss of dwellings/buildings and contents arising from a
variety of perils, as well as liability arising from ownership or occupancy. The
following table presents underwriting results for Retail:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------------
(In millions) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premium written $103 $105 $208 $201
- - ----------------------------------------------------------------------------------------------
Net premium written $91 $98 $185 $179
- - ----------------------------------------------------------------------------------------------
Net premium earned $91 $87 $180 $162
Less: Net loss and LAE incurred 64 61 126 116
Commission expense 15 14 30 27
Premium related expense 4 3 9 8
Other underwriting expense 8 7 16 14
- - ----------------------------------------------------------------------------------------------
Underwriting gain (loss) $ - $2 $(1) $(3)
- - ----------------------------------------------------------------------------------------------
</TABLE>
PREMIUM. Gross premium written increased by approximately 3% for the first six
months of 1996 compared to 1995. The increase occurred primarily in automobile
and non-standard automobile lines as a result of new business. This was offset
by a decrease in premiums for property lines, which is in accordance with
management plans to decrease exposure in catastrophe prone areas. The following
table summarizes Retail net premium written by major product:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
(In millions) NPW % NPW % NPW % NPW %
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Automobile $46 50.5 $43 43.9 $89 48.1 $84 46.9
Property 20 22.0 30 30.6 42 22.7 52 29.1
Non-standard automobile 8 8.8 9 9.2 20 10.8 13 7.3
Upscale property 8 8.8 7 7.1 12 6.5 12 6.7
All other 9 9.9 9 9.2 22 11.9 18 10.0
- - ----------------------------------------------------------------------------------------------------
Total $91 100.0 $98 100.0 $185 100.0 $179 100.0
- - ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
UNDERWRITING RESULTS. The Retail division's underwriting results for second
quarter 1996 declined by $2 million compared to the corresponding prior year
period due primarily to an increase in premium related and other underwriting
expenses. The increase in premium related expenses for the second quarter 1996
over the second quarter 1995 is due to timing differences. Premium related
expenses for the six months ended 1996 are in line with the corresponding prior
year period. Other underwriting expenses increased for the three and six months
ended June 30, 1996 as compared to the corresponding prior year periods due to
the addition of the Small Business program in the third quarter of 1995. The
combined ratio excluding catastrophes increased due to an increase in property
losses in non-standard auto. The following table presents the components of
Retail's statutory combined ratios:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------------
STATUTORY RATIOS 1996 1995 1996 1995
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss and LAE 70.6 70.1 69.9 71.5
- - -----------------------------------------------------------------------------------------------
Commission expense 16.5 16.3 16.9 16.7
Premium related expense 4.3 3.4 4.7 4.5
Other underwriting expense 8.5 7.2 8.8 7.9
- - -----------------------------------------------------------------------------------------------
Total underwriting expense 29.3 26.9 30.4 29.1
- - -----------------------------------------------------------------------------------------------
Combined ratio 99.9 97.0 100.3 100.6
- - -----------------------------------------------------------------------------------------------
Combined ratio excluding catastrophes 98.3 95.8 97.6 95.4
- - -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.4 COMMERCIAL SPECIALTY
- - --------------------------------------------------------------------------------
Commercial Specialty is comprised of the following business units: Workers'
Compensation, Sports & Leisure, Commercial Auto & Related, and Other Commercial.
Workers' Compensation provides benefits to employees as mandated by state laws
for employment-related accidents, injuries or illnesses. Sports & Leisure offers
insurance products for organizers and participants in sporting events,
entertainment and leisure activities. Coverages include liability, property,
automobile, workers' compensation and participant accident and health insurance.
Commercial Auto covers liability to third parties for bodily injury and property
damage, and covers physical damage to the insured's own vehicle. Commercial Auto
policies are generally issued to business and governmental entities,
organizations and associations. Other Commercial includes: Excess Casualty,
Construction, Marine and Excess & Surplus. Underwriting results for Commercial
Specialty are presented below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------------
(In millions) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premium written $141 $139 $288 $284
- - ----------------------------------------------------------------------------------------
Net premium written $109 $108 $220 $226
- - ----------------------------------------------------------------------------------------
Net premium earned $102 $104 $196 $212
Less: Net loss and LAE incurred 72 72 139 151
Commission expense 19 16 36 33
Premium related expense 5 5 10 13
Other underwriting expense 10 7 18 9
Policyholder dividends 1 3 3 5
- - ----------------------------------------------------------------------------------------
Underwriting gain (loss) $(5) $1 $(10) $1
- - ----------------------------------------------------------------------------------------
</TABLE>
PREMIUM. Gross premium written increased slightly for the three and six months
ended June 30, 1996 compared to the corresponding prior year periods. Premium
growth in Commercial Auto & Related and Sports & Leisure programs was offset by
a decrease in Workers' Compensation gross premium of $14 million and $32 million
for the three and six month periods ending June 30, 1996. The second quarter of
1996 increase in Commercial Auto & Related and Sports & Leisure premium is
primarily from new business. Workers' Compensation reforms have been enacted by
a number of states, intensifying competitive market conditions nationwide. Due
to the changing environment, TIG's workers' compensation marketing plan will
continue to be cautious, in line with disciplined underwriting, and remain
focused on small to intermediate size customers using a template underwriting
approach.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
The following table summarizes Commercial Specialty net premium written by
business unit:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
(In millions) NPW % NPW % NPW % NPW %
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Workers' compensation $39 36.1 $53 48.8 $96 43.5 $126 55.9
Sports & Leisure 49 45.4 42 39.0 79 35.9 75 33.2
Commercial Automobile 9 8.4 5 4.4 21 9.5 8 3.7
All other 12 10.1 8 7.8 24 11.1 17 7.2
- - ----------------------------------------------------------------------------------------------------
Total $109 100.0 $108 100.0 $220 100.0 $226 100.0
- - ----------------------------------------------------------------------------------------------------
</TABLE>
UNDERWRITING RESULTS. The Commercial Specialty division's combined ratio
increased by 1.5 percentage points during the second quarter and 3.1 percentage
points for the six months ended June 30, 1996 compared to the same periods in
1995. The increase in the combined ratio is due principally to increased
commission and other underwriting expenses partially offset by a decline in
policyholder dividends and premium related expenses. Increased writings for
program business produced through managing general agents resulted in higher
commission expenses for the three and six months ended June 30, 1996 compared to
1995. These commissions are generally higher than traditional business. The
other underwriting expense ratio increased primarily due to start up costs
incurred for new programs in Workers' Compensation and Excess and Surplus lines
for which little net premium has been written. The decrease in the policyholder
dividend ratio in the second quarter 1996 is due to the shift in business from
participating to non-participating select workers' compensation policies. The
following table presents the components of Commercial Specialty's statutory
combined ratios:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------------
STATUTORY RATIOS 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss and LAE 70.8 69.4 70.9 71.4
- - -------------------------------------------------------------------------------------
Commission expense 18.6 15.8 18.7 15.9
Premium related expense 4.4 5.9 4.6 5.9
Other underwriting expense 9.1 5.2 8.5 4.2
- - -------------------------------------------------------------------------------------
Total underwriting expense 32.1 26.9 31.8 26.0
- - -------------------------------------------------------------------------------------
Policyholder dividend 2.4 7.5 4.1 6.3
- - -------------------------------------------------------------------------------------
Combined ratio 105.3 103.8 106.8 103.7
- - -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.5 OTHER LINES
- - --------------------------------------------------------------------------------
Other Lines principally includes commercial products which have been placed in
run-off due to failure to meet profitability standards. Approximately 95% of
this business was placed in run-off in March 1996 with the remainder being
placed in run-off in June 1995. Most premium written in run-off programs after
the "exit date" represents contractually required renewals. As discussed at Item
2.1, costs to administer such renewals were accrued in first quarter 1996. Net
premium written decreased in the three and six months ended June 30, 1996 as
compared to 1995 by $21 million and $56 million, respectively. Other Lines
premium is expected to be completely non-renewed by late 1997. Underwriting
results and statutory combined ratios for Other Lines are presented below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------------
(In millions) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premium written $76 $154 $184 $258
- - ----------------------------------------------------------------------------------------------
Net premium written $38 $59 $100 $156
- - ----------------------------------------------------------------------------------------------
Net premium earned $60 $92 $134 $209
Less: Net loss and LAE incurred 47 69 131 156
Commission expense 7 6 16 26
Premium related expense 4 6 9 13
Other underwriting expense 2 23 11 40
Policyholder dividend - - - 1
- - ----------------------------------------------------------------------------------------------
Underwriting loss $0 $(12) $(33) $(27)
- - ----------------------------------------------------------------------------------------------
STATUTORY RATIOS:
Loss and LAE 78.2 79.9 98.6 77.3
- - ----------------------------------------------------------------------------------------------
Commission expense 13.2 2.2 11.2 12.2
Premium related expense 7.9 10.2 6.9 8.2
Other underwriting expense 2.1 37.6 8.4 26.0
- - ----------------------------------------------------------------------------------------------
Total underwriting expense 23.2 50.0 26.5 46.4
Policyholder dividends 0.3 0.5 0.6 0.3
- - ----------------------------------------------------------------------------------------------
Combined ratio 101.7 130.4 125.7 124.0
- - ----------------------------------------------------------------------------------------------
</TABLE>
As discussed at Item 2.1, TIG increased loss and LAE reserves for Other Lines by
$31 million during the first quarter 1996. This reserve strengthening increased
the year to date 1996 loss and LAE ratio by approximately 23.3 percentage
points. Commissions and underwriting expense ratio fluctuations with prior
periods are primarily attributable to the sale of the Financial Institutions
business during the second quarter 1995. Management estimates that underwriting
results for Other Lines will be approximately break-even for the remainder of
1996.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.6 INVESTMENTS
- - --------------------------------------------------------------------------------
INVESTMENT MIX. Management continues to emphasize a conservative investment
strategy by maintaining a portfolio of high-quality, principally fixed maturity
investments. In accordance with SFAS 115, TIG's entire fixed maturity portfolio
has been classified as available-for-sale. As a result, all fixed maturity
investments are recorded in TIG's financial statements at market value.
Unrealized gains and losses on fixed maturity investments and related hedges are
recorded net of tax directly in shareholders' equity. Following is a summary of
TIG's investment portfolio by type of investment.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------------------------------------
% of % of
Market Market Market Market
(In millions) Value Portfolio Value Portfolio
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds $548 12.9 $951 20.9
Mortgage-backed securities 1,387 32.8 1,405 30.9
United States government bonds 1,197 28.3 1,388 30.5
Corporate and other bonds 980 23.2 658 14.5
- - -----------------------------------------------------------------------------------------------------
Total fixed maturity investments 4,112 97.2 4,402 96.8
Short-term and other investments 117 2.8 148 3.2
- - -----------------------------------------------------------------------------------------------------
Total invested assets $4,229 100.0 $4,550 100.0
- - -----------------------------------------------------------------------------------------------------
</TABLE>
During the first half of 1996, tax-exempt municipal bonds and certain other
lower yielding securities were disposed of in favor of higher yielding corporate
bonds and mortgage-backed securities. As a result, the book yield of the
portfolio increased to 7.19% at June 30, 1996 from 6.70% at December 31, 1995.
Approximately one-third of TIG's portfolio consists of mortgage-backed
securities ("MBS"). United States federal government and government agency
mortgages now represent approximately 86% of TIG's exposure to MBS offering AAA
credit quality and high yields. In exchange for these benefits, however, the
timing of ultimate repayment of principal remains uncertain during the life of
the investment, as it is dependent on the prepayment and refinancing activity of
the underlying homeowner. All MBS held in the portfolio can be actively traded
in the public market. The market value of MBS can be affected during periods of
high interest rates whereby the MBS would be subject to repayment of principal
earlier than originally anticipated. If this does occur, TIG's investment income
levels could be negatively impacted. Earnings could also be affected by any
capital gains or losses realized on these partial prepayments as TIG would
receive the principal amount of the securities which may have been purchased at
a premium or discount to such principal amount. TIG's consolidated financial
results have not been materially impacted by prepayments of MBS.
TIG's objective is to maintain the weighted average maturity of its investment
portfolio between 8 and 11 years and the weighted average duration between 4 and
7 years. At June 30, 1996, the weighted average maturity of TIG's investment
portfolio was 8.5 years compared to 8.9 years at December 31, 1995. At June 30,
1996, the weighted average duration of TIG's investment portfolio was 5.3 years
compared to 5.8 years at December 31, 1995.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
From time to time, TIG sells futures contracts to hedge its interest rate and
market exposures on thirty-year U.S. Treasury bonds. Risks arise from movements
in the futures contracts' values. Futures contracts are carried at market value,
with gains and losses recognized as adjustments to the carrying value of the
hedged investment. At June 30, 1996, the face amount of open futures contracts
was $100 million as compared to $25 million at December 31, 1995.
During the fourth quarter of 1995, TIG entered into commitments to purchase
securities on a "To Be Announced" ("TBA") basis for which the interest rate risk
remains with TIG until the date of delivery and payment. Delivery and payment of
MBS purchased on a TBA basis can take place a month or more after the date of
the transaction. These securities are subject to market fluctuations during this
period and it is the Company's policy to recognize any gains or losses only when
they are realized. TIG maintains cash and securities with a fair value exceeding
the amount of its TBA purchase commitments. At June 30, 1996, the TBA purchase
commitments amounted to $84.5 million and had a fair value of $84.6 million
compared to TBA commitments of $152.2 million and fair value of $153.1 million
at December 31, 1995.
UNREALIZED GAINS. Net pre-tax unrealized gains decreased by $168 million during
the first six months of 1996 as a result of increasing market interest rates. As
of June 30, 1996, the aggregate pre-tax net unrealized gain on TIG's investment
portfolio was $1 million. The following is a summary of net unrealized gains
(losses) by type of security:
<TABLE>
<CAPTION>
June 30, December 31,
(In millions) 1996 1995 Change
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal bonds $29 $60 $(31)
Mortgage-backed securities (30) (4) (26)
United States government bonds 17 91 (74)
Corporate and other bonds (15) 22 (37)
- - -----------------------------------------------------------------------------------------------
Net unrealized gains $1 $169 $(168)
- - -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
INVESTMENT INCOME. The following table displays the components of TIG's
investment income and mean after-tax investment yields. The yields include
interest earned and exclude realized investment gains and losses. These yields
are computed using the average of the end of the month asset balances during the
period.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------------------
(In millions) 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity investments:
Taxable $65 $51 $129 $101
Tax-exempt 8 15 19 32
Short-term and other investments 2 2 5 4
- - ----------------------------------------------------------------------------------------------
Total gross investment income 75 68 153 137
Investment expenses, interest and other (2) (2) (10) (5)
- - ----------------------------------------------------------------------------------------------
Total net investment income $73 66 $143 $132
- - ----------------------------------------------------------------------------------------------
After-tax net investment yield 4.55% 4.47% 4.47% 4.49%
- - ----------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT QUALITY. The table below shows the rating distribution of TIG's
fixed maturity portfolio:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------------------------------------------------
Market % of Market % of
Standard & Poor's/Moody's Value Portfolio Value Portfolio
- - -------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
AAA/Aaa $3,037 73.8 $3,361 76.4
AA/Aa 196 4.8 369 8.4
A/A 333 8.1 257 5.8
BBB/Baa 176 4.3 119 2.7
Below BBB/Baa 370 9.0 296 6.7
- - -------------------------------------------------------------------------------------------------------------
Total fixed maturity investments $4,112 100.0 $4,402 100.0
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
TIG minimizes the credit risk of its fixed maturity portfolio by investing
primarily in investment grade securities. To enhance investment yields,
management has authorized the purchase of up to $500 million in high yield, less
than investment grade securities. The information on credit quality in the
preceding table is based upon the higher of the rating assigned to each issue of
fixed income securities by either Standard & Poor's Ratings Group or Moody's
Investor Service, Inc. Where neither Standard & Poor's or Moody's has assigned a
rating to a particular fixed maturity issue, classification is based on 1)
ratings available from other recognized rating services; 2) ratings assigned by
the National Association of Insurance Commissioners ("NAIC"); or 3) an internal
assessment of the characteristics of the individual security, if no other rating
is available.
The NAIC has a bond rating system that assigns security classes. These "NAIC
designations" are used by insurers when preparing their annual statutory
financial statements. The designations assigned by the NAIC range from class 1
to class 6, with a rating in class 1 being the highest quality. As of June 30,
1996, approximately 91% of TIG's portfolio, measured on a statutory carrying
value basis, was invested in securities rated in class 1 or 2, both considered
investment-grade by the NAIC compared to 93% at December 31, 1995.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.7 RESERVES
- - --------------------------------------------------------------------------------
TIG's reserves for losses and loss adjustment expenses ("LAE") totaled $3.9
billion at June 30, 1996 and December 31, 1995. The process of estimating loss
and LAE reserves involves the active participation of an experienced actuarial
staff with input from underwriting, claims, reinsurance, financial, and legal
departments. Management, using the advice of loss reserve specialists, makes a
judgment as to the appropriate amount to record in the financial statements.
This process is a continuous one, involving regular updates for new information
and adjustments of loss reserves based on the application of management's best
evaluation of the revised data. Such adjustments are reflected in current
operations. As discussed at Item 2.1, TIG increased loss and LAE reserves by $31
million in first quarter 1996 for certain run-off programs included in Other
Lines.
The inherent uncertainty in estimating reserves is increased when significant
changes occur. Examples of such changes include: (1) changes in production
sources for existing lines of business; (2) writings of significant blocks of
new business; (3) changes in economic conditions; and (4) changes in state or
federal laws and regulations, particularly insurance reform measures. TIG has
experienced significant changes in each of these areas during the past several
years. The inherent uncertainties in estimating reserves are greater with
respect to reinsurance than for primary insurance due to the diversity of the
development patterns among different types of reinsurance contracts, the
necessary reliance on ceding companies for information regarding reported claims
and differing reserving practices among ceding companies. This uncertainty is
compounded in the case of TIG Re by its relatively short operating history (TIG
Re was formed in 1987). Internal data must be supplemented with industry data to
provide the basis for reserve analysis. Applying industry data to TIG Re's
business adds an additional element of uncertainty to the reserving process.
TIG's reserves include an estimate of TIG's ultimate liability for
asbestos-related matters, environmental pollution, toxic tort, and other
non-sudden and accidental claims for which ultimate values cannot be estimated
using traditional reserving techniques. Establishing reserves with respect to
environmental liabilities is one of the most difficult aspects of the reserving
process. TIG's environmental claims activity is predominately from hazardous
waste and pollution-related claims rising from commercial insurance policies
written prior to 1985. TIG has not written primary coverage for the major oil or
chemical companies. Most of TIG's pollution claims are from small, regional
operations or local businesses involved with disposing wastes at dump sites or
having pollution on their own property due to hazardous material or leaking
underground storage tanks. In connection with TIG's initial public offering in
April 1993, an affiliate of TIG's former parent, Transamerica Corporation,
agreed to pay 75% of up to $119 million of reserve development and newly
reported claims, up to a maximum reimbursement of $89 million, on policies
written prior to January 1, 1993, with respect to certain environmental claims
involving paid losses and certain LAE in excess of TIG's environmental loss and
LAE reserves at December 31, 1992. At June 30, 1996, the Transamerica affiliate
had incurred no liability under this agreement.
While there can be no assurance that the loss and LAE reserves at any given date
are adequate to meet TIG's obligations, the amounts reported in TIG's balance
sheet are management's best estimate of that amount.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.8 LIQUIDITY AND CAPITAL RESOURCES
- - --------------------------------------------------------------------------------
Liquidity is a measure of an entity's ability to secure enough cash to meet its
contractual obligations and operating needs. TIG requires cash primarily to pay
policyholders' claims, operating expenses, and dividend obligations. Generally,
premium is collected months or years before claims are paid under the policies
purchased by the premium. These funds are used first to pay current claims and
expenses. The balance is invested in high quality securities to augment the
investment income generated by the existing portfolio. Historically, TIG has
had, and expects to continue to have, more than sufficient funds to pay claims,
expenses and policyholder dividends.
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow from operations for second quarter 1996, was ($50) million compared to
$4 million for 1995. The 1995 cash flow was reduced by $34 million due to the
90% reinsurance of Financial Institutions unearned premium reserves as of April
1, 1995. Second quarter 1996 cash flow was comprised of $27 million positive
cash flow for Reinsurance and ($77) million negative cash flow for primary
operations (Retail, Commercial Specialty and Other Lines). This compares to $51
million positive cash flow for Reinsurance and ($13) million negative cash flow
for primary operations in second quarter 1995, excluding the reinsurance of
the Financial Institutions unearned premium reserve. Reinsurance and primary
operations cash flow decreased in the second quarter of 1996 due principally to
increased loss and LAE payments.
INVESTMENT LIQUIDITY
At June 30, 1996, TIG had $117 million in short-term and other investments
compared to $148 million at December 31, 1995. In addition, TIG expects to
realize $676, $621, and $882 million in cash flow from principal and interest
payments for the next three years, respectively, from its investment portfolio.
TIG has structured its investment portfolio to manage the impact of market
interest rate fluctuations on liquidity. Investments and cash at TIG Holdings
totaled $88 million as of June 30, 1996 compared to $169 million at December 31,
1995.
RESTRICTIONS ON DIVIDENDS FROM INSURANCE SUBSIDIARIES
The maximum amount of shareholder dividends which the insurance subsidiaries can
pay to TIG Holdings is limited to the greater of (i) 10% of statutory surplus as
of the end of the preceding year or (ii) the statutory net income for the
preceding year except that such amount may not exceed earned surplus.
Accordingly, the maximum dividend payout to shareholders that can be made
without regulatory approval during 1996 is $157 million. TIG Holdings received
$25 million in cash dividends from its insurance subsidiaries in each of the
first and second quarters of 1996 and in the second quarter of 1995.
NOTES PAYABLE
In December 1995, TIG Holdings established a new unsecured revolving line of
credit with maximum borrowings of $250 million. At June 30, 1996, TIG had no
outstanding borrowings under this facility. In 1995, TIG Insurance Company
entered into a five-year $50 million credit facility of which approximately $20
million has been drawn as of June 30, 1996. The facility is a direct financing
arrangement with a third party related to the sale and leaseback of certain
fixed assets. In addition, TIG Holdings had $98 million of 8.125% notes payable
maturing in 2005 outstanding at June 30, 1996 and December 31, 1995.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Shareholders' equity decreased by $233 million during the six months of 1996,
primarily due to a $110 million decrease in after tax unrealized investment
gains and $126 million of common stock repurchases. Accordingly, book value per
share decreased to $20.48 at June 30, 1996 from $23.09 at December 31, 1995.
Excluding the impact of unrealized investment gains, the book value per share
would have been $20.50 at June 30, 1996 and $21.26 at December 31, 1995.
As of June 30, 1996, the Board of Directors has authorized stock repurchases of
up to 10 million shares of TIG Holdings Common Stock (15.5% of total issued and
outstanding including treasury shares at June 30, 1996). Under the repurchase
plan, repurchases may be made from time to time on the open market at prevailing
market prices or in privately negotiated transactions. Through June 30, 1996,
8.2 million shares have been repurchased (12.7% of total issued and outstanding
including treasury shares at June 30, 1996) at an average cost per share of
$26.10, for an aggregate cost of $214 million.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
2.9 GLOSSARY
- - --------------------------------------------------------------------------------
CATASTROPHE: An event that is designated to be a "catastrophe" by the Property
Claim Service Division of American Services Group, an industry body. It
generally defines events which are estimated to cause more than $5 million in
insured property damage and which affect a significant number of insureds and
insurers.
COMBINED RATIO: A combination of the underwriting expense ratio, the loss and
LAE ratio, and the policyholder dividends ratio, determined in accordance with
statutory accounting practice. A combined ratio below 100% generally indicates
profitable underwriting results. A combined ratio over 100% generally indicates
unprofitable underwriting results.
GROSS PREMIUM WRITTEN: Total premium for direct insurance written and
reinsurance assumed during a given period.
INCURRED BUT NOT REPORTED ("IBNR") RESERVES: Reserves for estimated losses and
LAE which have been incurred but not reported to the insurer (including future
developments on losses that are known to the insurer).
INCURRED LOSSES: The total losses sustained by an insurance company under a
policy or policies, whether paid or unpaid. Incurred losses include a provision
for claims that have occurred but have not yet been reported to the insurer.
LOSS ADJUSTMENT EXPENSES ("LAE"): The expenses of settling claims, including
legal and other fees, and the portion of general expenses allocated to claim
settlement costs.
LOSS DEVELOPMENT: The emergence of actual loss data as compared to estimates for
specific accident years and for specific lines of business.
LOSS AND LAE RATIO: The ratio of incurred losses and LAE to earned premium,
determined in accordance with statutory accounting practices.
LOSS AND LAE RESERVES: Liabilities established by insurers and reinsurers to
reflect the estimated cost of claims payments that the insurer will ultimately
be required to pay in respect of insurance or reinsurance it has written.
Reserves are established for losses and for LAE, and consist of case reserves
and IBNR reserves.
NET PREMIUM EARNED: The portion of net premium written in a particular period
that is recognized for accounting purposes as income during that period.
NET PREMIUM WRITTEN: Direct premium written plus premium on assumed reinsurance
less premium on ceded business for a given period.
POLICYHOLDER DIVIDEND RATIO: The ratio of dividends paid to policyholders to
earned premium, determined in accordance with statutory accounting practices.
<PAGE>
TIG HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
PROGRAM BUSINESS: Tailored products developed for a particular industry segment
(i.e., sporting events, trucking) or distribution system (i.e., trade
associations, affinity groups). Programs are often developed and controlled by
managing general agents.
REINSURANCE: The practice whereby one party, called the reinsurer, in
consideration of a premium paid to it agrees to indemnify another party, called
the reinsured, for part or all of the liability assumed by the reinsured under a
policy or policies of insurance which it has issued. The reinsured may be
referred to as the original or primary insurer, the direct writing company, or
the ceding company. Reinsurance does not legally discharge the primary insurer
from its liability to the insured.
RETENTION; RETENTION LEVEL: The amount or portion of risk which an insurer or
reinsurer retains for its own account. Losses in excess of the retention level
are paid by the reinsurer or retrocessionaire. In prorata treaties, the
retention may be a percentage of the original policy's limit. In excess of loss
reinsurance, the retention is a dollar amount of loss, a loss ratio, or a
percentage of loss.
SFAS 115: Statement of Financial Accounting Standards No. 115. "Accounting
for Certain Investments in Debt and Equity Securities", requires
categorization of investment portfolios. Categorization of a portfolio
as "Available-for-Sale" (such as TIG's) creates volatility in shareholders'
equity as the changes in unrealized gains or losses are recorded net of tax
directly into shareholders' equity.
TREATY REINSURANCE: The reinsurance of a specified type or category of risks
defined in a reinsurance agreement (a "treaty") between a primary insurer or
other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary
insurer or reinsured is obligated to offer and the reinsurer is obligated to
accept a specified portion of all such types or category of risks originally
underwritten by the primary insurer or reinsured.
UNDERWRITING: The insurer's process of reviewing applications submitted for
insurance coverage, deciding whether to accept all or part of the coverage
requested and determining the applicable premium.
UNDERWRITING EXPENSE RATIO: The ratio of underwriting expenses to net premium
written, determined in accordance with statutory accounting practices.
UNDERWRITING EXPENSES: The aggregate of policy acquisition costs, including
commissions, and the portion of administrative, general, and other expenses
attributable to underwriting operations.
UNDERWRITING RESULTS: The measure of profitability of the insurance operations
of an insurer, calculated as the result of earned premium, less losses, loss
expenses, and underwriting expenses. Underwriting results is an indicator of a
company's underwriting success.
WORKERS' COMPENSATION INSURANCE: Insurance that covers medical care,
rehabilitation, and lost wages of employees who suffer work-related injuries,
and provides death benefits for dependents of employees killed in work-related
accidents.
WORKING LAYER REINSURANCE: Reinsurance which absorbs the losses immediately
above the reinsured's retention layer. A working layer reinsurer will pay up to
a certain dollar amount of losses over the insured's retention, at which point a
higher layer reinsurer (or the ceding company) will be liable for additional
losses. Working layer reinsurance is also known as low layer excess of loss
reinsurance.
<PAGE>
TIG HOLDINGS, INC.
PART II. OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEEDINGS
TIG's insurance subsidiaries are routinely engaged in litigation in the normal
course of their business. As a liability insurer, the Company defends
third-party claims brought against its insureds. As an insurer, the Company
defends against coverage claims.
On January 11, 1994, a Los Angeles County Superior Court jury returned a verdict
of $28 million for punitive damages against TIG Insurance Company ("TIC") in
Talbot Partners v. Cates Construction, Inc. and TIC (the "Talbot Case"). The
award arose out of TIC's handling of a surety bond claim on a construction
project. Management is vigorously pursuing its right to appeal the judgment. TIC
is presently litigating with the carriers of its errors and omissions insurance
policies as to coverage for punitive damages under the agreed upon language of
the policies. On June 27, 1996, a Los Angeles County Superior Courts entered a
verdict against TIC in Reliance Insurance Company of Illinois ("Reliance") v.
TIC. The court ruled in this declaratory relief action that Reliance, which is
one of the carriers which insures TIC, was not obligated to TIC under its
errors and omissions insurance policies for punitive damages under California
law. Management is reviewing whether to appeal this judgment. Management
believes, however, that the ultimate liability, if any, arising from the Talbot
case will not materially impact consolidated operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders on May 2, 1996, the stockholders
elected four directors, each for terms expiring at the annual meeting of
stockholders in the years shown below. Votes cast in relation to the election of
each director are summarized as follows:
Election of Directors for a term expiring in 1999:
For Withheld
---------- --------
William G. Clark 53,261,970 666,780
Jon W. Rotenstreich 53,231,032 697,718
Harold Tanner 53,525,071 403,679
Election of a Director for a term expiring in 1998:
George D. Gould 53,503,671 425,079
The Directors whose terms continued and the years their terms expire are as
follows:
George B. Bietzel (1998); Joel S. Ehrenkranz (1997); Don D. Hutson (1998);
William W. Priest, Jr. (1997): Ann W. Richards (1997).
<PAGE>
TIG HOLDINGS, INC.
PART II. OTHER INFORMATION
- - --------------------------------------------------------------------------------
The stockholders also ratified the appointment of Ernst & Young LLP to serve as
independent auditors of the Company for the year 1996. Votes cast in relation to
this matter are summarized as follows:
Abstain and Broker
For Against Non-Votes
---------- ------- ---------
53,619,783 208,411 100,556
The stockholders also ratified the following incentive and compensation plans,
with votes cast in relation to each plan as follows:
Abstain and Broker
For Against Non-Votes
---------- ---------- ---------
The Company's 1996 Long-Term
Incentive Plan 31,466,563 17,357,899 1,342,106
The Company's 1996 Non-Employee
Directors Compensation Program 34,649,048 14,110,943 1,406,577
The Company's Annual Incentive
Compensation Plan For Certain
Executives 45,176,476 3,605,223 1,384,599
<PAGE>
TIG HOLDINGS, INC.
PART II. OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT 3.1: Amended and Restated Certificate of Incorporation of TIG
Holdings as filed with the Delaware Secretary of State on April 16, 1993
(incorporated by reference to Exhibit 3.1 to TIG Holdings' Quarterly
Report on Form 10Q for the quarter ended March 31, 1993, Commission File
No. 1-11856).
EXHIBIT 3.2: Amended and Restated Bylaws of TIG Holdings as adopted by
TIG Holdings' Board of Directors on May 18, 1993 (incorporated by
reference to Exhibit 3.2 to TIG Holdings' Registration Statement on Form
S-8, File No. 33-63148).
EXHIBIT 4.1: Certificate of Designation of TIG Holdings relating to the
$7.75 Cumulative Preferred Stock of TIG Holdings as filed with the
Delaware Secretary of State on April 16, 1993 (incorporated by reference
to Exhibit 4.1 to TIG Holdings' Quarterly Report on Form 10Q for the
quarter ended March 31, 1993, Commission File No. 1-11856).
EXHIBIT 4.2: Indenture dated as of April 1, 1995, between TIG Holdings
and the First National Bank of Chicago, as Trustee (incorporated by
reference to Exhibit 4.2 to Registration Statement No. 33-90594, filed
March 24, 1995).
EXHIBIT 10.1: TIG Holdings, Inc. 1996 Long-Term Incentive Plan
EXHIBIT 10.2: TIG Holdings, Inc. 1996 Non-Employee Directors
Compensation Program
EXHIBIT 10.3: TIG Holdings, Inc. Annual Incentive Compensation
Plan for Certain Executives
EXHIBIT 10.4: TIG Holdings, Inc. 1993 Long Term Incentive Plan
Stock Option Agreement
EXHIBIT 10.5: TIG Holdings, Inc. 1993 Long Term Incentive Plan
Restricted Share Award Agreement
EXHIBIT 10.6: TIG Holdings, Inc. 1996 Long-Term Incentive Plan
Stock Option Agreement
EXHIBIT 10.7: TIG Holdings, Inc. 1996 Long-Term Incentive
Plan Executive Non-Qualified Stock Option Agreement
EXHIBIT 11: Computation of Earnings per Share
(b) The Company did not file any reports on Form 8-K during the three months
ended June 30, 1996.
<PAGE>
TIG HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
EXHIBIT 11
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------
(In millions, except per share data) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------
PRIMARY:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 56.9 61.3 58.0 61.6
Net effect of dilutive stock options - based on the treasury stock
method using average market price (A) 2.9 0.6 2.9 -
- - ------------------------------------------------------------------------------------------------------------
Total primary common shares 59.8 61.9 60.9 61.6
- - ------------------------------------------------------------------------------------------------------------
Net income $33.5 $33.1 $2.7 $50.6
Less preferred stock dividend requirements (0.5) (0.5) (1.0) (1.0)
- - ------------------------------------------------------------------------------------------------------------
Net income available to common stock $33.0 $32.6 $1.7 $49.6
- - ------------------------------------------------------------------------------------------------------------
Net income per common share $0.55 $0.53 $0.03 $0.81
- - ------------------------------------------------------------------------------------------------------------
FULLY DILUTIVE:
Weighted average shares outstanding 56.9 61.3 58.0 61.6
Net effect of dilutive stock options - based on the treasury stock
method using higher of average or end of period market price 2.9 0.6 2.9 0.5
- - ------------------------------------------------------------------------------------------------------------
Total fully dilutive common shares 59.8 61.9 60.9 62.1
- - ------------------------------------------------------------------------------------------------------------
Net income $33.5 $33.1 $2.7 $50.6
Less preferred stock dividend requirements (0.5) (0.5) (1.0) (1.0)
- - ------------------------------------------------------------------------------------------------------------
Net income available to common stock $33.0 $32.6 $1.7 $49.6
- - ------------------------------------------------------------------------------------------------------------
Net income per common share $0.55 $0.53 $0.03 $0.80
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TIG HOLDINGS, INC.
SIGNATURES
- - --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996 TIG HOLDINGS, INC.
--------------------
By: /s/Steven A. Cook
-------------------------
Name: Steven A. Cook
Title: Controller
(Principal Accounting Officer)
<PAGE>
TIG HOLDINGS, INC.
INDEX TO EXHIBITS
- - --------------------------------------------------------------------------------
EXHIBIT 3.1: Amended and Restated Certificate of Incorporation of TIG Holdings
as filed with the Delaware Secretary of State on April 16, 1993 (incorporated by
reference to Exhibit 3.1 to TIG Holdings' Quarterly Report on Form 10Q for the
quarter ended March 31, 1993, Commission File No. 1-11856).
EXHIBIT 3.2: Amended and Restated Bylaws of TIG Holdings as adopted by TIG
Holdings' Board of Directors on May 18, 1993 (incorporated by reference to
Exhibit 3.2 to TIG Holdings' Registration Statement on Form S-8, File No.
33-63148).
EXHIBIT 4.1: Certificate of Designation of TIG Holdings relating to the $7.75
Cumulative Preferred Stock of TIG Holdings as filed with the Delaware Secretary
of State on April 16, 1993 (incorporated by reference to Exhibit 4.1 to TIG
Holdings' Quarterly Report on Form 10Q for the quarter ended March 31, 1993,
Commission File No. 1-11856).
EXHIBIT 4.2: Indenture dated as of April 1, 1995, between TIG Holdings and the
First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit
4.2 to Registration Statement No. 33-90594, filed March 24, 1995).
EXHIBIT 10.1: TIG Holdings, Inc. 1996 Long-Term Incentive Plan
EXHIBIT 10.2: TIG Holdings, Inc. 1996 Non-Employee Directors Compensation
Program
EXHIBIT 10.3: TIG Holdings, Inc. Annual Incentive Compensation Plan for
Certain Executives
EXHIBIT 10.4: TIG Holdings, Inc. 1993 Long Term Incentive Plan Stock Option
Agreement
EXHIBIT 10.5: TIG Holdings, Inc. 1993 Long Term Incentive Plan Restricted
Share Award Agreement
EXHIBIT 10.6: TIG Holdings, Inc. 1996 Long-Term Incentive Plan Stock Option
Agreement
EXHIBIT 10.7: TIG Holdings, Inc. 1996 Long-Term Incentive Plan Executive
Non-Qualified Stock Option Agreement
EXHIBIT 11: Computation of Earnings per Share
<PAGE>
EXHIBIT 10.1
TIG HOLDINGS, INC.
1996 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the 1996 Long-Term Incentive Plan (the "Plan") is
to further and promote the interests of TIG Holdings, Inc. (the "Company"),
the Related Companies, and the Company's shareholders by enabling the
Company and the Related Companies to attract, retain and motivate employees
or those who will become employees, and to align the interests of those
individuals and the Company's shareholders. To do this, the Plan offers
equity-based and performance-based incentive awards and opportunities to
provide such employees with a proprietary interest in maximizing the
growth, profitability, and overall success of the Company and the Related
Companies.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have the
meanings set forth below:
2.1 "AWARD" means an award or grant made to a Participant under
Sections 6, 7, 8, 9, 10, and/or 11. "AWARD AGREEMENT" means
the agreement executed by a Participant pursuant to Sections
3.2 and 19.7 in connection with the granting of an Award.
2.2 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.3 "CODE" means the Internal Revenue Code of 1986, as in effect
and as amended from time to time, or any successor statute
thereto, together with any rules, regulations, and
interpretations promulgated thereunder or with respect
thereto.
2.4 "COMMITTEE" means the committee of the Board described in
Section 3.
2.5 "COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company or any security of the Company issued
by the Company in substitution or exchange therefor.
2.6 "COMPANY" means TIG Holdings, Inc., a Delaware corporation,
or any successor corporation to TIG Holdings, Inc.
2.7 "DISABILITY" means disability as defined in the Participant's
then effective employment agreement with the Company or a
Related Company, or if the Participant is not then a party to
an effective employment agreement with the Company or a
Related Company, "Disability" means disability as determined
by the Committee in accordance with standards and procedures
similar to those under the Company's long-term disability
plan, if any. Subject to the first sentence of this Section
2.7, at any time that the Company does not maintain a
long-term disability plan, "Disability" shall mean any
physical or mental disability that is determined to be total
and permanent by a physician selected in good faith by the
Company.
2.8 "EFFECTIVE DATE" means the date on which the Plan is
approved by the shareholders of the Company.
<PAGE>
EXHIBIT 10.1
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
in effect and as amended from time to time, or any successor
statute thereto, together with any rules, regulations, and
interpretations promulgated thereunder or with respect
thereto.
2.10 "FAIR MARKET VALUE" means on, or with respect to, any given
date, the average of the highest and lowest market prices of
the Common Stock, as reported on the consolidated transaction
reporting system for the New York Stock Exchange for such
date or, if the Common Stock was not traded on such date, on
the next preceding day on which the Common Stock was traded.
2.11 "INCENTIVE STOCK OPTION" means any stock option granted
pursuant to the provisions of Section 6 (and the applicable
Award Agreement) that is intended to be (and is specifically
designated as) an "incentive stock option" within the meaning
of Section 422 of the Code.
2.12 "NON-QUALIFIED STOCK OPTION" means any stock option granted
pursuant to the provisions of Section 6 (and the applicable
Award Agreement) that is not an Incentive Stock Option.
2.13 "OWNERSHIP MAINTENANCE STOCK OPTION" means any Non-Qualified
Stock Option automatically granted pursuant to the provisions
of Section 6.7 and the applicable Award Agreement.
2.14 "PARTICIPANT" means any individual who, in accordance with
Section 5, is selected to receive an Award under the Plan.
2.15 "PERFORMANCE UNITS" means the monetary units granted
under Section 11 and the applicable Award Agreement.
2.16 "PRIOR PLAN" means the TIG Holdings, Inc. 1993 Long-Term
Incentive Plan, as amended from time to time.
2.17 "PLAN" means the TIG Holdings, Inc. 1996 Long-Term
Incentive Plan, as set forth herein and as in effect and
as amended from time to time.
2.18 "RELATED COMPANY" means a Subsidiary or any corporation,
partnership, joint venture, association, trust, or other
entity in which the Company has a significant equity
interest, as determined by the Committee.
2.19 "RESTRICTED SHARES" means the restricted shares of Common
Stock granted pursuant to the provisions of Section 8 and the
applicable Award Agreement.
2.20 "RESTRICTED STOCK UNITS" means restricted units, the value of
which are based on the Fair Market Value of shares of Common
Stock, granted pursuant to the provisions of Section 10 and
the applicable Award Agreement.
<PAGE>
EXHIBIT 10.1
2.21 "RETIREMENT" means the voluntary retirement by the
Participant from active employment with the Company and the
Related Companies (a) on or after the attainment of age 65 or
(b) in accordance with the terms of a retirement plan
sponsored by the Company or one or more Related Companies for
any or all employees of the Company and the Related Companies
which plan the Committee certifies is applicable to the
Participant.
2.22 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended from time to time, or any successor thereto.
2.23 "SECTION" means, except where indicated otherwise, a section
of the Plan.
2.24 "STOCK APPRECIATION RIGHT" means an Award described in
Section 7.1 and granted pursuant to the provisions of Section
7 and the applicable Award Agreement.
2.25 "STOCK OPTION" means a stock option that is an Incentive
Stock Option or a Non-Qualified Stock Option (including an
Ownership Maintenance Stock Option).
2.26 "SUBSIDIARY(IES)" means any corporation (other than the
Company) in an unbroken chain of corporations, including and
beginning with the Company, if such corporations, other than
the last corporation in the unbroken chain, own, directly or
indirectly, more than fifty percent (50%) of the voting stock
in each of the other corporations in such chain.
2.27 "UNRESTRICTED SHARES" means the shares of Common Stock
granted pursuant to the provisions of Section 9 and the
applicable Award Agreement.
3. ADMINISTRATION.
3.1 THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall be appointed from time to time
by the Board and shall be comprised of not less than three (3)
of the then members of the Board all of whom qualify as
disinterested persons within the meaning of Rule 16b-3. No
member of the Committee shall be eligible to receive Awards
under the Plan. Consistent with the Bylaws of the Company,
members of the Committee shall serve at the pleasure of the
Board, and the Board, subject to the preceding provisions of
this Section 3.1, may at any time and from time to time remove
members from, or add members to, the Committee.
<PAGE>
EXHIBIT 10.1
3.2 PLAN ADMINISTRATION AND PLAN RULES. The Committee is
authorized to construe and interpret the Plan and to
promulgate, amend, and rescind rules and regulations relating
to the implementation, administration, and maintenance of the
Plan. Subject to the terms and conditions of the Plan, the
Committee shall make all determinations necessary or advisable
for the implementation, administration, and maintenance of the
Plan including, without limitation, (a) selecting the Plan's
Participants, (b) making Awards in such amounts and form as
the Committee shall determine, (c) imposing such restrictions,
terms, and conditions upon such Awards as the Committee shall
deem appropriate, and (d) correcting any technical defect or
technical omission, or reconciling any technical
inconsistency, in the Plan and/or any Award Agreement. The
Committee may designate persons other than members of the
Committee to perform ministerial functions relating to the
day-to-day administration of the Plan under such conditions
and limitations as it may prescribe. In addition, the
Committee may delegate, to such officers and/or committees of
the Company and the Related Companies as the Committee
designates, all or part of its authority under the Plan with
respect to any Participant who is not subject to the
requirements of Section 16 of the Exchange Act. The
Committee's determinations under the Plan need not be uniform
and may be made selectively among Participants, whether or not
such Participants are similarly situated. Any determination,
decision, or action of the Committee in connection with the
construction, interpretation, administration, implementation,
or maintenance of the Plan shall be final, conclusive, and
binding upon all Participants and any person(s) claiming under
or through any Participants. The Company shall effect the
granting of Awards under the Plan, in accordance with the
determinations made by the Committee, by execution of written
agreements and/or other instruments in such form as is
approved by the Committee. Any person to whom the Committee
has delegated authority in accordance with this Section 3.2
shall have all of the authority of the Committee over those
matters that the Committee has delegated to such person
(including, without limitation, the authority to make
determinations that the Plan commits to the sole discretion of
the Committee), subject only to any limitations or
restrictions that the Committee imposes on such person.
3.3 LIABILITY LIMITATION. Neither the Board nor the Committee, nor
any member of either, shall be liable for any act, omission,
interpretation, construction, or determination made in good
faith in connection with the Plan (or any Award Agreement),
and the members of the Board and the Committee shall be
entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage, or expense (including,
without limitation, attorneys' fees) arising or resulting
therefrom to the fullest extent permitted by law and/or under
any directors and officers liability insurance coverage that
may be in effect from time to time.
<PAGE>
EXHIBIT 10.1
4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN.
4.1 TERM. The Plan shall terminate on the date of the annual
meeting of the Company's shareholders in 2006, except with
respect to Awards then outstanding, which shall continue to be
administered in accordance with the terms of the Plan. After
such date, no further Awards shall be granted under the Plan.
Notwithstanding the foregoing, no Incentive Stock Options
shall be granted under the Plan on or after the tenth
anniversary of the date the Plan was adopted by the Board.
4.2 COMMON STOCK.
4.2.1 LIMITATIONS.
4.2.1.1 GENERALLY AVAILABLE SHARES. Except as provided in
Section 4.2.1.2, the maximum number of shares of Common Stock
in respect of which Awards may be granted or paid out under
the Plan shall be (a) 5,000,000 shares, plus (b) effective
January 1, 2000, the Limitation Amount (as defined below).
4.2.1.2 AWARDS IN CONNECTION WITH ACQUISITIONS. In addition to
the number of shares of Common Stock available under Section
4.2.1.1, 2,000,000 shares of Common Stock shall be available
for the grant of Awards to employees in connection with
acquisitions of other entities or businesses by the Company
and the Related Companies.
4.2.1.3 ADDITIONAL LIMITATIONS. Notwithstanding the foregoing
provisions of this Section 4.2.1, (a) no more than one-third
of the shares of Common Stock in respect of which Awards may
be granted or paid out under the Plan may be issued pursuant
to any Award other than a Stock Option or Stock Appreciation
Right, (b) the maximum number of shares of Common Stock in
respect of which Incentive Stock Options may be granted shall
be 5,000,000 shares, and (c) no individual Participant may
receive in any calendar year (i) Stock Options (other than
Ownership Maintenance Stock Options) and Stock Appreciation
Rights relating, in the aggregate, to more than 500,000 shares
of Common Stock plus any Unused Carryover (as defined below)
or (ii) Ownership Maintenance Stock Options relating, in the
aggregate, to more than 1,500,000 shares of Common Stock plus
any Unused Carryover. In the event of a change in the Common
Stock of the Company that is limited to a change in the
designation thereof to "Capital Stock" or other similar
designation, or to a change in the par value thereof, or from
par value to no par value, without increase or decrease in the
number of issued shares, the shares resulting from any such
change shall be deemed to be shares of Common Stock for
purposes of the Plan. Common Stock that may be issued under
the Plan may be either authorized and unissued shares or
issued shares that have been reacquired by the Company and are
being held as treasury shares. No fractional shares of Common
Stock shall be issued under the Plan, unless the Committee
determines otherwise.
4.2.1.4 ADJUSTMENTS. The numbers of shares specified by the
foregoing provisions of this Section 4.2.1 shall be subject to
adjustment as provided in Section 16.2.
<PAGE>
EXHIBIT 10.1
4.2.2 LIMITATION AMOUNT. For purposes of the Plan, "Limitation
Amount" means one and one-half percent (1.5%) of the total
number of issued and outstanding shares of Common Stock as of
January 1, 2000; PROVIDED, HOWEVER, that effective as of each
January 1 thereafter through and including January 1, 2006,
the Limitation Amount shall be increased by an additional one
and one-half percent (1.5%) of the total number of issued and
outstanding shares of Common Stock as of each such January 1.
4.2.3 UNUSED CARRYOVER. For purposes of the Plan, "Unused
Carryover" means, for any calendar year (beginning with the
1997 calendar year), the maximum number of shares of Common
Stock with respect to which (a) Stock Options (other than
Ownership Maintenance Stock Options) and/or Stock Appreciation
Rights or (b) Ownership Maintenance Stock Options, as the case
may be, could have been granted to the Participant under the
Plan in the previous calendar year in accordance with Section
4.2.1.3(c) (taking into account any Unused Carryover available
in such previous calendar year), reduced by the number of
shares of Common Stock with respect to which (x) Stock Options
(other than Ownership Maintenance Stock Options) and/or Stock
Appreciation Rights or (y) Ownership Maintenance Stock
Options, as the case may be, actually were granted to the
Participant in such previous calendar year. If the Participant
is not eligible for an Award in a calendar year in accordance
with Section 5, that calendar year shall be disregarded for
purposes of this Section 4.2.3, and an Unused Carryover shall
not be created or increased in that calendar year. There shall
be no Unused Carryover to the 1996 calendar year.
4.3 COMPUTATION OF AVAILABLE SHARES. For the purpose of computing
the total number of shares of Common Stock available for
Awards under the Plan, there shall be counted against the
limitations set forth in Section 4.2 the maximum number of
shares of Common Stock potentially subject to issuance upon
exercise or settlement of Awards granted under the Plan, in
each case determined as of the date on which such Awards are
granted. If any Awards expire unexercised or are forfeited,
surrendered, canceled, terminated, or settled in cash in lieu
of Common Stock, the shares of Common Stock that were
theretofore subject (or potentially subject) to such Awards
shall again be available for Awards under the Plan to the
extent of such expiration, forfeiture, surrender,
cancellation, termination, or settlement of such Awards;
PROVIDED, HOWEVER, that if a Stock Option or Stock
Appreciation Right is canceled, the canceled Stock Option or
Stock Appreciation Right shall continue to count against the
limit in Section 4.2.1.3(c), and if, after grant, the exercise
price of a Stock Option (or the base price of a Stock
Appreciation Right) is reduced, the transaction shall be
treated as a cancellation of the Stock Option (or Stock
Appreciation Right) and a grant of a new Stock Option (or
Stock Appreciation Right) for purposes of Section 4.2.1.3(c).
If a Participant delivers shares of Common Stock already owned
by the Participant in full or partial payment of the exercise
price of a Stock Option pursuant to the provisions of Section
6.5 and the applicable Award Agreement (or in full or partial
payment of the exercise price of a stock option pursuant to
the provisions of the Prior Plan and the applicable award
agreement thereunder), the shares so delivered by the
Participant shall be added to the shares available under
Section 4.2.1.1(a) for Awards under the Plan.
<PAGE>
EXHIBIT 10.1
5. ELIGIBILITY. Individuals eligible for Awards under the Plan
shall consist of employees, or those individuals who will
become employees, of the Company and/or the Related Companies
who are responsible for the management, growth, and protection
of the business of the Company and/or the Related Companies or
whose performance or contribution, in the sole discretion of
the Committee, benefits or will benefit the Company; PROVIDED,
HOWEVER, that an individual shall not be eligible to receive
an Incentive Stock Option unless the individual is an employee
of the Company or a Subsidiary on the date on which the
Incentive Stock Option is granted.
6. STOCK OPTIONS.
6.1 GRANT. Stock Options may be granted under the Plan in such
form as the Committee may from time to time approve. Stock
Options may be granted alone or in addition to other Awards
under the Plan or in tandem with Stock Appreciation Rights.
Notwithstanding the above, no Incentive Stock Options shall be
granted to any employee who owns (within the meaning of
Section 422(b)(6) of the Code) more than ten percent (10%) of
the total combined voting power of all classes of stock of the
Company or any Subsidiary.
6.2 TERMS AND CONDITIONS. Stock Options granted under the Plan
shall be in respect of Common Stock and may be in the form of
Incentive Stock Options, Non-Qualified Stock Options, or
Ownership Maintenance Stock Options. Such Stock Options shall
be subject to the terms and conditions set forth in this
Section 6 and any additional terms and conditions not
inconsistent with the provisions of the Plan, as the Committee
shall set forth in the applicable Award Agreement.
6.3 EXERCISE PRICE. The exercise price per share of Common Stock
subject to a Stock Option shall be determined by the
Committee, including, without limitation, a determination
based on a formula determined by the Committee; PROVIDED,
HOWEVER, that the exercise price of an Incentive Stock Option
or an Ownership Maintenance Stock Option shall not be less
than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date of the grant of such Incentive
Stock Option or Ownership Maintenance Stock Option.
6.4 TERM. The term of each Stock Option shall be such period of
time as is fixed by the Committee; PROVIDED, HOWEVER, that the
term of any Incentive Stock Option shall not exceed ten (10)
years from the date on which the Incentive Stock Option is
granted; and FURTHER PROVIDED that the term of an Ownership
Maintenance Stock Option shall be governed by Section 6.7.
<PAGE>
EXHIBIT 10.1
6.5 METHOD OF EXERCISE. A Stock Option may be exercised, in whole
or in part, by giving written notice of exercise to the
Secretary of the Company, or the Secretary's designee,
specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the exercise price
in cash, by certified check, bank draft or money order payable
to the order of the Company or, if permitted by the Committee
(in its sole discretion) and applicable law, by delivery of,
alone or in conjunction with a partial cash or instrument
payment, (a) shares of Common Stock already owned by the
Participant for at least six (6) months or (b) any other form
of payment acceptable to the Committee. The Committee may also
permit Participants (either on a selective or group basis)
simultaneously to exercise Stock Options and to sell the
shares of Common Stock thereby acquired, pursuant to a
"cashless exercise" arrangement or program, selected by and
approved of in all respects in advance by the Committee.
Payment instruments shall be received by the Company subject
to collection. The proceeds received by the Company upon
exercise of any Stock Option may be used by the Company for
general corporate purposes. Any portion of a Stock Option that
is exercised may not be exercised again.
6.6 DATE OF EXERCISABILITY.
6.6.1 In respect of any Stock Option granted under the
Plan, unless otherwise (a) determined by the
Committee (in its sole discretion) at any time and
from time to time in respect of the Stock Option, or
(b) provided in the Award Agreement or in the
Participant's employment agreement in respect of the
Stock Option, the Stock Option shall become
exercisable as to the aggregate number of shares of
Common Stock underlying the Stock Option on the date
of grant as follows:
twenty five percent (25%), on the first anniversary
of the date of grant of the Stock Option, provided
the Participant is then employed by the Company
and/or a Related Company;
fifty percent (50%), on the second anniversary of the
date of grant of the Stock Option, provided the
Participant is then employed by the Company and/or a
Related Company;
seventy five percent (75%), on the third anniversary
of the date of grant of the Stock Option, provided
the Participant is then employed by the Company
and/or a Related Company; and
one hundred percent (100%), on the fourth anniversary
of the date of grant of the Stock Option, provided
the Participant is then employed by the Company
and/or a Related Company.
6.6.2 Notwithstanding anything to the contrary contained in
Section 6.6.1, such Stock Option shall become one
hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock then
underlying such Stock Option upon the death,
Disability or Retirement of the Participant, or upon
the occurrence of both a Change of Control and an
Adverse Employment Action, as defined in and in
accordance with Section 17.
<PAGE>
EXHIBIT 10.1
6.7 OWNERSHIP MAINTENANCE STOCK OPTIONS. The Committee may, in its
sole discretion, provide in respect of any Stock Option that
if the Participant delivers shares of the Common Stock already
owned by such Participant for at least six (6) months in full
or partial payment of the exercise price of such Stock Option,
or, if shares of Common Stock are withheld by the Company, or
are otherwise delivered to the Company by such Participant, in
full or partial payment of withholding tax liability with
respect to such Stock Option, the Participant shall
automatically (subject to the limitations contained in Section
4.2) and immediately thereupon be granted an Ownership
Maintenance Stock Option to purchase that number of shares of
Common Stock delivered by the Participant to the Company or
withheld by the Company (on such terms as the Committee may
prescribe under and in accordance with the Plan). For purposes
of this Section 6.7, the term "Stock Option" shall include a
stock option granted under the Prior Plan, and accordingly, an
Ownership Maintenance Stock Option may be issued under the
Plan pursuant to the "reload" provisions of a stock option
granted under the Prior Plan. The term of an Ownership
Maintenance Stock Option shall expire on the expiration date
of the Stock Option in respect of which the Ownership
Maintenance Stock Option was granted.
6.8 TANDEM GRANTS. If Stock Options and Stock Appreciation Rights
are granted in tandem, as designated in the applicable Award
Agreements, the right of a Participant to exercise any such
tandem Stock Option shall terminate to the extent that the
shares of Common Stock subject to such Stock Option are used
to calculate amounts or shares receivable upon the exercise of
the related tandem Stock Appreciation Right.
7. STOCK APPRECIATION RIGHTS.
7.1 STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is an
Award granted with respect to a specified number of shares of
Common Stock entitling a Participant to receive an amount
equal to the excess of the Fair Market Value of a share of
Common Stock on the date of exercise over the Fair Market
Value of a share of Common Stock on the date of grant of the
Stock Appreciation Right, multiplied by the number of shares
of Common Stock with respect to which the Stock Appreciation
Right shall have been exercised.
<PAGE>
EXHIBIT 10.1
7.2 TERMS AND CONDITIONS. The grant of Stock Appreciation Rights
under the Plan shall be subject to the terms and conditions
set forth in this Section 7 and any additional terms and
conditions, not inconsistent with the provisions of the Plan,
as the Committee shall set forth in the applicable Award
Agreement.
7.3 GRANT. A Stock Appreciation Right may be granted in addition
to any other Award under the Plan or in tandem with or
independent of a Stock Option.
7.4 DATE OF EXERCISABILITY. Unless otherwise provided in the
Participant's employment agreement or the Award Agreement in
respect of the Stock Appreciation Right, a Stock Appreciation
Right may be exercised by a Participant, in accordance with
and subject to all of the procedures established by the
Committee, in whole or in part at any time and from time to
time during its specified term. Notwithstanding the preceding
sentence, in no event shall a Stock Appreciation Right be
exercisable prior to the date that is one (1) year after the
date on which the Stock Appreciation Right was granted or
prior to the exercisability of any Stock Option with which it
is granted in tandem. The Committee may also provide, as set
forth in the applicable Award Agreement and without
limitation, that some Stock Appreciation Rights shall be
automatically exercised on one or more dates specified therein
by the Committee.
7.5 FORM OF PAYMENT. Upon exercise of a Stock Appreciation Right,
payment may be made in cash, in Restricted Shares or
Unrestricted Shares, or in any combination thereof, as the
Committee, in its sole discretion, shall determine and provide
in the applicable Award Agreement.
7.6 TANDEM GRANT. The right of a Participant to exercise a tandem
Stock Appreciation Right shall terminate to the extent such
Participant exercises the Stock Option to which such Stock
Appreciation Right is related.
8. RESTRICTED SHARES.
8.1 RESTRICTED SHARE GRANTS. A grant of Restricted Shares is an
Award to a Participant of shares of Common Stock, subject to
such restrictions, terms, and conditions as the Committee
deems appropriate, including, without limitation, (a)
restrictions on the sale, assignment, transfer, hypothecation,
or other disposition of such shares, (b) the requirement that
the Participant deposit any stock certificates for such shares
with the Company while such shares are subject to such
restrictions and (c) the requirement that such shares be
forfeited upon termination of employment for specified reasons
within a specified period of time or for other reasons.
<PAGE>
EXHIBIT 10.1
8.2 TERMS AND CONDITIONS. Grants of Restricted Shares shall be
subject to the terms and conditions set forth in this Section
8 and any additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall set
forth in the applicable Award Agreement. Restricted Shares may
be granted alone or in addition to any other Awards under the
Plan. Subject to the terms of the Plan, the Committee shall
determine the number of Restricted Shares to be granted to a
Participant. The shares of Common Stock that are the subject
of an Award of Restricted Shares may be certificated or
uncertificated as the Committee shall determine in its sole
discretion. If such shares are certificated, the stock
certificate(s) shall be registered in the name of the
Participant and shall bear, among any other required legends,
the following legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including, without limitation,
forfeiture events) contained in the TIG Holdings,
Inc. 1996 Long-Term Incentive Plan and an Award
Agreement entered into between the registered owner
hereof and TIG Holdings, Inc. Copies of such Plan and
Award Agreement are on file in the office of the
Secretary of TIG Holdings, Inc., [city], [state]. TIG
Holdings, Inc. will furnish to the recordholder of
the certificate, without charge and upon written
request at its principal place of business, a copy of
such Plan and Award Agreement. TIG Holdings, Inc.
reserves the right to refuse to record the transfer
of this certificate until all such restrictions are
satisfied, all such terms are complied with, and all
such conditions are satisfied."
Each such stock certificate evidencing such shares may, in the
sole discretion of the Committee, be deposited with and held
in custody by the Company until the restrictions thereon shall
have lapsed and all of the terms and conditions applicable to
such grant shall have been satisfied. The Committee may
require that a Participant execute and deliver to the Company
a stock power with respect to any shares held in custody by
the Company.
8.3 RESTRICTION PERIOD. In accordance with Sections 8.1 and 8.2,
and unless otherwise determined by the Committee (in its sole
discretion) at any time and from time to time, Restricted
Shares shall become unrestricted and vested in the Participant
only in accordance with such vesting schedule relating to the
service performance restriction applicable to such Restricted
Shares, if any, as the Committee may establish in the
applicable Award Agreement (the "Restriction Period"). Unless
the applicable Award Agreement provides otherwise, the
Restriction Period shall be (a) one (1) year from the date of
grant with respect to one-third of the Restricted Shares, (b)
two (2) years from the date of grant with respect to an
additional one-third of the Restricted Shares, and (c) three
(3) years from the date of grant with respect to the remaining
one-third of the Restricted Shares. Notwithstanding the
preceding provisions of this Section 8.3, in no event shall
the Restriction Period be less than six (6) months after the
date of grant. During the Restriction Period, such stock shall
be and remain unvested, and the Participant may not sell,
assign, transfer, pledge, encumber, or otherwise dispose of or
hypothecate such Award. Upon satisfaction of the vesting
schedule and any other applicable restrictions, terms, and
conditions, the Participant shall be entitled to receive
payment of the Restricted Shares or a portion thereof, as the
case may be, as provided in Section 8.4.
<PAGE>
EXHIBIT 10.1
8.4 PAYMENT OF RESTRICTED SHARE GRANTS. If the shares of Common
Stock that are the subject of a Restricted Stock Award are in
certificated form, after the satisfaction and/or lapse of the
restrictions, terms, and conditions established by the
Committee in respect of the grant of the Restricted Shares, a
new certificate, without the legend set forth in Section 8.2,
for the number of shares of Common Stock that are no longer
subject to such restrictions, terms, and conditions shall be
delivered to the Participant upon the surrender by the
Participant of the original certificate. If such shares of
Common Stock are uncertificated, a certificate for the number
of shares that are no longer subject to such restrictions,
terms, and conditions shall be delivered to the Participant
upon the Participant's request.
8.5 SHAREHOLDER RIGHTS. Except as provided in Section 8.3, a
Participant shall have, with respect to the shares of Common
Stock underlying a grant of Restricted Shares, all of the
rights of a shareholder of such Common Stock (except as such
rights are limited or restricted under the Plan or in the
applicable Award Agreement). Any stock dividends paid in
respect of unvested Restricted Shares shall be treated as
additional Restricted Shares and shall be subject to the same
restrictions and other terms and conditions that apply to the
unvested Restricted Shares with respect to which such stock
dividends are paid.
9. UNRESTRICTED SHARES.
9.1 UNRESTRICTED SHARE GRANTS. The grant of Unrestricted
Shares is an Award to a Participant of shares of Common
Stock that are not subject to the restrictions described in
Section 8.
9.2 TERMS AND CONDITIONS. Grants of Unrestricted Shares shall be
subject to the terms and conditions set forth in this Section
9 and any additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall set
forth in the applicable Award Agreement. Unrestricted Shares
may be granted alone or in addition to any other Awards under
the Plan. Subject to the terms of the Plan, the Committee
shall determine the number of Unrestricted Shares to be
granted to a Participant. With respect to each Participant
receiving an Award of Unrestricted Shares, there shall be
issued to the Participant a stock certificate (or
certificates) in respect of such Unrestricted Shares unless
the Committee in its sole discretion determines that such
Unrestricted Shares shall be uncertificated, in which case a
certificate for such Unrestricted Shares shall be delivered to
the Participant upon the Participant's request.
9.3 SHAREHOLDER RIGHTS. A Participant shall have, with respect to
the shares of Common Stock underlying a grant of Unrestricted
Shares, all of the rights of a shareholder of such Common
Stock.
<PAGE>
EXHIBIT 10.1
10. RESTRICTED STOCK UNITS.
10.1 RESTRICTED STOCK UNIT GRANTS. A Restricted Stock Unit is an
Award of units (each unit having a value equal to the Fair
Market Value of a share of Common Stock) granted to a
Participant, subject to such terms and conditions as the
Committee deems appropriate, including, without limitation,
(a) restrictions on the sale, assignment, transfer,
hypothecation, or other disposition of such units and (b) the
requirement that such units be forfeited upon termination of
employment for specified reasons within a specified period of
time or for other reasons.
10.2 TERMS AND CONDITIONS. Restricted Stock Units shall be subject
to the terms and conditions set forth in this Section 10 and
any additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall set forth in
the applicable Award Agreement. Restricted Stock Units may be
granted alone or in addition to any other Awards under the
Plan. Subject to the terms of the Plan, the Committee shall
determine the number of Restricted Stock Units to be granted
to a Participant.
10.3 RESTRICTION PERIOD. In accordance with Sections 10.1 and 10.2,
and unless otherwise determined by the Committee (in its sole
discretion) at any time and from time to time, Restricted
Stock Units shall become vested in the Participant only in
accordance with such vesting schedule relating to the service
performance restriction applicable to such Restricted Shares,
if any, as the Committee may establish in the applicable Award
Agreement (the "Restriction Period"). Unless the applicable
Award Agreement provides otherwise, the Restriction Period
shall be (a) one (1) year from the date of grant with respect
to one-third of the Restricted Stock Units, (b) two (2) years
from the date of grant with respect to an additional one-third
of the Restricted Stock Units, and (c) three (3) years from
the date of grant with respect to the remaining one-third of
the Restricted Stock Units. Notwithstanding the preceding
provisions of this Section 10.3, in no event shall the
Restriction Period be less than six (6) months after the date
of grant. During the Restriction Period, the Restricted Stock
Units shall be and remain unvested, and the Participant may
not sell, assign, transfer, pledge, encumber, or otherwise
dispose of or hypothecate such Award. Upon satisfaction of the
vesting schedule and any other applicable restrictions, terms,
and conditions, the Participant shall be entitled to receive
payment of the Restricted Stock Units or a portion thereof, as
the case may be, as provided in Section 10.5.
<PAGE>
EXHIBIT 10.1
10.4 DIVIDEND EQUIVALENT CREDITS. If the applicable Award Agreement
so provides, a Participant with an outstanding Award of
Restricted Stock Units shall be credited with an amount equal
to the cash dividends paid on shares of Common Stock
corresponding to the Participant's Restricted Stock Units.
Such credits may be distributed to the Participant in cash at
the time the dividend is paid, maintained as cash amounts, or
converted into additional Restricted Stock Units as specified
in the Award Agreement. The number of any such additional
Restricted Stock Units shall be determined, first, by
multiplying the total number of Restricted Stock Units awarded
to the Participant immediately before such dividend is paid by
the amount of the dividend paid per share of Common Stock on
the dividend payment date and, then, by dividing the product
so determined by the Fair Market Value of a share of Common
Stock on the dividend payment date. If the applicable Award
Agreement so provides, any cash credited pursuant to this
Section 10.4 (and not distributed at the time the dividend is
paid) shall accrue interest in accordance with the terms of
the Award Agreement. In addition, if the applicable Award
Agreement so provides and a stock dividend is paid on shares
of Common Stock, a Participant with an outstanding Award of
Restricted Stock Units also shall be credited with a
Restricted Stock Unit for each share of Common Stock that the
Participant would have received if the Restricted Stock Units
then credited to the Participant had actually been shares of
Common Stock. Any additional Restricted Stock Units or cash
amounts (and any interest thereon) credited pursuant to this
Section 10.4 (except to the extent any cash credited is
distributed at the time the dividends are paid) shall be
subject to the same terms and conditions that apply to the
Restricted Stock Units with respect to which such additional
Restricted Stock Units or cash amounts were credited.
10.5 PAYMENT OF RESTRICTED STOCK UNITS. With respect to each
Restricted Stock Unit, after the satisfaction and/or lapse of
the restrictions, terms, and conditions established by the
Committee in respect of the grant of the Restricted Stock
Units, as determined by the Committee in its sole discretion,
the Participant shall be entitled to receive payment in an
amount equal to the value of a Restricted Stock Unit
multiplied by the number of units with respect to which the
restrictions, terms, and conditions have been satisfied or
have lapsed. Except as otherwise provided in accordance with
the provisions of Section 12, payment in settlement of earned
Restricted Stock Units shall be made as soon as practicable
following the conclusion of the applicable Restricted Period
in cash, in Unrestricted Shares or Restricted Shares, or in
any combination thereof, as the Committee in its sole
discretion shall determine and provide in the applicable Award
Agreement.
10.6 NO SHAREHOLDER RIGHTS. Although the value of a Restricted
Stock Unit shall be based on the Fair Market Value of a share
of Common Stock, a Restricted Stock Unit is an unfunded and
unsecured obligation of the Company and is not the equivalent
of a share of Common Stock. A Participant who has received an
Award of Restricted Stock Units shall not, by virtue of that
Award, have any of the rights (including the voting rights) of
an owner of a share of Common Stock.
<PAGE>
EXHIBIT 10.1
11. PERFORMANCE UNITS.
11.1 PERFORMANCE UNIT GRANTS. A Performance Unit is an Award of
units (with each unit representing such monetary amount as is
designated by the Committee in the Award Agreement) granted to
a Participant, subject to such terms and conditions as the
Committee deems appropriate, including, without limitation,
the requirement that the Participant forfeit such units (or a
portion thereof) in the event certain performance criteria or
other conditions are not met within a designated period of
time.
11.2 TERMS AND CONDITIONS. Performance Units shall be subject to
the terms and conditions set forth in this Section 11 and any
additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall set forth in
the applicable Award Agreement.
11.3 GRANTS. Performance Units may be granted alone or in addition
to any other Awards under the Plan. Subject to the terms of
the Plan, the Committee shall determine the number of
Performance Units to be granted to a Participant.
11.4 PERFORMANCE GOALS AND PERFORMANCE PERIODS. Participants
receiving a grant of Performance Units shall earn into and be
entitled to payment in respect of such Performance Units only
if the Company, a Related Company, and/or the Participant
achieves certain performance goals (the "Performance Goals")
during and in respect of a designated performance period (the
"Performance Period"). The Performance Goals and the
Performance Period shall be established by the Committee, in
its sole discretion. The Committee shall establish Performance
Goals for each Performance Period prior to, or as soon as
practicable after, the commencement of such Performance
Period. The Committee shall also establish a schedule or
schedules for Performance Units setting forth the portion of
the Award that will be earned or forfeited based on the degree
of achievement, or lack thereof, of the Performance Goals at
the end of the relevant Performance Period. In setting
Performance Goals, the Committee may use, but shall not be
limited to, such measures as total shareholder return, return
on equity, net earnings growth, sales or revenue growth,
comparisons to peer companies, individual or aggregate
Participant performance, or such other measure or measures of
performance as the Committee, in its sole discretion, may deem
appropriate. Such performance measures shall be defined as to
their respective components and meaning by the Committee (in
its sole discretion). During any Performance Period, the
Committee shall have the authority to adjust the Performance
Goals and/or the Performance Period in such manner as the
Committee, in its sole discretion, deems appropriate at any
time and from time to time; provided, however, that the
Committee shall not have the authority to amend the terms that
apply to any previously granted Performance Units that are
intended by the Committee to be performance-based compensation
under Section 162(m) of the Code.
<PAGE>
EXHIBIT 10.1
11.5 PAYMENT OF PERFORMANCE UNITS. With respect to each Performance
Unit, if the applicable Performance Goals have been achieved,
or partially achieved, during the relevant Performance Period,
as determined by the Committee in its sole discretion, the
Participant shall be entitled to receive payment in an amount
equal to the designated value of each Performance Unit
multiplied by the number of such units so earned. Except as
otherwise provided in accordance with the provisions of
Section 12, payment in settlement of earned Performance Units
shall be made as soon as practicable following the conclusion
of the applicable Performance Period in cash, in Unrestricted
Shares or Restricted Shares, or in any combination thereof, as
the Committee in its sole discretion, shall determine and
provide in the applicable Award Agreement.
12. DEFERRAL ELECTIONS/TAX REIMBURSEMENTS. The Committee may permit a
Participant to elect to defer receipt of any payment of cash or any
delivery of shares of Common Stock that would otherwise be due to such
Participant by virtue of the exercise, earn out, or settlement of any
Award made under the Plan. If any such election is permitted, the
Committee shall establish rules and procedures for such deferrals,
including, without limitation, the payment or crediting of reasonable
interest on such deferred amounts credited in cash, and the payment or
crediting of dividend equivalents in respect of deferrals credited in
units of Common Stock. The Committee may also provide in the
applicable Award Agreement for a tax reimbursement cash payment to be
made by the Company in favor of any Participant in connection with the
tax consequences resulting from the grant, exercise, settlement, or
earn out of any Award made under the Plan.
13. DIVIDEND EQUIVALENTS. Awards of Stock Options and/or Stock
Appreciation Rights may, in the sole discretion of the Committee and
if provided for in the applicable Award Agreement, earn dividend
equivalents. In respect of any such Award that is outstanding on a
dividend record date for Common Stock, the Participant shall be
credited with an amount equal to the amount of cash or stock dividends
that would have been paid on the shares of Common Stock covered by
such Award had such covered shares been issued and outstanding on such
dividend record date. The Committee shall establish such rules and
procedures governing the crediting of such dividend equivalents,
including, without limitation the amount, timing, form of payment,
payment contingencies, and/or restrictions on such dividend
equivalents, as it deems appropriate or necessary.
14. TERMINATION OF EMPLOYMENT.
14.1 GENERAL. Subject to the terms and conditions of Section 17,
if, and to the extent that, the terms and conditions under
which an Award may be exercised, vested, earned out, or
settled after a Participant's termination of employment for
any particular reason shall not have been set forth (a) in the
applicable Award Agreement, by and as determined by the
Committee in its sole discretion, or (b) in the Participant's
employment agreement, if any, the following terms and
conditions shall apply as appropriate and as not inconsistent
with the terms and conditions, if any, contained in such Award
Agreement and/or employment agreement:
<PAGE>
EXHIBIT 10.1
14.1.1 OPTIONS/SARS.
14.1.1.1 GENERAL RULE. Except as otherwise provided in
this Section 14.1.1, if a Participant's
employment with the Company and the Related
Companies is terminated for any reason, such
Participant's rights, if any, to exercise
any then exercisable Stock Options and/or
Stock Appreciation Rights, if any, shall
terminate ninety (90) days after the date
of such termination (but not beyond the term
of any such Stock Option and/or Stock
Appreciation Right as determined under
Sections 6.4 and 7.4), and upon such date the
Participant (and such Participant's estate,
designated beneficiary, or other legal
representative) shall forfeit any rights or
interests in or with respect to any such
Stock Options or Stock Appreciation Rights.
14.1.1.2 EXTENSION. The Committee, in its sole
discretion, may determine that any such
Participant's Stock Options and/or Stock
Appreciation Rights, if any, to the extent
exercisable immediately prior to any
termination of employment (other than a
termination due to death, Retirement, or
Disability), may remain exercisable for an
additional specified time period after such
ninety (90) day period expires (but not
beyond the term of any such Stock Option
and/or Stock Appreciation Right as determined
under Sections 6.4 and 7.4 and subject to any
other applicable terms and provisions of the
Plan (and any rules or procedures thereunder)
and the applicable Award Agreement).
14.1.1.3 DEATH, RETIREMENT, OR DISABILITY. If any
termination of employment is due to death,
Retirement, or Disability, the Participant
(and such Participant's estate, designated
beneficiary, or other legal representative,
as the case may be) shall have the right,
subject to the applicable terms and
provisions of the Plan (and any rules or
procedures thereunder) and the applicable
Award Agreement, to exercise such Stock
Options and/or Stock Appreciation Rights,
if any, at any time within the four (4) year
period following such termination due to
death, Retirement, or Disability (but not
beyond the term of any such Stock Option
and/or Stock Appreciation Right as determined
under Sections 6.4 and 7.4).
14.1.2 RESTRICTED SHARES/STOCK UNITS. If a Participant's
employment with the Company and the Related
Companies is terminated due to death, Disability,
or Retirement, all then outstanding Restricted
Shares or Restricted Stock Units not yet vested as
of the date of such termination shall become fully
vested as of such date. Except as otherwise
provided in the Plan, if the Participant's
employment with the Company and the Related
Companies is terminated for any reason other than
death, Disability, or Retirement at any time, the
Restricted Shares that have not yet vested as of
the date of such termination shall be immediately
forfeited and canceled. Notwithstanding the
immediately preceding sentence, the Committee, in
its sole discretion, may determine, prior to or
within ninety (90)days after the date of such
termination, that all or a portion of any such
Participant's Restricted Shares (or Restricted
Stock Units)shall not be so forfeited and
canceled.
<PAGE>
EXHIBIT 10.1
14.1.3 PERFORMANCE UNITS. If a Participant's employment
with the Company and the Related Companies is
terminated for any reason (including, without
limitation, Disability, Retirement, or death)
prior to the actual or deemed (under Section 17)
completion of any Performance Period, any
Performance Units granted in respect of such
Performance Period shall, if and to the extent the
applicable Performance Goals for such Performance
Period have not been actually or so deemed
achieved as of the date of such termination,
immediately be canceled and the Participant
(and such Participant's estate, designated
beneficiary, or other legal representative) shall
forfeit any rights or interests in and with
respect to any such Performance Units.
Notwithstanding the immediately preceding
sentence, the Committee, in its sole discretion,
may determine, prior to or within ninety (90) days
after the date of such termination, that all or
a portion of any such Participant's Performance
Units shall not be so canceled and forfeited.
15. RESTRICTIONS ON TRANSFERABILITY OF AWARDS. No Award under the Plan or
any Award Agreement (other than Unrestricted Shares), and no rights or
interests herein or therein, shall or may be assigned, transferred,
sold, exchanged, encumbered, pledged, or otherwise hypothecated or
disposed of by a Participant or any beneficiary(ies) of any
Participant, except by testamentary disposition by the Participant or
the laws of descent and distribution. No such interest shall be
subject to execution, attachment, or similar legal process, including,
without limitation, seizure for the payment of the Participant's
debts, judgments, alimony, or separate maintenance. During the
lifetime of a Participant, Stock Options and Stock Appreciation Rights
are exercisable only by the Participant.
16. CHANGES IN CAPITALIZATION AND OTHER MATTERS.
16.1 NO CORPORATE ACTION RESTRICTION. The existence of the Plan, any Award
Agreement, and/or the Awards granted hereunder shall not limit,
affect, or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization, or other change in the Company's or
any Related Company's capital structure or its business, (b) any
merger, consolidation or change in the ownership of the Company or
any Related Company, (c) any issue of bonds, debentures, capital,
preferred or prior preference stocks ahead of or affecting the
Company's or any Related Company's capital stock or the rights
thereof, (d) any dissolution or liquidation of the Company or any
Related Company, (e) any sale or transfer of all or any part of the
Company's or any Related Company's assets or business, or (f) any
other corporate act or proceeding by the Company or any Related
Company. No Participant, beneficiary, or any other person shall have
any claim against any member of the Board or the Committee, the
Company or any Related Company, or any employees, officers, or agents
of the Company or any Related Company, as a result of any such action.
<PAGE>
EXHIBIT 10.1
16.2 RECAPITALIZATION ADJUSTMENTS. In the event of any change in
capitalization affecting the Common Stock, including, without
limitation, a stock dividend or other distribution, stock split,
reverse stock split, recapitalization, consolidation, subdivision,
split-up, spin-off, split-off, combination or exchange of shares
or other form of reorganization or recapitalization, or any other
change affecting the Common Stock, the Board shall authorize and
make such proportionate adjustments, if any, as the Board deems
appropriate to reflect such change, including, without limitation,
with respect to the aggregate number of shares of the Common Stock
for which Awards in respect thereof may be granted under the Plan,
the aggregate number of shares of Common Stock for which Incentive
Stock Options may be granted under the Plan, the maximum number of
shares of the Common Stock for which Stock Options and Stock
Appreciation Rights may be granted to any Participant, the number
of shares of Common Stock or Restricted Stock Units covered by
each outstanding Award, and the exercise price or other price per
share of Common Stock in respect of outstanding Awards.
16.3 CERTAIN MERGERS.
16.3.1 If the Company enters into or is involved in any
merger, reorganization or other business combination
with any person or entity (such merger, reorganization
or other business combination to be referred to herein
as a "Merger Event") and as a result of any such Merger
Event will be or is the surviving corporation, a
Participant shall be entitled to receive, as of the
date of the execution of the agreement evidencing the
Merger Event (the "Execution Date") and with respect to
both exercisable and unexercisable Stock Options and/or
Stock Appreciation Rights (but only to the extent not
previously exercised), substitute stock options and/or
stock appreciation rights in respect of the shares of
the surviving corporation on such terms and conditions,
as to the number of shares, pricing and otherwise,
which shall substantially preserve the value, rights,
and benefits of any affected Stock Options or Stock
Appreciation Rights granted hereunder as of the date of
the consummation of the Merger Event. Notwithstanding
anything to the contrary in this Section 16.3, if any
Merger Event occurs, the Company shall have the right
to pay to each affected Participant an amount in cash
or certified check equal to the excess of the Fair
Market Value of the Common Stock underlying any
affected unexercised Stock Options or Stock
Appreciation Rights as of the Execution Date (whether
then exercisable or not) over the aggregate exercise
price of such unexercised Stock Options and/or Stock
Appreciation Rights, as the case may be.
16.3.2 If, in the case of a Merger Event in which the Company
will not be, or is not, the surviving corporation, and
the Company determines not to make the cash or
certified check payment described in Section 16.3.1 of
the Plan, the Company shall compel and obligate, as a
condition of the consummation of the Merger Event, the
surviving or resulting corporation and/or the other
party to the Merger Event, as necessary, or any parent,
subsidiary or acquiring corporation thereof, to grant
substitute stock options or stock appreciation rights
in respect of the shares of common or other capital
stock of such surviving or resulting corporation on
such terms and conditions, as to the number of shares,
pricing and otherwise, which shall substantially
preserve the value, rights, and benefits of any
affected Stock Options and/or Stock Appreciation Rights
previously granted hereunder as of the date of the
consummation of the Merger Event.
<PAGE>
EXHIBIT 10.1
16.3.3 Upon receipt of any affected Participant of any such
cash, certified check, or substitute stock options or
stock appreciation rights as a result of any such
Merger Event, such Participant's affected Stock
Options and or Stock Appreciation Rights for which
such cash, certified check or substitute awards was
received shall be thereupon canceled without the need
for obtaining the consent of any such affected
Participant.
16.3.4 The foregoing adjustments and the manner of
application of the foregoing provisions, including,
without limitation, the issuance of any substitute
stock options and/or stock appreciation rights, shall
be determined in good faith by the Committee in its
sole discretion. Any such adjustments may provide for
the elimination of fractional shares.
16.4 SPLIT-UPS, SPIN-OFFS AND SPLIT-OFFS. If the Company effects a
split-up, spin-off or split-off, the Board is authorized to take
any and all actions, with respect to outstanding Awards, that it
may deem appropriate under the circumstances, including, without
limitation, granting or arranging for the grant of substitute
awards or securities for the outstanding Awards or shares of
Common Stock underlying outstanding Awards on such terms and
conditions as the Board may deem appropriate.
17. CHANGE OF CONTROL.
17.1 ACCELERATION OF AWARDS VESTING. Anything in the Plan to the con-
trary notwithstanding, if both (a) a Change of Control (as defined
below), and (b) before the expiration of one (1) year after the
Change of Control, an Adverse Employment Action (as defined
below), occur with respect to a Participant, then (x) all of the
Participant's Stock Options and/or Stock Appreciation Rights then
unexercised and outstanding shall become fully vested and
exercisable as of the later of the date of the Change of Control
or the date of the Adverse Employment Action, (y) all
restrictions, terms, and conditions applicable to all of the
Participant's Restricted Shares and Restricted Stock Units then
outstanding shall be deemed lapsed and satisfied as of the later
of the date of the Change of Control or the date of the Adverse
Employment Action, and (z) the Performance Period shall be deemed
completed and all Performance Units shall be deemed to have been
fully earned as of the later of the date of the Change of Control
or the date of the Adverse Employment Action. The immediately
preceding sentence shall apply to only those Participants (i) who
are employed by the Company and/or a Related Company as of the
date of the Change of Control or (ii) to whom Section 17.3
applies.
17.2 PAYMENT. Within thirty (30) days after both a Change of Control
and an Adverse Employment Action have occurred, (a) the holder of
an Award of Restricted Shares shall receive a certificate for such
shares without the legend set forth in Section 8 (subject to the
Participant's surrender of the original certificate for the
Restricted Shares if those Restricted Shares are held by the
Participant in certificated form), and (b) the holder of
Performance Units and/or Restricted Stock Units shall receive
payment of the value of such units in cash.
<PAGE>
EXHIBIT 10.1
17.3 TERMINATION AS A RESULT OF A CHANGE OF CONTROL. Anything in
the Plan to the contrary notwithstanding, if a Change of
Control occurs and if the Participant's employment is
terminated before such Change of Control and it is reasonably
demonstrated by the Participant that such employment
termination (a) was at the request, directly or indirectly, of
a third party who has taken steps reasonably calculated to
effect the Change of Control or (b) otherwise arose in
connection with or in anticipation of the Change of Control,
then for purposes of this Section 17, the Change of Control
shall be deemed to have occurred immediately prior to such
Participant's employment termination.
17.4 CHANGE OF CONTROL. For the purpose of the Plan, "Change of
Control" shall mean:
17.4.1 The acquisition by an individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) of twenty percent (20%) or more of either (a) the
shares of the Common Stock or (b) the combined voting
power of the voting securities of the Company entitled
to vote generally in the election of directors (the
"Voting Securities"); PROVIDED, HOWEVER, that the
following acquisitions shall not constitute a Change of
Control: (x) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Company or any subsidiary or (y) any acquisition by any
corporation if, immediately following such acquisition,
more than eighty percent (80%) of the then outstanding
shares of common stock of such corporation and the
combined voting power of the then outstanding voting
securities of such corporation (entitled to vote
generally in the election of directors), is
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who,
immediately prior to such acquisition, were the
beneficial owners of the Common Stock and the Voting
Securities in substantially the same proportions,
respectively, as their ownership, immediately prior to
such acquisition, of the Common Stock and Voting
Securities; or
17.4.2 Individuals who, as of the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board;
PROVIDED, HOWEVER, that any individual becoming a
director subsequent to the Effective Date whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of
either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or
<PAGE>
EXHIBIT 10.1
17.4.3 Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, other than a
reorganization, merger, or consolidation with respect
to which all or substantially all of the individuals
and entities who were the beneficial owners,
immediately prior to such reorganization, merger, or
consolidation, of the Common Stock and Voting
Securities beneficially own, directly or indirectly,
immediately after such reorganization, merger, or
consolidation, more than eighty percent (80%) of the
then outstanding common stock and voting securities
(entitled to vote generally in the election of
directors) of the corporation resulting from such
reorganization, merger, or consolidation in
substantially the same proportions as their respective
ownership, immediately prior to such reorganization,
merger, or consolidation, of the Common Stock and
Voting Securities; or
17.4.4 Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or
(b) the sale or other disposition of all or
substantially all of the assets of the Company, other
than to a subsidiary, wholly-owned, directly or
indirectly, by the Company.
17.5 ADVERSE EMPLOYMENT ACTION. For purposes of the Plan, "Adverse
Employment Action" shall mean (a) an involuntary termination of
the Participant's employment with the Company and the Related
Companies, (b) a reduction in the Participant's base compensation,
or (c) a change in the Participant's principal place of employment
by the Company and the Related Companies as a result of which the
Participant's new principal place of employment is at least 50
miles farther from the Participant's former residence than was the
Participant's former principal place of employment unless the
Company (or a Related Company, if the Participant was employed by
the Related Company) reimburses the Participant for all of the
Participant's relocation expenses that were reimbursable under the
relocation expense reimbursement policies of the Company (or, if
applicable, the Related Company) in effect immediately before the
Change of Control.
18. AMENDMENT, SUSPENSION, AND TERMINATION.
18.1 IN GENERAL. The Board may suspend or terminate the Plan (or any
portion thereof) at any time and may amend the Plan at any time
and from time to time in such respects as the Board may deem
advisable to ensure that any and all Awards conform to or
otherwise reflect any change in applicable laws or regulations, or
to permit the Company or the Participants to benefit from any
change in applicable laws or regulations, or in any other respect
the Board may deem to be in the best interests of the Company or
any Related Company; provided, however, that no such amendment to
the Plan shall, without shareholder approval (a) except as
permitted by Rule 16b-3, materially increase the number of shares
of Common Stock that may be issued under the Plan, (b) materially
modify the requirements as to eligibility for participation in the
Plan, (c) materially increase the benefits accruing to
Participants under the Plan (except that this Section 18.1(c)
shall not apply to any amendment or modification of any Award
Agreement permitted under Section 18.2 if such amendment or
modification would not require shareholder approval under Rule
16b-3), or (d) extend the termination date of the Plan. No such
amendment, suspension, or termination shall (x) materially
adversely affect the rights of any Participant under any
outstanding Award without the consent of such Participant or (y)
make any change that would (i) cause the Plan, or any other plan
of the Company or any Related Company, to fail to meet the
requirements of Rule 16b-3, or (ii) disqualify awards under the
Plan, or any other plan of the Company or a Related Company, from
the benefits provided under Section 422 of the Code, or any
successor provision thereto.
<PAGE>
EXHIBIT 10.1
18.2 AWARD AGREEMENTS. The Committee may (in its sole discretion) amend
or modify at any time and from time to time the terms and
provisions of any outstanding Award in any manner to the extent
that, under the Plan or the applicable Award Agreement, the
Committee could have initially determined the restrictions, terms,
and provisions of such Award, including, without limitation,
changing or accelerating (a) the date or dates as of which Stock
Options or Stock Appreciation Rights become exercisable, (b) the
date or dates as of which Restricted Share or Restricted Stock
Unit grants become vested, or (c) the performance period or goals
in respect of any Performance Units; provided, however, that,
except to the extent that the Committee acts pursuant to Section
16.3, no such amendment or modification shall materially adversely
affect the rights of any Participant under any such Award without
the consent of such Participant.
19. MISCELLANEOUS.
19.1 TAX WITHHOLDING. The Company shall have the right to deduct
from any payment or settlement under the Plan, including,
without limitation, the exercise of any Stock Option or Stock
Appreciation Right, or the delivery, transfer, or vesting of
any Common Stock or Restricted Shares, any federal, state,
local, or other taxes of any kind that the Committee, in its
sole discretion, deems necessary to be withheld to comply with
the Code and/or any other applicable law, rule, or regulation.
If the Committee, in its sole discretion, permits shares of
Common Stock to be used to satisfy any such tax withholding,
such Common Stock shall be valued based on the Fair Market
Value of such Common Stock as of the date the tax withholding
is required to be made, such date to be determined by the
Committee. The Committee may establish rules limiting the use
of Common Stock to meet withholding requirements by
Participants who are subject to Section 16 of the Exchange
Act.
19.2 NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan, the
granting of any Award, nor the execution of any Award
Agreement, shall confer upon any employee of the Company or
any Related Company any right to continued employment with the
Company or the Related Company, as the case may be, nor shall
it interfere in any way with the right, if any, of the Company
or any Related Company to terminate the employment of any
employee at any time for any reason.
<PAGE>
EXHIBIT 10.1
19.3 UNFUNDED PLAN. The Plan shall be unfunded and the Company
shall not be required to segregate any assets in connection
with any Awards under the Plan. Any liability of the Company
to any person with respect to any Award under the Plan or any
Award Agreement shall be based solely upon the contractual
obligations that may be created as a result of the Plan or any
such Award or Award Agreement. No such obligation of the
Company shall be deemed to be secured by any pledge of,
encumbrance on, or other interest in, any property or asset of
the Company or any Related Company. Nothing contained in the
Plan or any Award Agreement shall be construed as creating in
respect of any Participant (or beneficiary thereof or any
other person) any equity or other interest of any kind in any
assets of the Company or any Related Company or creating a
trust of any kind or a fiduciary relationship of any kind
between the Company or any Related Company and any such
Participant, any beneficiary thereof, or any other person.
19.4 PAYMENTS TO A TRUST. The Committee is authorized to cause to
be established a trust agreement or several trust agreements
or similar arrangements from which the Committee may make
payments of amounts due or to become due to any Participants
under the Plan.
19.5 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and
other benefits received by a Participant under an Award made
pursuant to the Plan shall not be deemed a part of a
Participant's compensation for purposes of the determination
of benefits under any other employee welfare or benefit plans
or arrangements, if any, provided by the Company or any
Related Company unless expressly provided in such other plans
or arrangements, or except where the Board expressly
determines in writing that inclusion of an Award or portion of
an Award should be included to accurately reflect competitive
compensation practices or to recognize that an Award has been
made in lieu of a portion of competitive annual base salary or
other cash compensation. Awards under the Plan may be made in
addition to, in combination with, or as alternatives to,
grants, awards, or payments under any other plans or
arrangements of the Company or the Related Companies. The
existence of the Plan notwithstanding, the Company or any
Related Company may adopt such other compensation plans or
programs and additional compensation arrangements as it deems
necessary to attract, retain, and motivate employees.
19.6 LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE. No Awards or
shares of the Common Stock shall be required to be issued or
granted under the Plan unless legal counsel to the Company shall
be satisfied that such issuance or grant will be in compliance
with all applicable federal and state securities laws and
regulations and any other applicable laws or regulations. The
Committee may require, as a condition of any payment or share
issuance, that certain agreements, undertakings, representations,
certificates, and/or information, as the Committee may deem
necessary or advisable, be executed or provided to the Company to
assure compliance with all such applicable laws or regulations.
Any certificates for shares of the Restricted Shares and/or Common
Stock delivered under the Plan may be subject to such
stock-transfer orders and such other restrictions as the Committee
may deem advisable under the rules, regulations, or other
requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any
applicable federal or state securities law. In addition, if, at
any time specified herein (or in any Award Agreement or otherwise)
for (a) the making of any Award, or the making of any
determination, (b) the issuance or other distribution of
Restricted Shares and/or Common Stock, or (c) the payment of
amounts to or through a Participant with respect to any Award, any
law, rule, regulation, or other requirement of any governmental
authority or agency shall require the Company, any Related
Company, or any Participant (or any estate, designated
beneficiary, or other legal representative thereof) to take any
action in connection with any such determination, any such shares
to be issued or distributed, any such payment, or the making of
any such determination, as the case may be, shall be deferred
until such required action is taken. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with all applicable conditions of Rule
16b-3. To the extent any provision of the Plan or any action by
the administrators of the Plan fails to so comply with such rule,
it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
<PAGE>
EXHIBIT 10.1
19.7 AWARD AGREEMENTS. Each Participant receiving an Award under the
Plan shall enter into an Award Agreement with the Company in a
form specified by the Committee. Each such Participant shall agree
to the restrictions, terms, and conditions of the Award set forth
therein and in the Plan.
19.8 DESIGNATION OF BENEFICIARY. Each Participant to whom an Award has
been made under the Plan may designate a beneficiary or
beneficiaries to exercise any option or to receive any payment
that under the terms of the Plan and the applicable Award
Agreement may become exercisable or payable on or after the
Participant's death. At any time, and from time to time, any such
designation may be changed or canceled by the Participant without
the consent of any such beneficiary. Any such designation, change,
or cancellation must be on a form provided for the purpose by the
Committee and shall not be effective until received by the
Committee. If no beneficiary has been designated by a deceased
Participant, or if the designated beneficiaries predecease the
Participant, the beneficiary shall be the Participant's estate. If
the Participant designates more than one beneficiary, any options
or payments under the Plan shall be allocated among such
beneficiaries in equal shares unless the Participant has expressly
designated otherwise, in which case the options or payments shall
be allocated among the beneficiaries in the shares designated by
the Participant.
19.9 LEAVE OF ABSENCE/TRANSFERS. The Committee shall have the power to
promulgate rules and regulations and to make determinations, as it
deems appropriate, under the Plan in respect of any leave of
absence granted to a Participant by the Company or a Related
Company. Without limiting the generality of the foregoing, the
Committee may determine whether any such leave of absence shall be
treated as if the Participant has terminated employment with the
Company or any such Related Company. If a Participant transfers
within the Company, or to or from any Related Company, such
Participant shall not be deemed to have terminated employment as a
result of such transfer.
19.10 LOANS. Subject to applicable law, the Committee may provide,
pursuant to Plan rules, for the Company or any Related Company to
make loans to Participants to finance the exercise price of any
Stock Options, as well as the withholding obligation under Section
19.1 and/or the estimated or actual taxes payable by the
Participants as a result of the exercise of such Stock Option, and
the Committee may prescribe the terms and conditions of any such
loan.
19.11 GOVERNING LAW/TITLES AND HEADINGS. The Plan and all actions taken
thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware, without reference to the
principles of conflict of laws thereof. Any titles and headings
herein are for reference purposes only, and shall in no way limit,
define or otherwise affect the meaning, construction, or
interpretation of any provisions of the Plan.
19.12 EFFECTIVE DATE. The Plan shall be effective upon the approval of
the Plan by the Company's shareholders in accordance with Rule
16b-3 and Section 422 of the Code.
<PAGE>
EXHIBIT 10.2
TIG HOLDINGS, INC.
1996 NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM
1. PURPOSE. The purpose of the TIG Holdings, Inc. 1996 Non-Employee Directors
Compensation Program (the "Program") is to promote the interests of TIG
Holdings, Inc. (the "Company") and its stockholders by strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable non-employee directors (the "Non-Employee Directors") through
cash retainers, formula grants of restricted share units which will convert
into shares of the Company's Common Stock, par value $.01 per share
("Restricted Share Units"), and formula grants of non-qualified stock
options to acquire shares of the Company's Common Stock ("Stock Options").
Such grants will serve the additional purpose of aligning the interests of
such directors more closely with those of the Company's stockholders.
2. DEFINITIONS. For purposes of the Program, the following terms shall have
the meanings set forth below:
2.1 "ANNUAL MEETING" means the annual meeting of the Company's
stockholders.
2.2 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.3 "CHANGE OF CONTROL" means (a) the acquisition by an individual,
entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the shares of the Common Stock or (ii) the
combined voting power of the voting securities of the Company
entitled to vote generally in the election of directors (the
"Voting Securities"); provided, however, that (x) the
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary or (y)
any acquisition by any corporation if, immediately following
such acquisition, more than 80% of the then outstanding shares
of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation (entitled to vote generally in the election of
directors), is beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who,
immediately prior to such acquisition, were the beneficial
owners of the Common Stock and the Voting Securities in
substantially the same proportions, respectively, as their
ownership prior to such acquisition of the Common Stock and
Voting Securities shall not constitute a Change of Control; (b)
individuals who constitute the Board at the Effective Date (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the Effective Date whose
election, or nomination for election, by the Company's
stockholders, was approved by a vote of at least a majority of
the directors then serving and comprising the Incumbent Board
shall be considered as though such individual was a member of
the Incumbent Board, but excluding any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or
consents; (c) approval by the stockholders of the Company of a
reorganization, merger or consolidation, other than a
reorganization, merger or consolidation with respect to which
all or substantially all of the individuals and entities who
were the beneficial owners, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and
Voting Securities beneficially own, directly or indirectly,
immediately after such reorganization, merger or consolidation
more than 80% of the then outstanding common stock and voting
securities (entitled to vote generally in the election of
directors) of the corporation resulting from such
reorganization, merger or consolidation in substantially the
same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the
Common Stock and the Voting Securities; or (d) approval by the
stockholders of the Company of (i) a complete liquidation of
dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company other
than to a subsidiary, wholly-owned, directly or indirectly, by
the Company.
<PAGE>
EXHIBIT 10.2
2.4 "Code" means the Internal Revenue Code of 1986, as amended
(and the regulations promulgated thereunder).
2.5 "Committee" means the Board or the committee appointed by the
Board to administer the Program as provided in Section 3.2(a).
2.6 "Common Stock" means the Common Stock, par value $.01 per share,
of the Company or any security of the Company issued by the
Company in substitution or exchange therefor.
2.7 "Company" means TIG Holdings, Inc., a Delaware corporation, or
any successor corporation to TIG Holdings, Inc.
2.8 "Disability" means any physical or mental disability of a
Non-Employee Director which is determined to be total and
permanent by a physician mutually selected by the Company and
such Non-Employee Director (or such Non-Employee Director's legal
representative).
2.9 "Effective Date" means the date on which the Program is approved
by the stockholders of the Company.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute.
2.11 "FAIR MARKET VALUE" means on, or with respect to, any given date,
the average of the highest and lowest market prices of the Common
Stock, as reported on the consolidated transaction reporting
system for the New York Stock Exchange for such date or, if the
Common Stock was not traded on such date, on the next preceding
day on which the Common Stock was traded.
2.12 "INVOLUNTARY TERMINATION" means any termination of a Non-Employee
Director's membership on the Board other than a Voluntary
Termination.
2.13 "NON-EMPLOYEE DIRECTOR" means any director of the Company who is
not on a determination date, and has not been for at least one
year preceding the determination date, an employee of the Company
or any of its subsidiaries, and has not elected to decline to
participate in the Program pursuant to the following sentence. A
director otherwise eligible to participate in the Program may
make an irrevocable, one-time election, by written notice to the
Corporate Secretary of the Company within thirty days after his
or her initial election or appointment to the Board, or in the
case of directors in office on the date the Program was adopted
by the Board, prior to the Effective Date, to decline to
participate in the Program.
<PAGE>
EXHIBIT 10.2
2.14 "PROGRAM" means the TIG Holdings, Inc. 1996 Non-Employee
Directors Compensation Program, set forth herein, and as amended
from time to time.
2.15 "RESTRICTED SHARE UNIT" means a restricted share unit granted
pursuant to the provisions of Section 5 of the Program and the
relevant Restricted Share Unit Award Agreement.
2.16 "RESTRICTED SHARE UNIT AWARD AGREEMENT" means the restricted
share unit agreement executed by each of the Non-Employee
Directors pursuant to Sections 7 and 15.3 of the Program in
connection with the granting of a Restricted Share Unit
hereunder.
2.17 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations under the Exchange Act, or any successor thereto.
2.18 "SEC" means the Securities and Exchange Commission, or any
successor agency.
2.19 "STOCK OPTION" means any stock option granted pursuant to the
provisions of Section 6 of the Program.
2.20 "STOCKOPTION AWARD AGREEMENT" means the stock option agreement
executed by each of the Non-Employee Directors pursuant to
Sections 7 and 15.3 of the Program in connection with the
granting of the Stock Options hereunder.
2.21 "SUBSEQUENT COMMENCEMENT DATE" means any date occurring after the
Effective Date and prior to the Annual Meeting held in 1999 and
on which any individual becomes a Non-Employee Director.
2.22 "VOLUNTARY TERMINATION" means a termination of a Non-Employee
Director's membership on the Board due to or as a result of any
such Non-Employee Director's (a) resignation from the Board
(other than due to Disability or death of such Non-Employee
Director) or (b) refusal (other than due to Disability) to stand
for election to the Board after having been nominated by the
Board.
3. TERM OF THE PROGRAM/COMMON STOCK SUBJECT TO THE PROGRAM/ADMINISTRATION.
3.1 (a) TERM OF PROGRAM. The Program was adopted by the Board on March
12, 1996, to be effective upon the date it is approved by the
stockholders of the Company. The maximum number of shares of
Common Stock in respect of which grants may be made under the
Program, subject to adjustment as provided in Section 13.2 of the
Program, shall be 200,000 shares. The Program shall terminate upon
the close of business on the date of the Annual Meeting held in
1999, except with respect to grants already made and outstanding
on such date.
(b) COMPUTATION OF SHARES. If any awards under the Program expire
unexercised or are forfeited, surrendered, cancelled or
terminated, the shares of Common Stock that were theretofore
subject (or potentially subject) to such awards shall again be
available for awards under the Program to the extent of such
expiration, forfeiture, surrender, cancellation or termination. If
a Non-Employee Director delivers shares of the Common Stock
already owned by the Non-Employee Director in full or partial
payment of the exercise price of a Stock Option pursuant to
Section 6 of the Program, the shares so delivered by the
Non-Employee Director shall be added to the shares available under
the Program for awards.
<PAGE>
EXHIBIT 10.2
3.2 (a) COMPOSITION OF THE COMMITTEE. The Program shall be
administered by the Board or a committee appointed by the Board
(the "Committee"). Members of the Committee need not be members of
the Board, officers or employees of the Company. The Board shall
have the power, at any time to remove members from, add members
to, or discharge members from, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board. The Board
shall appoint one of the members of the Committee as chairman.
(b) ACTIONS BY THE COMMITTEE. The Committee shall hold meetings at
such times and places as it may determine to be advisable. A
majority of the members of the Committee shall constitute a
quorum. Acts approved by a majority of the Committee members
present at a meeting at which there is a quorum, or acts reduced
to or approved in writing by all of the members of the Committee,
shall be the valid acts of the Committee. The Committee shall keep
minutes of its proceedings and shall report the same to the Board
at the meeting next succeeding.
(c) POWERS OF THE COMMITTEE. The Committee shall have the
authority to administer the Program in its sole and absolute
discretion; provided, however, that the Committee shall have no
authority to grant Restricted Share Units or Stock Options, to
determine the number of shares subject to Stock Options or the
price at which each share of Common Stock covered by a Stock
Option may be purchased pursuant to the Program, all of which
shall be as prescribed in Sections 5 and 6 of the Program. To this
end, the Committee is authorized to construe and interpret the
Program and to make all other determinations necessary or
advisable for the administration of the Program to resolve
questions that arise thereunder, to designate persons to carry out
the day-to-day ministerial administration of the Program and to
make, adopt and amend such determinations, rules and regulations
for administering the Program as the Committee deems necessary or
desirable; provided, however, that in no case shall any action be
taken by the Committee or its delegates or designees if such
action would result in the loss of the Rule 16b-3 "disinterested
administrator" status of any Non-Employee Director. Subject to the
foregoing, any determination, decision or action of the Committee
in connection with the construction, interpretation,
administration or application of the Program shall be final,
conclusive and binding upon all Non-Employee Directors and any
person claiming under or through a Non-Employee Director.
4. RETAINER. Each Non-Employee Director shall during the term of the Program,
be paid an annual retainer of $25,000 disbursed to the Non-Employee
Directors each year in one installment within thirty days following the
date of the Annual Meeting held in such year. Any individual who becomes a
Non-Employee Director subsequent to the Effective Date shall receive for
the year in which the Non-Employee Director's Subsequent Commencement Date
occurs, all or a portion of the annual retainer as the Committee may
determine.
5. GRANT OF RESTRICTED SHARE UNIT AWARDS
5.1 On the business day next following the Effective Date, Restricted
Share Units shall be granted to each Non-Employee Director equal
in number to the Restricted Share Unit Number. With respect to any
individual who becomes a Non-Employee Director subsequent to the
Effective Date, Restricted Share Units shall be granted to the
Non-Employee Director on the business day next following such
Non-Employee Director's Subsequent Commencement Date equal in
number to the then applicable Restricted Share Unit Number. For
purposes of the Program, "Restricted Share Unit Number" means the
number (rounded to the nearest whole share) equal to the quotient
obtained by dividing (i) 12,500 multiplied by the excess of (x) 12
over (y) the number of complete fiscal quarters commencing on
April 1, 1996, that have elapsed from such date to the date of
grant, by (ii) the Fair Market Value of a share of Common Stock on
the date of grant.
<PAGE>
EXHIBIT 10.2
5.2 The Non-Employee Director may submit an election to the Corporate
Secretary of the Company deferring the conversion of the
Restricted Share Units into shares of Common Stock and specifying
the time and the manner in which the Non-Employee Director desires
to have the Restricted Share Units convert into shares of Common
Stock. Such election shall satisfy each of the requirements set
forth in paragraphs (a) through (e) below:
(a) The election shall be made on or before the grant date as
provided in Section 5.1, with respect to the portion of the
Restricted Share Units that vests on the date of the next Annual
Meeting. For all other portions of the Restricted Share Units, the
election shall be made at least one year prior to the applicable
vesting date for the portion of the Restricted Share Units to
which the election applies.
(b) The election shall be in writing and in a form acceptable
to the Corporate Secretary of the Company.
(c) The election shall specify the date on which the Restricted
Share Units shall convert (or begin to convert) into shares of
Common Stock (i.e., either the vesting date or a specified date
subsequent to the vesting date).
(d) The election shall specify the period over which the
conversion of the Restricted Share Unit Award will be made under
the Program (i.e., in a lump sum or in quarterly or annual
installments).
(e) The conversion schedule elected by a Non-Employee Director
with respect to Restricted Share Units pursuant to paragraphs (c)
and (d) above, shall not be revocable or subject to modification
at any time (i) prior to the six-month anniversary following such
Non-Employee Director's termination of service as a member of the
Board and (ii) within one year before the scheduled payment date
that is the subject of the modification.
5.3 If a Non-Employee Director fails to make an election with respect
to the conversion of a portion of the Restricted Share Units in
accordance with Section 5.2 of the Program, such portion of the
Restricted Share Units shall convert into shares of Common Stock
upon vesting.
5.4 A separate bookkeeping account shall be maintained by the Company
for each Non-Employee Director who receives Restricted Share Units
pursuant to Section 5.1 of the Program. Such account shall be
credited with (a) the Restricted Share Units granted to the
Non-Employee Director and (b) as of each cash dividend payment
date, an additional number of Restricted Share Units equal to (i)
the per share dividend payable with respect to a share of Common
Stock on such date, multiplied by (ii) the number of Restricted
Stock Units held in such Non-Employee Director's account as of the
date preceding such dividend payment date, divided by (iii) the
Fair Market Value of a share of Common Stock on the dividend
payment date. In addition, if a stock dividend is paid on the
Common Stock, the account maintained for each Non-Employee
Director also shall be credited with a Restricted Share Unit for
each share of Common Stock that the Non-Employee Director would
have received
<PAGE>
EXHIBIT 10.2
if the Restricted Share Units then credited to his or her account
had actually been shares of Common Stock. All of the additional
Restricted Share Units credited pursuant to this Section 5.4 shall
be subject to the same restrictions and other terms and conditions
that apply to the Restricted Shares Units with respect to which
such additional Restricted Share Units were issued. Upon the
conversion of the Restricted Share Units, the Company shall pay
the Non-Employee Director an amount equal to the then Fair Market
Value of the fractional shares credited to the Non-Employee
Director's account.
6. GRANT OF STOCK OPTIONS. On the business day next following the
Effective Date, Stock Options to purchase shares of Common Stock equal
in number to the Stock Option Number shall be granted to each
Non-Employee Director. With respect to any individual who becomes a
Non- Employee Director subsequent to the Effective Date, Stock Options
to purchase shares of Common Stock equal in number to the then
applicable Stock Option Number shall be granted to the Non-Employee
Director on the business day next following the Non-Employee
Director's Subsequent Commencement Date. For purposes of the Program,
"Stock Option Number" means the number (rounded to the nearest whole
share) equal to the quotient obtained by dividing (i) 25,000
multiplied by the excess of (x) 12 over (y) the number of complete
fiscal quarters commencing on the April 1, 1996, that have elapsed
from such date to the date of grant, by (ii) the Fair Market Value of
a share of Common Stock on the date of grant. The exercise price of
each share of Common Stock subject to a Stock Option shall be equal to
the Fair Market Value of a share of Common Stock on the date of grant
of the Stock Option.
Ownership maintenance Stock Options ("Ownership Maintenance Stock
Options") shall be granted to a Non-Employee Director if upon exercise
of Stock Options previously granted under the Program including
previously granted Ownership Maintenance Stock Options ("Predecessor
Stock Options"), the Non-Employee Director pays the exercise price of
such Predecessor Stock Options by either actual or constructive
delivery of shares of Common Stock to the Company. The number of
shares of Common Stock subject to the Ownership Maintenance Stock
Options shall be equal to the number of shares of Common Stock so
delivered, and the exercise price for each share of Common Stock
subject to such Ownership Maintenance Stock Option shall be equal to
the Fair Market Value of a share of Common Stock on the date of grant
of the Ownership Maintenance Stock Option.
Unless terminated earlier pursuant to the Program, the term of any
Stock Option granted under the Program shall be ten years from the
date of grant; provided, however, Ownership Maintenance Stock Options
shall have a term equal to the remaining term of the Predecessor Stock
Options. Stock Options shall not be exercisable for less than 100
shares of Common Stock at any one time (or the remaining shares of
Common Stock then purchasable if less than 100).
7. TERMS AND CONDITIONS OF THE GRANTS OF RESTRICTED SHARE UNITS AND STOCK
OPTIONS. All Restricted Share Units granted pursuant to the Program
shall be evidenced by an agreement (the "Restricted Share Unit Award
Agreement") and all Stock Options granted pursuant to the Program
shall be evidenced by a stock option agreement (the "Stock Option
Award Agreement"). The Restricted Share Unit Award Agreement and the
Stock Option Award Agreement shall be approved by the Committee and
shall incorporate the terms of the Program, and such other terms and
conditions as shall be determined by the Committee in its sole and
absolute discretion and which are not inconsistent with the terms of
the Program. Notwithstanding anything to the contrary contained in the
Program, a Non-Employee Director may not sell the shares of Common
Stock underlying the Restricted Share Units or the shares of Common
Stock acquired upon the exercise of Stock Options granted to such
Non-Employee Director within six months of the date of grant. The
failure of any
<PAGE>
EXHIBIT 10.2
Restricted Share Units or Stock Options to vest for any reason
whatsoever shall cause such grant to expire and be of no further force
or effect. Stock Options and Restricted Share Units shall not be
transferable by the holder otherwise than (a) by will or by the laws
of descent and distribution, and (b)as may otherwise be authorized by
the Committee and permitted by Rule 16b-3; provided, however, that any
award so transferred shall continue to be subject to all the terms and
conditions contained in the agreement evidencing such award.
8. MEANS OF PAYMENT UPON EXERCISE OF STOCK OPTIONS. Payment for the shares of
Common Stock to be received upon exercise of Stock Options may in the
discretion of the Committee be made in cash or in shares of Common Stock
(determined with reference to their Fair Market Value on the date of
exercise).
9. WITHHOLDING TAXES. At the time of conversion of Restricted Share Units into
shares of Common Stock and prior to issuance of the shares of Common Stock
upon exercise of a Stock Option, the Non-Employee Director shall pay or
make adequate provision, satisfactory to the Company, for the payment of
any amount required to satisfy any Federal, state, local or foreign
withholding obligations of the Company, if applicable.
10. VESTING.
10.1 In respect of any Restricted Share Units and Stock Options granted
to a Non-Employee Director prior to the date of the Annual Meeting
held in 1997, 33 1/3% of the aggregate number of Restricted Share
Units and Stock Options so granted shall become vested on each of
(a) the date of the Annual Meeting held in 1997 (provided such
director is a Non-Employee Director on such date), (b) the date of
the Annual Meeting held in 1998 (provided such director is a
Non-Employee Director on such date), and (c) the date of the
Annual Meeting held in 1999 (provided such director is the
Non-Employee Director on such date).
10.2 In respect of any Restricted Share Units and Stock Options granted
to a Non-Employee Director on or after the date of Annual Meeting
held in 1997 and prior to the date of the Annual Meeting held in
1998, 50% of the aggregate number of Restricted Share Units and
Stock Options so granted shall become vested on each of (a) the
date of the Annual Meeting held in 1998 (provided such director is
a Non-Employee Director on such date), and (b) the date of the
Annual Meeting held in 1999 (provided such director is a
Non-Employee Director on such date).
10.3 In respect of any Restricted Share Units and Stock Options granted
to a Non-Employee Director on or after the date of the Annual
Meeting held in 1998 and prior to the date of the Annual Meeting
in 1999, 100% of the aggregate number of Restricted Share Units
and Stock Options so granted shall become vested on the date of
the Annual Meeting held in 1999 (provided such director is a
Non-Employee Director on such date).
10.4 Notwithstanding Sections 10.1, 10.2 and 10.3 above, in the event
of the occurrence of a Change of Control, all of the Restricted
Share Units and Stock Options granted to a Non-Employee Director
shall become 100% vested as of the date of the Change of Control,
provided the director is a Non-Employee Director on the date of
the Change of Control.
<PAGE>
EXHIBIT 10.2
11. TERMINATION OF BOARD SERVICE. Notwithstanding anything to the contrary
contained in Section 7 or 10 of the Program, if a Non-Employee
Director's service on the Board is terminated at any time as a result
of or due to an Involuntary Termination, such Non-Employee Director's
Restricted Share Units and Stock Options shall become 100% vested as
of the date of the Involuntary Termination. If a Non-Employee
Director's Board membership is terminated at any time as a result of
or due to a Voluntary Termination, such Non-Employee Director shall
forfeit any Restricted Share Units and Stock Options that have not yet
vested as of the date of Voluntary Termination. In the event of a
Non-Employee Director's termination of service on the Board either
through Involuntary Termination or Voluntary Termination, such
Non-Employee Director's vested Stock Options, including the vesting of
those Stock Options that were accelerated as a result of such
Non-Employee Director's Involuntary Termination, shall remain fully
exercisable until the earlier to occur of (i) the fifth anniversary of
the date of such termination and (ii) the tenth anniversary of the
date of grant.
12. RIGHTS OF STOCKHOLDER. Each Non-Employee Director shall have, with
respect to the shares of Common Stock underlying the grants of the
Restricted Share Units and Stock Options, the rights of a stockholder
of such shares of Common Stock (except as otherwise provided herein or
in the relevant award agreement) when (and to the extent that) the
Restricted Share Units are converted into shares of Common Stock or
shares of Common Stock are issued upon exercise of a Stock Option.
13. CHANGES IN CAPITALIZATION AND OTHER MATTERS.
13.1 The existence of the Program, any award agreement and/or the
formula grants made hereunder shall not limit, affect or restrict
in any way the right or power of the Board or the stockholders of
the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's
or any subsidiary's capital structure or its business, (b) any
merger, consolidation or change in the ownership of the Company
or any subsidiary, (c) any issue of bonds, debentures, capital,
preferred or prior preference stocks ahead of or affecting the
Company's or any subsidiary's capital stock or the rights
thereof, (d) any dissolution or liquidation of the Company or any
subsidiary, (e) any sale or transfer of all or any part of the
Company's or any subsidiary's assets or business, or (f) any
other corporate act or proceeding by the Company or any
subsidiary. A Non-Employee Director, any beneficiary of
Non-Employee Director or any other person shall not have any
claim against any member of the Board or any committee thereof,
the Company or any subsidiary, or any employees, officers or
agents of the Company or any subsidiary, as a result of any such
action.
13.2 In the event of any change in capitalization affecting the Common
Stock of the Company, including, without limitation, a stock
dividend or other distribution, stock split, reverse stock split,
recapitalization, consolidation, subdivision, split-up, spin-off,
split-off, combination or exchange of shares or other form of
reorganization or recapitalization, or any other change affecting
the Common Stock, proportionate adjustments shall be made to
reflect such change, including, without limitation, with respect
to the aggregate number of shares of the Common Stock for which
grants of Restricted Share Units and Stock Options in respect
thereof may be made under the Program, the number of Restricted
Share Units and Stock Options to be granted to any Non-Employee
Director under the Program, and the number of Restricted Share
Units and Stock Options covered by each outstanding grant.
<PAGE>
EXHIBIT 10.2
14. AMENDMENT; TERMINATION. The Company may suspend or terminate the
Program (or any portion thereof) at any time and may amend the Program
at any time and from time to time in such respects as the Company may
deem advisable; provided, however, that the terms and provisions of
the Program which determine the eligibility of directors and the
amount, price and timing of the formula grants hereunder shall not be
amended more than once every six months, other than to comport with
changes in the Code; provided, further, that without shareholder
approval, in accordance with Rule 16b-3, no such amendment shall (a)
except as provided in Section 13.2 of the Program, materially increase
the number of shares of Common Stock which may be issued under the
Program, (b) modify in any way the requirements as to eligibility for
grants under the Program, (c) increase the benefits accruing to
Non-Employee Directors under the Program, or (d) extend the
termination date of the Program. In addition, no such amendment,
suspension or termination shall be effective if it would (i)
materially adversely affect the rights of any Non-Employee Director in
respect of any outstanding Restricted Share Units or Stock Options,
without the consent of such Non-Employee Director, or (ii) cause the
Program, or any other program of the Company or any subsidiary, to
fail to meet the requirements of Rule 16b-3.
15. MISCELLANEOUS.
15.1 In addition to the provisions of Section 9 of the Program, the
Company shall have the right to deduct from any grant or payment
under the Program, including, without limitation, the delivery,
transfer or vesting of any shares of Common Stock issuable upon
conversion of Restricted Share Units or upon exercise of any Stock
Option, any Federal, state, local or other taxes of any kind which
the Company, in its sole discretion, deems necessary to be
withheld to comply with the Code and/or any other applicable law,
rule or regulation.
15.2 No shares of Common Stock issuable upon conversion of Restricted
Share Units or upon exercise of any Stock Option shall be issued
under the Program unless legal counsel to the Company shall be
satisfied that any such issuance will be in compliance with all
applicable Federal and state securities laws and regulations and
any other applicable laws or regulations. The Company may require,
as a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates, and/or
information, as the Company may deem necessary or advisable, be
executed or provided to the Company to assure compliance with all
such applicable laws or regulations. Certificates for shares of
Common Stock issuable upon conversion of Restricted Share Units or
upon exercise of any Stock Option delivered under the Program may
be subject to such stock-transfer orders and such other
restrictions as the Company may deem advisable under the rules,
regulations, and other requirements of the SEC, any stock exchange
upon which the Common Stock is then listed, and any applicable
Federal or state securities law. In addition, if, at any time
specified herein (or in any award agreement) for the issuance or
other distribution of shares of Common Stock, or the payment of
amounts to any Non-Employee Director, any law, rule, regulation or
other requirement of any governmental authority or agency shall
require either the Company, any subsidiary or any Non-Employee
Director (or any estate, designated beneficiary or other legal
representative thereof) to take any action in connection
therewith, any such issuance or distribution, or any such payment,
as the case may be, shall be deferred until such required action
is taken. The Program and all transactions under the Program are
intended to comply with all applicable requirements of Rule 16b-3.
To the extent any provision of the Program fails to so comply, it
shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Company.
<PAGE>
EXHIBIT 10.2
15.3 Awards under the Program shall be evidenced by a Restricted Share Unit
Award Agreement and Stock Option Award Agreement, as applicable,
entered into with the Company in a form specified by the Company
containing the restrictions, terms and conditions set forth in
such award agreements and/or the Program.
15.4 Each Non-Employee Director may designate a beneficiary or
beneficiaries to receive any payment and to exercise any rights, which
under the terms of the Program and the relevant Restricted Share Unit
Award Agreement and Stock Option Award Agreement, may become payable
or exercisable on or after the Non-Employee Director's death. At any
time, and from time to time, any such designation may be changed
or canceled by the Non-Employee Director without the consent of
any such beneficiary. Except as provided in the Program, any such
designation, change or cancellation must be on a form provided for
that purpose by the Company and shall not be effective until
received by the Company. If no beneficiary has been designated by
a deceased Non-Employee Director, or if the designated
beneficiaries have predeceased the Non-Employee Director, the
beneficiary shall be the Non-Employee Director's estate. If the
Non-Employee Director designates more than one beneficiary, any
payments or rights under the Program shall be allocated among such
beneficiaries in equal shares unless the Non-Employee Director has
expressly designated otherwise, in which case the payments or
rights shall be allocated in the shares designated by the
Non-Employee Director.
15.5 Except as provided in Section 7 above or otherwise the Program, awards
under the Program, any Restricted Share Unit Award Agreement and
Stock Option Award Agreement, and any rights or interests herein
or therein, shall not be assigned, transferred, sold, exchanged,
or otherwise disposed of in any way at any time by Non-Employee
Director (or any beneficiary of any Non-Employee Director), other
than by testamentary disposition by the Non-Employee Director or
the laws of descent and distribution. Except as provided in
Section 7 and otherwise the Program, any such award, Restricted
Share Unit Award Agreement, Stock Option Award Agreement, rights
or interests shall not be pledged, encumbered or otherwise
hypothecated in any way at any time by any Non-Employee Director
(or any beneficiary of any NonEmployee Director). Any such award,
Restricted Share Unit Award Agreement, Stock Option Award
Agreement, rights or interests shall not be subject to execution,
attachment or similar legal process. Any attempt to sell,
exchange, transfer, assign, pledge, encumber, or otherwise dispose
of or hypothecate in any way any such awards, Restricted Share
Unit Award Agreement, Stock Option Award Agreement, rights or
interests, or the levy of any execution, attachment or similar
legal process thereon, contrary to the terms of this Program shall
be null and void and without legal force or effect.
15.6 The Program and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.
Any titles and headings herein are for reference purposes only,
and shall in no way limit, define or otherwise affect the meaning,
construction or interpretation of any provisions of the Program.
<PAGE>
EXHIBIT 10.3
TIG HOLDINGS, INC.
ANNUAL INCENTIVE COMPENSATION PLAN FOR CERTAIN EXECUTIVES
PURPOSE: This Annual Incentive Compensation Plan for Certain Executives (the
"Incentive Plan") is designed to attract, retain and reward the executive talent
necessary to the success of TIG Holdings, Inc. (the "Corporation"). It is also
intended to comply with the requirements of Section 162(m) of the Internal
Revenue Code (as amended from time to time) and with the rules and regulations
thereunder. Any questions of interpretation concerning this Incentive Plan
should be resolved in favor of such compliance.
ADOPTION AND SHAREHOLDER APPROVAL: The Compensation Committee of the Board of
Directors (the "Committee") of the Corporation has adopted this Incentive Plan
subject to the approval of the Corporation's Board of Directors and to the
approval of the stockholders of the Corporation at the Annual Meeting of
Stockholders in 1996.
TERM: Subject to the approvals stated above, this Incentive Plan is effective
for the Corporation's fiscal year 1996 and each fiscal year thereafter unless
terminated by the Committee in its sole discretion.
ADMINISTRATION: The Committee shall have full authority and discretion to
administer and interpret this Incentive Plan, and any Payment Schedule
thereunder, and its decision shall be binding on the executives of the
Corporation and its subsidiaries.
SCOPE: This Incentive Plan applies to the Corporation's "covered executives" as
follows: (a) the individuals who, on the last day of the Corporation's fiscal
year are the Corporation's Chief Executive Officer and the four highest-paid
executives of the Corporation or its subsidiaries other than the Chief Executive
Officer; and (b) such other executives of the Corporation or its subsidiaries as
the Committee shall designate.
PLAN DESCRIPTION: Within the first 90 days of the Corporation's fiscal year (or
such other period as permitted in order for payments under the Incentive Plan to
qualify under Section 162(m) as performance-based), the Committee will establish
an annual Incentive Payment Schedule ("Payment Schedule") applicable to the
covered executives. The Payment Schedule will set forth one or more objective
performance criteria against which performance will be measured for that
particular fiscal period. The Payment Schedule will also set forth the payments,
if any, that the covered executive may receive if the target or targets for one
or more of the criteria are met. Both the targets and the payments may be
expressed in absolute terms or by formula or by comparison to other objective
standards, such as the financial results of other companies in the industry. The
performance criterion or criteria chosen for each fiscal year will be one or
more of the following: return on equity; total shareholder return; earnings per
share; book value per share; net income; net operating income; net premiums
(written or earned); cash flow; improved underwriting returns; debt to capital
ratio; statutory ratios (including loss, expense and combined ratio); and other
objective financial return ratios.
DISCRETION: The Committee will have the discretion not to pay (or to reduce the
amount of) an annual incentive payment for any fiscal year with respect to any
or all covered executives despite the attainment of the applicable performance
target or targets for that particular fiscal year. In exercising this discretion
the Committee will make qualitative judgments evaluating, among other things,
the individual's contribution to the achievement of the particular goal,
leadership attributes, performance in the light of extraordinary, unusual or
non-recurring events; skills in executing the Corporation's business strategy,
people management skills, customer service, protection of assets, business
conduct and integrity.
<PAGE>
EXHIBIT 10.3
MAXIMUM PAYMENTS: The Committee will not have the discretion to increase the
annual incentive payment as set forth in the Payment Schedule for any given
fiscal year, nor to establish a Payment Schedule for any fiscal year under which
the annual incentive payment to any covered executive may exceed $5,000,000.
PAYMENT MEDIUM: The Committee shall have the discretion to determine whether
payments hereunder shall be made in cash, in common stock of the Corporation
(including stock units), or both and whether payment shall be made immediately,
on a deferred basis, or both. If the Committee decides to award stock or stock
units as full or partial payment hereunder, such awards will be subject to the
terms of the Corporation's then existing Long-Term Incentive Plan (including the
terms relating to deferrals) and any rules and regulations established by the
Committee thereunder.
CERTIFICATION: No payments will be made pursuant to any Payment Schedule prior
to the Committee's certification in writing that the applicable performance
target or targets have been met.
AMENDMENTS: The Committee has the authority to suspend or amend this Incentive
Plan at any time; provided that the Committee shall not have the authority to
increase the amount of compensation that otherwise would be permitted hereunder
upon the attainment of one or more previously established performance targets
for a fiscal year.
<PAGE>
EXHIBIT 10.4
TIG HOLDINGS, INC.
THE 1993 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT ("AGREEMENT")
WITH ________________________
1. GRANT OF STOCK OPTION. You have been selected to receive the following stock
option grant as an Award under Section 6 of the TIG Holdings, Inc. 1993 Long
Term Incentive Plan (the "Plan"). Terms of the Plan are set forth in the Plan
document dated April 18, 1993 provided to you, and capitalized terms in this
Agreement have the meanings set forth in the Plan unless defined herein. This
grant entitles you to purchase TIG Holdings, Inc. Common Stock in accordance
with the terms of the Plan and the following terms and conditions:
Date of Grant ..........................................xxxxx
Option Price ...........................................xxxxx
Per Share..........................................$
Total Grant........................................xxxxx
Non-Qualified Stock Option Grant for ...................xxxxx Shares
2. EXERCISABILITY OF STOCK OPTION. The Non-Qualified Stock Option grant shall
become exercisable in four equal installments in respect of the aggregate number
of shares of the Company's Common Stock underlying this Stock Option as follows,
provided you are then employed by the Company or one of its Subsidiaries.
xxxxx shares.................................................on xxxxx;
xxxxx shares.................................................on xxxxx;
xxxxx shares.................................................on xxxxx;
xxxxx shares.................................................on xxxxx.
Pursuant to Section 6.6.3 of the Plan, all installments shall become fully
exercisable upon your death, Disability or Retirement, or upon the occurrence of
a Change of Control, provided you are then employed by the Company or one of its
Subsidiaries. All options covered by this Agreement shall remain exercisable
until expiration or cancellation as provided under the Plan.
3. EXPIRATION OF STOCK OPTION. Expiration of this grant shall be ten years from
the date of the grant, subject to earlier termination under Section 12 of the
Plan. Pursuant to Section 12.1.1 of the Plan, all exercisable options covered by
this Agreement shall remain exercisable for two years following your Termination
due to death, Retirement or Disability, and for ninety days following your
termination for any other reason, but in either case not beyond the original
term of any such option. Stock Options which are unexercisable at the time of
your termination shall be cancelled.
<PAGE>
EXHIBIT 10.4
4. CANCELLATION AND RESCISSION OF AWARDS. Notwithstanding anything in this
Agreement to the contrary, the Committee may cancel any unexpired, unpaid, or
deferred Awards at any time if you are not in compliance with all other
applicable provisions of this Agreement, the Plan and with the following
conditions:
(a) Without the prior written consent of the Company which
expressly waives this provision, you shall not render services for any
organization or engage directly or indirectly in any business which, in the
judgment of the Chief Executive Officer of the Company or other senior officer
designated by the Chief Executive Officer for this purpose, or in the judgment
of the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. If your employment has terminated, the judgment of the
Chief Executive Officer, other designated senior officer or the Committee shall
be based on your position and responsibilities while employed by the Company,
your post-employment responsibilities and position with the other organization
or business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect of your
assumption of the post-employment position on the Company's customers,
suppliers, producers and competitors, the guidelines and policies established by
the Company and its subsidiaries relating to business conduct ethics, and such
other considerations as are deemed relevant given the applicable facts and
circumstances.
(b) You shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, relating to the
business of the Company or its subsidiaries, acquired by you either during or
after employment with the Company or its subsidiaries.
(c) Upon exercise, payment or delivery pursuant to an Award, you
shall certify on a form acceptable to the Company that you are in compliance
with the terms and conditions of the Plan and this Agreement. Failure to comply
with the no-compete and confidentiality provisions of paragraph (a) and (b)
above prior to, or during the six months after, any exercise, payment or
delivery (including delivery of unrestricted stock certificates by book-entry)
pursuant to an Award shall cause such exercise, payment or delivery to be
rescinded. The Company shall notify you in writing of any such rescission within
two years after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, you shall pay to the Company the
amount of any gain realized or payment received as a result of the rescinded
exercise, payment or delivery pursuant to an Award. Such payment shall be made
either in cash or by returning to the Company the number of shares of Common
Stock that you received in connection with the rescinded exercise, payment or
delivery.
5. AGREEMENT AMENDMENTS. IN CONSIDERATION OF RECEIVING THIS AWARD, YOU AGREE
THAT THE TERMS AND CONDITIONS SET FORTH ABOVE RELATING TO SECTION 4
(CANCELLATION AND RESCISSION OF AWARDS), SHALL ALSO APPLY TO ALL GRANTS OF STOCK
OPTIONS AND RESTRICTED STOCK (INCLUDING CLASS A COMMON STOCK) THAT YOU HAVE
RECEIVED FROM THE COMPANY ON OR PRIOR TO THIS DATE, NOTWITHSTANDING ANY CONTRARY
TERMS IN ANY AGREEMENT PROVIDING FOR SUCH GRANTS AND NOTWITHSTANDING ANY
CONTRARY TERMS IN AN EMPLOYMENT AGREEMENT, IF ANY, BETWEEN YOU AND THE COMPANY
OR ANY OF ITS SUBSIDIARIES.
<PAGE>
EXHIBIT 10.4
By signing and returning this Agreement, you acknowledge having received and
read a copy of the Plan and agree to comply with it and with all applicable laws
and regulations.
TIG HOLDINGS, INC. Agreed to and accepted by:
By:______________________________ ____________________________ __________
Lon P. McClimon Optionee Signature Date
<PAGE>
EXHIBIT 10.5
TIG HOLDINGS, INC.
1993 LONG TERM INCENTIVE PLAN
RESTRICTED SHARE AWARD AGREEMENT ("AGREEMENT")
WITH ____________________________
AGREEMENT DATED AS OF ________________
1. Grant of Restricted Share Award. You have been selected to receive the
following Restricted Share grant as an Award under Section 8 of the TIG
Holdings, Inc. 1993 Long-Term Incentive Plan (the "Plan"). Terms of the Plan are
set forth in the Plan document dated April 18, 1993 provided to you, and
capitalized terms in this Agreement have the meaning set forth in the Plan
unless defined herein. This grant is made in accordance with the terms of the
Plan and the following terms and conditions.
Restricted Share grant for................................ xxxxx Shares
The Restricted Shares shall vest as follows, provided you are then employed by
the Company or one of its Subsidiaries:
xxxxx shares ............................................. on xxxxx;
xxxxx shares ............................................. on xxxxx;
xxxxx shares ............................................. on xxxxx.
2. DELIVERY OF UNRESTRICTED STOCK. Upon the vesting of your Restricted Shares,
you will be entitled, in accordance with the terms and provisions of the Plan,
to receive a new stock certificate (registered in your name) for and
representing the number of shares of Common Stock underlying the vested
Restricted Shares. No fractional shares shall be issued under this Agreement.
Any fractional shares to which you would otherwise be entitled shall be redeemed
by the Company for cash.
3. TERMINATION OF EMPLOYMENT. If your employment with the Company is terminated
due to death, Disability, or Retirement, all of the Restricted Shares covered by
this Agreement not yet vested as of the date of any such termination shall
become 100% vested as of such date. If your employment with the Company is
terminated for any other reason at any time, the Restricted Shares that have not
yet vested as of the date of any such termination shall be forfeited by you and
shall immediately be canceled.
4. RIGHTS OF STOCKHOLDER. Subject to the provisions of the Certificate of
Incorporation, each share of Common Stock underlying the Restricted Share grant
shall have all of the powers, preferences and rights of Common Stock. You agree
and understand that nothing contained in this Agreement provides, or is intended
to provide, you any protection against potential future dilution of your
stockholder interest in the Company for any reason, except as stated in Section
14.2 of the Plan. Any stock dividends paid in respect of unvested Restricted
Shares shall be treated as additional Restricted Shares and shall be subject to
the same restrictions and other terms and conditions that apply to the unvested
Restricted Shares with respect to which such stock dividends are issued.
5. NON-TRANSFERABILITY. The unvested Restricted Shares shall not be sold,
exchanged, assigned, transferred or otherwise disposed of in any way at any time
by you (or any beneficiary(ies) of yours), other than by testamentary
disposition by you or the laws of descent and distribution. The Restricted
Shares issued under this Agreement and the Plan shall not be pledged, encumbered
or otherwise hypothecated in any way at any time by you (or any beneficiary(ies)
of yours) and shall not be subject to execution, attachment, or similar legal
process. Any attempt to sell, transfer, pledge, encumber or otherwise dispose of
or hypothecate in any way any of the Restricted Shares, contrary to the terms
and provisions of this Agreement and/or the Plan shall be null and void and
without legal force or effect.
<PAGE>
EXHIBIT 10.5
6. WITHHOLDING. The Company shall have the right to deduct from any payment or
settlement under this Agreement, including, without limitation, the delivery,
transfer or vesting of any Restricted Shares, any federal, state, local or other
taxes of any kind which the Company in its sole discretion, deems necessary to
be withheld to comply with the Internal Revenue Code of 1986, as amended (the
"Code"), and/or any other applicable law, rule or regulation. When the
Restricted Shares become vested or if you make an election under Section 83(b)
of the Code, you shall, if requested by the Company, promptly pay to the Company
in cash an amount equal to the applicable withholding taxes determined by the
Company as being required to be withheld or collected under applicable federal
state or local laws or regulations. Furthermore, the Company shall have the
right to deduct and withhold any such applicable taxes from, or in respect of,
any dividends or other distributions paid on or in respect of the Common Stock
underlying the Restricted Share grant. All taxes, if any in respect of the grant
of the Restricted Shares or any payments to you hereunder shall be your sole
responsibility and shall be paid by you. You will notify the Company of your
intention to make an election under Section 83(b) of the Code at least five (5)
business days prior to the making of such election.
7. COMPLIANCE WITH LAWS. The issuance of the Restricted Shares and the Common
Stock pursuant to this Agreement shall be subject to, and shall comply with, any
applicable requirements of federal and state securities laws, rules and
regulations (including, without limitation, the provisions of the 1933 Act, the
Exchange Act and the respective rules and regulations promulgated thereunder)
and any other law or regulation applicable thereto. The Company shall not be
obligated to issue any of the Restricted Shares or the Common Stock pursuant to
this Agreement if such issuance would violate any such requirements.
8. CANCELLATION AND RESCISSION OF AWARDS. Notwithstanding anything in this
Agreement to the contrary, the Committee may cancel any unexpired, unpaid, or
deferred Awards at any time if you are not in compliance with all other
applicable provisions of this Agreement, the Plan and with the following
conditions:
(a) Without the prior written consent of the Company which
expressly waives this provision, you shall not render services for any
organization or engage directly or indirectly in any business which, in the
judgment of the Chief Executive Officer of the Company or other senior officer
designated by the Chief Executive Officer for this purpose, or in the judgment
of the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. If your employment has terminated, the judgment of the
Chief Executive Officer, other designated senior officer or the Committee shall
be based on your position and responsibilities while employed by the Company,
your post-employment responsibilities and position with the other organization
or business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect of your
assumption of the post-employment position on the Company's customers,
suppliers, producers and competitors, the guidelines and policies established by
the Company and its subsidiaries relating to business conduct ethics, and such
other considerations as are deemed relevant given the applicable facts and
circumstances.
(b) You shall not, without prior written authorization from
the Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, relating to the
business of the Company or its subsidiaries, acquired by you either during or
after employment with the Company or its subsidiaries.
<PAGE>
EXHIBIT 10.5
(c) Upon exercise, payment or delivery pursuant to an Award,
you shall certify on a form acceptable to the Company that you are in compliance
with the terms and conditions of the Plan and this Agreement. Failure to comply
with the no-compete and confidentiality provisions of paragraph (a) and (b)
above prior to, or during the six months after, any exercise, payment or
delivery (including delivery of unrestricted stock certificates by book-entry)
pursuant to an Award shall cause such exercise, payment or delivery to be
rescinded. The Company shall notify you in writing of any such rescission within
two years after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, you shall pay to the Company the
amount of any gain realized or payment received as a result of the rescinded
exercise, payment or delivery pursuant to an Award. Such payment shall be made
either in cash or by returning to the Company the number of shares of Common
Stock that you received in connection with the rescinded exercise, payment or
delivery.
9. AGREEMENT AMENDMENTS. IN CONSIDERATION OF RECEIVING THIS AWARD, YOU AGREE
THAT THE TERMS AND CONDITIONS SET FORTH ABOVE RELATING TO SECTION 8
(CANCELLATION AND RESCISSION OF AWARDS), SHALL ALSO APPLY TO ALL GRANTS OF STOCK
OPTIONS AND RESTRICTED STOCK (INCLUDING CLASS A COMMON STOCK) THAT YOU HAVE
RECEIVED FROM THE COMPANY ON OR PRIOR TO THIS DATE, NOTWITHSTANDING ANY CONTRARY
TERMS IN ANY AGREEMENT PROVIDING FOR SUCH GRANTS AND NOTWITHSTANDING ANY
CONTRARY TERMS IN AN EMPLOYMENT AGREEMENT, IF ANY, BETWEEN YOU AND THE COMPANY
OR ANY OF ITS SUBSIDIARIES.
By signing and returning this Agreement, you acknowledge having received and
read a copy of the Plan and agree to comply with it and with all applicable laws
and regulations.
TIG HOLDINGS, INC. Agreed to and accepted by:
By: ______________________________ __________________________ ________
Lon P. McClimon Grantee Signature Date
<PAGE>
EXHIBIT 10.6
TIG HOLDINGS, INC.
1996 LONG-TERM INCENTIVE PLAN
TIG HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN
Stock Option Agreement dated as of _________________________ ("Agreement")
With ___________________________________
Residing at ____________________________
1. GRANT OF STOCK QPTIONS. Pursuant to the terms and provisions of the
TIG Holdings, Inc. 1996 Long-Term Incentive Plan, as amended from time to time
(the "Plan"), all of which terms and provisions are made a part of and
incorporated in this Agreement as if they were expressly set forth herein, you
have been selected to receive the following Non-Qualified Stock Option grant
(the "Stock Options") as an Award under Section 6 of the Plan. Terms of the Plan
are set forth in the Plan document effective as of May 2, 1996, a copy of which
has been provided to you with this Agreement and you hereby acknowledge receipt
of the Plan document. Capitalized terms in this Agreement have the meanings set
forth in the Plan unless defined herein.
This grant entitles you to purchase Common Stock of TIG Holdings, Inc.
(the "Company") in accordance with the terms of the Plan and the following terms
and conditions:
Date of Grant ...................................xxxx
Per Share Option Price..............................$
Non-Qualified Stock Option Grant for ................xxxx Shares
2. EXERCISABILITY OF STOCK OPTIONS: Except as provided in paragraph 3
of this Agreement, this Stock Option grant shall become exercisable in four (4)
installments in respect of the aggregate number of shares of the Company's
Common Stock underlying this Stock Option grant as follows, provided you are
then employed by the Company or one of the Related Companies:
xxxx shares....................................on xxxxxx
xxxx shares....................................on xxxxxx
xxxx shares....................................on xxxxxx
xxxx shares....................................on xxxxxx
3. TERMINATION OF EMPLOYMENT. If your employment with the Company and
the Related Companies is terminated due to death, Disability, or Retirement, all
then outstanding installments of this Stock Option grant shall become fully
exercisable. Upon the occurrence of both (a) a Change in Control and (b) an
Adverse Employment Action before the expiration of one (1) year after the Change
in Control, all then outstanding installments of this Stock Option grant shall
become fully exercisable in accordance with the terms of Section 17 of the Plan.
Except as otherwise provided herein, Stock Options that are unexercisable at the
time of the termination of your employment with the Company and the Related
Companies shall be immediately forfeited by you and canceled. All Stock Options
covered by this Agreement shall remain outstanding until expiration or
cancellation as provided in this Agreement or under the Plan.
<PAGE>
EXHIBIT 10.6
4. EXPIRATION OF STOCK OPTIONS. The Stock Options covered by this
Agreement shall expire ten (10) years from the date of the grant, subject to
earlier termination under Section 14 of the Plan and paragraph 3 of this
Agreement. Pursuant to Section 14. 1.1 of the Plan, all exercisable Stock
Options covered by this Agreement shall remain exercisable for four (4) years
following the termination of your employment with the Company and the Related
Companies due to death, Retirement, or Disability, and for ninety (90) days
following the termination of your employment with the Company and the Related
Companies for any other reason, but in either case not beyond the original term
of any such Stock Option.
5. NO STOCKHOLDER RIGHTS. Prior to the exercise of the Stock Options,
you shall not, by virtue of this Award, have any of the rights (including the
voting rights) of an owner of a share of Common Stock. You agree and understand
that nothing contained in this Agreement provides, or is intended to provide,
you any protection against potential future dilution of the value of the shares
of Common Stock that may be purchased under the Stock Options for any reason,
except as stated in Section 16.2 of the Plan.
6. NON-TRANSFERABILITY. The Stock Options shall not be sold, exchanged,
assigned, transferred, or otherwise disposed of in any way at any time by you
(or your beneficiary(ies)), other than by testamentary disposition by you or the
laws of descent and distribution. The Stock Options issued under this Agreement
and the Plan shall not be pledged, encumbered, or otherwise hypothecated in any
way at any time by you (or your beneficiary(ies)) and shall not be subject to
execution, attachment, or similar legal process. Any attempt to sell, transfer,
pledge, encumber, hypothecate, or otherwise dispose of any of the Stock Options,
contrary to the terms and provisions of this Agreement and/or the Plan shall be
null and void and without legal force or effect.
7. WITHHOLDING. The Company shall have the right to deduct from any
shares otherwise due to you under this Agreement, including, without limitation,
any shares due upon exercise of the Stock Options, any federal, state, local, or
other taxes of any kind that the Company, in its sole discretion, deems
necessary to be withheld to comply with the Internal Revenue Code of 1986, as
amended (the "Code"), and/or any other applicable law, rule, or regulation. When
you exercise the Stock Options, you shall, if requested by the Company, promptly
pay to the Company in cash an amount equal to the required withholding taxes
under applicable federal, state, or local laws or regulations. Furthermore, the
Company shall have the right to deduct and withhold any such applicable taxes
from, or in respect of, any shares purchased under the Stock Options. All taxes,
if any, in respect of the grant or exercise of the Stock Options hereunder shall
be solely your responsibility and shall be paid by you.
8. OWNERSHIP MAINTENANCE STOCK OPTION. Subject to the limitations
contained in Section 4.2 of the Plan and any other applicable limitation
contained in any successor plan, a Non-Qualified Stock Option (an "Ownership
Maintenance Stock Option") shall be granted to you in accordance with the
policies and procedures of the Committee then in effect if upon exercise of the
Stock Options covered by this Agreement, you (i) actually or constructively
deliver to the Company, in full or partial payment of the exercise price of the
Stock Options covered by this Agreement, shares of Common Stock that you have
held for at least six (6) months or (ii) in addition to such delivery of shares
to pay such exercise price, deliver shares of Common Stock to the Company or
have the Company withhold shares of Common Stock deliverable to you, in full or
partial payment of any required withholding tax liability associated with such
exercise; provided, however, that the Committee may, in its sole discretion,
disapprove of the delivery or withholding of shares to pay such taxes. The
number of shares of Common Stock subject to the Ownership Maintenance Stock
Option shall be equal to the number of shares of Common Stock so delivered and
withheld, with an exercise price for each share of Common Stock equal to the
Fair Market Value of a share of Common Stock on the date of grant of the
Ownership Maintenance Stock Option, provided that the Committee may, in its sole
discretion, refuse to authorize the grant of such Ownership Maintenance Stock
Option if the Committee determines that such grant would result in any adverse
accounting treatment to the Company. Notwithstanding the foregoing, an Ownership
Maintenance Stock Option shall be granted only if (a) on the date it is
exercised, the Stock Options covered by this Agreement are exercisable for more
than six (6) months beyond the exercise date, (b) you have not received an
Ownership Maintenance Stock Option with the three (3) month period immediately
preceding the exercise of the Stock Options covered by this Agreement and (c) on
the date the Stock Options are exercised, you are an active employee of the
Company and/or a Related Company. The Ownership Maintenance Stock Option shall
not be exercisable during the six (6) month period immediately following the
date on which the Ownership Maintenance Stock Option is granted, but shall be
fully exercisable thereafter until the Ownership Maintenance Stock Option
expires. The Ownership Maintenance Stock Option shall expire on the expiration
date of the Stock Options covered by this Agreement.
<PAGE>
EXHIBIT 10.6
9. COMPLIANCE WITH LAWS. The issuance of shares of Common Stock
pursuant to this Agreement shall be subject to, and shall comply with, any
applicable requirements of federal and state securities laws, rules, and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective rules and regulations promulgated
thereunder) and any other law, rule, or regulation applicable thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to issue any shares of Common Stock pursuant to this Agreement
if such issuance would violate any such requirements.
10. NOTICES. Any notice hereunder shall be in writing and shall be
delivered in person, or via facsimile transmission, overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company, as the case may be, at the applicable address specified
on the first page of this Agreement, or at such other address as you or the
Company, as the case may be, may designate to the other party from time to time
in a notice that satisfies the conditions of this paragraph 10.
11. GOVERNING LAW, ENTIRE AGREEMENT. This Agreement shall be governed
by and shall be construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof. In the event of
a conflict between the terms of this Agreement and the terms of the Plan, the
terms of the Plan shall govern. This Agreement contains the entire agreement
between you and the Company with respect to the subject matter contained herein,
and supersedes all prior agreements or prior understandings, whether oral or
written, between such parties relating to such subject matter.
12. SEVERABILITY. The invaliditiy or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity, legality,
or enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality, or enforceability of any provision of this Agreement in any
other jurisdiction, it being intended that all rights and obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in one or more counterparts, each of which shall be deemed to be the
original, as of the date first set forth above.
TIG HOLDINGS, INC. Agreed to and accepted by:
By:___________________________ _________________________ _________
Lon P. McClimon Optionee Signature Date
<PAGE>
EXHIBIT 10.7
TIG HOLDINGS, INC.
1996 LONG-TERM INCENTIVE PLAN
Stock Option Agreement dated as of ________________ ("Agreement")
With __________________________________
Residing at ___________________________
1. GRANT OF STOCK OPTIONS. Pursuant to the terms and provisions of the
TIG Holdings, Inc. 1996 Long-Term Incentive Plan, as amended from time to time
(the "Plan"), all of which terms and provisions are made a part of and
incorporated in this Agreement as if they were expressly set forth herein, you
have been selected to receive the following Non-Qualified Stock Option grant
(the "Stock Options") as an Award under Section 6 of the Plan. Terms of the Plan
are set forth in the Plan document effective as of May 2, 1996, a copy of which
has been provided to you with this Agreement and you hereby acknowledge receipt
of the Plan document. Capitalized terms in this Agreement have the meanings set
forth in the Plan unless defined herein.
This grant entitles you to purchase Common Stock of TIG Holdings, Inc. (the
"Company") in accordance with the terms of the Plan and the following terms and
conditions:
Date of Grant .............................................
Per Share Option Price.....................................
Non-Qualified Stock Option Grant for ...................... Shares
2. EXERCISABILITY OF STOCK OPTIONS. Except as provided in paragraph 3
of this Agreement, this Stock Option grant shall become exercisable in four (4)
installments in respect of the aggregate number of shares of the Company's
Common Stock underlying this Stock Option grant as follows, provided you are
then employed by the Company or one of the Related Companies:
xxxxx shares............................................on xxxxx
xxxxx shares............................................on xxxxx
xxxxx shares............................................on xxxxx
xxxxx shares............................................on xxxxx
3. TERMINATION OF EMPLOYMENT. If your employment with the Company and
the Related Companies is terminated due to death, Disability, or Retirement, all
then outstanding installments of this Stock Option grant shall become fully
exercisable. Upon the occurrence of both (a) a Change in Control and (b) an
Adverse Employment Action before the expiration of one year after the Change in
Control, all then outstanding installments of this Stock Option grant shall
become fully exercisable in accordance with the terms of Section 17 of the Plan.
Except as otherwise provided herein, Stock Options that are unexercisable at the
time of the termination of your employment with the Company and the Related
Companies shall be immediately forfeited by you and canceled. All Stock Options
covered by the Agreement shall remain outstanding until expiration or
cancellation as provided in this Agreement or under the Plan.
<PAGE>
EXHIBIT 10.7
4. EXPIRATION OF STOCK OPTIONS. The Stock Options covered by this
Agreement shall expire ten (10) years from the date of the grant, subject to
earlier termination under Section 14 of the Plan and paragraph 3 of this
Agreement. Pursuant to Section 14.1.1 of the Plan, all exercisable Stock Options
covered by this Agreement shall remain exercisable for four (4) years following
the termination of your employment with the Company and the Related Companies
due to death, Retirement, or Disability, and for ninety (90) days following the
termination of your employment with the Company and the Related Companies for
any other reason, but in either case not beyond the original term of any such
Stock Option.
5. NO STOCKHOLDER RIGHTS. Prior to the exercise of the Stock Options,
you shall not, by virtue of this Award, have any of the rights (including the
voting rights) of an owner of a share of Common Stock. You agree and understand
that nothing contained in this Agreement provides, or is intended to provide,
you any protection against potential future dilution of the value of the shares
of Common Stock that may be purchased under the Stock Options for any reason,
except as stated in Section 16.2 of the Plan.
6. NON-TRANSFERABILITY. The Stock Options shall not be sold, exchanged,
assigned, transferred, or otherwise disposed of in any way at any time by you
(or your beneficiary(ies)), other than by testamentary disposition by you or the
laws of descent and distribution. The Stock Options issued under this Agreement
and the Plan shall not be pledged, encumbered, or otherwise hypothecated in any
way at any time by you (or your beneficiary(ies)) and shall not be subject to
execution, attachment, or similar legal process. Any attempt to sell, transfer,
pledge, encumber, hypothecate, or otherwise dispose of any of the Stock Options,
contrary to the terms and provisions of this Agreement and/or the Plan shall be
null and void and without legal force or effect.
7. WITHHOLDING. The Company shall have the right to deduct from any
shares otherwise due to you under this Agreement, including, without limitation,
any shares due upon exercise of the Stock Options, any federal, state, local, or
other taxes of any kind that the Company, in its sole discretion, deems
necessary to be withheld to comply with the Internal Revenue Code of 1986, as
amended (the "Code"), and/or any other applicable law, rule, or regulation. When
you exercise the Stock Options, you shall, if requested by the Company, promptly
pay to the Company in cash an amount equal to the required withholding taxes
under applicable federal, state, or local laws or regulations. Furthermore, the
Company shall have the right to deduct and withhold any such applicable taxes
from, or in respect of, any shares purchased under the Stock Options. All taxes,
if any, in respect of the grant or exercise of the Stock Options hereunder shall
be solely your responsibility and shall be paid by you.
8. OWNERSHIP MAINTENANCE STOCK OPTION. Subject to the limitations
contained in Section 4.2 of the Plan and any other applicable limitation
contained in any successor plan, a Non-Qualified Stock Option (an "Ownership
Maintenance Stock Option") shall be granted to you in accordance with the
policies and procedures of the Committee then in effect if upon exercise of the
Stock Options covered by this Agreement, you (i) actually or constructively
deliver to the Company, in full or partial payment of the exercise price of the
Stock Options covered by this Agreement, shares of Common Stock that you have
held for at least six (6) months or (ii) in addition to such delivery of shares
to pay such exercise price, deliver shares of Common Stock to the Company or
have the Company withhold shares of Common Stock deliverable to you, in full or
partial payment of any required withholding tax liability associated with such
exercise; provided, however, that the Committee may, in its sole discretion,
disapprove of the delivery or withholding of shares to pay such taxes. The
number of shares of Common Stock subject to the Ownership Maintenance Stock
Option shall be equal to the number of shares of Common Stock so delivered and
withheld, with an exercise price for each share of Common Stock equal to the
Fair Market Value of a share of Common Stock on the date of grant of the
Ownership Maintenance Stock Option, provided that the Committee may, in its sole
discretion, refuse to authorize the grant of such Ownership Maintenance Stock
Option if the Committee determines that such grant would result in any adverse
accounting treatment to the Company. Notwithstanding the foregoing, an Ownership
Maintenance Stock Option shall be granted only if (a) on the date it is
exercised, the Stock Options covered by this Agreement are exercisable for more
than six (6) months beyond the exercise date, (b) you have not received an
Ownership Maintenance Stock Option within the three (3) month period immediately
preceding the exercise of the Stock Options covered by this Agreement and (c) on
the date the Stock Options are exercised, you are an active employee of the
Company and/or a Related Company. The Ownership Maintenance Stock Option shall
not be exercisable during the six (6) month period immediately following the
date on which the Ownership Maintenance Stock Option is granted, but shall be
fully exercisable thereafter until the Ownership Maintenance Stock Option
expires. The Ownership Maintenance Stock Option shall expire on the expiration
date of the Stock Options covered by this Agreement.
<PAGE>
EXHIBIT 10.7
9. COMPLIANCE WITH LAWS. The issuance of shares of Common Stock
pursuant to this Agreement shall be subject to, and shall comply with, any
applicable requirements of federal and state securities laws, rules, and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective rules and regulations promulgated
thereunder) and any other law, rule, or regulation applicable thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to issue any shares of Common Stock pursuant to this Agreement
if such issuance would violate any such requirements.
10. CANCELLATION AND RESCISSION OF AWARDS. NOTWITHSTANDING ANYTHING IN
THIS AGREEMENT TO THE CONTRARY, ANY UNEXPIRED, UNPAID, OR DEFERRED AWARDS SHALL
BE CANCELED (AND AN AWARD THAT HAS ALREADY BEEN EXERCISED, PAID, OR DELIVERED
MAY BE RESCINDED) IN ACCORDANCE WITH THIS PARAGRAPH 10 IF YOU VIOLATE ANY OF THE
APPLICABLE PROVISIONS OF THE PLAN AND THIS AGREEMENT, INCLUDING THE FOLLOWING:
(A) UNLESS THE COMPANY EXPRESSLY CONSENTS IN WRITING TO WAIVE
THIS PROVISION, YOU SHALL NOT RENDER SERVICES FOR ANY ORGANIZATION OR ENGAGE
DIRECTLY OR INDIRECTLY IN ANY BUSINESS WHICH, IN THE JUDGMENT OF THE COMMITTEE,
IS OR BECOMES COMPETITIVE WITH THE COMPANY OR A RELATED COMPANY, OR WHICH
ORGANIZATION OR BUSINESS, OR THE RENDERING OF SERVICES TO SUCH ORGANIZATION OR
BUSINESS, IS OR BECOMES OTHERWISE PREJUDICIAL TO OR IN CONFLICT WITH THE
INTERESTS OF THE COMPANY OR A RELATED COMPANY. IF YOUR EMPLOYMENT HAS
TERMINATED, THE JUDGMENT OF THE COMMITTEE SHALL BE BASED ON YOUR POSITION AND
RESPONSIBILITIES WHILE EMPLOYED BY THE COMPANY OR A RELATED COMPANY, YOUR
POST-EMPLOYMENT RESPONSIBILITIES AND POSITION WITH THE OTHER ORGANIZATION OR
BUSINESS, THE EXTENT OF PAST, CURRENT AND POTENTIAL COMPETITION OR CONFLICT
BETWEEN THE COMPANY OR A RELATED COMPANY AND THE OTHER ORGANIZATION OR BUSINESS,
THE EFFECT OF YOUR ASSUMPTION OF THE POST-EMPLOYMENT POSITION ON THE CUSTOMERS,
SUPPLIERS, PRODUCERS, AND COMPETITORS OF THE COMPANY AND THE RELATED COMPANIES,
THE GUIDELINES AND POLICIES ESTABLISHED BY THE COMPANY AND THE RELATED COMPANIES
RELATING TO BUSINESS CONDUCT ETHICS, AND SUCH OTHER CONSIDERATIONS AS ARE DEEMED
RELEVANT GIVEN THE APPLICABLE FACTS AND CIRCUMSTANCES.
(B) YOU SHALL NOT, WITHOUT PRIOR WRITTEN AUTHORIZATION FROM
THE COMPANY, DISCLOSE TO ANYONE OUTSIDE THE COMPANY AND THE RELATED COMPANIES,
OR USE IN OTHER THAN THE BUSINESS OF THE COMPANY AND THE RELATED COMPANIES, ANY
CONFIDENTIAL INFORMATION OR MATERIAL, RELATING TO THE BUSINESS OF THE COMPANY
AND THE RELATED COMPANIES, ACQUIRED BY YOU EITHER DURING OR AFTER EMPLOYMENT
WITH THE COMPANY OR A RELATED COMPANY.
(C) UPON EXERCISE, PAYMENT, OR DELIVERY PURSUANT TO AN AWARD,
YOU SHALL CERTIFY ON A FORM ACCEPTABLE TO THE COMPANY THAT YOU ARE IN COMPLIANCE
WITH THE TERMS AND CONDITIONS OF THE PLAN AND THIS AGREEMENT. FAILURE TO COMPLY
WITH ANY OF THE APPLICABLE PROVISIONS OF THE PLAN AND THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION THE NON-COMPETE AND CONFIDENTIALITY PROVISIONS OF
SUBPARAGRAPHS (A) AND (B) ABOVE PRIOR TO, OR DURING THE SIX (6) MONTHS AFTER,
ANY EXERCISE PAYMENT, OR DELIVERY (INCLUDING DELIVERY OF STOCK CERTIFICATES BY
BOOK-ENTRY) PURSUANT TO AN AWARD, SHALL CAUSE SUCH EXERCISE, PAYMENT, OR
DELIVERY TO BE RESCINDED. THE COMPANY SHALL NOTIFY YOU IN WRITING OF ANY SUCH
RESCISSION WITHIN TWO (2) YEARS AFTER SUCH EXERCISE, PAYMENT, OR DELIVERY.
WITHIN TEN (10) DAYS AFTER RECEIVING SUCH A NOTICE FROM THE COMPANY, YOU SHALL
PAY TO THE COMPANY THE AMOUNT OF ANY GAIN REALIZED OR PAYMENT RECEIVED AS A
RESULT OF THE RESCINDED EXERCISE, PAYMENT, OR DELIVERY PURSUANT TO AN AWARD.
SUCH PAYMENT SHALL BE MADE EITHER IN CASH OR BY RETURNING TO THE COMPANY THE
NUMBER OF SHARES OF COMMON STOCK THAT YOU RECEIVED IN CONNECTION WITH THE
RESCINDED EXERCISE, PAYMENT, OR DELIVERY.
11. NOTICES. Any notice hereunder shall be in writing and shall be
delivered in person, or via facsimile transmission, overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company, as the case may be, at the applicable address specified
on the first page of this Agreement, or at such other address as you or the
Company, as the case may be, may designate to the other party from time to time
in a notice that satisfies the conditions of this paragraph 11.
<PAGE>
EXHIBIT 10.7
12. GOVERNING LAW; ENTIRE AGREEMENT. This Agreement shall be governed
by and shall be construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof. In the event of
a conflict between the terms of this Agreement and the terms of the Plan, the
terms of the Plan shall govern. This Agreement contains the entire agreement
between you and the Company with respect to the subject matter contained herein,
and supersedes all prior agreements or prior understandings, whether oral or
written, between such parties relating to such subject matter.
13. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity, legality,
or enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality, or enforceability of any provision of this Agreement in any
other jurisdiction, it being intended that all rights and obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
one or more counterparts, each of which shall be deemed to be the original, as
of the date first set forth above.
TIG HOLDINGS, INC. Agreed to and accepted by:
By:________________________ __________________________ __________
Lon P. McClimon Optionee Signature Date
<PAGE>
TIG HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
EXHIBIT 11
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------------
(In millions, except per share data) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------
PRIMARY:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 56.9 61.3 58.0 61.6
Net effect of dilutive stock options - based on the treasury stock
method using average market price (A) 2.9 0.6 2.9 -
- - ------------------------------------------------------------------------------------------------------------
Total primary common shares 59.8 61.9 60.9 61.6
- - ------------------------------------------------------------------------------------------------------------
Net income $33.5 $33.1 $2.7 $50.6
Less preferred stock dividend requirements (0.5) (0.5) (1.0) (1.0)
- - ------------------------------------------------------------------------------------------------------------
Net income available to common stock $33.0 $32.6 $1.7 $49.6
- - ------------------------------------------------------------------------------------------------------------
Net income per common share $0.55 $0.53 $0.03 $0.81
- - ------------------------------------------------------------------------------------------------------------
FULLY DILUTIVE:
Weighted average shares outstanding 56.9 61.3 58.0 61.6
Net effect of dilutive stock options - based on the treasury stock
method using higher of average or end of period market price 2.9 0.6 2.9 0.5
- - ------------------------------------------------------------------------------------------------------------
Total fully dilutive common shares 59.8 61.9 60.9 62.1
- - ------------------------------------------------------------------------------------------------------------
Net income $33.5 $33.1 $2.7 $50.6
Less preferred stock dividend requirements (0.5) (0.5) (1.0) (1.0)
- - ------------------------------------------------------------------------------------------------------------
Net income available to common stock $33.0 $32.6 $1.7 $49.6
- - ------------------------------------------------------------------------------------------------------------
Net income per common share $0.55 $0.53 $0.03 $0.80
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 4,112
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,229
<CASH> 4
<RECOVER-REINSURE> 1,284
<DEFERRED-ACQUISITION> 148
<TOTAL-ASSETS> 6,531
<POLICY-LOSSES> 3,886
<UNEARNED-PREMIUMS> 708
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 118
25
0
<COMMON> 1,194
<OTHER-SE> 163
<TOTAL-LIABILITY-AND-EQUITY> 6,531
389
<INVESTMENT-INCOME> 73
<INVESTMENT-GAINS> (5)
<OTHER-INCOME> 0
<BENEFITS> 281
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 127
<INCOME-PRETAX> 49
<INCOME-TAX> 15
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
<RESERVE-OPEN> 3,886
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 3,886
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
