-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, COTgaQ/b48g9zqBiDxUNB/UwxI7w7++oJwE4NPCEnrSJ5hWcaaXwUG2/YA/W/Ncm IM0HDrf9RY3iLVnJpfvJ3w== 0001003957-99-000007.txt : 19991117 0001003957-99-000007.hdr.sgml : 19991117 ACCESSION NUMBER: 0001003957-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RISCORP INC CENTRAL INDEX KEY: 0001003957 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 650335150 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27462 FILM NUMBER: 99753534 BUSINESS ADDRESS: STREET 1: 2 NORTH TAMIAMI TRAIL STREET 2: SUITE 608 CITY: SARASOTA STATE: FL ZIP: 34236 BUSINESS PHONE: 9419512022 MAIL ADDRESS: STREET 1: 1390 MAIN STREET CITY: SARASOTA STATE: FL ZIP: 34236 10-Q 1 RISCORP, INC. 10-Q AS OF SEPTEMBER 30, 1999 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 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 0-27462 RISCORP, INC. (Exact name of registrant as specified in its charter) FLORIDA 65-0335150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Sarasota Tower, Suite 608 2 North Tamiami Trail Sarasota, Florida 34236 (Address of principal executive offices) (Zip Code) (941) 366-5015 (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 outstanding of the issuer's Common Stock: Class Outstanding at October 31, 1999 Class A Common Stock, $.01 par value 14,258,671 Class B Common Stock, $.01 par value 24,334,443 1
INDEX Page No. Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 - 4 Consolidated Statements of Operations - For the three months ended September 30, 1999 and 1998 5 Consolidated Statements of Operations - For the nine months ended September 30, 1999 and 1998 6 Consolidated Statements of Cash Flows - For the nine months ended September 30, 1999 and 1998 7 Consolidated Statements of Comprehensive Loss - For the nine months ended September 30, 1999 and 1998 8 Notes to Consolidated Condensed Financial Statements 9 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 19 Part II Other Information Item 1. Legal Proceedings 20 - 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23
2 Part I Financial Information Item 1. Financial Statements
RISCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands) September 30 December 31 1999 1998 (Unaudited) Assets Investments: Fixed maturities available for sale, at fair value (amortized cost $72,733 in 1999 and $6,666 in 1998) $ 72,709 $ 6,716 Fixed maturities available for sale, at fair value (amortized cost $6,749 in 1999 and $9,047 in 1998)-restricted 6,795 9,264 ----- ----- Total investments 79,504 15,980 Cash and cash equivalents 2,202 6,864 Cash and cash equivalents-restricted 1,904 14,842 Prepaid expenses 4,614 5,171 Deferred income taxes 977 3,141 Accounts receivable--other 2,300 7,674 Income taxes recoverable 2,181 17,277 Property and equipment, net 228 337 Receivable from Zenith -- 49,933 Other assets 756 2,174 ------ ----- Total assets $ 94,666 $ 123,393 ======== ============ See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands) September 30 December 31 1999 1998 Liabilities and Shareholders' Equity (Unaudited) Liabilities - accrued expenses and other liabilities $ 4,889 $ 27,827 ---------------- --------------- Shareholders' equity: Class A Common Stock, $.01 par value, 100,000,000 shares authorized; 14,371,253 shares issued 143 143 Class B Common Stock, $.01 par value, 100,000,000 shares authorized; 24,334,443 shares issued and outstanding 243 243 Preferred Stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding -- -- Additional paid-in capital 140,688 140,688 Retained deficit (51,309) (45,680) Treasury Class A Common Stock - at cost, 112,582 shares (1) (1) Accumulated Other Comprehensive Income: Net unrealized gains on investments 13 173 ------- ------ Total shareholders' equity 89,777 95,566 ------- ------ Total liabilities and shareholders' equity $ 94,666 $ 123,393 ========= ============== See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share and per share data) Three Months Ended September 30 ------------------------------------ 1999 1998 ---------------- --------------- (Unaudited) (Unaudited) Revenue: Net investment income $ 1,132 $ 2,297 Net realized gains -- 74 Other income 624 141 -------------- ----------- Total revenue 1,756 2,512 Expenses: Commissions, underwriting, and administrative expenses 3,065 3,835 Interest expense 49 147 Depreciation and amortization 33 39 ------ ------ Total expenses 3,147 4,021 ------ ------ Loss before income taxes (1,391) (1,509) Income tax expense 30 189 ------------ ------------ Net loss $ (1,421) $ (1,698) ============ ============ Per share data: Net loss per common share - basic $ (0.04) $ (0.05) ============ ============ Net loss per common share - diluted $ (0.04) $ (0.05) ============ ============ Weighted average common shares outstanding 37,634,781 37,062,558 =========== ========== Weighted average common and common share equivalents outstanding 37,634,781 37,062,558 =========== ========== See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share and per share data) Nine Months Ended September 30 ----------------------------------- 1999 1998 --------------- --------------- (Unaudited) (Unaudited) Revenue: Net investment income $ 4,166 $ 7,927 Net realized gains 150 4,268 Other income 748 234 Premiums earned -- 25,819 Fee income -- 5,723 ------------ ------------- Total revenue 5,064 43,971 ------------ ------------- Expenses: Commissions, underwriting, and administrative expenses 7,419 30,703 Interest expense 1,271 624 Depreciation and amortization 109 3,139 Losses and loss adjustment expenses -- 24,016 Unallocated loss adjustment expenses -- 2,561 ------------ ------------- Total expenses 8,799 61,043 ------------ ------------- Loss from operations (3,735) (17,072) Loss on sale of net assets to Zenith (4,760) -- ------------ ------------- Loss before income taxes (8,495) (17,072) Income tax (benefit) expense (2,866) 189 ------------ ------------- Net loss $ (5,629) $ (17,261) ============= ============== Per share data: Net loss per common share - basic $ (0.15) $ (0.47) ============ ============= Net loss per common share - diluted $ (0.15) $ (0.47) ============ ============= Weighted average common shares outstanding 37,491,031 36,949,133 ========== ========== Weighted average common and common share equivalents outstanding 37,491,031 36,949,133 ========== ========== See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30 -------------------------------- 1999 1998 --------------- -------------- (Unaudited) (Unaudited) Net cash used in operating activities $ (4,959) $ (33,735) ----------- ---------- Cash flows from investing activities: Purchase of fixed maturities available for sale (386,472) (51,070) Purchase of fixed maturities held to maturity -- (5,874) Proceeds from sales and maturities of fixed maturities available for sale 322,678 63,853 Proceeds from maturities of fixed maturities held to maturity -- 6,000 Proceeds from sale of equity securities -- 1,324 Proceeds from sale of equipment -- 255 Cash received from Zenith for sale of net assets 51,153 35,000 Purchase of property and equipment -- (940) Cash assets transferred to Zenith -- (29,308) ----------- ---------- Net cash (used in) provided by investing activities (12,641) 19,240 ----------- ---------- Cash flows from financing activities: Principal repayments of notes payable -- (245) Decrease in deposit balances payable -- (1,599) Transfer of cash and cash equivalents - restricted to cash and cash equivalents 12,938 1,022 ----------- ---------- Net cash provided by (used in) financing activities 12,938 (822) ----------- ---------- Net decrease in cash and cash equivalents (4,662) (15,317) Cash and cash equivalents, beginning of period 6,864 16,858 ----------- ---------- Cash and cash equivalents, end of period $ 2,202 $ 1,541 =========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,124 $ 479 =========== ========== Income taxes $ 196 $ 3,644 =========== ========== See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Loss (in thousands) Nine Months Ended September 30 -------------------------------------- 1999 1998 ------------------- ----------------- (Unaudited) (Unaudited) Net loss $ (5,629) $ (17,261) ------------- ---------- Other comprehensive income (loss), before income taxes: Unrealized gains (losses) on securities available for sale: Unrealized holding gains (losses) arising during the period (245) 6,628 Income tax expense (benefit) related to items of other comprehensive income (loss) (86) 2,320 --------------- ------------ Other comprehensive income (loss), net of income taxes (159) 4,308 -------------- ------------ Total comprehensive loss $ (5,788) $ (12,953) ============= ========== See accompanying notes to consolidated financial statements.
8 RISCORP, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) (1) Basis of Presentation The accompanying consolidated unaudited interim financial statements of RISCORP, Inc. ("RISCORP") and subsidiaries (collectively, the "Company") have been prepared on the basis of generally accepted accounting principles ("GAAP") and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial condition, results of operations, and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts and operations of RISCORP and its subsidiaries. All significant intercompany balances have been eliminated. (2) Execution of Merger Agreement with William D. Griffin On November 3, 1999, RISCORP entered into a definitive agreement (the "Merger Agreement") to merge with Griffin Acquisition Corp. ("Acquiror"), a company controlled by Mr. William D. Griffin, the majority shareholder of RISCORP. Pursuant to the terms of the Merger Agreement, each issued and outstanding share of Class A Common Stock will receive $2.85 in cash, plus a contingent right to receive an additional pro rata cash amount if RISCORP recovers any additional amounts from Zenith Insurance Company. Under the terms of the Merger Agreement, Acquiror will assume all of the liabilities of RISCORP, including its pending litigation. The transaction is subject to customary closing conditions, including shareholder approval and is expected to close in the first quarter of 2000. This transaction, if consummated, will constitute a going private transaction. (3) Sale to Zenith Insurance Company As previously disclosed, on April 1, 1998, RISCORP and certain of its subsidiaries sold substantially all of their assets and transferred certain liabilities to Zenith Insurance Company ("Zenith") pursuant to the terms of the Asset Purchase Agreement among the parties dated June 17, 1997, as amended (the "Asset Purchase Agreement"). In connection with the sale to Zenith, the Company ceased substantially all of its former business operations, including its insurance operations, effective April 1, 1998. Accordingly, after such date, the Company's operations consisted principally of the administration of the day-to-day activities of the surviving corporate entities, compliance with the provisions of the Asset Purchase Agreement, and the investment, protection, and maximization of the remaining assets of the Company. At the present time, RISCORP has no plans to resume any operating activities. On July 7, 1999, the Company and Zenith settled, with certain limited exceptions, the claims arising out of the sale. The Asset Purchase Agreement contemplated a post-closing purchase price adjustment based on the difference between the book value of the assets purchased and the 9 book value of the liabilities assumed as of the closing date. In connection with the determination of the final purchase price, a dispute arose between the parties regarding, among other things, the book value of the assets and liabilities of the business, Zenith's assumption of certain operating liabilities of the business, and each party's indemnification obligations under the Asset Purchase Agreement. The terms of the settlement included, among other things, RISCORP's right to seek correction of alleged errors made by the neutral auditor in connection with its determination of certain reinsurance recoverable adjustments contained in the Final Business Balance Sheet. On October 7, 1999, the neutral auditor denied RISCORP's request for correction of these errors. As a result, RISCORP is evaluating all available remedies against Zenith and the neutral auditor with respect to those issues. In connection with the sale of RISCORP's insurance operations to Zenith on April 1, 1998, RISCORP voluntarily consented to the Florida Insurance Department's request that RISCORP discontinue writing any new or renewal insurance business for an indefinite period of time. (4) Issuance of Additional Shares of Stock In September 1996, RISCORP purchased all of the outstanding stock of Independent Association Administrators, Inc. ("IAA") and Risk Inspection Services and Consulting, Inc. ("RISC") in exchange for $11.5 million, consisting principally of 790,336 shares of RISCORP's Class A Common Stock valued at $10.9 million on the date of acquisition. IAA and RISC are workers' compensation management services companies offering services in Alabama. On the acquisition date, the excess of the purchase price over the fair value of the net assets acquired was $11.4 million and was recorded as goodwill. The remaining unamortized goodwill relating to those acquisitions was $7.8 million at March 31, 1998 (just prior to the transfer of the goodwill to Zenith on April 1, 1998). Due to a decrease in the market value of RISCORP's Class A Common Stock, 790,336 additional shares of RISCORP's Class A Common Stock valued at $0.6 million were issued in January 1998 to the former shareholders of IAA. (5) Commitments and Contingencies On August 20, 1997, the Occupational Safety Association of Alabama Workers' Compensation Fund (the "Fund"), an Alabama self-insured workers' compensation fund, filed a breach of contract and fraud action against the Company and others. The Fund entered into a Loss Portfolio Transfer and Assumption Reinsurance Agreement dated August 26, 1996 and effective September 1, 1996 with RISCORP National Insurance Company ("RNIC"). Under the terms of the agreement, RNIC assumed 100 percent of the outstanding loss reserves (including incurred but not reported losses) as of September 1, 1996. Co-defendant Peter D. Norman ("Norman") was a principal and officer of IAA prior to its acquisition by RISCORP in September 1996. The complaint alleges that Norman and IAA breached certain fiduciary duties owed to the Fund in connection with the subject agreement and transfer. The complaint alleges that RISCORP has breached certain provisions of the agreement and owes the Fund monies under the terms of the agreement. The Fund claims, per a Loss Portfolio Evaluation dated February 26, 1998, that the Fund overpaid RNIC by $6 million in the subject transaction. The court has granted RNIC's Motion to Compel Arbitration per the terms and provisions of the agreement. On December 1, 1998, the trial court issued an order prohibiting the American Arbitration Association from administering the arbitration between RNIC and the Fund, and RNIC has appealed the trial court's ruling. The Alabama Supreme Court has stayed the current arbitration. Despite the Alabama Supreme Court's stay, the dispute between the Fund and RNIC is expected to be resolved through arbitration. The other defendants, including IAA, 10 have appealed to the Supreme Court of Alabama the trial court's denial of their motions to compel arbitration. RNIC intends to vigorously defend the Fund's claim. On March 13, 1998, RISCORP Insurance Company ("RIC") and RISCORP Property & Casualty Insurance Company ("RPC") were added as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of Florida, styled Bristol Hotel Management Corporation, et. al., v. Aetna Casualty & Surety Company, a/k/a Aetna Group, et. al. Case No. 97-2240-CIV-MORENO. The plaintiffs purport to bring this action on behalf of themselves and a class consisting of all employers in the State of Florida who purchased or renewed retrospectively rated or adjusted workers' compensation policies in the voluntary market since 1985. The suit was originally filed on July 17, 1997 against approximately 174 workers' compensation insurers as defendants. The complaint was subsequently amended to add the RISCORP defendants. The amended complaint named a total of approximately 161 insurer defendants. The suit claims that the defendant insurance companies violated the Sherman Antitrust Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and the Florida Antitrust Act, committed breach of contract and civil conspiracy, and were unjustly enriched by unlawfully adding improper and illegal charges and fees onto retrospectively rated premiums and otherwise charging more for those policies than allowed by law. The suit seeks compensatory and punitive damages, treble damages under the Antitrust and RICO claims, and equitable relief. RIC and RPC moved to dismiss the amended complaint and have also filed certain motions to dismiss the amended complaint filed by various other defendants. On August 26, 1998, the district court issued an order dismissing the entire suit against all defendants on one of the grounds identified in the various motions to dismiss filed by the defendants. The district court indicated that all other grounds and motions to dismiss that were pending at that time were mooted by the dismissal. On September 13, 1998, the plaintiffs filed a Notice of Appeal. On February 9, 1999, the district court issued, sua sponte, an Order of Reconsideration in which the court indicated its desire to vacate the dismissal of the RICO claims and pendant state claims based on a recent decision of the United States Supreme Court. On June 9, 1999, the Eleventh Circuit remanded the case to the district court, and the district court has assigned the case to a magistrate for handling pre-trial matters. At a status conference held on October 20, 1999, the magistrate established deadlines for the filing of a motion for leave to amend the complaint, for supplemental briefing on pending motions, and set a hearing for March 7, 2000. Management intends to defend vigorously any and all claims asserted against RIC and RPC included in any amended complaint that may be permitted. On July 9, 1999, a shareholder class action lawsuit was filed against the Company, two of its executive officers, and two former executive officers in the United States District Court for the Middle District of Florida. The plaintiff in this action purports to represent the class of shareholders who purchased shares of RISCORP's Class A Common Stock between November 19, 1997 and July 20, 1998. The complaint alleges, among other things, that the financial statements included in the periodic reports filed by RISCORP with the Securities and Exchange Commission during the class period contain false and misleading statements of material fact and omissions, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. These allegations principally relate to the difference between the net book value of the Company as reflected on its published financial statements during the class period and the net book value of the assets transferred to Zenith as determined by the neutral auditors and neutral actuaries pursuant to the terms of the Asset Purchase Agreement between the parties. The complaint seeks unspecified compensatory damages. RISCORP believes that these claims are without merit and intends to vigorously defend this suit. 11 The Company, in the ordinary course of business, is party to various lawsuits. Based on information presently available, and in the light of legal and other defenses available to the Company, contingent liabilities arising from such threatened and pending litigation in the ordinary course of business are not presently considered by management to be material. Other than as noted herein, no provision had been made in the accompanying consolidated financial statements for the foregoing matters. Certain of the related legal expenses may be covered under directors and officers' insurance coverage maintained by the Company. (6) Reclassifications For comparative purposes, certain amounts in the accompanying financial statements have been reclassified from amounts previously reported. These reclassifications had no effect on previously reported shareholders' equity or net loss. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements, particularly with respect to Risk Factors, Legal Proceedings, and the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Additional written or oral forward-looking statements may be made by RISCORP, Inc. ("RISCORP") and its subsidiaries (collectively, the "Company") from time to time in filings with the Securities and Exchange Commission or otherwise. Such forward-looking statements are within the meaning of that term in Sections 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements may include, without limitation, projections of revenues, income, losses, cash flows, plans for future operations, financing needs, estimates concerning the effects of litigation or other disputes, as well as assumptions regarding any of the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Many factors could contribute to such differences and include, among others, the actual outcome of pending litigation both on behalf of and against the Company, the Company's ability to gain approval and receive payment from the Florida Department of Labor for certain refund applications, the Company's ability to receive payment for the alleged errors and understatement of the Final Business Balance Sheet by the Independent Expert, the Company's need for additional capital to meet operating requirements, and other factors mentioned elsewhere in this report. Recent Developments Execution of Merger Agreement with William D. Griffin See Part 1, Item 1, Notes to Consolidated Condensed Financial Statements, Note 2, for further discussion of the proposed merger with the Griffin Acquisition Corp., an entity formed by Mr. William D. Griffin, the majority shareholder of RISCORP. Asset Purchase Agreement with Zenith See Part 1, Item 1, Notes to Consolidated Condensed Financial Statements, Note 3 for further discussion of the Zenith transaction. Legal Developments See "Part II, Item 1, Legal Proceedings." Overview General As discussed more fully in Note 3 to the consolidated financial statements, RISCORP and certain of its subsidiaries sold substantially all of their assets and transferred certain liabilities to Zenith on April 1, 1998. In connection with the sale to Zenith, the Company ceased substantially all of its former business operations, including its insurance operations, effective April 1, 1998. Accordingly, after such date, the Company's operations have consisted primarily of the administration of the day-to-day activities of the surviving corporate 13 entities, compliance with the provisions of the Asset Purchase Agreement, and the investment, protection, and maximization of the remaining assets of the Company. At the present time, RISCORP has no plans to resume any operating activities. Since April 1, 1998, the Company has had no employees or insurance operations, and has provided no services to self-insurance funds or other insurance related entities. Because of these significant changes in the operating activities of the Company after April 1, 1998, a comparison of the results of operations for the nine months ended September 30, 1999 to the comparable period in 1998 is meaningless. Therefore, the results of operations for the nine months ended September 30, 1999 are explained separately without comparison to the comparable prior period. The results of operations for the three months ended September 30, 1999 are explained separately with comparison to the comparable prior period. The results of operations of the Company prior to the April 1, 1998 sale to Zenith are included to comply with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission; however, those results of operations are not indicative of the operations of the Company since April 1, 1998 and are not indicative of the anticipated future operations of the Company. Results of Operations During the nine months ended September 30, 1999, the Company's primary operating activities were the investment of the $25 million initial payment received from Zenith on April 2, 1998, the investment of other invested assets retained by the Company, compliance with the provisions of the Asset Purchase Agreement, converting the taxes recoverable to cash, collecting the sale proceeds from Zenith, the investment of the $50.8 million of sale proceeds and interest collected from Zenith on March 26, 1999, efforts to maximize asset recoveries, negotiation of the terms of the proposed merger with Griffin Acquisition Corp., and the administration of the day-to-day activities of the surviving corporate entities. Compliance with the provisions of the Asset Purchase Agreement included the transfer of all of the assets and liabilities, not retained by the Company, to Zenith, and assisting with the orderly transition of the Company's insurance operations to Zenith. Nine Months Ended September 30, 1999 An analysis of certain balances contained on the September 30, 1999 consolidated balance sheet is as follows: At September 30, 1999, the $1.9 million of cash and cash equivalents-restricted consisted of amounts on deposit with various governmental agencies. The $12.9 million decrease in restricted cash and cash equivalents during the first nine months of 1999 is the result of the release of the funds held in the Zenith escrow account. The $63.5 million increase in investments from December 31, 1998 to September 30, 1999 resulted from the collection and subsequent investment of the proceeds from the sale to Zenith and of certain tax refunds, the release of the cash previously held in escrow, and the investment of funds previously held in bank accounts. The elimination of the receivable from Zenith from December 31, 1998 to September 30, 1999 resulted from the collection of the remaining receivable from the sale to Zenith in March 1999. The $15.1 million decrease in income taxes recoverable from December 31, 1998 to September 30, 1999 is the result of the collection of taxes due from tax agencies. 14 The $1.4 million decrease in other assets from December 31, 1998 to September 30, 1999 resulted from the collection of interest in March 1999 due from the sale to Zenith. The $4.6 million of prepaid expenses at September 30, 1999 consisted of $3.5 million of prepaid insurance coverages and $1.1 million of retainers paid to certain professionals and consultants. The $2.2 million decrease in deferred income taxes during the first nine months of 1999 is due to the reclassification of taxes collected in October 1999 to income taxes recoverable. The $5.4 million decrease in accounts receivable - other during the first nine months of 1999 is due to the collection of $4.8 million of certain insurance proceeds, $0.5 million of 1997 return premiums, and $0.1 million of service fees. A summary of the accrued expenses and other liabilities at September 30, 1999 is as follows (in thousands): Payable to Zenith $ 222 Income taxes payable 2,141 Accrued professional services 1,739 Trade accounts payable 242 Other accruals and payables 545 --------- Total $ 4,889 ======= The Company's operating results for the nine months ended September 30, 1999 resulted in a net loss of $5.6 million. The $4.2 million of net investment income for the nine months ended September 30, 1999 consisted of $1.3 million of interest income on the receivable from Zenith, $0.3 million of interest income on the $12.8 million balance previously held in escrow, and $2.6 million of investment portfolio income. Operating expenses for the nine months ended September 30, 1999 totaled $8.8 million and consisted of the following: The $7.4 million of commissions, underwriting, and administrative expenses consisted of $0.9 million of management expenses, $1.2 million of accounting and auditing expenses, $2.7 million of legal expenses, $1.7 million of recurring operating expenses such as rent, telephone, insurance, and similar costs, and $0.9 million of other expenses. The $1.3 million of interest expense consisted principally of the interest paid in March 1999 on the settlement of a class action lawsuit. Depreciation and amortization expense was $109,000. The Company transferred all assets subject to amortization to Zenith in connection with the sale and retained $0.4 million of fixed assets (consisting principally of computer equipment) that are being depreciated over three years. During the nine months ended September 30, 1999, the Company recorded a loss on sale of net assets to Zenith of $4.8 million due to the terms of the Settlement Agreement, as discussed more fully in Note 3 to the consolidated financial statements. 15 The weighted average common and common share equivalents outstanding for the nine months ended September 30, 1999 was 37,491,031 as compared to 36,949,133 for the nine months ended September 30, 1998. These amounts include, for each period presented, the vested portion only, as of the end of such period, of shares issued in April 1998 under a Restricted Stock Award Agreement between RISCORP and Phoenix Management Company, Ltd. Three Months Ended September 30, 1999 and 1998 The Company's operating results for the three months ended September 30, 1999 and 1998 resulted in a net loss of $1.4 million and $1.7 million, respectively. The components of net investment income for the three months ended September 30, 1999 and 1998 are summarized as follows (in millions): 1999 1998 ---------- ---------- Interest income on the balance in escrow $ 0.1 $ 0.1 Other investment income 1.0 0.6 Interest income on the Zenith sale proceeds -- 1.6 ------ ------- Total $ 1.1 $ 2.3 ====== ====== The components of commissions, underwriting, and administrative expenses for the three months ended September 30, 1999 and 1998 are summarized as follows (in millions): 1999 1998 ---------- ---------- Management expenses $ 0.3 $ 0.3 Accounting and auditing expense 0.5 0.4 Legal expenses (income) 1.2 (1.0) Recurring operating expenses (rent, telephone, insurance, and similar costs) 1.1 0.9 Non-recurring expenses -- 3.2 ----- ------ Total $ 3.1 $ 3.8 ===== ====== Interest expense for the three months ended September 30, 1999 and 1998 was $49,000 and $147,000, respectively. Depreciation and amortization expense was $33,000 and $39,000 for the three months ended September 30, 1999 and 1998, respectively. The Company transferred all assets subject to amortization to Zenith in connection with the sale and retained $0.4 million of fixed assets (consisting principally of computer equipment) that is being depreciated over three years. The weighted average common and common share equivalents outstanding for the three months ended September 30, 1999 was 37,634,781 as compared to 37,062,558 for the three months ended September 30, 1998. Those amounts include, for each period presented, the vested portion only, as of the end of such period, of shares issued in April 1998 under a Restricted Stock Award Agreement between RISCORP and Phoenix Management Company, Ltd. 16 Three Months Ended March 31, 1998 The discussion that follows relates to the operations and operating philosophy of the Company's activities that existed prior to April 1, 1998 and addresses the operating results for the three months ended March 31, 1998. Prior to 1996, the Company's at-risk operations were focused in Florida. During 1996, the Company acquired RNIC and its 19 state licenses and assumed business from several self insurance funds outside of Florida that allowed the Company to diversify its at-risk operations. The majority of the Company's premiums were written in Florida, a regulated pricing state where premiums for guaranteed cost products were based on state-approved rates. However, prior to the sale to Zenith, the Company also offered policies that were subject to premium reductions on high deductible plans, participating dividend plans, or other loss sensitive plans. Pricing for those plans tended to be more competitively based, and the Company experienced increased competition during 1997 and 1998 in pricing those plans. In June 1997, the Company implemented a strategic plan to consolidate several of its field offices and announced its intention to close all field offices, except Charlotte, North Carolina, and Birmingham, Alabama, by the end of 1997, and to cease writing new business in certain states, including Oklahoma, Virginia, Missouri, Mississippi, Louisiana, and Kansas. The estimated impact of the decision to discontinue writing business in those states was a reduction of $16 million in direct premiums written. The Company attempted to lower claim costs by applying managed care techniques and programs to workers' compensation claims, particularly by providing prompt medical intervention, integrating claims management and customer service, directing care of injured employees through a managed care provider network, and availing itself of potential recoveries under subrogation and other programs. Part of the Company's claims management philosophy was to seek recoveries for claims that were reinsured or that could be subrogated or submitted for reimbursement under various states' recovery programs. As a result, the Company's losses and loss adjustment expenses were offset by estimated recoveries from reinsurers under specific excess of loss and quota share reinsurance agreements, subrogation from third parties, and state "second disability" funds, including the Florida Special Disability Trust Fund ("SDTF"). The direct, assumed, ceded, and net earned premiums for the first quarter of 1998 are summarized as follows (in thousands): Direct premiums earned $ 48,416 Assumed premiums earned 79 Premiums ceded to reinsurers (22,676) --------- Net premiums earned $ 25,819 ======== There were no direct, assumed, ceded, or net earned premiums after the April 1, 1998 sale to Zenith. At March 31, 1998, there were 18,145 policies in force. Fee income for the first three months of 1998 was $5.7 million. After April 1, 1998, the Company ceased generating fee income when those activities were transferred to Zenith. 17 Net realized gains during the first quarter of 1998 were $1.5 million, consisting principally of the $1.3 million gain on the sale of an interest in a joint venture. Net investment income for the three months ended March 31, 1998 was $3.3 million, consisting entirely of earnings from the investment portfolio, excluding realized gains and losses. For the three months ended March 31, 1998, the loss ratio was 93 percent, losses and loss adjustment expenses were $24 million, unallocated loss adjustment expenses were $2.6 million, commissions, underwriting, and administrative expenses were $15.5 million, interest expense was $0.5 million, and depreciation and amortization expense was $3.1 million. The weighted average common and common share equivalents outstanding for the three months ended March 31, 1998 was 36,868,114. Liquidity and Capital Resources The Company historically met its cash requirements and financed its growth through cash flows generated from operations and borrowings. The Company's primary sources of cash flow from operations were premiums and investment income, and its cash requirements consisted principally of payment of losses and loss adjustment expenses, support of its operating activities, including various reinsurance agreements and managed care programs and services, capital surplus needs for the insurance subsidiaries, and other general and administrative expenses. RISCORP and certain of its subsidiaries sold substantially all of their assets and transferred certain liabilities to Zenith on April 1, 1998. In connection with that sale to Zenith, the Company ceased substantially all of its former business operations and, accordingly, after April 1, 1998, the Company's primary source of cash flows has been generated from investment income. The Company's future cash requirements are expected to be satisfied through investment income and the liquidation of investments. Cash flows from operations for the nine months ended September 30, 1999 and 1998 was ($5) million and ($33.7) million, respectively. The change from 1998 to 1999 was due primarily to the sale to Zenith and the cessation of substantially all the Company's former business operations. The Company has projected cash flows through December 1999 and believes it has sufficient liquidity and capital resources to support its operations. As of September 30, 1999 and 1998, RISCORP's insurance subsidiaries had combined statutory capital and surplus of $129 million and $134.9 million, respectively. The individual capital and surplus of each of RISCORP's insurance subsidiaries exceeded the minimum statutory capital and surplus required by their respective state of domicile. The National Association of Insurance Commissioners has adopted risk-based capital standards to determine the capital requirements of an insurance carrier based on the risks inherent in its operations. The standards, which have not yet been adopted in Florida, require the computation of a risk-based capital amount that is then compared to a carrier's actual total adjusted capital. The computation involves applying factors to various financial data to address four primary risks: asset risk, insurance underwriting risk, credit risk, and off-balance sheet risk. Those standards provide for regulatory intervention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. At December 31, 1998, RISCORP's insurance subsidiaries' statutory surplus was in excess of any risk-based capital action level requirements. 18 Year 2000 The term "Year 2000 issue" is a general term used to describe various problems that may result from the improper processing of date and date-sensitive calculations by computers and other machinery as the Year 2000 is approached and reached. These problems may arise from hardware and software unable to distinguish dates in the "2000's" from dates in the "1900's" and from other sources, such as the use of special codes and conventions that make use of a date field. Effective April 1, 1998, RISCORP ceased substantially all of its former business operations, including its core insurance and managerial services operations. RISCORP's computer systems and proprietary computer software, including the policy issue and management system and the claims systems, were included in the assets sold to Zenith pursuant to the Asset Purchase Agreement. Effective April 1, 1998, the Company entered into a computer outsourcing agreement. Under the terms of that agreement, the vendor is to provide the Company with computer configuration, software installation, network configuration and maintenance, telecommunication coordination, computer maintenance, and other computer-related services. The agreement is for a period of 36 months. Due to the cessation of its operations, RISCORP does not believe it has any material third-party relationships that present significant Year 2000 risks. The Company has requested confirmation from the financial institutions with which it maintains accounts that such institutions are Year 2000 compliant. Based on its limited operations, the Company believes its most reasonable likely worst case scenario Year 2000 problem would be a temporary inability to access its accounts with financial institutions if such institutions' systems are not Year 2000 compliant. Because the Company does not expect that the Year 2000 will have a material adverse effect on the Company, it has determined that it is unnecessary to develop a contingency plan. 19 Part II Other Information Item 1. Legal Proceedings On August 20, 1997, the Occupational Safety Association of Alabama Workers' Compensation Fund (the "Fund"), an Alabama self-insured workers' compensation fund, filed a breach of contract and fraud action against the Company and others. The Fund entered into a Loss Portfolio Transfer and Assumption Reinsurance Agreement dated August 26, 1996 and effective September 1, 1996 with RNIC. Under the terms of the agreement, RNIC assumed 100 percent of the outstanding loss reserves (including incurred but not reported losses) as of September 1, 1996. Co-defendant Peter D. Norman ("Norman") was a principal and officer of IAA prior to its acquisition by RISCORP in September 1996. The complaint alleges that Norman and IAA breached certain fiduciary duties owed to the Fund in connection with the subject agreement and transfer. The complaint alleges that RISCORP has breached certain provisions of the agreement and owes the Fund monies under the terms of the agreement. The Fund claims, per a Loss Portfolio Evaluation dated February 26, 1998, that the Fund overpaid RNIC by $6 million in the subject transaction. The court has granted RNIC's Motion to Compel Arbitration per the terms and provisions of the agreement. On December 1, 1998, the trial court issued an order prohibiting the American Arbitration Association from administering the arbitration between RNIC and the Fund, and RNIC has appealed the trial court's ruling. The Alabama Supreme Court has stayed the current arbitration. Despite the Alabama Supreme Court's stay, the dispute between the Fund and RNIC is expected to be resolved through arbitration. The other defendants, including IAA, have appealed to the Supreme Court of Alabama the trial court's denial of their motions to compel arbitration. RNIC intends to vigorously defend the Fund's claim. On March 13, 1998, RIC and RPC were added as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of Florida, styled Bristol Hotel Management Corporation, et. al., v. Aetna Casualty & Surety Company, a/k/a Aetna Group, et. al. Case No. 97-2240-CIV-MORENO. The plaintiffs purport to bring this action on behalf of themselves and a class consisting of all employers in the State of Florida who purchased or renewed retrospectively rated or adjusted workers' compensation policies in the voluntary market since 1985. The suit was originally filed on July 17, 1997 against approximately 174 workers' compensation insurers as defendants. The complaint was subsequently amended to add the RISCORP defendants. The amended complaint named a total of approximately 161 insurer defendants. The suit claims that the defendant insurance companies violated the Sherman Antitrust Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and the Florida Antitrust Act, committed breach of contract and civil conspiracy, and were unjustly enriched by unlawfully adding improper and illegal charges and fees onto retrospectively rated premiums and otherwise charging more for those policies than allowed by law. The suit seeks compensatory and punitive damages, treble damages under the Antitrust and RICO claims, and equitable relief. RIC and RPC moved to dismiss the amended complaint and have also filed certain motions to dismiss the amended complaint filed by various other defendants. On August 26, 1998, the district court issued an order dismissing the entire suit against all defendants on one of the grounds identified in the various motions to dismiss filed by the defendants. The district court indicated that all other grounds and motions to dismiss that were pending at that time were mooted by the dismissal. On September 13, 1998, the plaintiffs filed a Notice of Appeal. On February 9, 1999, the district court issued, sua sponte, an Order of Reconsideration in which the court indicated its desire to vacate the 20 dismissal of the RICO claims and pendant state claims based on a recent decision of the United States Supreme Court. On June 9, 1999, the Eleventh Circuit remanded the case to the district court, and the district court has assigned the case to a magistrate for handling pre-trial matters. At a status conference held on October 20, 1999, the magistrate established deadlines for the filing of a motion for leave to amend the complaint, for supplemental briefing on pending motions, and set a hearing for March 7, 2000. Management intends to defend vigorously any and all claims asserted against RIC and RPC included in any amended complaint that may be permitted. On July 9, 1999, a shareholder class action lawsuit was filed against the Company, two of its executive officers, and two former executive officers in the United States District Court for the Middle District of Florida. The plaintiff in this action purports to represent the class of shareholders who purchased shares of RISCORP's Class A Common Stock between November 19, 1997 and July 20, 1998. The complaint alleges, among other things, that the financial statements included in the periodic reports filed by RISCORP with the Securities and Exchange Commission during the class period contain false and misleading statements of material fact and omissions, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. These allegations principally relate to the difference between the net book value of the Company as reflected on its published financial statements during the class period and the net book value of the assets transferred to Zenith as determined by the neutral auditors and neutral actuaries pursuant to the terms of the Asset Purchase Agreement between the parties. The complaint seeks unspecified compensatory damages. RISCORP believes that these claims are without merit and intends to vigorously defend this suit. The Company, in the ordinary course of business, is party to various lawsuits. Based on information presently available, and in the light of legal and other defenses available to the Company, contingent liabilities arising from such threatened and pending litigation in the ordinary course of business are not presently considered by management to be material. Other than as noted herein, no provision had been made in the accompanying consolidated financial statements for the foregoing matters. Certain of the related legal expenses may be covered under directors and officers' insurance coverage maintained by the Company. Item 2. Changes in Securities and Use of Proceeds None. Item 3.Defaults Upon Senior Securities None. Item 4.Submission of Matters to a Vote of Security Holders None. Item 5. Other Information On October 24, 1999, Frederick M. Dawson, President, Chief Executive Officer and a director of RISCORP, died of complications from colon cancer. Mr. Dawson provided services to RISCORP through The Phoenix Management Company, Ltd. ("Phoenix") pursuant to a management agreement which became effective on April 1, 1998, immediately following the sale of substantially all of RISCORP's assets to Zenith. As a result of Mr. Dawson's death, the Board of Directors named Walter E. Riehemann, General Counsel, to also fill the position of President of RISCORP. The Board of Directors is evaluating what, if any, additional succession plans are necessary or appropriate as a result of Mr. Dawson's death, including, without limitation, evaluating whether the management agreement with Phoenix should be amended or terminated. 21 Item 6.Exhibits and Reports on Form 8-K a) Exhibits 2.1 Plan and Agreement of Merger by and between Griffin Acquisition Corp., William D. Griffin and RISCORP, Inc., dated November 3, 1999. 9.1 Voting Agreement by and among RISCORP, Inc., William D. Griffin, The RISCORP Group Holding Company Limited Partnership, William D. Griffin Family Limited Partnership, Charlotte K. Griffin Trust Number 3, Anna F. Griffin Trust Number 3, and John Ford Griffin Trust Number 3, dated as of November 3, 1999. 10.1 First Amendment to Shareholder Protection Rights Agreement by and between RISCORP, Inc. and First Union National Bank, dated November 3, 1999. 10.2 First Amendment to Directors Agreement by and among RISCORP, Inc., William D. Griffin, Frederick M. Dawson, Walter L. Revell, Seddon Goode, Jr., and George E. Greene III, dated September 18, 1997. 11 Statement Re Computation of Per Share Net Loss 27 Financial Data Schedule b) Reports on Form 8-K RISCORP filed a current report on Form 8-K on July 14, 1999 disclosing the principal terms of its settlement with Zenith Insurance Company. 22 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. RISCORP, INC. (Registrant) By: /s/Walter E. Riehemann Walter E. Riehemann President Date: November 12, 1999 By: /s/Edward W. Buttner IV Edward W. Buttner IV, CPA Principal Accounting Officer Date: November 12, 1999 23 EX-2.1 2 PLAN AND AGREEMENT OF MERGER PLAN AND AGREEMENT OF MERGER AMONG GRIFFIN ACQUISITION CORP., WILLIAM D. GRIFFIN, AND RISCORP, INC. -------------------------- November 3, 1999 --------------------------
Table of Contents 1. MERGER 2 1.1. The Merger......................................................................................2 1.2. Conversion of Shares............................................................................2 1.3. Dissenting Shares...............................................................................4 1.4. Payment of Cash for Class A Common Stock........................................................5 1.5. Stock Transfers.................................................................................7 2. CLOSING 7 3. REPRESENTATIONS AND WARRANTIES OF RISCORP................................................................7 3.1. Organization, Good Standing and Power...........................................................7 3.2. Capitalization..................................................................................7 3.3. RISCORP Subsidiaries............................................................................8 3.4. Authority; Enforceability.......................................................................8 3.5. No Violation; Consents..........................................................................8 3.6. RISCORP Financial Statement; SEC Reports........................................................9 3.7. Absence of Certain Changes or Events...........................................................10 3.8. Taxes and Tax Returns..........................................................................11 3.9. Litigation.....................................................................................13 3.10. Contracts and Commitments......................................................................13 3.11. Proxy Statement, Etc...........................................................................13 3.12. Employee Benefit Plans.........................................................................14 3.13. Collective Bargaining; Labor Disputes; Compliance..............................................15 3.14. Brokers and Finders............................................................................15 3.15. No Violation of Law............................................................................16 3.16. Voting Requirements............................................................................16 3.17. Properties.....................................................................................16 3.18. Amendment to Rights Agreement..................................................................17 3.19. Disclosure.....................................................................................17 4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND GUARANTOR................................................17 4.1. Organization, Good Standing and Power..........................................................18 4.2. Authority; Enforceability......................................................................18 4.3. No Violation; Consents.........................................................................18 4.4. Proxy..........................................................................................19 4.5. Brokers and Finders............................................................................19 4.6. Capitalization.................................................................................19 4.7. Disclosure.....................................................................................19 4.8. Investigation by Acquiror and Guarantor........................................................19 5. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS.....................................20 5.1. Access and Information.........................................................................20 5.2. Conduct of Business Pending Merger.............................................................20 5.3. Stockholders' Approval.........................................................................24 5.4. Takeover Statutes..............................................................................25 5.5. Consents.......................................................................................25 5.6. Further Assurances.............................................................................25 5.7. Notice; Efforts to Remedy......................................................................26 5.8. Proxy Materials and Schedule 13E-3.............................................................26 5.9. Press Releases; Filings........................................................................26 5.10. Indemnification of Officers and Directors......................................................27 5.11. Surrender/Sale of Insurance Licenses...........................................................28 5.12. Management of Contingent Claim.................................................................28 6. CONDITIONS PRECEDENT TO MERGER..........................................................................28 6.1. Conditions to Each Party's Obligations.........................................................28 6.2. Conditions to Obligations of RISCORP...........................................................29 6.3. Conditions to Obligations of Acquiror..........................................................29 7. TERMINATION OF THE MERGER...............................................................................30 7.1. Termination....................................................................................30 7.2. Effect of Termination..........................................................................31 8. MISCELLANEOUS...........................................................................................32 8.1. Waiver and Amendment...........................................................................32 8.2. Non-Survival of Representations and Warranties.................................................32 8.3. Notices........................................................................................32 8.4. Descriptive Headings; Interpretation...........................................................34 8.5. Counterparts...................................................................................34 8.6. Entire Agreement...............................................................................34 8.7. Governing Law..................................................................................34 8.8. Severability...................................................................................34 8.9. Enforcement of Agreement.......................................................................34 8.10. Assignment.....................................................................................35 8.11. Limited Liability..............................................................................35 8.12. Definition of Knowledge........................................................................35 8.13. Guarantor......................................................................................35
List of Exhibits Exhibit A.........Voting Agreement Exhibit B.........General Release Exhibit C.........Fee Advancement Agreement Exhibit D.........Escrow Agreement Exhibit E.........Form of Section 5.10(d) Compliance Certificate Exhibit F.........Contact Information for Compliance with Section 5.11(d) Exhibit G.........RISCORP's Knowledge PLAN AND AGREEMENT OF MERGER PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated as of November 3, 1999, by and among, GRIFFIN ACQUISITION CORP., a Florida corporation ("Acquiror"), WILLIAM D. GRIFFIN, an individual and resident of the state of Florida ("Guarantor") and RISCORP, INC., a Florida corporation ("RISCORP"). WHEREAS, Guarantor has incorporated Acquiror under the Florida Business Corporation Act (the "FBCA") for the purpose of Acquiror merging with and into RISCORP pursuant to the applicable provisions of the FBCA (the "Merger") so that RISCORP will continue as the surviving corporation of the Merger; WHEREAS, Guarantor is the sole stockholder of Acquiror and is executing this Agreement to guarantee the performance of Acquiror's obligations hereunder through the Effective Time (as hereinafter defined); WHEREAS, the respective Boards of Directors of RISCORP and Acquiror have approved and declared advisable the Merger, the terms and provisions of this Agreement and the transactions contemplated hereby; WHEREAS, the respective Boards of Directors of RISCORP and Acquiror have determined that the Merger is in furtherance of and consistent with their respective long-term business strategies and is fair to and in the best interests of their respective stockholders; WHEREAS, the Merger described herein is subject to the approval of the stockholders of RISCORP and the satisfaction of certain other conditions described in this Agreement; WHEREAS, in order to induce the parties to enter into this Agreement and to perform their obligations hereunder Guarantor and each holder of Class B Common Stock (as hereinafter defined) have executed and delivered a voting agreement in the form of Exhibit A attached hereto; WHEREAS, in order to induce the parties to enter into this Agreement and to perform their obligations hereunder, each of the holders of shares of Class B Common Stock, the officers and directors of RISCORP, Guarantor, and certain other parties have executed and delivered a release substantially in the form of Exhibit B attached hereto to be effective as of the Effective Time (as hereinafter defined) (the "Release"); and WHEREAS, in connection with the execution and delivery of this Agreement, Acquiror has executed and delivered a fee advancement agreement in substantially the form of Exhibit C attached hereto to be effective as of the Effective Time (the "Fee Advancement Agreement"). NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, the parties agree as follows: 1. MERGER 1.1. The Merger (a) Upon the terms and subject to the conditions of this Agreement, at the Effective Time and in accordance with the provisions of this Agreement and the FBCA, Acquiror shall be merged with and into RISCORP, which shall be the surviving corporation (sometimes referred to hereinafter as the "Surviving Corporation") in the Merger, and the separate corporate existence of Acquiror shall cease. Subject to the provisions of this Agreement, articles of merger (the "Articles of Merger") shall be duly prepared, executed and acknowledged by RISCORP, on behalf of the Surviving Corporation, and thereafter delivered to the Secretary of State of the State of Florida for filing on the Closing Date, as required by Section 607.1105 of the FBCA. The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of the State of Florida or at such time thereafter as is provided in the Articles of Merger (the "Effective Time"). (b) From and after the Effective Time, the Merger shall have all the effects as provided in the applicable provisions of the FBCA. Without limiting the generality of the foregoing, and subject thereto, by virtue of the Merger and in accordance with the FBCA, all of the properties, rights, privileges, powers and franchises of RISCORP and Acquiror shall vest in the Surviving Corporation and all of the debts, liabilities and duties of RISCORP and Acquiror shall become the debts, liabilities and duties of the Surviving Corporation. (c) The Articles of Incorporation of RISCORP in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended in accordance with the provisions thereof and the FBCA. (d) The Bylaws of RISCORP in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until altered, amended or repealed as provided in such Bylaws, in the Articles of Incorporation of the Surviving Corporation and in the FBCA. (e) The officers and directors of Acquiror immediately prior to the Effective Time shall be the initial officers and directors of the Surviving Corporation, in each case until their respective successors are duly elected and qualified. 1.2. Conversion of Shares. As of the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, RISCORP or any holder of the following securities: (a) Each share of common stock, par value $.01 of Acquiror ("Acquiror Common Stock") that is issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of Class B Common Stock (as hereinafter defined). 2 (b) Subject to Section 1.3, each share of Class A Common Stock, par value $.01 per share of RISCORP (the "Class A Common Stock") that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into a right to receive an amount in cash equal to the Merger Consideration (as hereinafter defined), without interest, less any required withholding taxes, payable to the holder thereof, as provided in Section 1.4, upon surrender of the certificate formerly representing the Class A Common Stock. (i) As used herein: (1) the term "Merger Consideration" shall equal (A)(I) $2.85 less (II) the excess of the Transactional Expenses over $1,500,000 divided by the Outstanding Class A Shares (as defined in Section 3.2), plus (B) the Contingent Claim Amount divided by the aggregate of the Outstanding Class A Shares and the Outstanding Class B Shares (as defined in Section 3.2); and (2) the term "Contingent Claim Amount" shall equal the value of any recovery obtained by RISCORP from Zenith Insurance Company, Arthur Andersen LLP or their respective insurers in settlement and final discharge of all alleged errors made in the determination of the Final Business Balance Sheet (as defined in that certain Asset Purchase Agreement by and among RISCORP, its subsidiaries and Zenith Insurance Company dated June 17, 1997) (the "Contingent Claim"); provided that (A) the value of any recovery (to the extent not paid in cash or cash equivalents) shall be determined as of the date of settlement of such Contingent Claim by an independent expert well recognized for having the knowledge and experience necessary to value such consideration (the "Independent Expert") who shall be selected by RISCORP within its reasonable discretion and who shall use such valuation methodologies as are reasonably customary under the circumstances and deemed relevant by the Independent Expert (B) the determination of such Independent Expert shall be final, valid and binding on all parties in interest; (C) to the extent that all or any portion of the recovery received in respect of the Contingent Claim is not reasonably subject to valuation (as determined by the Independent Expert) then all or such portion (as the case may be) of such recovery shall be deemed to equal zero; and (D) the Contingent Claim Amount shall be reduced by the aggregate of all fees, costs and expenses incurred by, paid by, or charged to RISCORP in (I) pursuing, prosecuting, settling, and obtaining recovery for any such Contingent Claim, (II) hiring and engaging the Independent Expert and valuing any recovery of the Contingent Claim; and (III) distributing any Contingent Claim Amount to stockholders of RISCORP. (ii) On the Closing Date, RISCORP shall deliver to Acquiror a listing of each holder of Class A Common Stock indicating such holder's name and address (the "Class A Stockholder List"). Not later than forty-five (45) days following the final settlement of the Contingent 3 Claim, RISCORP shall distribute to each holder of Class A Common Stock such holder's pro rata portion of the Contingent Claim Amount to the address shown on the Class A Stockholder List or such other address as any such stockholder may from time to time provide in writing to RISCORP; provided that to the extent that any recovery obtained by RISCORP on any Contingent Claim is other than cash or a cash equivalent, RISCORP, within the exercise of its reasonable discretion, may pay the pro rata portion of the Contingent Claim Amount to the holders of Class A Common Stock in cash or by distribution of any securities or other instruments received by RISCORP in settlement of such Contingent Claim. (iii) Not less than two (2) days prior to the Stockholders' Meeting (as hereinafter defined), RISCORP shall cause the Officer's Certificate (as hereinafter defined ) to be delivered to Acquiror. For purposes of this Agreement: (1) "Transactional Expenses" shall mean the amount of Estimated Transactional Expenses (as hereinafter defined) as set forth on the Officer's Certificate; (2) "Estimated Transactional Expenses" shall mean the sum of the (A) estimated costs, expenses and fees for legal services rendered to RISCORP after the date hereof in connection with the consummation of the transactions contemplated hereby and (B) the estimated fees, costs, and expenses of RISCORP with respect to services provided to RISCORP by KPMG, LLP (or any successor thereto) after the date hereof in connection with the consummation of the transactions contemplated hereby, (excluding any fees, costs and expenses related to the audit of RISCORP's financial statements for the calendar year ending December 31, 1999); and (3) "Officer's Certificate" shall mean a certificate executed by a duly authorized officer of RISCORP which sets forth the Estimated Transactional Expenses and which shall include reasonable and appropriate supporting invoices and/or other documentation. (c) Each share of Class B Common Stock, par value $.01 per share of RISCORP ("Class B Common Stock") that is issued and outstanding immediately prior to the Effective Time shall remain outstanding. 1.3. Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of Class A Common Stock issued and outstanding immediately prior to the Effective Time held by a holder who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded in writing appraisal for such shares in accordance with Sections 607.1301 et seq. of the FBCA shall not be converted into a right to receive the Merger Consideration but shall have the rights set forth in Sections 607.1301 et seq. of the FBCA (or any successor provisions), if applicable unless such holder fails to perfect or otherwise loses such holder's right to such payment or appraisal, if any, pursuant to Sections 607.1301 et seq. of the FBCA. If, after 4 the Effective Time, any holder of Class A Common Stock fails to perfect or loses any such right to appraisal, each such share of such holder shall be treated as a share that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with Section 1.2. RISCORP shall give prompt notice to Acquiror of any notices of dissent, demands for payment of fair value or other communications or actions received by RISCORP with respect to shares of Class A Common Stock, and Acquiror shall have the right to participate in and approve all negotiations and proceedings with respect thereto. RISCORP shall not, except with the prior written consent of Acquiror, make any payment with respect to, or settle or offer to settle, any such demands. 1.4. Payment of Cash for Class A Common Stock. (a) At the Effective Time, RISCORP shall irrevocably deposit or cause to be deposited with a bank or trust company to be designated by RISCORP and reasonably satisfactory to Acquiror which is organized and doing business under the laws of the Untied States or any state thereof and has a combined capital and surplus of at least $100,000,000 (the "Disbursing Agent"), as agent for the holders of the shares of the Class A Common Stock, cash in the estimated aggregate amount required to effect conversion of shares of Class A Common Stock into the Merger Consideration at the Effective Time pursuant to Section 1.2 hereof. Pending distribution hereof pursuant to Section 1.4(b) hereof of the cash deposited with the Disbursing Agent, such cash shall be held in trust for the benefit of the holders of the Class A Common Stock and the fund shall not be used for any other purpose and Acquiror and Surviving Corporation may direct the Disbursing Agent to invest such cash, provided that such investments: (i) shall be obligations of or guaranteed by the United States of America, commercial paper obligations receiving the highest rating from either Moody's Investors Services, Inc. or Standard & Poors Corporation, or certificates of deposit, bank repurchase agreements or bankers acceptance, of domestic commercial banks with capital exceeding $250,000,000 (collectively, "Permitted Investments") or money market funds which are invested solely in Permitted Investments; and (ii) shall have maturities that will not prevent or delay payments to be made pursuant to Section 1.4(b) hereof. Each holder of a certificate or certificates representing shares of Class A Common Stock canceled on the Effective Time pursuant to Section 1.2 hereof may thereafter surrender such certificate to the Disbursing Agent, as agent for such holder of shares of Class A Common Stock, which shall effect the exchange of such certificate or certificates on such holder's behalf for a period ending six months after the Effective Time. Any interest and other income resulting from such investments shall be paid to the Surviving Corporation. (b) After surrender to the Disbursing Agent of any certificate which prior to the Effective Time shall have represented any shares of Class A Common Stock (such shares being the "Surrendered Shares"), the Disbursing Agent shall promptly distribute to the person in whose name such certificate shall have been registered a check in an amount equal to the Merger Consideration multiplied by the number of Surrendered Shares. Until 5 so surrendered and exchanged, each such certificate shall, after the Effective Time, be deemed to represent only the right to receive such cash, and until such surrender and exchange, no cash shall be paid to the holder of such outstanding certificate in respect thereof. No interest or dividends shall be paid or accrued on the Merger Consideration. Not less than ten (10) business days prior to the Closing Date, Acquiror shall submit to RISCORP, letters of transmittal and other documents and materials to be mailed to the holders of Class A Common Stock to facilitate the surrender of such Class A Common Stock. The Surviving Corporation shall immediately following the Effective Time cause to be distributed to such holders such letters of transmittal and other documents and materials approved by RISCORP to facilitate such surrender. (c) If any cash deposited with the Disbursing Agent for purposes of payment in exchange for shares of Class A Common Stock remains unclaimed following the expiration of six (6) months after the Effective Time, such cash shall be delivered to the Surviving Corporation by the Disbursing Agent, and thereafter the Disbursing Agent shall not be liable to any persons claiming any amount of such cash, and the surrender and exchange shall be effected directly with the Surviving Corporation (subject to applicable abandoned property, escheat and similar laws). No interest shall accrue or be payable with respect to any amounts which any such holder shall be so entitled to receive. The Surviving Corporation or the Disbursing Agent shall be authorized to pay the cash attributable to any certificate theretofore issued which has been lost or destroyed, upon receipt of evidence reasonably satisfactory to the Surviving Corporation of ownership of the shares of Class A Common Stock represented thereby and of appropriate indemnification. (d) None of Acquiror, the Surviving Corporation or the Disbursing Agent shall be liable to any person in respect of any shares of retained Class A Common Stock (or dividends or distributions with respect thereto) or cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any certificates representing shares of Class A Common Stock shall not have been surrendered prior to three years after the Effective Time, any such cash, dividends or distributions in respect of such certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (e) If payment is to be made to a person other than the person in whose name a surrendered certificate, which prior to the Effective Time shall have represented any shares of Class A Common Stock, is registered, it shall be a condition to such payment that the certificate so surrendered shall be endorsed or shall otherwise be in proper form for transfer, and that the person requesting such payment shall have paid any transfer and other taxes required by reason of such payment in a name other than that of the registered holder of the certificate surrendered or shall have established to the satisfaction of the Surviving Corporation or the Disbursing Agent that such tax either has been paid or is not payable. (f) From and after the Effective Time, the holders of shares of Class A Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Class A Common Stock except as otherwise provided herein or by law. 6 1.5. Stock Transfers. After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of any shares of Class A Common Stock which were outstanding immediately prior to the Effective Time. 2.CLOSING. Unless otherwise mutually agreed upon in writing by Acquiror and RISCORP, the closing of the Merger (the "Closing") will be held at 10:00 a.m., local time, on the second business day following the date that all of the conditions precedent specified in this Agreement have been (or can be at the Closing) satisfied or waived by the party or parties permitted to do so (such date being referred to hereinafter as the "Closing Date"). The place of Closing shall be at the offices of King & Spalding, 191 Peachtree Street, N.E., Atlanta, Georgia 30303, or at such other place as may be agreed between Acquiror and RISCORP. 3. REPRESENTATIONS AND WARRANTIES OF RISCORP. With such exceptions as are set forth in the appropriate sections of a letter (the "RISCORP Disclosure Letter") delivered by RISCORP to Acquiror on or prior to the date of this Agreement, RISCORP hereby represents and warrants to Acquiror as set forth in this Section 3. 3.1. Organization, Good Standing and Power. RISCORP is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. RISCORP is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification or licensing necessary, except where the failure to be so qualified or licensed or to be in good standing would not, individually or in the aggregate, have a material adverse effect (net of any insurance proceeds recovered) on (a) the financial condition or net worth of RISCORP and RISCORP Subsidiaries (as hereinafter defined) on a consolidated basis or (b) the ability of RISCORP to consummate the transactions contemplated by this Agreement (collectively, a "Material Adverse Effect on RISCORP"). RISCORP has made available to Acquiror complete and correct copies of its Articles of Incorporation and all amendments thereto and its Bylaws as amended and all similar organizational documents for all RISCORP Subsidiaries. 3.2. Capitalization. The authorized capital stock of RISCORP as of the date hereof consists of (a) 100,000,000 shares of Class A Common Stock of which 14,258,671 shares are issued and outstanding (such shares being the "Outstanding Class A Shares"), (b) 100,000,000 shares of Class B Common Stock of which 24,334,443 shares are issued and outstanding (such shares being the "Outstanding Class B Shares"), and (c) 10,000,000 shares of Preferred Stock, par value $.01 per share of RISCORP ("Preferred Stock"), of which no shares are issued and outstanding. All outstanding shares of capital stock of RISCORP have been duly authorized and validly issued and are fully paid and nonassessable and not subject to any preemptive rights. Except as set forth in this Section 3.2, (a) there are no shares of capital stock or other equity securities of RISCORP outstanding, (b) there are no option plans, outstanding options, warrants or rights to purchase or acquire from RISCORP any capital stock of RISCORP, (c) there are no existing registration covenants with RISCORP with respect to outstanding shares of any of the capital stock of RISCORP, and (d) there are no 7 convertible securities or other contracts, commitments, agreements, understandings, arrangements or restrictions by which RISCORP is bound to issue any additional shares of its capital stock or other securities. Other than as contemplated in this Agreement and in the First Amendment to Directors Agreement, there are no voting trusts or other agreements or understandings with respect to the voting of capital stock of RISCORP or any RISCORP Subsidiary to which RISCORP or any RISCORP Subsidiary is a party. 3.3. RISCORP Subsidiaries. Section 3.3 of RISCORP Disclosure Letter sets forth a correct and complete list of each corporation owned directly or indirectly by RISCORP (each a "RISCORP Subsidiary" and collectively the "RISCORP Subsidiaries"). Section 3.3 of the Disclosure Letter also identifies those RISCORP subsidiaries holding insurance licenses or owning any assets (the "Insurance Subsidiaries"). RISCORP owns or controls, directly or indirectly, 100% of the outstanding equity securities of each RISCORP Subsidiary free and clear of all liens, charges, pledges, security interests or other encumbrances. Other than the RISCORP Subsidiaries, RISCORP does not own or control any equity interest in any corporation, partnership, limited liability company, association or other entity. All of the capital stock of each Insurance Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable. There are no outstanding options or rights to subscribe to, or any contracts or commitments to issue or sell, any shares of the common stock, equity interests or other securities (collectively the "Capital Stock") or obligations convertible into or exchangeable for, or giving any person any right to acquire, any shares of the Capital Stock of any Insurance Subsidiary to which RISCORP or any Insurance Subsidiary is a party. Each Insurance Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. 3.4. Authority; Enforceability. RISCORP has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, subject to the approval of this Agreement and the Merger by the stockholders of RISCORP in accordance with the FBCA and the Bylaws and Articles of Incorporation of RISCORP. Subject to such approval and compliance, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of RISCORP, and this Agreement has been duly executed and delivered by RISCORP and constitutes the valid and binding obligation of RISCORP, enforceable against it in accordance with its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) subject to general principles of equity. 3.5. No Violation; Consents. (a) Except for compliance with the Securities Exchange Act of 1934 (the "Exchange Act"), neither the execution, delivery and performance by RISCORP of this Agreement, the filing of the Articles of Merger with the Secretary of State for the State of Florida, the consummation by RISCORP of the transactions contemplated hereby, nor compliance by RISCORP with any of the provisions hereof, will: (i) violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge or encumbrance upon any of the 8 properties or assets of RISCORP, under any of the terms, conditions or provisions of, (x) RISCORP's Articles of Incorporation or Bylaws, (y) the articles of incorporation, certificate of incorporation, bylaws or any similar organizational document of any Insurance Subsidiary, or (z) any note, bond, mortgage, indenture or Material Contract (as hereinafter defined) to which RISCORP or any RISCORP Subsidiary is a party, or by which RISCORP or any RISCORP Subsidiary may be bound, or to which RISCORP or any RISCORP Subsidiary or the properties or assets of any of them may be subject; or (ii) subject to compliance with the statutes and regulations referred to in Section 3.4(b), violate any valid and enforceable judgment, ruling, order, award, writ, injunction, decree, or any statute, rule or regulation applicable to RISCORP or any RISCORP Subsidiary or any of their respective properties or assets. (b) Except for (i) compliance with the Exchange Act, (ii) notices, filings, authorizations, exemptions, consents or approvals, the failure of which to give or obtain would not, individually or in the aggregate, have a Material Adverse Effect on RISCORP, (iii) the filing of the Articles of Merger with the Secretary of State of Florida, and (iv) the filing of the notices with or the consents obtained from the state insurance commissioners of Florida and Missouri or other regulatory authorities set forth in the RISCORP Disclosure Letter and the surrender of certificates of authority or insurance licenses in those states in which such surrender has not been accomplished prior to or at Closing, no notice to, filing with, authorization of, exemption by, or consent or approval of, any governmental authority or other regulatory body is necessary for the consummation by RISCORP of the transactions contemplated by this Agreement. 3.6.RISCORP Financial Statements; SEC Reports. (a) Since February 27, 1998 (such date being the date RISCORP filed the amended Annual Report on Form 10-K/A for the calendar year ending December 31, 1996) (the "Filing Date") RISCORP has filed all reports or amended reports (the "RISCORP Reports") required to be filed by it with the Securities and Exchange Commission (the "SEC") and all RISCORP Reports complied as to form in all material respects with the applicable requirements of law. Each report required to be filed by RISCORP with the SEC since the Filing Date did not on the date of filing of such reports and, except to the extent revised or superseded by a subsequent filing with the SEC prior to the date hereof does not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading. RISCORP has heretofore made available to Acquiror true and correct copies of all RISCORP Reports, together with all exhibits thereto. RISCORP also has made available to Acquiror true and correct copies of the unaudited consolidated balance sheets of RISCORP and the RISCORP Subsidiaries at August 31, 1999 and the related unaudited consolidated statements of income, stockholders' equity and cash flows for the period then ended. The audited consolidated 9 balance sheet of RISCORP and the RISCORP Subsidiaries as of December 31, 1998 as set forth in RISCORP's Annual Report on Form 10-K for the period then ended (the "Form 10-K") is sometimes referred to herein as the "1998 Balance Sheet." (b) All of the financial statements included in the RISCORP Reports (which are collectively referred to herein as the "RISCORP Consolidated Financial Statements") fairly presented in all material respects the consolidated financial position of RISCORP and the RISCORP Subsidiaries as at the dates mentioned and the consolidated results of operations, changes in stockholders' equity and cash flows for the periods then ended in conformity with generally accepted accounting principles ("GAAP") (subject to any exceptions as to consistency specified therein or as may be indicated in the notes thereto or in the case of the unaudited statements, as may be permitted by Form 10-Q of the SEC and subject, in the case of unaudited statements, to normal, recurring year end audit adjustments). 3.7.Absence of Certain Changes or Events. Since December 31, 1998: (a) there has not been any condition, event or occurrence which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect on RISCORP or give rise to a Material Adverse Effect on RISCORP; (b) RISCORP has not changed its accounting principles or methods in any material respect except insofar as may be required by a change in GAAP; (c) there has been no condition, event or occurrence which could reasonably be expected to prevent, materially hinder or materially delay the ability of RISCORP to consummate the Merger or the transactions contemplated by this Agreement; (d) there has not been any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the capital stock of RISCORP or any RISCORP Subsidiary other than dividends paid to RISCORP or a member of the consolidated group of RISCORP; (e) RISCORP has not terminated or accelerated the provisions of any contract or agreement for the provision of professional services; and (f) RISCORP and RISCORP Subsidiaries have not: (i) increased the compensation or fringe benefits of any present or former director, officer or employee of RISCORP or any RISCORP Subsidiary (except for increases in salary or wages of employees in the ordinary course of business consistent with past practice); (ii) granted any severance or termination pay to any present or former director, officer or employee of RISCORP or any RISCORP Subsidiary; 10 (iii) loaned or advanced money or other property by RISCORP or any RISCORP Subsidiary to any of their present or former directors, officers or employees; or (iv) except as contemplated in Section 5.2(c)(xiv), established, adopted, entered into, amended or terminated any RISCORP Employee Plan (as hereinafter defined); or (g) except as contemplated in Section 5.2(c)(xiv), RISCORP has not amended, terminated, modified or accelerated any contract with The Phoenix Management Company, Ltd. 3.8.Taxes and Tax Returns (a) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, RISCORP and the RISCORP Subsidiaries have (i) duly and timely filed (or there has been filed on their behalf) with appropriate governmental authorities all tax returns required to be filed by them, on or prior to the date hereof, except to the extent that any failure to timely file would not, individually or in the aggregate, have a Material Adverse Effect on RISCORP, and (ii) duly paid in full or made provisions in RISCORP Consolidated Financial Statements in accordance with GAAP (or there has been paid or provision has been made on their behalf) for the payment of all Taxes (as hereinafter defined) for all periods ending on or prior to the date hereof. (b) All such returns are correct and complete in all material respects and there are no deficiencies for Taxes (as hereinafter defined) that have been proposed, asserted or assessed against RISCORP or its Tax Affiliates that remain unpaid. (c) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or tax returns of RISCORP or the RISCORP Subsidiaries wherein an adverse determination or ruling in any one such proceeding or in all such proceedings in the aggregate would have a Material Adverse Effect on RISCORP. (d) The RISCORP Disclosure Letter lists all tax returns that have been audited and indicates all tax returns that are currently the subject of audit. Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, neither RISCORP nor any Tax Affiliate has granted any extension or waiver of the statute of limitations period on the assessment of any material Taxes which period (after giving effect to such extension or waiver) has not expired. Since September 17, 1997 and, prior to September 17, 1997, to the Knowledge of RISCORP, neither RISCORP nor any Tax Affiliate has granted power of attorney with respect to any matter relating to any material Tax. Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, no 11 claim has been made by an authority in a jurisdiction where RISCORP or any Tax Affiliate does not file tax returns that it is or may be subject to Tax in that jurisdiction. (e) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, RISCORP and each Tax Affiliate has withheld and paid all Taxes required to have been paid in connection with amounts paid or owing to any employee, independent contractor, stockholder, partner or third party. (f) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, neither RISCORP nor any Tax Affiliate is a party to any Tax allocation, sharing or similar agreement. (g) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, neither RISCORP nor any Tax Affiliate has been a member of an affiliated group filing or consolidated federal income tax return (other than a group the common parent of which was RISCORP). (h) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, neither RISCORP nor any Tax Affiliate has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code. (i) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, no consent under Section 341(f) of the Code has been filed with respect to RISCORP or any Tax Affiliate. (j) Neither RISCORP nor any Tax Affiliate has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. (k) Since September 17, 1997 and, prior to September 17, 1997, to the actual knowledge of RISCORP, without independent investigation or inquiry, no claim for unpaid Taxes has become a lien or encumbrance of any kind against the property of RISCORP or any Tax Affiliate. As used herein (i) the term "Taxes" shall include all Federal, state, local and foreign income, property, premium, sales, excise, employment, payroll, withholding and other taxes and (ii) the term "Tax Affiliate" shall mean any RISCORP Subsidiary and any individual or entity for whose Taxes RISCORP or any RISCORP Subsidiary is or could be held liable whether by reason of being a member of an affiliated, consolidated, combined, unitary or other similar group for tax purposes, by reason of being a successor, member or general partner, by agreement, or otherwise. 12 3.9.Litigation. Except as disclosed in the RISCORP Reports: (a) neither RISCORP nor any RISCORP Subsidiary is a party to any pending or, to the Knowledge of RISCORP (as hereinafter defined), threatened claim, action, suit, investigation or proceeding which, if finally determined adversely, would have, either individually or in the aggregate, a Material Adverse Effect on RISCORP; (b) there is no outstanding order, writ, judgment, stipulation, injunction, decree, determination, award or other decision against RISCORP or any RISCORP Subsidiary which, either individually or in the aggregate, has had or would have a Material Adverse Effect on RISCORP; (c) no officer or director of RISCORP is a party to any pending or, to the knowledge of such officer of director, threatened claim, action, suit, investigation or proceeding or subject to outstanding order, writ, judgment, stipulation, injunction, decree, determination, award or other decision arising out of or related to such officer's or director's actions, inactions, duties, or status as an officer or director of RISCORP. 3.10. Contract and Commitments. Each contract, agreement or other document or instrument ("Material Contract") to which RISCORP or any of its Subsidiaries is a party that was required to be filed as an exhibit to RISCORP's annual report on Form 10-K or 10-K/A for the year ended December 31, 1998 or any quarterly report on form 10-Q filed since December 31, 1998 was so filed. Except for the Shareholder Protection Rights Agreement dated May 13, 1999 by and between RISCORP and First Union National Bank (the "Rights Agreement"), RISCORP is not a party to or subject to any "poison pill", shareholders rights plan, rights agreement or similar agreement, instrument or plan. 3.11. Proxy Statement, etc. The proxy statement (the "Proxy Statement") to be mailed to RISCORP's stockholders in connection with the meeting (the "Stockholders' Meeting") to be called to consider the Merger and any other document filed with the SEC in connection with the Merger, at the date such document is first published, sent or delivered to RISCORP's stockholders and at the Stockholders' Meeting will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading, provided that no representation is made by RISCORP with respect to statements made in such Proxy Statement or other document filed with the SEC in connection with the Merger based on written information supplied by Acquiror or Guarantor specifically for inclusion or incorporation by reference in the Proxy Statement or such other document. All documents that RISCORP is responsible for filing with the SEC and any other regulatory agency in connection with the Merger will comply as to form in all material respects with the provisions of applicable law and any applicable rules or regulations thereunder. 3.12. Employee Benefit Plans. Notwithstanding the following representations regarding employee benefit plans, with respect to any representations or warranties concerning any matter relating to or arising out of any transactions occurring before September 17, 1997, between any party in interest (as defined in Section 3(14) of the Employee Retirement Income Security 13 Act of 1974, as amended ("ERISA")), and the RISCORP Management Services, Inc. Employee Stock Ownership Plan (as amended and restated as part of the RISCORP Management Services, Inc. Retirement Plan) in this Section 3.12 or elsewhere in this Agreement, such representation or warranty shall be based on RISCORP's actual knowledge without independent investigation or inquiry. (a) The RISCORP Disclosure Letter contains a list of each employee benefit plan (as defined in Section 3(3) of ERISA) which is maintained by or contributed to by RISCORP or any RISCORP Subsidiary, each stock option, stock purchase or other equity-based compensation plan maintained by or contributed to by RISCORP or any RISCORP Subsidiary, each other plan, program or other arrangement which provides compensation or taxable benefits to officers of RISCORP or any RISCORP Subsidiary, each employment agreement in effect with any officer or employee of RISCORP or any RISCORP Subsidiary and each agreement which provides any benefits upon a change in control of RISCORP or any RISCORP Subsidiary (individually a "RISCORP Employee Plan" and collectively the "RISCORP Employee Plans"). RISCORP has made available to Acquiror the plan documents or other writing constituting each RISCORP Employee Plan and, if applicable, the trust, insurance contract or other arrangement which holds, or which constitutes, an asset of such plan, the ERISA summary plan description for such plan and the most recent Form 5500 for such plan. RISCORP has identified those RISCORP Employee Plans which RISCORP intends to satisfy the requirements of Section 401 of the Code and has made available to Acquiror accurate copies of the most recent favorable determination letters for such plans. (b) No RISCORP Employee Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code. To the Knowledge of RISCORP, there does not now exist, nor do any circumstances currently exist, that could result in any liability under the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code other than liabilities under such laws that arise solely out of, or relate solely to, the RISCORP Employee Plans ("RISCORP Controlled Acquiror Liability") that would be a liability of RISCORP or any RISCORP Subsidiary following the Effective Time. (c) Neither RISCORP nor any RISCORP Subsidiary is, or has been, a participant in a multi employer plan (within the meaning of ERISA Section 3(37)). Neither RISCORP nor any RISCORP Subsidiary maintains or has at any time maintained a RISCORP Employee Plan which is subject to Title IV of ERISA. Neither RISCORP nor any RISCORP Subsidiary is obligated to provide medical benefits or any other welfare benefits under any RISCORP Employee Plan which is a welfare plan as defined in Section 3(1) of ERISA to or on behalf of any person who is no longer an employee of RISCORP or any RISCORP Subsidiary, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA. (d) Each RISCORP Employee Plan (i) has at all times been maintained, by its terms and in operation, in accordance with all applicable laws, and (ii) which is intended to be qualified under Section 401 of the Code has at all times been maintained, by its terms and in operation, in accordance with Section 401 of the Code, in each case except 14 where a failure to be so maintained would not have a Material Adverse Effect on RISCORP. As of December 31, 1998, neither RISCORP nor any of RISCORP Subsidiaries had any liability under any RISCORP Employee Plan that was not reflected in 1998 Balance Sheet or disclosed in the notes thereto, other than liabilities which individually or in the aggregate would not have a Material Adverse Effect on RISCORP. (e) To the actual knowledge of RISCORP, without independent investigation or inquiry, no prohibited transaction has occurred with respect to any RISCORP Employee Plan maintained by RISCORP or any of the RISCORP Subsidiaries that would result in the imposition of an excise tax or other liability under the Code or ERISA on RISCORP or any RISCORP Subsidiary or in any obligation to reimburse any person for any such tax or other liability. (f) All contributions or premium payments with respect to the RISCORP Employee Plans due for any period ending on or before the Effective Time have been or will be timely paid by RISCORP. The execution of or performance of the transactions contemplated by this Agreement will not create, accelerate or increase any obligations under the RISCORP Employee Plans. 3.13. Collective Bargaining; Labor Disputes; Compliance. Neither RISCORP nor any RISCORP Subsidiary (a) is a party to any collective bargaining agreement or (b) has any employees. To the knowledge of RISCORP, since September 17, 1997, RISCORP and each RISCORP Subsidiary have complied with all laws relating to the employment and safety of labor, including provisions relating to wages, hours, benefits, collective bargaining and all applicable occupational safety and health acts, laws and regulations except, in each case, where the failure to be in compliance would not, individually or in the aggregate, have a Material Adverse Effect on RISCORP. 3.14. Brokers and Finders. Neither RISCORP nor any RISCORP Subsidiary, nor any of their respective officers, directors or employees, has employed or will employ any broker or finder or incurred or will incur any liability for any financial advisory fees, brokerage fees, commissions, or finder's fees, and no broker or finder has acted or will act directly or indirectly for RISCORP or any RISCORP Subsidiary, in connection with this Agreement or any of the transactions contemplated hereby. 3.15. No Violation of Law. To the Knowledge of RISCORP, since September 17, 1997, the business and operations of RISCORP and the RISCORP Subsidiaries have been conducted in compliance with all applicable laws, ordinances, regulations and orders of all governmental entities and other regulatory bodies (including, without limitation, laws, ordinances, regulations and orders relating to zoning, environmental matters and the safety and health of employees and to applicable state and federal insurance laws) except where such noncompliance, individually or in the aggregate, would not have a Material Adverse Effect on RISCORP. Since September 17, 1997, except as disclosed in the RISCORP Reports or the RISCORP Disclosure Letter: 15 (a) neither RISCORP, any RISCORP Subsidiary, nor any officer or director of RISCORP has been charged with or, to the Knowledge of RISCORP, is now under investigation with respect to, a violation of any regulation, ordinance, order or other requirement of a governmental entity or other regulatory body; (b) neither RISCORP, any RISCORP Subsidiary nor any officer or director of RISCORP is a party to or bound by any order, judgment, decree or award of a governmental entity or other regulatory body which has or will have, individually or in the aggregate, a Material Adverse Effect on RISCORP; and (c) RISCORP and the RISCORP Subsidiaries have timely filed all reports required to be filed with any governmental entity or other regulatory body on or before the date hereof as to which the failure to timely file such reports would result, individually or in the aggregate, in a Material Adverse Effect on RISCORP. RISCORP and the RISCORP Subsidiaries have all permits, certificates, licenses, approvals and other authorizations required in connection with the operation of the business of RISCORP and the RISCORP Subsidiaries, except for permits, certificates, licenses, approvals and other authorizations the failure of which to have would not, individually or in the aggregate, have a Material Adverse Effect on RISCORP. The RISCORP Disclosure Letter sets forth a list of all permits, certificates, licenses, approvals and other authorizations required to be obtained in connection with the consummation of the transactions contemplated hereby the failure of which to obtain would have a Material Adverse Effects on RISCORP. 3.16. Voting Requirements. The affirmative vote of (i) the holders of 80% of the issued and outstanding Voting Stock (as defined in RISCORP's Articles of Organization) and (ii) the holders of two-thirds of the shares of Class A Common Stock with respect to this Agreement and the Merger is the only vote of the holders of any class or series of RISCORP's capital stock necessary to approve this Agreement and the transactions contemplated by this Agreement. 3.17. Properties. (a) RISCORP does not own any real property and there are no outstanding contracts for the purchase of any real property. (b) RISCORP and RISCORP Subsidiaries hold good and valid leasehold title to leased real property they occupy, free of all liens except for liens that, individually or in the aggregate, would not have a Material Adverse Effect on RISCORP or liens securing indebtedness evidenced by agreements listed on the RISCORP Disclosure Letter or reflected on the RISCORP Consolidated Financial Statement. All Real Property leases are in full force and effect and grant in all respects the leasehold estates or rights of occupancy or use they purpose to grant. There are no existing defaults (either on the part of RISCORP or any RISCORP Subsidiary, or, to the Knowledge of RISCORP, any other party thereto) under any real property lease and no event has occurred which, with notice or the lapse of time, or both, would constitute a default (either on the part of RISCORP or any RISCORP Subsidiary or, to the Knowledge of RISCORP, any other party thereto) under any of the real property leases. The consummation of the 16 merger will not result in the occurrence of a default under any of the real property leases (whether pursuant to a "change of control" provision in the real property lease or otherwise). 3.18. Amendment to Rights Agreement. On or prior to the date hereof, the Board of Directors of RISCORP has taken all necessary action with respect to the Rights Agreement so that (i) neither Acquiror nor Guarantor will become an "Acquiring Person" as a result of the consummation of the transactions contemplated by this Agreement, (ii) no "Separation Time" (as such term is defined in the Rights Agreement) will occur as a result of the consummation of the transactions contemplated by this Agreement, and (iii) all Class A Rights and Class B Rights (as such terms are defined in Rights Agreement) issued and outstanding under the Rights Agreement or any other similar rights or options issued pursuant to any contract or agreement will not be exercisable as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated herein. 3.19. Disclosure. No representation, warranty or covenant made by RISCORP in this Agreement or the RISCORP Disclosure Letter contains an untrue statement of a material fact or omits to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein not misleading. The disclosure of any item in the RISCORP Disclosure Letter or in any attachment thereto is disclosure for all purposes for which disclosure is required under this Agreement, to the extent that such information is reasonably apparent on its face as being applicable for all such purposes. The inclusion of any item in the RISCORP Disclosure Letter (i) does not represent a determination by RISCORP that such item is "material" or could have a Material Adverse Effect on RISCORP; (ii) does not represent a determination by RISCORP that such item did not arise in the ordinary course of business; and (iii) shall not constitute an admission by RISCORP that such disclosure is required to be made pursuant to any of the representations and warranties contained herein. 4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND GUARANTOR. With such exceptions as are set forth in a letter (the "Acquiror Disclosure Letter") delivered by Acquiror to RISCORP prior to the date of this Agreement, each of Acquiror and Guarantor hereby represents and warrants to RISCORP as follows: 4.1.Organization. Acquiror is a corporation, duly organized, validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. 4.2. Authority; Enforceability. Each of Acquiror and Guarantor has the power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Acquiror, and this Agreement has been duly executed and delivered by Acquiror and Guarantor and constitutes the valid and binding obligation of each such party, 17 enforceable against it in accordance with its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors rights generally and (ii) subject to general principles of equity. 4.3. No Violation; Consents (a) Except for compliance with the Exchange Act, neither the execution, delivery and performance by Acquiror or Guarantor of this Agreement, the filing of the Articles of Merger with the Secretary of State for the State of Florida, the consummation by Acquiror or Guarantor of the transactions contemplated hereby, nor compliance by Acquiror or Guarantor with any of the provisions hereof, will: (i) violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Acquiror or Guarantor, under any of the terms, conditions or provisions of, (x) Acquiror's Articles of Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture or material contract to which Acquiror or Guarantor is a party, or by which Acquiror or Guarantor may be bound, or to which Acquiror or Guarantor or the properties or assets of any of them may be subject, other than as would, with respect to clause (y) not have, individually or in the aggregate, a material adverse effect (net of any insurance proceeds recovered) on (1) the financial condition or net worth of Acquiror or Guarantor or (2) the ability of Acquiror or Guarantor to consummate the transactions contemplated by this Agreement (a "Material Adverse Effect on Acquiror/Guarantor"); or (ii) subject to compliance with the statutes and regulations referred to in Section 4.3(b), violate any valid and enforceable judgment, ruling, order, writ, injunction, decree, or any statute, rule or regulation applicable to Acquiror or Guarantor or any of their respective properties or assets where such violation would, individually or in the aggregate, have a Material Adverse Effect on Acquiror/Guarantor. (b) Except for (i) compliance with the Exchange Act, (ii) notices, filings, authorizations, exemptions, consents or approvals, the failure of which to give or obtain would not, individually or in the aggregate, have a Material Adverse Effect on Acquiror/Guarantor, and (iii) the filing of the Articles of Merger with the Secretary of State of Florida, no notice to, filing with, authorization of, exemption by, or consent or approval of, any governmental authority or other regulatory body is necessary for the consummation by Acquiror or Guarantor of the transactions contemplated by this Agreement. 4.4.Proxy. The written information furnished to RISCORP by Acquiror and Guarantor specifically for inclusion in the Proxy Statement, or any amendment or supplement thereto, or specifically for inclusion in any other documents filed with the SEC by RISCORP in connection with the Merger, shall, (i) with respect to the Proxy Statement at the time the Proxy Statement is 18 mailed and at the time of the Stockholders' Meeting, and, (ii) with respect to the Schedule 13E-3 and such other documents, at the time of filing with the SEC and at the time of such Stockholders' Meeting, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstance under which they were made, not misleading. 4.5. Brokers and Finders. Neither Acquiror nor Guarantor nor any of their respective officers, directors or employees, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions, or finder's fees, and no broker or finder has acted directly or indirectly for Acquiror or Guarantor, in connection with this Agreement or any of the transactions contemplated hereby. 4.6. Capitalization. The authorized capital stock of Acquiror consists of 10,000 shares of common stock, par value $.10 per share of which one (1) share is issued and outstanding on the date hereof and is owned of record and beneficially by Guarantor. Such issued and outstanding stock has been duly authorized and validly issued and is fully paid and non-assessable and free of pre-emptive rights. 4.7. Disclosure. No representation, warranty or covenant made by Acquiror in this Agreement or the Acquiror Disclosure Letter contains an untrue statement of a material fact or omits to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein not misleading. The disclosure of any item in the Acquiror Disclosure Letter or in any attachment thereto is disclosure for all purposes for which disclosure is required under this Agreement, to the extent that such information is reasonably apparent on its face as being applicable for all such purposes. The inclusion of any item in the Acquiror Disclosure Letter (i) does not represent a determination by Acquiror that such item is "material" or could have a Material Adverse Effect on Acquiror/Guarantor; (ii) does not represent a determination by Acquiror that such item did not arise in the ordinary course of business; and (iii) shall not constitute an admission by Acquiror or Guarantor that such disclosure is required to be made pursuant to any of the representations and warranties contained herein. 4.8. Investigation by Acquiror and Guarantor. Acquiror and Guarantor have conducted their own independent review and analysis of the businesses, assets, condition, operations and prospects of RISCORP and the RISCORP Subsidiaries and acknowledge that Acquiror and Guarantor have been provided access to the properties, premises and records of RISCORP and the RISCORP subsidiaries for this purpose. In entering into this Agreement, Acquiror and Guarantor have relied or will rely solely upon their own investigation and analysis and the representations and warranties contained herein, and Acquiror and Guarantor: (a) acknowledge that, except with respect to the RISCORP Reports, none of RISCORP, the RISCORP Subsidiaries or any of their respective directors, officers, employees, affiliates, agents or representatives makes any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to Acquiror and Guarantor or their agents or representatives prior to the execution of this Agreement; and 19 (b) agree, to the fullest extent permitted by law, that none of RISCORP, the RISCORP Subsidiaries or any of their respective directors, officers, employees, affiliates, agents or representatives shall have any liability or responsibility whatsoever to Acquiror or Guarantor on any basis (including, without limitation, in contract or tort or otherwise) based upon any information provided or made available, or statements made, to Acquiror or Guarantor prior to the execution of this Agreement, except that the foregoing shall not apply to the extent RISCORP, the RISCORP Subsidiaries or any of their respective directors, officers, employees, affiliates, agents or representatives commits fraud or engages in intentional deception with respect to the information that it provides or makes available to RISCORP. 5. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS 5.1. Access and Information. Upon reasonable notice, RISCORP shall afford Acquiror and Guarantor and their respective representatives reasonable access during normal business hours to the properties, books, records and personnel of RISCORP and RISCORP Subsidiaries and such additional information concerning the business and properties of RISCORP and RISCORP Subsidiaries as Acquiror and its representatives may reasonably request. 5.2. Conduct of Business Pending Merger. (a) RISCORP agrees that from the date hereof to the Effective Time, except as contemplated by this Agreement or to the extent that Acquiror shall otherwise consent in writing, RISCORP and the RISCORP Subsidiaries will operate their businesses only in the ordinary course, and, consistent with its business practices since April 1, 1998. (b) RISCORP agrees that from the date hereof to the Effective Time, except as otherwise consented to by Acquiror in writing or as permitted, required or contemplated by this Agreement, (i) neither it nor any RISCORP Subsidiary will change any provision of its Certificate of Incorporation or Bylaws or similar governing documents (subject to compliance with Section 5.11 hereto, except such changes as are necessary to effectuate the surrender and/or sale of RISCORP's or RISCORP Subsidiaries' certificate of authority or licenses to transact the business of insurance in the state where such certificates of authority or licenses are currently held); (ii) neither it nor any RISCORP Subsidiary will not make, declare or pay any dividend except for any dividend declared or paid by any RISCORP Subsidiary to RISCORP or any RISCORP Subsidiary; and (iii) neither it nor any RISCORP Subsidiary will make any distribution or directly or indirectly sell, issue, redeem, purchase or otherwise acquire, any shares of its outstanding capital stock, change the number of shares of its authorized or issued capital stock or issue or grant any option, warrant, call, commitment, subscription, right to purchase or agreement of any character relating to its authorized or issued capital stock or any securities convertible into shares of such stock. 20 (c) RISCORP agrees that, except to the extent (i) consented to by Acquiror in writing or (ii) permitted, required or contemplated by this Agreement, from the date hereof it will not, nor will it permit any RISCORP Subsidiary to: (i) enter into any agreement representing an obligation for indebtedness for borrowed money or increase the principal amount of indebtedness under any existing agreement or assume, guarantee, endorse or otherwise become responsible for the obligations of any other individual, firm or corporation; (ii) sell, mortgage, encumber or pledge any of its properties or assets; (iii) take any action to (A) amend or terminate any RISCORP Employee Plan, (B) increase the compensation of any of its directors, executive officers or employees, (C) adopt any other plan, program, arrangement or practice providing new or increased benefits or compensation to its employees, or (D) modify, accelerate the benefits under, amend or terminate any agreement with any of RISCORP's agents, employees, officers or directors, except as set forth in Section 5.2(c)(xiv); (iv) enter into any negotiation with respect to or adopt any collective bargaining agreement; (v) make any significant change in any accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in statutory accounting rules or GAAP; (vi) pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any material agreement or arrangement with, any (A) of its officers or directors, (B) "affiliate" or "associate" of any of its officers or directors (as such terms are defined in Rule 405 promulgated under the Securities Act) or (C) third party; (vii) make any tax election or settle or compromise tax liability that would reasonably be expected to have a Material Adverse Effect on RISCORP; (viii) split, combine, or reclassify any capital stock of RISCORP or any RISCORP Subsidiary; (ix) acquire or agree to acquire by merging or consolidating with or by purchasing a substantial portion of the stock or assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof; 21 (x) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or reorganization; (xi) invest assets of RISCORP or any RISCORP Subsidiary in any security, instrument, or other investment other than in the ordinary course of business at then prevailing market rates consistent with RISCORP's written investment policy; (xii) amend, terminate, modify, or accelerate any material contract or agreement to which RISCORP is a party; (xiii) modify, amend or terminate RISCORP's written investment policy; (xiv) modify or accelerate the provisions of or terminate or amend any contract with The Phoenix Management Company, Ltd. or Buttner Hammock and Company, P.A., provided that RISCORP shall be authorized to take any action necessary to (A)(1) accelerate, effective as of the Closing, the vesting of the Class A Common Stock issued to The Phoenix Management Company, Ltd. pursuant to that certain Restricted Stock Award Agreement by and between The Phoenix Management Company, Ltd. and RISCORP and (2) amend the provisions of the Management Agreement of RISCORP, Inc. dated February 18, 1998 (the "Management Agreement") to reduce the fees paid to The Phoenix Management Company, Ltd. to such amount RISCORP deems appropriate after notice to Acquiror or (B) terminate the Management Agreement. (xv) enter into any agreement to take any of the actions described in Section 5.2(b) or elsewhere in this Section 5.2(c). (d) RISCORP shall keep Acquiror and Guarantor informed with respect to the status of any litigation to which RISCORP, any RISCORP Subsidiary, or any officer, director or employee of RISCORP or any RISCORP Subsidiary is a party (whether or not commenced prior to the date of this Agreement) and shall not settle or compromise any such litigation in which RISCORP or any RISCORP Subsidiary is a defendant without the consent of Acquiror; provided that RISCORP may enter into any settlement agreement for any litigation to which any RISCORP Subsidiary is a defendant in which a determination has been made by RISCORP that neither it nor or any RISCORP Subsidiary has any reasonable basis to assert claims for, cross claims for, or similar rights to recovery if the amount paid for such settlement by RISCORP and the RISCORP Subsidiaries does not exceed $100,000 for any such individual litigation claim and does not exceed $250,000 in the aggregate for all such litigation claims. Further, RISCORP covenants and agrees that it will consult with representatives of Acquiror on an on-going basis with respect to the direction and material decisions affecting the disposition of all litigation in which RISCORP or any RISCORP Subsidiary is either a plaintiff or asserting a cross or other similar form of claim and shall not take any action to settle or compromise and/or resolve any such claim 22 without first giving Acquiror's representatives adequate opportunity to consider the merits of any such settlement, compromise or resolution and an opportunity to advise RISCORP of Acquiror's views with respect to the merits of any such proposed settlement, compromise and/or resolution. (e) Except as provided by this Section 5.2(e) RISCORP shall not, nor shall it permit any RISCORP Subsidiary to, nor shall it authorize or permit any officer, director or employee of, or any investment banker, attorney or other advisor or representative or agent of, RISCORP or any RISCORP Subsidiary to, directly or indirectly, (i) solicit, initiate or encourage the submission of any bona fide proposal with respect to a merger, consolidation, share exchange or similar transaction involving RISCORP or any RISCORP Subsidiary, or any purchase of all or substantially all of the assets of RISCORP other than the transactions contemplated hereby (an "Acquisition Proposal"); (ii) furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal; (iii) withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Acquiror, the approval or recommendation of RISCORP's Board of Directors or any committee thereof of the Merger or this Agreement; (iv) approve or recommend, or propose publicly to approve or recommend, any transaction involving an Acquisition Proposal from a third party (an "Alternative Transaction"); or (v) cause RISCORP to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Alternative Transaction (each an "Acquisition Agreement"). Notwithstanding the foregoing, nothing herein shall prevent RISCORP's Board of Directors from furnishing non-public information to or entering into discussions or negotiations with any person or entity in connection with an unsolicited bona fide Alternative Transaction or recommending such an unsolicited bona fide Alternative Transaction to the stockholders of RISCORP, if and only to the extent that, RISCORP's Board of Directors determines in good faith (after receiving advice from outside counsel as to its fiduciary duties to RISCORP's stockholders under applicable law) that it has received a Superior Proposal (as hereinafter defined). If, in accordance with the immediately preceding sentence, RISCORP's Board of Directors believes it has received a Superior Proposal, it may inform RISCORP's stockholders that it no longer believes that the Merger is advisable and no longer recommends approval of the Merger (a "Subsequent Determination") and may enter into an Acquisition Agreement with respect to a Superior Proposal, but only at a time that is after the third business day following Acquiror's receipt of written notice advising Acquiror that RISCORP's Board of Directors has received a Superior Proposal. Such written notice shall specify the material terms and conditions of such Superior Proposal, identify the person making such Superior Proposal and state that RISCORP's Board of Directors intends to make a Subsequent Determination. During such three business day period, RISCORP shall provide an opportunity for Acquiror to propose such adjustments to the terms and conditions of this Agreement as would enable RISCORP to proceed with its recommendation to its stockholders without a Subsequent Determination; provided, however, that the acceptance of any such proposed adjustment shall be at the sole discretion of RISCORP's Board of Directors, exercised in good faith, and this Agreement shall be amended to reflect any such accepted adjustments; provided, further, however, that any such proposed adjustment, the sole effect of which is to (i) increase 23 the amount of the Merger Consideration, (ii) waive one or more conditions to the obligations of Acquiror to effect the Merger or (iii) modify the terms and conditions of this Agreement to reflect identical terms and conditions contained in such Superior Proposal, shall be automatically accepted by RISCORP, and this Agreement shall be amended to reflect any such automatically accepted adjustments. For purposes of this Agreement, a "Superior Proposal" means any proposal (on its most recently amended or modified terms, if amended or modified) made by a third party to enter into an Alternative Transaction which RISCORP's Board of Directors determines in its good faith judgment to be more favorable to RISCORP's stockholders than the Merger, taking into account all relevant factors (including whether, in the good faith judgment of RISCORP's Board of Directors, the third party is reasonably able to finance the transaction, and any proposed changes to this Agreement that may be proposed by Acquiror in response to such Alternative Transaction). Nothing contained in this Section 5.2(e) or any other provision hereof shall prohibit RISCORP or RISCORP Board of Directors from making such disclosure to RISCORP's stockholders as, in the good faith judgment of RISCORP's Board of Directors after receiving advice from outside counsel, is consistent with its obligations hereunder and is required by applicable law; provided, that RISCORP may not, except as expressly provided by this Section 5.2(e), withdraw, qualify or modify, in a manner adverse to Acquiror, the approval or recommendation of RISCORP's Board of Directors of the Merger or this Agreement. 5.3. Stockholders' Approval. (a) RISCORP shall take all actions reasonably necessary in accordance with applicable law and its articles of incorporation and bylaws to convene the Stockholders' Meeting as soon as reasonably practicable. Except as set forth in Section 5.2(e) in connection with the Stockholders' Meeting, the Board of Directors of RISCORP shall recommend that the stockholders of RISCORP vote to approve this Agreement. (b) RISCORP shall use all commercially reasonable efforts to solicit from holders of shares of Class A Common Stock, proxies in favor of the Merger and shall take all other action necessary or, in the reasonable opinion of the Board of Directors of RISCORP, advisable to secure any vote or consent of the holders of Class A Common Stock required by the FBCA and this Agreement. 5.4. Takeover Statutes. If any "fair price," "moratorium," "control share acquisition," "business combination," "stockholder protection" or similar antitakeover statute or regulation enacted under state or Federal law shall become applicable to the Merger or any of the other transactions contemplated hereby, each of RISCORP and Acquiror and the Board of Directors of RISCORP and partners of Acquiror shall grant such approvals and take such commercially reasonable actions as are within its authority and consistent with its fiduciary obligations to its stockholders as determined in good faith by such Board so that the Merger and the other transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise use commercially reasonable efforts, subject to such fiduciary duties, to eliminate or minimize the effects of such statute or regulation on the Merger and the other transactions contemplated hereby. 24 5.5. Consents. (a) RISCORP and Acquiror, individually or collectively, will use commercially reasonable efforts to take, or cause to be taken all action and to do, or cause to be done all things necessary, proper, or advisable to obtain the written consent or approval of the governmental authorities, regulatory bodies, and other persons or entities identified on Schedule 5.6 in connection with the consummation of the transactions contemplated by this Agreement, except where the failure to obtain any required written consent or approval thereunder would not individually or in the aggregate result in a Material Adverse Effect on RISCORP; provided, however, the costs, expenses and fees incurred by RISCORP in connection with obtaining any consents or approvals from any state department of insurance shall not be included in the Estimated Transactional Expenses. (b) Subject to the terms and conditions herein provided, each of the parties hereto will promptly file and prosecute diligently the applications and related documents required to be filed by such party with the applicable regulatory authorities in order to effect the transactions contemplated hereby. Each party hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. 5.6. Further Assurances. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to obtain the written consent or approval of the governmental authorities, regulatory bodies and other persons or entities identified on Schedule 5.6, the proper officers and directors of each corporation which is a party to this Agreement shall take all such necessary action. Each of the parties hereto agrees to defend vigorously against any actions, suits or proceedings in which such party is named as defendant which seeks to enjoin, restrain or prohibit the transactions contemplated hereby or seeks damages with respect to such transactions. 5.7. Notice; Efforts to Remedy. (a) Each party hereto shall promptly give written notice to the other parties hereto upon becoming aware of the impending occurrence of any event which would cause or constitute a breach of any of the representations, warranties or covenants of such party contained in this Agreement and shall use all commercially reasonable efforts to prevent or promptly remedy the same. During the period from the date of this Agreement to the Effective Time, RISCORP and Acquiror each shall cause one or more of its representatives to confer on a regular and frequent basis with representatives of the other and to report on the general status of its ongoing operations. RISCORP shall promptly notify Acquiror of any material change in each case on a consolidated basis in the normal course of RISCORP's or the RISCORP Subsidiaries' businesses or in the operation of its or their properties and of the receipt by RISCORP or the RISCORP Subsidiaries of notice of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or the receipt by RISCORP or the RISCORP Subsidiaries of a notice of the institution or the threat of litigation involving RISCORP or any of the 25 RISCORP Subsidiaries, and will keep Acquiror fully informed with respect to such events. 5.8. Proxy Materials and Schedule 13E-3. (a) In connection with the Stockholders' Meeting, RISCORP shall prepare and file the Proxy Statement with the SEC and shall use its commercially reasonable efforts to respond to the comments of the SEC and to cause a Proxy Statement to be mailed to RISCORP's shareholders all as soon as reasonably practicable; provided, that prior to filing the Proxy Statement, RISCORP shall consult with Acquiror with respect to such filings and shall afford Acquiror reasonable opportunity to comment thereon. Acquiror shall provide RISCORP with any information for inclusion in the Proxy Statement which may be required under applicable law and which is reasonably requested by RISCORP. (b) RISCORP and any person that may be deemed to be an affiliate of RISCORP shall prepare and file concurrently with the filing of the Proxy Statement a statement on Schedule 13E-3 with the SEC. If at any time prior to the Stockholders' Meeting any event should occur which is required by applicable law to be set forth in an amendment of, or supplement to, the Schedule 13E-3, RISCORP and such person shall file such amendments or supplements. 5.9. Press Releases; Filings. Without the consent of the other parties, none of the parties shall issue any press release or make any public announcement with regard to this Agreement or the Merger or any of the transactions contemplated hereby or thereby; provided, however, that nothing in this Section 5.9 shall be deemed to prohibit any party hereto from making any disclosure which its counsel deems necessary or advisable in order to fulfill such party's disclosure obligations imposed by law or the rules of any national securities exchange or automated quotation system. Each of RISCORP and Acquiror shall promptly notify the other of each report, schedule and other document filed by it or any of its respective Subsidiaries with the SEC and of any other document pertaining to the transactions contemplated hereby filed with any other governmental authorities. 5.10. Indemnification of Officers and Directors. (a) Immediately following the Effective Time, Acquiror shall cause to be in effect the current policies of directors' and officers' liability insurance maintained by RISCORP or any RISCORP Subsidiary (the "D&O Policies") with respect to claims arising from facts or events which occurred at or before the Effective Time, and Acquiror shall maintain such coverage until such policies expire by their own terms or are cancelled by the insurer. On the Closing Date, RISCORP shall transfer to First Union National Bank ("Escrow Agent") an amount equal to $2,500,000 to be held by Escrow Agent for a period not to exceed four and one half years and in accordance with the Escrow Agreement attached hereto as Exhibit D (the "Escrow Agreement"). (b) Until expiration of the applicable statute of limitations period, the Surviving Corporation shall provide with respect to each 26 present or former director or officer of RISCORP and its subsidiaries (both present and past) (the "Indemnified Parties"), the indemnification rights (including any rights to advancement of expenses) which such Indemnified Parties had, whether from RISCORP or such subsidiary, immediately prior to the Merger, whether under the FBCA, the Indemnity Agreements to which each present RISCORP director is a party or the articles of incorporation or the bylaws of RISCORP or such subsidiary or otherwise. (c) This Section 5.10 shall survive the Closing and is intended to benefit RISCORP, the Surviving Corporation and each of the Indemnified Parties and his or her heirs and representatives (each of whom shall be entitled to enforce this Section 5.10 against Acquiror or the Surviving Corporation, as the case may be) and shall be binding on all successors and assigns of Acquiror and the Surviving Corporation. (d) For a period of four and one half years (the "Covenant Period") following the Closing Date, RISCORP shall, as of the end each fiscal quarter during the Covenant Period, maintain a Net Book Value (as hereinafter defined) of not less than the amount set forth in the Acquiror Disclosure Letter, of which an amount set forth in the Acquiror Disclosure Letter shall be comprised of cash and cash equivalents (as determined on a consolidated basis and in accordance with GAAP). As used herein the term "Net Book Value" shall equal (A) the sum of all of RISCORP's assets as of the end of any such fiscal quarter determined on a consolidated basis and in accordance with GAAP less (B) the sum of all of RISCORP's liabilities as of the end of any such fiscal quarter determined on a consolidated basis and in accordance with GAAP. Not more than thirty (30) days following the end of each fiscal quarter during the Covenant Period, a duly authorized officer of RISCORP shall deliver a certificate in the form attached hereto as Exhibit E to each of the persons set forth on Exhibit F certifying RISCORP's compliance with the covenants set forth in this Section 5.10(d). 5.11. Surrender/Sale of Insurance Licenses. RISCORP and Acquiror, individually or collectively shall use commercially reasonable efforts to (i) surrender or cause to be surrendered or sell or cause to be sold at or prior to Closing all certificates of authority or insurance licenses held by RISCORP or by any RISCORP Subsidiary, and (ii) receive or have released by any state insurance commissioner or any other appropriate state authority any and all restricted funds, minimum capital requirements or deposits or any other funds shown as "Cash and Cash Equivalents Restricted" on the 1998 Balance Sheet; provided, however, the costs, expenses and fees incurred by RISCORP in connection with the performance of its obligations under this Section 5.11 shall not be included in the Estimated Transactional Expenses. Notwithstanding RISCORP's efforts to date to surrender or cause to be surrendered all certificates of authority or insurance licenses held by RISCORP or by any RISCORP Subsidiary, RISCORP agrees that it shall cooperate with Acquiror in its efforts to determine whether such certificates of authority or insurance licenses could be sold to a third party immediately prior to the consummation of the Merger without delaying the consummation of the transactions contemplated herein. The parties agree that any such sale of the certificates of authority or insurance licenses would be on terms mutually acceptable to RISCORP and Acquiror and would be subject to, among other things, RISCORP's ability to withdraw its pending requests for the surrender of such certificates of authority or insurance licenses. 27 5.12. Management of Contingent Claim. Notwithstanding any provisions in this Agreement to the contrary, the parties hereto acknowledge and agree that, following Closing, RISCORP shall have all right and authority to manage, pursue and prosecute the Contingent Claim in such manner as RISCORP deems necessary or appropriate within the exercise of RISCORP's sole, absolute and unfettered discretion, including, without limitation, the right (i) to elect not to pursue such Contingent Claim; (ii) to settle, compromise or dismiss such Contingent Claim for such amount and/or for such consideration as RISCORP shall determine in its sole, absolute and unfettered discretion; and (iii) to select and appoint counsel and to determine the means used to prosecute or pursue or settle, resolve or dismiss such Contingent Claim. 6. CONDITIONS PRECEDENT TO MERGER 6.1. Conditions to Each Party's Obligations. The respective obligations of each party to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions: (a) This Agreement and the Merger shall have been approved and adopted by the affirmative vote or consent of the holders of at least (i) 80% of the Voting Stock (as defined in RISCORP's Articles of Incorporation) and (ii) two-thirds of the outstanding shares of Class A Common Stock. (b) All consents, authorizations, orders and approvals identified on Schedule 5.6 required in connection with the execution, delivery and performance of this Agreement, the failure to obtain which would prevent the consummation of the Merger or have a Material Adverse Effect on RISCORP or a Material Adverse Effect on Acquiror/Guarantor, shall have been obtained without the imposition of any condition having a Material Adverse Effect on RISCORP or a Material Adverse Effect on Acquiror/Guarantor. (c) No governmental authority or other regulatory body (including any court of competent jurisdiction) shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making illegal or in any way preventing or prohibiting the Merger or the transactions contemplated by this Agreement. (d) At the mailing date of the Proxy Statement and the date of the Stockholders' Meeting, the Proxy Statement shall not contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements therein not misleading. 6.2. Conditions to Obligations of RISCORP. The obligations of RISCORP to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date (except as set forth herein) of each of the following conditions unless waived by RISCORP: (a) The representations and warranties of Acquiror and Guarantor set forth in Sections 4.1, 4.2, and 4.3 of this Agreement that are 28 qualified as to materiality shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date) as though made at and as of the Closing Date. The representations and warranties of Acquiror and Guarantor set forth in Sections 4.1, 4.2, and 4.3 of this Agreement that are not qualified as to materiality shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date) as though made at and as of the Closing Date. (b) Acquiror and Guarantor each shall have performed in all material respects all covenants and agreements required to be performed by them under this Agreement at or prior to the Closing Date. (c) Acquiror shall furnish RISCORP with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 6.2(a) and 6.2(b). (d) RISCORP shall have paid to Escrow Agent the Escrow Amount and the Escrow Agent and RISCORP shall have executed and delivered the Escrow Agreement. 6.3. Conditions to Obligations of Acquiror. The obligations of Acquiror and Guarantor to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions unless waived by Acquiror and Guarantor: (a) The representations and warranties of RISCORP set forth in Sections 3.1, 3.2, 3.4 and 3.5 of this Agreement that are qualified as to materiality shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date) as though made at and as of the Closing Date. The representations and warranties of RISCORP set forth in Sections 3.1, 3.2, 3.4 and 3.5 of this Agreement that are not qualified as to materiality shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date) as though made at and as of the Closing Date. (b) RISCORP shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date. (c) RISCORP shall furnish Acquiror with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 6.3(a) and 6.3(b). (d) RISCORP shall have paid to Escrow Agent the Escrow Amount and the Escrow Agent and RISCORP shall have executed and delivered the Escrow Agreement. (e) Acquiror shall have received letters of resignation effective as of the Effective Time from each of the officers and directors of RISCORP. 29 7. TERMINATION OF THE MERGER 7.1.Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the approval by the stockholders of RISCORP: (a) by the mutual written consent of Acquiror and RISCORP; (b) by RISCORP : (i) if the Merger is not consummated on or before April 30, 2000 (or such later date as shall have been approved by Acquiror and RISCORP), unless the failure of such occurrence shall be due to the failure of RISCORP to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; (ii) if events occur which render impossible the satisfaction of one or more of the conditions set forth in Sections 6.1 and 6.2 and such conditions are not waived by RISCORP, unless the failure of such occurrence shall be due to the failure of RISCORP to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; (iii) if RISCORP is enjoined or restrained by any governmental authority or other regulatory body (including any court), such injunction or restraining order prevents the performance by RISCORP of its obligations hereunder and such injunction shall not have been withdrawn within 60 days after the date on which such injunction was first issued; (iv) the stockholders of RISCORP shall have voted on this Agreement and the Merger and the votes shall not have been sufficient to satisfy the condition set forth in Section 6.1(a); or (v) in connection with entering into a definitive agreement as permitted by Section 5.2(e) related to a Superior Proposal, provided that Company has complied with all provisions of Section 5.2(e) including, without limitation, the notice provisions thereof. (c) by Acquiror if: (i) the Merger is not consummated on or before April 30, 2000 (or such later date as shall have been approved by RISCORP and Acquiror), unless the failure of such occurrence shall be due to the failure of Acquiror or Guarantor to perform or observe the covenants, agreements and conditions hereof to be performed or observed by them at or before the Effective Time; (ii) events occur which render impossible the satisfaction of one or more of the conditions set forth in Sections 6.1 and 6.3 and 30 such conditions are not waived by Acquiror, unless the failure of such occurrence shall be due to the failure of Acquiror or Guarantor to perform or observe the covenants, agreements and conditions hereof to be performed or observed by them at or before the Effective Time; (iii) Acquiror is enjoined or restrained by any governmental authority or other regulatory body (including any court), such injunction or restraining order prevents the performance by Acquiror of its obligations hereunder and such injunction shall not have been withdrawn within 60 days after the date on which such injunction was first issued; (iv) the stockholders of RISCORP shall have voted on this Agreement and the Merger and the votes shall not have been sufficient to satisfy the condition set forth in Section 6.1(a); or (v) Acquiror receives a written notice from RISCORP's Board of Directors in accordance with Section 5.2(e) that RISCORP's Board of Directors has received a Superior Proposal or intends to make a Subsequent Determination. 7.2.Effect of Termination. In the event of the termination and abandonment of this Agreement under Section 7.1, this Agreement shall become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders except (i) as provided in Section 5.9 and (ii) to the extent that such termination results from the willful breach by any party hereto of any material representation, warranty, covenant, or agreement hereunder. 8. MISCELLANEOUS 8.1. Waiver and Amendment. Any term or provision of this Agreement may be waived in writing at any time by the party which is, or whose stockholders are, entitled to the benefits thereof, and any term or provision of this Agreement may be amended or supplemented at any time by action of the respective Boards of Directors (or its authorized representative) of Acquiror or RISCORP without action of the stockholders, whether before or after the Stockholders' Meeting; provided, however, that after approval of the stockholders of RISCORP no such amendment shall (i) reduce the amount or change the form of the consideration to be delivered to RISCORP's stockholders as contemplated by this Agreement; (ii) otherwise materially adversely affect the interests of such stockholders unless such amendment is approved by RISCORP's stockholders; or (ii) except as allowed by Section 607.1002 of the FBCA, amend the articles of incorporation of either RISCORP or Acquiror. No amendment to this Agreement shall be effective unless it has been executed by RISCORP, Acquiror and Guarantor. 8.2. Non-Survival of Representations and Warranties. None of the representations and warranties of RISCORP set forth in Section 3 to this Agreement or of Acquiror or Guarantor set forth in Section 4 to this Agreement, or in any instrument or certificate delivered pursuant to this Agreement, shall survive the Merger nor shall their respective stockholders, directors or officers have any liability to the other after the Effective Time on account of any breach of warranty or failure or the incorrectness of any of the representations or warranties contained herein or in any certificate or other instrument delivered pursuant to this Agreement. All covenants and agreements set forth in this Agreement shall survive until satisfied or waived by the appropriate party. Except as set forth in the immediately preceding sentence, 31 the sole right and remedy arising from a breach of a representation or warranty, from the failure of any of the conditions of the Merger to be met, or from the failure to perform (other than a willful failure to perform) any promise or discharge any obligation in this Agreement shall be termination of this Agreement by the aggrieved party and the remedies provided in Section 7.2 or Section 8.9 hereof. 8.3. Notices . All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally, telecopied (if confirmed) or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to RISCORP: One Sarasota Tower, Suite 608 Two North Tamiami Trail Sarasota, Florida 34236 Attention: Walter E. Riehemann Telecopy No.: 941-366-0993 With a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: J. Vaughan Curtis Telecopy No.: 404-881-4777 If to Acquiror or Guarantor: 1830 S. Osprey Avenue Suite 100-A Sarasota, Florida 34239 Attention: William D. Griffin Telecopy No.: 941-316-6813 With a copy to: King & Spalding 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: Mr. Edward J. Hawie, Esq. Telecopy No.: (404) 572-5100 32 8.4. Descriptive Headings; Interpretation. The descriptive headings are for convenience of reference only and shall not control or affect the meaning or construction of any provision of this Agreement. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. 8.5. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This Agreement shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that the parties need not sign the same counterpart. 8.6. Entire Agreement. This Agreement contains the entire agreement between Acquiror and RISCORP with respect to the Merger, and supersede all prior arrangements or understandings with respect to the subject matter hereof. Except as otherwise contemplated in the covenants listed in Section 7.2 (which covenants shall be enforceable by the person or persons affected thereby following the Effective Time), this Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder; provided that each current director and officer of RISCORP shall be deemed a third party beneficiary of this Agreement and shall be entitled to enforce the covenants of Acquiror contained in Section 5.10 hereof as if they were a party hereto. 8.7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA (WITHOUT REGARD TO ANY APPLICABLE CONFLICTS OF LAW PROVISIONS THEREOF). 8.8. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions be consummated as originally contemplated to the fullest extent possible. 8.9. Enforcement of Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 33 8.10. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. 8.11. Limited Liability. Notwithstanding any other provision of this Agreement, no stockholder, director, officer, affiliate or representative of RISCORP or Acquiror shall have any personal liability in respect of or relating a breach of the representations or warranties of such party under this Agreement, except to the extent that such person or entity has engaged in fraud with respect to such matters or has engaged in intentional deception with respect to such matters. Except as set forth in the preceding sentence, to the fullest extent legally permissible, each of RISCORP and Acquiror, for itself and its stockholders, directors, officers and affiliates, waives and agrees not to seek to assert or enforce any such liability for a breach of representations and warranties contained herein that any such person otherwise might have pursuant to applicable law. 8.12. Definition of Knowledge. The words "to the Knowledge of RISCORP" or "to RISCORP's knowledge" and words of similar import shall mean the knowledge of any one of the persons listed on Exhibit G. Knowledge shall include actual knowledge as well as the knowledge a reasonable business person would have obtained after making reasonable inquiry and after exercising reasonable diligence with respect thereto. 8.13. Guarantor. (a) Guarantor hereby unconditionally and irrevocably guarantees, to RISCORP the due and punctual performance of each of the obligations and the undertakings of Acquiror under this Agreement when and to the extent the same are required to be performed and subject to all of the terms and conditions hereof. If Acquiror shall fail to perform fully and punctually any obligation or undertaking of Acquiror under this Agreement when and to the extent the same is required to be performed, Guarantor will upon written demand from RISCORP forthwith perform or cause to be performed such obligation or undertaking, as the case may be. The obligations of Guarantor under this guaranty shall constitute an absolute and unconditional present and continuing guarantee of performance to the extent provided herein, and shall not be contingent upon any attempt by RISCORP to enforce performance by Acquiror. (b) Subject to 8.13(a), the obligations of Guarantor under this guaranty are absolute and unconditional, are not subject to any counterclaim, set off, deduction, abatement or defense based upon any claim Guarantor may have against RISCORP (except for any defense Acquiror may have against RISCORP under the terms of this Agreement), and shall remain in full force and effect without regard to (i) any agreement or modification to any of the terms of this Agreement or any other agreement which may hereafter be made relating thereto; (ii) any exercise, nonexercise, or waiver by RISCORP of any right, power, privilege or remedy under or in respect of this Agreement; (iii) any insolvency, bankruptcy, dissolution, liquidation, reorganization or the like of Acquiror at or prior to the Closing; (iv) absence of any notice to, or knowledge by, 34 Guarantor of the existence or occurrence of any of the matters or events set forth in the forgoing causes (i) through (iii); or (v) any other circumstance, whether similar or dissimilar to the foregoing. (c) Guarantor unconditionally waives (i) any and all notice of default, non-performance or non-payment by Acquiror under this Agreement, (ii) all notices which may be required by statute, rule of law or otherwise to preserve intact any rights of RISCORP against Guarantor, including, without limitation, any demand, presentment or protest, or proof of notice of non-payment under this Agreement, and (iii) any right to the enforcement, assertion or exercise by RISCORP of any right, power, privilege or remedy conferred in this Agreement or otherwise. (d) Notwithstanding anything in this Section 8.13 to the contrary, the guaranty set forth in this Section 8.13 shall terminate and shall be of no further force or effect upon the Closing. 35 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its respective duly authorized officers, all as of the date first above written. GRIFFIN ACQUISITION CORP. By: /s/ William D. Griffin Name: William D. Griffin Title: President /s/ William D. Griffin William D. Griffin RISCORP, INC. By: /s/ Walter E. Riehemann Name: Walter E. Riehemann Title: President 36 Exhibit E Form of Section 5.10(d) Compliance Certificate [Date] To the persons set forth in Exhibit F of that certain Plan and Agreement of Merger dated November 3, 1999. Re: Compliance Certificate in accordance with Section 5.10(d) of that certain Plan and Agreement of Merger dated November 3, 1999 (the "Merger Agreement"). This certificate is being delivered to you pursuant to the requirements of Section 5.11 of the Merger Agreement. Capitalized terms used in this certificate but not otherwise defined shall have the meanings assigned to them in the Merger Agreement. The undersigned, being a duly appointed officer of RISCORP, does hereby certify and confirm, in his capacity as such officer, that at the end of the fiscal quarter ending _________, RISCORP satisfied the covenants set forth in Section 5.10(d) of the Merger Agreement. RISCORP, INC. Exhibit F Contact Persons for Compliance with Section 5.10(d) The estate of Frederick M. Dawson Walter L. Revell 12900 Lakeview Point Court H.J. Ross Associates, inc. Windermere, Florida 3770 SW 8th Street Telecopy No: 407-876-0374 Coral Gables, Florida 33134 Telecopy No.: 305-567-1771 Seddon Goode, Jr. Walter E. Riehemann University Research Park, Inc. 6321 Manatee Avenue West 301 South Tyron Street Bradenton, Florida 34209 Two First Union Center Telecopy No.: 941-761-9186 Suite 1980 Charlotte, North Carolina 28202-1910 Telecopy No.: 704-338-9539 George E. Greene, III Edward W. Buttner, IV 1222 Brightwaters Boulevard, NE Buttner, Hammock & Company, P.A. St. Petersburg, Florida 33704 7800 Belfort Parkway Telecopy No.: 727-898-7202 Jacksonville, Florida 32256 Telecopy No.: 904-281-0518 With a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309 Attention: J. Vaughan Curtis, Esq. Telecopy No.: (404) 881-4777 Exhibit G RISCORP's Knowledge 1. Walter E. Riehemann 2. Edward W. Buttner, IV EX-9.1 3 VOTING AGREEMENT VOTING AGREEMENT THIS VOTING AGREEMENT (this "Agreement"), dated as of November 3, 1999, is entered into by and among RISCORP, INC., a Florida corporation ("RISCORP"), and William D. Griffin, an individual resident of the State of Florida ("Griffin"), The RISCORP Group Holding Company Limited Partnership, a Nevada limited partnership ("RGHC"), William D. Griffin Family Limited Partnership, a Nevada limited partnership ("WDG Family Partnership"), Charlotte K. Griffin Trust Number 3, a Florida trust ("CKG Trust"), Anna F. Griffin Trust Number 3, a Florida trust ("AFG Trust"), and John Ford Griffin Trust Number 3, a Florida trust ("JFG Trust"; and, together with RGHC, WDG Family Partnership, CKT Trust, and AFG Trust, the "Shareholders" and each a "Shareholder") of RISCORP. W I T N E S S E T H: WHEREAS, the Shareholders own (both beneficially and of record) in the aggregate 24,334,443 shares of Series B Common Stock, par value $.01, of RISCORP ("Class B Common Stock"); WHEREAS, RISCORP, Acquiror and Griffin are parties to that certain Plan and Agreement of Merger, dated November 3, 1999 (the "Merger Agreement"), pursuant to which Acquiror will be merged with and into RISCORP (the "Merger"); WHEREAS, as a condition to the willingness of RISCORP to enter into the Merger Agreement, RISCORP has requested that each Shareholder agree, and in order to induce RISCORP to enter into the Merger Agreement, each Shareholder has agreed, among other things, (i) with respect to certain questions put to shareholders of RISCORP for a vote, to vote the Shares (as hereinafter defined), in each case, in accordance with the terms and conditions of this Agreement, (ii) in the event a Shareholder should fail to vote its Shares in accordance with the terms of this Agreement, to appoint RISCORP as such Shareholder's proxy to vote all the shares of Class B Common Stock now owned or which may hereafter be acquired by such Shareholder (such Shareholder's "Shares"), and (iii) to the other provisions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Representations and Warranties of Shareholders. Each Shareholder hereby represents and warrants to RISCORP as follows: 1.1. Title to the Shares. Such Shareholder is the owner (both beneficially and of record) of the number of shares of Class B Common Stock set forth opposite its name on the signature pages of this Agreement (which as of the date hereof constitutes each such Shareholder's Shares) and has exclusive power to vote such shares on all matters submitted to holders of shares of Class B Common Stock. Other than the right to convert the shares of Class B Common Stock into shares of Class A Common Stock, such Shareholder does not have any rights of any nature to acquire any additional shares of Common Stock. To the knowledge of each Shareholder, the Shareholders' Shares, in the aggregate, constitute all of the outstanding shares of Class B Common Stock. Except pursuant to (i) the Directors Agreement dated May 19, 1997, among RISCORP, William Griffin, Frederick M. Dawson, Walter L. Revell, Seddon Goode, Jr. and George E. Greene III, as amended (the "Directors Agreement"), and (ii) a Stock Pledge and Security between The RISCORP Group Holding Company Limited Partnership and SouthTrust Bank of Alabama, N.A., dated as of March 28, 1996, as amended (the "Pledge and Security Agreement"), such Shareholder owns all of such Shareholder's Shares free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on such Shareholder's voting rights, charges and other encumbrances of any nature whatsoever, and, except as provided or described in this Agreement, such Shareholder has not appointed or granted any proxy, which appointment or grant is still effective, with respect to any of such Shareholder's Shares. 1.2. Authority Relative to this Agreement. Such Shareholder has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by such Shareholder and the consummation by such Shareholder of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of such Shareholder. This Agreement has been duly and validly executed and delivered by such Shareholder and, assuming the due authorization, execution and delivery by RISCORP, constitutes a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) subject to general principles of equity. 1.3. No Conflict. The execution and delivery of this Agreement by such Shareholder does not, and the performance of this Agreement by such Shareholder will not, (a) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign by such Shareholder, or (b) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to such Shareholder. 2. Covenants of Shareholders. Each Shareholder hereby covenants and agrees that, during the time this Agreement is in effect, except as otherwise specifically contemplated by (i) this Agreement, (ii) the Directors Agreement, or (iii) the Pledge and Security Agreement, such Shareholder shall not, and shall not offer or agree to, sell, transfer, tender, assign, hypothecate or otherwise dispose of, or create or permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, limitation on such Shareholder's voting rights, charge or other encumbrance of any nature whatsoever with respect to the Shares now owned or that may hereafter be acquired by such Shareholder. 3. Voting Agreement; Proxy of Shareholders. 3.1. Voting Agreement. Each Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of RISCORP, however called, and in any action by written consent of the shareholders of RISCORP, such Shareholder shall: (a) vote such Shareholder's Shares in favor of the Merger Agreement (as amended from time to time) and any of the transactions contemplated by the Merger Agreement; and (b) vote the Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of RISCORP under the Merger Agreement or which is reasonably likely to result in any conditions to RISCORP's obligations under the Merger Agreement not being fulfilled. Each of the Shareholders shall vote on all issues other than those specified in this Section 3.1 that may come before a meeting of the Shareholders of RISCORP in such Shareholder's sole discretion, provided that such vote is not inconsistent with the purposes of this Agreement. 3.2. Irrevocable Proxy. Each Shareholder agrees that, in the event such Shareholder shall fail to comply with the provisions of Section 3.1 hereof as determined by RISCORP in its reasonable discretion, such failure shall result, without any further action by such Shareholder, in the irrevocable appointment of RISCORP as the attorney-in-fact and proxy of such Shareholder pursuant to the provisions of Florida law, with full power of substitution, to vote, and otherwise act (by written consent or otherwise) with respect to, the Shares that such Shareholder is entitled to vote at any meeting of shareholders of RISCORP (whether annual or special and whether or not an adjourned or postponed meeting) or consent in lieu of any such meeting or otherwise, solely on the matters and in the manner specified in Section 3.1 hereof. THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Such Shareholder hereby revokes, effective upon the execution and delivery of the Merger Agreement by the parties thereto, all other proxies and powers of attorney with respect to such Shareholder's Shares that such Shareholder may have heretofore appointed or granted (other than as set forth in the Pledge and Security Agreement), and no subsequent proxy or power of attorney (except in furtherance of such Shareholder's obligations under Section 3.1 hereof) shall be given or written consent executed (and if given or executed, shall not be effective) by such Shareholder with respect thereto so long as this Agreement remains in effect. 4. Termination. This Agreement shall terminate on the date (the "Termination Date") that is the earlier of (a) the Closing Date and (b) the date on which the Merger Agreement is terminated in accordance with its terms. 5. Miscellaneous. 5.1. Expenses. All costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such costs and expenses. 5.2. Further Assurances. Each Shareholder and RISCORP will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 5.3. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement is not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 5.4. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among such parties with respect to the subject matter hereof. 5.5. Assignment. This Agreement shall not be assigned by operation of law or otherwise. 5.6. Parties in Interest. This Agreement shall be binding upon, inure solely to the benefit of, and be enforceable by, the parties hereto and their successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 5.7. Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. 5.8. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the terms of this Agreement remain as originally contemplated to the fullest extent possible. 5.9. Notices. Except as otherwise provided herein, all notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, facsimile transmission, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5.9): if to RISCORP: 2 North Tamiami Trail One Sarasota Tower Suite 608 Sarasota, Florida 34236 Attention: Walter E. Riehemann Facsimile: (941) 366-0993 Telephone: (941) 366-5015 with a copy to: Alston & Bird LLP 1201 West Peachtree Street Atlanta, Georgia 30309 Attention: J. Vaughan Curtis, Esq. Facsimile: (212) 424-8500 Telephone: (212) 424-8000 if to the Shareholders: c/o William D. Griffin One Sarasota Tower Suite 410 Sarasota, Florida 34236 Facsimile: (941)316-6813 Telephone:(941)316-6800 with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Attention: Edward J. Hawie, Esq. Facsimile: (404) 572-5100 Telephone: (404) 572-4600 5.10 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Florida applicable to contracts executed in and to be performed in Florida without regard to any principles of choice of law or conflicts of law of such state. 5.11. Definitions. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Merger Agreement. 5.12. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 5.13. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered as of the date first written above. RISCORP, INC. By: /s/ Walter E. Riehemann Walter E. Riehemann President /s/ William D. Griffin WILLIAM D. GRIFFIN 17,268,841 THE RISCORP GROUP HOLDING COMPANY shares LIMITED PARTNERSHIP By: Gryphus Company I, General Partner By /s/ William D. Griffin WILLIAM D. GRIFFIN, President 4,907 211 WILLIAM D. GRIFFIN FAMILY LIMITED shares PARTNERSHIP By: Gryphus Company I, General Partner By: /s/ William D. Griffin WILLIAM D. GRIFFIN, President 719,464 CHARLOTTE K. GRIFFIN TRUST NUMBER 3 ------- shares By: /s/ L. Scott Merritt L. Scott Merritt, Trustee 719,464 ANNA F. GRIFFIN TRUST NUMBER 3 - ------- shares By: /s/ L. Scott Merritt L. Scott Merritt, Trustee 719,463 JOHN FORD GRIFFIN TRUST NUMBER 3 - ------- shares By: /s/ L. Scott Merritt L. Scott Merritt, Trustee EX-10.1 4 AMENDMENT TO SHAREHOLDER PROTECTION RIGHTS AGRMNT FIRST AMENDMENT TO SHAREHOLDER PROTECTION RIGHTS AGREEMENT THIS AGREEMENT ("Agreement"), dated as of the 3rd day of November, 1999, by and between RISCORP, Inc., a Florida corporation (the "Company"), and First Union National Bank, as Rights Agent (the "Rights Agent"), constitutes the First Amendment to the Shareholder Protection Rights Agreement dated May 13, 1999 by and between the Company and the Rights Agent (the "Rights Agreement"). W I T N E S S E T H: WHEREAS, the parties hereto desire to amend the Rights Agreement in certain respects on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. The Rights Agreement is hereby amended by: (a) Adding the following sentence at the end of the definition of "Acquiring Person" in Section 1.1 of the Rights Agreement: "Notwithstanding any of the terms of the foregoing definition, no Person shall become an "Acquiring Person" solely as the result of the execution and delivery of, or the consummation of any of the transactions contemplated by, the Plan and Agreement of Merger dated as of November 3, 1999, by and among the Company, Griffin Acquisition Corp. and William D. Griffin (the "Merger Agreement"), and any agreements, documents or instruments executed or entered into in connection with the Merger Agreement (collectively with the Merger Agreement, the "Transaction Documents")." (b) Deleting the definition of "Expiration Time" in Section 1.1 of the Rights Agreement in its entirety, and inserting the following: ""Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii) the Termination Time, (iii) February 15, 2008, (iv) upon the merger of the Company into another corporation pursuant to an agreement entered into prior to a Flip-In Date, and (v) upon the closing of the merger of Griffin Acquisition Corp. into the Company pursuant to the terms of the Transaction Documents." (c) Adding the following sentence at the end of the definition of "Separation Time" in Section 1.1 of the Rights Agreement: "Notwithstanding any of the terms of the foregoing definition, no "Separation Time" will occur solely as the result of the execution and delivery of, or the consummation of any of the transactions contemplated by, the Transaction Documents." (d) Adding the following sentence at the end of the definition of "Stock Acquisition Date" in Section 1.1 of the Rights Agreement: "Notwithstanding any of the terms of the foregoing definition, no "Stock Acquisition Date" will occur solely as the result of the execution and delivery of, or the consummation of any of the transactions contemplated by, the Transaction Documents, or any public announcement of any of the foregoing." 2. All terms defined in the Rights Agreement which are used herein shall have the meanings defined in the Rights Agreement, unless specifically defined otherwise herein. 3. The term "Agreement" as used in the Rights Agreement shall mean the Rights Agreement, as amended by this Agreement, or as it may from time to time be amended in the future by one or more other written amendment or modification agreements entered into pursuant to the applicable provisions of the Rights Agreement. 4. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 5. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida. 6. Except as expressly herein amended, the terms and conditions of the Rights Agreement shall remain in full force and effect. 7. This Agreement is not intended to be, nor shall it be construed to be, a novation. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. RISCORP, INC. By: /s/ Walter E. Riehemann Walter E. Riehemann President FIRST UNION NATIONAL BANK By: /s/ Joan Kaprinski Joan Kaprinski Vice President EX-10.2 5 FIRST AMENDMENT TO DIRECTORS AGREEMENT FIRST AMENDMENT TO DIRECTORS AGREEMENT THIS FIRST AMENDMENT (this "Amendment") is entered into this 18th day of September, 1997, by and among RISCORP, Inc., a Florida corporation ("RISCORP"), William D. Griffin ("Griffin"), Frederick M. Dawson ("Dawson"), Walter L. Revell ("Revell"), Seddon Goode, Jr. ("Goode"), and George E. Greene III ("Greene") (collectively referred to herein as the "Parties"). W I T N E S S E T H: WHEREAS, on May 19, 1997, the Parties entered into a Directors Agreement setting out certain agreements as to the future make-up of the Board of Directors of RISCORP (the "Board"); WHEREAS, Griffin has agreed to resign as a director and member of the Board; and WHEREAS, the Parties desire to amend certain provisions of the Directors Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 1. Paragraphs 1, 3, 4, and 5.Paragraphs 1, 3, 4, and 5 of the Directors Agreement are hereby deleted in their entirety. 2. Paragraph 2. Paragraph 2 of the Directors Agreement is hereby deleted in its entirety and, in lieu thereof, the following new Paragraph 1 is hereby inserted: "1. Until such time as the Company has no shares of Class A Common Stock outstanding, at which time this Agreement shall terminate, Griffin will (i) cause all of his shares of RISCORP to be voted in favor of Dawson, Revell, Goode, and Greene for director and in favor of no other nominees at all meetings of RISCORP at which directors are elected, and (ii) not take any action to remove any such directors. In addition, Dawson, Revell, Goode, and Greene agree not to add any additional directors to the Board without the prior written consent of Griffin." 3. New Paragraph 2. A new Paragraph 2 to the Directors Agreement is hereby inserted as follows: "2. Griffin shall be reelected to the Board at such time as the sale of substantially all the assets of the Company is completed pursuant to the Asset Purchase Agreement with Zenith Insurance Company dated June 17, 1997, as amended, provided that such directorship is not objected to by any insurance commissioner with jurisdiction over any of the Company's subsidiaries." 4. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned Parties have executed this Amendment as of the day and year set forth above. RISCORP, INC. By: /s/ Frederick M. Dawson Name: Frederick M. Dawson Title: Chief Executive Officer /s/ William D. Griffin William D. Griffin /s/ Frederick M. Dawson Frederick M. Dawson /s/ Walter S. Revell Walter L. Revell /s/ Seddon Goode, Jr. Seddon Goode, Jr. /s/ George E. Greene III George E. Greene III EX-11 6 RISCORP, INC. PER SHARE EARNINGS AS OF 3/31/99
Exhibit 11 RISCORP, INC. AND SUBSIDIARIES Statement Re Computation of Per Share Net Loss Three Months Ended September 30 --------------------------------------- 1999 1998 --------------- ---------------- (Unaudited) (Unaudited) Net loss $ 1,421,066 $ 1,698,032 ============= ============= Weighted average common and common share equivalents outstanding: Average number of common shares outstanding 36,868,114 36,868,114 Restricted stock vested 766,667 194,444 ---------- ---------- Weighted average common shares outstanding - (basic) 37,634,781 37,062,558 ============= ============= Weighted average common and common share equivalents outstanding - (diluted) 37,634,781 37,062,558 ============= ============= Net loss per common share--basic $ 0.04 $ 0.05 ============= ============= Net loss per common share--diluted $ 0.04 $ 0.05 ============= =============
Exhibit 11 RISCORP, INC. AND SUBSIDIARIES Statement Re Computation of Per Share Net Loss Nine Months Ended September 30 --------------------------------------- 1999 1998 --------------- ---------------- (Unaudited) (Unaudited) Net loss $ 5,629,377 $17,261,065 ============ =========== Weighted average common and common share equivalents outstanding: Average number of common shares outstanding 36,868,114 36,868,114 Restricted stock vested 622,917 81,019 ---------- ---------- Weighted average common shares outstanding - (basic) 37,491,031 36,949,133 ============ =========== Weighted average common and common share equivalents outstanding - (diluted) 37,491,031 36,949,133 ============ =========== Net loss per common share--basic $ 0.15 $ 0.47 ============ =========== Net loss per common share--diluted $ 0.15 $ 0.47 ============ ===========
EX-27 7 FINANCIAL DATA SCHEDULE
7 Exhibit 27 RISCORP, INC. AND SUBSIDIARIES Financial Data Schedule As of and for the nine month period ended September 30, 1999 (Unaudited) (in thousands) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1999 SEP-30-1999 79,504 0 0 0 0 0 79,504 4,106 0 0 94,666 0 0 0 0 0 0 0 386 89,391 94,666 0 4,166 150 0 0 0 0 (8,495) 0 (5,629) 0 0 0 (5,629) (.15) (.15) 0 0 0 0 0 0 0 Financial Data Schedule information for the year ending December 31, 1998 is incorporated by reference herein to FORM 10-K/A annual report as filed with the Securities and Exchange Commission by the Company on June 7, 1999. Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein.
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