-----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, NFAf2QO50XCrMkn+0p4QLjT5e4iigF0Fc57pf3/TYHdJwHfcv9QU/kmiGUh6Bi4X WO0n59dG6kSq5L0nDj+95w== 0000798085-97-000008.txt : 19971113 0000798085-97-000008.hdr.sgml : 19971113 ACCESSION NUMBER: 0000798085-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRIS GROUP INC CENTRAL INDEX KEY: 0000798085 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 330097221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12099 FILM NUMBER: 97715330 BUSINESS ADDRESS: STREET 1: 650 TOWN CENTER DR STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145491600 MAIL ADDRESS: STREET 1: 650 TOWN CENTER DRIVE STREET 2: STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626-1925 FORMER COMPANY: FORMER CONFORMED NAME: US FACILITIES CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FORM 10-Q 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, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission file Number: 001-12099 The Centris Group, Inc. ----------------------- (Exact name of Registrant as specified in its charter) DELAWARE 33-0097221 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 650 Town Center Drive, Suite 1600, Costa Mesa, CA 92626 ------------------------------------------------------- (Address of principal executive offices) (Zip code) (714) 549-1600 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report.) 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 each class of the Registrant's Common Stock as of November 7, 1997: Common Stock, par value $.01 per share: 6,027,148 Common Stock Purchase Rights: 6,027,148 1 INDEX Part I FINANCIAL INFORMATION Item 1. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements: Balance Sheets at September 30, 1997 and December 31, 1996........................................3 Income Statements for the Quarters and Nine Months Ended September 30, 1997 and 1996..............................4 Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996..............................5 Notes to Condensed Consolidated Financial Statements..........6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................7 Part II OTHER INFORMATION Item 6. EXHIBITS and REPORTS ON FORM 8-K.............................14 SIGNATURES...................................................................16 2 PART I FINANCIAL INFORMATION Item 1. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements: The Centris Group, Inc. Condensed Consolidated Balance Sheets (Dollars in Thousands) ASSETS
September 30, 1997 December 31, 1996 ------------------ ----------------- (Unaudited) Investments, at market (amortized cost $205,580 at September 30,1997, $185,472 at December 31,1996) $211,996 $194,352 Cash and invested cash 11,827 11,132 Restricted cash and short term investments 27,721 23,771 Accrued investment income 2,552 2,653 Receivables: Reinsurance losses and reserves 26,446 23,975 Premiums 18,309 16,841 Prepaid reinsurance premiums 8,054 6,495 Deferred policy acquisition costs 4,697 3,644 Other assets 11,820 5,880 -------- -------- Total assets $323,422 $288,743 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Insurance liabilities: Amounts due insurance companies $ 32,757 $ 27,148 Losses and loss adjustment expenses 112,626 94,669 Unearned premiums 31,099 22,936 Note payable 33,125 35,000 Accounts payable and accrued expenses 2,297 6,626 --------- --------- Total liabilities 211,904 186,379 Stockholders' Equity 111,518 102,364 --------- --------- Total liabilities and stockholders' equity $323,422 $288,743 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 The Centris Group, Inc. Condensed Consolidated Income Statements (Dollars in Thousands, except per share data)
Quarter Ended Nine Months Ended September 30 September 30 ------------ ------------ 1997 1996 1997 1996 ---- ---- ---- ---- (unaudited) (unaudited) Revenues: Premiums earned $ 38,733 $ 31,047 $116,119 $ 89,906 Commissions and fees 7,728 6,578 23,910 19,472 Net investment income 2,711 2,570 8,114 7,538 Realized investment gains 9,767 330 10,022 1,056 -------- -------- -------- ---------- Total revenues 58,939 40,525 158,165 117,972 -------- -------- -------- ---------- Operating Expenses: Losses and loss adjustment expenses incurred 36,698 21,953 92,220 63,647 Policy acquisition expenses 10,962 9,111 33,954 26,803 General and administrative expenses 4,819 3,755 13,720 10,679 Interest 615 615 1,843 1,994 --------- --------- -------- --------- Total operating expenses 53,094 35,434 141,737 103,123 --------- --------- -------- --------- Income before income taxes 5,845 5,091 16,428 14,849 Income tax expense 1,819 1,382 4,994 3,747 --------- --------- -------- --------- Net income $ 4,026 $ 3,709 $ 11,434 $ 11,102 ========= ========= ======== ========= Net income per common and common equivalent share $ .66 $ .62 $ 1.88 $ 1.86 ========= ========= ======== ========= Weighted average number of common and common equivalent shares outstanding during period 6,136 5,987 6,098 5,970 ========= ========= ======== =========
See accompanying notes to condensed consolidated financial statements. 4 The Centris Group, Inc. Condensed Consolidated Statements of Cash Flows (Dollars in Thousands)
Nine Months Ended September 30, 1997 1996 ---- ---- (unaudited) Cash provided by operating activities $ 13,792 $ 24,240 ---------- ---------- Cash flows from investing activities: Purchases of fixed maturity investments (44,927) (31,268) Purchases of equity securities (13,976) (4,420) Proceeds from sales of investment securities 48,990 20,549 Net purchases of short term investments 197 (4,665) Purchases of property and equipment (916) (1,603) ----------- ----------- Cash used in investing activities (10,632) (21,407) ----------- ----------- Cash flows from financing activities: Payment on note payable (1,875) -- Dividends paid (1,076) (1,055) Exercise of stock options 486 1,320 ----------- ----------- Cash (used in) provided by financing activities (2,465) 265 ----------- ----------- Net (decrease) increase in cash and invested cash 695 3,098 Cash and invested cash at beginning of period 11,132 8,165 ----------- ----------- Cash and invested cash at end of period $ 11,827 $ 11,263 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 1,747 $ 1,904 ========= ========= Income taxes paid, net $ 4,001 $ 2,770 ========= =========
See accompanying notes to condensed consolidated financial statements. 5 The Centris Group, Inc. Notes to Condensed Consolidated Financial Statements 1. General The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 1997, are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1996 included in the 1996 Annual Report to Stockholders of The Centris Group, Inc., formerly known as US Facilities Corporation, (the "Company"). 2. Other SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Disclosure of Information about Capital Structure" will be adopted by the Company for the year ended December 31, 1997. Adoption of these pronouncements is not expected to have a material effect on the financial statements or the related disclosures of the Company. 3. Acquisitions Effective as of January 1, 1997, the Company acquired the medical stop loss business of Global Excess Re, Inc. Effective as of August 1, 1997, the Company acquired Interra Reinsurance Group which focuses on niche and special risk accident and health insurance products and reinsurance products and services. On September 30, 1997, the Company's wholly-owned subsidiary USF RE INSURANCE COMPANY acquired the operations of Allmerica Re from The Hanover Insurance Company. Each of these transactions were accounted for as purchases. The purchase transactions were not material to the financial statements of the Company. The results of operations of each entity since the effective acquisition dates are included in the accompanying condensed consolidated financial statements. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results Of Operations - --------------------- Consolidated revenues of The Centris Group, Inc., formerly known as US Facilities Corporation, (the "Company") increased 45% to $58,939,000 for the third quarter ended September 30, 1997 from $40,525,000 in the 1996 third quarter, and increased 34% to $158,165,000 for the first nine months of 1997 from $117,972,000 for the 1996 nine month period. Increases in premiums earned and commission and fee income in the 1997 periods as compared to the 1996 periods were primarily attributable to growth in the property/casualty segment, additional medical stop-loss business resulting from the acquisition of Global Excess Re in January 1997, and increased production of provider excess coverage. Increases in net investment income in the 1997 periods result from higher levels of invested assets. To lessen its exposure to stock market volatility, the Company realized $9,610,000 in pre-tax gains from its equity portfolio during the quarter. Consolidated net income increased 8% to $4,026,000 for the third quarter of 1997 from $3,709,000 in the third quarter of 1996, and was $11,434,000 for the first nine months of 1997 as compared to $11,102,000 in the 1996 nine month period. Net income for the 1997 periods as compared to the 1996 periods reflects the changes in revenues noted above, an increase in medical lines reserves of $8,000,000 resulting from additional development on medical lines business written during the second half of 1996 and the first half of 1997 and increases in income tax expenses. General and administrative expenses remained below 10% of revenues in all periods presented as the Company continued its focus on productivity and expense control. Income taxes as a percentage of pre-tax income fluctuate depending on the proportion of tax exempt investment income to total pre-tax income, the effect of other permanent differences and the proportion of total income subject to state income taxes. Insurance and reinsurance companies establish reserves for losses incurred but not yet paid in order to match such losses with the related premiums earned. The process of establishing loss reserves is subject to uncertainties that are a normal, recurring aspect of the insurance business which requires the use of informed judgments and estimates. Loss and loss adjustment expense reserve development is reviewed on a regular basis, incorporating analysis of current trends, market changes in the Company's business segments and historical experience to analyze the Company's actuarial assumptions. As additional experience and other data becomes available, the Company's actuarial estimates may be revised. Such revisions may impact earnings. Policy acquisition expenses vary on the basis of market conditions and mix of business. The statutory combined ratio is the traditional indicator of the potential underwriting profitability of an insurance company's business. Statutory 7 combined ratios are presented in conformity with rating agency and industry association presentations which include insurance company net management fee revenues in calculating such ratios. The Company's statutory combined ratios were 106.4 and 97.9 for the nine month periods ended September 30, 1997 and 1996, respectively. Acquisitions - ------------ During the third quarter of 1997, the Company acquired INTERRA Reinsurance Group, an Indianapolis based company which focuses on niche and special risk accident and health insurance products and reinsurance products and services. It is anticipated that INTERRA will bring fee income and underwriting opportunities for the Company's risk assumption businesses in one of the fastest growing sectors of the reinsurance industry -- international accident and health reinsurance. INTERRA will serve as an accident and health reinsurance manager on behalf of the Company's wholly-owned subsidiary USF RE INSURANCE COMPANY ("USF RE"), as well as provide risk management services across the entire enterprise. There has been an accelerating demand for private healthcare throughout the world as nationalized healthcare systems can no longer afford to provide quality care for their growing populations. INTERRA's track record in providing accident and health related products and services to clients in Europe, South America and South Africa will accelerate the Company's ability to implement its strategic initiative in this dynamic industry sector. INTERRA managed in excess of $35 million of premium and generated in excess of $2 million of fee and commission revenue in 1996. In late September, 1997, USF RE acquired the operations of Allmerica Re from The Hanover Insurance Company, a subsidiary of the Allmerica Financial Corporation. The addition of an east coast USF RE treaty branch office through the Allmerica Re acquisition will enhance the growth and development of the property/casualty treaty reinsurance business. The acquisition also brings to the Company underwriting expertise in marine and international reinsurance which will be areas of future growth for USF RE. This acquisition is expected to add approximately $24 million of premium in 1998 as the existing business is renewed in USF RE, and will give USF RE an immediate presence in the eastern United States. The Company continues to actively pursue accretive acquisition opportunities in complementary business lines. 8 Business Segments - ----------------- The Company conducts business in two segments: Medical lines which includes medical stop-loss and provider excess coverages underwritten by the Company's subsidiary, USBenefits Insurance Services, Inc. ("USBenefits") on behalf of The Continental Insurance Company ("Continental"), one of the CNA Insurance Companies, as well as reinsurance of 50% of such business by the Company's USF RE INSURANCE COMPANY ("USF RE") subsidiary. USBenefits is the managing general underwriter and marketing organization for medical lines coverages issued by Continental. Medical stop-loss coverage is a form of insurance that protects employers that self-insure their employee healthcare plans by limiting their exposure from the risk of loss to a pre-established amount. Provider excess coverage limits the financial risks healthcare providers face from medical plans that prepay the providers fixed sums per plan participant (capitated fees) or provide specified rates for services. USBenefits also markets other employee benefits related products on behalf of several national life insurance companies. Medical lines products are marketed through a network of unaffiliated third party administrators, insurance agents, brokers and consultants ("Producers"). Producers have non-exclusive arrangements with USBenefits that enable them to submit requests for coverage quotations. Property/Casualty reinsurance and insurance underwriting is conducted by USF RE and its wholly-owned subsidiary, USF Insurance Company ("USFIC"). These subsidiaries both carry an A (Excellent) rating from A.M. Best Company and USF RE is assigned a claims paying ability rating of Aq by Standard & Poor's. Insurance companies purchase reinsurance in order to control and manage the risk they accept when they issue policies. USF RE assumes, primarily through reinsurance intermediaries, facultative and treaty reinsurance from unaffiliated insurance companies. Facultative is reinsurance of an individual risk; while reinsurance treaties cover risks written or assumed by another insurer in a particular class or classes of business. USF RE concentrates its casualty writings in general liability, commercial auto liability and products liability. It also provides a broad range of coverages for most types of property exposures. USFIC writes surplus lines insurance on commercial property/casualty risks which are marketed through independent excess and surplus lines brokers. The tables set forth below present pre-tax operating information by business segment and holding company operations (including realized gains) for the quarters and nine month periods ended September 30, 1997 and 1996, respectively. 9 Medical lines - ------------- (Dollars in Thousands)
Quarter Ended Nine Months Ended September 30 September 30 ------------ ------------ 1997 1996 %Change 1997 1996 %Change ---- ---- ------- ---- ---- ------- Revenues: Premiums earned $ 24,076 $ 21,215 13% $ 74,646 $ 61,422 22% Commissions and fees 7,728 6,578 17% 23,910 19,472 23% Investment income 900 856 5% 2,651 2,453 8% -------- -------- -------- -------- Total revenues 32,704 28,649 14% 101,207 83,347 21% -------- -------- -------- --------- Expenses: Losses and loss adjustment 25,372 15,116 68% 61,482 42,511 45% Policy acquisition 8,075 7,132 13% 25,644 20,851 23% General and administrative 3,443 2,493 38% 10,036 7,277 38% -------- -------- -------- -------- Total expenses 36,890 24,741 49% 97,162 70,639 38% -------- -------- -------- -------- Income before income taxes $ (4,186) $ 3,908 -- $ 4,045 $ 12,708 -68% ========= ======= ========= ========
Increases in revenues for the 1997 periods are due to growth in the provider excess line and additional medical stop loss business from the acquisition of Global Excess Re in January 1997. As a result, medical lines segment production increased in the 1997 periods over the 1996 periods, generating the changes noted above in premiums earned and commissions and fees revenues. The change in medical lines pre-tax income reflects third quarter additions of $8 million to medical lines reserves. The Company continually reviews its reserves as new information becomes known and claim trends become more fully developed. The Company's third quarter reserve review indicated additional development on medical lines business written during the second half of 1996 and the first half of 1997. In addition, continuing competitive industry conditions resulted in less improvement in premium rate levels than expected. This factor, combined with the first half increases in the severity and frequency of specific and aggregate claims, resulted in the increase in medical lines reserves. During the third quarter, the Company implemented a variety of pricing and underwriting actions to support the underwriting profitability of this line of business. The principal component of these actions is to obtain rate increases in line with claims experience. Since healthcare costs vary depending on the size and nature of the claim and the geographic region, the Company also reviewed its geographic distribution which resulted in rating actions in specific regions of the country where appropriate. In addition, the Company reviewed its producer network and reduced the amount of business written through 10 producers whose books of business have been less profitable. These actions may result in a lower case count, but higher premiums per case, and are not expected to materially affect overall total premium production. The Company expects to continue reserving prudently in recognition that the market will remain competitive and expects that these actions will enhance the stability and long-term profitability of the medical lines business. Policy acquisition expenses vary due to the level of production activity, mix of business and market conditions. Increases in general and administrative expenses in the 1997 periods primarily result from expenses related to the operations of the January acquisition of Global Excess Re. Property/Casualty - ----------------- (Dollars in Thousands)
Quarter Ended Nine Months Ended September 30 September 30 ------------- ------------ 1997 1996 % Change 1997 1996 % Change ---- ---- -------- ---- ---- -------- Revenues: Premiums earned $ 14,657 $ 9,832 49% $ 41,473 $ 28,484 46% Investment income 1,801 1,700 6% 5,427 5,039 8% -------- -------- -------- -------- Total revenues 16,458 11,532 43% 46,900 33,523 40% -------- -------- -------- -------- Expenses: Losses and loss adjustment 11,326 6,837 66% 30,738 21,136 45% Policy acquisition 2,887 1,979 46% 8,310 5,952 40% General and administrative 1,111 1,057 5% 2,922 2,779 5% -------- -------- -------- ------- Total expenses 15,324 9,873 55% 41,970 29,867 41% -------- -------- -------- ------- Income before income taxes $ 1,134 $ 1,659 -32% $ 4,930 $ 3,656 35% ======= ======= ======= =======
Revenue growth in property/casualty lines in the 1997 periods as compared to the 1996 periods was the result of the treaty reinsurance operations' continued expansion and increased marketing efforts. Facultative property and casualty lines also grew, but at a slower rate due to an increasingly competitive marketplace. Increases in premium earned from facultative reinsurance lines reflects a focus on low layer excess accounts and program business. The increase in policy acquisition expenses in the 1997 periods as compared to 1996 results from the continued growth of the property/casualty business lines and changes in the mix of business. 11 Differences in pre-tax income between the quarters primarily reflect increases in treaty writings which carry a higher formula loss ratio than facultative business. Holding Company - --------------- (Dollars in Thousands)
Quarter Ended Nine Months Ended September 30 September 30 ------------ ------------ 1997 1996 % Change 1997 1996 %Change ---- ---- -------- ---- ---- ------- Revenues: Investment income $ 10 $ 14 -29% $ 36 $ 46 -22% Realized gains 9,767 330 -- 10,022 1,056 -- ------- ------ -------- ------ Total revenues 9,777 344 -- 10,058 1,102 -- ------- ------ -------- ------ Expenses: General and administrative 265 205 29% 762 623 22% Interest 615 615 -- 1,843 1,994 -8% ------- ------ -------- ------ Total expenses 880 820 7% 2,605 2,617 -- ------- ------ -------- ------ Gain (loss) before income taxes $ 8,897 $ (476) -- $ 7,453 $(1,515) -- ======= ======= ======= ========
Increases in general and administrative expenses result from higher infrastructure costs in the 1997 periods to support the growth of the Company's business lines. Declines in interest expenses in the 1997 nine-month period result from quarterly reductions in the outstanding balance of bank debt, principal payments on which commenced March 31, 1997, and changes in the variable interest rate charged on the outstanding balance. Inflation - --------- Inflation can negatively impact insurance and reinsurance operations by causing higher claims settlements than may have originally been estimated, while not necessarily allowing an immediate increase in premiums to a level necessary to maintain profit margins. Historically, the Company has made no explicit provisions for inflation, but trends are considered when setting underwriting terms and claim reserves. Such reserves are subjected to a continual internal and external review process to assess their adequacy and are adjusted as deemed appropriate. Overall economic trends also affect interest rates, which in turn affect investment income and the market value of the Company's investment portfolio. 12 Liquidity and Capital Resources - ------------------------------- The Company utilizes cash from operations and maturing investments to meet its insurance obligations to policyholders and claimants, as well as to meet operating costs. Primary sources of cash from operations include premium collections, investment income and commissions and fees. The principal uses of cash from operations are for premium payments to insurance companies, payments of claims under USF RE's and USFIC's reinsurance and insurance contracts, debt reduction, and operating expenses such as salaries, commissions, taxes and general overhead. The Credit Agreement with the Company's lender contains certain covenants, restrictions and dividend payment limitations with which the Company was in compliance at September 30, 1997. The Company anticipates that it will continue to generate sufficient cash flow from operations to cover its short-term (1-18 months) and long-term (18 months to 3 years) liquidity needs. While the Company currently has no immediate plans for significant capital outlays, from time to time it contemplates acquisition opportunities that complement its business operations. The Company's investment portfolio reflects a current allocation of approximately 94% in fixed-income investments, both taxable and tax preferenced, and 6% in equities, with an "AA" average fixed income portfolio rating. The portfolio is not exposed to real estate investments, derivatives, high yield bonds, private placements or mortgage loans. All such securities are carried at quoted market values at the latest balance sheet date. Forward Looking Statements - -------------------------- Some of the statements included within Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related Notes may be considered to be forward looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995), and which are subject to certain risks and uncertainties. Among those factors which could cause the actual results to differ materially from those suggested by such statements are: catastrophe losses in the Company's insurance lines or a material aggregation of losses; changes in federal or state law affecting an employer's ability to self-insure; availability of adequate retrocessional insurance coverage at appropriate prices; a downturn in the general economy; uncertain acceptance of the Company's products; the effects of competitive market pressures within the medical lines or property/casualty marketplaces; the effect of changes required by generally accepted accounting practices or statutory accounting practices; and other risks which are described from time to time in the Company's filings with the Securities and Exchange Commission. 13 PART II OTHER INFORMATION Item 6. EXHIBITS and REPORTS ON FORM 8-K. (a) The following is a list of exhibits required to be filed as part of this Form 10-Q by Item 601 of Regulation S-K: 3.1, 4.1 Restated Certificate of Incorporation, as amended, as presently in effect. Filed as Exhibits 3.1 and 3.1.1 to the Company's Form S-1 Registration Statement declared effective by the Securities and Exchange Commission on October 31, 1986 (the "Registration Statement"), and incorporated herein by this reference; as Exhibit 3 to the Company's Current Report on Form 8-K dated May 24, 1990, and incorporated herein by this reference; and as Exhibit 3(i) to the Company's Current Report on Form 8-K dated May 14, 1997, and incorporated herein by this reference. 3.2, 4.2 Bylaws of the Company, as amended, as presently in effect. Filed under the Company's former name as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, and incorporated herein by this reference. 4.3 Common Stock Certificate of The Centris Group, Inc. Filed as Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by this reference. 4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current Report on Form 8-K dated May 24, 1990, and incorporated herein by this reference. 4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the Company's Current Report on Form 8-K dated January 16, 1992, and incorporated herein by this reference. 4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 29, 1994, and incorporated herein by this reference. 4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the Company's Current Report on Form 8-K dated September 28, 1995, and incorporated herein by this reference. 14 4.8 Fourth Amendment to Rights Agreement. Filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 23, 1997, and incorporated herein by this reference. 10.1* Agreement of Employment between the Company and Mark A. Carney effective as of September 6, 1997. 10.2* Severance Agreement dated September 7, 1997 between the Company and Mark A. Carney. 10.3* Severance Agreement dated July 23, 1997 between the Company and Charles M. Caporale. 11* The Centris Group, Inc. and Subsidiaries Computation of Earnings Per Share. 15* Independent Auditors' Review Report regarding unaudited interim financial information. 27* Financial Data Schedules (b) During the third quarter of 1997 the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K dated July 23, 1997, reporting that effective as of July 23, 1997, the Company and American Stock Transfer & Trust Company, as Rights Agent, adopted a Fourth Amendment to the Rights Agreement adopted by the Company on May 24, 1990, and as subsequently amended. For a detailed description of the foregoing Fourth Amendment reference is made to aforenoted Form 8-K. * Describes exhibits filed with this Quarterly Report on Form 10-Q. 15 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. The Centris Group, Inc. Date: November 12, 1997 By: /S/DAVID L. CARGILE -------------------- DAVID L. CARGILE Chairman of the Board, President and Chief Executive Officer Date: November 12, 1997 By: /S/CHARLES M. CAPORALE ---------------------- CHARLES M. CAPORALE Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 16 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT BETWEEN MARK A. CARNEY AND THE CENTRIS GROUP, INC. This Agreement is made at Costa Mesa, California, this 6th day of September, 1997, between The Centris Group, Inc., a Delaware corporation (the "Company"), and Mark. A. Carney (the "Executive"). In consideration of the respective promises and mutual covenants and agreements which are set forth herein, and intending to be legally bound thereby, the parties hereto agree as follows: Section 1 - Employment. ---------- The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by and to serve the Company on the terms and conditions as set forth in this Agreement. Section 2 - Term of Employment. ------------------ This Agreement will commence and be effective as of September 6, 1997, and shall continue thereafter to and including December 31, 2001. Section 3 - Position and Duties. ------------------- The Executive shall serve the Company as a Senior Vice President and as the President and Chief Operating Officer of INTERRA Reinsurance Group, Inc. ("INTERRA"), which is being acquired by the Company concurrently herewith from Executive pursuant to that certain Stock Purchase Agreement of even date herewith by and between the Company and Executive. Executive shall have all the duties, responsibilities, authority, rights and privileges which normally attach to those offices. Notwithstanding the foregoing, the Executive shall have such 1 additional or other duties, responsibilities and authority as may be delegated or assigned to Executive from time to time by the Company's Board of Directors or by its Chief Executive Officer. Executive's services shall be performed on behalf of the Company consistent with the policies and procedures of the Company, and Executive shall be subject at all times to the supervision, direction and control of the Company's Chief Executive Officer and its Board of Directors. Executive agrees that the Company may at any time change or alter Executive's duties, responsibilities, authority, rights, privileges or titles as may be deemed warranted or in the best interests of the Company; provided, however, that such changes or alterations are consistent with the activities of a Senior Vice President of the Company. Section 4 - Devotion of Time and Best Efforts. --------------------------------- Executive agrees that during the period of his employment he will devote his working and productive time, attention, energies, abilities, skill and efforts exclusively to the business affairs of the Company. In this connection, Executive agrees that he will diligently exert his best efforts to the promotion, development and best interest of the Company and its affiliates, particularly the maximization of its income and the retention and servicing of the business and operations ("Business") of Executive's former employer, INTERRA, and that he will faithfully and diligently perform all of the duties incident to his position. Executive agrees that he will not directly or indirectly, promote, participate or engage in any activities, whether as a partner, employee, creditor, shareholder or otherwise, in any business which shall in any way be, directly or indirectly, in competition with any aspect of the Company's business, nor will Executive own, other than as a mere passive equity investor, more than 10% in any other business enterprise without prior written approval of the Company. The Company acknowledges that as of the date hereof Executive owns 5% of the stock of Specialty Risk International, Inc., ("SRI") a company which has a business relationship with INTERRA. Executive agrees that he will not participate in the management and affairs of SRI, nor will he increase his ownership in SRI without the prior written approval of the Company. Section 5 - Place of Performance. -------------------- In connection with Executive's employment by the Company, the Executive shall be based at the Company's Indianapolis, Indiana offices, except for such 2 travel as may be required to be undertaken on behalf of the Company's business. In the event the Company ceases operations at such location or moves that office to another location, the Company shall be entitled to relocate Executive to the new location. Executive shall be entitled to reimbursement of his relocation expenses in accordance with the Company's customary policies and procedures. Section 6 - Compensation. ------------ 6.01 Salary: The Company shall pay to the Executive a salary at the ------ rate of One Hundred Ninety Thousand Dollars ($190,000) per annum, in equal installments as nearly as practicable, in accordance with the Company's prevailing payroll practices and policies which are in effect from time to time. 6.02 Bonus: In addition to the salary specified in Section 6.01 above, ----- the Executive will be eligible to earn a bonus calculated as provided herein. The bonuses shall be 40% of the following two (2) sources described in Sections A and B below. (A) The after tax profit attributable to the continuing operations of INTERRA as a managing general underwriter, reinsurance broker and administrative services provider, after giving effect to the amortization of the excess amount paid by the Company for the purchase of the INTERRA stock over the agreed upon value of INTERRA's net realizable assets at the Inception Date (the "Brokerage Operating Bonus" or "BOP"); (B) The pre-tax underwriting gain or loss on accident and health business placed or written by or through INTERRA into or with the Company's USF RE INSURANCE COMPANY ("USF RE") subsidiary (the "Underwriting Profit Bonus" or "UPB"). 3 (C) Such bonuses shall be distributable and allocable as follows: (1) The first fifty percent (50%) will be eligible for deferral into the Company's Non-Qualified Deferred Compensation Plan ("Deferred Plan") at the Executive's discretion in accordance with Plan provisions; and (2) The next 25% will be paid to Executive within forty-five (45) days after the end of the period; and (3) The remaining 25% will be escrowed by the Company (the "Escrowed Bonus") until the final bonus calculation is made for the December 31, 2001 bonus period as indicated in Paragraph E(4) below. Any funds withheld by the Company will be held as part of the Company's general assets and not in a trust or segregated account. Interest will be credited on these withheld funds annually at the rate earned by the Company on its short-term funds as reported by Great Northern Capital, the Company's investment advisor. (D) The bonus periods are as follows: (1) The "First Period" which shall be from the inception date of this Agreement through December 31, 1998; and (2) The "Second Period" through the "Fourth Period" shall be the calendar years 1999, 2000 and 2001. (E) Bonuses shall be determined as follows: (1) For the First Period the Executive shall be paid the BOP. The bonus shall be distributed and allocated as set forth in paragraph C above. (2) For the Second Period the Executive shall be paid a bonus equal to the BOP for the Second Period, plus or minus the UPB with respect to business written during the First Period. The bonus shall be distributed and allocated as set forth in paragraph C above. Any 4 deficit for the Second Period due to the UPB deficit exceeding the BOP shall be reduced by the Escrowed Bonus previously earned, and the remaining deficit, if any, shall be carried forward to the Third Period. (3) For the Third Period, the Executive shall be paid a bonus equal to the BOP for the Third Period, plus or minus the UPB with respect to business written during the Second Period and less any deficit from the Second Period. The bonus shall be distributed and allocated as set forth in paragraph C above. Any deficit for the Third Period due to the UPB deficit exceeding the BOP shall be reduced by the Escrowed Bonus previously earned and the remaining deficit, if any, shall be carried forward to the Fourth Period. (4) For the Fourth Period the Executive shall be paid a bonus equal to the UPB with respect to business written during the Third Period, plus the Escrowed Bonus, less any deficit from the Third Period. The bonus shall be distributed and allocated as set forth in paragraph C above, except that Executive shall be paid all funds in the Escrow Bonus. (E) For purposes of the bonus calculations under this Section 6.02, the amortization period of the excess paid over the value of the assets shall be three (3) years. In calculating the after tax profit, the Company will not allocate corporate overhead or credit investment income to the results of INTERRA's operations. For purposes of calculating underwriting gain or loss on business placed or written by or through INTERRA into or with USF RE, Executive agrees that the Company shall have the sole right to determine the loss reserves applicable to such business. Underwriting gain (loss) shall be calculated as the difference between net earned reinsurance premium and (1) incurred losses; (2) commission expenses, including INTERRA's fees and commissions; and (3) the reinsurer's underwriting expense calculated at 2.5% of net earned reinsurance premium. 5 6.03 Death or Disability: In the event of the death or disability of -------------------- Executive during the period of his employment, the Company will pay to Executive, his estate, or any other person whom the Executive shall have designated in writing for such purpose, (i) the amount of salary due to Executive under Section 6.01, to a maximum of one year; and (ii) any bonus payments that would be due to Executive under Section 6.02 through December 31, 2001, which bonus payments shall be calculated and distributed in accordance with the formula set forth in Section 6.02. "Disability" for purposes of this Agreement shall be the inability of Executive to perform services under the Agreement for a period of 60 days during any 120 day period. Section 7 - Benefits. -------- 7.01 General: Executive shall be entitled to participate in employee ------- benefit plans generally available to other employees of the Company, including group health, life and disability insurance, paid vacation, sick leave and any stock option, savings and retirement plans and shall be entitled to an automobile allowance of $500 per month. In addition to the bonus described in Section 6.02 above, the Executive shall be entitled to participate in the Company's annual cash bonus plan. The terms of such participation shall be determined following the execution of this Agreement. 7.02 Club membership: Subject to approval by the Company's Chief ---------------- Executive Officer, the Company shall reimburse Executive for membership in a business club. The Company will pay monthly and annual dues as well as any charges for entertainment at such club when the entertainment is related to the performance of Executive's services on behalf of the Company. 7.03 Expense Reimbursement: Executive is authorized to incur ordinary ---------------------- and necessary expenses in connection with the promotion, operation and furtherance of the business affairs of the Company, consistent with the Company's policies as applicable to all employees. Executive shall be reimbursed by the Company for duly incurred business expenditures upon presentation by the Executive to the Company of an itemized account of such expenditures, together 6 with appropriate receipts and vouchers. The itemized account shall be submitted not less often than monthly on the Company's forms and in accordance with its procedures. 7.04 Severance Agreement: Subject to approval by the Company's Board of ------------------- Directors, the Company and the executive will enter into a Severance Agreement providing certain benefits to Executive in connection with a "Change in Control" of the Company, upon terms and conditions comparable to Severance Agreements with other Senior Vice Presidents of the Company. Executive agrees that in the event he is terminated while this Agreement is in effect and under circumstances that would entitle him to a payment under the Severance Agreement, if in effect, Executive shall be entitled to receive either (i) the salary and bonus termination payments as provided for in this Agreement, or (ii) the salary and bonus termination payments provided for in the Severance Agreement, whichever are greater. Under no conditions shall Executive be entitled to receive salary and bonus termination payments under this Agreement and the Severance Agreement. Section 8 - Termination. ----------- 8.01 Termination for Cause: At any time during the period covered by ---------------------- this Agreement the Company may terminate the Executive from his employment under this Agreement for cause. The term "cause" in this Agreement for purposes of termination shall include, but not be limited to: (i) the commission by Executive of any act of fraud or dishonesty; (ii) a conviction of Executive of a felony in either a state or federal court proceedings; (iii) the material breach or violation by Executive of any term or condition of this Agreement, including, but not limited to, the failure by Executive to diligently and faithfully carry out his duties under this Agreement and the failure of Executive to act in accordance with the Company's policies and procedures (including any underwriting guidelines) or as instructed by the Company's Chief Executive Officer or any other duly authorized representatives of the Company; (iv) the failure by Executive to devote sufficient time to the performance of his duties under this Agreement; (v) Executive taking action, directly or indirectly, for himself or for others, to establish or participate in other business enterprises (other than as a mere passive equity investor of less than 10% of the stock of another corporation), whether or not such enterprises are in competition with the Company; (vi) Executive's failure to follow the Company's business 7 practices, including but not limited to, its underwriting and rating guidelines, its marketing practices and its claims handling and settlement procedures; or (vii) Executive engaging in activities which place Executive in a direct or indirect conflict of interest with the Company including, but not limited to, being involved or associated with, directly or indirectly, an individual, company, firm or other entity that is in competition with the Company's business activities. In the event of termination of Executive for cause, the Company will pay to the Executive the accrued but unpaid salary or other compensation due to Executive under the terms of this Agreement to the date of such termination, but shall have no obligation to make any further payments of salary, bonus payments under Section 6 hereof or any other compensation. Such payment shall be made to Executive either in a lump sum or in accordance with the Company's normal payroll policies and procedures, at the discretion of the Company. 8.02 Involuntary Termination (Without Cause): The Company shall have ----------------------------------------- the right to terminate the Executive involuntarily and without any cause or any reason by paying to the Executive (i) all salary payments which would be due and payable to the Executive pursuant to the provisions of Section 6.02 of this Agreement for the remainder of the term of this Agreement; (ii) any accrued but unpaid expense reimbursements, vacation pay or other compensation due to Executive through the date of termination; and (iii) any bonus payments that would be due to Executive under Section 6.02. Payments of salary and other compensation shall be made to Executive either in a lump sum or in accordance with the Company's normal payroll policies and procedures, at the discretion of the Company. Bonus payments shall be computed and distributed as set forth in Section 6.02 and shall be paid to Executive only at the time of and to the extent that such bonuses are deemed earned, in accordance with the formulas set forth in Section 6.02. Section 9 - Covenants of Non-Competition, Non-Solicitation and -------------------------------------------------- Non-Disclosure. -------------- 9.1 Term of Covenants: It is the intent, understanding and agreement of ----------------- the parties to this Agreement that these covenants of non-competition, non-solicitation and non-disclosure are to run for the period commencing from 8 the date of Executive's employment under this Agreement and continuing for a period of three (3) years after termination of such employment, and that all provisions of whatever nature contained in these covenants shall be binding upon the Executive during such applicable period and shall inure to the benefit of Company; provided, however, that in the event that Executive's employment is terminated by the Company "without cause" pursuant to Section 8.02 hereof, then the term of the covenants of non-competition and non-solicitation shall expire twelve months from the effective date of such termination. The term of the covenant of non-disclosure shall not be effected by such termination. 9.2 Covenant of Non-Competition: Executive shall not during such ----------------------------- aforementioned term, either directly or indirectly, for himself or another person, firm, corporation or business, whether as a sole owner, shareholder, officer, director, employee, agent, consultant or otherwise (except as a less than 10% shareholder only of a publicly held corporation and as the owner of 5% of the stock of SRI) engage in or be involved in any business that, through marketing, sales, underwriting, claims handling, consulting or through other means or devices is engaged in offering or selling the classes or lines of insurance and reinsurance in which INTERRA or the Company are engaged at the closing of the acquisition of INTERRA by the Company. The covenants contained in this Section 9.2 shall specifically refer to those counties in the states in which INTERRA conducted its business prior to the Company's acquisition of INTERRA from Executive, and to those counties in the states in which INTERRA and the Company carry on their business operations following the date of this Agreement. It is agreed that for purposes of this Section 9.2, the Company and INTERRA are deemed to be conducting business in those counties of any state where business operations are conducted by producers with whom the Company and INTERRA have a business relationship. 9.03 Covenant of Non-Solicitation: Executive agrees that during the ----------------------------- term of these covenants he shall not, either directly or indirectly, for himself or another person, firm, corporation or business, solicit or cause to be solicited the customers of the Company or its affiliates, nor shall he, during 9 such period, either directly or indirectly, for himself or for others, employ or assist any competitor of the Company or its affiliates in the employment of any employee of the Company. 9.04 Confidential Information: During the course of his future ------------------------- association with the Company and by virtue of Executive's former position with and his ownership of the stock of his former employer, INTERRA, Executive has had and shall have access to a wide variety of confidential information of the Company, its affiliates and INTERRA and their accounts and methods of operation, including, but not limited to, the following specified items and information and the following general classes of information: (i) "Customer Lists" which consist of current and former insureds and current and former clients of the Company and INTERRA; (ii) The Company's and INTERRA's criteria, their methodology for accepting clients and their operating criteria which are unique to the Company and INTERRA and have been developed or acquired strictly for their own use; (iii) Computer programs and systems of the Company and INTERRA used or which may be used in the conduct of the Company's and INTERRA's business which are unique to the Company and INTERRA and have been developed or acquired strictly for their own use; (iv) All information respecting the Company's and INTERRA's underwriting methodology and systems for accepting, issuing and renewing its insurance or reinsurance products; (v) Lists of the Company's and INTERRA's brokers, agents and third-party administrators, referral sources and other producers of their business; (vi) Agreements of the Company and INTERRA; and 10 (vii) All other information relating to the Company's and INTERRA's business and methods of operation which are unique to the Company and INTERRA which have been developed or acquired strictly for their own use. It is acknowledged and agreed by Executive that all such information as described above is confidential information and property of the Company and INTERRA and constitutes "Trade Secrets" of the Company and INTERRA. Executive further acknowledges and agrees that the trade secrets of INTERRA are an asset of INTERRA which the Company is acquiring as of the date of this Agreement, and that as a stockholder of INTERRA, Executive will receive consideration from the Company for its purchase of INTERRA and its assets, including its trade secrets. 9.05 Covenant of Non-Disclosure: Executive agrees that the items and --------------------------- information classified hereinabove as "Trade Secrets" are of a confidential nature, that such Trade Secrets are vital and essential to the continuing well-being of the Company and INTERRA and that such Trade Secrets shall not be disclosed to any parties other than as set forth herein. Executive acknowledges that such Trade Secrets are not known to the general public nor are they known by or disclosed to competitors of the Company and INTERRA, that disclosure of such Trade Secrets can be advantageous to the Company's competitors and harmful to the Company, and have been or will be disclosed to Executive because of his position as a former owner of INTERRA and as a continuing employee of the Company. Executive agrees not to make any such disclosure unless authorized in writing to do so by the Company or unless required by applicable law, and acknowledges that it is his responsibility to the Company that such Trade Secrets not be disclosed by him to third parties since such a disclosure, particularly to competitors of the Company, will adversely and materially affect the Company's ability to do business and will cause substantial and irreversible damage to the Company's economic well-being. 9.06 Enforcement of Covenants: It is the intention of the parties -------------------------- hereto that the provisions of these covenants shall be enforced to the fullest extent permissible under the laws and public policies of the State of California and the State of Indiana. However, it is further agreed that the provisions of these covenants will not preclude the Executive from engaging in a profession, trade or business except as contemplated by the covenants of this Section 9, which covenants are necessary to protect the legitimate interests of the Company and INTERRA in their Trade Secrets and business. 9.07 Remedies: -------- (i) The parties acknowledge and agree that given the irreparable harm which could result to the Company from violations by Executive of any of the provisions of these covenants, damages would be an inadequate remedy at law for any such breach and that, in addition to any other rights or remedies which the Company may have, the Company may enforce the provisions of these covenants and may obtain relief for any breach or threatened breach of these covenants, if necessary, by use of a temporary restraining order, a preliminary injunction, permanent injunction, or specific performance. (ii) For purposes of this Agreement, the Executive agrees that any of the following shall be deemed per se to constitute irreparable injury to the Company for which the Company shall be entitled to injunctive relief: (A) use, misuse or disclosure of Trade Secrets, (B) solicitation of existing customers; or (C) breach of any of the provisions related to covenants not to solicit or to disclose Trade Secrets. (iii) Any dispute arising out of or in connection with this Section 9 will be resolved as provided in Section 10 hereof. 9.08 Severability of Covenants: The unenforceability (or the --------------------------- modification to conform with such laws and public policies) of any provision of these covenants shall not render unenforceable or impair the remainder of the covenants. Accordingly, if any provisions of these covenants shall be determined to be invalid or unenforceable, either in whole or in part, these covenants shall be amended to delete or modify, as necessary, the offending provisions or offending portions of said provisions and to alter the balance of these covenants in order to render the same valid and enforceable. Without limiting 12 the generality of the foregoing, the parties agree that if the area covered by these covenants, i.e., any state where the Company is presently carrying on its business or where it may carry on its business during the term of these covenants, or if the term of the covenants is deemed by a court or other body having jurisdiction to be unreasonably broad, there shall be automatically substituted for such area or term, such area of coverage or such length of time as such court or other body having jurisdiction deems to be reasonable and sufficient to protect the Company's interests herein. Section 10 - Settlement of Disputes: ---------------------- 10.1 Other than disputes arising under Section 9 hereof, any dispute arising as a result of this Agreement or regarding the interpretation or application of this Agreement, or any act which allegedly has or would violate any provision of this Agreement must be submitted as a general reference pursuant to California Code of Civil Procedure Section 638(1) to arbitration in Orange County, California in accordance with the rules of Judicial Arbitration and Mediation Service as the exclusive remedy for such claim or dispute. Either party may make this request by serving on the other, in writing, a request to arbitrate. Within 30 days after such service, either party may institute proceedings in State Court to enforce this clause by filing appropriate papers. If the parties cannot mutually select a judge from the arbitration panel, the Court shall make the selection. The decision of the arbitrator will be final, and it may then be entered as a superior court judgment (CCP 644) from which either party may appeal pursuant to CCP 645. 10.2 The parties may agree on limited discovery. However, in the absence of an agreement, each party shall (i) take not more than four depositions, totaling not more than 12 hours cumulatively; (ii) propound not more than four sets of interrogatories, not to exceed 40 single questions each; (iii) serve not more than 10 requests for admissions; and (iv) propound not to exceed 15 requests to produce documents, all as may be "reasonable," as measured by circumstances and amount in dispute between the parties. Any disagreements between the parties regarding discovery matters shall be resolved by the Referee. 13 10.3 Other than a dispute arising under Section 9 hereof, the Referee may resolve any claim or dispute arising out of, or in connection with, or based upon this Agreement, whether or not such claim is described as breach of contract or tort. Damages, however, shall be limited to those based on actual damages and punitive damages may not be awarded. The prevailing party of any such dispute or litigation shall be entitled to receive from the losing party all costs and expenses, including reasonable counsel fees, incurred by the prevailing party. 10.4 Any dispute arising out of or in connection with Section 9 of this Agreement shall be brought in the Orange County Superior Court of the State of California, or in the United States District Court for the Central District of California, and by execution of this Agreement both the Company and Executive accept the exclusive jurisdiction of such courts for disputes under Section 9 hereof, and hereby irrevocably agree to be bound by any judgment rendered thereby in connection with this Agreement relating to such issues. Section 11 - Setoff. ------ Amounts payable to Executive under this Agreement, whether they be salary, benefits or other compensation, shall be subject to the Company's right to setoff against any amounts which the Executive owes to the Company. Section 12 - Non-Assignability. ----------------- This Agreement is a personal service contract and the rights and duties of the parties hereunder shall not be assignable, except in accordance with the provisions of Section 13 of this Agreement. Any attempted assignment or transfer not permitted by the terms of Section 13 shall be void and of no force and effect. Section 13 - Successors and Assigns. ---------------------- If the Company shall at any time be merged or consolidated into or with any other corporation, or if substantially all of the assets of the Company are transferred to another corporation or party, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity or successors 14 resulting from such merger or consolidation or to which such assets shall be transferred. To the extent applicable, this Agreement shall be binding on the devises, heirs, next of kin, executors and administrators of the Executive. Section 14 - Notice. ------ (a) All notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to the other party if served personally on such other party or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested or by an express courier service generating a receipt, e.g. Federal Express. If such notice, demand or other communication be served personally, service shall be deemed made at the time of such personal service. If such notice, demand or other communication be given by mail or courier service, such notice shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the United States mail or delivery to the courier service, addressed to the party to whom such notice, demand or other communication is to be given as hereinafter provided. Notice shall be given to the Company at the following address: The Centris Group, Inc. 650 Town Center Drive, Suite 1600 Costa Mesa, California 92626 Attention: Jose A. Velasco, Senior Vice President, Chief Administrative Officer, Secretary and General Counsel With copies to: R.W. Loeb, Esq. R.W. Loeb, Prof. Corp. 865 South Figueroa Street, Suite 2500 Los Angeles, California 90017-2567 Notice shall be given to the Executive at the following address: Mark A. Carney 848 Wedgewood Lane Carmel, Indiana 46033 15 With copies to: Clifford A. Holleran, Esq. 4630 West Jefferson Boulevard, Suite 11A Fort Wayne, Indiana 46804 Any party hereto may change his address for purposes of receiving notices, demands or other communications as herein provided by a written notice given in the manner described above to the other party hereto. Section 15 - Applicable Governing Law. ------------------------ This Agreement, having been negotiated, executed and delivered in the State of California, which is the Company's state of incorporation, shall be construed in accordance with the laws of the State of California; and the validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California, including its laws and decisions relating to conflict of laws. Section 16 - Severability. ------------ Every provision in this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid, for any reason whatsoever, such illegality or invalidity shall not affect the validity or enforceability of the remainder hereof. Section 17 - Captions. -------- The captions or headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provisions hereof. Section 18 - Amendments/Waivers. ------------------ No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16 Section 19 - Entire Agreement. ---------------- Except as otherwise provided in Section 7.04 hereto, this Agreement expresses the entire agreement of the parties hereto, and supersedes all prior written or oral promises, representations, understandings, arrangements and agreements between these parties with respect to the subject matter herein. The parties hereto further acknowledge and agree that neither of them has made any representation to induce the execution and delivery of this Agreement, except those as specifically set forth herein. Section 20 - Signatures. ---------- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers, and the Executive has signed this Agreement as indicated below, as of the day and year first written above. THE CENTRIS GROUP, INC. By /S/ DAVID L. CARGILE ---------------------- David L. Cargile, Chairman of the Board, President and Chief Executive Officer EXECUTIVE: /S/ MARK A. CARNEY - ------------------ Mark A. Carney 17 EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 SEVERANCE AGREEMENT THIS AGREEMENT is made and entered into as of this 7th day of September, 1997, by and between THE CENTRIS GROUP, INC., a Delaware corporation (the "Company"), and MARK A. CARNEY ("Executive"). RECITALS WHEREAS, the Executive is currently employed by the Company and is considered a key employee of the Company; and WHEREAS, the Company desires to retain the services of the Executive; and WHEREAS, the Company and the Executive desire to set forth the amounts payable and benefits to be provided by the Company to the Executive in the event of a termination of the Executive's employment with the Company under the circumstances set forth herein after the happening of a Change in Control (as defined herein); NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: AGREEMENT 1. Continued Employment. In reliance upon the promises of the Company --------------------- hereinafter contained, the Executive agrees that, for a period of not less than six (6) months commencing on the date set forth above, and subject to reasonable absences for illness, holiday and vacation or personal leave of absence in accordance with the Company's policies and practices in effect on the date 1 hereof, the Executive will continue his employment with the Company and shall devote his best efforts to such duties as may be assigned to him by the Company from time to time. 2. Other Severance Arrangements. Except to the extent specifically set ---------------------------- forth herein, in the event of the termination of the Executive's employment with the Company, the Executive shall be entitled to receive any Company benefits payable under any employee benefit plan, program, policy or arrangement as such may then be in effect, including all such termination arrangements with Executive that may be described in any employment agreement. 3. Effective Date. This Agreement shall be effective as of the date --------------- first above written ("Effective Date") and shall continue and remain in full force and effect until the termination of Executive's employment with the Company, unless this Agreement is earlier terminated by the parties in writing. The completion of six (6) months of employment with the Company by the Executive as set forth in Section 1 shall not be a condition precedent to the effectiveness of this Agreement or to the payments of amounts or provision of benefits hereunder in the event the Executive's employment with the Company is terminated under the circumstances described in Section 4(b). 4. Termination of Employment. ------------------------- (a) Events Requiring No Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances, no payments shall be or become due and owing, and the Company shall have no other obligations under Section 5 of this Agreement: (i) By either party for any reason prior to the happening of a Change in Control (as hereinafter defined); (ii) By either party for any reason at any time more than two (2) years after a Change in Control; 2 (iii) By the Company at any time, whether prior to, contemporaneous with or subsequent to a Change in Control, for reason of "Cause" (as hereinafter defined) or due to the request or demand of any regulatory authority; or (iv) By the Executive at any time, whether prior to, contemporaneous with or subject to a Change in Control, upon his retirement or resignation for reasons other than "Good Reason" (as hereinafter defined). Notwithstanding the foregoing, nothing contained in this Section 4(a) shall prevent the Executive or his spouse, heirs, estate or personal representative from receiving any amounts payable under any other plan, program, policy or arrangement that is not a severance plan, program, policy or arrangement. (b) Events Requiring Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances set forth in (i) and (ii) below, the Company shall make the payments and provide the benefits as set forth in Section 5: (i) By the Company, contemporaneously with or within two (2) years after the happening of a Change in Control, for any reason other than (1) for Cause or (2) due to the request or demand of any regulatory authority; or (ii) By the Executive, contemporaneously with or within two (2) years after a Change in Control, for Good Reason. (c) For purposes of this Agreement, the term "Cause" shall mean (i) the commission by Executive of any material act of fraud or dishonesty; (ii) a final conviction of Executive of a felony in either a state or federal court proceeding; (iii) intentional and willful failure by Executive to faithfully carry out his duties and responsibilities as an employee of the 3 Company, after reasonable notice in writing to and discussion thereafter with Executive; and (iv) Executive engaging in activities which place Executive in a direct or indirect conflict with the Company or its interests. The decision as to the existence of "Cause," as described in (i), (iii) and (iv) above, shall be determined by a majority of the Company's nonemployee Directors; provided, however, if there is a change in the composition of the Board such that those persons who served as nonemployee Directors on the Effective Date of this Agreement represent less than fifty percent (50%) of the total number of nonemployee Directors, then "Cause" shall be determined by use of the Settlement of Disputes provisions set forth in Section 8 of this Agreement. (d) For purposes of this Agreement, the term "Good Reason" shall mean the following five (5) events; provided, however, that Executive may waive in writing his objection to the occurrence of any such event, in which case such event will no longer constitute "Good Reason": (i) Any material breach by the Company of its obligations contained in this Agreement; (ii) The assignment to the Executive of any duties inconsistent with the status of his position with the Company as such duties and position existed on the day immediately preceding the happening of a Change in Control, or an alteration in the nature or status of the Executive's duties and responsibilities that renders the Executive's position to be of less dignity, responsibility or scope from that which existed on the day immediately preceding the happening of a Change in Control; provided, however, it shall not be an event of Good Reason if the Executive is assigned additional duties for the Company or any affiliate or subsidiary of the Company which are not inconsistent with the duties described in Section 1 hereof so long as the aggregate of all duties assigned to the Executive in connection with his service with the Company, its affiliates or subsidiaries do not require the Executive to devote, on a consistent and sustained basis, substantially more time than other senior level executives of the Company are required to devote to their duties; 4 (iii) A reduction by the Company in the Executive's annual base salary as was in effect on the day immediately preceding the happening of a Change in Control or as the same may be increased from time to time; (iv) The failure of the Company to continue in effect of the benefits enjoyed by the Executive under the Company's 1988 Employee Stock Plan or its 1991 Employee Stock Option Plan or under the Company's Incentive Compensation Program, or any other compensation plan, program or arrangement, or any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health-and-accident, disability or other employee benefit plans, programs or arrangements as they existed on the day immediately preceding the happening of a Change in Control, or the failure of the Company to continue the Executive's participation therein; or the failure by the Company to provide the Executive with the number of paid vacation days to which he is entitled on the basis of years of service and position with the Company in accordance with the Company's normal vacation policy, or the failure of the Company to continue or if the Company adversely changes or reduces other specific contractual benefits or perquisites provided to Executive as they existed on the day immediately preceding the happening of a Change in Control, including, but not limited to, providing an automobile or an automobile allowance, club memberships, and dues for professional associates for Executive; (v) The assignment of the Executive to an office which is located more than 50 miles from the office at which the Executive was primarily performing his duties on the day immediately preceding the happening of a Change in Control. (e) For purposes of this Agreement, a "Change in Control" shall mean the occurrence, after the Effective Date hereof, of any of the following events if such events are not approved by the Board of Directors of the Company prior to their occurrence: 5 (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Directors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall 6 be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the sole and absolute authority to make a final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive; (ii) At any time during the term of this Agreement the composition of the Board of Directors of the Company is changed such that persons who were directors of the Company as of the Effective Date, or persons nominated or elected as directors by a majority of such persons who were directors as of the Effective Date, do not continue to comprise a majority of the members of such Board of Directors of the Company; (iii) At any time during the term of this Agreement the stockholders of the Company approve a merger or consolidation of the Company with, or a reorganization transaction involving the Company and, any other entity, other than a merger, consolidation or reorganization which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) At any time during the term of this Agreement the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than 50% of its consolidated assets. 5. Obligations of the Company Upon Termination of Employment. Upon ------------------------------------------------------------ termination of Executive's employment with the Company under the circumstances 7 set forth in Section 4(b), the Executive shall be entitled to receive, notwithstanding such termination, the following payments and to be provided the following benefits: (a) Salary and Bonus: Subject to the limitations set forth in Section 7 hereof, the Company shall pay to the Executive that amount which is equal to his regular base salary, at the rate then in effect, for a period of two (2) years, plus a bonus in an amount which shall be equal to the largest cash bonus actually received by Executive during his term of employment with the Company; provided, however, that if Executive shall have entered into an Employment Agreement with the Company which is in effect at the time of Executive's termination, then and in that event the Company and Executive hereby agree that upon Executive's termination Executive shall be entitled to receive either (i) the salary and bonus termination payments under this Section 5(a), or (ii) the salary and bonus terminations payments provided for in such Employment Agreement, whichever salary and bonus termination payment is the greater; but under no conditions shall Executive be entitled to receive upon termination both the salary and bonus termination payments under this Severance Agreement and the salary and bonus termination payments under any such Employment Agreement. (b) Method of Payment: The payments due to Executive under Section 5(a) of this Agreement shall be made as follows: (i) The Company shall pay to the Executive his regular base salary in installments consistent with the Company's payroll practices then in effect, or in a single lump sum payment, whichever method is selected by Executive, in his sole discretion; (ii) The Company shall pay to Executive the bonus payments in a single lump sum; and (iii) Any lump sum payments due to Executive shall be paid to Executive on the Effective Date of his termination of employment. 8 (c) Other Benefits: The Company shall continue in force for Executive for a period of two (2) years after Executive's termination the life insurance, medical, health-and-accident and disability benefit plans or programs then in effect on the date of Executive's termination from the Company; provided, however, that such other benefits as are set forth in this Section 5(c) shall not be required to be available to Executive if subsequent employment by Executive with another employer offers to Executive similar plans or programs in which the benefits equal or exceed the benefits which Executive could receive under the Company's plans or programs as provided herein. 6. No Duty to Mitigate. The Executive shall not be required to mitigate ------------------- the amount of any payment required hereunder by seeking other employment or otherwise, nor shall the amount paid hereunder be reduced or offset by any compensation earned or received by the Executive as a result of employment with another employer, self-employment or any amount received from any other plan, program, policy or arrangement of the Company. 7. Nonapplicability of Excise Tax. The parties intend that this --------------------------------- Agreement shall govern the rights an obligations of the parties with respect to severance payments payable upon a termination of Executive's employment with the Company, and that the excise tax as now provided in Section 280G of the Internal Revenue Code shall not be applicable to payments under this Agreement. Accordingly, the parties agree that the aggregate amount which shall be paid to Executive under this Agreement shall be $1.00 less than that amount which would make such payment to Executive an "excess parachute payment" under the provisions of Sections 280G of the Internal Revenue Code, and to which an excise tax would be applicable. 8. Settlement of Disputes. ---------------------- (a) It is specifically agreed that any controversy or dispute between the parties to this Agreement involving the construction, interpretation, application, performance or breach of the terms, covenants or conditions of this Agreement or in any way arising under this Agreement shall, on demand of one of the parties by written notice hereto served on the other in the manner prescribed in Section 9(a) hereof, be determined pursuant to the general reference procedures prescribed by California Code of Civil Procedure Sections 638(1), et seq., as they may be amended from time to time, by a retired or former judge of the Superior Court for the County of Orange, State of California. The parties intend this general reference agreement to be specifically enforceable in accordance with said Section 638(1). (b) The reference may be commenced by any party hereto by the filing in the Superior Court of the State of California for the County of Orange of a petition or a motion for a general reference proceeding. (c) The petition or motion may designate as a sole referee a retired judge working with JAMS who is acceptable to that party. If the parties to the reference proceeding are unable to mutually agree upon a referee, the Presiding Judge or any judge of the Orange County Superior Court to whom the matter is assigned shall appoint a retired or former Orange County Superior Court Judge from those listed with JAMS as available to act as a referee. (d) The petition and any opposition or response thereto shall recite in a clear and meaningful manner the factual basis of the controversy between the parties and identify the issues to be submitted to the referee for decision. (e) The parties acknowledge that this Agreement is specifically enforceable and that the decision by the referee is tantamount to a judgment by a trial court (CCP ss. 644) and is subject to review in accordance with CCP ss. 645, and that any judgment rendered in the trial court is appealable in the same manner as any other trial court judgment. (f) The parties may agree on limited discovery. However, in the absence of an agreement, each party may: (i) take up to three depositions not totaling more than six hours cumulatively; (ii) propound one set of interrogatories, not to exceed 20 single questions; (iii) serve not more than 10 10 requests for admissions; and (iv) propound not to exceed 15 requests to produce documents, all as may be "reasonable," as measured by the circumstances and amount in dispute between the parties. Any disagreements between the parties regarding discovery matters shall be resolved by the referee. (g) The hearing shall be held within 60 days after the referee is selected. The referee shall issue a written memorandum of decision setting forth his findings of fact and conclusions of law. 9. Miscellaneous. ------------- (a) Notices: All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, first-class postage prepaid, to the parties to this Agreement at the following addresses: If to the Company: The Centris Group, Inc. 650 Town Center Drive, Suite 1600 Costa Mesa, California 92626 Attention: Chief Executive Officer If to Executive: Mark A. Carney 848 Wedgewood Lane Carmel, Indiana 46804 or to such other address as either party to this Agreement shall have last designated by notice to the other party. All such notices and communications shall be deemed to have been received on the earlier of the date of receipt or the third business day after the date of mailing thereof. (b) Binding Effect; Benefits: This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person, other than the 11 parties to this Agreement or their respective successors or assigns, any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. (c) Waiver: Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach, and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same any subsequent time or times hereunder. (d) Amendment: This Agreement may be terminated, amended, modified or supplemented only by a written instrument executed by the Executive and the Company. (e) Nonassignability: Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or the Executive without the prior written consent of the other party. (f) Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the law that might be applied under principles of conflict of laws. 12 (g) Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (h) Withholding of Taxes: The Company may withhold from amounts required to be paid to the Executive hereunder any applicable federal, state, local and other taxes with respect thereto; provided, however, that the Company shall promptly pay over the amounts so withheld to the appropriate taxing bodies and provide to the Executive appropriate statements on forms proscribed for such purposes on the amounts so withheld. (i) Severability: If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law, any prior agreement on the subject matter of this Agreement between the Company (or any predecessor thereof) and the Executive shall be deemed reinstated as if this Agreement had not been executed. (j) Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 13 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer, and the Executive has signed this Agreement, all as of the date first above written. Company: THE CENTRIS GROUP, INC. ------- By /S/ DAVID L. CARGILE --------------------- DAVID L. CARGILE President and Chief Executive Officer Executive: --------- /S/ MARK A. CARNEY ------------------ MARK A. CARNEY 14 EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 SEVERANCE AGREEMENT THIS AGREEMENT is made and entered into as of this 23rd day of July, 1997, by and between THE CENTRIS GROUP, INC., a Delaware corporation (the "Company"), and CHARLES M. CAPORALE ("Executive"). RECITALS WHEREAS, the Executive is currently employed by the Company and is considered a key employee of the Company; and WHEREAS, the Company desires to retain the services of the Executive; and WHEREAS, the Company and the Executive desire to set forth the amounts payable and benefits to be provided by the Company to the Executive in the event of a termination of the Executive's employment with the Company under the circumstances set forth herein after the happening of a Change in Control (as defined herein); NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: AGREEMENT 1. Continued Employment. In reliance upon the promises of the Company --------------------- hereinafter contained, the Executive agrees that, for a period of not less than six (6) months commencing on the date set forth above, and subject to reasonable absences for illness, holiday and vacation or personal leave of absence in 1 accordance with the Company's policies and practices in effect on the date hereof, the Executive will continue his employment with the Company and shall devote his best efforts to such duties as may be assigned to him by the Company from time to time. 2. Other Severance Arrangements. Except to the extent specifically set ---------------------------- forth herein, in the event of the termination of the Executive's employment with the Company, the Executive shall be entitled to receive any Company benefits payable under any employee benefit plan, program, policy or arrangement as such may then be in effect, including all such termination arrangements with Executive that may be described in any employment agreement. 3. Effective Date. This Agreement shall be effective as of the date --------------- first above written ("Effective Date") and shall continue and remain in full force and effect until the termination of Executive's employment with the Company, unless this Agreement is earlier terminated by the parties in writing. The completion of six (6) months of employment with the Company by the Executive as set forth in Section 1 shall not be a condition precedent to the effectiveness of this Agreement or to the payments of amounts or provision of benefits hereunder in the event the Executive's employment with the Company is terminated under the circumstances described in Section 4(b). 4. Termination of Employment. ------------------------- (a) Events Requiring No Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances, no payments shall be or become due and owing, and the Company shall have no other obligations under Section 5 of this Agreement: (i) By either party for any reason prior to the happening of a Change in Control (as hereinafter defined); (ii) By either party for any reason at any time more than two (2) years after a Change in Control; 2 (iii) By the Company at any time, whether prior to, contemporaneous with or subsequent to a Change in Control, for reason of "Cause" (as hereinafter defined) or due to the request or demand of any regulatory authority; or (iv) By the Executive at any time, whether prior to, contemporaneous with or subject to a Change in Control, upon his retirement or resignation for reasons other than "Good Reason" (as hereinafter defined). Notwithstanding the foregoing, nothing contained in this Section 4(a) shall prevent the Executive or his spouse, heirs, estate or personal representative from receiving any amounts payable under any other plan, program, policy or arrangement that is not a severance plan, program, policy or arrangement. (b) Events Requiring Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances set forth in (i) and (ii) below, the Company shall make the payments and provide the benefits as set forth in Section 5: (i) By the Company, contemporaneously with or within two (2) years after the happening of a Change in Control, for any reason other than (1) for Cause or (2) due to the request or demand of any regulatory authority; or (ii) By the Executive, contemporaneously with or within two (2) years after a Change in Control, for Good Reason. (c) For purposes of this Agreement, the term "Cause" shall mean (i) the commission by Executive of any material act of fraud or dishonesty; (ii) a final conviction of Executive of a felony in either a state or federal court proceeding; (iii) intentional and willful failure by Executive to 3 faithfully carry out his duties and responsibilities as an employee of the Company, after reasonable notice in writing to and discussion thereafter with Executive; and (iv) Executive engaging in activities which place Executive in a direct or indirect conflict with the Company or its interests. The decision as to the existence of "Cause," as described in (i), (iii) and (iv) above, shall be determined by a majority of the Company's nonemployee Directors; provided, however, if there is a change in the composition of the Board such that those persons who served as nonemployee Directors on the Effective Date of this Agreement represent less than fifty percent (50%) of the total number of nonemployee Directors, then "Cause" shall be determined by use of the Settlement of Disputes provisions set forth in Section 8 of this Agreement. (d) For purposes of this Agreement, the term "Good Reason" shall mean the following five (5) events; provided, however, that Executive may waive in writing his objection to the occurrence of any such event, in which case such event will no longer constitute "Good Reason": (i) Any material breach by the Company of its obligations contained in this Agreement; (ii) The assignment to the Executive of any duties inconsistent with the status of his position with the Company as such duties and position existed on the day immediately preceding the happening of a Change in Control, or an alteration in the nature or status of the Executive's duties and responsibilities that renders the Executive's position to be of less dignity, responsibility or scope from that which existed on the day immediately preceding the happening of a Change in Control; provided, however, it shall not be an event of Good Reason if the Executive is assigned additional duties for the Company or any affiliate or subsidiary of the Company which are not inconsistent with the duties described in Section 1 hereof so long as the aggregate of all duties assigned to the Executive in connection with his service with the Company, its affiliates or subsidiaries do not require the Executive to devote, on a consistent and sustained basis, substantially more time than other senior level executives of the Company are required to devote to their duties; 4 (iii) A reduction by the Company in the Executive's annual base salary as was in effect on the day immediately preceding the happening of a Change in Control or as the same may be increased from time to time; (iv) The failure of the Company to continue in effect of the benefits enjoyed by the Executive under the Company's 1988 Employee Stock Plan or its 1991 Employee Stock Option Plan or under the Company's Incentive Compensation Program, or any other compensation plan, program or arrangement, or any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health-and-accident, disability or other employee benefit plans, programs or arrangements as they existed on the day immediately preceding the happening of a Change in Control, or the failure of the Company to continue the Executive's participation therein; or the failure by the Company to provide the Executive with the number of paid vacation days to which he is entitled on the basis of years of service and position with the Company in accordance with the Company's normal vacation policy, or the failure of the Company to continue or if the Company adversely changes or reduces other specific contractual benefits or perquisites provided to Executive as they existed on the day immediately preceding the happening of a Change in Control, including, but not limited to, providing an automobile or an automobile allowance, club memberships, and dues for professional associates for Executive; (v) The assignment of the Executive to an office which is located more than 50 miles from the office at which the Executive was primarily performing his duties on the day immediately preceding the happening of a Change in Control. 5 (e) For purposes of this Agreement, a "Change in Control" shall mean the occurrence, after the Effective Date hereof, of any of the following events if such events are not approved by the Board of Directors of the Company prior to their occurrence; (i) At any time during the term of this Agreement, any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement) of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities. For purposes of this subsection (i) of Section 4(e) of the Agreement, a person becomes, directly or indirectly, the beneficial owner of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's outstanding securities when such person, together with all affiliates and associates of such person, acquires beneficial ownership of, in the aggregate, a number of voting shares of the Company equal to 1% or more of the voting shares then outstanding, and thereupon or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3 under the Exchange Act) 15% or more of the voting shares of the Company then outstanding; provided, however, that the concept of any person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any person if such person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which plan or tender offer 6 commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such beneficial owner after the first date upon which (x) such person, since the date of commencement of such plan or tender offer, shall have acquired beneficial ownership of, in the aggregate, a number of voting shares of the Company equal to 1% or more of the voting shares then outstanding, and (y) such person, together with all affiliates and associates of such person, shall beneficially own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of the person for purposes of this subsection, voting shares that are beneficially owned by such person shall be deemed outstanding, and voting shares that are not beneficially owned by such person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, rights (other than rights), warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute authority to make a final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. (ii) At any time during the term of this Agreement the composition of the Board of Directors of the Company is changed such that persons who were directors of the Company as of the Effective Date, or persons nominated or elected as directors by a majority of such persons who were directors as of the Effective Date, do not continue to comprise a majority of the members of such Board of Directors of the Company; (iii) At any time during the term of this Agreement the stockholders of the Company approve a merger or consolidation of the Company with, or a reorganization transaction involving the Company and, any other entity, other than a merger, consolidation or reorganization which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting 7 securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) At any time during the term of this Agreement the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than 50% of its consolidated assets. 5. Obligations of the Company Upon Termination of Employment. Upon ------------------------------------------------------------ termination of Executive's employment with the Company under the circumstances set forth in Section 4(b), the Executive shall be entitled to receive, notwithstanding such termination, the following payments and to be provided the following benefits: (a) Salary and Bonus: Subject to the limitations set forth in Section 7 hereof, the Company shall pay to the Executive that amount which is equal to his regular base salary, at the rate then in effect, for a period of two (2) years, plus a bonus in an amount which shall be equal to the largest cash bonus actually received by Executive during his term of employment with the Company; provided, however, that if Executive shall have entered into an Employment Agreement with the Company which is in effect at the time of Executive's termination, then and in that event the Company and Executive hereby agree that upon Executive's termination Executive shall be entitled to receive either (i) the salary and bonus termination payments under this Section 5(a), or (ii) the salary and bonus terminations payments provided for in such Employment Agreement, whichever salary and bonus termination payment is the greater; but under no conditions shall Executive be entitled to receive upon termination both the salary and bonus termination payments under this Severance Agreement and the salary and bonus termination payments under any such Employment Agreement. (b) Method of Payment: The payments due to Executive under Section 5(a) of this Agreement shall be made as follows: 8 (i) The Company shall pay to the Executive his regular base salary in installments consistent with the Company's payroll practices then in effect, or in a single lump sum payment, whichever method is selected by Executive, in his sole discretion; (ii) The Company shall pay to Executive the bonus payments in a single lump sum; and (iii) Any lump sum payments due to Executive shall be paid to Executive on the Effective Date of his termination of employment. (c) Other Benefits: The Company shall continue in force for Executive for a period of two (2) years after Executive's termination the life insurance, medical, health-and-accident and disability benefit plans or programs then in effect on the date of Executive's termination from the Company; provided, however, that such other benefits as are set forth in this Section 5(c) shall not be required to be available to Executive if subsequent employment by Executive with another employer offers to Executive similar plans or programs in which the benefits equal or exceed the benefits which Executive could receive under the Company's plans or programs as provided herein. 6. No Duty to Mitigate. The Executive shall not be required to mitigate ------------------- the amount of any payment required hereunder by seeking other employment or otherwise, nor shall the amount paid hereunder be reduced or offset by any compensation earned or received by the Executive as a result of employment with another employer, self-employment or any amount received from any other plan, program, policy or arrangement of the Company. 7. Nonapplicability of Excise Tax. The parties intend that this --------------------------------- Agreement shall govern the rights an obligations of the parties with respect to severance payments payable upon a termination of Executive's employment with the Company, and that the excise tax as now provided in Section 280G of the Internal Revenue Code shall not be applicable to payments under this Agreement. 9 Accordingly, the parties agree that the aggregate amount which shall be paid to Executive under this Agreement shall be $1.00 less than that amount which would make such payment to Executive an "excess parachute payment" under the provisions of Sections 280G of the Internal Revenue Code, and to which an excise tax would be applicable. 8. Settlement of Disputes. ---------------------- (a) It is specifically agreed that any controversy or dispute between the parties to this Agreement involving the construction, interpretation, application, performance or breach of the terms, covenants or conditions of this Agreement or in any way arising under this Agreement shall, on demand of one of the parties by written notice hereto served on the other in the manner prescribed in Section 9(a) hereof, be determined pursuant to the general reference procedures prescribed by California Code of Civil Procedure Sections 638(1), et seq., as they may be amended from time to time, by a retired or former judge of the Superior Court for the County of Orange, State of California. The parties intend this general reference agreement to be specifically enforceable in accordance with said Section 638(1). (b) The reference may be commenced by any party hereto by the filing in the Superior Court of the State of California for the County of Orange of a petition or a motion for a general reference proceeding. (c) The petition or motion may designate as a sole referee a retired judge working with JAMS who is acceptable to that party. If the parties to the reference proceeding are unable to mutually agree upon a referee, the Presiding Judge or any judge of the Orange County Superior Court to whom the matter is assigned shall appoint a retired or former Orange County Superior Court Judge from those listed with JAMS as available to act as a referee. (d) The petition and any opposition or response thereto shall recite in a clear and meaningful manner the factual basis of the controversy between the parties and identify the issues to be submitted to the referee for decision. 10 (e) The parties acknowledge that this Agreement is specifically enforceable and that the decision by the referee is tantamount to a judgment by a trial court (CCP ss. 644) and is subject to review in accordance with CCP ss. 645, and that any judgment rendered in the trial court is appealable in the same manner as any other trial court judgment. (f) The parties may agree on limited discovery. However, in the absence of an agreement, each party may: (i) take up to three depositions not totaling more than six hours cumulatively; (ii) propound one set of interrogatories, not to exceed 20 single questions; (iii) serve not more than 10 requests for admissions; and (iv) propound not to exceed 15 requests to produce documents, all as may be "reasonable," as measured by the circumstances and amount in dispute between the parties. Any disagreements between the parties regarding discovery matters shall be resolved by the referee. (g) The hearing shall be held within 60 days after the referee is selected. The referee shall issue a written memorandum of decision setting forth his findings of fact and conclusions of law. 9. Miscellaneous. ------------- (a) Notices: All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, first-class postage prepaid, to the parties to this Agreement at the following addresses: If to the Company: The Centris Group, Inc. 650 Town Center Drive, Suite 1600 Costa Mesa, California 92626 Attention: Chief Executive Officer If to Executive: Charles M. Caporale 181 Rumson Road Rumson, New Jersey 07760 11 or to such other address as either party to this Agreement shall have last designated by notice to the other party. All such notices and communications shall be deemed to have been received on the earlier of the date of receipt or the third business day after the date of mailing thereof. (b) Binding Effect; Benefits: This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person, other than the parties to this Agreement or their respective successors or assigns, any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. (c) Waiver: Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach, and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same any subsequent time or times hereunder. (d) Amendment: This Agreement may be terminated, amended, modified or supplemented only by a written instrument executed by the Executive and the Company. 12 (e) Nonassignability: Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or the Executive without the prior written consent of the other party. (f) Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the law that might be applied under principles of conflict of laws. (g) Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (h) Withholding of Taxes: The Company may withhold from amounts required to be paid to the Executive hereunder any applicable federal, state, local and other taxes with respect thereto; provided, however, that the Company shall promptly pay over the amounts so withheld to the appropriate taxing bodies and provide to the Executive appropriate statements on forms proscribed for such purposes on the amounts so withheld. (i) Severability: If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law, any prior agreement on the subject matter of this Agreement between the Company (or any predecessor thereof) and the Executive shall be deemed reinstated as if this Agreement had not been executed. 13 (j) Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer, and the Executive has signed this Agreement, all as of the date first above written. Company: THE CENTRIS GROUP, INC. ------- By /S/ DAVID L. CARGILE -------------------- DAVID L. CARGILE President and Chief Executive Officer Executive: --------- /S/ CHARLES M. CAPORALE ----------------------- CHARLES M. CAPORALE 14 EX-11 5 EXHIBIT 11-EARNINGS PER SHARE EXHIBIT 11 The Centris Group, Inc. Computation of Earnings Per Share The computation of per share income is based upon the weighted average number of common and common equivalent shares outstanding during each of the quarters and nine-month periods ended September 30 as follows: (Dollars in Thousands)
Quarter Ended Nine Months Ended September 30 September 30 ------------ ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Net Income $4,026 $3,709 $11,434 $11,102 ====== ====== ======= ======= Weighted average shares outstanding during the period 5,990 5,878 5,972 5,850 Common stock equivalent shares 146 109 126 120 ------ ------ ------- ------- Common and common stock equivalent shares outstanding for purposes of calculating income per share 6,136 5,987 6,098 5,970 Incremental shares to reflect full dilution --- 39 15 28 --- ------ ------ ------- Total shares for purpose of calculating fully diluted income per share 6,136 6,026 6,113 5,998 ===== ===== ===== ===== Net income per common and common equivalent share $0.66 $ 0.62 $1.88 $ 1.86 ===== ====== ===== ======
EX-15 6 EXHIBIT 15-AUDITORS' REVIEW REPORT EXHIBIT 15 Independent Auditors' Review Report ----------------------------------- The Board of Directors and Shareholders The Centris Group, Inc.: We have reviewed the condensed consolidated balance sheet of The Centris Group, Inc. (formerly US Facilities Corporation) and subsidiaries as of September 30, 1997, and the related condensed consolidated income statements for the quarters and nine-month periods ended September 30, 1997 and 1996, and condensed consolidated statements of cash flows for the nine-month periods ended September 30, 1997 and 1996. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Centris Group, Inc. (formerly US Facilities Corporation) and subsidiaries as of December 31, 1996, and the related consolidated income statement, statements of stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 4, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/ KPMG PEAT MARWICK LLP - ------------------------- Los Angeles, California October 27, 1997 EX-27 7 EXHIBIT 27 (FDS)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 0 0 0 0 0 0 211,996 39,548 18,309 4,697 323,422 112,626 31,097 0 0 33,125 0 0 0 0 323,422 116,119 8,114 10,022 23,910 92,220 33,954 15,563 16,428 4,994 0 0 0 0 11,434 1.88 1.87 0 0 0 0 0 0 0
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